SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of March, 2003
MARCONI PLC
MARCONI CORPORATION PLC
(Exact name of Registrant as specified in its Charter)
4th Floor, Regents Place
338 Euston Road
London NW1 3BT
United Kingdom
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.
Form 20-F __X__ Form 40-F _____
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ____ No __X__
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-________.)
INCLUDED DOCUMENTS
Included in this report is a document entitled "Proposals in Relation to Schemes
of Arrangement" (the "SCHEME DOCUMENT"), which was sent by Marconi plc ("PLC")
and Marconi Corporation plc ("CORP") to certain of their creditors on March 31,
2003, in connection with their proposed financial restructuring.
The proposed restructuring will be effected by means of two UK Schemes of
Arrangement, one each for Corp and plc. A Scheme of Arrangement is a
court-supervised procedure under English law through which a company may enter
into a compromise with its creditors to effect a restructuring of its financial
obligations.
The Scheme Document contains an Explanatory Statement required by Section 426 of
the UK Companies Act 1985, explaining and summarizing the terms, conditions and
mechanics of the Schemes of Arrangement. Copies of both Schemes of Arrangement,
appendixes setting forth various aspects of the proposed restructuring in
greater detail, and certain other information are also included in the Scheme
Document.
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.
MARCONI PLC
By: /s/ Mary Skelly
-----------------------------
Name: Mary Skelly
Date: 31 March 2003 Title: Secretary
MARCONI CORPORATION PLC
By: /s/ Mary Skelly
-----------------------------
Name: Mary Skelly
Date: 31 March 2003 Title: Secretary
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IT IS BEING
SENT TO PERSONS BELIEVED TO BE SCHEME CREDITORS, BEING CERTAIN CREDITORS OF
MARCONI CORPORATION PLC AND CERTAIN CREDITORS OF MARCONI PLC, AND IS BEING MADE
AVAILABLE TO PERSONS WITH INTERESTS IN BONDS ISSUED BY MARCONI CORPORATION PLC
AND GUARANTEED BY MARCONI PLC. IF YOU HAVE ASSIGNED, SOLD, OR OTHERWISE
TRANSFERRED, OR ASSIGN, SELL OR OTHERWISE TRANSFER, YOUR INTERESTS AS A SCHEME
CREDITOR BEFORE THE RECORD DATE YOU MUST FORWARD A COPY OF THIS DOCUMENT TO THE
PERSON OR PERSONS TO WHOM YOU HAVE ASSIGNED, SOLD OR OTHERWISE TRANSFERRED, OR
ASSIGN, SELL OR OTHERWISE TRANSFER, YOUR INTERESTS AS A SCHEME CREDITOR. IF YOU
ARE IN ANY DOUBT AS TO ANY ASPECT OF THESE PROPOSALS AND/OR ABOUT THE ACTION YOU
SHOULD TAKE, YOU SHOULD CONSULT IMMEDIATELY YOUR STOCKBROKER, BANK MANAGER,
SOLICITOR, ACCOUNTANT OR OTHER PROFESSIONAL ADVISER AUTHORISED UNDER THE
FINANCIAL SERVICES AND MARKETS ACT 2000.
THIS DOCUMENT IS ACCOMPANIED BY VOTING INSTRUCTIONS. IT IS IMPORTANT THAT YOU
READ THIS DOCUMENT CAREFULLY FOR INFORMATION ABOUT THE RESTRUCTURING AND THAT
YOU COMPLETE AND RETURN THE VOTING INSTRUCTIONS ENCLOSED WITH THIS DOCUMENT.
FURTHER COPIES OF THIS DOCUMENT CAN BE OBTAINED FROM KPMG IN LONDON (REFERENCE:
987/SRB/GTE, PHILIP WALLACE) AND FROM BONDHOLDER COMMUNICATIONS IN LONDON AND
NEW YORK.
APPLICATION HAS BEEN MADE TO THE UKLA FOR THE NEW SHARES, THE NEW NOTES AND THE
WARRANTS TO BE ADMITTED TO THE OFFICIAL LIST OF THE UKLA, AND TO THE LONDON
STOCK EXCHANGE FOR THE NEW SHARES, THE NEW NOTES AND THE WARRANTS TO BE ADMITTED
TO TRADING ON THE LONDON STOCK EXCHANGE'S MARKET FOR LISTED SECURITIES. LISTING
IS CONDITIONAL UPON THE CORP SCHEME BECOMING EFFECTIVE. IT IS EXPECTED THAT
ADMISSION TO LISTING AND TRADING WILL BECOME EFFECTIVE AND DEALINGS IN THE NEW
SHARES, THE NEW NOTES AND THE WARRANTS WILL COMMENCE AT 8.00 A.M. LONDON TIME ON
19 MAY 2003.
A DOCUMENT COMPRISING A PROSPECTUS RELATING TO MARCONI CORPORATION PLC HAS BEEN
PREPARED IN ACCORDANCE WITH THE LISTING RULES MADE UNDER SECTION 74 OF THE
FINANCIAL SERVICES AND MARKETS ACT 2000 AND A COPY OF IT WILL BE DELIVERED FOR
REGISTRATION TO THE REGISTRAR OF COMPANIES IN ENGLAND AND WALES PURSUANT TO
SECTION 83 OF THAT ACT.
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PROPOSALS IN RELATION TO
SCHEMES OF ARRANGEMENT
UNDER SECTION 425 OF THE COMPANIES ACT 1985
BETWEEN
MARCONI CORPORATION PLC
and its
SCHEME CREDITORS
(AS DEFINED IN THIS DOCUMENT)
and between
MARCONI PLC
and its
SCHEME CREDITORS
(AS DEFINED IN THIS DOCUMENT)
--------------------------------------------------------------------------------
Meetings of Scheme Creditors to consider separately the Scheme relating to Corp
and the Scheme relating to plc will be held on 25 April 2003 commencing at 10.00
a.m. The notices of the Scheme Meetings are set out in part VI of this document.
Instructions about actions to be taken by Scheme Creditors preceding the Scheme
Meetings are set out in Appendix 27 and summarised on pages 13 and 14. Whether
or not Scheme Creditors intend to attend the meetings of Scheme Creditors, they
are requested to complete, execute and return the appropriate Form(s) of Proxy
and Claim Form(s) sent with this document in accordance with these instructions
as soon as possible. Instructions about actions to be taken by persons with
interests in Bonds are set out in Appendix 28 and summarised on pages 14 and 15.
31 March 2003
The statements contained in this document are made as at the date of this
document, unless another time is specified in relation to them, and delivery of
this document shall not give rise to any implication that there has been no
change in the facts set forth in this document since that date.
Nothing contained in this document shall constitute a warranty or guarantee of
any kind, express or implied, and nothing contained in this document shall
constitute any admission of any fact or liability on the part of Corp or plc or
any Affiliate of Corp or plc with respect to any asset to which it or they may
be entitled or any claim against it or them. Without prejudice to the generality
of the foregoing, nothing in the Schemes or the Explanatory Statement or the
distribution thereof evidences to any person, or constitutes any admission by
Corp, plc, the Prospective Supervisors or KPMG, that a liability is owed to any
person in respect of any claim or that any person is or may be a Scheme Creditor
of Corp or plc. The failure to distribute this document to any Scheme Creditor
shall not constitute an admission by Corp, plc, the Prospective Supervisors or
KPMG that such person is not a Scheme Creditor or that any liability owed to
such person is an Excluded Claim.
No person has been authorised by Corp or plc to make any representations
concerning the Schemes which are inconsistent with the statements contained in
this document and, if made, such representations may not be relied upon as
having been so authorised. This document is issued solely in connection with the
Schemes.
If both the Corp Scheme and the plc Scheme are, or just the Corp Scheme is,
approved by the relevant Scheme Creditors, a fairness hearing before the Court
is necessary in order to sanction the approved Scheme or Schemes. All Scheme
Creditors are entitled to attend the Court hearing in person or through counsel
to support or oppose the sanctioning of the relevant Scheme or Schemes. It is
expected that the Court hearing will be held on 12 to 13 May 2003 at the Royal
Courts of Justice, Strand, London WC2A 2LL. Notice of the fairness hearing will
be published, following approval of the Corp Scheme or both Schemes by relevant
Scheme Creditors, in The Times and the international editions of the Wall Street
Journal, the Financial Times and the International Herald Tribune.
Lazard and Morgan Stanley are advising Corp and plc and no one else in
connection with aspects of the Restructuring and will not be responsible to
anyone other than Corp or plc for providing the protections afforded to their
clients or for providing advice in connection with the Restructuring.
Application has been made to the UKLA for the New Shares, the New Notes and the
Warrants to be admitted to the Official List of the UKLA, and to the London
Stock Exchange for the New Shares, the New Notes and the Warrants to be admitted
to trading on the London Stock Exchange's market for listed securities. It is
expected that admission to listing and trading will become effective and
dealings in the New Shares, the New Notes and the Warrants will commence at 8.00
a.m. London time on 19 May 2003. However, see part I, Section 2, Part F.2: Risk
Factors.
The New Shares, the New Notes and the Warrants to be issued pursuant to the
Schemes will be issued pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act, including the
exemption provided by Section 3(a)(10) thereof, and have not been and will not
be registered under the Securities Act or the securities laws of any state of
the United States. The issue of New Shares and New Notes to persons resident in
the states of Arizona, California, Colorado, Connecticut, Illinois, Ohio and
Vermont will be subject to the limitations described in part I, Section 2, Parts
C.9 and D.16.
This document does not constitute an offer to sell or the solicitation of an
offer to buy nor will there be any sale or distribution of the New Shares, the
New Notes and the Warrants to be issued pursuant to the Schemes in any
jurisdiction in which such offer or sale is not permitted.
Further important information is set out under "Important Notice" on pages 1 to
4.
HELPLINES
If you are (or think you may be) a Scheme Creditor and you have any questions
relating to this document or the completion of the Form(s) of Proxy and Claim
Form(s), please contact KPMG on telephone number +44 (0)20 7694 3007. You will
be able to leave a message outside normal working hours or if the relevant staff
are all occupied. Alternatively, please email your question to
marconischeme@kpmg.co.uk
If you are a person with an interest in Bonds and you have any questions
relating to this document or the completion of an Account Holder Letter, please
contact Donna Martini of Bondholder Communications in London on
+44 (0)20 7236 0788 or in New York on +1 212 809 2663. Alternatively, please
email your question to dmartini@bondcom.com. Bondholder Communications has been
appointed by plc and Corp to facilitate communications with persons with
interests in Bonds.
ARE YOU A SCHEME CREDITOR OR A PERSON WITH AN INTEREST IN BONDS?
Please see Appendix 27 for a detailed description of the action to be taken by
Scheme Creditors and Appendix 28 for a detailed description of the action to be
taken by persons with an interest in Bonds.
THE FOLLOWING PERSONS ARE SCHEME CREDITORS FOR THE PURPOSE OF FILING A CLAIM
FORM:
CORP SCHEME
1. Each of the Known Creditors listed in Schedule 3 to the Corp Scheme set
out in part II of this document (this includes The Bank of New York and
The Law Debenture Trust Corporation p.l.c. in respect of the Bonds but
does not include any other person with an interest in Bonds); and
2. Each other person who had a Scheme Claim in the Corp Scheme at the Record
Date.
PLC SCHEME
1. Each of the Known Creditors listed in Schedule 3 to the plc Scheme set
out in part III of this document (this includes The Bank of New York and
The Law Debenture Trust Corporation p.l.c. in respect of the Bonds but
does not include any other person with an interest in Bonds); and
2. Each other person who had a Scheme Claim in the plc Scheme at the Record
Date.
THE FOLLOWING PERSONS MAY BE SCHEME CREDITORS FOR THE PURPOSE OF VOTING AT
SCHEME MEETINGS:
CORP SCHEME
1. Each of the Known Creditors listed in Schedule 3 to the Corp Scheme set
out in part II of this document except that, in relation to the Bonds,
The Bank of New York and The Law Debenture Trust Corporation p.l.c. are
not Scheme Creditors for this purpose and instead each Definitive Holder
(see below) will be a Scheme Creditor; and
2. Each other person who had a Scheme Claim in the Corp Scheme at the Record
Date.
PLC SCHEME
1. Each of the Known Creditors listed in Schedule 3 to the plc Scheme set
out in part III of this document except that, in relation to the Bonds,
The Bank of New York and The Law Debenture Trust Corporation p.l.c. are
not Scheme Creditors for this purpose and instead each Definitive Holder
(see below) will be a Scheme Creditor; and
2. Each other person who had a Scheme Claim in the plc Scheme at the Record
Date.
THE FOLLOWING PERSONS HAVE AN INTEREST IN BONDS:
1. Account Holders;
2. Intermediaries;
3. Bondholders;
4. Definitive Holders;
5. Designated Recipients; and
6. Certain other persons including the Trustees, the Book-Entry Depositary,
DTC, Euroclear and Clearstream, Luxembourg and any depositary for them.
The following diagram illustrates the relationship between certain persons with
interests in Bonds:
(FLOWCHART)
CONTENTS
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Page
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I. EXPLANATORY STATEMENT 1
Important Notice 1
Expected timetable of principal events 5
Scheme Creditors and persons with interests in Bonds 8
Definitions and interpretation 12
Summary of action to be taken 13
Section 1 Letter from the Chairman of plc and of Corp 16
Section 2 Further explanation of the Restructuring 33
A. Business Overview 33
A.1 Background 33
A.2 History of the Marconi Group and the
Restructuring 33
A.3 Market environment and business strategy 38
A.4 Group's principal activities 39
A.5 Intellectual property 51
A.6 Dividend policy 53
A.7 Financial objectives 53
A.8 Current application of critical accounting
policies 57
A.9 Current trading and prospects 59
A.10 Directors, senior management and employees 60
A.11 Financial information and Corp's discussion and
analysis of its financial condition and results
of operations 65
B. Background to and reasons for the Restructuring 66
C. Proposed Restructuring 69
C.1 Overview 69
C.2 Terms of the Restructuring 69
C.3 Terms of the New Senior Notes and the New
Junior Notes 71
C.4 Summary of key actual and contingent claims 76
C.5 Completion of the Restructuring 77
C.6 Mechanics of the Restructuring 79
C.7 Scheme Claims and distribution mechanics 82
C.8 Meetings, final termination, release and
governing law 94
C.9 Effect of securities law restrictions under the
Schemes 95
C.10 Insolvency analysis 99
D. General matters relating to the Restructuring 101
D.1 Lockbox Account and interim security
arrangements 101
D.2 Arrangements with ESOP Derivative Banks 103
D.3 Arrangements to preserve rights at plc level 106
D.4 Working capital 107
D.5 Scheme Implementation Deed 111
D.6 Statement and waiver of inter-company balances 112
D.7 Recapitalisation of Guarantors 113
D.8 Waiver of plc Shareholder vote 113
D.9 Capital Reduction 113
D.10 Share incentive plans 114
D.11 Pensions 129
D.12 Listing and dealing 133
D.13 Reporting requirements and entitlement to
information 133
D.14 Memorandum and Articles 134
D.15 American Depositary Receipts 134
D.16 US securities law considerations 135
D.17 Securities law restrictions in France, Italy
and Malaysia 139
D.18 Certain securities law disclosures 141
D.19 Material contracts 142
D.20 Litigation 142
D.21 Corp working capital statement 142
D.22 Costs of the Restructuring 142
D.23 Principal Subsidiary and associated
undertakings 143
D.24 Principal establishments 144
D.25 Corp Group indebtedness statement 150
CONTENTS
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Page
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D.26 No significant change 151
D.27 Corp incorporation and registered office 151
D.28 Corp share capital 151
D.29 Material shareholdings in Corp 151
D.30 Tax 152
D.31 Insurance 152
D.32 Environmental and other regulations 152
D.33 No waiver of dividends 153
D.34 Documents available for inspection 154
E. Material interests of Directors and Trustees 155
E.1 Directors 155
E.2 Trustees of the Bonds 169
F. Risk Factors 170
F.1 Risks related to a failure to implement or a
delay in implementing the Restructuring 170
F.2 Risks arising from implementation of the
Restructuring 174
F.3 Operating risks 176
F.4 Risks related to ownership of the New Shares,
the New Notes and the Warrants 181
II. THE CORP SCHEME 186
Part I Preliminary 187
Part II The Scheme 202
Part III Determination of Scheme Claims and procedure
for Distributions 204
Part IV Further provisions regarding the issue of New
Shares and Warrants 218
Part V Escrow and distribution arrangements 220
Part VI Independent adjudication 221
Part VII The Supervisors 222
Part VIII Creditors' Committee 226
Part IX Meetings of Scheme Creditors 233
Part X Termination 236
Part XI General Scheme provisions 237
Schedule 1 Determination of claims and payment of
dividends 241
Schedule 2 Extract from the plc Scheme 242
Schedule 3 Known Claims 245
Schedule 4 Persons eligible to receive securities pursuant
to applicable exemptions under US state
securities laws 250
III. THE PLC SCHEME 253
Part I Preliminary 254
Part II The Scheme 268
Part III Determination of Scheme Claims and procedure
for Distributions 271
Part IV Escrow and distribution arrangements 285
Part V Independent adjudication 286
Part VI The Supervisors 287
Part VII Creditors' Committee 291
Part VIII Meetings of Scheme Creditors 298
Part IX Termination 301
Part X General Scheme provisions 302
Schedule 1 Determination of claims and payment of
dividends 305
Schedule 2 Extract from the Corp Scheme 306
Schedule 3 Known Claims 310
Schedule 4 Persons eligible to receive securities pursuant
to applicable exemptions under US state
securities laws 315
IV. APPENDICES TO THE EXPLANATORY STATEMENT 318
1. Corp historical information to 30 September 2002 318
2. Corp unaudited pro forma consolidated balance sheet 408
3. plc financial information to 30 September 2002 413
4. plc quarterly report to 31 December 2002 and updated
financial information 529
5. Corp's discussion and analysis of its financial
condition and results of operations 585
6. Insolvency analysis 622
CONTENTS
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Page
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7. Escrow and Distribution Agreement 633
8. Summary of the terms of the New Senior Notes and the
New Junior Notes 672
9. Excluded Claims 761
10. Security and Intercreditor Arrangements 797
11. ESOP facilities 818
12. Conditions of the Warrants 819
13. Corp share capital 831
14. Summary of certain provisions of the Memorandum and
Articles of Corp 835
15. Rights and restrictions attaching to the Non-Voting
Deferred Shares 842
16. Description of American Depositary Receipts 843
17. Tax 851
18. Particulars of the Scheme Implementation Deed 872
19. Material contracts 877
20. Litigation 910
21. Summary of the proposed permanent injunction orders
under Section 304 of the United States Bankruptcy
Code 916
22. Co-ordination Committee and Informal Committee of
Bondholders 919
23. Contact details, material interests and curricula
vitae of the Supervisors 920
24. Summary of terms of appointment and scope of
engagement of the Prospective Supervisors and the
Supervisors 922
25. Form of Confirmation Resolution and form of Scheme
Company Confirmation 927
26. Form of letter of confirmation to be given by the
Prospective Supervisors 930
27. Instructions to Scheme Creditors 931
28. Instructions to persons with interests in Bonds 935
29. Form of Proxy for Scheme Creditors 974
30. Form of Claim Form for Scheme Creditors 980
V. DEFINITIONS AND GLOSSARY 995
VI. NOTICES 1016
A. Notice of Corp Scheme Meeting 1016
B. Notice of plc Scheme Meeting 1017
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
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IMPORTANT NOTICE
A. INFORMATION
An explanation to assist you in determining if you are a Scheme Creditor, a
Bondholder or another person with an interest in Bonds is set out in the section
headed "Scheme Creditors and persons with interests in Bonds" on pages 8 to 11
of this document.
Nothing in this document or any other document issued with or appended to it
should be relied on for any purpose other than to make a decision on the
Schemes. In particular and without limitation, nothing in this document or any
other document issued with or appended to it should be relied on in connection
with the purchase of any shares, warrants, bonds, notes or assets of Corp or
plc. This document has been prepared in connection with proposals in relation to
schemes of arrangement pursuant to section 425 of the Act between Corp and the
Corp Scheme Creditors and plc and the plc Scheme Creditors.
The information contained in this document concerning:
(a) Corp only has been prepared by Corp;
(b) plc only has been prepared by plc; and
(c) both Corp and plc has been prepared by Corp and plc;
and, in each case, that information has been prepared based upon information
available to the relevant company. To the best of Corp's and plc's knowledge,
information and belief, the information contained in this document is in
accordance with the facts and does not omit anything likely to affect the import
of such information. The financial statements have been prepared in accordance
with UK GAAP. There may be differences between the way in which they are
presented and the presentation of financial statements in public filings in
other jurisdictions. Corp and plc have taken all reasonable steps to ensure that
this document contains the information reasonably necessary to enable Scheme
Creditors to make an informed decision about the effect of the relevant Schemes
on them.
The members of the Informal Committee of Bondholders and the Co-ordination
Committee agreed, at an early stage of the Restructuring discussions, to enter
into confidentiality agreements which, inter alia, acknowledged that Corp and
plc would supply the Informal Committee of Bondholders and the Co-ordination
Committee with certain material non-public information which could potentially
make them "insiders" within the meaning of section 52 of the Criminal Justice
Act 1993 and for the purposes of laws governing the trading of securities in
England and Wales and other jurisdictions. Corp and plc have been required by
the members of the Informal Committee of Bondholders pursuant to their
confidentiality agreements to make public in this document all insider
information, material non-public information or information that is price
sensitive which has been supplied to the members of the Informal Committee of
Bondholders by Corp or plc. Corp and plc believe that they have performed this
obligation and that the members of the Informal Committee of Bondholders have no
insider information, material non-public information or information that is
price sensitive which has been supplied to them by Corp or plc.
Certain information supplied to the Informal Committee of Bondholders and the
Co-ordination Committee is not included in this document either because such
information is of a commercially sensitive nature and public disclosure may
affect Corp's, plc's or the Group's business or because such information was
provided for illustrative purposes only, and in each case Corp and plc do not
believe that the information is reasonably necessary to enable Scheme Creditors
to make an informed decision on the Schemes nor, in the case of information
supplied to the Informal Committee of Bondholders, do they believe such
information is price sensitive.
None of Corp's and plc's financial and legal advisers, the Prospective
Supervisors, the members of the Informal Committee of Bondholders and the
Co-ordination Committee and their respective financial and legal advisers, the
Eurobond Trustee and the Yankee Bond Trustee and their respective advisers, who
engaged in discussions or consulted with Corp and plc and their advisers
concerning the Restructuring and/or who assisted with the distribution of
documentation relating to the Schemes, the submission of claims and/or the
voting procedures in respect of the Schemes, has verified that the information
contained in this document is in accordance with the facts and does not omit
anything likely to affect the import of such information and each of these
persons expressly disclaims responsibility for such information.
1
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
IMPORTANT NOTICE
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In accordance with normal practice, none of the Prospective Supervisors, the
members of the Informal Committee of Bondholders and the Co-ordination
Committee, the Eurobond Trustee and the Yankee Bond Trustee expresses any
opinion as to the merits of the Schemes. Although the Prospective Supervisors
have been involved in certain of the arrangements for formulating the Schemes,
they make no recommendation as to how to vote in relation to the Schemes. The
Prospective Supervisors, the members of the Informal Committee of Bondholders
and the Co-ordination Committee, the Eurobond Trustee and the Yankee Bond
Trustee recommend that Scheme Creditors who are in any doubt as to the impact on
them of the Schemes (or either of them) seek their own financial, taxation and
legal advice. The Prospective Supervisors, the members of the Informal Committee
of Bondholders and the Co-ordination Committee, the Eurobond Trustee and the
Yankee Bond Trustee express no opinion with respect to the effect of the Schemes
on the rights or remedies afforded to Scheme Creditors under the US Trust
Indenture Act of 1939 or otherwise.
Nothing contained in this document shall be deemed to be a forecast, projection
or estimate of plc's, Corp's or the Group's future financial performance except
where otherwise specifically stated.
This document contains certain statements, statistics and projections that are
or may be forward-looking. The accuracy and completeness of all such statements,
including, without limitation, statements regarding the Group's (or any
Affiliate's, including Corp's or plc's) future financial position, strategy,
projected costs, plans and objectives for the management of future operations,
is not warranted or guaranteed. These statements typically contain words such as
"intends", "expects", "anticipates", "estimates" and words of similar import. By
their nature, forward-looking statements involve risk and uncertainty because
they relate to events and depend on circumstances that will occur in the future.
Although Corp and plc believe that the expectations reflected in such statements
are reasonable, no assurance can be given that such expectations will prove to
be correct. There are a number of factors which could cause actual results and
developments to differ materially from those expressed or implied by such
forward-looking statements. These factors include, but are not limited to,
factors identified in part I, Section 2, Part F, Risk Factors or elsewhere in
this document as well as: future revenues being lower than expected; increasing
competitive pressures in the industry; general economic conditions or conditions
affecting the relevant industries, both domestically and internationally, being
less favourable than expected; and/or conditions in the securities markets being
less favourable than expected.
In announcing the conclusion of the Heads of Terms in respect of the
Restructuring on 29 August 2002, and an addendum to the Heads of Terms on 16
December 2002, the Group published certain financial projections with respect to
the years ending 31 March 2004 to 31 March 2007. In announcing further
information about the Restructuring on 18 March 2003, the Group published an
illustrative financial analysis with respect to the year ending 31 March 2005.
In the announcements the Group explained that the projections and analysis were
prepared for internal purposes only and not with a view to public disclosure. In
order to facilitate the Restructuring discussions, however, the Group furnished
these projections and this analysis to representatives of the Syndicate Banks
and members of the Informal Committee of Bondholders involved in the
discussions. The projections and analysis were made public pursuant to the
express terms of Corp's and plc's confidentiality agreements with the members of
the Informal Committee of Bondholders. As indicated at the time of their
publication, no reliance should be placed on these projections or this analysis
and neither Corp nor plc will be publishing any updates in relation to them. No
opinion is expressed as to the reasonableness of the assumptions on which the
projections or analysis were prepared nor is any assurance given as to the
occurrence, timing or extent of any market recovery. Accordingly, Corp and plc
do not accept any responsibility for these projections or this analysis.
In this document, references to "sterling", "L", "pence" or "p" are to the
lawful currency of the United Kingdom, references to "dollars", US dollars",
"cents", "US$" or "$" are to the lawful currency of the United States and
references to "euro", "Euro" or "E" are to the currency introduced at the start
of the third stage of the European economic and monetary union pursuant to the
Treaty of Rome establishing the European Union, as amended.
The summary of the principal provisions of the Schemes contained in this
document is qualified in its entirety by reference to the Schemes themselves,
the full texts of which are set out at parts II and III of this document. Each
Scheme Creditor and each person with an interest in Bonds, is advised to read
and consider carefully the texts of
2
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
IMPORTANT NOTICE
--------------------------------------------------------------------------------
the Schemes themselves. This is because this document and, in particular, the
Explanatory Statement have been prepared solely to assist Scheme Creditors in
respect of voting on the Schemes.
Scheme Creditors and persons with interests in Bonds should not construe the
contents of this document as legal, tax, financial or other advice, and should
consult with their own professional advisers as to the matters described in this
document.
B. SECURITIES LAW CONSIDERATIONS
If the Corp Scheme becomes effective, New Shares and New Notes will be issued by
Corp to the Escrow Trustee for distribution to Scheme Creditors, Designated
Recipients and plc Shareholders, and Warrants will be issued by Corp to the
Registrars for distribution to plc Shareholders, all in accordance with the Corp
Scheme. If the plc Scheme also becomes effective, New Shares and New Notes which
plc is entitled to receive by virtue of any of its Subsidiaries being a Scheme
Creditor in the Corp Scheme are expected to form part of the plc Scheme
Consideration which will be distributed to plc Scheme Creditors and Designated
Recipients in accordance with the plc Scheme.
The distribution of this document, New Shares, New Notes or Warrants may be
restricted by law in certain jurisdictions. No action has been taken by Corp or
plc that would permit an offer or distribution of New Shares, New Notes or
Warrants or possession or distribution of this document or any offer or
publicity material in any jurisdiction where action for that purpose is
required, other than in the United Kingdom and in certain other jurisdictions
referred to in part I, Section 2, Part D.18. Scheme Creditors, persons with
interests in Bonds, Designated Recipients and plc Shareholders are strongly
advised to consult their professional advisers as to whether any laws or
regulations which may be applicable to them may give rise to any liability or
penalty, or require them to obtain any government or other consents or to pay
any taxes or duties, as a result of the implementation of the Schemes. None of
Corp, plc, the Escrow Trustee, the Distribution Agent, the Supervisors,
Bondholder Communications, the Registrars, the Informal Committee of
Bondholders, the Co-ordination Committee, their respective directors or any
other parties involved in the Restructuring accept any responsibility for any
liabilities (including but not limited to consequential liabilities) incurred by
Scheme Creditors, Definitive Holders, Designated Recipients and other persons
with interests in Bonds or plc Shareholders as a result of the implementation of
the Schemes in respect of laws or regulations applicable to them (except that UK
stamp duty or SDRT payable in connection with the issuance of ADRs will be met
by Corp to the extent described herein).
Securities will not be distributed pursuant to the Schemes to or to the order,
or for the account or benefit, of any person where such distribution would be
prohibited by any applicable law or regulation, or so prohibited except after
compliance with conditions or requirements that are unduly onerous. To the
extent that such a prohibition applies, securities that would otherwise have
been distributed to any relevant person pursuant to the Schemes will be sold and
the net cash proceeds of such sale (after deduction of all applicable expenses
and currency conversion costs) paid to that person in sterling in full
satisfaction of his rights in respect of such securities under the relevant
Scheme (provided that if the securities are not listed on a securities exchange
Scheme Creditors and Bondholders will be entitled to receive a sum in cash in
sterling that is substantially equivalent in value to such securities). For
further information, please see part I, Section 2, Part C.9.
Corp and plc have determined that no such legal or regulatory prohibitions
currently apply in connection with the Schemes with respect to the laws of the
United Kingdom and certain other jurisdictions identified in part I, Section 2,
Part C.9, but that such prohibitions do apply with respect to the laws of
certain "Restricted Jurisdictions" (namely France, Italy, Malaysia and the US
states of Arizona, California, Colorado, Connecticut, Illinois, Ohio and
Vermont). In connection with these restrictions and in order to permit
securities to be distributed to persons located in Restricted Jurisdictions, the
Claim Form will require each person completing it (other than the Trustees), and
the Account Holder Letter will require each relevant Account Holder, to confirm
certain facts. Except as otherwise described herein, if the required
confirmations are not given in the form requested in a Claim Form or Account
Holder Letter, then New Shares and New Notes will not be distributed in respect
of such Claim Form or Account Holder Letter, in which case the relevant person
or persons will receive cash instead as described above.
Scheme Creditors, Definitive Holders, Designated Recipients and other persons
with interests in Bonds -- in particular, those located in the Restricted
Jurisdictions named above -- should carefully consider the provisions
3
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
IMPORTANT NOTICE
--------------------------------------------------------------------------------
of the Schemes with respect to legal and regulatory restrictions generally and
the contents of the confirmations to be included in the Claim Form and Account
Holder Letter as described in part I, Section 2, Part C.9. Information with
respect to the categories of persons in certain Restricted Jurisdictions who may
be eligible to receive securities pursuant to the Schemes in reliance on
exemptions under applicable law is set out (with respect to persons located in
France and Italy) in part I, Section 2, Part D.17 and (with respect to persons
located in Arizona, California, Colorado, Connecticut, Illinois, Ohio and
Vermont) in part I, Section 2, Part D.16. Any persons who are in doubt as to how
legal or regulatory restrictions may affect them in relation to the Schemes are
strongly advised to consult their professional advisers.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE
HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH
THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS
TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT
THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT
IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER,
CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS
PARAGRAPH.
4
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
--------------------------------------------------------------------------------
EXPECTED TIMETABLE OF PRINCIPAL EVENTS(1)(2)
PERSONS WITH INTERESTS IN BONDS SHOULD OBSERVE ANY DEADLINES SET BY ANY
INSTITUTION OR SETTLEMENT
SYSTEM THROUGH WHICH THEY HOLD ANY BONDS TO ENSURE ANY VOTING INSTRUCTIONS GIVEN
BY THEM ARE ACTED UPON AT THE RELEVANT SCHEME MEETING
ITEM DEADLINE
---- --------
Record Date(3) 5.00 p.m. on 27 March 2003
Date of publication of the Prospectus 31 March 2003
Latest time and date for delivery of Claim Forms to KPMG 5.00 p.m. on 17 April 2003
in order for Scheme Creditors to participate in the First
Initial Distribution of Scheme Consideration(4)
Latest time and date for delivery of Account Holder 5.00 p.m. (New York City time) on
Letters to Bondholder Communications in order for 17 April 2003
Designated Recipients to participate in the First Initial
Distribution of Scheme Consideration and latest
recommended time and date for such delivery in order for
Definitive Holders to vote at the Scheme Meetings(5)(6)
Latest recommended time and date by which KPMG should 5.00 p.m. on 17 April 2003
receive Forms of Proxy for voting at the Scheme
Meetings(7)
Last time and date by which KPMG should receive Forms of 12 noon on 24 April 2003
Proxy for voting at the Scheme Meetings(7)
Date of exchange of global Eurobonds for individual global on or before 24 April 2003
Eurobonds(8)
Date of exchange of global Yankee Bonds for definitive on or before 24 April 2003
registered Yankee Bonds(8)
Release Date(9) 24 April 2003
Meeting of Corp Scheme Creditors(10) 10.00 a.m. on 25 April 2003
Meeting of plc Scheme Creditors(10) 10.15 a.m. on 25 April 2003
Latest time and date for approval by the Prospective 8.00 a.m. on 12 May 2003
Supervisors of Scheme Claims in order for Scheme Creditors
or Designated Recipients in respect of those Scheme Claims
to participate in the First Initial Distribution of Scheme
Consideration(15)(16)
Court hearing to sanction the Schemes(11) 12 to 13 May 2003
US Bankruptcy Court hearing for Section 304 US Bankruptcy 14 May 2003
Code permanent injunction orders(12)
Last day of dealing in shares in plc 16 May 2003
Latest time and date for Scheme Creditors to propose 5.00 p.m. on 16 May 2003
themselves to act as members of the Creditors'
Committee(13)
Effective Date of the Schemes 19 May 2003
Listing of New Shares, New Notes and Warrants(14) 8.00 a.m. on 19 May 2003
First Initial Distribution of Corp Scheme 19 May 2003
Consideration(15)
First Initial Distribution of plc Scheme Consideration(16) 19 May 2003
Court hearing to sanction the Capital Reduction(17) 21 May 2003
Date on which the Capital Reduction becomes effective(17) 22 May 2003
Notes:
(1) All references to time in this timetable are to London time unless
otherwise stated.
(2) The dates in this timetable and mentioned throughout this document assume
that neither of the Scheme Meetings is adjourned. It is therefore not
possible to be specific about these dates. It is also possible that the
drawing up of the order
5
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
--------------------------------------------------------------------------------
or orders of the Court sanctioning one or both of the Schemes may be
delayed if any person appeals the relevant order or orders.
(3) All Scheme Claims are determined as at the Record Date. The Supervisors
will be entitled to exercise discretion as to whether they recognise any
assignment or transfer of Scheme Claims after the Record Date. Bonds may
continue to be traded after the Record Date until the date on which they
are blocked in the clearing systems.
(4) A brief description of the claim against the relevant Scheme Company and
other information must be provided in the Claim Form in respect of each
Scheme Claim. Claim Forms are to be submitted to KPMG (Philip Wallace and
Richard Heis, both partners in KPMG, are the Prospective Supervisors of
both Schemes). Scheme Consideration will be distributed to Admitted Scheme
Creditors by the Distribution Agent acting upon instructions received from
the Escrow Trustee and the Supervisors. Scheme Creditors are urged to
return their Claim Forms as soon as possible to allow as long as possible
for them to be processed and checked by KPMG, thereby increasing the
likelihood of Scheme Claims being Admitted (if appropriate) in time for
Scheme Creditors to participate in the First Initial Distribution. KPMG
will acknowledge receipt of each Claim Form received. Scheme Creditors
requiring any assistance in completing Claim Forms should contact the
HELPLINE on +44(0) 20 7694 3007.
(5) No Scheme Consideration will be distributed by the Distribution Agent in
relation to the Bonds except to Designated Recipients in respect of the
relevant Scheme Claim identified in duly completed Account Holder Letters.
Provided that the relevant Trustee has submitted a Claim Form which has
been Admitted in time for the First Initial Distribution of Scheme
Consideration to be made to Designated Recipients, for a Designated
Recipient to receive the First Initial Distribution a copy of a duly
completed Account Holder Letter relating to that Designated Recipient must
be delivered in accordance with the instructions set out in Appendix 28
and must be received by Bondholder Communications by 5.00 p.m. (New York
City time) on 17 April 2003. Holders of Eurobonds will receive the cash
forming part of the First Initial Distribution whether or not an Account
Holder Letter has been delivered by this date.
(6) Each Definitive Holder identified in a duly completed Account Holder
Letter is entitled to vote at the Scheme Meetings. The procedures in this
respect are described in detail in Appendix 28.
(7) KPMG will acknowledge receipt of each Form of Proxy received. Scheme
Creditors (other than Definitive Holders, to whom this note is not
applicable) requiring any assistance completing Forms of Proxy should
contact the HELPLINE on +44(0) 20 7694 3007. Forms of Proxy may be handed
in at the registration desk for the Scheme Meetings no later than one hour
before the scheduled time of the relevant Scheme Meeting. Thereafter,
Forms of Proxy may be handed to the chairman of the relevant Scheme
Meeting at that meeting. All Scheme Creditors are recommended to return
the relevant Form of Proxy on or before 5.00 p.m. on 17 April 2003 to
minimise administrative delays. The latest time and date by which KPMG
should receive Forms of Proxy is 12 noon on 24 April 2003. Faxed Forms of
Proxy are acceptable if faxed to +44 (0)20 7694 3011. Faxes should be
marked for the attention of Philip Wallace and Richard Heis. Scheme
Creditors whose claims have been admitted and valued as described in note
(10) below are entitled to attend and vote at the Scheme Meetings in
person even if they have previously submitted a Form of Proxy.
(8) The exchanges of Bonds are expected to be made shortly before the release
of the interim security.
(9) This is the date on which it is expected that the interim security
(described in part I, Section 2, Part D.1) will be released.
(10) The Corp Scheme Meeting will commence at the time stated and the plc Scheme
Meeting will commence at the later of the time stated and the conclusion or
adjournment of the Corp Scheme Meeting. The chairman of the relevant Scheme
Meeting will admit and value claims of Scheme Creditors (including
Definitive Holders) only for the purpose of voting at that Scheme Meeting
and not for the purposes of determining whether a Scheme Claim should be
Admitted. More detail concerning valuation of claims for the purposes of
voting, admission of claims for the purposes of Scheme Meetings, and
disputes as to such valuation or admission, is set out in paragraphs 15 to
17 of Appendix 27 and paragraphs 52 and 54 of Appendix 28. Only those
Scheme Creditors whose claims have been so admitted and valued by the
chairman of the relevant Scheme Meeting can vote at that Scheme Meeting.
If, for this purpose only, a claim is rejected or reduced, the chairman
will inform the relevant creditor of such rejection or reduction and report
all such rejections or reductions of claims (with reasons therefor) to the
Court at the hearing to sanction the relevant Scheme.
(11) The Court will be requested to hear the petitions to sanction the Schemes
together at a single hearing if both Schemes are approved by the relevant
Scheme Creditors. The date for that hearing has not yet been settled,
although it is expected to take place on or about 12 to 13 May 2003. If
this date changes, the dates of all subsequent steps, including the
Effective Date, will be affected. In this event, the date of the hearing
will be published in The Times and the international editions of the Wall
Street Journal, the Financial Times and the International Herald Tribune
and also announced at each of the Scheme Meetings, to the extent then
known.
(12) The date of the US Bankruptcy Court hearing has not yet been determined.
(13) If a Scheme Creditor (including a Definitive Holder) wishes to propose
itself to act as a member of the Creditors' Committee, it should ensure
that the appropriate box on its Claim Form or Account Holder Letter is
ticked. On the Effective Date, the Supervisors will, to the extent
possible, appoint up to seven members of the Creditors' Committee
6
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
--------------------------------------------------------------------------------
selected from those Scheme Creditors and Definitive Holders who have
proposed themselves to act, representing a proper balance of the interests
of Scheme Creditors as a whole. If fewer than three Scheme Creditors and
Definitive Holders propose themselves to act as members of the Creditors'
Committee, then on and from the Effective Date the Creditors' Committee
will consist of as many members as have proposed themselves to act. In
accordance with the terms of the Scheme those members, if any, will
endeavour to fill the vacancy/vacancies to ensure that the Creditors'
Committee has a minimum of three members within 28 days of the Effective
Date. If those members do not succeed in appointing the necessary number of
further members of the Creditors' Committee, resulting in a Creditors'
Committee consisting of fewer than three members within 28 days of the
Effective Date, the Supervisors will thereafter use reasonable endeavours
to appoint the necessary number of further members within the following 14
days as interim committee members to serve on the Creditors' Committee
until the necessary number of further permanent members are appointed.
(14) Elections may be made in Claim Forms and Account Holder Letters to have all
or any portion of the New Shares deliverable pursuant to the Schemes
delivered in the form of ADRs. Corp will apply to list the ADRs on NASDAQ
and will use its reasonable endeavours to effect this NASDAQ listing as
soon as practicable following the Effective Date of the Corp Scheme. It is
currently expected that the NASDAQ listing will become effective during the
third calendar quarter of 2003. For further information, see part I,
Section 2, Parts C.2 and D.15.
(15) To receive Corp Scheme Consideration by way of the First Initial
Distribution, a Corp Scheme Creditor's Scheme Claim must be approved by the
Prospective Supervisors on or prior to 8.00 a.m. on the first day of the
Court sanction hearing and the Claim Form in respect of that Scheme Claim
must have been duly submitted by 5.00 p.m. on 17 April 2003. Corp Scheme
Creditors are encouraged to return their Claim Forms as soon as possible,
to allow as many Claim Forms as possible to be processed by KPMG in advance
of 8.00 a.m. on the first day of the Court sanction hearing. This will
allow as many Scheme Claims as possible, where appropriate, to be Admitted
on the Effective Date and listed in the First Initial Distribution Notice
pursuant to the terms of the Corp Scheme. Account Holders are encouraged to
obtain whatever information or instructions they may require from
Bondholders in sufficient time to enable them to return Account Holder
Letters to Bondholder Communications as soon as possible and in any event
prior to 5.00 p.m. (New York City time) on 17 April 2003.
(16) To receive plc Scheme Consideration by way of the First Initial
Distribution, a plc Scheme Creditor's Scheme Claim must be approved by the
Prospective Supervisors on or prior to 8.00 a.m. on the first day of the
Court sanction hearing and the Claim Form in respect of that Scheme Claim
must have been duly submitted by 5.00 p.m. on 17 April 2003. plc Scheme
Creditors are encouraged to return their Claim Forms as soon as possible,
to allow as many Claim Forms as possible to be processed by KPMG in advance
of 8.00 a.m. on the first day of the Court sanction hearing. This will
allow as many Scheme Claims as possible, where appropriate, to be Admitted
on the Effective Date and listed in the First Initial Distribution Notice
pursuant to the terms of the plc Scheme. Account Holders are encouraged to
obtain whatever information or instructions they may require from
Bondholders in sufficient time to enable them to return Account Holder
Letters to Bondholder Communications as soon as possible and in any event
prior to 5.00 p.m. (New York City time) on 17 April 2003.
(17) The Corp Capital Reduction (as more fully described in part I, Section 2,
Part D.9) requires the sanction of the Court and the Court order confirming
the Capital Reduction to be filed with the Registrar of Companies and
registered by him. It is anticipated that these steps will take place on
the dates indicated.
7
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
--------------------------------------------------------------------------------
SCHEME CREDITORS AND PERSONS WITH INTERESTS IN BONDS
INTRODUCTION
1. For the purposes of this document, Scheme Creditors under the Corp and
plc Schemes include bank creditors and certain other creditors of Corp
and plc, respectively, at the Record Date (being 5.00 p.m. (London time)
on 27 March 2003). Special provisions apply to the Yankee Bonds and
Eurobonds as described below. A list of the Known Creditors of the Corp
Scheme is set out in Schedule 3 to the Corp Scheme in part II of this
document and a list of the Known Creditors of the plc Scheme is set out
in Schedule 3 to the plc Scheme in part III of this document.
YANKEE BONDS
2. The following Bonds issued by Corp and guaranteed by plc are Yankee
Bonds:
US$900,000,000 7 3/4 per cent. Bonds due 2010; and
US$900,000,000 8 3/8 per cent. Bonds due 2030.
The Yankee Bond Trustee and Book-Entry Depositary for both Yankee Bond
issues is The Bank of New York.
3. For so long as each series of the Yankee Bonds remains in global form,
The Bank of New York, as the bearer of the respective global Yankee
Bonds, will be the Corp Scheme Creditor in respect of such Bonds. The
Bank of New York, as Yankee Bond Trustee, is also a Corp Scheme Creditor
in accordance with the terms of the Indenture. In these circumstances,
none of the Account Holders, Intermediaries or Bondholders will be Corp
Scheme Creditors and thus none of them will be entitled to attend or vote
at the Corp Scheme Meeting. The Indenture permits the exchange of the
global Yankee Bonds for definitive registered Yankee Bonds at Corp's
discretion. At the request of certain creditors, Corp has agreed to
exchange the global Yankee Bonds for definitive Yankee Bonds with a view
to ensuring that Definitive Holders (being, in the case of the Yankee
Bonds, the persons in whose names the Yankee Bonds in definitive form
will be registered) can attend and vote in respect of such Bonds at the
Corp Scheme Meeting.
4. The Bank of New York, as Yankee Bond Trustee, is also a plc Scheme
Creditor by virtue of the guarantee given in its favour in the Indenture.
At the request of certain creditors of plc, plc has agreed to extend the
benefit of its guarantee of the Yankee Bonds to the Definitive Holders of
Yankee Bonds with a view to ensuring that they can attend and vote at the
plc Scheme Meeting in respect of such Bonds.
5. Under the Indenture, The Bank of New York, as the Yankee Bond Trustee, is
entitled to, and will, file a Claim Form under each Scheme in respect of
all of the Yankee Bonds. As a result, holders of Yankee Bonds should not
file Claim Forms (except in respect of any non-Bond debt which is owed to
such Bondholders by Corp or plc), but Account Holders who hold Yankee
Bonds will need to file Account Holder Letters as described in paragraph
16 below in order for the nominated Definitive Holders to vote at the
Scheme Meetings and the nominated Designated Recipients to receive Scheme
Consideration in respect of each Scheme.
6. The procedures for filing a Claim Form, delivering an Account Holder
Letter and attending and/or giving voting instructions in relation to the
Scheme Meetings in relation to the Yankee Bonds are described in more
detail in paragraph 16 below and in Appendix 28.
EUROBONDS
7. The following Bonds issued by Corp and guaranteed by plc are Eurobonds:
E500,000,000 5.625 per cent. Bonds due 2005; and
E1,000,000,000 6.375 per cent. Bonds due 2010.
The Eurobond Trustee for both Eurobond issues is The Law Debenture Trust
Corporation p.l.c.
8. The Eurobond Trustee is a Corp Scheme Creditor in accordance with the
terms of the Trust Deeds. For so long as each series of the Eurobonds
remains in permanent global form, the common depositary for Euroclear and
Clearstream, Luxembourg, as the bearer of the respective permanent global
Eurobonds, will
8
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SCHEME CREDITORS AND PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
also be a Corp Scheme Creditor in respect of such Bonds. In these
circumstances, none of the Account Holders, Intermediaries or Bondholders
will be Corp Scheme Creditors and thus none of them will be entitled to
attend or vote at the Corp Scheme Meeting. The terms of the existing
permanent global Eurobonds do not permit their exchange for Eurobonds in
definitive bearer form unless and until an event of default under the
conditions of the Eurobonds or certain other limited events have
occurred. However, at the request of certain creditors, Corp has agreed
to exchange the permanent global Eurobonds for individual global
Eurobonds with a view to ensuring that Definitive Holders (being, in the
case of the Eurobonds, those persons who are bearers by attornment of the
individual global Eurobonds) can attend and vote at the Corp Scheme
Meeting in respect of such Bonds. Further details of the attornment
process and the individual global Eurobonds are set out in paragraph 22
of Appendix 28. Corp has requested the Eurobond Trustee to agree that the
terms of the global Eurobonds should be amended to permit the issuance of
individual global Eurobonds at the discretion of Corp and the Eurobond
Trustee has agreed to this request. Corp and the Eurobond Trustee have
agreed the necessary amendments to the terms of the Trust Deeds to allow
for the issue of individual global Eurobonds.
9. The Eurobond Trustee is also a plc Scheme Creditor by virtue of the
guarantee given in its favour in the Trust Deeds. At the request of
certain creditors of plc, plc has agreed to extend the benefit of its
guarantee of the Eurobonds to the Definitive Holders of Eurobonds with a
view to ensuring that they can attend and vote at the plc Scheme Meeting
in respect of such Bonds.
10. The Eurobond Trustee, in its capacities as a Corp Scheme Creditor and a
plc Scheme Creditor, is entitled to, and will, file a Claim Form under
each Scheme in respect of all of the Eurobonds. As a result, holders of
Eurobonds should not file Claim Forms (except in respect of any non-Bond
debt which is owed to such Bondholders by Corp or plc) but Account
Holders who hold Eurobonds will need to file Account Holder Letters as
described in paragraph 17 below in order for the nominated Definitive
Holders to vote at the Scheme Meetings and the nominated Designated
Recipients to receive Scheme Consideration in respect of each Scheme.
11. The procedures for filing a Claim Form, delivering an Account Holder
Letter and attending and/or giving voting instructions in relation to the
Scheme Meetings in relation to the Eurobonds are described in more detail
in paragraph 17 below and in Appendix 28.
SCHEME CREDITORS
12. You are a Scheme Creditor if you have a Scheme Claim. For the purposes of
this document, Corp Scheme Creditors include the Eurobond Trustee (in
respect of the Eurobonds) and The Bank of New York (in respect of the
Yankee Bonds), but do not include Bondholders (unless and until they
become Definitive Holders), Account Holders or Intermediaries. In
addition, plc Scheme Creditors include the Yankee Bond Trustee and the
Eurobond Trustee but do not include Bondholders (unless and until they
become Definitive Holders), Account Holders or Intermediaries.
13. The term "SCHEME CREDITOR" is used in this document in a number of
different contexts and, in each context, has a different meaning in so
far as the Bonds are concerned. In relation to the Bonds:
- in the context of submitting Scheme Claims (and therefore completing
Claim Forms) under both Schemes, the term "SCHEME CREDITOR" means
only the Eurobond Trustee and the Yankee Bond Trustee; and
- in the context of voting at Scheme Meetings and the right to attend
Scheme Meetings and to be nominated to the Creditors' Committee
under both Schemes, the term "SCHEME CREDITOR" means only the
Definitive Holders.
In the context of entitlement to receive Scheme Consideration under both
Schemes, the term "SCHEME CREDITOR" is only used to mean those persons who
have submitted a Scheme Claim which has been Admitted. Each Trustee is
expected to submit a Scheme Claim and each such Scheme Claim is expected
to be Admitted. However, as each Trustee will, in the Escrow and
Distribution Agreement, direct that any Scheme Consideration to which it
becomes entitled shall be distributed to Designated Recipients, in this
9
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SCHEME CREDITORS AND PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
context reference is generally made to Scheme Consideration being
distributed to Scheme Creditors (other than the Trustees) and to
Designated Recipients.
PERSONS WITH INTERESTS IN BONDS
14. Persons with interests in Bonds include Account Holders, Intermediaries,
Bondholders, Definitive Holders and Designated Recipients. The common
depositary for Euroclear and Clearstream, Luxembourg has an interest in
the Eurobonds by virtue of being the bearer of the global Eurobonds and
The Bank of New York, in its capacity as Book-Entry Depositary, has an
interest in the Yankee Bonds by virtue of being the holder of the global
Yankee Bonds, in each case for so long as the Eurobonds or the Yankee
Bonds, as the case may be, are represented by one or more global
Eurobonds or global Yankee Bonds, respectively. You are:
- an Account Holder if you are recorded directly in the books of
Euroclear or Clearstream, Luxembourg as holding an interest in
Eurobonds or Yankee Bonds or in the books of Euroclear, Clearstream,
Luxembourg or DTC as holding an interest in Yankee Bonds, in each
case in an account with the relevant clearing system;
- an Intermediary if you hold an interest in Eurobonds or Yankee Bonds
on behalf of another person or persons and you do not hold that
interest as an Account Holder;
- a Bondholder if you have the ultimate economic interest in the
relevant Bonds;
- a Definitive Holder if you are the registered holder of a Yankee
Bond in definitive form or the bearer by attornment of an individual
global Eurobond; and
- a Designated Recipient if you are specified in an Account Holder
Letter as being the recipient of cash and/or New Notes and/or New
Shares in any distribution of Scheme Consideration in respect of a
particular principal amount of Bonds. For the avoidance of doubt, a
Bondholder may be the same person as the Designated Recipient and/or
Definitive Holder of the Bonds relating to that Account Holder
Letter.
15. IF YOU ARE A PERSON WITH AN INTEREST IN BONDS YOU SHOULD READ THIS
DOCUMENT CAREFULLY AND TAKE THE APPROPRIATE ACTION DESCRIBED IN APPENDIX
28 IN ORDER FOR VOTING INSTRUCTIONS IN RELATION TO THE SCHEME MEETINGS TO
BE GIVEN AND FOR DETAILS FOR THE PURPOSE OF RECEIVING SCHEME
CONSIDERATION TO BE REGISTERED.
16. PERSONS WITH INTERESTS IN YANKEE BONDS SHOULD NOTE THAT:
a. no Claim Form is required to be submitted by them as this will be
done on their behalf by the Yankee Bond Trustee;
b. Account Holders with interests in Yankee Bonds are recommended to
deliver to Bondholder Communications (preferably on-line through
www.bondcom.com/marconi) duly completed Account Holder Letters
(in the form set out as the Annex to Appendix 28) on or before
5.00 p.m. (New York City time) on 17 April 2003 and, in order for
this to be achieved, blocking instructions must be given by no
later than 5.00 p.m. (in the place of the relevant clearing
system) on the day before the Account Holder Letter is delivered
to Bondholder Communications;
c. delivery of a duly completed Account Holder Letter by the time
and date specified in b. above will entitle Definitive Holders of
Yankee Bonds to attend and/or vote at the Scheme Meetings and the
Designated Recipients named in the applicable Account Holder
Letter to receive the First Initial Distribution of Corp and plc
Scheme Consideration and further distributions of Corp and plc
Scheme Consideration (if any);
d. failure to deliver an Account Holder Letter to Bondholder
Communications by the time and date specified in b. above will
not preclude the relevant Definitive Holder from voting at the
Scheme Meetings provided that the Definitive Holder or his proxy
can establish his entitlement
10
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SCHEME CREDITORS AND PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
by producing a copy of the duly completed Account Holder Letter
or form of proxy, as the case may be;
e. Definitive Holders of Yankee Bonds who wish to attend and vote in
person at the Scheme Meetings must ensure that this is specified
in the applicable Account Holder Letter. Definitive Holders of
Yankee Bonds who wish only to have their vote recorded at the
Scheme Meetings must ensure that authority is given to Bondholder
Communications in the Account Holder Letter for the appointment
of a proxy to vote on their behalf at the Scheme Meetings; and
f. Account Holders who hold Yankee Bonds with ISIN US566306AA41 or
ISIN US566306AB24 have received on 17 March 2003 an amount for
distribution to Bondholders in respect of such Yankee Bonds
representing interest accrued from and including 15 September
2002 to but excluding 15 October 2002 from the Yankee Bond
Trustee which has been holding such amount on trust for the
Bondholders of such Yankee Bonds. Amounts representing interest
accrued to 15 October 2002 were paid to all other financial
creditors of Corp on or about that date.
17. PERSONS WITH INTERESTS IN EUROBONDS SHOULD NOTE THAT:
a. no Claim Form is required to be submitted by them as this will be
done on their behalf by the Eurobond Trustee;
b. Account Holders with interests in Eurobonds are recommended to
deliver to Bondholder Communications duly completed Account
Holder Letters (in the form set out in the Annex to Appendix 28)
on or before 5.00 p.m. (New York City time) on 17 April 2003 and,
in order for this to be achieved, blocking instructions must be
given by no later than 5.00 p.m. (in the place of the relevant
clearing system) on the day before the Account Holder Letter is
delivered to Bondholder Communications;
c. delivery of a duly completed Account Holder Letter by the time
and date specified in b. above will entitle Definitive Holders of
Eurobonds to attend and/or vote at the Scheme Meetings and the
Designated Recipients named in the applicable Account Holder
Letter to receive the First Initial Distribution of Corp and plc
Scheme Consideration and further distributions of Corp and plc
Scheme Consideration (if any). Account Holders will receive the
cash forming part of the First Initial Distribution whether or
not an Account Holder Letter is delivered;
d. failure to deliver an Account Holder Letter to Bondholder
Communications by the time and date specified in b. above will
not preclude the relevant Definitive Holder from voting at the
Scheme Meetings provided that the Definitive Holder or his proxy
can establish his entitlement by producing a copy of the duly
completed Account Holder Letter or form of proxy, as the case may
be; and
e. Definitive Holders of Eurobonds who wish to attend and vote in
person at the Scheme Meetings must ensure that this is specified
in the applicable Account Holder Letter. Definitive Holders of
Eurobonds who wish only to have their vote recorded at the Scheme
Meetings must ensure that authority is given to Bondholder
Communications in the Account Holder Letter for the appointment
of a proxy to vote on their behalf at the Scheme Meetings.
GENERAL
18. IF YOU ARE A SCHEME CREDITOR, PLEASE READ THIS DOCUMENT CAREFULLY AND TAKE
THE APPROPRIATE ACTION DESCRIBED IN APPENDIX 27. IF YOU ARE A PERSON WITH
AN INTEREST IN BONDS, YOU SHOULD ALSO READ THIS DOCUMENT CAREFULLY AND
BONDHOLDERS SHOULD CONTACT THEIR ACCOUNT HOLDERS (THROUGH ANY
INTERMEDIARIES, IF APPROPRIATE) TO ENSURE THEY TAKE THE APPROPRIATE ACTION
AS DESCRIBED IN APPENDIX 28.
11
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
--------------------------------------------------------------------------------
DEFINITIONS AND INTERPRETATION
In this document, each Claim Form, each Account Holder Letter and each Form of
Proxy, unless the context otherwise requires or otherwise expressly provides:
a. words and expressions defined in part V on pages 995 to 1009 shall
have the same meaning when used elsewhere in this document (other
than in the Schemes set out in parts II and III of this document and
the Schedules to them, the Escrow and Distribution Agreement set out
in Appendix 7, the summary of the terms of the New Senior Notes and
the New Junior Notes set out in Appendix 8, the security and
intercreditor arrangements set out in Appendix 10 and the conditions
of the Warrants set out in Appendix 12) and derivative terms shall
be construed accordingly;
b. references to Sections and Parts are references to the Sections and
Parts of the Explanatory Statement as set out in part I of this
document and references to Appendices are to the Appendices to the
Explanatory Statement as set out in part IV of this document;
c. references to a "person" include references to an individual, firm,
partnership, company, corporation, unincorporated body of persons or
any state or state agency;
d. references to a statute or a statutory provision include the same as
subsequently modified, amended or re-enacted from time to time;
e. the singular includes the plural and vice versa and words importing
one gender shall include all genders; and
f. headings to parts, Sections, Parts and Appendices are for ease of
reference only and shall not affect the interpretation of this
document.
The term "SCHEME CREDITOR" is used in this document in a number of different
contexts and, in each context, has a different meaning in so far as the Bonds
are concerned. In relation to the Bonds:
a. in the context of submitting Scheme Claims under both Schemes, the
term "SCHEME CREDITOR" means the Eurobond Trustee and the Yankee
Bond Trustee; and
b. in the context of voting at Scheme Meetings and the right to attend
Creditors' Meetings and to be nominated to the Creditors' Committee
under both Schemes, the term "SCHEME CREDITOR" means the Definitive
Holders.
In the context of entitlement to receive Scheme Consideration under both
Schemes, the term "SCHEME CREDITOR" is only used to mean those persons who have
submitted a Scheme Claim which has been Admitted. Each Trustee is expected to
submit a Scheme Claim and each such Scheme Claim is expected to be Admitted.
However, as each Trustee will, in the Escrow and Distribution Agreement, direct
that any Scheme Consideration to which it becomes entitled shall be distributed
to Designated Recipients, in this context reference is generally made to Scheme
Consideration being distributed to Scheme Creditors (other than the Trustees)
and to Designated Recipients.
12
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
--------------------------------------------------------------------------------
SUMMARY OF ACTION TO BE TAKEN
Scheme Creditors to whom Corp and/or plc owes a Liability at the Record Date
(other than those Liabilities defined in the relevant Schemes as Excluded
Claims) are referred to Appendix 27 for more detailed instructions as to the
action to be taken by them. Persons with interests in Bonds are referred to
Appendix 28 for more detailed instructions as to the action to be taken by them.
SCHEME CREDITORS
Persons who are Scheme Creditors solely by virtue of having an interest in Bonds
need not read paragraphs 1 to 3 below and should instead refer to paragraphs 4
to 7 below.
1. SCHEME MEETINGS
Before the Schemes can become effective and binding on the Scheme Companies and
their respective Scheme Creditors, resolutions to approve them must be passed by
the statutory majority required by section 425 of the Act. This statutory
majority is a majority in number representing three-fourths in value of the
Scheme Claims of Scheme Creditors of Corp or, as the case may be, plc who, being
so entitled, are present in person (or, if a corporation, by a duly authorised
representative) or by proxy and vote at the relevant Scheme Meeting. THE SCHEME
MEETINGS HAVE BEEN ORDERED TO BE SUMMONED BY THE COURT TO TAKE PLACE ON 25 APRIL
2003 WITH THE FIRST MEETING COMMENCING AT 10.00 A.M. AT THE INSTITUTE OF CIVIL
ENGINEERS, 1 GREAT GEORGE STREET, LONDON SW1. Formal notices of the Scheme
Meetings are enclosed with this document. Each Scheme Creditor or his proxy who
wishes to attend the relevant Scheme Meeting in person will be required to
register his attendance by presenting himself, together with the duplicate copy
of his Form of Proxy, where possible, at the registration desk prior to the
commencement of the relevant Scheme Meeting. Forms of Proxy should be received
by the Prospective Supervisors by 12 noon (London time) on 24 April 2003.
However, a Scheme Creditor who wishes to attend the relevant Scheme Meeting in
person is encouraged to complete section B(ii) in the relevant Form of Proxy and
either return it to the Prospective Supervisors prior to 5.00 p.m. (London time)
on 17 April 2003. Forms of Proxy can also be brought along in person to the
relevant Scheme Meeting and handed in at the registration desk no later than one
hour before the scheduled time for the relevant Scheme Meeting. Thereafter a
Scheme Creditor may lodge completed Forms of Proxy with the chairman of the
relevant Scheme Meeting at that Scheme Meeting. A Scheme Creditor who attends a
Scheme Meeting in person (but has not provided a Form of Proxy) will also need
to provide evidence of his personal identity (for example, passport or other
picture identification) and an individual attending on behalf of a body
corporate should provide evidence of his authorisation to represent that body
corporate (for example a valid power of attorney and/or board minutes).
Admittance of a Scheme Creditor (or his proxy) to the relevant Scheme Meeting
will be permitted on production by the Scheme Creditor (or his proxy) of the
duplicate copy of his Form of Proxy. Where the duplicate copy of the relevant
Form of Proxy is not produced, admittance to the relevant Scheme Meeting will be
permitted to a Scheme Creditor or his proxy on the production of proof of
personal identity (for example, passport or other picture identification).
Please see Appendix 27 for more information in this regard.
2. COMPLETION OF FORMS OF PROXY AND CLAIM FORMS
Enclosed with this document are Form(s) of Proxy and Claim Form(s). The Forms of
Proxy and Claim Forms are printed on the colours of paper indicated below:
Form of Proxy for Corp Scheme Creditors.................... yellow;
Form of Proxy for plc Scheme Creditors..................... green;
Claim Form for Corp Scheme Creditors....................... blue; and
Claim Form for plc Scheme Creditors........................ pink.
Each Scheme Creditor or its duly authorised representative (as the case may be)
should complete the relevant Form(s) of Proxy and Claim Form(s) in accordance
with the instructions printed on them. The forms of the Forms of Proxy and Claim
Forms (together with guidance as to their completion) are set out in Appendices
29 and 30 respectively. Scheme Creditors are encouraged to complete and return a
Form of Proxy whether or not they intend to be present at the relevant Scheme
Meeting in case, for any reason, that Scheme Creditor is unable to attend that
meeting.
13
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SUMMARY OF ACTION TO BE TAKEN
--------------------------------------------------------------------------------
3. RETURN OF FORMS OF PROXY AND CLAIM FORMS
DULY COMPLETED CLAIM FORMS SHOULD BE RETURNED BY SCHEME CREDITORS TO KPMG LLP, 8
SALISBURY SQUARE, LONDON EC4Y 8BB, ENGLAND, FOR THE ATTENTION OF PHILIP WALLACE,
AS SOON AS POSSIBLE. COMPLETED CLAIM FORMS MUST BE RETURNED BY 5.00 P.M. (LONDON
TIME) ON 17 APRIL 2003 AND SCHEME CLAIMS WILL NEED TO BE APPROVED BY THE
PROSPECTIVE SUPERVISORS BY 8.00 A.M. (LONDON TIME) ON THE FIRST DAY OF THE COURT
SANCTION HEARING (WHICH IS ANTICIPATED TO BE 12 MAY 2003) IN ORDER FOR SCHEME
CREDITORS TO PARTICIPATE IN THE FIRST INITIAL DISTRIBUTION IN ACCORDANCE WITH
THE TERMS OF THE RELEVANT SCHEME. IT IS ANTICIPATED THAT THE FIRST INITIAL
DISTRIBUTION, IN THE CASE OF THE CORP SCHEME AND THE PLC SCHEME, WILL OCCUR ON
THE EFFECTIVE DATE.
Duly completed Forms of Proxy should be returned by Scheme Creditors to KPMG
LLP, 8 Salisbury Square, London EC4Y 8BB, England, for the attention of Philip
Wallace, as soon as possible. The last time and date for this is 12 noon (London
time) on 24 April 2003 (although it is recommended that they be received by 5.00
p.m. (London time) on 17 April 2003). After this time and date completed Forms
of Proxy may be presented to the registration desk at the relevant Scheme
Meeting up to one hour before the scheduled time of the relevant Scheme Meeting.
Thereafter Scheme Creditors may lodge completed Forms of Proxy with the chairman
of the relevant Scheme Meeting at that Scheme Meeting.
PERSONS WITH INTERESTS IN BONDS
Scheme Creditors who are not also persons with interests in Bonds need not read
paragraphs 4 to 7 below and should instead refer only to paragraphs 1 to 3
above.
4. BONDHOLDERS
Bondholders should immediately contact their Account Holders (through any
Intermediaries, if appropriate) to ensure that an Account Holder Letter is
submitted in respect of the Bonds to which they are entitled. It is important
that Account Holder Letters are submitted before 5.00 p.m. (New York City time)
on 17 April 2003 and accordingly Bondholders should ensure that their Account
Holders have all necessary information to enable them to meet this recommended
deadline well before it occurs. Each Bondholder will need to identify a person
as the Definitive Holder and one or more persons as Designated Recipient(s) in
respect of the Bonds to which it is entitled. It is expected that in most cases
the Bondholder will also be the Definitive Holder and Designated Recipient. Each
Bondholder will also need to give his Account Holder instructions as to voting
and the delivery of Scheme Consideration and will need to confirm certain
matters in relation to applicable securities law, all as described in detail in
Appendix 28.
5. ACCOUNT HOLDERS
Duly completed Account Holder Letters should be delivered by each Account Holder
to Bondholder Communications on line through www.bondcom.com/marconi, by post or
personal delivery to Bondholder Communications at 30 Broad Street, 46th Floor,
New York, N.Y. 10004, USA, attention Donna Martini, or to Bondholder
Communications at 64 Queen Street, 3rd Floor, London EC4R 1AD, attention Donna
Martini or by facsimile (Fax No: +1 212 422 0790 or + 44 207 236 0779, attention
Donna Martini), as soon as possible. Duly completed Account Holder Letters must
be delivered at or before 5.00 p.m. (New York City time) on 17 April 2003 in
order for the Designated Recipients named in them to receive the First Initial
Distribution of Scheme Consideration in the Corp and plc Schemes.
Notwithstanding the foregoing, any cash forming part of the First Initial
Distribution will be paid to Bondholders in respect of Eurobonds through
Euroclear and Clearstream, Luxembourg regardless of whether an Account Holder
Letter has been delivered or not. Duly completed Account Holder Letters
delivered after 5.00 p.m. (New York City time) on 17 April 2003 will entitle the
Designated Recipients to receipt of the Scheme Consideration in the Initial
Distribution (excluding any cash already paid to them through Euroclear or
Clearstream, Luxembourg) on the later of (1) as soon as is reasonably
practicable following the date that the Account Holder Letter is delivered to
Bondholder Communications and (2) the date of the First Initial Distribution.
Please see Appendix 28 for more information in this regard.
14
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SUMMARY OF ACTION TO BE TAKEN
--------------------------------------------------------------------------------
6. SCHEME MEETINGS
Definitive Holders are Scheme Creditors and therefore are entitled to vote at
the Scheme Meetings. Definitive Holders who wish to attend and/or vote at the
Scheme Meetings in person or by proxy must ensure that this is specified in the
Account Holder Letter delivered by their Account Holder. Account Holders are
recommended to deliver their Account Holder Letters to Bondholder Communications
by 5.00 p.m. (New York City time) on 17 April 2003 in order to ensure that the
Definitive Holder or his proxy can attend and vote at the Scheme Meetings.
Delivery of Account Holder Letters after this time and date will not preclude
the relevant Definitive Holder from voting at the Scheme Meetings provided that
the Definitive Holder or his proxy can establish his entitlement in the manner
described below and in Appendix 28. Each Definitive Holder who wishes to attend
a Scheme Meeting in person will be required to register his attendance by
presenting himself, together with a copy of the relevant Account Holder Letter,
where possible, at the registration desk prior to the commencement of the
relevant Scheme Meeting and, where an individual is attending on behalf of a
body corporate and is not the authorised employee named in the Account Holder
Letter, evidence of authorisation to represent that body corporate (for example
a valid power of attorney and/or board minutes). A proxy (other than the
chairman of the relevant meeting) for a Definitive Holder who attends a Scheme
Meeting will need to provide a copy of his form of proxy and evidence of his
personal identity (for example passport or other picture identification). Please
see Appendix 28 for more information in this regard.
7. FORMS OF PROXY, CLAIM FORMS, ACCOUNT HOLDER LETTERS
Persons with interests in Bonds should not complete a Claim Form or a Form of
Proxy in the forms circulated with this document. Account Holders should deliver
Account Holder Letters as described in paragraph 4 above.
Account Holders with Bonds credited to their accounts at any of DTC, Euroclear
or Clearstream, Luxembourg must obtain whatever information or instructions they
may require to enable them to deliver an Account Holder Letter on behalf of the
Bondholder in respect of those Bonds and Bondholders (through any
Intermediaries, if appropriate) should ensure that they assist their Account
Holder by providing him with all necessary information to enable him to do so.
Definitive Holders who wish to attend and vote at the Scheme Meetings in person
should receive a copy of the Account Holder Letter in which they are named as
the Definitive Holder from the Account Holder with which they hold their Bonds.
Definitive Holders who wish to attend and vote at the Scheme Meetings by proxy
should request (and ensure that they receive) a copy of the relevant form of
proxy from Bondholder Communications. It is the responsibility of each
Bondholder and Definitive Holder to ensure that all necessary instructions are
given to Bondholder Communications and the relevant Account Holder to facilitate
receipt of these documents in time for the Definitive Holder or his proxy to
attend and vote at the Scheme Meetings.
15
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
--------------------------------------------------------------------------------
SECTION 1
LETTER FROM THE CHAIRMAN OF PLC
AND OF CORP
(MARCONI LOGO)
MARCONI PLC MARCONI CORPORATION PLC
New Century Park New Century Park
P.O. Box 53 P.O. Box 53
Coventry Coventry
Warwickshire Warwickshire
CV3 1HJ CV3 1HJ
(Registered in England with (Registered in England with
registered number 3846429) registered number 67307)
31 March 2003
Dear Scheme Creditor or Bondholder,
PROPOSED RESTRUCTURING OF CORP AND PLC (THE "RESTRUCTURING")
On 29 August 2002 we announced that Corp and plc had concluded non-binding
indicative Heads of Terms with the Co-ordination Committee and the Informal
Committee of Bondholders, which set out the principles for the proposed
Restructuring of Corp and plc. On 16 December 2002 we announced that we had
concluded modifications to the non-binding indicative Heads of Terms by way of
an addendum. On 7 February 2003 we announced that Corp and plc had reached
agreement in principle with the Group's ESOP Derivative Banks for a settlement
of their ESOP derivative related claims against the Group. On 18 March 2003 we
announced that documentation in relation to the proposed Restructuring had been
filed with the Court and provided an update on certain aspects of the
Restructuring. Following our receipt on 26 March 2003 and 24 March 2003
respectively of the required consents to certain pre-completion steps for the
Restructuring from the requisite majorities of the Syndicate Banks and the
members of the Informal Committee of Bondholders, we are now writing to set out
the terms of the Restructuring.
This letter is part of an Explanatory Statement distributed to you for the
reasons set out below and is qualified in its entirety by the more detailed
information contained in the remainder of the Explanatory Statement.
PURPOSE OF THE EXPLANATORY STATEMENT
The Explanatory Statement, which is provided pursuant to section 426 of the Act,
is distributed for the purpose of providing you with sufficient information to
make an informed decision on whether or not to approve the Schemes. An
explanation of the nature of the proposed Schemes is included below, as part of
this letter.
The main body of the Explanatory Statement (which follows this letter) is in six
parts, containing information on the following matters:
a. Business Overview;
b. Background to and reasons for the Restructuring;
c. Proposed Restructuring;
d. General matters relating to the Restructuring;
e. Material interests of Directors and Trustees; and
f. Risk Factors.
The Schemes will apply to all Corp Scheme Creditors and all plc Scheme
Creditors, being those creditors of Corp and plc respectively whose claims the
Corp Scheme and the plc Scheme will, if they become effective, compromise in
accordance with their terms. The Corp Scheme is not conditional on the plc
Scheme becoming effective. The plc Scheme will not become effective unless the
Corp Scheme becomes effective.
16
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
--------------------------------------------------------------------------------
The claims of Corp Scheme Creditors will be compromised in consideration for a
distribution (pro rata to their Admitted Scheme Claims) of a package of cash,
new equity and new debt securities of Corp. The liability of Corp in respect of
those claims will be extinguished. The claims of plc Scheme Creditors will be
compromised in consideration for a distribution in specie (pro rata to their
Admitted Scheme Claims) of all of plc's assets net of a reserve in respect of
plc's Ongoing Costs. plc's assets will principally comprise the package of cash,
new equity and new debt securities of Corp which plc will receive as a result of
the Corp Scheme from Bonds held by its subsidiary, Ancrane, and monies owed by
Corp to Ancrane (as described further below). The liability of plc in respect of
the claims of plc Scheme Creditors will be extinguished.
You are being sent this document, including the Schemes, because the Scheme
Companies believe that you may be either a Scheme Creditor under one or both of
the Schemes or a person with an interest in Bonds. Pages 8 to 11 of this
document will help you identify whether you are a Scheme Creditor or a person
with an interest in Bonds. Scheme Creditors should direct any enquiries to the
Prospective Supervisors, whose details are set out in Appendix 23. To facilitate
communications with persons with an interest in Bonds, Corp and plc have
appointed Bondholder Communications Group ("BONDHOLDER COMMUNICATIONS") to
ensure Bondholders receive a copy of this document. Bondholder Communications
will also be able to facilitate the completion of Account Holder Letters which
need to be completed to enable most elements of Scheme Consideration to be
distributed to Bondholders (see Appendix 28). Bondholder Communications's
details are set out in Appendix 28. Each of the Scheme Companies strongly
recommends that Scheme Creditors and persons with an interest in Bonds consider
the Restructuring proposal carefully.
This document contains details of the proposed Restructuring, including the Corp
Scheme and the plc Scheme, which are to be voted on at meetings of Corp Scheme
Creditors and plc Scheme Creditors, respectively, to take place on 25 April 2003
at 10.00 a.m. (London time) for Corp Scheme Creditors, and 10.15 a.m. (London
time) for plc Scheme Creditors (or as soon as possible thereafter following the
conclusion or adjournment of the first meeting). This document also explains why
Corp and plc consider the proposed Restructuring to be in the best commercial
interests of the Corp Scheme Creditors and the plc Scheme Creditors
respectively, as well as in the wider interests of the Group, its employees and
customers and plc Shareholders.
FOR THE REASONS GIVEN IN THIS DOCUMENT, EACH OF CORP AND PLC RECOMMENDS THAT THE
RELEVANT SCHEME CREDITORS VOTE IN FAVOUR OF ITS SCHEME AT THE RELEVANT SCHEME
MEETING.
AGREEMENT OF ANCRANE AND CORP NOT TO VOTE
Ancrane, a wholly-owned subsidiary of plc, is a Bondholder in respect of
E324,603,000 in principal amount of Eurobonds and US$261,101,000 in principal
amount of Yankee Bonds, both of which are guaranteed by plc. Ancrane is also
owed by Corp the sums of L363,308,102 under an intra-group loan and L14,635,059
under a reimbursement obligation in respect of Restructuring fees paid by
Ancrane on behalf of Corp. Ancrane has undertaken not to attend or vote at the
Scheme Meetings, not to take any steps to enable a vote to be cast on its behalf
at the Scheme Meetings and to support the Restructuring by agreeing not to take
any action to hinder or oppose the Schemes.
Corp has a claim of L146,587,439 against plc. Corp has undertaken not to attend
or vote at the plc Scheme Meeting and not to take any steps to enable a vote to
be cast on its behalf at the plc Scheme Meeting.
Neither Corp nor Ancrane nor any other member of the Group will vote at either
of the Scheme Meetings. This is because Corp and plc believe that should the
Scheme Meetings approve either of the Schemes by a small margin, including votes
cast in respect of claims of members of the Group, the result could be unfair to
any dissenting Scheme Creditors entitled to vote at the Scheme Meetings.
BACKGROUND TO AND REASONS FOR THE PROPOSED RESTRUCTURING
The Group has faced difficult trading conditions for some time. The impact of a
period of rapid and unprecedented deterioration in the global telecommunications
market has been compounded for the Group by the cost of a number of acquisitions
made since 1998. These acquisitions, which were primarily for cash
consideration, resulted in a substantial part of the debt burden being carried
by the Group and, in the light of
17
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
--------------------------------------------------------------------------------
reduced market demand for the Group's products and services, the trading and
cash flow performances of these acquired businesses have been running at levels
well below those that were anticipated at the time of acquisition.
The Board of plc announced its intention, at its Annual General Meeting in July
2001, to initiate an operational review of the Group's business. The results of
this review were announced in September 2001, along with the appointments of
Michael Parton as Chief Executive Officer of plc, Derek Bonham as Interim
Chairman of plc and Michael Donovan as Chief Operating Officer of plc as well as
the management appointments of Neil Sutcliffe as chief executive officer of
Marconi Capital and Geoffrey Doy as chief executive officer of sales and
marketing of plc.
Against a background of further market deterioration early in 2002, plc
announced on 22 March 2002 that Corp and plc had decided not to enter into new
banking facilities to refinance Corp's then existing syndicated bank facilities.
Following this decision, Corp and plc agreed to cancel the undrawn commitments
under the existing facilities and agreed that the drawn portion under the Bank
Facility (which was due for repayment on 25 March 2003) would be repayable on
demand.
Following the decision not to refinance the then existing syndicated bank
facilities the Business Plan was developed. This Business Plan was presented to
the Co-ordination Committee and the Informal Committee of Bondholders and was
used by Corp and plc as a basis for formulating the Heads of Terms for the
Restructuring. The Business Plan assumed that recovery in the Group's market
would not commence until the end of the calendar year 2003. A set of
sensitivities were applied to reflect the scenario of more difficult market
conditions, and in particular a delay in market recovery beyond the end of 2003.
Given continuing uncertainty in market conditions, further revisions have been
made to the Business Plan. In proposing the Restructuring, Corp and plc have
assessed the proposed capital structure of Corp against the scenario of a delay
in market recovery and are confident that the proposed capital structure of Corp
is appropriate in circumstances where such a delay occurs. However, the Group
cannot predict with any level of certainty the occurrence, timing or extent of
any market recovery.
WHY THE PROPOSED RESTRUCTURING NOW?
The Group has for some time been in severe financial difficulty. In particular,
Corp is the principal obligor under the Bank Facility, which was due for
repayment on 25 March 2003, and is the issuer of the Bonds. Interest on the
Yankee Bonds fell due on 17 March 2003 and interest on the Eurobonds will fall
due on 31 March 2003. For both the Yankee Bonds and the Eurobonds acceleration
of the principal amount is permitted following non-payment of interest 14 days
after the respective interest due dates. plc is a guarantor of the Bank Facility
and the Bonds. Corp and plc believe they must effect a restructuring of their
financial obligations, including their obligations under the Bank Facility and
the Bonds, to avoid a demand being made for repayment of sums owing under the
Bank Facility or an acceleration of sums owing under the Bonds, which would
inevitably lead to Corp and plc being placed into insolvency proceedings.
The Corp Group's ability to continue to operate as a going concern following the
Restructuring is subject to certain operating and other risks. You should
carefully consider, together with the other information contained in this
document, certain risks related to a failure or delay in implementing the
Restructuring, risks arising from implementation of the Restructuring, operating
risks and risks related to ownership of the New Shares, the New Notes and the
Warrants, set out in Section 2, Part F: Risk Factors. All statements in this
document (other than parts II and III) are to be read subject to, and are
qualified in their entirety by, the matters referred to in Section 2, Part F:
Risk Factors.
THE SCHEMES
CORP SCHEME
Corp proposes to enter into a scheme of arrangement with the Corp Scheme
Creditors pursuant to section 425 of the Act. The Corp Scheme takes effect as a
compromise or arrangement between Corp and the Corp Scheme Creditors and will
not directly affect any other creditors of Corp (described below in the section
headed "Corp stakeholders"). Alongside the Corp Scheme, it is proposed to make
changes to Corp's capital structure by way of the Capital Reduction, involving
the cancellation of its current called up share capital and its share premium
18
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
--------------------------------------------------------------------------------
account. It is expected that the reserve arising on the Capital Reduction will
eliminate the deficit on the profit and loss account that would otherwise be
shown on Corp's balance sheet as at 31 March 2003. Further details of the
Capital Reduction are set out in Section 2, Part D.9. The Corp Scheme is set out
in part II of this document.
The Corp Scheme will become effective and legally binding on Corp and all Corp
Scheme Creditors in accordance with its terms if: (i) at the meeting of the Corp
Scheme Creditors a majority in number representing three-fourths in value of
Corp Scheme Creditors present and voting either in person or by proxy approves
the Corp Scheme (for the purposes of voting at the meeting of Corp Scheme
Creditors, a Form of Proxy is enclosed with this document); (ii) the Court
subsequently makes an order sanctioning the Corp Scheme; and (iii) the Court's
order sanctioning the Corp Scheme is sealed and a copy of it is delivered for
registration to the Registrar of Companies in England and Wales.
Corp will not take the necessary steps to make the Scheme effective unless and
until: (a) Corp has, following the passing of a unanimous Board resolution to
approve the same, provided confirmation in writing to the Prospective
Supervisors (for the sole benefit of the Prospective Supervisors) prior to each
of (i) the release of the interim security granted by Corp through its special
purpose subsidiary Highrose Limited, (ii) the Corp Scheme Meeting, (iii) the
hearing to sanction the Corp Scheme and (iv) the Effective Date, to the effect
that Corp remains satisfied that the reserves built into the Corp Scheme are
sufficient to meet distributions due to be made to all Corp Scheme Creditors and
that Corp remains of the opinion that its statement as to the Corp Group's
working capital contained in Section 2, Part D.21 remains valid; (b) the
Prospective Supervisors of the Corp Scheme have provided confirmation in writing
to Corp (for Corp's sole benefit) on the day of, but prior to, each of events
(i) to (iv) above to the effect that they have no reason to disagree with Corp's
view that the reserves built into the Corp Scheme are sufficient to meet
distributions due to be made to all Corp Scheme Creditors; (c) a permanent
injunction order of the US Bankruptcy Court under Section 304 of Title 11 of the
United States Code is granted in respect of the Corp Scheme; and (d) all
conditions precedent (other than those relating to the Corp Scheme becoming
effective) set out in the Working Capital Facility and the Performance Bonding
Facility are satisfied or waived by the facility agents.
If the English Court makes an order sanctioning the Corp Scheme, Corp
anticipates that the order of the US Bankruptcy Court will be granted. Corp will
not pursue a permanent injunction order of the US Bankruptcy Court unless the
English Court makes an order sanctioning the Corp Scheme. If all of the above
conditions are not satisfied by 19 June 2003 the Corp Scheme will be withdrawn.
Corp will undertake to the Court to file the Court order approving the Corp
Scheme with the Registrar of Companies as soon as the conditions set out above
are satisfied provided such conditions are satisfied on or before 19 June 2003.
The hearing to sanction the Corp Scheme will qualify as a fairness hearing of
the kind contemplated by Section 3(a)(10) of the Securities Act. All Corp Scheme
Creditors and Bondholders are entitled to attend the hearing in person or
through counsel to support or oppose the sanctioning of the Corp Scheme.
The Corp Scheme is not conditional on Listing of the New Shares, the New Notes
and/or the Warrants. However, it is expected that the New Shares, the New Notes
and the Warrants will be listed on the Effective Date of the Corp Scheme. Corp
will use its reasonable endeavours to effect the Listing of the New Shares, the
New Notes and the Warrants as soon as possible on or after the Effective Date of
the Corp Scheme.
PLC SCHEME
plc proposes to enter into a scheme of arrangement with the plc Scheme Creditors
pursuant to section 425 of the Act. The plc Scheme takes effect as a compromise
or arrangement between plc and the plc Scheme Creditors and will not directly
affect any other creditors of plc (described below in the section headed "plc
stakeholders").
The plc Scheme will become effective and legally binding on plc and all plc
Scheme Creditors in accordance with its terms if: (i) at the meeting of the plc
Scheme Creditors a majority in number representing three-fourths in value of plc
Scheme Creditors present and voting either in person or by proxy approve the plc
Scheme (for the purposes of voting at the meeting of plc Scheme Creditors, a
Form of Proxy is enclosed with this document); (ii) the Court subsequently makes
an order sanctioning the plc Scheme; and (iii) the Court's order sanctioning the
plc Scheme is sealed and a copy of it is delivered for registration to the
Registrar of Companies in England and Wales.
19
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
--------------------------------------------------------------------------------
plc will not take the necessary steps to make the Scheme effective unless and
until: (a) plc has, following the passing of a unanimous Board resolution to
approve the same, provided confirmation in writing to the Prospective
Supervisors (for the sole benefit of the Prospective Supervisors) prior to each
of (i) the release of the interim security granted by Corp through its special
purpose subsidiary Highrose Limited, (ii) the plc Scheme Meeting, (iii) the
hearing to sanction the plc Scheme and (iv) the Effective Date, to the effect
that plc remains satisfied that the reserves built into the plc Scheme are
sufficient to meet distributions due to be made to all plc Scheme Creditors; (b)
the Prospective Supervisors of the plc Scheme have provided confirmation in
writing to plc (for plc's sole benefit) on the day of, but prior to, each of
events (i) to (iv) above to the effect that they have no reason to disagree with
plc's view that the reserves built into the plc Scheme are sufficient to meet
distributions due to be made to all plc Scheme Creditors; (c) a permanent
injunction order of the US Bankruptcy Court under Section 304 of Title 11 of the
United States Code is granted in respect of the plc Scheme; and (d) a copy of
the Court's order sanctioning the Corp Scheme is delivered for registration to
the Registrar of Companies in England and Wales.
If the English Court makes an order sanctioning the plc Scheme, plc anticipates
that the order of the US Bankruptcy Court will be granted. plc will not pursue a
permanent injunction order of the US Bankruptcy Court unless the English Court
makes an orders sanctioning both the Corp Scheme and the plc Scheme. If all of
the above conditions are not satisfied by 19 June 2003 the plc Scheme will be
withdrawn. plc will undertake to the Court to file the Court order approving the
plc Scheme with the Registrar of Companies as soon as the conditions set out
above are satisfied provided such conditions are satisfied on or before 19 June
2003.
The hearing to sanction the plc Scheme will qualify as a fairness hearing of the
kind contemplated by Section 3(a)(10) of the Securities Act. All plc Scheme
Creditors and Bondholders are entitled to attend the hearing in person or
through counsel to support or oppose the sanctioning of the plc Scheme.
WHO WILL BE AFFECTED BY THE SCHEMES?
CORP STAKEHOLDERS
The Corp Scheme will take effect as a compromise of all creditors' claims
against Corp at the Record Date, other than certain Excluded Claims, in
consideration (pro rata to each Corp Scheme Creditor's Admitted Scheme Claim) of
a distribution of cash, new equity and new debt securities of Corp. Claims that
are denominated in a currency other than sterling will be converted into
sterling: (a) for the purpose of calculating voting entitlements at the Corp
Scheme Meeting, at the Voting Rate; and (b) for all other purposes, at the
Scheme Rate.
Details of the categories of Excluded Claims and the basis upon which they have
been excluded are set out in Section 2, Part C.7 and in Appendix 9.
The claims of creditors of Corp excluded from the Corp Scheme will not be
directly affected by either the Corp Scheme or the plc Scheme and are expected
to be satisfied in the ordinary course subject to the risk factors affecting the
business of the Group detailed in Section 2, Part F: Risk Factors.
Corp's existing shareholders have agreed, conditionally on the allotment and
issue of the New Shares pursuant to the Corp Scheme, to the conversion of all of
the existing ordinary shares in the capital of Corp into Non-Voting Deferred
Shares. Therefore, Corp's existing shareholders will have no ordinary shares in
Corp following the implementation of the Restructuring. The Non-Voting Deferred
Shares are expected to be cancelled as part of the Capital Reduction a few days
after the Effective Date.
As a result of the Corp Scheme, plc Shareholders will receive (proportionate to
their existing holdings in plc but subject to a minimum of one share per plc
Shareholder), with no price payable, in aggregate 0.5 per cent. of Corp's issued
ordinary share capital immediately following the Restructuring and up to 50
million Warrants exercisable at any time up to four years after the date of the
Restructuring allowing for the subscription of additional ordinary shares equal
to an aggregate of up to 5 per cent. of Corp's issued ordinary share capital
immediately following the Restructuring. The Warrants, each of which will give
the right to subscribe for one share (subject to adjustment to protect against
dilution in the event of certain corporate actions), will have an exercise price
per underlying ordinary share of 150p (again subject to adjustment to protect
against dilution in the event of certain corporate actions). An ordinary share
price of 150p implies a post Restructuring market capitalisation of Corp of L1.5
billion.
20
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
--------------------------------------------------------------------------------
Further details of the changes to Corp's capital structure are set out below
under the heading "Equity Dilution". Details of certain share incentive plans
that will operate post Restructuring are set out in Section 2, Part D.10.
PLC STAKEHOLDERS
The plc Scheme will take effect as a compromise of all creditors' claims against
plc at the Record Date, other than certain Excluded Claims, in consideration for
a distribution (pro rata to each plc Scheme Creditor's Admitted Scheme Claim) of
plc's assets available for distribution to Scheme Creditors (which, at the
Effective Date of the plc Scheme, will comprise all of plc's assets less a
reserve comprising cash of approximately L9,300,000 in respect of plc's Ongoing
Costs). Claims that are denominated in a currency other than sterling will be
converted into sterling: (a) for the purpose of calculating voting entitlements
at the plc Scheme Meeting, at the Voting Rate; and (b) for all other purposes,
at the Scheme Rate.
Details of the categories of Excluded Claims and the basis upon which they have
been excluded are set out in Section 2, Part C.7 and in Appendix 9.
plc's Excluded Claims include, amongst other things, claims in respect of
unclaimed dividends, the gross amount of which is no more than L278,451. In an
insolvent liquidation of plc the claims of creditors in respect of unclaimed
dividends ("dividend creditors") would be subordinated to the claims of all
other creditors. They are therefore in a different class from the other
creditors of plc. There are three ways in which they could be treated: they
could be included in the plc Scheme and treated in the same manner as other
creditors; they could be excluded from the Scheme and left unpaid on the ground
that with their subordinated status they have no real economic interest in plc's
assets; or they could be excluded from the plc Scheme and paid if and when a
valid claim is made.
The first way of treating such claims would involve a separate class meeting of
dividend creditors. This has been rejected because it would be excessively
expensive to identify them, to send this document to each of them and, in the
event that the recipients of this document did make claims, to administer their
claims and distribute plc Scheme Consideration to them. As a practical matter it
would be necessary to provide that the plc Scheme could take effect even if, at
the separate class meeting of creditors in this category, the statutory majority
(or a sufficient representative turnout) was not obtained, and this would remove
any incentive for the class to vote in favour of the plc Scheme. The second way
would leave them with unpaid claims against plc in their capacity as creditors
and could therefore result in an insolvent liquidation of plc. This approach has
been rejected because if this were to occur in the early stages of the
implementation of the Schemes, it may have implications for the reputation of
the Marconi name and accordingly may impact upon the trust of third parties to
deal with members of the Corp Group going forward. In addition, given the fact
that almost all claims would in any event be excluded as de minimis, the
decision was taken to exclude whatever other claims of this nature remain
outstanding. It is therefore proposed that they will be excluded from the plc
Scheme and paid if and when a valid claim is made. Accordingly, an amount of
L278,451 will be set aside for the purposes of paying any claims in respect of
previously unclaimed dividends on plc Shares. Upon termination of the plc
Scheme, arrangements will be put in place to ensure that this amount is set
aside to pay such claims as and when a claim is made.
Save as regards the treatment of the unclaimed dividends, which would otherwise
be subordinated to the general body of unsecured creditors, the rights and
ranking afforded to plc's creditors under the plc Scheme is intended to reflect
the rights and ranking that those creditors would have had in a liquidation of
plc.
The following obligations of plc have been novated to Corp (conditionally upon
the Corp Scheme becoming effective) and will be excluded from the Corp Scheme:
a. a guarantee provided to Finmeccanica SpA as the purchaser of certain
Italian subsidiaries sold by the Group in 2002;
b. certain agreements between plc and BAE in respect of the merger of
the Group's former defence business with BAE; and
c. a licence agreement dated 1 December 1999 between Lemelson Medical,
Education and Research Foundation, Limited Partnership and plc.
21
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
--------------------------------------------------------------------------------
In addition, the service contracts and letters relating to retirement benefits
(including FURBS) of Michael Parton and Michael Donovan have been novated to
Corp unconditionally.
The obligations listed above have (or will if the Corp Scheme becomes effective)
become obligations of Corp and therefore will be unaffected by the plc Scheme.
These obligations will also be excluded from the compromise to be effected by
the Corp Scheme and will therefore be unaffected by the Corp Scheme.
plc Scheme Creditors include creditors with contingent claims against plc, for
example under guarantees. The Syndicate Banks, the Eurobond Trustee and the
Yankee Bond Trustee are all plc Scheme Creditors because plc has guaranteed the
Bank Facility, the Eurobonds and the Yankee Bonds. Each of the Trust Deeds and
the Indenture contains a clause which provides that the guarantee given by plc
in respect of the Bonds will terminate on certification by Corp to the Eurobond
Trustee or the Yankee Bond Trustee, as the case may be, that plc has been
unconditionally and irrevocably released from its obligations in respect of the
Bank Facility (in the case of the Eurobonds) or that plc has been
unconditionally and irrevocably released from its obligations in respect of the
Bank Facility and the Eurobonds (in the case of the Yankee Bonds). This would
not be the case if plc was wound up, but would be the case if these obligations
were released under the plc Scheme.
Various concerns were raised by either or both of the Informal Committee of
Bondholders and the Co-ordination Committee during the course of the
Restructuring discussions concerning the maintenance of guarantee claims against
plc, including the potential lapse of the plc guarantee in respect of the Bonds,
and arrangements were put in place in order to deal with these concerns. In
making its decision to approve these arrangements, plc took into consideration
that it was correct in principle that the rights should be preserved, in order
to put the creditors concerned in the same position as if both Scheme Companies
had been wound up.
The arrangements are as follows:
a. the Corp Scheme will provide that no Scheme Claim under the Corp
Scheme will be reduced, or in any way affected, by the compromise of
any claims of the relevant Scheme Creditor against plc pursuant to
the terms of the plc Scheme, and vice versa;
b. the execution by plc of a deed poll which provides that in the event
that a Scheme Creditor who has the benefit of a guarantee in respect
of a Corp Scheme Claim is required to give credit to plc in a
liquidation for any recoveries made under the Corp Scheme, plc will
pay to that creditor a further sum equal to the amount of the
distribution that the creditor received in the Corp Scheme; and
c. the entry by Corp and plc into a bondholder confirmation letter, to
ensure that the guarantee in respect of the Bonds does not fall away
before the relevant Trustees become entitled to claim under the plc
Scheme on behalf of the Bondholders and that the plc guarantee is
extended to Definitive Holders.
By the Termination Date (as defined in the plc Scheme) all the assets of plc
will have been distributed, in accordance with the plc Scheme, to the plc Scheme
Creditors. It is envisaged that at that date there will be no further claims
against, or assets held by, plc. It is intended that, following that date, plc
will be liquidated or dissolved.
plc has been granted a waiver by the UKLA from the requirement to obtain
approval for the Restructuring from plc Shareholders.
EQUITY DILUTION
The entire issued ordinary share capital of Corp is currently owned by plc and
its nominee. Immediately following completion of the Restructuring, Scheme
Creditors and the Escrow Trustee (in its capacity as trustee of the Scheme
Consideration for the benefit of the Scheme Creditors) or its nominee will
collectively own 99.5 per cent. of the entire issued ordinary share capital of
Corp and plc Shareholders will collectively own the remaining 0.5 per cent. of
the entire issued ordinary share capital of Corp. The existing ordinary shares
of Corp will be redesignated and converted into Non-Voting Deferred Shares upon
allotment of the New Shares under the Corp Scheme. It is intended that those
Non-Voting Deferred Shares will be cancelled as part of the Capital Reduction
within a few days after the Effective Date of the Corp Scheme. The rights and
restrictions attaching to the
22
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
--------------------------------------------------------------------------------
Non-Voting Deferred Shares are described in Appendix 15. The ordinary share
capital of Corp following the Restructuring will, however, be subject to
dilution resulting from the future exercise of the Warrants referred to above
and of options granted under the share incentive plans (details of which are
contained in Section 2, Part D.10).
Save as referred to above, no other entitlements have been granted for
participation in the share capital of Corp as from implementation of the
Restructuring.
SUMMARY OF THE PRINCIPAL TERMS OF THE SCHEMES
CORP SCHEME
If the Corp Scheme becomes effective, all Corp Scheme Creditors will be bound by
its terms. Corp will be fully and completely released by the Corp Scheme
Creditors from all obligations of Corp to the Corp Scheme Creditors in
connection with their Scheme Claims against Corp with effect from the earlier of
the date on which their Scheme Claim is Admitted and is the subject of a
Distribution Notice, the Final Distribution Date under the Corp Scheme, and the
issue of a Termination Notice under the Corp Scheme. In consideration for such
cancellation and release, Corp Scheme Creditors will receive a distribution, pro
rata to their Admitted Scheme Claims, of:
a. L340 million cash;
b. the euro equivalent (calculated at the Currency Rate) of L450
million in aggregate principal amount of new guaranteed senior
secured notes due April 2008 to be issued by Corp denominated in
euro and/or US dollars, subject to elections made in Claim Forms and
Account Holder Letters, with interest payable quarterly in cash at a
rate of 8 per cent. per annum;
c. the sum of US$300 million plus the US dollar equivalent (calculated
at the Currency Rate) of L117.27 million in aggregate principal
amount of new guaranteed junior secured notes due October 2008 to be
issued by Corp denominated in US dollars with interest payable
quarterly in cash at a rate of 10 per cent. per annum or, at Corp's
option, in kind (by issuing additional new junior secured notes) at
a rate of 12 per cent. per annum; and
d. 995,000,000 ordinary shares, representing 99.5 per cent. of the
issued ordinary share capital of Corp immediately following the
implementation of the Restructuring.
The cash element of the distribution will be increased by the net proceeds of
any asset disposals, other than L82 million of excluded asset disposal proceeds,
received on or after 1 December 2002 and before 1 May 2003, and the aggregate
principal amount of the New Junior Notes will be decreased by 10/11ths of the
sterling amount by which the cash element is increased (such calculation to
reduce the L117.27 million figure referred to in c. above). Such net proceeds
received on or after 1 May 2003 will be dealt with in accordance with the terms
of the New Notes.
The cash, New Shares, New Senior Notes and New Junior Notes comprise the Corp
Scheme Consideration. Further details of the terms of the New Senior Notes and
New Junior Notes are contained in Section 2, Part C.3 and Appendix 8 of this
document. Details of the guarantee and security arrangements in respect of the
New Notes are contained in Appendix 10.
Corp will establish an ADR programme and, accordingly, elections may be made in
Claim Forms and Account Holder Letters to receive all or a portion of the New
Shares in the form of ADRs.
It is expected that the New Shares, New Notes and Warrants will be listed on the
Official List and admitted to trading on the London Stock Exchange's market for
listed securities on the Effective Date of the Corp Scheme. Corp has applied to
list the New Shares, New Notes and Warrants and will use its reasonable
endeavours to effect the Listing as soon as possible on or after the Effective
Date of the Corp Scheme. The Corp Scheme is not, however, conditional on this
Listing (see details of risks arising from implementation of the Restructuring
in Section 2, Part F.2). Corp will apply to list its ADRs on NASDAQ and will use
its reasonable endeavours to effect this NASDAQ listing as soon as practicable
following the Effective Date of the Corp Scheme. It is currently expected that
the NASDAQ listing will become effective during the third calendar quarter of
2003.
23
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
--------------------------------------------------------------------------------
If the Corp Scheme becomes effective, plc Shareholders will receive New Shares
and Warrants as referred to above.
First Initial Distribution
The mechanism for calculating and distributing a Corp Scheme Creditor's
entitlement to receive Corp Scheme Consideration is detailed in the Corp Scheme
set out in part II and is also described in more detail in Section 2, Part C.7.
Both these sections should be read carefully.
The Corp Scheme provides that a First Initial Distribution will take place on
the Effective Date of the Corp Scheme. At the Court hearing to sanction the Corp
Scheme, Corp will present to the Court a schedule of Scheme Claims compiled by
the Prospective Supervisors which will set out the details of the Scheme
Creditors with Known Claims which are proposed to be Admitted by the Supervisors
on the Effective Date and that, in accordance with the terms of the Corp Scheme,
will receive their Initial Distribution through the First Initial Distribution.
In summary, each Corp Scheme Creditor that participates in the First Initial
Distribution will be entitled to receive (assuming no increase in the cash
element but that the plc Scheme becomes effective on the same day as the Corp
Scheme), for each L1,000,000 of Admitted Scheme Claim, an Initial Distribution
of cash, New Notes and New Shares of approximately:
L64,196 cash;
L85,022 equivalent in aggregate principal amount of New Senior Notes
(which will be denominated in euro and/or US dollars, subject to elections
made in Claim Forms and Account Holder Letters);
L58,177 equivalent in aggregate principal amount of New Junior Notes
(which will be denominated in US dollars); and
187,993 New Shares.
If the plc Scheme does not become effective on the same day as the Corp Scheme
(or at all) the Corp/plc distribution model described in Section 2, Part C.7
under the heading "Circulation of Scheme Consideration and payments on a
modelled basis" will not have been applied, and accordingly each of the numbers
set out above will be reduced by between approximately 0.41 per cent. and 0.47
per cent.
For the purposes of the above calculations, Known Claims that are denominated in
a currency other than sterling and New Junior Notes that will be issued by
reference to a US dollar amount have been converted at the Voting Rate. The
final calculations as to Known Claims will be made at the Scheme Rate (which
will be set five Business Days before the Effective Date). The final
calculations as to the principal amounts of the New Senior Notes and the New
Junior Notes to be received by a Scheme Creditor on the First Initial
Distribution will be made at the Currency Rate (which will be set the Business
Day before the Corp Scheme Meeting).
The Corp Scheme provides that a portion of the Corp Scheme Consideration will
initially be used to meet Known Claims that have been identified prior to the
Record Date. On such a Known Claim becoming Admitted in the Corp Scheme, the
Corp Scheme Creditor with that Known Claim will be entitled to receive the
portion of the Corp Scheme Consideration designated to meet that Known Claim.
Corp has undertaken extensive due diligence and advertised in newspapers in the
UK, the US and elsewhere in order to identify its creditors and ensure that all
Corp Scheme Creditors are included in the schedule of Known Claims. Corp has
also written to its Known Creditors that will be affected by the Corp Scheme
with the exception of certain financial creditors with Known Claims who have
been represented in negotiations with Corp and plc regarding the development of
the Restructuring proposals of Corp and plc, creditors for unclaimed interest
and redemptions on loan notes issued by Corp whose potential claims are easily
quantified and are provided for in full, and those whose addresses Corp has been
unable to ascertain. With the exception of two claims (one apparently against
Corp) which were clearly frivolous, the advertising process identified no claims
which had not previously been identified by Corp's due diligence. In addition to
the Known Claims that have been identified, the Corp Scheme includes a reserve
of Scheme Consideration that would be able to meet the payment of an Initial
Distribution in respect of Scheme Claims which are Admitted for up to L125
million, which Corp is satisfied will
24
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
--------------------------------------------------------------------------------
be sufficient to cover any other Scheme Claims that had not been identified by
the Record Date. The Prospective Supervisors have confirmed that they have no
reason to disagree with Corp's view that the reserve is sufficient.
However, a mechanism has been put in place to ensure that Corp will not proceed
with the Corp Scheme and will withdraw the Scheme if, prior to the Effective
Date of the Corp Scheme, it becomes apparent that there may be Scheme Claims
against Corp which are not Known Claims and Corp is not satisfied that the
reserve will be sufficient to meet distributions due to be made out of it or if
the Prospective Supervisors do not confirm that they have no reason to disagree
with Corp's view that the reserve is sufficient. Details of this mechanism are
set out in Section 2, Part C.7. If the Corp Scheme is withdrawn then the plc
Scheme will also be withdrawn.
If at any time after the issue of the First Initial Distribution Notice, which
will occur on the Effective Date, the Supervisors are not satisfied that the
reserve will be sufficient to meet distributions due to be made out of it, then
the remaining Scheme Consideration set aside to meet Known Claims and the
remaining reserve will be aggregated and all Further Distributions under the
Corp Scheme will be made out of the remaining Scheme Consideration, on a
strictly pari passu basis.
PLC SCHEME
The plc Admitted Scheme Creditors will be entitled to receive a distribution pro
rata to their Scheme Claims out of plc's assets which are available for
distribution to plc Admitted Scheme Creditors.
Assuming the Corp Scheme becomes effective, plc's assets will principally
comprise the cash, New Shares and New Notes that plc receives under the Corp
Scheme from Bonds held by Ancrane and from monies owed by Corp to Ancrane (as
described above). plc's entitlement to this Scheme Consideration will arise from
a repayment of capital in specie by Ancrane to plc of all of its assets other
than L100. The plc Scheme provides that plc will set aside the sum of L7,000,000
from the cash element of Corp Scheme Consideration it receives via Ancrane
which, together with plc's cash of approximately L2,300,000, interest on the
aggregate of these two cash amounts and L2,000,000 available to be drawn (at
Corp's request) under a letter of credit to be provided in favour of the plc
Scheme Supervisors from time to time by HSBC Bank plc pursuant to the
Performance Bonding Facility described below, will be available to meet plc's
Ongoing Costs.
plc's Ongoing Costs are estimated to be a maximum of L11,300,000 plus an amount
which will be covered by the interest referred to above, and will include:
a. the costs of plc, the Supervisors, the Escrow Trustee, the
Distribution Agent and their respective advisers in implementing the
Restructuring and administering the plc Scheme;
b. any costs plc or the Supervisors incur in continuing to defend
Allowed Proceedings (including any adverse costs orders);
c. the payment of any claims which are to be excluded from the plc
Scheme and which have not been novated to Corp which represent all
claims as at the Record Date which would have been preferential in a
liquidation and claims in respect of unpaid dividends which in a
liquidation would have been subordinated; and
d. any ongoing administrative costs of plc, including the preparation
and filing of accounts, the holding of any annual general meetings
that are required to be held under the Act and the costs of plc's
eventual dissolution or liquidation.
Any monies remaining following the payment of plc's Ongoing Costs will be
distributed to all plc's Admitted Scheme Creditors in the Final Distribution
under the plc Scheme.
Subject to any limitations under applicable securities laws, the assets plc
receives from Ancrane will be distributed to the plc Scheme Creditors in specie
(i.e. in the form in which they are held, and not realised for cash prior to
distribution). Any other assets of plc are expected to be converted into cash
before distribution.
25
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
--------------------------------------------------------------------------------
First Initial Distribution
The mechanism for calculating and distributing a plc Scheme Creditor's
entitlement to receive plc Scheme Consideration is detailed in the plc Scheme
set out in part III and is also described in more detail in Section 2, Part C.7.
Both these sections should be read carefully.
The plc Scheme provides that a First Initial Distribution will take place on the
Effective Date of the plc Scheme, at the same time as the First Initial
Distribution under the Corp Scheme. At the Court hearing to sanction the plc
Scheme, plc will present to the Court a schedule of Scheme Claims compiled by
the Prospective Supervisors which will set out details of the Scheme Creditors
with Known Claims which are proposed to be Admitted by the Supervisors on the
Effective Date and that, in accordance with the terms of the plc Scheme, will
receive their Initial Distribution through the First Initial Distribution. The
Initial Distribution available to all plc Scheme Creditors will comprise all the
Scheme Consideration received by plc via Ancrane as a result of Ancrane's
entitlement to an Initial Distribution in the Corp Scheme (net of the sum of
L7,000,000 set aside on account of plc's Ongoing Costs). Scheme Claims that have
been Admitted by the Effective Date will receive their Initial Distribution
through the First Initial Distribution.
Corp has the benefit of a Scheme Claim of L146,587,439 against plc. If this
Known Claim is Admitted in the plc Scheme in full (which Corp expects to be the
case) Corp will become entitled to receive its pro rata entitlement in respect
of its Admitted Scheme Claim in the First Initial Distribution under the plc
Scheme. Both Corp and plc have agreed to distribute any Scheme Consideration
they receive as a result of this claim to their respective Scheme Creditors by
way of Additional Scheme Consideration. Further details of these payments are
set out in Section 2, Part C.7 below under the heading "Circulation of Scheme
Consideration and payments on a modelled basis".
In summary, each plc Scheme Creditor that participates in the First Initial
Distribution in the plc Scheme will be entitled to receive (assuming no increase
in the cash element of the Corp Scheme Consideration but that the plc Scheme
becomes effective on the same day as the Corp Scheme), for each L1,000,000 of
Admitted Scheme Claim an Initial Distribution of cash, New Notes and New Shares
of approximately:
L9,446 cash;
L14,554 equivalent in aggregate principal amount of New Senior Notes
(which will be denominated in euro and/or US dollars, subject to elections
made in Claim Forms and Account Holder Letters);
L9,959 equivalent in aggregate principal amount of New Junior Notes (which
will be denominated in US dollars); and
32,182 New Shares.
If the plc Scheme does not become effective on the same day as the Corp Scheme
the Corp/plc distribution model described in Section 2, Part C.7 under the
heading "Circulation of Scheme Consideration and payments on a modelled basis"
will not have been applied, and accordingly each of the numbers set out above
will be reduced by approximately 8.51 per cent.
For the purposes of the above calculations, Known Claims that are denominated in
a currency other than sterling and New Junior Notes that will be issued by
reference to a US dollar amount have been converted at the Voting Rate. The
final calculations as to Known Claims will be made at the Scheme Rate (which
will be set five Business Days before the Effective Date). The final
calculations as to the principal amounts of the New Senior Notes and the New
Junior Notes to be received by a Scheme Creditor on the First Initial
Distribution will be made at the Currency Rate (which will be set the Business
Day before the Corp Scheme Meeting).
The plc Scheme provides that a portion of plc's assets available for
distribution will be used to meet Known Claims that have been identified prior
to the Record Date. On such Known Claim becoming Admitted in the plc Scheme, the
plc Scheme Creditor with that plc Scheme Claim will be entitled to receive the
portion of the plc Scheme Consideration designated to meet that Known Claim.
plc has undertaken extensive due diligence and advertised in newspapers in the
UK, the US and elsewhere in order to identify its creditors and ensure that all
plc Scheme Creditors are included in the Schedule of Known
26
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
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Claims. plc has also written to all of its Known Creditors that will be affected
by the plc Scheme with the exception of certain financial creditors with Known
Claims who have been represented in negotiations with Corp and plc regarding the
development of the Restructuring proposals of Corp and plc, and those whose
addresses plc has been unable to ascertain. With the exception of one claim
(which is disputed by plc, but is provided for in full in the plc Scheme), the
advertising process identified no claims which had not been previously
identified by plc's due diligence. In addition to the claims that have been
identified, the plc Scheme includes a reserve of Scheme Consideration that would
be able to meet the payment of an Initial Distribution in respect of Scheme
Claims which are Admitted for up to L250 million, which plc is satisfied will be
sufficient to cover any other Scheme Claims that have not been identified by the
Record Date. The Prospective Supervisors have confirmed that they have no reason
to disagree with plc's view that the reserve is sufficient.
However, a mechanism has been put in place to ensure that plc will not proceed
with the plc Scheme and will withdraw the Scheme if prior to the Effective Date
of the plc Scheme it becomes apparent that there may be Scheme Claims against
plc which are not Known Claims and plc is not satisfied that the reserve will be
sufficient to meet distributions due to be made out of it or if the Prospective
Supervisors do not confirm that they have no reason to disagree with plc's view
that the reserve is sufficient. Details of this mechanism are set out in Section
2, Part C.7. In any event, if the Corp Scheme is withdrawn then the plc Scheme
will also be withdrawn, but the Corp Scheme will not be withdrawn only because
the plc Scheme is withdrawn.
If at any time after the issue of the First Initial Distribution Notice, which
will occur on the Effective Date, the Supervisors are not satisfied that the
reserve will be sufficient to meet distributions due to be made out of it, then
the remaining Scheme Consideration set aside to meet Known Claims and in the
reserve will be aggregated and all Further Distributions under the plc Scheme
will be made out of the remaining Scheme Consideration, on a strictly pari passu
basis.
AGGREGATE FIRST INITIAL DISTRIBUTIONS FROM BOTH SCHEMES
If a Scheme Creditor has an Admitted Scheme Claim in the Corp Scheme, which is
guaranteed by plc, and the claim under the guarantee is Admitted in the plc
Scheme, or vice versa, and that Scheme Creditor participates in the First
Initial Distributions in both the Corp and plc Schemes, then that Scheme
Creditor will be entitled to receive (assuming no increase in the cash element
of the Corp Scheme Consideration but that the two Schemes become effective on
the same day) for each L1,000,000 of Admitted Scheme Claims an aggregate Initial
Distribution of cash, New Notes and New Shares of approximately:
L73,642 cash;
L99,576 equivalent in aggregate principal amount of New Senior Notes
(which will be denominated in euro and/or US dollars, subject to elections
made in Claim Forms and Account Holder Letters);
L68,136 equivalent in aggregate principal amount of New Junior Notes
(which will be denominated in US dollars); and
220,175 New Shares.
If the plc Scheme does not become effective on the same day as the Corp Scheme
the Corp/plc distribution model described in Section 2, Part C.7 under the
heading "Circulation of Scheme Consideration and payments on a modelled basis"
will not have been applied, and accordingly each of the numbers set out above
will be reduced by between approximately 1.45 per cent. and 1.65 per cent.
For the purposes of the above calculations, Known Claims that are denominated in
a currency other than sterling and New Junior Notes that will be issued by
reference to a US dollar amount have been converted at the Voting Rate. The
final calculations as to Known Claims will be made at the Scheme Rate (which
will be set five Business Days before the Effective Date). The final
calculations as to the principal amounts of the New Senior Notes and the New
Junior Notes to be received by a Scheme Creditor on the First Initial
Distribution will be made at the Currency Rate (which will be set the Business
Day before the Corp Scheme Meeting).
27
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
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LEGAL RESTRICTIONS ON DISTRIBUTION OF SECURITIES
Securities will not be distributed pursuant to the Schemes where this would be
prohibited by any applicable law or regulation, or so prohibited except after
compliance with conditions or requirements that are unduly onerous. To the
extent that such a prohibition applies, securities that would otherwise have
been distributed to any relevant person pursuant to the Schemes will be sold and
the net cash proceeds of such sale (after deduction of all applicable expenses
and currency conversion costs) will be paid to that person in full satisfaction
of his rights in respect of these securities under the relevant Scheme (provided
that if the securities are not listed on a securities exchange Scheme Creditors
and Bondholders will be entitled to receive a sum in cash that is substantially
equivalent in value to such securities). In order to permit the distribution of
securities pursuant to the Schemes, the Claim Form will require persons
completing it (other than the Trustees), and the Account Holder Letter will
require Account Holders, to confirm certain facts. For further information, see
Section 2, Part C.9. Any persons who are in doubt as to how legal or regulatory
restrictions may affect them in relation to the Schemes are strongly advised to
consult their professional advisers.
POST RESTRUCTURING WORKING CAPITAL
In order to support the Group's working capital requirements following the
Restructuring, Corp and Marconi Bonding Limited have entered into the
Performance Bonding Facility (a L50 million committed performance bonding
facility provided by HSBC Bank plc and JPMorgan Chase Bank) and Marconi
Communications, Inc. has entered into the Working Capital Facility (a US$22.5
million revolving facility provided by Liberty Funding, L.L.C.). The Performance
Bonding Facility is conditional on the Corp Scheme becoming effective. Further
details of each of these facilities are set out in Section 2, Part D.4.
Information on the Corp Group's financial objectives is set out in Section 2,
Part A.7.
INTERIM SECURITY AND SUPPORT FOR THE RESTRUCTURING
As part of the arrangements to effect the Restructuring, Corp agreed to provide
interim security to its principal lenders, being the Syndicate Banks (in their
capacities as Syndicate Banks, bilateral lenders to Corp and beneficiaries of
guarantees from Corp (in such capacities, "BANK CREDITORS")), the holders of the
Bonds from time to time (apart from plc's wholly owned subsidiary Ancrane) and
the Trustees (together, the "SECURED BONDHOLDERS") and Barclays Bank PLC (as the
only ESOP Derivative Bank which committed to support the Restructuring prior to
15 October 2002). The interim security was taken over cash held by Highrose
Limited, a special purpose subsidiary of Corp and plc, in accounts held with
third party banks (the "LOCKBOX ACCOUNTS"). These interim security arrangements
took effect on 13 September 2002, on which date the balance held in the Lockbox
Accounts was approximately L866,000,000. The interim security arrangements were
amended on 13 December 2002 and were further amended on 28 March 2003. As at 27
March 2003, the balance held in the Lockbox Accounts was approximately
L770,700,000.
Without this interim security, the Syndicate Banks (as comprised at the time)
and the Informal Committee of Bondholders would not have been prepared to
continue to support the Restructuring, and insolvency proceedings would have
been the only practicable alternative.
On 26 March 2003 and 24 March 2003 respectively the requisite majorities of the
Syndicate Banks and the members of the Informal Committee of Bondholders agreed
an extension of time in which to complete the Restructuring and a waiver of
enforcement events which may then have existed in relation to the interim
security. In addition, the requisite majorities of the Syndicate Banks and the
members of the Informal Committee of Bondholders, in contemplation of the
Restructuring: (a) consented, for the purposes of the undertakings given in
favour of the Syndicate Banks and the Informal Committee of Bondholders, to the
entry by Corp, plc and other Group companies into certain transactions
(including those contemplated under the Scheme Implementation Deed) necessary to
facilitate the Restructuring; and (b) agreed a number of additional carve-outs
to those undertakings to permit Corp, plc and other Group Companies to enter
into transactions contemplated in this document (provided that, subject to some
exceptions, such transactions do not take effect until the Effective Date of the
Corp Scheme).
28
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
--------------------------------------------------------------------------------
In addition, in connection with the ESOP Settlement Agreement referred to below,
UBS AG, Citibank, N.A. and Barclays Bank PLC have each provided a voting
undertaking in relation to the Corp Scheme and the plc Scheme (further details
of which are set out in part I, Section 2, Part D.2).
Provision has been made for the interim security to be released prior to the
Corp Scheme Meeting in circumstances tied to the prospects of the Corp Scheme
being successfully implemented (as described more fully in Section 2, Part D.1).
If the interim security has not been released prior to the Corp Scheme Meeting
neither Corp nor plc will proceed with their respective Schemes, and the interim
security will remain in place in any subsequent insolvency proceedings, meaning
that the Bank Creditors, Secured Bondholders and Barclays Bank PLC would rank
ahead of all unsecured creditors of Corp with respect to the cash held in the
Lockbox Accounts. If the interim security is released and the Corp Scheme
Meeting proceeds, the choice facing all Corp Scheme Creditors will be the same;
either the Corp Scheme will be approved and implemented, or the Corp Scheme will
be rejected and in the inevitable insolvency proceeding which would follow such
rejection the interim security would no longer be in place.
The Syndicate Banks and the Informal Committee of Bondholders have indicated
that they will not be prepared to release the interim security prior to the Corp
Scheme Meeting unless, immediately before such release, Corp has confirmed to
the Prospective Supervisors that Corp remains satisfied that the reserves built
into the Corp Scheme are sufficient to meet distributions to all Corp Scheme
Creditors and that Corp remains of the opinion that its statement as to the Corp
Group's working capital contained in Section 2, Part D.21 remains valid, and the
Prospective Supervisors have confirmed to Corp that they have no reason to
disagree with Corp's view that the reserves built into the Corp Scheme are
sufficient to meet distributions due to be made to all Corp Scheme Creditors.
SETTLEMENT OF ESOP DERIVATIVE CLAIMS
On 26 March 2003, Corp and plc entered into a definitive agreement with the
Group's ESOP Derivative Banks for a settlement of their ESOP derivative related
claims against the Group. Under the terms of the settlement, which is
conditional upon the Corp Scheme becoming effective, Corp will pay a total of
L35 million to the ESOP Derivative Banks in full and final settlement of their
ESOP related claims against the Group. This settlement amount will be paid from
a fund of up to L170 million which was to have been set aside by Corp, as part
of the Restructuring, pending resolution of potential liabilities of Group
companies to Barclays Bank PLC, Salomon Brothers International Limited and UBS
AG in relation to the Group's ESOP derivative arrangements. The settlement has
made available approximately L135 million in cash which forms part of the L340
million comprising the cash element of the Corp Scheme Consideration. Without
the ESOP settlement, the L135 million sum would not have formed part of the Corp
Scheme Consideration.
The Boards of Corp and plc believe that the ESOP settlement is in the best
interests of Corp and plc and their respective stakeholders as a whole. In
reaching this conclusion, the Boards of Corp and plc have taken appropriate
legal advice from leading counsel and considered a number of relevant factors,
including the merits of the claims of the ESOP Derivative Banks, the desire to
reduce the cost and expense of continuing litigation, the potential saving in
the interest burden from which the Group will benefit by settling the ESOP
derivative dispute, the benefits for the Schemes and certainty as to the amount
of the Corp Scheme cash distribution that such a settlement brings.
RISKS ASSOCIATED WITH THE TIMING OF THE RESTRUCTURING
When the Heads of Terms were announced in August 2002, plc indicated that the
Restructuring was scheduled to be completed by 31 January 2003. This date was
extended to 15 March 2003 in December 2002. As a result of the complexity of the
Restructuring the Effective Date of the Schemes is now expected to be on or
around 19 May 2003. The change to the timing of the Restructuring introduces
risks associated with certain financial debt falling due in March 2003. In
particular, the Bank Facility was due for repayment on 25 March 2003 and remains
unpaid, an interest payment was due on the Yankee Bonds on 17 March 2003 and
remains unpaid and an interest payment is due on the Eurobonds on 31 March 2003.
In common with Corp's and plc's approach to other Scheme Claims, pending the
outcome of the Schemes neither Corp nor plc intends to make payment in respect
of such obligations, in whole or in part. Under the terms of the Bank Facility,
unpaid amounts accrue interest at the
29
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
--------------------------------------------------------------------------------
default rates set out therein; namely LIBOR plus 3.25 per cent. per annum. For
the purposes of participation in the Schemes, no such interest will accrue
beyond the Record Date.
The fact of the above mentioned payments falling due represents a risk to the
Restructuring, due to consequential legal action which Syndicate Banks or
Bondholders who are not supportive of the Restructuring process could take
against Corp or plc. However, Corp and plc are of the view that, given the
timing associated with any such legal action as well as the likely attitude of
the English and New York Courts to a creditor seeking to frustrate the
Restructuring (which is intended to be for the benefit of all Scheme Creditors),
these risks should be manageable. This issue is discussed in more detail in
Section 2, Part F: Risk Factors.
WHAT HAPPENS IF EITHER OR BOTH OF THE SCHEMES DO NOT BECOME EFFECTIVE?
The plc Scheme will not become effective unless the Corp Scheme becomes
effective. Following the Corp Scheme being implemented, plc's assets available
for distribution under the plc Scheme to the plc Scheme Creditors will
principally comprise the assets received by it as a result of the repayment of
capital by Ancrane. Ancrane, as a holder of Bonds issued by Corp and guaranteed
by plc and pursuant to intra-group arrangements, will be entitled to its pro
rata share of the Corp Scheme Consideration and the plc Scheme Consideration.
Ancrane has been re-registered as an unlimited liability company to facilitate
the transfer of its assets to plc by the repayment of capital in specie for
distribution to plc Scheme Creditors under the plc Scheme. If the Corp Scheme
does not become effective, the plc Scheme Consideration would be so
significantly diminished that plc would not implement the plc Scheme and would
be forced to commence an insolvency proceeding. If plc were subject to an
insolvency proceeding, for the reasons set out under the heading "The
alternative" below it is likely that there would be a lower rate of return for
the plc Scheme Creditors as compared to their return if the plc Scheme became
effective. Also, any return to plc creditors from an insolvency proceeding would
be likely to be significantly delayed.
The Corp Scheme is not conditional upon the plc Scheme becoming effective and
Corp is satisfied that it will be able to implement the Corp Scheme whether or
not the plc Scheme becomes effective. Corp is satisfied that, if the Corp Scheme
is implemented, the Corp Group will be sufficiently ringfenced from plc that the
Corp Group will be able to operate effectively, even if plc has been forced to
commence an insolvency proceeding.
THE ALTERNATIVE
If the Corp Scheme becomes effective but the plc Scheme does not become
effective, then plc would inevitably have to enter into some form of insolvency
proceeding. If both of the Schemes do not become effective or are terminated
before the First Initial Distribution, it is likely that Corp and plc would have
to enter some form of insolvency proceedings. This is because, given the
severity of the Group's financial position (including the fact that the Bank
Facility was due for repayment on 25 March 2003 and remains unpaid, that an
interest payment was due on the Yankee Bonds on 17 March 2003 and remains
unpaid, and that an interest payment is due on the Eurobonds on 31 March 2003),
the Board of the relevant Scheme Company would be likely to conclude that there
was no reasonable prospect of avoiding an insolvency proceeding. The instigation
of an insolvency proceeding in relation to Corp or both Corp and plc before
either Scheme has become effective would be likely to result in insolvency
proceedings for other principal Group companies.
As referred to above, if the interim security has not been released prior to the
Corp Scheme Meeting neither Corp nor plc will proceed with their respective
Schemes. If the interim security is released and the Corp Scheme Meeting
proceeds, the choice facing all Corp Scheme Creditors will be the same: either
the Corp Scheme will be approved and implemented or the Corp Scheme will be
rejected and in the inevitable insolvency proceeding which would follow such a
rejection the interim security would no longer be in place.
A detailed analysis of the position of Corp and plc should they be subject to
insolvency proceedings (and the assumptions, caveats, limitations and
uncertainties on which such analysis is based) is set out at Appendix 6. This
analysis should be read carefully, including the caveats, limitations and
uncertainties.
Corp and plc believe that the Schemes are more beneficial to Scheme Creditors
than insolvency proceedings or the enforcement of security and should result in
a better return, greater certainty and an immediate day one distribution to
Scheme Creditors. None of these benefits would be possible under the insolvency
alternatives.
30
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
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BOARD COMPOSITION
With the exception of Derek Bonham, membership of the Boards of Corp and plc is
identical.
On 16 December 2002, I was appointed Chairman of plc's Board, in place of Derek
Bonham, who will continue as a non-executive director of plc and chairman of its
remuneration committee until implementation of the Restructuring, for continuity
purposes. I chair plc's nomination committee. On the same date, Kent Atkinson
and Werner Koepf were appointed as non-executive directors of plc. Kent Atkinson
is chairman of plc's audit committee. The executive directors of plc are Michael
Parton (Chief Executive Officer), Michael Donovan (Chief Operating Officer) and
Christopher Holden (Interim Chief Financial Officer).
Michael Parton (Chief Executive Officer), Michael Donovan (Chief Operating
Officer) and Christopher Holden (Interim Chief Financial Officer) will continue
as the executive directors of Corp. On 16 December 2002, I was appointed
Chairman of the Corp Board and subsequently became chairman of Corp's nomination
committee. On the same date, Kent Atkinson and Werner Koepf were appointed as
non-executive directors of Corp. Mr. Atkinson chairs Corp's audit committee. On
14 March 2003, we announced that Kathleen Flaherty and Ian Clubb have agreed to
join the Corp Board as non-executive directors with effect from Listing of the
New Shares, the New Notes and the Warrants. Mr. Clubb will chair Corp's
remuneration committee.
Allen Thomas resigned from the Boards of plc and Corp on 14 March 2003.
ACTION TO BE TAKEN
SCHEME CREDITORS (OTHER THAN PERSONS WITH INTERESTS IN BONDS)
If you are a Scheme Creditor, I urge you to complete and return the Claim Form
and Form of Proxy to KPMG as soon as possible and before the recommended
deadline set out below. To help you in completing these documents detailed
instructions have been included in Appendix 27 and each document contains
further guidance. If you have any queries in connection with the Claim Form or
Form of Proxy, please contact KPMG using the Helpline described at the front of
this document.
BONDHOLDERS
If you are a Bondholder, I urge you to contact your Account Holder (through any
Intermediaries, if appropriate) to ensure that an Account Holder Letter is
submitted in respect of your Bonds before the recommended deadline set out
below. In order to vote at the Scheme Meetings, Bondholders will need to
nominate a Definitive Holder (who may or may not be the Bondholder). This
nomination must be made in the relevant Account Holder Letter. In order to do
this your Account Holder will need instructions from you in relation to voting
and the delivery of Scheme Consideration and will require certain securities
laws confirmations. To help you in giving these instructions detailed guidance
as to the various elections to be made and confirmations to be given has been
included in Appendix 28. If you have any queries in this connection, please
contact Bondholder Communications using the Helpline described at the front of
this document.
ACCOUNT HOLDERS
If you are an Account Holder, I urge you to immediately contact your Bondholders
(through any Intermediaries, if appropriate) for instructions to enable you to
complete and return the Account Holder Letter to Bondholder Communications as
soon as possible and before the recommended deadline set out below. Where
possible, I urge you to complete this document on-line as this will minimise
clerical errors. To help you in completing these documents detailed instructions
have been included in Appendix 28. If you have any queries in connection with
the Account Holder Letter, please contact Bondholder Communications using the
Helpline described at the front of this document.
RECOMMENDED DEADLINE FOR ACTION TO BE TAKEN
It is recommended that Claim Forms and Forms of Proxy are submitted to KPMG
before 5.00 p.m. (London time) on 17 April 2003 and that Account Holder Letters
are submitted to Bondholder Communications before 5.00 p.m. (New York City time)
on 17 April 2003. Forms of Proxy may be submitted to KPMG before 12 noon
31
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 1: LETTER FROM THE CHAIRMAN OF PLC AND OF CORP
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(London time) on 24 April 2003. The Prospective Supervisors will undertake a
review of all Claim Forms submitted prior to the Effective Date to determine
whether the relevant Scheme Claims can be properly Admitted. No Scheme Claims
submitted after the specified time on 17 April 2003 will be included in the
First Initial Distribution Notice. Assuming that the Scheme Claims of the two
Trustees are included in the First Initial Distribution Notice (which Corp and
plc expect to be the case), no Designated Recipient named in an Account Holder
Letter submitted after this date will receive the First Initial Distribution of
Scheme Consideration.
Submission of Forms of Proxy and Account Holder Letters after the recommended
deadline on 17 April 2003 will not preclude a Scheme Creditor (including any
Definitive Holder) from voting at the Scheme Meetings provided that the Scheme
Creditor or his proxy is able to establish his identity and entitlement to vote
at the relevant Scheme Meeting.
RECOMMENDATION
Corp and plc believe that, given the Group's financial position, the proposed
Restructuring is in the best interests of all stakeholders, including Scheme
Creditors, Bondholders and plc Shareholders. If the Restructuring is not
approved, the severity of the Group's financial position is such that Corp and
plc would have no reasonable prospect of avoiding insolvency proceedings which
would mean that there would be a lower return to Scheme Creditors, accompanied
by uncertainty and delay, and no return whatsoever to plc Shareholders.
ACCORDINGLY, CORP RECOMMENDS THAT CORP SCHEME CREDITORS (INCLUDING DEFINITIVE
HOLDERS) VOTE IN FAVOUR OF THE CORP SCHEME AT THE CORP SCHEME MEETING AND PLC
RECOMMENDS THAT PLC SCHEME CREDITORS (INCLUDING DEFINITIVE HOLDERS) VOTE IN
FAVOUR OF THE PLC SCHEME AT THE PLC SCHEME MEETING.
Yours sincerely,
(-s- John Devaney)
JOHN DEVANEY
CHAIRMAN
FOR AND ON BEHALF OF
MARCONI PLC AND MARCONI CORPORATION PLC
32
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
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SECTION 2
FURTHER EXPLANATION OF THE RESTRUCTURING
A. BUSINESS OVERVIEW
A.1 BACKGROUND
The Group is a global vendor of telecommunications equipment and services. The
Group's customers include many of the leading telecommunications operators
throughout the world, with whom it has a large base of installed equipment.
This document sets out proposals which, if implemented, will result in Corp
becoming the new holding company of the Group. It is intended that all of plc's
assets (which derive principally from the claim of plc's subsidiary Ancrane in
the Corp Scheme in respect of its holding of Bonds and monies owed to it by
Corp), net of a reserve in respect of plc's Ongoing Costs, will be distributed
over time to the creditors of plc in accordance with the plc Scheme, following
which it is intended that plc will be liquidated or dissolved. It is intended
that, between the time of the Corp Scheme becoming effective and the listing of
the New Shares, the New Notes and the Warrants, the plc Shares will be delisted
from the Official List and cease trading on the London Stock Exchange's market
for listed securities. Unless the context otherwise requires, this Part A
assumes that the Schemes will be implemented in accordance with their terms and
that the Group is the Corp Group.
A.2 HISTORY OF THE MARCONI GROUP AND THE RESTRUCTURING
EARLY HISTORY
Corp, previously called the General Electric Company, p.l.c. ("GEC") and which
is currently (but, on the implementation of the Corp Scheme, will cease to be) a
wholly-owned subsidiary of plc, was incorporated as a private limited company in
England in 1900 under the name The General Electric Company (1900) Limited and
can trace its origins back to 1886. GEC originally operated in the electrical
industry. The more significant events in the development of the Group are as
follows:
a. 1960s: significant expansion in the electrical industry through
acquisitions
b. 1970s and 1980s: acquisition of Videojet Systems International Inc.
(data systems business), Picker International Holdings Inc. (medical
systems business) and Gilbarco Inc. (commerce systems business);
formation of GEC Plessey Telecommunications Holdings Limited
("GPT"), a 50 per cent. joint venture with The Plessey Company plc,
subsequently increasing its stake to 60 per cent.; formation of two
50 per cent. joint ventures, GEC Alsthom N.V. with Alcatel S.A., and
General Domestic Appliances Ltd (now known as General Domestic
Appliances Holdings Ltd) with the General Electric Company of the
United States; and
c. 1990s: reduction of the stake in the GEC Alsthom joint venture to a
24 per cent. shareholding in Alstom S.A.; acquisition of the
minority 40 per cent. stake in GPT and formation of Marconi
Communications, combining the GPT business with the Marconi
telecommunications operations in Italy, Hong Kong and South Africa
under the same management structure.
d. 1999: GEC separated the Marconi Electronic Systems business ("MES"),
its international aerospace, naval shipbuilding, defence electronics
and defence systems business, which merged with British Aerospace
plc (now known as BAE SYSTEMS plc ("BAE")). GEC's remaining
businesses were reorganised under plc, with GEC becoming a
wholly-owned subsidiary of plc. Shareholders of GEC became
shareholders in plc.
MODERN HISTORY
Following the separation of MES, the Group focused its strategy on
communications technology and services. From 1999 through to 30 September 2002,
the more significant events in the Group's history include:
a. Year ended 31 March 2000: acquisition of RELTEC Corporation, FORE
Systems, the business of RDC Communications Ltd, Nokia's
transmission equipment business, the public networks business of
Bosch, the Australian communications solutions business of Scitec
and acquisition of
33
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART A
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27 per cent. of Atlantic Telecom (which was diluted in June 2000 to
a 19.7 per cent. interest as a result of Atlantic Telecom's
acquisition of First Telecom. Atlantic Telecom is now in
liquidation);
b. Year ended 31 March 2001: acquisition of Metapath Software
International Inc. ("MSI"), Systems Management Specialist, Inc.,
Albany Partnership Limited and Mariposa Technology, Inc;
c. Year ended 31 March 2002: acquisition of a 71.9 per cent. economic
interest (49.9 per cent. of voting share capital) in Easynet Group
plc ("Easynet") and disposal of its 92 per cent. interest in ipsaris
Limited as part of the same transaction in July 2001; disposals of
the remaining 24 per cent. interest in Alstom S.A. in February and
June 2001, the remaining 1.49 per cent. interest in Lagardere SCA in
September 2001, Marconi Medical Systems Group in October 2001, a 6.5
per cent. interest in Lottomatica SpA in November 2001 and February
2002, Marconi Commerce Systems Group in February 2002, the Marconi
Optical Components business in exchange for a 9 per cent. interest
in Bookham Technology p.l.c. in February 2002 (pursuant to a
subsequent agreement between Bookham Technology p.l.c. and Nortel
Networks Corporation, Corp now owns approximately 6 per cent. of
Bookham Technology p.l.c.), Marconi Data Systems Group in February
2002 and the 50 per cent. interest in General Domestic Appliances
Holdings Limited in March 2002; and
d. Six months ended 30 September 2002: disposal of the Group's Applied
Technologies division in July 2002 and the Group's strategic
communications business (Mobile) in August 2002.
RECENT DEVELOPMENTS
On 19 December 2002, plc announced that Corp had reached agreement with RT Group
plc (in members' voluntary liquidation) and its subsidiary RT Group Telecom
Services Limited ("RTSL"), on a return of capital from Ultramast Limited
("Ultramast"), a joint venture set up in December 2000. The agreement provides
for Corp and RTSL to waive all outstanding litigation relating to Ultramast. The
Court approved this reduction of capital and accordingly RTSL has assumed full
control of Ultramast. The Group has received approximately L41 million in cash,
which includes approximately L19 million which was paid into Court by Corp
pending the outcome of a lawsuit between the parties in August 2002.
On 5 March 2003, plc announced that it had completed the disposal of two
businesses from its Capital portfolio. The Group sold OTE SpA (its private
mobile networks division, also known as TETRA) to Finmeccanica SpA for L2
million in cash, L4.8 million in assumed financial debt, and L8.2 million in
assumed OTE debt to suppliers. Finmeccanica SpA has also agreed to release
approximately L2.5 million to the Group from escrow relating to the August 2002
sale of Mobile (the Group's strategic communications business). On the same
date, plc announced that it had completed the sale of Marconi Online to Coca
Cola Amatil (N.Z.) Limited for NZ$2.95 million (over L1 million).
On 26 March 2003, Corp and plc entered into a definitive agreement with the
Group's ESOP Derivative Banks for a settlement of their ESOP derivative related
claims against the Group. Under the terms of the settlement, which is
conditional upon the Corp Scheme becoming effective, Corp will pay a total of
L35 million to the ESOP Derivative Banks in full and final settlement of their
ESOP related claims against the Group. This settlement amount will be paid from
the fund of up to L170 million which was to have been set aside by Corp, as part
of the Restructuring, pending resolution of potential liabilities of Group
companies to Barclays Bank PLC, Salomon Brothers International Limited and UBS
AG in relation to the Group's ESOP derivative arrangements. The settlement has
made available approximately L135 million in cash which forms part of the L340
million comprising the cash element of the Corp Scheme Consideration. Without
the ESOP settlement, the L135 million sum would not have formed part of the Corp
Scheme Consideration.
Further information relating to "Modern history" and "Recent developments" is
set out in Appendix 5.
BUSINESS REORGANISATION
Following a profits warning announced on 4 July 2001, the Group undertook an
operational review of its activities. The results of the operational review were
announced in September 2001 and included a change of
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management with the appointment of a new Chief Executive Officer and an interim
Chairman. It also covered the Group's markets, its operations and scope of
business and focused on adapting the Group to the changed circumstances of the
telecommunications market during the substantial decline in market demand for
the Group's products and services. As a consequence of the review, the Group
streamlined its activities and disposed of a number of businesses during the
period ended 30 September 2002 (as further described under "Modern history"
above). For the purposes of financial reporting, with effect from 1 April 2002,
the Group divided its continuing operations into two segments: Core and Capital.
The Group divides its Core activities (for the purposes of financial reporting)
into two main business types: Network Equipment, comprising Optical Networks,
Broadband Routing and Switching ("BBRS"), European Access, North American
Access, Outside Plant and Power ("OPP") and Other Network Equipment; and Network
Services, comprising Installation, Commissioning and Maintenance ("IC&M") and
Value Added Services ("VAS").
The Group's Capital activities comprise certain non-core businesses that the
Group manages for value and ultimately for disposal. Activities in Capital
include the Group's holding in Easynet Group Plc as well as a number of minor
activities, assets and investments.
Following the Restructuring, it is intended that the Group will segment its
business along geographic lines and report its US Businesses separately from its
businesses based in Europe and the rest of the world. The US Businesses will
comprise the BBRS, OPP and North American Access Businesses and related Network
Services activities. European and the rest of the world based businesses will
comprise the Optical Networks, European Access, Other Network Equipment and the
rest of the Network Services activities.
BACKGROUND TO THE RESTRUCTURING
The Group has faced difficult trading conditions for some time. The impact of a
period of rapid and unprecedented deterioration in the global telecommunications
market has been compounded for the Group by the costs of a number of
acquisitions made since 1998. These acquisitions, which were primarily for cash
consideration, resulted in a substantial part of the debt burden being carried
by the Group and, in the light of reduced market demand for the Group's products
and services, the trading and cash flow performances of the acquired businesses
have been running at levels well below those that were anticipated at the time
of acquisition.
The Board of plc announced its intention, at its Annual General Meeting in July
2001, to initiate an operational review of the Group's business. The results of
this review were announced in September 2001, along with the appointments of
Michael Parton as Chief Executive Officer of plc, Derek Bonham as Interim
Chairman of plc, Michael Donovan as Chief Operating Officer of plc as well as
the management appointments of Neil Sutcliffe as chief executive officer of
Marconi Capital and Geoffrey Doy as chief executive officer of sales and
marketing of plc.
Against a background of further market deterioration early in 2002, plc
announced on 22 March 2002 that Corp and plc had decided not to enter into new
banking facilities to refinance Corp's then existing syndicated bank facilities.
Following this decision, Corp and plc agreed to cancel the undrawn commitments
under the existing facilities and agreed that the drawn portion under the Bank
Facility (which was due for repayment on 25 March 2003) would be repayable on
demand.
Following the decision not to refinance the then existing syndicated bank
facilities the Business Plan was prepared. This Business Plan was presented to
the Co-ordination Committee and the Informal Committee of Bondholders and was
used by Corp and plc as a basis for formulating the Heads of Terms for the
Restructuring. The Business Plan assumed that recovery in the Group's markets
would not commence until the end of the calendar year 2003. A set of
sensitivities were applied to reflect the scenario of more difficult market
conditions, and in particular a delay in market recovery beyond the end of 2003.
Given continuing uncertainty in market conditions, further revisions have been
made to the Business Plan. In proposing the Restructuring, Corp and plc have
assessed the proposed capital structure of Corp against the scenario of a delay
in market recovery and are confident that the proposed capital structure of Corp
is appropriate in circumstances where such a delay occurs. However, the Group
cannot predict with any level of certainty the occurrence, timing or extent of
any market recovery.
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On 29 August 2002, plc announced that Corp and plc had concluded Heads of Terms
with the Co-ordination Committee and the Informal Committee of Bondholders for
the financial restructuring of the Group.
On 13 September 2002, the Group announced that, in accordance with the Heads of
Terms, interim security over the balance of the Lockbox Accounts established in
April 2002 had been granted in favour of the Bank Creditors, the Secured
Bondholders and Barclays Bank PLC (as the only ESOP Derivative Bank which
committed to support the Restructuring prior to 15 October 2002). On 16 December
2002, the Group announced amendments to the terms of that interim security.
Further details are set out in Parts D.1 and D.2.
On 16 December 2002, plc also announced modifications to the Heads of Terms by
way of an addendum. On 7 February 2003, plc announced that Corp and plc had
reached agreement in principle with the Group's ESOP Derivative Banks for a
settlement of their ESOP derivative related claims against the Group. On 18
March 2003 plc announced that documentation in relation to the proposed
Restructuring had been filed with the Court and provided an update on certain
aspects of the proposed Restructuring. On 26 March 2003 and 24 March 2003
respectively the required consents were received to certain pre-completion steps
for the Restructuring from the requisite majorities of the Syndicate Banks and
the members of the Informal Committee of Bondholders.
Corp and plc do not currently anticipate that the Corp Group's day to day
operations, in particular supplies to customers and the payment of suppliers and
employees, will be significantly affected by the proposed capital structure of
Corp following the Restructuring.
Further information relating to the Restructuring is set out in Part C of this
Section and a discussion of the risk factors arising from implementation of the
Restructuring is set out in Part F.2 of this Section.
RESTRUCTURING
Taking into account the cash to be distributed as part of the Restructuring and
approximately L40 million of subsidiary-level bilateral loans and finance
leases, the net indebtedness of the Corp Group immediately following the Corp
Scheme becoming effective is expected to be approximately L117 million. The Corp
Group is expected to retain approximately L602 million of cash immediately
following the Corp Scheme becoming effective, of which approximately L167
million is expected to be restricted cash (see Part D.4 of this Section for
further information about retained cash). These estimates assume that the Corp
Scheme becomes effective on or around 19 May 2003 and that there is no increase
in the cash element of the Corp Scheme Consideration (and consequential decrease
in the amount of Junior Notes issued) as a result of any asset disposal prior to
1 May 2003.
Assuming the Corp Scheme is implemented in accordance with its terms, Corp
Scheme Creditors will receive in aggregate:
a. CASH: L340 million cash;
b. NEW SENIOR NOTES: the euro equivalent (calculated at the Currency
Rate) of L450 million in aggregate principal amount of new
guaranteed senior secured notes due April 2008 to be issued by Corp
denominated in euro and/or US dollars, subject to elections made in
Claim Forms and Account Holder Letters, with interest payable
quarterly in cash at a rate of 8 per cent. per annum;
c. NEW JUNIOR NOTES: the sum of US$300 million plus the US dollar
equivalent (calculated at the Currency Rate) of L117.27 million in
aggregate principal amount of new guaranteed junior secured notes
due October 2008 to be issued by Corp denominated in US dollars with
interest payable quarterly in cash at a rate of 10 per cent. per
annum or, at Corp's option, in kind (by issuing additional New
Junior Notes) at a rate of 12 per cent. per annum; and
d. NEW SHARES: 995,000,000 ordinary shares, representing 99.5 per cent.
of the issued ordinary share capital of Corp immediately following
the implementation of the Restructuring.
The cash element of the distribution will be increased by the net proceeds of
any asset disposals, other than L82 million of excluded asset disposal proceeds,
received on or after 1 December 2002 and before 1 May 2003, and the aggregate
principal amount of the New Junior Notes will be decreased by 10/11ths of the
sterling amount
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by which the cash element is increased (such calculation to reduce the L117.27
million figure referred to in c. above).
The New Notes may be redeemed at Corp's option in whole, but not in part, at any
time at a redemption price equal to the greater of (i) 110 per cent. of their
principal amount, and (ii) a make-whole amount equal to the sum of the present
values of remaining scheduled payments of principal and interest, using a
discount rate that is 50 basis points above the yield on US treasuries of
similar maturity to the New Senior Notes and New Junior Notes, as applicable,
plus, in each case, accrued interest. Under the terms of the New Notes, Net
Proceeds of non-exempt asset disposals must be applied to redeem first the New
Junior Notes and then, under certain circumstances, the New Senior Notes. For
further information, see Part C.3 of this Section and Appendix 8.
In order to support the Group's working capital requirements following the
Restructuring, Corp and Marconi Bonding Limited have entered into the
Performance Bonding Facility (a L50 million committed performance bonding
facility provided by HSBC Bank plc and JPMorgan Chase Bank) and Marconi
Communications, Inc. has entered into the Working Capital Facility (a US$22.5
million revolving facility provided by Liberty Funding L.L.C.). The Performance
Bonding Facility is conditional on the Corp Scheme becoming effective.
A brief description of the terms and conditions of the Performance Bonding
Facility and the Working Capital Facility is set out in Part D.4 of this
Section. Certain risks associated with working capital are set out in Part F of
this Section.
The Corp Scheme is not conditional upon the plc Scheme becoming effective and
Corp is satisfied that it will be able to implement the Corp Scheme whether or
not the plc Scheme becomes effective. Corp is satisfied that, if the Corp Scheme
is implemented, the Corp Group will be sufficiently ringfenced from plc that the
Corp Group will be able to operate effectively, even if plc has been forced to
commence an insolvency proceeding.
RINGFENCING OF US ASSETS
As part of the Restructuring, it is proposed that Corp's US Businesses, namely
the North American Access Business, BBRS Business and OPP Business, be
contractually separated or ringfenced from the rest of the Group (the "US
RINGFENCING").
Specific details of the US Ringfencing include:
a. Marconi Communications, Inc. and its subsidiaries which contain the
North American Access Business, BBRS Business and OPP Business will
constitute the Ringfenced Entities that are contractually separated
from the Non-Ringfenced Entities. While the business units involved
are located predominantly in the United States, the Ringfenced
Entities will not be limited to subsidiaries that are organised or
incorporated under the laws of the United States, the states thereof
or the District of Columbia and will also include subsidiaries owned
by Marconi Communications, Inc. that are organised and incorporated
under the laws of other jurisdictions including Ireland, Mexico and
Switzerland;
b. the covenants in the indentures governing the New Notes will
significantly restrict the type of financial, operational and other
dealings that the Non-Ringfenced Entities can have with the
Ringfenced Entities. The covenants in the New Notes will also
require Corp to separate the North American Access Business, BBRS
Business and OPP Business into separate subsidiaries (or groups of
subsidiaries) within the US Ringfencing no later than the second
anniversary of the issue date of the New Notes. Moreover, the
Non-Ringfenced Entities will generally be prohibited from providing
funding for any of the Ringfenced Entities and, following the
separation of the three principal businesses within the US
Ringfencing, the North American Access Business, BBRS Business and
OPP Business will generally be prohibited from providing funding to
each other;
c. the Ringfenced Entities will enter into various agreements with the
Non-Ringfenced Entities necessary to ensure that from the Effective
Date those dealings that are permitted with each other will be
provided in the ordinary course of business on an arm's length basis
or otherwise as required or permitted by the covenants in the
indentures governing the New Notes.
A discussion of risk factors associated with the US Ringfencing is set out in
Part F of this Section.
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A.3 MARKET ENVIRONMENT AND BUSINESS STRATEGY
MARKET ENVIRONMENT
The late 1990s saw unprecedented growth in capital expenditure on
telecommunications equipment as established and new operators invested in
increased capacity to meet expected growth in both data and mobile traffic.
Although data and mobile traffic has grown it has not grown as strongly as
expected and operators' turnover has not matched the investment in capacity;
both new and incumbent carriers have become overextended financially and capital
spending has been dramatically curtailed. In this environment,
telecommunications equipment vendors, like the Group, have experienced
substantial declines in turnover. The speed of this decline has been far greater
than anticipated and, in this environment, the Group, along with its major
competitors, has been unable to reduce the cost base of the business at the same
rate and consequently has experienced a significant decline in business
performance.
Corp and plc consider that the slowdown in network equipment sales has been
driven primarily by oversupply rather than reduced demand in the end-user
telecommunications services markets. Underlying data and mobile traffic growth,
driven by broadband, data and mobile services, remains quite strong and, as this
absorbs installed over-capacity, Corp and plc believe carriers will invest in
additional infrastructure.
BUSINESS STRATEGY
As a provider of networking technology and services that enables
telecommunications operators to evolve narrowband networks to next generation
broadband and mobile networks, the Group is now focusing its strategy around:
a. nurturing pre-existing relationships with its customers in current
generation technologies (for example Synchronous Digital Hierarchy
("SDH") and then evolving these customer networks over time to the
next generation Dense Wavelength Division Multiplexing ("DWDM")
optical networks);
b. development and effective marketing of genuine "best in class"
solutions; and
c. developing and enhancing the services offered to existing and new
customers.
The Group has taken extensive action to reduce the scope of its activities and
to rationalise or curtail non-core areas. The Group's near-term objective is to
restore its Core businesses to operating profitability (before goodwill,
amortisation and exceptional items) and generate positive operating cashflow
(before exceptional cash costs). In the longer term, the Group aims to develop
and expand its product portfolio and markets on a basis that is consistent with
its business strategy.
The Group considers that partnerships, where research and development and routes
to the market are shared for mutual benefit, will be an increasingly important
factor in the industry and expects the Group to be an active participant in such
partnerships.
Business positioning
Development of the Optical Networks business is a strategic priority for the
Group. The Group's objective is to maintain a leading position in the European
optical networking markets and to build market share in Central and Latin
America as well as the Asia Pacific region. Development of the Network Services
businesses is the Group's other key strategic objective with the aim of
increasing its turnover derived from such services activities.
The Group is also seeking to increase market share in selected product and
geographic markets where it has strong customer relationships. Accordingly, the
Group will deploy resources in developing its portfolio of fixed wireless
transmission and access products as well as its Access Hub multi-service access
node.
The Group believes that it has a number of developing or newly developed
products which are potentially "best in class" where it has yet to penetrate
major new telecommunications company customers. In particular, the
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Group is focused on developing the North American market for its leading-edge
range of multi-service switches and the UK market for its unique class 5
Softswitch solution.
The Group's OPP and North American Access Businesses are being managed for value
and ultimately for disposal. The proceeds of these disposals will be used to
repay part of the New Junior Notes. The North American Access Business may be
sold prior to 1 May 2003, in which event the net proceeds of the disposal will
be applied to increase the cash element of the Corp Scheme Consideration (and
the aggregate principal amount of the New Junior Notes will be decreased by
10/11ths of that amount).
Organisational efficiency and effectiveness
Since September 2001, the Group has embarked on a sequence of substantial cost
reduction programmes to reduce sales and marketing, general and administrative
and research and development overheads. These programmes remain in place and
continue to deliver cost reductions.
Organisationally, extensive rationalisation will continue to be an important
part of the Group's strategy in order to reduce costs in all areas of production
and overhead. In particular, the supply chain will continue to be restructured
to remove excess capacity and reduce break-even points.
As part of this strategy, the Group will retain control of functions only where
it possesses key competencies. Other functions, such as the manufacturing of
non-complex products, will continue to be outsourced and the supply chain cost
base will be rationalised to a level more in line with expected sales volumes.
A.4 GROUP'S PRINCIPAL ACTIVITIES
plc is the holding company of the Group, and was incorporated as a public
limited company in England in 1999. It conducts its commercial activities
primarily through Corp and Corp's subsidiaries.
Both Corp and plc are subject to the requirements of the Act and the Companies
Act 1989.
The Group is headquartered in London with principal operating sites in Coventry,
Beeston, Chorley, Camberley, Liverpool, London, Stafford and Wellingborough
(UK); Florida, Pennsylvania, Ontario, Georgia, Mississippi, North Carolina,
Illinois, Texas and Montreal (US and Canada); Genoa, Marcianise and Pisa
(Italy); Backnang, Offenburg, Frankfurt and Radeberg (Germany); Madrid (Spain);
Melbourne and Sydney (Australia); Beijing, Guilin and Hong Kong (China); Darulam
and Kuala Lumpur (Malaysia); Auckland (New Zealand); New Delhi (India); Riyadh
(Saudi Arabia); Dubai (United Arab Emirates); Springs (South Africa); Sao Paulo
and Votorantim (Brazil); and Naucalpan de Juarez and Huixquilucan Edo de Mexico
(Mexico).
For the purposes of financial reporting, with effect from 31 March 2002, the
Group divides its continuing operations into two segments: Core and Capital.
CORE BUSINESSES
For the purposes of financial reporting, the Group divides its Core activities
into two main business types: Network Equipment, comprising Optical Networks,
BBRS, European Access, North American Access, OPP and other Network Equipment;
and Network Services, comprising IC&M and VAS.
The Group's customer base includes telecommunications companies and providers of
internet services for their public networks, and certain large corporations,
government departments and agencies, utilities and educational institutions for
their private networks.
Sales, marketing and distribution
The Group sells its network equipment and network services using its direct
sales force as well as indirect channels such as local partners and distribution
partners. The Group's sales activities include sales and marketing organisations
in all major geographic regions. There are specialised product marketing groups
which support these organisations internally and a central marketing staff which
provides strategic direction and customer and market communications support for
these organisations externally. Each of these regional organisations has
responsibility for account management, sales, technical support and contract
negotiation.
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The Group's distribution partners include Ericsson, Italtel, Nokia and Siemens.
A seven-year agreement with Ericsson was signed in July 1999 that allows
Ericsson to market the full range of the Group's SDH equipment throughout the
world. In June 2002, the Group announced an additional seven-year agreement
enabling Ericsson to source its range of next-generation DWDM optical networking
equipment as well as encompassing the existing 1999 agreement on SDH equipment.
The Group also entered into a five-year agreement with Nokia in November 1999 to
market the Group's SDH and DWDM systems.
Customers
The Group benefits from the continued support of its strong customer base which
comprises mainly well-established incumbent telecommunications operators and
government agencies.
The main customers of the Group's network equipment and services include BT, the
Metro City Carriers in Germany, Telecom Italia, the UK Government and Vodafone
Group in Europe; BellSouth, Qwest, SBC, the US Federal Government and Verizon in
the United States; China Railcom, China Telecom, China Unicom, Telkom Malaysia
and Telstra in the Asia-Pacific region; and Brasil Telecom, Telecentro Oeste,
Telcel, Telefonica and Telmex in Central and Latin America. These customers
accounted for 51 per cent. of the turnover of the Core businesses during the six
months ended 30 September 2002.
Customers of the Group's Optical Networks and European Access Businesses are
predominantly based in Europe as well as in Asia-Pacific and Central and Latin
America. Customers of the Group's BBRS, OPP and North American Access Businesses
products and services are predominantly based in the Americas. In addition, the
Group provides network services to a number of customers in the transportation
and utility sectors, mainly in Europe.
Except for BT, each of the Group's customers accounted for less than 5 per cent.
of the Group's total turnover and Core turnover for the financial year ended 31
March 2002. For the same period, BT accounted for approximately 9 per cent. of
the Group's total turnover and 14 per cent. of the turnover of its Core
businesses. During the six months ended 30 September 2002, BT accounted for 15
per cent. of the Group's total turnover and 17 per cent. of the turnover of its
Core business. A discussion of certain risks associated with the Group's
reliance on a relatively small number of customers is set out in Part F of this
Section.
The Group has entered into frame contracts with most of its major customers.
While the terms of the frame contracts vary from customer to customer, such
contracts generally set out the terms and conditions (including pricing) on
which the Group will supply a customer with products and services. The length of
frame contracts varies from customer to customer and can range from 12 months to
five years. Some of the frame contracts establish price and volume expectations
which provide the Group with some visibility of expected sales during the terms
of the contracts. However the frame contracts do not typically guarantee the
volume or value of products or services actually supplied by the Group, which
remain at the discretion of the relevant customer. Near the end of their term,
some frame contracts impose an obligation on the parties to negotiate in good
faith to agree an extension of the contract.
In some cases, frame contracts contain change of control clauses which may give
rise to a termination right as a result of the Restructuring. In any event,
customers are not normally contractually bound under their frame contracts to
purchase products or services solely from the Group. Customers also often have
the right to terminate a frame contract after a specified notice period.
Notwithstanding the flexibility customers have in terms of the volume and value
of the orders they place and whether they place those orders with the Group or
one of its competitors, customers will often have a commercial incentive to
continue to purchase all of their requirements for certain types of products and
services from (and to have those parts of their networks serviced by) the Group.
A discussion of certain risks associated with termination rights triggered as a
result of the Restructuring is set out in Part F of this Section.
NETWORK EQUIPMENT
The Group designs and supplies communications systems that transmit and switch
voice, data and video traffic predominantly in public networks. The Group's
Network Equipment products include optical networking
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systems, broadband and narrowband switches, routers and aggregation devices,
wireless transmission systems and software management systems. In addition, the
Group sells outside plant and power products for use in communications networks.
Aggregate sales for the Group's Network Equipment businesses for the financial
year ended 31 March 2002 were L1,804 million (39.5 per cent. of total Group
sales) compared to L3,359 million (48.4 per cent. of total Group sales) in the
year ended 31 March 2001 and L2,583 million (45.1 per cent. of total Group
sales) in the year ended 31 March 2000. Aggregate sales for the Group's Network
Equipment businesses for the six months ended 30 September 2002 were L600
million (54.2 per cent. of total Group sales).
Overview of the public network market
Historically, government-owned or government-regulated monopolies have operated
public networks, which traditionally transmitted voice calls between users.
Privatisation and deregulation of public networks contributed to the entry of a
large number of new companies into the public network market, offering new
voice, data and video services.
The public network markets in which the Group operates are highly competitive.
The Group's principal competitors include Alcatel, Cisco Systems, Ericsson,
Fujitsu, Lucent Technologies, Nortel Networks and Siemens. The primary method of
competition in the public network market is the widespread use of open bids for
equipment purchases. Buyers use a combination of factors to evaluate bids,
including price, technical compliance, ability to deliver in the required
timescale and provide after-sales support, financial stability and long-term
viability. A number of competitors have substantial technological and financial
resources (including research and development resources) and operate in all
significant market segments of the industry. As the public network and private
network markets converge, other specialist companies in the information
technology sector may also emerge as strong competitors. In addition,
competitors may emerge in rapidly developing telecommunications markets such as
China. A description of risk factors relating to the Group's ability to remain
competitive through R&D investment is set out in Part F of this section.
A typical public network can be portrayed as comprising three high level layers.
These are the service, switching and transport layers. Traffic in the network is
moved around the network by equipment in the transport layer and routed to
different points in the network by equipment in the switching layer. Equipment
in the services layer defines and makes available the service associated with
each particular class of network traffic, for example voice, data or video
services. Public networks, which comprise the three layers above, can typically
be either access, metro or core networks, depending on the connections they
establish. The access network typically connects an end user of a service to a
network operator's local exchange (where switches are located). The core network
usually connects an operator's major points of presence, for example, the routes
between two cities. The metro network typically provides connections between the
access and core networks - for example, between a major city and the various
local exchanges or points of presence within a particular geographic region.
The Group's equipment can be found in most parts of the typical public network
with its optical products predominantly operating in the transport layer, its
multi-service switches and Softswitch in the switching layer and its range of
access products found in most layers of the access network.
Optical Networks
Communications service providers primarily use three technology standards, SDH,
SONET and DWDM, to transmit voice, data and video traffic over fibre optic
communications networks. DWDM is a relatively new transmission standard that is
used worldwide. SDH is the digital transmission standard that is used in most
regions except North America and Japan, where SONET is the predominant standard
that is used. In June 2002, the Group announced that it was ceasing development
of its SONET products because of continuing weak market conditions. The Group
has not made material sales of SONET products. The Group's Optical Networks
products contributed 16.1 per cent. of total Group sales in the year ended 31
March 2002 and 21.9 per cent. in the six months ended 30 September 2002. During
the latter period, sales were predominantly in Europe and Asia, with the
remainder from the Americas.
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The Group has focused its development on a comprehensive range of optical
transmission equipment based on SDH and, more recently, DWDM. A discussion of
the risks associated with the telecommunications market is set out in Part F of
this Section.
a. Synchronous Digital Hierarchy: The Group was a pioneer of SDH
technology following its introduction in the early 1990s, and has
continued to introduce next generation SDH products. The Group is a
leading supplier of SDH transmission equipment within Europe and has
a tenable position in other markets including the Asia-Pacific
market. SDH contributed approximately 85 per cent. of the Optical
Networks Business's sales in the year ended 31 March 2002 and
approximately 80 per cent. in the six months ended 30 September
2002.
The Group's add-drop multiplexers transport voice, data and video
traffic streams over ring-based optical fibre networks to provide
protection against network failures. The Group's line systems
transport high-capacity voice, data and video traffic streams
between major traffic centres. The Group also supplies
cross-connects to provide points of flexibility and restoration
within an SDH network and to switch traffic streams from one
transmission line to another. Over the next twelve months, the Group
intends to launch a number of more cost effective next generation
SDH products with greater functionality, for use both in core
networks and for connecting residential and business customers to
the core network, such as its SMA Series 4 range of add-drop
multiplexers and the MSH range of cross-connects announced in
September 2002.
b. Dense Wavelength-Division Multiplexing: DWDM is the transmission of
closely spaced signals through a single optical fibre using
wavelengths, each of which functions as a separate, independent
signal, and allows the capacity of installed optical fibre to be
increased substantially to meet future growth in demand for voice,
data and video traffic capacity. The Group's DWDM equipment is
complementary to the Group's SDH equipment and enables service
providers to increase significantly the bandwidth of installed fibre
optic cabling and still use the existing network infrastructure.
Over the past few years, the Group's share of the next generation
DWDM market in Europe has grown significantly.
The Group has already established a tenable market position with its
photonic line system ("PLx"). The Group has recently launched a
soliton-based, ultra-long-haul photonic line system ("UPLx") that
extends the distance that traffic can be transported before
regeneration of the signal is required. The Group is developing this
product specifically for ultra and extended long-haul DWDM networks
which will have much higher per fibre capacity than SDH or SONET
networks. The Group has announced its first order for this product
in Australia. In 2000 the Group launched a remotely re-configurable
photonic add-drop multiplexer ("PMA"). This product allows traffic
streams to be inserted and removed from a transmission ring without
disturbing other traffic streams. The Group has also developed a
range of point-to-point and ring-based Metro products ("PMM"). DWDM
contributed approximately 15 per cent. of the Optical Networks
Business's sales in the year ended 31 March 2002, and approximately
15 per cent. in the six months ended 30 September 2002.
The Group's DWDM equipment is complementary to the Group's SDH
equipment and the Group intends to take advantage of its positions
in the SDH markets of Europe, Central and Latin America and Asia
Pacific to sell its DWDM products to its existing SDH customer base
as well as to new customers wishing to make a cost effective and
simple increase in their available bandwidth.
The Group's transmission equipment is managed by its network management system
(ServiceOn). ServiceOn provides a broad range of management functions required
by a network operator. It can be used by service providers to remotely
re-configure their networks in accordance with changing traffic patterns.
ServiceOn also provides network performance information and has fault detection
capability to support the day-to-day operation of the network.
The Group's broad portfolio of Optical Networks products, coupled with
scalability and ease of upgrade, enables it to sell optical networks to its
customers which optimise network design and cost for those customers. The
Group's focus on overall optical networks solutions, rather than single product
solutions, enables it to design
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more cost effective networks and to integrate future product offerings over the
life of frame contracts. The Group believes that its installed base of SDH
equipment, deep customer relationships, superior knowledge of the incumbent
network design, and interoperability of its products with that installed base of
SDH equipment, are an important competitive advantage for both the existing and
new SDH and DWDM product ranges.
The Group's objective is to maintain a leading position in the European optical
networking markets and to build market share in the Asia Pacific region as well
as Central and Latin America.
Broadband Routing and Switching
In 2001, the Group refocused its technical and commercial resources in the BBRS
Business towards customers requiring more resilient networking platforms of the
sort found in carrier class networks, namely government and military agencies,
selected telecommunications service providers and other large corporations. BBRS
also continues to provide support services to its approximately 1,000 US Federal
Government service provider and enterprise customers. The Group's single largest
customer of BBRS products is the US Federal Government with whom the Group has
enjoyed a long relationship. To date, this has resulted in an installed base of
BBRS products in US Federal Government communications networks of approximately
US$1.3 billion in value.
The BBRS Business contributed 4.6 per cent. to the Group's sales in the year
ended 31 March 2002 and 6.6 per cent. in the six months ended 30 September 2002.
The BBRS Business' sales are made predominantly in the North American market and
these sales accounted for 4.3 per cent. of total Group sales in the latter
period.
The Group's products address the three principal packet-oriented protocols in
use today: asynchronous transfer mode ("ATM"); internet protocol ("IP"), and
multi-protocol label switching ("MPLS"), an emerging standard which provides
greater predictability, Quality of Service ("QoS") and differentiated service
levels for IP-based data, voice and video communications when compared with
services available over traditional, connectionless IP networks.
The Group's principal products comprise a range of multi-service switch-router
devices that both establish the physical communication links between end points,
as well as determine the optimal route across the network. In addition, the
Group also develops and sells a range of integrated access devices ("IADs")
which are cost-effective solutions supporting converged voice, data and video
transmissions over a single circuit. The Group has focused on the sale and
support of its ASX-200BX, ASX-1000 and ASX-4000 range of multi-service switches,
while continuing the development of its recently-launched next generation
BXR-48000, which the Group believes provides the highest capacity of any
multi-service switch currently available in the telecommunications industry.
The Group's switch-router product platforms, such as the ASX-4000 and BXR-48000
are designed to support communications traffic transmitted by ATM, IP and MPLS
protocols. They are designed to enable operators to build on their existing
switching and routing infrastructure to continue to support their legacy
services while offering the flexibility and scalability to roll-out next
generation IP, wireless and packet voice services. They are also designed to
enable operators to reduce their capital investment and operating costs.
The ASX-4000 can switch at transmission speeds ranging from 10 to 40 gigabits
per second ("Gbps") and can be positioned either within the core, or at the
edge, of service provider networks or high-capacity private networks. Recent
developments of the ASX-4000 switch include applications to allow service
providers to transport voice traffic over packet switched infrastructures such
as ATM ("VoA") or IP ("VoIP").
The BXR-48000 can operate at transmission speeds ranging from 40 Gbps to 480
Gbps. It can be configured as a very high capacity router or a very high
capacity switch. Routers function in the IP ("packet") networking domain, while
switches typically operate in the traditional voice, Frame Relay and ATM
domains. In March 2002, following technical trials on the first BXR-48000 unit,
the US Department of Defense's Naval Research Laboratory ("NRL") demonstrated
the high performance, high security, speed, reliability and functionality of
this product and subsequently, in September 2002, the US Department of Defense
placed a firm order for the product. The military-grade capabilities
demonstrated by the BXR-48000 are equally applicable for the voice, video, data
and multiservice networks of service providers and large non-military
institutions. In December 2002, the Group announced a further sale of the
BXR-48000 to a leading European financial institution.
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The Group also provides support services to customers of its BBRS products. The
Group reports these revenues within its Network Services segment. The BBRS
Business service offerings range from routine technical support and assistance
for its switch-routers, to dedicated, on-site project and programme support for
complex network environments.
Within the broadband switching and routing market, the Group believes that the
IP router market will be a significant source of potential growth in the longer
term due to the continued growth in IP traffic and the launch of new services
such as VoIP. It should be noted, however, that the introduction of these new
services is dependent on the development of technologies that permit the
"toll-grade" transmission, over IP, of voice and real-time multimedia services.
In the meantime, concern from carriers and security sensitive private network
operators over the security and reliability of their networks are expected to
lead to continued growth in the ATM market.
Consequently, the Group intends to continue to focus its research and
development on the further development of its multi-service products which
support ATM, IP and MPLS protocols. In particular, the Group's BBRS equipment is
designed to enable carrier operators to address the divergent demands of today's
difficult market environment. The market demands continued support for the ATM
networks that transport today's services as well as providing a safe and viable
migration path for the convergence of these networks with data oriented IP
networks. The BXR-48000 is a key strategic platform through which the Group aims
to deploy further its range of BBRS products into the networks of large
telecommunications providers.
As part of the Restructuring, it is proposed that the BBRS Business be
contractually separated or ringfenced from the rest of the Group.
European Access
Access equipment connects the end user to a service provider's switch or local
exchange across what has been traditionally known as the "last mile" or "local
loop". This is the physical wire, fibre or wireless link that runs from a
subscriber's telephone set or other communications device to the service
provider's local exchange. The Group designs, manufactures, sells and supports a
range of access equipment which maximises the capabilities of physical transport
media, including copper telephone lines, fibre optics, and both licensed and
unlicensed wireless spectra. The Group's access systems activities have
undergone significant rationalisation and are now focused on leveraging the
Group's reputation and relationships in Europe to continue penetration of key
customers with fixed wireless, Access Hub and voice software systems. The
European Access Business contributed 8.4 per cent. of total Group sales in the
year ended 31 March 2002 and 11.6 per cent. in the six months ended 30 September
2002. During the latter period, approximately 85 per cent. of the European
Access Business sales were in Europe, 12 per cent. in Asia Pacific, with the
remainder in Central and Latin America.
The principal access systems products are:
a. Digital Subscriber Line Access Multiplexers ("DSLAMs"): These
products are typically located within an operator's local exchange
on one end of the subscriber loop providing broadband internet/DSL
data services. The Group's Access Hub, which can be configured as an
advanced high density DSLAM also incorporates integrated ATM edge
switching and IP multi-casting functionality, enabling it to perform
as a broadband aggregator for multiple applications including voice,
video and data services as well as providing conventional DSLAM
functionality, such as asymmetric digital subscriber line (ADSL)
capabilities. This next generation product offers one of the highest
port densities available in the industry and is optimised for ease
of configuration and management. The Group launched its Access Hub
platform in 2001 and has already won two major frame contracts with
Telecom Italia and Telkom (South Africa). Other customers include
Wind (Italy).
b. Fixed Wireless: The Group's Skyband MDRS product family encompasses
the Group's point-to-point ("PtP") portfolio which offers long and
short haul SDH transmission for services ranging from trunk
networking, local access bypass and mobile network feeder
applications. The Group's Skyband MDMS point-to-multi-point ("PtMP")
portfolio offers cost-effective broadband wireless solutions ranging
from 2.4 Ghz to 32 Ghz, depending on the country's frequency
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allocation, and supports subscriber voice and broadband data, using
both standards-based and optimised techniques. The Group's radio
planning and installation services enhance the Group's ability to
offer customised, cost-effective solutions for network operators and
service providers. The main customers of the Group's range of fixed
wireless access products include mmO(2) (Germany), and E-plus
(Germany).
c. Voice Systems: The Group provides switching hardware and software
to telecommunications and media carriers in both legacy narrowband
and next generation networks. The three main activities are:
(i) Narrowband Switch Support: The Group continues to supply
upgrades and extensions to its significant installed base of
narrowband voice telephony systems (System X). The majority of
this installed base is in the UK. Upgrades and extensions have
been driven by the need for operators to adapt their networks
to changing traffic patterns, predominantly caused by the
growth in Internet traffic.
(ii) Softswitch: This next generation product is a system which
builds on many of the features of the narrowband switch
allowing network operators to combine their traditional
telephony services with broadband multimedia and high-speed
data services across a single broadband packet switched
network. The Group's Softswitch is currently one of only a
limited number of products, offering full class 5 capability
available in the market. It can therefore address both public
and private network applications and has been designed to
allow customers significantly to reduce the cost of operating
their networks. The Group's Softswitch has been installed in
the Dubai Marina project where it is currently delivering
voice and multimedia services and is undergoing trials with a
number of customers in the United Kingdom. In December 2002,
the Group announced the sale of its Softswitch system to
support Jersey Telecom's roll out of a suite of commercial and
residential broadband services.
(iii) Intelligent Networks: As legacy narrowband services have
evolved, operators have experienced an increasing need to
provide additional value added services that can be billed to
individual subscribers. Corp and plc believe that the Group's
Intelligent Networks products are amongst the leading products
in the UK market in the provision of hardware and software for
fixed networks that allows carriers to offer a range of
enhanced voice services, beyond those contained in existing
narrowband switching products. These services, such as 0800
numbers, voicemail, call waiting and ringback, can be
controlled from a small number of service points where data
and applications can be stored and updated centrally.
Intelligent Network products also work with switches from
other manufacturers, increasing their attractiveness to
operators whose systems contain a range of products.
The services offered by these products provide differentiating
capability for the Group's customers. The Group therefore undertakes
directly customer funded developments as well as Group-funded
research and development. The Voice Systems activities' primary
geographical market is the UK where the Group has a strong position
in the UK circuit switching market, and the Group is an equipment
supplier to customers such as BT, Cable and Wireless, NTL and
Telewest, each of whom relies on the Group for upgrades and care and
maintenance of installed equipment. The Group's narrowband switching
products are deployed in approximately 70 per cent. of BT's local
telephone exchanges and are central to the UK public service
telephone network ("PSTN"). The Group's initial market entry for its
new Softswitch product is seen as the confluence of the growth in IP
Voice, IP managed VPN, and the growth of DSL. This creates an
opportunity to develop a new range of cost-effective services for
corporations, by extending the reach of their private networks to
smaller locations and, through DSL connectivity, uniquely to home
workers.
Initially, establishing the Softswitch as a major supplier in this
sector will provide the foundation for further expansion into small
to medium sized enterprises and then pure residential services (as
opposed to corporate home worker).
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d. Other Access Products: The Group has a range of other access
products that are deployed in its customers' networks, including its
Deep Fiber DMP product. This product brings the high bandwidth of
the core fibre network into the access network.
North American Access
The Group designs, sells and supports a range of copper and fibre based access
platforms for markets that use North American communications standards. The
Group's largest customers are BellSouth and Sprint and the Group is one of the
main suppliers of digital loop carrier systems by market share in North America.
The North American Access Business contributed approximately 5 per cent. of
total Group sales in the six months ended 30 September 2002.
The Dutch Link Control (DLC) DISC*S(R) family of products provide copper based
access for voice and data services. The Group has provided over ten million
lines of digital local loop equipment based on the DISC*S(R) platform throughout
the United States, and has recently introduced a smaller footprint broadband
high density version of the platform.
The Group's fibre to the curb solutions support a mix of voice, broadband data
and video services to each customer. They deploy fibre all the way to a curbside
pedestal and utilise copper or coax cables only for the short final drop to the
customer's premises.
As part of Restructuring, it is proposed that the North American Access Business
be contractually separated or ringfenced from the rest of the Group. The North
American Access Business has undergone significant rationalisation and is being
managed for value and ultimately for disposal. The proceeds of this disposal
will be used to repay part of the New Junior Notes. The North American Access
Business may be sold prior to 1 May 2003, in which event the net proceeds of the
disposal will be applied to increase the cash element of the Corp Scheme
Consideration (and the aggregate principal amount of the New Junior Notes will
be decreased by 10/11ths of that amount).
Outside Plant and Power
The Group is one of the major providers of OPP products and services in North
America. The Group is one of the major suppliers to Qwest, Verizon, BellSouth,
SBC, Sprint, AT&T and WorldCom. In addition, the Group is a supplier to AT&T,
Verizon, Cingular, Telcel and US Cellular. The Group currently has contracts to
provide services to Bechtel in the building of wireless networks for AT&T and
Cingular. The OPP Business contributed 5.4 per cent. of total Group sales in the
year ended 31 March 2002, and 7.2 per cent. in the six months ended 30 September
2002.
The OPP Business has three primary product lines:
a. Outside Plant supplies connection, protection and enclosure products
for the local loop, and is a supplier in enclosure design such as
thermal management and analysis, water and dust intrusion, equipment
packaging techniques and corrosion resistance. Although these are
primarily passive hardware products, the trend of placing sensitive
electronics outside the local exchange and closer to the subscriber
requires increasingly sophisticated enclosures and static
protection. The connection and protection products include
distribution pedestals, building entrance terminals, cross connect
terminals, cable television enclosure products, fibre optic splice
enclosures, large electronic configuration cabinets, central office
main distribution frames, heat management systems, power surge
protection devices and connection blocks and terminals. The
enclosure products are metal and plastic cabinets that house
equipment such as power supplies, connection products, and digital
and wireless transmission equipment.
b. Power supplies power systems to service providers and
telecommunications equipment manufacturers for the local loop, local
exchange switching, wireless sites and other customer equipment such
as computer networks. The Group's power products and systems include
large power systems for local exchange applications, smaller cabinet
power systems with "plug and play" flexibility, modular power
systems, custom power subsystems sold to OEMs, DC distribution
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and DC-DC conversion systems and traditional ringing and signalling
equipment. The Group's family of power products is marketed under
Vortex(R), Lorain(R) and other brand names and is based on a single
integrated platform suitable for multiple wireline and wireless
applications. This microprocessor-based "plug and play" architecture
allows for software-based configuration, management, monitoring and
local and remote power system access that is easily expanded for
system configuration and control.
c. Services provides customers with software that allows for remote
monitoring and control of power systems as well as complete
programme management support for communications systems deployment.
Additionally, the Group provides a range of customer services,
including site contract maintenance and breakdown service, spare
parts provisioning, equipment depot repair, and training.
The OPP Business' principal geographic markets are in North America and Central
and Latin America.
As part of the Restructuring, it is proposed that the OPP Business be
contractually separated or ringfenced from the rest of the Group. OPP is being
managed for value and ultimately for disposal. The proceeds of this disposal
will be used to repay part of the New Junior Notes.
Other Network Equipment businesses
Other Network Equipment businesses contributed 2.6 per cent. of total Group
sales in the year ended 31 March 2002, and 2.6 per cent. in the six months ended
30 September 2002. These comprise mainly the following businesses:
a. Marconi Interactive Systems ("MIS"): MIS manufactures payphones and
multimedia terminals which range from an indoor "desk top" phone
through to sophisticated street multimedia terminals which have
voice telephony and internet access capability. The business is
predominantly UK-based and sells primarily to the major public
network customers such as BT, Telecom Italia, Singtel, Telenor,
Teledanmark and, through Loxley Business Information Technology
Company Limited, TelecomAsia.
b. Network Equipment -- South Africa: The Group's operations in South
Africa include the design, manufacture and supply of a range of
terminal products including telephones, PABX key-systems and public
payphones. On 23 December 2002, the Group disposed of its 51 per
cent. interest in its optic fibre cable and copper cable business
(ATC (Proprietary) Limited).
NETWORK SERVICES
The Group's Network Services activities comprise a broad range of support
services to telecommunications operators and other providers of communication
networks. The Group supports both its own products as well as those of other
vendors of network equipment.
Aggregate sales of all Network Services activities for the financial year ended
31 March 2002 were L969 million, (21.2 per cent. of total Group sales), compared
to L1,016 million (14.6 per cent. of total Group sales) in the year ended 31
March 2001 and L543 million (9.5 per cent. of total Group sales) in the year
ended 31 March 2000. Aggregate sales in the six months ended 30 September 2002
were L392 million (35.4 per cent. of total Group sales).
Overview of the Network Services market
The substantial reduction in sales of network equipment has led to corresponding
reductions in the network planning, installation and commissioning services
associated with the sales of new products. However, as network operators have
sought to reduce expenditures to cope with excess capacity, the requirements for
maintenance and support have continued and in some cases new opportunities have
emerged as operators have sought to consolidate vendors and outsource additional
services. Corp and plc believe this is a trend that is expected to continue and
to mitigate, to some extent, the decline in sales of services related to new
products sales.
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The fragmented nature of the network support services market means there are no
dominant competitors in the provision of services to the public network market.
However, major telecommunications vendors, such as Alcatel, Cisco Systems,
Ericsson and Lucent Technologies are extending their service capabilities to
offer total solutions in direct competition to the Group. Major information
technology and systems integrators, such as CSC, EDS and IBM, are now offering
telecommunications solutions to their customers. Furthermore, independent
service and support organisations such as Dimension Data and Telindus offer a
broad portfolio of services.
The principal method of competition in this market is through open bidding.
Services may also be sold as a part of, or linked to, equipment sales.
Service offerings
The Group provides plan, build and operate support services to both fixed line
and wireless network operators in many countries around the world. The Group
targets customers in the service provider, large scale "carrier class" markets
and in the government, transport and utilities sector. The services segment has
two main sub-groupings:
Installation, Commissioning and Maintenance comprises the following activities:
a. Customer Fulfilment provides project management, installation and
commissioning, field engineering support and customer training. The
main markets are the UK, North America, Germany and Italy. The North
American activities are associated with the OPP Business and will be
included in the Ringfenced Entities post-Restructuring.
b. Managed Services supports the installed base of the Group's
equipment worldwide through technical support, on-site maintenance
and spares & repairs management. Managed Services also remotely
monitors, manages and supports customers' live networks. Services
are provided from a global network of technical assistance centres
("TACs"), stock hubs and network operation centres ("NOCs"). The
Group operates thirteen TACs (five in the US, two in the UK, two in
the rest of Europe, two in Canada and one in each of Japan and
Australia) offering around-the-clock telephone assistance to
customers. It also has five NOCs (one in each of Australia, Germany,
Italy, the UK and the US) for remote monitoring, fault diagnosis and
network repair. The Group can support its own product range as well
as products supplied by other communication equipment companies.
c. Operational Support Systems provides the software systems and
systems integration services that enable operators to maximise the
efficiency of their networks and the quality of the services they
provide to customers.
The bulk of these services are related to the sale of the Group's products,
although there is also considerable experience of working with equipment from
other vendors.
Value-Added Services comprise the following activities:
a. Integrated Systems provides plan, build and operate services on
major complex projects for non-telecommunications businesses in
market sectors such as transportation and government. The projects
involve planning, building, operating and supporting carrier class
telecommunications infrastructure and are generally long-term. The
principal geographical markets are the UK, Germany and the Middle
East.
b. Wireless Services provides radio frequency consulting services to
both wireless and wireline network operators. These are primarily
consulting and contractual services for site acquisition, mast
design and construction, radio frequency cell site planning and
network optimisation. The Group's radio planning and installation
services enhance the Group's ability to offer customised, cost-
effective solutions for network operators and service providers. In
North America the primary focus is on radio cell site planning and
network optimisation. In Europe, the Middle East and Africa (EMEA),
the principal geographical markets are the UK, Saudi Arabia, the
Netherlands and Germany.
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c. Managed Services provides customer support services associated with
the Group's BBRS equipment. These will be included in the Ringfenced
Entities post-Restructuring.
The services businesses have developed within the Group over a number of years.
In EMEA, installation and commissioning services were necessary to support
equipment sales to service providers. In North America, the business developed
through supporting the data networking and power markets. The Integrated Systems
activities have developed organically to support complex mission critical
network projects for large enterprises. Wireless Services evolved from the
acquisition of APT in the UK, TI Projekts in Germany and MSI.
The Group intends to continue to drive process and efficiency improvements
throughout Network Services' operations to reduce costs, improve customer
satisfaction and increase both revenues and margins. In addition, the Group
intends to increase the proportion of equipment sales that include support
contracts and more cross-selling of existing services across markets and
customers.
Within Integrated Systems, the key initiative is to expand out of the strong UK
base into carefully selected overseas markets (primarily Germany and Austria)
through a combination of skills transfers and working with selected partners.
The Group intends to grow the Wireless Services business by targeting mobile
network operators operating 2G networks and planning 3G networks and equipment
vendors providing turnkey projects to the mobile network operators who require
service partners.
CAPITAL BUSINESSES
The Group's Capital Businesses comprise certain non-core businesses that the
Group manages to create value and ultimately for disposal. Activities in Capital
include the Group's holdings in:
a. Easynet Group Plc: On 26 July 2001, the Group merged its 92 per
cent. interest in ipsaris Limited into Easynet Group Plc
("Easynet"), a UK registered company listed on the London Stock
Exchange, acquiring 71.9 per cent. of the issued share capital of
Easynet and control of 49.9 per cent. of Easynet's issued voting
capital. Easynet's share capital comprises voting ordinary shares
and non-voting convertible shares. The closing of the Ultramast
Limited capital reduction on 24 February 2003 and the settlement of
the litigation associated with Ultramast Limited provided for the
Group to acquire approximately a further 1.3 million ordinary shares
in Easynet; certain of these shares will convert into convertible
ordinary shares so that the Group will not own more than 49.9 per
cent. of the voting ordinary shares. Easynet operates an internet
network and data centre infrastructures. In the UK, Easynet has a
national broadband network. Easynet is accounted for as an associate
in the Group's consolidated accounts.
b. Bookham Technology plc: On 17 December 2001, the Group sold its
optical components business to Bookham Technology plc ("Bookham") in
exchange for 9 per cent. of the issued ordinary shares of Bookham.
Bookham is a provider of optical components to the Group and other
network equipment vendors. Pursuant to a subsequent agreement
between Bookham and Nortel Networks Corporation, Corp now owns
approximately 6 per cent. of Bookham.
c. Capital also includes the Group's Italian-based Public Mobile Radio
Networks business, which develops base stations and controllers for
3G networks.
Other activities in Capital include a number of minor activities, investments
and assets.
RESEARCH AND DEVELOPMENT
The Group expended approximately L486 million, or 17.7 per cent. of total Core
sales, on research and development ("R&D") in its Core businesses in the
financial year ended 31 March 2002 (year ended 31 March 2001: L469 million). All
of this amount was funded by the Group. During the six months ended 30 September
2002, the Group expended approximately L163 million, or 16.4 per cent. of total
Core sales on R&D in its Core businesses.
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The Group intends to continue to provide a competitive product portfolio
building on existing market leading characteristics across its core product
areas despite this reduction in expenditure. As revenues stabilise, the Group
intends that R&D expenditure will amount to approximately 10 per cent. of
expected Core sales.
Optical Networks accounts for the Group's largest product portfolio and
generates the largest revenue base. Optical Networks R&D expenditure reflects
this representation and accounted for almost 40 per cent. of the total R&D
expenditure in the Group's Core businesses during the six months ended 30
September 2002 (six months ended 30 September 2001: 30 per cent.). The current
R&D projects have been selected on the basis that they are expected to yield a
higher overall return for the Group. The Group is maintaining continued
investment in next generation SDH products, in particular its recently launched
Series 4 product range which has been designed to be more cost effective and
offer service providers greater functionality than previous generations of the
product. It is also focusing on the development of its next generation optical
cross connect, the MSH range, its Metro product range, which is designed for
metropolitan applications, as well as its long-haul DWDM products and further
upgrades to the Group's network management software with the creation of
elements to allow new product network integration and the development of a
network control layer. Investment in network management should ensure that the
Group's customers will retain a full optical network solution, which evolves
along with individual product developments.
The BBRS Business accounted for 23 per cent. of R&D expenditure in the Group's
Core businesses in the six months ended 30 September 2002 (six months ended 30
September 2001: 21 per cent.). Over half of this expenditure was focused on the
development of the Group's new multi-service core switch, the BXR-48000. In
November 2002, the Group demonstrated its ability to support the transport of
encrypted high speed data and high definition videos streams over the BXR-48000
using its newly developed 10 Gbps OC-192c ATM interface card. Ongoing
initiatives on the BXR-48000 are focused on enhancing the product's IP
functionality. Other ongoing programmes include the further development of the
ASX-4000 switch to incorporate applications which will allow customers to
transport voice traffic over ATM and IP infrastructures.
R&D expenditure across the Group's European Access and North America Access
Businesses combined, accounted for 25 per cent. of total R&D in the Group's Core
businesses in the six months ended 30 September 2002 (six months ended 30
September 2001: 35 per cent.). During the first calendar quarter of 2002, the
Group carried out an in-depth review of its complete portfolio of access
solutions. This review was based on an evaluation of the forecast levels and
timing of returns on investment and the cash generation potential of each
product line. Following the review, the Group streamlined its portfolio of
access technologies and refocused its R&D expenditure. In Europe, investment now
only occurs in products that meet European Technology Standard Institute (ETSI)
requirements and that will build on current market and customer positions.
Consequently, R&D is being targeted on three key product ranges: the Access Hub
platform, the Skyband fixed wireless access products and the Softswitch. Planned
future developments of these products include the ability to aggregate traffic
from 3G mobile base stations into the Access Hub, the addition of further
frequency bands and voice and video functionality in the design of the fixed
wireless products and the addition of further features and functionality to the
Softswitch. R&D investment in North American access products has been
significantly reduced and the Group has announced that while continuing to
pursue sales opportunities and offer full support, care and maintenance for its
existing copper and first generation fibre access products, it will not
undertake further investment to develop next generation upgrades. In particular,
the Group has discontinued investment in its next generation Fiber-to-the-Home
solutions. Ongoing R&D efforts are focused on reducing the costs of existing
products.
The remaining R&D investment in the six months ended 30 September 2002 related
mainly to outside plant and power products and wireless software. The Group is
currently focusing its R&D efforts in the OPP Business towards the completion of
its next generation power platform and web-based monitoring system. Smaller
projects are also under way to develop customer specific products as well as
redesigning the current product portfolio to reduce costs. The Group's wireless
R&D efforts are focused on two product streams, OSS solutions and Wireless
Network Planning solutions.
A discussion of certain risks associated with the Group's R&D is set out in Part
F of this section.
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A.5 INTELLECTUAL PROPERTY
BACKGROUND
The Group owns a number of Intellectual Property rights including Patents, trade
marks and registered designs throughout the world. The Group has a number of
patent and know-how (and other) licences from third parties relating to products
and methods of manufacturing products. The Group has also granted Patent,
software, know-how and other licences to third parties.
Because the Group has previously developed some of its technologies through
customer-funded research, it may not always retain proprietary rights to the
products it develops.
The Group relies on Patents, trade marks, trade secrets, design rights,
copyrights, confidentiality provisions and licensing agreements to establish and
protect its proprietary technology and to protect against claims from others.
Infringement claims have been and may continue to be asserted against the Group
or against its customers in connection with their use of the Group's systems and
products. The Group cannot ensure the outcome of any such claims and, should
litigation arise, such litigation could be costly and time-consuming to resolve
and could result in the suspension of the manufacture of the products utilising
the relevant Intellectual Property. In each case, the Group's operating results
and financial condition could be materially affected. See Appendix 20 for a
discussion of significant legal proceedings.
The "Marconi" trade mark used by many of the Group's businesses is identified
with and important to the sale of the Group's products and services. It is
either registered or the subject of an application for registration in
approximately 120 territories, including all of those territories which the
Group currently views as being its major trading territories.
A discussion of certain risks associated with Intellectual Property rights is
set out in Part F of this Section.
PATENTS OWNED BY UK IP OPCOS AND US IP OPCOS
As part of the security arrangements in relation to the New Notes to be
implemented as part of the Restructuring all legal and beneficial title to
Patents owned by the UK IP Opcos and US IP Opcos will be assigned to three SPVs,
UK IPR Co, Ringfenced IPR Co and US IPR Co, which have been formed for the
purpose of owning, maintaining and licensing the Patents assigned to them and
all future Patent rights of Corp Group companies in the UK and US. UK IPR Co
will be incorporated in England and Wales and Ringfenced IPR Co and US IPR Co
will be incorporated in the State of Delaware, USA. US IP Opcos will grant
security over all Intellectual Property prior to executing the assignments
referred to in this paragraph. Further details are set out in Appendix 10.
Ringfenced IPR Co will be a wholly-owned subsidiary of Marconi Communications,
Inc. US IPR Co will be a wholly-owned subsidiary of Marconi Inc. UK IPR Co will
be a wholly-owned subsidiary of Marconi Communications Limited.
Ringfenced IPR Co will have assigned to it the Patents relating to the North
American Access, BBRS and OPP Businesses operated by US IP Opcos. US IPR Co will
have assigned to it the Patents owned by US IP Opcos that do not relate to North
American Access, BBRS and OPP Businesses. UK IPR Co will have assigned to it the
Patents owned by UK IP Opcos.
Assignment to each SPV will be effected under an umbrella assignment. Each UK IP
Opco and US IP Opco will be a party to the relevant assignment.
The SPVs will not transfer, dispose of or grant any exclusive licence under any
Patent, whether to another Corp Group company or a third party, other than:
a. to another Corp Group company in the context of infringement
proceedings against a third party where, absent such assignment,
substantial damages would be irrecoverable (and in which case the
Patent or Patents shall be reassigned to the relevant SPV as soon as
such condition no longer prevails);
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b. to a third party or a subsidiary of Corp, in each case in connection
with any disposal (which is otherwise permitted by the applicable
indenture pursuant to which the New Notes will be issued) of a Corp
Group company or of all or substantially all of its assets, property
or rights; or
c. to a customer of Corp or any of its subsidiaries where the
technology has been commissioned by that customer and developed by a
Corp Group company (whether alone or jointly with the customer) for
such customer's exclusive use pursuant to a development agreement.
UK IPR Co will grant a non-exclusive licence to Marconi Communications Limited
of all Patents assigned to it by UK IP Opcos. Ringfenced IPR Co will grant a
non-exclusive licence to Marconi Communications, Inc. of all Patents assigned to
it by US IP Opcos. US IPR Co will grant a non-exclusive licence to Marconi Inc.
of all Patents assigned to it by US IP Opcos. All the licences will permit
sub-licences to be granted subject to the provisions on Important Transactions
described below.
The management and maintenance of the UK and US owned Patents respectively will
remain primarily with Marconi Communications Limited, Marconi Inc. and Marconi
Communications, Inc. However, Important Transactions will require SPV approval.
There will be three special categories of Important Transactions:
a. granting sub-licences to third parties;
b. pursuing/abandoning patent applications; and
c. pursuing infringers.
All Important Transactions will require the approval of the SPV but the SPV
shall delegate that consent authority to Corp (which will act through Marconi
Intellectual Property (divisional group)). This will ensure that the decisions
regarding any Important Transaction are made with the interests of the entire
Corp Group in mind (or at a minimum for any Patent, the interests of every other
licensee within the Corp Group). At the same time, the decision could be taken
expeditiously because it would be exercised by Corp and not a non-operating SPV.
The approval requirements may not be waived or amended.
New applications for Patents will be filed in the name of Marconi
Communications, Inc., Marconi Inc. or Marconi Communications Limited (as
appropriate) and assigned to the respective SPV. This will be achieved via a
covenant in the indentures governing the New Notes on Corp to procure the
assignment by Corp or a subsidiary of Corp organised in the UK or under US law
of the Patent application from Marconi Communications, Inc., Marconi Inc. or
Marconi Communications Limited to the relevant SPV. In the UK the application
may be filed in the name of UK IPR Co at the outset.
Each of the SPVs will grant security over its assets in favour of the Security
Trustee, and the shares in the SPVs will be charged or pledged, as applicable,
in favour of the Security Trustee on behalf of the holders of the New Notes and
the banks providing the Performance Bonding Facility. Further details are set
out in Appendix 10.
In those cases (as set out in Appendix 10) where Guarantors grant floating
charges (or equivalent security over all their assets) this will include such
Intellectual Property as those Guarantors own.
In some cases the Guarantors are required to grant a fixed charge or equivalent
security over specified Intellectual Property in the future so far as such
Intellectual Property is material and the security is legally permissible.
OTHER INTELLECTUAL PROPERTY OF THE GUARANTORS
As part of the security arrangements in relation to the New Notes, Intellectual
Property owned by or registered in the name of Marconi Communications GmbH will
be assigned to a Bank Trustee Company in Germany by way of security. The Bank
Trustee Company will grant a licence to Marconi Communications GmbH.
OTHER INTRA-GROUP LICENCES
In consideration of the Parties sharing the costs incurred for research and
development under the existing Research and Development Cost Sharing Agreement
(RDCSA), each Party grants to the other Parties a royalty-free licence of
Patents and technology developed by a Party under the RDCSA. Subject to the
following
52
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amendments listed below (and any further consequent changes that may be required
as a result of the arrangements set out herein), the existing RDCSA will remain
in force:
a. the RDCSA will be varied/amended to allow Parties to sub-license Patents,
subject to the procedure concerning Important Transactions described above;
b. Marconi Communications, Inc. will withdraw from the RDCSA. This is because
Marconi Communications, Inc. remains potentially liable for cost sharing
under the RDCSA but accrues no commercial benefit through use of other
Parties' Intellectual Property;
c. the RDCSA will also be amended to confirm that the Parties to the RDCSA
contract on behalf of themselves and their subsidiaries and related companies
within their territory. Such subsidiaries and related companies will be
entitled to claim the benefit of the provisions of the amended RDCSA; and
d. the termination provisions of the RDCSA will be amended to state that the
insolvency of any Party or its related companies and subsidiaries will not
affect the rights enjoyed by those entities benefiting under a licence
granted pursuant to the RDCSA.
The SPVs will not be parties to the RDCSA.
All Corp Group companies will enter into a Group Licence Agreement which will
provide that each company grants a non-exclusive licence to the operating
companies in the Corp Group of any Intellectual Property (other than trade marks
and service marks) used in such other company's business to the extent that such
use is not already authorised by the RDCSA or otherwise formally authorised in a
written licence agreement. This Group Licence Agreement will only govern actual
use by one Corp Group company of another Corp Group company's Intellectual
Property. Each licensee Corp Group company shall pay a royalty (determined on an
arm's length basis) to the licensor Corp Group company. The payment of that
royalty shall become effective on a declaration of use by either the licensee or
licensor and all royalties due from the date of the Group Licence Agreement
shall immediately be payable by the licensee on the declaration of use being
given or received, as the case may be. The Group Licence Agreement will have
full effect to the extent that any operating company in the Corp Group lacks
sufficient authorisation under the RDCSA. To the extent required, a licensee
under the Group Licence Agreement will be permitted to grant sub-licences
(subject, insofar as is necessary, to the provisions on Important Transactions
described above). The Group Licence Agreement may not be varied or terminated so
as to deprive a Corp Group company of the benefit enjoyed under such licence so
long as it remains a part of the Corp Group.
All future intra-Corp Group use of Intellectual Property (other than trade marks
or service marks) which is not otherwise governed by the RDCSA or the Group
Licence Agreement will be recorded in a written licence agreement. This will be
achieved via a covenant in the indentures governing the New Notes on Corp to
procure the execution of such agreements between the relevant operating
companies in the Corp Group.
A.6 DIVIDEND POLICY
Under English law a company may only pay dividends out of profits available for
distribution. Corp intends to apply to court to cancel its Non-Voting Deferred
Shares and its share premium account (including the share premium account
arising on the issue of the New Shares to be allotted pursuant to the Corp
Scheme) to create a reserve which will be applied in writing off accumulated
losses on its profit and loss reserve. It is anticipated that this Capital
Reduction will become effective shortly after the Effective Date of the Corp
Scheme, although no assurance can be given that the application will be
successful. Further information concerning the Capital Reduction is set out in
Part D.9 of this Section. Although the future ability of Corp to pay a dividend
will be facilitated if the Capital Reduction is effected, Corp will be
restricted from paying dividends under the terms of the indentures governing the
New Notes (see Part C.3 of this Section and Appendix 8). Accordingly, Corp does
not expect to pay a dividend in the foreseeable future. A discussion of certain
risks associated with the dividend policy is set out in Part F: Risk Factors.
A.7 FINANCIAL OBJECTIVES
Upon completion of the Restructuring, the Group expects to be better positioned
to compete effectively in the areas of the telecommunications market on which it
has chosen to focus. Although the Group's principal markets
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I. EXPLANATORY STATEMENT
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remain difficult, they are expected, at some stage, to recover as customers
continue to evolve existing narrowband networks to broadband data and next
generation mobile networks. In due course, this should allow the Group once
again to grow profitably, assuming the telecommunications market improves.
In the near-term the Group's financial strategy is to continue to reduce its
total costs base to levels at which it can generate operating profit (before
goodwill, amortisation and exceptional items) and to manage its capital
expenditure and working capital in order to convert operating profit to positive
operating cash inflows (before exceptional cash costs).
The Group does not expect to rely on market recovery in order to achieve its
target gross margin during the financial year ending 31 March 2004. The
achievement of the Group's longer-term objectives is, however, dependent on an
increase in sales following the expected improvement in the market for the
Group's products and services.
Further information in relation to the Group's financial objectives is contained
in Appendix 5. A discussion of certain risk factors that could affect the
Group's expectations with respect to the Group's return to operating
profitability and ability to generate positive operating cash flow is set out in
Part F of this Section.
GROSS MARGIN IMPROVEMENT
The Group expects to achieve a gross margin run-rate in the range of 24 to 27
per cent. of sales in the Core businesses during the financial year ending 31
March 2004. Of this, the Group expects that the Group's US businesses would
contribute a gross margin run-rate in the range of 33 to 35 per cent. of sales
while its businesses in Europe and the rest of the world would contribute a
gross margin run-rate in the range of 23 to 26 per cent. of sales. The run-rate
for the US Businesses has not been adjusted to take into account the disposal of
any of the US Businesses.
The Group aims to drive future gross margin improvement through focusing on
sales of higher margin products and services, further supply chain
rationalisation and additional planned product cost reductions (being materials
and engineering cost reductions).
In the longer-term, assuming the market recovers, a gross margin run-rate in
excess of 30 per cent. is expected to be achievable. The Group will need to
benefit from increased sales volumes over time in order to achieve this level of
gross margin. When setting this longer-term target, the Group has assumed it
will continue to be able to achieve annual product cost savings at least equal
to the level of expected annual price reductions.
OPERATING COST REDUCTION
The Group's aim is to reduce operating overheads, comprising research and
development, sales, marketing, general and administrative costs but excluding
goodwill amortisation and exceptional items for the Core businesses, including
OPP and North American Access to a run-rate of below L450 million during the
financial year ending 31 March 2004.
The Group aims to achieve an operating expenditure run-rate for the Core
businesses in the range of 21 to 24 per cent. of sales during the financial year
ending 31 March 2004. Of this, the Group expects that its US businesses would
contribute an operating expenditure run-rate in the range of 29 to 33 per cent.
of sales, while its businesses in Europe and the rest of the world would
contribute an operating expenditure run-rate in the range of 20 to 23 per cent.
of sales. The run-rate for the US Businesses has not been adjusted to take into
account the disposal of any of the US Businesses.
Once the Core businesses' operating expenditure target is achieved, the level of
the Core businesses' sales at which the Group expects to be able to break even
at an operating profit/(loss) level will be reduced to below L1.7 billion per
annum.
The Group expects the main driver of these targeted operating cost savings to be
further planned reductions in its workforce resulting from further
rationalisation of its activities, as well as natural attrition. Reduced
spending on marketing initiatives and professional fees are also expected to
contribute to operating cost savings.
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Headcount in the Core businesses has been reduced by approximately 3,000 since
the end of September 2002 and at the end of December 2002, was approximately
16,000. At that time, a further 1,400 leavers had been identified and
announcements made in this respect, giving an identified headcount target for
the Core businesses of around 14,600. Once the L450 million operating cost
target has been achieved and the Group's headcount reduction plans have been
completed, the Group expects to employ approximately 14,000 employees in its
Core businesses.
CASH
Cash generation will continue to be one of the Group's key business priorities
post-Restructuring. In particular, the Group is targeting (i) to reach operating
cash breakeven before exceptional cash costs during the financial year ending 31
March 2004, and (ii) to generate sufficient total cash in order to pay down 30
per cent. of the New Junior Notes within 12 to 24 months following
implementation of the Restructuring, to pay down 50 per cent. of the New Junior
Notes within 15 to 27 months following implementation of the Restructuring and
to pay down 100 per cent. of the New Junior Notes within 18 to 30 months
following implementation of the Restructuring.
The Group expects to retain a total cash balance of approximately L602 million
upon completion of the Restructuring. Of this amount, approximately L96 million
will represent net cash outflows to break even, approximately L112 million will
be trapped cash, approximately L197 million is expected to be available to the
Group to fund its normal working capital needs, approximately L30 million will
represent cash in transit and approximately L167 million is expected to be
retained for the cash collateralisation of performance bonds. See Part D.4 of
this Section for more details on post-Restructuring retained cash.
Cash to Breakeven and Operating Cash Flow
The funds expected to be available to the Group include an amount derived from
the approximately L96 million projected net cash outflow to allow the Group to
fund the business to the point at which it reaches operating cash breakeven
before exceptional cash costs. This net outflow includes approximately L27
million of cash which the Group expects to generate from disposals of certain
non-core assets. Approximately L55 million has already been received by the
Group (including proceeds from Ultramast Limited (L41 million), the sale of the
Group's Italian-based private mobile network business, OTE SpA, also known as
TETRA (L2 million) and other disposals totalling L12 million) which, under the
terms of the Corp Scheme and the New Notes, will be available to fund its
working capital requirements.
The Group also intends to continue to improve management of the working capital
cycle. Specific programmes are already in place to minimise the time during
which cash is tied up in work in progress, to improve utilisation of inventory
by better aligning the purchase of new inventory with forecast sales demand and
to focus on debtor collection and overdue debts.
Once the Group completes its on-going operational restructuring initiatives,
including its headcount reduction plans, the Group expects the level of
exceptional restructuring cash costs to reduce significantly.
Paydown of New Junior Notes
The Group expects to generate cash to pay down the New Junior Notes primarily
from the proceeds of the disposal of OPP and North American Access, and other
asset disposals not allocated to working capital requirements, as described
above, as well as from the release of restricted cash balances relating to
performance bonding.
The North American Access Business may be sold prior to 1 May 2003, in which
event, the net proceeds of the disposal will be applied to increase the cash
element of the Corp Scheme Consideration (and the aggregate principal amount of
the New Junior Notes will be decreased by 10/11ths of that amount).
SITE RATIONALISATION AND CLOSURES
Since March 2002, the Group has further rationalised its remaining supply chain
facilities in the UK, US, Germany and Italy.
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It has also closed its outsourced printed circuit board (PCB) assembly and
manufacturing facility in Liverpool and merged these activities with the
facility managed by Jabil Circuit, Inc. (Jabil) in Coventry, and closed its
facility in Ireland and transferred these manufacturing operations to Pittsburgh
(US).
In addition, Marconi has closed its SONET manufacturing facility in Montreal
(Canada) as a result of the Group's decision to cease further development of
this technology, and has reduced the number of production facilities for its
outside plant and power equipment from nine to seven with the closure of two
plants in Wisconsin and Illinois (US).
In total, these site rationalisations and closures have resulted in a total
reduction of 6,305 employees from the Core businesses between April and November
2002 as the businesses have been reduced/adjusted to align cost with the current
and expected business volumes.
Today, the Group's principal operating sites are Coventry, Beeston, Chorley,
Camberley, Liverpool, London, Stafford and Wellingborough (UK); Florida,
Pennsylvania, Ontario, Georgia, Mississippi, North Carolina, Illinois, Texas and
Montreal (US & Canada); Genoa, Marcianise and Pisa (Italy); Backnang, Offenburg,
Frankfurt and Radeberg (Germany); Madrid (Spain); Melbourne and Sydney
(Australia); Beijing, Guilin and Hong Kong (China); Darulam and Kuala Lumpur
(Malaysia); Auckland (New Zealand); New Delhi (India); Riyadh (Saudi Arabia);
Dubai (United Arab Emirates); Springs (South Africa); Sao Paulo and Votorantim
(Brazil); and Naucalpan de Juarez and Huixquilucan Edo de Mexico (Mexico).
OUTSOURCING
Marconi Communications and Jabil Circuit, Inc. (Jabil) entered into an agreement
on 11 January 2001 to transfer certain manufacturing operations to Jabil. The
transfer was completed in the UK, Italy and the US during 2001. The planned
transfer of the Group's facility in Offenburg (Germany) did not proceed. Under
the terms of the agreement, approximately 1,800 Group employees in Bedford,
Texas (US), Liverpool and Coventry (UK) and Marcianise (Italy) transferred to
Jabil. Following the business transfers, Jabil and its subsidiaries entered into
agreements with Marconi Communications and other members of the Group to provide
electronics manufacturing and repairs services until June 2005 on an exclusive
basis.
The operations outsourced under this agreement comprise the assembly and
manufacture of PCBs used in the production of the Group's optical networking and
broadband access equipment. The Group continues to perform the final assembly
stages where the optical layer and power supply are applied to the PCBs. It also
configures and tests the products according to the customers' specification and
then packages and delivers the products to customers.
The majority of the Group's PCB assembly and manufacture for its broadband
switching and routing equipment is already outsourced to Jabil (Florida) and
Solectron (Texas). The Group has retained control of the manufacture of its
fixed wireless access equipment in Germany.
Since the outsourcing to Jabil was implemented, Marconi Communications and Jabil
have regularly reviewed their arrangements with a view to improving the
efficiency of their respective operations. For example, the transferred plant at
Bedford, Texas (US) was closed during 2002. On 22 January 2003, Marconi
Communications and Jabil agreed to a further rationalisation of Jabil's UK
operations which is intended to deliver improved pricing for the Group. The
Group will contribute towards the costs of securing these improvements. As part
of these arrangements, Marconi Communications and Jabil have entered into new
agreements governing the provision of electronics manufacturing and repair
services by Jabil, which will provide for more flexible and competitive pricing
and are currently expected to take effect from June 2003. Under these new
agreements, Jabil will continue to provide services to the Group until at least
June 2005 (the expiry date of the original service agreements), and to June 2007
for certain repair services. Jabil will continue, subject to meeting certain
performance and capacity requirements, as the exclusive supplier for products
and services covered by the agreements.
Marconi Communications and Jabil will continue to review their arrangements from
time to time and, where further improvement plans are agreed, Marconi
Communications may contribute to the costs of securing those improvements.
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In addition to the arrangements with Jabil, Marconi Communications has
established strategic relationships with a number of contract electronic
manufacturers (CEMs), OEMs and component commodity suppliers. Examples of CEMs
with whom Marconi Communications has established strategic relationships include
Solectron Corporation, Sanmina/SCI and Teradyne. Examples of the OEMs include
Hewlett-Packard, Siemens, Paradyne Corporation and Avaya. Finally, examples of
component commodity suppliers include Bookham Technology, Corning Incorporated,
Highwave, Intel Corporation, Molex, Motorola, NEC Electronics and Toshiba.
As part of the Group's overall manufacturing strategy, the Group is currently
considering further potential outsourcing opportunities in its supply chain,
logistics organisations and in the field of information technology. The Group
intends to retain control of functions only where it possesses key competencies.
Other functions, such as the manufacturing of non-complex products, will
continue to be outsourced where suitable partners can be identified.
A discussion of certain risks associated with outsourcing is set out in Part F
of this document.
A.8 CURRENT APPLICATION OF CRITICAL ACCOUNTING POLICIES
Corp and plc prepare their financial statements and accompanying notes in
accordance with UK GAAP. One of the notes to the financial statements included
in this document describes the significant accounting policies used in their
preparation. The preparation of such financial statements requires Corp and plc
to make estimates, judgements, and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. Corp and plc base their estimates on
historical experience and various other assumptions that they believe are
reasonable under the circumstances, the results of which form the basis for
making judgements about the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Corp and plc believe that
the following are some of the more critical judgement areas in the application
of their accounting policies that currently affect their financial position and
results of operations.
The development and selection of these critical accounting estimates has been
discussed with Corp's and plc's audit committees.
REVENUE RECOGNITION
Revenue is recognised when all of the following conditions are satisfied: (i)
there is persuasive evidence that an arrangement exists; (ii) delivery has
occurred or services have been rendered; (iii) the fee is fixed or determinable;
and (iv) it is probable that the debtor will be converted into cash.
It is common for the Group's sales agreements to cover the delivery of several
products and/or services. These range from arrangements where a contract covers
the delivery and installation of equipment to more complex arrangements, which
also include training of customer personnel, sale of software and other support
services. Revenue from contracts with multiple element arrangements, such as
those including installation and commissioning services, is recognised as each
element is earned based on objective evidence of the relative fair values of
each element and when there are no undelivered elements that are essential to
the functionality of the delivered elements.
Revenues and estimated profits on long-term contracts are recognised under the
percentage-of-completion method of accounting using a cost-to-cost methodology.
Significant judgement is required in determining progress toward completion and
in estimating revenues and costs. Profit estimates are revised periodically
based on changes in facts in the underlying contract. When estimates of total
contract revenues and costs indicate a loss, a provision for the entire amount
of the contract loss is recognised in the period in which the loss becomes
foreseeable. Advance payments received from contracts are recorded as a
liability unless there is a right of set-off against the value of work
undertaken.
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IMPAIRMENT OF LONG-LIVED ASSETS
The Group reviews the carrying value of other fixed assets and assets to be
disposed of, including other intangible assets, whenever indicators of
impairment exist. Indicators of impairment include (but are not limited to):
a. a significant adverse change in the extent or manner in which a
long-lived asset or asset group is being used or in its physical
condition;
b. a current-period operating or cash flow loss combined with a history
of operating or cash flow losses or a projection or forecast that
demonstrates continuing losses associated with the use of a
long-lived asset or asset group; and
c. a current expectation that, more likely than not, a long-lived asset
or asset group will be sold or otherwise disposed of significantly
before the end of its previously estimated useful life.
These tests for impairment require significant judgements in determining
estimates of future cash flows and the resulting value in use of the relevant
fixed asset. Estimations of the present value of future cash flows contain
inherent uncertainty and include estimates of market size and market share
information, growth rates, product demand and technological development, costs
of labour and supplier purchases, working capital requirements, and discount
rates to be applied to future cash flows.
If the carrying value of a fixed asset is considered impaired, an impairment
charge is recorded for the amount by which the carrying value of the fixed asset
exceeds the higher of its net realisable value or its value-in-use. Changes in
estimates of future cash flows can affect the determination of the net
realisable value or its value-in-use of the relevant fixed asset.
CONTINGENT LIABILITIES
Corp and plc are subject to legal proceedings and other claims arising in the
ordinary course of business. Various claims and proceedings have been or may be
instituted or asserted against Corp and plc relating to class shareholder
actions and the conduct of their businesses, including those pertaining to
patents, environmental, safety and health, employment and contract matters. Corp
and plc are required to assess the likelihood of any adverse judgements or
outcomes to these matters, as well as potential ranges of probable losses. A
determination of the amount of reserves required, if any, for these
contingencies is based on a careful analysis of each individual issue with,
where appropriate, the assistance of outside legal counsel to formulate best
estimates of the expected outcome and settlement. The outcome of litigation
cannot be predicted with certainty and some lawsuits, claims or proceedings may
be disposed of unfavourably compared to the amounts estimated.
PENSION AND OTHER POST-RETIREMENT BENEFITS
Pension and other post-retirement benefits' costs and obligations are dependent
on actuarial assumptions used in calculating such amounts. These assumptions
include discount rates, health care cost trend rates, benefits earned, interest
cost, expected return on plan assets, mortality rates, and other factors. While
Corp and plc believe that the assumptions used are appropriate, the assumptions
used may differ materially from actual results due to changing market and
economic conditions, higher or lower withdrawal rates or longer or shorter life
spans of participants. These differences may result in a significant impact on
the amount of future pension or post retirement benefits expense and the
resulting liability.
PRODUCT WARRANTIES
Provisions for estimated expenses related to product warranties are made at the
time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims. The
Group actively studies trends of warranty claims and takes action to improve
equipment quality and minimise warranty claims. Actual claims incurred could
differ from the original estimates, requiring adjustments to the reserve. If
Corp and plc were to experience an increase in warranty claims compared with
their historical experience, or if costs of servicing warranty claims were
greater than the expectations on which the accrual had been based, the Groups'
gross margins could be adversely affected.
58
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A.9 CURRENT TRADING AND PROSPECTS
CURRENT TRADING
Overall conditions in the telecommunications market remained tough during the
third quarter of the financial year ending 31 March 2003. Trading levels in EMEA
in the third quarter remained stable despite the continuing difficult market
environment. The Group is now beginning to observe some slowing of business in
the Middle East as a result of the current political environment. The North
American market continues to be characterised by further tightening of capital
expenditure by a number of large telecommunications operators, particularly
towards the end of their financial years in December 2002. In Central and Latin
America (CALA), the market was relatively stable during the quarter although
capital expenditure amongst major operators in the region remained at a low
level. In Asia-Pacific (APAC), while the market remains buoyant in Australia,
conditions in the Chinese market are more difficult as a result of delays in
capital expenditure due to the reorganisation of key customers, delay to the
roll-out of certain network build projects and increased pricing pressure on new
business.
Despite the difficult market environment, the Group continued to make
significant progress during the third quarter of the financial year ending 31
March 2003 towards its targets to improve operating performance in the Core
business. In particular compared to the previous quarter, further cost savings
achieved during the period led to an approximate 0.5 percentage point increase
in Core gross margin (before exceptional items) to 22.1 per cent. and an
approximate L85 million deduction in Core operating cost run-rate (before
goodwill amortisation and exceptional items) to around L550 million at 31
December 2002. Headcount reductions are a major driver of the Group's cost
reduction initiatives. At 31 December 2002, the Group had just over 16,000
employees in its Core business, down from just over 19,000 at 30 September 2002.
The Group's improved operating performance combined with further progress in all
areas of working capital management, led to a significant improvement in
adjusted operating cash flow, with the Group recording an operating cash inflow
(before exceptional items) of L72 million during the quarter. Non-operating and
exceptional cash outflows (excluding tax) of L88 million relating mainly to the
Group's ongoing operational and financial restructuring processes and interest
paid were partially offset by a net L45 million tax repayment received during
the period. In total during the third quarter, the Group generated cash of L29
million before use of liquid resources and financing.
The Group was awarded a number of important business wins during the period.
These included the first European sale of the Group's BXR-48000 multi-service
switch-router to a large financial institution and the first sale of the Group's
recently launched Softswitch to Jersey Telecom. In addition, since the beginning
of the new calendar year 2003, the Group has announced two major new business
wins from Telecom Italia: a euro 80 million (approximately L50 million) frame
contract for the supply of the Access Hub and a new 2-year frame contract
estimated at approximately euro 15 million (approximately L10 million) to build
an optical backbone network architecture based on the Group's next generation
digital cross-connect, the MSH2K.
PROSPECTS
Upon completion of the Restructuring, Corp and plc expect the Group to be
better-positioned to compete effectively in the areas of the broader
telecommunications equipment market on which it has chosen to focus.
The market for telecommunications equipment and services remains difficult.
During the first three quarters of the financial year ending 31 March 2003 the
annualised rate of Core sales has declined by around 10 per cent. from
approximately L2 billion in the first quarter to approximately L1.8 billion in
the third quarter. Corp and plc do not expect that the Group will benefit from a
seasonal uplift in Core sales during the fourth quarter of the financial year
compared to the level recorded in the third quarter (L456 million), contrary to
the seasonal pattern of customer demand in previous years. Despite this
difficult business environment Corp and plc believe that the previously
announced cost reduction initiatives currently being implemented will enable the
Group to make further progress during the final quarter of the financial year
ending 31 March 2003 towards its near term financial objectives to reduce costs
and to achieve operating cash breakeven before exceptional cash costs.
Furthermore, Corp and plc believe that market volumes are likely to contract
further during the financial year ending 31 March 2004 and do not expect to
benefit from significant market share gains. As a result, the Group
59
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believes that Core sales could decline by up to a further 5 per cent. during the
financial year ending 31 March 2004 compared to the annualised third quarter
trading levels (L1.8 billion).
In December 2002, the Group outlined its Core operating model and confirmed its
targets to achieve a gross margin run-rate in the range of at least 24 to 27 per
cent. of Core sales and an operating expenditure run-rate in the range of 21 to
24 per cent. of Core sales during the financial year ending 31 March 2004. The
Group now believes that it will be able to reduce the Core operating cost base
to an annual run rate below L450 million during the next financial year ending
31 March 2004 and thereby reduce its breakeven level of sales to below L1.7
billion per annum. An illustration of the effect of the Corp Scheme and the
Capital Reduction on the 30 September 2002 consolidated balance sheet of Corp is
contained in Appendix 2.
Although the Group's principal markets remain difficult, Corp and plc expect
them to recover, at some stage, as end customer demand for fixed or mobile
broadband services increases. While Corp and plc cannot predict with any level
of certainty the occurrence, timing or extent of any recovery, they believe that
the favourable longer-term dynamics of the telecommunications market should
enable the Group to improve margin and grow profitably.
A.10 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS OF CORP
The current members of the Board are:
Name Position Age
---- -------- ---
John Francis Devaney Chairman 56
Michael William John Parton Chief Executive Officer 48
Michael John Donovan Chief Operating Officer 49
Christopher Charles Holden Interim Chief Financial Officer 54
Michael Kent Atkinson Non-Executive Director 57
Werner Karl Koepf Non-Executive Director 61
The following individuals have agreed to become members of the Board on Listing
of the New Shares, the New Notes and the Warrants:
Name Position Age
---- -------- ---
Ian McMaster Clubb Non-Executive Director 62
Kathleen Ruth Flaherty Non-Executive Director 51
DIRECTORS OF PLC
The current members of the Board are:
Name Position Age
---- -------- ---
John Francis Devaney Chairman 56
Michael William John Parton Chief Executive Officer 48
Michael John Donovan Chief Operating Officer 49
Christopher Charles Holden Interim Chief Financial Officer 54
Michael Kent Atkinson Non-Executive Director 57
Derek Charles Bonham Non-Executive Director 59
Werner Karl Koepf Non-Executive Director 61
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FURTHER PARTICULARS OF THE DIRECTORS OF CORP AND PLC AND OF THE INDIVIDUALS WHO
HAVE AGREED TO BECOME DIRECTORS OF CORP
John Francis Devaney was appointed Chairman of the board of directors of Corp
and plc on 16 December 2002. He is also chairman of the nomination committee. He
stepped down in September 2002 as chairman of EXEL plc, and was a non-executive
director of HSBC Bank plc from 1994 to 2000 and British Steel (now known as
Corus UK Limited) from 1998 to 1999. He was executive chairman of Eastern
Electricity Ltd (now known as Eastern Energy Management Ltd) until 1998 and
prior to that executive chairman of Kelsey-Hayes Corporation. Mr Devaney was
until recently, chairman of Liberata plc, and is founder and chairman of
BizzEnergy Ltd. He is also a director and past chairman of EA Technology
Limited.
Michael William John Parton was appointed to the board of directors of plc in
January 2000 and became a director of Corp in November 2001. Mr Parton was
appointed Chief Executive Officer of plc in September 2001. He has held a number
of finance appointments in ICL plc (1977 to 1980), GEC-Marconi Ltd (1980 to
1986) and STC Telecommunications Ltd (1986 to 1991). He joined GEC in 1991 as
Finance Director of GPT (now known as Marconi Communications Limited), GEC's
telecommunications joint venture with Siemens, and was appointed Managing
Director of GPT's public networks group in 1995, Managing Director of GEC's
industrial group in 1997 and Chief Executive Officer of Marconi Communications
in July 1998.
Michael John Donovan was appointed to the board of directors of plc in January
2000 and became a director of Corp in November 2001. Mr Donovan was Chief
Executive Officer of Marconi Systems and Marconi Capital and in September 2001
was appointed Chief Operating Officer of plc. He previously held a number of
executive management positions in the Rover Group (1976 to 1991), Vickers plc
(1991 to 1994) and British Aerospace Plc (now known as BAE SYSTEMS plc) (1994 to
1998). Mr Donovan became Chief Executive Officer of GEC's industrial electronics
group in 1998 and is based in the US.
Christopher Charles Holden was appointed to the board of plc and Corp in
November 2002. Mr Holden was appointed Group Financial Controller in the summer
of 2002 and as interim Chief Financial Officer of Corp and plc in November 2002.
He became a partner with Arthur Andersen's auditing practice in 1983, having
joined the firm in 1971. During his period with the firm, he held a number of
senior international roles. He holds a BSc (Eng) in Metallurgical Engineering
from Imperial College of Science and Technology, University of London, and is a
Fellow of the Institute of Chartered Accountants of England and Wales.
Michael Kent Atkinson was appointed non-executive director of Corp and plc in
December 2002. He is also chairman of the audit committee. Previously he served
as group finance director at Lloyds TSB Group plc between 1994 and June 2002,
and remains on that board as a non-executive director. Mr Atkinson spent his
early career in Latin America and the Middle East and held various senior
management roles internationally and in the UK for 24 years before becoming
Lloyds TSB Group plc's finance director. Mr Atkinson is also the senior non-
executive director of Coca-Cola HBC S.A. (Athens) and chairman of its audit
committee and will join the board of Cookson Group plc on 1 April 2003 as a
non-executive director and chairman of its audit committee.
Derek Charles Bonham was appointed to the Board of plc in April 2001. Mr Bonham
was appointed interim Chairman of plc in September 2001. He stood down from the
chairmanship of plc on 16 December 2002 and remains a non-executive director of
plc. He is currently chairman of Cadbury Schweppes plc, CamAxys Group Plc and
Imperial Tobacco Group plc and was chief executive (from 1992) and deputy
chairman (from 1993) of Hanson plc until 1997. He is a past member of the
Financial Accounting Standards Advisory Council (USA) and served on the
Accounting Standards Committee (UK).
Werner Karl Koepf was appointed as a non-executive director of Corp and plc in
December 2002. He was CEO of Compaq Computer Corporation for the EMEA region
until 2002 and is a director of PXP Software AG (formerly Pixelpark CEE Holding
AG) as well as an adviser to venture capital company Techno Venture Management
GmbH. He has held a range of senior management positions with some of the
world's leading technology companies, including Texas Instruments, Siemens and
European Silicon Structures S.A.
Ian McMaster Clubb has over 25 years experience in a range of senior financial
and management roles. He is chairman of First Choice plc, Shanks Group plc and
Platinum Investment Trust plc. He is also a non-executive director of oil
industry services company, Expro International plc. He was group finance
director at BOC Group
61
I. EXPLANATORY STATEMENT
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plc (1991-1994) and deputy chief executive and group finance director at British
Satellite Broadcasting Ltd (1989-1991).
Kathleen Ruth Flaherty is a US based global telecommunications executive with
over twenty years' experience in the communications industry. She has spent
seventeen years with MCI Communications Corporation, latterly as senior vice
president, global product architecture and engineering. Previously (1995-1997)
she spent two years on secondment from MCI to BT, during which time she was BT's
marketing director for National Business Communications. Between 1998 and 2001,
she was in Brussels and New York as president and chief operating officer of
Winstar International, a fixed wireless communications company.
SENIOR MANAGEMENT
In addition to the Executive Directors, the current members of the senior
executive management team are:
Name Position Age
---- -------- ---
David Clive Beck Director of Communications 40
Geoffrey William Doy Chief Executive Officer, Sales and 54
Marketing
Mary Angela Skelly Company Secretary and Head of Legal 42
Damian Hugh Reid Chief Strategy Officer 40
Neil David Sutcliffe Chief Human Resources Officer 41
Michael Francis Surrey EVP Finance, Operations and Group 36
Controller
Patricia Dooley EVP Product Engineering 32
All members of the senior executive management team are employees of Corp save
for Geoffrey Doy, who is employed by MCI.
David Clive Beck was appointed Director of Communications of plc in February
2002 having previously been Managing Director of Bell Pottinger Financial, part
of the Chime Communications Group, where he held a number of positions over 15
years.
Geoffrey William Doy was appointed Chief Executive Officer, Sales and Marketing
of plc in September 2001. He was appointed Chief Executive Officer of Marconi
Wireless in April 2001. He held a number of positions in the IT and
communications industries with Software Sciences Limited from 1983 to 1988,
Artemis International from 1988 to 1993 and Gemini Consulting Inc. from 1995 to
1998 before joining Metapath Software International Inc. in August 1998.
Mary Angela Skelly was appointed Company Secretary in July 2002. She was
formerly a director and group company secretary of The Albert Fisher Group plc
(in administrative receivership).
Damian Hugh Reid was appointed Chief Strategy Officer of plc in September 2001
having previously served as Senior Vice President, Corporate Finance of plc. He
joined GEC in 1998. Mr. Reid is a non-executive director of Atlantic Telecom
Group PLC (in liquidation).
Neil David Sutcliffe was appointed Chief Human Resources Officer of plc in March
2002, in addition to his appointment in September 2001 as Chief Executive
Officer of Marconi Capital. He was previously Chief Executive Officer of Marconi
Services and has held a number of senior appointments in Marconi Communications
and GPT Ltd. Prior to his joining GPT Ltd in 1992, he was a manufacturing
consultant at Coopers and Lybrand from 1988 to 1992 and a systems engineer with
British Aerospace plc (now known as BAE SYSTEMS plc) from 1984 to 1988.
Michael Francis Surrey was appointed EVP Finance -- Operations and Group
Controller for plc in November 2002 with responsibility for all aspects of the
Group's performance monitoring and management reporting systems. He joined GEC
in 1992 and has held a broad range of financial management positions with the
Group. Mr Surrey holds a degree in accounting and economics from the University
of Manchester and is a member of the Institute of Chartered Accountants of
England and Wales.
Patricia Dooley was appointed as EVP Product Engineering for Marconi's European
portfolio in October 2002 with responsibility for product line management,
technical product strategy and product development. The
62
I. EXPLANATORY STATEMENT
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portfolio covers Optical Networks, ETSI Access, Fixed Wireless and Voice
Switching products. She joined GEC in 1987 as an engineering apprentice and has
held a number of management and senior management positions in the Group. She
holds an Ordinary National Diploma and Higher National Diploma in
telecommunications and electrical engineering and post-graduate certificate in
software engineering.
EMPLOYEES
The table below sets out the average number of people (full time equivalents)
employed by the Group in the previous three financial years and the six months
ended 30 September 2002:
30 September
2000 2001 2002 2002
---- ---- ---- ------------
(in thousands)
Average number of employees
Employees by business
Network Equipment 20 24 19 13
Network Services 5 9 8 6
Other 1 1 -- --
---- ---- ---- ------------
26 34 27 19
Capital 11 3 3 3
---- ---- ---- ------------
Continuing operations 37 37 30 22
Discontinued operations 12 15 15 3
---- ---- ---- ------------
Group employees 49 52 45 25
Share of joint venture employees 4 4 3 --
---- ---- ---- ------------
Group and share of joint ventures 53 56 48 25
---- ---- ---- ------------
Employees by location
United Kingdom 20 22 17 8
The Americas 16 17 12 6
Rest of Europe 11 13 15 9
Africa, Asia and Australasia 6 4 4 2
---- ---- ---- ------------
53 56 48 25
==== ==== ==== ============
During the year and six months ended 30 September 2002, the Group took a number
of steps to reduce its workforce as the Group restructured its cost base in
response to the deterioration in trading conditions it experienced. At the end
of December 2002, the Group employed approximately 16,000 employees in its Core
business.
SHARE INCENTIVE PLANS
The Group currently operates various share incentive plans, providing
participants with the right to acquire shares in plc at specified prices or,
where certain objectives are achieved, at no cost (the latter are known as
nil-cost options). Certain options, including some of the nil-cost options are
already exercisable. The holders of such options can acquire plc Shares prior to
the plc Shareholders Record Time. As a result of the Restructuring, more of the
options will become exercisable. However, this will be after the plc
Shareholders Record Time, when plc Shares will have no value.
Due to plc's current share price the majority of options granted to participants
under the Plans are now underwater (that is, shares in plc are worth less than
participants would have to pay to acquire them under the Plans). It is therefore
assumed that holders of those options, which are currently exercisable, will not
exercise them. Of those options where the plc Shares subject to them are worth
more than the price that participants must pay for them, it is only those
optionholders who can and do exercise their options prior to the plc
Shareholders
63
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Record Time who will receive New Shares and Warrants. After the Restructuring,
all remaining options over plc Shares will be valueless. Details of the Group's
existing share incentive plans are contained in Part D.10 of this Section.
Conditionally on the later of the First Initial Distribution under the Corp
Scheme being initiated, and the Effective Date of the Corp Scheme, Corp has
adopted two employee share option plans, the Corp Senior Management Share Option
Plan and the Corp Employee Share Option Plan. Summaries of the plans are
contained in Part D.10 of this Section.
CORP CORPORATE GOVERNANCE
Corp supports high standards of corporate governance. Corp intends to comply
with the requirements of the Combined Code following the Restructuring.
Following Listing of the New Shares, the New Notes and the Warrants, Corp's
Board will comprise the Chairman, three Executive Directors (including the Chief
Executive Officer) and four Non-Executive Directors. Corp regards all
Non-Executive Directors as independent and free from any business or other
relationship which could materially interfere with the exercise of their
independent judgement. The Board has established audit, remuneration, nomination
and executive committees.
The audit committee will comprise a chairman and will have at least two other
members each of whom will be appointed by the Board and who will be
Non-Executive Directors of Corp. The audit committee will be chaired by Kent
Atkinson; its other members will be Ian Clubb and Werner Koepf. It will meet
formally at least twice a year. Its duties will include reviewing the scope,
plan and results of any audit. It will meet regularly with management, as well
as with internal and external auditors to review the effectiveness of internal
controls, as well as matters raised in regular reports to the committee. It will
review financial announcements and annual reports prior to their submission to
the Board. Corp's auditors will be able to attend meetings and have the
opportunity to raise matters or concerns in the absence of Executive Directors
and management.
The remuneration committee will comprise at least three Non-Executive Directors.
The remuneration committee will be chaired by Ian Clubb; its other members will
be Kent Atkinson, Kathleen Flaherty and Werner Koepf. The committee will meet
formally at least twice a year. The committee will make recommendations to the
Board on the broad policy to be adopted for executive remuneration, including
the remuneration of Executive Directors and the Chairman. It will determine the
total individual remuneration package for individual Executive Directors and
certain other senior executives including, where appropriate, bonuses, pensions
and incentive scheme entitlements and the terms of individual Executive
Directors' service agreements.
The nomination committee will comprise the Chairman and each of the
Non-Executive Directors. The nomination committee will be chaired by John
Devaney and its other members will be Kent Atkinson, Ian Clubb, Kathleen
Flaherty and Werner Koepf. The committee will meet to review Board structure,
size, composition and balance, to make recommendations to the Board on any
adjustments that are deemed necessary and to nominate candidates to fill board
vacancies.
Following the recent publication of the Higgs "Review of the Role and
Effectiveness of Non-Executive Directors" and the Smith Report "Audit Committees
-- Combined Code Guidance", Corp intends to review those areas of its corporate
governance which are impacted by the Review and the Report. This will include
the structures and terms of reference of its committees, in order to ensure the
Corp's continued future compliance with the requirements of the Combined Code.
In particular, Corp believes that it should move to a position where the
majority of its Board are independent Non-Executive Directors. Although Corp
does not envisage that any further non-executives will be appointed to the Board
before the Listing of the New Shares, the New Notes and the Warrants, Corp will
continue to look for suitable candidates to join the Board as independent
Non-Executive Directors, where they can bring appropriate experience or industry
knowledge. A process is already in place to identify further suitable
candidates. Following a further appointment which it expects will be made within
three months of the Effective Date, Corp will at all times strive to ensure that
it maintains a majority of independent Non-Executive Directors on its Board by
within
64
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SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART A
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three months of ceasing to have such a majority, appointing additional
independent Non-Executive Directors or reducing the size of the Board.
Corp's executive committee comprises such Executive Directors and senior
executives of the Corp Group as the Chief Executive Officer recommends and the
Board approves. The committee normally meets monthly and is chaired by Michael
Parton. Its other members are Michael Donovan, Christopher Holden, David Beck,
Geoffrey Doy, Mary Skelly, Damian Reid, Neil Sutcliffe, Michael Surrey and
Patricia Dooley. The committee approves the Corp Group's business plan, budget
and strategies in areas including technology, people, information technology and
corporate communications prior to submission to the Board for approval. It also
approves day-to-day matters of a routine nature.
The business risk sub-committee of the executive committee comprises the members
of the executive committee and meets at least four times a year. It establishes
and monitors risk management goals and objectives, embeds a risk monitoring and
assessment process throughout the Corp Group and regularly reports on the same
to the Board. The sub-committee also liaises with the audit committee to ensure
a sound system of internal control and reports to the audit committee, at least
annually, with an update on the Corp Group's risk management system.
Corp will also be subject to applicable corporate governance requirements under
US law (including the Sarbanes-Oxley Act of 2002 and regulations adopted by the
SEC thereunder) and, after the listing of its ADRs becomes effective, NASDAQ
rules.
A.11 FINANCIAL INFORMATION AND CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial information for the three years and six months ended 30 September 2002
in relation to Corp is set out in Appendix 1.
An unaudited pro forma consolidated balance sheet in relation to Corp is set out
in Appendix 2, showing figures as at 30 September 2002 to illustrate the
position as if the Restructuring and the Capital Reduction had then taken place,
based on certain assumptions set out in that Appendix.
Financial information for the two years and six months ended 30 September 2002
in relation to plc is set out in Appendix 3.
plc's quarterly report for the three months ended 31 December 2002 was published
on 18 March 2003. That report, which is unaudited, is set out in Part A of
Appendix 4. An illustrative financial analysis with respect to the year ending
31 March 2005 and information on cash to be retained by the Group immediately
following the Restructuring were also published on 18 March 2003. These are set
out in Part B of Appendix 4.
A discussion of the Corp Group's financial condition and results of operations
for the three years and six months ended 30 September 2002 is at Appendix 5.
65
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B. BACKGROUND TO AND REASONS FOR THE RESTRUCTURING
The trading statement made by plc on 17 May 2001 in relation to the Group's
results for the year ended 31 March 2001 highlighted the fact that conditions in
the telecommunications equipment sector had experienced a downturn since the end
of 2000. On 4 July 2001, plc issued a profits warning noting that market
conditions during the three months to June 2001 had been much tougher than
expected, and that there had been a marked deterioration in the short-term
outlook for the Group (in particular, that sales were expected to be down by 15
per cent. and operating profit before exceptional items by 50 per cent. compared
with the previous financial year). Immediately prior to the announcement, plc
suspended trading in its shares for a day. On 6 July 2001, plc announced the
resignation of John Mayo as Deputy Chief Executive of plc.
An operational review of the Group was commenced shortly thereafter, the outcome
of which included sharper focus on the Core carrier-class network communications
business and a disposal programme in relation to certain non-Core businesses and
assets.
plc issued a second profits warning on 4 September 2001. The 4 September 2001
trading statement, which indicated that a first half operating loss of L227
million was expected, also announced a change in senior management (namely the
resignations of Sir Roger Hurn and Lord Simpson as Chairman and Chief Executive
respectively of plc, and the appointment of Derek Bonham as interim Chairman and
Michael Parton as Chief Executive), a decision to halt dividend payments for the
financial year ending 31 March 2002 and the implementation of further cost
reduction measures.
In October 2001, in view of the deterioration in the Group's financial condition
and the need to procure medium term financing for the Group, Corp and plc
entered into negotiations with the Syndicate Banks for the refinancing of Corp's
then existing E4.5 billion and (undrawn) E3 billion revolving credit facilities
(due to mature in March 2003 and May 2002 respectively) (referred to in this
Part B as the "EXISTING SYNDICATED FACILITIES"). By mid-March 2002, Corp and plc
had largely agreed the terms of a L1.95 billion facility agreement with the then
Syndicate Banks in order to refinance the existing syndicated facilities.
However, market conditions had continued to deteriorate and, following further
reviews of the Group's then business plan in the second half of March 2002, the
boards of Corp and plc reached the view that the refinancing proposal would no
longer provide the Group with an appropriate capital structure and, accordingly,
that they were unable to enter into the proposed new L1.95 billion facility. On
22 March 2002, plc made an announcement to this effect and announced also that
Corp and plc had agreed to cancel the undrawn commitments under the existing
syndicated facilities (as the E3 billion facility was undrawn, this resulted in
the complete cancellation of this facility) and to place on demand the drawn
portion of the E4.5 billion facility (approximately L2.2 billion).
Over subsequent weeks, the Group developed a revised Business Plan, which was
then presented to representatives of the Syndicate Banks and to the Informal
Committee of Bondholders. In parallel, Corp and plc commenced tripartite
discussions with those representatives with a view to Corp and plc formulating a
Restructuring proposal. As part of that negotiation process, in April/May 2002
Corp and plc agreed to certain restrictions on financial and corporate
activities during the Restructuring process, in the form of undertakings given
by Corp and plc (in relation to each member of the Group) in favour of the
Syndicate Banks and members of the Informal Committee of Bondholders
respectively. These undertakings, which were modified and renewed on 28 March
2003, are aimed at preservation of the "status quo" over the period of the
Restructuring negotiations and while the Schemes are pending. The undertakings
contain a number of carve outs designed to preserve operational (but not
strategic) flexibility and to facilitate the implementation of the
Restructuring. The undertakings will terminate automatically on the Effective
Date of the Corp Scheme.
With effect from 1 April 2002, and also as part of the undertakings, Corp agreed
to increase the margin above LIBOR on Corp's drawings under the Bank Facility to
2.25 per cent. per annum.
As part of the undertakings, Corp agreed to deposit L850 million of the Group's
cash balance into certain accounts held with banks independent of the Syndicate
Banks, and agreed to restrictions on withdrawals of cash from those accounts.
The Lockbox Accounts, into which the L850 million was deposited on 3 May 2002,
are held in the name of Highrose Limited, a special purpose subsidiary of Corp.
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On 29 August 2002, the Group announced that following good faith negotiations
with the Co-ordination Committee and the Informal Committee of Bondholders, it
had concluded non-binding indicative Heads of Terms setting out principles for
the Restructuring of Corp and plc.
On 13 September 2002, as detailed further in Part D.1 of this Section, the Group
announced the grant of interim security over the Lockbox Accounts, in favour of
the Group's Bank Creditors and Secured Bondholders and Barclays Bank PLC, as the
only ESOP Derivative Bank which committed to support the Restructuring prior to
15 October 2002. Although withdrawals from the Lockbox Accounts to fund the
Group's working capital requirements since May 2002 have reduced the balance of
the Lockbox Accounts, significant disposal proceeds have been paid into the
Lockbox Accounts, as required under the undertakings. At the date of the
granting of the interim security, the balance held in the Lockbox Accounts was
approximately L866 million. As at 27 March 2003, the balance held in the Lockbox
Accounts was approximately L770.7 million.
On 16 December 2002, plc announced modifications to the non-binding indicative
Heads of Terms and amendments to the interim security over the Lockbox Accounts.
The interim security was further amended on 28 March 2003 (see Part D.1 of this
Section).
Provision has been made for the interim security to be released prior to the
Corp Scheme Meeting (in circumstances tied to the prospects of the Corp Scheme
being successfully implemented (as described more fully in Part D.1 of this
Section)). If the interim security has not been released prior to the Corp
Scheme Meeting, neither Corp nor plc will proceed with their respective Schemes
and the interim security will remain in place in any subsequent insolvency
proceedings, meaning that the Bank Creditors, Secured Bondholders and Barclays
Bank PLC (as the only ESOP Derivative Bank that committed to support the
Restructuring prior to 15 October 2002) would rank ahead of all unsecured
creditors of Corp with respect to the cash held in the Lockbox Accounts. If the
interim security is released and the Corp Scheme Meeting proceeds, the choice
facing all Corp Scheme Creditors will be the same: either the Corp Scheme will
be approved and implemented, or the Corp Scheme will be rejected and in the
inevitable insolvency proceeding which would follow such rejection the interim
security would no longer be in place.
The Syndicate Banks and the Informal Committee of Bondholders have indicated
that they will not be prepared to release the interim security prior to the Corp
Scheme Meeting unless, immediately before such release, Corp has confirmed to
the Prospective Supervisors that Corp remains satisfied that the reserves built
into the Corp Scheme are sufficient to meet distributions to all Corp Scheme
Creditors and that Corp remains of the opinion that its statement as to the Corp
Group's working capital contained in Part D.21 of this Section remains valid,
and the Prospective Supervisors have confirmed to Corp that they have no reason
to disagree with Corp's view that the reserves built into the Corp Scheme are
sufficient to meet distributions due to be made to all Corp Scheme Creditors.
On 18 March 2003, plc announced that documentation in relation to the proposed
Restructuring had been filed with the Court and provided an update on certain
aspects of the Restructuring. On 26 March 2003 and 24 March 2003 respectively
the required consents were received to certain pre-completion steps for the
Restructuring from the requisite majorities of the Syndicate Banks and the
members of the Informal Committee of Bondholders.
On 26 March 2003, Corp and plc entered into a definitive agreement with the
Group's ESOP Derivative Banks for a settlement of their ESOP derivative related
claims against the Group. Under the terms of the settlement, which is
conditional upon the Corp Scheme becoming effective, Corp will pay a total of
L35 million to the ESOP Derivative Banks in full and final settlement of their
ESOP related claims against the Group.
On 28 March 2003, the undertakings agreed by Corp and plc in April and May 2002
were renewed and modified. As a result of that modification, on the release of
the interim security the "Lockbox" provisions of the undertakings will govern
withdrawals of cash from the Lockbox Accounts (see Part D.1 of this Section).
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Since August 2001, in view of the deterioration in the Group's financial
condition, there have been the following credit rating downgrades in respect of
the Group:
Standard & Poor's
6 August 2001, BBB+ to BBB-
5 September 2001, BBB- to BB
21 Jan 2002, BB to B+
22 March 2002, B+ to B-
4 April 2002, B- to CC
Moody's
10 August 2001, A3 to Baa2
7 September 2001, Baa2 to Ba1
15 October 2001, Ba1 to Ba3
15 January 2002, Ba3 to B1
26 March 2002, B1 to Caa3
Corp and plc believe that there are only two possible outcomes of the Group's
current financial difficulties, which are the reorganisation of their
liabilities through the proposed Schemes or the placing of the companies into
administration or liquidation. As discussed in Part C.10 of this Section,
Appendix 6 contains an insolvency analysis providing a detailed analysis of the
position of Corp and plc should they be subject to insolvency proceedings (and
the assumptions, caveats, limitations and uncertainties on which such analysis
is based).
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C. PROPOSED RESTRUCTURING
C.1 OVERVIEW
The Restructuring will be effected through two schemes of arrangement under the
Act. A scheme of arrangement is a court-supervised procedure under English law
through which a company may enter into a compromise or arrangement with its
creditors to effect a restructuring of its financial obligations.
The Corp scheme of arrangement will involve all creditors of Corp at the Record
Date, excluding certain categories of creditors, but including the Syndicate
Banks and Bondholders to whom the Group's primary financial indebtedness is
owed. The plc scheme of arrangement will involve all creditors of plc at the
Record Date, excluding certain categories of creditors, the liabilities to some
of which are to be novated to Corp (with effect from the Effective Date of the
Corp Scheme), but including the Syndicate Banks and Bondholders. Creditors whose
claims are to be compromised through the Schemes are referred to as "SCHEME
CREDITORS" (but see "Definitions and Interpretation" on page 12 for a further
explanation of this term) and the claims of these creditors are referred to as
"SCHEME CLAIMS". Assuming the English Court makes an order sanctioning the
Schemes, Corp and plc will apply, before the Schemes become effective, for
permanent injunction orders under Section 304 of the US Bankruptcy Code (the
"BANKRUPTCY CODE") to give effect to their respective Schemes.
Through the Restructuring, Corp will become the new parent holding company of
the Group. All of plc's assets (net of a reserve to meet plc's Ongoing Costs)
will be distributed to its creditors over time in accordance with the plc
Scheme, following which it is intended that plc will be liquidated or dissolved.
C.2 TERMS OF THE RESTRUCTURING
CORP SCHEME
The Corp Scheme will compromise approximately L4.0 billion of externally held
financial indebtedness, comprising principally the Bank Facility and the Bonds.
In addition, the Corp Scheme will compromise certain other claims and contingent
claims, including those discussed under "Summary of key actual and contingent
claims" below.
In exchange for the compromise of their Scheme Claims, Corp's Scheme Creditors
will receive a distribution, pro rata in proportion to their Admitted Scheme
Claims, of a package of cash and new equity and debt securities issued by Corp.
This package of cash and securities is referred to as the "SCHEME
CONSIDERATION". The Corp Scheme Consideration is to comprise the following:
a. CASH: L340 million cash;
b. NEW SENIOR NOTES: the euro equivalent (calculated at the Currency
Rate) of L450 million in aggregate principal amount of new
guaranteed senior secured notes due April 2008 to be issued by Corp
denominated in euro and/or US dollars, subject to elections made in
Claim Forms and Account Holder Letters, with interest payable
quarterly in cash at a rate of 8 per cent. per annum;
c. NEW JUNIOR NOTES: the sum of US$300 million plus the US dollar
equivalent (calculated at the Currency Rate) of L117.27 million in
aggregate principal amount of new guaranteed junior secured notes
due October 2008 to be issued by Corp denominated in US dollars,
with interest payable quarterly in cash at a rate of 10 per cent.
per annum or, at Corp's option, in kind (by issuing additional New
Junior Notes) at a rate of 12 per cent. per annum; and
d. NEW SHARES: 995,000,000 ordinary shares, representing 99.5 per cent.
of Corp's issued ordinary share capital immediately following
implementation of the Restructuring. Elections may be made in Claim
Forms and Account Holder Letters to have all or any portion of the
New Shares deliverable pursuant to the Schemes delivered in the form
of ADRs.
The cash element of the distribution to Corp's Scheme Creditors will be
increased by the net proceeds of any asset disposals, other than L82 million of
excluded asset disposal proceeds, received on or after 1 December 2002 and
before 1 May 2003, and the aggregate principal amount of the New Junior Notes
will be decreased by
69
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10/11ths of the sterling amount by which the cash element is increased (such
calculation to reduce the L117.27 figure referred to in c. above).
PLC SCHEME
The plc Scheme will compromise approximately L3.9 billion of externally held
liabilities of plc as guarantor in respect of financial indebtedness, comprising
principally the Bank Facility and the Bonds. In addition, the plc Scheme will
compromise other claims and contingent claims, including those discussed under
"Summary of key actual and contingent claims" below.
In exchange for the compromise of their Scheme Claims, plc's Scheme Creditors
will receive a distribution, pro rata to their Admitted Scheme Claims, of all
plc's assets (net of a reserve for plc's Ongoing Costs). These assets will
principally comprise a portion of the Scheme Consideration to be distributed by
Corp pursuant to the Corp Scheme, which plc will receive as a result of a
repayment of capital in specie by plc's wholly-owned subsidiary Ancrane, one of
the Scheme Creditors of Corp.
ELECTION TO RECEIVE AMERICAN DEPOSITARY RECEIPTS
Elections may be made in Claim Forms and Account Holder Letters to have all or
any portion of the New Shares deliverable pursuant to the Schemes delivered in
the form of ADRs. Any person who elects to receive New Shares in the form of
ADRs will receive all future distributions of New Shares to which such person
may be entitled pursuant to the Schemes in the form of ADRs. As described below,
no depositary fees will be payable at any time in connection with the initial
issuance of ADRs pursuant to the Schemes and any UK stamp duty or SDRT payable
in this respect will be met by Corp.
ADRs will be issued pursuant to the Schemes in reliance on the exemption from
Securities Act registration provided by Section 3(a)(10) thereof (or, in the
case of plc Shareholders, in transactions not subject to such registration).
Following their initial issuance, such ADRs may be sold in ordinary secondary
market transactions without restriction under the Securities Act (subject to the
restrictions applicable to "affiliates" described in Part D.16 of this Section).
In addition, a registration statement on Form F-6 will be filed with the SEC in
relation to the ADRs. It is currently expected that this registration statement
will be effective prior to the Effective Date of the Corp Scheme. Once this
registration statement is effective, outstanding Corp Shares may be deposited
into the ADR programme in exchange for ADRs. Such ADRs may then be sold in
ordinary secondary market transactions without restriction under the Securities
Act.
Corp will apply to list the ADRs on NASDAQ and will use its reasonable
endeavours to effect this NASDAQ listing as soon as practicable following the
Effective Date of the Corp Scheme. It is currently expected that the NASDAQ
listing will become effective during the third calendar quarter of 2003. Persons
who are considering making an election to receive New Shares in the form of ADRs
should note that, unless and until the NASDAQ listing becomes effective,
although ADRs will be free to trade over-the-counter, development of a liquid
trading market for the ADRs will be inhibited, which is likely to have a
material adverse effect on the value of the ADRs.
A summary of the material terms of the ADRs is set out in Appendix 16.
Information as to responsibility for fees and taxes in connection with ADRs is
contained in Part D.15 of this Section.
NEW SHARES AND WARRANTS TO BE ISSUED TO PLC SHAREHOLDERS
As part of the Restructuring, plc Shareholders on the register as at the plc
Shareholders Record Time will receive 5 million New Shares, representing 0.5 per
cent. of Corp's issued ordinary share capital immediately following
implementation of the Restructuring, along with up to 50 million Warrants to
subscribe for additional shares equal to an aggregate of up to 5 per cent. of
Corp's issued ordinary share capital at that date. Each existing plc Shareholder
will receive at least one New Share. Warrant entitlements will be rounded down
to the nearest whole Warrant and each Warrant will entitle its holder to
subscribe one Corp Share (subject to adjustment in the event of certain
corporate actions). The exercise price of the Warrants will be 150p per share
(again subject to adjustment in the event of certain corporate actions). An
ordinary share price of 150p implies a post Restructuring market capitalisation
of Corp of approximately L1.5 billion. The Warrants will expire four years
70
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SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART C
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after the Restructuring becomes effective if not exercised. The conditions of
the Warrants are set out in Appendix 12.
New Shares and Warrants will be given to plc Shareholders under the Corp Scheme.
The New Shares are to be issued in return for the compromise and release of
Scheme Claims against Corp by the Corp Scheme Creditors. The New Shares and
Warrants to be given to plc Shareholders who hold their plc Shares in CREST will
be credited to the same CREST accounts. plc Shareholders who hold a plc share
certificate, are aged under 18 or have a registered address outside the UK,
Channel Islands, Isle of Man or Ireland will receive a certificate in respect of
their New Shares and, if applicable, Warrants. The New Shares and, if
applicable, Warrants to be given to plc Shareholders who hold a plc share
certificate, are aged under 18 or have a registered address outside the UK,
Channel Islands, Isle of Man or Ireland will be held in a nominee account on
their behalf operated by Corp's registrars.
Pursuant to the Corp Scheme, New Shares will be issued to The Bank of New York,
as depositary (the "PLC ADR DEPOSITARY") in respect of the existing American
depositary receipt programme relating to the plc Shares (the "PLC ADR
PROGRAMME"), in common with other plc Shareholders. In accordance with the
deposit agreement for the plc ADR programme, plc and the plc ADR Depositary have
consulted with respect to these New Shares, and have agreed that the plc ADR
Depositary will arrange for persons who hold plc Shares in the form of American
depositary receipts ("PLC ADRS") to receive their interest in respect of this
distribution in the form of ADRs representing Corp Shares. No depositary fees
will be payable in connection with the initial issuance of these ADRs. SDRT,
however, will be payable in this connection at a rate of 1.5 per cent. of the
market value of the New Shares deposited into the Corp ADR programme. The plc
ADR Depositary will, on behalf of the holders of plc ADRs, sell any New Shares
relating to their fractional ADR entitlements together with such number of
additional New Shares to which they would be entitled as may be necessary to
cover the amount of SDRT that is due. A summary of the material terms of the
ADRs is set out in Appendix 16.
Also pursuant to the Corp Scheme, Warrants will be issued to the plc ADR
Depositary in common with other plc Shareholders. In accordance with the deposit
agreement for the plc ADR programme, plc and the plc ADR Depositary have
consulted with respect to these Warrants, and have determined that it is
unlikely that a liquid market for Warrants will develop in the United States,
and that it would be unreasonably costly to seek to distribute Warrants directly
to holders of plc ADRs. Accordingly, at an appropriate time, the plc ADR
Depositary will sell any such Warrants it has received and will distribute the
net proceeds of such sale to holders of plc ADRs, all in accordance with the
deposit agreement for the plc ADR programme.
C.3 TERMS OF THE NEW SENIOR NOTES AND THE NEW JUNIOR NOTES
Set out below is a summary of the principal terms of the New Notes comprising
part of the Scheme Consideration. See Appendix 8 for the detailed terms of the
New Notes and for definitions of terms used in this Part C.3 that are not
otherwise defined in part V.
Principal Amount and
Currency The New Senior Notes will have an aggregate
principal amount of the equivalent (calculated at
the Currency Rate) of L450 million. Elections may
be made in Claim Forms delivered under each Scheme
and in Account Holder Letters to elect for all, but
not part of, the New Senior Notes to be received by
Scheme Creditors and Designated Recipients to be
denominated in euros or US dollars. No New Senior
Notes denominated in US dollars will be issued
unless, based on all Claim Forms received before
5:00 p.m. (London time) on 17 April 2003 and all
Account Holder Letters delivered before 5:00 p.m.
(New York City time) on 17 April 2003, elections
have been made which would, if both Schemes become
effective, result in an aggregate of at least the
US dollar equivalent (calculated at the Currency
Rate) of euro 250 million (less the Relevant
Deduction) of New Senior Notes denominated in US
dollars being required to be issued in the First
Initial Distribution under both Schemes. No New
Senior Notes denominated in euro will be issued
unless, based on all Claim Forms received before
5:00 p.m. (London time) on 17 April 2003 and all
Account
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Holder Letters delivered before 5:00 p.m. (New York
City time) on 17 April 2003, elections have been
made which would, if both Schemes become effective,
result in an aggregate of at least euro 250 million
(less the Relevant Deduction) of New Senior Notes
denominated in euro being required to be issued in
the First Initial Distribution under both Schemes.
The New Junior Notes will have an initial aggregate
principal amount equal to the sum of US$300 million
plus the US dollar equivalent (calculated at the
Currency Rate) of L117.27 million, unless the cash
element of the distribution to Corp Scheme
Creditors is increased by the net proceeds of any
asset disposals (in which event, the initial
aggregate principal amount of the New Junior Notes
will be decreased by 10/11ths of the sterling
amount by which the cash element is increased (such
calculation to reduce the L117.27 million figure
referred to above)). The New Junior Notes will be
denominated in US dollars.
Interest The New Senior Notes will bear interest from their
issue date at a per annum rate of 8 per cent.
payable quarterly in cash on each 15 January, 15
April, 15 July and 15 October, commencing 15 July
2003. On the first interest payment date for the
New Senior Notes, Corp will pay, in addition to
accrued interest on the outstanding principal
amount of the New Senior Notes, an amount per New
Senior Note equal to the amount of interest that
would have accrued on such New Senior Note if such
New Senior Note had been outstanding for the period
from 1 May 2003 to the issue date of the New Notes.
The New Junior Notes will bear interest from their
issue date at a per annum rate of 10 per cent.
payable quarterly in cash or, at Corp's option, at
a per annum rate of 12 per cent. payable quarterly
in kind (by issuing additional New Junior Notes to
the holders of New Junior Notes) on each 31
January, 30 April, 31 July and 31 October,
commencing 31 July 2003. On the first interest
payment date for the New Junior Notes, Corp will
pay, in addition to accrued interest on the
outstanding principal amount of the New Junior
Notes, an amount per New Junior Note equal to the
amount of interest that would have accrued on such
New Junior Note if such New Junior Note had been
outstanding for the period from 1 May 2003 to the
issue date of the New Notes.
Maturity The New Senior Notes will mature on 30 April 2008.
The New Junior Notes will mature on 31 October
2008.
Optional Redemption All of the outstanding New Notes may be redeemed at
Corp's option in whole, but not in part, at any
time at a redemption price in cash equal to the
greater of (i) 110 per cent. of their principal
amount, and (ii) a make-whole amount equal to the
sum of the present values of remaining scheduled
payments of principal and interest, using a
discount rate that is 50 basis points above the
yield on US treasuries of similar maturity to the
New Senior Notes and New Junior Notes, as
applicable, plus, in each case, accrued and unpaid
interest.
Mandatory Redemption The New Notes are subject to mandatory early
redemption in certain circumstances. The New Notes
must be redeemed prior to their stated maturity in
whole or in part using the proceeds from the
Mandatory Redemption Escrow Account, which is an
escrow account to be established for redemption of
the New Notes into which Corp will be required to
deposit, from time to time:
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I. EXPLANATORY STATEMENT
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SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART C
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- releases to, or upon the order or instructions
of, Corp or its subsidiaries of certain cash
collateral security for performance bonding (as
described in more detail in Part D.4 of this
Section); and
- all net proceeds of asset sales received on or
after 1 May 2003, other than up to L82 million
of net proceeds from disposals of certain exempt
specified assets and, if there are no New Junior
Notes outstanding, proceeds reinvested in the
non-US core business within specified time
periods.
Corp will apply amounts in the Mandatory Redemption
Escrow Account to redeem first the New Junior Notes
and then, under certain circumstances, the New
Senior Notes, in each case at a redemption price in
cash of 110 per cent. of their principal amount
plus accrued and unpaid interest.
In addition, in the event of either a Change of
Control of Corp or the merger, consolidation or
sale of all or substantially all the assets of Corp
and its subsidiaries, taken as a whole, all of the
New Notes must be redeemed in whole, but not in
part, at a redemption price in cash equal to the
greater of (i) 110 per cent. of their principal
amount, and (ii) a make-whole amount equal to the
sum of the present values of remaining scheduled
payments of principal and interest, using a
discount rate that is 50 basis points above the
yield on US treasuries of similar maturity to the
New Senior Notes and New Junior Notes, as
applicable, plus, in each case, accrued and unpaid
interest.
Covenants The New Senior Notes and the New Junior Notes will
be issued under indentures that will contain
certain restrictive covenants. The restrictive
covenants will include, among other things:
- restrictions on indebtedness, guarantees, sale
and leaseback transactions and the issuance of
preferred stock;
- restrictions on dividends, distributions,
investments and other restricted payments;
- restrictions on acquisitions;
- restrictions on liens;
- restrictions on derivative transactions;
- restrictions on transactions with affiliates
(including Ringfenced Entities);
- restrictions on the issuance and sale of equity
interests in Corp's subsidiaries;
- restrictions on asset sales; and
- restrictions on mergers, consolidations and
sales of all or substantially all assets.
Each of the covenants will be subject to exceptions
and qualifications.
In addition, under the indenture governing the New
Senior Notes (but not the New Junior Notes),
beginning as of 30 September 2005 the Group will be
required to meet financial covenants with respect
to a minimum ratio of consolidated EBITDA to
consolidated finance charges and a maximum ratio of
consolidated indebtedness to consolidated EBITDA,
in each case
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calculated with respect to the consolidated Group
(but excluding the Ringfenced Entities if any New
Junior Notes are outstanding).
The indentures will provide for customary grace
periods and remedies. When the New Senior Notes and
the New Junior Notes are simultaneously
outstanding, however, the indentures will provide
for longer grace periods and require a larger
percentage of the noteholders to take enforcement
action in the case of certain non-payment covenant
defaults.
Purchase of New Notes The indentures governing the New Notes will provide
that Corp and its subsidiaries may purchase
outstanding New Notes only after the second
scheduled Senior Note Interest Payment Date or
Junior Note Interest Payment Date, as the case may
be, and then only if (a) no Default or Event of
Default under the New Senior Note indenture (in the
case of the New Senior Notes) or the New Junior
Note indenture (in the case of the New Junior
Notes) has occurred and is continuing; (b) interest
on the immediately two preceding Junior Note
Interest Payment Dates was paid in cash (rather
than in kind); and (c) Corp has not given notice of
an intention to pay interest on the next Junior
Note Interest Payment Date in kind.
US Ringfencing The covenants in the indentures governing the New
Notes will restrict the financial, operational and
other dealings that the Non-Ringfenced Entities can
have with the Ringfenced Entities. The covenants
for the New Notes will also require Corp to
separate the North American Access Business, BBRS
Business and OPP Business into separate
subsidiaries (or groups of subsidiaries) within the
US Ringfencing no later than the second anniversary
of the issue date of the New Notes. Moreover, the
Non-Ringfenced Entities will generally be
prohibited from providing funding for any of the
Ringfenced Entities and, following the separation
of the three principal businesses within the US
Ringfence, the North American Access Business, BBRS
Business and OPP Business will generally be
prohibited from providing funding to each other.
See Part A.2 of this Section for a description of
the US Ringfencing.
Guarantees and Security Corp's obligations under the New Notes will be
guaranteed by, inter alios, Corp's principal
operating subsidiaries. With limited exceptions,
the Guarantor coverage must include on an ongoing
basis (i) subsidiaries that together account for at
least 80 per cent. and (ii) each subsidiary that
individually accounts for more than 5 per cent., in
each case, of the total assets, total external
assets, total external sales and (commencing as of
31 March 2005) EBITDA of Corp and its subsidiaries.
Corp and the Guarantors will, with limited
exceptions, grant security over substantially all
of their respective assets to secure their
respective obligations under the New Notes and the
guarantees thereof as well as the Performance
Bonding Facility.
Payment Priorities Corp, the Guarantors and the trustees for the New
Notes, among others, will enter into a Security
Trust and Intercreditor Deed that will establish
the relative priorities among the New Senior Notes,
New Junior Notes, the Performance Bonding Facility
and certain intra-Group liabilities with respect to
the obligations of Corp and the Guarantors.
Following the occurrence of a payment Default
and/or an acceleration of the maturity of the New
Senior Notes, all proceeds from enforcement of the
security granted by Corp and the Guarantors (where
such Guarantors
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are providers of security) to secure their
respective obligations under the New Notes and the
guarantees thereof and the Performance Bonding
Facility will be applied as follows:
- first, to the fees and expenses of the trustees
and other agents;
- second, to the lenders providing the Performance
Bonding Facility;
- third, to the repayment of the New Senior Notes;
and
- fourth, to the repayment of the New Junior
Notes.
Payment and Security
Enforcement Blocks Under the terms of the Security Trust and
Intercreditor Deed and the indentures for the New
Notes, no payments may be made on the New Junior
Notes (other than payments of interest in kind) and
no redemptions of the New Junior Notes from amounts
contained in the Mandatory Redemption Escrow
Account may be made (subject to limited exceptions)
(i) upon the occurrence of a Default under the New
Senior Notes and the delivery of notice of such
Default by the Senior Note Trustee to the Security
Trustee for a period lasting until the earlier of
(a) the expiration of 179 days after the date of
such notice, (b) the date on which such Default is
no longer continuing, (c) the date on which the
holders of a majority of the principal amount of
the New Senior Notes consent, or (d) the payment in
full of all obligations under the New Senior Notes
and the New Senior Note indenture, or (ii) upon the
occurrence of a payment Default or acceleration of
the New Senior Notes following an Event of Default
under the New Senior Notes or the New Senior Note
indenture until the earlier of (a) the date on
which the payment Default has been remedied or
waived and, if the New Senior Notes have been
accelerated, the acceleration has been rescinded,
(b) the date on which the holders of a majority of
the principal amount of the New Senior Notes
consent, or (c) the payment in full of all
obligations under the New Senior Notes and the New
Senior Note indenture.
The Security Trust and Intercreditor Deed further
provides that in the event of a default under the
New Senior Notes, the holders of the New Junior
Notes may not accelerate the New Junior Notes
during the 179-day or shorter period referred to in
clause (i) of the previous sentence. In addition,
under the terms of the Security Trust and
Intercreditor Deed, the holders of the New Junior
Notes may not take enforcement action against any
security securing the New Junior Notes without the
consent of the holders of the New Senior Notes or
unless all liabilities arising under the New Senior
Notes have been discharged in full.
The Security Trust and Intercreditor Deed further
provides that if a payment default occurs under the
Performance Bonding Facility, the lenders
thereunder may require the obligors to provide full
cash collateral to cover all outstanding
liabilities but may not accelerate the liabilities
under the Performance Bonding Facility or take the
other enforcement action for 180 days unless the
New Senior Notes have been accelerated.
Security Numbers The CUSIP for the New Senior Notes denominated in
euro (if any are issued) will be G58129AB6.
The CUSIP for the New Senior Notes denominated in
US dollars (if any are issued) will be G58129AA8.
The CUSIP for the New Junior Notes will be
G58129AD2.
Further details of the security and intercreditor arrangements affecting the New
Notes are set out in Appendix 10.
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C.4 SUMMARY OF KEY ACTUAL AND CONTINGENT CLAIMS
Schedule 3 to the Corp Scheme in part II contains a list of Scheme Creditors who
may have a Scheme Claim. The aggregate amount (in sterling) of claims listed in
Schedule 3 in part II is approximately L5.193 billion. The fact that a claim is
listed in Schedule 3 at a certain amount does not mean that the particular claim
will be Admitted at that, or any other, amount. There are three principal areas
of actual and contingent claims listed in Schedule 3 to the Corp Scheme:
a. BANK FACILITY AND BOND DEBT: Corp is indebted as at the Record Date
to:
(i) the Syndicate Banks pursuant to the terms of the Bank Facility
in the principal sums of US$2,226,600,000 and L650,000,000,
together with accrued but unpaid interest of US$40,271,358 and
L18,199,947;
(ii) the relevant Bondholders pursuant to the terms of the 2005
Eurobonds in the principal sum of E500,000,000 together with
accrued but unpaid interest of E12,559,932;
(iii) the relevant Bondholders pursuant to the terms of the 2010
Eurobonds in the principal sum of E1,000,000,000 together with
accrued but unpaid interest of E28,469,178;
(iv) the relevant Bondholders pursuant to the terms of the 2010
Yankee Bonds in the principal sum of US$900,000,000 together
with accrued but unpaid interest of US$31,687,500; and
(v) the relevant Bondholders pursuant to the terms of the 2030
Yankee Bonds in the principal sum of US$900,000,000 together
with accrued but unpaid interest of US$34,218,750;
b. INDIRECT CLAIMS BY PLC: these comprise claims under inter-company
loan balances and through ownership (via Ancrane) of some of the
indebtedness listed in (ii) to (v) above (E324,603,000 and
US$261,101,000 of the principal sum is owed to Ancrane). Corp and
plc currently anticipate that these claims (inclusive of accrued but
unpaid interest) will amount to approximately L776 million in
aggregate; and
c. OTHER THIRD-PARTY AND ASSOCIATED COMPANY CLAIMS: these are expected
to include claims under various loans, guarantees, and a US class
action and other lawsuits, as well as other potential claims.
In light of the detailed due diligence that has been undertaken in relation to
its financial indebtedness, Corp acknowledges that the principal amount of the
claims of the Syndicate Banks and the claims in respect of the Bonds set out in
a. above are due and owing and anticipates that these claims, in each case
together with interest accruing pursuant to the terms of the Bank Facility or
the terms of the relevant Bonds, as appropriate, for the period up to, and
including, the Record Date, will be Admitted in the amounts set out in Schedule
3 to the Corp Scheme in part II.
Schedule 3 to the plc Scheme in part III contains a list of Scheme Creditors who
may have a Scheme Claim. The aggregate amount (in sterling) of claims listed in
Schedule 3 in part III is approximately L4.68 billion. The fact that a claim is
listed in Schedule 3 at a certain amount does not mean that the particular claim
will be Admitted at that, or any other, amount. There are two principal areas of
actual and contingent claims listed in Schedule 3 to the plc Scheme:
a. GUARANTEES OF CORP'S BANK FACILITY AND BOND DEBT: plc has guaranteed
the indebtedness of Corp listed in paragraph a. above; and
b. OTHER THIRD-PARTY CLAIMS: these are expected to include claims under
various loans, guarantees, and a US class action and other lawsuits,
as well as other potential claims.
In light of the detailed due diligence that has been undertaken in relation to
its financial indebtedness, plc acknowledges that the principal amount of the
claims of the Syndicate Banks and the claims in respect of the Bonds under the
guarantees referred to in a. above are due and owing and anticipates that these
claims, in each case together with interest accruing pursuant to the terms of
the Bank Facility or the terms of the relevant Bonds,
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as appropriate, for the period up to, and including, the Record Date, will be
Admitted in the amounts set out in Schedule 3 to the plc Scheme in part III.
Claims that would be barred by statute or claims that are otherwise
unenforceable in England and Wales or which arise under a contract which is void
or, being voidable, has duly been avoided, are not liabilities for the purposes
of the Schemes.
C.5 COMPLETION OF THE RESTRUCTURING
As discussed in more detail in Part B of this Section, if the interim security
is not released prior to the Corp Scheme Meeting, neither Corp nor plc will
proceed with its respective Scheme (see Part D.1 of this Section for further
detail on the circumstances in which the interim security is expected to be
released).
Each of the Schemes becoming effective will be dependent on, among other things,
securing the necessary support of the Scheme Creditors in the relevant Scheme
Meeting to be held as part of the scheme of arrangement process, as well as the
sanction of the English Court and the granting of a permanent injunction order
by the US Bankruptcy Court. No assurance can be given that Corp and plc will be
able to satisfy the conditions to completion of the Restructuring (described in
more detail below), or that circumstances will not arise that otherwise make it
impossible to proceed with the Restructuring. Certain risks related to a failure
to implement or a delay in implementing the Restructuring, risks arising from
implementation of the Restructuring, operating risks and risks related to
ownership of the New Shares, the New Notes and the Warrants are set out in Part
F of this Section, Risk Factors.
While the Corp Scheme will not be conditional upon the plc Scheme becoming
effective, the plc Scheme will be conditional on the Corp Scheme becoming
effective. Any order approving the plc Scheme will not be delivered to the
Registrar of Companies (which delivery would make the plc Scheme effective)
until an order approving the Corp Scheme has been similarly delivered.
The Schemes will not be conditional on the Listing of the New Shares, the New
Notes and/or the Warrants. However, it is expected that the New Shares, New
Notes and Warrants will be listed on the Effective Date of the Corp Scheme. Corp
will use its reasonable endeavours to effect the Listing of the New Shares, the
New Notes and the Warrants as soon as possible on or after the Effective Date of
the Corp Scheme. (See details of risks arising from implementation of the
Restructuring in Part F.2).
The Schemes will not be conditional on the approval of plc Shareholders. The
Co-ordination Committee and the Informal Committee of Bondholders with whom Corp
and plc negotiated the Heads of Terms indicated that they would not be prepared
to support a Restructuring that requires plc Shareholder approval on the grounds
that, considering the financial condition of the Group and the economic interest
of plc Shareholders, such a vote would be inappropriate. Corp and plc believe
that if the Syndicate Banks and the Informal Committee of Bondholders withdraw
their support for the Restructuring, Corp and plc will be forced to commence
insolvency proceedings. On this basis, Corp and plc approached the UKLA for a
waiver of the requirement to seek plc Shareholder approval in connection with
the Restructuring. The UKLA has granted this waiver.
The New Shares to be allotted pursuant to the Corp Scheme will be paid up by the
release of, or agreement not to commence or continue prohibited proceedings in
respect of, both liquidated and unliquidated Scheme Claims. The Act requires the
consideration for an allotment of shares partly paid up by the release of
liabilities for unliquidated sums to be independently valued prior to allotment,
and accordingly Corp has engaged BDO Stoy Hayward to prepare and deliver a
report complying with the provisions of the Act before the New Shares are
allotted.
CONDITIONS TO EFFECTIVENESS OF THE SCHEMES
In order to ensure that certain conditions are satisfied before the Schemes can
come into effect, Corp and plc will not deliver a copy of any Court order
sanctioning the Schemes for registration to the Registrar of Companies in
England and Wales until the relevant conditions are satisfied.
Corp will not take the necessary steps to make the Corp Scheme effective unless
and until: (a) Corp has, following the passing of a unanimous Board resolution
to approve the same, provided confirmation in writing to
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the Prospective Supervisors (for the sole benefit of the Prospective
Supervisors) prior to each of (i) the release of the interim security granted by
Corp through its special purpose subsidiary Highrose Limited, (ii) the Corp
Scheme Meeting, (iii) the hearing to sanction the Corp Scheme and (iv) the
Effective Date, to the effect that Corp remains satisfied that the reserves
built into the Corp scheme are sufficient to ensure the same level of
distribution will be made to all Corp Scheme Creditors and that Corp remains of
the opinion that its statement as to the Corp Group's working capital contained
in Part D.21 of this Section remains valid; (b) the Prospective Supervisors of
the Corp Scheme have provided confirmation in writing to Corp (for Corp's sole
benefit) on the day of, but prior to, each of events (i) to (iv) above to the
effect that they have no reason to disagree with Corp's view that the reserves
built into the Corp Scheme are sufficient to meet distributions due to be made
to all Corp Scheme Creditors; (c) a permanent injunction order of the US
Bankruptcy Court under Section 304 of the Bankruptcy Code has been granted in
respect of the Corp Scheme; and (d) all conditions precedent (other than those
relating to the Corp Scheme becoming effective) set out in the Working Capital
Facility and the Performance Bonding Facility are satisfied or waived by the
facility agents. Corp will undertake to the Court to file the Court order
approving the Corp Scheme with the Registrar of Companies as soon as the
conditions set out above are satisfied provided such conditions are satisfied on
or before 19 June 2003.
plc will not take the necessary steps to make the plc Scheme effective unless
and until: (a) plc has, following the passing of a unanimous Board resolution to
approve the same, provided confirmation in writing to the Prospective
Supervisors (for the sole benefit of the Prospective Supervisors) prior to each
of (i) the release of the interim security granted by Corp through its special
purpose subsidiary Highrose Limited, (ii) the plc Scheme Meeting, (iii) the
hearing to sanction the plc Scheme and (iv) the Effective Date, to the effect
that plc remains satisfied that the reserves built into the plc Scheme are
sufficient to ensure the same level of distribution will be made to all plc
Scheme Creditors; (b) the Prospective Supervisors of the plc Scheme have
provided confirmation in writing to plc (for plc's sole benefit) on the day of,
but prior to, each of events (i) to (iv) above to the effect that they have no
reason to disagree with plc's view that the reserves built into the plc Scheme
are sufficient to meet distributions due to be made to all plc Scheme Creditors;
(c) a permanent injunction order of the US Bankruptcy Court under Section 304 of
the Bankruptcy Code is granted in respect of the plc Scheme; and (d) a copy of
the Court's order sanctioning the Corp Scheme has been delivered for
registration to the Registrar of Companies in England and Wales. plc will
undertake to the Court to file the Court order approving the plc Scheme with the
Registrar of Companies as soon as the conditions set out above are satisfied
provided such conditions are satisfied on or before 19 June 2003.
Corp will not pursue a permanent injunction order of the US Bankruptcy Court
unless the English Court makes an order sanctioning the Corp Scheme. plc will
not pursue a permanent injunction order of the US Bankruptcy Court unless the
English Court makes orders sanctioning both the Corp Scheme and the plc Scheme.
If a Scheme has not been made effective on or before 19 June 2003, the Scheme
will be withdrawn and not made effective.
WITHDRAWAL OF SCHEMES
As a result of the extensive due diligence undertaken by Corp and plc and having
taken account of the results of the advertising process, Corp and plc are
satisfied that the Reserve Claims Segment in respect of each of the Corp and plc
Schemes will be sufficient to ensure the same level of distribution will be made
to all plc Scheme Creditors. In addition the Prospective Supervisors have
confirmed that they have no reason to disagree with that view.
In order for the Schemes to proceed the Scheme Companies must indicate that they
remain satisfied that the Reserve Claim Segment under each Scheme will be
sufficient to meet distributions due to be made in respect of Reserve Claims in
accordance with the terms of the Schemes. If each Scheme Company remains so
satisfied, each Scheme Company will give written confirmations on certain key
dates set out below.
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Board meetings of each Scheme Company will be held at 5.00 pm on the calendar
day before each of the following key dates:
a. the Release Date;
b. the date of the Scheme Meetings;
c. the date of the commencement of the Court sanction hearing; and
d. the Effective Date,
(each of a. to d. above being a "CONFIRMATION DATE").
The Board meetings will consider whether the Board can pass the Confirmatory
Resolution and whether the relevant Scheme Company is able to deliver the Scheme
Company Confirmation to the Prospective Supervisors confirming that the relevant
Scheme Company remains satisfied that the level of reserves built into each of
the Schemes will be sufficient to ensure the same level of distribution will be
made to all relevant Scheme Creditors and, in the case of Corp, that the
statement as to the Corp Group's working capital contained in Part D.21 of this
Section remains valid. On receipt of the Scheme Company Confirmation, the
Prospective Supervisors will be required to consider whether, based on the
information available to them at that time, they are able to confirm in writing
that they have no reason to disagree with the relevant Scheme Company's view
that the level of reserves built into each of the Schemes will be sufficient to
ensure the same level of distribution will be made to all relevant Scheme
Creditors by delivering the Supervisor's Confirmation to the relevant Scheme
Company by 7.00 a.m. on each Confirmation Date.
Unless the relevant Scheme Company receives the Prospective Supervisor's
Confirmation by 7.00 a.m. on each Confirmation Date, the relevant Scheme Company
will not proceed with the proposed Scheme and the relevant Scheme will be
withdrawn.
If the Corp Scheme is withdrawn then the plc Scheme will also be withdrawn, but
the Corp Scheme will not be withdrawn only because the plc Scheme is withdrawn.
C.6 MECHANICS OF THE RESTRUCTURING
OVERVIEW OF THE SCHEMES
As mentioned above, the Schemes are Court sanctioned compromises under section
425 of the Act between each of Corp and plc and their respective Scheme
Creditors. These creditors comprise all of the creditors of Corp and plc with
the exception of certain "Excluded Creditors" (the identity of the Excluded
Creditors and the basis upon which their claims are to be excluded are set out
in Appendix 9). No allotment and issue or transfer of securities (or the cash
proceeds of sale thereof) or cash will be made to any person where prohibited by
any applicable law or regulation.
The Court gave directions on 24 March 2003 for Scheme Meetings of Scheme
Creditors of Corp and plc to be convened respectively for 10.00 a.m. and 10.15
a.m. (or as soon as possible thereafter following the conclusion or adjournment
of the first meeting) on 25 April 2003. Notices convening the Scheme Meetings
for these times are set out in part VI, Sections A and B of this document. The
Scheme Meetings will take place at the Institute of Civil Engineers, 1 Great
George Street, London SW1.
To become effective, the Schemes must be approved by Scheme Creditors at a
Scheme Meeting. The Schemes each require the approval of a majority in number
representing three-fourths in value of the Scheme Creditors present and voting
(in person or by proxy) at each Scheme Meeting. The Schemes must then receive
the sanction of the Court. It is currently anticipated that the Court hearing to
sanction the Schemes will take place on 12 to 13 May 2003.
The Schemes are set out in full in parts II and III of this document.
VOTING ON THE SCHEMES
Scheme Creditors are entitled to attend and vote at the Scheme Meetings either
in person or by proxy. Although the Eurobond Trustee and The Bank of New York
are both Corp Scheme Creditors and the Eurobond Trustee and
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the Yankee Bond Trustee are both plc Scheme Creditors, none of them has any
economic interest in the Bonds in respect of which they are the trustee or the
depositary, as the case may be. Bondholders in respect of Eurobonds and Yankee
Bonds represented by a global Eurobond or a global Yankee Bond, as the case may
be, are not Scheme Creditors. Accordingly, certain creditors have requested Corp
to exchange the global Yankee Bonds for definitive Yankee Bonds and the global
Eurobonds for individual global Eurobonds, in each case with a view to ensuring
that Definitive Holders in whose names Yankee Bonds are registered or who become
the bearers by attornment of the Eurobonds after such exchange can attend and
vote at the Corp Scheme Meeting, and have requested plc to extend the benefit of
its guarantees of the Eurobonds and the Yankee Bonds to the Definitive Holders
of such Bonds with a view to ensuring that the Definitive Holders can attend and
vote at the plc Scheme Meeting in respect of such Bonds. Corp, plc and, in the
case of the request to exchange Eurobonds, the Eurobond Trustee, have each
agreed to these requests.
Definitive Holders of Bonds who wish to attend and/or vote at the Scheme
Meetings must ensure that this is specified in the Account Holder Letter
delivered by their Account Holder. Further instructions are set out in Appendix
28.
Only the votes of Scheme Creditors voting at the Scheme Meetings in person or by
proxy can be taken into account for the purpose of establishing whether the
requisite approval for the Schemes has been obtained.
In order to attend and vote at the Scheme Meetings Scheme Creditors (other than
Definitive Holders) must complete and lodge a Form of Proxy (as summarised
below). Further instructions are set out in Appendix 27.
Definitive Holders may arrange for forms of proxy to be completed on their
behalf by Bondholder Communications by ensuring that their Account Holder gives
appropriate instructions on their behalf in the Account Holder Letter. Further
instructions are set out in Appendix 28.
VOTING BY PROXY
Scheme Creditors (other than Definitive Holders)
Set out at Appendix 29 is a form of Form of Proxy for use by Scheme Creditors
(other than Definitive Holders) in voting on the Schemes. The relevant Form of
Proxy should be completed in accordance with the instructions set out on it,
indicating the value of the Scheme Claim, including interest accruing on it, if
any, for the period up to and including the Record Date. See below for an
explanation of the value of a Scheme Creditors' Claim for voting purposes.
Corp and plc may require details of any Scheme Creditors' entitlement to Scheme
Claims in order to establish their entitlement to vote. Instructions to this
effect are set out on the Forms of Proxy.
Scheme Creditors (other than Definitive Holders) are requested to complete the
relevant Form of Proxy in accordance with the instructions set out on it and
return it to KPMG LLP, 8 Salisbury Square, London EC4Y 8BB, England, UK, for the
attention of Philip Wallace, by 12 noon (London time) on 24 April 2003 (although
it is recommended that they be received by 5.00 p.m. (London time) on 17 April
2003). If for any reason this cannot be done, Forms of Proxy may be handed in at
the registration desk at the relevant Scheme Meeting and Scheme Creditors are
urged to do so no later than one hour before the scheduled time of the relevant
Scheme Meeting. Thereafter Scheme Creditors (other than Definitive Holders) may
lodge completed Forms of Proxy with the chairman of the relevant Scheme Meeting
at that Scheme Meeting. Forms of Proxy may be returned by fax (to fax number +44
(0)20 7694 3011 marked for the attention of Philip Wallace and Richard Heis).
The lodging of a Form of Proxy in advance of the Scheme Meeting does not prevent
a Scheme Creditor from revoking such proxy and delivering a new Form of Proxy on
the date of the Scheme Meeting or revoking such proxy and attending in person.
Please read the instructions on the Forms of Proxy carefully before completing
it. Failure to complete the Form of Proxy in accordance with those instructions
may result in your vote being disallowed.
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Definitive Holders
Each Definitive Holder who wishes authority to be given to Bondholder
Communications to appoint a proxy to attend a Scheme Meeting on his behalf will
be required to ensure that his Account Holder gives the appropriate instructions
in the Account Holder Letter on his behalf.
Account Holder Letters should be returned to Bondholder Communications by 5:00
p.m. (New York City time) on 17 April 2003. Failure to deliver an Account Holder
Letter to Bondholder Communications by the time and date specified above does
not preclude the relevant Definitive Holder from voting at the Scheme Meetings
provided that the Definitive Holder or his proxy can establish his entitlement
by producing a copy of the Account Holder Letter or form of proxy (which should
be obtained from Bondholder Communications), as the case may be, to the
registration desk or the chairman of the relevant Scheme Meeting.
Detailed instructions explaining the action to be taken by persons with
interests in Bonds are set out in Appendix 28 of this document.
SCHEME MEETINGS AND COURT HEARING
An opportunity will be given at the Scheme Meetings for Scheme Creditors
(including Definitive Holders) to ask any questions and to raise any issues they
may have in relation to the Schemes. Provided that the Schemes are approved by
the Scheme Creditors at the Scheme Meetings by the requisite statutory majority,
Scheme Creditors are also entitled to attend the hearing of the Scheme
Companies' applications to the Court to sanction the Schemes which is expected
to be heard on 12 to 13 May 2003. Scheme Creditors will be notified of the
precise dates of the subsequent steps at the Scheme Meetings to the extent they
are then known, and notice of the hearing will be published in certain national
daily newspapers, which are expected to be The Times and the international
editions of the Wall Street Journal, the Financial Times and the International
Herald Tribune. Scheme Creditors who wish to raise any issues in advance of the
Scheme Meetings or the Court hearing are encouraged to contact KPMG whose
details are set out in Appendix 23.
VALUE OF A SCHEME CREDITOR'S SCHEME CLAIM FOR VOTING PURPOSES
For the purpose of valuing a Scheme Claim for voting purposes, all Scheme Claims
will be converted to sterling at the Voting Rate (which should not be confused
with the Scheme Rate, which is used for valuing Scheme Claims to be Admitted
under the Schemes). The amount of the Scheme Claim admitted by the relevant
Scheme Company for voting purposes does not (of itself) constitute an admission
of the existence or amount of any liability of the relevant Scheme Company, and
will not bind the relevant Scheme Company, the Supervisors or Scheme Creditors.
The value of a Scheme Claim for voting purposes will be taken net of any
applicable set-off or cross-claim.
The chairman of each Scheme Meeting may, for voting purposes only, reject a
Scheme Claim in whole or in part if he considers that it does not constitute a
fair and reasonable assessment of the relevant sums owed to the relevant Scheme
Creditor by the relevant Scheme Company or if the relevant creditor has not
complied with the voting procedures described above. If a claim is for an
unliquidated amount or for an amount the quantum of which has not been
ascertained and the chairman is able to place a minimum value on a Scheme Claim
he will admit it at that value. If a Scheme Claim is disputed in its entirety,
whether it is liquidated or unliquidated, the chairman will not admit it. The
chairman's decision will be final. The chairman will, however, advise the
relevant Scheme Creditor of his decision to reject such Scheme Creditor's claim
for voting purposes before the Scheme Meeting if he considers it to be
practicable and, in any event, at or after the Scheme Meeting, and report his
decision to the Court.
The Corp Scheme Meeting will be chaired by Corp's Chairman, John Devaney. Corp's
Chief Executive Officer, Michael Parton, will act as his deputy chairman.
The plc Scheme Meeting will be chaired by plc's Chairman, John Devaney. plc's
Chief Executive Officer, Michael Parton, will act as his deputy chairman.
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C.7 SCHEME CLAIMS AND DISTRIBUTION MECHANICS
SCHEME CLAIMS
The Schemes will apply to all Liabilities of Corp and plc as at the Record Date
other than the Excluded Claims.
In the context of making Scheme Claims, the term "SCHEME CREDITOR" in so far as
the Bonds are concerned means only the Eurobond Trustee and the Yankee Bond
Trustee and does not include any other person with an interest in Bonds.
No assignment or transfer of a Scheme Claim (which, in this context in relation
to the Bonds, means the claims of the Eurobond Trustee and the Yankee Bond
Trustee only) after the Record Date will be recognised for the purposes of
determining entitlements under the Schemes, provided that where Corp or plc has
received from the relevant parties notice in writing of such assignment or
transfer the Supervisors, may, in their sole discretion and subject to the
production of such other evidence as they may require and to any other terms and
conditions which they may consider necessary or desirable, agree to recognise
such assignment or transfer for the purposes of determining entitlements under
the Schemes or attendance at any meeting of Scheme Creditors convened after the
Effective Date. No assignee or transferee of a Scheme Claim following the Record
Date will be entitled to vote at the Scheme Meetings or, save as described
above, participate in the relevant Scheme. This paragraph does not affect the
trading of Bonds which may be freely traded in the period prior to the date at
which Custody Instructions are issued in respect of the relevant Bonds (further
details of which are set out in Appendix 28).
Any assignor or transferor of a Scheme Claim should provide a copy of this
document and any other document issued with or appended to it to any assignee or
transferee before the relevant Scheme Claim is assigned or transferred to the
assignee or transferee.
Corp and plc placed advertisements in The Times and the international editions
of the Financial Times, the Wall Street Journal and the International Herald
Tribune on Thursday, 19 September 2002. These advertisements explained that Corp
and plc proposed to restructure their debt through schemes of arrangement under
section 425 of the Act and requested anyone who might have a claim against Corp
or plc (or both) to contact KPMG by no later than 5.00 p.m. London time on
Friday, 11 October 2002 with details of their claim (whether an actual claim or
a contingent one). These advertisements were repeated on 30 January 2003
requesting anyone who might have a claim against Corp or plc (or both) to
contact KPMG without delay with details of their claim (whether an actual claim
or a contingent one).
Corp and plc have written to those of their Known Creditors whose Scheme Claims
will be compromised by the proposed schemes of arrangement, with the exception
of certain financial creditors with Known Claims who have been represented in
negotiations with Corp and plc regarding the development of the Restructuring,
creditors for unclaimed interest and redemptions of loan notes issued by Corp
whose potential claims are easily quantified and are provided for in full, and
those whose addresses Corp and plc have been unable to ascertain. These letters
requested the recipients to respond to KPMG within 21 days of the date of the
letter submitting details of any claims (whether actual or contingent claims)
that they have against Corp or plc or both.
With the exception of two clearly frivolous claims, this process identified only
one claim against plc, and no claims against Corp, in each case which had not
previously been identified by the due diligence undertaken by Corp and plc. The
one claim identified is disputed by plc, but is provided for in full in the plc
Scheme.
EXCLUDED CREDITORS
The Schemes provide for certain types of creditor to be excluded from the
Schemes. These creditors will be unaffected by the Schemes and are expected to
be paid in the ordinary course.
FURTHER DETAILS OF THE TYPES OF CLAIMS BEING EXCLUDED FROM THE SCHEMES, AND THE
REASONS WHY SUCH CLAIMS ARE BEING EXCLUDED, ARE SET OUT IN APPENDIX 9.
The claims of certain creditors have been excluded from the Corp Scheme for a
variety of reasons, as follows:
a. that Corp will continue to carry on business as the holding company
of a very substantial group of companies, comprising some 300
subsidiaries, with an aggregate turnover, in the six months ended
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I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART C
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31 December 2002, of approximately L1.5 billion and it is necessary
to exclude such claims to ensure the continuing viability of the
restructured Group -- those categories which are attributable (in
whole or in part) to the continuation of the restructured Group are
categories 1, 2, 3, 4, 5, 6, 7, 8, 11, 15 and 16;
b. that the only type of scheme which Corp's principal financial
creditors are prepared to support is a scheme which involves an
immediate distribution calculated by reference to specific reserves;
and an immediate distribution which consists of the whole amount to
which, when calculated by reference to those specific reserves, an
admitted scheme creditor is entitled -- the categories which are
attributable (in whole or in part) to the nature of the proposed
Scheme are categories 2, 3, 4, 5, 9, 17 and 18;
c. that certain claims would be preferential if Corp were to be wound
up -- the categories which are attributable (in whole or part) to
the preferential nature of the claims comprised in them are
categories 1, 2 and 10;
d. that certain claims would, or might, be incapable of being
compromised by means of a scheme -- the category which is
attributable (in whole or part) to the inability to compromise
obligations is category 2;
e. that certain claims would, unless excluded, form a separate class
which it would be impractical to consult on that basis -- the
categories which are attributable (in whole or in part) to
impractical class problems are categories 9 and 14;
f. that there are certain claims which it would be uneconomic to
include -- the categories which are attributable (in whole or in
part) to the costs of including them are categories 13 and 14; and
g. that certain claims relate to parties who are assisting in the
consideration, negotiation and/or implementation of the Corp Scheme
-- the category which is attributable (in whole or in part) to the
implementation of the Corp Scheme is category 12.
The plc Scheme seeks to exclude the following types of claim:
a. contracts that will be novated to Corp or claims that will be
settled -- the categories which are attributable (in whole or in
part) to this are categories 1 and 9;
b. claims that would be preferential if plc were to be wound up -- the
categories which are attributable (in whole or part) to the
preferential nature of the claims comprised in them are categories 2
and 3;
c. claims that would, or might, be incapable of being compromised by
means of a scheme -- the category which is in part attributable to
this being incapable of compromise is category 2;
d. claims that would, unless excluded, form a separate class which it
would be impractical to consult on that basis -- the category which
is attributable to impractical class problems is category 4;
e. claims which it would be uneconomic to include -- the category which
is attributable to the cost of including them is category 8; and
f. claims that relate to parties who are assisting in the
consideration, negotiation and/or implementation of the plc Scheme
-- the categories which are attributable (in whole or in part) to
assisting in the implementation of the plc Scheme are categories 5,
6, 7 and 9.
(Further explanation of the reasons for excluding these categories of claims is
set out in Appendix 9).
The following obligations of plc have been novated to Corp (conditionally upon
the Corp Scheme becoming effective) and will be excluded from the Corp Scheme:
a. a guarantee provided to Finmeccanica SpA as the purchaser of certain
Italian subsidiaries sold by the Group in 2002;
83
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART C
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b. certain agreements between plc and BAE in respect of the merger of
the Group's former defence business with BAE; and
c. a licence agreement dated 1 December 1999 between Lemelson Medical,
Education and Research Foundation, Limited Partnership and plc.
In addition, the service contracts and letters relating to retirement benefits
(including FURBS) of Michael Parton and Michael Donovan have been novated to
Corp unconditionally.
These obligations will also be excluded from the compromise to be effected by
the Corp Scheme and will therefore be unaffected by the Corp Scheme.
CLAIMS WHICH HAVE THE BENEFIT (IN WHOLE OR IN PART) OF INSURANCE
Corp Scheme
The Corp Scheme excludes liabilities of Corp to third parties which are covered
by a Corp Insurance Policy or which would be covered by a Corp Insurance Policy
but for:
a. any excess, deductible or limit of liability applicable under any
Corp Insurance Policy to any such liability; or
b. any insurer failing to satisfy any Corp Insurance Policy claim in
full when payable when the insurer is in liquidation or provisional
liquidation or administration under the Insolvency Act 1986 or
subject to any scheme of arrangement entered into by it under
section 425 of the Act (or any equivalent or analogous proceeding or
arrangement in any other jurisdiction, including any proceeding
under chapter 11 of the Bankruptcy Code); or
c. the Corp Insurance Policy or any claim under it being void or
avoided by any insurer,
being liabilities of Corp in respect of which the third party would have rights
against the insurer under that insurance by virtue of Section 1 of the 1930 Act
in the event that any of the events set out in section 1(1)(b) of the 1930 Act
occurred with respect to Corp.
For further details see Appendix 9.
ANY CREDITOR WHO IS IN ANY DOUBT AS TO WHETHER THEIR CLAIM MAY BE EXCLUDED UNDER
THIS CATEGORY SHOULD SUBMIT A CLAIM FORM IN THE CORP SCHEME WITHOUT DELAY.
plc Scheme
Liabilities of plc to third parties which are covered by any contract of
liability insurance will be treated as a Scheme Claim. However, in the
circumstances explained in the next paragraph, such a Scheme Claim may be
partially (or wholly) covered by a contract of liability insurance and plc may
recover sums from its insurers (or from a compensation scheme which makes a
payment to plc where the relevant insurer has become insolvent) in respect of
all or part of that claim. Any such sums recovered will be held on trust for the
relevant plc Scheme Creditor.
The right to receive such sums recovered by plc applies in circumstances in
which, and to the extent that, plc's rights against the insurer in respect of
the liability constituted by the Scheme Claim would be transferred to and vest
in the Insured Scheme Creditor pursuant to the 1930 Act in the event of a
winding up order against plc.
The rationale for treating these claims in this way is that the liabilities are
covered (in whole or in part) by a third party insurer in circumstances where
plc's rights against the insurer in respect of its liability to the third party
concerned would be transferred in whole or part to, and vest in, the third party
by virtue of the 1930 Act if plc were to enter into an insolvency proceeding
under the Insolvency Act 1986.
Rights equivalent to those which third parties would have under the 1930 Act are
provided in the Scheme in order to ensure that creditors who would be protected
by the 1930 Act would not be better off by plc entering into an insolvency
proceeding under the Insolvency Act 1986 and so constitute a separate class of
creditors.
84
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART C
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The only claim of which plc is currently aware and which is covered by insurance
in circumstances in which an additional payment might potentially become payable
would be any liability that plc may be held to have in respect of the Tri-Star
Claim.
If liability in respect of the relevant Scheme Claim is established and such
liability appears to the Supervisors to be wholly or partly covered by a plc
Insurance Policy, the Supervisors will:
a. notify the relevant Scheme Creditor of the extent to which it
appears that the claim is covered by a plc Insurance Policy (an
"Insured Scheme Claim"); and
b. at the expense of the relevant Scheme Creditor, use reasonable
endeavours to enforce for the benefit of the relevant Scheme
Creditor all rights of recovery against an insurer in relation to
that Insured Scheme Claim.
A Distribution of Scheme Consideration in respect of that Insured Scheme Claim
will only be payable once the outcome of such enforcement is known and only to
the extent that the net proceeds of enforcement against the insurer held on
trust for the relevant Scheme Creditor are less than the amount which appears to
the Supervisors to be an Insured Scheme Claim.
FOR THE AVOIDANCE OF DOUBT CREDITORS OF PLC WHO MAY HAVE RIGHTS UNDER THE 1930
ACT SHOULD SUBMIT A CLAIM FORM FOR THE FULL AMOUNT OF THEIR CLAIM WITHOUT DELAY.
KNOWN CLAIMS AND RESERVE CLAIMS
During the Restructuring negotiations it became clear that the principal
financial creditors of Corp and plc would only support schemes of arrangement
that established a first fixed dividend to be payable to all Scheme Creditors by
way of an Initial Distribution on the Effective Date of the Schemes.
In order to set the level of that Initial Distribution, Corp and plc have
undertaken extensive due diligence to identify all creditors of Corp and plc.
The advertising process undertaken by Corp and plc before launching the Schemes
sought to ensure that as far as possible all Scheme Creditors were identified
and have been included in the schedule of all Known Claims. The provisions set
out in the schedule of Known Claims have been set at 100 per cent. or, where the
extent of the liability is unclear, on an estimated worst-case scenario basis.
In addition to the Known Claims both Schemes include reserves that the Scheme
Companies are satisfied will cover any other Scheme Claims that had not been
identified by the Record Date (the "RESERVE CLAIMS") and the Prospective
Supervisors have confirmed that they have no reason to disagree with this view.
However, as outlined above, neither Scheme Company will proceed with its Scheme
if either:
a. the relevant Scheme Company does not deliver the Scheme Company
Confirmation to the Prospective Supervisors on the calendar day
prior to each Confirmation Date confirming that the relevant Scheme
Company remains satisfied that the level of reserves will be
sufficient to ensure the same level of distribution will be made to
all relevant Scheme Creditors and, in the case of Corp, that its
statement as to the Corp Group's working capital contained in Part
D.21 of this Section remains valid; or
b. the relevant Scheme Company does not receive the Prospective
Supervisor's Confirmation by 7:00 a.m. on each Confirmation Date.
The Known Claims against Corp and plc as at the Record Date are listed in
Schedule 3 to the Corp Scheme and Schedule 3 to the plc Scheme respectively, set
out in parts II and III of this document respectively. The fact that a claim has
been provided for in the list of Known Claims at a certain amount does not mean
that the particular claim will be Admitted as a Scheme Claim at that, or any
other, amount. In particular, where the claim is currently in dispute or the
subject of litigation proceedings, the amount included in the Schedules only
represents what the relevant Scheme Company considers to be the maximum amount
of the claim, which may be disputed in whole or in part and in no way
constitutes any admission by the Scheme Company, the Prospective Supervisors,
the Supervisors or KPMG that a person with such a claim is a Scheme Creditor or
that a liability is owed to any person in respect of any claim or right.
85
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART C
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At the Court hearing to sanction the relevant Scheme, the relevant Scheme
Company will present to the Court a schedule of Scheme Claims compiled by the
Prospective Supervisors which will set out the details of the Scheme Creditors
with Known Claims which are proposed to be Admitted by the Supervisors on the
Effective Date and which, in accordance with the terms of the relevant Scheme,
will receive their Initial Distribution through the First Initial Distribution.
THE KNOWN CLAIMS SEGMENT AND THE RESERVE CLAIMS SEGMENT
In relation to each of the Corp and plc Schemes a portion of the Scheme
Consideration (the "KNOWN CLAIMS SEGMENT") will initially be set aside to meet
the Initial Distribution payable to the Known Creditors in respect of Admitted
Known Claims. The remaining portion of the Scheme Consideration (the "RESERVE
CLAIMS SEGMENT") will initially be set aside to meet the Initial Distribution
payable to the Reserve Creditors in respect of Admitted Reserve Claims. Save as
set out below, Reserve Creditors will not be entitled to participate in the
distribution to be made out of the Known Claims Segment and will only be
entitled to be paid their entitlement to the Scheme Consideration out of the
Reserve Claims Segment.
The quantum of Reserve Claims that could be met out of the Reserve Claims
Segment in each of the Corp Scheme and the plc Scheme is greater than the actual
quantum of Known Claims that are expected to be Admitted in that Scheme after
deducting or discounting Known Claims in respect of:
a. financial creditors;
b. landlords;
c. intra-group creditors; and
d. one disputed claim for a large but unspecified amount that has
already been tried by a judge in the US and ruled against on all
counts, but is pending appeal.
Given the level of due diligence that has been undertaken, Corp and plc are
satisfied that they have identified the claims of all financial creditors,
landlords and intra-group claims and all disputed claims which have no merit.
Accordingly, the level of the reserves would be sufficient to cover more than a
100 per cent. increase in the level of other claims against each Scheme Company.
It is currently anticipated that the Known Claims Segment and the Reserve Claims
Segment for each of the Schemes will, at the Effective Date, comprise the
elements of Scheme Consideration as set out in the tables below (assuming no
increase in the cash element of the Corp Scheme Consideration but that the plc
Scheme becomes effective on the same day as the Corp Scheme). These figures,
which are for illustrative purposes only, assume that each of the Known Claims
is Admitted to the relevant Scheme in the full sterling amount listed in
Schedule 3 to the relevant Scheme, calculated by applying, where necessary for
currency conversion, the Voting Rate.
CORP SCHEME
Known Reserve
Claims Claims
Segment Segment
------------- -------------
Cash L 333,360,148 L 8,024,527
Principal amount of New Senior Notes (sterling equivalent) L 441,505,803 L 10,627,771
Principal amount of New Junior Notes (sterling equivalent) L 302,103,439 L 7,272,127
Number of New Shares available for Corp Scheme Creditors 976,218,386 23,499,184
86
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART C
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PLC SCHEME
Known Reserve
Claims Claims
Segment Segment
----------- -----------
Cash L44,235,292 L2,361,519
Principal amount of New Senior Notes (sterling equivalent) L68,159,845 L3,638,741
Principal amount of New Junior Notes (sterling equivalent) L46,638,851 L2,489,834
Number of New Shares available for plc Scheme Creditors 150,708,991 8,045,661
For the purposes of calculating the above table Known Claims that are
denominated in a currency other than sterling and New Junior Notes that will be
issued by reference to a US dollar amount have been converted at the Voting
Rate. The final calculations as to Known Claims will be made at the Scheme Rate
(which will be set five Business Days before the Effective Date). The final
calculations as to the principal amounts of the New Senior Notes and the New
Junior Notes will be made at the Currency Rate (which will be set the Business
Day before the Corp Scheme Meeting).
The calculation of the Known Claims Segment and the Reserve Claims Segment under
the plc Scheme is based upon Ancrane's aggregate claims under the Corp Scheme of
approximately L776 million being Admitted (which is expected to occur) and the
sum of L7,000,000 being set aside from the cash element of the Corp Scheme
Consideration received via Ancrane on account of plc's Ongoing Costs.
If a Known Claim is rejected or reduced by the Supervisors in either Scheme then
that portion of the Known Claims Segment that would have been used to satisfy
that Known Claim (or part thereof) had it been Admitted will be added to the
Reserve Claims Segment, unless (in the case of the Corp Scheme only) that Known
Claim (or part thereof) is greater than L250,000,000, in which case the relevant
portion of the Known Claims Segment will be distributed promptly to all Admitted
Scheme Creditors.
If a Known Claim is Admitted in an amount higher than the amount set out in
Schedule 3 to the Corp Scheme or the plc Scheme set out in parts II and III of
this document respectively, the excess over the amount set out in the Schedules
to the Corp Scheme and plc Scheme set out in parts II and III of this document
respectively will be treated as an Admitted Reserve Claim.
THE WAITING PERIOD
The segregation of the Known Claims Segment and the Reserve Claims Segment will
continue for a period of twelve months from the Effective Date or such shorter
period as the Supervisors may determine in accordance with the terms of the
Schemes, known as the "WAITING PERIOD". On the expiry of the Waiting Period, all
Scheme Consideration remaining in both the Known Claims Segment and the Reserve
Claims Segment that has not been distributed to satisfy Known Claims or Reserve
Claims (as the case may be) will be held by the Supervisors to meet any Scheme
Claims which have not been Admitted or to make Further Distributions to all
Scheme Creditors as described below. Accordingly, only Scheme Claims which are
Admitted during the Waiting Period will be met out of either the Known Claims
Segment or the Reserve Claims Segment (as the case may be).
If at any stage after the Effective Date the Supervisors receive notice of a
Reserve Claim which:
a. if it is immediately Admitted in whole or in part would result in
the Supervisors considering that the Reserve Claims Segment of the
relevant Scheme will not be sufficient to meet the distributions
that are likely to be payable to all Reserve Creditors in respect of
Admitted Reserve Claims of that Scheme; and
b. the Supervisors cannot immediately determine whether or not, or the
extent to which, that Reserve Claim should be Admitted,
the Supervisors may consider that Reserve Claim for a period of up to 30
Business Days from the date on which that claim is submitted. On, or prior to,
the expiry of this period, the Supervisors will confirm to the relevant Scheme
Company and the Creditors' Committee constituted under the terms of the relevant
Scheme whether or
87
I. EXPLANATORY STATEMENT
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SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART C
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not they consider that the Reserve Claims Segment will not be sufficient to
ensure that all Reserve Creditors receive the same level of distribution as
those creditors participating in the First Initial Distribution in respect of
Admitted Reserve Claims of that Scheme. If, after such consideration, the
Supervisors are not satisfied that the Reserve Claims Segment will be sufficient
to meet distributions that are likely to be payable to all Reserve Creditors in
respect of Admitted Reserve Claims of that Scheme, the Supervisors will be
required to bring the Waiting Period to an end. No distributions will be made
under the relevant Scheme whilst such a Reserve Claim is being considered by the
Supervisors.
Following the expiry or termination of the Waiting Period all remaining Scheme
Consideration will be held by the Supervisors:
a. to make pro rata distributions in accordance with normal English
liquidation principles to all Admitted Scheme Creditors who had not
received their Initial Distribution at the time that the Waiting
Period terminated until they have received the same rateable
distribution which other Admitted Scheme Creditors have already
received; and
b. to make Further Distributions to all Scheme Creditors with Admitted
Scheme Claims in accordance with normal English liquidation
principles.
THE INITIAL DISTRIBUTION
In relation to each of the Schemes each Admitted Scheme Creditor will be
entitled to receive a proportion of the Scheme Consideration by way of an
Initial Distribution calculated in accordance with the following formula:
AC
--- X KCS where
KC
AC = the quantum of the relevant Scheme Creditors' Admitted Scheme Claim
in the relevant Scheme.
KC = the aggregate quantum of the Known Claims of the relevant Scheme.
KCS = the elements of Scheme Consideration forming the Known Claims
Segment of the relevant Scheme.
Subject to the expiry or earlier termination of the relevant Waiting Period,
Known Claims will be paid out of the Known Claims Segment and Reserve Claims
will be paid out of the Reserve Claims Segment of the relevant Scheme.
Any Scheme Claim which at the Record Date is not immediately due and payable but
would be legally due and payable on an insolvent liquidation of the relevant
Scheme Company shall be treated for the purposes of Distributions under the
Schemes as immediately due and payable as at the Record Date (and hence not a
debt payable at a future time).
Any Scheme Claim that is denominated in a currency other than sterling will be
converted into sterling at the Scheme Rate.
WORKED EXAMPLES
CORP SCHEME
Accordingly, a Scheme Creditor with an Admitted Scheme Claim of L1,000,000
against Corp would be entitled to receive (assuming no increase in the cash
element but that the plc Scheme becomes effective on the same day as the Corp
Scheme) an Initial Distribution out of the Known Claims Segment (or the Reserve
Claims Segment, as appropriate) in the Corp Scheme of approximately:
1,000,000
------------- X KCS
5,192,831,052
= 0.000192573 X KCS
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I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART C
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Rounding down fractional entitlements, the Corp Scheme Creditor would be
entitled to receive:
0.000192573 X L333,360,148 cash = L64,196 cash
0.000192573 X L441,505,803* New Senior Notes = L85,022* New Senior Notes
0.000192573 X L302,103,439* New Junior Notes = L58,177* New Junior Notes
0.000192573 X 976,218,386 New Shares = 187,993 New Shares
* equivalent principal amount
If the plc Scheme does not become effective on the same day as the Corp Scheme
(or at all) the Corp/plc distribution model described under the Heading
"Circulation of Scheme Consideration and payments on a modelled basis" below
will not have been applied, and accordingly each of the numbers set out above
will be reduced by between approximately 0.41 per cent. and 0.47 per cent.
For the purposes of calculating the above table Known Claims that are
denominated in a currency other than sterling and New Junior Notes that will be
issued by reference to a US dollar amount have been converted at the Voting
Rate. The final calculations as to Known Claims will be made at the Scheme Rate
(which will be set five Business Days before the Effective Date). The final
calculations as to the principal amounts of the New Senior Notes and the New
Junior Notes will be made at the Currency Rate (which will be set the Business
Day before the Corp Scheme Meeting).
PLC SCHEME
Similarly, a Scheme Creditor with an Admitted Scheme Claim of L1,000,000 against
plc would be entitled to receive (assuming no increase in the cash element of
the Corp Scheme Consideration but that the plc Scheme becomes effective on the
same day as the Corp Scheme) an Initial Distribution out of the Known Claims
Segment (or the Reserve Claims Segment, as appropriate) in the plc Scheme of:
1,000,000
= ------------- X KCS
4,682,928,026
= 0.000213542 X KCS
Rounding down fractional entitlements, the plc Scheme Creditor would be entitled
to receive approximately:
0.000213542 X L44,235,292 cash = L9,446 cash
0.000213542 X L68,159,845* New Senior Notes = L14,554* New Senior Notes
0.000213542 X L46,638,851* New Junior Notes = L9,959* New Junior Notes
0.000213542 X 150,708,991 New Shares = 32,182 New Shares
---------------
* equivalent principal amount
If the plc Scheme does not become effective on the same day as the Corp Scheme
the Corp/plc distribution model described under the heading "Circulation of
Scheme Consideration and payments on a modelled basis" below will not have been
applied, and accordingly each of the numbers set out above will be reduced by
approximately 8.51 per cent.
For the purposes of the above calculations, Known Claims that are denominated in
a currency other than sterling and the New Junior Notes that will be issued by
reference to a US dollar amount, have been converted at the Voting Rate. The
final calculations as to Known Claims will be made at the Scheme Rate (which
will be set five Business Days before the Effective Date). The final
calculations as to the principal amounts of the New Senior Notes and the New
Junior Notes will be made at the Currency Rate (which will be set the Business
Day before the Corp Scheme Meeting).
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I. EXPLANATORY STATEMENT
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SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART C
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The First Initial Distribution
The Corp Scheme provides for a First Initial Distribution to be made on the
Effective Date to all Scheme Creditors whose Scheme Claims have been submitted
to the Prospective Supervisors by the First Claim Date and whose claims have
been approved to be Admitted by the Prospective Supervisors by 8.00 a.m. on the
first day of the Court hearing to sanction the Corp Scheme.
At the time of making the First Initial Distribution in respect of Known Claims
the Supervisors will set aside from the Known Claims Segment the proportion of
the Scheme Consideration that would be payable to Known Creditors in respect of
which a Claim Form either has not been Submitted or where a Claim Form has been
Submitted but which has not been Admitted by the Supervisors by the date of the
First Initial Distribution. Similarly, at the time of making the First Initial
Distribution in respect of Reserve Claims the Supervisors will set aside from
the Reserve Claims Segment the proportion of the Scheme Consideration that would
be payable to Reserve Creditors in respect of which a Claim Form has been
Submitted but which has not been Admitted by the Supervisors by the date of the
First Initial Distribution. If such claims are subsequently Admitted, in whole
or in part, the relevant Scheme Creditors will receive the portion of the Scheme
Consideration held on account of their claims by way of an Initial Distribution
as soon as practicable after the Scheme Claim is Admitted. If a Known Claim is
rejected or reduced by the Supervisors in either Scheme then that portion of the
Known Claims Segment that would have been used to satisfy that Known Claim (or
part thereof) had it been Admitted will be added to the Reserve Claims Segment,
unless (in the case of the Corp Scheme only) that Known Claim (or part thereof)
is greater than L250,000,000, in which case the relevant portion of the Known
Claims Segment will be distributed to all Admitted Scheme Creditors pro rata to
their entitlements under the Corp Scheme, all in accordance with the terms of
the Corp Scheme.
SCHEME CREDITORS WILL NOT BE ENTITLED TO DISTURB ANY PREVIOUS DISTRIBUTION FOR
ANY REASON, INCLUDING BY REASON THAT SUCH SCHEME CREDITORS HAVE NOT PARTICIPATED
IN IT.
As mentioned above, if, contrary to expectations, at any time after the First
Initial Distribution the Supervisors are no longer satisfied that the Reserve
Claims Segment will be sufficient to meet the distributions to be made to all
Reserve Creditors, then the Waiting Period for that Scheme will be brought to an
end and all Further Distributions to Scheme Creditors will be made on a strictly
pari passu basis.
ADMISSION AND COMPROMISE OF SCHEME CLAIMS
In order to claim their entitlement to Scheme Consideration, Scheme Creditors
will be required to submit a duly completed Claim Form. A form of Claim Form is
set out in Appendix 30. The relevant Claim Form should be completed in
accordance with the instructions set out in Appendix 27. No person (other than
the Trustees) with an interest in Bonds is required to submit Claim Forms but
Account Holders will be required to deliver Account Holder Letters to Bondholder
Communications before 5.00 p.m. (New York City time) on 17 April 2003 in
accordance with the instructions set out in Appendix 28 so that Scheme
Consideration (other than cash comprised in the First Initial Distribution and
attributable to Bondholders in respect of Eurobonds) can be distributed to
Designated Recipients in the First Initial Distribution. The Claim Forms in
respect of the Bonds will be submitted by the respective Trustees.
Once completed the relevant Claim Form should be submitted to the Prospective
Supervisors, 8 Salisbury Square, London EC4Y 8BB, England, UK, for the attention
of Philip Wallace and Richard Heis, or, following the Effective Date, to the
Supervisors (at the address shown in Appendix 23).
Scheme Creditors are encouraged to submit their Claim Forms as soon as possible
(ideally, Claim Forms should be submitted at the same time as Forms of Proxy).
Once a Scheme Creditor has submitted a duly completed Claim Form the Claim Form
will be reviewed by the Prospective Supervisors and, subject to the relevant
Scheme becoming effective, its claim will be adjudicated by the Supervisors (see
"Procedure for the admission and rejection of claims" below).
Provided the relevant Scheme becomes effective all Scheme Claims will be fully
and completely released on the earlier of the date on which a Scheme Claim is
Admitted and is the subject of a Distribution Notice, the Final Distribution
Date and the Termination Date. In consideration of the release of its Scheme
Claim the relevant
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I. EXPLANATORY STATEMENT
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SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART C
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Scheme Creditor will become entitled to be paid and issued with its entitlement
to Scheme Consideration in accordance with the terms of the relevant Scheme.
The claims of Bondholders will be dependent upon the relevant Trustee submitting
a Claim Form to the Supervisors in respect of the relevant Bond issue and the
Supervisors Admitting that Claim.
SUPERVISORS
The Schemes provide for the appointment of Supervisors who will be responsible
for evaluating the claims of Scheme Creditors and generally administering the
Schemes. The Supervisors must be individuals qualified to act as insolvency
practitioners within the meaning of the Insolvency Act 1986. The Supervisors are
entitled to exercise their functions and powers jointly and severally. In
carrying out their functions and exercising their powers, under the Schemes, the
Supervisors will be entitled to consult with the Creditors' Committee.
Prior to the Schemes becoming effective, the Prospective Supervisors have
undertaken to use reasonable endeavours to determine promptly whether and if so,
the extent to which, a Scheme Claim which has been submitted in a duly completed
Claim Form will be listed in the Prospective First Initial Distribution Notice.
On a Scheme becoming effective Scheme Claims listed in the Prospective First
Initial Distribution Notice for that Scheme will be Admitted by the Supervisors,
giving rise to an entitlement to a First Initial Distribution. More detail
concerning the procedure for admitting Scheme Claims is set out below under the
heading "Procedure for the admission and rejection of claims".
The Schemes require the Supervisors, on and from the Effective Date, to use
reasonable endeavours to determine promptly whether and if so, the extent to
which, a Submitted Scheme Claim will be Admitted and, if so, to promptly Admit
that Scheme Claim.
Corp and plc have entered into a letter agreement appointing Philip Wallace and
Richard Heis as the first Supervisors in accordance with the terms of the
Schemes. The curricula vitae of the Supervisors appear in Appendix 23. The terms
of the letter agreement are summarised in Appendix 24.
The material interests of the Supervisors are set out in Appendix 23.
PROCEDURE FOR THE ADMISSION AND REJECTION OF CLAIMS
The Supervisors will adjudicate Scheme Claims to decide whether or not they
should be Admitted. If and to the extent that the Supervisors are satisfied with
the information provided by a Scheme Creditor on a Claim Form the Supervisors
will admit the Scheme Claim as an Admitted Scheme Claim and notify the Scheme
Creditor accordingly. If the Supervisors are not satisfied with the information
provided by a Scheme Creditor on a Claim Form the Supervisors are entitled to
call for additional evidence to be provided in support of the Scheme Claim.
Creditors with disputed Scheme Claims will receive their entitlement to the
Scheme Consideration to the extent and in the amount that the dispute is
resolved in their favour and their Scheme Claim is Admitted.
If and to the extent that the Supervisors are not satisfied that the Scheme
Claim should be Admitted they will reject the Scheme Claim and notify the Scheme
Creditor accordingly. If a Scheme Creditor is dissatisfied with the decision of
the Supervisors with respect to its Scheme Claim it may either commence or
continue proceedings against the relevant Scheme Company to secure the
determination of the quantum of its Scheme Claim or elect by notice in writing
to the Supervisors that the existence or quantum of its Scheme Claim be referred
for adjudication to an independent third party. If such proceedings have not
previously been commenced, any proceedings to determine the amount of a Scheme
Claim must be commenced or a notice to elect for adjudication made within 40
Business Days following receipt by the Scheme Creditor of the notice of
rejection. If no such proceedings are commenced or election for adjudication
made within that 40 Business Day period, the relevant Scheme Company will be
released from all liability in relation to that Scheme Claim (or part thereof)
which has been rejected and no further proceedings in relation to that Scheme
Claim will be permitted.
The Schemes do not affect the right of a Scheme Creditor to bring proceedings
against Corp or plc only to establish the existence or amount of his Scheme
Claim, as appropriate, in the courts of any jurisdiction or according to any law
(subject to any other provisions determining governing law and jurisdiction,
whether contained in any contract between either Corp and/or plc and the Scheme
Creditor or otherwise) provided that the
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Scheme Creditor has first given the Supervisors five Business Days' prior notice
in writing of its intention to bring proceedings and, if the Scheme Creditor
wishes to bring proceedings upon receipt of a notice from the Supervisors
rejecting its Scheme Claim, those proceedings must be brought within 40 Business
Days following receipt by the Scheme Creditor of the notice of rejection. The
exercise of all other rights and remedies of Scheme Creditors against the
relevant Scheme Companies in respect of Scheme Claims are prohibited by the
Schemes.
The Prospective Supervisors will undertake a review of all Claim Forms submitted
prior to the Effective Date to determine whether the Scheme Claims can be
properly Admitted on the Effective Date and, provided the relevant Claim Form
was submitted prior to the First Claim Date, whether the relevant Scheme Claim
will be included in the First Initial Distribution.
THE ESCROW TRUSTEE AND THE DISTRIBUTION AGENT
The Schemes also provide for the appointment of an Escrow Trustee who will hold
the Scheme Consideration on trust for the Scheme Creditors and a Distribution
Agent who will be responsible for the distribution of the Scheme Consideration
to the Scheme Creditors with Admitted Scheme Claims. Corp and plc have entered
into an agreement appointing Corp SPV as the first Escrow Trustee and The Bank
of New York as the first Distribution Agent in accordance with the terms of the
Schemes and subject to the relevant Scheme becoming effective. A copy of the
agreement is set out in Appendix 7.
On the issue by the Supervisors of the notice in respect of the First Initial
Distribution, Corp will transfer, issue and allot the Scheme Consideration
together with the plc Shareholder Stock to or to the order of the Escrow Trustee
to be held on trust for the Corp Scheme Creditors and the plc Shareholders
respectively. The Distribution Agent will hold the New Notes and any cash
comprised in the Scheme Consideration as custodian for the Escrow Trustee. The
New Shares will be registered in the name of the Escrow Trustee or its nominee.
The Scheme Consideration (together with any income accrued on it in accordance
with the Escrow and Distribution Agreement) will be distributed by the
Distribution Agent (acting on the instructions of the Supervisors and the Escrow
Trustee) to, and at the direction of, the Scheme Creditors with Admitted Scheme
Claims (taking into consideration the cost of making the distribution and the
amount of Scheme Consideration to be distributed) as soon as practicable after
the relevant Scheme Claim has been Admitted, together with any interest accrued
and principal repaid on New Notes, any interest accrued on any cash balances and
dividends paid on New Shares in respect of that portion of Scheme Consideration.
The Escrow and Distribution Agreement contains a direction by the Eurobond
Trustee and the Yankee Bond Trustee to the effect that any Scheme Consideration
attributable to the Bonds should be distributed in accordance with the
directions contained in the Account Holder Letters to be submitted to Bondholder
Communications by Account Holders. To the extent that Account Holder Letters are
not received by 5.00 p.m. (New York City time) on 17 April 2003 and accordingly
any Scheme Consideration attributable to the Scheme Claims made by the Trustees
is not distributed in the First Initial Distribution, the Escrow Trustee will
continue to hold such undistributed Scheme Consideration in accordance with the
directions of the relevant Trustee. The Eurobond Trustee has directed that any
Scheme Consideration attributable to its Scheme Claim which has not been
distributed by the end of the Waiting Period should be held by the Escrow
Trustee pending the Eurobond Trustee obtaining instructions from the holders of
the relevant Eurobonds (by way of an Extraordinary Resolution) or, if
appropriate, directions from the Court.
The Escrow Trustee has undertaken not to exercise any voting rights attaching to
the New Shares or the New Notes while they are held in escrow as referred to
above.
The arrangements under which the Escrow Trustee holds the Scheme Consideration
on trust for Scheme Creditors are expected to constitute a bare trust, in which
case the Escrow Trustee will be required to deduct tax at the basic rate
(currently 22 per cent.) from any interest or dividends received in respect of
the Scheme Consideration before paying the remainder to Scheme Creditors as part
of their distribution. If the arrangements are, for any reason, held not to
constitute a bare trust, there may be additional taxes payable by the Escrow
Trustee in respect of the Scheme Consideration that does not form part of the
First Initial Distribution. Corp has agreed to set aside certain amounts to be
paid towards any tax liability of the Escrow Trustee. Any additional amounts
will, in the first instance, be met out of the Reserve Claims Segment or, after
the expiry of the Waiting
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Period, out of the combined Reserve Claims Segment and Known Claims Segment. If
the Supervisors terminate the Waiting Period on the grounds that the Reserve
Claims Segment may not be sufficient to meet the claims of all Reserve
Creditors, any tax costs will cease to be met out of the Reserve Claims Segment,
and any distributions made thereafter will be made subject to a withholding on
account of all taxes which would be payable by the Escrow Trustee in respect of
that distribution. Corp has agreed to indemnify the Escrow Trustee against any
tax liability which cannot be met as described above. The Escrow Trustee has
agreed to seek confirmation from the Inland Revenue (as soon as reasonably
practicable after the Effective Date of the Corp Scheme and, in any event,
before the end of the Waiting Period) that the arrangements will be taxed as a
bare trust. Pending any confirmation from the Inland Revenue to the contrary, or
any indication by the Inland Revenue that such confirmation will not be given
until a later date (such as the submission of a tax return by the Escrow
Trustee), the Escrow Trustee will operate the arrangements on the basis that
they constitute a bare trust.
CIRCULATION OF SCHEME CONSIDERATION AND PAYMENTS ON A MODELLED BASIS
Corp has the benefit of a Scheme Claim of L146,587,439 against plc. Accordingly,
Corp will submit a Claim Form pursuant to the plc Scheme and, if the plc Scheme
becomes effective and Corp's claim is Admitted (which Corp expects to be the
case), Corp will become entitled to receive its pro rata entitlement in respect
of its Admitted Scheme Claim in the First Initial Distribution under the plc
Scheme.
Corp has agreed to distribute its entitlement to receive Scheme Consideration
under the plc Scheme (or, should the plc Scheme not become effective, its
entitlement to any sum of money or property to which it becomes entitled to as a
result of its claim against plc) to Corp Scheme Creditors by way of additional
Corp Scheme Consideration. Similarly plc has agreed to distribute any of this
additional Scheme Consideration it would be entitled to receive from Corp via
Ancrane to all plc Scheme Creditors (which will in turn include Corp). To
prevent the continued circulation of an ever decreasing amount of additional
Scheme Consideration, Ancrane and the Prospective Supervisors of both Schemes
(in each case the same two persons) have agreed that, if both Schemes become
effective and, as anticipated, the First Initial Distributions under the Schemes
are payable on the same date, the Supervisors will agree a distribution model
(the "CORP/PLC MODEL") simulating successive distributions under the Corp Scheme
and the plc Scheme of amounts distributed to Corp out of the plc Scheme in order
to produce a net amount of additional Scheme Consideration available for
distribution to Admitted Scheme Creditors under the Corp Scheme and the plc
Scheme respectively. For this purpose, no Scheme Consideration will be paid from
Corp to Ancrane and arrangements will be made for all Bonds held by Ancrane to
be blocked.
It is currently anticipated that the amount of any additional Scheme
Consideration payable to Admitted Scheme Creditors as a result of this
circulation of Scheme Consideration will be paid to Admitted Scheme Creditors
when they receive their Initial Distribution.
Similar provisions may apply for any Further Distributions made at the same time
under each of the Schemes. For example, this may occur at the end of the Waiting
Period.
The ability of Ancrane to make a repayment of capital in specie to plc has been
facilitated by Ancrane having become an unlimited company on 25 March, 2003.
Pursuant to the terms of the Scheme Implementation Deed, prior to the Corp
Scheme Meeting, Ancrane will effect a reduction of its existing share capital
(including its share premium account) and will make a repayment of capital in
specie to plc of its assets (other than L100), including any receipt of, or
right that it may have to receive, any Corp Scheme Consideration and any plc
Scheme Consideration.
TREATMENT OF DE MINIMIS CLAIMS
The Schemes provide for the claims of all Scheme Creditors who are owed in
aggregate less than L5,000 to be excluded from the Schemes. Accordingly it is
expected that all such creditors will be paid in full if and when such claims
arise. As indicated above, in the context of submitting Scheme Claims the only
Scheme Creditors that will be recognised in relation to the Bonds are the two
Trustees. Accordingly Account Holders who hold less than L5,000 in principal
amount of the Bonds of any series for any Bondholder should still submit an
Account Holder Letter in respect of that holding.
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C.8 MEETINGS, FINAL TERMINATION, RELEASE AND GOVERNING LAW
CREDITORS' COMMITTEE AND FURTHER MEETINGS OF SCHEME CREDITORS
Each of the Schemes provides for a Creditors' Committee of representatives of
the Scheme Creditors (which expression, in this context, includes Definitive
Holders) to be appointed to monitor the implementation of the relevant Scheme,
the actions of the Supervisors and the calling of meetings of Scheme Creditors.
Each Creditors' Committee will comprise a minimum of three and a maximum of
seven members. The members of the Creditors' Committee will be appointed as
described below. The Creditors' Committee will meet at least once every 12
months during the continuation of the Schemes and will receive a report on the
progress of the relevant Scheme from the Supervisors.
A Scheme Creditor or Definitive Holder who is willing to act as a member of the
Creditors' Committee may propose itself to act as a member of the Creditors'
Committee by ensuring that the appropriate box on the Claim Form or Account
Holder Letter, as the case may be, is ticked. On the Effective Date, the
Supervisors will, to the extent possible, appoint up to seven members of the
Creditors' Committee selected from those Scheme Creditors and Definitive Holders
who have proposed themselves to act, representing a proper balance of interests
of Scheme Creditors as a whole. If fewer than three Scheme Creditors and
Definitive Holders propose themselves to act as a member of the Creditors'
Committee, then on and from the Effective Date the Creditors' Committee will
consist of as many members as have proposed themselves to act. In accordance
with the terms of the Scheme those members, if any, will endeavour to fill the
vacancy or vacancies to ensure that the Creditors' Committee has a minimum of
three members within 28 days of the Effective Date. If those members do not
succeed in appointing the necessary number of further members of the Creditors'
Committee, resulting in a Creditors' Committee consisting of fewer than three
members by 28 days after the Effective Date, the Supervisors will thereafter use
reasonable endeavours to appoint the necessary number of further members within
the following 14 days as interim committee members to serve on the Creditors'
Committee until the necessary number of further permanent members are appointed.
Meetings of Scheme Creditors will be held at least once every 12 months during
the continuation of the Schemes unless the Supervisors and the Creditors'
Committee otherwise agree. The Supervisors can call a meeting of Scheme
Creditors for any purpose they think necessary in order to keep Scheme Creditors
informed about the progress of the Schemes or to obtain their input as regards
the function of the Schemes. The Creditors' Committee may convene a meeting of
Scheme Creditors to remove or appoint either or both Supervisors or for any
other purpose they think fit. In addition, five Scheme Creditors with Scheme
Claims in aggregate in excess of fifteen per cent. of all Scheme Claims, or any
20 or more Scheme Creditors may convene a meeting of Scheme Creditors.
FINAL TERMINATION PROVISIONS
As soon as reasonably practical after the making of the final distributions
under each of the Schemes or the Supervisors' determination that any further
distribution of Scheme Consideration would be uneconomic (i.e. if the costs of
making the distribution would exceed the value of the Scheme Consideration to be
distributed (or the proceeds of sale of that Scheme Consideration)), the
relevant Supervisors will serve a termination notice on the relevant Scheme
Company and the members of the relevant Creditors' Committee.
With effect from the date of the termination notice,
a. Scheme Creditors, the Creditor's Committee, the relevant Scheme
Company, the Supervisors, the Eurobond Trustee, the Yankee Bond
Trustee, the Escrow Trustee, the Distribution Agent, the Registrars
and Bondholder Communications will have no further rights or
obligations under the Scheme except that the compromise of Scheme
Claims pursuant to the terms of the Scheme will continue to have
effect; and
b. the Supervisors (and any former Supervisors) and the members of the
Creditors' Committee (and any former members) will be discharged
from any liability for their respective acts, omissions and conduct
pursuant to or under the Schemes other than any liability arising
from their respective
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misfeasance, breach of duty or wilful default or, in the case of the
Supervisors, their negligence or that of a partner in or employee of
KPMG.
RELEASE OF CO-ORDINATION COMMITTEE AND THE INFORMAL COMMITTEE OF BONDHOLDERS
Under the Corp Scheme and the plc Scheme the Co-ordination Committee, the
Informal Committee of Bondholders and their past and present members and their
legal and financial advisers will be released from any Liability which they or
any of them may have to a Scheme Creditor, Corp, plc, the Supervisors, the
Escrow Trustee, the Distribution Agent, the Eurobond Trustee, the Yankee Bond
Trustee, Bondholder Communications and the ESOP Derivative Banks.
GOVERNING LAW AND JURISDICTION
The Schemes will be governed by and construed in accordance with English law.
The Court will have exclusive jurisdiction to hear and determine any suit,
action or proceeding and to settle any dispute which may arise out of the
Explanatory Statement or any provision of the Schemes, or any action taken or
omitted to be taken under the Schemes or in connection with the administration
of the Schemes. For such purposes, Scheme Creditors irrevocably submit to the
jurisdiction of the Court, subject to the proviso that in relation to the
determination of any Scheme Claim the validity of other provisions determining
governing law and jurisdiction as between either Corp and/or plc and any of its
Scheme Creditors, whether contained in any contract or otherwise, will not be
affected.
C.9 EFFECT OF SECURITIES LAW RESTRICTIONS UNDER THE SCHEMES
GENERAL PRINCIPLES OF THE SCHEMES
Securities will not be distributed pursuant to the Schemes to or to the order,
or for the account or benefit, of any person where such distribution would be
prohibited by any applicable law or regulation, or so prohibited except after
compliance with conditions or requirements that are unduly onerous. Where any
determination is (or has been) required as to whether any such conditions or
requirements are "unduly onerous", such determination will be (or has been) made
by Corp (in connection with distributions pursuant to the Corp Scheme) or plc
(in connection with distributions pursuant to the plc Scheme), as the case may
be, with the advice of legal counsel and having due regard for the number of
Scheme Creditors, Bondholders and/or plc Shareholders that are or may be located
in the relevant jurisdiction, the value of the securities to which such persons
are or may be entitled pursuant to the Schemes, the extent to which the
requirements of the laws and regulations of such jurisdiction as applied to the
Schemes are uncertain, the nature and extent of the risks or penalties
associated with any violation of those legal or regulatory requirements and the
costs, administrative burden and timing implications of taking such action (if
any) as might permit distributions of securities to be made in that jurisdiction
(including pursuant to any available exemptions) in accordance with applicable
legal and regulatory requirements. Any reference in the discussion that follows
to whether distribution of securities would be prohibited except after
compliance with conditions or requirements that are "unduly onerous" should be
construed accordingly.
To the extent that securities that would otherwise be deliverable pursuant to
the Schemes cannot be delivered because of a legal or regulatory prohibition
described above, the persons that would otherwise be entitled to receive such
securities will receive cash instead, as follows:
a. in the case of Scheme Creditors (other than the Trustees) and
Designated Recipients, the Distribution Agent will sell or procure
the sale of such securities on the best terms reasonably obtainable
at the time of sale and will pay the net cash proceeds of such sale
(after deduction of all applicable expenses including any currency
conversion costs) to the relevant person in full satisfaction of
such person's rights in respect of such securities under the
relevant Scheme. Any such sale will be deemed to have been
undertaken at the request of the relevant person, and none of Corp,
plc, the Escrow Trustee, the Distribution Agent, the Registrars, the
Supervisors or any other person will be responsible for any loss
arising from the terms or the timing of such sale. If the relevant
securities are not listed on a securities exchange, however, the
relevant person will receive a sum in cash which is substantially
equivalent in value to such securities, such sum to be
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determined by agreement between Corp or plc, as the case may be, and
the Supervisors or by adjudication in accordance with the provisions
of the relevant Scheme; and
b. in the case of plc Shareholders, the Registrars will use reasonable
endeavours to sell or procure the sale of such securities on the
best terms reasonably obtainable at the time of sale and will pay
the net cash proceeds of such sale (if any) to the relevant plc
Shareholder in sterling (after deduction of all applicable expenses
including any currency conversion costs) in full satisfaction of the
rights of such plc Shareholder in respect of such securities under
the Corp Scheme. Any such sale will be deemed to have been
undertaken at the request of the relevant person, and none of Corp,
plc, the Escrow Trustee, the Distribution Agent, the Registrars, the
Supervisors or any other person will be responsible for any loss
arising from the terms or the timing of such sale or any failure to
procure a purchaser for such securities.
Any determination made by Corp or plc with respect to legal or regulatory
prohibitions on the distribution of securities pursuant to the Schemes will be
(or has been) made solely with regard to such laws and regulations as are
generally applicable to persons located in the relevant jurisdiction. Such
determinations will not take account of any legal or regulatory restrictions
that may be applicable to a particular Scheme Creditor, Bondholder, Designated
Recipient or plc Shareholder by virtue of any business or other activity
conducted by such person in such jurisdiction, or the regulatory status or other
relevant legal attributes of such person. Scheme Creditors, Bondholders,
Designated Recipients and plc Shareholders are strongly advised to consult their
professional advisers as to whether any laws or regulations which may be
applicable to them may give rise to any liability or penalty, or require them to
obtain any government or other consents or to pay any taxes or duties, as a
result of the implementation of the Schemes. None of Corp, plc, the Escrow
Trustee, the Distribution Agent, the Supervisors, Bondholder Communications, the
Registrars, the Informal Committee of Bondholders, the Co-ordination Committee,
their respective directors or any other parties involved in the Restructuring
accept any responsibility for any liabilities (including but not limited to
consequential liabilities) incurred by Scheme Creditors, Bondholders, Designated
Recipients or plc Shareholders as a result of the implementation of the Schemes
in respect of laws or regulations applicable to them (except that UK stamp duty
or SDRT payable in connection with the issuance of ADRs will be met by Corp to
the extent described herein).
JURISDICTIONS IN WHICH DISTRIBUTION OF SECURITIES IS NOT RESTRICTED
Corp and plc have determined that the distribution of securities pursuant to the
Schemes in the following jurisdictions is not currently prohibited by any
applicable law or regulation requiring compliance with conditions or
requirements that are unduly onerous:
a. United Kingdom;
b. Bahamas;
c. British Virgin Islands;
d. Canada (provinces of Alberta, British Columbia, Ontario and Quebec);
e. Cayman Islands;
f. Guernsey;
g. Jersey;
h. Netherlands Antilles; and
i. United States (with respect to federal securities law and, except as
described below, with respect to state securities law).
The above-mentioned jurisdictions are sometimes referred to collectively in the
discussion that follows as "UNRESTRICTED JURISDICTIONS."
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The Schemes will provide that persons located in Unrestricted Jurisdictions will
not be prohibited from receiving distributions of securities pursuant to the
Schemes by virtue of any legal or regulatory prohibition of general application
under the laws or regulations of such jurisdictions.
Notwithstanding the foregoing, securities will not be distributed pursuant to
the Schemes to or to the order, or for the account or benefit, of any person in
any Unrestricted Jurisdiction if at any time there has been a change of law or
regulation since 27 March 2003 (the latest practicable date prior to the date of
this document) in such jurisdiction, such that distribution of securities
pursuant to the Schemes to a person in such jurisdiction would be prohibited, or
so prohibited except after compliance with conditions or requirements that are
unduly onerous.
JURISDICTIONS IN WHICH DISTRIBUTION OF SECURITIES IS RESTRICTED
Corp and plc have determined that the distribution of securities pursuant to the
Schemes in the following jurisdictions would be prohibited by applicable law or
regulation, or so prohibited except after compliance with conditions or
requirements that are unduly onerous, unless the conditions of one or more
applicable exemptions from such laws or regulations can be met:
a. France;
b. Italy; and
c. the US states of Arizona, California, Colorado, Connecticut,
Illinois, Ohio and Vermont.
Accordingly, the Schemes will provide that persons located in the above
jurisdictions will be prohibited from receiving distributions of securities
pursuant to the Schemes, and will receive cash instead as described above,
unless the conditions for reliance on an available exemption have been met.
Details with respect to certain relevant exemptions covering institutional or
professional investors and certain other persons are set out in Part D.16 and
Part D.17 of this Section.
In addition, Corp and plc have determined that any distribution of securities
pursuant to the Schemes to persons in Malaysia is currently prohibited by
applicable securities laws or regulations requiring compliance with conditions
or requirements that are unduly onerous, and that no exemption from this
prohibition will be available. Accordingly, persons located in Malaysia will be
prohibited from receiving distributions of securities pursuant to the Schemes,
and will receive cash instead as described above.
France, Italy, Malaysia and the above-mentioned US states are sometimes referred
to collectively in the discussion that follows as "RESTRICTED JURISDICTIONS."
Notwithstanding the foregoing, the restrictions on the distribution of
securities pursuant to the Schemes with respect to any Restricted Jurisdiction
will cease to apply if at any time there has been a change of law or regulation
since 27 March 2003 (the latest practicable date prior to the date of this
document) in such jurisdiction, such that delivery of securities pursuant to the
Schemes to a person in such jurisdiction would no longer be prohibited, or so
prohibited except after compliance with conditions or requirements that are
unduly onerous. Any such change will not affect the rights of any person that
has previously received cash instead of securities pursuant to the Schemes, as
described above.
In addition, notwithstanding the foregoing, distributions of New Shares and
Warrants to plc Shareholders in Restricted Jurisdictions will be restricted only
to the extent described below under "Treatment of plc Shareholders in Restricted
Jurisdictions."
OTHER JURISDICTIONS
With respect to any jurisdiction other than an Unrestricted Jurisdiction or a
Restricted Jurisdiction named above, the general principles of the Schemes will
apply as described above. Accordingly, securities will not be distributed
pursuant to the Schemes to or to the order, or for the account or benefit, of
any person located in a jurisdiction other than an Unrestricted Jurisdiction or
a Restricted Jurisdiction if it should come to the attention of Corp or plc (as
the case may be) that such distribution would be prohibited by any applicable
law or regulation, or so prohibited except after compliance with conditions or
requirements that are unduly onerous. Neither Corp
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nor plc is currently aware of any such prohibition in any jurisdiction (other
than as described above with respect to Restricted Jurisdictions).
SECURITIES LAW CONFIRMATIONS IN CLAIM FORM
In connection with the legal and regulatory restrictions referred to above and
in order to establish the conditions for reliance on certain relevant exemptions
from these restrictions, the Claim Form will require the person completing it
(other than the Trustees) to confirm that it is not submitting such Claim Form
on behalf of, or requesting delivery of any securities to or for the benefit of,
any person that is located in:
a. France (other than a "qualified investor" as defined in Article
L.411-2 of the French Monetary and Financial Code);
b. Italy (other than a "professional investor" as defined in the
Consolidated Financial Act Article 30, paragraph II and in CONSOB
Regulation 11522/1998 Article 31, paragraph II);
c. Malaysia;
d. the US states of Arizona, California, Colorado, Connecticut,
Illinois, Ohio or Vermont (other than a person that is eligible to
receive the securities under a relevant exemption as described in
Part D.16 of this Section).
Persons completing a Claim Form (other than the Trustees) should refer to Part
D.17 of this Section (with respect to France, Italy and Malaysia) and to Part
D.16 of this Section (with respect to Arizona, California, Colorado,
Connecticut, Illinois, Ohio and Vermont) for information as to the circumstances
under which they would be regarded as located in one of these jurisdictions for
these purposes, and for details with respect to the various categories of
eligible recipients in such jurisdictions under the exemptions referred to above
and other relevant information. Such persons should also carefully consider the
terms of the confirmations included in the Claim Form set out in Appendix 30.
SECURITIES LAW CONFIRMATIONS IN ACCOUNT HOLDER LETTER
In connection with the legal and regulatory restrictions referred to above and
in order to establish the conditions for reliance on certain relevant exemptions
from these restrictions, the Account Holder Letter will require each relevant
Account Holder to confirm that it is not submitting such Account Holder Letter
on behalf of, or requesting delivery of any securities to or for the benefit of,
any person that is located in:
a. France (other than a "qualified investor" as defined in Article
L.411-2 of the French Monetary and Financial Code);
b. Italy (other than, with respect to the plc Scheme, a "professional
investor" as defined in the Consolidated Financial Act Article 30,
paragraph II and in CONSOB Regulation 11522/1998 Article 31,
paragraph II);
c. Malaysia; or
d. the US states of Arizona, California, Colorado, Connecticut,
Illinois, Ohio and Vermont (other than a person that is eligible to
receive the securities under a relevant exemption as described in
Part D.16 of this Section).
Account Holders, Bondholders and Designated Recipients should refer to Part D.17
of this Section (with respect to France, Italy and Malaysia) and to Part D.16 of
this Section (with respect to Arizona, California, Colorado, Connecticut,
Illinois, Ohio and Vermont) for information as to the circumstances under which
they would be regarded as located in one of these jurisdictions for these
purposes, and for details with respect to the various categories of eligible
recipients in such jurisdictions under the exemptions referred to above and
other relevant information. Such persons should also carefully consider the
terms of the confirmations included in the Account Holder Letter set out in
Appendix 28.
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EFFECT OF SECURITIES LAW CONFIRMATIONS UNDER THE SCHEMES
The Schemes will provide that if the required confirmations are given in the
form requested in a Claim Form or Account Holder Letter then, except as
described below, distribution of the New Shares and New Notes to which such
Claim Form or Account Holder Letter (as the case may be) relates will not be
prohibited on the basis of any legal or regulatory prohibition of general
application under the laws or regulations of any Restricted Jurisdiction.
Notwithstanding the foregoing, if it appears from the relevant Claim Form or
Account Holder Letter that such confirmations have been given inappropriately
then, except as described below with respect to Italy, New Shares and New Notes
will not be distributed in respect of such Claim Form or Account Holder Letter,
in which case the relevant person or persons will receive cash instead as
described above. Confirmations will be deemed to have been given inappropriately
if (i) information provided in or in connection with the transmittal of the
Claim Form or Account Holder Letter indicates that such Claim Form has been
submitted by, or such Account Holder Letter has been delivered on behalf of, or
delivery of securities is being requested to or for the account or benefit of, a
person that is located in a Restricted Jurisdiction and that could not be
eligible to receive the securities under any relevant exemption described in
this document or (ii) Corp or plc (as the case may be) obtains actual knowledge
that such confirmations are false. Corp and plc reserve the right, in their sole
discretion, to investigate in relation to any Claim Form or Account Holder
Letter the facts relevant to the confirmations included therein. The
determination as to whether confirmations have been appropriately given will be
made by Corp (in connection with distributions pursuant to the Corp Scheme) or
plc (in connection with distributions pursuant to the plc Scheme), as the case
may be.
Except as described below with respect to Italy, if the required confirmations
are not given in the form requested in a Claim Form or Account Holder Letter,
then New Shares and New Notes will not be distributed in respect of such Claim
Form or Account Holder Letter, in which case the relevant person or persons will
receive cash instead as described above.
Notwithstanding the foregoing, to the extent that Corp or plc determines that
the exemptions applicable with respect to distributions of securities to limited
numbers of persons are available in Italy, securities will be distributed to the
relevant persons without regard to the confirmations given in any relevant Claim
Form or Account Holder Letter. Details with respect to this exemption are set
out in Part D.17 of this Section.
With respect to any jurisdiction other than an Unrestricted Jurisdiction or a
Restricted Jurisdiction, the general principles of the Schemes will apply (as
described under "Other jurisdictions" above) notwithstanding the confirmations
given in any relevant Claim Form or Account Holder Letter.
TREATMENT OF PLC SHAREHOLDERS IN RESTRICTED JURISDICTIONS
Corp has determined that distribution of securities to plc Shareholders pursuant
to the Corp Scheme is currently prohibited by applicable securities laws or
regulations requiring compliance with conditions or requirements that are unduly
onerous (i) in Malaysia (with respect to New Shares and Warrants) and (ii)
unless the exemption applicable with respect to distributions of securities to
limited numbers of persons is available, in Italy (with respect to Warrants).
plc Shareholders with registered addresses in Malaysia will be prohibited from
receiving distributions of New Shares and Warrants pursuant to the Corp Scheme,
and will receive cash instead as described above.
plc Shareholders with registered addresses in Italy will be prohibited from
receiving distributions of Warrants pursuant to the Corp Scheme, and will
receive cash instead as described above, unless Corp determines that the
above-mentioned exemption is available. Details with respect to this exemption
are set out in Part D.17 of this Section.
C.10 INSOLVENCY ANALYSIS
Corp and plc believe that there are only two possible outcomes of the Group's
current financial difficulties, which are the reorganisation of their
liabilities through the proposed Schemes or the placing of the companies into
administration or liquidation. Whilst Corp and plc believe that the Schemes are
more beneficial to Scheme
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Creditors than insolvency proceedings, Corp and plc believe that in the event of
insolvency a more advantageous realisation of Corp's and plc's assets would be
effected on an administration rather than a liquidation.
Appendix 6 sets out a comparison between the position under the proposed Schemes
and the hypothetical position that would be likely to face Scheme Creditors if
plc and Corp were to go into administration as at 30 April 2003. The purpose of
the insolvency analysis at Appendix 6 is to assist Scheme Creditors in
determining whether to accept the proposals set out in this document. Scheme
Creditors should read carefully the caveats, limitations and uncertainties set
out in the analysis.
Corp and plc believe that the Schemes give greater certainty overall and that
the certainty of the day one distribution of cash, New Notes and New Shares is a
major benefit to Scheme Creditors. This certainty would not be available under
insolvency proceedings or on the enforcement of security.
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D. GENERAL MATTERS RELATING TO THE RESTRUCTURING
D.1 LOCKBOX ACCOUNT AND INTERIM SECURITY ARRANGEMENTS
BACKGROUND
As part of the arrangements to effect the Restructuring, Corp agreed to provide
interim security (over the cash held by Highrose Limited (a special purpose
subsidiary of Corp) in the Lockbox Accounts) to the Group's Syndicate Banks (in
their capacities as Syndicate Banks, bilateral lenders to Corp and beneficiaries
of guarantees from Corp (in such capacities "BANK CREDITORS")), the holders of
the Bonds from time to time (apart from plc's wholly owned subsidiary Ancrane)
and the Trustees (together the "SECURED BONDHOLDERS") and Barclays, as the only
ESOP Derivative Bank which committed to support the Restructuring prior to 15
October 2002. These interim security arrangements took effect on 13 September
2002, on which date the balance in the Lockbox Accounts was approximately L866
million. The interim security arrangements were amended on 13 December 2002 and
were further amended on 28 March 2003. The interim security has been provided to
the Bank Creditors and Secured Bondholders on a pari passu basis, subject to the
arrangements in favour of the participating ESOP Derivative Banks (see further
details in Part D.2 of this Section). As at 27 March 2003, the balance held in
the Lockbox Accounts was approximately L770.7 million.
The 13 December 2002 amendments to the interim security, among other things:
- removed a provision requiring the interim security to be released if a
specified percentage of Bank Creditors and Secured Bondholders had not
entered into written agreements to vote in favour of the Schemes on or
before 15 business days after the date on which the originating
application for the Corp Scheme was filed with the Court; and
- released the undertakings which had been given on 13 September 2002 by
members of the Informal Committee of Bondholders to enter into such
written agreements.
These amendments were agreed in consideration of an extension of time (until 15
March 2003) to complete the Restructuring and the waiver by the Bank Creditors
and Informal Committee of Bondholders of any enforcement event which may have
then existed in relation to the interim security as a result of the probable
inability to complete the Restructuring by 31 January 2003.
At the same time and as part of the amendment of the interim security, each of
the then members of the Informal Committee of Bondholders and certain members of
the current Co-ordination Committee provided letters of current intention to
support the Restructuring and to vote in favour of the Schemes (which are
detailed in Appendix 19 and are among the documents available for inspection).
Corp and plc have not been notified of any changes in those intentions since
that date.
Further amendments were made to the interim security on 28 March 2003. These
amendments, among other things, removed the provision requiring the interim
security to be released at any time should any Bank Creditor (or any of its
affiliates) precipitate an insolvency event with respect to any material Group
Company. These amendments were agreed in consideration of an extension of time
(until 30 June 2003) to complete the Restructuring and the waiver by the
majority Bank Creditors and the majority members of the Informal Committee of
Bondholders of certain enforcement events that may then have existed in relation
to the interim security as a result, among other things, of the inability to
complete the Restructuring by 15 March 2003.
In addition to the extension of time to complete the Restructuring and waiver of
enforcement events discussed above, on 26 March 2003 and 24 March 2003
respectively the requisite majorities of the Syndicate Banks and the members of
the Informal Committee of Bondholders: (a) consented, for the purpose of the
undertakings given in favour of the Syndicate Banks and the Informal Committee
of Bondholders, to the entry by Corp, plc and other Group Companies into certain
transactions (including those contemplated under the Scheme Implementation Deed)
necessary to facilitate the Restructuring; and (b) agreed a number of additional
carve-outs to those undertakings to permit Corp, plc and other Group Companies
to enter into transactions contemplated in this document (provided that, subject
to some exceptions, such transactions do not take effect until on or after the
Effective Date of the Corp Scheme).
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ENFORCEMENT EVENTS
The interim security will become enforceable on the occurrence of an enforcement
event. These events include:
- material breach or termination of the undertakings described in Part B
of this Section;
- the commencement of formal insolvency proceedings in relation to a
material Group Company (as listed in the interim security);
- failure to achieve the Restructuring on the basis stated in the Heads
of Terms (as varied in the manner announced on 18 March 2003) within
the proposed timetable (or the likelihood of the same becoming
evident);
- failure to meet the sensitised Business Plan, if such failure would
have a material and adverse effect on the interests of the
beneficiaries of the interim security (or the likelihood of the same
becoming evident);
- that the post-Restructuring balance sheet is likely to be materially
worse than contemplated by the sensitised Business Plan; or
- that the Group is unlikely to have sufficient working capital
post-Restructuring, if such event would have a material and adverse
effect on the interests of the beneficiaries of the interim security.
The occurrence of an enforcement event may materially prejudice the ability of
Corp and plc to complete the Restructuring successfully. If the interim security
were to be enforced, neither Corp nor plc would have any reasonable prospect of
avoiding an insolvency proceeding.
RELEASE OF INTERIM SECURITY
The interim security is due to be released on 24 April 2003 ("RELEASE DATE"),
being the date (as notified by HSBC, as trustee in respect of the interim
security) falling one business day prior to the date on which the Corp Scheme
Meeting will be held, unless on or within five business days prior to the
Release Date, the Co-ordination Committee certifies that Bank Creditors and
Secured Bondholders representing a majority in principal amount of the debt
outstanding under the Bank Facility, bilateral facilities provided by Bank
Creditors to Corp, bilateral guarantees given by Corp in favour of Bank
Creditors and the Bonds do not believe that the requisite majority (being a
majority in number representing 75 per cent. in value of Corp Scheme Creditors
present and voting either in person or by proxy at the Creditors' Meeting in
respect of the Corp Scheme) will approve the Restructuring. In light of
discussions with the Syndicate Banks and the Informal Committee of Bondholders
during the course of the Restructuring, Corp and plc currently believe that the
interim security will be released on the Release Date.
If the interim security has not been released prior to the Corp Scheme Meeting
neither Corp nor plc will proceed with their respective Schemes and the interim
security will remain in place in any subsequent insolvency proceedings, meaning
that the Bank Creditors, Secured Bondholders and Barclays Bank PLC (as the only
ESOP Derivative Bank which committed to support the Restructuring prior to 15
October 2002), would rank ahead of all unsecured creditors of Corp with respect
to the cash held in the Lockbox Accounts. If the interim security is released
and the Corp Scheme Meeting proceeds, the choice facing all Corp Scheme
Creditors will be the same: either the Corp Scheme will be approved and
implemented or the Corp Scheme will be rejected and in the inevitable insolvency
proceeding which would follow such rejection the interim security would no
longer be in place.
The Syndicate Banks and the Informal Committee of Bondholders have indicated
that they will not be prepared to release the interim security prior to the Corp
Scheme Meeting unless, immediately before such release, Corp has confirmed to
the Prospective Supervisors that Corp remains satisfied that the reserves built
into the Corp Scheme are sufficient to meet distributions to all Corp Scheme
Creditors and that Corp remains of the opinion that its statement as to the Corp
Group's working capital contained in Part D.21 of this Section remains valid,
and the Prospective Supervisors have confirmed to Corp that they have no reason
to disagree with Corp's view that the reserves built into the Corp Scheme are
sufficient to meet distributions due to be made to all Corp Scheme Creditors.
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WITHDRAWALS
Prior to release of the interim security (and in the absence of any enforcement
event), and after the release of the interim security (in accordance with the
lockbox arrangements set out in the undertakings in favour of the Syndicate
Banks and members of the Informal Committee of Bondholders (as modified and
renewed)), withdrawals from the Lockbox Accounts are to be approved, in order
for the Group to meet its cash flow requirements, in accordance with an agreed
cash flow forecast for the period from and including March 2003 to 30 June 2003.
D.2 ARRANGEMENTS WITH ESOP DERIVATIVE BANKS
BACKGROUND
As part of the demerger of the Group's defence business at the end of 1999
involving the listing of plc as the new parent company of the Group, it was
necessary to reorganise the incentive schemes to reflect the new Group
structure, and a number of employee share option plans (the "ESOPs") were put in
place (and detailed in the listing particulars of plc). The ESOPs entitle
participating employees of certain Group Companies ("Opcos") in certain
circumstances to call for shares in plc at specified exercise prices.
Marconi Employee Trust was established by a trust deed in 1999 as a vehicle for
acquiring and holding plc shares to be delivered when options were exercised
under the ESOPs. MET was managed by an independent trustee, Bedell Cristin
Trustees Limited. plc wrote to various Opcos whose employees were to participate
in the ESOPs requesting that each confirm that it would bear the costs
associated with the participation by its employees in the ESOPs (such letters,
"Funding Letters").
In order to hedge some of the potential cost of acquiring shares to satisfy the
Group's obligation under the ESOPs, BCTL entered into three ISDA master swap
agreements ("ESOP Agreements") with the ESOP Derivative Banks (Salomon Brothers
International Limited, Barclays Bank PLC and UBS AG) as counterparties. Under
the ESOP Agreements, BCTL entered into certain equity swaps (as detailed in
Appendix 11) which provided that in certain circumstances BCTL would be obliged
to purchase plc shares in the future at prices which were fixed at the date of
the contracts, and were in the region of 900 pence per share ("ESOP Derivative
Transactions"). The obligations of BCTL under the ESOP Derivative Transactions
were guaranteed by plc and were limited in recourse to the assets of MET held on
trust by BCTL.
As the market price of the Group's shares fell, certain of the ESOP Derivative
Banks exercised their rights to call for cash collateral under the ESOP
Derivative Transactions. BCTL needed to be put in funds in order to satisfy its
obligation to provide such cash collateral. At the request of plc, Corp made
available a credit facility (the "ESOP Collateral Loan") to BCTL for the purpose
of providing cash collateral to the relevant ESOP Derivative Banks.
The UBS ESOP Derivative Transaction has been terminated consensually. SBIL has
purported to terminate its ESOP Derivative Transaction. The Barclays ESOP
Derivative Transaction has not been terminated. plc's total current exposure
under the ESOP Derivative Transactions is approximately L389 million. However,
approximately L214 million, being the maximum amount of collateral payable under
the ESOP Derivative Transactions, has been paid. A remaining amount of
approximately L175 million remains due.
During the course of the Restructuring negotiations the ESOP Derivative Banks
asserted that they may have claims against the Opcos (in addition to plc) in
respect of the ESOP Derivative Transactions, such claims arising from the
Funding Letter arrangements.
MOBILE ESCROW
On 2 August 2002, Marconi Bruton Street Limited, a subsidiary of Corp, disposed
of its entire shareholding in Marconi Mobile Holdings S.p.A. to Finmeccanica
S.p.A. for approximately E571 million. The employees of Mobile and certain of
its subsidiaries had participated in the ESOPs and certain members of the Mobile
group ("Mobile Opcos") had countersigned Funding Letters.
In order to ensure that the sale of Mobile was not delayed whilst the efficacy
of the claims of the ESOP Derivative Banks was determined, approximately L25
million of the sale proceeds was placed in an escrow
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account subject to the terms of an escrow agreement between, inter alia, the
ESOP Derivative Banks, HSBC Bank plc, Corp and plc, pending resolution of the
dispute or a court order. That sum reflected the L18 million maximum estimated
potential liability of the Mobile Opcos (prior to the release of the relevant
Funding Letters required in order to implement the sale of Mobile) arising from
the participation of their employees in the ESOPs plus additional headroom.
Given that the investigations into the merits of the arguments were at an early
stage, the additional headroom was approximately L7 million.
ESOP TERM SHEET
The fact that the ESOP Derivative Banks asserted claims against Opcos made it
necessary to devise a mechanism so that the ESOP dispute was ringfenced and
could not jeopardise the Corp Group once the Restructuring contemplated by the
Corp Scheme had become effective. On 28 August 2002, as part of the negotiations
in connection with the Restructuring, a non-binding indicative ESOP Term Sheet
providing for the creation of escrow accounts pending determination of the
claims of the ESOP Derivative Banks was initialled by plc, Corp, representatives
of the Co-ordination Committee, the Informal Committee of Bondholders and
Barclays.
The ESOP Term Sheet set out the manner in which the ESOP Derivative Banks, in
exchange for agreeing prior to 15 October 2002 to support the Restructuring of
Corp and plc, could take the benefit of the interim security and certain pre and
post-Restructuring escrow arrangements. Up to L170 million (including the L25
million set aside under the Mobile Escrow Agreement) was to be set aside in
escrow, on the Effective Date of the Corp Scheme, pending determination of the
potential liabilities of Group companies to the participating ESOP Derivative
Banks (those who had undertaken to support the Schemes) in relation to the ESOP
Derivative Transactions. Only Barclays elected to participate in these
arrangements and on 13 September 2002 Barclays, Corp and plc entered into a
restructuring undertaking agreement under which Barclays undertook, subject to
certain termination events, to vote in favour of the Schemes. The terms of the
Barclays restructuring undertaking agreement are described in more detail in
Appendix 19.
ESOP ESCROW AGREEMENT
A definitive agreement implementing the terms of the ESOP Term Sheet was entered
into between plc, Corp, HSBC Bank plc and Barclays on 13 December 2002, the
principal terms of which are summarised below:
a. No Restructuring
(i) If, prior to the Effective Date of the Corp Scheme, the Bank
Creditors and Secured Bondholders appropriate the cash in the
secured Lockbox Accounts as a result of the enforcement of
the interim security, a proportionate part of the secured
cash will be placed into an escrow account. This proportion
will be calculated on the basis of ((83.49)/(100) X 145/850 X
the credit balance of the secured cash at the time of
enforcement).
(ii) In the event of an enforcement, Barclays will first have to
litigate with reasonable diligence against the Opcos to
determine its rights (if any) under the Funding Letters.
Barclays is then entitled to abandon or settle the litigation
and, following agreement or a determination by the court or
arbitral tribunal as to their rights against the secured
escrow cash under the terms of the ESOP Escrow Agreement,
recover such amounts from the secured escrow cash on that
basis.
b. Post-Restructuring
If any Opcos are sold prior to the Restructuring becoming effective
("Subsequently Sold Opcos"), an amount to cover potential claims of
Barclays against the Subsequently Sold Opcos will be paid into an
account subject to separate arrangements similar to the Mobile
Escrow Agreement. To date two such escrow agreements have been
entered into in relation to Subsequently Sold Opcos, the amount of
each being less than L1 million. The terms of the ESOP Escrow
Agreement will continue to apply until Corp pays the Settlement
Amount referred to below to the ESOP Derivative Banks and the
escrow cash held under the terms of the Mobile Escrow Agreement and
any Subsequently
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Sold Opco escrow agreements has been paid to Corp. Thus, the terms
of the ESOP Escrow Agreement relating to the escrow to be
established post-Restructuring are now in practical terms
superfluous. The terms relating to the charged escrow cash may be
relied upon if the Settlement Amount is not paid by Corp to the
ESOP Derivative Banks.
ESOP SETTLEMENT
On 26 March 2003, Corp and plc reached definitive agreement with all the ESOP
Derivative Banks to settle their ESOP derivative related claims against the
Group (the "ESOP Settlement Agreement"). Under the terms of the settlement,
which is conditional upon the Corp Scheme becoming effective, Corp will pay a
total of L35 million to the ESOP Derivative Banks in full and final settlement
of their respective ESOP related claims against the Group. The Settlement Amount
will be paid from the fund of up to L170 million which was to have been set
aside by Corp under the ESOP Escrow Agreement and the Mobile Escrow Agreement.
The settlement has made available approximately L135 million in cash which forms
part of the L340 million comprising the cash element of the Corp Scheme
Consideration. Without the ESOP settlement, the L135 million sum would not have
formed part of the Corp Scheme Consideration.
The Boards of Corp and plc believe that the ESOP settlement was in the best
interests of Corp and plc and their respective stakeholders as a whole. In
reaching this conclusion, the Boards of Corp and plc took appropriate legal
advice and considered a number of relevant factors, including the merits of the
claims of the ESOP Derivative Banks, the desire to reduce the cost and expense
of continuing litigation, the potential saving in the interest burden from which
the Group will benefit by settling the ESOP derivative dispute, the benefits for
the Schemes and certainty as to the amount of the Corp Scheme cash distribution
that such a settlement brings.
The principal terms of the ESOP Settlement Agreement are as follows:
- Corp will pay the Settlement Amount to the ESOP Derivative Banks (in
the agreed proportions) on the Effective Date of the Corp Scheme
(provided such date is on or before 31 December 2003);
- When each ESOP Derivative Bank has received its share of the Settlement
Amount:
-- plc will release and waive any and all claims against the Opco's
under or in relation to the Funding Letters;
-- each ESOP Derivative Bank will release and waive any and all claims
against BCTL, plc and each Opco (and their respective directors and
officers) under or in relation to the Funding Letters (including
releases by plc thereof), the ESOP Derivative Transactions and the
plc guarantee of the ESOP Derivative Transactions;
-- BCTL will release and waive any and all claims against each ESOP
Derivative Bank, plc and each Opco (and their respective directors
and officers) under or in relation to the Funding Letters (including
releases by plc thereof), the ESOP Derivative Transactions and the
plc guarantee of the ESOP Derivative Transactions; and
-- plc will release and waive any and all claims against any ESOP
Derivative Bank (and their respective directors and officers) under
or in relation to Funding Letters (including releases by plc
thereof), the ESOP Derivative Transactions and the plc guarantee of
the ESOP Derivative Transactions;
- The ESOP Escrow Agreement, the Mobile Escrow Agreement and any
Subsequently Sold Opcos escrow agreements shall terminate and the
escrow cash held under the terms of the Mobile Escrow Agreement and
Subsequently Sold Opco escrow agreements shall be paid to Corp;
- The current litigation by SBIL against plc in connection with the SBIL
ESOP Agreement will be discontinued with no order as to costs;
- Until the Effective Date of the Corp Scheme, the ESOP Derivative Banks
may not commence or further any claims or proceedings against BCTL, plc
or any Opco (or their respective directors and officers) under the
Funding Letters (including releases thereof), the ESOP Derivative
Transactions or
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the plc guarantee of the ESOP Derivative Transactions. This standstill
terminates on the occurrence of certain events set out in the ESOP
Settlement Agreement, including (a) the release of Funding Letters in
certain circumstances; (b) the enforcement of the interim security; (c)
the Corp Scheme not obtaining the requisite approval at the Corp Scheme
Meeting; (d) the Court sanction for the Corp Scheme not being obtained;
(e) a demand being made for the repayment of the Bank Facility; (f) an
insolvency event occurring in relation to Corp or, subject to certain
limitations, plc; or (g) the Effective Date for the Corp Scheme not
having occurred on or before 31 December 2003; and
- The ESOP Derivative Banks will not, subject to limited exceptions,
transfer, sell or assign their rights arising from plc's guarantee of
the ESOP Derivative Transactions.
If the Corp Scheme does not become effective, Corp will not be required to pay
the Settlement Amount and the ESOP Escrow Agreement, the Mobile Escrow
Agreements and the Subsequently Sold Opco escrow agreements will continue to
apply.
All claims of the ESOP Derivative Banks under the plc guarantee of the ESOP
Derivative Transactions are excluded from the plc Scheme and no distribution
from the plc Scheme will be made in respect of them.
On 26 March 2003, UBS and Citibank N.A. (as the Syndicate Bank affiliate of
SBIL) entered into undertakings to exercise in certain circumstances all votes
relating to certain debt claims against Corp and plc in favour of the Schemes
(as detailed further in Appendix 19). The non-ESOP related debt is transferrable
without restrictions. At the same time, the Barclays restructuring undertaking
agreement (dated 13 September 2003) was amended to bring the transferability
provisions into line with those applying to UBS and Citibank.
D.3 ARRANGEMENTS TO PRESERVE RIGHTS AT PLC LEVEL
Various concerns were raised by either or both of the Informal Committee of
Bondholders and the Co-ordination Committee during the course of the
Restructuring discussions concerning the maintenance of guarantee claims against
plc and arrangements were put in place in order to deal with these concerns.
Details of the concerns and the arrangements which were put in place are set
below.
In making its decision to approve these arrangements, plc took into
consideration that it was correct in principle that the rights should be
preserved, in order to put the creditors concerned in the same position as if
both companies had been wound up.
PRESERVING RIGHTS UNDER THE SCHEMES IN THE EVENT THAT BOTH SCHEMES ARE
SUCCESSFUL
plc has guaranteed the repayment of certain primary debt obligations of Corp. In
order to preserve the recoveries of creditors of Corp, who may also have the
benefit of a plc guarantee ("GUARANTEE CREDITORS"):
a. the Corp Scheme provides that no Scheme Claim under the Corp Scheme
would be reduced, or in any way affected, by the compromise of any
claims of that Scheme Creditor against plc pursuant to the terms of
the plc Scheme; and
b. a corresponding provision appears in the plc Scheme.
THESE PROVISIONS ARE OF GENERAL APPLICATION TO THE EXTENT THAT A CREDITOR OF ONE
COMPANY HAS A GUARANTEE CLAIM IN RESPECT OF THAT CLAIM AGAINST THE OTHER
COMPANY.
PRESERVING RIGHTS IN THE EVENT THAT THE CORP SCHEME IS SUCCESSFUL BUT THE PLC
SCHEME FAILS
In addition, the Informal Committee of Bondholders and the Co-ordination
Committee indicated that they were concerned to ensure that, even if the plc
Scheme failed but the Corp Scheme was successful, guarantee creditors could
maintain the ability to claim 100 per cent. of their claim in respect of the plc
guarantee against plc.
The concern arose because, if the plc Scheme were to fail, plc would be placed
into liquidation. In the event that a distribution was made under the Corp
Scheme before a proof of debt could be submitted in a subsequent liquidation of
plc, the guarantee creditors would have to give credit to the liquidator of plc
for their recoveries under the Corp Scheme.
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The Informal Committee of Bondholders and the Co-ordination Committee indicated
on a number of occasions that it was central to their support of the
Restructuring that guarantee creditors be entitled to prove for the full amount
of their debt in any subsequent liquidation of plc should the plc Scheme fail.
In order to preserve the ability of guarantee creditors to claim the full amount
of their claim against plc in these circumstances the Informal Committee of
Bondholders and the Co-ordination Committee required plc to enter into a deed
poll on terms proposed by the Informal Committee of Bondholders and the
Co-ordination Committee. It is open to any creditor with a guarantee claim to
have the benefit of the deed poll. The deed poll requires that in the event that
any guarantee creditor is required to give credit to plc in a liquidation for
any recoveries made under the Corp Scheme, plc will pay a further sum equal to
the amount of the distribution that the relevant creditor received in the Corp
scheme i.e. it is intended that a new debt obligation of plc will be created.
The deed poll does not have the effect of permitting a creditor to receive more
than a 100 per cent. recovery in respect of the underlying claim.
PRESERVATION OF THE BOND GUARANTEE
Clause 4.9 of the Trust Deed provides that the guarantee given by plc in respect
of the Eurobonds will terminate when Corp delivers to the Eurobond Trustee a
certificate to the effect that plc has been released from its guarantees in
respect of certain bank debt. Section 12.03 of the Yankee Bond Indenture states
that the plc guarantee will terminate on the date that plc is released from its
guarantees in respect of certain bank debt and the Eurobonds.
In order to preserve the guarantee claim of the Trustees, Corp and plc entered
into a Bondholder Confirmation Letter which provided that notwithstanding the
provisions of Clause 4.9 of the Trust Deed and Section 12.03 of the Yankee Bond
Indenture or the receipt of a Distribution under the Corp Scheme or the
cancellation of the Bonds, the guarantee of plc remains in full force and effect
and is extended for the benefit of all Definitive Holders.
D.4 WORKING CAPITAL
RETAINED CASH
The Group is expected to retain approximately L602 million of cash following the
Restructuring, comprising approximately:
a. L167 million of restricted cash;
b. L112 million of trapped cash;
c. L197 million retained for normal working capital needs;
d. L96 million representing net cash outflow to cash break even; and
e. L30 million representing cash in transit and therefore not available
for distribution.
"Restricted cash" is cash employed as collateral or available to be granted as
collateral in connection with performance bonding arrangements. Any cash
collateral releases from existing performance bonds, and any balance remaining
in the Existing Performance Bond Escrow Account on the first anniversary of the
Effective Date for the Corp Scheme, in an amount (when aggregated with cash
collateral releases made to the security trustee under the Performance Bonding
Facility between the Issue Date and the first anniversary of the Effective Date
of the Corp Scheme, together with interest thereon) not exceeding the lesser of
L25 million or 50 per cent. of the amount of the Performance Bonding Facility,
if Corp should cancel a portion of that facility, will be transferred to the
security trustee under the Performance Bonding Facility, to collateralise
performance bonds and similar instruments issued under that facility. Any excess
amount will be paid into the Mandatory Redemption Escrow Account to be applied
in redemption of the New Junior Notes and, once all New Junior Notes have been
repaid, the New Senior Notes. On the termination or cancellation of the
Performance Bonding Facility, all released collateral (other than that required
to support long-dated performance bonds) will be paid into the Mandatory
Redemption Escrow Account to be applied in redemption of the New Junior Notes
and, once all New
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Junior Notes have been repaid, the New Senior Notes (as described further
below). See Appendix 8 for further information on the circumstances in which
restricted cash will be released.
"Trapped cash" includes (a) cash held in relation to existing insurance
liabilities, (b) cash held as collateral under existing local bilateral debt
facilities, (c) part of the proceeds from the disposal of Mobile in August 2002
to be held in escrow until August 2004 and (d) cash held in accounts in various
jurisdictions to meet local working capital requirements (where such cash is
not, for local regulatory or other reasons, easily accessible to meet wider
Group working capital needs).
The "net cash outflows to cash break even" figure represents cash to be retained
by the Group (net of permitted remaining disposal proceeds) needed to fund the
Group through to cash break even.
WORKING CAPITAL FACILITIES
Performance Bonding Facility
In order to ensure that the Group has sufficient bonding facilities available to
it following the Effective Date of the Corp Scheme HSBC Bank plc and JP Morgan
Chase Bank have agreed to provide a L50 million committed revolving facility for
the issuance of Performance Bonds at the request of Marconi Bonding Limited, for
the purpose of supporting (directly or indirectly) obligations of members of the
Group to third parties incurred in the ordinary course of the Group's trade or
business. The Performance Bonding Facility is also available for the purpose of
supporting any financing facilities which have been provided to members of the
Group for the purpose of supporting directly obligations of members of the Group
incurred in the ordinary course of the Group's trade or business (other than
obligations in respect of financial indebtedness) (for example, in connection
with supporting a bonding facility in a foreign currency where bonds denominated
in such foreign currency are not available under the Performance Bonding
Facility). The Performance Bonding Facility will permit the issue, on behalf of
Corp, of a letter of credit (with a face value of up to L2 million) in favor of
the plc Scheme Supervisors from time to time to support plc's Ongoing Costs
(within the L50 million commitment).
The Performance Bonding Facility may be utilised at any time during the period
from the Effective Date of the Corp Scheme to the date falling 18 months
thereafter. Marconi Bonding Limited has the right to request an extension to
such availability period (to a date falling no later than 30 months after the
Effective Date of the Corp Scheme (but without the participating banks having
any obligation to agree such extension)). Performance Bonds may be issued in
sterling, US dollars, Euro or (with the approval of the relevant issuing bank)
any other readily available currency freely convertible into sterling. The form
of the Performance Bond and identity of the beneficiary must be approved by the
relevant issuing bank (having regard to that issuing bank's formal internal
policies at the relevant time, and to all relevant legal and regulatory
restrictions). In the case of Performance Bonds with an expiry date falling
after 31 December 2010, the approval of the relevant issuing bank and the
approval of the relevant banks providing the Performance Bonding Facility is
required.
In addition to an issuance fee of L1,000 for each Performance Bond, a bonding
fee equal to 0.50 per cent. per annum of the outstanding amount of each
Performance Bond is payable quarterly in advance, for the account of the
participating banks. A fronting fee equal to 0.10 per cent. per annum of the
outstanding amount of each issued Performance Bond (less the issuing bank's own
proportion) is payable quarterly in advance, for the account of the relevant
issuing bank. An arrangement fee of L1,000,000 was payable on the date of the
Performance Bonding Facility to the facility agent for distribution to the banks
participating in the Performance Bonding Facility.
The obligations of each obligor under the Performance Bonding Facility are
irrevocably and unconditionally guaranteed by Corp. The Performance Bonding
Facility is secured by, inter alia, a charge over cash contained in certain
blocked deposit accounts (the "Secured Accounts") between Marconi Bonding
Limited and HSBC Bank plc as security trustee. Marconi Bonding Limited will be
required, on the date of issuance of a Performance Bond, to deposit (in the
currency of the relevant Performance Bond or, where such Performance Bond is
issued in a currency other than sterling or Euros, US dollars) an amount equal
to 50 per cent. of the maximum face value of such Performance Bond into such
Secured Accounts. As further security for the obligations of Marconi Bonding
Limited under the Performance Bonding Facility, Marconi Bonding Limited will
ensure that additional amounts are deposited into the Secured Accounts in
accordance with the terms of the New Notes. The Performance
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Bonding Facility contains certain events of default after the occurrence of
which the agent is permitted to cancel the total commitments under the
Performance Bonding Facility and/or to declare that full cash collateral in
respect of each Performance Bond is immediately due and payable (including
events of default relating to non-payment, failure to comply with security
undertakings, failure to comply with other obligations, misrepresentation, cross
default, insolvency, unlawfulness and repudiation of the Performance Bonding
Facility documents).
In accordance with the Security Trust and Intercreditor Deed, the banks
providing the Performance Bonding Facility will rank ahead of the Noteholders in
any enforcement of the Security. The Security Trust and Intercreditor Deed also
provides that the security trustee under the Performance Bond Facility and the
banks may not take action to enforce the obligations of the obligors under the
Performance Bonding Facility following a payment event of default thereunder
until the earlier of (i) 180 days after notice to the Security Trustee under the
Security Trust and Intercreditor Deed of the occurrence of such payment event of
default or (ii) the acceleration of the New Senior Notes (see Appendix 10 for
further details).
US Working Capital Facility
In order to ensure that Marconi Communications, Inc. has sufficient working
capital post-Restructuring, MCI has entered into a working capital facility
agreement with Liberty Funding, L.L.C., pursuant to which Liberty will provide a
US$22,500,000 revolving credit facility to MCI. The Working Capital Facility is
secured by a first mortgage lien on a parcel of MCI's real property (including
buildings, improvements, building materials and fixtures) located in Warrendale,
Pennsylvania, USA ("Property").
The Working Capital Facility is subject to a fixed interest rate of 15 per cent.
per annum (payable monthly) and will mature on 26 November 2004. It will be used
by MCI for working capital and general corporate purposes. Liberty's fees and
costs include an arrangement fee of 6 per cent. of the facility amount, an
unused commitment fee of 1 per cent. per annum on any undrawn portion, and a 5
per cent. late charge for payments overdue by more than ten days. In addition to
the mortgage over the Property, all of MCI's right, title and interest in and to
all leases of all or any part of the Property (including any rents) will be
assigned to Liberty, and MCI will provide assurances and indemnities to Liberty
relating to environmental matters affecting the Property, and financing
statements for perfecting security interest in the fixtures. A second mortgage
lien on the Property (and assignments of related leases and rents) will be
granted in favour of, inter alia, the providers of the Performance Bonding
Facility and the Noteholders and, consequently, an intercreditor agreement will
be entered into between Liberty and the Security Trustee. See Appendix 10 for
further details of this intercreditor agreement.
Covenants contained in the Working Capital Facility Agreement include
indemnification from MCI in favour of Liberty in relation to liabilities and
claims relating to the Property, MCI's pledge to keep the buildings, structures,
improvements and fixtures insured and MCI's covenant not to dissolve, merge or
consolidate with any other person (other than an affiliate of MCI) or dispose of
all or a substantial portion of its assets relating to its BBRS Business.
Although the obligations of MCI in respect of this facility are limited
recourse, there are exceptions for, inter alia, failure to maintain insurance
coverage, fees and costs incurred in enforcing/collecting sums due and MCI's
environmental indemnity obligations, for which MCI has full liability. The
Working Capital Facility Agreement contains certain events of default the
occurrence of which would permit Liberty to cease making further advances,
terminate its commitment and/or accelerate repayment of the Working Capital
Facility.
Intra-Group funding
There are currently a significant number of intra-Group lending arrangements in
place between members of the Wider Corp Group. These comprise loans from Corp to
its Affiliates, loans from Corp's Affiliates to Corp and loans between Corp's
Affiliates. Any intra-Group loan claims of Corp's Affiliates against Corp will
be Excluded Claims for the purposes of the Corp Scheme and will therefore remain
in place following the implementation of the Corp Scheme (See Part C.7 of this
Section and Appendix 9 for further details on Excluded Claims).
Following the Effective Date of the Corp Scheme, the Wider Corp Group will be
subject to the intra-Group lending restrictions contained in the indentures
governing the New Notes. The scope of those restrictions will depend on whether
the relevant debtor or creditor is a Guarantor or a non-Guarantor. The
restrictions are
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described more fully in Appendix 8. The Security Trust and Intercreditor Deed
also contains provisions regulating certain intra-Group loans and actions in
respect thereof, which are described more fully in Appendix 10.
COLLATERAL FOR EXISTING PERFORMANCE BONDS
General
On the Effective Date of the Corp Scheme, Corp will deposit approximately L43.5
million of the L167 million of restricted cash attributable to performance
bonding collateral into the Existing Performance Bond Escrow Account.
Withdrawals from that account will be made to satisfy valid and enforceable cash
collateral demands made by banks, insurance companies or other financial
institutions who have issued performance bonds ("Existing Performance Bonds") on
behalf of members of the Group prior to the Effective Date, upon certification
by Corp to the Escrow Trustee.
Cash collateral releases from Existing Performance Bonds, and any balance
remaining in the Existing Performance Bond Escrow Account on the first
anniversary of the Effective Date for the Corp Scheme in an amount (when
aggregated with cash collateral releases made to the security trustee under the
Performance Bonding Facility between the Issue Date and the first anniversary of
the Effective Date for the Corp Scheme, together with interest thereon) not
exceeding the lesser of L25 million or 50 per cent. of the amount of the
Performance Bonding Facility, if Corp should cancel a portion of that facility,
will be transferred to the security trustee under the Performance Bonding
Facility. Any excess amount will be deposited into the Mandatory Redemption
Escrow Account to be applied to redeem the New Junior Notes and, once all New
Junior Notes have been repaid, the New Senior Notes. On the termination or
cancellation of the Performance Bonding Facility, all released collateral (other
than that required to support long-dated performance bonds) will be paid into
the Mandatory Redemption Escrow Account to be applied to redeem the New Junior
Notes and, once all New Junior Notes have been repaid, the New Senior Notes (as
described further below).
Determination of bonding collateral requirements
As part of its determination of the post-Restructuring working capital
requirements of the Group, Corp sought to ascertain an appropriate level of
provision to be made for potential cash collateral calls in respect of Existing
Performance Bonds (other than those Existing Performance Bonds which are already
fully collateralised). That determination was made on the basis of Corp's
assessment of the risk of individual issuers of Existing Performance Bonds
calling for cash collateral against their outstanding exposure, based on an
analysis of the rights which such issuers may have to make cash collateral
calls. Specific provision has been made by Corp for all Existing Performance
Bonds where the issuers of such bonds have unconditional rights to call for cash
collateral at any time or have conditional rights to call for cash collateral
where those conditions will be triggered by the Restructuring. With respect to
issuers of Existing Performance Bonds that have conditional rights to call for
cash collateral (where such conditions will not be triggered by the
Restructuring per se), Corp has allocated a higher provision to those where it
considers the conditions have been, or are more likely to be, triggered and a
lower (or zero) provision where it considers that the conditions are unlikely to
be triggered. Corp has made no provision in respect of issuers which it
considers have no rights to call for cash collateral.
Under the Heads of Terms, it was agreed that Corp would place up to L55 million
in the Existing Performance Bond Escrow Account to be used for cash collateral
calls in respect of Existing Performance Bonds. Corp had previously assessed
that a provision of a higher amount would be an adequate provision in respect of
potential cash collateral calls for Existing Performance Bonds. In order to be
satisfied that the L55 million deposit which was permitted to be made into the
Existing Performance Bond Escrow Account by Corp on the Effective Date would be
an adequate reserve in respect of Existing Performance Bonds, Corp entered into
arrangements with certain (current and former) Syndicate Bank issuers of
Existing Performance Bonds during February and March 2003. Corp agreed to
provide each participating Syndicate Bank with collateral (in the form of a
cash-backed letter of credit) for 50 per cent. of the principal amount of the
outstanding uncollateralised Existing Performance Bonds issued by it. In return
for that provision of collateral, each of those Syndicate Banks agreed to waive
all of its rights to demand cash collateral in respect of Existing Performance
Bonds issued by it (except in the case of insolvency of Corp or the relevant
Subsidiary, a demand by the beneficiary under the relevant Existing
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Performance Bonds, or acceleration under the New Notes). Because this
arrangement was agreed with the Syndicate Banks on a collective basis (which
Corp considered to be necessary to preserve stability amongst the Syndicate
Banks), collateral (of approximately L1.13 million in aggregate) was provided to
two Syndicate Banks (whose Existing Performance Bonds exposure totals
approximately L2.27 million) in respect of which Corp would not otherwise have
made cash collateral provision (on the basis that Corp considers that those
issuers have no rights, ambiguous rights or conditional rights to call for cash
collateral which are unlikely to be triggered). However, as at 27 March 2003, on
a collective basis, arrangements had been entered into to provide approximately
L11.50 million of collateral in return for a waiver of rights to call for cash
collateral of approximately L19.03 million in respect of Existing Performance
Bonds with a face value of approximately L21.30 million. In the absence of this
arrangement Corp may have been required to make a cash collateral provision of
approximately L19.03 million in respect of such bonds. One of the participating
Syndicate Banks (in respect of which Corp would otherwise have been required to
make 100 per cent. cash collateral provision) was provided with collateral for
approximately 61 per cent. of the principal amount of the outstanding
uncollateralised Existing Performance Bonds issued by it. This resulted from
certain bonds issued by that Syndicate Bank expiring between the time that Corp
agreed the 50 per cent. collateral figure with that bank and the time at which
the arrangements with the Syndicate Bank issuers were implemented.
Similar arrangements may be entered into (in the period up to the date of the
Scheme Meeting in respect of the Corp Scheme) with other (current and former)
Syndicate Bank issuers of Existing Performance Bonds. Such arrangements, if
entered into, are expected to result in the provision of collateral with a value
of less than L3 million.
Prior to the Scheme Meeting in respect of the Corp Scheme, alternative
arrangements may be entered into with one other Syndicate Bank issuer of
uncollateralised Existing Performance Bonds which did not take part in the above
arrangements. Under such alternative arrangements, this bank would agree to
release collateral (in the form of a cash backed letter of credit) totalling
approximately E10.23 million which it already holds against certain liabilities
of a former Subsidiary of Corp (and which it is entitled to retain against such
liabilities) in consideration for the issue of a new cash-backed letter of
credit (with a face value of approximately E9.85 million) to collateralise
Existing Performance Bonds issued by it (totalling approximately E9.85 million).
D.5 SCHEME IMPLEMENTATION DEED
The Scheme Implementation Deed (the "DEED") was entered into between Corp, plc,
E-A Continental Limited, Ancrane, Marconi Nominees Limited, British Sealed Beams
Limited and various other Group companies on 27 March 2003. The primary purpose
of the Deed was to ensure that legally binding arrangements were in place to
govern the rights and obligations between, inter alia, Corp and plc in
implementing the Restructuring. Pursuant to the Deed, Corp, plc, E-A Continental
Limited, Ancrane, Marconi Nominees Limited, British Sealed Beams Limited and
various other Group companies have agreed to perform certain obligations and
undertaken not to do certain acts including, but not limited to, approving all
shareholder resolutions necessary or desirable to give effect to the Corp
Scheme, assigning or novating certain guarantee obligations and/or licence
agreements, providing all reasonable assistance and information and undertaking
all reasonable acts and deeds to give effect to the assignment of certain
Intellectual Property, making certain intra-group tax loss and group relief
surrenders and providing certain tax indemnities. Ancrane has agreed to make a
repayment of capital in specie to plc of all of its assets, other than L100.
Corp has also agreed to procure the issue of a letter of credit (under the
Performance Bonding Facility) in an amount of L2 million in favour of the plc
Scheme Supervisors from time to time for them to draw on in relation to plc's
Ongoing Costs. In the event that Corp is unable to procure the issue of such
letter of credit, it has undertaken to provide the sum of L2 million for the plc
Scheme Supervisors to draw on in relation to plc's Ongoing Costs on similar
terms to those set out in the Scheme Implementation Deed and the Performance
Bonding Facility Agreement in relation to the letter of credit. Certain
obligations and undertakings of the parties to the Deed (including Corp's
obligation to procure a letter of credit for plc's Ongoing Costs) are
conditional upon and subject to the Corp Scheme becoming effective and will, in
part, give effect to the implementation of the Corp Scheme upon it becoming
effective. Brief particulars of the Scheme Implementation Deed are contained in
Appendix 18.
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D.6 STATEMENT AND WAIVER OF INTER-COMPANY BALANCES
In order to facilitate the effective implementation of the Schemes, and in
particular to effect a clean up of existing inter-company claims owed to or by
Corp and plc, Corp and plc have entered into a statement and waiver of
intercompany balances agreement (the "Statement and Waiver Agreement") with
certain other Group companies.
The effect of the Statement and Waiver Agreement is to preserve all known and
stated claims existing between (A) Corp or plc and (B) the participating Group
companies, and to waive all other claims which arise by reference to
circumstances existing prior to the Effective Date of the Corp Scheme. In this
sense there will be more certainty as to the level of any claims owed to or by
Corp and plc after the Effective Date of the Corp Scheme. In so far as it
involves plc, the Statement and Waiver Agreement has limited effect in that all
known claims against plc will be schemed under the plc Scheme (and will receive
a distribution from the plc Scheme) and all known claims of plc against Corp and
its subsidiaries have been transferred to Corp prior to the Record Date (in
consideration for a reduction in the amount of the Corp's existing claim against
plc).
Under the Statement and Waiver Agreement the following intra-group claims will
be preserved as between (a) Corp and plc and (b) the participating Group
companies:
- disclosed intra-group loan balances in existence as at 31 December 2002
(plus interest accrued at such applicable commercial rate of interest
as agreed between the parties to the respective loan);
- any intra-group loan made on or after 1 January 2003 in the ordinary
and usual course of business or with certain previously agreed creditor
consent, including interest accrued at such applicable commercial rate
of interest as agreed between the parties to the respective loan;
- any trading and current account liabilities in existence as at 31 March
2002 (in the case of any participating Group company which is a trading
or an active non-trading company) or 30 September 2002 (in the case of
any dormant participating Group company). Such liabilities are
determined by reference to the management accounts upon which the
audited consolidated financial accounts of plc, as at 31 March 2002 or
30 September 2002 (as applicable) were prepared;
- any trading and current account liabilities incurred in the ordinary
and usual course of business after 31 March 2002 between (a) Corp
and/or plc, and (b) any participating Group company which is a trading
or an active non-trading company;
- any counter indemnity or equivalent reimbursement obligation (which is
written or is implied by law and whether or not contingent) arising
under any financial guarantee or indemnity (which is written or is
implied by law) and is: (a) in favour of any third party which is not a
member of the Group (including the issuer of any performance bond, bank
guarantee or similar instrument), and (b) in respect of any contractual
obligations of the provider of the counter indemnity or equivalent;
provided that where any payment has been made under such a guarantee or
indemnity on or before 31 March 2002, the resultant counter indemnity
shall not be preserved;
- any counter indemnity or equivalent reimbursement obligation (which is
written or is implied by law and whether or not contingent) arising
under any written non-financial guarantee or indemnity (which is
written or implied by law) and is: (a) in favour of any person which is
not a member of the Group, and (b) in respect of any contractual or
implied by law obligations of the provider of the counter indemnity or
equivalent and (c) disclosed in a schedule to the Statement and Waiver
Agreement; provided that where any payment has been made under such a
guarantee or indemnity on or before 31 March 2002, the resultant
counter indemnity shall not be preserved; and
- any other specified claims.
All other claims of Corp or plc against each participating Group company and all
other claims of each participating Group company against Corp or plc, will be
released with effect from the Effective Date of the Corp Scheme. The Statement
and Waiver Agreement does not affect claims which arise out of or in relation to
any matter or circumstance arising after the Effective Date of the Corp Scheme.
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A list of Group companies that have already agreed to participate in the
Statement and Waiver Agreement is contained at paragraph 2.2 of Appendix 19.
Other Group companies may be added prior to the Effective Date of the Corp
Scheme.
D.7 RECAPITALISATION OF GUARANTORS
In order to facilitate the giving of the Guarantees as part of the new security
package to support the New Notes (see Appendix 10 for further details), certain
of the Guarantors will need to be recapitalised. Most of these recapitalisations
are intended to be effected one or two Business Days prior to the Effective Date
of the Corp Scheme, although some may need to be effected before then. In
conjunction with the recapitalisations, it is also intended to unwind or
formalise certain intra-group financing arrangements.
The recapitalisations and ancillary transactions will involve the direct and
indirect parent companies of the relevant Guarantors, as well as certain other
Group companies or entities that owe or are owed intra-group balances by the
relevant Guarantors. Each recapitalisation is intended to be effected by a
number of sequential intra-group transactions which may include: the restatement
of terms of intra-group debt; injections of equity by parent companies into
subsidiaries; repayments, assignments, novation or release of existing
intra-group claims; and the issue of equity by subsidiary companies in return
for (a) assignments of intra-group claims or (b) reductions in intra-group
balances owed to their parent companies. For those transactions which require
actual cashflow, the relevant series of intra-group transactions will involve
the "round-tripping" of cash, commencing and ending in each case with Corp (as
the ultimate holding company of the Guarantors).
D.8 WAIVER OF PLC SHAREHOLDER VOTE
As referred to in Part C.5 of this Section, the UKLA has granted a waiver of the
provision in the Listing Rules which would otherwise require the consent of the
shareholders of plc to the issue of the New Shares pursuant to the Corp Scheme.
Accordingly, the effectiveness of the Schemes is not conditional on the approval
of the shareholders of plc.
D.9 CAPITAL REDUCTION
As part of the Restructuring, Corp will apply to the Court for the purpose of
implementing the Capital Reduction pursuant to section 135 of the Act. The
Capital Reduction will involve the cancellation of the Non-Voting Deferred
Shares arising on the conversion of the existing issued ordinary shares in the
capital of Corp held by plc and Marconi Nominees Limited and the cancellation of
Corp's share premium account (including that arising on the issue of New
Shares), to create a reserve which it is expected will eliminate the deficit on
the profit and loss account that would otherwise be shown on Corp's balance
sheet as at 31 March 2003.
As can be seen from note g. iii) to the Corp unaudited pro forma consolidated
balance sheet in Appendix 2, the unaudited deficit on Corp's profit and loss
account in its own unaudited balance sheet as at 30 September 2002 was
approximately L2,767 million. The cancellation of the Non-Voting Deferred Shares
and Corp's existing share premium account would reduce this by approximately
L843 million, but approximately L3,306 million of share premium account is
expected to arise on the issue of the New Shares so the reserve arising on the
Capital Reduction is expected to exceed the 30 September 2002 deficit on Corp's
profit and loss account by L1,382 million. The excess of the reserve over the 31
March 2003 deficit on Corp's profit and loss account will initially constitute
Corp's special reserve referred to below.
Prior to confirming the Capital Reduction, the Court will require Corp to give
an undertaking designed to protect persons who are creditors of Corp on the date
the Capital Reduction becomes effective. This undertaking will require the
maintenance by Corp and its subsidiaries of special reserves, which will not be
distributable to shareholders of Corp until the creditors of Corp to be
protected have been paid off or the Court has agreed otherwise.
It is anticipated that the Capital Reduction will become effective shortly after
the Effective Date of the Corp Scheme. Although Corp cannot guarantee that the
Capital Reduction will become effective, it will not affect the effectiveness of
the Schemes in any event.
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D.10 SHARE INCENTIVE PLANS
INTRODUCTION
The Group currently operates the share incentive plans set out in the table
below. The Plans were designed to incentivise participating Group employees,
directors and consultants as part of their remuneration arrangements. Under
these Plans, Participants were given rights to acquire plc Shares either at a
specified price or, where certain objectives were achieved, at no cost (the
latter are known as nil-cost options). Certain options, including some of the
nil-cost options are already exercisable. These optionholders can acquire plc
Shares prior to the plc Shareholders Record Time. As a result of the
Restructuring, more of the options will become exercisable. However, this will
be after the plc Shareholders Record Time when plc Shares will have no value.
Due to plc's current share price the majority of options granted to Participants
under the Plans are now underwater (that is, shares in plc are worth less than
the Participants would have to pay to acquire them). It is assumed that holders
of those options which are currently exercisable will not exercise them. Of
those options where the plc Shares subject to them are worth more than the price
that Participants must pay for them, it is only those optionholders who can and
do exercise their options prior to the plc Shareholder Record Time who will
receive New Shares and Warrants. After implementation of the Restructuring, all
remaining options will be valueless.
As at 28 February 2003, options over approximately 149.6 million plc Shares are
outstanding. This represents approximately 5.4 per cent. of plc's current total
issued share capital. plc has also granted 47.3 million phantom options in
respect of which, on exercise, Participants ordinarily receive cash rather than
shares (if a gain has been made).
Number of shares
over which options Range of
Name of plan are outstanding option prices
------------ ------------------ -------------
The GEC 1984 Managers' Share Option Scheme 671,044 183-266p
------------------ -------------
The GEC Employee 1992 Savings-related Share Option Scheme 1,985,076 203-273p
------------------ -------------
The GEC 1997 Executive Share Option Scheme 7,959,308 311-385p
------------------ -------------
The Marconi UK Sharesave Plan 2,297,688 538-748p
------------------ -------------
The Marconi International Sharesave Plan 1,342,615 737p
The Marconi Launch Share Plan 19,620,228 Nil-cost
The Marconi 1999 Stock Option Plan 98,449,888 35-1030p
The Metapath Software Corporation 1995 Stock Option Plan 144,164 3-274p
The Metapath Software International Inc. 1999 Stock Option
Plan 2,386,061 212-957p
The Mariposa Technology Inc. 1998 Employee Incentive Plan 320,684 9-56p
The Marconi Restricted Share Plan 1,795,184 Nil-cost-947p
The Marconi Welcome Plan 2,642,687 Nil-cost
The Marconi Long Term Incentive Plan 629,559 Nil-cost
The Northwood Technologies Inc. Share Option Plan 65,827 139-245p
The Mobile Systems International Share Option Plan 694,790 212p
Marconi and GEC Phantom Option Schemes (converted into
options over plc Shares) 8,595,663 17-1134p
In recent weeks, plc Shares have traded at around 1.5-2.5 pence per share. On
this basis it might appear that nil cost options are in the money. However,
except for those which are currently exercisable, this is not the case.
Some optionholders holding nil cost options which are not currently exercisable
will become entitled to exercise their options when the Restructuring takes
effect, because Corp will cease to be a subsidiary of plc, and other such
optionholders will become so entitled if plc goes into liquidation. However,
neither event will take place until after the Corp Scheme has become effective,
by which time plc Shares will have no value.
114
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SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART D
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Optionholders currently entitled to exercise their nil cost options who do so in
time to receive plc Shares before the plc Shareholders Record Time will qualify
to receive New Shares and Warrants if the Corp Scheme becomes effective. Only
these options can be described as in the money.
The only two alternatives for plc are a restructuring under which all its assets
are distributed to its creditors or an insolvent administration or liquidation.
The reason why plc Shares are trading between 1.5-2.5 pence per share is that
only 0.5 per cent. of the New Shares that are to be issued (assuming the Corp
Scheme becomes effective and the First Initial Distribution takes place), are
being made available to the plc Shareholders as at the plc Shareholders Record
Time.
THE RETENTION AND EMERGENCE PLAN
In order to retain key employees during the restructuring of the Group, a
Retention and Emergence plan (the "R&E Plan") was implemented in May 2002 for
sixty-three employees. Corp was not a party to any of the documents. Of the
sixty-three individuals, Marconi Communications Limited is the responsible Group
company for thirty-seven, Marconi Communications, Inc. for seventeen, plc for
two (one in Australia and one in Hong Kong), Marconi Communications GmbH for
four and Marconi Communications SpA for three. The obligations of plc are to be
transferred to Marconi Communications Limited in relation to the two employees
whose promise refers to plc.
The R&E Plan promises four equal payments to the employees if they are still
employed and not working their notices on each payment date. Two of the payment
dates have passed and the remaining dates are (i) seven working days after plc
completes its refinancing negotiations (with a long stop date of 31 March 2003)
and (ii) three months after the third payment date. The aggregate of the
payments in each case is based on a percentage of the employee's salary, with
the range of percentages varying from 30 per cent. to 150 per cent., depending
on the employee's seniority.
Those employees who are signing new service agreements and who are in the
Management Plan (as defined below) are to waive the last payment due under the
R&E Plan.
IMPACT OF THE PROPOSED RESTRUCTURING:
Nil-cost Option Plans
The Marconi Launch Share
Plan Options were granted to Participants of this plan
as nil cost options. If not currently exercisable,
they will become exercisable on a solvent
liquidation of plc. At that time Participants will
be deemed to have exercised options to acquire the
number of plc Shares the plc Board determines. It
is anticipated that, due to the Group's financial
position, the plc Board will decide that no options
should become exercisable. These options will lapse
on the tenth anniversary of their date of grant.
The Marconi Welcome Plan Options were granted to Participants of this Plan
as nil cost options. If not currently exercisable,
they will become exercisable on a solvent
liquidation of plc. At that time Participants will
be deemed to have exercised options to acquire the
number of plc Shares the plc Board determines. It
is anticipated that, due to the Group's financial
position, the plc Board will decide that no options
should become exercisable. These options will lapse
on the tenth anniversary of their date of grant.
The Long Term Incentive
Plan
(the "LTIP") Nil-cost share options granted under the LTIP which
are not currently exercisable will become
exercisable when Corp ceases to be a subsidiary of
plc. The remuneration committee also has discretion
to decide to what extent grants of further nil-cost
options should be made at that point. It is
anticipated that, given the Group's financial
position, the remuneration committee will decide
that no further options should be granted. The
remuneration committee also has discretion to
decide when options, if not exercised, should
lapse.
115
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SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART D
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The Restricted Share Plan
(the
"RSP") Participants may acquire plc Shares that will be
awarded to them when Corp ceases to be a subsidiary
of plc. Participants will have six months to call
for the shares before the awards lapse.
Under the "nil cost" plans, options are currently exercisable or may ordinarily
become exercisable before the plc Shareholders Record Time over the following
number of plc Shares:
Plan Approximate No. of plc Shares
---- -----------------------------
Launch Plan 0
Welcome Plan 0
LTIP 480,000
RSP 910,000
---------
1,390,000
=========
As pointed out above, by the time that the remaining outstanding "nil cost"
options become exercisable, the shares in plc will have ceased to be of any
value.
The MET currently holds in the region of 1,208,545 plc Shares and approximately
L4,544.58 in cash. The GEC Employee Share Trust currently holds in the region of
1,135,644 plc Shares and approximately L937.45 in cash.
Underwater Option Plans
The GEC Managers' 1984
Share
Option Scheme All outstanding options will become exercisable
when the court sanctions the plc Scheme and lapse
six months later.
The GEC Employee 1992
Savings
Related Share Option Scheme All outstanding options will become exercisable
when the court sanctions the plc Scheme and lapse
six months later.
The Marconi 1999 Stock
Option
Plan Option holders may exercise their options within a
period of six months from when Corp ceases to be a
Subsidiary of plc at the end of which time
unexercised options will lapse.
The Marconi UK Sharesave
Plan All outstanding options will become exercisable
when the court sanctions the plc Scheme and lapse
six months later.
The Marconi International
Sharesave Plan All outstanding options will become exercisable
when the court sanctions the plc Scheme and lapse
six months later.
The GEC 1997 Executive
Share
Option Scheme Option holders may exercise options within a period
of six months from when Corp ceases to be a
Subsidiary of plc at the end of which time
unexercised options will lapse.
The Mobile Systems
International
Share Option Plan All outstanding options will become exercisable
when the court sanctions the plc Scheme and lapse
six months later.
Metapath Software
Corporation
1995 Stock Option Plan Option holders may exercise their options to the
extent that performance criteria have been met when
the proposal for the solvent liquidation of plc is
adopted.
Metapath Software
International
Inc. 1999 Stock Option Plan Option holders may be given the opportunity to
exercise vested and non-vested options until five
days before a liquidation. All unexercised options
will lapse immediately before a liquidation.
Mariposa Technology Inc
1998
Employee Incentive Plan All outstanding options held by employees,
directors and consultants will become exercisable
before an event such as a liquidation and, if not
exercised will lapse before such an event.
Northwood Technologies Inc.
Share Option Plan All outstanding options will remain unaffected by
the plc Scheme and will lapse in due case.
116
I. EXPLANATORY STATEMENT
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SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART D
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The Marconi Phantom Option
Scheme Options will lapse and cease to be exercisable when
Corp ceases to be a Subsidiary of plc.
The GEC Phantom Option
Scheme Options will lapse and cease to be exercisable when
Corp ceases to be a Subsidiary of plc.
The Marconi Employee Stock
Purchase Plan for Employees
in North America This plan has been suspended. There are no
outstanding options or awards under it.
EMPLOYEE INCENTIVE PLANS POST RESTRUCTURING
Conditionally on the later of the First Initial Distribution under the Corp
Scheme being initiated and the Effective Date (for the purpose of this Part
D.10, the "Plans Start Date"), Corp has adopted an option plan known as the Corp
Senior Management Share Option Plan (the "Management Plan") and a broadly based
employee share option plan known as the Corp Employee Share Option Plan (the
"Employee Plan"). The Plans are summarised below.
Other than the Group's existing bonus plan arrangements, which cover the
financial year to 31 March 2003, and the third payment under the R&E Plan
(described above), prior to the Plans Start Date, the Group will not establish
any bonus arrangement or scheme or any long term incentive scheme covering those
persons (other than those persons who are eligible to receive commission and/or
bonus payments that relate to sales) who have been invited to participate in the
Management Plan.
Further, as set out in Appendix 14, paragraph g (iv), Corp's Articles provide
that participants in the Management Plan (other than those who are eligible to
receive commission and/or bonus payments that relate to sales) will not be
eligible to participate in any bonus or other long-term incentive arrangement
until the date on which all the tranches in the initial grant under the
Management Plan have either lapsed or become capable of exercise.
The Corp Senior Management Share Option Plan
Administration
The Management Plan will be administered by the remuneration committee of Corp
in accordance with the terms set out below.
Eligibility
Participation in the Management Plan is open to those employees and executive
directors of Corp or any of its Subsidiaries selected by the remuneration
committee. The remuneration committee intends to grant options under the
Management Plan to up to 60 senior executives. Employees within two years of
their normal retirement date may not participate in the Management Plan.
Grant of options
Options to acquire Corp shares under the Management Plan may be granted at any
time prior to the Listing of the New Shares and, following Listing of the New
Shares, may be granted in the periods of 42 days commencing on the Plans Start
Date, the day immediately following announcement by Corp of its results for any
period, or a day on which the Board resolves that exceptional circumstances
exist which justify the grant.
Options will be granted by either Corp or the trustee of the proposed Corp
employee benefit trust (the "Trust") summarised below. Options may be satisfied
using newly issued or existing Corp Shares.
The initial options will be granted in five tranches, each of which will be
subject to different performance conditions as described below.
Participation in the Management Plan will not form part of or affect a
participant's right under the terms of his employment.
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I. EXPLANATORY STATEMENT
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Option exercise price
Options granted under the Management Plan will be exercisable for a nominal
payment, the amount of which will be determined by the remuneration committee.
It is currently envisaged that the total amount payable on the exercise of an
option, whether in whole or in part will be L1 per exercise irrespective of the
number of New Shares the subject of an option exercise.
Individual limit on participation
There is no limit under the Management Plan on the aggregate maximum value of
options which may be granted to a participant in any year or over the life of
the Management Plan.
Overall limit on Corp Shares to be made available under the Management Plan
The number of Corp Shares, issued or unissued, that may be committed under the
Management Plan is limited to 9 per cent. of the issued share capital of Corp
immediately following the Plans Start Date. Corp Shares over which options have
lapsed or been surrendered will not be included in calculating this limit. This
number of shares will be reduced by the number of Corp Shares that are committed
under the Employee Plan due to employees who would otherwise have been expected
to participate in the Management Plan participating in the Employee Plan rather
than the Management Plan because it is beneficial (for tax or similar reasons)
for them to do so.
Exercise of Options
Options granted under the Management Plan will only become exercisable (vest) to
the extent that the performance targets set out below have been satisfied. While
the performance targets for the initial grant of options will be the same, two
vesting schedules will apply; one schedule applicable to participants who have
released their rights under the R&E Plan (described above) and the other
schedule applicable to participants who did not have any rights under the R&E
Plan. For subsequent grants, for example, to new employees or as a result of
promotions or expanded roles or responsibilities, the remuneration committee
will set performance targets which are appropriate in the circumstances and at
least as challenging as those for the initial grant.
Percentage of shares subject
to option that vest (per cent.)
-----------------------------------------------
Participants who
released R&E Other
Tranche Condition Plan rights* Participants
------- ------------------------------------------ ---------------------- ----------------------
1. Repayment of 30 per cent. of the New 20 10
Junior Notes within 24 months after the
Plans Start Date. No vesting before 12
months after the Plans Start Date.
2. Repayment of 50 per cent. of the New 10 10
Junior Notes within 27 months after the
Plans Start Date. No vesting before 15
months after the Plans Start Date.
3. Repayment of 100 per cent. of the New 20 20
Junior Notes within 30 months after the
Plans Start Date. No vesting before 18
months after the Plans Start Date.
4. Corp achieving a market capitalisation of 20 30
L1 billion and repayment of 100 per cent.
of the New Junior Notes within 39 months
after the Plans Start Date. No vesting
before 27 months after the Plans Start
Date.
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Percentage of shares subject
to option that vest (per cent.)
-----------------------------------------------
Participants who
released R&E Other
Tranche Condition Plan rights* Participants
------- ------------------------------------------ ---------------------- ----------------------
5. Corp achieving a market capitalisation of (within 51 months (within 51 months
L1.5 billion and repayment of of the Plans Start of the Plans Start
100 per cent. of the New Junior Notes Date) Date)
within 63 months after the Plans Start 30 30
Date. No vesting before 39 months after
the Plans Start Date. (between 51 months and (between 51 months and
63 months of the Plans 63 months of the Plans
Start Date) Start Date)
20 20
* Participants in the R&E Plan will be required to waive the final payment under
the R&E Plan in order to participate in the Management Plan.
If any performance target is not satisfied within the stated period the tranche
of the option subject to that performance target will lapse and cease to be
capable of becoming exercisable.
If the New Junior Notes are refinanced (rather than repaid), the conditions set
out above will apply to the aggregate debt, representing what were the New
Junior Notes, following the refinancing.
In relation to tranches 4 and 5, the market capitalisation of Corp will be
measured using its daily volume weighted average share price determined from
prices quoted on the principal exchange on which Corp Shares are listed and the
number of Corp Shares outstanding immediately following the Plans Start Date. In
order to determine if the relevant condition is satisfied, the daily volume
weighted average share price will be obtained for each day of a rolling 90 day
period and the average price over that 90 day period will be determined. If that
average price when multiplied by the number of Corp Shares in issue on the Plans
Start Date exceeds the relevant target market capitalisation, the applicable
condition will have been satisfied.
Taxation
The exercise of an option may be made conditional on a participant agreeing to
comply with any arrangements specified by Corp for the payment of taxation,
social security contributions or any other deductions at source (including, as
is likely to be the case, in respect of at least part of the relevant employing
company's secondary class 1 National Insurance contributions liability arising
on exercise) required or permitted in respect of an option.
Termination of employment
If a participant ceases employment with a member of the Corp Group voluntarily
or he is dismissed for cause, his options will lapse on the date of cessation.
However, where a participant ceases employment with the Group due to death,
injury, disability, ill-health, redundancy, retirement or the sale of the
business or subsidiary for which the participant works, or termination of
employment by the employer without cause, his options will become vested to the
extent the financial performance conditions have been satisfied at the date of
cessation of employment (or, if terminated without full notice, to the extent
the financial performance conditions have been satisfied on the date the notice
would have expired) and will become exercisable at the time they would otherwise
have been exercisable as set out in the table above for a period of 6 months (12
months in the case of death). The remuneration committee may decide whether a
different proportion of an option should vest on the cessation of employment of
any participant due to the sale of a business or subsidiary that was a key
business or subsidiary. Following the expiry of the relevant period, all of a
participant's unexercised options will lapse.
119
I. EXPLANATORY STATEMENT
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Lapse of options
Options will lapse in any event on the tenth anniversary of their grant and will
lapse after a takeover or reconstruction when the specified time periods for
exercise have passed as described below. Options will also lapse on the
cessation of employment of a participant as described above. Options will also
lapse to the extent that they cease to be capable of becoming exercisable due to
failure to satisfy any of the performance targets within the specified time
periods.
Corp Shares over which options have lapsed or have been surrendered will be
available, within the overall limit referred to above, to form the subject of
further option grants to new participants in the Management Plan but not to
existing participants unless the participant has been promoted or his/her role
and/or responsibility has significantly expanded and the remuneration committee
determines that such a grant is merited.
Rights attaching to Corp Shares on the exercise of options
Corp Shares allotted under the Management Plan will carry the same rights as all
other issued Corp Shares. Application will be made for the Corp Shares to be
admitted to trading on the London Stock Exchange. Participants will not qualify
for any rights attaching to Corp Shares where the record date is before the date
on which the option is exercised.
Takeover, reconstruction or winding-up
If any person obtains control of Corp as a result of making an offer to acquire
the whole of the issued share capital of Corp (or, having such control, makes a
general offer to acquire all the shares other than those already owned by that
person) the first grant of options under the Management Plan will become
exercisable to the extent that the financial performance conditions have been
satisfied immediately prior to a change of control.
A proportion of the remainder of any Corp Shares which are the subject of
outstanding options under the initial grant will vest and become exercisable
according to the following formula:
market capitalisation on change of
control (as evidenced by the value of
the consideration paid by the acquirer
and the number of Corp Shares in issue
remainder of Corp Shares the subject of immediately following the Plans Start
outstanding options X Date)
----------------------------------------
L1.5 billion
The formula above assumes that a change of control occurs 63 months after the
Plans Start Date. If a change of control occurs sooner, to reflect the benefit
to shareholders of the early release of funds, the L1.5 billion figure will be
reduced by L25m for each complete quarter between the change of control and the
date which is 63 months after the Plans Start Date.
Participants will have six months within which to exercise their options to the
extent exercisable following the change of control (or general offer);
thereafter, the options will lapse. The remuneration committee will determine
the extent to which any subsequent options will vest in the event of a takeover,
having regard to the performance targets to which those options are subject. If
a person becomes bound or entitled to give notice to acquire Corp Shares under
sections 428 to 430F of the Act, a participant may exercise his options to the
extent exercisable as referred to above during the period that person remains so
bound or entitled; thereafter, they will lapse.
Participants may, in certain circumstances, be given the opportunity to exchange
their options for options over ordinary shares in an acquiring company.
If there is a reconstruction of Corp, the effect of which is that a person
obtains control of Corp, other than as a result of making an offer for its
issued share capital, the provisions relating to a change of control following
an offer (summarised above) shall apply. These provisions shall not apply if
there is a reconstruction, the purpose and effect of which is to create a new
holding company of Corp where such holding company has substantially the same
shareholders and proportionate shareholdings as those of Corp immediately before
the scheme of
120
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arrangement. On the occurrence of such a reconstruction, the remuneration
committee will use its best endeavours to ensure that any outstanding options
are rolled-over so that they continue over shares in the new holding company. If
there is no roll-over, options will continue unaffected by the scheme of
arrangement. If there is any other reconstruction of Corp or Corp is wound-up,
options will lapse on the reconstruction or winding-up taking effect.
Adjustments of options
If there is a variation in the share capital of Corp, including by way of a
capitalisation, rights issue, consolidation, sub-division, reduction or any
other variation or the implementation by Corp of a demerger or payment of a
super-dividend which would materially affect the value of options under the
Management Plan, the remuneration committee may (subject to the auditors'
approval) make the adjustments it considers appropriate to the number of Corp
shares under option.
Amending the Management Plan
The rules of the Management Plan can be amended at any time by the Board,
provided that no amendment to the Management Plan can be made without the prior
approval of Corp in a general meeting of shareholders if the amendment relates
to the provisions in the rules relating to eligibility, limits on the number of
Corp Shares available for issue under the Management Plan, the basis for
determining a participant's entitlement to Corp Shares and any adjustment in the
event of a variation in the share capital of Corp. In addition, no amendment
that would materially prejudice the interests of existing participants may be
made without the prior consent of participants holding three-quarters of the
aggregate number of shares subject to the outstanding options.
Participants in the United States
For participants in the United States, the Management Plan will be structured as
a conditional right to receive Corp Shares or ADRs (an "Award") rather than as
an option, for tax purposes. No price will be payable by participants on the
vesting of their Awards. Awards will not vest during a close or prohibited
period. Awards will be subject to the same performance conditions and other
terms set out above.
General
Participation in the Management Plan is not pensionable. Options granted under
it are not transferable and may only be exercised by the person to whom they
were granted or their personal representatives.
No options can be granted under the Management Plan more than five years after
the Plans Start Date.
Summary of the Corp Employee Share Option Plan
Administration
The Employee Plan will be administered by the remuneration committee of Corp in
accordance with the terms set out below.
Eligibility
Participation in the Employee Plan is open to those employees and executive
directors of Corp or any of its Subsidiaries selected by the remuneration
committee. Employees within two years of their normal retirement date may not
participate in the Employee Plan. Employees who participate in the Management
Plan cannot participate in the Employee Plan.
Grant of options
Options to acquire Corp Shares under the Employee Plan will be granted by either
Corp or the trustee of the Trust. Options may be satisfied using newly issued or
existing Corp Shares. Inland Revenue approved options and non-Inland Revenue
approved options ("Unapproved Options") may be granted under the Employee Plan.
121
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Following Listing of the New Shares options may be granted in the periods of 42
days commencing on the Plans Start Date, the day immediately following
announcement by Corp of its results for any period, or a day on which the Board
resolves that exceptional circumstances exist which justify the grants. The Corp
Board will not grant any options under the Employee Plan until 30 business days
after Listing of the New Shares. The exercise price for such initial grant of
options shall be the average middle market quotation of a Corp Share for the
five business days immediately prior to the date of grant.
The initial options will be granted in five tranches, each of which will be
subject to different performance conditions as described below.
Participation in the Employee Plan will not form part of or affect a
participant's rights under the terms of his employment.
The following is a summary of the provisions which apply equally to Approved
Options and Unapproved Options.
Option exercise price
The exercise price of options will be determined by the remuneration committee
but will not be less than the middle market quotation of a Corp share as derived
from the London Stock Exchange Daily Official List on a date (or dates in the
case of an average quotation) not more than 30 days prior to the date of grant
of the option (or such other period as the Inland Revenue may agree in relation
to Approved Options).
Where an option is to subscribe for Corp Shares, the exercise price will not be
less than the nominal value of a Corp Share.
Individual Limit on participation
There is no limit under the Employee Plan on the aggregate maximum value of
options which may be granted to a participant in any year or in the life of the
Employee Plan (subject, in the case of Approved Options, to the statutory limit
described below).
Overall limit on Corp Shares to be made available under the Employee Plan
The number of Corp Shares, issued or unissued, that may be committed under the
Employee Plan is limited to 5 per cent. of the issued share capital of Corp
immediately following the Plans Start Date. The limit does not include share
capital committed pursuant to any other employees' share plan previously adopted
by Corp. This number of shares will be increased, with a corresponding reduction
in the number of Corp Shares available to be committed under the Management
Plan, if any employee who would otherwise have been expected to participate in
the Management Plan participates in the Employee Plan rather than the Management
Plan because it is beneficial (for tax or similar reasons) for them to do so.
This 5 per cent. limit will only be available for use on the following basis:(i)
3 per cent. in the first 12 months following Listing of the New Shares; (ii) 1
per cent. in the second 12 months following Listing of the New Shares; and (iii)
1 per cent. in the third 12 months following Listing of the New Shares. Any
unused part of this limit may be utilised in subsequent years during the life of
the Employee Plan. Corp Shares over which options have lapsed or been
surrendered will not be included in calculating this limit.
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Exercise of Options
Options granted under the Employee Plan will only become exercisable to the
extent that the performance targets to which they are subject have been
satisfied. The performance targets for the first grant of options are set out
below. For subsequent grants, the remuneration committee will set performance
targets which are appropriate in the circumstances and at least as challenging
as those for the initial grant.
Performance targets
Percentage of shares subject
Tranche Condition to option that vest (per cent.)
------- ---------------------------------------- ----------------------------------------
1. Repayment of 30 per cent. of the New 10
Junior Notes within 24 months after the
Plans Start Date. No vesting before 12
months after the Plans Start Date.
2. Repayment of 50 per cent. of the New 10
Junior Notes within 27 months after the
Plans Start Date. No vesting before 15
months after the Plans Start Date.
3. Repayment of 100 per cent. of the New 20
Junior Notes within 30 months after the
Plans Start Date. No vesting before 18
months after the Plans Start Date.
4. Corp achieving a market capitalisation 30
of L1 billion and repayment of 100 per
cent. of the New Junior Notes within 39
months after the Plans Start Date. No
vesting before 27 months after the Plans
Start Date.
5. Corp achieving a market capitalisation (within 51 months of the Plans Start
of L1.5 billion and repayment of 100 per Date)
cent. of the New Junior Notes within 63 30
months after the Plans Start Date. No
vesting before 39 months after the Plans (between 51 months and 63 months of the
Start Date. Plans Start Date)
20
If any performance target is not satisfied within the stated period the tranche
of the option subject to that performance target will lapse and cease to be
capable of becoming exercisable.
If the New Junior Notes are refinanced (rather than repaid), the conditions set
out above will apply to the aggregate debt, representing what were the New
Junior Notes, following the refinancing.
In relation to tranches 4 and 5, the market capitalisation of Corp will be
measured using its daily volume weighted average share price determined from
prices quoted on the principal exchange on which Corp's Shares are listed and
the number of Corp Shares outstanding immediately following the Plans Start
Date. In order to determine if the relevant condition is satisfied, the daily
volume weighted average share price will be obtained for each day of a rolling
90 day period and the average price over that 90 day period will be determined.
If that average price when multiplied by the number of Corp Shares in issue on
the Plans Start Date exceeds the relevant target market capitalisation the
applicable condition will have been satisfied.
Taxation
The exercise of an Unapproved Option may be made conditional upon a participant
agreeing to comply with any arrangements specified by Corp for the payment of
taxation, social security contributions or any other deductions at source
(including, as is likely to be the case, in respect of at least part of the
relevant employing company's
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secondary class 1 National Insurance contributions liability arising on
exercise) required or permitted in respect of an option.
Termination of employment
If a participant ceases employment with a member of the Corp Group voluntarily
or he is dismissed for cause, his unvested options will lapse on the date of
cessation.
However, where a participant ceases employment with the Corp Group due to death,
injury, disability, ill-health, redundancy, retirement or the sale of the
business or subsidiary for which the participant works, or termination of
employment by the employer without cause, his options will become vested to the
extent the financial performance conditions have been satisfied at the date of
cessation of employment (or, if terminated without full notice, to the extent
the financial performance conditions have been satisfied on the date notice
would have expired) and will become exercisable at the time they would otherwise
have been exercisable as set out in the table above for a period of 6 months (12
months in the case of death). The remuneration committee may decide whether a
different proportion of an option should vest on the cessation of employment of
any participant due to the sale of a business or subsidiary that was a key
business or subsidiary. Following the expiry of the relevant period, all of a
participant's unexercised options will lapse.
Lapse of options
Options will lapse in any event on the tenth anniversary of their grant and will
lapse after a takeover or reconstruction when the specified time periods for
exercise have passed as described below. Options will also lapse on the
cessation of employment of a participant as described above. Options will also
lapse to the extent that they cease to be capable of becoming exercisable due to
the failure to satisfy any of the performance targets within the specified time
periods.
Rights attaching to Corp Shares on the exercise of options
Corp Shares allotted under the Employee Plan will carry the same rights as all
other issued Corp Shares. Application will be made for the Corp Shares to be
admitted to trading on the London Stock Exchange. Participants will not qualify
for any rights attaching to Corp Shares where the record date is before the date
on which the option is exercised.
Takeover, reconstruction or winding-up
If any person obtains control of Corp as a result of making an offer to acquire
the whole of the issued share capital of Corp (or, having such control, makes a
general offer to acquire all the shares other than those already owned by that
person) the first grant of options under the Employee Plan will become
exercisable to the extent that the financial performance conditions have been
satisfied immediately prior to a change of control. A proportion of the
remainder of any Corp Shares which are the subject of outstanding options will
vest and become exercisable according to the following formula:
market capitalisation on change of
control (as evidenced by the value of
the consideration paid by the acquirer
and the number of Corp Shares in issue
remainder of Corp Shares the subject of immediately following the Plans Start
outstanding options x Date)
----------------------------------------
L1.5 billion
The formula above assumes that a change of control occurs 63 months after the
Plans Start Date. If a change of control occurs sooner, to reflect the benefit
to shareholders of the early release of funds, the L1.5 billion figure will be
reduced by L25m for each complete quarter between the change of control and the
date which is 63 months after the Plans Start Date.
Participants will have six months within which to exercise their options to the
extent exercisable, following the change of control (or general offer);
thereafter, the options will lapse. The remuneration committee will
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determine the extent to which any subsequent options will vest in the event of a
takeover, having regard to the performance targets to which those options are
subject. If a person becomes bound or entitled to give notice to acquire Corp
Shares under sections 428 to 430F of the Act, a Participant may exercise his
options to the extent exercisable as referred to above during the period when
that person remains so bound or entitled; thereafter, they will lapse.
Participants may, in certain circumstances, be given the opportunity to exchange
their options for options over ordinary shares in an acquiring company.
If there is a reconstruction of Corp, the effect of which is that a person
obtains control of Corp, other than as a result of making an offer for its
issued share capital, the provisions relating to a change of control following
an offer (summarised above) shall apply. These provisions shall not apply if
there is a reconstruction, the purpose and effect of which is to create a new
holding company of Corp where such holding company has substantially the same
shareholders and proportionate shareholdings as those of Corp immediately before
the scheme of arrangement. On the occurrence of such a reconstruction, the
remuneration committee will use its best endeavours to ensure that any
outstanding options are rolled-over so that they continue over shares in the new
holding company. If there is no roll-over, options will continue unaffected by
the scheme of arrangement. If there is any other reconstruction of Corp or Corp
is wound-up, options will lapse on the reconstruction or winding-up taking
effect.
Adjustments of options
If there is a variation in the share capital of Corp, including by way of a
capitalisation, rights issue, consolidation, sub-division, reduction or any
other variation or the implementation by Corp of a demerger or payment of a
super-dividend which would materially affect the value of options under the
Employee Plan, the remuneration committee may (subject to the auditors' approval
and, in the case of Approved Options, to the approval of the Inland Revenue)
make the adjustments it considers appropriate to the number of Corp Shares under
option and the exercise price.
Amending the Employee Plan
The rules of the Employee Plan can be amended at any time by the Board, provided
that no amendment to the Employee Plan can be made without the prior approval of
Corp in a general meeting of shareholders if the amendment relates to the
provisions in the rules relating to eligibility, limits on the number of Corp
Shares available for issue under the Employee Plan, the basis for determining a
participant's entitlement to Corp Shares and any adjustment in the event of a
variation in the share capital of Corp. In addition, no amendment that would
materially prejudice the interests of existing participants may be made without
the prior consent of participants holding three-quarters of the aggregate number
of shares subject to outstanding options. For these purposes, the interests of
the holders of Approved Options and Unapproved Options are separate.
Participants in the United States
For participants in the United States, the Employee Plan will be structured as a
qualifying incentive stock option plan and a non-qualifying stock option plan
over Corp Shares or ADRs. Options will be granted on the same terms and will be
subject to the same performance conditions as described above, save any changes
necessary to take account of the relevant United States legislation.
General
Additional schedules to the rules of the Employee Plan can be established to
operate the Employee Plan in overseas countries. These schedules can vary the
rules of the Employee Plan to take account of any securities, exchange control,
or taxation laws or regulations for any participants or any company in the
Group. Any Corp Shares issued under such schedules will count towards overall
limits under the Employee Plan.
Participation in the Employee Plan is not pensionable. Options granted under it
are not transferable and may only be exercised by the persons to whom they were
granted or their personal representatives.
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No options can be granted under the Employee Plan more than five years after the
Plans Start Date.
Provisions relating to Approved Options
Approved Options are those options granted under the Employee Plan which satisfy
the requirements of Schedule 9 to ICTA 1988 (or any replacement legislation).
The main differences between Approved Options and Unapproved Options are that:
(a) No Approved Option can be granted to a participant who is ineligible
to participate in the Employee Plan by virtue of paragraph 8 of
Schedule 9 (material interest in a close company) ICTA 1988 (or any
replacement legislation).
(b) An employee cannot be granted an Approved Option which would, at the
time it is granted, enable the employee to acquire Corp shares under
option schemes approved under Schedule 9 ICTA 1988 (or any
replacement legislation) (which are not savings-related) having a
value (calculated on the relevant date of grant) exceeding the
Inland Revenue limit (currently L30,000).
(c) Any amendment to the rules of the approved part of the Employee Plan
requires the prior approval of the Inland Revenue.
(d) There are circumstances (principally where a participant's
employment ceases in compassionate circumstances) when the
remuneration committee can extend the period in which Approved
Options may be exercised in order that the Participant may qualify
for tax relief on exercise of the Approved Option.
Application will be made to the Inland Revenue for approval of that part of the
Employee Plan under which Approved Options may be granted.
Proposed Sharesave Plan
Subject to obtaining the prior approval of Corp's shareholders, Corp intends to
establish a sharesave plan (or a similar plan, taking into account any changes
in market practice and the relevant legislation) at a later date. Such a plan
will be varied for overseas participants to take account of local legislation.
In the United States, the plan will be an approved stock purchase plan (or a
similar plan, taking into account any changes in market practice and the
relevant US legislation).
The Trust
The Trust will be established by a trust deed entered into between Corp and an
independent trustee resident in Jersey. The Trust will be a discretionary trust
for the benefit of employees and former employees (and their dependants) of the
Corp Group (the "Beneficiaries"). Corp has the power to appoint and remove the
Trustee.
The Trustee will be entitled to subscribe for or otherwise acquire Corp Shares
for the benefit of Beneficiaries and will be able to distribute these Corp
Shares under the terms of the Trust either directly or in accordance with the
rules of any employees' share schemes established by Corp. The Trustee will not
be permitted to enter into any forward swap derivative arrangements.
It is intended that the Trust may be funded by any person or company including
Corp or any company in the Corp Group by means of gift, loan or otherwise.
The limit on the number of Corp Shares which can be acquired by the Trustee
(whether by market purchase or subscription) will be that set out in the rules
of the relevant share incentive plan.
It is intended that the terms of the Trust will be amended at the discretion of
the Trustee and with the consent of Corp. Corp will not be entitled to consent
to any amendment to the advantage of Beneficiaries without the prior approval of
Corp in general meeting unless the amendment is minor to benefit the
administration of the Trust, to take account of any changes in legislation or to
obtain or to maintain favourable taxation, exchange control or regulatory
treatment for any Beneficiary of Corp or any company in the Corp Group.
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ABI GUIDELINES
The extent to which the Plans comply with the ABI's published guidelines for
share incentive plans (the "Guidelines") is summarised below.
Overview:
The Plans are not totally compliant with the Guidelines.
The design of the Management Plan, which is the least compliant (while being the
most important from Corp's perspective), has been driven by the importance of
ensuring that the senior management team remains in place and is suitably
incentivised. It is also designed to compensate for and replace existing bonus
arrangements and amendments to individuals' terms of employment (as previously
described above). The Scheme Creditors will also in effect, be asked to approve
the arrangements as part of approving the Corp Scheme.
The Principal Guidelines focus on:
a. Performance conditions
The ABI requires that performance conditions should emphasise the importance of
linking remuneration to performance, align the interests of participating
directors and senior executives with those of the shareholders, be demanding and
stretching and relate to overall corporate performance. Performance conditions
should also be demanding in the context of the prospects of the company and the
prevailing economic climate in which the company operates. They should also be
disclosed and transparent.
The Guidelines also require that the greater the level of potential award, the
more stretching and demanding the performance conditions should be.
Corp believes that the proposed performance conditions for the discretionary
plans are compliant with these requirements. The performance conditions chosen
are demanding and are clearly linked to the achievement of enhanced shareholder
value.
The Guidelines also state that performance should be measured against a peer
group or benchmark. Given the nature of the targets and the position of Corp,
this is not practicable.
b. Change of control provisions
The Guidelines state that there should be no automatic waiver of performance
conditions on a change of control. They also state that options should vest on a
pro-rata basis taking into account the vesting period that elapsed at the time
of the change of control though making due allowance for the reduction in value
resulting from the reduced life of the option.
Tranches of options will only vest if the financial performance conditions
applicable to them have been satisfied. The level of additional vesting is
dependent upon Corp's market capitalisation on change of control, as summarised
above. In essence, therefore, Corp believes the Plans are compliant.
c. Dilution limits
The Guidelines provide that not more than 10 per cent. of the issued ordinary
share capital of a company can be committed to be issued to satisfy share
options/awards under all of its share plans in any rolling 10 year period.
It is currently proposed that the number of unissued shares that may be
committed to be issued in the 5 years following the Plans Start Date will be 9
per cent. of the issued share capital of Corp under the Management Plan and 5
per cent. under the Employee Plan.
The Guidelines also encourage phased grants (generally on an annual basis to
spread the dilution over the life of the plan). No requirement for phased
granting is included in the Plans. The adoption of the Management Plan to
incentivise management in these circumstances is very much regarded as a one-off
arrangement.
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d. Participation
Participation in the Plans is limited to bona fide employees and executive
directors. This is compliant with the Guidelines. However, there are no limits
on individual participation. Corp considers this to be justifiable as option
grants must be of a level to retain and motivate participants who are being
asked in some cases, to waive existing entitlements to a bonus and amend the
terms of their contracts of employments, as stated above.
Participants who are granted an option under the Management Plan cannot
participate in the Employee Plan.
e. Exercise price
The Guidelines state that options should not be granted at a discount. Under the
Management Plan, only a nominal sum will be payable on the exercise of options.
The Employee Plan will be compliant. As stated above, the Management Plan has
been designed to ensure that senior management remains in place and suitably
incentivised. In order to achieve this, the necessary levels of potential gain
make it more efficient to grant options with an exercise price set at a discount
rather than at the prevailing market value (on the day the options are granted)
as fewer Corp Shares are required.
f. Timing of grant
The Plans are compliant with the Guidelines -- following Listing of the New
Shares, grants can only normally be made within the 42 day period following the
announcement of Corp's results.
g. Life of Plans and incentive awards
The Guidelines state that the life of plans should not exceed 10 years and that
options should not be exercisable within 3 years of grant. The Plans have a five
year life. Under the terms of the Management Plan and the Employee Plan, options
may be exercised in part after 12, 15, 18, 27 and 39 months following the Plans
Start Date.
In accordance with the Guidelines, no option can be exercised more than 10 years
following its grant.
h. Retirement
The Guidelines require that options should not be granted to a participant
within 6 months of his/her anticipated retirement date. The Management/Employee
Plans will provide that options cannot be granted to a participant within 2
years of his/her anticipated retirement date.
Where options are granted to a participant within 3 years of his/her anticipated
retirement date, the remuneration committee will have regard to the executive's
ability to contribute to the satisfaction of the performance conditions, in
accordance with the Guidelines.
i. Personal shareholding requirements
The Guidelines require that the rules of incentive plans should incorporate the
requirement to retain a significant proportion of the shares to which
participants become entitled. The Guidelines state that this is particularly
important in the case of awards where performance conditions apply principally
at the point of grant of an option. Given the nature of the performance
conditions which apply to the initial grants of options under the Management
Plan and the Employee Plan and the fact that they must be satisfied prior to
exercise, rather than grant, a personal shareholding requirement is not
considered necessary.
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j. Non-Executive Directors
As described in Part E.1, in accordance with the Guidelines, the Non-Executive
Directors (other than the Chairman) will acquire Corp Shares out of their net
fees at a price equal to the prevailing market value on the date of acquisition.
D.11 PENSIONS
Claims under this section are excluded from the Corp Scheme and, to the extent
that claims are preferential or otherwise incapable of being schemed, from the
plc Scheme. Please refer to Appendix 9 for fuller details of the exclusions.
UNITED KINGDOM PENSION SCHEMES
Description of the main scheme
The GEC 1972 Pension Plan (the "UK Plan") is the principal tax-exempt approved
occupational pension scheme in the United Kingdom in respect of which Corp Group
or any of its group companies has any liabilities (and the only one in respect
of which Corp has any liabilities). Employee contributions are 3 per cent. of
pensionable earnings with employers paying the balance of the cost. The UK
Plan's principal employer is Corp but Group companies participate and are
responsible for their own contributions. The executive directors of Corp and plc
are members (or entitled to be members of) of the UK Plan. There are other UK
pension arrangements and these are described below.
Corp and the other group companies and the UK Plan trustee have complied with
their legal obligations in respect of the UK Plan and the unapproved pension
arrangements Corp is not aware of any current or threatened material claim
against it, any member of the Group or the trustees in respect of the UK Plan or
in relation to any benefits provided on retirement, death or termination of
service.
Funding of the UK Plan
The scheme actuary has carried out the statutory, triennial Minimum Funding
Requirement ("MFR") valuation (as at 5 April 2002) and on 6 February 2003 signed
his report. The report states that the UK Plan was (as at the valuation date)
between 115 and 120 per cent. funded on an MFR basis. This means that no
statutory minimum company contributions are currently required to be paid.
On the UK Plan's own ongoing funding basis, the report states that the UK Plan
is 100 per cent. funded as at 5 April 2002. Please note that the funding level
may have changed since 5 April 2002, particularly having regard to falls in
equity markets and the UK Plan could currently be underfunded on an ongoing
basis.
Corp makes contributions at the rate of 8.2 per cent. of pensionable earnings
(having started in November 2002). The contribution rate is expected to remain
at 8.2 per cent. of pensionable earnings. The employee contribution rate will
remain at 3 per cent. of pensionable earnings.
The report states that if the UK Plan had been discontinued at the date of the
valuation in April 2002 and wound up, there would have been insufficient assets
(by a considerable margin) to provide accrued benefits by the purchase of
annuity policies. Nevertheless, the valuation did not indicate that a statutory
debt under section 75 of the Pensions Act 1995 would be placed on Corp if the UK
Plan were wound up and the debt calculation performed as at that date. This
position could alter if the debt calculation is carried out as at a later date,
as a consequence of a number of factors, including a change in the Statement of
Investment Principles of the UK Plan, the investment performance of its assets,
the estimated cost of annuities and the level of retirements within the UK Plan.
No winding up has so far been triggered in relation to the UK Plan. If a winding
up of the UK Plan were to be triggered in the future, the UK Plan trustee would
be able to determine the date on which any statutory debt would be calculated by
the actuary to the UK Plan. The amount of any debt depends on a number of
factors, including the investment strategy which has been adopted by the trustee
in the UK Plan's statement of investment principles and the value of the assets
and liabilities of the UK Plan at the date of the calculation. If a section 75
debt were to arise, the size of the debt (relative to Corp's assets) could have
a materially detrimental effect on Corp's resources. The materiality of the
detrimental effect on Corp's reserves is shown by the fact that the
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actuarial valuation stated that (as at 5 April 2002) the UK Plan has assets of
approximately L2.495 billion and liabilities (calculated on an ongoing basis) of
approximately L2.494 billion. On the winding up of a pension plan, the
applicable statute values the benefits of the members by reference to a stricter
test than the MFR valuation (for example, pensioner liabilities are valued on a
buy-out basis) and the sponsoring employer is liable to make good any deficit.
There is no guarantee that the value of the UK Plan's assets will not
deteriorate nor that legislation will not be introduced to oblige employers to
make further contributions to pension plans which are not fully funded, in
addition to current statutory obligations. The UK Government presented a Green
Paper on pension reform on 17 December 2002 which could lead to further
legislation on, amongst other issues, the obligations on employers to make good
pension scheme deficits, principally by replacing the MFR with a scheme-specific
minimum funding level.
See below for the impact on funding if a lower than expected transfer amount is
paid under an existing sale agreement. See also Part F.2: Risk Factors.
UNAPPROVED UK PENSION PLANS
The only other UK retirement and death benefit arrangements in respect of which
Corp has any liability in the UK are the following unapproved pension
arrangements.
a. Funded unapproved retirement benefit schemes for current employees
("FURBS")
There are thirteen FURBS for each of thirteen current senior employees.
FURBS are top-up pension plans funded in advance in respect of employees
who are subject to the earnings cap. The earnings cap is a figure set by
the Inland Revenue as the point at which tax relief on contributions
ceases and above which benefits from the UK Plan cannot be provided
(L97,200 for the 2002/2003 tax year).
Ten of the thirteen FURBS are defined contribution arrangements, where the
employer pays (depending on the employee/director) an amount equivalent to
between 10 and 35 per cent. of earnings in respect of the employee's
FURBS. Because an employer's contribution to a FURBS qualifies as a
taxable benefit, the employer in fact pays 60 per cent. of its
contribution described above to the FURBS and the balance of its
contribution to the employee, to cover the extra tax burden. All
contributions are up to date.
The remaining three FURBS are defined benefit arrangements and they each
have intended accrual rates of 3.33 per cent. depending on the value of
retained benefits. Mr Donovan's defined benefit FURBS is described in Part
E.1.
All employees who have a FURBS also have additional life cover that is
provided through an unapproved life assurance scheme, for which the
employer pays the premium.
b. Unfunded unapproved pensions ("UURBS")
Corp is currently liable to pay a total annual pension contribution of
currently L171,197 to Lady Weinstock under an UURBS established for the
late Lord Weinstock. This pension is to increase annually in line with
increases to pensions in payment under the UK Plan.
Corp was the original promisor of an unfunded top-up pension in 1998 in
favour of Anthony Cobbe. Mr Cobbe was promised a pension at age 62 of
two-thirds his final pensionable salary, funded from the UK Plan, the
GEC-USA Retirement Plan and by Corp itself. The pension is currently in
payment but the unfunded element is in fact paid by Marconi Communications
Limited, his actual former employer but no formal agreement documenting
this arrangement has been made.
PENSION INDEMNITIES
In sales of subsidiary companies and businesses in recent years, Corp has on
some occasions given an indemnity for employer debts which could arise under
section 75 of the Pensions Act 1995. If there were an MFR deficit at the point
at which the subsidiary or buyer of assets ceased to participate in the UK Plan,
section 75 would oblige the subsidiary or buyer to contribute to remedying the
deficit. The section 75 indemnity has been given on very
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few occasions and there is no indication that the funding of the UK Plan was
below MFR levels at the relevant dates. Accordingly Corp believes that the
indemnity is unlikely to be called upon.
Following the sale of General Domestic Appliances Holdings Limited in 2001, the
trustee of the UK Plan is to make a payment to the buyer's pension plan in
respect of the accrued benefits of the employees who transfer to the buyer.
Although a basis for calculation of the transfer amount was agreed in the sale
agreement for the sale of GDA, the trustee of the UK Plan is not bound by this.
Corp is responsible for 50 per cent. of any shortfall between the transfer
amount agreed in the sale agreement and the amount actually paid by the trustee.
Anticipating a shortfall at the time of the sale, an allowance of L3.255 million
was made in the sale price. The information received by Corp to date is that the
plan actuary intends to advise the trustee to calculate the transfer amount on
the agreed basis, which could (apart from the allowance in the sale price)
result in a liability to Corp under the shortfall obligation of approximately
L1.47 million. Allowing for the price adjustment, Corp would on these figures be
entitled to L1.785 million from the buyer. If the trustee does not follow the
advice of the actuary or if the actuary changes his advice, Corp expects its
maximum liability under the shortfall obligation to be approximately L14.665
million (or L12.88 million if the net over-allowance by Corp is taken into
account). The actuary is not bound by his representations and a final
determination of the transfer amount is not likely until April or May, 2003.
There can be no assurance that the trustee will not decide to follow a basis
which results in greater liability for Corp than Corp currently expects, which
could have a material adverse effect on the Group. Indeed, if the trustee
refuses or fails to transfer the whole or any part of the agreed amount, Corp
will be liable for 50 per cent. of the shortfall (less the buyer's prevailing
rate of corporation tax), which could produce a significantly larger liability.
If Corp is required to make a net payment of approximately L14.665 million (or
L12.88 million if the net over-allowance by Corp is taken into account), the
funding position of the UK Plan would improve considerably. This would be
because the UK Plan had distributed a smaller than anticipated amount to the
buyer's pension plan.
UNITED STATES PENSION PLANS
Description of the main US plan
The principal pension plan in the United States is the Marconi USA Employees'
Retirement Plan, which is a tax-qualified, funded defined benefit plan.
The following additional plans are also maintained in the US:
a. the RELTEC Corporation Retirement Plan, which is a tax-qualified,
funded defined benefit plan (the "RELTEC PLAN"). The benefit
accruals of participants in the RELTEC Plan were frozen, effective
as of 31 December 1997; and
b. the RELTEC Supplemental Executive Retirement Plan (the "SERP"),
which is an unfunded, non-tax-qualified plan for a select group of
management or highly compensated employees. There are approximately
seven participants covered by the SERP as of 1 April 2002. The SERP
was also frozen as of 31 December 1997. No benefits have accrued
under the SERP since that date.
Corp is not a sponsoring employer of the Marconi Plan or the RELTEC Plan but,
because Corp and plc are part of the plan sponsor's "controlled group" under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the
Internal Revenue Code of 1986, as amended (the "CODE"), Corp and plc would each
be jointly and severally liable under ERISA for any funding shortfall on
termination of either plan (together with the US subsidiaries which are
participating employers and other substantially owned US and non-US
subsidiaries). The sponsor of the Marconi Plan and the RELTEC Plan is a US
company, as are each of the participating employers. There is no formal or
informal plan or commitment at this time to terminate either the Marconi Plan or
the RELTEC Plan.
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Funded status of the US plans
Corp and plc estimate as at 30 September 2002:
a. on an ongoing basis and from an accounting perspective under US
Financial Accounting Standard Statement 132, the Marconi Plan had
assets with a value of US$164,915,249 and was underfunded by
US$18,378,172; and
b. on an ongoing basis and from an accounting perspective under US
Financial Accounting Standard Statement 132, the RELTEC Plan had
assets with a value of US$47,345,086 and was underfunded by
US$15,812,831.
This estimate is based on valuations prepared for the relevant plans as at 31
December 2001, adjusted for turnover in the first quarter of 2002 and a change
in the discount rate from 7 1/4 per cent. to 6 1/2 per cent. and rolled forward
to 30 September 2002. An actuarial report for the plans' status, as at 31
December 2002, is not expected to be completed for several months.
Potential consequences of the underfunding of the US plans on Corp and plc
If a sale of any of the US businesses which sponsor or participate in either of
the defined benefit pension plans (or any subsidiary or division of those
businesses) occurs, the portion of the assets and liabilities under any such
plan pertaining to the employees (and, perhaps, retirees) of the entities being
sold could either be transferred to the buyer's defined benefit plan or retained
in the Marconi Plan or the RELTEC Plan, as applicable. If, at the time that
assets and liabilities are to be transferred from the Marconi Plan or the RELTEC
Plan, either of such plans were underfunded, the assets and liabilities
transferred might have to be determined based on assumptions prescribed by the
United States Pension Benefit Guaranty Corporation ("PBGC"). The PBGC is a US
government agency established under ERISA to assure the payment of certain
guaranteed levels of benefits under most defined benefit plans. When liabilities
are determined on the basis of the fairly conservative PBGC assumptions they
generally result in a greater liability than the liability as determined under
applicable accounting standards for an ongoing plan or an amount an insurance
company would charge to assume the liability.
The PBGC has an early warning programme under which it scrutinises the financial
soundness of the parties to a corporate transaction and the funding status of
the relevant tax-qualified defined benefit pension plans. The PBGC has the
authority under ERISA to terminate an underfunded plan, thereby triggering the
required payment by the plan sponsor of any funding shortfall, if the PBGC
determines that the proposed transaction could reasonably be expected to
increase unreasonably its risk of possible long-term loss if the plan is not
terminated. If a sale of a US business were to occur at a time when the Marconi
Plan or the RELTEC Plan is underfunded, PBGC involvement is possible, depending
upon the circumstances then surrounding such potential sale. If the PBGC were to
elect to become involved, such involvement could impede or delay any such
proposed transaction, increase its cost or reduce the net sale proceeds
depending upon what, if any, action might be required by the PBGC. The PBGC
would also have the power to bring an action to terminate the Marconi Plan or
the RELTEC Plan if, at any time, the participating employers were unable to
contribute the annual amount required to satisfy minimum funding obligations
under US law, the plans were unable to pay benefits when due, or certain
so-called reportable events were to occur, and, in each case, the PBGC were to
determine that its risk of possible long-term loss could reasonably be expected
to increase unreasonably.
The filing of this document with the Court constituted a reportable event and
Corp and plc have notified the PBGC accordingly. In order to substantially
reduce the uncertainty of the potential involvement of the PBGC, Corp and plc
have entered into a legally binding memorandum of understanding with the PBGC
under which the PBGC has agreed not to terminate the Marconi Plan or the RELTEC
Plan solely as a result of the Restructuring nor make a claim under the plc
Scheme, in exchange for which Corp has agreed to provide (i) certain guarantees
to the PBGC relating to potential liabilities of its United States subsidiaries
under the two plans, (ii) if Corp intends to sell any of its business units in
the United States to a third-party purchaser whose debt immediately following
the consummation of such transaction is not then rated investment grade, no
proposed transfer of assets and liabilities of the Marconi Plan or the RELTEC
Plan to a pension plan of the third-party purchaser will be made without the
consent of the PBGC, (iii) a commitment to fund, from the proceeds of sale, any
shortfall in the
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Marconi Plan or RELTEC Plan, as applicable, which is attributable to any United
States business unit being sold, with the amount to be funded based on then
applicable PBGC safe harbour assumptions used for plan termination purposes, and
(iv) accelerated funding of contributions beyond the minimum otherwise legally
required. See Appendix 19 for a more detailed discussion of the memorandum of
understanding with the PBGC.
D.12 LISTING AND DEALING
Application has been made to the UKLA for the New Shares, the New Notes and the
Warrants to be admitted to the Official List of the UKLA and to the London Stock
Exchange for the New Shares, the New Notes and the Warrants to be admitted to
trading on the London Stock Exchange's market for listed securities. It is
expected that Listing will become effective and dealings in the New Shares, the
New Notes and the Warrants will commence at 8.00 a.m. (London time) on the
Effective Date which is currently expected to be 19 May 2003, but the Corp
Scheme is not conditional on Listing becoming effective and the New Shares, the
New Notes and the Warrants may therefore be issued as unlisted securities. Corp
will use its reasonable endeavours to effect the Listing of the New Shares, the
New Notes and the Warrants as soon as possible on or after the Effective Date of
the Corp Scheme.
A document comprising a prospectus relating to Corp has been prepared in
accordance with the Listing Rules made under section 74 of the FSMA and a copy
of it will be delivered for registration to the Registrar of Companies in
England and Wales pursuant to section 83 of the FSMA.
Corp will apply to list the ADRs in respect of its shares on NASDAQ and will use
its reasonable endeavours to effect this NASDAQ listing as soon as practicable
following the Effective Date of the Corp Scheme. It is currently expected that
the NASDAQ listing will become effective during the third calendar quarter of
2003.
Please see Part F.2 of this Section: Risk factors for a discussion of certain
risks relating to delay and potential delay in the listing of the New Shares,
New Notes, Warrants and ADRs.
D.13 REPORTING REQUIREMENTS AND ENTITLEMENT TO INFORMATION
Corp files reports and other information with the SEC under the US Securities
Exchange Act of 1934, as amended. Reports and other information filed with, or
submitted to, the SEC by Corp can be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024,
Washington D.C. 20549 and at the SEC's regional offices at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Reports and other
information are also available to the public through the internet in the EDGAR
database on the SEC's Web site at http://www.sec.gov.
Pursuant to the terms of the indentures governing the New Notes, following the
Restructuring Corp will begin to file annual, quarterly and periodic reports
with the SEC on Form 10-K, Form 10-Q and Form 8-K, respectively, as if it were a
US domestic issuer, subject to certain specified exceptions (as more
particularly described in Appendix 8, under the caption "SEC Reports; Other
Information"). (Corp will remain a foreign private issuer and as such will not
be subject to and (except as described herein) does not intend to comply with US
proxy rules or any other provision of the US securities laws from which foreign
private issuers are exempted.) The first such filing will be a Form 10-Q
quarterly report in respect of the quarter ending 30 September 2003. Prior to
that time, Corp will file an annual report on Form 20-F for the year ending 31
March 2003 within 90 days of the financial year end, and will submit a quarterly
report in respect of the quarter ending 30 June 2003 under cover of Form 6-K
within 60 days of the quarter end, in each case including financial statements
in accordance with or reconciled to US GAAP and non-financial statement
disclosures otherwise as required by Form 10-K or Form 10-Q, as the case may be,
subject to certain specified exceptions (as more particularly described in
Appendix 8, under the caption "SEC Reports; Other Information"). All of the
above reports (regardless of the forms under which they are filed or submitted)
will also include the certifications required with respect to filings by US
domestic issuers on Form 10-K and Form 10-Q pursuant to the Sarbanes-Oxley Act
of 2002 and SEC rules adopted thereunder. In addition, Corp will hold quarterly
investor conference calls following the release of such reports.
The specific reporting requirements described above will cease to apply once the
New Notes are no longer outstanding. At any time thereafter, subject to the
requirements of applicable law and regulation, Corp will be
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free to discontinue filing SEC reports on the forms used by US domestic issuers,
as well as the other reporting practices described in the previous paragraph.
D.14 MEMORANDUM AND ARTICLES
A summary of certain provisions of the Memorandum of Corp which has been
amended, and the Articles of Corp which have been adopted, in each case
conditionally on the allotment of the New Shares pursuant to the Corp Scheme, is
in Appendix 14.
D.15 AMERICAN DEPOSITARY RECEIPTS
GENERAL
Corp will establish an ADR programme in respect of the New Shares. Elections may
be made in Claim Forms and Account Holder Letters to have all or any portion of
the New Shares deliverable pursuant to the Schemes delivered in the form of
ADRs. Any person who elects to receive New Shares in the form of ADRs also will
receive all future distributions of New Shares to which such person may be
entitled pursuant to the Schemes in the form of ADRs. As described below no
depositary fees will be payable at any time in connection with the initial
issuance of ADRs pursuant to the Schemes and any UK stamp duty or SDRT payable
in this respect will be met by Corp.
ADRs will be issued pursuant to the Schemes in reliance on the exemption from
Securities Act registration provided by Section 3(a)(10) thereof (or, in the
case of plc Shareholders, in transactions not subject to such registration).
Following their initial issuance, such ADRs may be sold in ordinary secondary
market transactions without restriction under the Securities Act (subject to the
restrictions applicable to "affiliates" described in Part D.16 of this Section).
In addition, a registration statement on Form F-6 will be filed with the SEC in
relation to the ADRs. It is currently expected that this registration statement
will be effective prior to the Effective Date of the Corp Scheme. Once this
registration statement is effective, outstanding Corp Shares may be deposited
into the ADR programme in exchange for ADRs. Such ADRs may then be sold in
ordinary secondary market transactions without restriction under the Securities
Act.
Corp will apply to list the ADRs on NASDAQ and will use its reasonable
endeavours to effect this NASDAQ listing as soon as practicable following the
Effective Date of the Corp Scheme. It is currently expected that the NASDAQ
listing will become effective during the third calendar quarter of 2003. Persons
who are considering making an election to receive New Shares in the form of ADRs
should note that, unless and until the NASDAQ listing becomes effective,
development of a liquid trading market for the ADRs will be inhibited, which is
likely to have a material adverse effect on their value.
A summary of the material terms of the ADRs is set out in Appendix 16.
RESPONSIBILITY FOR FEES AND TAXES IN CONNECTION WITH ADRS
Persons electing to receive ADRs pursuant to the Schemes
Scheme Creditors and Designated Recipients who receive New Shares in the form of
ADRs pursuant to the Schemes at any time will not be responsible for any fees or
expenses of The Bank of New York, as ADR depositary, or any UK stamp duty or
SDRT, in respect of the initial issuance of such ADRs. The Bank of New York has
agreed to waive its fees and expenses in this connection, and any such UK stamp
duty or SDRT will be met by Corp.
Such persons will, however, be responsible for any other taxes or charges
arising in connection with such initial issuance of ADRs, as well as any fees,
expenses, taxes or charges arising in connection with any subsequent transaction
involving ADRs (except to the extent described below under "General fee
holiday").
Persons electing to receive New Shares pursuant to the Schemes
Subject to compliance with the procedures referred to below, Scheme Creditors
and Designated Recipients who receive New Shares pursuant to the Schemes will
not be responsible for any fees or expenses of The Bank of
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New York in respect of the initial issuance of ADRs upon deposit of those New
Shares (or an equivalent number of Corp Shares) in exchange for ADRs, if such
deposit is effected prior to the earlier of (x) the date falling two months
after the effectiveness of the NASDAQ listing of the ADRs and (y) 30 September
2003. The Bank of New York has agreed to waive its fees and expenses in this
connection.
In addition, subject to compliance with the procedures referred to below, Scheme
Creditors and Designated Recipients who receive New Shares pursuant to the
Schemes will not be responsible for any UK stamp duty or SDRT arising in
connection with the initial issuance of ADRs upon deposit of those New Shares
(or an equivalent number of Corp Shares) in exchange for ADRs, if such deposit
is effected prior to the date falling two months after the effectiveness of the
NASDAQ listing of the ADRs. Any such UK stamp duty or SDRT will be met by Corp.
To qualify for the treatment described above, Scheme Creditors and Designated
Recipients must comply with certain procedures, including providing such
certifications or other evidence as Corp and The Bank of New York may reasonably
require in order to permit verification of the number of New Shares obtained by
the depositor pursuant to the Schemes. For information with respect to the
relevant procedures, Scheme Creditors and Designated Recipients should contact
The Bank of New York's office in London on (attention Mr Peter Ridgwell),
telephone +44 207 964 6168, facsimile +44 207 964 6043.
Except insofar as these arrangements apply, Scheme Creditors and Designated
Recipients will be responsible for all taxes or charges arising in connection
with the initial issuance of ADRs as described above, as well as any fees,
expenses, taxes or charges arising in connection with any subsequent issuance of
or other transaction involving ADRs (except to the extent described below under
"General fee holiday").
GENERAL FEE HOLIDAY
The Bank of New York has agreed to waive any payment in respect of its fees and
expenses that would otherwise be required under the Deposit Agreement in
connection with any deposit of Corp Shares in exchange for ADRs that is effected
prior to the date falling two months after the Effective Date of the Corp
Scheme. This "fee holiday" will be implemented without regard to the special
arrangements for Scheme Creditors and Designated Recipients described above.
Persons depositing Corp Shares during this period (other than Scheme Creditors
and Designated Recipients, to the extent described above) will, however, be
responsible for any taxes or other charges (including UK stamp duty or SDRT)
arising in connection with the issuance of ADRs.
D.16 US SECURITIES LAW CONSIDERATIONS
CONSIDERATIONS FOR SCHEME CREDITORS AND BONDHOLDERS
US federal securities laws
The New Shares, ADRs and New Notes issued to Scheme Creditors and Bondholders
pursuant to the Schemes will not be registered under the Securities Act in
reliance on the exemption from registration provided by Section 3(a)(10)
thereof, and will not be registered under the securities laws of any state of
the US in reliance on exemptions provided under the securities laws of each
state of the US in which Scheme Creditors and Bondholders are located. The issue
of New Shares, ADRs and New Notes to Scheme Creditors and Bondholders located in
the states of Arizona, California, Colorado, Connecticut, Illinois, Ohio and
Vermont will, however, be subject to the limitations described in "US state
securities laws" below.
Any Scheme Creditor or Bondholder that is not an affiliate, for purposes of the
Securities Act, of Corp or plc prior to the implementation of the Schemes and is
not an affiliate of Corp following implementation of the Schemes may sell New
Shares, ADRs and New Notes received pursuant to the Schemes in ordinary
secondary market transactions without restriction under the Securities Act.
Any Scheme Creditor or Bondholder that is an affiliate of Corp or plc prior to
the implementation of the Schemes and/or is or becomes an affiliate of Corp
following implementation of the Schemes will be subject to restrictions on the
sale of New Shares, ADRs and New Notes received pursuant to the Schemes pursuant
to Rule 145(d) under the Securities Act.
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For purposes of the Securities Act, an "affiliate" of any person is a person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, that person. Scheme Creditors
and Bondholders that believe they are or may be "affiliates" of Corp or plc for
purposes of the Securities Act should consult their own legal advisers prior to
any sale of New Shares, ADRs or New Notes received pursuant to the Schemes.
US state securities laws
Corp and plc have formed the view, based on the advice of US state securities
law counsel, that the distributions of New Shares, ADRs and New Notes to Scheme
Creditors and Bondholders in the United States would be prohibited except after
compliance with unduly onerous conditions unless made pursuant to available
exemptions from state securities registration requirements under applicable
state law. Other than in the states of Arizona, California, Colorado,
Connecticut, Illinois, Ohio and Vermont, exemptions are available without regard
to the identity or status of the persons to whom securities are issuable under
the Schemes.
In these seven states the scope of the available exemptions will not permit New
Shares, ADRs and New Notes to be issued through the Schemes under all
circumstances. Accordingly Scheme Creditors and Bondholders in Arizona,
California, Colorado, Connecticut, Illinois, Ohio and Vermont will be eligible
to receive New Shares, ADRs and New Notes pursuant to the Schemes only if they
fall into one of the categories of persons described below, such that an
applicable state-law exemption will be available. Bondholders in Colorado,
Connecticut, Illinois and Vermont should note that they will be eligible to
receive securities pursuant to the Corp Scheme under state-law exemptions
applicable to transactions by an issuer with its existing security holders.
The Claim Form will require each person who completes it (other than the
Trustees), and the Account Holder Letter will require Account Holders, to
confirm certain facts in connection with the US state securities law
restrictions referred to above. To the extent that any person located in one of
these states is not eligible to receive securities pursuant to the Schemes by
virtue of these securities law restrictions, such person will receive cash
instead. These matters are discussed in further detail in Part C.9 of this
Section.
SCHEME CREDITORS AND BONDHOLDERS IN ARIZONA, CALIFORNIA, COLORADO, CONNECTICUT,
ILLINOIS, OHIO AND VERMONT SHOULD CAREFULLY CONSIDER THE ELIGIBILITY CRITERIA
DESCRIBED BELOW, THE PROVISIONS OF THE SCHEMES WITH RESPECT TO LEGAL AND
REGULATORY RESTRICTIONS GENERALLY AND THE CONTENTS OF THE CONFIRMATIONS TO BE
INCLUDED IN THE CLAIM FORM AND ACCOUNT HOLDER LETTER AS DESCRIBED IN PART C.9 OF
THIS SECTION. ANY SUCH PERSONS WHO ARE IN DOUBT AS TO HOW THESE RESTRICTIONS MAY
AFFECT THEM ARE STRONGLY ADVISED TO CONSULT THEIR PROFESSIONAL ADVISERS.
For these purposes, a Scheme Creditor or Bondholder will be deemed to be located
in a state if such Scheme Creditor or Bondholder (or, in the case of a legal
entity, the person acting on behalf of such Scheme Creditor or Bondholder) is
physically present within that state at the time that (i) such person receives
the Scheme Document, or any portion thereof or any information with respect
thereto which results in a Claim Form or Account Holder Letter (as the case may
be) being submitted by or on behalf of such person, or (ii) such person submits
a Claim Form or transmits instructions with respect to submission of an Account
Holder Letter (as the case may be).
The categories of Scheme Creditors and Bondholders located in the states of
Arizona, California, Colorado, Connecticut, Illinois, Ohio and Vermont to or to
the order of whom New Shares, ADRs and New Notes will be distributed through the
Schemes are as follows:
Arizona -- any bank, savings institution, trust company, insurance company,
investment company as defined in the US Investment Company Act of 1940, a
pension or profit sharing trust or other financial institution or institutional
buyer, or a dealer, whether the person is acting for itself or in a fiduciary
capacity.
California -- any broker-dealer, bank, savings and loan association, trust
company, insurance company, investment company registered under the US
Investment Company Act of 1940, or pension or profit-sharing trust (other than a
pension or profit-sharing trust of the issuer, a self-employed individual
retirement plan or an individual retirement account); any organisation described
in Section 501(c)(3) of the US Internal Revenue Code, as amended to 29 December
1981, which has total assets (including endowment, annuity and life income
funds)
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of not less than US$5,000,000 according to its most recent audited financial
statement; any corporation which has a net worth on a consolidated basis of not
less than US$14,000,000; any wholly-owned subsidiary of any of the foregoing
institutional investors; or the US federal government, any agency or
instrumentality of the US federal government, any corporation wholly-owned by
the US federal government, any state, any city, city and county, or county, or
any agency or instrumentality of a state, city, city and county, or county, or
any state university or state college and any retirement system for the benefit
of employees of any of the foregoing.
Colorado -- with respect to the Corp Scheme, any Bondholder and, with respect to
either Scheme, any broker-dealer, or a financial or institutional investor,
whether the purchaser is acting for itself or in some fiduciary capacity. A
financial or institutional investor includes: (a) a depositary institution,
which is defined as: (i) a person that is organised or chartered, or is doing
business or holds an authorisation certificate, under the laws of a state or of
the United States which authorises the person to receive deposits, including
deposits in savings, share, certificate, or other deposit accounts, and that is
supervised and examined for the protection of depositors by an official or
agency of a state or the United States, or (ii) a trust company or other
institution that is authorised by federal or state law to exercise fiduciary
powers of the type a national bank is permitted to exercise under the authority
of the comptroller of the currency and is supervised and examined by an official
or agency of a state or the United States; (b) an insurance company; (c) a
separate account of an insurance company; (d) an investment company registered
under the US Investment Company Act of 1940; (e) a business development company
as defined in the US Investment Company Act of 1940; (f) any private business
development company as defined in the US Investment Advisers Act of 1940; (g) an
employee pension, profit-sharing or benefit plan if the plan has total assets in
excess of US$5,000,000 or its investment decisions are made by a named
fiduciary, as defined in ERISA, that is a broker-dealer registered under the
Exchange Act, an investment adviser registered or exempt from registration under
the US Investment Advisers Act of 1940, a depositary institution, or an
insurance company; (h) an entity, but not an individual, a substantial part of
whose business activities consist of investing, purchasing, selling, or trading
in securities of more than one issuer and not of its own issue and that has
total assets in excess of US$5,000,000 as of the end of its latest fiscal year;
(i) a small business investment company licensed by the US federal small
business administration under the US Small Business Investment Act of 1958; and
(j) any other institutional buyer.
Connecticut -- with respect to the Corp Scheme, any Bondholder and, with respect
to either Scheme, any state bank and trust company, national banking
association, savings bank, savings and loan association, federal savings and
loan association, credit union, federal credit union, trust company, insurance
company, investment company as defined in the US Investment Company Act of 1940,
pension or profit-sharing trust, or other financial institution or institutional
buyer, or to a broker-dealer; whether the purchaser is acting for itself or in
some fiduciary capacity.
Illinois -- with respect to the Corp Scheme, any Bondholder and, with respect to
either Scheme, any corporation, bank, savings bank, savings institution, savings
and loan association, trust company, insurance company, building and loan
association, or dealer; a pension fund or pension trust, employees'
profit-sharing trust, other financial institution (including any manager of
investment accounts on behalf of other than natural persons, who, with
affiliates, exercises sole investment discretion with respect to such accounts
and provided such accounts exceed ten in number and have a fair market value of
not less than US$10,000,000 at the end of the calendar month preceding the month
during which the securities are sold) or institutional investor (including
investment companies, universities and other organisations whose primary purpose
is to invest its own assets or those held in trust by it for others, trust
accounts and individual or group retirement accounts in which a bank, trust
company, insurance company or savings and loan institution acts in a fiduciary
capacity, and foundations and endowment funds exempt from taxation under the
Code, a principal business function of which is to invest funds to produce
income in order to carry out the purpose of the foundation or fund), or any
government or political subdivision or instrumentality thereof, whether the
purchaser is acting for itself or in some fiduciary capacity; any partnership or
other association engaged as a substantial part of its business or operations in
purchasing or holding securities; any trust in respect of which a bank or trust
company is trustee or co-trustee; any entity in which at least 90 per cent. of
the equity is owned by: (i) persons described in this paragraph, (ii) any
partnership or other association or trader buying or selling fractional
undivided interests in oil, gas or other mineral rights, in frequent operations,
for its or his own account rather than for the account of customers, to such
extent it or he may be said to be engaged in such activities as a trade or
business, (iii) any natural person who has, or is reasonably believed
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by the person offering the securities to have (a) a net worth or joint net worth
with the person's spouse, at the time of the offer, sale or issuance of the
securities, in excess of US$1,000,000, or (b) an income or joint income with
that person's spouse of US$200,000 in each of the two most recent fiscal years
and reasonably expects such an income in the current year, (iv) any person, not
a natural person, 90 per cent. of the equity interest thereof is owned by
persons described in (a) or (b) immediately above, or (v) any person who is, or
is reasonably believed by the person offering the securities to be, a director,
executive officer, or general partner of the issuer of the securities or any
director, executive officer or general partner of a general partner of that
issuer (executive officer shall mean the president, any vice president in charge
of a principal business unit, division or function such as sales, administration
or finance, or any other officer or other person who performs a policy-making
function for the issuer); any employee benefit plan within the meaning of Title
I of ERISA if (i) the investment decision is made by a plan fiduciary as defined
in Section 3(21) of ERISA and such plan fiduciary is either a bank, insurance
company, registered investment adviser or an investment adviser registered under
the US Investment Advisers Act of 1940, or (ii) the plan has total assets in
excess of US$5,000,000, or (iii) in the case of a self-directed plan, investment
decisions are made solely by persons that are described herein; any plan
established and maintained by, and for the benefit of the employees of, any
state or political subdivision or agency or instrumentality thereof if such plan
has total assets in excess of US$5,000,000; or any organisation described in
Section 501(c)(3) of the Code, any Massachusetts or similar business trust, or
any partnership, if such organisation, trust, or partnership has total assets in
excess of US$5,000,000.
Ohio -- any dealer, corporation, bank (which includes a trust company, savings
and loan association, savings bank, or credit union that is incorporated or
organised under the laws of the United States or of any state thereof, or of
Canada or any province thereof, and subject to regulation or supervision by such
country, state or province), insurance company, pension fund or trust,
employees' profit-sharing fund or trust, any association engaged, as a
substantial part of its business or operations, in purchasing or holding
securities, any trust in respect of which a bank is trustee or co-trustee, or
any Qualified Institutional Buyer as defined in Rule 144A under the Securities
Act.
Vermont -- with respect to the Corp Scheme, any Bondholder and, with respect to
either Scheme, any financial or institutional investor, which means: (a) a
depositary institution, which includes: (i) a person that is organised,
chartered, or holding an authorisation certificate under the laws of a state or
of the United States which authorises the person to receive deposits, including
a savings, share, certificate, or deposit account, and which is supervised and
examined for the protection of depositors by an official or agency of a state or
the United States, or (ii) a trust company or other institution that is
authorised by a federal or state law to exercise fiduciary powers of the type a
national bank is permitted to exercise under the authority of the comptroller of
the currency and is supervised and examined by an official or agency of a state
or the United States; (b) an insurance company; (c) a separate account of an
insurance company; (d) an investment company as defined in the US Investment
Company Act of 1940; (e) an employee pension, profit-sharing or benefit plan if
the plan has total assets in excess of US$5,000,000 or its investment decisions
are made by a named fiduciary, as defined in ERISA, that is either a
broker-dealer registered under the Exchange Act, an investment adviser
registered or exempt from registration under the Investment Advisers Act of
1940, a depositary institution or an insurance company; (f) any other financial
or institutional buyer which qualifies as an accredited investor under the
provisions of Regulation D as promulgated by the SEC under the Securities Act,
as such provisions may be amended from time to time hereafter; (g) a
broker-dealer; and (h) such other institutional buyers as the commissioner may
add by rule or order; whether the purchaser is acting for itself or others in a
fiduciary capacity.
CONSIDERATIONS FOR PLC SHAREHOLDERS
The New Shares, ADRs and Warrants issuable to plc Shareholders pursuant to the
Corp Scheme will be issued in transactions that are not subject to the
registration requirements of the Securities Act or of the securities laws of any
state of the US. Such plc Shareholders may sell the New Shares, ADRs and
Warrants they receive pursuant to the Corp Scheme in ordinary secondary market
transactions without restriction under the Securities Act.
The additional Corp Shares issuable on exercise of Warrants will be issued
pursuant to an effective registration statement under the Securities Act.
Exercising holders will thus be able to sell the Corp Shares they receive on
exercise of Warrants in ordinary secondary market transactions without
restriction under the Securities Act. At an
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appropriate time, Corp will file a registration statement with the SEC to
provide for the issue of Corp Shares from time to time upon exercise of
Warrants. It is currently expected that this registration statement will become
effective during the third calendar quarter of 2003. Warrants will not be
exercisable by any person in the US prior to the effectiveness of this
registration statement.
D.17 SECURITIES LAW RESTRICTIONS IN FRANCE, ITALY AND MALAYSIA
This Part D.17 sets out information regarding securities law restrictions on the
distribution of New Shares, New Notes and Warrants pursuant to the Schemes under
the laws of France, Italy and Malaysia to persons located in those
jurisdictions.
FRANCE
Corp and plc have formed the view, based on the advice of French legal counsel,
that the distributions of New Shares and New Notes to Scheme Creditors,
Bondholders and Designated Recipients in France would be prohibited except after
compliance with unduly onerous conditions, unless made pursuant to an exemption
from the provisions of French law relating to public offerings. Accordingly, New
Shares and New Notes will be distributed pursuant to the Schemes to Scheme
Creditors, Bondholders and Designated Recipients in France only in reliance on
the exemption provided under Article L.411-2 of the French Monetary and
Financial Code and Decree no. 98-880 dated 1 October 1998 to persons that are
"qualified investors" as defined under such Article.
The Claim Form will require each person who completes it (other than the
Trustees), and the Account Holder Letter will require Account Holders, to
confirm certain facts in connection with the French legal restrictions described
above. To the extent that any person located in France is not eligible to
receive securities pursuant to the Schemes by virtue of these restrictions, such
person will receive cash instead. These matters are discussed in further detail
in Part C.9 of this Section.
For these purposes, a person will be deemed to be located in France if this
Scheme Document, or notice that this Scheme Document is available, (i) is sent
to him at an address (including the registered address for a company and the
branch address for a branch) in the Republic of France, or (ii) is made
available to him by electronic means and such person (if a natural person) is a
French national or (if a legal person) has its registered address in the
Republic of France.
SCHEME CREDITORS, BONDHOLDERS AND DESIGNATED RECIPIENTS LOCATED IN FRANCE SHOULD
CAREFULLY CONSIDER THE ELIGIBILITY CRITERIA DESCRIBED ABOVE, THE PROVISIONS OF
THE SCHEMES WITH RESPECT TO LEGAL AND REGULATORY RESTRICTIONS GENERALLY AND THE
CONTENTS OF THE CONFIRMATIONS TO BE INCLUDED IN THE CLAIM FORM AND ACCOUNT
HOLDER LETTER AS DESCRIBED IN PART C.9 OF THIS SECTION. ANY SUCH PERSONS WHO ARE
IN DOUBT AS TO HOW THESE RESTRICTIONS MAY AFFECT THEM ARE STRONGLY ADVISED TO
CONSULT THEIR PROFESSIONAL ADVISERS.
Corp has formed the view, on the advice of French counsel, that the distribution
of New Shares and Warrants pursuant to the Corp Scheme to plc Shareholders in
France is not currently prohibited by French law or regulation.
ITALY
The distributions of the New Shares, New Notes and Warrants have not been
approved by the Italian Securities Exchange Commission ("CONSOB") pursuant to
Italian securities legislation. A formal request has been submitted to CONSOB
seeking confirmation that the distributions of the securities under the Schemes
do not constitute public offerings under such legislation. However, as of the
date of this document, no such confirmation has yet been received.
If CONSOB does not provide the requested confirmation, Corp and plc have formed
the view, based on the advice of Italian legal counsel, that the distributions
of New Shares and New Notes to Scheme Creditors and Bondholders, and of Warrants
to plc Shareholders, in Italy would be prohibited except after compliance with
unduly onerous conditions, unless made pursuant to an exemption from the
provisions of Italian law relating to
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public offerings. The following exemptions under Italian law are potentially
applicable in connection with the various distributions to be made pursuant to
the Schemes:
- Corp Scheme -- Scheme Creditors: Except as described in the next
paragraph, a Corp Scheme Creditor in Italy will be eligible to receive
New Shares and New Notes pursuant to the Corp Scheme if (i) such person
is a "professional investor" as defined in the Consolidated Financial
Act Article 30, paragraph II and in CONSOB Regulation 11522/1998
Article 31, paragraph II or (ii) the number of all such persons that
are not "professional investors" does not exceed 200;
- Corp Scheme -- Bondholders: Bondholders in Italy will be eligible to
receive New Shares and New Notes pursuant to the Corp Scheme only if
the number of such persons does not exceed 200;
- plc Scheme -- Scheme Creditors and Bondholders: plc Scheme Creditors
and Bondholders in Italy will be eligible to receive New Shares and New
Notes pursuant to the plc Scheme if (i) such persons are "professional
investors" as defined in the Consolidated Financial Act Article 30,
paragraph II and in CONSOB Regulation 11522/1998 Article 31, paragraph
II or (ii) the number of all such persons that are not "professional
investors" does not exceed 200;
- Corp Scheme -- plc Shareholders: plc Shareholders in Italy will be
eligible to receive Warrants pursuant to the Corp Scheme only if the
number of such persons does not exceed 200.
Based on the advice of Italian legal counsel and such information as is
available to it, (i) Corp currently believes that the exemption with respect to
distributions of securities to limited numbers of persons will not be available
in connection with distributions in respect of claims by Bondholders located in
Italy under the Corp Scheme, and (ii) Corp and plc, respectively, believe that
there is significant doubt as to the availability of this exemption in
connection with other distributions to Scheme Creditors under the Corp Scheme
and in connection with distributions under the plc Scheme. The determination as
to whether securities can be distributed in reliance on this exemption will be
made by Corp or plc (as the case may be) in its sole discretion following the
Effective Date of the relevant Scheme based on the advice of Italian legal
counsel and such information as is available to it.
The Claim Form will require each person who completes it (other than the
Trustees), and the Account Holder Letter will require Account Holders, to
confirm certain facts in connection with the Italian legal restrictions
described above. To the extent that any person in Italy is not eligible to
receive securities pursuant to the Schemes by virtue of these restrictions, such
person will receive cash instead. These matters are discussed in further detail
in Part C.9 of this Section.
For these purposes, a person will be deemed to be located in Italy if such
person (i) is a natural person and is resident or domiciled within the
geographical territory of Italy or (ii) is a legal person and has its registered
office (sede legale) within the geographical territory of Italy or (iii) is a
legal person having any other office or conducting any business or other
activities within the geographical territory of Italy as a result of which it is
or is required to be registered in Italy.
SCHEME CREDITORS, BONDHOLDERS AND PLC SHAREHOLDERS IN ITALY SHOULD CAREFULLY
CONSIDER THE ELIGIBILITY CRITERIA DESCRIBED ABOVE, THE PROVISIONS OF THE SCHEMES
WITH RESPECT TO LEGAL AND REGULATORY RESTRICTIONS GENERALLY AND THE CONTENTS OF
THE CONFIRMATIONS TO BE INCLUDED IN THE CLAIM FORM AND ACCOUNT HOLDER LETTER AS
DESCRIBED IN PART C.9 OF THIS SECTION. ANY SUCH PERSONS WHO ARE IN DOUBT AS TO
HOW THESE RESTRICTIONS MAY AFFECT THEM ARE STRONGLY ADVISED TO CONSULT THEIR
PROFESSIONAL ADVISERS.
Persons in Italy should note that New Shares, New Notes or Warrants received
pursuant to an exemption may not be offered, sold or delivered nor may copies of
this document or any other document relating to the New Shares, New Notes or
Warrants be distributed in Italy except (i) pursuant to the exemptions under
Legislative Decree No. 58 of 24 February 1998 and its implementing CONSOB
Regulations, or (ii) to an Italian resident who submits an unsolicited offer to
purchase such New Shares, New Notes or Warrants.
Corp has formed the view, on the advice of Italian legal counsel, that the
distribution of New Shares pursuant to the Corp Scheme to plc Shareholders in
Italy is not currently prohibited by Italian law or regulation.
140
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MALAYSIA
Corp and plc have formed the view, on the advice of Malaysian legal counsel,
that the issue and allotment of New Shares, New Notes or Warrants to Scheme
Creditors, Bondholders, Designated Recipients or plc Shareholders located in
Malaysia would be prohibited except after compliance with unduly onerous
conditions.
The Claim Form will require each person who completes it (other than the
Trustees), and the Account Holder Letter will require Account Holders, to
confirm certain facts in connection with these Malaysian legal and regulatory
restrictions. Any person located in Malaysia will not be eligible to receive
securities pursuant to the Schemes and will receive cash instead, as described
in Part C.9 of this Section.
For these purposes, a person will be deemed to be located in Malaysia if such
person (i) is a natural person and is resident in Malaysia, or (ii) is a legal
person and has its principal place of business in Malaysia, or (iii) is deemed
to be resident in Malaysia for tax purposes pursuant to the Malaysian Income Tax
Act 1967 or any other Malaysian tax legislation.
SCHEME CREDITORS, BONDHOLDERS, DESIGNATED RECIPIENTS AND PLC SHAREHOLDERS
LOCATED IN MALAYSIA SHOULD NOTE THAT THEY WILL RECEIVE CASH IN LIEU OF ANY
SECURITIES TO WHICH THEY WOULD OTHERWISE BE ENTITLED UNDER THE SCHEMES, AND
SHOULD CAREFULLY CONSIDER THE RELEVANT PROVISIONS OF THE SCHEMES AS DESCRIBED IN
PART C.9 OF THIS SECTION.
D.18 CERTAIN SECURITIES LAW DISCLOSURES
This Part D.18 sets out certain disclosures in connection with the securities
laws of various jurisdictions. No action has been taken by Corp or plc that
would permit an offer or distribution of New Shares, New Notes or Warrants or
possession or distribution of this document or any offer of publicity material
in any jurisdiction where action for that purpose is required, other than in the
United Kingdom and as described below.
AUSTRALIA
This document has not been, and will not be, lodged with the Australian
Securities and Investments Commission as a disclosure document for the purpose
of Australia's Corporations Act 2001. The New Shares, New Notes and Warrants
that are the subject of this document will be distributed pursuant to exemptions
from, or in transactions not subject to the disclosure requirements of Chapter
6D of the Australia's Corporations Act 2001, and may not be offered for sale (or
transferred, assigned or otherwise alienated) to investors in Australia for at
least 12 months after their distribution, except in circumstances where
disclosure to investors is not required under Chapter 6D of the Australia's
Corporations Act 2001 or unless a compliant disclosure document is prepared and
lodged with the Australian Securities and Investments Commission.
LUXEMBOURG
The New Shares, New Notes and Warrants that are subject to this document will be
distributed pursuant to exemptions from or under a transaction not subject to
Luxembourg public offering law requirements and may consequently not be offered
or sold to the public in the Grand Duchy of Luxembourg, and neither this
document nor any other circular, prospectus, form of application, advertisement
or other material may be distributed, or otherwise made available in, or from or
published in, the Grand Duchy of Luxembourg, except in circumstances which do
not constitute a public offer of securities.
THE NETHERLANDS
The Prospectus together with the certificate of approval of the UKLA will be
submitted to the Authority for the Financial Markets (Autoriteit voor de
Financiele Markten) for mutual recognition (pursuant to section 3, paragraph 1
in conjunction with section 5, paragraph 2 of the Securities Transactions
Supervision Decree 1995).
Copies of the Prospectus will be available on request from Corp at its
registered office address.
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NEW ZEALAND
The offer (if any) and issue of New Shares, New Notes and Warrants is made in
accordance with the laws of the United Kingdom. This document is not a
prospectus registered under New Zealand law and does not contain all the
information that a New Zealand registered prospectus is required to contain.
Corp and plc may not be subject to New Zealand law and any instrument to be
issued under the Restructuring in relation to the New Shares, New Notes and
Warrants may not be enforceable in New Zealand courts.
D.19 MATERIAL CONTRACTS
A summary of the principal contents of each material contract (not being a
contract entered into in the ordinary course of business) entered into by Corp,
plc or their subsidiaries within the two years immediately preceding the date of
this document and those contracts entered into, or to be entered into by any
member of the Group (not in the ordinary course of business) which contain any
provision under which any member of the Group has, or will have, any obligation
or entitlement which is material to the Group at the date of this document or on
or about the date of implementation of the Restructuring appears in Appendix 19.
D.20 LITIGATION
Except as set out in Appendix 20, no member of the Group is or has been engaged
in nor, so far as Corp and plc are aware, has pending or threatened against it,
any legal or arbitration proceedings which may have, or have had during the
recent past (covering at least the 12 months preceding the date of this
document), a significant effect on the Group's financial position.
The UKLA has concluded its enquiries concerning plc's 4 September 2001 trading
announcement and has not made any finding of breach of the Listing Rules in
relation to it. Its enquiries concerning plc's 4 July 2001 trading announcement
have not been concluded. If it is determined that there has been a breach of the
Listing Rules, the UKLA may issue a public censure.
D.21 CORP WORKING CAPITAL STATEMENT
In the opinion of Corp, having regard to the facilities which will be available
to the Corp Group following the Effective Date, the working capital available to
the Corp Group will be sufficient for the Corp Group's present requirements as
from the Effective Date, that is from the Effective Date until 12 months
following the date of this document.
D.22 COSTS OF THE RESTRUCTURING
On the assumption that the Schemes are implemented on the timetable contemplated
in this document, Corp and plc estimate that the total costs and expenses
payable by the Group in relation to the Restructuring (including amounts payable
to advisers in relation to the Restructuring but not in relation to disposal of
businesses, litigation, general banking and derivatives advice and excluding
amounts payable to current and former employees), in relation to the period from
Corp and plc entering into negotiations with representatives of the
Co-ordination Committee and the Informal Committee of Bondholders regarding the
development of the Restructuring proposals of Corp and plc in March/April 2002
to the Effective Date of the Schemes, will be approximately L77,800,000
(excluding VAT).
Corp estimates that the ongoing costs of the implementation of the Corp Scheme
from the Effective Date, will be L6,500,000 (excluding VAT). This figure
includes advisers' fees and expenses in relation to the administration of the
Scheme including defending Allowed Proceedings, the remuneration and expenses of
the Supervisors, the Escrow Trustee and the Distribution Agent (including their
respective advisers' fees and expenses) and amounts payable to members of the
Creditors' Committee (including in respect of permitted advisers' fees and
expenses). The ongoing costs of the Corp Scheme are required to be met by Corp.
If Corp fails to meet the ongoing costs of the Corp Scheme the Supervisors are
entitled to have resort to any Corp Scheme Consideration that remains to be
distributed (generally subject to the consent of the Creditor's Committee, not
to be unreasonably withheld).
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The categories of the costs and expenses which plc anticipates will comprise its
Ongoing Costs from the Record Date are summarised in the Chairman's letter in
part I, Section 1 of this document. plc estimates that these will amount to no
more than L11,300,000 (including VAT) plus an amount which will be covered by
interest until the termination of the plc Scheme and the completion of a
subsequent dissolution or liquidation of plc. The plc Scheme provides that plc
will set aside the sum of L7,000,000 from the cash element of the Corp Scheme
Consideration received via Ancrane which, together with plc's cash of
approximately L2,300,000, interest on the aggregate of these two cash amounts
and L2,000,000 available to be drawn (at Corp's request) under a letter of
credit to be provided in favour of the plc Scheme Supervisors by HSBC Bank plc,
will be available to meet plc's Ongoing Costs.
D.23 PRINCIPAL SUBSIDIARY AND ASSOCIATED UNDERTAKINGS
The following table shows the principal subsidiary undertakings and other
associated companies of Corp, being those which are considered by Corp to be
likely to have a significant impact on the assessment of the assets and
liabilities, the financial position and/or the profits and losses of Corp Group.
Except where stated otherwise, the share capital is fully paid.
Class of share
Registered office or capital (issued and
Company Name and principal place of fully paid, unless
country of incorporation business otherwise stated) Proportion held Nature of business
------------------------ -------------------- ------------------- --------------- ------------------
Marconi New Century Park, Ordinary L1 100 per cent. Manufacture, sales and
Communications PO Box 53, service of
Limited Coventry, telecommunications systems
(UK) CV3 1HJ
UK
Marconi Via Ludovico Calda 5, Ordinary 15 Euros 100 per cent. Manufacture, sales and
Communications S.p.A. 16153 Genoa, service of
(Italy) Italy telecommunications systems
Marconi 1000 Marconi Drive, Common Shares 100 per cent. Manufacture, sales and
Communications, Inc. Warrendale, US$0.01 service of, inter alia,
(USA) Pennsylvania telecommunications systems
105086-7502
USA
Marconi Gerberstrasse 33, No share capital -- 100 per cent. Manufacture, sales and
Communications GmbH D71 522 Backnang, investment by way service of
(Germany) Germany of capital telecommunications systems
contribution
Easynet Group plc 44 Whitfield Street, Ordinary 4p 71.63 per cent. Network based provider of
(UK) London, W1P 5RF Convertible of the equity broadband services and
UK ordinary 4p share capital internet solutions
49.56 per cent.
of the voting
share capital
With the exception of Ancrane, which is discussed in Section 1 of this document,
following the Corp Scheme becoming effective there will be no subsidiary
undertakings or other associated companies of plc which are considered by plc to
be likely to have a significant impact on the assessment of the assets and
liabilities, the financial position and/or the profits and losses of plc Group
as it will then be.
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D.24 PRINCIPAL ESTABLISHMENTS
Details of the principal establishments of the Corp Group are set out below. plc
Group, excluding Corp Group, has no such principal establishments.
If current
leasehold, If leasehold, Approximate floor
Location Tenure rent per annum expiry of term area (square feet)
-------- ------ -------------- -------------- ------------------
AUSTRALIA
Victory, Level 1, Leasehold L112,368 2006 1,873
607 St Kilda Road,
Melbourne,
Victoria, 3004
Australia
Level 7, 9, & 13. Leasehold L492,000 2006 25,866
90 Arthur Street,
North Sydney,
New South Wales, 2060
Australia
BRAZIL
1st Floor, Rua Verbo Leasehold L49,110 2005 2,691
Divino
1488, Edificio Central
Transatlantico, Sao
Paulo
Brazil
5th Floor, Rua Verbo Leasehold L53,418 2005 8,676
Divino
1488, Edificio Central
Transatlantico, Sao
Paulo
Brazil
6th Floor, Rua Verbo Leasehold L213,965 2005 34,703
Divino
1488, Edificio Central
Transatlantico, Sao
Paulo
Brazil
Avenida 31 de Marco 61 Leasehold L56,558 2003 28,438
-- Votorantim
Brazil
CANADA
122 Edward Street, Freehold Not applicable Not applicable 45,000
St Thomas, Ontario,
N5P 1Z2
Canada
1135 Innovation Drive, Leasehold L1,361,000 2009 51,888
North Tech Campus,
Kanata, Ontario,
K2K 3G6
Canada
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If current
leasehold, If leasehold, Approximate floor
Location Tenure rent per annum expiry of term area (square feet)
-------- ------ -------------- -------------- ------------------
1375 Trans-Canada Hwy, Leasehold L1,102,000 2005 71,307
Dorval Quebec,
Montreal
H9P 2W8
Canada
CHINA
Building 106, Leasehold L19,402 2003 4,511
Wangjing
New Industrial Zone,
Lizeyusan. Chao Yang
District, Beijing
China
No. 98 Liu He Road, Leasehold L42,660 Indefinite 64,583
GuiLin, Guang Xi
China
1708, Westlands Leasehold L24,844 2003 2,476
Central,
20 Westlands Road,
Quarry Bay,
Hong Kong
China
GERMANY
Hueftelaecker 1 Freehold Not applicable Not applicable 8,762
71573 Allmersbach i. T
Backnang
Germany
Gerberstrasse 33 Freehold Not applicable Not applicable 714,160
71522 Backnang
Germany
SCALA West Leasehold L1,570,000 2011 116,500
SolmsstraSSe 83
60486 Frankfurt
Germany
Robert-Bosch Str. 10 Leasehold L441,044 Indefinite -- 64,335
01454 Radeberg 6 months'
Germany notice
Max-Planck Str. 1 Freehold Not applicable Not applicable 454,000
77656 Offenburg
Germany
INDIA
2nd Floor, Leasehold L61,320 2005 2,583
International Trade
Tower,
F Block, Nehru Place
New Delhi 110019.
India
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If current
leasehold, If leasehold, Approximate floor
Location Tenure rent per annum expiry of term area (square feet)
-------- ------ -------------- -------------- ------------------
ITALY
MARA 1 S.P. Leasehold L104,692 2004 22,604
Casapuzzano Marcianise
Italy
MARA 2 S.P. Leasehold L90,553 2004 22,604
Casapuzzano Marcianise
Italy
MAIN SITE S.P. Freehold Not Applicable Not applicable 113,021
Casapuzzano Marcianise
Italy
Via Ambrogio Freehold Not Applicable Not Applicable 284,899 including Via
Negrone 1/A Ludovico Calda 5.
(excluded L1 floor)
16153 Genova
Italy
Via Ludovico Calda 5 Freehold, Finance lease payment Finance lease See Via Negrone above
16153 Genova finance lease L755,834 arrangement
Italy ends January
2007, then
freehold
Via Alfieri 1 Pisa Leasehold L67,326 2003 5,382
Italy
MALAYSIA
Lot 24, Kumlim Leasehold No cost to Marconi 2046 348,483
Industrial Estate, Joint venture
00009, Kulm, Kedah, property
Daralam
Malaysia
Bangunar Tabung Haji, Leasehold RM 718,272 2003 19,002
18th Level,
201 Jalan Tun Razak,
50400
Kuala Lumpur
Malaysia
MEXICO
Ave. San Andres Atoto Leasehold L90,778 2004 56,058
165-D APARTADO
PSTL 77-001
Mexico D.F. Naucalpan
de Juarez,
Mexico 53550
Mexico
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If current
leasehold, If leasehold, Approximate floor
Location Tenure rent per annum expiry of term area (square feet)
-------- ------ -------------- -------------- ------------------
Ave. San Andres Atoto Leasehold L33,814 2004 10,764
165-A APARTADO
PSTL 77-001
Mexico D.F. Naucalpan
de Juarez,
Mexico 53550
Mexico
Ave. San Andres Atoto Leasehold L90,778 2004 56,058
165-B APARTADO
PSTL 77-001
Mexico D.F. Naucalpan
de Juarez,
Mexico 53550
Mexico
Plant 2, Calle 4 N01, Leasehold L193,321 2005 66,155
1A,
1C, 1D Fracc, Alc
Blanco,
Naucalpan de Juarez,
Estada de Mexico,
CP 53550
Mexico
Metepec No. 110, Leasehold L40,577 2003 12,917
Mexico DF, Naucalpan
de Juarez,
Mexico 53550
Mexico
No. 60 Parque Leasehold L11,796 2004 11,754
de Amargua,
Col. Parques de la
Herradura,
Huixquilucan Edo de
Mexico,
CP52785
Mexico
NEW ZEALAND
17 Shea Terrace, Leasehold L15,000 2003 1,238
Takapuna,
North Shore City,
Auckland
New Zealand
SAUDI ARABIA
19th & 20th Floors, Leasehold L314,026 2006 20,807
Al Faisaliah Building,
PO Box 9985,
Riyadh 11423
Saudi Arabia
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If current
leasehold, If leasehold, Approximate floor
Location Tenure rent per annum expiry of term area (square feet)
-------- ------ -------------- -------------- ------------------
Various residential Leasehold Variable Variable Variable
Leases.
Required as part of
business contract.
Saudi Arabia
SOUTH AFRICA
Iron Road, New Era, Freehold Not Applicable Not Applicable 318,289
Springs,
Johannesberg 1560
South Africa
SPAIN
Building E, Miniparc Leasehold L360,531 2004 21,506
III,
El Soto de la
Moraleja, Alcobendas.
Madrid
Spain
UNITED ARAB EMIRATES
37th Floor, Emirates Leasehold L186,004 2006 9,612
Towers,
Sheik Zayed Highway,
PO Box 71405,
Dubai,
UAE
UNITED KINGDOM
Siemens Technology Leasehold L967,900 (estimated 2005 65,326
House, at review April 2003)
Technology Drive,
Beeston,
Nottingham, NG9 1LA
UK
2B & Z Block, Siemens Leasehold L88,317 2003 17,663
Technology House,
Technology Drive,
Beeston,
Nottingham, NG9 1LA
UK
Waters Edge, Leasehold L408,000 2014 28,653
Watchmoor Business
Park,
Camberley, Surrey,
GU15 3PD
UK
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If current
leasehold, If leasehold, Approximate floor
Location Tenure rent per annum expiry of term area (square feet)
-------- ------ -------------- -------------- ------------------
Carr Lane, Chorley, Leasehold L135,000 2066 97,004
Lancs., PR7 3JP
UK
New Century Park, Leasehold L1,313,200 2021 618,924
PO Box 53,
Coventry, CV3 1HJ
UK
New Horizon Park, Leasehold L645,579 2005 314,000
Waterman Road Coventry
UK
13, Wilson Road, Leasehold L23,000 2076 105,497
Huyton,
Liverpool, L36 6AE
UK
Edge Lane, Leasehold L1,454,000 2012 221,010
Liverpool, L7 9NW
UK
4th Floor, Regent's Leasehold L660,000 Indefinite -- 7,104
Place, 3 months'
338 Euston Road, notice
London, NW1 3BT
UK
Harbour Exchange, Leasehold L294,000 2008 15,252
12th Floor, Docklands,
London
UK
Block A, The Hollies, Leasehold L97,700 2003 10,872
120 Newport Road.
Stafford, ST16 1DA
UK
18/20 Denington Road, Freehold Not applicable Not applicable 44,929
Wellingborough,
Northants
UK
UNITED STATES
Weston Corp. Centre, Leasehold L164,337 2006 9,375
2690 Weston Road,
Weston, Florida 33331
USA
Reltec Corporation, Freehold Not applicable Not applicable 172,004
104 Wiley Road,
La Grange,
Georgia 30240
USA
4350 Weaver Parkway Leasehold L438,773 2008 39,640
Warrenville Illinois
60555
USA
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If current
leasehold, If leasehold, Approximate floor
Location Tenure rent per annum expiry of term area (square feet)
-------- ------ -------------- -------------- ------------------
956 North Broadway Freehold Not applicable Not applicable 126,416
Extended,
Greenville,
Mississippi, MS 38702
USA
Evergood, 325 Welcome Freehold Not applicable Not applicable 158,000
Center Blvd.
Welcome NC 27374
North Carolina
USA
1000 Marconi Drive, Freehold Not applicable Not applicable 574,286
Warrendale, PA 15086
Pennsylvania
USA
1755 North Collins Leasehold L389,995 2005 28,007
Boulevard,
Richardson, TEXAS
75080
Texas.
USA
D.25 CORP GROUP INDEBTEDNESS STATEMENT
At the close of business on 21 February 2003, the total indebtedness of the Corp
Group was as follows:
L million
---------
Secured loans 17
Unsecured loans 4,578
Unsecured overdrafts 1
Finance lease obligations 6
---------
4,602
=========
Included within the indebtedness listed in the table above is L4,181 million
that is guaranteed by plc. In addition, included within unsecured loans is L263
million relating to loan creditor balances with plc and fellow subsidiaries of
plc outside the Corp Group.
Save as disclosed above, and apart from intra-group liabilities and guarantees,
the Corp Group did not have outstanding as at 21 February 2003 any material loan
capital (whether issued or created but unissued), term loans, other borrowings
or indebtedness in the nature of borrowing (including bank overdrafts and
liabilities under acceptances (other than normal trade bills) or acceptance
credits, mortgages, charges, hire purchase commitments and obligations under
finance leases) or material guarantees.
At 21 February 2003 the Corp Group had contingent liabilities in total of L30
million. In the opinion of Corp, these contingent liabilities are not expected
to have a material adverse effect on the Corp Group.
The Corp Group is engaged in a number of legal proceedings relating, amongst
other things, to class shareholder actions and claims relating to contracts,
industrial injury and patent infringement. The Corp Group is defending these
claims, the estimated possible unprovided exposure of which is included in the
contingent liabilities total disclosed above, and Corp currently believes that
the claims are unlikely to be settled for amounts resulting in material cash or
other asset outflows.
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At the close of business on 21 February 2003, the Corp Group had the following
cash balances:
L million
---------
Secured 763
Collateral against bonding facilities 122
Held by captive insurance company 17
---------
Restricted cash 902
Other 181
---------
Total cash at bank and in hand 1,083
=========
Of the secured cash, L720 million relates to amounts held under an interim
security by the Group's Syndicate Banks and Bondholders and also by Barclays
Bank PLC (in its capacity as an ESOP Derivative Bank) granted on 13 September
2002. A further L27 million relates to cash deposited against ESOP Derivative
Banks for the Strategic Communications business and L16 million relates to cash
deposited against secured loans in Italy.
For the purposes of the above, amounts denominated in currencies other than
sterling have been translated into sterling at the exchange rates prevailing at
the close of business on 21 February 2003.
D.26 NO SIGNIFICANT CHANGE
Save for the operating results for the three months ended 31 December 2002
disclosed in Part A of Appendix 4, there has been no significant change in the
financial or trading position of the Corp Group or the plc Group since 30
September 2002, the date to which the last audited consolidated accounts of the
Corp Group and the plc Group were prepared as set out in Appendix 1 and Appendix
3 respectively.
D.27 CORP INCORPORATION AND REGISTERED OFFICE
Corp was incorporated under the name The General Electric Company (1900) Limited
on 27 September 1900 under the Companies Acts 1862 to 1898 as a private limited
company limited by shares and registered in London, England with number 67307.
On 24 August 1903, The General Electric Company (1900) Limited changed its name
to The General Electric Company, Limited, on 29 November 1968 to The General
Electric and English Electric Companies Limited and on 17 September 1970 to The
General Electric Company Limited. On 4 January 1982, The General Electric
Company Limited was re-registered as a public limited company under the
Companies Acts 1948 to 1980 and became The General Electric Company, p.l.c. On 7
March 2000, The General Electric Company, p.l.c. changed its name to Marconi
Corporation plc.
The registered office of Corp and plc is at New Century Park, P.O. Box 53,
Coventry, Warwickshire, CV3 1HJ. Corp and plc have a head office at Regent's
Place, 338 Euston Road, London, NW1 3BT.
D.28 CORP SHARE CAPITAL
Information as to the authorised, issued and fully paid share capital of Corp is
set out in Appendix 13.
D.29 MATERIAL SHAREHOLDINGS IN CORP
Immediately following the Effective Date of the Corp Scheme the name of each
person (other than the Escrow Trustee and its nominee) who, directly or
indirectly, is expected to be interested in 3 per cent. or more of Corp's
ordinary share capital, and the amount of such person's interest is expected to
be as set out below. The Escrow Trustee's nominee is expected to hold up to 14
per cent. of the New Shares in issue immediately after the Effective Date, such
shares being held on trust for Scheme Creditors as provided in the Schemes and
the Escrow and Distribution Agreement. The Escrow Trustee's nominee has
instructions not to exercise any voting rights conferred by those shares. These
interests have been calculated by Corp based solely on the information
concerning Scheme Creditors (other than the Trustees and disputed creditors)
with Known Claims set out in Schedule 3 to each of the Schemes.
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Percentage of ordinary
Name No. of Corp Shares share capital of Corp
---- ------------------ ----------------------
Appaloosa Investment Ltd Partnership 48,717,593 4.87%
Cerebrus Partners LP New York 34,058,285 3.41%
Chase Manhattan Bank 33,843,309 3.38%
Neither Corp nor plc makes any representation as to whether or not any of the
above persons will retain, or whether any such person or any other person will
have acquired, an interest in any Known Claim at the Effective Date, whether any
such Known Claim will be Admitted in whole or part under the relevant Scheme or
whether any New Shares which any such person may receive under the Schemes will
be retained by such person after the Effective Date. Accordingly the above
calculation should not be relied upon as an accurate indication of the likely
material shareholdings in Corp on or after the Effective Date.
The holdings of Bonds by Bondholders (and therefore their prospective holdings
of New Shares) cannot be determined on the basis of the Known Claims set out in
Schedule 3 to each of the Schemes.
Save as disclosed in this Part D.29, Corp is not aware of any interest which
will represent 3 per cent. or more of the issued ordinary share capital of Corp
following the Effective Date of the Corp Scheme.
So far as Corp is aware, no person or persons, directly or indirectly, jointly
or severally exercise or could exercise control over Corp.
D.30 TAX
A description of certain UK and US tax consequences for Scheme Creditors and
Bondholders of implementation of the Schemes and of holding the Scheme
Consideration is set out in Appendix 17. Scheme Creditors and Bondholders in
jurisdictions other than the UK and the US are strongly urged to consult their
own professional advisers to determine their own tax position.
D.31 INSURANCE
The Group maintains the types of property and liability insurance which Corp and
plc regard as appropriate given the nature of the risks run in the course of its
business, and for amounts which they consider adequate. When considering the
appropriateness of insurance cover, the Group has made detailed assessments of
insurable risks using both in-house professionals and the advice of insurance
brokers. The Group has determined what it believes to be the appropriate level
of cover having regard, among other things, to the Group's loss record, the
industry in which it operates, its risk tolerance level, the cost of cover
relative to the risk, customer and legal requirements and any relevant and
available information on the levels of cover typically purchased by other
comparable companies which operate in the Group's industry.
D.32 ENVIRONMENTAL AND OTHER REGULATIONS
ENVIRONMENTAL AND EMPLOYEE HEALTH AND SAFETY MATTERS
The Group is subject to increasingly stringent regulation under various UK, US,
EU and other international, national and local laws and regulations relating to
employee safety and health, and environmental protection, including law and
regulations governing air emissions, water discharges and the use, management
and disposal of hazardous substances.
One of the many environmental laws affecting the Group in the US is the
Comprehensive, Environmental Response, Compensation, and Liability Act, which is
the primary federal statute governing clean-up of contaminated properties.
CERCLA can impose joint, several and retroactive liability for the costs of
investigating and cleaning up contaminated properties, without regard to fault
or the legality of the original conduct. Potentially liable parties under CERCLA
can include current and former owners or operators of a site, as well as those
who generate or arrange for the disposal of hazardous substances. Environmental
laws in other jurisdictions can also impose significant clean-up liabilities.
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The Group is currently conducting investigation and clean-up at approximately 20
contaminated sites, principally in the US including four clean ups pursuant to
obligations imposed under CERCLA. The remaining sites are being cleaned up
voluntarily in connection with a prior property sale or purchase, or pursuant to
government directive. The Group estimates the total cost to clean up all of
these sites will be between approximately L10 million and L20 million. A number
of these and other current and former Group sites were associated with hazardous
substance use and may give rise to unforeseen liabilities. The Group could
therefore incur additional clean-up costs upon the discovery of new
contamination at these or other sites for which the Group may be found to be
responsible, either directly under CERCLA or other laws, or through a
contractual indemnity obligation as the result of a prior property or business
sale. The Group also could incur additional costs as a result of any related
personal injury or property damage claims. Although such additional costs, if
any, could be substantial, the Group is not aware of any material claims and
does not expect future clean-up or related costs to materially affect the Group.
See Appendix 20 for a description of a toxic tort claim against Plessey
Precision Metals. This claim is in its early stages and no estimate of liability
can be formed at this point. Litigation is by its nature an unpredictable form
of risk and is disclosed wherever unliquidated damages are sought but no
information currently available to the Group indicates a material liability of
Plessey Precision Metals in this matter.
The European Commission has issued two directives which will require member
states of the EU to meet certain targets for collection, re-use and recovery of
waste electrical and electronic equipment. It is likely that these obligations
will be achieved through legislation placing the responsibility for meeting
these obligations on equipment producers. Producers will also be required to
phase out certain hazardous materials from the equipment. This legislation could
significantly increase costs to producers of electrical and electronic
equipment.
The Group regularly audits its facilities' compliance with employee safety and
environmental requirements. The Group has not incurred material capital
expenditures for environmental, health or safety matters during the past three
financial years, nor does the Group anticipate having to incur material capital
expenditures during the current or the succeeding financial years. Although
environmental costs cannot be predicted with certainty, the Group believes that
costs relating to non-compliance or liability under current environmental,
health and safety laws and regulations will not have a material adverse effect
on the Group's financial condition or results of operations as a whole.
OTHER GOVERNMENT REGULATION
The Group's products are subject to industry-specific government regulation and
legislation in the United States, the EU and throughout the world. For example,
the Group's Network Equipment business must comply with US Federal
Communications Commission requirements and regulations and other safety
regulations governing communications products sold in the United States. The
Group's businesses would suffer if they failed to obtain or lost the
certifications, clearances and authorisations required to participate in new or
existing projects. Further, the Group could be subject to fines, criminal
sanctions or the revocation of important licences and certifications if it fails
to comply with government regulations. The Group believes that any
non-compliance or liability under current government regulations will not have a
material adverse effect on the Group's financial condition or results of
operation as a whole.
D.33 NO WAIVER OF DIVIDENDS
There are no arrangements in existence under which future dividends of Corp are
to be waived or agreed to be waived.
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D.34 DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the office
of Allen & Overy, One New Change, London EC4M 9QQ during normal business hours
on any weekday (Saturdays, Sundays and public holidays excepted) up to the date
of the Scheme Meetings:
a. this document;
b. the Prospectus;
c. the existing memorandum and articles of association of Corp and the
Memorandum and Articles (being the proposed amended Memorandum, and
the proposed new Articles of Corp);
d. the memorandum and articles of association of plc;
e. the audited accounts of Corp for the three financial years ended 31
March 2000, 31 March 2001 and 31 March 2002;
f. the audited statutory accounts of plc for the financial years ended
31 March 2001 and 31 March 2002 and the audited interim financial
statements for the six months ended 30 September 2002;
g. the material contracts referred to in Appendix 19 (and drafts of
material contracts referred to in Appendix 19, which will be
replaced with executed versions as those contracts are executed);
h. the letters of current intention to support the Restructuring which
are referred to in Part D.1 of this Section and which are described
in more detail in paragraph 6 of Appendix 19;
i. all service contracts in relation to the Corp Directors;
j. all service contracts in relation to the plc Directors; and
k. the rules of the employee share schemes referred to in Part D.10 of
this Section.
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E. MATERIAL INTERESTS OF DIRECTORS AND TRUSTEES
E.1 DIRECTORS
The identities of the directors of Corp and plc are set out in Part A.10 of this
Section.
None of the directors of Corp and plc has any material interest (whether as
director, member, optionholder, creditor or otherwise) in the proposed
Restructuring except as disclosed below. Save as disclosed in this Part E.1 the
effect of the proposed Restructuring on interests of directors of Corp and plc
will not be different from the effect on similar interests of other persons.
DIRECTORS' SERVICE AGREEMENTS AND EMOLUMENTS
The executive directors' contracts are with Corp. New forms of service agreement
have been executed between Corp and each of Michael Parton and Michael Donovan,
to be effective on the Effective Date. The summary below refers to the
agreements (a) as they currently stand and (b) as they will be on and after the
Effective Date.
a. Directors' current service agreements and emoluments
The following executive directors currently have service agreements with Corp as
follows:
MICHAEL PARTON, as Chief Executive Officer, has a service agreement dated 2 May
2002 with plc, which was novated to Corp on 10 January 2003. The agreement lasts
until Mr Parton's sixty-second birthday but may be terminated earlier by either
party giving to the other twelve months' notice. The basic salary is L525,000
per annum, which is reviewable on 1 July 2003 (and thereafter annually) and Mr
Parton is eligible to participate in such incentive and stock option plans as
are generally offered to employees of Mr Parton's status. His agreement provides
for participation in a company car scheme and private medical healthcare for
himself and his family.
Mr Parton is entitled to participate in UK Plan (described in Part D.11 of this
Section) to which he contributes 3 per cent. of his basic salary (up to a
maximum of 15 per cent. of the Inland Revenue earnings cap, which is L97,200 in
the 2002/2003 tax year). As a consequence of the earnings cap restricting the
amount an employer can contribute into an exempt approved pension plan, Mr
Parton has a funded unapproved retirement benefits scheme (a "FURBS"), to which
Corp contributes an amount equal to 21 per cent. of his basic salary (with a
further 14 per cent. of his basic salary being paid to Mr Parton). In addition,
and as compensation for Mr Parton changing a defined benefit pension arrangement
into a defined contribution plan in 2002, Corp has agreed to make net
contributions of L88,250 to the FURBS and associated non-pensionable allowances
of L58,833.33 to Mr Parton himself on 15 April 2003, 15 July 2003, 15 October
2003 and 15 January 2004. The payments are conditional on Mr Parton remaining in
employment with Corp and if his employment is terminated (other than for cause),
any payments which have not been made on or before the termination date will
become due immediately. FURBS contributions for Mr Parton are paid to the FURBS
and to Mr Parton himself in the ratio 60:40. This is because the contributions
are taxable benefits, so the payment to Mr Parton is to offset the higher income
tax charge for which he is liable. The FURBS documents oblige Corp to fund an
unapproved life assurance scheme, which is to provide a lump sum on death in
service of four times basic salary and a widow's pension of four-ninths of final
pensionable salary.
The service agreement contains a provision entitling Corp to make a payment in
lieu of notice (a "PILON" payment) if it terminates the service agreement
without giving Mr Parton 12 months' notice. The PILON payment comprises the
following amounts for the notice period (or the unexpired balance of it: (i)
base salary, (ii) 100 per cent. of contributions to his FURBS, (iii) the cost
(to the employer) of providing benefits (other than bonus and pension) (which
cost Corp may set at 10 per cent. of Mr Parton's base salary) and (iv) 80 per
cent. of average core bonuses awarded in the last three completed financial
years immediately preceding the financial year in which the employment
terminates (pro rata for the PILON period).
In addition, the service agreement includes a change of control clause which
defines "Change of Control" as (a) the acquisition by any person or persons of
the power to control the composition of the board of directors or direct the
conduct of the company's business or (b) the determination by the remuneration
committee that a change of control has occurred. If within 12 months of a Change
of Control (i) Mr Parton's employment is terminated (other than for cause or
following prolonged sickness), or (ii) he ceases to be a director (other than
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through voluntary resignation or as a consequence of termination for
cause/prolonged sickness), or (iii) Mr Parton terminates his employment for one
or more "good reasons" (comprising material reduction of his status following
changes by Corp of his duties, a failure by Corp materially to comply with its
contractual obligations or a failure by Corp to enter into a new arrangement on
the same terms) then Mr Parton will be entitled to liquidated damages. The
liquidated damages comprise: his basic salary for his notice period, his pension
loss (comprising 166 per cent. of the cash equivalent transfer value of the
pension arrangements he would have accrued in the notice period under the main
UK Plan plus 100 per cent. of the contributions which would have been paid to
his FURBS), the cost to Corp providing other benefits (excluding pension and
bonus) in the notice period (which cost Corp may determine at 10 per cent. of Mr
Parton's base salary), a bonus equal to his basic annual salary plus the value
of share rights foregone. Any payment will be subject to tax.
There is a provision to place Mr Parton on garden leave if notice to terminate
is served by either party. Garden leave does not trigger the PILON payment. Mr
Parton is subject to post-termination protective covenants relating to
non-solicitation of clients and managerial or technical employees, non-dealing
with clients and not competing with the Group's business. All the covenants are
stated to last for 12 months.
Mr Parton is a member of the Retention and Emergence plan (described in Part
D.10 of this Section). The plan promises a bonus equal to 150 per cent. of his
base salary, paid in four equal tranches, two of which have been paid. The third
tranche, payable after restructuring, has yet to be paid but the fourth tranche
is to be waived.
MICHAEL DONOVAN, as Chief Operating Officer, has a service agreement dated 1
June 2002 with plc, whose obligations were guaranteed by Marconi Communications
Limited. The agreement was novated to Corp on 17 March 2003 (with Marconi
Communications Limited continuing to act as guarantor). The agreement lasts
until Mr Donovan's 62nd birthday but may be terminated earlier by Corp on 12
months' notice and by Mr Donovan on 6 months' notice. The basic salary is
L400,000 per annum, which is reviewable on 1 July 2003 (and thereafter
annually). Mr Donovan is eligible to participate in such incentive and stock
option plans as are generally offered to employees of Mr Donovan's status. His
agreement provides for a company car and private medical health care for himself
and his family.
Mr Donovan is entitled to participate in the UK Plan (described in Part D.11 of
this Section) to which he contributes three per cent. of his basic salary (up to
a maximum of 15 per cent. of the Inland Revenue earnings cap). As a consequence
of the earnings cap restricting the amount an employer can pay into an exempt
approved pension plan, Mr Donovan also has a funded unapproved retirement
benefits scheme (a "FURBS"). The documentation setting out Mr Donovan's FURBS
was amended by the terms of his service agreement (detailed below). Mr Donovan's
FURBS is funded on a defined benefit basis, with projected benefits of
two-thirds of his final pensionable salary. The current contribution rate (to be
reviewed in May 2003) is 39 per cent. of his base salary (although while Mr
Donovan is posted to the US, the rate is 46 per cent., owing to local tax
legislation). If Mr Donovan leaves service on the grounds of ill-health and
receives an immediate ill-health pension from the UK Plan, the total pension
payable to him will be two-thirds of his final pensionable salary of the date of
leaving. The actual FURBS documentation refers to a defined contribution
arrangement (based on 35 per cent. of that part of Mr Donovan's salary in excess
of the earnings cap). In addition, it contains an unfunded promise to make up
the difference (if any) between the level of benefits under the UK Plan and the
FURBS and the benefits to which Mr Donovan would have been entitled had he
remained in two pension schemes operated by group companies of his previous
employer (BAE Systems). A decision was taken to fund the FURBS on a defined
benefit basis rather than to risk the unfunded top-up obligation being called
upon and Mr Donovan's service agreement (which sets out the defined benefit
basis of the plan) amends the earlier, defined contribution wording. FURBS
contributions for Mr Donovan are paid into the FURBS and to Mr Donovan himself
in the ratio of 60:40 (or as necessary under US tax law). This is because the
contributions are taxable benefits, so the payment to Mr Donovan is to offset
the higher income tax charge for which he is liable. The FURBS documents oblige
Corp to fund an unapproved life assurance scheme, which is to provide a lump sum
on death in service or four times basic salary and a widow's pension of
four-ninths of final pensionable salary.
The service agreement contains a provision entitling Corp to make a payment in
lieu of notice if it terminates the service agreement without giving Mr Donovan
12 month's notice. The PILON payment comprises the same elements as Mr Parton's
agreement (described above) save that the compensation for loss of pension
benefits differs. Instead of receiving 100 per cent. of the employer
contribution to his FURBS, Mr Donovan is entitled to
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an amount equal to 166 per cent. of the cash equivalent transfer value of the
additional pension benefits (net of income tax) which Mr Donovan would have
accrued in the UK Plan if he had been asked to work his notice. In addition, Mr
Donovan would be entitled to an amount equal to 166 per cent. of the net
contributions which Corp would have paid to his FURBS during the unexpired
noticed period.
In addition, the contract includes a change of control clause. "Change of
control" is defined as (i) the acquisition by a person of the power to control
the composition of the board (or to secure the company's affairs are conducted
in accordance with that person's wishes) or (ii) the persons who were on Corp's
board of directors at the date of the agreement (or persons subsequently
appointed by two-thirds of those directors) (the "Incumbent Board") ceasing for
any reason to constitute the majority of Corp's board, or (iii) a "Business
Reconstruction" occurs (widely defined to include any disposition of all or
substantially all the of the equity in or the business and/or assets of Corp the
company to any person to other than another group company (or any other similar
transaction)). The definition of Business Reconstruction is, however, qualified
so that, for example, there is no trigger if there is an entity immediately
resulting from the reorganisation which has shareholders who (before and after
the reconstruction) hold more than 50 per cent. of the shares (in similar
proportions), does not have one person holding 20 per cent. or more of the
voting rights and where the majority of the board of the resulting entity were
members of the Incumbent Board who decided upon the reconstruction, or (iv) the
company's shareholders approve the dissolution of the company (except pursuant
to a Business Reconstruction fulfilling certain criteria). If within 12 months
of a change of control, Mr Donovan's employment is terminated or he resigns for
one or more specified "good reasons", he will be entitled to liquidated damages.
The damages are calculated on the same basis as the PILON payment, save that
there is compensation for loss of share schemes rights and there is an assumed
bonus equal to one year's salary.
There is provision to place Mr Donovan on garden leave if notice to terminate
was served by either party. Garden leave does not trigger the PILON payment. Mr
Donovan is subject to post-termination protective covenants relating to
non-solicitation of clients and managerial or technical employees, non-dealing
with clients and not competing with the Group's business. All the covenants are
stated to last for twelve months, save for the non-compete clause which lasts
for six months.
Mr Donovan also has an arrangement relating to his location in the United
States, which contains expatriate arrangements to cover relocation, housing,
exchange rate fluctuation, flights for himself and his family and matters common
to expatriate terms for senior executives.
Mr Donovan is a member of the Retention and Emergence Plan (described in Part
D.10 of this Section). The plan promises a bonus equal to 150 per cent. of his
base salary, paid in four each tranches, two of which have been paid. The third
tranche, payable after restructuring, has yet to be paid but the fourth tranche
is to be waived.
CHRISTOPHER HOLDEN, as Interim Chief Financial Officer, has a service agreement
with Corp dated 13 December 2002 (as varied by a deed dated 28 January 2003).
His role is as interim chief financial officer of Corp and plc, but Corp can
re-assign him to another position, so long as it is commensurate with his status
and seniority. The contract is for a fixed term, commencing on 14 November 2002
and ending on 30 June 2003. The basic salary is L25,000 per month, inclusive of
directors' fees. Mr Holden is entitled to join the UK Plan but there are no
other pension or incentive arrangements set out in his contract. Corp is
entitled to terminate Mr Holden's employment immediately by making a payment in
lieu of the base salary he would have otherwise earned in the balance of his
fixed term. Mr Holden is subject to post termination protective covenants, all
of which are to last for six months following the termination date. The
covenants cover non-solicitation of clients, non-dealing with clients,
non-poaching of managerial or technical employees and non competing with Group
companies.
JOHN DEVANEY, as Chairman, has a service agreement with Corp dated 14 March 2003
to which plc is also a party to take the benefits of Mr Devaney's covenants. The
agreement is effective on and from 16th December 2002. All payments and benefits
due to Mr Devaney are payable by Corp. The agreement is terminable by either
party on three months' notice and terminates automatically on Mr Devaney's 65th
birthday. Mr Devaney's salary is L250,000 per annum and he is required to devote
three days per week to his duties. Mr Devaney is entitled to participate in the
Senior Management Share Option Plan and to membership of the UK Plan. His
benefits comprise private medical insurance, life insurance, company car and
fifteen working days' holiday per annum.
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The agreement lists the companies in respect of which Mr Devaney is already a
director and permits him to continue those other interests, so long as they do
not affect his obligations under the service agreement. Consent may not be
unreasonably withheld or delayed should Mr Devaney wish to be interested in
companies substituted for, or additional to, the agreed list of companies from
time to time provided that his duties are not adversely affected and that he
does not contravene the overriding obligation not to hold more than 5 per cent
in any class of securities in any competing business.
There are no clauses relating to payments in lieu of notice or change of control
and there are no restrictive covenants.
Each of the other Directors of Corp and plc has terms of appointment as follows:
KENT ATKINSON was appointed a non-executive director of Corp and plc on 16
December 2002 for an initial term of three years (subject to the Articles and
described below). Mr Atkinson's duties include chairmanship of the audit and
membership of the nomination and remuneration committees. His fee is L30,000 per
annum (which includes the fee payable as a non-executive director of plc) based
on him spending two days per month on his duties for both companies. Mr Atkinson
will also be entitled to a fee of L15,000 per annum for so long as he serves as
chairman of the audit committee. Although he will not normally be expected to
provide his services for more than 52 days per annum, he is entitled to a fee of
L1,500 per day for each additional day worked over the two day per month
threshold. These fees are reviewable annually on 1 July and Corp will reimburse
business expenses. Mr Atkinson will also be entitled to an advance fee for each
of the first three years of his appointment. The fee payable will be L100,000
for the first year and L30,000 for each of the next two years which will be net
of any tax and national insurance contributions. The net amount of each year's
fee will be invested in Corp Shares. Mr Atkinson has agreed to hold the Corp
Shares acquired with the first year's advance fee for three years from the date
of his appointment and the Corp Shares acquired with each of the next two years'
payment for at least one year. If Mr Atkinson's appointment terminates in any
year for which an advance fee has been paid he is obliged to repay a pro-rated
amount of that year's fee. There is no other remuneration nor benefits.
DEREK BONHAM was appointed as a non-executive director of plc on 10 April 2001
and became interim Chairman on 4 September 2001. As from 31 March 2002, his fee
for this role was fixed at L180,000 per annum and his benefits include
reimbursement of expenses. He ceased to be Chairman on 16 December 2002 and it
is currently anticipated that he will remain a non-executive director of plc
until implementation of the plc scheme when he will resign as a director of plc.
He is currently chairman of plc's remuneration committee. Mr Bonham has agreed
that his fee as a non-executive director of plc will be paid by Corp (in
consideration of the value to Corp of Mr Bonham agreeing to continue providing
his services to plc).
WERNER KOEPF was appointed a non-executive director of Corp and plc on 16
December 2002 for an initial term of three years (subject to the Articles and
described below). Mr Koepf's duties include membership of the audit,
remuneration and nomination committees. His fee is L30,000 per annum (which
includes the fee payable as a non-executive director of plc) based on him
spending two days per month on his duties for both companies. Although he will
not normally be expected to provide his services for more than 52 days per
annum, he is entitled to a fee of L1,500 per day for each additional day worked
over the two day per month threshold. These fees are reviewable annually on 1
July and Corp will reimburse business expenses. Mr Koepf will also be entitled
to an advance fee for each of the first three years of his appointment. The fees
payable will be L100,000 for the first year and L30,000 for each of the next two
years which will be net of any tax and national insurance contributions. The net
amount of each year's fee will be invested in Corp Shares. Mr Koepf has agreed
to hold the Corp Shares acquired with the first year's advance fee for three
years from the date of his appointment, and the Corp Shares acquired with each
of the next two year's payment for at least one year. If Mr Koepf's appointment
terminates in any year for which an advance fee has been paid he is obliged to
repay a pro-rated amount of that year's fee. There is no other remuneration nor
benefits.
KATHLEEN RUTH FLAHERTY'S appointment as a non-executive director of Corp will
take effect on Listing of the New Shares, the New Notes and the Warrants for an
initial term of three years (subject to the Articles and as described below). Ms
Flaherty's duties include membership of the remuneration and nomination
committees. Her fee is L30,000 per annum based on her spending two days per
month on her duties for Corp. She is entitled to a fee of L1,500 per day for
each additional day over the two days per month threshold. Her fee is reviewable
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annually on 1 July and Corp will reimburse business expenses. Ms Flaherty will
also be entitled to an advance fee of L30,000 for each of the first three years
of her appointment which will be net of any tax and national insurance
contributions. The net amount of each year's fee will be invested in Corp
Shares. Ms Flaherty has agreed to hold the Corp Shares acquired with the first
year's advance fee for three years from the date of her appointment and the Corp
Shares acquired with each of the next two years' payment for one year. If Ms
Flaherty's appointment terminates in any year for which an advance fee has been
paid she is obliged to repay a pro-rated amount of that year's fee. There is no
other remuneration nor benefits.
IAN MCMASTER CLUBB'S appointment as a non-executive director of Corp will take
effect on Listing of the New Shares, the New Notes and the Warrants for an
initial term of three years (subject to the Articles and as described below). Mr
Clubb's duties include chairmanship of the remuneration committee and membership
of the audit and nomination committees. His fee is L30,000 per annum based on
his spending two days per month on his duties for Corp. Mr Clubb will also be
entitled to a fee of L10,000 per annum for so long as he serves as chairman of
the remuneration committee. He is entitled to a fee of L1,500 per day for each
additional day over the two day per month threshold. His fee is reviewable
annually on 1 July and Corp will reimburse business expenses. Mr Clubb will also
be entitled to an advance fee of L30,000 for each of the first three years of
his appointment which will be net of any tax and national insurance
contributions. The net amount of each year's fee will be invested in Corp
Shares. Mr Clubb has agreed to hold the Corp Shares acquired with the first
year's advance fee for the three years from the date of his appointment and the
Corp Shares acquired with each of the next two years' payment for one year. If
Mr Clubb's appointment terminates in any year for which an advance fee has been
paid he is obliged to repay a pro-rated amount of that year's fee. There is no
other remuneration nor benefits.
The existing articles provide for the removal of a director by (amongst other
causes) the written requirement of at least three-quarters of the other Corp
Directors or by ordinary resolution of the shareholders. Conditional on the
allotment of the New Shares, new articles of association will be adopted which
amend these provisions by requiring special notice to be given of the ordinary
resolution and furthermore, providing for the removal of a director by
extraordinary resolution.
For the financial year ended 31 March 2002, the aggregate remuneration
(including salaries, fees, pension contributions, shares payments and benefits
in kind) granted to the Directors by plc (no fees were payable in respect of
Corp) was approximately L2,287,000. It is estimated that for the financial year
ending 31 March 2003, under arrangements in force at the date of this document,
the aggregate remuneration of the Directors of Corp will be approximately
L5,165,000.
Save for an agreement by Michael Parton and by Michael Donovan to waive the
first two payments under an annual incentive bonus plan (20 per cent. of basic
salary) and the last payment under of the R&E Plan (37.5 per cent. of basic
salary), there is no arrangement under which a Director has waived or agreed to
waive future emoluments nor have there been any such waivers during the
financial year immediately preceding the date of this document.
There are no outstanding loans or guarantees granted or provided by any member
of the Group to, or for the benefit of, any of the Directors.
b. Directors' new service agreements
With effect from the Effective Date, service agreements of the following
Executive Directors with Corp replace their existing service agreements and will
take effect as follows:
MICHAEL PARTON, as Chief Executive Officer, will have a service agreement which
will take effect from the Effective Date. The agreement will last until Mr
Parton's sixty-second birthday but may be terminated earlier by Corp giving
twelve months' notice and by Mr Parton giving six months' notice. The basic
salary will be L525,000 per annum (inclusive of directors' fees), which will be
reviewable on 1st July 2004 (and thereafter annually) and Mr Parton is eligible
to participate in the senior management share option plan. His agreement
provides for participation in a company car scheme and private medical
healthcare for himself and his family.
Mr Parton will be entitled to participate in the UK Plan (described in Part D.11
of this Section) to which he contributes 3 per cent. of his basic salary (up to
a maximum of 15 per cent. of the Inland Revenue earnings cap,
159
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which is L97,200 in the 2002/2003 tax year). As a consequence of the earnings
cap restricting the amount an employer can contribute into an exempt approved
pension plan, Mr Parton will continue to have a funded unapproved retirement
benefits scheme, to which Corp will contribute an amount equal to 21 per cent.
of his basic salary (with a further 14 per cent. of his basic salary being paid
to Mr Parton). In addition, and as compensation for Mr Parton changing a defined
benefit pension arrangement into a defined contribution plan in 2002, Corp has
agreed to make net contributions of L88,250 to the FURBS and associated
non-pensionable allowances of L58,833.33 to Mr Parton himself on 15 April 2003,
15 July 2003, 15 October 2003 and 15 January 2004. The payments are conditional
on Mr Parton remaining in employment with Corp and if his employment is
terminated (other than for cause), any payments which have not been made on or
before the termination date will become due immediately. FURBS contributions for
Mr Parton are paid to the FURBS and to Mr Parton himself in the ratio 60:40.
This is because the contributions are taxable benefits, so the payment to Mr
Parton is to offset the higher income tax charge for which he is liable. The
FURBS documents oblige Corp to fund an unapproved life assurance scheme, which
is to provide a lump sum on death in service of four times basic salary and a
widow's pension of four-ninths of final pensionable salary.
The service agreement will contain a provision entitling Corp to make a payment
in lieu of notice if it terminates the service agreement without giving Mr
Parton 12 months' notice. The amount of the payment is at the reasonable
discretion of the remuneration committee which is to consider the relationship
between the Group's and Mr Parton's performance. The maximum PILON payment may
not exceed the aggregate of the following amounts for the notice period (or the
unexpired balance of it): (i) base salary (ii) 166 per cent. of the cash
equivalent transfer value of the pension contributions (net of tax) which would
have accrued in the UK Plan; (iii) 100 per cent. of the gross contributions
which Corp would have paid in respect of Mr Parton's FURBS and (iv) the cost (to
Corp) or providing benefits (other than bonus, pension and incentive
entitlements) (which cost Corp may set at 10 per cent. of Mr Parton's base
salary). If Corp does not make a full PILON payment (i.e. if the remuneration
committee reduces the amount payable), Mr Parton's protective covenants will
enure for a proportionately shorter period after the termination of his
employment.
In addition, the service agreement will include a change of control clause which
provide Mr Parton with a right to a payment if, following the Restructuring,
there is a change of control of Corp and one of the events described below
occurs. Change of control is defined as the acquisition of the power to control
the composition of the board of Corp or (by a variety of means) that its affairs
are conducted in a certain manner. If, immediately following an acquisition of
Corp's shares, the shares in the acquiring company are all held by the holders
of the shares of Corp immediately prior to the acquisition in materially the
same proportion as prior to the acquisition, then that will not constitute a
change of control. If the terms of the clause are triggered, Mr Parton will be
entitled to a payment calculated on the same basis as the PILON payment. The
events are:
(a) Corp or any other Group Company terminating employment (other than
for cause);
(b) Mr Parton ceasing to be a director of Corp other than by reason of
his voluntary resignation; or
(c) if Mr Parton terminates the service agreement for a "good reason".
The good reasons are one or more of the following:
- a failure to maintain Mr Parton in the role (or a substantially
equivalent position, with Corp or any Group Company) which he
held immediately prior to the change of control;
- an adverse change of material consequence in the nature or scope
of the authorities, powers, functions, responsibilities or
duties attached to the position which Mr Parton held immediately
prior to the change of control;
- a reduction in the aggregate of Mr Parton's basic annual salary
and share based incentives and other benefits received from Corp
or any Group Company, or the termination or denial of Mr
Parton's rights to employee benefits or a substantial reduction
in the scope or value thereof where such reduction is not
applied to other employees of a similar status and seniority to
Mr Parton;
- a change in the scope of the business or other activities for
which Mr Parton was responsible immediately prior to the change
of control, which has rendered Mr Parton substantially
160
I. EXPLANATORY STATEMENT
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SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART E
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unable to carry out, has substantially hindered Mr Parton's
performance of, or has caused him to suffer a substantial
reduction in, any of the authorities powers, functions,
responsibilities or duties attached to his position held;
- Corp requiring Mr Parton to have his principal location of work
changed to any location that is in excess of 25 miles from its
location immediately prior to the change of control without his
prior written consent; or
- any material breach of the service agreement by Corp or any
successor.
In each case of a "good reason", however, Mr Parton must first have notified
Corp of the act or omission and Corp must have failed within 10 calendar days to
gain Mr Parton's agreement to any change or must in that period have remedied
the act or omission.
There will be a provision to place Mr Parton on garden leave if notice to
terminate is served by either party (without triggering any PILON payment). Mr
Parton is subject to post-termination protective covenants relating to
non-solicitation of clients and managerial or technical employees, non-dealing
with clients and not competing with the Group's business. All the covenants are
stated to last for 12 months, save for that relating to non-competing, which
lasts for six months. See the comments relating to PILON payments for a
potential reduction in the periods of such protective covenants.
Mr Parton is a member of the Retention and Emergence Plan (described in Part
D.10 of this Section). The plan promises a bonus equal to 150 per cent. of his
base salary, paid in four each tranches, two of which have been paid. The fourth
tranche is to be waived.
MICHAEL DONOVAN, as Chief Operating Officer, will have a service agreement with
Corp which will take effect on the Effective Date. The agreement will last until
Mr Donovan's sixty-second birthday but may be terminated earlier by Corp giving
twelve months' notice and by Mr Donovan giving six months' notice. The basic
salary is L400,000 per annum (inclusive of director's fees), which will be
reviewable on 1 July 2004 (and thereafter annually) and Mr Donovan will be
eligible to participate in the senior management share option plan. His
agreement will provide for participation in a company car scheme and private
medical healthcare for himself and his family.
Mr Donovan will be entitled to participate in the UK Plan (described in Part
D.11 of this Section) to which he contributes 3 per cent. of his basic salary
(up to a maximum of 15 per cent. of the Inland Revenue earnings cap). As a
consequence of the earnings cap restricting the amount an employer can pay into
an exempt approved pension plan, Mr Donovan also will have a funded unapproved
retirement benefits scheme. Mr Donovan's FURBS is funded on a defined benefit
basis, with projected benefits of two-thirds of his final pensionable salary.
The pension will be made up from Mr Donovan's benefits under the UK Plan, the
FURBS, two BAE pension plans and any other retained benefits he may have. If Mr
Donovan retires on or after his fifty-fifth birthday, there will be no actuarial
reduction in the value of his benefits. The current contribution rate (to be
reviewed in May 2003) is 39 per cent. of his base salary (although while Mr
Donovan is posted to the US, the rate is 46 per cent., owing to local tax
legislation). If Mr Donovan leaves service on the grounds of ill-health and
receives an immediate ill-health pension from the UK Plan, the total pension
payable to him will be two-thirds of his final pensionable salary of the date of
leaving. FURBS contributions for Mr Donovan are paid into the FURBS and to Mr
Donovan himself in the ratio of 60:40 (or as necessary under US tax law). This
is because the contributions are taxable benefits, so the payment to Mr Donovan
is to offset the higher income tax charge for which he is liable. The FURBS
documents oblige Corp to fund an unapproved life assurance scheme, which is to
provide a lump sum on death in service or four times basic salary and a widow's
pension of four-ninths of final pensionable salary.
The service agreement will contain a provision entitling Corp to make a payment
in lieu of notice if it terminates the service agreement without giving Mr
Donovan 12 months' notice. The PILON payment comprises the following amounts for
the notice period (or the unexpired balance of it): (i) base salary (ii) 166 per
cent. of the cash equivalent transfer value of the pension contributions (net of
tax) which would have accrued in the UK Plan; (iii) 166 per cent. of the net
contributions which Corp would have paid into Mr Donovan's FURBS and (iv) the
161
I. EXPLANATORY STATEMENT
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SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART E
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cost (to Corp) or providing benefits (other than bonus, pension and incentive
entitlements) (which cost Corp may set at 10 per cent. of Mr Donovan's base
salary). The PILON payment would be taxable in Mr Donovan's hands.
In addition, the service agreement will include a change of control clause which
provide Mr Donovan with a right to a payment if, following the Restructuring,
there is a change of control of Corp and one of the events described below
occurs. Change of control is defined as the acquisition of the power to control
the composition of the board of Corp or (by a variety of means) that its affairs
are conducted in a certain manner. If, immediately following an acquisition of
Corp's shares, the shares in the acquiring company are all held by the holders
of the shares of Corp immediately prior to the acquisition in materially the
same proportion as prior to the acquisition, then that will not constitute a
change of control. If the terms of the clause are triggered, Mr Donovan will be
entitled to a payment calculated on the same basis as the PILON payment. The
events are:
(a) Corp or any other Group Company terminating employment (other than
for cause);
(b) Mr Donovan ceasing to be a director of Corp other than by reason of
his voluntary resignation; or
(c) if Mr Donovan terminates the service agreement for a "good reason".
The good reasons are one or more of the following;
- a failure to maintain Mr Donovan in the role (or substantially
equivalent position, with Corp or any Group Company) which he
held immediately prior to the change of control;
- an adverse change of material consequence in the nature or scope
of the authorities, powers, functions, responsibilities or
duties attached to the position which Mr Donovan held
immediately prior to the change of control;
- a reduction in the aggregate of Mr Donovan's basic annual salary
and share based incentives and other benefits received from Corp
or any Group Company, or the termination or denial of Mr
Donovan's rights to employee benefits or a substantial reduction
in the scope or value thereof where such reduction is not
applied to other employees of a similar status and seniority to
Mr Donovan;
- a change in the scope of the business or other activities for
which Mr Donovan was responsible immediately prior to the change
of control, which has rendered Mr Donovan substantially unable
to carry out, has substantially hindered Mr Donovan's
performance of, or has caused him to suffer a substantial
reduction in, any of the authorities powers, functions,
responsibilities or duties attached to his position held
- Corp requiring Mr Donovan to have his principal location of work
changed to any location that is in excess of 25 miles from its
location immediately prior to the change of control without his
prior written consent; or
- any material breach of the service agreement by Corp or any
successor.
In each case of a "good reason", however, Mr Donovan must first have notified
Corp of the act or omission and Corp must have failed within 10 calendar days to
gain Mr Donovan's agreement to any change or must in that period have remedied
the act or omission.
There will be a provision to place Mr Donovan on garden leave if notice to
terminate is served by either party (without triggering the PILON payment). Mr
Donovan is subject to post-termination protective covenants relating to
non-solicitation of clients and managerial or technical employees, non-dealing
with clients and not competing with the Group's business. All the covenants are
stated to last for 12 months, save for that relating to non-competing, which
lasts for six months.
Mr Donovan also will have an arrangement relating to his location in the United
States, which contains expatriate arrangements to cover relocation, housing,
exchange rate fluctuation, flights for himself and his family and matters common
to expatriate terms for senior executives.
162
I. EXPLANATORY STATEMENT
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SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART E
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Mr Donovan is a member of the Retention and Emergence Plan (described in Part
D.10 of this Section). The plan promises a bonus equal to 150 per cent. of his
base salary, paid in four each tranches, two of which have been paid. The fourth
tranche is to be waived.
JOHN DEVANEY'S service agreement with Corp dated 14 March 2003 will not change.
CHRISTOPHER HOLDEN'S service agreement with Corp dated 13 December 2002 (as
varied by a deed dated 28 January 2003) will not change.
No changes are planned to take effect from the Effective Date, in respect of the
terms of appointment of the Chairman and each of the Non-Executive Directors.
SHAREHOLDINGS AND MANAGEMENT INCENTIVES
Save as set out below the interests of the Director(s), their immediate families
and any person connected with any Director within the meaning of section 346 of
the Act in the share capital of Corp, plc or any other relevant member of the
Group, as the case may be, (all of which are beneficial unless otherwise
stated), which:
a. have or following Listing of the New Shares will be required to be
notified to Corp and/or plc pursuant to sections 324 and 328 of the
Act;
b. are required to be entered into the register referred to in section
325 of the Act; or
c. are interests of a connected person (within the meaning of section
346 of the Act) which would, if the connected person were a
Director, be required to be disclosed under (a) or (b) above and the
existence of which is known to or could with reasonable diligence be
ascertained by that Director, as at 27 March 2003 (the latest
practicable date prior to the publication of this document), are
currently and are anticipated following the Restructuring to be as
follows:
Number of Number of Percentage of
Number of New Shares Warrants New Shares
Number of Percentage of Corp Shares after First after First after First
plc Shares plc Shares and Warrants Initial Initial Initial
Director currently held currently held currently held Distribution Distribution Distribution
-------- -------------- -------------- -------------- ------------ ------------- -------------
John Devaney NIL NIL NIL NIL NIL NIL
Michael Parton 128,122 0.005 NIL 229 2,287 0.00002
Michael Donovan 169,670 0.01 NIL 303 3,029 0.00003
Christopher Holden NIL NIL NIL NIL NIL NIL
Kent Atkinson NIL NIL NIL NIL NIL NIL
Derek Bonham 156,000 0.01 NIL 279 2,785 0.00003
Werner Koepf NIL NIL NIL NIL NIL NIL
All of the Executive Directors, as possible beneficiaries, are deemed to be
interested in the 1,208,545 plc Shares, the 2,161 Corp Shares and the 21,581
Warrants that will be held by the trustee of the MET following the First Initial
Distribution. Mr Parton and Mr Donovan are also deemed to be interested in the
1,135,644 plc Shares, the 2,031 Corp Shares and the 20,279 Warrants that will be
held by the trustee of the GEC Employee Share Trust following the First Initial
Distribution.
The interests of the Directors (excluding their deemed interests described
above) together are expected to represent approximately 0.0009 per cent. of the
issued ordinary share capital of Corp on the First Initial Distribution.
163
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART E
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The following options over Corp Shares are expected to be granted to the
Directors under the Management Plan described in Part D.10, such options being
exercisable at the price and between the dates shown below:
Number of Total
Corp Shares Exercise price
Name of Director under option (per exercise) Exercise period
---------------- ------------ -------------- -----------------------
Michael John Parton 17,500,000 L1 May 2004 - May 2013
Michael Donovan 10,000,000 L0 May 2004 - May 2013
Christopher Holden NIL L1 May 2004 - May 2013
John Devaney 3,000,000 L1 May 2004 - May 2013
There will be no consideration payable for the grant of an option. Options will
be granted as soon as practicable following the Listing of the New Shares, New
Notes and the Warrants.
The Directors have the following interests in plc Shares under plc's existing
share incentive plans.
MICHAEL PARTON
Exercise Number of
Scheme Date of grant price Exercise period plc Shares
------ ------------- -------- ------------------- ----------
The Marconi 1999 Stock Option Plan November 1999 801.5 November 2002- 684,360
November 2009
December 2000 787.0 December 2003- 76,238
December 2010
November 2001 35.0 November 2004- 3,000,000
November 2011
The GEC 1997 Executive Share Option October 1997 331.5 October 2000- 165,912
Scheme -- B Option October 2007
July 1998 384.5 October 2000- 106,631
October 2008
The GEC 1997 Executive Share Option October 1997 331.5 October 2000- 165,912
Scheme -- C Option October 2007
The GEC 1997 Executive Share Option July 1998 384.5 July 2001-July 2008 106,631
Scheme -- C Option
The Marconi Phantom Option Scheme November 1999 538.5 November 2002- 139,274
(Converted) October 2009
The Marconi Launch Share Plan November 1999 NIL November 2002- 1,000
November 2009
The Long Term Incentive Plan June 2001 NIL June 2004-June 2011 28,405
(option)
The Long Term Incentive Plan (award) July 2000 NIL July 2003-July 2010 26,483
---------
TOTAL 4,500,846
=========
164
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART E
--------------------------------------------------------------------------------
MICHAEL DONOVAN
Exercise Number of
Scheme Date of grant price Exercisable period plc Shares
------ ------------- -------- ------------------- ----------
The Marconi 1999 Stock Option Plan November 1999 801.5 November 2002- 266,271
November 2009
The Marconi 1999 Stock Option Plan December 1999 1008.5 December 2002- 69,410
December 2009
The Marconi 1999 Stock Option Plan December 2000 787.0 December 2003- 198,048
December 2010
The Marconi 1999 Stock Option Plan November 2001 35.0 November 2004- 2,500,000
November 2011
The Marconi Phantom Option Scheme October 1998 338.0 October 2001- 266,271
(Converted) September 2008
The Marconi Launch Share Plan November 1999 NIL November 2002- 1,000
November 2009
The Long Term Incentive Plan June 2001 NIL June 2004-June 2011 5,299
(option)
The Long Term Incentive Plan (award) July 2000 NIL July 2003-July 2010 24,718
---------
TOTAL 3,331,017
=========
Save as set out in this Part E.1, it is not expected that any Director will have
any interest in the share or loan capital of Corp or plc on the Effective Date
of the Corp Scheme.
No Director has or has had any interest in any transactions which are or were
unusual in their nature or conditions or are or were significant to the business
of the Group and which were effected by Corp, plc or any Group company during
the current or immediately preceding financial year or during an earlier
financial year and which remain in any respect outstanding or unperformed.
DIRECTORSHIPS
The Directors of Corp and plc and their functions are set out in Part A.10 of
this Section.
The business address of John Devaney, Michael Donovan, Christopher Holden, Kent
Atkinson, Derek Bonham and Michael Parton is Regents' Place, 338 Euston Road,
London, NW1 3BT, UK and the business address of Werner Koepf is Ueberlandstrasse
1, CH-8700, Duebendorf, Switzerland.
In addition to their directorships of Group companies, the Directors and the
individuals who have agreed to become Directors of Corp hold or have held the
following directorships and are or were members of the following partnerships,
in the past five years:
Position
still held
Name Position Company/Partnership (Y/N)
---- -------- ------------------- ----------
John Devaney Director Baltic Media Group Limited (in
Liquidation) Y
Director Baltic Publishing Limited (in
Liquidation) Y
Chairman Bizenergy Limited Y
Director Bizenergy.com Limited Y
Director Bizzconsulting Limited Y
Director Bizzenergy Group Limited Y
Director Bizzgeneration Limited Y
Director Boocher Limited N
Director British Power International
Limited N
Non-executive Director British Steel Ltd. (now known as
Corus UK Limited) N
Director Candihide Limited N
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I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART E
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Position
still held
Name Position Company/Partnership (Y/N)
---- -------- ------------------- ----------
Director Chesleigh Limited N
Director Consort EU Limited N
Director E Gas Limited N
Director EA Technology Limited Y
Director Eastern Energy Management Limited N
Director Eastern Group Finance Limited N
Director Eastern Private Network
Management Limited N
Director EBO Czech Investments Limited N
Director Electricity Association Limited N
Director Energy Holdings (No. 3) Limited N
Director EPN Distribution Limited N
Director Exel Investments Limited N
Chairman Exel Plc N
Director F.W. Cook (Mechanical Services)
Limited N
Director Forne Limited N
Director Genient Limited Y
Director GTC Pipelines Limited N
Non-executive Director HSBC Bank plc N
Executive Chairman Kelsey-Hayes Corporation N
Chairman Liberata plc N
Director Mainpower plc Y
Director Mel Group Limited N
Director Norwich Capital Investments
Limited (Dissolved) N
Director NTL Telecom Services Limited N
Director Offshore Oil & Gas Development
Company Limited N
Director The Energy Group Limited N
Director Three Gates Limited Y
Director TXU (UK) Holdings Limited N
Director TXU Direct Sales Limited N
Director TXU Europe (Ten) Limited N
Director TXU Europe Energy Trading Limited N
Director TXU Europe Group plc N
Director TXU Europe Leasing (4) Limited N
Director TXU Europe Leasing (5) Limited N
Director TXU Europe Limited N
Director TXU Europe Natural Gas (Trading)
Limited N
Director TXU Europe Overseas Finance
Limited N
Director TXU Europe Power Limited N
Director TXU Europe Renewable Generation
Limited N
Director TXU Nordic Holdings Limited N
Director TXU UK Limited N
Director Unicorn Music and Dance Limited Y
Michael Donovan Director British Aerospace Defence Systems
Limited (now called BAE Systems
(Defence Systems) Ltd) N
Director British Aerospace Land & Sea
Systems Limited (now called BAE
Systems (Land and Sea Systems)
Ltd N
Director General Domestic Appliances
Holdings Limited N
Director Matra BAe Dynamics SAS N
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Position
still held
Name Position Company/Partnership (Y/N)
---- -------- ------------------- ----------
Director STN-Atlas Elektronik GmbH N
Director Yard Limited N
Christopher Holden Partner Arthur Andersen (in dissolution) Y
Director St Kenelms Management Services
Limited Y
Kent Atkinson Senior Non-Executive Coca-Cola HBC S.A. (Athens) Y
director
Non-Executive Director Coca-Cola Beverages Ltd
(Dissolved) N
Non-Executive Director Cookson Group plc (with effect
from 1 April 2003) Y
Director Lloyds Bank Financial Services
(Holdings) Limited N
Director Lloyds Bank Subsidiaries Limited N
Director Lloyds Commercial Properties
Limited N
Non-Executive Director Lloyds TSB Bank plc Y
Non-Executive director Lloyds TSB Group plc Y
Director Lloyds TSB Financial Services
Holdings Limited N
Director TSB Bank Limited N
Director Three Copthall Avenue Limited N
Werner Koepf Director Compaq Computer Group Limited N
Director Compaq Computer Limited N
Director Compaq Computer Manufacturing
Limited (now called
Hewlett-Packard Manufacturing
Ltd) N
Director Pixelpark CEE Holding AG (now
known as PXP Software AG) Y
Managing Director Compaq Computer International
GmbH (now known as Hewlett
Packard International SARL GmbH) N
Managing Director Compaq Computer EMEA BV N
Chairman Compaq Computer GmbH N
Chairman Compaq Computer Austria GmbH N
Derek Bonham Chairman Cadbury Schweppes Public Limited
Company Y
Chairman CamAxys Group plc Y
Director Energy Holdings (No. 3) Limited N
Non-executive Director Glaxo Wellcome plc (now called
GlaxoSmithkline Services
Unlimited) N
Non-executive Director GlaxoSmithkline plc N
Director Hanson Pension Trustees Limited N
Director I-Fax Europe Limited N
Director I-Fax Limited N
Chairman Imperial Tobacco Group plc Y
Director Newzquest plc N
Director Newzeco Limited Y
Director Peabody Holdings Company, Inc N
Director The Energy Group Limited (In
Administration) N
Non-executive Director TXU Corporation Y
Non-executive Director TXU Europe Limited N
Ian Clubb Non-Executive Chairman Amalgamated Scottish Oil Limited Y
Chairman B Elliott Group Limited Y
Chairman B Elliott Limited Y
Director B Elliott plc N
Non-Executive Chairman Concentric plc N
Non-Executive Chairman DMWS 601 Limited N
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Position
still held
Name Position Company/Partnership (Y/N)
---- -------- ------------------- ----------
Director Dunedin Smaller Companies
Investment Trust plc N
Non-Executive Director Expro International Group plc Y
Non-Executive Director First Choice Holidays plc Y
Non-Executive Director Keycom plc N
Director Kuoni Holdings plc N
Non-Executive Chairman Longville Group Limited Y
Non-Executive Chairman Platinum Investment Trust plc Y
Non-Executive Chairman Shanks plc Y
Non-Executive Chairman Sitex Security Products Limited N
Director Thorn Lighting Group plc N
Director Thorn Lighting Pension Trustees
Limited N
Director Unijet Group Limited N
Kathleen Flaherty Non-Executive Director CMS Energy Corporation Y
Non-Executive Director Consumers Energy Company Y
Director Winstar Europe S.A. (Belgium) N
Director Winstar Communications S.A. N
Director Winstar Holdings BV (Netherlands) N
Director Winstar Communciations GMBH
(Germany) N
Director Winstar Communications BV
(Netherlands) N
Director Winstar Communications S.A.
(France) N
Director Winstar Communications Limited
(UK) N
Director Winstar Communications S.A.
(Switzerland) N
Director Winstar Communications S.A.
(Belgium) N
Director Winstar Columbia Ltda. N
Director Winstar Japan Limited (Japan) N
Director KDDI Winstar Corporation (Japan) N
Director Winstar International HongKong
Holding
(BVI) Limited N
Director Winstar HongKong (BVI) Limited N
Director Winstar Communications HongKong
Limited N
Director Winstar Asia NDMO Pte Limited
(Singapore) N
Save as disclosed in this Part E.1, at the date of this document none of the
Directors:
a. has been director or partner of any companies or partnerships at any
time in the previous five years; or
b. has any unspent convictions in relation to indictable offences; or
c. has been bankrupt or entered into an individual voluntary
arrangement; or
d. was a director with an executive function of any company at the time
of or within 12 months preceding any receivership, compulsory
liquidation, creditors voluntary liquidation, administration,
company voluntary arrangement or any composition or arrangement with
that company's creditors generally or with any class of its
creditors save in the case of the plc Scheme and the Corp Scheme as
described in parts II and III; or
e. has been a partner in a partnership at the time of or within 12
months preceding any compulsory liquidation, administration or
voluntary arrangement of such partnership; or
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f. has had his assets the subject of any receivership or has been a
partner of a partnership at the time of or within 12 months
preceding any assets thereof being the subject of a receivership; or
g has been subject to any public criticism by any statutory or
regulatory authority (including any recognised professional body) nor
has ever been disqualified by a court from acting as a director of a
company or from acting in the management or conducting the affairs of
any company.
E.2 TRUSTEES OF THE BONDS
The Law Debenture Trust Corporation p.l.c. has a material interest in both of
the Schemes by reason of being a Scheme Creditor in each Scheme. Law Debenture
Trust Company of New York will be appointed New Senior Notes Trustee in respect
of the New Senior Notes to be issued under the Schemes and The Law Debenture
Trust Corporation p.l.c. will be appointed Security Trustee under the Security
and Intercreditor Trust Deed. Law Debenture Trust Company of New York is an
affiliate of The Law Debenture Trust Corporation p.l.c. The Bank of New York has
a material interest in both of the Schemes by reason of being a Scheme Creditor
in each Scheme. The Bank of New York will be appointed as Distribution Agent and
as ADR Depositary in respect of any ADRs to be issued under the Schemes.
The Eurobond Trustee and the Yankee Bond Trustee also have a material interest
in the Schemes by reason of their being owed sums in respect of fees, costs,
expenses and liabilities, amounting to a total of L155,159.92 as at 18 March
2003 in respect of the Eurobond Trustee, and a total of L144,450.96 as at 14
March 2003 in respect of the Yankee Bond Trustee (both figures inclusive of
VAT). These fees, costs, expenses and liabilities were incurred as a result of
the Eurobond Trustee and Yankee Bond Trustee's roles during the drafting and
negotiation of the Schemes. If the Schemes are implemented then these fees,
costs, expenses and liabilities will be paid in priority to Scheme Claims.
Affiliates of the Eurobond Trustee, through such affiliates acting as New Senior
Notes Trustee and Security Trustee, and the Yankee Bond Trustee, through its
acting as Distribution Agent and ADR Depositary, will be entitled to the payment
of fees and reimbursement of expenses incurred in performing their respective
duties under these ongoing roles.
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F. RISK FACTORS
This Part F sets out the principal risk factors affecting the Group and should
be read in conjunction with all other information contained in this document.
Additional risks and uncertainties not presently known to the Group or that the
Group currently deems immaterial may also have a material adverse effect on the
business, financial condition or results of operations of the Group. Except in
Part F.1 and as the context otherwise requires, this Part F assumes that the
Schemes will be implemented in accordance with their terms and does not include
risk factors about the Group in the event that either or both of the Schemes do
not become effective (which are discussed in the letter from the Chairman of plc
and of Corp in Section 1).
All statements in this document (other than parts II and III) are to be read
subject to, and are qualified in their entirety by, the matters referred to in
this Part F.
For ease of reference only, the risk factors set out below have been grouped
into the following four categories:
a. Risks related to a failure to implement or a delay in implementing
the Restructuring;
b. Risks arising from implementation of the Restructuring;
c. Operating risks; and
d. Risks related to ownership of the New Shares, the New Notes and the
Warrants.
F.1 RISKS RELATED TO A FAILURE TO IMPLEMENT OR A DELAY IN IMPLEMENTING THE
RESTRUCTURING
ESOP DERIVATIVE BANKS MAY BE ABLE TO TERMINATE THEIR STANDSTILL UNDERTAKINGS
PRIOR TO IMPLEMENTATION OF THE RESTRUCTURING.
As discussed in Part D.2 of this Section, plc is the guarantor with respect to
the equity derivative transactions with the ESOP Derivative Banks. The ESOP
Derivative Banks have previously asserted that they also have claims against
certain Group operating companies, including Corp, based on the ESOP Funding
Letters executed by those companies. Under the terms of the ESOP Settlement
Agreement, Corp will pay a total of L35 million to the ESOP Derivative Banks in
full and final settlement of their ESOP related claims against the Group. The
settlement is conditional upon the Corp Scheme becoming effective and, in the
interim, the ESOP Derivative Banks have agreed to a standstill, namely that they
will not commence or further any claims or proceedings against Bedell Cristin
Trustees Limited, plc or any Group operating companies (or any of their
respective directors and officers) under the ESOP Funding Letters (including
releases thereof), the ESOP Derivative Transactions or the plc guarantee of the
ESOP Derivative Transactions.
The standstill terminates on the occurrence of one of the relevant events set
out in the ESOP Settlement Agreement, including (a) the further release of ESOP
Funding Letters in certain circumstances, (b) enforcement of the interim
security, (c) the Corp Scheme not obtaining the requisite approval at the Scheme
Meeting, (d) the Court sanction for the Corp Scheme not being obtained, (e) a
demand being made by the agent for the repayment of the Bank Facility, (f) an
insolvency event occurring in relation to Corp or, subject to certain
limitations, plc and (g) the Effective Date for the Corp Scheme not occurring on
or before 31 December 2003.
EFFECTIVENESS OF THE SCHEMES REQUIRES THE APPROVAL OF CREDITORS AND SANCTION BY
THE COURT.
In order for the Corp Scheme and the plc Scheme to become effective, they must
be approved by Scheme Creditors of Corp and plc, respectively, as described in
this document. Although each of the then members of the Informal Committee of
Bondholders and certain members of the Co-ordination Committee indicated as at
13 December 2002 that it was their current intention to vote in favour of the
Schemes, they are not bound to do so and in any event do not represent a
sufficient proportion of the Scheme Creditors to ensure that the Schemes will be
approved. Each of the ESOP Derivative Banks has provided a voting undertaking in
relation to the Schemes (as described in more detail in Appendix 19). The
willingness of other creditors to vote in favour of the Schemes will be
dependent on their assessment of what they would be likely to receive if the
Restructuring was successfully concluded, which will depend among other things
on their view of the prospects with respect to the Group's future results of
operations, financial condition and working capital position and their
assessment of
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what they would be likely to receive in insolvency proceedings in connection
with the Group. Accordingly, there can be no assurance that the Scheme Creditors
will vote to approve either of the Schemes.
In addition, for the Schemes to become effective, they must receive the sanction
of the Court, as described in this document. The Court will not sanction either
of the Schemes unless it is satisfied that the proposed arrangements are fair to
the creditors whose claims are being compromised pursuant to the Schemes. There
can be no assurance that the court will determine that the Schemes are fair to
creditors or that the Court will not conclude that there are other reasons why
the Schemes should not be approved.
EFFECTIVENESS OF EACH OF THE SCHEMES WILL DEPEND UPON THE GRANTING OF AN ORDER
BY A US BANKRUPTCY COURT.
Even if one or both of the Schemes are approved by Scheme Creditors and
sanctioned by the English Court, the necessary steps required to make either of
them effective will not be taken unless a permanent injunction in respect of the
relevant Scheme is granted by a US Bankruptcy Court under Section 304 of Title
11 of the United States Code. The US Bankruptcy Court will not grant such an
injunction unless it is convinced that the relevant Scheme will abide by
fundamental standards of procedural fairness and is not repugnant to any
fundamental principle of US law. There can be no assurance that the US
Bankruptcy Court will determine that this standard has been met, or that the US
Bankruptcy Court will not conclude that there are other reasons why the order
should not be granted.
THE CORP SCHEME MAY BE IMPLEMENTED EVEN IF THE PLC SCHEME IS NOT, IN WHICH CASE
CORP SCHEME CREDITORS WILL RECEIVE LESS SCHEME CONSIDERATION THAN IF BOTH
SCHEMES BECOME EFFECTIVE, AND PLC WILL BE FORCED INTO AN INSOLVENCY PROCEEDING.
The effectiveness of the plc Scheme is conditional on the Corp Scheme becoming
effective, but the effectiveness of the Corp Scheme is not conditional on the
plc Scheme becoming effective. Because Scheme Creditors must vote on each of the
Corp Scheme and the plc Schemes independently, the Corp Scheme may be approved
by Scheme Creditors, while the plc Scheme is not. Moreover, it is possible that
the Court may sanction one Scheme but not the other, or that the US Bankruptcy
Court may issue an injunction in respect of one Scheme but not the other.
If the Corp Scheme becomes effective but the plc Scheme does not, Corp Scheme
Creditors will receive less, and Corp Scheme Creditors that are also plc Scheme
Creditors could receive significantly less, Scheme Consideration than if both
Schemes become effective. There are two reasons for this. First, Corp itself is
expected to be a significant plc Scheme Creditor, and the portion of the plc
Scheme Consideration that Corp would receive in respect of its claim against plc
will not be available for distribution to Corp Scheme Creditors pursuant to the
Corp Scheme unless the plc Scheme becomes effective. Second, a significant
portion of the Corp Scheme Consideration is expected to be distributed via
Ancrane, a wholly owned subsidiary of plc, and this portion of the Corp Scheme
Consideration will not be distributed to plc Scheme Creditors pursuant to the
plc Scheme unless that Scheme becomes effective.
If the plc Scheme does not become effective as and when contemplated in this
document, then plc would inevitably have to enter into some form of insolvency
proceeding. If the Corp Scheme has become effective, however, the portion of the
Corp Scheme Consideration distributed to Ancrane would be among the assets on
which plc creditors would have a claim in any such proceeding. Moreover, Corp
itself would be entitled to prove its claim against plc in such an insolvency
proceeding, and any recovery by Corp in that proceeding would eventually be
available for distribution to Corp Scheme Creditors.
CORP AND/OR PLC AND/OR THE PROSPECTIVE SUPERVISORS OF THE CORP SCHEME AND/OR THE
PLC SCHEME MAY CEASE TO BE SATISFIED AS TO THE SUFFICIENCY OF THE RESERVE CLAIMS
SEGMENT OF THAT SCHEME AND/OR CORP MAY CEASE TO BE OF THE OPINION THAT CORP'S
WORKING CAPITAL STATEMENT REMAINS VALID.
Corp will not take the necessary steps to make the Corp Scheme effective unless
and until (among other things), (a) Corp has, following the passing of a
unanimous Board resolution to approve the same, provided confirmation in writing
to the Prospective Supervisors (for the sole benefit of the Prospective
Supervisors) prior to each of (i) the release of the interim security granted by
Corp through its special purpose subsidiary Highrose Limited, (ii) the Corp
Scheme Meeting, (iii) the hearing to sanction the Corp Scheme and (iv) the
Effective Date, to the
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effect that Corp remains satisfied that the reserves built into the Corp Scheme
are sufficient to meet distributions due to be made to all Corp Scheme Creditors
and that Corp remains of the opinion that its statement as to the Corp Group's
working capital contained in Part D.21 of this Section remains valid; and (b)
the Prospective Supervisors of the Corp Scheme have provided confirmation in
writing to Corp (for Corp's sole benefit) on the day of, but prior to, each of
events (i) to (iv) above to the effect that they have no reason to disagree with
Corp's view that the reserves built into the Corp Scheme are sufficient to meet
distributions due to be made to all Corp Scheme Creditors.
plc will not take the necessary steps to make the plc Scheme effective unless
and until (among other things) (a) plc has, following the passing of a unanimous
Board resolution to approve the same, provided confirmation in writing to the
Prospective Supervisors (for the sole benefit of the Prospective Supervisors)
prior to each of (i) the release of the interim security granted by Corp through
its special purpose subsidiary Highrose Limited, (ii) the plc Scheme Meeting,
(iii) the hearing to sanction the plc Scheme and (iv) the Effective Date, to the
effect that plc remains satisfied that the reserves built into the plc Scheme
are sufficient to meet distributions due to be made to all plc Scheme Creditors;
and (b) the Prospective Supervisors of the plc Scheme have provided confirmation
in writing to plc (for plc's sole benefit) on the day of, but prior to, each of
events (i) to (iv) above to the effect that they have no reason to disagree with
plc's view that the reserves built into the plc Scheme are sufficient to meet
distributions due to be made to all plc Scheme Creditors.
If any of the confirmations relating to the Corp Scheme is not forthcoming,
neither the Corp Scheme nor the plc Scheme will proceed. If any of the
confirmations relating to the plc Scheme is not forthcoming the plc Scheme will
not proceed.
THE INTERIM SECURITY MIGHT BE ENFORCED, OR MIGHT NOT BE RELEASED, BEFORE THE
SCHEME MEETINGS.
If the interim security has not been released prior to the Corp Scheme Meeting,
neither Corp nor plc will proceed with their respective Schemes and, in their
inevitable subsequent insolvency proceedings, the interim security would remain
in place (meaning that the Bank Creditors, Secured Bondholders and Barclays Bank
PLC (in its capacity as an ESOP Derivative Bank) would rank ahead of all
unsecured creditors of Corp with respect to the cash held in the Lockbox
Accounts, the balance of which was approximately L770,700,000 as at 27 March
2003).
The occurrence of an enforcement event under the interim security (details of
which are set out in Part D.1 of this Section) prior to the Scheme Meetings
would have the following implications:
a. the majority Bank Creditors (66 2/3 per cent. by value, which
includes in its calculation bilateral and guarantee exposures of the
Syndicate Banks to Corp) would be entitled to instruct the security
trustee for the interim security not to release any further amounts
from the Lockbox Accounts;
b. the majority, currently three out of four, of the members of the
Informal Committee of Bondholders would be entitled to instruct Corp
and Highrose Limited not to make or request further withdrawals from
the Lockbox Accounts (this is the practical equivalent of (a), but
in favour of the Informal Committee of Bondholders who have not been
granted rights to instruct the security trustee directly); and/or
c. the majority creditors (ie. more than 50 per cent. by value of all
Bank Creditors and all Secured Bondholders) would be entitled to
instruct the security trustee (through the Co-ordination Committee)
to enforce the interim security (in practice, Bank Creditors hold
more than 50 per cent. of the value of claims and thus currently
have the ability to do this).
The interim security contemplates an Effective Date of the Restructuring of no
later than 30 June 2003. Implementation of the Corp Scheme later than that date
(or it becoming apparent that that date is no longer likely to be achieved) is
one of the enforcement events in relation to the interim security.
An enforcement event under the interim security would also entitle Barclays Bank
PLC, the participating ESOP Derivative Bank, to terminate its Restructuring
Undertaking Agreement (as described in Part D.2 of this Section) (unless it is
apparent that the Corp Scheme will proceed in any case). Enforcement of the
interim security would entitle any of the ESOP Derivative Banks to terminate the
standstill contained in the ESOP Settlement Agreement and would also entitle
them to terminate their related voting undertakings.
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THE SCHEMES WILL NOT BE EFFECTIVE BY THE TIME PRINCIPAL OR INTEREST BECOMES
PAYABLE UNDER THE BANK FACILITY AND/OR THE BONDS.
The Bank Facility was due for repayment on 25 March 2003. Corp has not made such
repayment and the facility agent has reserved all rights in this regard. Failure
by Corp to repay the Bank Facility gives rise to direct rights on the part of
individual Syndicate Banks to bring actions for recovery of the debt owing to
them and, in addition, will, after the expiry of a five Business Day grace
period, result in a cross default under the Eurobonds and Yankee Bonds. The
longstop date applicable to (a) Corp's interest rate swap close-out loans with
JP Morgan Chase Bank and Barclays Bank PLC, (b) Corp's terminated interest rate
swap with UBS AG and (c) the closed-out equity derivative between Bedell Cristin
Trustees Limited and UBS AG (in respect of which plc is the credit support
provider) was also 25 March 2003, after which date such creditors may demand
repayment or payment (as applicable) of principal and interest thereunder.
A Yankee Bond interest payment was due on 15 March 2003. Given the expiration of
the applicable 14 day grace period, non-payment of such interest will be an
event of default entitling the Yankee Bond Trustee or the holders of 25 per
cent. of each respective Yankee Issue to accelerate repayment of the respective
Yankee Issue. Failure to pay interest under the Yankee Bonds on the due date
also entitles individual holders of Yankee Bonds (under the US Trust Indenture
Act of 1939 (as amended)), to sue for recovery of the missed interest coupon
from Corp.
The Eurobonds had an interest payment due on 30 March 2003. Failure to make the
interest payment will, after a grace period of 14 days, be an event of default
entitling the holders of 25 per cent. of each respective Euro Issue to instruct
the Eurobond Trustee to accelerate repayment of that Euro Issue.
In England, if Bondholders or Syndicate Banks sought to exercise direct rights
against Corp and/or plc in respect of payment defaults it is likely that they
would:
(a) petition for a winding up or administration order against Corp
and/or plc; or
(b) seek to obtain a summary judgment for repayment of the money owed to
them.
Assuming a statutory demand is not required, it would take a creditor at least
three weeks (from the date of service of a winding up on Corp and/or plc) to
obtain an order for winding up. In practice, however, this is likely to take
closer to six weeks. Administration and winding up are both class remedies in
that the Court would be required to exercise its discretion in the best
interests of Corp's and/or plc's creditors as a whole. Corp and plc each believe
that a Court is likely to conclude that such interests would best be served by
creditors being given an opportunity to consider the Corp Scheme and/or plc
Scheme (as applicable) and that the Court would therefore be unlikely to allow
an individual creditor to frustrate the Restructuring by obtaining an
administration order or winding up order prior to the Scheme Meetings. Further,
Corp and plc each believe that it is unlikely that the Court would make a
winding up order after the Scheme Creditors have voted in favour of the Corp
Scheme and/or the plc Scheme (as applicable). Corp would strongly oppose the
making of an administration or winding up order prior to or after the Scheme
Meetings and would, at the appropriate stage, actively encourage Scheme
Creditors that support the Restructuring to appear and oppose such order.
It is likely that it would take a creditor at least three months to obtain a
summary judgment against Corp and/or plc (on the basis that a Court would be
unlikely to consider the aim of defeating the Schemes to be good grounds for an
expedited hearing). Levying execution against Corp's and/or plc's property in
respect of any summary judgment which was obtained would require the relevant
creditor to make further applications to the Court (with the attendant delays).
Corp and plc believe that they would have good grounds for obtaining a stay of
enforcement given that a writ of execution (or other form of execution) would
otherwise prefer that creditor over the relevant Scheme Company's other
creditors.
In the United States, if any Scheme Creditor sought to exercise direct rights
against Corp and/or plc in respect of payment defaults it is likely that they
would:
(a) seek to obtain a judgment for repayment of the money owing to them;
and/or
(b) file an involuntary petition against Corp or plc, as the case may
be, under Chapter 7 (liquidation) or Chapter 11 (reorganization) of
the Bankruptcy Code (three creditors, with aggregate claims of at
least US$11,625 would be required to file such a petition).
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Corp has submitted to New York state and federal jurisdiction in connection with
the Yankee Bonds and would therefore be subject to any action filed there. In
the New York state courts, an individual creditor might avail itself of a
procedure allowing expeditious judgment on a claim for non-payment of money on
an instrument (where such claim is for a sum that can be made certain by
computation). The process to judgment would take at least 20 days. There is a
small risk that, in conjunction with such action, a creditor could successfully
seek to attach Corp's assets in New York (by way of ex parte application and by
demonstrating sufficient risk that the asset might otherwise be dissipated or
removed from the jurisdiction). If a creditor obtained a New York court judgment
against Corp, then that creditor could try to enforce that judgment against
Corp's US assets.
Corp believes that a US federal bankruptcy court would be likely to suspend or
dismiss an involuntary petition under Chapter 7 or Chapter 11 if it determined
that the interests of Corp and its creditors would be better served thereby, or
if a foreign proceeding (such as the Corp Scheme) was pending and the same would
be consistent with the due process requirements and insolvency principles
necessary to establish an ancillary proceeding under section 304 of the
Bankruptcy Code (in respect of which see Appendix 21). Corp further believes
that support from Scheme Creditors that support the Restructuring would be
likely to have a bearing on the court's determination and would therefore
actively encourage such support in defending a petition.
Corp has approximately L2.2 billion outstanding under the Bank Facility which,
as described above, was due for repayment on 25 March 2003. In addition, the
principal amounts outstanding in respect of the Eurobonds and Yankee Bonds are
E1.5 billion and US$1.8 billion respectively. Each of these obligations is
guaranteed by plc. Failure to repay the Bank Facility when due would trigger a
cross default under the Eurobonds and Yankee Bonds, entitling (i) the holders of
25 per cent. of each respective Yankee Issue to accelerate repayment of the
relevant Bonds, and (ii) the holders of 25 per cent. of each respective Euro
Issue to require the Eurobond Trustee to accelerate repayment of the relevant
Bond. For the reasons described above, there can be no assurance that the
Schemes will become effective, or that they will become effective within the
timeframe contemplated. If the Corp Scheme does not become effective in the
manner described in this document, the Group will be unable to repay the above
debt to its Syndicate Banks and, when due, to its Bondholders and Corp and plc
will be forced into insolvency proceedings.
THE CONDITIONS TO EFFECTIVENESS OF THE SCHEMES MAY NOT BE SATISFIED BY 19 JUNE
2003.
If the conditions to the effectiveness of either Scheme have not been satisfied
by 19 June 2003, then the relevant Scheme will be withdrawn and not made
effective. If the Corp Scheme does not become effective as and when contemplated
in this document, and in any event by 19 June 2003, Corp and plc would have to
enter into some form of insolvency proceedings.
F.2 RISKS ARISING FROM IMPLEMENTATION OF THE RESTRUCTURING
CORP WILL HAVE SIGNIFICANT DEBT OUTSTANDING AND WILL HAVE SIGNIFICANT DEBT
SERVICE REQUIREMENTS, WHICH WILL MAKE THE GROUP MORE VULNERABLE TO ECONOMIC
DOWNTURNS AND REDUCE ITS FLEXIBILITY.
Following the Restructuring, Corp will have significant debt outstanding. This
is likely to limit Corp's ability to obtain additional financing on satisfactory
terms to fund working capital, capital expenditures, product development efforts
and acquisitions of new assets in excess of those in its current business plan.
In addition, although Corp will be permitted to meet interest payment
obligations under the New Junior Notes through payment in kind by issuing
additional New Junior Notes, it will otherwise be required to devote a
significant proportion of its cash flow from operations to the payment of
interest on its debt obligations, thereby reducing the funds available for other
purposes. Corp's level of debt and the fixed nature of a portion of its debt
service costs will make it more vulnerable to economic downturns, reduce its
flexibility to respond to changing business and economic conditions and limit
the Group's ability to pursue business opportunities, to finance its future
operations or business needs and to implement its business strategies.
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CORP WILL BE REQUIRED TO COMPLY WITH RESTRICTIVE COVENANTS AND AFFIRMATIVE
FINANCIAL COVENANTS, WHICH WILL SIGNIFICANTLY LIMIT THE GROUP'S FINANCIAL AND
OPERATIONAL FLEXIBILITY.
Following the Restructuring, the terms of the indentures governing the New Notes
will require Corp and its Subsidiaries to comply with restrictive covenants and
the terms of the indenture governing the New Senior Notes will also require Corp
to comply with certain affirmative financial covenants. In addition, the
Performance Bonding Facility and the Working Capital Facility will contain
restrictive covenants. The relevant covenants will become applicable immediately
upon issuance of the New Notes and execution of the Working Capital Facility and
the Performance Bonding Facility, as the case may be, and will, among other
things, restrict the ability of Corp and its subsidiaries to incur additional
indebtedness, pay dividends on and redeem shares of Corp and its subsidiaries,
redeem certain subordinated obligations, make investments, undertake sales of
assets, engage in certain transactions with affiliates, sell or issue capital
stock of subsidiaries, permit liens to exist, operate in other lines of
business, engage in certain sale and leaseback transactions and engage in
mergers, consolidations or sales of all or substantially all the assets of Corp.
The affirmative financial covenants in the indentures governing the New Senior
Notes will apply only from and after 30 September 2005 and relate to the minimum
ratio of EBITDA to gross cash finance charges and the maximum ratio of
indebtedness to total EBITDA, in each case measured with respect to the Corp
Group other than the Ringfenced Entities. Restrictions stemming from these
covenants and from the need to comply with the affirmative financial covenants
will significantly limit the Group's financial and operational flexibility, and
could have a significant adverse effect on its business, results of operations
and financial condition.
Corp's ability to satisfy the affirmative financial covenants will be affected
by changes affecting its business, results of operations and financial
condition, and is thus subject to the risks described elsewhere in this Part F.
A failure to comply with the restrictive covenants or the affirmative financial
covenants in the indentures governing the New Notes would, if not cured or
waived, constitute an event of default under the New Notes; a failure to satisfy
restrictive covenants under the Working Capital Facility and/or the Performance
Bonding Facility could also constitute an event of default. Subject to the
Security Trust and Intercreditor Deed, the occurrence of an event of default in
respect of any of these facilities would permit acceleration of all amounts
borrowed thereunder, which could constitute a cross-default under the others, as
well as other borrowing arrangements to which Corp or its subsidiaries are
party. In such circumstances, there can be no assurance that Corp would have
sufficient resources to repay the full principal amount of the New Notes and the
relevant indebtedness under the Working Capital Facility and the Performance
Bonding Facility in full. Holders of the Corp Shares might then receive no
return on their investment. Moreover, a failure to comply with restrictive
covenants constituting an event of default under the Working Capital Facility or
the Performance Bonding Facility would permit the lenders under the facilities
to terminate their commitments to make further extensions of credit thereunder,
which would be likely to have a material adverse effect on the business, results
of operations and financial condition of the Group.
A NUMBER OF SIGNIFICANT GROUP CONTRACTS CONTAIN TERMINATION PROVISIONS THAT MAY
BE TRIGGERED BY THE RESTRUCTURING.
Some of the Group's significant contracts to supply customers with systems and
services contain provisions that allow its counterparties to terminate the
contracts upon a change of control or a composition with creditors or similar
arrangement affecting one or more Group companies. Some or all of these
counterparties may take the view that the Restructuring gives rise to a right of
termination under these contracts, and may accordingly seek to terminate or
renegotiate them. Early termination or significant renegotiation of these
contracts, individually or in the aggregate, could have a materially adverse
effect on the Group's results. Moreover, disputes over whether the Restructuring
constitutes a change of control for purposes of terminating these contracts
could result in litigation which would be costly, would adversely affect the
Group's ability to make accurate predictions needed to run its business and
could adversely affect customers' perceptions of the Group.
THE GROUP WILL LOSE THE BENEFIT OF CERTAIN TAX LOSSES AS A RESULT OF THE
RESTRUCTURING.
In recent years, the Group has accumulated significant tax losses (and other tax
credits) that are not currently recognised as deferred tax assets (see Appendix
1). As a result of the Restructuring the Group may (and, in some
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cases, expects that it will) forfeit these losses, or be restricted in its
ability to offset them against future profits, in various jurisdictions due to
the requirements of existing and proposed tax legislation governing the use of
losses after a change in ownership. The relevant jurisdictions each define a
change in ownership differently, and in some cases include additional conditions
which, if met for a considerable amount of time after the change in ownership,
allow the losses to continue to be used. It is not therefore possible at this
stage to quantify the total amount of forfeiture or restriction of the tax
losses. There should be no immediate cash cost of any such forfeiture or
restriction, but if profits are earned in an affected jurisdiction in the
future, they could be subject to tax in full.
THE EFFECTIVENESS OF THE SCHEMES IS NOT CONDITIONAL ON THE ADMISSION OF THE NEW
SHARES, THE NEW NOTES OR THE WARRANTS TO THE OFFICIAL LIST OR TO TRADING ON THE
LONDON STOCK EXCHANGE OR ANY OTHER SECURITIES EXCHANGE, AND PERMISSION FOR SUCH
LISTING MAY BE DELAYED OR DENIED.
Application has been made to the UKLA for the New Shares, the New Notes and the
Warrants to be admitted to the Official List and to trading on the London Stock
Exchange. While it is expected that admission to the Official List and to
trading will take place on the Effective Date of the Corp Scheme, there can be
no assurance that there will not be a delay in, or denial of, the admission of
the New Shares, the New Notes and/or the Warrants after the Corp Scheme has
become effective. If admission to the Official List and to trading on the London
Stock Exchange does not take place as and when expected, Corp will use its
reasonable efforts to list the New Shares, the New Notes and the Warrants in
London or on another recognised stock exchange thereafter.
If admission to the Official List and to trading on the London Stock Exchange
does not take place on the Effective Date, this will inhibit the development of
a liquid trading market for the New Shares, the New Notes and the Warrants which
is likely to have a material adverse effect on their value. Additionally, if the
New Notes are not listed on a recognised stock exchange within the meaning of
applicable UK tax legislation, withholding tax may be payable on interest
payments in respect of the New Notes. Under the terms of the New Notes, Corp
will be required to pay additional amounts to the holders of the New Notes in
respect of any amounts withheld. While this should not result in any direct cost
to the holders of the New Notes, the payment of these "gross up" amounts will be
an additional cash expense for Corp and could have a material adverse effect on
Corp's financial condition and results of operations.
Additionally, Corp intends to establish an ADR programme in respect of the New
Shares and will apply to list such ADRs on NASDAQ. It is currently anticipated
that this listing will become effective during the third calender quarter of
2003. Nevertheless, there can be no assurance that such listing will take place
within the time expected, or at all. If the NASDAQ listing does not take place
as and when expected, this may also inhibit the development of a liquid trading
market for the ADRs, which is likely to have a material adverse effect on their
value.
F.3 OPERATING RISKS
THE TELECOMMUNICATIONS INDUSTRY IS EXPERIENCING A SEVERE DOWNTURN, MANY OF THE
GROUP'S CUSTOMERS HAVE REDUCED AND ARE CONTINUING TO REDUCE CAPITAL EXPENDITURE
AND, AS A RESULT, DEMAND FOR THE GROUP'S PRODUCTS AND SERVICES HAS DECLINED AND
MAY CONTINUE TO DECLINE.
The telecommunications industry is currently experiencing a prolonged and severe
downturn. Many of the Group's current and potential customers are network
operators with high levels of indebtedness and, in some cases, emerging or weak
revenue streams. Adverse economic conditions, network over-capacity due to
excess build-out, lack of funding for telecommunications development and
overspending on licence fees have forced network operators to undertake
extensive restructuring and cost-cutting initiatives. In light of market
conditions, many of the Group's customers have delayed delivery of orders
previously placed and have implemented drastic reductions in capital expenditure
in 2002 and 2003 as compared to 2001 and even more so in comparison with 2000,
and may further reduce capital expenditure. As a result, demand for the Group's
products and network roll-out services has declined.
The Group's near-term financial objectives do not depend on assumptions or
expectations of improvement in market conditions for the telecommunications
industry or improvement in current levels of sales in the Core
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businesses. However, they do assume that there will not be a further material
deterioration in current market conditions or a material decline in sales
levels. Additionally, achievement of the Group's longer-term financial
objectives will depend upon an increase in the Group's sales volumes based on an
improvement in demand for the Group's products and services, due to a recovery
of the industry or otherwise. Consequently, if demand remains weak for the
Group's products and services, resulting from the financial condition of the
Group's customers, market and industry conditions or otherwise, it is likely to
have a material adverse effect on the Group's business, results of operations
and financial condition in the longer term. In particular, this may affect the
Group's ability to achieve its profitability and cash flow objectives and,
consequently, it may impact on the future funding requirements of the business.
There can be no assurance that the telecommunications market will improve within
any particular timeframe or at all, or that it will not experience subsequent,
and possibly more severe and/or prolonged, downturns in the future.
THE GROUP IS CURRENTLY NOT PROFITABLE AND HAS BEEN EXPERIENCING NET OPERATING
CASH OUTFLOWS, AND WILL NEED TO EFFECT FURTHER CHANGES IN ITS BUSINESS IN ORDER
TO ACHIEVE ITS NEAR-TERM FINANCIAL OBJECTIVES.
The Group is currently not profitable and has been experiencing net operating
cash outflows, and has not made an operating profit (before exceptional items
and goodwill amortisation) in any fiscal quarter since the quarter ended 31
March 2002. The Group does not expect trading conditions in the
telecommunications market to improve in the near-term and, as discussed above,
there can be no assurance that such conditions will improve at all. Accordingly,
the Group's ability to become profitable and generate positive cash flow depends
significantly on improving gross margins through changes in product mix,
achieving operating efficiencies, and reducing operating costs, as well as there
being no further material decline in sales.
a. Improvement in gross margins. The Group is aiming to improve gross
margins within the Core businesses to between 24 and 27 per cent.
during the year ending 31 March 2004. This target assumes that
trading conditions in the telecommunications market will not change
materially over this period from current conditions. The Group will
accordingly seek to increase its gross margins by focusing its sales
on higher margin products and through further supply chain
rationalisation, lower unit product cost from on-going
re-engineering of its products and further improvements and
efficiencies in its manufacturing process, such as lower materials
costs. If sales of higher margin products do not increase as a
proportion of total sales and unit production costs do not fall as
expected, the Group may not be able to achieve the improvement in
gross margins it anticipates. Moreover, competitive pressures may
compel the Group to reduce prices, such that gross margins remain
steady or decrease, even if production costs fall.
b. Reduction in operating costs (before goodwill amortisation and
exceptional items). The Group is aiming to reduce the annual
operating cost run-rate of the Core businesses (before goodwill,
amortisation and exceptional items) to below L450 million during the
financial year ending 31 March 2004, as compared with a run rate at
31 December 2002 of L550 million (before goodwill, amortisation and
exceptional items). The Group will seek to achieve these cost
reductions primarily through further planned reduction in headcounts
as a result of further rationalisation of its activities and from
natural attrition in its workforce. Reduced spending on sales and
marketing initiatives and professional fees are also expected to
contribute to operating cost savings. However, the actions that will
be required to achieve this cost base target have not yet been fully
implemented, so there is a risk that the Group may not achieve this
forecast operating cost run rate or that it will not do so within
the anticipated timeframe.
c. No further decline in sales levels. The Group's sales have declined
quarter on quarter for the past five quarters, reflecting the
current downturn in the telecommunications industry as a whole.
While the Group expects the market to recover at some stage, if
sales in the Group's Core businesses continue to decline materially
for a prolonged period, it is unlikely that the Group will be able
to return to and maintain profitability or generate positive cash
flow solely through gross margin improvements and operating cost
reductions.
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Because of these risks and uncertainties, as well as the other risks and
uncertainties discussed in this Section, there can be no assurance that the
Group's actual experience will correspond with its assumptions and expectations,
and thus no assurance that the Group will be able to return to profitability or
generate positive operating cash flows within a particular timeframe or at all.
Moreover, even if the Group does attain profitability and positive operating
cash flow, it may not be able to sustain or increase this from quarter to
quarter or from year to year.
Failure of the Group to become and remain profitable and to generate positive
operating cash flow may affect its ability to pay interest and principal on the
New Notes when due and will affect its ability to pay dividends on the Corp
Shares. The Group may find it has limited or no ability to raise additional
capital through offerings of debt or equity securities in the capital markets in
the near or medium term.
A RELATIVELY SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A LARGE PROPORTION OF THE
GROUP'S BUSINESS. IN PARTICULAR, THE LOSS OF BRITISH TELECOMMUNICATIONS PLC AS A
CUSTOMER WOULD HAVE A SIGNIFICANT ADVERSE EFFECT ON THE GROUP'S RESULTS.
A relatively small number of customers account for a significant proportion of
the Group's turnover. In the six months ended 30 September 2002, sales to the
Group's 10 largest customers represented approximately 46 per cent. of turnover
of the Group's Core businesses. Because of this concentration, adverse changes
that affect only a small number of customers or customer relationships could
have a significant adverse effect on the Group's results.
British Telecommunications plc and its subsidiaries are of particular importance
to the Group. For the six months ended 30 September 2002, sales to BT
represented approximately 17 per cent. of turnover of the Group's Core
businesses. The loss of BT as a customer or any substantial reduction in orders
by BT, particularly for the products and services of the Core businesses, would
have a significant adverse effect on the Group's results.
PERCEPTIONS OF UNCERTAINTY SURROUNDING THE FUTURE PROSPECTS OF THE GROUP MAY
HAVE AN ADVERSE EFFECT ON ITS BUSINESS.
In deciding whether or not to buy the Group's products or services, potential
and existing customers are likely to consider certainty of supply as part of
their procurement decision-making process. Although the Restructuring process
has made it possible for the Group to continue to operate, perceptions of
uncertainty may remain with respect to its financial condition and business
prospects. By comparison, some competitors may have more secure balance sheets
and may be perceived as more attractive suppliers. If new customers are not won,
or if existing customers do not continue to place orders or are lost, it would
materially adversely affect the Group's business and results of operations.
In addition, perceived uncertainties associated with the Group may adversely
affect existing relationships with suppliers. If suppliers become concerned
about the ability of the Group to pay its creditors, they may demand shorter
payment terms or not extend normal trade credit, either of which would adversely
affect the Group's working capital position. The Group may not be successful in
obtaining alternative suppliers if the need arises and this would adversely
affect its results of operations.
THE GROUP OPERATES IN A HIGHLY COMPETITIVE AND RAPIDLY CHANGING MARKET AND MAY
BE UNABLE TO INVEST SUFFICIENTLY IN RESEARCH AND DEVELOPMENT TO SUSTAIN OR
INCREASE SALES OF ITS PRODUCTS.
The Group's products are sold in markets that are characterised by rapid
adoption of new technologies, many new product introductions, shortening product
lifecycles and evolving industry standards. If the Group's products cease to be
competitive, the Group would be likely to lose customers and sales, which would
materially adversely affect the Group's business, results of operations and
financial condition.
The process for developing new products based on rapidly moving technologies for
broadband fixed networks and optical networks is complex and variable. It
requires innovative solutions that are cost effective and based on accurate
insights into technology and trends. Success depends on the timely and effective
introduction of new products or enhancements to existing products in a way that
meets customer needs and differentiates the Group's products from those offered
by its competitors. At the same time, these new product introductions must
achieve
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market acceptance, anticipate and accommodate emerging industry standards and be
compatible with current and competitor products. If there is an unforeseen
change in one or more of the technologies affecting telecommunications the
Group's products may cease to be competitive.
As part of its cost reduction effort, the Group has refocused and significantly
reduced its spending on research and development. The Group is aiming to reduce
overall research and development spending with a target spend of around 10 per
cent. of Core sales. The Group has focused more of its research and development
expenditure on Core products and intends to devote an increasing proportion of
spending to the optical networks and broadband routing and switching businesses.
However, this may not be sufficient to maintain the competitiveness of the
Group's Core products or enable it to increase its market share in key market
segments. Moreover, as discussed above, the Group will be subject to restrictive
covenants and other limitations and is likely to have difficulty obtaining
additional sources of financing, which may affect its ability to increase
spending or otherwise develop its technologies effectively.
A number of the Group's competitors have greater financial and technological
resources than the Group and, therefore, are in a better position to invest in
developing and acquiring proprietary technology, to expand into new business
segments and to increase their market shares. The Group may not be able to
develop new products and services at the same rate, maintain compatibility of
its products with competitors' products or keep up with technology market
trends. If the Group's products and services are not competitive, it is likely
that the Group will lose customers and business, its turnover will decline and
its business will be materially adversely affected.
THE GROUP IS DEPENDENT ON KEY MANAGEMENT PERSONNEL AND SKILLED TECHNOLOGY
WORKERS WHOSE DEPARTURE COULD ADVERSELY AFFECT THE GROUP'S ABILITY TO DEVELOP
ITS PRODUCTS AND OPERATE ITS BUSINESS.
The overall headcount of the Group's Core business has been reduced to
approximately 16,000 at 31 December 2002 from 33,000 at 31 March 2001, excluding
the impact of the discontinued operations (medical systems, data systems and
strategic communications). This reduction has been due to the implementation of
cost-reduction plans and disposals of assets and businesses. Included in the
number of employees that have left the Group are managers with many years of
experience in the management and operations of the Group's business as well as
highly skilled technology workers and other employees with years of operational
experience in the Group's business. Further workforce reductions are planned and
could include key employees with valuable skills and knowledge whose departure
would adversely affect the Group's ability to continue to develop new and
enhance existing products.
At the same time, the uncertainties associated with headcount reductions and the
Group's prospects generally may cause key employees to leave and otherwise
increase employee and management turnover, which may contribute to and result in
inefficiencies in running the Group's business. In addition, following the
Restructuring, the incentive arrangements offered by the Group may be perceived
as unattractive in comparison with those offered by the Group's competitors,
which may make it more difficult to retain personnel and attract qualified
replacements for those who leave. The loss of additional key managers and highly
skilled technology workers may result in the Group's inability to develop new
products on a timely basis, improve current technologies or operate its business
efficiently.
THE GROUP IS RELIANT ON THE CONTINUED PERFORMANCE OF THIRD PARTIES IN RELATION
TO CERTAIN OUTSOURCING ARRANGEMENTS.
The Group relies on outsourcing arrangements for the manufacture of certain
products and components and is considering further potential outsourcing
opportunities in its supply chain and logistics organisation and with respect to
information technology. If the third parties on whom the Group relies or will
rely in relation to these outsourcing arrangements do not fulfil their
obligations under such contracts, or seek to terminate or change the terms of
their contracts due to perceived uncertainty with respect to the Group's ongoing
ability to perform under such contracts, or if the Group does not otherwise
properly manage these relationships, such supplies or services could be severely
disrupted or reduced. A significant increase in the price of key supplies or
services or constraints on suppliers' capacities, particularly during periods of
significant demand, in the absence of an alternative supplier, would adversely
affect the Group's business. Moreover, outsourcing initiatives ultimately
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may not yield the benefits the Group expects, and may raise product costs and
delay product production and service delivery. The Group's outsourcing
arrangements are discussed in Part A.7 of this Section.
MEASURES TO REDUCE OPERATING COSTS COULD ADVERSELY AFFECT RELATIONS WITH
EMPLOYEES OF THE GROUP, ITS SUPPLIERS AND/OR ITS PARTNERS, WHICH COULD DISRUPT
ITS BUSINESS.
In order to further reduce operating costs, the Group intends to reduce the size
of its workforce, in part through further rationalisation of its activities and
outsourcing initiatives, and to seek to renegotiate certain existing contracts
with suppliers and partners in order to obtain more favourable terms. The
implementation of these plans may increase demands on, and/or negatively impact
relations with, employees of the Group and its suppliers and partners. Such
negative impact may result in a diminution in employee morale, labour
disruptions, industrial action and/or labour-related law suits against the
Group, its suppliers or partners. Any of these results could diminish the
efficient operation of the Group's business, disrupt services at the facilities
of the Group, its suppliers or partners and inhibit the realisation of the
operating cost reductions that are fundamental to the Group's financial
objectives, which would have a material adverse effect on the Group's business,
financial condition and results of operations.
In Europe, particularly, employees are protected by laws giving them, through
local and central work councils, rights of consultation with respect to specific
matters regarding their employers' business and operations, including the
downsizing or closure of facilities and employee terminations. These laws, and
collective bargaining agreements to which the Group, its suppliers or partners
may be subject, could impair the Group's flexibility as it continues to pursue
reductions in operating expenses.
THE GROUP'S FINANCIAL REPORTING SYSTEMS REQUIRE SIGNIFICANT OPERATIONAL
RESOURCES.
As a result of the rapid expansion of the Group in 1999 and 2000, the number of
different acquired systems, the deferral of the introduction of a Group-wide FRP
system due to cost considerations and the disposal of a number of businesses
from the Group, the operation of the Group's financial reporting systems has
required and will continue to require considerable personnel resources. Taken
together with the demands of the Restructuring process, this has placed
significant pressure on the resources of the finance function. The Group is also
in the process of implementing a number of changes to its consolidation and
financial reporting systems, with a view to streamlining the existing reporting
processes. Although Corp and plc currently believe that the Group's financial
reporting systems are, and without the changes referred to above would remain,
fit for purpose, the continued effectiveness of these systems following the
Restructuring is dependent on a combination of the continued availability of
sufficient finance team resources and any changes that are made to the financial
reporting system being successfully implemented.
FUNDING OF PENSION PLANS MAY BECOME MORE DIFFICULT.
The interaction of poor equity markets and low interest rates over the last
several years has had a significant negative impact on the funded status of and
liabilities under the Group's defined benefit pension plans and contribution
obligations under such plans, more details of which are set out in Part D.11 of
this Section. Corp either sponsors such plans or is exposed to liabilities with
respect to plans sponsored by affiliates or former affiliates. It is possible
that unless equity markets and/or interest rates improve, such obligations may
require Corp and/or its affiliate sponsoring companies to such plans to make
additional contributions. Likewise, changes in the statement of investment
principles of the UK plans, the actuarial assumptions employed in conjunction
with any such plans or legislation could also result in a need for Corp and/or
its affiliates to make additional contributions to such plans.
Corp does not believe that (as at 5 April 2002, the date for when figures are
last available) the UK Plan has a funding deficit (by reference to the plan's
own on-going basis), however investment conditions have deteriorated since 5
April 2002. If the UK Plan is wound up, however, then it is unlikely that it
will have sufficient assets to discharge in full all liabilities, calculated on
a winding-up rather than an on-going basis. No plans have been made to wind up
the UK Plan but should such a decision be made (as opposed to operating it as a
plan closed to new members), Corp and the participating Group Companies would
(under current legislation) be required to make good any statutory debt (if
there is one). If a statutory debt were to arise, the size of the debt (relative
to the
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Group's assets) could have a materially detrimental effect on the Group's
resources. The significance of the potential detrimental effect should be seen
against Corp's estimate that (as at 5 April 2002) the value of the UK Plan's
assets was L2.495 billion and the value of its liabilities was L2.494 billion.
There is no guarantee that the value of the UK Plan's assets will not
deteriorate nor that legislation will not be introduced to oblige employers to
make further contributions to pension plans which are not fully funded on a
specified basis which is stricter than that required by current legislation. In
its Green Paper published on 17 December 2002, the UK government has said that
it is considering replacing the statutory minimum funding requirement with a
scheme-specific minimum funding level, which could be higher.
Following the sale of General Domestic Appliances Holdings Limited in 2001, the
trustee of the UK Plan is expected to make a payment to the buyer's pension plan
in respect of the accrued benefits of the employees who transferred to the
buyer. Although a basis for calculation of the transfer amount was agreed in the
sale agreement for the sale of General Domestic Appliances, the trustee of the
UK Plan is not bound by this. Corp is responsible for 50 per cent. of any
shortfall between the transfer amount agreed in the sale agreement and the
amount actually paid by the trustee. Anticipating a shortfall at the time of the
sale, an allowance of L3.255 million was made in the sale price. The information
received by Corp to date is that the plan actuary intends to advise the trustee
to calculate the transfer amount on a basis which would (apart from the
allowance in the sale price) result in a liability for Corp under the shortfall
obligation of approximately L1.47 million. Allowing for the price adjustment,
Corp would on these figures be entitled to L1.785 million from the buyer. If the
trustee does not follow the advice of the actuary or if the actuary changes his
advice, Corp expects its maximum liability under the shortfall obligation to be
L14.665 million (or L12.88 million if the net over-allowance by Corp is taken
into account). The actuary is not bound by his representations and a final
determination of the transfer amount is not likely until April or May 2003.
There can be no assurance that the trustee will not decide to follow a basis
which results in a greater liability for Corp than Corp currently expects or
that any such liability would not have a material adverse effect on the Group.
Indeed, if the trustee refuses or fails to transfer the whole or any part of the
agreed amount, Corp will be liable to pay 50 per cent. of the shortfall (less
the buyer's prevailing rate of corporation tax), which could produce a
significant larger liability.
THERE IS A RISK THAT THIRD PARTY INTELLECTUAL PROPERTY RIGHTS WILL BE ASSERTED
AGAINST THE GROUP.
The Group relies on patents, trade marks, trade secrets, design rights,
copyrights, confidentiality provisions and licensing agreements to establish and
protect its proprietary technology and to protect against claims from others.
Infringement claims have been and may continue to be asserted against the Group
or against its customers in connection with their use of the Group's systems and
products. The Group cannot ensure the outcome of any such claims and, should
litigation arise, such litigation could be costly and time-consuming to resolve
and could result in the suspension of the manufacture of the products utilising
the relevant intellectual property. In each case, the Group's operating results
and financial condition could be materially affected.
F.4 RISKS RELATED TO OWNERSHIP OF THE NEW SHARES, THE NEW NOTES AND THE
WARRANTS
THERE IS NO CURRENT TRADING MARKET FOR THE NEW SHARES, THE NEW NOTES OR THE
WARRANTS, AND THE MARKET PRICES OF THE NEW SHARES, THE NEW NOTES AND THE
WARRANTS MAY BE ADVERSELY AFFECTED BY SIGNIFICANT SELLING ACTIVITY IN THE PERIOD
FOLLOWING IMPLEMENTATION OF THE RESTRUCTURING.
The New Shares, the New Notes and the Warrants comprise new issues of securities
for which there is currently no public trading market. There can be no assurance
as to the development or liquidity of any market for the New Shares, the New
Notes or the Warrants. To the extent that the New Shares and the Warrants are
traded after their initial issuance, they may trade at prices that are lower
than the initial market values thereof depending on many factors, including
prevailing interest rates and the markets for similar securities as well as
technological, market, economic, legislative, political, regulatory and other
factors. Similarly, the New Notes may, after their initial issuance, trade at a
substantial discount to their principal amounts, depending upon prevailing
interest rates, the market for similar securities, the performance of Corp and
other factors. There can be no assurance that active trading markets will
develop or be maintained for the New Shares, the Warrants or the New Notes.
Significant sales of the New Shares, the Warrants or the New Notes would be
likely to result in a decline in their respective market prices. It is likely
that certain persons who receive New Shares or Warrants through the
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Schemes will sell the New Shares or the Warrants they receive very soon after
the Corp Scheme becomes effective and those securities are initially issued.
These sales could result in significant downward pressure on the market price of
the New Shares or the Warrants. Similar sales and corresponding price pressure
could also affect the New Notes.
CORP WILL BE DEPENDENT IN PART ON FUNDS RECEIVED FROM ITS SUBSIDIARIES TO PAY
INTEREST AND PRINCIPAL ON THE NEW NOTES AND TO PAY DIVIDENDS, IF ANY, ON THE NEW
SHARES.
Corp is a holding company, its principal assets being its investments in its
subsidiaries. As a holding company, Corp's ability to pay dividends on the New
Shares and to pay interest and principal on the New Notes is dependent upon the
receipt of funds from its subsidiaries by means of dividends, interest,
inter-company loans or otherwise. The ability of its subsidiaries to make funds
available to Corp is subject, among other things, to applicable corporate and
other laws and restrictions contained in agreements to which such subsidiaries
are subject. There can be no assurance that Corp's subsidiaries will be in a
position to make funds available. Any limitations on the ability of its
subsidiaries to make funds available to Corp would have a corresponding adverse
effect on Corp's ability to make payments of interest and principal on the New
Notes and to pay dividends, if any, on the New Shares. In addition, the terms of
the indentures governing the New Notes will significantly restrict the ability
of Corp to pay dividends on Corp Shares while the New Notes are outstanding.
Accordingly, Corp does not expect to pay dividends on Corp Shares for the
foreseeable future.
THE US RINGFENCING WILL GIVE RISE TO OPERATIONAL AND FINANCIAL INEFFICIENCIES
AND OTHER COSTS WHICH MAY ADVERSELY AFFECT THE GROUP'S BUSINESS AND THE MARKET
PRICE OF THE NEW SHARES.
As described in Part A.2 of this Section certain of the Group's US businesses
will be contractually separated or "ringfenced" from the rest of the Group upon
implementation of the Restructuring. This US Ringfencing may have significant
implications for holders of New Notes, as well as holders of New Shares.
The covenants in the indentures governing the New Notes will regulate the type
of financial, operational and other dealings that the Non-Ringfenced Entities
can have with the Ringfenced Entities. The covenants in the New Notes will also
require Corp to separate the North American Access Business, BBRS Business and
OPP Business into separate subsidiaries within the US Ringfencing no later than
the second anniversary of the issue date of the New Notes. Moreover, the
Non-Ringfenced Entities will generally be prohibited from providing funding for
any of the Ringfenced Entities and, following the separation of the three
principal businesses within the US Ringfencing, the North American Access
Business, BBRS Business and OPP Business will generally be prohibited from
providing funding to each other. The Ringfenced Entities will enter into various
agreements with the Non-Ringfenced Entities necessary to ensure that from the
Effective Date those dealings that are permitted with each other will be
provided in the ordinary course of business on an arm's-length basis or
otherwise as permitted by the covenants in the indentures governing the New
Notes. These arrangements for the provision of such services may lead to higher
costs for the Group as a whole which may affect its results of operations, as
well as Corp's ability to repay the New Notes.
In addition to the foregoing, the operational and financial inefficiencies and
other costs associated with the US Ringfencing arrangements could have an
adverse effect on Corp's business and on the market price of the New Shares.
CORP MAY BE UNABLE TO REPAY THE NEW NOTES AT MATURITY.
Corp currently intends to repay any principal amount outstanding in respect of
the New Notes at their maturity in part from cash generated by the Group. As
discussed above, the Group currently is cash flow negative and its ability to
generate significant positive cash flow in the future is subject to significant
risks and uncertainties. If the Group is unable to generate sufficient cash to
allow Corp to repay the New Notes at maturity, Corp would need to obtain other
financing for this purpose. However, also as discussed above, Corp's ability to
obtain such financing may be extremely limited. Accordingly, no assurance can be
given that Corp will be able to repay any of the New Notes at their maturity.
182
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART F
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In the event that Corp is unable to repay the New Notes following an event of
default or at their maturity (either from its own cash or from other sources of
funding), no assurances can be given as to whether the proceeds of the security
granted by Corp and the Guarantors in connection with the New Notes will be
sufficient to meet any shortfall.
Whilst the holders of the New Notes will have the benefit of the Security (as
described in Appendix 10), such security:
a. ranks in its entirety behind the security in favour of the providers
of the Performance Bonding Facility;
b. ranks behind certain cash collateral in favour of the providers of
existing performance bonds; and
c. in relation to the property located at Warrendale Pennsylvania,
ranks behind the first mortgage in favour of Liberty Funding L.L.C.
as provider of the Working Capital Facility to be made available to
Marconi Communications, Inc.
THE NEW NOTES ARE SUBJECT TO A REDEMPTION OBLIGATION AT A PREMIUM UPON A CHANGE
OF CONTROL OF CORP WHICH MAY DISCOURAGE POTENTIAL BIDDERS.
Upon the occurrence of specific kinds of change of control or merger events,
Corp will be required to offer to repurchase all outstanding New Notes at the
greater of 110 per cent. of their aggregate principal amount or a make whole
amount based on 50 basis points above the yield on US treasuries of similar
maturity plus, in each case accrued and unpaid interest. This obligation to
redeem the New Notes at a premium could have the effect of deterring third
parties who might otherwise offer to acquire a controlling interest in the Group
or could adversely affect the terms on which any such offer is made. This
redemption obligation may accordingly have an adverse effect on the market price
of the New Shares and could deprive holders of the New Shares of an opportunity
to receive a premium for their New Shares upon a change of control of the Group.
THE FUNDING STATUS OF THE GROUP'S US PENSION PLANS AND THE AGREEMENT ENTERED
INTO BY CORP WITH THE PBGC WITH RESPECT TO THOSE PLANS COULD DELAY OR ADVERSELY
AFFECT THE TERMS OF THE SALE OF THE GROUP'S US BUSINESSES.
As described in Part D.11 of this Section, the funding status of certain
tax-qualified defined benefit plans subject to the regulation of the Pension
Benefit Guaranty Corporation ("PBGC") in the United States could result in
action being taken by the PBGC that might delay or otherwise adversely affect
the sale of the Group's US Businesses or assets used therein (or the net
proceeds realised therefrom). The likelihood of such action will depend in part
on the funded status of such plans at the time of any such sale, the
creditworthiness of the purchaser following such sale and the extent to which
the pension liabilities are assumed by the purchaser in any such sale. Although
Corp has entered into a memorandum of understanding with the PBGC with a view to
making such adverse action less likely, under this memorandum of understanding
specified conditions must be satisfied in connection with any such sale. To the
extent that these matters give rise to any delay or other adverse consequences
with respect to the sale of the Group's US Businesses, holders of New Shares and
New Notes, and in particular holders of New Junior Notes, could be adversely
affected.
IT IS UNLIKELY THAT CORP WILL PAY DIVIDENDS FOR THE FORESEEABLE FUTURE.
Corp does not anticipate paying dividends on the New Shares in the foreseeable
future. Moreover, even if Corp has distributable reserves and becomes cash flow
positive and profitable and so is in a position to pay dividends, the indentures
relating to the Notes significantly restrict its ability to pay dividends.
Certain institutional investors may only invest in dividend-paying equity
securities or may operate under other restrictions that may prohibit or limit
their ability to invest in the New Shares. This may reduce the demand for the
New Shares until Corp is able to pay dividends in respect of the New Shares,
which may in turn adversely affect the price of the New Shares in the market.
183
I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART F
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PRE-EMPTIVE RIGHTS FOR NON-UK HOLDERS OF NEW SHARES MAY NOT BE AVAILABLE.
In the case of, amongst other things, an increase of the share capital of Corp,
existing shareholders are entitled to pre-emptive rights pursuant to the Act and
Corp's articles of association unless waived by a resolution of the shareholders
at a general meeting or in the circumstances stated in Corp's articles of
association. Even where pre-emptive rights apply, holders of the New Shares in
the United States, South Africa, Australia, Canada and other jurisdictions
outside the United Kingdom may in practice not be able to exercise pre-emptive
rights in respect of their New Shares unless Corp decides to comply with
applicable local laws and regulations and, in the case of holders of the New
Shares in the United States, a registration statement under the US Securities
Act is effective with respect to such rights, or an exemption from the
registration requirements thereunder is available. Corp intends to evaluate at
the time of any pre-emptive rights offering the costs and potential liabilities
associated with any such registration statement and compliance with other
applicable local laws and regulations, as well as the indirect benefits to it of
thereby enabling or facilitating the exercise by holders of the New Shares in
the United States and such other jurisdictions of their pre-emptive rights for
new securities in respect of their New Shares and any other factors Corp
considers appropriate at the time, and then to make a decision as to how to
proceed and whether to file such a registration statement or comply with such
other applicable local laws and regulations. No assurance can be given that any
registration statement with respect to the securities offered under a pre-
emptive issue would be filed or any such other local laws and regulations would
be complied with to enable the exercise of such holders' pre-emptive rights.
IN THE EVENT OF ENFORCEMENT OF THE SECURITY FOR THE NEW NOTES AND THE
PERFORMANCE BONDING FACILITY, THE NEW NOTES WILL RANK JUNIOR IN RIGHT OF PAYMENT
TO THE PERFORMANCE BONDING FACILITY, THE NEW JUNIOR NOTES WILL RANK JUNIOR IN
RIGHT OF PAYMENT TO THE NEW SENIOR NOTES, AND THE RIGHTS OF THE NEW JUNIOR NOTES
TO TAKE ENFORCEMENT ACTION WITH RESPECT TO THE SECURITY WILL BE LIMITED.
Corp, the Guarantors, the indenture trustees for the New Notes and the agent
under the Performance Bonding Facility, among others, will enter into a Security
Trust and Intercreditor Deed that will establish the relative priorities among
the New Senior Notes, the New Junior Notes and the Performance Bonding Facility
in the event of enforcement of the security therefor. Following the occurrence
of a payment default and/or an acceleration of the maturity of the New Senior
Notes, all proceeds from enforcement of the security granted by Corp and the
Guarantors to secure their respective obligations under the New Notes, the
guarantees thereof and the Performance Bonding Facility will be applied as
follows:
- first, to the fees and expenses of the trustees and other agents;
- second, to the banks providing the Performance Bonding Facility;
- third, to repayment of the New Senior Notes; and
- fourth, to repayment of the New Junior Notes.
Under the terms of the Security Trust and Intercreditor Deed, no payments may be
made on the New Junior Notes (other than payments of interest in kind) and no
redemptions of the New Junior Notes from the proceeds of asset sales may be
made, subject to limited exceptions: (i) following a payment default under, or
acceleration of, the New Senior Notes until the payment default or acceleration
has been remedied or waived or unless at least a majority in principal amount of
the New Senior Notes consent in writing or all liabilities arising under the New
Senior Notes are paid in full, or (ii) following a standstill notice being
delivered by the New Senior Notes Trustee to the Security Trustee (notifying it
of the occurrence of a default under the New Senior Notes) for a period of up to
179 days.
In addition, under the terms of the Security Trust and Intercreditor Deed, the
holders of the New Junior Notes may not:
- accelerate the New Junior Notes during a standstill period (as
described in more detail in Part C of this Section);
- take enforcement action against any security securing the New Junior
Notes without the consent of the holders of the New Senior Notes or
unless all liabilities arising under the New Senior Notes have been
discharged in full; or
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I. EXPLANATORY STATEMENT
(IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
SECTION 2: FURTHER EXPLANATION OF THE RESTRUCTURING -- PART F
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- amend the indenture for the New Junior Notes, with limited exceptions.
Furthermore, if the holders of the New Senior Notes agree to waive a default or
event of default and/or amend the New Senior Notes or the related indenture to
address the circumstances leading to such default or event of default, the
holders of the New Junior Notes will be deemed to have waived such default or
event of default and/or the corresponding provisions of the New Junior Notes and
the related indenture will be amended or supplemented to the same effect, in
each case without the consent of any holder of New Junior Notes (but subject to
certain limitations).
THE VALUE OF THE GUARANTEES AND THE COLLATERAL MAY BE LIMITED BY APPLICABLE
LAWS.
Corp's obligations under the New Notes and the Performance Bonding Facility will
be guaranteed by certain of Corp's subsidiaries that, with limited exceptions,
must include on an ongoing basis (i) subsidiaries that together account for at
least 80 per cent., and (ii) each subsidiary that individually accounts for more
than 5 per cent, in each case, of the total assets, total external assets, total
external sales, and (commencing as of 31 March 2005) total EBITDA of Corp and
its subsidiaries. Corp and the Guarantors will, with limited exceptions, grant
security over substantially all of their respective assets to secure their
respective obligations under the New Notes and the guarantees as well as the
Performance Bonding Facility.
The obligations of the Guarantors will be limited under the relevant laws
applicable to such Guarantors and the granting of such guarantees and/or
security (including laws relating to corporate benefit, capital preservation,
financial assistance, fraudulent conveyances, fraudulent transfers or
transactions at an under value) to the maximum amount payable or secured such
that such Guarantees or security will not constitute a fraudulent conveyance,
fraudulent transfer or a transaction at an under value, or otherwise cause the
Guarantor to be insolvent under relevant law or such guarantees or security to
be void or unenforceable or cause the directors of such Guarantor to be held in
breach of applicable corporate or commercial law for providing such Guarantee or
security. As a result, a Guarantor's liability under its guarantee and/or the
value of security granted could be reduced to zero. Notwithstanding the
foregoing limitations to the guarantees, there can be no assurance that the
provision of any guarantee by any particular Guarantor or Guarantors will not be
challenged by a liquidator, administrator or other creditor of such Guarantor or
Guarantors. If a court voided any guarantee or held it unenforceable, holders of
New Notes would cease to have a claim in respect of the guarantee by the
relevant Guarantor and, accordingly, would cease to be a creditor of such
Guarantor.
185
II. THE CORP SCHEME
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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
NO. 1783 OF 2003
IN THE MATTER OF MARCONI CORPORATION PLC
AND
IN THE MATTER OF THE COMPANIES ACT 1985
------------------------------------------------------------
SCHEME OF ARRANGEMENT
(UNDER SECTION 425 OF THE COMPANIES ACT 1985)
------------------------------------------------------------
BETWEEN:
MARCONI CORPORATION PLC
AND
ITS SCHEME CREDITORS
(AS HEREINAFTER DEFINED)
186
II. THE CORP SCHEME
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PART I
PRELIMINARY
RECITALS
DEFINITIONS
A In this Scheme, unless the context otherwise requires or unless otherwise
expressly provided for, the following expressions shall bear the following
meanings:
"ACCOUNT HOLDER" has the definition in Recital G(3);
"ACCOUNT HOLDER LETTER" a letter in the form, or substantially in the
form, set out as the annex to Appendix 28;
"ACT" the Companies Act 1985;
"ADMISSIBLE INTEREST" an amount in respect of any interest to which a
Scheme Creditor is entitled to be paid by the Company or which has accrued
but is not yet payable by the Company to a Scheme Creditor, whether by
reason of contract, judgment against the Company, decree or otherwise, in
respect of the period up to and including, the Record Date;
"ADMITTED"
(1) when used of a Scheme Claim, the amount of any relevant claim which
has been admitted by the Supervisors pursuant to clause 9 so as to
qualify for Distributions; and
(2) when used of a Scheme Creditor, that Scheme Creditor in respect of
the amount of its Scheme Claim which has been admitted by the
Supervisors as described in (1);
"ADMITTED IN FULL" in connection with a Disputed Claim for the purposes of
determining the currency or currencies in which New Senior Notes will be
denominated only means Admitted in the amount set out against that
Disputed Claim in the second column of Schedule 3 or in the second column
of Schedule 3 of the plc Scheme as the case may be;
"ADR" an American depositary receipt evidencing an American depositary
share, each representing 10 New Shares, issued pursuant to the deposit
agreement dated on or around 31 March 2003 between the Company, the ADR
Depositary, and the owners and beneficial holders of American depositary
receipts;
"ADR DEPOSITARY" Bank of New York, as depositary under the deposit
agreement relating to the ADRs;
"AFFILIATE" in relation to the Company, a body corporate in which it has a
direct or indirect interest as a shareholder of at least 25 per cent. of
the issued ordinary share capital;
"ALLOWED PROCEEDING"
(1) any Ascertainment Proceeding in any jurisdiction commenced or
continued by a person claiming to be a creditor of the Company and
whether against the Company alone or against the Company and others
which is commenced or continued (so far as the Company is
concerned) for the sole purpose of ascertaining whether such person
has (and, if so, the quantum of) a Scheme Claim including for the
avoidance of doubt any adjudication pursuant to sub-clause 17(1)
and Part VI; and
(2) any proceeding by a Scheme Creditor to enforce its rights under the
Scheme where the Company or the Supervisors fail to perform their
respective obligations under the Scheme;
"ANCRANE" Ancrane, an unlimited liability company incorporated in England
and Wales with registered number 4308188, which is a subsidiary of plc;
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II. THE CORP SCHEME
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"ANCRANE DIRECTION"
(1) the irrevocable direction given by Ancrane to the Company directing
the Company to deliver to plc any Scheme Consideration to which
Ancrane is entitled pursuant to any Claim Form filed by it in
respect of the Known Claim listed against its name in Schedule 3
(which, for the avoidance of doubt, does not include any claim or
entitlement in respect of Bonds of which Ancrane is the Bondholder);
together with
(2) the irrevocable authorisation and direction given by Ancrane to each
of the Eurobond Trustee, the Yankee Bond Trustee, the Escrow
Trustee, the supervisor of the plc Scheme and the Supervisors to
direct the Distribution Agent to pay all Scheme Consideration or
distributions received pursuant to the plc Scheme to which Ancrane
is entitled by virtue of its holding of Bonds to plc;
"ASCERTAINMENT PROCEEDING" any action or other legal proceeding including
any judicial review, arbitration, alternative dispute resolution or
adjudication;
"ASSET SALE" has the meaning given to it in the New Junior Notes'
indenture and in Appendix 8;
"BANK OF NEW YORK" The Bank of New York, a New York banking corporation
having an office at 101 Barclay Street, New York, New York, 10286, U.S.A.;
"BANKS" the banks, financial and other institutions which provide the
Existing Facility to the Company as at the Record Date;
"BASIC KNOWN CLAIMS SEGMENT" has the meaning given to it in sub-clause
21(3)(a);
"BASIC RESERVE CLAIMS SEGMENT" has the meaning given to it in sub-clause
21(3)(b);
"BASIC SCHEME CONSIDERATION" the Cash and the New Rights as further
described in sub-clause 21(1);
"BONDHOLDER COMMUNICATIONS" Bondholder Communications Group, a New York
corporation having an office at 30 Broad Street, 46th Floor, New York,
NY10004 U.S.A.;
"BONDHOLDER" a person with the ultimate economic interest in any of the
Bonds;
"BOND ISSUES" the Euro Issues and the Yankee Issues;
"BONDS" all or any of the Eurobonds and the Yankee Bonds;
"BOOK-ENTRY DEPOSITARY" Bank of New York in its capacity as book-entry
depositary in relation to the Yankee Bonds (or, from time to time, any
successor to Bank of New York as such book entry depositary);
"BUSINESS DAY" any day on which banks are open for general business in
both London and New York;
"CASH" the sum of L340,000,000, plus any Excess Cash, to be distributed to
Eligible Recipients in accordance with the provisions of the Scheme;
"CHANGE OF LAW" a change of law or regulation since 27 March 2003 in any
jurisdiction, such that distribution of securities pursuant to the Scheme
to a person in such jurisdiction would be prohibited (if previously
permitted) or permitted (if previously prohibited) pursuant to sub-clause
30(7);
"CLAIM FORM" each or any of the claim forms to be completed by or on
behalf of a Scheme Creditor (or its duly authorised agent) detailing its
Scheme Claim substantially in the form which is set out in Appendix 30;
"CLEARSTREAM, LUXEMBOURG" Clearstream Banking, societe anonyme;
"COMPANY" Marconi Corporation plc, a company incorporated in England and
Wales with registered number 67307;
"CONCLUSIVELY REJECTED" when used of a Scheme Claim or part thereof means
that following a notice of rejection given pursuant to clause 16 either:
(1) the decision of the Supervisors in relation to that Scheme Claim
(or part thereof) has been upheld (in whole or in part) by a
determination in an Allowed Proceeding pursuant to clause 18 or by
adjudication pursuant to Part VI; or
(2) the Company has been released from that Scheme Claim (or part
thereof) pursuant to clause 20;
"CONSOB" The Commissione Nazionale per le Societa e la Borsa, the public
authority responsible for regulating the Italian securities market;
188
II. THE CORP SCHEME
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"CO-ORDINATION COMMITTEE" the co-ordination committee of Banks which has
acted in connection with the restructuring proposals, the present members
being Barclays Bank PLC, HSBC Bank plc, London Branch, JPMorgan Chase
Bank, The Royal Bank of Scotland plc and Commerzbank Aktiengesellschaft,
London Branch and of which Intesa BCI S.p.A. was a member from 22 October
2001 to 5 March 2003;
"CORP GROUP" the Company and its Affiliates;
"CORP/PLC MODEL" the distribution model described in sub-clause 27(2);
"CORP SPV" Regent Escrow Limited, a limited liability special purpose
company incorporated specifically to act as escrow trustee pursuant to the
Scheme and the plc Scheme;
"COURT" the High Court of Justice of England and Wales;
"COURT HEARING" the hearing of the Company's application to the Court
requesting the Court's sanction of the Scheme;
"CREDITORS' COMMITTEE" the committee of Scheme Creditors established and
operated pursuant to and in accordance with Parts VIII and IX;
"CREST" the system for the paperless settlement of trades in listed
securities of which CRESTCo Limited is the operator;
"CURRENCY RATE" the Exchange Rate on the last Business Day before the
meeting of creditors of the Company convened pursuant to the order of the
Court is held (being, in the case of an adjournment of that meeting, the
day the last meeting pursuant to such adjournment is held);
"DEFINITIVE HOLDER" the registered holder of a Yankee Bond in definitive
form and the bearer (whether pursuant to an attornment or otherwise) of a
Eurobond in individual global form other than a Eurobond in individual
global form in respect of which no Account Holder Letter has been
delivered pursuant to the arrangements described in Recital G(4);
"DEPOSITARIES" the holders for the time being of the global bonds
described in Recital G(5) in respect of which no Account Holder Letter has
been delivered;
"DESIGNATED RECIPIENT" a person specified in the valid Account Holder
Letter (or, in the case of Ancrane, in the Escrow and Distribution
Agreement) relating to a particular principal amount of Bonds as being the
recipient of any part of the First Initial Distribution and of any further
Distribution in respect of those Bonds and includes, in the case of any
cash distributed as part of any Distribution made in respect of the
Eurobonds, each person to whom such cash is distributed through Euroclear
or Clearstream, Luxembourg;
"DIRECTORS" the directors of the Company from time to time;
"DISPUTED CLAIMS" those Known Claims in Schedule 3 to which note 6 to that
Schedule applies;
"DISTRIBUTION" a distribution of Elements of the Scheme Consideration to
Eligible Recipients in accordance with the Scheme;
"DISTRIBUTION AGENT" Bank of New York as distribution agent pursuant to
the Escrow and Distribution Agreement and any successor from time to time;
"DISTRIBUTION ENTITLEMENT" the entitlement under the Scheme of an Admitted
Scheme Creditor to a Distribution;
"DISTRIBUTION NOTICE" an irrevocable notice served by the Supervisors on
the Escrow Trustee (with a copy to the Distribution Agent) instructing the
Escrow Trustee to direct the Distribution Agent to make a Distribution;
"DTC" The Depository Trust Company of New York;
"EFFECTIVE DATE" the date on which an office copy of the order of the
Court sanctioning the Scheme shall have been delivered to the Registrar of
Companies for registration;
189
II. THE CORP SCHEME
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"EFFECTIVE TIME" the time at which the office copy of the order of the
Court sanctioning the Scheme is delivered to the Registrar of Companies
for registration;
"ELEMENT" when used of any of the Basic Scheme Consideration, the plc
Distribution Supplement, any plc Receipts and any Rejected Claim
Supplement, each of the New Rights and the Cash (and, in the case of the
plc Distribution Supplement, any plc Receipt or any Rejected Claim
Supplement, any other Property);
"ELIGIBLE RECIPIENT"
(1) in relation to an Admitted Scheme Claim other than Scheme Claims in
respect of Bonds, the Scheme Creditor; and
(2) in relation to an Admitted Scheme Claim in respect of Bonds, the
relevant Designated Recipient;
"EMPLOYEE" any partner in the same firm as the Supervisors, or any person
employed, whether under a contract of service or a contract for services,
by that firm or by any company owned by that firm, who is employed by the
Supervisors in accordance with Part VII in connection with the conduct of
the Supervisors' functions and powers under the Scheme;
"ESCROW AND DISTRIBUTION AGREEMENT" the agreement entered into on 27 March
2003 between, inter alios, the Company, the Supervisors, the Escrow
Trustee and the Distribution Agent in the form set out in Appendix 7, a
condition precedent to the effectiveness of which (in so far as it relates
to the Scheme) is the occurrence of the Effective Time;
"ESCROW TRUSTEE" Corp Spv, appointed as escrow trustee under the terms of
the Escrow and Distribution Agreement and any successor from time to time;
"ESOP BANKS" Barclays Bank PLC, Salomon Brothers International Limited and
UBS AG;
"ESOP ESCROW AGREEMENT" the escrow agreement between plc, the Company,
HSBC Bank plc and Barclays Bank PLC dated 13 December 2002;
"ESOP SETTLEMENT AGREEMENT" the ESOP settlement agreement dated 26 March
2003 between the Company, plc, HSBC Bank plc, the ESOP Banks and Bedell
Cristin Trustees Limited;
"EURO" or "E" the single currency of those member states of the European
Communities that have adopted (or adopt) the euro as their lawful currency
under the legislation for the European Union for European Monetary Union;
"EUROBONDS" all or any of the bonds comprising the Euro Issues;
"EUROBOND TRUSTEE" The Law Debenture Trust Corporation p.l.c. in its
capacity as trustee under the Trust Deeds;
"EUROCLEAR" Euroclear Bank S.A./N.V., as operator of the Euroclear system;
"EURO ISSUES" E500,000,000 5.625 per cent. bonds due 2005 and
E1,000,000,000 6.375 per cent. bonds due 2010, both issued by the Company
and both guaranteed by plc;
"EXAMINATION PERIOD" has the meaning given to it in sub-clause 24(2);
"EXCESS CASH" any Net Proceeds of Asset Sales, other than up to
L82,000,000 of Excluded Asset Sale and Liquidation Proceeds, received by
the Company or any of its Subsidiaries on or after 1 December 2002 and
before 1 May 2003;
"EXCHANGE RATE" means the mid-point rate of exchange on the relevant
Business Day for the conversion of one currency to another currency as
published in the Financial Times, (or, if the Financial Times is not
published, in the International Herald Tribune or another internationally
recognised newspaper) on the following Business Day;
"EXCLUDED ASSET SALE AND LIQUIDATION PROCEEDS" has the meaning given to it
in the New Junior Notes' Indenture and in Appendix 8;
190
II. THE CORP SCHEME
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"EXCLUDED CLAIM" any claim or right which a person is or may in any
circumstances become entitled to bring or enforce against the Company in
respect of any Liability of the Company in each and every case (save as
otherwise provided below) in existence as at the Record Date or to which
the Company may become subject after that date by reason of any Liability
of the Company incurred before that date in respect of any of the
following:
(1) claims of employees who were employed by the Company at the Record
Date under their respective contracts of employment and fee
arrangements of Directors (who were directors of the Company at the
Record Date) including those set out in part I of Appendix 9;
(2) the Company's Liability in respect of any promise or arrangement to
provide pensions, allowances, lump sums or other like benefits on
retirement, death, termination of employment (whether voluntary or
not), or during periods of sickness or disablement, which are for
the benefit of any officer or former officer or employee or former
employee of the Marconi Group or for the benefit of persons
dependent on any such persons, including any guarantees and
indemnities given by the Company to trustees or administrators of
arrangements providing such benefits and any statutory liabilities
owing to any government authority (including the Pension Benefit
Guaranty Corporation) in respect of any such promises or
arrangements, including those set out in part I of Appendix 9;
(3) certain guarantee or indemnity obligations of the Company given in
respect of obligations of Affiliates which are considered to be
beneficial to that Affiliate's ongoing operations as set out in part
I of Appendix 9;
(4) Liabilities in respect of Trading Obligations of the Company or its
Affiliates under contracts where, and to the extent that, the
Company is a joint or joint and several obligor with one or more
Affiliates including those set out in part I of Appendix 9;
(5) contractual obligations, including warranty and indemnity
obligations, of the Company under disposals and acquisitions (each
otherwise than in the Ordinary Course of Business), demergers,
mergers and joint ventures and any Pre-Disposal Liabilities
including those set out in part I of Appendix 9;
(6) intra-group loan and trading account claims against the Company by
any Affiliate;
(7) the Company's Liabilities under commercial contracts or licences
relating to the Corp Group and ongoing trading operations of
Affiliates to which the Company is a party and which are regarded as
beneficial to the Corp Group's ongoing operations and the
documentation which has been entered into prior to the Record Date
in connection with the proposed financial restructuring of the
Company and plc pursuant to the Scheme and the plc Scheme in each
case as set out in part I of Appendix 9;
(8) the Company's Ordinary Course of Business Liabilities incurred in
connection with the supply of goods and/or services to the Company
as set out in part I of Appendix 9;
(9) the Company's Liabilities to third parties which are covered by
Insurance and Liabilities of the Company which would be covered by
Insurance but for;
(a) any excess, deductible or limit of liability applicable under
any Insurance to any such Liability; or
(b) any insurer failing to satisfy any Insurance claim in full when
payable when the insurer is in liquidation or provisional
liquidation or administration under the Insolvency Act 1986 or
subject to any scheme of arrangement under section 425 of the
Act (or any equivalent or analogous proceeding or arrangement in
any other jurisdiction, including any proceeding under chapter
11 of the US Bankruptcy Code); or
(c) the Insurance or any claim under it being void or avoided by any
insurer,
being Liabilities of the Company in respect of which the third party
would have rights against the insurer under that Insurance by virtue of
section 1 of the Third Party (Rights against Insurers) Act
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1930 in the event that any of the events set out in section 1(1)(b)
of that Act occurred with respect to the Company;
(10) Preferential Claims;
(11) rights of indemnity of directors and officers of the Company (who
were directors and/or officers of the Company at the Record Date)
against the Company under its articles of association and at common
law;
(12) costs, fees and expenses of:
(a) all advisers to the Company;
(b) the Prospective Supervisors and their advisers;
(c) the Escrow Trustee and its advisers;
(d) the Distribution Agent and its advisers;
(e) the Eurobond Trustee and its advisers;
(f) the Yankee Bond Trustee and its advisers;
(g) the Co-ordination Committee and its advisers;
(h) the Informal Committee of Bondholders and its advisers;
(i) Bondholder Communications;
(j) the Sponsors and their advisers;
(k) the ESOP Banks and their advisers;
(l) the trustee of the New Senior Notes and its advisers;
(m) the trustee of the New Junior Notes and its advisers; and
(n) the security trustee in respect of the New Notes,
(and any Liability under any engagement letter or similar
arrangement entered into by the Company with such parties) incurred
in connection with the consideration, negotiation and implementation
of the restructuring of the Company and plc in each case as set out
in part I of Appendix 9;
(13) Liabilities of the Company to a creditor where such Liabilities in
aggregate to that creditor do not exceed L5,000 (which, for the
avoidance of doubt, do not include any Liabilities in respect of
Bonds);
(14) the Company's Liabilities in respect of Unclaimed Dividends;
(15) the Company's Liabilities in respect of the lease of the property at
329-333 High Street, Stratford, London;
(16) the Company's Liabilities under the restructuring undertaking
agreements with each ESOP Bank, the ESOP Escrow Agreement, Mobile
Escrow Agreement, Subsequently Sold Opco Escrow Agreements and the
ESOP Settlement Agreement;
(17) the Company's Liabilities in respect of any personal injury claims
which are not excluded from the Scheme under sub-paragraph (9)
above; and
(18) the Company's Liability (if any) in respect of the Italian Implied
Guarantee;
"EXISTING FACILITY" the E6,000,000,000 syndicated credit facility dated 25
March 1998 between The General Electric Company p.l.c. (now the Company),
HSBC Investment Bank plc (as agent), Marine Midland Bank (as US swingline
agent) and the financial institutions named therein (as banks) as amended
from time to time;
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"EXISTING SHARES" the 2,866,250,735 issued ordinary shares of 5 pence each
in the capital of the Company as at the Record Date which will become
Non-Voting Deferred Shares forthwith and conditionally upon the allotment
of the New Shares to be allotted upon the issue of the First Initial
Distribution Notice;
"EXPLANATORY STATEMENT" the explanatory statement circulated with this
Scheme pursuant to Section 426 of the Act;
"FINAL DISTRIBUTION" the Distribution of all remaining Scheme
Consideration made at the direction of the Supervisors which the
Supervisors state in writing to the Company and the Creditors' Committee
will be the final Distribution of Scheme Consideration;
"FINAL DISTRIBUTION DATE" the date of the Final Distribution;
"FIRST CLAIM DATE" 17 April 2003;
"FIRST INITIAL DISTRIBUTION" the Initial Distribution to Eligible
Recipients on the basis set out in clause 23;
"FIRST INITIAL DISTRIBUTION NOTICE" the Distribution Notice in respect of
the First Initial Distribution compiled by the Prospective Supervisors and
presented at the Court Hearing detailing those Scheme Claims which the
Prospective Supervisors are satisfied should properly be Admitted on the
Effective Date;
"FORCE MAJEURE" any act of God, government act, war, fire, flood,
explosion, civil commotion or act of terrorism;
"GOES INTO LIQUIDATION" has the meaning given in section 247(2) of the
Insolvency Act 1986 and "GO" or "GOING" into liquidation shall be
construed accordingly;
"INDENTURE" the indenture dated 19 September 2000 between the Company, plc
and the Yankee Bond Trustee and relating to the Yankee Bonds;
"INFORMAL COMMITTEE OF BONDHOLDERS" the informal ad hoc committee of
certain parties with interests in Bonds which has participated in the
negotiation of the restructuring of the Company as detailed in Appendix
22;
"INITIAL DISTRIBUTION" an initial distribution to Eligible Recipients of
the Elements of Scheme Consideration on the bases set out in clause 23;
"INSURANCE" any contract of liability insurance insuring the Company in
respect of a liability which as at the Record Date is valid and
enforceable;
"ITALIAN IMPLIED GUARANTEE" the guarantee implied under Article 2362 of
the Italian Civil Code which may arise as a result of the Company's sole
shareholding in Marconi Finanziaria SpA for the period from March 2000 to
29 October 2001;
"KNOWN CLAIMS" the Scheme Claims (including Admissible Interest thereon)
listed in Schedule 3;
"KNOWN CLAIMS SEGMENT" has the meaning given to it in sub-clause 21(4)(a);
"KNOWN CLAIMS SUPPLEMENT" has the meaning given to it in sub-clause
27(3)(a);
"KNOWN CREDITOR" a Scheme Creditor in respect of its Known Claim;
"KNOWN REJECTED CLAIM SUPPLEMENT" has the meaning given to it in
sub-clause 29(1)(a)(i);
"KPMG" KPMG LLP, a UK limited liability partnership;
"LIABILITY" or "LIABILITIES" any liability or obligation of a person
whether it is present, future, prospective or contingent, whether or not
it is fixed or undetermined, whether or not it involves the payment of
money or performance of an act or obligation and whether it arises at
common law, in equity or by statute, in England and Wales or in any other
jurisdiction, or in any other manner whatsoever, but
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such expression does not include any liability which is barred by statute
or otherwise unenforceable under English law or arises under a contract
which is void or, being voidable, has been duly avoided;
"LIQUIDATION DISTRIBUTION PRINCIPLES" English law relating to dividends
paid to creditors in a liquidation under English law;
"LISTING" admission to the Official List maintained by the UKLA for the
purposes of part VI of the Financial Services and Markets Act 2000 and to
trading on the London Stock Exchange's market for listed securities and
"LISTED" shall have a corresponding meaning;
"MARCONI GROUP" plc and its Affiliates;
"MOBILE ESCROW AGREEMENT" the escrow agreement between the Company, plc,
Marconi Bruton Street Limited, HSBC Bank plc, the ESOP Banks, Bedell
Cristin Trustees Limited and Slaughter and May dated 2 August 2002;
"NASDAQ" the national market as operated by Nasdaq Stock Market, Inc.;
"NET PROCEEDS" has the meaning set out in the New Junior Notes' indenture
and in Appendix 8, save that the references therein to "Cash Equivalents"
shall be treated as deleted;
"NEW CREDITOR SHARES" the 995,000,000 new ordinary shares of nominal value
5p each in the capital of the Company, comprising 99.5 per cent. of the
New Shares, which are to form part of the Scheme Consideration as
described in sub-clause 21(1)(d);
"NEW JUNIOR NOTES" the junior notes to be issued by the Company to the
Escrow Trustee to hold on behalf of Scheme Creditors in respect of their
Admitted Scheme Claims and to be issued on or substantially on the terms
and conditions set out in Appendix 8;
"NEW NOTES" the New Senior Notes and the New Junior Notes;
"NEW RIGHTS" the New Notes and the New Creditor Shares;
"NEW SENIOR NOTES" the senior notes to be issued by the Company to the
Escrow Trustee to hold on behalf of Scheme Creditors in respect of their
Admitted Scheme Claims and to be issued on or substantially on the terms
and conditions set out in Appendix 8;
"NEW SHARES" 1,000,000,000 new ordinary shares of 5 pence each to be
issued by the Company to the Escrow Trustee to hold on behalf of Scheme
Creditors in respect of their Admitted Scheme Claims and on behalf of plc
Shareholders and which will carry the rights and be subject to the
restrictions contained in the articles of association of the Company
particulars of which are contained in Appendix 14 or, except as the
context requires otherwise, the equivalent amount of such shares in the
form of ADRs;
"NOMINEES" Marconi Nominees Limited, a limited company incorporated in
England and Wales with registered number 3854422;
"NON-VOTING DEFERRED SHARES" the non-voting deferred shares of 5p each in
the capital of the Company held by plc and Nominees arising from the
conversion and re-designation of the Existing Shares forthwith and
conditionally upon the allotment of the New Shares pursuant to the Scheme;
"NOTIONAL RESERVE CLAIM" means a notional claim against the Company of
L125,000,000;
"ORDINARY COURSE OF BUSINESS" the ordinary day-to-day business activities
carried on by the Company, conducted with a degree of regularity, or a
one-off transaction concluded in the nature of trade and with a view to a
profit and being such as might reasonably be expected to occur without
requiring the specific authority of the board of directors;
"PLC" Marconi plc, a public limited company incorporated in England and
Wales under registered number 3846429;
"PLC DISTRIBUTION SUPPLEMENT" (if any) the net additional cash and/or New
Rights receivable by the Company pursuant to the Corp/plc Model (or any
similar or analogous arrangements agreed by the
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Supervisors with the supervisors of the plc Scheme pursuant to sub-clause
27(5)) for distribution to Eligible Recipients with the Initial
Distribution in accordance with clauses 26 and 27;
"PLC RECEIPTS" distributions actually received by the Company from plc:
(1) pursuant to the plc Scheme (but not, for the avoidance of doubt, any
plc Distribution Supplement); or
(2) if the plc Scheme does not become effective or subsequently
terminates in accordance with its terms, from any liquidation,
voluntary arrangement or scheme of arrangement (other than the plc
Scheme) in respect of plc or otherwise received from plc;
"PLC SCHEME" the scheme of arrangement in respect of plc under section 425
of the Act sent to certain creditors of plc with the Explanatory Statement
with or subject to any modification, addition or condition approved or
imposed by the Court;
"PLC SHAREHOLDER" a registered holder of ordinary shares of nominal value
5p each in the capital of plc at the close of dealings in such shares on
the last day of dealings in such shares on the London Stock Exchange prior
to the Effective Date;
"PLC SHAREHOLDER STOCK" the 5,000,000 new ordinary shares of nominal value
5 pence each, comprising 0.5 per cent. of the New Shares and which are to
be dealt with in accordance with clause 31;
"POST" delivery by pre-paid first class post or air mail;
"PRE-DISPOSAL LIABILITIES" any Liability of the Company to a third party
in respect of a former Affiliate of the Company which has been the subject
of a disposal and arising as a result of:
(a) any financial or other guarantee, indemnity, counter-indemnity or
similar arrangement given by the Company in respect of the
obligations of that former Affiliate; or
(b) any claim being made under a performance bond, bank guarantee or
similar instrument in respect of that former Affiliate;
"PREFERENTIAL CLAIM" any claim against the Company which would have been
preferential under section 386 of the Insolvency Act 1986 if the Company
were to have gone into liquidation on the Record Date and on the basis
that the Record Date is the "relevant date" for the purposes of section
387 of the Insolvency Act 1986;
"PROCEEDING" any process, action, legal or other proceeding including any
arbitration, alternative dispute resolution, judicial review,
adjudication, demand, execution, seizure, lien or enforcement of judgment;
"PROHIBITED PROCEEDING" any Proceeding against the Company or its Property
in any jurisdiction whatsoever other than an Allowed Proceeding;
"PROPERTY" all forms of property tangible and intangible, including money,
goods, things in action, land and every description of property wherever
situated and also the benefit of obligations and every description of
interest, whether present or future, vested or contingent or otherwise
arising out of, or incidental to, property;
"PROSPECTIVE SUPERVISORS" means Philip Wallace and Richard Heis being the
persons that it is anticipated shall be appointed as Supervisors of the
Scheme;
"RECORD DATE" 5.00 p.m. (London time) on 27 March 2003;
"REGISTRAR OF COMPANIES" the registrar or other officer performing under
the Act the duty of registration of companies in England and Wales and
including a deputy registrar;
"REGISTRARS" Computershare Investor Services PLC, or such other person as
the Company may appoint as its registrars for the purposes of the Scheme;
"REJECTED CLAIM SUPPLEMENT" has the meaning given to it in sub-clause
29(1)(a);
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"RELEVANT DEDUCTION" the euro equivalent (calculated at the Currency Rate)
of the aggregate amount of New Senior Notes which would be allocated in
respect of Disputed Claims under each Scheme and in respect of the
Notional Reserve Claim under each Scheme, assuming that those claims had
been admitted in full and converted into Sterling at the Currency Rate (if
required);
"RESERVE CLAIM" a Scheme Claim which is not a Known Claim;
"RESERVE CLAIMS SEGMENT" has the meaning given to it in sub-clause
21(4)(b);
"RESERVE CLAIMS SUPPLEMENT" has the meaning given to it in sub-clause
27(3)(b);
"RESERVE CREDITOR" a Scheme Creditor in respect of its Reserve Claim;
"RESERVE REJECTED CLAIM SUPPLEMENT" has the meaning given to it in
sub-clause 29(1)(a)(ii);
"RESTRICTED JURISDICTION" each of France, Italy, Malaysia and the US
states of Arizona, California, Colorado, Connecticut, Illinois, Ohio and
Vermont;
"SCHEME" the scheme of arrangement in respect of the Company under section
425 of the Act in its present form or with or subject to any modification,
addition or condition approved or imposed by the Court;
"SCHEME CLAIM" any claim or right which a person is or may in any
circumstances become entitled to bring or enforce against the Company in
respect of any Liability of the Company in each and every case in
existence as at the Record Date or to which the Company may become liable
after that date by reason of any Liability of the Company incurred before
that date, and including, for the avoidance of doubt but without
double-counting and subject as provided in Recital I, the claims of the
Depositaries and of Definitive Holders in respect of Bonds but excluding
always Excluded Claims;
"SCHEME CONSIDERATION" the Basic Scheme Consideration together with any
plc Distribution Supplement, plc Receipts and/or Rejected Claim
Supplement;
"SCHEME CREDITOR" subject as provided in Recital I, a creditor of the
Company in respect of a Scheme Claim including, in respect of Scheme
Claims in relation to the Bonds, for the avoidance of doubt and without
double counting, the Depositaries and all persons who become Definitive
Holders pursuant to the arrangements described in Recital G or otherwise;
"SCHEME IMPLEMENTATION DEED" the deed dated 27 March 2003 made between the
Company, plc, E A Continental Limited, Ancrane, Nominees and others;
"SCHEME RATE" the mid-point rate of exchange five Business Days prior to
the Effective Date for the conversion of the relevant currency to another
currency as published in the Financial Times (or, if the Financial Times
is not published, in the International Herald Tribune or another
internationally recognised newspaper) on the fourth Business Day prior to
the Effective Date;
"SDRT EXPENSE" any UK stamp duty or stamp duty reserve tax payable in
respect of:
(1) the issuance of ADRs to an Eligible Recipient who elects to receive
any New Creditor Shares distributed to it pursuant to the Scheme or
the plc Scheme in the form of ADRs; or
(2) the issuance of ADRs to an Eligible Recipient who deposits any New
Creditor Shares received pursuant to the terms of the Scheme or the
plc Scheme (or an equivalent number of New Shares) into the
Company's ADR programme prior to the date falling two calendar
months after the effectiveness of the listing of the ADRs on NASDAQ
in accordance with the procedures specified by the Company and the
ADR Depositary as described in the Explanatory Statement;
"SPONSORS" Lazard Brothers & Co., Limited and Morgan Stanley & Co.
Limited;
"STERLING" or "L" pounds sterling or other lawful currency being the
currency of the UK for the time being;
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"SUBMITTED" when used of a Scheme Claim, that it has been duly submitted
to the Prospective Supervisors or the Supervisors (as applicable) in
accordance with clause 12;
"SUBSEQUENTLY SOLD OPCO ESCROW AGREEMENT" an escrow agreement established
in connection with an operating subsidiary of plc whose employees were
entitled to participate in certain employee share option plans and which
was sold after 28 August 2002;
"SUBSIDIARY" has the meaning given to it in the New Junior Notes Indenture
and in Appendix 8;
"SUPERVISORS" the persons holding office as supervisors of the Scheme from
time to time;
"SUPERVISORS' ENGAGEMENT LETTER" the engagement letter dated on or around
31 March 2003 between the Company, KPMG and the Prospective Supervisors;
"TERMINATION DATE" the date ten Business Days after issue of the
Termination Notice;
"TERMINATION NOTICE" a written notice served by the Supervisors on the
Company, the members of the Creditors' Committee and the Scheme Creditors
(being, in the case of the Bonds, the Definitive Holders the Eurobond
Trustee and the Yankee Bond Trustee) at the termination of the Scheme as
provided for in clause 110 and clause 116;
"TRADING OBLIGATIONS" obligations of a commercial character incurred in
the Ordinary Course of Business and which arise from the supply of goods
or services in exchange for payment in money or money's worth;
"TRUST DEEDS" the two trust deeds each dated 30 March 2000 between the
Company, plc and the Eurobond Trustee and constituting the Eurobonds;
"UK" the United Kingdom of Great Britain and Northern Ireland;
"UKLA" the Financial Services Authority in its capacity as the competent
authority for the purposes of part VI of the Financial Services and
Markets Act 2000, including, where the context so permits, any committee,
employee, officer or servant to whom any function of the UK Listing
Authority may for the time being be delegated;
"UNADMITTED" when used of a Scheme Claim, the amount of any relevant claim
which has been Submitted but has neither been Admitted nor Conclusively
Rejected;
"UNCLAIMED DIVIDENDS" dividends declared prior to the Record Date on the
Existing Shares but not claimed by the relevant shareholder or former
shareholder as at the Effective Date;
"UNDISTRIBUTED SCHEME CONSIDERATION" shall have the meaning given to it in
sub-clause 25(1);
"UNRESTRICTED JURISDICTION" each of the United Kingdom, Bahamas, British
Virgin Islands, the Canadian provinces of Alberta, British Columbia,
Ontario and Quebec, Cayman Islands, Guernsey, Jersey, Netherlands
Antilles, the United States (as to federal securities law) and each state
of the United States other than Arizona, California, Colorado,
Connecticut, Illinois, Ohio and Vermont;
"USA" or "US" the United States of America;
"US DOLLAR" or "US$" United States dollars or other lawful currency being
the currency of the USA for the time being;
"WAITING PERIOD" the period of 12 months after the Effective Date or such
shorter period as results from the operation of clause 24(1);
"WARRANTS" up to 50 million warrants each entitling its holder to
subscribe for one ordinary share of 5 pence each in the Company at a
subscription price of 150 pence to be issued to or for the benefit of plc
Shareholders on the basis described in the Scheme, and in particular Part
IV, the conditions of which are set out at Appendix 12;
"YANKEE BONDS" all or any of the bonds comprising the Yankee Issues;
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"YANKEE BOND TRUSTEE" Bank of New York, in its capacity as trustee under
the Indenture; and
"YANKEE ISSUES" US$900,000,000 7 3/4 per cent. bonds due 2010 and
US$900,000,000 8 3/8 per cent. bonds due 2030 both issued by the Company
and both guaranteed by plc.
INTERPRETATION
B In this Scheme, unless the context otherwise requires or otherwise
expressly provides:
(1) references to Recitals, Parts, clauses, sub-clauses and Schedules
are references to the Recitals, Parts, clauses, sub-clauses and
Schedules respectively of the Scheme;
(2) references to Appendices are references to the appendices to the
Explanatory Statement;
(3) references to a "person" include references to an individual, firm,
partnership, company, corporation, unincorporated body of persons or
any state or state agency;
(4) references to a statute or a statutory provision include the same as
subsequently modified, amended or re-enacted from time to time;
(5) the singular includes the plural and vice versa and words importing
one gender shall include all genders;
(6) references to "including" shall be construed as references to
"including without limitation" and "include" shall be construed
accordingly;
(7) headings to Recitals, Parts, clauses, sub-clauses, Schedules and
Appendices are for ease of reference only and shall not affect the
interpretation of the Scheme;
(8) references to the Scheme becoming effective are references to the
office copy of the order of the Court sanctioning the Scheme being
delivered to the Registrar of Companies for registration; and
(9) references to consents not being "unreasonably withheld" shall be
construed as references to such consents not being "unreasonably
withheld or delayed".
THE COMPANY
C The Company was incorporated in England and Wales on 27 September 1900 as
a private limited company under company number 67307 and re-registered as
a public limited company on 4 January 1982.
D At the date hereof the Company has an authorised share capital of
L300,000,000 divided into 6,000,000,000 ordinary shares of 5 pence each,
of which 2,866,250,735 have been issued and are fully paid up or credited
as fully paid up, and the remainder remain unissued.
E At an extraordinary general meeting of the Company duly convened and held
on 26 March 2003 there was passed a special resolution pursuant to which:
(1) the directors are, forthwith and conditionally upon the Court making
an order sanctioning the Scheme, authorised to allot relevant
securities up to a maximum nominal amount of L69,100,000 and equity
securities for cash:
(a) pursuant to the Scheme;
(b) pro rata to ordinary shareholders; and
(c) otherwise up to a maximum nominal amount of L2,500,000;
(2) forthwith and conditionally upon the allotment of new ordinary
shares of 5 pence each pursuant to the Scheme:
(a) the Company is to alter its memorandum of association by
inserting a new object giving the Company the power to
establish and operate share incentive plans and to establish
trusts to operate in conjunction with these plans;
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(b) the Company is to adopt new articles of association; and
(c) the 2,866,250,735 existing ordinary shares of 5 pence each are
to be converted into non-voting deferred shares of 5 pence
each; and
(3) forthwith upon the said conversion taking effect and upon the entry
in the register of members of the Company of the names of the
persons to whom the said new ordinary shares have been allotted, the
capital of the Company is to be reduced by the cancellation of the
non-voting deferred shares of 5 pence each resulting from the said
conversion and the cancellation of the share premium account of the
Company.
BINDING OF THIRD PARTIES
F The following persons involved in the implementation of the Scheme have
undertaken to be bound to carry out their designated functions under the
Scheme and, if applicable, the Escrow and Distribution Agreement:
(1) the Supervisors;
(2) the Escrow Trustee;
(3) the Distribution Agent
(4) the Registrars;
(5) the Eurobond Trustee;
(6) the Yankee Bond Trustee;
(7) Bondholder Communications; and
(8) plc.
BONDS ISSUED BY THE COMPANY
G Each of the Bond Issues is held under an arrangement whereby:
(1) the Bond Issues are constituted by the Trust Deeds (in respect of
the Eurobonds) and the Indenture (in respect of the Yankee Bonds),
the trustees being the Eurobond Trustee and the Yankee Bond Trustee
respectively;
(2) the Bonds were initially issued in wholly global bearer form and
were held by a depositary under systems designed to facilitate
paperless transactions;
(3) the systems involve immediate interests of persons in the Bonds
being recorded in books or other records maintained, in the case of
Eurobonds, by Clearstream, Luxembourg and Euroclear and, in the case
of Yankee Bonds, by DTC, Clearstream, Luxembourg and Euroclear (such
persons with interests being herein defined as "ACCOUNT HOLDERS");
(4) at the request of certain creditors of the Company, arrangements
have been made for the global Bonds representing the Yankee Bonds to
be exchanged in whole or in part for Yankee Bonds in definitive form
registered in the names of the Definitive Holders specified in
Account Holder Letters and the global Bonds representing the
Eurobonds to be exchanged in whole for individual global Eurobonds
in bearer form held on behalf of the Definitive Holders specified in
Account Holder Letters; and
(5) any unexchanged Yankee Bonds will, pending their exchange in
accordance with subsequently delivered Account Holder Letters,
continue to be held in global bearer form by the Book-Entry
Depositary and any individual global Eurobonds in respect of which
no Account Holder Letter has been delivered will be held by
depositaries for Euroclear and Clearstream, Luxembourg.
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THE PURPOSE OF THE SCHEME
H The purpose of the Scheme is to constitute a compromise and arrangement
between the Company and the Scheme Creditors by:
(1) the Scheme Creditors exchanging their Admitted Scheme Claims for the
Scheme Consideration; and
(2) providing full and effective releases of all of the Company's
Liabilities in respect of Scheme Claims.
THE BONDS AND THE SCHEME
I With the agreement of the Eurobond Trustee, the Yankee Bond Trustee and
the Book-Entry Depositary respectively:
(1) Claim Forms in relation to the Bonds are to be returned by the
Eurobond Trustee (in reliance on the promise to pay in favour of the
Eurobond Trustee contained in the Trust Deeds) and the Yankee Bond
Trustee (in reliance on section 5.04 of the Indenture and the
promise to pay in section 10.01 of the Indenture) respectively;
(2) persons with interests in or in respect of Bonds have been invited
to instruct their Account Holders as to the manner in which the
Account Holder Letter delivered in respect of each of the Bonds in
respect of which they have an interest should be completed
including, in particular, as to the identity of the Definitive
Holder and any Designated Recipients;
(3) none of the Eurobond Trustee, the Yankee Bond Trustee, the
Book-Entry Depositary and the respective depositaries for Euroclear
and Clearstream, Luxembourg will vote at the meeting of creditors of
the Company convened at the direction of the Court and instead the
Definitive Holders (as creditors of the Company for the purpose)
will be the persons entitled to attend and vote at those meetings;
(4) Scheme Consideration which is to be distributed in relation to the
Bonds is, with the authority and at the direction of the Eurobond
Trustee and the Yankee Bond Trustee (as the persons with Submitted
Scheme Claims in relation to the Bonds which will have been
Admitted), to be distributed to Designated Recipients;
(5) as a result, and subject as provided in Recital I(6) below,
references in this Scheme to Scheme Creditors shall, in relation to
the Bonds:
(a) in the context of entitlements to make a Scheme Claim,
submission of Claim Forms and receiving or directing the
receipt of Scheme Consideration in respect of that Scheme
Claim be construed as references only to the Eurobond Trustee
and the Yankee Bond Trustee in relation to the Bonds; and
(b) in the context of entitlement to be appointed to the
Creditors' Committee and attend and vote at meetings of Scheme
Creditors be construed as references only to the Definitive
Holders; and
(6) except where otherwise specifically provided, references in this
Scheme to:
(a) Scheme Creditors in relation to the Bonds in Parts II, VII
(excepting clauses 53 and 55), X and XI (except clause 113)
include the Eurobond Trustee, Bank of New York in its
capacities as the Book-Entry Depositary and the Yankee Bond
Trustee, the respective depositaries for Euroclear and
Clearstream, Luxembourg, the Depositaries and all persons who
are Definitive Holders; and
(b) Scheme Creditors in relation to the Bonds in Parts III, IV, V
and VII (in clause 55) mean the Eurobond Trustee and the
Yankee Bond Trustee as entitled claimants under the Scheme;
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(c) Scheme Creditors in relation to the Bonds in Part VII (in
clause 53), VIII, IX and XI (in clause 113) mean the
Definitive Holders; and
references to related Scheme Claims shall be construed in the same
manner.
CURRENCY ELECTION
J (1) The New Senior Notes to be issued as part of the Scheme
Consideration may be issued denominated in both, or either, euro
and US dollars.
(2) New Senior Notes denominated in US dollars will only be issued if,
following all elections made in Claim Forms and Account Holder
Letters received by the Prospective Supervisors and Bondholder
Communications respectively by the First Claim Date together with
all equivalent currency elections made in accordance with the plc
Scheme, elections have been made which would, assuming the plc
Scheme becomes effective, result in an aggregate of at least the US
dollar equivalent (calculated at the Currency Rate) of euro
250,000,000 (less the Relevant Deduction) of New Senior Notes being
required to be distributed in the First Initial Distribution and the
first initial distribution under the plc Scheme.
(3) New Senior Notes denominated in euro will only be issued if,
following all elections made in Claim Forms and Account Holder
Letters received by the Prospective Supervisors and Bondholder
Communications respectively by the First Claim Date together with
all equivalent currency elections made in accordance with the plc
Scheme, elections have been made which would, assuming the plc
Scheme becomes effective, result in an aggregate of at least euro
250,000,000 (less the Relevant Deduction) of New Senior Notes being
required to be distributed in the First Initial Distribution and the
first initial distribution under the plc Scheme.
(4) If no New Senior Notes denominated in US dollars are issued as a
result of the mechanism described in Recital J(2), all of the New
Senior Notes will be denominated in euro.
(5) If no New Senior Notes denominated in euro are issued as a result of
the mechanism described in Recital J(3), all the New Senior Notes
will be denominated in US dollars.
LISTING
K The Scheme Consideration includes New Shares and New Notes. Application
has been made for Listing of these New Shares and New Notes, together with
the Warrants.
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PART II
THE SCHEME
APPLICATION AND EFFECTIVENESS OF THE SCHEME
1. (1) The compromise and arrangement effected by the Scheme shall apply
to all Scheme Claims and shall be binding on all Scheme Creditors.
(2) For the avoidance of doubt, the Scheme is not conditional upon the
plc Scheme becoming effective.
(3) The Scheme shall become effective at the Effective Time.
STAY OF PROHIBITED PROCEEDINGS
2. (1) Subject to sub-clause 2(2), no Scheme Creditor shall commence or
continue any Prohibited Proceeding in respect of, arising from, or
relating to, a Scheme Claim after the Effective Time.
(2) Nothing in this Scheme shall prevent:
(a) a landlord of leasehold property of the Company from
exercising such rights and remedies of distress, forfeiture
and re-entry (and any other of such landlord's self-help
rights and remedies) as it may have in respect of such
leasehold property; or
(b) a secured creditor from exercising its rights and remedies as
a secured creditor in respect of any Property of the Company.
3. Subject to sub-clause 20(2), a Scheme Creditor may commence or continue
an Allowed Proceeding against the Company after the Effective Time
provided that it has first:
(1) where the Scheme Creditor is continuing an Allowed Proceeding,
notified the Supervisors in writing of its intention to do so;
(2) where the Scheme Creditor intends to commence an Allowed Proceeding,
given the Supervisors five Business Days' prior notice in writing of
its intention to do so; and
(3) where sub-clause 17(2) applies with respect to an Allowed
Proceeding, it has, in addition to complying with sub-clause 3(1) or
3(2) as applicable, complied with that sub-clause.
4. (1) Save in respect of any Allowed Proceeding as permitted by this
Scheme or any action permitted under sub-clause 2(2), each Scheme
Creditor by this Scheme covenants not to sue the Company in respect
of a Scheme Claim.
(2) For the purpose of enforcing the covenant in sub-clause 4(1), the
Company is hereby appointed as the agent and attorney of each and
every Scheme Creditor for the purpose of giving any and all
instructions (and doing any such acts or things) as are necessary or
desirable to enforce that covenant.
5. If any Scheme Creditor commences or continues any such Prohibited
Proceeding as is prohibited by sub-clause 2(1) after the Effective Time
it shall be treated as having received, on account of its entitlement to
Scheme Consideration, an advance payment by way of a Distribution equal
to the amount or gross value of any money, property, benefit or advantage
obtained by it after the Effective Date at the expense of the Company or,
as applicable, as a result, directly or indirectly, of such Prohibited
Proceeding, and the extent, if any, to which it is entitled to Scheme
Consideration shall be reduced accordingly. Such Scheme Creditor shall
hold any benefit received or receivable in excess of its entitlement to
Scheme Consideration pursuant to the terms of the Scheme as a result,
directly or indirectly, of a Prohibited Proceeding on trust for the
Company and shall account to the Company for such excess benefit. For
this purpose, the gross value of any such property, benefit or advantage
shall be conclusively determined by the Supervisors and may include such
amount as the Supervisors may consider to be appropriate by way of
interest or costs, charges or expenses incurred by the Company and/or the
Supervisors as the result of such Prohibited
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Proceeding. This treatment and reduction is without prejudice to the
Company's rights first to any injunctive or other relief or remedy to
which the Company may be entitled in respect of the breach and, secondly,
in respect of any loss the Company may suffer as a result of the breach.
The Supervisors shall make such consequential adjustments to the amount
and timing of payment of Distributions to any such Scheme Creditor (and
in the case of Definitive Holders, to the Eurobond Trustee or the Yankee
Bond Trustee or both as appropriate) pursuant to the rules and formulae
in Part III as are necessary to give effect to this clause.
ASSIGNMENTS OR TRANSFERS
6. (1) The Supervisors shall be under no obligation to recognise any
assignment or transfer of Scheme Claims after the Record Date for
the purposes of determining entitlements under the Scheme, provided
that where the Supervisors have received from the relevant parties
notice in writing of such assignment or transfer, the Supervisors
may, in their sole discretion and subject to the production of such
other evidence as they may require and to any other terms and
conditions which they may consider necessary or desirable, agree to
recognise such assignment or transfer for the purposes of
determining entitlements under the Scheme. Any assignee or
transferee of a Scheme Claim so recognised by the Supervisors shall
be bound by the terms of this Scheme and for the purposes of this
Scheme shall be a Scheme Creditor.
(2) For the purposes of the Scheme (including for the purposes of the
definition of Excluded Claims) no recognition shall be given to any
assignment or transfer of any (or any part of any) debt, claim or
right of any person in respect of a Liability of the Company
effected between 1 January 2003 and the Record Date (both dates
inclusive) other than any such assignment or transfer pursuant to
or contemplated by the Scheme Implementation Deed if, in the
reasonable opinion of the Supervisors, a material purpose of such
assignment or transfer was to make such debt, claim or right (or
part thereof) an Excluded Claim (under sub-paragraph 13 of the
definition of Excluded Claims) and not a Scheme Claim.
(3) For the avoidance of doubt, in relation to the Bonds, Bondholders
are permitted to assign or transfer their interest in Bonds after
the Record Date.
EFFECT OF SCHEME
7. (1) This clause is without prejudice to the Company's rights
under clauses 2 and 5 and is subject to Part X.
(2) Without prejudice to clause 20, in consideration of the rights of
Scheme Creditors under this Scheme (including the rights of
Admitted Scheme Creditors to receive Scheme Consideration), all
Liabilities on the part of the Company in respect of each Scheme
Claim (and any interest accruing thereon or other amounts payable
in connection therewith whether arising before or after the Record
Date), automatically and without further documentation or action of
the parties, shall be compromised, fully and finally discharged,
satisfied and cancelled on the earlier of:
(a) the first date on which such Scheme Claim is both Admitted
and the subject of a Distribution Notice;
(b) the Final Distribution Date; and
(c) the issue of the Termination Notice (other than a Termination
Notice served pursuant to sub-clause 115(3)).
(3) No Scheme Claim of a Scheme Creditor shall be reduced or in any way
affected by the compromise of any claims of that Scheme Creditor
against plc pursuant to the terms of the plc Scheme nor shall it be
reduced or in any way affected by reason of any distributions
received by or on behalf of that Scheme Creditor in the plc Scheme
provided that the aggregate recoveries of a Scheme Creditor in
respect of a claim pursuant to the Scheme and the plc Scheme shall
not exceed the quantum of the Scheme Claim.
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PART III
DETERMINATION OF SCHEME CLAIMS AND PROCEDURE FOR DISTRIBUTIONS
RECORD DATE
8. (1) All Scheme Claims shall be determined as at the Record Date.
(2) Any Scheme Claim which at the Record Date is not immediately due and
payable but on the Company going into insolvent liquidation would,
either automatically without further action by any party or by the
issue of a notice by the relevant Scheme Creditor, be capable of
being made legally and immediately due and payable shall be treated
for the purposes of Distributions under this Scheme as immediately
due and payable as at the Record Date (and hence not a debt payable
at a future time).
RULES AND PROCEDURES
9. The Supervisors shall consider each Claim Form submitted to determine the
existence and quantum of each Submitted Scheme Claim and shall decide the
extent, if any, to which it shall be Admitted in accordance with the
rules and procedures set out in the Scheme and in particular in Schedule
1.
ONLY ADMISSIBLE INTEREST
10. Without prejudice to sub-clause 7(2), for the purpose solely of the
determination and payment of Distributions under the Scheme, no Admitted
Scheme Claim shall include any amounts in respect of interest except
Admissible Interest and, for the avoidance of doubt, any interest other
than Admissible Interest shall not be taken into account by the
Supervisors in determining the quantum of the relevant Scheme Claim.
NO ADMISSIONS OF LIABILITY
11. Save as expressly set out in this Scheme or the Explanatory Statement,
nothing in the Scheme or the Explanatory Statement or the distribution
thereof to any person evidences or constitutes any admission by the
Company, the Prospective Supervisors, the Supervisors or KPMG that a
person is a Scheme Creditor or that a Liability is owed to any person in
respect of any claim or right. The failure to distribute the Scheme,
Explanatory Statement, any notice or any other communication to any
Scheme Creditor shall not constitute an admission by the Company, the
Prospective Supervisors, the Supervisors or KPMG that such person is not
a Scheme Creditor or that any Liability owed to such person is an
Excluded Claim.
PROVISION OF INFORMATION
12. (1) A Scheme Creditor submitting a Scheme Claim:
(a) shall provide the Supervisors with such information as they
may reasonably require to enable the claim to be determined
(and for the avoidance of doubt shall comply with such of the
rules and procedures in Schedule 1 as the Supervisors may
require); and
(b) shall, in any event, submit a Claim Form to the Prospective
Supervisors or, after the Effective Date, to the Supervisors
(in accordance with the instructions set out in the Claim
Form) at the relevant address set out in the Claim Form by
hand or by Post.
(2) Scheme Creditors who wish an Initial Distribution to be distributed
to the Eligible Recipient in respect of that Scheme Creditor's
Scheme Claim on the Effective Date must have submitted their duly
completed Claim Forms so as to be received by the Prospective
Supervisors by 5.00 p.m. (London time) on the First Claim Date.
Only Known Creditors that have complied with this precondition and
whose Scheme Claims are listed in the First Initial Distribution
Notice shall be Admitted by the Supervisors in accordance with the
Scheme on the Effective Date and participate in the First Initial
Distribution in accordance with clause 23. Only if a Scheme
Creditor has
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complied with this pre-condition and its Scheme Claim is Admitted
by the Supervisors in accordance with the Scheme on the Effective
Date shall that Admitted Scheme Creditor's Eligible Recipient
receive an Initial Distribution when the First Initial Distribution
is made.
(3) For the purposes of this Scheme, it is expressly recognised that:
(a) the Eurobond Trustee shall be entitled to submit a Claim Form
in its capacity as creditor under the Trust Deeds in respect
of all of the Eurobonds and, in consequence, no person with
an interest in the Eurobonds other than the Eurobond Trustee
shall be entitled to submit a Claim Form in respect of the
Eurobonds by virtue of such interest; and
(b) the Yankee Bond Trustee shall be entitled to submit a Claim
Form in accordance with section 5.04 of the Indenture and, in
consequence, no person with an interest in a Yankee Bond
other than the Yankee Bond Trustee shall be entitled to
submit a Claim Form in respect of the Yankee Bonds by virtue
of such interest.
ENTITLEMENT TO SCHEME CONSIDERATION
13. Eligible Recipients shall be eligible to receive Scheme Consideration in
accordance with the Scheme. A Scheme Creditor with a Scheme Claim which
is Unadmitted shall not be entitled to Scheme Consideration in accordance
with the Scheme unless, until and to the extent that such Scheme Claim
becomes Admitted.
14. The amount of the Scheme Consideration to which a Scheme Creditor is
entitled (and any Eligible Recipient in respect of that Scheme Creditor's
Admitted Scheme Claim is eligible to receive) shall be calculated in
accordance with this Part III.
ADMISSION AND REJECTION OF SCHEME CLAIMS
15. A Scheme Claim may be Admitted by the Supervisors either for the whole
amount claimed by the Scheme Creditor or for part of that amount.
16. If the Supervisors refuse to admit a Scheme Claim, in whole or in part,
they shall promptly prepare a written statement of their reasons for
doing so, and send it to the Scheme Creditor, accompanied by a notice of
rejection in such form as the Supervisors shall determine.
APPEAL AGAINST DECISION ON SCHEME CLAIMS
17. (1) If a Scheme Creditor is dissatisfied with a refusal by the
Supervisors to admit, in whole or in part, a Scheme Claim then,
subject to sub-clause 17(2), it may either commence or continue an
Allowed Proceeding to determine the existence and/or quantum of its
Scheme Claim or elect by notice in writing to the Supervisors that
the existence or quantum of its Scheme Claim be referred for
adjudication in accordance with Part VI.
(2) If an Allowed Proceeding has not been commenced, or is not being
continued as at the date of the notice of rejection, then either:
(a) an Allowed Proceeding must be commenced (and notice given in
accordance with clause 3); or
(b) an election for adjudication made in accordance with
sub-clause 17(1) by the Scheme Creditor,
in each case within 40 Business Days following receipt by the
Scheme Creditor of the notice of rejection.
18. If a Scheme Claim has not been Admitted and at the expiration of the 40
Business Days period referred to in sub-clause 17(2) an Allowed
Proceeding is continuing (whether commenced by the Scheme Creditor before
or after receipt of the notice of rejection) or an election has been made
for adjudication (in each case in accordance with clause 17) then:
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(1) any final determination of that Allowed Proceeding (after the
ordinary time for appealing the original determination or any
determination on appeal has expired without any appeal having been
made) shall be binding on the Scheme Creditor, the Company and the
Supervisors;
(2) if an election has been made for adjudication the provisions of Part
VI shall apply; and
(3) without prejudice to sub-clauses 18(1) and 18(2), the Scheme
Creditor and the Supervisors may at any time agree to any matter or
issue in the Allowed Proceeding being determined in some manner
other than in the Allowed Proceeding, and any Proceeding commenced
pursuant to such agreement shall have effect as an Allowed
Proceeding commenced in accordance with clause 17.
19. If in an Allowed Proceeding or in an adjudication pursuant to Part VI any
order or direction shall be made that any costs of such proceeding or
adjudication are to be borne by the Supervisors or by the Company, such
costs shall be payable in full by the Company.
20. If a Scheme Claim has not been Admitted and at the expiration of the 40
Business Days period referred to in sub-clause 17(2) neither an Allowed
Proceeding (in accordance with the terms of the Scheme) is continuing in
respect of such Scheme Claim nor an election (in accordance with the terms
of the Scheme) has been made for that Scheme Claim to be referred to
adjudication in accordance with Part VI, then:
(1) the Company shall be released from all Liabilities in relation to
the Scheme Claim (or part thereof) which has not been Admitted (and
any interest accruing thereon or other amounts payable in connection
therewith whether arising before or after the Record Date); and
(2) any Proceeding which is thereafter commenced and which would
otherwise have been an Allowed Proceeding shall be a Prohibited
Proceeding.
THE BASIC SCHEME CONSIDERATION, THE KNOWN CLAIMS SEGMENT AND THE RESERVE CLAIMS
SEGMENT
21. (1) The Basic Scheme Consideration is:
(a) cash of L340,000,000 or such larger sum of cash calculated in
accordance with sub-clause 21(2);
(b) the euro equivalent (applying the Currency Rate) of
L450,000,000 New Senior Notes to be issued in both or either
euro and US dollars, subject to elections by Scheme Creditors
and Bondholders described in Recital J;
(c) an aggregate of US$300,000,000 and the US dollar equivalent
(applying the Currency Rate) of L117,270,000 New Junior Notes
(or such smaller principal amount of New Junior Notes
calculated in accordance with sub-clause 21(2) if the amount of
Cash is increased); and
(d) 995,000,000 New Creditor Shares.
(2) If there is any Excess Cash, the amount of Cash comprising the Basic
Scheme Consideration shall be increased by the amount of such Excess
Cash, converted into sterling applying the Exchange Rate on the date
such cash is first received by the Company or the Subsidiary, as the
case may be. Following 1 May 2003 but prior to the Effective Date,
the aggregate principal amount of the New Junior Notes shall be
decreased by 10/11ths of the sterling amount by which the Cash has
been so increased (such calculation to reduce the L117,270,000
figure referred to in sub-clause 21(1)(c)).
(3) In this Scheme:
(a) the term "BASIC KNOWN CLAIMS SEGMENT" means that part of the
Basic Scheme Consideration calculated by applying the fraction:
KC
----------------
125,000,000 + KC
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to each Element of Basic Scheme Consideration, where KC = the
aggregate amount of the Known Claims; and
(b) the term "BASIC RESERVE CLAIMS SEGMENT" means that part of the
Basic Scheme Consideration calculated by applying the
fraction:
125,000,000
----------------
125,000,000 + KC
to each Element of Basic Scheme Consideration, where KC = the
aggregate amount of the Known Claims.
(4) In the Scheme:
(a) the term "KNOWN CLAIMS SEGMENT" means that part of the Scheme
Consideration available until the expiry or termination of the
Waiting Period from which Distributions of Distribution
Entitlements of Admitted Known Creditors shall be made being,
from time to time, the aggregate of the following:
(i) the Basic Known Claims Segment;
(ii) any Known Claims Supplement arising under sub-clause
27(3) (or equivalent supplement pursuant to sub-clause
27(5));
(iii) any plc Receipts made available to Known Creditors as a
result of the operation of clause 28; and
(iv) any Known Rejected Claim Supplement made available to
Known Creditors as a result of the operation of clause
29.
The parts of the Known Claims Segments listed in (ii) - (iv)
above shall be treated for all purposes as a supplement to the
Basic Known Claims Segment. Any entitlement to receive a
distribution from the Basic Known Claims Segment shall be
supplemented by an entitlement to receive a distribution of
those other parts (if any) of the Known Claims Segment of the
same proportion as the Distribution Entitlement of the
relevant Scheme Creditor to the Basic Known Claims Segment is
of the Basic Known Claims Segment (but such proportion shall
be calculated after taking into account any decrease in the
size of the Basic Known Claims Segment resulting from:
(A) Known Claims being Conclusively Rejected resulting in a
Rejected Claims Supplement being deducted from the Basic
Known Claims Segment pursuant to sub-clause 29(1)(a) and
becoming available for distribution to Scheme Creditors
in accordance with sub-clause 29(2); and/or
(B) Known Claims being Conclusively Rejected resulting in the
Distribution Entitlement to which the Known Creditor who
would have been entitled had its Known Claim been
Admitted being deducted from the Basic Known Claims
Segment and becoming part of the Reserve Claims Segment
pursuant to clause 29(1)(b)).
(b) the term "RESERVE CLAIMS SEGMENT" means that part of the
Scheme Consideration available until the expiry or termination
of the Waiting Period from which Distributions of Distribution
Entitlements of Admitted Reserve Creditors shall be made
being, from time to time, the aggregate of the following:
(i) the Basic Reserve Claims Segment;
(ii) any Reserve Claims Supplement arising under sub-clause
27(3) (or equivalent supplement pursuant to sub-clause
27(5));
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(iii) any plc Receipts made available to Reserve Creditors as a
result of the operation of clause 28; and
(iv) any Reserve Rejected Claim Supplement made available to
Reserve Creditors as a result of the operation of clause
29.
The parts of the Reserve Claims Segment listed in (ii) - (iv)
above shall be treated for all purposes as a supplement to the
Basic Reserve Claims Segment and any entitlement to receive a
distribution from the Basic Reserve Claims Segment shall be
supplemented by an entitlement to receive a distribution of those
other parts (if any) of the Reserve Claims Segment of the same
proportion as the Distribution Entitlement of the relevant Scheme
Creditor to the Basic Reserve Claims Segment is of the Basic
Reserve Claims Segment (but such proportion shall be calculated
after taking into account any increase in the size of the Basic
Reserve Claims Segment resulting from Known Claims being
Conclusively Rejected which results in the Distribution
Entitlement to which the Known Creditor who would have been
entitled had its Known Claim been Admitted being deducted from
the Basic Known Claims Segment and becoming part of the Reserve
Claims Segment pursuant to clause 29(1)(b)).
22. If a Known Claim is Admitted at a value higher than the value of that
Known Claim set out in Schedule 3, the excess over the value set out in
Schedule 3 shall be treated as an Admitted Reserve Claim.
INITIAL DISTRIBUTION AND FIRST INITIAL DISTRIBUTION
23. (1) Each Scheme Creditor who has a Submitted Scheme Claim which is
Admitted before the expiry or termination of the Waiting Period
shall be entitled to receive an Initial Distribution from:
(a) the Known Claims Segment if its Admitted Scheme Claim is a
Known Claim; or
(b) the Reserve Claims Segment if its Admitted Scheme Claim is a
Reserve Claim.
(2) The Supervisors shall use reasonable endeavours to determine
promptly whether or not a Submitted Scheme Claim shall be Admitted
and, if they do so determine, shall promptly Admit that Submitted
Scheme Claim.
(3) As soon as reasonably practicable after a Scheme Claim has been
Admitted it shall be the subject of a Distribution Notice.
(4) On the Effective Date:
(a) Known Creditors whose Scheme Claims are Submitted on or
before 5.00 p.m. (London time) on the First Claim Date and
which have been listed in the First Initial Distribution
Notice shall be Admitted by the Supervisors;
(b) the Supervisors shall issue the First Initial Distribution
Notice to the Escrow Trustee (with a copy to the Distribution
Agent);
(c) Scheme Creditors whose Scheme Claims are Submitted on or
before 5.00 p.m. (London time) on the First Claim Date which
are Admitted by the Supervisors on the Effective Date but
which were not listed in the First Initial Distribution
Notice shall be the subject of a Distribution Notice issued
by the Supervisors to the Escrow Trustee (with a copy to the
Distribution Agent) at the same time as the First Initial
Distribution Notice; and
(d) Scheme Creditors with Admitted Scheme Claims listed in the
First Initial Distribution Notice or in any Distribution
Notice issued pursuant to sub-clause 23(4)(c) shall be
entitled to an Initial Distribution forthwith upon the issue
of the First Initial Distribution Notice (and any
Distribution Notice issued pursuant to sub-clause 23(4)(c))
in respect of such Admitted Scheme Claim and its Initial
Distribution shall be made to its Eligible Recipient.
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(5) Scheme Creditors whose Scheme Claims are Submitted and which are
Admitted before the expiry or termination of the Waiting Period but
in respect of which a First Initial Distribution pursuant to
sub-clause 23(4)(b) or an Initial Distribution pursuant to
sub-clause 23(4)(c), is not made shall be entitled to an Initial
Distribution in respect of such Admitted Scheme Claims and such
distributions shall be made to their Eligible Recipients as soon as
practicable after such claims have been Admitted.
(6) The amount of the Initial Distribution (including, for the avoidance
of doubt, the First Initial Distribution) from the Known Claims
Segment to which an Admitted Known Creditor is entitled shall be
calculated in accordance with the following formula:
KDE = AKC X KCS
---
KC
where KDE = the Distribution Entitlement of the relevant Admitted Known
Creditor to each of the Elements of the Basic Scheme
Consideration in the Initial Distribution;
AKC = the Admitted Known Claim of the relevant Admitted Known
Creditor;
KC = the aggregate amount of the Known Claims; and
KCS = separately, the amount of each of the Elements of the Basic
Scheme Consideration comprising the Basic Known Claims
Segment as at the Effective Time.
(7) The amount of the Initial Distribution from the Reserve Claims
Segment to which an Admitted Reserve Creditor is entitled shall be
calculated in accordance with the following formula:
RDE = ARC X KCS
---
KC
where RDE = the Distribution Entitlement of the relevant Admitted
Reserve Creditor to each of the Elements of the Basic Scheme
Consideration in the Initial Distribution;
ARC = the Admitted Reserve Claim of the relevant Admitted Reserve
Creditor;
KC = the aggregate amount of the Known Claims; and
KCS = separately, the amount of each of the Elements of Basic
Scheme Consideration comprising the Basic Known Claims
Segment as at the Effective Time.
(8) Any Distribution Notice given by the Supervisors to the Escrow
Trustee (with a copy to the Distribution Agent) shall instruct the
Escrow Trustee to direct the Distribution Agent to make a
Distribution to all relevant Eligible Recipients referred to in the
Distribution Notice in accordance with the terms of the Scheme.
(9) Where in sub-clauses 21(3), 23(6), and 23(7) above any sum included
in any of the terms AKC, KC and ARC is in a currency other than
sterling then, for the purposes of calculating the relevant
fraction, that sum shall be converted to sterling at the Scheme
Rate.
(10) In the case of a Scheme Claim in respect of Bonds which is Admitted
where the aggregate total of all Distributions to Designated
Recipients in respect of that claim is less than the Distribution to
which the Eurobond Trustee or the Yankee Bond Trustee as appropriate
in respect of that claim is entitled, the remainder of the Scheme
Consideration shall be held by the Escrow Trustee and dealt with in
accordance with the Escrow and Distribution Agreement.
TERMINATION OF THE WAITING PERIOD
24. (1) Subject to sub-clause 24(2), if at any time after the issue of the
First Initial Distribution Notice the Supervisors are not satisfied
that the Reserve Claims Segment is sufficient to make Distributions
of
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Distribution Entitlements in respect of all Reserve Claims which
have been, or are likely to be, Admitted, the following shall apply:
(a) the Supervisors shall forthwith notify the Company and the
Creditors' Committee;
(b) the Waiting Period shall terminate and all entitlements of
Admitted Scheme Creditors to Scheme Consideration which have
not been the subject of a Distribution Notice shall be dealt
with in accordance with the provisions of clause 25; and
(c) for the avoidance of doubt, the provisions of this clause
shall not affect the Distribution Entitlement of any Scheme
Creditor whose Admitted Scheme Claim is the subject of a
Distribution Notice issued prior to the issue of the
Supervisors' notice in sub-clause 24(1)(a).
(2) If a Scheme Claim is Submitted after the issue of the First Initial
Distribution Notice which:
(a) if immediately Admitted would result in the Supervisors not
being satisfied that the Reserve Claims Segment is sufficient
to make Distributions of Distribution Entitlements in respect
of all Reserve Claims which have been, or are likely to be,
Admitted; and
(b) the Supervisors cannot immediately determine whether, or the
extent to which, that Submitted Scheme Claim should be
Admitted,
the Supervisors may consider that Scheme Claim for a period of up to
30 Business Days from the date on which that Scheme Claim is
Submitted (the "EXAMINATION PERIOD"). The Supervisors shall
forthwith notify the Company and the Creditors' Committee of the
commencement of the Examination Period. On, or prior to, the expiry
of such 30 Business Days the Supervisors shall confirm to the
Creditors' Committee and the Company whether or not they are
satisfied that the Reserve Claims Segment shall be sufficient to
make Distributions of Distribution Entitlements in respect of all
Reserve Claims which have been, or are likely to be, Admitted. The
issue of the Supervisors' confirmation or, if later, the expiry of
the 30 Business Day period shall bring the relevant Examination
Period to an end. If no confirmation is provided prior to the expiry
of such 30 Business Days, the Supervisors are deemed to be not
satisfied that the Reserve Claims Segment is sufficient to make
Distributions of Distribution Entitlements in respect of all Reserve
Claims which have been, or are likely to be, Admitted. If the
Supervisors are (or are deemed to be) not satisfied that the Reserve
Claims Segment is sufficient to make Distributions of Distribution
Entitlements in respect of all Reserve Claims which have been, or
are likely to be, Admitted sub-clauses 24(1)(a)-(c) shall apply. No
Distribution Notice shall be issued during an Examination Period.
For the avoidance of doubt, nothing in this sub-clause shall affect
the Distribution Entitlement of any Scheme Creditor whose Admitted
Scheme Claim has, prior to the commencement of the Examination
Period, been the subject of a Distribution Notice.
FURTHER DISTRIBUTIONS
25. (1) Any Scheme Consideration which has not been the subject of a
Distribution Notice by the termination or expiry of the Waiting
Period (in this clause "UNDISTRIBUTED SCHEME CONSIDERATION") shall,
from the termination or expiry of the Waiting Period, be dealt with
as set out in this clause.
(2) Before the Undistributed Scheme Consideration (if any) shall be
available for making further Distributions pursuant to this clause
25 to Admitted Scheme Creditors which have already received or
become entitled to receive an Initial Distribution, the
Undistributed Scheme Consideration shall be used to reimburse the
Company for any SDRT Expense that it has incurred in excess of
L500,000. For the avoidance of doubt, the Company shall have no
right to receive any such reimbursement in respect of the first
L500,000 of SDRT Expense it incurs. The Supervisors, acting
reasonably, shall determine which Elements of Scheme Consideration
shall be utilised to effect the reimbursement, converting Elements
into money as the Supervisors, acting reasonably, deem necessary to
enable the reimbursement to be made. The Supervisors shall give the
necessary
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directions to the Escrow Trustee and the Distribution Agent to
effect the reimbursement of the Company pursuant to this clause.
(3) Thereafter the Undistributed Scheme Consideration shall be used to
make further Distributions to Eligible Recipients on the following
basis:
(a) the distinction between the Known Claims Segment and the
Reserve Claims Segment shall no longer be relevant and the
remainder of the segments shall be aggregated for future
Distribution purposes;
(b) the Supervisors' approach to further Distributions shall be
in accordance with the approach a liquidator would take
following Liquidation Distribution Principles including the
following concepts:
(i) the setting of final dates by which a creditor must
claim if it wishes to participate in a planned
dividend;
(ii) in the case of claims which have not been Admitted at
the time of the declaration of a dividend to
creditors, the taking into account of any such
disputed claim in setting the dividend on a prudent
basis so that if the disputed claim is later Admitted,
the relevant creditor shall receive the dividend it
would have received if and to the extent its claim had
been Admitted at the date of the relevant dividend;
(iii) generally, the concept of pari passu distribution; and
(iv) any Scheme Creditor whose Scheme Claim is Admitted but
whose Distribution Entitlement has not yet been
satisfied shall be entitled to a Distribution in
priority to the entitlement of other Admitted Scheme
Creditors (whose entitlements to previous
Distributions have been satisfied) to further
Distributions until that Scheme Creditor is entitled
to (and such entitlement is satisfied) the same
rateable Distribution that other Admitted Scheme
Creditors are entitled to (which entitlements have
been satisfied).
(4) The Supervisors, in deciding whether and, if so, when to direct a
further Distribution, shall have regard to the cost of making the
Distribution in relation to the value of the Undistributed Scheme
Consideration to be distributed and may, acting reasonably, decide
to delay directing a Distribution until such time (if any) as the
costs of making the Distribution do not exceed the value of Scheme
Consideration (or proceeds of sale of such Scheme Consideration) to
be distributed.
THE COMPANY AS A CREDITOR OF PLC
26. Property received or receivable by the Company from plc from time to time
by virtue of the Company being a creditor of plc (whether pursuant to the
plc Scheme, any other scheme of arrangement for plc, any voluntary
arrangement for plc or any liquidation of plc or otherwise) shall be
available for distribution and shall be distributed by the Company to
Admitted Scheme Creditors subject to, at the time, in the manner and on
the basis set out in the Scheme. In the light of the position of Ancrane
as a Scheme Creditor and a Bondholder and the Ancrane Direction, this may
involve successive distributions between the Company and plc, either
notional or actual, as provided for in this Scheme and the plc Scheme.
THE PLC DISTRIBUTION SUPPLEMENT
27. (1) Sub-clauses 27(2), (3) and (4) shall apply to the Initial
Distribution if all of the conditions set out at (a) to (c)
inclusive below are satisfied on the Effective Date:
(a) the plc Scheme including provisions in the form or
substantially the form of that set out in Schedule 2 becomes
effective;
(b) the plc Scheme supervisors admit the Company's claim against
plc pursuant to the plc Scheme; and
(c) (i) the Known Claim of Ancrane is Admitted by the
Supervisors; or
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(ii) either (or both) of the Known Claims of the Eurobond
Trustee are Admitted by the Supervisors; or
(iii) either (or both) of the Known Claims of the Yankee Bond
Trustee are Admitted by the Supervisors.
(2) To give effect to clause 26 and on the conditions in sub-clause
27(1) being satisfied on the Effective Date, the Supervisors shall
agree with the plc Scheme supervisors a distribution model
simulating successive distributions to the Company in the plc Scheme
and to plc in the Scheme (pursuant to the Ancrane Direction) (using
the figures for the Company's claim against plc, Ancrane's claim
against the Company as actually admitted by the Supervisors of the
respective Schemes and Ancrane's holding of Bonds) in order to
produce a net additional amount of Scheme Consideration available
for Distribution to Admitted Scheme Creditors with the Initial
Distribution (such net additional amount being the "PLC DISTRIBUTION
SUPPLEMENT"). The plc Distribution Supplement shall be distributed
to Eligible Recipients at the times and in the manner set out
sub-clauses 27(3) and 27(4).
(3) The Elements of the plc Distribution Supplement shall for these
purposes be treated as being made up of two parts as follows:
(a) the "KNOWN CLAIMS SUPPLEMENT" which shall be the plc
Distribution Supplement less the Reserve Claims Supplement;
and
(b) the "RESERVE CLAIMS SUPPLEMENT" which shall be the same
proportion of the plc Distribution Supplement as the Basic
Reserve Claims Segment (which for this purpose shall be
calculated after taking into account any increase in the size
of the Basic Reserve Claims Segment resulting from Known
Claims being Conclusively Rejected and the Distribution
Entitlement of the Known Creditor who would have been entitled
had its Known Claim been Admitted rather than Conclusively
Rejected becoming part of the Reserve Claims Segment pursuant
to clause 29(1)(b)) is of the Basic Scheme Consideration
(which for this purpose shall be calculated after taking into
account any decrease in the size of the Basic Known Claims
Segment resulting from:
(A) Known Claims being Conclusively Rejected resulting in a
Rejected Claims Supplement being deducted from the Basic
Known Claims Segment pursuant to sub-clause 29(1)(a) and
becoming available for distribution to Scheme Creditors
in accordance with sub-clause 29(2); and/or
(B) Known Claims being Conclusively Rejected resulting in the
Distribution Entitlement to which the Known Creditor who
would have been entitled had its Known Claim been
Admitted being deducted from the Basic Known Claims
Segment and becoming part of the Reserve Claims Segment
pursuant to clause 29(1)(b)).
(4) (a) The Elements of the Known Claims Supplement shall be
distributed to Admitted Known Creditors at the same time as
the Initial Distribution.
(b) The Elements of the Reserve Claims Supplement shall be
distributed to Admitted Reserve Creditors at the same time as
the Initial Distribution.
(5) (a) For the purposes of Distributions under the Scheme:
(i) other than the Initial Distribution; and/or
(ii) as regards the Initial Distribution if the provisions
of sub-clauses 27(2)-27(4) inclusive do not come into
force because one or more of the conditions in
sub-clause 27(1) is not satisfied,
the Supervisors may agree similar or analogous arrangements to
those in sub-clause 27(2) (a "MODEL") with the supervisors of
the plc Scheme (if any, or, if none, any other duly
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authorised representative of plc) where, acting reasonably,
the Supervisors consider that to do so shall be in the
interests of Admitted Scheme Creditors.
(b) If a model is agreed pursuant to sub-clause 27(5)(a) prior to
the expiry or termination of the Waiting Period, the
equivalent of the plc Distribution Supplement thereby created
shall be apportioned in the same manner as provided for in
sub-clause 27(3), otherwise no apportionment shall be made.
(c) Any supplement arising pursuant to sub-clause 27(5)(a)(ii)
which shall be apportioned in accordance with sub-clause
27(5)(b) shall be distributed at the same times and in the
same manner as provided for in sub-clause 27(4).
(d) Any supplement arising pursuant to sub-clause 27(5)(a)(i)
prior to the expiry or termination of the Waiting Period shall
become available for distribution following apportionment
under sub-clause 27(5)(b) and the Supervisors shall promptly
issue a Distribution Notice to the Escrow Trustee (with a copy
to the Distribution Agent) in respect of the distribution of
the relevant amount of the supplement to which Admitted Known
Creditors are entitled pursuant to sub-clause 21(4)(a) and the
relevant amount of the Reserve Claim Supplement to which
Admitted Reserve Creditors are entitled pursuant to sub-clause
21(4)(b) to Eligible Receipts in respect of the previously
Admitted Claims provided that the costs of making that
Distribution would not exceed the value of the Scheme
Consideration to be distributed.
(e) Any supplement arising pursuant to sub-clause 27(5)(a)(i)
after the expiry or termination of the Waiting Period shall be
distributed in accordance with the provisions of clause 25.
PLC RECEIPTS
28. (1) As regards:
(a) the Initial Distribution if the provisions of sub-clauses
27(2) - 27(4) above do not come into force for any reason; and
(b) any Distributions other than the Initial Distribution,
in each case, to the extent that relevant similar or analogous
arrangements as referred to in clause 27(5) are not agreed in
respect of the Company's entitlement to the plc Receipts, Admitted
Scheme Creditors shall be entitled to all plc Receipts from time to
time which shall be held on trust for Scheme Creditors under the
Scheme.
(2) If plc Receipts arise pursuant to sub-clause 28(1) prior to the
expiry or termination of the Waiting Period, those plc Receipts
shall be apportioned in the same manner as provided for in sub-
clause 27(3), otherwise no apportionment shall be made.
(3) Any plc Receipts arising pursuant to sub-clause 28(1)(a) which shall
be apportioned in accordance with sub-clause 28(2) shall be
distributed at the same times and in the same manner as provided for
in sub-clause 27(4).
(4) Any plc Receipts arising pursuant to sub-clause 28(1)(b) prior to
the expiry or termination of the Waiting Period shall become
available for distribution following apportionment under sub-clause
28(2) and the Supervisors shall promptly issue a Distribution Notice
to the Escrow Trustee (with a copy to the Distribution Agent) in
respect of the distribution of the relevant amount of the supplement
to which Admitted Known Creditors are entitled pursuant to
sub-clause 21(4)(a) and the relevant amount of the Reserve Claim
Supplement to which Admitted Reserve Creditors are entitled pursuant
to sub-clause 21(4)(b) to Eligible Recipients in respect of the
previously Admitted Claims provided that the costs of making that
Distribution would not exceed the value of the Scheme Consideration
to be distributed.
(5) Any plc Receipts arising pursuant to sub-clause 28(1)(b) after the
expiry or termination of the Waiting Period shall be distributed in
accordance with the provisions of clause 25.
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REJECTED CLAIMS
29. (1) Where a Known Claim is Conclusively Rejected before the expiry or
termination of the Waiting Period, the Distribution Entitlement to
which the Known Creditor would have been entitled, had its Known
Claim been Admitted rather than Conclusively Rejected, shall:
(a) if the quantum of the Known Claim which is Conclusively
Rejected exceeds L250,000,000 (such Distribution Entitlement
being a "REJECTED CLAIM SUPPLEMENT"), be deducted from the
Known Claims Segment and be apportioned as follows:
(i) the "KNOWN REJECTED CLAIM SUPPLEMENT" which shall be
the Rejected Claim Supplement less the Reserve Rejected
Claim Supplement; and
(ii) the "RESERVE REJECTED CLAIM SUPPLEMENT" which shall be
the same proportion of the Rejected Claim Supplement as
the Basic Reserve Claims Segment (which for this
purpose shall be calculated after taking into account
any increase in the size of the Basic Reserve Claims
Segment resulting from Known Claims being Conclusively
Rejected and the Distribution Entitlement of the Known
Creditor who would have been entitled had its Known
Claim been Admitted rather than Conclusively Rejected
becoming part of the Reserve Claims Segment pursuant to
clause 29(1)(b)) is of the Basic Scheme Consideration
(which for this purpose shall be calculated after
taking into account any decrease in the size of the
Basic Known Claims Segment resulting from:
(A) Known Claims being Conclusively Rejected resulting
in a Rejected Claims Supplement being deducted
from the Basic Known Claims Segment pursuant to
sub-clause 29(1)(a) and becoming available for
distribution to Scheme Creditors in accordance
with sub-clause 29(2); and/or
(B) Known Claims being Conclusively Rejected resulting
in the Distribution Entitlement to which the Known
Creditor who would have been entitled had its
Known Claim been Admitted being deducted from the
Basic Known Claims Segment and becoming part of
the Reserve Claims Segment pursuant to clause
29(1)(b)); and
(b) if the quantum of the Known Claim (or part thereof) which is
Conclusively Rejected is less than or equal to L250,000,000,
be deducted from the Known Claims Segment and form part of
the Reserve Claims Segment and therefore not be available for
distribution to Admitted Scheme Creditors as a Rejected Claim
Supplement pursuant to sub-clause 29(2).
(2) A Rejected Claim Supplement shall become available for distribution
following apportionment under sub-clause 29(1)(a) and the
Supervisors shall promptly issue a Distribution Notice to the
Escrow Trustee (with a copy to the Distribution Agent) in respect
of the distribution of the amount of the Known Rejected Claim
Supplement to which Admitted Known Creditors are entitled pursuant
to sub-clause 21(4)(a) and the amount of the Reserve Rejected Claim
Supplement to which Admitted Reserve Creditors are entitled
pursuant to sub-clause 21(4)(b) to Eligible Recipients in respect
of the previously Admitted Claims.
(3) For the purposes of distributing the Rejected Claim Supplement; if:
(a) the plc Scheme including provisions in the form or
substantially in the form of that set out in Schedule 2
becomes effective;
(b) the plc Scheme supervisors admit the Company's claim against
plc pursuant to the plc Scheme;
(c) (i) the Known Claim of Ancrane is Admitted by the
Supervisors; or
(ii) either (or both) the Known Claims of the Eurobond
Trustee are Admitted the Supervisors; or
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(iii) either (or both) the Known Claims of the Yankee Bond
Trustee are Admitted by the Supervisors; and
(d) the waiting period under the plc Scheme has not been
terminated or expired,
the Supervisors may agree similar or analogous arrangements to those
in sub-clause 27(2) with the supervisors of the plc Scheme (if any,
or, if none, any other duly authorised representative of plc) where,
acting reasonably, the Supervisors consider that to do so would be
in the best interests of Admitted Scheme Creditors.
GENERAL PROVISIONS ON DISTRIBUTIONS
30. (1) No Scheme Creditor shall have any right to disturb a prior
Distribution, whether on the grounds that there remains insufficient
Scheme Consideration to satisfy that creditor's Distribution
Entitlement (if any) or otherwise.
(2) The Supervisors shall give all necessary directions and issue all
necessary Distribution Notices to the Escrow Trustee (with a copy to
the Distribution Agent) to enable Distributions to be made in
accordance with the Scheme. The issue by the Supervisors of
directions in accordance with this sub-clause 30(2) shall be a
complete discharge of the Supervisors' responsibilities with respect
to such Distributions. Without prejudice to the generality of the
previous sentence, the Supervisors shall not be liable in any way
whatsoever for any acts or omissions of the Escrow Trustee, the
Distribution Agent or Bondholder Communications in respect of those
directions.
(3) Subject always to sub-clause 30(1) an Admitted Scheme Claim may be
withdrawn or reduced as to the amount claimed by agreement between
the Supervisors and the relevant Scheme Creditor.
(4) Any sums of cash or rights or benefits paid, transferred or credited
to the Escrow Trustee pursuant to clause 34 shall be distributed
together with, or, as appropriate, in place of, and at the same time
as, the New Rights to which such sum of cash or other rights or
benefits relate.
(5) (a) Elections may be made in Claim Forms and Account Holder
Letters for the Eligible Recipient:
(i) to receive any New Creditor Shares in the form of ADRs;
and/or
(ii) subject to the thresholds described in Recital J being
met, to receive euro-denominated or US
dollar-denominated New Senior Notes (but not both);
and/or
(iii) to receive any New Creditor Shares:
(A) in certificated form; or
(B) into an account held with CREST.
(b) The Company shall pay any applicable SDRT Expense.
(c) Where there are any New Creditor Shares which are not
sufficient in number to equate to one ADR and which therefore
cannot be transferred to the ADR Depositary in accordance with
the terms of the Escrow and Distribution Agreement, the
Supervisors shall direct the Escrow Trustee to procure that
the Distribution Agent, acting on behalf of the Escrow Trustee
shall sell those New Creditor Shares and remit the proceeds to
augment the Reserve Claims Segment.
(6) Eligible Recipients shall receive Distributions in accordance with
the provisions of the Scheme provided that no fraction of a New
Share and no fraction of a New Note shall be transferred, allotted
or issued to any Eligible Recipient but:
(a) if the New Creditor Shares or New Notes or any of them are
Listed all fractions of such Listed New Creditor Shares or New
Notes which, but for this proviso, any such Eligible
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Recipients would have received shall be aggregated and sold in
the market and the net proceeds of sale shall comprise part of
the Reserve Claims Segment; and
(b) if any of the New Creditor Shares or New Notes are not listed,
all entitlements of Eligible Recipients to all fractions of
such New Creditor Shares and New Notes which, but for this
proviso any such Eligible Receipts would have received, shall
be rounded down to zero and the fractions shall comprise part
of the Reserve Claims Segment.
(7) (a) New Creditor Shares and New Notes will not be distributed to
or to the order, or for the account or benefit, of any person
where such distribution would be prohibited by any applicable
law or regulation, or so prohibited except after compliance
with conditions or requirements that are unduly onerous. Where
any determination is required as to whether the conditions or
requirements of applicable law or regulation are "unduly
onerous," such determination will be made by the Company with
the advice of legal counsel and having due regard for the
number of Scheme Creditors and Bondholders that are or may be
located in the relevant jurisdiction, the value of the
securities to which such persons are or may be entitled
pursuant to the Scheme, the extent to which the requirements
of the laws and regulations of such jurisdiction as applied to
the Scheme are uncertain, the nature and extent of the risks
or penalties associated with any violation of those legal or
regulatory requirements and the costs, administrative burden
and timing implications of taking such action (if any) as
might permit distributions of securities to be made in that
jurisdiction (including pursuant to any available exemptions)
in accordance with applicable legal and regulatory
requirements.
(b) Notwithstanding the foregoing, distribution of New Creditor
Shares and New Notes will not be refused on the grounds of any
legal or regulatory prohibition of general application under
the laws of any Unrestricted Jurisdiction, unless there has
been a Change of Law.
(c) New Creditor Shares and New Notes will not be distributed to
or to the order of any Scheme Creditor or Bondholder located
in a Restricted Jurisdiction, except that New Creditor Shares
and New Notes will be distributed to or to the order of:
(i) any Scheme Creditor or Bondholder located in France if
the Scheme Creditor or (as the case may be) the
Bondholder and any Designated Recipient of such
Bondholder is a "qualified investor" as defined in
Article L.411-2 of the French Monetary and Financial
Code;
(ii) any Scheme Creditor or Bondholder located in Italy, if
CONSOB has confirmed that such distribution does not
constitute a public offering under Italian securities
legislation;
(iii) any Bondholder located in Italy, if the number of such
persons does not exceed 200;
(iv) any Scheme Creditor other than a Bondholder located in
Italy, if:
(A) such person is a "professional investor" as defined
in the Consolidated Financial Act Article 30,
paragraph II and in CONSOB Regulation 11522/1998
Article 31, paragraph II; or
(B) such person is not a "professional investor" as so
defined but the number of such persons that are not
"professional investors" does not exceed 200; and
(v) any Scheme Creditor or Bondholder located in the US
states of Arizona, California, Colorado, Connecticut,
Illinois, Ohio and Vermont if such persons falls within
one of the relevant categories of persons set out in
Schedule 4.
Notwithstanding the foregoing, New Creditor Shares and New Notes may
be distributed to or to the order of persons located in a Restricted
Jurisdiction to the extent that there has been a Change of Law.
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(d) Notwithstanding the provisions of sub-clause (c) above, if the
confirmations required by box 3 of the Claim Form or section 5,
paragraphs (D), (E) and (F) of the Account Holder Letter are given
in the form requested by the Claim Form or the Account Holder Letter
(as the case may be), then distribution of New Creditor Shares and
New Notes to or to the order of the relevant persons will not be
refused on the grounds of any legal or regulatory prohibition of
general application under the laws of any Restricted Jurisdiction,
unless:
(i) the Company determines that such confirmations have been given
inappropriately on the basis that information provided in or
in connection with the transmittal of the Claim Form or
Account Holder Letter indicates that such Claim Form has been
submitted by, or such Account Holder Letter has been delivered
on behalf of, or delivery of securities is being requested to
or for the account or benefit of, a person that is located in
a Restricted Jurisdiction and that could not be eligible to
receive the securities under any provision described in
sub-clause 30(7)(c);
(ii) the Company obtains actual knowledge that such confirmations
are false; or
(iii) there has been a Change of Law.
Notwithstanding the foregoing, New Creditor Shares and New Notes
will be distributed in Italy pursuant to sub-clauses 30(7)(c)(ii),
30(7)(c)(iv)(B) (to the extent applicable) without regard to whether
the required confirmations have been inappropriately or falsely
given in any relevant Claim Form or Account Holder Letter.
(e) To the extent that New Creditor Shares or New Notes that would
otherwise be deliverable pursuant to the Scheme cannot be delivered
because of a legal or regulatory prohibition described in sub-
clause 30(7) (a) above, such New Creditor Shares or New Notes will
not be delivered and instead:
(i) in the case of New Creditor Shares or New Notes that are
listed on a securities exchange, such New Creditor Shares or
New Notes will be sold and the net proceeds of such sale
delivered to the relevant person in full satisfaction of the
rights of such person in respect of such New Creditor Shares
or New Notes under the Scheme, all as more particularly
specified in the Escrow and Distribution Agreement; and
(ii) in the case of New Creditor Shares or New Notes that are not
listed on a securities exchange, the relevant person will
receive a sum in cash which is substantially equivalent in
value to such New Creditor Shares or New Notes, such sum to be
determined by agreement between the Company and the
Supervisors or absent such agreement by adjudication under
Part VI and the Supervisors shall direct the sale of the New
Creditor Shares and/or New Notes to which the relevant person
would otherwise have been entitled.
(8) The Supervisors shall give all appropriate directions to the Escrow
Trustee (with a copy to the Distribution Agent) to give effect to
this clause 30.
(9) Any sale referred to in this clause 30 shall be made for the best
terms reasonably available at the time of the sale and shall be
undertaken on behalf of the person absolutely entitled to the
relevant asset and none of the Supervisors, the Company, the Escrow
Trustee, the Distribution Agent, the Registrars or any other person
shall be responsible for any loss arising from the terms or timing
of the sale.
(10) For the avoidance of doubt, a Scheme Creditor must comply with the
terms of the Scheme, including submitting a Claim Form in accordance
with the provisions of clause 12, in order for its Eligible
Recipient to receive any Distributions of Scheme Consideration to
which that Scheme Creditor's Scheme Claim might entitle it.
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PART IV
FURTHER PROVISIONS REGARDING
THE ISSUE OF NEW SHARES AND WARRANTS
31. The following shall apply in relation to the allotment and issue of the
New Shares and the Warrants in pursuance of the Scheme:
(1) The New Shares shall be allotted and issued by the Company to the
Escrow Trustee by means of credit to an appropriate CREST account
of the Escrow Trustee or its nominee.
(2) Each New Share shall be allotted and issued credited as fully paid
in consideration of:
(a) the release of Scheme Claims which are the subject of the
First Initial Distribution Notice on the basis set out in the
Scheme; and/or (as the case may be)
(b) the agreement of Scheme Creditors with other Scheme Claims
not to commence or continue Prohibited Proceedings in respect
of such Scheme Claims as set out in clauses 2 to 5,
(such consideration being in aggregate net of the amount of the
Cash and the face value of the New Notes).
(3) The plc Shareholders shall receive the plc Shareholder Stock on the
following basis:
(a) each plc Shareholder shall be provisionally allocated one New
Share from the plc Shareholder Stock in respect of every 559
ordinary shares of nominal value 5p each in the capital of
plc ("PLC SHARES") which it holds on the last day of dealings
in those shares prior to the Effective Date (the "REGISTER
DATE"). No fractions of New Shares shall be provisionally
allocated to plc Shareholders.
(b) each plc Shareholder who holds less than 559 plc Shares at
the Register Date shall be allocated one New Share from those
New Shares not distributed by virtue of the prohibition
against the allocation of fractions of New Shares set out in
sub-clause 31(3)(a) ("RESIDUAL SHARES"). If there are
insufficient Residual Shares to enable one New Share to be
allocated to each such plc Shareholder (the "SHORTFALL"),
sub-clause 31(3)(c) shall apply until the Shortfall has been
eliminated. If there are Residual Shares in excess of the
number of New Shares required to ensure that each plc
Shareholder is allocated one New Share from the plc
Shareholder Stock pursuant to sub-clause 31(3)(a) (the
"EXCESS"), sub-clause 31(3)(d) shall apply.
(c) (i) One New Share shall be deducted from the provisional
allocation of each plc Shareholder beginning with the
plc Shareholder receiving the highest provisional
allocation (from which no New Share has been deducted
under this sub-clause) and continuing with the plc
Shareholder with the next highest provisional
allocation.
(ii) Where more than one plc Shareholder has the same
provisional allocation and a deduction pursuant to
sub-clause 31(3)(c)(i) is required to be made from the
provisional allocation of one such plc Shareholder,
such deduction shall be made in the alphabetical order
of the first letter of the surname or corporate name
(or first surname or corporate name if more than one)
of such plc Shareholders as they appear in the register
of the members of plc.
(iii) Deductions pursuant to sub-clauses 31(3)(c)(i) and
31(3)(c)(ii) shall continue until the number of New
Shares so deducted equals the Shortfall.
(d) (i) If the Company reasonably believes that the New Shares
shall be (and they are in fact) Listed within 30
Business Days of the Effective Date, the Registrars
shall use reasonable endeavours to procure the sale of
the Excess on the London Stock Exchange and the net
proceeds of sale shall be paid to the Company for its
benefit.
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(ii) In any other circumstances, the Registrars shall use
reasonable endeavours to procure the sale of the Excess
and the net proceeds of such sale shall be paid to the
Company for its benefit.
(e) Once the provisional allocations under this sub-clause have
been finalised they shall be treated as final allocations and
distributed to plc Shareholders as soon as reasonably
practicable in the manner provided for in the Escrow and
Distribution Agreement.
(4) The Warrants shall be allotted and issued by the Company prior to
the Effective Date and the Registrars shall hold the Warrants for
the benefit of the plc Shareholders to be distributed to (or, as
the case may be, sold in the market as provided in sub-clause
31(6)(b)) as directed by the Company in accordance with the terms
of the Scheme.
(5) Each plc Shareholder shall be allocated one warrant in respect of
every 56 plc Shares which it holds at the Register Date. No
fractions of Warrants shall be allocated to plc Shareholders.
(6) (a) New Shares and Warrants will not be distributed to or to the
order, or for the account or benefit, of any plc Shareholder
where such distribution would be prohibited by any applicable
law or regulation, or so prohibited except after compliance
with conditions or requirements that are unduly onerous
(determined in accordance with sub-clause 30(7)(a)).
Accordingly,
(i) New Shares and Warrants will not be distributed to any
plc Shareholder that is shown in the register of plc
Shareholders as having a registered address in
Malaysia, unless there has been a Change of Law; and
(ii) Warrants will not be distributed to any plc Shareholder
that is shown in the register of plc Shareholders as
having a registered address in Italy, unless:
(A) CONSOB has confirmed that such distribution does
not constitute a public offering under Italian
securities legislation; or
(B) the number of such plc Shareholders does not
exceed 200; or
(C) there has been a Change of Law.
(b) To the extent that New Shares or Warrants that would
otherwise be deliverable to a plc Shareholder cannot be
delivered because of a legal or regulatory prohibition
described in sub-clause 31(6)(a) above, such New Shares or
Warrants will not be delivered and instead the Registrars
shall use reasonable endeavours to sell such New Shares or
Warrants and will pay the net proceeds of such sale (if any)
to the relevant plc Shareholder in full satisfaction of the
rights of such plc Shareholder in respect of such New Shares
or Warrants under the Scheme, all as more particularly
specified in the Escrow and Distribution Agreement.
(7) Any sale pursuant to clause 31 shall be for the best terms
reasonably available at the time of the sale and shall be
undertaken on behalf of the relevant plc Shareholders and none of
the Supervisors, the Company, the Escrow Trustee, the Distribution
Agent, the Registrars or any other person shall be responsible for
any loss arising from the terms or timing of the sale or the
failure to procure any purchaser for all or any plc Shareholder
Stock or Warrants to be sold pursuant to clause 31.
32. The plc Shareholder Stock and the Warrants shall only be available for
the purposes of Distributions to plc Shareholders (or sale) pursuant to
clause 31.
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PART V
ESCROW AND DISTRIBUTION ARRANGEMENTS
ESCROW AND DISTRIBUTION AGREEMENT
33. On the Effective Date, those provisions of the Escrow and Distribution
Agreement which have not already come into force shall come into force in
accordance with its terms. In particular, but without limitation, the
Company, forthwith upon the Effective Date, shall allot and issue or, as
the case may be, pay the Basic Scheme Consideration (and the plc
Shareholder Stock) to the Escrow Trustee or its nominee to be dealt with
in accordance with the Escrow and Distribution Agreement. Any plc
Receipts shall (as soon as practicable after receipt by the Company) be
paid or transferred to the Escrow Trustee to be dealt with in accordance
with the Escrow and Distribution Agreement.
SCHEME CONSIDERATION AND PLC SHAREHOLDER STOCK WHEN HELD IN ESCROW BY THE ESCROW
TRUSTEE
34. All of the Scheme Consideration allotted, issued and/or transferred to
the Escrow Trustee or its nominee shall be held by the Distribution Agent
or the Escrow Trustee's nominee, as the case may be as custodian for the
Escrow Trustee. The Escrow Trustee shall hold that Scheme Consideration
on bare trust absolutely for the Scheme Creditors on the basis set out in
the Escrow and Distribution Agreement and all of the plc Shareholder
Stock allotted, issued or transferred to the Escrow Trustee shall be held
by the Escrow Trustee on trust absolutely for the plc Shareholders. In
each case and so as to bind the Scheme Creditors and any person deriving
title from them, the Scheme Consideration shall be applied by the Escrow
Trustee on behalf of the Scheme Creditors absolutely entitled to it, in
accordance with the Escrow and Distribution Agreement and the provisions
of the Scheme. Subject to the provisions of the Escrow and Distribution
Agreement, the Escrow Trustee shall at no time whatsoever, either present
or future, have any beneficial interest in the Scheme Consideration or
the plc Shareholder Stock.
35. Whilst any New Shares, New Notes or any Cash are held by, or on behalf
of, the Escrow Trustee:
(1) dividends paid on (or any other rights or benefits added or
attached to) such New Shares; and/or
(2) interest accrued on any such Cash or interest paid on any such New
Notes; and/or
(3) any cash arising from the prepayment by the Company of any such New
Senior Notes or New Junior Notes in accordance with their terms and
any interest accruing thereon,
shall be paid, transferred or credited to the Escrow Trustee to hold on
the terms of the Escrow and Distribution Agreement.
36. The Escrow Trustee shall not exercise any voting rights attaching to any
New Notes or New Shares held in escrow.
37. (1) The Escrow Trustee's liabilities as trustee shall be solely those
arising out of its trusteeship and other obligations set out in the
Escrow and Distribution Agreement.
(2) The Distribution Agent's liabilities as custodian for the Escrow
Trustee and as distribution agent shall be solely those arising out
of its custodianship and other obligations set out in the Escrow
and Distribution Agreement.
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PART VI
INDEPENDENT ADJUDICATION
38. If any question or issue in relation to the existence or quantum of a
Scheme Claim shall be referred for adjudication as a result of an
election made pursuant to clause 17 or the question of what sum an
Eligible Recipient shall be entitled to shall be referred for
adjudication pursuant to sub-clause 30(7)(e)(ii) the question or issue
shall be referred for adjudication to an individual agreed between the
Supervisors and the relevant Scheme Creditor (the "COUNTERPARTY"), such
individual to be an independent third party considered by the Supervisors
and the Counterparty to be a fit and proper person duly qualified to
adjudicate on the question or issue, or in the absence of any such
agreement between the Supervisors and the Counterparty within 10 Business
Days of the election, to an individual nominated by The President of the
Law Society of England and Wales.
39. The individual to whom the question or issue is referred (the
"ADJUDICATOR") shall be entitled to prescribe such reasonable provisions
and procedures as, in his absolute discretion, he may consider
appropriate for the purposes of assisting him in reaching his decision,
and shall be entitled for such purpose to call for such evidence in
relation to the question or issue referred to him as he may require,
provided that the Counterparty and the Company shall always be afforded a
reasonable opportunity to make oral submissions to the Adjudicator. In
any one adjudication, such oral submissions shall not in aggregate occupy
more than one working day save with the approval, in his absolute
discretion, of the Adjudicator.
40. With regard to any adjudication before him, the Adjudicator may make such
directions in respect of payment of his remuneration and in respect of
the costs, charges and expenses incurred by him, the Supervisors, the
Company or the Counterparty as he shall think just. In particular, but
without limitation, one party may be directed to pay remuneration and
costs, charges and expenses of another party if, in the opinion of the
Adjudicator, any such party has made a claim, relied on a defence or
otherwise howsoever conducted himself in relation to the adjudication in
a manner which is frivolous, vexatious or had no reasonable prospect of
success.
41. If the Adjudicator shall direct that any such remuneration, costs,
charges and expenses be paid by the Supervisors or by the Company, the
same shall forthwith be paid in full by the Company.
42. If the Adjudicator shall direct that any such remuneration, costs,
charges and expenses be paid by the Counterparty, the same shall
forthwith be paid in full by the Counterparty and, if not so paid then,
for the purposes of determining whether such Counterparty is entitled to
participate in any Distribution under the Scheme, he shall be treated as
having received on account an advance distribution under the Scheme equal
to the amount which he has been directed to pay.
43. Subject to any directions which may be given by the Adjudicator in
accordance with clause 40, the Company shall pay all costs, charges and
expenses incurred by the Adjudicator in the course of exercising and
performing his powers, duties and functions under the Scheme and shall
pay such remuneration to the Adjudicator for the exercise and performance
of his powers, duties and functions as may be agreed between the
Adjudicator and the Supervisors and approved by the Creditors' Committee.
44. The Adjudicator shall notify the Supervisors and the relevant
Counterparty of his decision by notice in writing by Post as soon as
practicable.
45. Subject to any mandatory applicable law, the determination of the
Adjudicator of any question or issue shall be final and binding on the
Company, the Supervisors and the Counterparty and, for the avoidance of
doubt, there shall be no right of appeal therefrom, and no right to make
any claim against the Adjudicator in respect thereof. For the avoidance
of doubt, this exclusion of any right of appeal shall operate only to the
extent permitted by law.
46. If at the expiration of 6 months in the case of a question or issue
referred for adjudication as a result of an election made pursuant to
clause 17 or of 3 months in the case of a question or issue referred for
adjudication pursuant to sub-clause 30(7)(e)(ii) no decision on such
question or issue has been reached by an Adjudicator, then nothing in
this Scheme shall preclude the Counterparty from taking any appropriate
action in the Court for the purposes only of securing a determination of
the question or issue concerned.
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PART VII
THE SUPERVISORS
47. The Supervisors shall have the powers, duties and functions conferred
upon them by the Scheme and any other documents entered into pursuant to
the Scheme.
48. The Supervisors shall be a minimum of two individuals (and not more than
three) who are each licensed insolvency practitioners and duly qualified
in the reasonable opinion of the Company and the Creditors' Committee to
discharge the function of the Supervisors under the Scheme. The initial
Supervisors shall be Philip Wedgwood Wallace and Richard Heis of KPMG
LLP, 8 Salisbury Square, London EC4Y 8BB, England.
49. The Supervisors, or any of them, may resign their appointment at any time
by giving not less than 28 days' notice in writing to the Company and the
Creditors' Committee or such shorter period as may be agreed by the
Company and the Creditors' Committee.
50. The office of Supervisor shall be vacated by an appointee to that office
if that appointee:
(1) dies, becomes bankrupt or mentally disordered; or
(2) is convicted of an indictable offence (other than a road traffic
offence); or
(3) resigns his office by 28 days' notice in writing to the other
Supervisors; or
(4) ceases to be a licensed insolvency practitioner.
51. In the event of a vacancy in the office of the Supervisors pursuant to
clauses 49 and 50, the Company and the Creditors' Committee (acting in
accordance with sub-clause 82(2)) shall, if required, forthwith appoint
as a replacement Supervisor a person who is suitably qualified so to act
pursuant to clause 48 and not disqualified to act under clause 50 and who
consents to act as Supervisor.
52. The functions and powers of the Supervisors under the Scheme may be
performed and exercised jointly or severally and any act required to be
done by the Supervisors pursuant to the Scheme may be done by all or any
one or more of them.
53. (1) The Supervisors shall supervise, and carry out their functions as
set out in, the Scheme.
(2) Without prejudice to the generality of sub-clause 53(1), the
Supervisors shall:
(a) execute an accession letter to the Escrow and Distribution
Agreement on the Effective Date and on and from the Effective
Date, perform their obligations and duties thereunder;
(b) prepare a report on the conduct of the affairs of the Company
in relation to the Scheme and the operation of the Scheme
during each period of 12 months since the later of the
Effective Date and the date when the last such report was
prepared;
(c) attend meetings of the Creditors' Committee and meetings of
the Scheme Creditors convened and operated in accordance with
Part IX to discuss such reports or if requested by the party
convening the meeting for any other purpose in relation to
the operation of this Scheme; and
(d) maintain a record of Scheme Creditors entitled to attend
meetings of Scheme Creditors based on information contained
in Claim Forms and supplied by Bondholder Communications to
the Supervisors in accordance with the terms of the Escrow
and Distribution Agreement.
54. The Supervisors shall, with effect from the Effective Date, ensure that
there is in force in relation to the Company such bond as would have had
to be in force if the Company had been wound up in England on the
Effective Date and they had been appointed as liquidators of the Company.
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55. Without prejudice to the generality of clause 53, in carrying out their
functions and powers under the Scheme, the Supervisors shall be entitled:
(1) to admit or refuse to admit Scheme Claims Submitted by Scheme
Creditors (including to ensure the Company properly conducts its
defence of any Prohibited Proceedings and/or any Allowed
Proceedings) and direct:
(a) Distributions; and
(b) realisations of Scheme Consideration to generate cash for
Distributions by the Distribution Agent in accordance with
the Scheme and the Escrow and Distribution Agreement;
(2) to have access at all reasonable times to all relevant employees,
books, papers and other documents of the Company and to receive all
such information from the Company as they may reasonably require in
relation to their duties as Supervisors and to receive the
reasonable co-operation of the Company in connection with the
conduct of any Prohibited Proceedings, any Allowed Proceedings or
defending any Proceedings against the Supervisors in respect of
carrying out their functions and exercising their powers under the
Scheme;
(3) to delegate to any Employee all or any of the functions, powers,
rights, authorities and discretions conferred upon the Supervisors
under the Scheme and from time to time to revoke any such
delegation, provided that the Supervisors shall be responsible for
any act or omission of any such employee or delegate to the same
extent as if they had expressly authorised it;
(4) to be remunerated by the Company for the carrying out of such
functions and powers (in the case of the initial Supervisors,
Philip Wedgwood Wallace and Richard Heis, such remuneration to be
calculated by reference to the Supervisors' Engagement Letter) and
to be reimbursed by the Company for all expenses properly incurred
by them in connection with this clause including any adverse costs
ordered to be paid by the Supervisors as a result of any Proceeding
in connection with the Scheme;
(5) to defend any proceedings against them in respect of carrying out
their functions and exercising their powers under the Scheme;
(6) to apply to the Court for directions in relation to any particular
matter arising in the course of the Scheme;
(7) to liaise with the Creditors' Committee and to attend Creditors'
Committee meetings;
(8) to convene a meeting of Scheme Creditors in accordance with Part
IX, if appropriate; and
(9) to exercise such powers as are necessary or desirable to enable
them to fulfil their functions under the Scheme and to do all other
things incidental to the exercise of the functions and powers
referred to in this and clause 53.
56. Save as expressly set out in this Scheme, the Supervisors shall be
entitled to employ and remunerate accountants, actuaries, lawyers and
other professional advisers or agents in connection with the conduct of
their functions and powers under the Scheme.
57. Any function of or power conferred on the Company or its officers,
whether by statute or by its memorandum or articles of association, which
could be exercised in such a way as to interfere with the exercise by the
Supervisors of their functions and powers in relation to the Company or
the Scheme, shall not be so exercised except with the consent of the
Supervisors, which may be given either generally or in relation to
particular cases. Any such consent given by the Supervisors may be
withdrawn.
58. In carrying out their functions and exercising their powers under the
Scheme, the Supervisors shall act bona fide and with due care and
diligence in the interests of the Scheme Creditors as a whole and they
shall use their powers under the Scheme for the purpose of ensuring that
the Scheme is operated in accordance with its terms.
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59. (1) Save as expressly set out in this Scheme or the Escrow and
Distribution Agreement, the Supervisors shall act as agents of the
Company (without personal liability) in respect of all functions and
powers conferred on them under this Scheme. The Supervisors shall,
in their capacity as such, incur no liability to any Scheme Creditor
or any other person:
(a) in respect of any decrease in the value of a Scheme Creditor's
Distribution Entitlement during the period between that Scheme
Creditor submitting its Scheme Claim and that Scheme Creditor
receiving Scheme Consideration in satisfaction of its
Distribution Entitlement;
(b) in respect of bringing the Waiting Period to an end pursuant
to sub-clause 24(1);
(c) arising from the structure or establishment of the Scheme
including any claim based upon:
(i) the quantum of the Reserve Claims Segment; and
(ii) the timing of the First Initial Distribution; and
(d) arising from the exercise of any power or discretion vested in
them under the Scheme,
except where such liability arises as a result of their own
negligence, wilful default, breach of duty, breach of trust, fraud,
bad faith or dishonesty (or as a result of the negligence, wilful
default, breach of duty, breach of trust, fraud, bad faith or
dishonesty of any Employee).
(2) The Company shall indemnify the Supervisors for any Liability
incurred by the Supervisors arising out of or in connection with
making or having made any Distributions in accordance with the terms
of the Scheme save to the extent that such Liability arises from the
Supervisors own negligence, wilful default, breach of duty, breach
of trust, fraud or dishonesty (or as a result of the negligence,
wilful default, breach of duty, breach of trust, fraud or dishonesty
of any Employee).
60. (1) To the extent permitted by law, no Scheme Creditor shall be
entitled to challenge the validity of any act done or omitted to be
done in good faith and with due care by the Supervisors in
accordance with and to implement the provisions of the Scheme or the
exercise by the Supervisors in good faith and with due care of any
power conferred upon them for the purposes of the Scheme if
exercised in accordance with and to implement the provisions of the
Scheme and the Supervisors shall not be liable for any loss unless
such loss is attributable to their own negligence, default, breach
of duty, breach of trust, fraud or dishonesty (or to the negligence,
default, breach of duty, breach of trust, fraud or dishonesty of any
Employee).
(2) To the extent permitted by law, no Scheme Creditor shall be entitled
to challenge the validity of any act done or omitted to be done in
good faith and with due care by any Employee in accordance with and
to implement the provisions of the Scheme if exercised in accordance
with and to implement the provisions of the Scheme and no Employee
shall be liable for any loss unless such loss is attributable to his
own negligence, default, breach of duty, breach of trust, fraud or
dishonesty.
(3) When the Company, acting through the Supervisors, gives directions
under:
(a) sub-clauses 4(c) and (d);
(b) sub-clauses 5(3), 5(5), 5(8) and (9);
(c) sub-clauses 6(1), 6(2), 6(3), 6(4) and 6(8);
(d) sub-clause 7(10);
(e) sub-clause 8(10);
(f) sub-clause 9(22);
(g) sub-clause 11(2);
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(h) clause 12; or
(i) sub-clause 13(1),
of the Escrow and Distribution Agreement or sub-clause 111(3), the
Company gives those directions for and on behalf of the Scheme
Creditors who are absolutely entitled to the assets affected by those
directions under clause 5(7) of the Escrow and Distribution Agreement
and so as to procure that their obligations under clause 34 are
fulfilled.
61. The Supervisors' remuneration and expenses and all costs and expenses
incurred by them on behalf of the Company in carrying out their functions
and exercising their powers and generally in relation to the supervision
and implementation of the Scheme shall be met by the Company upon written
demand from the Supervisors.
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PART VIII
CREDITORS' COMMITTEE
CONSTITUTION OF THE CREDITORS' COMMITTEE
62. (1) There shall be a Creditors' Committee under the Scheme.
(2) The Creditors' Committee shall consist of not less than three nor
more than seven persons (referred to henceforth in the Scheme as
"COMMITTEE MEMBERS") unless the Supervisors in consultation with
the Creditors' Committee agree otherwise.
(3) The following shall be eligible for appointment as Committee
Members:
(a) any Scheme Creditor (whether an individual, a body corporate
or a partnership); and
(b) notwithstanding sub-clause 66(3), any other person with the
written consent of the Supervisors which consent may be
revoked by the Supervisors at any time.
(4) Each Committee Member which is a body corporate or a partnership
may, by notice in writing to the Creditors' Committee, appoint a
senior executive, other senior employee or professional adviser as
its representative ("NOMINATED REPRESENTATIVE") to represent that
Committee Member at any meeting of the Creditors' Committee.
(5) Any Committee Member or Nominated Representative who is an
individual may, by notice in writing to the Creditors' Committee,
appoint a senior executive, other senior employee or professional
adviser as an alternative ("ALTERNATE") to attend and vote in his
place at any meeting of the Creditors' Committee.
(6) Any Nominated Representative or Alternate shall have the same
powers and shall be subject to the same duties and limitations as
the Committee Member whom the Nominated Representative or Alternate
represents.
MEMBERSHIP OF THE CREDITORS' COMMITTEE
63. On the Effective Date, to the extent possible, the Supervisors shall
appoint up to seven Scheme Creditors, each of which has indicated its
willingness to act as a Committee Member in a Claim Form or Account
Holder Letter, representing a proper balance of the interests of Scheme
Creditors as a whole.
64. The Creditors' Committee may resolve at any time, by a majority of
two-thirds of the Committee Members present at a meeting of the
Creditors' Committee, to appoint any person who is eligible to be so
appointed to be a Committee Member, whether to fill a vacancy or as an
additional Committee Member, so that the total number of Committee
Members shall not exceed the maximum number specified in sub-clause
62(2). In appointing additional Committee Members, the Creditors'
Committee shall endeavour to ensure that the composition of the
Creditors' Committee is such that it represents a proper balance of the
interests of Scheme Creditors as a whole.
65. The Scheme Creditors may, by a resolution passed at a meeting of Scheme
Creditors convened, and at which business is transacted, pursuant to Part
IX ("CREDITORS' RESOLUTION") remove any Committee Member from office and
without prejudice to the Creditors' Committee's powers under clause 64
may by Creditors' Resolution appoint any person who is eligible to be
appointed under sub-clause 62(3) to be a Committee Member either to fill
a vacancy or in addition to the existing Committee Members, but so that
the total number of Committee Members shall not exceed the maximum number
specified in sub-clause 62(2).
66. The office of a Committee Member shall be vacated if any of the
situations set out in clauses 67 to 69 applies or if that Committee
Member:
(1) resigns by notice in writing addressed to the Creditors' Committee;
or
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(2) is removed from office by a Creditors' Resolution; or
(3) subject to sub-clause 62(3)(b) and clause 69 ceases to be (or is
found never to have been) a Scheme Creditor or an authorised
representative of a Scheme Creditor; or
(4) fails to attend three consecutive meetings of the Creditors'
Committee, unless the Creditors' Committee (excluding that
Committee Member) resolves by a majority of two-thirds of the
Committee Members present at a meeting of the Creditors' Committee
that he should continue as a Committee Member.
67. In the case of an individual, the office of a Committee Member shall be
vacated if that individual:
(1) dies; or
(2) becomes bankrupt or is subject to an individual voluntary
arrangement or analogous process under the law of any jurisdiction
to which he is subject; or
(3) becomes mentally disordered; or
(4) becomes disqualified from acting as a director under the law of any
jurisdiction to which he is subject; or
(5) is convicted of an indictable offence (other than a road traffic
offence).
68. In the case of a body corporate or partnership, the office of a Committee
Member shall be vacated if that body corporate or partnership is
dissolved.
69. In the case of a person appointed with the consent of the Supervisors
under sub-clause 62(3)(b), the office of that Committee Member shall be
vacated if that person has his written consent under that clause revoked
by the Supervisors.
70. Any person entitled to appoint a Nominated Representative or an Alternate
may from time to time revoke that appointment and appoint another
Nominated Representative or Alternate by notice in writing to the
Creditors' Committee, the Supervisors and the Company.
71. The appointment of a Nominated Representative or an Alternate (as the
case may be) shall terminate automatically if:
(1) his appointment is revoked by his appointor; or
(2) the person whom that Nominated Representative or Alternate
represents ceases to be a Committee Member; or
(3) the Nominated Representative or Alternate ceases to be a senior
executive, senior employee or professional adviser of the Committee
Member whom he represents; or
(4) the Nominated Representative or Alternate dies, becomes mentally
disordered, bankrupt or is disqualified from acting as a director
in each case under the law of any jurisdiction to which he is
subject or is convicted of an indictable offence (other than a road
traffic offence).
PROCEEDINGS OF THE CREDITORS' COMMITTEE
72. Save as otherwise specifically provided in the Scheme, the Creditors'
Committee may convene, adjourn and otherwise regulate its meetings in
such manner as it considers appropriate. Subject to clause 77, the quorum
at any meeting of the Creditors' Committee shall be at least two-thirds
of the Committee Members, provided that if a quorum is not present within
30 minutes from the time appointed for a meeting, or if during a meeting
such a quorum ceases to be present, the meeting shall stand adjourned to
such time and place as may be determined by the majority of the Committee
Members present and the Committee Members present at any such meeting
reconvened following an adjournment shall constitute a quorum. Each
Committee Member shall have one vote and, except as otherwise provided in
the Scheme, matters arising at a meeting shall be decided by a majority
of votes cast at the meeting.
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73. The Creditors' Committee shall meet at least once every 12 months for the
purpose of receiving a report from the Supervisors on the progress of the
Scheme. The Creditors' Committee shall hold such further meetings as it
considers desirable for the purpose of performing its functions under the
Scheme. A meeting of the Creditors' Committee shall be called as soon as
reasonably practicable if so requested by at least two Committee Members
or if the Supervisors otherwise consider it appropriate. Except with the
consent of all Committee Members, no meeting of the Creditors' Committee
may be called on less than ten Business Days' notice and, except with the
consent of all Committee Members, no business may be transacted at any
such meeting other than that set out in the notice of that meeting.
74. The Supervisors shall convene a meeting of the Creditors' Committee as
soon as reasonably practicable after the end of the Waiting Period.
75. Each Committee Member (including any Nominated Representative or
Alternate) and the Supervisors (or their representatives) shall be
entitled to attend and receive notice of all meetings of the Creditors'
Committee. The Supervisors shall be entitled to attend and speak, but not
to vote, at all meetings of the Creditors' Committee. If so requested by
the Creditors' Committee, the Supervisors (or their representative(s))
shall absent themselves from such part of a meeting of the Creditors'
Committee as the Creditors' Committee may specify.
76. Proper minutes shall be kept of all proceedings of the Creditors'
Committee and such minutes shall at all reasonable times be open to
inspection by (subject to clause 81) any Committee Member. Copies of such
minutes shall be sent as soon as practicable after each meeting to the
Supervisors and each Committee Member.
77. A Committee Member (including any Nominated Representative or Alternate)
and the Supervisors may participate in a meeting of the Creditors'
Committee through the medium of conference telephone or similar form of
communication equipment if all persons participating in the meeting are
able to hear and speak to each other throughout the meeting. A person
participating in this way is deemed to be present in person at the
meeting and, in the case of a Committee Member (including any Nominated
Representative or Alternate), is counted in a quorum and entitled to
vote. All business transacted in this way by the Creditors' Committee is
deemed to be validly and effectively transacted at a meeting of the
Creditors' Committee although fewer than two-thirds of the Committee
Members are physically present at the same place. If, at any time during
a Committee Meeting any person participating in the meeting ceases to be
able to hear and speak to all other Committee Members, Nominated
Representatives or Alternates, whether participating in the Committee
Meetings through the medium of conference telephone or similar form of
communication equipment or in person, the meeting shall be adjourned and
reconvened when full communication between those Committee Members
attending the meeting is restored.
78. Other than in relation to such a resolution as is referred to in clause
82, a resolution in writing signed by all Committee Members for the time
being shall be valid and effective as if passed at a meeting of the
Creditors' Committee duly convened and held.
POWERS
79. (1) The Creditors' Committee shall have the powers specifically set out
in the Scheme.
(2) If the Supervisors determine that the costs of making any further
Distribution of Scheme Consideration would exceed the value of the
Scheme Consideration remaining to be distributed, the Creditors'
Committee may direct the Supervisors to procure the sale of such
Scheme Consideration and distribute the proceeds of that sale
provided that the costs of making such Distributions do not exceed
the proceeds of sale to be distributed.
80. Before each meeting of Scheme Creditors convened pursuant to clause 93
the Supervisors shall submit to the Creditors' Committee a report on the
operation of the Scheme during the period since the last such report was
prepared (or, in the case of the first such meeting, since the Effective
Date) and shall (or shall appoint a representative to) attend at any
meeting of the Creditors' Committee at which that report is considered
for the purpose of giving such explanations and information as the
Creditors' Committee may
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require. A copy of that report, incorporating such amendments (if any) as
may be agreed by the Supervisors and the Creditors' Committee, shall be
made available to Scheme Creditors in accordance with clauses 95 and 96.
81. The Creditors' Committee may from time to time resolve to seek
information from the Supervisors concerning the operation of the Scheme,
and may depute any one Committee Member to apply in writing to request
and receive from the Supervisors any or all such information. The
Supervisors shall promptly give to the Creditors' Committee all such
information reasonably requested concerning the operation of the Scheme
as the Creditors' Committee shall from time to time resolve to seek and
in respect of which a written request shall have been received by the
Supervisors. Each Committee Member shall be entitled at any time to raise
questions or to request a meeting with the Supervisors in connection with
the performance of his responsibilities as a Committee Member and,
subject to their duties under the Scheme the Supervisors shall use
reasonable endeavours to respond to such questions or to comply with any
such request for a meeting. Notwithstanding the preceding provisions of
this clause, the Supervisors shall not be obliged to disclose:
(1) any confidential information of the Company to a Committee Member
if the information relates, or the Supervisors reasonably believe
that the information relates, to any matter where such Committee
Member has an interest in conflict with the Company (other than a
general conflict arising as a result of the status of the Committee
Members (or their appointors) as Scheme Creditors); or
(2) any information which could cause the Company to breach insider
dealing rules, the Financial Services and Markets Act 2000 or the
Listing Rules of the UKLA.
82. The Creditors' Committee shall be entitled:
(1) by a resolution passed by at least three-fourths of all of the
Committee Members present and voting at any time to call upon a
Supervisor to resign, provided that each such Supervisor and each
Committee Member have been given at least 20 Business Days' notice
of the proposed resolution and of the reasons why the resolution is
to be put to the Creditors' Committee and have been given a
reasonable opportunity to make representations at the meeting at
which the resolution is proposed. If the Supervisor declines to
resign within 5 Business Days of a resolution of the Creditors'
Committee calling for his resignation, a resolution requiring his
removal shall be put before the next meeting of the Scheme
Creditors and, if passed, the Supervisor shall vacate the office of
Supervisor;
(2) upon removal of a Supervisor or if a Supervisor ceases to hold
office for any other reason, to appoint any person qualified to act
under clause 48 to be a Supervisor in their place (and a resolution
requiring ratification of such appointment shall be put before the
next meeting of Scheme Creditors pending which the appointee shall
have full power to act as a Supervisor) save that if a resolution
is passed at a meeting of Scheme Creditors requiring the removal of
any of the Supervisors pursuant to sub-clause 82(1) such
appointment may be made by the Scheme Creditors at such meeting.
83. The Creditors' Committee shall be entitled to engage legal and financial
advisers from time to time as reasonable in order to assist them in
carrying out their functions as the Creditors' Committee. At any
particular time, the Creditors' Committee may only engage one legal and
one financial adviser. Reasonable costs of such advisers shall be paid by
the Company.
84. The Creditors' Committee and the Company shall use reasonable endeavours
to ensure that there are two duly qualified Supervisors in office at all
times.
DUTIES
85. Each Committee Member, each Nominated Representative, and each Alternate
shall, in performing their functions as such in relation to the Scheme,
act bona fide in what he or she reasonably considers to be the interests
of the Scheme Creditors as a whole. For the avoidance of doubt (but
without prejudice to its
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specific powers as set out by the Scheme) it shall not be the duty of the
Creditors' Committee to monitor the carrying out of the Scheme or the
activities of the Supervisors.
86. It shall be the duty of each Committee Member who is in any way, whether
directly or indirectly, interested in a contract or arrangement or
proposed contract or arrangement with the Company (other than any which
arises as a result of the provisions of the Scheme) to declare (or
procure that its Nominated Representative or Alternate shall declare) the
nature of his or its interest at a meeting of the Creditors' Committee.
For this purpose a general notice given to the Creditors' Committee to
the effect that a Committee Member is an associate (within the meaning of
section 435 of the Insolvency Act 1986) of a specified company or firm
and is to be regarded as interested in any contract with that company or
firm shall be deemed a sufficient declaration of interest in relation to
any such contract or arrangement. Such a Committee Member shall not be
counted in the quorum, shall not be entitled to vote in relation to any
matter relating specifically to any such contract, shall retire from the
meeting for so long as the matter is discussed and voted upon and shall
not receive any information, nor be entitled to inspect any part of the
minutes of a meeting of the Creditors' Committee, relating thereto.
87. Each Nominated Representative or Alternate shall be entitled to report to
the Committee Member appointing him on the proceedings of the Creditors'
Committee and, so far as necessary for that purpose, to disclose
confidential information of the Company to those officers, employees and
professional advisers of that member or appointor who need to know it in
connection with (where a Nominated Representative or Alternate is
disclosing information) the performance of his or its responsibilities as
a Committee Member, provided that such information does not to his or its
knowledge (after due enquiry) relate to any matter where any such
appointor has an interest in conflict with the Company (other than a
general conflict arising as the result of the status of Committee Members
or the appointors of a Nominated Representative or Alternate as Scheme
Creditors). Each Committee Member shall, and shall procure that its
Nominated Representative or Alternate and its officers, employees and
professional advisers shall, preserve the confidentiality of such
information and shall use such information only for the purposes of
performing their responsibilities and functions (or their Nominated
Representative's or Alternate's responsibilities and functions) in
relation to the Creditors' Committee.
RESPONSIBILITY
88. No Scheme Creditor, Supervisor or the Company shall be entitled to
challenge the validity of any act done or omitted to be done in good
faith by any Committee Member (or Nominated Representative or Alternate)
in accordance with and to implement the provisions of the Scheme or the
exercise by any such Committee Member (or Nominated Representative or
Alternate) in good faith of any power conferred upon it or him by or for
the purposes of the Scheme if exercised in accordance with and to
implement the provisions of the Scheme and no such Committee Member (or
Nominated Representative or Alternate) shall be liable for any loss or
damage unless such loss or damage is attributable to its or his own
wilful default, fraud, dishonesty or wilful breach of duty.
VALIDATION OF ACTS
89. All acts done by the Creditors' Committee or any member of the Creditors'
Committee or any person acting as a Committee Member or as a Nominated
Representative or Alternate shall, notwithstanding that it is afterwards
discovered that there was some defect in the appointment of a Committee
Member or person acting as aforesaid, or that any of them were
disqualified, be valid as if every such person had been duly appointed
and qualified.
EXPENSES
90. Each member of the Creditors' Committee, each Nominated Representative
and each Alternate shall be entitled to be reimbursed by the Company upon
written demand to the Company and the Supervisors for their reasonable
out of pocket expenses incurred in attending meetings of the Creditors'
Committee, provided that such meetings are held in London or in such
other place as the Supervisors may from time to time agree. Where a
Committee Member, its Nominated Representative or any Alternate appointed
by
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the Committee Member or its Nominated Representative must travel to
attend a Creditors' Committee meeting in London (or such other place as
the Supervisors have agreed), that Committee Member or Nominated
Representative shall (and that Alternate shall procure that the Committee
Member or Nominated Representative shall) use all reasonable endeavours
to appoint as its Nominated Representative or Alternate (as the case may
be) for that meeting an individual who is based in locality of the venue
of that Creditors' Committee meeting. The Supervisors, acting reasonably,
may permit the reasonable out of pocket expenses incurred by a member of
the Creditors' Committee, Nominated Representative or Alternative to
include the costs of an air fare required to allow such Committee Member,
Nominated Representative or Alternate to attend the Creditors' Committee
meeting. Where the cost of an air fare is so permitted, it shall be the
cost of an economy class fare only.
NO CREDITORS' COMMITTEE
91. (1) If at any time there are less than three members of the Creditors'
Committee or such lesser number as permitted by sub-clause 62(2),
the Creditors' Committee may continue to exercise all its functions
under the Scheme (other than those provided for in clause 82 and
sub-clause 93(2)) for a period of 28 days, during which time the
remaining Committee Members shall endeavour to fill the vacancies
on the Creditors' Committee.
(2) If the Committee Members fail to fill vacancies on the Creditors'
Committee within such period of 28 days, the Supervisors shall use
reasonable endeavors to appoint, within a further 14 days, such
additional Scheme Creditors ("INTERIM APPOINTEES") to the
Creditors' Committee as are required to fill such vacancies.
Interim Appointees may appoint a Nominated Representative or
Alternate pursuant to sub-clauses 62(4) and 62(5).
(3) In appointing any Interim Appointees pursuant to sub-clause 91(2),
the Supervisors shall endeavour to ensure that the composition of
the Creditors' Committee including such Interim Appointees is such
as to represent a proper balance of the interests of the Scheme
Creditors as a whole.
(4) In the event of vacancies on the Creditors' Committee being filled,
whether by appointees of the Creditors' Committee pursuant to
sub-clause 91(1) or by Interim Appointees appointed by the
Supervisors pursuant to sub-clause 91(2), the full powers and
functions of the Creditors' Committee under the Scheme shall be
restored, provided that no Interim Appointee shall be entitled to
vote in relation to any resolution to appoint an additional
Committee Member.
(5) Any Interim Appointee shall be liable to be removed as a Committee
Member at any time without notice if the Creditors' Committee
(excluding any Interim Appointees) appoints a Scheme Creditor to
fill the vacancy which had been filled by such Interim Appointee.
(6) If at any time after the operation of this clause there are no
members of the Creditors' Committee, the Supervisors shall be
entitled to continue to carry out their functions and exercise the
necessary powers pursuant to the terms of the Scheme, save that the
Supervisors shall not be required to provide reports to the
Creditors' Committee or obtain the approval of the Creditors'
Committee for the purposes of clause 115.
92. If, following the procedure set out in clause 91, there are less than
three Committee Members (including Interim Appointees) or such lesser
number as permitted by sub-clause 62(2) then, for so long as that is the
case, the Creditors' Committee shall not exercise any functions or have
any powers under the Scheme and the following provisions shall apply:
(1) the Supervisors shall use reasonable endeavours to find additional
Committee Members to enable it to function;
(2) any Supervisor may resign under clause 49 provided that a
replacement Supervisor is appointed in his place at a meeting of the
Scheme Creditors pursuant to a resolution proposed by the
Supervisors;
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(3) any Supervisor may be removed provided that a replacement Supervisor
is appointed in his place at a meeting of the Scheme Creditors
pursuant to a resolution proposed by any ten Scheme Creditors who
have Scheme Claims of an aggregate value in excess of 15 per cent.
of all Scheme Claims or any 30 Scheme Creditors; and
(4) the requirements for obtaining the consent, approval of and for
consulting with or notifying the Creditors' Committee and for
submitting a report to the Creditors' Committee shall be suspended.
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PART IX
MEETINGS OF SCHEME CREDITORS
CONVENING OF MEETINGS
93. Meetings of Scheme Creditors are to be convened as follows:
(1) The Supervisors shall convene a meeting of the Scheme Creditors at
least once every 12 months unless the Supervisors and the
Creditors' Committee agree otherwise.
(2) The Creditors' Committee may at any time require the Company to
convene a meeting of the Scheme Creditors to consider a resolution:
(a) for the removal of a Supervisor pursuant to sub-clause 82(1);
(b) for the appointment of a Supervisor pursuant to sub-clause
82(2); or
(c) for such other purpose as it thinks fit.
(3) The Supervisors may at any time convene a meeting of the Scheme
Creditors for such purpose as they think fit.
(4) Any five or more Scheme Creditors who have Scheme Claims of an
aggregate value in excess of 15 per cent. of all Admitted and
Unadmitted Scheme Claims or any 20 Scheme Creditors may by notice
in writing signed by them or on their behalf and deposited at the
registered office of the Company require the Supervisors to convene
a meeting of Scheme Creditors for such purpose as they think fit.
The relevant Scheme Creditors must specify the purpose for which
the meeting is required and it shall be the duty of the Supervisors
forthwith to summon a meeting of Scheme Creditors for that purpose
and to give such notice of the meeting as is necessary to enable
such purpose to be carried out effectively in accordance with the
provisions of the Scheme.
94. The Company may appoint a representative or representatives to attend any
meeting of Scheme Creditors for the purposes of observing the meeting
only.
95. There shall be laid before each meeting of Scheme Creditors convened
pursuant to clause 93 the report referred to in clause 80 unless the
Supervisors and the Creditors' Committee agree that any such meeting
should not be held, in which case a copy of the report shall be sent by
the Supervisors to Scheme Creditors upon request from the Scheme
Creditors to the Supervisors.
96. At least 20 Business Days' notice shall be given of a meeting of Scheme
Creditors. Such notice shall be exclusive of the day on which it is
served or deemed to be served and of the day for which it is given, and
shall (in the case of a meeting convened pursuant to clause 93) specify
the place and time of the meeting and the place from which a copy of the
report referred to in clause 80 can be obtained by Scheme Creditors upon
request from the Scheme Creditors to the Supervisors prior to the
meeting.
97. Any costs incurred in the production and distribution of the report
referred to in clause 80 shall be borne by the Company.
98. Notice of a meeting of Scheme Creditors shall be given by the Supervisors
or the Creditors' Committee, as the case may be, convening the meeting:
(1) to each Admitted Scheme Creditor, and to any other Scheme Creditor
who has applied in writing to the Company to receive notice of such
meeting, by sending a notice by Post to such Scheme Creditor at his
last known address;
(2) to all other Scheme Creditors by placing advertisements containing
the requisite information in such newspaper or newspapers as the
Supervisors shall consider appropriate;
(3) where called by the Creditors' Committee, to the Supervisors;
(4) where called by the Supervisors, to each Committee Member; and
(5) the Company.
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99. The accidental omission to give notice of a meeting of Scheme Creditors
to, or the non-receipt of a notice of such a meeting by, any person
entitled to receive notice shall not invalidate the proceedings at that
meeting.
RESOLUTIONS
100. If a meeting of Scheme Creditors is convened at a time when a resolution
is to be put to the next meeting of Scheme Creditors pursuant to clause
65, the business of the meeting shall include the resolution concerned,
and in the case of a resolution to remove a Supervisor pursuant to
sub-clause 82(1) which, if passed, would result in there being less than
two Supervisors in office, shall also include a resolution that a named
person qualified to act under clause 48 and willing to be appointed, be
appointed as a Supervisor in their place.
101. No meeting shall be validly convened unless the notice of the meeting
sets out the text of each resolution or an adequate summary thereof,
which is to be proposed at the meeting (or if no resolution is to be
proposed at the meeting, the nature of the business to be discussed
thereat) and (in the case of a notice which is sent by Post) is
accompanied by a letter explaining (in relation to each such resolution)
why the meeting is being convened.
VOTING
102. A resolution put to a meeting of Scheme Creditors shall be effective only
if it is approved by a majority in number representing three-fourths in
value of the Scheme Claims of Scheme Creditors which are present and
voting either in person or by proxy at the meeting.
103. Every Scheme Creditor entitled to vote shall have the right to appoint
any person as his proxy to attend and vote instead of him. The instrument
appointing a proxy may be in any form which the Supervisors may approve
and must be lodged at the place specified in the notice of the meeting
for the lodging of proxies not less than 48 hours before the meeting (or
adjourned meeting) at which it is to be used.
104. No business shall be transacted at any meeting of Scheme Creditors unless
a quorum is present when the meeting proceeds to business. 20 Scheme
Creditors present in person or by proxy and having the right to vote at
the meeting shall be a quorum, unless the Supervisors and the Creditors'
Committee agree a smaller number. All resolutions put to the vote of any
meeting shall be decided on a poll (rather than on a show of hands).
105. One of the Supervisors shall preside (or shall nominate a representative
to preside) at each meeting of the Scheme Creditors (other than at a
meeting at which a resolution to remove a Supervisor is proposed, when
the chairman of the Company shall preside), but if the Supervisor (or his
nominated representative) or, if relevant, the chairman of the Company is
not present within 30 minutes after the time appointed for opening the
meeting or is unwilling to preside, the Scheme Creditors present in
person or by proxy shall choose some member of the Creditors' Committee
or, if no such member is present or if all such members present decline
to preside, one of themselves, to be chairman of the meeting. If no
person is willing to preside as chairman of the meeting, the meeting
shall be adjourned for seven days, and, if no person is willing to
preside as chairman of such meeting reconvened following an adjournment,
the meeting shall be dissolved.
VALUATION OF SCHEME CLAIMS FOR THE PURPOSES OF MEETINGS
106. For the purposes of valuing any Scheme Claim which a Scheme Creditor has
for either of the purposes referred to in sub-clause 93(4) and clause
102, the value of the Scheme Claim shall, in the case of a Scheme Claim
which has been Admitted, be the amount of the Admitted Scheme Claim so
established (or relevant part thereof) and, in the case of any other
Scheme Claim, be such amount as may, for the purposes of such meeting
only, be estimated as the value of such Scheme Claim (or relevant part
thereof) by the chairman of the meeting. The operation of clause 7 shall
not have the effect of extinguishing a Scheme Claim for the purposes of
this Part IX.
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107. In the event that a Scheme Creditor disputes the value which has been put
on its Scheme Claim, pursuant to clause 106 or otherwise, the dispute
shall be referred to the President at that time of the Institute of
Chartered Accountants in England and Wales (or, if one of the Supervisors
or any of their partners at such time occupies such office, the President
of the Law Society of England and Wales) or such other individual
qualified to act as an insolvency practitioner within the meaning of
section 390 of the Insolvency Act 1986 as such President may nominate.
Such nominee shall consult with such relevant experts as he thinks
appropriate and shall act as an expert not an arbitrator and his decision
(including as to who should bear the costs of such referral) shall be
final (but only as regards the convening of the meeting or the vote on
that occasion).
108. For the purposes of ascertaining whether or not the requisite percentage
for the convening of any meeting of Scheme Creditors or the requisite
majority at any meeting of Scheme Creditors has been obtained, the amount
of each Scheme Claim (or relevant part thereof) which is denominated in a
currency other than sterling shall be converted into sterling at the
Scheme Rate.
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PART X
TERMINATION
109. This Scheme shall be unaffected by any future liquidation of the Company
and shall in those circumstances continue according to its terms.
110. (1) As soon as reasonably practicable after the making of the Final
Distribution or the Supervisors' determination that any further
distribution of Scheme Consideration (or the distribution of the
proceeds of sale of such Scheme Consideration) would be uneconomic,
the Supervisors shall serve the Termination Notice on the Company,
the members of the Creditors' Committee and the Scheme Creditors.
For the avoidance of doubt, the Supervisors shall not direct the
Final Distribution (or determine that any further distribution of
Scheme Consideration or the proceeds of sale of such Scheme
Consideration would be uneconomic) until all Unadmitted Claims have
become Admitted or Conclusively Rejected.
(2) If the Supervisors, acting reasonably, determine that any further
distribution of Scheme Consideration (or the distribution of the
proceeds of sale of such Scheme Consideration) would be uneconomic,
the remaining Scheme Consideration shall in each case be sold and
the net proceeds of sale shall (on behalf of the Scheme Creditors
for whose absolute benefit that Scheme Consideration is held under
the Escrow and Distribution Agreement) be paid to the Company for
its own use and benefit absolutely.
(3) For the purposes of clause 110 a distribution shall be uneconomic
if the costs of making the distribution would exceed the value of
the Scheme Consideration (or proceeds of sale of such Scheme
Consideration) to be distributed.
111. With effect from the issue of the Termination Notice:
(1) the Scheme Creditors, the Creditors' Committee, the Company, the
Supervisors, the Eurobond Trustee, the Yankee Bond Trustee, the
Escrow Trustee, the Distribution Agent, the Registrars and
Bondholder Communications shall have no further rights and
obligations under this Scheme except any rights arising as a result
of sub-clause 7(2); and
(2) the Supervisors (and any former Supervisors) and the members of the
Creditors' Committee (and any former members) shall be discharged
from liability for their respective acts, omissions and conduct
pursuant to or under the Scheme other than liability arising:
(a) in the case of the Supervisors (and any former Supervisors),
as a result of their own negligence, default, breach of duty,
breach of trust, fraud or dishonesty (or as a result of the
negligence, default, breach of duty, breach of trust, fraud
or dishonesty of any Employee); and
(b) in the case of the members of the Creditors' Committee (and
any former members), from loss or damage attributable to its
or his own wilful default, fraud, dishonesty or wilful breach
of duty.
(3) Where a Termination Notice is served pursuant to sub-clause 115(3),
so as to bind Scheme Creditors and any person deriving title from
them the Supervisors shall direct the Escrow Trustee to transfer,
or procure the transfer of, to the Company (or as the Company shall
direct) all Scheme Consideration not previously the subject of a
Distribution this being done by the Escrow Trustee on behalf of the
Scheme Creditors absolutely entitled to such remaining Scheme
Consideration.
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PART XI
GENERAL SCHEME PROVISIONS
EFFECTIVE TIME AND NOTIFICATION
112. The Company shall give notification of the Scheme having become effective
by placing advertisements in The Times and the world-wide editions of the
Wall Street Journal, the Financial Times and the International Herald
Tribune as soon as reasonably practicable following the occurrence of the
Effective Time.
COSTS
113. There shall be paid in full by the Company all costs, charges, expenses and
disbursements reasonably incurred by the Company in connection with the
negotiation, preparation and implementation of the Scheme as and when they
arise, including the costs of holding the meeting of Scheme Creditors
convened pursuant to the order of the Court to consider the Scheme and the
costs of obtaining the sanction of the Court and the costs of placing the
notices required by the Scheme.
114. The Company shall pay the costs, charges, expenses and disbursements
reasonably incurred by Bondholder Communications, the Escrow Trustee, the
Distribution Agent, the Eurobond Trustee, the Yankee Bond Trustee, the
security trustee in respect of the New Notes, the Sponsors, the
Co-ordination Committee and the Informal Committee of Bondholders and the
costs of their respective legal and financial advisors in connection with
the negotiation, preparation and implementation of the Scheme and, in the
case of Bondholder Communications, also in connection with the negotiation,
preparation and implementation of the plc Scheme) including, for the
avoidance of doubt, the costs of legal and financial advisers to the
Creditors' Committee permitted in accordance with clause 83.
115. (1) For the avoidance of doubt, save as expressly provided in the
Scheme, any costs, charges, expenses, remuneration and disbursements
which are expressed to be payable by the Company in accordance with
the terms of the Scheme (including those provided for in Part VII,
VIII and IX and in this Part XI of the Scheme) shall not be paid out
of the Scheme Consideration.
(2) If at any time in the reasonable opinion of the Supervisors either:
(a) the Company is unable to pay in full any sum which is
expressed to be payable by the Company in accordance with the
provisions of this Scheme; or
(b) the Company refuses to pay any sum despite the reasonable
efforts of the Supervisors to require payment and it would be
materially prejudicial to wait until the Company can be forced
to pay it,
then (subject to the proviso below) the Supervisors may raise such
sum from the Scheme Consideration in any manner in which they think
fit and effect the relevant payment on behalf of the Company and in
such event:
(i) if the event takes place before the expiry of the Waiting
Period the Supervisors may take into account the effect of
having to raise such sum in such manner in deciding whether or
not to bring the Waiting Period to an end;
(ii) whenever the event takes place, the Company shall continue to
be liable to pay such sum and to reimburse the Escrow Trustee
for any such sums raised from Scheme Consideration by the
Supervisors pursuant to this clause 115; and
(iii) whenever the event takes place, the Creditors' Committee may
nominate one of their number to bring proceedings against the
Company in the name and on behalf of the Scheme Creditors to
oblige the Company to effect such reimbursement,
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PROVIDED THAT where, and to the extent that, the aggregate of all
such sums raised by the Supervisors and not subsequently reimbursed
by the Company would exceed L1,500,000, the Supervisors may only
raise in excess of that amount with the consent of the Creditors'
Committee, such consent not to be unreasonably withheld.
(3) If the Creditors' Committee, acting reasonably, withhold giving
consent to the Supervisors raising any sums in excess of L1,500,000
pursuant to this clause 115, the Supervisors shall serve a
Termination Notice on the Company, the members of the Creditors'
Committee and the Scheme Creditors. Clause 111 will thereafter
apply.
LISTING, CAPITAL REDUCTION AND US REGISTRATION
116. The Company shall, and, as appropriate, shall procure that the relevant
bodies corporate within the Marconi Group shall, create and perfect all
security referred to at Appendix 10 and execute all documents required to
achieve this as soon as practicable on or following the Effective Date.
117. The Company shall use all reasonable endeavours to:
(1) procure that Listing of the New Shares, the New Notes and the
Warrants takes place as soon as possible on or after the Effective
Date and is maintained; and
(2) to the extent that the Company wishes to utilise the same, procure
that all filings from time to time necessary for the renewed annual
listing of the New Notes programme on each 12 month anniversary of
the date on which the New Notes programme was first listed with the
relevant listing and trading authority are made with the relevant
listing and trading authority;
(3) effect the listing of the ADRs on NASDAQ as soon as practicable
after the Effective Date;
(4) reduce its share capital in the manner envisaged in Recital E.
118. The Company shall use its reasonable endeavours to cause a registration
statement on Form F-1 to be declared effective under the US Securities Act
of 1933 in respect of the Warrants and the ordinary shares of the Company
issuable on exercise of the Warrants as soon as practicable following the
Effective Date.
MODIFICATIONS OF THE SCHEME
119. The Company may, at any hearing to sanction the Scheme, consent on behalf
of all Scheme Creditors to any modification of the Scheme or any terms or
conditions which the Court may think fit to approve or impose.
MODIFICATIONS OF THE RIGHTS ATTACHING TO THE NEW NOTES AND THE COMPANY'S
ARTICLES OF ASSOCIATION
120. Nothing in the Scheme shall prevent the modification of the New Notes, the
articles of association of the Company or the Escrow and Distribution
Agreement in accordance with their respective terms.
FORCE MAJEURE
121. None of the Scheme Creditors, the Company, the Supervisors, the Escrow
Trustee, the Distribution Agent, the Registrar, Bondholder Communications
or the members of the Creditors' Committee shall be in breach of its
obligations under the Scheme as a result of any delay or non-performance of
its obligations under this Scheme arising from any Force Majeure.
COMMITTEE RELEASES
122. (1) The Co-ordination Committee, the Informal Committee of Bondholders,
their respective past and present members and financial and legal
advisers to the Co-ordination Committee and the Informal Committee
of Bondholders (the "RELEASED PARTIES") shall be released from any
Liability that they may have to any Scheme Creditor, the Company,
the Supervisors, the Escrow Trustee, the
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Distribution Agent, the Registrars, the Eurobond Trustee, the Yankee
Bond Trustee, Bondholder Communications and plc (the "RELEASING
PARTIES").
(2) The Releasing Parties shall waive each and every claim that they may
have in connection with this Scheme against the Released Parties.
NOTICE
123. Any notice or other written communication to be given under or in relation
to this Scheme other than pursuant to clause 112 shall be given in writing
and shall be deemed to have been duly given if it is delivered by hand or
sent by Post to:
(1) in the case of the Company, 338 Euston Road, 4th Floor, London NW1
3BT, England, marked for the attention of the Company Secretary;
(2) in the case of a Scheme Creditor, its last known address according
to the Company;
(3) in the case of the Supervisors, 8 Salisbury Square, London, EC4Y
8BB, England marked for the attention of Philip Wallace or Richard
Heis or such other address as notified to the Creditors' Committee;
(4) in the case of the Creditors' Committee, such addresses of the
Committee Members as notified to the Supervisors; and
(5) in the case of any other person, any address set forth for that
person in any agreement entered into in connection with the Scheme,
or by fax or by way of advertisement in The Times and the world-
wide editions of the Wall Street Journal and the Financial Times and
the International Herald Tribune.
124. Any notice or other written communication to be given under the Scheme
shall be deemed to have been served:
(1) if delivered by hand, on the first Business Day following delivery;
(2) if sent by Post, on the second Business Day after posting if the
recipient is in the country of dispatch, otherwise on the seventh
business day after posting;
(3) if by fax, on the Business Day sent; and
(4) if by advertisement, on the date of publication.
125. In proving service, it shall be sufficient proof, in the case of a notice
sent by Post, that the envelope was properly stamped, addressed and placed
in the post.
126. Save in the case of any Distribution Notice or any notice, written
communication or document required to be sent pursuant to clause 16 or
relating to any appeal against a decision on Scheme Claims pursuant to
clauses 17 and 18 or to any adjudication pursuant to Part VI, the
accidental omission to send any notice, written communication or other
document in accordance with clauses 123 to 125 or the non-receipt of any
such notice by any Scheme Creditor shall not affect the provisions of the
Scheme.
127. The Company shall not be responsible for any loss or delay in the
transmission of any notices, other documents or payments posted by or to
any Scheme Creditors which shall be posted at the risk of such Scheme
Creditors.
NEW CORP SPV DIRECTORS
128. If for any reason at any time there are no directors of Corp Spv (whether
because they resign or are removed or otherwise) then the following shall
apply:
(1) the Supervisors (in this respect and in this clause only acting as
agents of the Scheme Creditors) shall in writing direct the Company
(as legal owner of the shares of Corp Spv) to appoint, or
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procure the appointments of, new directors ("NEW SPV DIRECTORS") of
Corp Spv being those named in the Supervisors' written direction;
(2) the New Spv Directors shall (subject to sub-clause 128(3)) be drawn
from those persons who are members of the board or of the executive
committee of the Company at the relevant time;
(3) the appointment of a New Spv Director shall, for the avoidance of
doubt, be subject to the agreement of that person to serve as such a
director and if no such agreement is forthcoming from such person
referred to in sub-clause 128(2), the Supervisors shall direct the
Company in writing to appoint or procure the appointment of other
reasonably suitable persons who are willing to serve as New Spv
Directors;
(4) the Company shall act promptly on the written direction of the
Supervisors to take all steps necessary to appoint (and confirm the
appointment of) the New Spv Directors and register the appointments
in accordance with the provisions of the Act;
(5) the Supervisors' agency for the Scheme Creditors under this clause
is irrevocable and the Supervisors shall exercise their power to
direct the appointment of New Spv Directors in good faith but
entirely as a matter of their own discretion and without reference
to the Scheme Creditors; and
(6) the Supervisors shall have no liability to anyone (including the
Scheme Creditors and/or the Company and/or Corp Spv) in relation to
their powers and duties under this clause save where such liability
arises as a result of their own negligence, wilful default, breach
of duty, breach of trust, fraud, bad faith or dishonesty (or as a
result of the negligence, wilful default, breach of duty, breach of
trust, fraud, bad faith or dishonesty of any Employee).
GOVERNING LAW AND JURISDICTION
129. The Scheme shall be governed by, and construed in accordance with, the laws
of England and Wales and the Scheme Creditors hereby agree that the Court
shall have exclusive jurisdiction to hear and determine any suit, action or
proceeding and to settle any dispute which may arise out of the Explanatory
Statement or any provision of the Scheme, or out of any action taken or
omitted to be taken under the Scheme or in connection with the
administration of the Scheme, and for such purposes, the Scheme Creditors
irrevocably submit to the jurisdiction of the Court, provided, however,
that nothing in this clause 129 shall affect the validity of other
provisions determining governing law and jurisdiction as between the
Company and any of its Scheme Creditors, whether contained in any contract
or otherwise.
130. The terms of the Scheme and the obligations imposed on the Company and the
Supervisors hereunder shall take effect subject to any prohibition or
condition imposed by law.
Dated this 31st day of March 2003
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SCHEDULE 1
DETERMINATION OF CLAIMS AND PAYMENT OF DIVIDENDS
1. This Schedule applies without prejudice to Parts II, III and IV of the
Scheme. If there is any conflict between provisions in this Schedule and
provisions set out in the body of the Scheme, the provisions set out in
the body of the Scheme shall prevail.
2. For the purposes of determining whether a Scheme Claim should become an
Admitted Scheme Claim for the purposes of Distributions, the Insolvency
Rules 1986 (the "RULES") listed in this Schedule shall, save where the
contrary is stated, be applied in respect of that Scheme Claim and the
listed Rules be applied as if:
(1) the Company was being wound up voluntarily;
(2) the Claim Forms were proofs of debt;
(3) the Supervisors were liquidators of the Company; and
(4) the references to the date on which a company went into liquidation
are to the Record Date (save in the application of Rule 4.92, which
shall be amended as set out below).
3. The Rules to be applied are:
4.73(3) meaning of "prove"
4.76 particulars of a creditor's Scheme Claim
4.77(1) claims established by affidavit (save that a statutory
declaration may be called for)
4.77(2) affidavit in addition to proof
4.78(1) creditor's cost of proving
4.82 admission and rejection of proofs for dividend
4.86(1) estimates of quantum
4.89 discounts
4.90 mutual credit and set off (save that sub-rule (3) is to
be amended by deleting the words "that a meeting of
creditors has been summoned under section 98 or (as the
case may be) a petition for the winding-up of the
company was pending" and replacing them with the words
"that a meeting of creditors for the purpose of
approving the Scheme had been summoned")
4.91(1) debts in foreign currency (save that it shall be
amended by deleting the words "official exchange rate"
and replacing them with the words "Scheme Rate" and the
words "prevailing on the date when the company went
into liquidation" shall be deleted)
4.92 payments of a periodical nature (save that rule (1) is
to be amended by deleting the words "date when the
company went into liquidation" and replacing them with
the words "date on which the Scheme is approved at a
creditors' meeting held for that purpose")
4.94 debt payable at future time
11.8 proof altered after payment of dividend (save that an
increased proof may be admitted only if the Supervisors
in their sole discretion so decide)
11.11 assignment of right to dividend
11.13(1) and (2) debt payable at a future time
4. The English law liquidation rules preventing "double proof" shall apply.
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SCHEDULE 2
EXTRACT FROM THE PLC SCHEME
Capitalised terms in this Schedule shall have the meaning given to them in the
plc Scheme.
THE COMPANY AS A RECIPIENT OF SCHEME CONSIDERATION FROM THE CORP SCHEME
26. Property received or receivable by the Company from time to time other
than the Ancrane Cash Deduction by virtue of the Ancrane Direction shall
be available for distribution and shall be distributed by the Company to
Admitted Scheme Creditors subject to, at the time, in the manner and on
the basis set out in the Scheme. In the light of the position of Corp as
a creditor of the Company entitled to participate in distributions under
the Scheme and the position of Ancrane as a creditor of Corp and a
Bondholder entitled to participate in distributions under the Corp
Scheme, this may involve successive distributions between the Company and
Corp including distributions made in accordance with the Ancrane
Direction, either notional or actual, as provided for in this Scheme and
the Corp Scheme.
THE CORP/PLC MODEL
27. (1) Sub-clauses 27(2), (3) and (4) shall apply to the Initial
Distribution if all of the conditions set out at (a) - (c)
inclusive below are satisfied on the Effective Date:
(a) the Corp Scheme including provisions in the form or
substantially the form of that set out in Schedule 2 becomes
effective;
(b) the Supervisors admit Corp's Known Claim; and
(c) (i) Ancrane's Claim is admitted by the supervisors of the
Corp Scheme pursuant to the terms of the Corp Scheme;
(ii) either (or both) of the claims of the Eurobond Trustee
listed in schedule 3 to the Corp Scheme are admitted
by the supervisors of the Corp Scheme pursuant to the
terms of the Corp Scheme; or
(iii) either (or both) of the claims of the Yankee Bond
Trustee listed in schedule 3 to the Corp Scheme are
Admitted by the Supervisors of the Corp Scheme
pursuant to the terms of the Corp Scheme.
(2) To give effect to clause 26 and on the conditions in sub-clause
27(1) being satisfied on the Effective Date, the Supervisors shall
agree with the Corp Scheme supervisors a distribution model
simulating successive distributions in the Corp Scheme and the
Scheme of the amounts distributed to Corp in the Scheme and to the
Company (pursuant to the Ancrane Direction) (using the figures for
Corp's Known Claim, Ancrane's Claim as actually admitted by the
supervisors of the respective Schemes and Ancrane's holding of
Bonds) in order to produce a net additional amount of Scheme
Consideration available for Distribution to Admitted Scheme
Creditors with the Initial Distribution (such net additional amount
being the "CORP DISTRIBUTION SUPPLEMENT"). The Corp Distribution
Supplement shall be distributed to Eligible Recipients at the times
and in the manner set out in sub-clause 27(4).
(3) The Elements of the Corp Distribution Supplement shall for these
purposes be treated as being made up of two parts as follows:
(a) the "KNOWN CLAIMS SUPPLEMENT" which shall be the Corp
Distribution Supplement less the Reserve Claims Supplement;
and
(b) the "RESERVE CLAIMS SUPPLEMENT" which shall be the same
proportion of the Corp Distribution Supplement as the Basic
Reserve Claims Segment (which for this purpose shall be
calculated after taking into account any increase in the size
of the Basic Reserve Claims Segment resulting from Known
Claims being Conclusively Rejected which results in the
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II. THE CORP SCHEME
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Distribution Entitlement to which the Known Creditor who would
have been entitled had its Known Claim been Admitted being
deducted from the Basic Known Claims Segment and becoming part
of the Reserve Claims Segment pursuant to clause 29) is of the
Basic Scheme Consideration.
(4)(a) The Elements of the Known Claims Supplement shall be
distributed to Admitted Known Creditors at the same time as
the Initial Distribution.
(b) The Elements of the Reserve Claims Supplement shall be
distributed to Admitted Reserve Creditors at the same time as
the Initial Distribution.
(5)(a) For the purposes of Distributions under the Scheme:
(i) other than the Initial Distribution; and/or
(ii) as regards the Initial Distribution if the provisions of
sub-clauses 27(2)-27(4) inclusive do not come into force
because one or more of the conditions in sub-clause 27(1)
is not satisfied,
the Supervisors may agree similar or analogous arrangements to
those in sub-clauses 27(2) (a "MODEL") with the supervisors of
the Corp Scheme where, acting reasonably, the Supervisors
consider that to do so will be in the interests of Admitted
Scheme Creditors.
(b) If a model is agreed pursuant to sub-clause 27(5)(a) prior to
the expiry or termination of the Waiting Period, the equivalent
of the Corp Distribution Supplement thereby created shall be
apportioned in the same manner as provided for in sub-clause
27(3), otherwise no apportionment shall be made.
(c) Any supplement arising pursuant to sub-clause 27(5)(a)(ii) which
shall be apportioned in accordance with sub-clause 27(5)(b)
shall be distributed at the same times and in the same manner as
provided for in sub-clause 27(4).
(d) Any supplement arising pursuant to sub-clause 27(5)(a)(i) prior
to the expiry or termination of the Waiting Period shall become
available for distribution following apportionment under
sub-clause 27(5)(b) and the Supervisors shall promptly issue a
Distribution Notice to the Escrow Trustee (with a copy to the
Distribution Agent) in respect of the distribution of the
relevant amount of the supplement to which Admitted Known
Creditors are entitled pursuant to sub-clause 21(4)(a) and the
relevant amount of the Reserve Claim Supplement to which
Admitted Reserve Creditors are entitled pursuant to sub-clause
21(4)(b) to Eligible Recipients in respect of the previously
Admitted Claims provided that the costs of making that
Distribution would not exceed the value of the Scheme
Consideration to be distributed.
(e) Any supplement arising pursuant to sub-clause 27(5)(a)(i) after
the expiry or termination of the Waiting Period shall be
distributed in accordance with the provisions of clause 25.
CORP RECEIPTS
28. (1) As regards:
(a) the Initial Distribution if the provisions of sub-clauses
27(2)-27(4) above do not come into force for any reason; and
(b) any Distributions other than the Initial Distribution,
in each case, to the extent that relevant similar or analogous
arrangements as referred to in clause 27(5) are not agreed in
respect of the Company's entitlement to the Corp Receipts, Admitted
Scheme Creditors shall be entitled to all Corp Receipts from time
to time which shall be held on trust for Scheme Creditors under the
Scheme.
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II. THE CORP SCHEME
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(2) If Corp Receipts arise pursuant to sub-clause 28(1) prior to the
expiry or termination of the Waiting Period, those Corp Receipts
shall be apportioned in the same manner as provided for in sub-
clause 27(3), otherwise no apportionment shall be made.
(3) Any Corp Receipts arising pursuant to sub-clause 28(1)(a) which
shall be apportioned in accordance with sub-clause 28(2) shall be
distributed at the same times and in the same manner as provided for
in sub-clause 27(4).
(4) Any Corp Receipts arising pursuant to sub-clause 28(1)(b) prior to
the expiry or termination of the Waiting Period shall become
available for distribution following apportionment under sub-clause
28(2) and the Supervisors shall promptly issue a Distribution Notice
to the Escrow Trustee (with a copy to the Distribution Agent) in
respect of the distribution of the relevant amount of the supplement
to which Admitted Known Creditors are entitled pursuant to
sub-clause 21(4)(a) and the relevant amount of the Reserve Claim
Supplement to which Admitted Reserve Creditors are entitled pursuant
to sub-clause 21(4)(b) to Eligible Recipients in respect of the
previously Admitted Claims provided that the costs of making that
Distribution would not exceed the value of the Scheme Consideration
to be distributed.
(5) Any supplement arising pursuant to sub-clause 28(1)(b) after the
expiry or termination of the Waiting Period shall be distributed in
accordance with the provisions of clause 25.
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II. THE CORP SCHEME
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SCHEDULE 3
KNOWN CLAIMS
Following is a list of Scheme Creditors who may have a Scheme Claim.
The fact that a claim listed below has been provided for in this Schedule 3 at a
certain amount does not mean that the particular claim shall be Admitted at
that, or any other, amount.
The column headed "Claimed/Estimated Value (including accrued interest) in L's
as at the Record Date" provides an indicator of the amount for which each claim
may be admitted for the purposes of voting at the meeting of Scheme Creditors
convened at the direction of the Court (subject to the remarks set out in the
"Remarks" columns). Where necessary, to calculate the Claimed/Estimated Value of
a claim in sterling, the Exchange Rate on the Business Day falling immediately
prior to the Record Date has been applied if necessary.
AMOUNT TOTAL AMOUNT
CLAIMED/ESTIMATED CLAIMED/ESTIMATED
VALUE (INCLUDING VALUE (INCLUDING
ACCRUED INTEREST) ACCRUED INTEREST)
AS AT IN L'S AS AT
CREDITOR THE RECORD DATE THE RECORD DATE REMARKS
-------- ------------------- ----------------- --------------
SYNDICATED BANK DEBT
ABN Amro Bank NV US$47,226,487 L43,932,580
L13,920,832
Appaloosa Investment Ltd Partnership US$227,732,619 L221,266,466
L76,545,686
Australia and New Zealand Investment Bank US$91,430,478 L85,053,475
L26,950,731
Banca Antoniana Popolare Veneta London US$7,556,238 L7,029,213
L2,227,333
Banca Monte dei Paschi di Siena US$47,226,487 L43,932,580
L13,920,832
Banca Nazionale del Lavoro SpA US$78,868,233 L73,367,409
L23,247,790
Banca Popolare di Lodi US$15,584,741 L14,497,751
L4,593,875
Banco di Roma US$39,670,249 L36,903,367
L11,693,499
Bank of America N.A. London US$7,216,197 L4,585,789
Banque Nationale de Paris US$98,231,092 L91,379,767
L28,955,331
Barclays Bank plc US$59,001,013 L53,710,988
L16,216,699
Bear, Stearns International Limited US$13,990,285 L8,890,623
Cerebrus Partners LP New York US$175,792,979 L154,686,552
L42,972,661
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II. THE CORP SCHEME
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AMOUNT TOTAL AMOUNT
CLAIMED/ESTIMATED CLAIMED/ESTIMATED
VALUE (INCLUDING VALUE (INCLUDING
ACCRUED INTEREST) ACCRUED INTEREST)
AS AT IN L'S AS AT
CREDITOR THE RECORD DATE THE RECORD DATE REMARKS
-------- ------------------- ----------------- --------------
Chase Manhattan Bank US$150,750,101 L153,710,167
L57,910,662
Citibank NA US$51,719,250 L48,111,987
L15,245,153
Commerzbank AG US$91,430,478 L85,053,475
L26,950,731
Credit Industriel et Commercial Singapore US$3,054,259 L1,940,938
Credit Suisse First Boston US$94,452,973 L87,865,160
L27,841,664
Den Danske Bank A/S US$24,692,104 L43,533,139
L27,841,664
Deutsche Bank AG US$108,836,054 L97,351,233
L28,187,498
Dresdner Bank AG, London Branch US$5,090,432 L3,234,896
Franklin Mutual Advisers LLC US$102,204,181 L92,790,941
L27,841,664
Goldman Sachs Credit Partners LP US$48,244,828 L44,579,721
L13,920,832
HSBC Bank plc US$98,231,092 L91,379,767
L28,955,331
Instituto Bancario San Paolo di Torino
SpA US$47,226,487 L43,932,580
L13,920,832
JP Morgan Chase Delaware US$5,012,040 L3,185,079
L-Bank US$75,562,379 L70,292,128
L22,273,332
Lehman Brothers International (Europe) US$135,406 L86,048
Merrill Lynch Capital Services Inc US$23,924,411 L17,724,910
L2,521,293
Natexis Banques Populaires Paris US$5,037,492 L4,686,142
L1,484,889
National Westminster Bank US$94,452,973 L87,865,160
L27,841,664
Nordeutsche Landesbank Giro, London US$30,224,951 L28,116,851
L8,909,333
ORN European Distressed Debt Fund LP US$8,144,692 L5,175,834
Royal Bank of Scotland plc US$91,430,478 L85,053,475
L26,950,731
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AMOUNT TOTAL AMOUNT
CLAIMED/ESTIMATED CLAIMED/ESTIMATED
VALUE (INCLUDING VALUE (INCLUDING
ACCRUED INTEREST) ACCRUED INTEREST)
AS AT IN L'S AS AT
CREDITOR THE RECORD DATE THE RECORD DATE REMARKS
-------- ------------------- ----------------- --------------
Salomon Brothers Holding Company Inc US$116,826,226 L108,677,945
L34,436,572
Special Situations Investing Group Inc US$23,253,623 L14,777,340
UBS AG Stamford US$10,180,865 L6,469,792
UniCredito Italiano SpA US$47,226,487 L43,932,580
L13,920,832
BONDS
The Bank of New York US$931,687,500 L592,073,907 Note 1
US$934,218,750 L593,682,480 Note 2
The Law Debenture Trust Corporation
p.l.c. E1,028,469,178 L697,740,284 Note 3
E512,559,932 L347,734,011 Note 4
ALBANY PARTNERSHIP LTD LOAN NOTES
Commerzbank AG L20,165,408 L20,165,408
HSBC Bank plc L12,120,573 L12,120,573
INTEREST RATE SWAPS
Barclays Bank plc US$25,261,292 L16,053,185
JP Morgan Chase Bank US$57,209,145 L36,355,582
UBS AG US$31,808,043 L20,213,551
SPONSORSHIP
Department of Trade and Industry L5,000,000 L5,000,000
The Chancellors, Masters and Scholars at
the University of Cambridge L233,078 L233,078
LITIGATION
(ACTUAL OR POTENTIAL)
Oracle Corporation UK Limited L2,577,855 L2,577,855
Millionerrors Investment Club and the (US$450,000,000) (L285,968,480) Note 5 and
class of plaintiffs they represent Note 6
Mrs PM Lucas (L9,000) (L9,000) Note 6
Mr S Edwards (L50,000) (L50,000) Note 6
Mr TR Edeus (US$19,000,000) (L12,074,225) Note 7
Mr LA Gillus (US$19,000,000) (L12,074,225) Note 6
Mr A Ainslie L35,000 L35,000
Inchcape Fleet Solutions L190,005 L190,005
247
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AMOUNT TOTAL AMOUNT
CLAIMED/ESTIMATED CLAIMED/ESTIMATED
VALUE (INCLUDING VALUE (INCLUDING
ACCRUED INTEREST) ACCRUED INTEREST)
AS AT IN L'S AS AT
CREDITOR THE RECORD DATE THE RECORD DATE REMARKS
-------- ------------------- ----------------- --------------
NON KEY COMMERCIAL CONTRACTS
Arthur Andersen L71,033 L71,033
ASSOCIATED COMPANIES
British Sealed Beams Limited L306,672 L306,672 Note 8
Ancrane L377,943,161 L377,943,161 Note 8 and
Note 9
GEC 2001 LOAN NOTES
The Estate of Mr WF Lloyd L8,405 L8,405
Mr WJ Spedding L7,525 L7,525
LEASES
Lenhart Real Estate Inc -- Bruton Street,
London L28,059,200 L28,059,200
Consignia plc -- Marrable House,
Chelmsford L257,993 L257,993
Dentsply Ltd -- Plymouth L235,959 L235,959
The Equitable Life Assurance Co. --
Cambridge Science Park L4,093,270 L4,093,270
CTL Real Estate (Management) -- Glasgow L100,314 L100,314
The Murray Grant & Property Fund --
Stevenage L7,491,426 L7,491,426
Charles Bell Holdings Limited --
(Hendrick Street, Dublin) L282,397 L282,397
INLAND REVENUE
Inland Revenue L10,859,000 L10,859,000
-----------------
TOTAL KNOWN CLAIMS (CONVERTED INTO
STERLING) AT THE RECORD DATE L5,192,831,052
=================
NOTES TO SCHEDULE 3
Note 1: US$900,000,000 7 3/4 per cent. bonds due 2010, of which
Ancrane holds US$131,011,000 as at the Record Date.
Note 2: US$900,000,000 8 3/8 per cent. bonds due 2030, of which
Ancrane holds US$130,090,000 as at the Record Date.
Note 3: E1,000,000,000 6.375 per cent. bonds due 2010, of which
Ancrane holds E256,735,000 as at the Record Date.
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Note 4: E500,000,000 5.625 per cent. bonds due 2005, of which
Ancrane holds E67,868,000 as at the Record Date.
Note 5: This includes Millionerrors Investment Club, Mr GG Griwatz,
Mr PE Graham, Mr JP Iurlano, Mr J Krim, Mr M Winick, R.S.
Harman & Co., G Dirienzo and the class of plaintiffs they
represent.
Note 6: The amount allegedly due to such creditors cannot be
estimated, as there is a dispute between the Company and the
Scheme Creditor as to the whole of the amount claimed.
However, the amount claimed by the Scheme Creditor from the
Company is shown in brackets for information only. If a
Scheme Claim is disputed in its entirety, whether it is
liquidated or unliquidated, the chairman will not admit it
for the purpose of voting on the Scheme. The chairman's
decision will be final. The chairman will, however, advise
the relevant Scheme Creditor of his decision to reject such
Scheme Creditor's claim for voting purposes before the
Scheme Meeting if he considers it to be practicable and, in
any event, at or after the Scheme Meeting, and report his
decision to the Court.
Note 7: The amount due to this creditor cannot be estimated, as
there is a dispute between the Company and the Scheme
Creditor as to the whole of the amount claimed. The Scheme
Creditor claims certain unspecified amounts and has not
provided a total figure that it alleges the Company owes to
it. The amount estimated by the Company to be a prudent
figure for the claim based on other claims of a similar
nature is shown in brackets for information only. If a
Scheme Claim is disputed in its entirety, whether liquidated
or unliquidated, the chairman will not admit it for the
purpose of voting on the Scheme. The chairman's decision
will be final. The chairman will, however, advise the
relevant Scheme Creditor of his decision to reject such
Scheme Creditor's claim for voting purposes before the
Scheme Meeting if he considers it to be practicable and, in
any event, at or after the Scheme Meeting, and report his
decision to the Court.
Note 8: Such Scheme Creditors will not be voting at the Court
sanctioned creditors' meeting as they are connected
creditors, related to either Corp or plc. Even though these
creditors will not vote, they agree to support the
Restructuring by agreeing not to take any action to hinder
or oppose the Schemes and not to seek to challenge either
Scheme in the courts of any jurisdiction.
Note 9: Ancrane also holds US$131,011,000 of the US$900,000,000
7 3/4 per cent. bonds due 2010; US$130,090,000 of the
US$900,000,000 8 3/8 per cent. bonds due 2030; E256,735,000
of the E1,000,000,000 6.375 per cent. bonds due 2010; and
E67,868,000 of the E500,000,000 5.625 per cent. bonds due
2005 (see Notes 1 to 4 above). Accordingly, Ancrane's
aggregate claim against Corp (converted into sterling as at
the Record Date) is approximately L776 million.
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SCHEDULE 4
PERSONS ELIGIBLE TO RECEIVE SECURITIES PURSUANT TO APPLICABLE EXEMPTIONS UNDER
US STATE SECURITIES LAWS
The categories of Scheme Creditors and Bondholders located in the US states of
Arizona, California, Colorado, Connecticut, Illinois, Ohio and Vermont to or to
the order of whom New Creditor Shares and New Notes will be distributed in
accordance with sub-clause 30(7)(c)(v) are as follows:
Arizona -- any bank, savings institution, trust company, insurance company,
investment company as defined in the US Investment Company Act of 1940, a
pension or profit sharing trust or other financial institution or institutional
buyer, or a dealer, whether the person is acting for itself or in a fiduciary
capacity.
California -- any broker-dealer, bank, savings and loan association, trust
company, insurance company, investment company registered under the US
Investment Company Act of 1940, or pension or profit-sharing trust (other than a
pension or profit-sharing trust of the issuer, a self-employed individual
retirement plan or an individual retirement account); any organisation described
in Section 501(c)(3) of the US Internal Revenue Code, as amended to 29 December
1981, which has total assets (including endowment, annuity and life income
funds) of not less than US$5,000,000 according to its most recent audited
financial statement; any corporation which has a net worth on a consolidated
basis of not less than US$14,000,000; any wholly-owned subsidiary of any of the
foregoing institutional investors; or the US federal government, any agency or
instrumentality of the US federal government, any corporation wholly-owned by
the US federal government, any state, any city, city and county, or county, or
any agency or instrumentality of a state, city, city and county, or county, or
any state university or state college and any retirement system for the benefit
of employees of any of the foregoing.
Colorado -- any Bondholder, and, any broker-dealer, or a financial or
institutional investor, whether the purchaser is acting for itself or in some
fiduciary capacity. A financial or institutional investor includes: (a) a
depositary institution, which is defined as: (i) a person that is organised or
chartered, or is doing business or holds an authorisation certificate, under the
laws of a state or of the United States which authorises the person to receive
deposits, including deposits in savings, share, certificate, or other deposit
accounts, and that is supervised and examined for the protection of depositors
by an official or agency of a state or the United States, or (ii) a trust
company or other institution that is authorised by federal or state law to
exercise fiduciary powers of the type a national bank is permitted to exercise
under the authority of the comptroller of the currency and is supervised and
examined by an official or agency of a state or the United States; (b) an
insurance company; (c) a separate account of an insurance company; (d) an
investment company registered under the US Investment Company Act of 1940; (e) a
business development company as defined in the US Investment Company Act of
1940; (f) any private business development company as defined in the US
Investment Advisers Act of 1940; (g) an employee pension, profit-sharing or
benefit plan if the plan has total assets in excess of US$5,000,000 or its
investment decisions are made by a named fiduciary, as defined in the US federal
Employee Retirement Income Security Act of 1974, that is a broker-dealer
registered under the Exchange Act, an investment adviser registered or exempt
from registration under the US Investment Advisers Act of 1940, a depositary
institution, or an insurance company; (h) an entity, but not an individual, a
substantial part of whose business activities consist of investing, purchasing,
selling, or trading in securities of more than one issuer and not of its own
issue and that has total assets in excess of US$5,000,000 as of the end of its
latest fiscal year; (i) a small business investment company licensed by the US
federal small business administration under the US Small Business Investment Act
of 1958; and (j) any other institutional buyer.
Connecticut -- any Bondholder, and, any state bank and trust company, national
banking association, savings bank, savings and loan association, federal savings
and loan association, credit union, federal credit union, trust company,
insurance company, investment company as defined in the US Investment Company
Act of 1940, pension or profit-sharing trust, or other financial institution or
institutional buyer, or to a broker-dealer; whether the purchaser is acting for
itself or in some fiduciary capacity.
Illinois -- any Bondholder, and, any corporation, bank, savings bank, savings
institution, savings and loan association, trust company, insurance company,
building and loan association, or dealer; a pension fund or pension trust,
employees' profit-sharing trust, other financial institution (including any
manager of investment
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II. THE CORP SCHEME
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accounts on behalf of other than natural persons, who, with affiliates,
exercises sole investment discretion with respect to such accounts and provided
such accounts exceed ten in number and have a fair market value of not less than
US$10,000,000 at the end of the calendar month preceding the month during which
the securities are sold) or institutional investor (including investment
companies, universities and other organisations whose primary purpose is to
invest its own assets or those held in trust by it for others, trust accounts
and individual or group retirement accounts in which a bank, trust company,
insurance company or savings and loan institution acts in a fiduciary capacity,
and foundations and endowment funds exempt from taxation under the Code, a
principal business function of which is to invest funds to produce income in
order to carry out the purpose of the foundation or fund), or any government or
political subdivision or instrumentality thereof, whether the purchaser is
acting for itself or in some fiduciary capacity; any partnership or other
association engaged as a substantial part of its business or operations in
purchasing or holding securities; any trust in respect of which a bank or trust
company is trustee or co-trustee; any entity in which at least 90 per cent. of
the equity is owned by: (i) persons described in this paragraph, (ii) any
partnership or other association or trader buying or selling fractional
undivided interests in oil, gas or other mineral rights, in frequent operations,
for its or his own account rather than for the account of customers, to such
extent it or he may be said to be engaged in such activities as a trade or
business, (iii) any natural person who has, or is reasonably believed by the
person offering the securities to have (a) a net worth or joint net worth with
the person's spouse, at the time of the offer, sale or issuance of the
securities, in excess of US$1,000,000, or (b) an income or joint income with
that person's spouse of US$200,000 in each of the two most recent fiscal years
and reasonably expects such an income in the current year, (iv) any person, not
a natural person, 90 per cent. of the equity interest thereof is owned by
persons described in (a) or (b) immediately above, or (v) any person who is, or
is reasonably believed by the person offering the securities to be, a director,
executive officer, or general partner of the issuer of the securities or any
director, executive officer or general partner of a general partner of that
issuer (executive officer shall mean the president, any vice president in charge
of a principal business unit, division or function such as sales, administration
or finance, or any other officer or other person who performs a policy-making
function for the issuer); any employee benefit plan within the meaning of Title
I of the US Employee Retirement Income Security Act of 1974 ("ERISA") if (i) the
investment decision is made by a plan fiduciary as defined in Section 3(21) of
ERISA and such plan fiduciary is either a bank, insurance company, registered
investment adviser or an investment adviser registered under the US Investment
Advisers Act of 1940, or (ii) the plan has total assets in excess of
US$5,000,000, or (iii) in the case of a self-directed plan, investment decisions
are made solely by persons that are described herein; any plan established and
maintained by, and for the benefit of the employees of, any state or political
subdivision or agency or instrumentality thereof if such plan has total assets
in excess of US$5,000,000; or any organisation described in Section 501(c)(3) of
the Code, any Massachusetts or similar business trust, or any partnership, if
such organisation, trust, or partnership has total assets in excess of
US$5,000,000.
Ohio -- any dealer, corporation, bank (which includes a trust company, savings
and loan association, savings bank, or credit union that is incorporated or
organised under the laws of the United States or of any state thereof, or of
Canada or any province thereof, and subject to regulation or supervision by such
country, state or province), insurance company, pension fund or trust,
employees' profit-sharing fund or trust, any association engaged, as a
substantial part of its business or operations, in purchasing or holding
securities, any trust in respect of which a bank is trustee or co-trustee, or
any Qualified Institutional Buyer as defined in Rule 144A under the Securities
Act.
Vermont -- any Bondholder, and, any financial or institutional investor, which
means: (a) a depositary institution, which includes: (i) a person that is
organised, chartered, or holding an authorisation certificate under the laws of
a state or of the United States which authorises the person to receive deposits,
including a savings, share, certificate, or deposit account, and which is
supervised and examined for the protection of depositors by an official or
agency of a state or the United States, or (ii) a trust company or other
institution that is authorised by a federal or state law to exercise fiduciary
powers of the type a national bank is permitted to exercise under the authority
of the comptroller of the currency and is supervised and examined by an official
or agency of a state or the United States; (b) an insurance company; (c) a
separate account of an insurance company; (d) an investment company as defined
in the US Investment Company Act of 1940; (e) an employee pension,
profit-sharing or benefit plan if the plan has total assets in excess of
US$5,000,000 or its investment decisions are made by a named fiduciary, as
defined in the US Employee Retirement Income Security Act of 1974, that is
either a broker-
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II. THE CORP SCHEME
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dealer registered under the Exchange Act, an investment adviser registered or
exempt from registration under the Investment Advisers Act of 1940, a depositary
institution or an insurance company; (f) any other financial or institutional
buyer which qualifies as an accredited investor under the provisions of
Regulation D as promulgated by the SEC under the Securities Act, as such
provisions may be amended from time to time hereafter; (g) a broker-dealer; and
(h) such other institutional buyers as the commissioner may add by rule or
order; whether the purchaser is acting for itself or others in a fiduciary
capacity.
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III. THE PLC SCHEME
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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
NO. 1782 OF 2003
IN THE MATTER OF MARCONI PLC
AND
IN THE MATTER OF THE COMPANIES ACT 1985
------------------------------------------------------------
SCHEME OF ARRANGEMENT
(UNDER SECTION 425 OF THE COMPANIES ACT 1985)
------------------------------------------------------------
BETWEEN:
MARCONI PLC
AND
ITS SCHEME CREDITORS
(AS HEREINAFTER DEFINED)
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III. THE PLC SCHEME
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PART I
PRELIMINARY
RECITALS
DEFINITIONS
A In this Scheme, unless the context otherwise requires or unless otherwise
expressly provided for, the following expressions shall bear the following
meanings:
"1930 ACT" the Third Parties (Rights Against Insurers) Act 1930;
"ACCOUNT HOLDER" has the definition in Recital F(3);
"ACCOUNT HOLDER LETTER" a letter in the form, or substantially in the
form, set out as the annex to Appendix 28;
"ACT" the Companies Act 1985;
"ADMISSIBLE INTEREST" an amount in respect of any interest to which a
Scheme Creditor is entitled to be paid by the Company or which has accrued
but is not yet payable by the Company to a Scheme Creditor, whether by
reason of contract, judgment against the Company, decree or otherwise, in
respect of the period up to, and including, the Record Date;
"ADMITTED"
(1) when used of a Scheme Claim, the amount of any relevant claim which
has been admitted by the Supervisors pursuant to clause 9 so as to
qualify for Distributions and, in the case of an Insured Scheme
Claim, for any payment under clause 31; and
(2) when used of a Scheme Creditor, that Scheme Creditor in respect of
the amount of its Scheme Claim which has been admitted by the
Supervisors as described in (1);
"ADMITTED IN FULL" in connection with a Disputed Claim for the purposes of
determining the currency or currencies in which New Senior Notes will be
denominated means Admitted in the amount set out against that Disputed
Claim in the second column of Schedule 3 or in the second column of
Schedule 3 of the Corp Scheme as the case may be;
"ADR" an American depositary receipt evidencing an American depositary
share, each representing 10 New Shares, issued pursuant to the deposit
agreement dated on or around 31 March 2003 between Corp, the ADR
Depositary and the owners and beneficial holders of American depositary
receipts;
"ADR DEPOSITARY" Bank of New York, as depositary under the deposit
agreement relating to the ADRs;
"AFFILIATE" in relation to the Company, a body corporate in which it has a
direct or indirect interest as a shareholder of at least 25 per cent of
the issued ordinary share capital;
"ALLOWED PROCEEDING"
(1) any Ascertainment Proceeding in any jurisdiction commenced or
continued by a person claiming to be a creditor of the Company and
whether against the Company alone or against the Company and others
which is commenced or continued (so far as the Company is concerned)
for the sole purpose of ascertaining whether such person has (and,
if so, the quantum of) a Scheme Claim including for the avoidance of
doubt any adjudication pursuant to sub-clause 17(1) and Part V; and
(2) any proceeding by a Scheme Creditor to enforce its rights under the
Scheme where the Company or the Supervisors fail to perform their
respective obligations under the Scheme;
"ANCRANE" Ancrane, an unlimited liability company incorporated in England
and Wales with registered number 4308188, which is a subsidiary of the
Company;
"ANCRANE CASH DEDUCTION" has the meaning given it to it in clause 21(1);
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III. THE PLC SCHEME
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"ANCRANE DIRECTION"
(1) the irrevocable direction given by Ancrane to Corp directing Corp to
deliver to the Company any consideration to which Ancrane is
entitled pursuant to the Corp Scheme by virtue of any claim form
filed by it in the Corp Scheme in respect of the claim listed
against its name in Schedule 3 to the Corp Scheme (which, for the
avoidance of doubt, does not include any claim or entitlement in
respect of Bonds of which Ancrane is the Bondholder); together with
(2) the irrevocable authorisation and direction given by Ancrane to each
of the Eurobond Trustee, the Yankee Bond Trustee, the Escrow
Trustee, the supervisors of the Corp Scheme and the Supervisors to
direct the Distribution Agent to pay to the Company all Scheme
Consideration to which Ancrane is entitled by virtue of its holding
to Bonds or distributions received pursuant to the Corp Scheme;
"ANCRANE'S CLAIM" Ancrane's claim against Corp listed in schedule 3 to the
Corp Scheme;
"ASCERTAINMENT PROCEEDING" any action or other legal proceeding including
any judicial review, arbitration, alternative dispute resolution or
adjudication;
"BANK OF NEW YORK" The Bank of New York, a New York banking corporation
having an office at 101 Barclay Street, New York, New York, 10286, U.S.A.;
"BANKS" the banks, financial and other institutions which provide
facilities to Corp as at the Record Date;
"BASIC KNOWN CLAIMS SEGMENT" has the meaning given to it in sub-clause
21(2)(a);
"BASIC RESERVE CLAIMS SEGMENT" has the meaning given to it in sub-clause
21(2)(b);
"BASIC SCHEME CONSIDERATION" has the meaning given to it in clause 21(1);
"BONDHOLDER COMMUNICATIONS" Bondholder Communications Group, a New York
corporation having an office at 30 Broad Street, 46th Floor, New York, NY
10004 U.S.A.;
"BONDHOLDER" a person with the ultimate economic interest in any of the
Bonds;
"BOND ISSUES" the Euro Issues and the Yankee Issues;
"BONDS" all or any of the Eurobonds and the Yankee Bonds;
"BOOK-ENTRY DEPOSITARY" Bank of New York in its capacity as book-entry
depositary in relation to the Yankee Bonds (or, from time to time, any
successor to Bank of New York as such book entry depositary);
"BUSINESS DAY" any day on which banks are open for general business in
both London and New York;
"CHANGE OF LAW" a change of law or regulation since 27 March 2003 in any
jurisdiction, such that distribution of securities pursuant to the Scheme
to a person in such jurisdiction would be prohibited (if previously
permitted) or permitted (if previously prohibited) pursuant to sub-clause
30(7);
"CLAIM FORM" each or any of the claim forms to be completed by or on
behalf of a Scheme Creditor (or its duly authorised agent) detailing its
Scheme Claim substantially in the form which is set out in Appendix 30;
"CLEARSTREAM, LUXEMBOURG" Clearstream Banking, societe anonyme;
"COMPANY" Marconi plc, a company incorporated in England and Wales with
registered number 3846429;
"COMPANY INSURANCE POLICY" any contract of liability insurance insuring
the Company in respect of a liability which is a Scheme Claim and which as
at the Record Date is valid and enforceable;
"CONCLUSIVELY REJECTED" when used of a Scheme Claim or part thereof means
that following a notice of rejection given pursuant to clause 16 either:
255
III. THE PLC SCHEME
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(1) the decision of the Supervisors in relation to that Scheme Claim (or
part thereof) has been upheld (in whole or in part) by a
determination in an Allowed Proceeding pursuant to clause 18 or by
adjudication pursuant to Part V; or
(2) the Company has been released from that Scheme Claim (or part
thereof) pursuant to clause 20;
"CONSOB" The Commissione Nazionale per le Societa e la Borsa, the public
authority responsible for regulating the Italian securities market;
"CO-ORDINATION COMMITTEE" the co-ordination committee of Banks which has
acted in connection with the restructuring proposals, the present members
being Barclays Bank PLC, HSBC Bank plc, London Branch, JPMorgan Chase
Bank, The Royal Bank of Scotland plc and Commerzbank Aktiengesellschaft,
London Branch and of which Intesa BCI S.p.A. was a member from 22 October
2001 to 5 March 2003;
"CORP" Marconi Corporation plc, a company incorporated in England and
Wales under registered number 67307;
"CORP DISTRIBUTION SUPPLEMENT" (if any) the net additional cash and/or New
Rights receivable by the Company pursuant to the Ancrane Direction through
the operation of the Corp/plc Model (or any similar or analogous
arrangements agreed by the Supervisors with the supervisors of the Corp
Scheme pursuant to sub-clause 27(5)) for distribution to Eligible
Recipients with the Initial Distribution in accordance with clauses 26 and
27;
"CORP RECEIPTS" distributions actually received by the Company from Corp
pursuant to the Ancrane Direction (but not, for the avoidance of doubt,
any Corp Distribution Supplement);
"CORP/PLC MODEL" the distribution model described in sub-clause 27(2);
"CORP SCHEME" the scheme of arrangement in respect of Corp under section
425 of the Act sent to certain creditors of Corp with the Explanatory
Statement with or subject to any modification, addition or condition
approved or imposed by the Court;
"CORP SPV" Regent Escrow Limited, a limited liability special purpose
company incorporated specifically to act as escrow trustee pursuant to the
Scheme and the Corp Scheme;
"CORP'S KNOWN CLAIM" the claim of Corp against the Company as detailed in
Schedule 3;
"COURT" the High Court of Justice of England and Wales;
"COURT HEARING" the hearing of the Company's application to the Court
requesting the Court's sanction of the Scheme;
"CREDITORS' COMMITTEE" the committee of Scheme Creditors established and
operated pursuant to and in accordance with Parts VII and VIII;
"DEFINITIVE HOLDER" the registered holder of a Yankee Bond in definitive
form and the bearer (whether pursuant to an attornment or otherwise) of a
Eurobond in individual global form other than a Eurobond in individual
global form in respect of which no Account Holder Letter has been
delivered pursuant to the arrangements described in Recital F(4);
"DEPOSITARIES" the holders for the time being of the global bonds
described in Recital F(5) in respect of which no Account Holder Letter has
been delivered;
"DESIGNATED RECIPIENT" a person specified in the valid Account Holder
Letter (or, in the case of Ancrane, in the Escrow and Distribution
Agreement) relating to a particular principal amount of Bonds as being the
recipient of any part of the First Initial Distribution and of any further
Distribution in respect of those Bonds and includes, in the case of any
cash distributed as part of any Distribution made in respect of the
Eurobonds, each person to whom such cash is distributed through Euroclear
or Clearstream, Luxembourg;
"DIRECTORS" the directors of the Company from time to time;
256
III. THE PLC SCHEME
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"DISPUTED CLAIMS" those Known Claims in Schedule 3 to which note 6 to that
Schedule applies;
"DISTRIBUTION" a distribution of Elements of the Scheme Consideration to
Eligible Recipients in accordance with the Scheme;
"DISTRIBUTION AGENT" Bank of New York as distribution agent pursuant to
the Escrow and Distribution Agreement and any successor from time to time;
"DISTRIBUTION ENTITLEMENT" the entitlement under the Scheme of an Admitted
Scheme Creditor to a Distribution;
"DISTRIBUTION NOTICE" an irrevocable notice served by the Supervisors on
the Escrow Trustee (with a copy to the Distribution Agent) instructing the
Escrow Trustee to direct the Distribution Agent to make a Distribution;
"DTC" The Depository Trust Company of New York;
"EFFECTIVE DATE" the date on which an office copy of the order of the
Court sanctioning the Scheme shall have been delivered to the Registrar of
Companies for registration;
"EFFECTIVE TIME" the time at which the office copy of the order of the
Court sanctioning the Scheme is delivered to the Registrar of Companies
for registration;
"ELEMENT" when used of any of the Basic Scheme Consideration, the Corp
Distribution Supplement and any Corp Receipts, each of:
(1) the New Senior Notes;
(2) the New Junior Notes;
(3) the New Shares; and
(4) cash;
"ELIGIBLE RECIPIENT"
(1) in relation to an Admitted Scheme Claim other than Scheme Claims in
respect of Bonds, the Scheme Creditor; and
(2) in relation to an Admitted Scheme Claim in respect of Bonds, the
relevant Designated Recipient;
"EMPLOYEE" any partner in the same firm as the Supervisors, or any person
employed, whether under a contract of service or a contract for services,
by that firm or by any company owned by that firm, who is employed by the
Supervisors in accordance with Part VI in connection with the conduct of
the Supervisors' functions and powers under the Scheme;
"ESCROW AND DISTRIBUTION AGREEMENT" the agreement entered into on 27 March
2003 between, inter alios, the Company, the Supervisors, the Escrow
Trustee and the Distribution Agent in the form set out in Appendix 7, a
condition precedent to the effectiveness of which (in so far as it relates
to the Scheme) is the occurrence of the Effective Time;
"ESCROW TRUSTEE" Corp Spv, appointed as escrow trustee under the terms of
the Escrow and Distribution Agreement and any successor from time to time;
"ESOP BANKS" Barclays Bank PLC, Salomon Brothers International Limited and
UBS AG;
"ESOP DERIVATIVE TRANSACTIONS" equity swaps detailed in Appendix 11 under
ISDA master swap agreements entered into by Bedell Cristin Trustees
Limited and the ESOP Banks;
"ESOP ESCROW AGREEMENT" the escrow agreement between the Company, Corp,
HSBC Bank plc and Barclays Bank PLC dated 13 December 2002;
"ESOP SETTLEMENT AGREEMENT" the ESOP settlement agreement dated 26 March
2003 between Corp, the Company, HSBC Bank plc, the ESOP Banks and Bedell
Cristin Trustees Limited;
257
III. THE PLC SCHEME
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"EURO" or "E" the single currency of those member states of the European
Communities that have adopted (or adopt) the euro as their lawful currency
under the legislation for the European Union for European Monetary Union;
"EUROBONDS" all or any of the bonds comprising the Euro Issues;
"EUROBOND TRUSTEE" The Law Debenture Trust Corporation p.l.c., in its
capacity as trustee under the Trust Deeds;
"EUROCLEAR" Euroclear Bank S.A./N.V., as operator of the Euroclear system;
"EURO ISSUES" E500,000,000 5.625 per cent. bonds due 2005 and
E1,000,000,000 6.375 per cent. bonds due 2010, both issued by Corp and
both guaranteed by the Company;
"EXAMINATION PERIOD" has the meaning given to it in sub-clause 24(2);
"EXCHANGE RATE" means the mid-point rate of exchange on the relevant
Business Day for the conversion of one currency to another currency as
published in the Financial Times, (or, if the Financial Times is not
published, in the International Herald Tribune or another internationally
recognised newspaper) on the following Business Day;
"EXCLUDED CLAIM" any claim or right which a person is or may in any
circumstances become entitled to bring or enforce or hold against the
Company in respect of any Liability of the Company in each and every case
as at the Record Date or to which the Company may become subject after
that date by reason of any Liability of the Company incurred before that
date in respect of any of the following:
(1) the Novated Contracts;
(2) plc's Liabilities in respect of any promise or arrangement to
provide pensions, allowances, lump sums or other like benefits on
retirement, death, termination of employment (whether voluntary or
not), or during periods of sickness or disablement, which are for
the benefit of any officer or former officer or employee or former
employee of the Marconi Group or for the benefit of persons
dependent on any such persons, including any guarantees and
indemnities given by the Company to trustees or administrators of
arrangements providing such benefits but only to the extent that
such promise or arrangement represents a Preferential Claim or is
protected by a lien or under sections 91 and/or 92 of the Pensions
Act 1995 and/or is a Liability under section 75 of the Pensions Act
1995, including those set out in part III of Appendix 9;
(3) Preferential Claims;
(4) the Company's Liabilities in respect of Unclaimed Dividends;
(5) costs, fees and expenses of:
(a) all advisers to the Company;
(b) the Prospective Supervisors and their advisers;
(c) the Escrow Trustee and its advisers;
(d) the Distribution Agent and its advisers;
(e) the Eurobond Trustee and its advisers;
(f) the Yankee Bond Trustee and its advisers;
(g) the Co-ordination Committee and its advisers;
(h) the Informal Committee of Bondholders and its advisers;
(i) Bondholder Communications;
(j) the Sponsors and their advisers;
(k) the ESOP Banks and their advisers;
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III. THE PLC SCHEME
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(l) the trustee of the New Senior Notes and its advisers;
(m) the trustee of the New Junior Notes and its advisers; and
(n) the security trustee in respect of the New Notes,
(and any Liability under any engagement letter or similar
arrangement entered into by the Company with such parties) incurred
in connection with the consideration, negotiation and implementation
of the restructuring of the Company and plc in each case as set out
in part III of Appendix 9;
(6) Liabilities of the Company to parties which provide the plc
Services;
(7) fee and service arrangements of directors (who were directors of the
Company as at the Record Date);
(8) Liabilities of the Company to a creditor where all such Liabilities
in aggregate to that creditor do not exceed L5,000 (which, for the
avoidance of doubt, do not include any Liabilities in respect of
Bonds); and
(9) Liabilities of the Company under:
(a) the restructuring undertaking agreements with each ESOP Bank,
the ESOP Escrow Agreement, Mobile Escrow Agreement,
Subsequently Sold Opcos Escrow Agreements, the ESOP Settlement
Agreement and the Company's guarantee of the ESOP Derivative
Transactions; and
(b) the documentation which has been entered into in connection
with the Restructuring prior to the Record Date as set out in
Part III of Appendix 9;
"EXPENSES FUND" the sum of money comprising the aggregate of:
(1) the Ancrane Cash Deduction;
(2) sums received after the Record Date from EA Continental Limited;
(3) any sums drawn under the LC Facility; and
(4) any cash owned by plc immediately prior to the Effective Time,
augmented from time to time pursuant to clause 117(2);
"EXPLANATORY STATEMENT" the explanatory statement circulated with this
Scheme pursuant to Section 426 of the Act;
"FINAL DISTRIBUTION" the Distribution of all remaining Scheme
Consideration made at the direction of the Supervisors which the
Supervisors state in writing to the Company and the Creditors' Committee
will be the final Distribution of Scheme Consideration;
"FINAL DISTRIBUTION DATE" the date of the Final Distribution;
"FIRST CLAIM DATE" 17 April 2003;
"FIRST INITIAL DISTRIBUTION" the Initial Distribution to Eligible
Recipients on the basis set out in clause 23;
"FIRST INITIAL DISTRIBUTION NOTICE" the Distribution Notice in respect of
the First Initial Distribution compiled by the Prospective Supervisors and
presented at the Court Hearing detailing those Scheme Claims which the
Prospective Supervisors are satisfied should properly be Admitted on the
Effective Date;
"FORCE MAJEURE" any act of God, government act, war, fire, flood,
explosion, civil commotion or act of terrorism;
"FURTHER SCHEME CONSIDERATION" any of the Expenses Fund (other than the
Unclaimed Dividends Fund) and any and all of the Property of the Company
(other than the shares in the capital of Ancrane and
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III. THE PLC SCHEME
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the right to the benefit of any contract of insurance payable to Scheme
Creditors in accordance with clause 31) which the Supervisors determine is
not required to settle or pay Scheme Expenses or Liabilities of the
Company in respect of Excluded Claims (other than the Unclaimed
Dividends);
"GOES INTO LIQUIDATION" has the meaning given in section 247(2) of the
Insolvency Act 1986 and "GO" or "GOING" into liquidation shall be
construed accordingly;
"INDENTURE" the indenture dated 19 September 2000 between Corp, the
Company and the Yankee Bond Trustee and relating to the Yankee Bonds;
"INFORMAL COMMITTEE OF BONDHOLDERS" the informal ad hoc committee of
certain parties with interests in Bonds which has participated in the
negotiation of the restructuring of the Company as detailed in Appendix
22;
"INITIAL DISTRIBUTION" an initial distribution to Eligible Recipients of
the Elements of Scheme Consideration on the bases set out in clause 23;
"INSURANCE COMPENSATION SCHEME" any guarantee or compensation scheme
established to protect policyholders who may have been prejudiced in
consequence of the inability of authorised insurance companies carrying on
business in the UK or elsewhere to meet their liabilities under policies
issued by them;
"INSURANCE RECOVERY RIGHTS" in relation to an Insured Scheme Claim, the
rights of the Company against an Insurer or under an Insurance
Compensation Scheme which would be transferred to the relevant Scheme
Creditor in respect of that Insured Scheme Claim if the Company had been
wound up by the Court;
"INSURED SCHEME CLAIM" any Scheme Claim which may be covered in whole or
in part under a Company Insurance Policy in respect of Liabilities being
Liabilities in respect of which the Scheme Creditor would have rights
under the 1930 Act in the event that any of the events set out in section
1(1)(b) of the 1930 Act occurred with respect to the Company;
"INSURER" an insurance company or underwriter which has entered into a
Company Insurance Policy;
"KNOWN CLAIMS" the Scheme Claims (including Admissible Interest thereon)
listed in Schedule 3;
"KNOWN CLAIMS SEGMENT" has the meaning given to it in sub-clause 21(3)(a);
"KNOWN CLAIMS SUPPLEMENT" has the meaning given to it in sub-clause
27(3)(a);
"KNOWN CREDITOR" a Scheme Creditor in respect of its Known Claim;
"KPMG" KPMG LLP, a UK limited liability partnership;
"LC COUNTER-INDEMNITY" the counter-indemnity given by Corp to HSBC Bank
plc in respect of HSBC Bank plc's liabilities under the LC Facility;
"LC FACILITY" the letter of credit facility provided by HSBC Bank plc to
the Company and/or the Supervisors to fund the payment of Excluded Claims
and Scheme Expenses under the Scheme;
"LIABILITY" or "LIABILITIES" any liability or obligation of a person
whether it is present, future, prospective or contingent, whether or not
it is fixed or undetermined, whether or not it involves the payment of
money or performance of an act or obligation and whether it arises at
common law, in equity or by statute, in England and Wales or in any other
jurisdiction, or in any other manner whatsoever, but such expression does
not include any liability which is barred by statute or otherwise
unenforceable under English law or arises under a contract which is void
or, being voidable, has been duly avoided;
"LIQUIDATION DISTRIBUTION PRINCIPLES" English law relating to dividends
paid to creditors in a liquidation under English law;
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III. THE PLC SCHEME
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"LISTING" admission to the Official List maintained by the UKLA for the
purposes of part VI of the Financial Services and Markets Act 2000 and to
trading on the London Stock Exchange's market for listed securities and
"LISTED" shall have a corresponding meaning;
"MARCONI GROUP" the Company and its Affiliates;
"MOBILE ESCROW AGREEMENT" the escrow agreement between Corp, the Company,
Marconi Bruton Street Limited, HSBC Bank plc, the ESOP Banks, Bedell
Cristin Trustees Limited and Slaughter and May dated 2 August 2002;
"NASDAQ" the national market as operated by Nasdaq Stock Market, Inc.;
"NEW JUNIOR NOTES" the junior notes to be issued by Corp on or
substantially on the terms and conditions set out in Appendix 8 comprising
part of the scheme consideration available for distribution to certain
creditors of Corp pursuant to the terms of the Corp Scheme;
"NEW NOTES" the New Senior Notes and the New Junior Notes;
"NEW RIGHTS" the New Notes and the New Shares;
"NEW SENIOR NOTES" the senior notes to be issued by Corp on or
substantially on the terms and conditions in Appendix 8 comprising part of
the scheme consideration available for distribution to certain creditors
of Corp pursuant to the terms of the Corp Scheme;
"NEW SHARES" the 995,000,000 new ordinary shares of 5 pence each to be
issued by Corp comprising part of the scheme consideration available for
distribution to certain creditors of Corp pursuant to the terms of the
Corp Scheme or, except as the context otherwise requires, the equivalent
amount of such new ordinary shares in the form of ADRs;
"NOTIONAL RESERVE CLAIM" means a notional claim against the Company of
L250,000,000;
"NOVATED CONTRACTS" the commercial contracts listed in part III of
Appendix 9 which shall be novated to Corp on or before the Effective Date;
"ONGOING PLC COSTS" has the meaning given to it in clause 116;
"PLC SERVICES" the services provided by plc's auditors, plc's insurance
brokers, registrars and advisers in respect of regulatory matters in
connection with the implementation of the plc Scheme;
"POST" delivery by pre-paid first class post or air mail;
"PREFERENTIAL CLAIM" any claim against the Company which would have been
preferential under section 386 of the Insolvency Act 1986 if the Company
were to have gone into liquidation on the Effective Date and on the basis
that the Effective Date is the "relevant date" for the purposes of section
387 of the Insolvency Act 1986;
"PROCEEDING" any process, action, legal or other proceeding including any
arbitration, alternative dispute resolution, judicial review,
adjudication, demand, execution, seizure, lien or enforcement of judgment;
"PROHIBITED PROCEEDING" any Proceeding against the Company or its Property
in any jurisdiction whatsoever other than an Allowed Proceeding;
"PROPERTY" all forms of property tangible and intangible, including money,
goods, things in action, land and every description of property wherever
situated and also the benefit of obligations and every description of
interest, whether present or future, vested or contingent or otherwise
arising out of, or incidental to, property;
"PROSPECTIVE SUPERVISORS" means Philip Wallace and Richard Heis being the
persons that it is anticipated shall be appointed as Supervisors of the
Scheme;
"RECEIVED ANCRANE CASH" cash received by the Company as part of the
Received Ancrane Consideration;
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III. THE PLC SCHEME
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"RECEIVED ANCRANE CONSIDERATION" the Property received by the Company
pursuant to the Ancrane Direction;
"RECORD DATE" 5.00 p.m. (London time) on 27 March 2003;
"REGISTRAR OF COMPANIES" the registrar or other officer performing under
the Act the duty of registration of companies in England and Wales and
including a deputy registrar;
"REGISTRARS" Computershare Investor Services PLC, or such other person as
the Company may appoint as its registrars for the purposes of the Scheme;
"RELEVANT DEDUCTION" the euro equivalent (calculated at the Currency Rate)
of the aggregate amount of New Senior Notes which would be allocated in
respect of Disputed Claims under each Scheme and in respect of the
Notional Reserve Claim under each Scheme, assuming that those claims had
been admitted in full and converted into Sterling at the Currency Rate (if
required);
"RESERVE CLAIM" a Scheme Claim which is not a Known Claim;
"RESERVE CLAIMS SEGMENT" has the meaning given to it in sub-clause
21(3)(b);
"RESERVE CLAIMS SUPPLEMENT" has the meaning given to it in sub-clause
27(3)(b);
"RESERVE CREDITOR" a Scheme Creditor in respect of its Reserve Claim;
"RESTRICTED JURISDICTION" each of France, Italy, Malaysia and the US
states of Arizona, California, Colorado, Connecticut, Illinois, Ohio and
Vermont;
"SCHEME" the scheme of arrangement in respect of the Company under section
425 of the Act in its present form or with or subject to any modification,
addition or condition approved or imposed by the Court;
"SCHEME CLAIM" any claim or right which a person is or may in any
circumstances become entitled to bring or enforce against the Company in
respect of any Liability of the Company in each and every case in
existence as at the Record Date or to which the Company may become liable
after that date by reason of any Liability of the Company incurred before
that date, and including, for the avoidance of doubt but without
double-counting and subject as provided in Recital H, the claims of the
Depositaries and of Definitive Holders in respect of Bonds but excluding
always Excluded Claims;
"SCHEME CONSIDERATION" the Basic Scheme Consideration together with any
Corp Distribution Supplement, Corp Receipts and the Further Scheme
Consideration;
"SCHEME CREDITOR" subject as provided in Recital H, a creditor of the
Company in respect of a Scheme Claim including, in respect of Scheme
Claims in relation to the Bonds, for the avoidance of doubt and without
double counting, the Depositaries and all persons who become Definitive
Holders pursuant to the arrangements described in Recital F(4);
"SCHEME EXPENSES":
(1) all expenses of the Supervisors and/or the Company under or in
respect of the Scheme including:
(a) the Supervisors' remuneration and out-of-pocket expenses
pursuant to the Supervisors' Engagement Letter or any other
engagement letter between the Company and the Supervisors for
the time being in connection with the Scheme;
(b) all litigation costs including:
(i) adverse costs awards or liabilities; and
(ii) all costs in connection with Allowed Proceedings or
Prohibited Proceedings;
(c) expenses in connection with meetings of Scheme Creditors under
the Scheme;
(2) all expenses to which members of the Creditors' Committee are (or
any other person is) entitled under the Scheme;
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III. THE PLC SCHEME
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(3) Ongoing plc Costs;
(4) expenses in connection with a dissolution, striking off or
liquidation of the Company after the Termination Date; and
(5) Liabilities of the Company (if any) incurred between the Record Date
and the Termination Date and not paid as at the Effective Date;
"SCHEME IMPLEMENTATION DEED" the deed dated 27 March 2003 made between the
Company, Corp, EA Continental Limited, Ancrane, Nominees and others;
"SCHEME RATE" the mid-point rate of exchange five Business Days prior to
the Effective Date for the conversion of the relevant currency to another
currency as published in the Financial Times, (or if the Financial Times
is not published, in the International Herald Tribune or another
internationally recognised newspaper) on the fourth Business Day prior to
the Effective Date;
"SDRT EXPENSE" any UK stamp duty or stamp duty reserve tax payable in
respect of:
(1) the issuance of ADRs to an Eligible Recipient who elects to receive
any New Shares distributed to it pursuant to the Scheme or the Corp
Scheme in the form of ADRs; or
(2) the issuance of ADRs to an Eligible Recipient who deposits any New
Shares received pursuant to the terms of the Scheme or the Corp
Scheme (or an equivalent number of New Shares) into Corp's ADR
programme prior to the date falling two calendar months after the
effectiveness of the listing of the ADRs on NASDAQ in accordance
with the procedures specified by Corp and the ADR Depositary as
described in the Explanatory Statement.
"SPONSORS" Lazard Brothers & Co., Limited and Morgan Stanley & Co.
Limited;
"STERLING" or "L" pounds sterling or other lawful currency being the
currency of the UK for the time being;
"SUBMITTED" when used of a Scheme Claim, that it has been duly submitted
to the Prospective Supervisors or the Supervisors (as applicable) in
accordance with clause 12;
"SUBSEQUENTLY SOLD OPCO ESCROW AGREEMENT" an escrow agreement established
in connection with an operating subsidiary of the Company whose employees
were entitled to participate in certain employee share option plans and
which was sold after 28 August 2002;
"SUPERVISORS" the persons holding office as supervisors of the Scheme from
time to time;
"SUPERVISORS' ENGAGEMENT LETTER" the engagement letter dated on or around
31 March 2003 between the Company, KPMG and the Prospective Supervisors;
"TERMINATION DATE" the date ten Business Days after issue of the
Termination Notice;
"TERMINATION NOTICE" a written notice served by the Supervisors on the
Company and the members of the Creditors' Committee and the Scheme
Creditors (being, in the case of the Bonds, the Definitive Holders, the
Eurobond Trustee and the Yankee Bond Trustee) at the termination of the
Scheme as provided for in clause 110 and clause 116;
"TRUST DEEDS" the two trust deeds each dated 30 March 2000 between the
Company, Corp and the Eurobond Trustee and constituting the Eurobonds;
"UK" the United Kingdom of Great Britain and Northern Ireland;
"UKLA" the Financial Services Authority in its capacity as the competent
authority for the purposes of part VI of the Financial Services and
Markets Act 2000, including, where the context so permits, any committee,
employee, officer or servant to whom any function of the UK Listing
Authority may for the time being be delegated;
"UNADMITTED" when used of a Scheme Claim, the amount of any relevant claim
which has been Submitted but has neither been Admitted nor Conclusively
Rejected;
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III. THE PLC SCHEME
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"UNCLAIMED DIVIDENDS" dividends declared prior to the Record Date on the
shares in the capital of the Company but not paid to the relevant
shareholder or former shareholder;
"UNCLAIMED DIVIDENDS FUND" the sum of money required to pay all Unclaimed
Dividends in full;
"UNRESTRICTED JURISDICTION" each of the United Kingdom, Bahamas, British
Virgin Islands, the Canadian provinces of Alberta, British Columbia,
Ontario and Quebec, Cayman Islands, Guernsey, Jersey, Netherlands
Antilles, the United States (as to federal securities law) and each state
of the United States other than Arizona, California, Colorado,
Connecticut, Illinois, Ohio and Vermont;
"USA" or "US" the United States of America;
"US DOLLAR" or "US$" United States dollars or other lawful currency being
the currency of the USA for the time being;
"WAITING PERIOD" the period of 12 months after the Effective Date or such
shorter period as results from the operation of clause 24(1);
"YANKEE BONDS" all or any of the bonds comprising the Yankee Issues;
"YANKEE BOND TRUSTEE" Bank of New York, in its capacity as trustee under
the Indenture; and
"YANKEE ISSUES" US$900,000,000 7 3/4 per cent. bonds due 2010 and
US$900,000,000 8 3/8 per cent. bonds due 2030 both issued by Corp and both
guaranteed by the Company.
INTERPRETATION
B In this Scheme, unless the context otherwise requires or otherwise
expressly provides:
(1) references to Recitals, Parts, clauses, sub-clauses and Schedules
are references to the Recitals, Parts, clauses, sub-clauses and
Schedules respectively of the Scheme;
(2) references to Appendices are references to the appendices to the
Explanatory Statement;
(3) references to a "person" include references to an individual, firm,
partnership, company, corporation, unincorporated body of persons or
any state or state agency;
(4) references to a statute or a statutory provision include the same as
subsequently modified, amended or re-enacted from time to time;
(5) the singular includes the plural and vice versa and words importing
one gender shall include all genders;
(6) references to "including" shall be construed as references to
"including without limitation" and "include" shall be construed
accordingly;
(7) headings to Recitals, Parts, clauses, sub-clauses, Schedules and
Appendices are for ease of reference only and shall not affect the
interpretation of the Scheme;
(8) references to the Scheme becoming effective are references to the
office copy of the order of the Court sanctioning the Scheme being
delivered to the Registrar of Companies for registration; and
(9) references to consents not being "unreasonably withheld" shall be
construed as references to such consents not being "unreasonably
withheld or delayed".
THE COMPANY
C The Company was incorporated in England and Wales on 17 September 1999 as
a public limited company under company number 3846429.
D At the date hereof the Company has an authorised share capital of
L300,000,000 divided into 6,000,000,000 ordinary shares of 5 pence each,
of which 2,793,011,951 have been issued and are fully paid up or credited
as fully paid up, and the remainder remain unissued.
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III. THE PLC SCHEME
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BINDING OF THIRD PARTIES
E The following persons involved in the implementation of the Scheme have
undertaken to be bound to carry out their designated functions under the
Scheme and, if applicable, the Escrow and Distribution Agreement:
(1) the Supervisors;
(2) the Escrow Trustee;
(3) the Distribution Agent;
(4) the Registrars;
(5) the Eurobond Trustee;
(6) the Yankee Bond Trustee;
(7) Bondholder Communications; and
(8) Corp.
BONDS ISSUED BY CORP AND GUARANTEED BY THE COMPANY
F Each of the Bond Issues is held under an arrangement whereby:
(1) the Bond Issues are constituted by the Trust Deeds (in respect of
the Eurobonds) and the Indenture (in respect of the Yankee Bonds),
the trustees being the Eurobond Trustee and the Yankee Bond Trustee
respectively;
(2) the Bonds were initially issued in wholly global bearer form and
were held by a depositary under systems designed to facilitate
paperless transactions;
(3) the systems involve immediate interests of persons in the Bonds
being recorded in books or other records maintained, in the case of
Eurobonds by Clearstream, Luxembourg and Euroclear and in the case
of Yankee Bonds, by DTC, Clearstream, Luxembourg and Euroclear (such
persons with interests being herein defined as "ACCOUNT HOLDERS");
(4) at the request of certain creditors of the Company, arrangements
have been made for the global Bonds representing the Yankee Bonds to
be exchanged in whole or in part for Yankee Bonds in definitive form
registered in the names of the Definitive Holders specified in
Account Holder Letters and the global Bonds representing the
Eurobonds to be exchanged in whole for individual global Eurobonds
in bearer form held on behalf of the Definitive Holders specified in
Account Holder Letters; and
(5) any unexchanged Yankee Bonds will, pending their exchange in
accordance with subsequently delivered Account Holder Letters,
continue to be held in global bearer form by the Book-Entry
Depositary and any individual global Eurobonds in respect of which
no Account Holder Letter has been delivered will be held by
depositaries for Euroclear and Clearstream, Luxembourg.
THE PURPOSE OF THE SCHEME
G The purpose of the Scheme is to constitute a compromise and arrangement
between the Company and the Scheme Creditors by:
(1) the Scheme Creditors exchanging their Admitted Scheme Claims for the
Scheme Consideration; and
(2) providing full and effective releases of all of the Company's
Liabilities in respect of Scheme Claims.
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III. THE PLC SCHEME
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THE BONDS AND THE SCHEME
H Scheme Claims in respect of Bonds arise by virtue of the guarantee given
by the Company of the Bond Issues. With the agreement of the Eurobond
Trustee, the Yankee Bond Trustee and the Book-Entry Depositary
respectively:
(1) Claim Forms in relation to the Bonds are to be returned by the
Eurobond Trustee (in reliance on the promise to pay in favour of the
Eurobond Trustee contained in the Trust Deeds) and the Yankee Bond
Trustee (in reliance on section 5.04 of the Indenture and the
promise to pay in section 10.01 of the Indenture) respectively; and
(2) persons with interests in or in respect of Bonds have been invited
to instruct their Account Holders as to the manner in which the
Account Holder Letter delivered in respect of each of the Bonds in
or in respect of which they have an interest should be completed
including, in particular, as to the identity of the Definitive
Holder and any Designated Recipients;
(3) none of the Eurobond Trustee, the Yankee Bond Trustee, the
Book-Entry Depositary and the respective depositaries for Euroclear
and Clearstream, Luxembourg will vote at the meetings of creditors
of the Company convened at the direction of the Court and instead
the Definitive Holders (as creditors of the Company for the purpose)
will be recognised as the persons entitled to attend and vote at
those meetings;
(4) Scheme Consideration which is to be distributed in relation to the
Bonds is, with the authority and at the direction of the Eurobond
Trustee and the Yankee Bond Trustee (as the persons with Submitted
Scheme Claims in relation to the Bonds which will have been
Admitted), to be distributed to Designated Recipients;
(5) the Company has agreed to extend the benefit of its guarantee:
(a) of the Eurobonds to the Definitive Holders of Eurobonds; and
(b) of the Yankee Bonds to the Definitive Holders of Yankee Bonds;
(6) as a result, and subject as provided in Recital H(7), references in
this Scheme to Scheme Creditors shall, in relation to the Bonds:
(a) in the context of entitlements to make a Scheme Claim,
submission of Claim Forms and receiving or directing the
receipt of Scheme Consideration in respect of that Scheme
Claim be construed as references only to the Eurobond Trustee
and the Yankee Bond Trustee in relation to the Bonds; and
(b) in the context of entitlement to be appointed to the
Creditors' Committee and attend meetings of Scheme Creditors
be construed as references only to the Definitive Holders; and
references to related Scheme Claims shall be construed in the same
manner; and
(7) except where otherwise specifically provided, references in this
Scheme to:
(a) Scheme Creditors in relation to the Bonds in Parts II, VI
(excepting clauses 53 and 55), IX and X (excepting clause 114)
include the Eurobond Trustee, Bank of New York in its
capacities as, the Book-Entry Depositary and the Yankee Bond
Trustee, the respective depositaries for Euroclear and
Clearstream, Luxembourg, the Depositaries and all persons who
are Definitive Holders;
(b) Scheme Creditors in relation to the Bonds in Parts III, IV and
VI (in clause 55) mean the Eurobond Trustee and the Yankee
Bond Trustee as entitled claimants under the Scheme;
(c) Scheme Creditors in relation to the Bonds in Parts VI (in
clause 53), VII and VIII, X (in clause 114) mean the
Definitive Holders; and
references to related Scheme Claims shall be construed in the same
manner.
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III. THE PLC SCHEME
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CURRENCY ELECTION
I (1) The New Senior Notes to be issued by Corp as part of the
scheme consideration under the Corp Scheme may be issued denominated
in both, or either, euro and US dollars.
(2) New Senior Notes denominated in US dollars will only be issued by
Corp if, following all elections made in Claim Forms and Account
Holder Letters received by the Prospective Supervisors and
Bondholder Communications respectively by the First Claim Date
together with all equivalent currency elections made in accordance
with the Corp Scheme, elections have been made which would result in
an aggregate of at least the US dollar equivalent (calculated at the
Currency Rate) of euro 250,000,000 (less the Relevant Deduction) of
New Senior Notes being required to be distributed in the First
Initial Distribution and the first initial distribution under the
Corp Scheme.
(3) New Senior Notes denominated in euro will only be issued by Corp if,
following all elections made in Claim Forms and Account Holder
Letters received by the Prospective Supervisors and Bondholder
Communications respectively by the First Claim Date together with
all equivalent currency elections made in accordance with the Corp
Scheme, elections have been made which would result in an aggregate
of at least euro 250,000,000 (less the Relevant Deduction) of New
Senior Notes being required to be distributed in the First Initial
Distribution and the first initial distribution under the Corp
Scheme.
(4) If no New Senior Notes denominated in US dollars are issued as a
result of the mechanism described in Recital J(2), all of the New
Senior Notes will be denominated in euro.
(5) If no New Senior Notes denominated in euro are issued as a result of
the mechanism described in Recital J(3), all the New Senior Notes
will be denominated in US dollars.
LISTING
J The Scheme Consideration includes New Shares and New Notes. Application
has been made by Corp for Listing of these New Shares and New Notes.
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III. THE PLC SCHEME
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PART II
THE SCHEME
APPLICATION AND EFFECTIVENESS OF THE SCHEME
1. (1) The compromise and arrangement effected by the Scheme shall apply
to all Scheme Claims and shall be binding on all Scheme Creditors.
(2) The Scheme is conditional upon the Corp Scheme becoming effective
and the office copy of the order of the Court sanctioning the Scheme
will not be filed with the Registrar of Companies unless and until
the Corp Scheme has become effective.
(3) The Scheme shall become effective at the Effective Time provided
always that the Effective Time.
(4) The Company shall forthwith after the Effective Time declare that it
holds:
(a) all its assets (except the shares in the capital of Ancrane,
the Basic Scheme Consideration and the Expenses Fund) on bare
trust absolutely to be transferred on the direction of the
Supervisors to the Escrow Trustee to hold on trust in
accordance with the Escrow and Distribution Agreement; and
(b) the Expenses Fund on trust for itself absolutely but for the
purposes only of:
(i) first, meeting or providing for Scheme Expenses and
Excluded Claims in accordance with the Scheme; and
(ii) secondly, paying Corp an amount equal to the amount
paid by Corp under the LC Counter-Indemnity; and
(iii) thirdly, transferring any balance remaining in the
Expenses Fund immediately prior to the Final
Distribution to the Escrow Trustee to hold on trust in
accordance with the terms of the Escrow and
Distribution Agreement.
(5) Forthwith after the Effective Time the Supervisors shall set the
Unclaimed Dividends Fund aside from the Expenses Fund to be held on
trust for the purposes of paying Unclaimed Dividends and dealt with
in accordance with the Scheme (including, without limitation, clause
112).
STAY OF PROHIBITED PROCEEDINGS
2. (1) Subject to sub-clause 2(2), no Scheme Creditor shall commence or
continue any Prohibited Proceeding in respect of, arising from, or
relating to, a Scheme Claim after the Effective Time.
(2) Nothing in this Scheme shall prevent:
(a) a landlord of leasehold property of the Company from
exercising such rights and remedies of distress, forfeiture
and re-entry (and any other of such landlord's self-help
rights and remedies) as it may have in respect of such
leasehold property; or
(b) a secured creditor from exercising its rights and remedies as
a secured creditor in respect of any Property of the Company.
3. Subject to sub-clause 20(2), a Scheme Creditor may commence or continue
an Allowed Proceeding against the Company after the Effective Time
provided that it has first:
(1) where the Scheme Creditor is continuing an Allowed Proceeding,
notified the Supervisors in writing of its intention to do so;
(2) where the Scheme Creditor intends to commence an Allowed Proceeding,
given the Supervisors five Business Days' prior notice in writing of
its intention to do so; and
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III. THE PLC SCHEME
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(3) where sub-clause 17(2) applies with respect to an Allowed
Proceeding, it has, in addition to complying with sub-clause 3(1)
or 3(2), as applicable complied with that sub-clause.
4. (1) Save in respect of any Allowed Proceeding as permitted by this
Scheme or any action permitted under sub-clause 2(2), each Scheme
Creditor by this Scheme covenants not to sue the Company in respect
of a Scheme Claim.
(2) For the purpose of enforcing the covenant in sub-clause 4(1), the
Company is hereby appointed as the agent and attorney of each and
every Scheme Creditor for the purpose of giving any and all
instructions (and doing any such acts or things) as are necessary
or desirable to enforce that covenant.
5. If any Scheme Creditor commences or continues any such Prohibited
Proceeding as is prohibited by sub-clause 2(1) after the Effective Time
it shall be treated as having received, on account of its entitlement to
Scheme Consideration, an advance payment by way of a Distribution equal
to the amount or gross value of any money, property, benefit or advantage
obtained by it after the Effective Date at the expense of the Company or,
as applicable, as a result, directly or indirectly, of such Prohibited
Proceeding, and the extent, if any, to which it is entitled to Scheme
Consideration shall be reduced accordingly. Such Scheme Creditor shall
hold any benefit received or receivable in excess of its entitlement to
Scheme Consideration pursuant to the terms of the Scheme as a result,
directly or indirectly, of a Prohibited Proceeding on trust for the
Company and shall account to the Company for such excess benefit. For
this purpose, the gross value of any such property, benefit or advantage
shall be conclusively determined by the Supervisors and may include such
amount as the Supervisors may consider to be appropriate by way of
interest or costs, charges or expenses incurred by the Company and/or the
Supervisors as the result of such Prohibited Proceeding. This treatment
and reduction is without prejudice to the Company's rights first to any
injunctive or other relief or remedy to which the Company may be entitled
in respect of the breach and, secondly, in respect of any loss the
Company may suffer as a result of the breach. The Supervisors shall make
such consequential adjustments to the amount and timing of payment of
Distributions to any such Scheme Creditor (and in the case of Definitive
Bondholders, to the Eurobond Trustee or the Yankee Bond Trustee or both
as appropriate) pursuant to the rules and formulae in Part III as are
necessary to give effect to this clause.
ASSIGNMENTS OR TRANSFERS
6. (1) The Supervisors shall be under no obligation to recognise any
assignment or transfer of Scheme Claims after the Record Date for
the purposes of determining entitlements under the Scheme, provided
that where the Supervisors have received from the relevant parties
notice in writing of such assignment or transfer, the Supervisors
may, in their sole discretion and subject to the production of such
other evidence as they may require and to any other terms and
conditions which they may consider necessary or desirable, agree to
recognise such assignment or transfer for the purposes of
determining entitlements under the Scheme. Any assignee or
transferee of a Scheme Claim so recognised by the Supervisors shall
be bound by the terms of this Scheme and for the purposes of this
Scheme shall be a Scheme Creditor.
(2) For the purposes of the Scheme (including for the purposes of the
definition of Excluded Claims) no recognition shall be given to any
assignment or transfer of any (or any part of any) debt, claim or
right of any person in respect of a Liability of the Company
effected between 1 January 2003 and the Record Date (both dates
inclusive) other than any such assignment or transfer pursuant to
or contemplated by the Scheme Implementation Deed if, in the
reasonable opinion of the Supervisors, a material purpose of such
assignment or transfer was to make such debt, claim or right (or
part thereof) an Excluded Claim (under sub-paragraph (8) of the
definition of Excluded Claims) and not a Scheme Claim.
(3) For the avoidance of doubt, in relation to the Bonds, Bondholders
are permitted to assign or transfer their interest in Bonds after
the Record Date.
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III. THE PLC SCHEME
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EFFECT OF SCHEME
7. (1) This clause is without prejudice to the Company's rights under
clauses 2 and 5 and is subject to Part IX.
(2) Without prejudice to clause 20, in consideration of the rights of
Scheme Creditors under this Scheme (including the rights of
Admitted Scheme Creditors to receive Scheme Consideration), all
Liabilities on the part of the Company in respect of each Scheme
Claim (and any interest accruing thereon or other amounts payable
in connection therewith whether arising before or after the Record
Date), automatically and without further documentation or action of
the parties, shall be compromised, fully and finally discharged,
satisfied and cancelled on the earlier of:
(a) the first date on which such Scheme Claim is both Admitted
and the subject of a Distribution Notice;
(b) the Final Distribution Date; and
(c) the issue of the Termination Notice (other than a Termination
Notice served pursuant to sub-clause 117(3)).
(3) No Scheme Claim of a Scheme Creditor shall be reduced or in any way
affected by the compromise of any claims of that Scheme Creditor
against Corp pursuant to the terms of the Corp Scheme nor shall it
be reduced or in any way affected by reason of any distributions
received by or on behalf of that Scheme Creditor in the Corp Scheme
provided that the aggregate recoveries of a Scheme Creditor in
respect of a claim pursuant to the Scheme and the Corp Scheme shall
not exceed the quantum of the Scheme Claim.
(4) Nothing in sub-clause 7(2) shall operate to discharge or release
the Company from any Liability to a Scheme Creditor to the extent
to which that Liability would constitute an Insured Scheme Claim
until all monies due to the Scheme Creditor pursuant to clause 31
in satisfaction of that Insured Scheme Claim have been paid.
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III. THE PLC SCHEME
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PART III
DETERMINATION OF SCHEME CLAIMS AND PROCEDURE FOR DISTRIBUTIONS
RECORD DATE
8. (1) All Scheme Claims shall be determined as at the Record Date.
(2) Any Scheme Claim which at the Record Date is not immediately due and
payable but on the Company going into insolvent liquidation would,
either automatically without further action by any party or by the
issue of a notice by the relevant Scheme Creditor, be capable of
being made legally and immediately due and payable shall be treated
for the purposes of Distributions under this Scheme as immediately
due and payable as at the Record Date (and hence not a debt payable
at a future time).
RULES AND PROCEDURES
9. The Supervisors shall consider each Claim Form submitted to determine the
existence and quantum of each Submitted Scheme Claim and shall decide the
extent, if any, to which it shall be Admitted in accordance with the
rules and procedures set out in the Scheme and in particular in Schedule
1.
ONLY ADMISSIBLE INTEREST
10. Without prejudice to sub-clause 7(2), for the purpose solely of the
determination and payment of Distributions under the Scheme, no Admitted
Scheme Claim shall include any amounts in respect of interest except
Admissible Interest and, for the avoidance of doubt, any interest other
than Admissible Interest shall not be taken into account by the
Supervisors in determining the quantum of the relevant Scheme Claim.
NO ADMISSIONS OF LIABILITY
11. Save as expressly set out in this Scheme or the Explanatory Statement
nothing in the Scheme or the Explanatory Statement or the distribution
thereof to any person evidences or constitutes any admission by the
Company, the Prospective Supervisors, the Supervisors or KPMG that a
person is a Scheme Creditor or that a Liability is owed to any person in
respect of any claim or right. The failure to distribute the Scheme,
Explanatory Statement, any notice or any other communication to any
Scheme Creditor shall not constitute an admission by the Company, the
Prospective Supervisors, the Supervisors or KPMG that such person is not
a Scheme Creditor or that any Liability owed to such person is an
Excluded Claim.
PROVISION OF INFORMATION
12. (1) A Scheme Creditor submitting a Scheme Claim:
(a) shall provide the Supervisors with such information as they
may reasonably require to enable the claim to be determined
(and for the avoidance of doubt shall comply with such of the
rules and procedures in Schedule 1 as the Supervisors may
require); and
(b) shall, in any event, submit a Claim Form to the Prospective
Supervisors or, after the Effective Date, to the Supervisors
(in accordance with the instructions set out in the Claim
Form) at the relevant address set out in the Claim Form by
hand or by Post.
(2) Scheme Creditors who wish an Initial Distribution to be distributed
to the Eligible Recipient in respect of that Scheme Creditor's
Scheme Claim on the Effective Date must have submitted their duly
completed Claim Forms so as to be received by the Prospective
Supervisors by 5.00 p.m. (London time) on the First Claim Date. Only
Known Creditors that have complied with this precondition and whose
Scheme Claims are listed in the First Initial Distribution Notice
shall be Admitted by the Supervisors in accordance with the Scheme
on the Effective Date and participate in the First Initial
Distribution in accordance with clause 23. Only if a Scheme Creditor
has
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complied with this pre-condition and its Scheme Claim is Admitted by
the Supervisors in accordance with the Scheme on the Effective Date
shall that Admitted Scheme Creditor's Eligible Recipient receive an
Initial Distribution when the First Initial Distribution is made.
(3) For the purposes of this Scheme, it is expressly recognised that:
(a) the Eurobond Trustee shall be entitled to submit a Claim Form
in its capacity as creditor under the Trust Deeds in respect
of all of the Eurobonds and, in consequence, no person with an
interest in the Eurobonds other than the Eurobond Trustee
shall be entitled to submit a Claim Form in respect of the
Eurobonds by virtue of such interest; and
(b) the Yankee Bond Trustee shall be entitled to submit a Claim
Form in accordance with section 5.04 of the Indenture and, in
consequence, no person with an interest in a Yankee Bond other
than the Yankee Bond Trustee shall be entitled to submit a
Claim Form in respect of the Yankee Bonds by virtue of such
interest.
ENTITLEMENT TO SCHEME CONSIDERATION
13. Eligible Recipients shall be eligible to receive Scheme Consideration in
accordance with the Scheme. A Scheme Creditor with a Scheme Claim which is
Unadmitted shall not be entitled to Scheme Consideration in accordance
with the Scheme unless, until and to the extent that such Scheme Claim
becomes Admitted.
14. The amount of the Scheme Consideration to which a Scheme Creditor is
entitled (and any Eligible Recipient in respect of that Scheme Creditor's
Admitted Scheme Claim is eligible to receive) shall be calculated in
accordance with this Part III.
ADMISSION AND REJECTION OF SCHEME CLAIMS
15. A Scheme Claim may be Admitted by the Supervisors either for the whole
amount claimed by the Scheme Creditor or for part of that amount.
16. If the Supervisors refuse to admit a Scheme Claim, in whole or in part,
they shall promptly prepare a written statement of their reasons for doing
so, and send it to the Scheme Creditor, accompanied by a notice of
rejection in such form as the Supervisors shall determine.
APPEAL AGAINST DECISION ON SCHEME CLAIMS
17. (1) If a Scheme Creditor is dissatisfied with a refusal by the
Supervisors to admit, in whole or in part, a Scheme Claim then,
subject to sub-clause 17(2), it may either commence or continue an
Allowed Proceeding to determine the existence and/or quantum of its
Scheme Claim or elect by notice in writing to the Supervisors that
the existence or quantum of its Scheme Claim be referred for
adjudication in accordance with Part V.
(2) If an Allowed Proceeding has not been commenced, or is not being
continued as at the date of the notice of rejection, then either:
(a) an Allowed Proceeding must be commenced (and notice given in
accordance with clause 3); or
(b) an election for adjudication made in accordance with
sub-clause 17(1) by the Scheme Creditor,
in each case within 40 Business Days following receipt by the Scheme
Creditor of the notice of rejection.
18. If a Scheme Claim has not been Admitted and at the expiration of the 40
Business Days period referred to in sub-clause 17(2) an Allowed
Proceeding is continuing (whether commenced by the Scheme Creditor
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before or after receipt of the notice of rejection) or an election has been made
for adjudication (in each case in accordance with clause 17) then:
(1) any final determination of that Allowed Proceeding (after the
ordinary time for appealing the original determination or any
determination on appeal has expired without any appeal having been
made) shall be binding on the Scheme Creditor, the Company and the
Supervisors;
(2) if an election has been made for adjudication the provisions of Part
V shall apply; and
(3) without prejudice to sub-clauses 18(1) and 18(2), the Scheme
Creditor and the Supervisors may at any time agree to any matter or
issue in the Allowed Proceeding being determined in some manner
other than in the Allowed Proceeding, and any Proceeding commenced
pursuant to such agreement shall have effect as an Allowed
Proceeding commenced in accordance with clause 17.
19. If in an Allowed Proceeding or in an adjudication pursuant to Part V any
order or direction shall be made that any costs of such proceeding or
adjudication are to be borne by the Supervisors or by the Company, such
costs shall be payable in full from the Expenses Fund.
20. If a Scheme Claim has not been Admitted and at the expiration of the 40
Business Days period referred to in sub-clause 17(2) neither an Allowed
Proceeding (in accordance with the terms of the Scheme) is continuing in
respect of such Scheme Claim nor an election (in accordance with the
terms of the Scheme) has been made for that Scheme Claim to be referred
to adjudication in accordance with Part V, then:
(1) the Company shall be released from all Liabilities in relation to
the Scheme Claim (or part thereof) which has not been Admitted (and
any interest accruing thereon or other amounts payable in connection
therewith whether arising before or after the Record Date); and
(2) any Proceeding which is thereafter commenced and which would
otherwise have been an Allowed Proceeding shall be a Prohibited
Proceeding.
THE BASIC SCHEME CONSIDERATION, THE KNOWN CLAIMS SEGMENT AND THE RESERVE CLAIMS
SEGMENT
21. (1) In the Scheme "BASIC SCHEME CONSIDERATION" means the Received
Ancrane Consideration minus an amount of L7,000,000 deducted from
the Received Ancrane Cash. The amount so deducted from the Received
Ancrane Cash (in the Scheme called the "ANCRANE CASH DEDUCTION")
shall form part of the sum initially comprising the Expenses Fund.
The Expenses Fund, other than the sum comprising the Unclaimed
Dividends Fund, shall be available for the settlement or payment of
such of the Liabilities of the Company in respect of Excluded Claims
and Scheme Expenses as the Supervisors from time to time shall
direct.
(2) In this Scheme:
(a) the term "BASIC KNOWN CLAIMS SEGMENT" means that part of the
Basic Scheme Consideration calculated by applying the fraction:
KC
----------------
250,000,000 + KC
to each Element of Basic Scheme Consideration, where KC = the
aggregate amount of the Known Claims; and
(b) the term "BASIC RESERVE CLAIMS SEGMENT" means that part of the
Basic Scheme Consideration calculated by applying the fraction:
250,000,000
----------------
250,000,000 + KC
to each Element of Basic Scheme Consideration, where KC = the
aggregate amount of the Known Claims.
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III. THE PLC SCHEME
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(3) In the Scheme:
(a) the term "KNOWN CLAIMS SEGMENT" means that part of the Scheme
Consideration available until the expiry or termination of
the Waiting Period from which Distributions of Distribution
Entitlements of Admitted Known Creditors shall be made being,
from time to time, the aggregate of the following:
(i) the Basic Known Claims Segment;
(ii) any Known Claims Supplement arising under sub-clause
27(3) (or equivalent supplement pursuant to sub-clause
27(5)); and
(iii) any Corp Receipts made available to Known Creditors as
a result of the operation of clause 28.
The parts of the Known Claims Segments listed in (ii) and
(iii) above shall be treated for all purposes as a supplement
to the Basic Known Claims Segment. Any entitlement to receive
a distribution from the Basic Known Claims Segment shall be
supplemented by an entitlement to receive a distribution of
those other parts (if any) of the Known Claims Segment of the
same proportion as the Distribution Entitlement of the
relevant Scheme Creditor to the Basic Known Claims Segment is
of the Basic Known Claims Segment (but such proportion shall
be calculated after taking into account any decrease in the
size of the Basic Known Claims Segment resulting from Known
Claims being Conclusively Rejected which results in the
Distribution Entitlement to which the Known Creditor who
would have been entitled had its Known Claim been Admitted
being deducted from the Basic Known Claims Segment and
becoming part of the Reserve Claims Segment pursuant to
clause 29);
(b) the term "RESERVE CLAIMS SEGMENT" means that part of the
Scheme Consideration available until the expiry or
termination of the Waiting Period from which Distributions of
Distribution Entitlements of Admitted Reserve Creditors shall
be made being, from time to time, the aggregate of the
following:
(i) the Basic Reserve Claims Segment;
(ii) any Reserve Claims Supplement arising under sub-clause
27(3) (or equivalent supplement pursuant to sub-clause
27(5)); and
(iii) any Corp Receipts made available to Reserve Creditors
as a result of the operation of clause 28.
The parts of the Reserve Claims Segment listed in (ii) and
(iii) above shall be treated for all purposes as a supplement
to the Basic Reserve Claims Segment and any entitlement to
receive a distribution from the Basic Reserve Claims Segment
shall be supplemented by an entitlement to receive a
distribution of those other parts (if any) of the Reserve
Claims Segment of the same proportion as the Distribution
Entitlement of the relevant Scheme Creditor to the Basic
Reserve Claims Segment is of the Basic Reserve Claims Segment
(but such proportion shall be calculated after taking into
account any increase in the size of the Basic Reserve Claims
Segment resulting from Known Claims being Conclusively
Rejected which results in the Distribution Entitlement to
which the Known Creditor who would have been entitled had its
Known Claim been Admitted being deducted from the Basic Known
Claims Segment and becoming part of the Reserve Claims
Segment pursuant to clause 29).
22. If a Known Claim is Admitted at a value higher than the value of that
Known Claim set out in Schedule 3, the excess over the value set out in
Schedule 3 shall be treated as an Admitted Reserve Claim.
INITIAL DISTRIBUTION AND FIRST INITIAL DISTRIBUTION
23. (1) Each Scheme Creditor who has a Submitted Scheme Claim which is
Admitted before the expiry or termination of the Waiting Period
shall be entitled to receive an Initial Distribution from:
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III. THE PLC SCHEME
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(a) the Known Claims Segment if its Admitted Scheme Claim is a
Known Claim; or
(b) the Reserve Claims Segment if its Admitted Scheme Claim is a
Reserve Claim.
This Distribution shall be by way of an in specie distribution of
the Basic Scheme Consideration.
(2) The Supervisors shall use reasonable endeavours to determine
promptly whether or not a Submitted Scheme Claim shall be Admitted
and, if they do so determine, shall promptly Admit that Submitted
Scheme Claim.
(3) As soon as reasonably practicable after a Scheme Claim has been
Admitted it shall be the subject of a Distribution Notice.
(4) On the Effective Date
(a) Known Creditors whose Scheme Claims are Submitted on or before
5.00 p.m. (London time) on the First Claim Date and which have
been listed in the First Initial Distribution Notice shall be
Admitted by the Supervisors;
(b) the Supervisors shall issue the First Initial Distribution
Notice to the Escrow Trustee (with a copy to the Distribution
Agent);
(c) Scheme Creditors whose Scheme Claims are Submitted on or
before 5.00 p.m. (London time) on the First Claim Date which
are Admitted by the Supervisors on the Effective Date but
which were not listed in the First Initial Distribution Notice
shall be the subject of a Distribution Notice issued by the
Supervisors to the Escrow Trustee (with a copy to the
Distribution Agent) at the same time as the First Initial
Distribution Notice; and
(d) Scheme Creditors with Admitted Scheme Claims listed in the
First Initial Distribution Notice or any Distribution Notice
issued pursuant to sub-clause 23(4)(c) shall be entitled to an
Initial Distribution forthwith upon the issue of the First
Initial Distribution Notice (and any Distribution Notice
issued pursuant to sub-clause 23(4)(c)) in respect of such
Admitted Scheme Claim and its Initial Distribution shall be
made to its Eligible Recipient.
(5) Scheme Creditors whose Scheme Claims are Submitted and which are
Admitted before the expiry or termination of the Waiting Period but
in respect of which a First Initial Distribution pursuant to
sub-clause 23(4)(b) or an Initial Distribution pursuant to
sub-clause 23(4)(c) is not made shall be entitled to an Initial
Distribution in respect of such Admitted Scheme Claims and such
distributions shall be made to their Eligible Recipients as soon as
practicable after such claims have been Admitted.
(6) The amount of the Initial Distribution (including, for the avoidance
of doubt, the First Initial Distribution) from the Known Claims
Segment to which an Admitted Known Creditor is entitled shall be
calculated in accordance with the following formula:
AKC
KDE = KC X KCS
Where KDE = the Distribution Entitlement of the relevant Admitted Known
Creditor to each of the Elements of the Basic Scheme
Consideration in the Initial Distribution;
AKC = the Admitted Known Claim of the relevant Admitted Known
Creditor;
KC = the aggregate amount of all Known Claims; and
KCS = separately, the amount of each of the Elements of the Basic
Scheme Consideration comprising the Basic Known Claims
Segment as at the Effective Time.
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III. THE PLC SCHEME
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(7) The amount of the Initial Distribution from the Reserve Claims
Segment to which an Admitted Reserve Creditor is entitled shall be
calculated in accordance with the following formula:
ARC
RDE = --- X KCS
KC
where RDE = the Distribution Entitlement of the relevant Admitted
Reserve Creditor to each of the Elements of the Basic Scheme
Consideration in the Initial Distribution;
ARC = the Admitted Reserve Claim of the relevant Admitted Reserve
Creditor;
KC = the aggregate amount of all Known Claims; and
KCS = separately, the amount of each of the Elements of the Basic
Scheme Consideration comprising the Basic Known Claims
Segment as at the Effective Time.
(8) Any Distribution Notice given by the Supervisors to the Escrow
Trustee (with a copy to the Distribution Agent) shall instruct the
Escrow Trustee to direct the Distribution Agent to make a
Distribution to all relevant Eligible Recipients referred to in the
Distribution Notice in accordance with the terms of the Scheme.
(9) Where in sub-clauses 21(2), 23(6) and 23(7) above any sum included
in any of the terms AKC, KC and ARC is in a currency other than
sterling then, for the purposes of calculating the relevant
fraction, that sum shall be converted to sterling at the Scheme
Rate.
(10) In the case of a Scheme Claim in respect of Bonds which is Admitted
where the aggregate total of all Distributions to Designated
Recipients in respect of that claim is less, then the Distribution
to which the Eurobond Trustee or the Yankee Bond Trustee, as
appropriate, in respect of that claim is entitled, the remainder of
the Scheme Consideration shall be held by the Escrow Trustee and
dealt with in accordance with the Escrow and Distribution Agreement.
TERMINATION OF THE WAITING PERIOD
24. (1) Subject to sub-clause 24(2), if at any time after the issue of the
First Initial Distribution Notice the Supervisors are not satisfied
that the Reserve Claims Segment is sufficient to make Distributions
of Distribution Entitlements in respect of all Reserve Claims which
have been, or are likely to be, Admitted, the following shall
apply:
(a) the Supervisors shall forthwith notify the Company and the
Creditors' Committee;
(b) the Waiting Period shall terminate and all entitlements of
Admitted Scheme Creditors to Scheme Consideration which have
not been the subject of a Distribution Notice shall be dealt
with in accordance with the provisions of clause 25; and
(c) for the avoidance of doubt, the provisions of this clause
shall not affect the Distribution Entitlement of any Scheme
Creditor whose Admitted Scheme Claim is the subject of a
Distribution Notice issued prior to the issue of the
Supervisors' notice in sub-clause 24(1)(a).
(2) If a Scheme Claim is Submitted after the issue of the First Initial
Distribution Notice which:
(a) if immediately Admitted would result in the Supervisors not
being satisfied that the Reserve Claims Segment is sufficient
to make Distributions of Distribution Entitlements in respect
of all Reserve Claims which have been, or are likely to be,
Admitted; and
(b) the Supervisors cannot immediately determine whether, or the
extent to which, that Submitted Scheme Claim should be
Admitted,
the Supervisors may consider that Scheme Claim for a period of up to
30 Business Days from the date on which that Scheme Claim is
Submitted (the "EXAMINATION PERIOD"). The Supervisors shall
forthwith notify the Company and the Creditors' Committee of the
commencement of the
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III. THE PLC SCHEME
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Examination Period. On, or prior to, the expiry of such 30 Business
Days the Supervisors shall confirm to the Creditors' Committee and
the Company whether or not they are satisfied that the Reserve Claims
Segment shall be sufficient to make Distributions of Distribution
Entitlements in respect of all Reserve Claims which have been, or are
likely to be, Admitted. The issue of the Supervisors' confirmation
or, if later, the expiry of the 30 Business Day period shall bring
the relevant Examination Period to an end. If no confirmation is
provided prior to the expiry of such 30 Business Days, the
Supervisors are deemed to be not satisfied that the Reserve Claims
Segment is sufficient to make Distributions of Distribution
Entitlements in respect of all Reserve Claims which have been, or are
likely to be, Admitted. If the Supervisors are (or are deemed to be)
not satisfied that the Reserve Claims Segment is sufficient to make
Distributions of Distribution Entitlements in respect of all Reserve
Claims which have been, or are likely to be, Admitted, sub-clauses
24(1)(a)-(c) shall apply. No Distribution Notice shall be issued
during an Examination Period. For the avoidance of doubt, nothing in
this sub-clause shall affect the Distribution Entitlement of any
Scheme Creditor whose Admitted Scheme Claim has, prior to the
commencement of the Examination Period, been the subject of a
Distribution Notice.
FURTHER DISTRIBUTIONS
25. (1) Any Scheme Consideration which has not been the subject of a
Distribution Notice by the termination or expiry of the Waiting
Period shall, from the termination or expiry of the Waiting Period,
be available for making further Distributions to Eligible Recipients
on the following basis:
(a) the distinction between the Known Claims Segment and the Reserve
Claims Segment shall no longer be relevant and the remainder of
the segments shall be aggregated for future Distribution
purposes;
(b) the Supervisors' approach to further Distributions shall be in
accordance with the approach a liquidator would take following
Liquidation Distribution Principles including the following
concepts:
(i) the setting of final dates by which a creditor must claim
if it wishes to participate in a planned dividend;
(ii) in the case of claims which have not been Admitted at the
time of the declaration of a dividend to creditors, the
taking into account of any such disputed claim in setting
the dividend on a prudent basis so that if the disputed
claim is later admitted, the relevant creditor will
receive the dividend it would have received if and to the
extent its claim had been admitted at the date of the
relevant dividend;
(iii) generally, the concept of pari passu distribution; and
(iv) any Scheme Creditor whose Scheme Claim is Admitted but
whose Distribution Entitlement has not yet been satisfied
shall be entitled to a Distribution in priority to the
entitlement of other Admitted Scheme Creditors (whose
entitlements to previous Distributions have been
satisfied) to further Distributions until that Scheme
Creditor is entitled to (and such entitlement is
satisfied) the same rateable Distribution that other
Admitted Scheme Creditors are entitled to (which
entitlements have been satisfied) have received
previously.
(2) The Supervisors, in deciding whether and, if so, when to direct a
further Distribution, shall have regard to the cost of making the
Distribution in relation to the value of the Scheme Consideration to
be distributed and may, acting reasonably, decide to delay directing
a Distribution until such time (if any) as the costs of making the
Distribution do not exceed the value of Scheme Consideration (or
proceeds of sale of such Scheme Consideration) to be distributed.
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III. THE PLC SCHEME
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THE COMPANY AS A RECIPIENT OF SCHEME CONSIDERATION FROM THE CORP SCHEME
26. Property received or receivable by the Company from time to time other
than the Ancrane Cash Deduction by virtue of the Ancrane Direction shall
be available for distribution and shall be distributed by the Company to
Admitted Scheme Creditors subject to, at the time, in the manner and on
the basis set out in the Scheme. In the light of the position of Corp as
a creditor of the Company entitled to participate in distributions under
the Scheme and the position of Ancrane as a creditor of Corp and a
Bondholder entitled to participate in distributions under the Corp
Scheme, this may involve successive distributions between the Company and
Corp including distributions made in accordance with the Ancrane
Direction, either notional or actual, as provided for in this Scheme and
the Corp Scheme.
THE CORP/PLC MODEL
27. (1) Sub-clauses 27(2), (3) and (4) shall apply to the Initial
Distribution if all of the conditions set out at (a) - (c)
inclusive below are satisfied on the Effective Date:
(a) the Corp Scheme including provisions in the form or
substantially the form of that set out in Schedule 2 becomes
effective;
(b) the Supervisors admit Corp's Known Claim; and
(c) (i) Ancrane's Claim is admitted by the supervisors of the
Corp Scheme pursuant to the terms of the Corp Scheme;
or
(ii) either (or both) of the claims of the Eurobond
Trustee listed in schedule 3 to the Corp Scheme are
admitted by the supervisors of the Corp Scheme
pursuant to the terms of the Corp Scheme; or
(iii) either (or both) of the claims of the Yankee Bond
Trustee listed in schedule 3 to the Corp Scheme are
Admitted by the Supervisors of the Corp Scheme
pursuant to the terms of the Corp Scheme.
(2) To give effect to clause 26 and on the conditions in sub-clause
27(1) being satisfied on the Effective Date, the Supervisors shall
agree with the Corp Scheme supervisors a distribution model
simulating successive distributions in the Corp Scheme and the
Scheme of the amounts distributed to Corp in the Scheme and to the
Company (pursuant to the Ancrane Direction) (using the figures for
Corp's Known Claim, Ancrane's Claim as actually admitted by the
supervisors of the respective Schemes and Ancrane's holding of
Bonds) in order to produce a net additional amount of Scheme
Consideration available for Distribution to Admitted Scheme
Creditors with the Initial Distribution (such net additional amount
being the "CORP DISTRIBUTION SUPPLEMENT"). The Corp Distribution
Supplement shall be distributed to Eligible Recipients at the times
and in the manner set out in sub-clause 27(4).
(3) The Elements of the Corp Distribution Supplement shall for these
purposes be treated as being made up of two parts as follows:
(a) the "KNOWN CLAIMS SUPPLEMENT" which shall be the Corp
Distribution Supplement less the Reserve Claims Supplement;
and
(b) the "RESERVE CLAIMS SUPPLEMENT" which shall be the same
proportion of the Corp Distribution Supplement as the Basic
Reserve Claims Segment (which for this purpose shall be
calculated after taking into account any increase in the size
of the Basic Reserve Claims Segment resulting from Known
Claims being Conclusively Rejected which results in the
Distribution Entitlement to which the Known Creditor who
would have been entitled had its Known Claim been Admitted
being deducted from the Basic Known Claims Segment and
becoming part of the Reserve Claims Segment pursuant to
clause 29) is of the Basic Scheme Consideration.
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III. THE PLC SCHEME
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(4) (a) The Elements of the Known Claims Supplement shall be
distributed to Admitted Known Creditors at the same time as
the Initial Distribution.
(b) The Elements of the Reserve Claims Supplement shall be
distributed to Admitted Reserve Creditors at the same time as
the Initial Distribution.
(5) (a) For the purposes of Distributions under the Scheme:
(i) other than the Initial Distribution; and/or
(ii) as regards the Initial Distribution if the provisions
of sub-clause 27(2) do not come into force because one
or more of the conditions in sub-clause 27(1) is not
satisfied,
the Supervisors may agree similar or analogous arrangements to
those in sub-clause 27(2) (a "MODEL") with the supervisors of
the Corp Scheme where, acting reasonably, the Supervisors
consider that to do so will be in the interests of Admitted
Scheme Creditors.
(b) If a model is agreed pursuant to sub-clause 27(5)(a) prior to
the expiry or termination of the Waiting Period, the
equivalent of the Corp Distribution Supplement thereby created
shall be apportioned in the same manner as provided for in
sub-clause 27(3), otherwise no apportionment shall be made.
(c) Any supplement arising pursuant to sub-clause 27(5)(a)(ii)
which shall be apportioned in accordance with sub-clause
27(5)(b) shall be distributed at the same times and in the
same manner as provided for in sub-clause 27(4).
(d) Any supplement arising pursuant to sub-clause 27(5)(a)(i)
prior to the expiry or termination of the Waiting Period shall
become available for distribution following apportionment
under sub-clause 27(5)(b) and the Supervisors shall promptly
issue a Distribution Notice to the Escrow Trustee (with a copy
to the Distribution Agent) in respect of the distribution of
the relevant amount of the supplement to which Admitted Known
Creditors are entitled pursuant to sub-clause 21(4)(a) and the
relevant amount of the Reserve Claim Supplement to which
Admitted Reserve Creditors are entitled pursuant to sub-clause
21(4)(b) to Eligible Recipients in respect of the previously
Admitted Claims provided that the costs of making that
Distribution would not exceed the value of the Scheme
Consideration to be distributed.
(e) Any supplement arising pursuant to sub-clause 27(5)(a)(i)
after the expiry or termination of the Waiting Period shall be
distributed in accordance with the provisions of clause 25.
CORP RECEIPTS
28. (1) As regards:
(a) the Initial Distribution if the provisions of sub-clauses
27(2)-27(4) above do not come into force for any reason; and
(b) any Distributions other than the Initial Distribution,
in each case, to the extent that relevant similar or analogous
arrangements as referred to in clause 27(5) are not agreed in
respect of the Company's entitlement to the Corp Receipts, Admitted
Scheme Creditors shall be entitled to all Corp Receipts from time to
time which shall be held on trust for Scheme Creditors under the
Scheme.
(2) If Corp Receipts arise pursuant to sub-clause 28(1) prior to the
expiry or termination of the Waiting Period, those Corp Receipts
shall be apportioned in the same manner as provided for in sub-
clause 27(3), otherwise no apportionment shall be made.
(3) Any Corp Receipts arising pursuant to sub-clause 28(1)(a) which
shall be apportioned in accordance with sub-clause 28(2) shall be
distributed at the same times and in the same manner as provided for
in sub-clause 27(4).
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III. THE PLC SCHEME
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(4) Any Corp Receipts arising pursuant to sub-clause 28(1)(b) prior to
the expiry or termination of the Waiting Period shall become
available for distribution following apportionment under sub-clause
28(2) and the Supervisors shall promptly issue a Distribution Notice
to the Escrow Trustee (with a copy to the Distribution Agent) in
respect of the distribution of the relevant amount of the supplement
to which Admitted Known Creditors are entitled pursuant to
sub-clause 21(4)(a) and the relevant amount of the Reserve Claim
Supplement to which Admitted Reserve Creditors are entitled pursuant
to sub-clause 21(4)(b) to Eligible Recipients in respect of the
previously Admitted Claims provided that the costs of making that
Distribution would not exceed the value of the Scheme Consideration
to be distributed.
(5) Any supplement arising pursuant to sub-clause 28(1)(b) after the
expiry or termination of the Waiting Period shall be distributed in
accordance with the provisions of clause 25.
REJECTED CLAIMS
29. Where a Known Claim is Conclusively Rejected before the expiry or
termination of the Waiting Period, the Distribution Entitlement to which
the Known Creditor would have been entitled, had its Known Claim been
Admitted rather than Conclusively Rejected shall form part of the Reserve
Claims Segment.
GENERAL PROVISIONS ON DISTRIBUTIONS
30. (1) No Scheme Creditor shall have any right to disturb a prior
Distribution, whether on the grounds that there remains insufficient
Scheme Consideration to satisfy that creditor's Distribution
Entitlement (if any) or otherwise.
(2) The Supervisors shall give all necessary directions and issue all
necessary Distribution Notices to the Escrow Trustee (with a copy to
the Distribution Agent) to enable Distributions to be made in
accordance with the Scheme. The issue by the Supervisors of
directions in accordance with this sub-clause 30(2) shall be a
complete discharge of the Supervisors' responsibilities with respect
to such Distributions. Without prejudice to the generality of the
previous sentence, the Supervisors shall not be liable in any way
whatsoever for any acts or omissions of the Escrow Trustee, the
Distribution Agent or Bondholder Communications in respect of those
directions.
(3) Subject always to sub-clause 30(1), an Admitted Scheme Claim may be
withdrawn or reduced as to the amount claimed by agreement between
the Supervisors and the relevant Admitted Scheme Creditor.
(4) Any sums of cash or rights or benefits paid, transferred or credited
to the Escrow Trustee pursuant to the direction referred to in
clause 34 shall be distributed together with, or, as appropriate, in
place of, and at the same time as, the New Rights to which such sum
of cash or other rights or benefits relate.
(5) (a) Elections may be made in Claim Forms and Account Holder
Letters:
(i) to receive any New Shares in the form of ADRs; and/or
(ii) subject to thresholds described in Recital I being met,
to receive euro-denominated or US Dollar-denominated
New Senior Notes (but not both); and/or
(iii) to receive any New Shares:
(A) in certificated form; or
(B) into an account held CREST.
(b) Where there are any New Shares which are not sufficient in
number to equate to one ADR and which therefore cannot be
transferred to the ADR Depositary in accordance with the terms
of the Escrow and Distribution Agreement, the Supervisors
shall direct the Escrow Trustee to procure that the
Distribution Agent, acting of behalf of the Escrow Trustee
shall sell those New Shares and remit the proceeds to augment
the Reserve Claims Segment.
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III. THE PLC SCHEME
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(6) Eligible Recipients shall receive their Distributions in accordance
with the provisions of the Scheme provided that no fraction of a
New Share and no fraction of a New Note shall be transferred to any
Eligible Recipient but :
(a) if the New Shares or New Notes or any of them are Listed all
fractions of such Listed New Shares or New Notes which, but
for this proviso, any such Eligible Recipients would have
received shall be aggregated and sold in the market and the
net proceeds of sale shall comprise part of the Reserve
Claims Segment; and
(b) if any of the New Shares or New Notes are not Listed, all
entitlements of Eligible Recipients to all fractions of such
New Shares and New Notes which, but for this proviso any such
Eligible Receipts would have received shall be rounded down
to zero and the fractions shall comprise part of the Reserve
Claims Segment.
(7) (a) New Shares and New Notes will not be distributed to or to the
order, or for the account or benefit, of any person where
such distribution would be prohibited by any applicable law
or regulation, or so prohibited except after compliance with
conditions or requirements that are unduly onerous. Where any
determination is required as to whether the conditions or
requirements of applicable law or regulation are "unduly
onerous," such determination will be made by the Company with
the advice of legal counsel and having due regard for the
number of Scheme Creditors and Bondholders that are or may be
located in the relevant jurisdiction, the value of the
securities to which such persons are or may be entitled
pursuant to the Scheme, the extent to which the requirements
of the laws and regulations of such jurisdiction as applied
to the Scheme are uncertain, the nature and extent of the
risks or penalties associated with any violation of those
legal or regulatory requirements and the costs,
administrative burden and timing implications of taking such
action (if any) as might permit distributions of securities
to be made in that jurisdiction (including pursuant to any
available exemptions) in accordance with applicable legal and
regulatory requirements.
(b) Notwithstanding the foregoing, distribution of New Shares and
New Notes will not be refused on the grounds of any legal or
regulatory prohibition of general application under the laws
of any Unrestricted Jurisdiction, unless there has been a
Change of Law.
(c) New Shares and New Notes will not be distributed to or to the
order of any Scheme Creditor or Bondholder located in any
Restricted Jurisdiction, except that New Shares and New Notes
will be distributed to or to the order of:
(i) any Scheme Creditor or Bondholder located in France if
the Scheme Creditor or (as the case may be) the
Bondholder and any Designated Recipient of such
Bondholder is a "qualified investor" as defined in
Article L.411-2 of the French Monetary and Financial
Code;
(ii) any Scheme Creditor or Bondholder located in Italy,
if CONSOB has confirmed that such distribution does
not constitute a public offering under Italian
securities legislation;
(iii) any Scheme Creditor or Bondholder located in Italy,
if:
(A) such person is a "professional investor" as
defined in the Consolidated Financial Act Article
30, paragraph II and in CONSOB Regulation
11522/1998 Article 31, paragraph II; or
(B) such person is not a "professional investor" as
so defined but the number of such persons that
are not "professional investors" does not exceed
200; and
(iv) any Scheme Creditor or Bondholder located in the US
states of Arizona, California, Colorado, Connecticut,
Illinois, Ohio and Vermont if such persons falls
within one of the relevant categories of persons set
out in Schedule 4.
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III. THE PLC SCHEME
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Notwithstanding the foregoing, New Shares and New Notes may be
distributed to or to the order of persons located in a
Restricted Jurisdiction to the extent that there has been a
Change of Law.
(d) Notwithstanding the provisions of sub-clause 30(7)(c) above,
if the confirmations required by box 3 of the Claim Form or
section 5, paragraphs (D), (E) and (F) of the Account Holder
Letter are given in the form requested by the Claim Form or
the Account Holder Letter (as the case may be), then
distribution of New Shares and New Notes to or to the order of
the relevant persons will not be refused on the grounds of any
legal or regulatory prohibition of general application under
the laws of any Restricted Jurisdiction, unless:
(i) the Company determines that such confirmations have
been given inappropriately on the basis that
information provided in or in connection with the
transmittal of the Claim Form or Account Holder Letter
indicates that such Claim Form has been submitted by,
or such Account Holder Letter has been delivered on
behalf of, or delivery of securities is being requested
to or for the account or benefit of, a person that is
located in a Restricted Jurisdiction and that could not
be eligible to receive the securities under any
provision described in sub-clause 30(7)(c);
(ii) the Company obtains actual knowledge that such
confirmations are false; or
(iii) there has been a Change of Law.
Notwithstanding the foregoing, New Shares and New Notes will
be distributed in Italy pursuant to sub-clauses
30(7)(c)(ii)(B) and 30(7)(c)(iii)(B) (to the extent
applicable) without regard to whether the required
confirmations have been inappropriately or falsely given in
any relevant Claim Form or Account Holder Letter.
(e) To the extent that New Shares or New Notes that would
otherwise be deliverable pursuant to the Scheme cannot be
delivered because of a legal or regulatory prohibition
described in sub- clause 30(7)(a), such New Shares or New
Notes will not be delivered and instead:
(i) in the case of New Shares or New Notes that are listed
on a securities exchange, such New Shares or New Notes
will be sold and the net proceeds of such sale
delivered to the relevant person in full satisfaction
of the rights of such person in respect of such New
Shares or New Notes under the Scheme, all as more
particularly specified in the Escrow and Distribution
Agreement; and
(ii) in the case of New Shares or New Notes that are not
listed on a securities exchange, the relevant person
will receive a sum in cash which is substantially
equivalent in value to such New Shares or New Notes,
such sum to be determined by agreement between the
Company and the Supervisors or absent such agreement by
adjudication under Part V and the Supervisors shall
direct the sale of the New Shares and/or New Notes to
which the relevant person would otherwise have been
entitled.
(8) The Supervisors shall give all appropriate directions to the Escrow
Trustee (with a copy to the Distribution Agent) to give effect to
this clause 30.
(9) Any sale referred to in this clause 30 shall be made for the best
terms reasonably available at the time of the sale and shall be
undertaken on behalf of the person absolutely entitled to the
relevant asset and none of the Supervisors, the Company, the Escrow
Trustee, the Distribution Agent, the Registrars or any other person
shall be responsible for any loss arising from the terms or timing
of the sale.
(10) For the avoidance of doubt, a Scheme Creditor must comply with the
terms of the Scheme, including submitting a Claim Form in accordance
with the provisions of clause 12, in order for its Eligible
Recipient to receive any Distributions of Scheme Consideration to
which that Scheme Creditor's Scheme Claim might entitle it.
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III. THE PLC SCHEME
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INSURED SCHEME CLAIMS
31. (1) As from the Effective Date the Company shall in respect of each and
every Insured Scheme Claim but subject to sub-clauses 31(2), (3),
(4), (5) and (6) hold on trust for the Scheme Creditor concerned all
Insurance Recovery Rights which the Company may have in relation to
that Insured Scheme Claim.
(2) If Liability is established against the Company in relation to a
Scheme Claim which appears to the Supervisors to be wholly or partly
an Insured Scheme Claim the Supervisors shall forthwith notify the
Scheme Creditor concerned:
(a) the extent that the Scheme Claim appears to them to be an
Insured Scheme Claim; and
(b) whether the insurance contract concerned appears to permit the
Scheme Creditor concerned to take an assignment of the rights
referred to in sub-clause 31(3).
(3) If, within 28 days of receipt of a notice given by the Supervisors
pursuant to sub-clause 31(2) to the effect that the Scheme Creditor
appears to have the right to an assignment conferred by this sub-
clause, the Scheme Creditor in respect of such Insured Scheme Claim
shall so elect by notice in writing to the Supervisors, the
Supervisors shall forthwith on behalf of the Company but subject to
sub-clauses 31(3)(a), (b) and (c), assign to that Scheme Creditor
all Insurance Recovery Rights which the Company may have in relation
to that Insured Scheme Claim, provided that:
(a) if the Liability of the Insurer to the Company exceeds the
amount for which the Insured Scheme Claim has been Admitted
nothing in sub-clause 31(1) or in this sub-clause or in any
assignment shall affect the rights of the Company against the
Insurer in respect of the excess or the Company's entitlement
to those rights which shall form part of the Property of the
Company available for application in accordance with this
Scheme;
(b) if the Liability of the Insurer to the Company in respect of
the Insured Scheme Claim is less than the amount for which the
Insured Scheme Claim has been Admitted then the balance shall
be treated as though it were a separate Known Claim or Reserve
Claim as appropriate of an amount equal to such balance and if
Admitted shall be entitled to rank pari passu with other
Admitted Scheme Claims accordingly; and
(c) the risk that the assignment will be ineffective or prejudice
Insurance Recovery Rights shall vest in the Scheme Creditor.
(4) If the Supervisors shall have given notice in accordance with
sub-clause 31(2) in respect of a Scheme Claim then, unless all
Insurance Recovery Rights in relation to that Scheme Claim shall
have been assigned to the Scheme Creditor the following provisions
shall apply:
(a) if and to the extent that the Scheme Claim is Admitted as an
Insured Scheme Claim:
(i) the Supervisors shall use all reasonable endeavours to
enforce for the benefit of the Scheme Creditor concerned
all Insurance Recovery Rights in relation to that
Insured Scheme Claim as if those Insurance Recovery
Rights had been transferred to and vested in the Scheme
Creditor and any monies received by the Company from an
insurer in or towards settlement of those Insurance
Recovery Rights shall (subject to any offset right of
the Company) be held in trust for the benefit of the
Scheme Creditor, provided that the Supervisors shall not
be required to take any action otherwise than on the
instructions of the Scheme Creditor, nor to incur any
expense in relation to any Insurance Recovery Rights
except to the extent that the Supervisors have been
placed in funds by the Scheme Creditor to do so; and
(ii) no Distributions shall be made in respect of that
Insured Scheme Claim until the outcome of such
enforcement is known and any monies payable in respect
of the Related Insurance Recovery Rights have been
received by the Company;
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III. THE PLC SCHEME
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(b) if the net proceeds of such enforcement shall exceed the
amount at which the Insured Scheme Claim is Admitted the
Supervisors shall pay to the Scheme Creditor concerned an
amount equal to the amount at which the Insured Scheme Claim
has been Admitted and the excess of the net proceeds shall
form part of the Property of the Company available for
application in accordance with this Scheme;
(c) if the net proceeds of such enforcement shall be less than the
amount at which the Insured Scheme Claim has been Admitted the
Supervisors shall pay the net proceeds to the Scheme Creditor
concerned and the balance of the amount at which the Scheme
Claim has been Admitted shall be treated as through it were a
separate Scheme Claim of an amount equal to the amount of such
balance and shall rank pari passu with other Admitted Scheme
Claims accordingly; and
(d) the Supervisors may deduct from any payment and retain an
amount equal to any payment received directly by the Scheme
Creditor in respect of the Insured Scheme Claim under any
Insurance Compensation Scheme, and that Insured Scheme Claim
shall be reduced by that amount.
(5) Following the service of a notice pursuant to sub-clause 31(2) the
Scheme Creditor shall be entitled to receive such information from
the Supervisors as is in their possession or power as the Scheme
Creditor would have been entitled to receive under Section 2 of the
1930 Act in the event of a winding up order against the Company.
(6) The mandatory set-off provisions in clause 5 shall apply to any
payment due to any Scheme Creditor pursuant to this clause 31.
32. (1) If any questions or dispute shall arise as to the operation of
clause 31, and in particular (but without limiting the generality of
the foregoing) as to the part of an Insured Scheme Claim which has
been Admitted which is to be treated as a separate Admitted Scheme
Claim the question or dispute shall be referred to an individual
agreed between the Supervisors and the relevant Scheme Creditor to
adjudicate on such question or dispute (being an independent third
party considered by the Supervisors and the relevant Scheme Creditor
to be a fit and proper person duly qualified to adjudicate on the
points at issue) or in the absence of any such agreement between the
relevant Scheme Creditor and the Supervisors, a person nominated by
The President of the Law Society of England and Wales.
(2) The Supervisors shall provide the person to whom the question or
dispute is referred (the "INDEPENDENT ADJUDICATOR") with copies of
the correspondence between the parties relating to the question or
dispute and any other relevant documentation. The Independent
Adjudicator shall be entitled to call for copies of any further
documentation he considers necessary to assist him to reach a
decision and the Supervisors and the Scheme Creditor concerned shall
co-operate in providing such information. The Independent
Adjudicator shall notify the Supervisors and the relevant Scheme
Creditor of his decision by notice in writing sent by Post as soon
as may be practicable.
(3) Subject to any mandatory applicable law, the determination of the
Independent Adjudicator as to any such question or dispute shall be
final and binding on the Company and the Supervisors and the Scheme
Creditor concerned and, for the avoidance of doubt, there shall be
no right of appeal therefrom, and no right to make any claim against
the Independent Adjudicator in respect thereof. For the avoidance of
doubt, this exclusion of any right of appeal shall operate only to
the extent permitted by law.
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III. THE PLC SCHEME
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PART IV
ESCROW AND DISTRIBUTION ARRANGEMENTS
ESCROW AND DISTRIBUTION AGREEMENT
33. On the Effective Date, those provisions of the Escrow and Distribution
Agreement which have not already come into force shall come into force in
accordance with its terms. In particular, but without limitation, the
Company, forthwith upon the Effective Date, shall procure that the Basic
Scheme Consideration shall be paid or transferred to the Escrow Trustee
to be dealt with in accordance with the Escrow and Distribution
Agreement. The Company shall procure that any Corp Receipts shall (as
soon as practicable after receipt by the Company) be paid or transferred
to the Escrow Trustee to be dealt with in accordance with the Escrow and
Distribution Agreement.
SCHEME CONSIDERATION WHEN HELD IN ESCROW BY THE ESCROW TRUSTEE
34. plc shall direct that all of the Scheme Consideration transferred to the
Escrow Trustee shall be held by the Distribution Agent as custodian for
the Escrow Trustee. The Escrow Trustee shall hold that Scheme
Consideration on bare trust absolutely for the Scheme Creditors on the
basis set out in the Escrow and Distribution Agreement. So as to bind the
Scheme Creditors and any persons deriving title from them, the Scheme
Consideration shall be applied by the Escrow Trustee on behalf of the
Scheme Creditors absolutely entitled to it, in accordance with the Escrow
and Distribution Agreement and the provisions of the Scheme. Subject to
the provisions of the Escrow and Distribution Agreement the Escrow
Trustee shall at no time whatsoever, either present or future, have any
beneficial interest in the Scheme Consideration.
35. Whilst any New Shares, New Notes or other similar instruments (if any) or
cash are held by or on behalf of, the Escrow Trustee:
(1) dividends paid on (or any other rights or benefits added or
attached to) such New Shares or similar instruments; and/or
(2) interest accrued on any such cash or interest paid on any such New
Notes (or similar instruments); and/or
(3) any cash arising from the prepayment by Corp of any such New Senior
Notes or New Junior Notes in accordance with their terms and any
interest accruing thereon,
shall be paid, transferred or credited to the Escrow Trustee to hold on
the terms of the Escrow and Distribution Agreement.
36. The Escrow Trustee shall not exercise any voting rights attaching to any
New Notes or New Shares held in escrow.
37. (1) The Escrow Trustee's liabilities as trustee shall be solely those
arising out of its trusteeship and other obligations set out in the
Escrow and Distribution Agreement.
(2) The Distribution Agent's liabilities as custodian for the Escrow
Trustee and as distribution agent shall be solely those arising out
of its custodianship and other obligations set out in the Escrow
and Distribution Agreement.
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III. THE PLC SCHEME
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PART V
INDEPENDENT ADJUDICATION
38. If any question or issue in relation to the existence or quantum of a
Scheme Claim shall be referred for adjudication as a result of an
election made pursuant to clause 17 or the question of what sum an
Eligible Recipient shall be entitled to shall be referred for
adjudication pursuant to sub-clause 30(7)(e)(ii), the question or issue
shall be referred for adjudication to an individual agreed between the
Supervisors and the relevant Scheme Creditors (the "COUNTERPARTY"), such
individual to be an independent third party considered by the Supervisors
and the Counterparty to be a fit and proper person duly qualified to
adjudicate on the question or issue, or in the absence of any such
agreement between the Supervisors and the Counterparty within 10 Business
Days of the election, to an individual nominated by The President of the
Law Society of England and Wales.
39. The individual to whom the question or issue is referred (the
"ADJUDICATOR") shall be entitled to prescribe such reasonable provisions
and procedures as, in his absolute discretion, he may consider
appropriate for the purposes of assisting him in reaching his decision,
and shall be entitled for such purpose to call for such evidence in
relation to the question or issue referred to him as he may require,
provided that the Counterparty and the Company shall always be afforded a
reasonable opportunity to make oral submissions to the Adjudicator. In
any one adjudication, such oral submissions shall not in aggregate occupy
more than one working day save with the approval, in his absolute
discretion, of the Adjudicator.
40. With regard to any adjudication before him, the Adjudicator may make such
directions in respect of payment of his remuneration and in respect of
the costs, charges and expenses incurred by him, the Supervisors, the
Company or the Counterparty as he shall think just. In particular, but
without limitation, one party may be directed to pay remuneration and
costs, charges and expenses of another party if, in the opinion of the
Adjudicator, any such party has made a claim, relied on a defence or
otherwise howsoever conducted himself in relation to the adjudication in
a manner which is frivolous, vexatious or had no reasonable prospect of
success.
41. If the Adjudicator shall direct that any such remuneration, costs,
charges and expenses be paid by the Supervisors or by the Company, the
same shall forthwith be paid in full by the Company.
42. If the Adjudicator shall direct that any such remuneration, costs,
charges and expenses be paid by the Counterparty, the same shall
forthwith be paid in full by the Counterparty and, if not so paid then,
for the purposes of determining whether such Counterparty is entitled to
participate in any distribution under the Scheme, he shall be treated as
having received on account an advance distribution under the Scheme equal
to the amount which he has been directed to pay.
43. Subject to any directions which may be given by the Adjudicator in
accordance with clause 40, the Company shall pay all costs, charges and
expenses incurred by the Adjudicator in the course of exercising and
performing his powers, duties and functions under the Scheme and shall
pay such remuneration to the Adjudicator for the exercise and performance
of his powers, duties and functions as may be agreed between the
Adjudicator and the Supervisors and approved by the Creditors' Committee.
44. The Adjudicator shall notify the Supervisors and the relevant
Counterparty of his decision by notice in writing by Post as soon as
practicable.
45. Subject to any mandatory applicable law, the determination of the
Adjudicator of any question or issue shall be final and binding on the
Company, the Supervisors and the Counterparty and, for the avoidance of
doubt, there shall be no right of appeal therefrom, and no right to make
any claim against the Adjudicator in respect thereof. For the avoidance
of doubt, this exclusion of any right of appeal shall operate only to the
extent permitted by law.
46. If at the expiration of 6 months in the case of a question or issue
referred for adjudication as a result of an election made pursuant to
clause 17 or of 3 months in the case of a question or issue referred for
adjudication pursuant to sub-clause 30(7)(e)(ii) no decision on such
question or issue has been reached by an Adjudicator, then nothing in
this Scheme shall preclude the Counterparty from taking any appropriate
action in the Court for the purposes only of securing a determination of
the question or issue concerned.
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III. THE PLC SCHEME
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PART VI
THE SUPERVISORS
47. The Supervisors shall have the powers, duties and functions conferred
upon them by the Scheme and any other documents entered into pursuant to
the Scheme.
48. The Supervisors shall be a minimum of two individuals (and not more than
three) who are each licensed insolvency practitioners and duly qualified
in the reasonable opinion of the Company and the Creditors' Committee to
discharge the function of the Supervisors under the Scheme. The initial
Supervisors shall be Philip Wedgwood Wallace and Richard Heis of KPMG
LLP, 8 Salisbury Square, London EC4Y 8BB, England.
49. The Supervisors, or any of them, may resign their appointment at any time
by giving not less than 28 days' notice in writing to the Company and the
Creditors' Committee or such shorter period as may be agreed by the
Company and the Creditors' Committee.
50. The office of Supervisor shall be vacated by an appointee to that office
if that appointee:
(1) dies, becomes bankrupt or mentally disordered; or
(2) is convicted of an indictable offence (other than a road traffic
offence); or
(3) resigns his office by 28 days' notice in writing to the other
Supervisors; or
(4) ceases to be a licensed insolvency practitioner.
51. In the event of a vacancy in the office of the Supervisors (pursuant to
clauses 49 and 50), the Company and the Creditors' Committee (acting in
accordance with sub-clause 82(2)) shall, if required, forthwith appoint
as a replacement Supervisor a person who is suitably qualified so to act
pursuant to clause 48 and not disqualified to act under clause 50 and who
consents to act as Supervisor.
52. The functions and powers of the Supervisors under the Scheme may be
performed and exercised jointly or severally and any act required to be
done by the Supervisors pursuant to the Scheme may be done by all or any
one or more of them.
53. (1) The Supervisors shall supervise, and carry out their functions as
set out in, the Scheme.
(2) Without prejudice to the generality of sub-clause 53(1), the
Supervisors shall:
(a) execute an accession letter to the Escrow and Distribution
Agreement on the Effective Date and on and from the Effective
Date, perform their obligations and duties thereunder;
(b) prepare a report on the conduct of the affairs of the Company
in relation to the Scheme and the operation of the Scheme
during each period of twelve months since the later of the
Effective Date and the date when the last such report was
prepared;
(c) attend meetings of the Creditors' Committee and meetings of
the Scheme Creditors convened and operated in accordance with
Part VIII to discuss such reports or, if requested by the
party convening the meeting, for any other purpose in
relation to the operation of this Scheme;
(d) pay Excluded Claims and Scheme Expenses when they become due
and payable provided such claims are not disputed by the
Supervisors (acting reasonably) and draw on the LC Facility
as required in accordance with its terms; and
(e) maintain a record of Scheme Creditors entitled to attend
meetings of Scheme Creditors based on information contained
in Claim Forms and supplied by Bondholder Communications to
the Supervisors in accordance with the terms of the Escrow
and Distribution Agreement.
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III. THE PLC SCHEME
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54. The Supervisors shall, with effect from the Effective Date, ensure that
there is in force in relation to the Company such bond as would have had
to be in force if the Company had been wound up in England on the
Effective Date and they had been appointed as liquidators of the Company.
55. Without prejudice to the generality of clause 53, in carrying out their
functions and powers under the Scheme the Supervisors shall be entitled:
(1) to admit or refuse to admit Scheme Claims Submitted by Scheme
Creditors (including to ensure the Company properly conducts its
defence of any Prohibited Proceedings and/or any Allowed
Proceedings) and direct:
(a) Distributions; and
(b) realisations of Scheme Consideration to generate cash for
Distributions by the Distribution Agent in accordance with
the Scheme and the Escrow and Distribution Agreement;
(2) to have access at all reasonable times to all relevant employees,
books, papers and other documents of the Company and to receive all
such information from the Company as they may reasonably require in
relation to their duties as Supervisors and to receive the
reasonable co-operation of the Company in connection with the
conduct of any Prohibited Proceedings, any Allowed Proceedings or
defending any Proceedings against the Supervisors in respect of
carrying out their functions and exercising their powers under the
Scheme;
(3) to delegate to any Employee all or any of the functions, powers,
rights, authorities and discretions conferred upon the Supervisors
under the Scheme and from time to time to revoke any such
delegation, provided that the Supervisors shall be responsible for
any act or omission of any such employee or delegate to the same
extent as if they had expressly authorised it;
(4) to be remunerated for the carrying out of such functions and
powers (in the case of the initial Supervisors, Philip Wedgwood
Wallace and Richard Heis, such remuneration to be calculated by
reference to the Supervisors' Engagement Letter) and to be
reimbursed for all expenses properly incurred by them in connection
with this clause including any adverse costs ordered to be paid by
the Supervisors as a result of any Proceeding in connection with
the Scheme;
(5) to defend any proceedings against them in respect of carrying out
their functions and exercising their powers under the Scheme;
(6) to apply to the Court for directions in relation to any particular
matter arising in the course of the Scheme;
(7) to liaise with the Creditors' Committee and to attend Creditors'
Committee meetings;
(8) to convene a meeting of Scheme Creditors in accordance with Part
VIII, if appropriate;
(9) to exercise the powers listed in schedule 1 to the Insolvency Act
1986; and
(10) to exercise such powers as are necessary or desirable to enable
them to fulfil their functions under the Scheme and to do all other
things incidental to the exercise of the functions and powers
referred to in this and clause 53.
56. Save as expressly set out in this Scheme, the Supervisors shall be
entitled to employ and remunerate accountants, actuaries, lawyers and
other professional advisers or agents in connection with the conduct of
their functions and powers under the Scheme.
57. Any function of or power conferred on the Company or its officers,
whether by statute or by its memorandum or articles of association, which
could be exercised in such a way as to interfere with the exercise by the
Supervisors of their functions and powers in relation to the Company or
the Scheme shall not be so exercised except with the consent of the
Supervisors, which may be given either generally or in relation to
particular cases. Any such consent given by the Supervisors may be
withdrawn.
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III. THE PLC SCHEME
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58. In carrying out their functions and exercising their powers under the
Scheme, the Supervisors shall act bona fide and with due care and
diligence in the interests of the Scheme Creditors as a whole and they
shall use their powers under the Scheme for the purpose of ensuring that
the Scheme is operated in accordance with its terms.
59. (1) Save as expressly set out in this Scheme or the Escrow and
Distribution Agreement, the Supervisors shall act as agents of the
Company (without personal liability) in respect of all functions
and powers conferred on them under this Scheme. The Supervisors
shall, in their capacity as such, incur no liability to any Scheme
Creditor or any other person:
(a) in respect of any decrease in the value of a Scheme
Creditor's Distribution Entitlement during the period between
that Scheme Creditor submitting its Scheme Claim Form and
that Scheme Creditor receiving Scheme Consideration in
satisfaction of its Distribution Entitlement;
(b) in respect of bringing the Waiting Period to an end pursuant
to sub-clause 24(1);
(c) arising from the structure or establishment of the Scheme
including any claim based upon:
(i) the quantum of the Reserve Claims Segment; and
(ii) the timing of the First Initial Distribution; and
(d) arising from the exercise of any power or discretion vested
in them under the Scheme,
except where such liability arises as a result of their own
negligence, wilful default, breach of duty, breach of trust, fraud,
bad faith or dishonesty (or as a result of the negligence, wilful
default, breach of duty, breach of trust, fraud, bad faith or
dishonesty of any Employee).
(2) When the Company, acting through the Supervisors, gives directions
under:
(a) sub-clauses 4(c) and (d);
(b) sub-clauses 5(3), 5(5), 5(8) and (9)
(c) sub-clauses 6(1), 6(2), (3), 6(4) and 6(8);
(d) sub-clause 7(10);
(e) sub-clause 8(10);
(f) sub-clause 9(22);
(g) sub-clause 11(2);
(h) clause 12; or
(i) sub-clause 13(1),
of the Escrow and Distribution Agreement or sub-clause 111(3), the
Company gives those directions for and on behalf of the Scheme
Creditors who are absolutely entitled to the assets affected by
those directions under clause 5(7) of the Escrow and Distribution
Agreement and so as to procure that their obligations under clause
34 fulfilled.
60. (1) To the extent permitted by law, no Scheme Creditor shall be
entitled to challenge the validity of any act done or omitted to be
done in good faith and with due care by the Supervisors in
accordance with and to implement the provisions of the Scheme or
the exercise by the Supervisors in good faith and with due care of
any power conferred upon them for the purposes of the Scheme if
exercised in accordance with and to implement the provisions of the
Scheme and the Supervisors shall not be liable for any loss unless
such loss is attributable to their own negligence, default, breach
of duty, breach of trust, fraud or dishonesty (or to the
negligence, default, breach of duty, breach of trust, fraud or
dishonesty of any Employee).
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(2) To the extent permitted by law, no Scheme Creditor shall be
entitled to challenge the validity of any act done or omitted to be
done in good faith and with due care by any Employee in accordance
with and to implement the provisions of the Scheme if exercised in
accordance with and to implement the provisions of the Scheme and
no Employee shall be liable for any loss unless such loss is
attributable to his own negligence, default, breach of duty, breach
of trust, fraud or dishonesty.
61. The Supervisors' remuneration and expenses and all costs and expenses
incurred by them on behalf of the Company in carrying out their functions
and exercising their powers and generally in relation to the supervision
and implementation of the Scheme shall be met from the Expenses Fund.
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PART VII
CREDITORS' COMMITTEE
CONSTITUTION OF THE CREDITORS' COMMITTEE
62. (1) There shall be a Creditors' Committee under the Scheme.
(2) The Creditors' Committee shall consist of not less than three nor
more than seven persons (referred to henceforth in the Scheme as
"COMMITTEE MEMBERS") unless the Supervisors in consultation with
the Creditors' Committee agree otherwise.
(3) The following shall be eligible for appointment as Committee
Members:
(a) any Scheme Creditor (whether an individual, a body corporate
or a partnership);
(b) notwithstanding sub-clause 66(3), any other person with the
written consent of the Supervisors which consent may be
revoked by the Supervisors at any time.
(4) Each Committee Member which is a body corporate or a partnership
may, by notice in writing to the Creditors' Committee, appoint a
senior executive, other senior employee or professional adviser as
its representative ("NOMINATED REPRESENTATIVE") to represent that
Committee Member at any meeting of the Creditors' Committee.
(5) Any Committee Member or Nominated Representative who is an
individual may, by notice in writing to the Creditors' Committee,
appoint a senior executive, other senior employee or professional
adviser as an alternative ("ALTERNATE") to attend and vote in his
place at any meeting of the Creditors' Committee.
(6) Any Nominated Representative or Alternate shall have the same
powers and shall be subject to the same duties and limitations as
the Committee Member whom the Nominated Representative or Alternate
represents.
MEMBERSHIP OF THE CREDITORS' COMMITTEE
63. On the Effective Date, to the extent possible, the Supervisors shall
appoint up to seven Scheme Creditors, each of which has indicated its
willingness to act as a Committee Member in a Claim Form or Account
Holder Letter, representing a proper balance of the interests of Scheme
Creditors as a whole.
64. The Creditors' Committee may resolve at any time, by a majority of
two-thirds of the Committee Members present at a meeting of the
Creditors' Committee, to appoint any person who is eligible to be so
appointed to be a Committee Member, whether to fill a vacancy or as an
additional Committee Member, so that the total number of Committee
Members shall not exceed the maximum number specified in sub-clause
62(2). In appointing additional Committee Members, the Creditors'
Committee shall endeavour to ensure that the composition of the
Creditors' Committee is such that it represents a proper balance of the
interests of Scheme Creditors as a whole.
65. The Scheme Creditors may, by a resolution passed at a meeting of Scheme
Creditors convened, and at which business is transacted, pursuant to Part
VIII ("CREDITORS' RESOLUTION") remove any Committee Member from office
and without prejudice to the Creditors' Committee's powers under clause
64 may by Creditors' Resolution appoint any person who is eligible to be
appointed under sub-clause 62(3) to be a Committee Member either to fill
a vacancy or in addition to the existing Committee Members, but so that
the total number of Committee Members shall not exceed the maximum number
specified in sub-clause 62(2).
66. The office of a Committee Member shall be vacated if any of the
situations set out in clauses 67 to 69 applies or if that Committee
Member:
(1) resigns by notice in writing addressed to the Creditors' Committee;
or
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(2) is removed from office by a Creditors' Resolution; or
(3) subject to sub-clause 62(3)(b) and clause 69 ceases to be (or is
found never to have been) a Scheme Creditor or an authorised
representative of a Scheme Creditor; or
(4) fails to attend three consecutive meetings of the Creditors'
Committee, unless the Creditors' Committee (excluding that
Committee Member) resolves by a majority of two-thirds of the
Committee Members present at a meeting of the Creditors' Committee
that he should continue as a Committee Member.
67. In the case of an individual, the office of a Committee Member shall be
vacated if that individual:
(1) dies; or
(2) becomes bankrupt or is subject to an individual voluntary
arrangement or analogous process under the law of any jurisdiction
to which he is subject; or
(3) becomes mentally disordered; or
(4) becomes disqualified from acting as a director under the law of any
jurisdiction to which he is subject; or
(5) is convicted of an indictable offence (other than a road traffic
offence).
68. In the case of a body corporate or partnership, the office of a Committee
Member shall be vacated if that body corporate or partnership is
dissolved.
69. In the case of a person appointed with the consent of the Supervisors
under clause 62(3)(b), the office of that Committee Member shall be
vacated if that person has his written consent under that clause revoked
by the Supervisors.
70. Any person entitled to appoint a Nominated Representative or an Alternate
may from time to time revoke that appointment and appoint another
Nominated Representative or Alternate by notice in writing to the
Creditors' Committee, the Supervisors and the Company.
71. The appointment of a Nominated Representative or an Alternate (as the
case may be) shall terminate automatically if:
(1) his appointment is revoked by his appointor; or
(2) the person whom that Nominated Representative or Alternate
represents ceases to be a Committee Member; or
(3) the Nominated Representative or Alternate ceases to be a senior
executive, senior employee or professional adviser of the Committee
Member whom he represents; or
(4) the Nominated Representative or Alternate dies, becomes mentally
disordered, bankrupt or is disqualified from acting as a director
in each case under the law of any jurisdiction to which he is
subject or is convicted of an indictable offence (other than a road
traffic offence).
PROCEEDINGS OF THE CREDITORS' COMMITTEE
72. Save as otherwise specifically provided in the Scheme, the Creditors'
Committee may convene, adjourn and otherwise regulate its meetings in
such manner as it considers appropriate. Subject to clause 77 the quorum
at any meeting of the Creditors' Committee shall be at least two-thirds
of the Committee Members, provided that if a quorum is not present within
30 minutes from the time appointed for a meeting, or if during a meeting
such a quorum ceases to be present, the meeting shall stand adjourned to
such time and place as may be determined by the majority of the Committee
Members present and the Committee Members present at any such meeting
reconvened following an adjournment shall constitute a quorum. Each
Committee Member shall have one vote and, except as otherwise provided in
the Scheme, matters arising at a meeting shall be decided by a majority
of votes cast at the meeting.
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73. The Creditors' Committee shall meet at least once every 12 months for the
purpose of receiving a report from the Supervisors on the progress of the
Scheme. The Creditors' Committee shall hold such further meetings as it
considers desirable for the purpose of performing its functions under the
Scheme. A meeting of the Creditors' Committee shall be called as soon as
reasonably practicable if so requested by at least two Committee Members
or if the Supervisors otherwise consider it appropriate. Except with the
consent of all Committee Members, no meeting of the Creditors' Committee
may be called on less than ten Business Days' notice and, except with the
consent of all Committee Members, no business may be transacted at any
such meeting other than that set out in the notice of that meeting.
74. The Supervisors shall convene a meeting of the Creditors' Committee as
soon as reasonably practicable after the end of the Waiting Period.
75. Each Committee Member (including any Nominated Representative or
Alternate) and the Supervisors (or their representatives) shall be
entitled to attend and receive notice of all meetings of the Creditors'
Committee. The Supervisors shall be entitled to attend and speak, but not
to vote, at all meetings of the Creditors' Committee. If so requested by
the Creditors' Committee, the Supervisors (or their representative(s))
shall absent themselves from such part of a meeting of the Creditors'
Committee as the Creditors' Committee may specify.
76. Proper minutes shall be kept of all proceedings of the Creditors'
Committee and such minutes shall at all reasonable times be open to
inspection by (subject to clause 81) any Committee Member. Copies of such
minutes shall be sent as soon as practicable after each meeting to the
Supervisors and each Committee Member.
77. A Committee Member (including any Nominated Representative or Alternate)
and the Supervisors may participate in a meeting of the Creditors'
Committee through the medium of conference telephone or similar form of
communication equipment if all persons participating in the meeting are
able to hear and speak to each other throughout the meeting. A person
participating in this way is deemed to be present in person at the
meeting and, in the case of a Committee Member (including any Nominated
Representative or Alternate), is counted in a quorum and entitled to
vote. All business transacted in this way by the Creditors' Committee is
deemed to be validly and effectively transacted at a meeting of the
Creditors' Committee although fewer than two-thirds of the Committee
Members are physically present at the same place. If, at any time during
a Committee Meeting any person participating in the meeting ceases to be
able to hear and speak to all other Committee Members, Nominated
Representatives or Alternates, whether participating in the Committee
Meetings through the medium of conference telephone or similar form of
communication equipment or in person, the meeting shall be adjourned and
reconvened when full communication between those Committee Members
attending the meeting is restored.
78. Other than in relation to such a resolution as is referred to in clause
82, a resolution in writing signed by all Committee Members for the time
being shall be valid and effective as if passed at a meeting of the
Creditors' Committee duly convened and held.
POWERS
79. (1) The Creditors' Committee shall have the powers specifically set
out in the Scheme.
(2) If the Supervisors determine that the costs of making any further
Distribution of Scheme Consideration would exceed the value of the
Scheme Consideration remaining to be distributed, the Creditors'
Committee may direct the Supervisors to procure the sale of such
Scheme Consideration and distribute the proceeds of such sale
provided that the costs of making such Distribution do not exceed
the proceeds of sale to be distributed.
80. Before each meeting of Scheme Creditors convened pursuant to clause 93
the Supervisors shall submit to the Creditors' Committee a report on the
operation of the Scheme during the period since the last such report was
prepared (or, in the case of the first such meeting, since the Effective
Date) and shall (or shall appoint a representative to) attend at any
meeting of the Creditors' Committee at which that report is considered
for the purpose of giving such explanations and information as the
Creditors' Committee may
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require. A copy of that report, incorporating such amendments (if any) as
may be agreed by the Supervisors and the Creditors' Committee, shall be
made available to Scheme Creditors in accordance with clauses 95 and 96.
81. The Creditors' Committee may from time to time resolve to seek
information from the Supervisors concerning the operation of the Scheme,
and may depute any one Committee Member to apply in writing to request
and receive from the Supervisors any or all such information. The
Supervisors shall promptly give to the Creditors' Committee all such
information reasonably requested concerning the operation of the Scheme
as the Creditors' Committee shall from time to time resolve to seek and
in respect of which a written request shall have been received by the
Supervisors. Each Committee Member shall be entitled at any time to raise
questions or to request a meeting with the Supervisors in connection with
the performance of his responsibilities as a Committee Member and,
subject to their duties under the Scheme the Supervisors shall use
reasonable endeavours to respond to such questions or to comply with any
such request for a meeting. Notwithstanding the preceding provisions of
this clause the Supervisors shall not be obliged to disclose:
(1) any confidential information of the Company to a Committee Member
if the information relates, or the Supervisors reasonably believe
that the information relates, to any matter where such Committee
Member has an interest in conflict with the Company (other than a
general conflict arising as a result of the status of the Committee
Members (or their appointors) as Scheme Creditors); or
(2) any information which could cause the Company to breach insider
dealing rules, the Financial Services and Markets Act 2000 or the
Listing Rules of the UKLA.
82. The Creditors' Committee shall be entitled:
(1) by a resolution passed by at least three-fourths of all of the
Committee Members present and voting at any time to call upon a
Supervisor to resign, provided that each such Supervisor and each
Committee Member have been given at least 20 Business Days' notice
of the proposed resolution and of the reasons why the resolution is
to be put to the Creditors' Committee and have been given a
reasonable opportunity to make representations at the meeting at
which the resolution is proposed. If the Supervisor declines to
resign within 5 Business Days of a resolution of the Creditors'
Committee calling for his resignation a resolution requiring his
removal shall be put before the next meeting of the Scheme
Creditors and, if passed, the Supervisor shall vacate the office of
Supervisor;
(2) upon removal of a Supervisor or if a Supervisor ceases to hold
office for any other reason, to appoint any person qualified to act
under clause 48 to be a Supervisor in their place (and a resolution
requiring ratification of such appointment shall be put before the
next meeting of Scheme Creditors pending which the appointee shall
have full power to act as a Supervisor) save that if a resolution
is passed at a meeting of Scheme Creditors requiring the removal of
any of the Supervisors pursuant to sub-clause 82(1) such
appointment may be made by the Scheme Creditors at such meeting.
83. The Creditors' Committee shall be entitled to engage legal and financial
advisers from time to time as reasonable in order to assist them in
carrying out their functions as the Creditors' Committee. At any
particular time, the Creditors' Committee may only engage one legal and
one financial adviser. Reasonable costs of such advisers are Scheme
Expenses.
84. The Creditors' Committee and the Company shall use reasonable endeavours
to ensure that there are two duly qualified Supervisors in office at all
times.
DUTIES
85. Each Committee Member, each Nominated Representative, and each Alternate
shall, in performing their functions as such in relation to the Scheme,
act bona fide in what he or she reasonably considers to be the interests
of the Scheme Creditors as a whole. For the avoidance of doubt (but
without prejudice to its
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specific powers as set out by the Scheme) it shall not be the duty of the
Creditors' Committee to monitor the carrying out of the Scheme or the
activities of the Supervisors.
86. It shall be the duty of each Committee Member who is in any way, whether
directly or indirectly, interested in a contract or arrangement or
proposed contract or arrangement with the Company (other than any which
arises as a result of the provisions of the Scheme) to declare (or
procure that its Nominated Representative or Alternate shall declare) the
nature of his or its interest at a meeting of the Creditors' Committee.
For this purpose a general notice given to the Creditors' Committee to
the effect that a Committee Member is an associate (within the meaning of
section 435 of the Insolvency Act 1986) of a specified company or firm
and is to be regarded as interested in any contract with that company or
firm shall be deemed a sufficient declaration of interest in relation to
any such contract or arrangement. Such a Committee Member shall not be
counted in the quorum, shall not be entitled to vote in relation to any
matter relating specifically to any such contract, shall retire from the
meeting for so long as the matter is discussed and voted upon and shall
not receive any information, nor be entitled to inspect any part of the
minutes of a meeting of the Creditors' Committee, relating thereto.
87. Each Nominated Representative or Alternate shall be entitled to report to
the Committee Member appointing him on the proceedings of the Creditors'
Committee and, so far as necessary for that purpose, to disclose
confidential information of the Company to those officers, employees and
professional advisers of that member or appointor who need to know it in
connection with (where a Nominated Representative or Alternate is
disclosing information) the performance of his or its responsibilities as
a Committee Member, provided that such information does not to his or its
knowledge (after due enquiry) relate to any matter where any such
appointor has an interest in conflict with the Company (other than a
general conflict arising as the result of the status of Committee Members
or the appointors of a Nominated Representative or Alternate as Scheme
Creditors). Each Committee Member shall, and shall procure that its
Nominated Representative or Alternate and its officers, employees and
professional advisers shall preserve the confidentiality of such
information and shall use such information only for the purposes of their
performing their responsibilities and functions (or their Nominated
Representative's or Alternate's responsibilities and functions) in
relation to the Creditors' Committee.
RESPONSIBILITY
88. No Scheme Creditor, Supervisor or the Company shall be entitled to
challenge the validity of any act done or omitted to be done in good
faith by any Committee Member (or Nominated Representative or Alternate)
in accordance with and to implement the provisions of the Scheme or the
exercise by any such Committee Member (or Nominated Representative or
Alternate) in good faith of any power conferred upon it or him by or for
the purposes of the Scheme if exercised in accordance with and to
implement the provisions of the Scheme and no such Committee Member (or
Nominated Representative or Alternate) shall be liable for any loss or
damage unless such loss or damage is attributable to its or his own
wilful default, fraud, dishonesty or wilful breach of duty.
VALIDATION OF ACTS
89. All acts done by the Creditors' Committee or any member of the Creditors'
Committee or any person acting as a Committee Member or as a Nominated
Representative or Alternate shall, notwithstanding that it is afterwards
discovered that there was some defect in the appointment of a Committee
Member or person acting as aforesaid, or that any of them were
disqualified, be valid as if every such person had been duly appointed
and qualified.
EXPENSES
90. Each member of the Creditors' Committee, each Nominated Representative
and each Alternate shall be entitled to be reimbursed by the Supervisors
from the Expenses Fund upon written demand to the Supervisors for their
reasonable out of pocket expenses incurred in attending meetings of the
Creditors' Committee, provided that such meetings are held in London or
in such other place as the Supervisors may from time to time agree. Where
a Committee Member, its Nominated Representative or any Alternate
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appointed by the Committee Member or its Nominated Representative must
travel to attend a Creditors' Committee meeting in London (or such other
place as the Supervisors have agreed), that Committee Member or Nominated
Representative shall (and that Alternate shall procure that the Committee
Member or Nominated Representative shall) use all reasonable endeavours
to appoint as its Nominated Representative or Alternate (as the case may
be) for that meeting an individual who is based in locality of the venue
of that Creditors' Committee meeting. The Supervisors, acting reasonably,
may permit the reasonable out of pocket expenses incurred by a member of
the Creditors' Committee, Nominated Representative or Alternative to
include the costs of an air fare required to allow such Committee Member,
Nominated Representative or Alternate to attend the Creditors' Committee
meeting. Where the cost of an air fare is so permitted, it shall be the
cost of an economy class fare only.
NO CREDITORS' COMMITTEE
91. (1) If at any time there are less than three members of the Creditors'
Committee or such lesser number as permitted by sub-clause 62(2),
the Creditors' Committee may continue to exercise all its functions
under the Scheme (other than those provided for in clause 82 and
sub-clause 93(2)) for a period of 28 days, during which time the
remaining Committee Members shall endeavour to fill the vacancies
on the Creditors' Committee.
(2) If the Committee Members fail to fill vacancies on the Creditors'
Committee within such period of 28 days, the Supervisors shall use
all reasonable endeavours to appoint, within a further 14 days,
such additional Scheme Creditors ("INTERIM APPOINTEES") to the
Creditors' Committee as are required to fill such vacancies.
Interim Appointees may appoint a Nominated Representative or
Alternate pursuant to sub-clauses 62(4) and 62(5).
(3) In appointing any Interim Appointees pursuant to sub-clause 91(2),
the Supervisors shall endeavour to ensure that the composition of
the Creditors' Committee including such Interim Appointees is such
as to represent a proper balance of the interests of the Scheme
Creditors as a whole.
(4) In the event of vacancies on the Creditors' Committee being filled,
whether by appointees of the Creditors' Committee pursuant to
sub-clause 91(1) or by Interim Appointees appointed by the
Supervisors pursuant to sub-clause 91(2), the full powers and
functions of the Creditors' Committee under the Scheme shall be
restored, provided that no Interim Appointee shall be entitled to
vote in relation to any resolution to appoint an additional
Committee Member.
(5) Any Interim Appointee shall be liable to be removed as a Committee
Member at any time without notice if the Creditors' Committee
(excluding any Interim Appointees) appoints a Scheme Creditor to
fill the vacancy which had been filled by such Interim Appointee.
(6) If at any time after the operation of this clause there are no
members of the Creditors' Committee, the Supervisors shall be
entitled to continue to carry out their functions and exercise the
necessary powers pursuant to the terms of the Scheme, save that the
Supervisors shall not be required to provide reports to the
Creditors' Committee or obtain the approval of the Creditors'
Committee for the purposes of clause 117.
92. If, following the procedure set out in clause 91, there are less than
three Committee Members (including Interim Appointees) or such lesser
number as permitted by sub-clause 62(2) then, for so long as that is the
case, the Creditors' Committee shall not exercise any functions or have
any powers under the Scheme and the following provisions shall apply:
(1) the Supervisors shall use reasonable endeavours to find additional
Committee Members to enable it to function;
(2) any Supervisor may resign under clause 49 provided that a
replacement Supervisor is appointed in his place at a meeting of
the Scheme Creditors pursuant to a resolution proposed by the
Supervisors;
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(3) any Supervisor may be removed, provided that a replacement
Supervisor is appointed in his place at a meeting of the Scheme
Creditors pursuant to a resolution proposed by any ten Scheme
Creditors who have Scheme Claims of an aggregate value in excess of
15 per cent. of all Scheme Claims or any 30 Scheme Creditors; and
(4) the requirements for obtaining the consent, approval of and for
consulting with or notifying the Creditors' Committee and for
submitting a report to the Creditors' Committee shall be suspended.
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PART VIII
MEETINGS OF SCHEME CREDITORS
CONVENING OF MEETINGS
93. Meetings of Scheme Creditors are to be convened as follows:
(1) The Supervisors shall convene a meeting of the Scheme Creditors at
least once every 12 months unless the Supervisors and the
Creditors' Committee agree otherwise.
(2) The Creditors' Committee may at any time require the Company to
convene a meeting of the Scheme Creditors to consider a resolution:
(a) for the removal of a Supervisor pursuant to sub-clause 82(1);
(b) for the appointment of a Supervisor pursuant to sub-clause
82(2); or
(c) for such other purpose as it thinks fit.
(3) The Supervisors may at any time convene a meeting of the Scheme
Creditors for such purpose as they think fit.
(4) Any five or more Scheme Creditors who have Scheme Claims of an
aggregate value in excess of 15 per cent. of all Admitted and
Unadmitted Scheme Claims or any 20 Scheme Creditors may by notice
in writing signed by them or on their behalf and deposited at the
registered office of the Company require the Supervisors to convene
a meeting of Scheme Creditors for such purpose as they think fit.
The relevant Scheme Creditors must specify the purpose for which
the meeting is required and it shall be the duty of the Supervisors
forthwith to summon a meeting of Scheme Creditors for that purpose
and to give such notice of the meeting as is necessary to enable
such purpose to be carried out effectively in accordance with the
provisions of the Scheme.
94. The Company may appoint a representative or representatives to attend any
meeting of Scheme Creditors for the purposes of observing the meeting
only.
95. There shall be laid before each meeting of Scheme Creditors convened
pursuant to clause 93 the report referred to in clause 80 unless the
Supervisors and the Creditors' Committee agree that any such meeting
should not be held, in which case a copy of the report shall be sent by
the Supervisors to the Scheme Creditors upon request from the Scheme
Creditors to the Supervisors.
96. At least 20 Business Days' notice shall be given of a meeting of Scheme
Creditors. Such notice shall be exclusive of the day on which it is
served or deemed to be served and of the day for which it is given, and
shall (in the case of a meeting convened pursuant to clause 93) specify
the place and time of the meeting and the place from which a copy of the
report referred to in clause 80 can be obtained by Scheme Creditors upon
request from the Scheme Creditors to the Supervisors prior to the
meeting.
97. Any costs incurred in the production and distribution of the report
referred to in clause 80 are Scheme Expenses.
98. Notice of a meeting of Scheme Creditors shall be given by the Supervisors
or the Creditors' Committee, as the case may be, convening the meeting:
(1) to each Admitted Scheme Creditor, and to any other Scheme Creditor
who has applied in writing to the Company to receive notice of such
meeting, by sending a notice by Post to such Scheme Creditor at his
last known address;
(2) to all other Scheme Creditors by placing advertisements containing
the requisite information in such newspaper or newspapers as the
Supervisors shall consider appropriate;
(3) where called by the Creditors' Committee, to the Supervisors;
(4) where called by the Supervisors, to each Committee Member; and (5)
the Company.
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99. The accidental omission to give notice of a meeting of Scheme Creditors
to, or the non-receipt of a notice of such a meeting by, any person
entitled to receive notice shall not invalidate the proceedings at that
meeting.
RESOLUTIONS
100. If a meeting of Scheme Creditors is convened at a time when a resolution
is to be put to the next meeting of Scheme Creditors pursuant to clause
65, the business of the meeting shall include the resolution concerned,
and in the case of a resolution to remove a Supervisor pursuant to
sub-clause 82(1) which, if passed, would result in there being less than
two Supervisors in office, shall also include a resolution that a named
person qualified to act under clause 48 and willing to be appointed, be
appointed as a Supervisor in their place.
101. No meeting shall be validly convened unless the notice of the meeting
sets out the text of each resolution or an adequate summary thereof,
which is to be proposed at the meeting (or if no resolution is to be
proposed at the meeting, the nature of the business to be discussed
thereat) and (in the case of a notice which is sent by Post) is
accompanied by a letter explaining (in relation to each such resolution)
why the meeting is being convened.
VOTING
102. A resolution put to a meeting of Scheme Creditors shall be effective only
if it is approved by a majority in number representing three-fourths in
value of the Scheme Claims of Scheme Creditors which are present and
voting either in person or by proxy at the meeting.
103. Every Scheme Creditor entitled to vote shall have the right to appoint
any person as his proxy to attend and vote instead of him. The instrument
appointing a proxy may be in any form which the Supervisors may approve
and must be lodged at the place specified in the notice of the meeting
for the lodging of proxies not less than 48 hours before the meeting (or
adjourned meeting) at which it is to be used.
104. No business shall be transacted at any meeting of Scheme Creditors unless
a quorum is present when the meeting proceeds to business. 20 Scheme
Creditors present in person or by proxy and having the right to vote at
the meeting shall be a quorum, unless the Supervisors and the Creditors'
Committee agree a smaller number. All resolutions put to the vote of any
meeting shall be decided on a poll (rather than on a show of hands).
105. One of the Supervisors shall preside (or shall nominate a representative
to preside) at each meeting of the Scheme Creditors (other than at a
meeting at which a resolution to remove a Supervisor is proposed, when
the chairman of the Company shall preside), but if the Supervisor (or his
nominated representative) or, if relevant, the chairman of the Company is
not present within 30 minutes after the time appointed for opening the
meeting or is unwilling to preside, the Scheme Creditors present in
person or by proxy shall choose some member of the Creditors' Committee
or, if no such member is present or if all such members present decline
to preside, one of themselves, to be chairman of the meeting. If no
person is willing to preside as chairman of the meeting, the meeting
shall be adjourned for seven days, and, if no person is willing to
preside as chairman of such meeting reconvened following an adjournment,
the meeting shall be dissolved.
VALUATION OF SCHEME CLAIMS FOR THE PURPOSES OF MEETINGS
106. For the purposes of valuing any Scheme Claim which a Scheme Creditor has
for either of the purposes referred to in sub-clause 93(4) and clause 102
the value of the Scheme Claim shall, in the case of a Scheme Claim which
has been Admitted, be the amount of the Admitted Scheme Claim so
established (or relevant part thereof) and, in the case of any other
Scheme Claim, be such amount as may, for the purposes of such meeting
only, be estimated as the value of such Scheme Claim (or relevant part
thereof) by the chairman of the meeting. The operation of clause 7 shall
not have the effect of extinguishing a Scheme Claim for the purposes of
this Part VIII.
299
III. THE PLC SCHEME
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107. In the event that a Scheme Creditor disputes the value which has been put
on its Scheme Claim, pursuant to clause 106 or otherwise, the dispute
shall be referred to the President at that time of the Institute of
Chartered Accountants in England and Wales (or, if one of the Supervisors
or any of their partners at such time occupies such office, the President
of the Law Society of England and Wales) or such other individual
qualified to act as an insolvency practitioner within the meaning of
section 390 of the Insolvency Act 1986 as such President may nominate.
Such nominee shall consult with such relevant experts as he thinks
appropriate and shall act as an expert not an arbitrator and his decision
(including as to who should bear the costs of such referral) shall be
final (but only as regards the convening of the meeting or the vote on
that occasion).
108. For the purposes of ascertaining whether or not the requisite percentage
for the convening of any meeting of Scheme Creditors or the requisite
majority at any meeting of Scheme Creditors has been obtained, the amount
of each Scheme Claim (or relevant part thereof) which is denominated in a
currency other than sterling shall be converted into sterling at the
Scheme Rate.
300
III. THE PLC SCHEME
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PART IX
TERMINATION
109. This Scheme shall be unaffected by any future liquidation of the Company
and shall in those circumstances continue according to its terms.
110. (1) As soon as reasonably practicable after the making of the Final
Distribution or the Supervisors' determination that any further
distribution of Scheme Consideration (or the distribution of the
proceeds of sale of such Scheme Consideration) would be uneconomic,
the Supervisors shall serve the Termination Notice on the Company,
the members of the Creditors' Committee and the Scheme of
Creditors. For the avoidance of doubt, the Supervisors shall not
direct the Final Distribution (or determine that any further
distribution of Scheme Consideration, or the proceeds of sale of
such Scheme Consideration would be uneconomic) until all Unadmitted
Claims have become Admitted or Conclusively Rejected.
(2) If the Supervisors, acting reasonably, determine that any further
distribution of Scheme Consideration (or the distribution of the
proceeds of sale of such Scheme Consideration) would be uneconomic,
the remaining Scheme Consideration shall in each case be sold and
the net proceeds of sale shall (on behalf of the Scheme Creditors
for whose absolute benefit that Scheme Consideration is held under
the Escrow and Distribution Agreement) be paid to the Company for
its own use and benefit absolutely.
(3) For the purposes of clause 110 a distribution shall be uneconomic
if the costs of making the distribution would exceed the value of
the Scheme Consideration (or proceeds of sale of such Scheme
Consideration) to be distributed.
111. With effect from the issue of the Termination Notice:
(1) the Scheme Creditors, the Creditors' Committee, the Company, the
Supervisors, the Eurobond Trustee, the Yankee Bond Trustee, the
Escrow Trustee, the Distribution Agent, the Registrars and
Bondholder Communications shall have no further rights and
obligations under this Scheme except any rights arising as a result
of sub-clause 7(2); and
(2) the Supervisors (and any former Supervisors) and the members of the
Creditors' Committee (and any former members) shall be discharged
from liability for their respective acts, omissions and conduct
pursuant to or under the Scheme other than liability arising:
(a) in the case of the Supervisors (and any former Supervisors),
as a result of their own negligence, default, breach of duty,
breach of trust, fraud or dishonesty (or as a result of the
negligence, default, breach of duty, breach of trust, fraud
or dishonesty of any Employee); and
(b) in the case of the members of the Creditors' Committee (and
any former members), from loss or damage attributable to its
or his own wilful default, fraud, dishonesty or wilful breach
of duty.
(3) Where a Termination Notice is served pursuant to sub-clause 117(3),
so as to bind Scheme Creditors and any person deriving title from
them the Supervisors shall direct the Escrow Trustee to transfer,
or procure the transfer of, to the Company (or as the Company shall
direct) all Scheme Consideration not previously the subject of a
Distribution this being done by the Escrow Trustee on behalf of the
Scheme Creditors absolutely entitled to such remaining Scheme
Consideration.
112. Prior to the issue of the Termination Notice, the Supervisors shall take
steps to ensure that any sum remaining in the Unclaimed Dividends Fund
remains available for distribution to relevant shareholders or former
shareholders of the Company notwithstanding the termination of the
Scheme.
301
III. THE PLC SCHEME
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PART X
GENERAL SCHEME PROVISIONS
EFFECTIVE DATE AND NOTIFICATION
113. The Company shall give notification of the Scheme having become effective
by placing advertisements in The Times and the world-wide editions of the
Wall Street Journal, the Financial Times and the International Herald
Tribune as soon as reasonably practicable following the occurrence of the
Effective Time.
COSTS
114. There shall be paid in full by the Company all costs, charges, expenses
and disbursements reasonably incurred by the Company in connection with
the negotiation, preparation and implementation of the Scheme as and when
they arise, including the costs of holding the meeting of creditors of
the Company convened pursuant to the order of the Court to consider the
Scheme and the costs of obtaining the sanction of the Court and the costs
of placing the notices required by the Scheme.
115. The Company shall pay the costs, charges, expenses and disbursements
reasonably incurred by the Escrow Trustee, the Distribution Agent, the
Eurobond Trustee, the Yankee Bond Trustee, the security trustee in
respect of the New Notes, the Co-ordination Committee and the Informal
Committee of Bondholders and the costs of their respective legal and
financial advisors in connection with the negotiation, preparation and
implementation of the Scheme, including for the avoidance of doubt, the
costs of legal and financial advisers to the Creditors' Committee
permitted in accordance with clause 83.
116. The Company shall be maintained in existence until, after the Termination
Date, it is dissolved, struck off the register of companies or put into
liquidation and the costs of maintaining it in existence, including the
costs incurred in ensuring that it complies with its statutory
obligations ("ONGOING PLC COSTS"), shall be paid out of the Expenses
Fund.
117. (1) For the avoidance of doubt, save as expressly provided in the
Scheme, any costs, charges, expenses, remuneration and
disbursements which are expressed to be payable by the Company in
accordance with the terms of the Scheme (including those provided
for in Parts VI, VII and VIII and in this Part X of the Scheme)
shall be paid out of the Expenses Fund.
(2) If at any time in the reasonable opinion of the Supervisors the
Expenses Fund is insufficient to pay in full any sum which is
expressed to be payable by the Company or from the Expenses Fund in
accordance with the provisions of this Scheme then subject to the
proviso below, the Supervisors may raise such sum from the Scheme
Consideration in any manner in which they think fit and if the
Supervisors raise any sum from the Scheme Consideration before the
expiry of the Waiting Period the Supervisors may take into account
the effect of having to raise such sum in such manner in deciding
whether or not to bring the Waiting Period to an end, PROVIDED THAT
the Supervisors may only raise sums from the Scheme Consideration
with the consent of the Creditors' Committee, such consent not to
be unreasonably withheld.
(3) If the Creditors' Committee, acting reasonably, withhold giving
consent to the Supervisors raising any sums pursuant to sub-clause
117(2), the Supervisors shall serve a Termination Notice on the
Company, the members of the Creditors' Committee and the Scheme
Creditors. Clause 111 will thereafter apply.
118. The Company shall not trade or incur any Liability other than as
contemplated by and in connection with the implementation of the Scheme
whilst the Scheme is continuing.
302
III. THE PLC SCHEME
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MODIFICATIONS OF THE SCHEME
119. The Company may, at any hearing to sanction the Scheme, consent on behalf
of all Scheme Creditors to any modification of the Scheme or any terms or
conditions which the Court may think fit to approve or impose.
MODIFICATIONS OF THE RIGHTS ATTACHING TO THE NEW NOTES
120. Nothing in the Scheme shall prevent the modification of the New Notes or
the Escrow and Distribution Agreement in accordance with their respective
terms.
FORCE MAJEURE
121. None of the Scheme Creditors, the Company, the Supervisors, the Escrow
Trustee, the Distribution Agent, the Registrar, Bondholder Communications
or the members of the Creditors' Committee shall be in breach of its
obligations under the Scheme as a result of any delay or non-performance
of its obligations under this Scheme arising from any Force Majeure.
COMMITTEE RELEASES
122. (1) The Co-ordination Committee, the Informal Committee of Bondholders
their past and present members and financial and legal advisers
(the "RELEASED PARTIES") shall be released from any Liability which
they or any of them may have to a Scheme Creditor, the Company, the
Supervisors, the Escrow Trustee, the Distribution Agent, the
Registrars, the Eurobond Trustee, the Yankee Bond Trustee,
Bondholder Communications and Corp (the "RELEASING PARTIES").
(2) The Releasing Parties shall waive each and every claim which they
may have in connection with this Scheme against the Released
Parties.
NOTICE
123. Any notice or other written communication to be given under or in
relation to this Scheme other than pursuant to clause 113 shall be given
in writing and shall be deemed to have been duly given if it is delivered
by hand or sent by Post, to:
(1) in the case of the Company, 338 Euston Road, 4th Floor, London NW1
3BT, England, marked for the attention of the Company Secretary;
(2) in the case of a Scheme Creditor, its last known address according
to the Company;
(3) in the case of the Supervisors, 8 Salisbury Square, London EC4Y
8BB, England, marked for the attention of Philip Wallace or Richard
Heis or such other address as notified to the Creditors' Committee;
(4) in the case of the Creditors' Committee, such addresses of the
Committee Members as notified to the Supervisors; and
(5) in the case of any other person, any address set forth for that
person in any agreement entered into in connection with the Scheme,
or by fax or by way of advertisement in The Times and the world-
wide editions of the Wall Street Journal and the Financial Times
and the International Herald Tribune.
124. Any notice or other written communication to be given under the Scheme
shall be deemed to have been served:
(1) if delivered by hand, on the first Business Day following delivery;
(2) if sent by Post, on the second Business Day after posting if the
recipient is in the country of dispatch, otherwise on the seventh
business day after posting;
(3) if by fax, on the Business Day sent; and
(4) if by advertisement, on the date of publication.
303
III. THE PLC SCHEME
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125. In proving service, it shall be sufficient proof, in the case of a notice
sent by Post, that the envelope was properly stamped, addressed and
placed in the post.
126. Save in the case of any Distribution Notice or any notice, written
communication or document required to be sent pursuant to clause 16 or
relating to any appeal against a decision on Scheme Claims pursuant to
clauses 17 and 18 or to any adjudication pursuant to Part V, the
accidental omission to send any notice, written communication or other
document in accordance with clauses 123 to 125 or the non-receipt of any
such notice by any Scheme Creditor, shall not affect the provisions of
the Scheme.
127. The Company shall not be responsible for any loss or delay in the
transmission of any notices, other documents or payments posted by or to
any Scheme Creditors which shall be posted at the risk of such Scheme
Creditors.
GOVERNING LAW AND JURISDICTION
128. The Scheme shall be governed by, and construed in accordance with, the
laws of England and Wales and the Scheme Creditors hereby agree that the
Court shall have exclusive jurisdiction to hear and determine any suit,
action or proceeding and to settle any dispute which may arise out of the
Explanatory Statement or any provision of the Scheme, or out of any
action taken or omitted to be taken under the Scheme or in connection
with the administration of the Scheme, and for such purposes, the Scheme
Creditors irrevocably submit to the jurisdiction of the Court, provided,
however, that nothing in this clause 128 shall affect the validity of
other provisions determining governing law and jurisdiction as between
the Company and any of its Scheme Creditors, whether contained in any
contract or otherwise.
129. The terms of the Scheme and the obligations imposed on the Company and
the Supervisors hereunder shall take effect subject to any prohibition or
condition imposed by law.
Dated this 31st day of March 2003
304
III. THE PLC SCHEME
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SCHEDULE 1
DETERMINATION OF CLAIMS AND PAYMENT OF DIVIDENDS
1. This Schedule applies without prejudice to Parts II, III and IV of the
Scheme. If there is any conflict between provisions in this Schedule and
provisions set out in the body of the Scheme, the provisions set out in
the body of the Scheme shall prevail.
2. For the purposes of determining whether a Scheme Claim should become an
Admitted Scheme Claim for the purposes of Distributions, the Insolvency
Rules 1986 (the "RULES") listed in this Schedule shall, save where the
contrary is stated, be applied in respect of that Scheme Claim and the
listed Rules be applied as if:
(1) the Company was being wound up voluntarily;
(2) the Claim Forms were proofs of debt;
(3) the Supervisors were liquidators of the Company; and
(4) the references to the date on which a company went into liquidation
are to the Record Date (save in the application of Rule 4.92, which
shall be amended as set out below).
3. The Rules to be applied are:
4.73(3) meaning of "prove"
4.76 particulars of a creditor's Scheme Claim
4.77(1) claims established by affidavit (save that a statutory
declaration may be called for)
4.77(2) affidavit in addition to proof
4.78(1) creditor's cost of proving
4.82 admission and rejection of proofs for dividend
4.86(1) estimates of quantum
4.89 discounts
4.90 mutual credit and set off (save that sub-rule (3) is
to be amended by deleting the words "that a meeting of
creditors has been summoned under section 98 or (as
the case may be) a petition for the winding-up of the
company was pending" and replacing them with the words
"that a meeting of creditors for the purpose of
approving the Scheme had been summoned")
4.91(1) debts in foreign currency (save that it shall be
amended by deleting the words "official exchange rate"
and replacing them with the words "Scheme Rate" and
the words "prevailing on the date when the company
went into liquidation" shall be deleted)
4.92 payments of a periodical nature (save that rule (1) is
to be amended by deleting the words "date when the
company went into liquidation" and replacing them with
the words "date on which the Scheme is approved at a
creditors' meeting held for that purpose")
4.94 debt payable at future time
11.8 proof altered after payment of dividend (save that an
increased proof may be admitted only if the
Supervisors in their sole discretion so decide)
11.11 assignment of right to dividend
11.13(1) and (2) debt payable at a future time
4. The English law liquidation rules preventing "double proof" shall apply.
305
III. THE PLC SCHEME
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SCHEDULE 2
EXTRACT FROM THE CORP SCHEME
Capitalised terms in this Schedule shall have the meaning given to them in the
Corp Scheme.
THE COMPANY AS A CREDITOR OF PLC
26. Property received or receivable by the Company from plc from time to time
by virtue of the Company being a creditor of plc (whether pursuant to the
plc Scheme, any other scheme of arrangement for plc, any voluntary
arrangement for plc or any liquidation of plc or otherwise) shall be
available for distribution and shall be distributed by the Company to
Admitted Scheme Creditors subject to, at the time, in the manner and on
the basis set out in the Scheme. In the light of the position of Ancrane
as a Scheme Creditor and a Bondholder and the Ancrane Direction, this may
involve successive distributions between the Company and plc, either
notional or actual, as provided for in this Scheme and the plc Scheme.
THE PLC DISTRIBUTION SUPPLEMENT
27. (1) Sub-clauses 27(2), (3) and (4) shall apply to the Initial
Distribution if all of the conditions set out at (a) to (c)
inclusive below are satisfied on the Effective Date:
(a) the plc Scheme including provisions in the form or
substantially the form of that set out in Schedule 2 becomes
effective;
(b) the plc Scheme supervisors admit the Company's claim against
plc pursuant to the plc Scheme; and
(c) (i) the Known Claim of Ancrane is Admitted by the
Supervisors; or
(ii) either (or both) of the Known Claims of the Eurobond
Trustee are Admitted by the Supervisors; or
(iii) either (or both) of the Known Claims of the Yankee
Bond Trustee are Admitted by the Supervisors.
(2) To give effect to clause 26 and on the conditions in sub-clause
27(1) being satisfied on the Effective Date, the Supervisors shall
agree with the plc Scheme supervisors a distribution model
simulating successive distributions to the Company in the plc
Scheme and to plc in the Scheme (pursuant to the Ancrane Direction)
(using the figures for the Company's claim against plc, Ancrane's
claim against the Company as actually admitted by the Supervisors
of the respective Schemes and Ancrane's holding of Bonds) in order
to produce a net additional amount of Scheme Consideration
available for Distribution to Admitted Scheme Creditors with the
Initial Distribution (such net additional amount being the "PLC
DISTRIBUTION SUPPLEMENT"). The plc Distribution Supplement shall be
distributed to Eligible Recipients at the times and in the manner
set out sub-clauses 27(3) and 27(4).
(3) The Elements of the plc Distribution Supplement shall for these
purposes be treated as being made up of two parts as follows:
(a) the "KNOWN CLAIMS SUPPLEMENT" which shall be the plc
Distribution Supplement less the Reserve Claims Supplement;
and
(b) the "RESERVE CLAIMS SUPPLEMENT" which shall be the same
proportion of the plc Distribution Supplement as the Basic
Reserve Claims Segment (which for this purpose shall be
calculated after taking into account any increase in the size
of the Basic Reserve Claims Segment resulting from Known
Claims being Conclusively Rejected and the Distribution
Entitlement of the Known Creditor who would have been
entitled had its Known Claim been Admitted rather than
Conclusively Rejected becoming part of the Reserve Claims
Segment pursuant to clause 29(1)(b)) is of the Basic Scheme
Consideration (which for this purpose
306
III. THE PLC SCHEME
--------------------------------------------------------------------------------
shall be calculated after taking into account any decrease in the
size of the Basic Known Claims Segment resulting from:
(A) Known Claims being Conclusively Rejected resulting in a
Rejected Claims Supplement being deducted from the Basic
Known Claims Segment pursuant to sub-clause 29(1)(a) and
becoming available for distribution to Scheme Creditors in
accordance with sub-clause 29(2); and/or
(B) Known Claims being Conclusively Rejected resulting in the
Distribution Entitlement to which the Known Creditor who
would have been entitled had its Known Claim been Admitted
being deducted from the Basic Known Claims Segment and
becoming part of the Reserve Claims Segment pursuant to
clause 29(1)(b)).
(4) (a) The Elements of the Known Claims Supplement shall be
distributed to Admitted Known Creditors at the same time as
the Initial Distribution.
(b) The Elements of the Reserve Claims Supplement shall be
distributed to Admitted Reserve Creditors at the same time as
the Initial Distribution.
(5) (a) For the purposes of Distributions under the Scheme:
(i) other than the Initial Distribution; and/or
(ii) as regards the Initial Distribution if the provisions
of sub-clauses 27(2)-27(4) inclusive do not come into
force because one or more of the conditions in
sub-clause 27(1) is not satisfied,
the Supervisors may agree similar or analogous arrangements
to those in sub-clause 27(2) (a "MODEL") with the supervisors
of the plc Scheme (if any, or, if none, any other duly
authorised representative of plc) where, acting reasonably,
the Supervisors consider that to do so shall be in the
interests of Admitted Scheme Creditors.
(b) If a model is agreed pursuant to sub-clause 27(5)(a) prior to
the expiry or termination of the Waiting Period, the
equivalent of the plc Distribution Supplement thereby created
shall be apportioned in the same manner as provided for in
sub-clause 27(3), otherwise no apportionment shall be made.
(c) Any supplement arising pursuant to sub-clause 27(5)(a)(ii)
which shall be apportioned in accordance with sub-clause
27(5)(b) shall be distributed at the same times and in the
same manner as provided for in sub-clause 27(4).
(d) Any supplement arising pursuant to sub-clause 27(5)(a)(i)
prior to the expiry or termination of the Waiting Period
shall become available for distribution following
apportionment under sub-clause 27(5)(b) and the Supervisors
shall promptly issue a Distribution Notice to the Escrow
Trustee (with a copy to the Distribution Agent) in respect of
the distribution of the relevant amount of the supplement to
which Admitted Known Creditors are entitled pursuant to
sub-clause 21(4)(a) and the relevant amount of the Reserve
Claim Supplement to which Admitted Reserve Creditors are
entitled pursuant to sub-clause 21(4)(b) to Eligible Receipts
in respect of the previously Admitted Claims provided that
the costs of making that Distribution would not exceed the
value of the Scheme Consideration to be distributed.
(e) Any supplement arising pursuant to sub-clause 27(5)(a)(i)
after the expiry or termination of the Waiting Period shall
be distributed in accordance with the provisions of clause
25.
PLC RECEIPTS
28. (1) As regards:
(a) the Initial Distribution if the provisions of sub-clauses
27(2) - 27(4) above do not come into force for any reason;
and
307
III. THE PLC SCHEME
--------------------------------------------------------------------------------
(b) any Distributions other than the Initial Distribution,
in each case, to the extent that relevant similar or analogous
arrangements as referred to in clause 27(5) are not agreed in
respect of the Company's entitlement to the plc Receipts, Admitted
Scheme Creditors shall be entitled to all plc Receipts from time to
time which shall be held on trust for Scheme Creditors under the
Scheme.
(2) If plc Receipts arise pursuant to sub-clause 28(1) prior to the
expiry or termination of the Waiting Period, those plc Receipts
shall be apportioned in the same manner as provided for in sub-
clause 27(3), otherwise no apportionment shall be made.
(3) Any plc Receipts arising pursuant to sub-clause 28(1)(a) which shall
be apportioned in accordance with sub-clause 28(2) shall be
distributed at the same times and in the same manner as provided for
in sub-clause 27(4).
(4) Any plc Receipts arising pursuant to sub-clause 28(1)(b) prior to
the expiry or termination of the Waiting Period shall become
available for distribution following apportionment under sub-clause
28(2) and the Supervisors shall promptly issue a Distribution Notice
to the Escrow Trustee (with a copy to the Distribution Agent) in
respect of the distribution of the relevant amount of the supplement
to which Admitted Known Creditors are entitled pursuant to
sub-clause 21(4)(a) and the relevant amount of the Reserve Claim
Supplement to which Admitted Reserve Creditors are entitled pursuant
to sub-clause 21(4)(b) to Eligible Recipients in respect of the
previously Admitted Claims provided that the costs of making that
Distribution would not exceed the value of the Scheme Consideration
to be distributed.
(5) Any supplement arising pursuant to sub-clause 28(1)(b) after the
expiry or termination of the Waiting Period shall be distributed in
accordance with the provisions of clause 25.
REJECTED CLAIMS
29. (1) Where a Known Claim is Conclusively Rejected before the expiry or
termination of the Waiting Period, the Distribution Entitlement to
which the Known Creditor would have been entitled, had its Known
Claim been Admitted rather than Conclusively Rejected, shall:
(a) if the quantum of the Known Claim which is Conclusively
Rejected exceeds L250,000,000 (such Distribution Entitlement
being a "REJECTED CLAIM SUPPLEMENT"), be deducted from the
Known Claims Segment and be apportioned as follows:
(i) the "KNOWN REJECTED CLAIM SUPPLEMENT" which shall be the
Rejected Claim Supplement less the Reserve Rejected
Claim Supplement; and
(ii) the "RESERVE REJECTED CLAIM SUPPLEMENT" which shall be
the same proportion of the Rejected Claim Supplement as
the Basic Reserve Claims Segment (which for this purpose
shall be calculated after taking into account any
increase in the size of the Basic Reserve Claims Segment
resulting from Known Claims being Conclusively Rejected
and the Distribution Entitlement of the Known Creditor
who would have been entitled had its Known Claim been
Admitted rather than Conclusively Rejected becoming part
of the Reserve Claims Segment pursuant to clause
29(1)(b)) is of the Basic Scheme Consideration (which
for this purpose shall be calculated after taking into
account any decrease in the size of the Basic Known
Claims Segment resulting from:
(A) Known Claims being Conclusively Rejected resulting
in a Rejected Claims Supplement being deducted from
the Basic Known Claims Segment pursuant to
sub-clause 29(1)(a) and becoming available for
distribution to Scheme Creditors in accordance with
sub-clause 29(2); and
(B) Known Claims being Conclusively Rejected resulting
in the Distribution Entitlement to which the Known
Creditor who would have been entitled had its
308
III. THE PLC SCHEME
--------------------------------------------------------------------------------
Known Claim been Admitted being deducted from the Basic
Known Claims Segment and becoming part of the Reserve
Claims Segment pursuant to clause 29(1)(b)).
(b) if the quantum of the Known Claim (or part thereof) which is
Conclusively Rejected is less than or equal to L250,000,000,
be deducted from the Known Claims Segment and form part of the
Reserve Claims Segment and therefore not be available for
distribution to Admitted Scheme Creditors as a Rejected Claim
Supplement pursuant to sub-clause 29(2).
(2) A Rejected Claim Supplement shall become available for distribution
following apportionment under sub-clause 29(1)(a) and the
Supervisors shall promptly issue a Distribution Notice to the Escrow
Trustee (with a copy to the Distribution Agent) in respect of the
distribution of the amount of the Known Rejected Claim Supplement to
which Admitted Known Creditors are entitled pursuant to sub-clause
21(4)(a) and the amount of the Reserve Rejected Claim Supplement to
which Admitted Reserve Creditors are entitled pursuant to sub-clause
21(4)(b) to Eligible Recipients in respect of the previously
Admitted Claims.
(3) For the purposes of distributing the Rejected Claim Supplement; if:
(a) the plc Scheme including provisions in the form or
substantially in the form of that set out in Schedule 2
becomes effective;
(b) the plc Scheme supervisors admit the Company's claim against
plc pursuant to the plc Scheme;
(c) (i) the Known Claim of Ancrane is Admitted by the
Supervisors; or
(ii) either (or both) of the Known Claims of the Eurobond
Trustee are Admitted by the Supervisors; or
(iii) either (or both) of the Known Claims of the Yankee Bond
Trustee are Admitted by the Supervisors; and
(d) the waiting period under the plc Scheme has not been
terminated or expired,
the Supervisors may agree similar or analogous arrangements to those
in sub-clause 27(2) with the supervisors of the plc Scheme (if any,
or, if none, any other duly authorised representative of plc) where,
acting reasonably, the Supervisors consider that to do so would be
in the best interests of Admitted Scheme Creditors.
309
III. THE PLC SCHEME
--------------------------------------------------------------------------------
SCHEDULE 3
KNOWN CLAIMS
Following is a list of Scheme Creditors who may have a Scheme Claim.
The fact that a claim listed below has been provided for in this Schedule 3 at a
certain amount does not mean that the particular claim shall be Admitted at
that, or any other, amount.
The column headed "Claimed/Estimated Value (including accrued interest) in L's
as at the Record Date" provides an indicator of the amount for which each claim
may be admitted for the purposes of voting at the meeting of Scheme Creditors
convened at the direction of the Court (subject to the remarks set out in the
"Remarks" column). Where necessary, to calculate the Claimed/Estimated Value of
a claim in sterling, the Exchange Rate on the Business Day falling immediately
prior to the Record Date has been applied if necessary.
TOTAL AMOUNT
AMOUNT CLAIMED/ESTIMATED
CLAIMED/ESTIMATED VALUE (INCLUDING
VALUE (INCLUDING ACCRUED INTEREST)
ACCRUED INTEREST) AS IN L'S AS AT THE
CREDITOR AT THE RECORD DATE RECORD DATE REMARKS
-------- -------------------- ----------------- -----------------
SYNDICATED BANK DEBT
ABN Amro Bank NV US$47,226,487 L43,932,580
L13,920,832
Appaloosa Investment Ltd US$227,732,619 L221,266,466
Partnership L76,545,686
Australia and New Zealand US$91,430,478 L85,053,475
Investment Bank L26,950,731
Banca Antoniana Popolare Veneta US$7,556,238 L7,029,213
London L2,227,333
Banca Monte dei Paschi di Siena US$47,226,487 L43,932,580
L13,920,832
Banca Nazionale del Lavoro SpA US$78,868,233 L73,367,409
L23,247,790
Banca Popolare di Lodi US$15,584,741 L14,497,751
L4,593,875
Banco di Roma US$39,670,249 L36,903,367
L11,693,499
Bank of America N.A. London US$7,216,197 L4,585,789
Banque Nationale de Paris US$98,231,092 L91,379,767
L28,955,331
Barclays Bank plc US$59,001,013 L53,710,988
L16,216,699
Bear, Stearns International US$13,990,285 L8,890,623
Limited
Cerebrus Partners LP New York US$175,792,979 L154,686,552
L42,972,661
Chase Manhattan Bank US$150,750,101 L153,710,167
L57,910,662
Citibank NA US$51,719,250 L48,111,987
L15,245,153
310
III. THE PLC SCHEME
--------------------------------------------------------------------------------
TOTAL AMOUNT
AMOUNT CLAIMED/ESTIMATED
CLAIMED/ESTIMATED VALUE (INCLUDING
VALUE (INCLUDING ACCRUED INTEREST)
ACCRUED INTEREST) AS IN L'S AS AT THE
CREDITOR AT THE RECORD DATE RECORD DATE REMARKS
-------- -------------------- ----------------- -----------------
Commerzbank AG US$91,430,478 L85,053,475
L26,950,731
Credit Industriel et Commercial $3,054,259 L1,940,938
Singapore
Credit Suisse First Boston $94,452,973 L87,865,160
L27,841,664
Den Danske Bank A/S $24,692,104 L43,533,139
L27,841,664
Deutsche Bank AG $108,836,054 L97,351,233
L28,187,498
Dresdner Bank AG, London Branch $5,090,432 L3,234,896
Franklin Mutual Advisers LLC $102,204,181 L92,790,941
L27,841,664
Goldman Sachs Credit Partners LP $48,244,828 L44,579,721
L13,920,832
HSBC Bank plc $98,231,092 L91,379,767
L28,955,331
Instituto Bancario San Paolo di $47,226,487 L43,932,580
Torino SpA L13,920,832
JP Morgan Chase Delaware $5,012,040 L3,185,079
L-Bank $75,562,379 L70,292,128
L22,273,332
Lehman Brothers International $135,406 L86,048
(Europe)
Merrill Lynch Capital Services $23,924,411 L17,724,910
Inc
L2,521,293
Natexis Banques Populaires Paris $5,037,492 L4,686,142
L1,484,889
National Westminster Bank $94,452,973 L87,865,160
L27,841,664
Nordeutsche Landesbank Giro, $30,224,951 L28,116,851
London L8,909,333
ORN European Distressed Debt $8,144,692 L5,175,834
Fund LP
Royal Bank of Scotland plc $91,430,478 L85,053,475
L26,950,731
Salomon Brothers Holding Company $116,826,226 L108,677,945
Inc L34,436,572
311
III. THE PLC SCHEME
--------------------------------------------------------------------------------
TOTAL AMOUNT
AMOUNT CLAIMED/ESTIMATED
CLAIMED/ESTIMATED VALUE (INCLUDING
VALUE (INCLUDING ACCRUED INTEREST)
ACCRUED INTEREST) AS IN L'S AS AT THE
CREDITOR AT THE RECORD DATE RECORD DATE REMARKS
-------- -------------------- ----------------- -----------------
Special Situations Investing $23,253,623 L14,777,340
Group Inc
UBS AG Stamford $10,180,865 L6,469,792
UniCredito Italiano SpA $47,226,487 L43,932,580
L13,920,832
BONDS
The Bank of New York US$931,687,500 L592,073,907 Note 1
US$934,218,750 L593,682,480 Note 2
The Law Debenture Trust E1,028,469,178 L697,740,284 Note 3
Corporation p.l.c.
E512,559,932 L347,734,011 Note 4
MERGERS, DEMERGERS, JOINT
VENTURES ETC.
DH Holdings Corp. US$37,818,888 L24,033,427 Note 5
Prudential plc L30,000,000 L30,000,000
Mariposa Technology, Inc. US$100,000 L63,549 Note 6
Robert Bosch GmbH L1,000,000 L1,000,000 Note 7
Koninklijke Philips Electronics US$20,000,000 L12,709,710 Note 8
NV
NON-KEY COMMERCIAL CONTRACTS
Deloitte & Touche L176,250 L176,250
University of Warwick L12,322 L12,322
INTRA GROUP LOANS
Marconi Corporation plc L146,587,439 L146,587,439 Note 10
LITIGATION (ACTUAL OR POTENTIAL)
Eleven former employees of Ten (US$12,160,000) (L7,727,504) Note 11 and Note
Square, Inc. 12
ECOR-SF, Inc. (US$18,200,000) (L11,565,836) Note 12
Mr RS Palmer (L15,000) (L15,000) Note 12
Hill & Knowlton L3,585,000 L3,585,000
The City of Miami fire fighters' (US$125,000,000) (L79,435,689) Note 12
and police officers'
retirement trust fund and the
class of plaintiffs they
represent (Tri-Star)
Potential indemnity claims in US$150,000 L95,323 Note 9
respect of defendant directors
in Tri-star litigation
312
III. THE PLC SCHEME
--------------------------------------------------------------------------------
TOTAL AMOUNT
AMOUNT CLAIMED/ESTIMATED
CLAIMED/ESTIMATED VALUE (INCLUDING
VALUE (INCLUDING ACCRUED INTEREST)
ACCRUED INTEREST) AS IN L'S AS AT THE
CREDITOR AT THE RECORD DATE RECORD DATE REMARKS
-------- -------------------- ----------------- -----------------
The Chancellor, Masters and L1,257,995 L1,257,995
Scholars at the University of
Cambridge
Mr LA Gillus (US$19,000,000) (L12,074,225) Note 12
Mr T Edeus (US$19,000,000) (L12,074,225) Note 12
Ms J Barnes (L20,000) (L20,000) Note 12
Mr P Hall (L500,000) (L500,000) Note 12
-----------------
TOTAL KNOWN CLAIMS (CONVERTED L4,682,928,026
INTO STERLING) AT THE RECORD
DATE
=================
NOTES TO SCHEDULE 3
Note 1: US$900,000,000 7 3/4 per cent. bonds due 2010, of which Ancrane holds
US$131,011,000 as at the Record Date
Note 2: US$900,000,000 8 3/8 per cent. bonds due 2030, of which Ancrane holds
US$130,090,000 as at the Record Date
Note 3: E1,000,000,000 6.375 per cent. bonds due 2010, of which Ancrane holds
E256,735,000 as at the Record Date
Note 4: E500,000,000 5.625 per cent. bonds due 2005, of which Ancrane holds
E67,868,000 as at the Record Date
Note 5: Potential claimants include DH Holdings Corp, Launchchange Limited and
their affiliates, Kollmorgen SAS and their affiliates and DH Holdings
Corp and their affiliates.
Note 6: Potential claimants include, but may not be limited to, Mariposa
Technology, Inc., A Dhillon, Mr. A Juandy, A Manoliu, Ms A Young, Mr B
Lee, Chi Ly, Chung Chung Liang, Chung Lee, Mr DJ Arnold, Duc Hoang, Duc
Huu Nguyen, Ericsson, Mr E Zimmermann, Mr E Portnoy, Mr G Recio, H
Dorbolo, Hoa Nhu Phan, Huey Tran, Mr J Roth, Mr J Hoch, Ms J Kovin, Mr
JA Osanitsch, Mr JH Shuler, Mr JS Fox, Mr J Wonosaputra, Mr J DeCarolis,
K Tran, K Ghane, K Assadi, L Machado, L Williams, L Haryanto, Mac Dinh
Nguyen, Mariposa Investment Hldgs AG, M McGrady, M Khan, M Byrne, Pan
Dacom Daten-und Kommunicationssysteme GmbH, Petaluma Holdings Ltd., P
Sommerer, Mr RD Zimkowski, Mr R Aldridge, Mr R Luong, Mr R Kumiawan, Mr
S Khanna, Mr SC Mazur, Steve Kim Do, Tri Minh Hoang, V Forgetta, V
Mehrotra, W Arendt and Mr W Cannon and each of their heirs, executors,
successors and assigns as the case may be.
Note 7: Potential claimants include Robert Bosch GmbH, Bosch Telecom GmbH and
their subsidiaries and Bosch Telecom GmbH, Stuttgart; Robert Bosch
Argentina SA, Buenos Aires; Robert Bosch AG, Austria; Bosch Telecom
Limitada, Sao Paulo; Robert Bosch Limitada, Campinas; Bosch Telemulti
Limitada, Sao Paulo; Robert Bosch (France) SA, Saint-Ouen; Robert Bosch
t.o.o, Moscow; Robert Bosch SpA, Milano; Bosch Telecom SA, Bogota; Bosch
Telecom (Malaysia) SDN BHD; Robert Bosch SA de CV, Toluca, Edo. de
Mexico; Robert Bosch Sp. z.o.o, Warsaw; Robert Bosch Espana, SA, Madrid;
Robert Bosch odbytova spolecnost s.r.o, Prague; Bosch Telecom, Inc.,
Research Triangle Park, N.C. and Bosch Telecom CA, Caracas.
313
III. THE PLC SCHEME
--------------------------------------------------------------------------------
Note 8: Potential claimants include Koninklijke Philips Electronics NV, its
officers, directors, employees, stockholders, agents and
representatives.
Note 9: Potential claimants include Sir R Hurn, Lord Simpson and Mr J Mayo.
Note 10: Such Scheme Creditor will not be voting at the Court sanctioned meeting
of Scheme Creditors as it is a connected Scheme Creditor, related to
the Company. Even though this creditor will not vote it agrees to
support the Scheme by agreeing not to take any action to hinder or
oppose the Scheme and not to seek to challenge either Scheme in the
courts of any jurisdiction.
Note 11: Mr W Viehweg, Ms T Lander, Mr T Donahue, Mr S Welsh, Mr M Bittner, Mr J
Thompson, Mr J Miles, Mr J McCormick, Mr G Geraci, Mr G Grant, Mr D
Barnes.
Note 12: The amount allegedly due to such Scheme Creditors cannot be estimated,
as there is a dispute between the Company and the Scheme Creditor as to
the whole of the amount claimed. However, the amount claimed by the
Scheme Creditor from the Company is shown in brackets for information
only. If a Scheme Claim is disputed in its entirety, whether it is
liquidated or unliquidated, the chairman will not admit it for the
purpose of voting on the Scheme. The chairman's decision will be final.
The chairman will, however, advise the relevant Scheme Creditor of his
decision to reject such Scheme Creditor's claim for voting purposes
before the Scheme Meeting if he considers it to be practicable and, in
any event, at or after the Scheme Meeting, and report his decision to
the Court.
314
III. THE PLC SCHEME
--------------------------------------------------------------------------------
SCHEDULE 4
PERSONS ELIGIBLE TO RECEIVE SECURITIES PURSUANT TO APPLICABLE EXEMPTIONS UNDER
US STATE SECURITIES LAWS
The categories of Scheme Creditors and Bondholders located in the US states of
Arizona, California, Colorado, Connecticut, Illinois, Ohio and Vermont to, or to
the order of, whom New Creditor Shares and New Notes will be distributed in
accordance with sub-clause 30(7)(c)(iv), are as follows:
Arizona -- any bank, savings institution, trust company, insurance company,
investment company as defined in the US Investment Company Act of 1940, a
pension or profit sharing trust or other financial institution or institutional
buyer, or a dealer, whether the person is acting for itself or in a fiduciary
capacity.
California -- any broker-dealer, bank, savings and loan association, trust
company, insurance company, investment company registered under the US
Investment Company Act of 1940, or pension or profit-sharing trust (other than a
pension or profit-sharing trust of the issuer, a self-employed individual
retirement plan or an individual retirement account); any organisation described
in Section 501(c)(3) of the US Internal Revenue Code, as amended to 29 December
1981, which has total assets (including endowment, annuity and life income
funds) of not less than US$5,000,000 according to its most recent audited
financial statement; any corporation which has a net worth on a consolidated
basis of not less than US$14,000,000; any wholly-owned subsidiary of any of the
foregoing institutional investors; or the US federal government, any agency or
instrumentality of the US federal government, any corporation wholly-owned by
the US federal government, any state, any city, city and county, or county, or
any agency or instrumentality of a state, city, city and county, or county, or
any state university or state college and any retirement system for the benefit
of employees of any of the foregoing.
Colorado -- any broker-dealer, or a financial or institutional investor, whether
the purchaser is acting for itself or in some fiduciary capacity. A financial or
institutional investor includes: (a) a depositary institution, which is defined
as: (i) a person that is organised or chartered, or is doing business or holds
an authorisation certificate, under the laws of a state or of the United States
which authorises the person to receive deposits, including deposits in savings,
share, certificate, or other deposit accounts, and that is supervised and
examined for the protection of depositors by an official or agency of a state or
the United States, or (ii) a trust company or other institution that is
authorised by federal or state law to exercise fiduciary powers of the type a
national bank is permitted to exercise under the authority of the comptroller of
the currency and is supervised and examined by an official or agency of a state
or the United States; (b) an insurance company; (c) a separate account of an
insurance company; (d) an investment company registered under the US Investment
Company Act of 1940; (e) a business development company as defined in the US
Investment Company Act of 1940; (f) any private business development company as
defined in the US Investment Advisers Act of 1940; (g) an employee pension,
profit-sharing or benefit plan if the plan has total assets in excess of
US$5,000,000 or its investment decisions are made by a named fiduciary, as
defined in the US federal Employee Retirement Income Security Act of 1974, that
is a broker-dealer registered under the Exchange Act, an investment adviser
registered or exempt from registration under the US Investment Advisers Act of
1940, a depositary institution, or an insurance company; (h) an entity, but not
an individual, a substantial part of whose business activities consist of
investing, purchasing, selling, or trading in securities of more than one issuer
and not of its own issue and that has total assets in excess of US$5,000,000 as
of the end of its latest fiscal year; (i) a small business investment company
licensed by the US federal small business administration under the US Small
Business Investment Act of 1958; and (j) any other institutional buyer.
Connecticut -- any state bank and trust company, national banking association,
savings bank, savings and loan association, federal savings and loan
association, credit union, federal credit union, trust company, insurance
company, investment company as defined in the US Investment Company Act of 1940,
pension or profit-sharing trust, or other financial institution or institutional
buyer, or to a broker-dealer; whether the purchaser is acting for itself or in
some fiduciary capacity.
Illinois -- any corporation, bank, savings bank, savings institution, savings
and loan association, trust company, insurance company, building and loan
association, or dealer; a pension fund or pension trust, employees' profit-
sharing trust, other financial institution (including any manager of investment
accounts on behalf of other than
315
III. THE PLC SCHEME
--------------------------------------------------------------------------------
natural persons, who, with affiliates, exercises sole investment discretion with
respect to such accounts and provided such accounts exceed ten in number and
have a fair market value of not less than US$10,000,000 at the end of the
calendar month preceding the month during which the securities are sold) or
institutional investor (including investment companies, universities and other
organisations whose primary purpose is to invest its own assets or those held in
trust by it for others, trust accounts and individual or group retirement
accounts in which a bank, trust company, insurance company or savings and loan
institution acts in a fiduciary capacity, and foundations and endowment funds
exempt from taxation under the Code, a principal business function of which is
to invest funds to produce income in order to carry out the purpose of the
foundation or fund), or any government or political subdivision or
instrumentality thereof, whether the purchaser is acting for itself or in some
fiduciary capacity; any partnership or other association engaged as a
substantial part of its business or operations in purchasing or holding
securities; any trust in respect of which a bank or trust company is trustee or
co-trustee; any entity in which at least 90 per cent. of the equity is owned by:
(i) persons described in this paragraph, (ii) any partnership or other
association or trader buying or selling fractional undivided interests in oil,
gas or other mineral rights, in frequent operations, for its or his own account
rather than for the account of customers, to such extent it or he may be said to
be engaged in such activities as a trade or business, (iii) any natural person
who has, or is reasonably believed by the person offering the securities to have
(a) a net worth or joint net worth with the person's spouse, at the time of the
offer, sale or issuance of the securities, in excess of US$1,000,000, or (b) an
income or joint income with that person's spouse of US$200,000 in each of the
two most recent fiscal years and reasonably expects such an income in the
current year, (iv) any person, not a natural person, 90 per cent. of the equity
interest thereof is owned by persons described in (a) or (b) immediately above,
or (v) any person who is, or is reasonably believed by the person offering the
securities to be, a director, executive officer, or general partner of the
issuer of the securities or any director, executive officer or general partner
of a general partner of that issuer (executive officer shall mean the president,
any vice president in charge of a principal business unit, division or function
such as sales, administration or finance, or any other officer or other person
who performs a policy-making function for the issuer); any employee benefit plan
within the meaning of Title I of the US Employee Retirement Income Security Act
of 1974 ("ERISA") if (i) the investment decision is made by a plan fiduciary as
defined in Section 3(21) of ERISA and such plan fiduciary is either a bank,
insurance company, registered investment adviser or an investment adviser
registered under the US Investment Advisers Act of 1940, or (ii) the plan has
total assets in excess of US$5,000,000, or (iii) in the case of a self-directed
plan, investment decisions are made solely by persons that are described herein;
any plan established and maintained by, and for the benefit of the employees of,
any state or political subdivision or agency or instrumentality thereof if such
plan has total assets in excess of US$5,000,000; or any organisation described
in Section 501(c)(3) of the Code, any Massachusetts or similar business trust,
or any partnership, if such organisation, trust, or partnership has total assets
in excess of US$5,000,000.
Ohio -- any dealer, corporation, bank (which includes a trust company, savings
and loan association, savings bank, or credit union that is incorporated or
organised under the laws of the United States or of any state thereof, or of
Canada or any province thereof, and subject to regulation or supervision by such
country, state or province), insurance company, pension fund or trust,
employees' profit-sharing fund or trust, any association engaged, as a
substantial part of its business or operations, in purchasing or holding
securities, any trust in respect of which a bank is trustee or co-trustee, or
any Qualified Institutional Buyer as defined in Rule 144A under the Securities
Act.
Vermont -- any financial or institutional investor, which means: (a) a
depositary institution, which includes: (i) a person that is organised,
chartered, or holding an authorisation certificate under the laws of a state or
of the United States which authorises the person to receive deposits, including
a savings, share, certificate, or deposit account, and which is supervised and
examined for the protection of depositors by an official or agency of a state or
the United States, or (ii) a trust company or other institution that is
authorised by a federal or state law to exercise fiduciary powers of the type a
national bank is permitted to exercise under the authority of the comptroller of
the currency and is supervised and examined by an official or agency of a state
or the United States; (b) an insurance company; (c) a separate account of an
insurance company; (d) an investment company as defined in the US Investment
Company Act of 1940; (e) an employee pension, profit-sharing or benefit plan if
the plan has total assets in excess of US$5,000,000 or its investment decisions
are made by a named fiduciary, as defined in the US Employee Retirement Income
Security Act of 1974, that is either a broker-dealer registered
316
III. THE PLC SCHEME
--------------------------------------------------------------------------------
under the Exchange Act, an investment adviser registered or exempt from
registration under the Investment Advisers Act of 1940, a depositary institution
or an insurance company; (f) any other financial or institutional buyer which
qualifies as an accredited investor under the provisions of Regulation D as
promulgated by the SEC under the Securities Act, as such provisions may be
amended from time to time hereafter; (g) a broker-dealer; and (h) such other
institutional buyers as the commissioner may add by rule or order; whether the
purchaser is acting for itself or others in a fiduciary capacity.
317
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 1
CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
The financial information for the three years and six months ended 30 September
2002 set out below in this Appendix has been extracted without material
amendment from the financial information relating to the Corp Group set out in
Part IV of the Prospectus, in respect of which the Accountants' Report contained
in Part IV of the Prospectus has been given. This financial information does not
constitute statutory accounts of Corp within the meaning of the Act. Audited
non-consolidated statutory accounts for Corp have been delivered to the
Registrar of Companies for each of the three years ended 31 March 2000, 2001 and
2002. Unqualified audit reports, in accordance with the requirements of the Act,
for each of those three years have been given by the auditors for Corp for the
relevant financial periods.
318
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
Note L million L million L million L million
---- --------- --------- --------- ------------
TURNOVER
Continuing operations 3 3,566 4,626 2,906 1,019
Discontinued operations 3 1,871 2,027 1,404 87
Corp Group 3 5,437 6,653 4,310 1,106
Share of joint ventures 287 289 257 --
--------- --------- --------- ------------
2 5,724 6,942 4,567 1,106
--------- --------- --------- ------------
OPERATING (LOSS)/PROFIT
Corp Group operating (loss)/profit
Excluding goodwill amortisation and exceptional items 704 732 (474) (231)
Goodwill amortisation (763) (671) (431) (54)
Operating exceptional items 4a (106) (32) (5,210) (206)
3 (165) 29 (6,115) (491)
Continuing operations (299) (133) (6,153) (485)
Discontinued operations 134 162 38 (6)
3 (165) 29 (6,115) (491)
Share of operating profit/(loss) of joint ventures
Excluding goodwill amortisation and exceptional items 25 22 11 (4)
Goodwill amortisation (2) (2) (2) (1)
Operating exceptional items 4a (1) -- (6) (31)
22 20 3 (36)
--------- --------- --------- ------------
(143) 49 (6,112) (527)
--------- --------- --------- ------------
Corp Group and joint venture operating profit/(loss) before
goodwill amortisation and exceptional items 2 729 754 (463) (235)
Share of operating profit/(loss) of associates
Excluding goodwill amortisation and exceptional items 7 8 (1) (17)
Goodwill amortisation -- -- (7) (5)
Goodwill impairment 15 -- -- -- (27)
Operating exceptional items 4b -- -- (173) (18)
7 8 (181) (67)
--------- --------- --------- ------------
OPERATING (LOSS)/PROFIT 2 (136) 57 (6,293) (594)
Non-operating exceptional items
Gain/(loss) on disposal of discontinued operations 4c -- -- 358 (5)
Gain/(loss) on disposal of fixed assets and investments in
continuing operations 4c 4 (24) (11) (9)
Merger/demerger items 4c 737 20 291 --
Corp Group share of associates' non-operating exceptionals 4c -- -- -- (3)
4c 741 (4) 638 (17)
--------- --------- --------- ------------
605 53 (5,655) (611)
Write off of funding receivable from plc 4d -- -- -- (186)
Net interest payable
Corp Group 5 (103) (151) (246) (120)
Share of joint ventures and associates 5 4 1 2 1
5 (99) (150) (244) (119)
Net finance income 6 32 41 34 2
--------- --------- --------- ------------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION
Excluding goodwill amortisation and exceptional items 669 653 (674) (369)
Goodwill amortisation and exceptional items (131) (709) (5,191) (545)
2 538 (56) (5,865) (914)
TAX CREDIT/(CHARGE) ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES
Tax on profit/(loss) on ordinary activities before goodwill
amortisation and exceptional items (196) (195) 21 (10)
Tax on goodwill amortisation and exceptional items 198 (17) (231) --
7a 2 (212) (210) (10)
--------- --------- --------- ------------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES AFTER TAXATION 540 (268) (6,075) (924)
Equity minority interests 8 (3) (5) (1) (1)
--------- --------- --------- ------------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES ATTRIBUTABLE TO THE
SHAREHOLDERS 537 (273) (6,076) (925)
Equity dividends 9 (349) -- -- --
--------- --------- --------- ------------
RETAINED PROFIT/(LOSS) FOR THE FINANCIAL PERIOD 22 188 (273) (6,076) (925)
========= ========= ========= ============
EARNINGS/(LOSS) PER SHARE -- BASIC AND DILUTED 10 56.8p (27.5)p (607.6)p (92.5)p
EARNINGS/(LOSS) PER SHARE EXCLUDING GOODWILL AMORTISATION
AND EXCEPTIONAL ITEMS 10 49.7p 45.6p (65.4)p (38.0)p
========= ========= ========= ============
319
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
As at 31 March As at
--------------------------------- 30 September
2000 2001 2002 2002
Note L million L million L million L million
---- --------- --------- --------- ------------
FIXED ASSETS
Goodwill 13 4,397 5,395 877 672
Tangible assets 14 758 1,142 522 329
Investments:
Joint ventures
Share of gross assets 246 178 71 48
Share of gross liabilities (92) (90) (11) (13)
--------- --------- --------- ------------
154 88 60 35
Associates 47 45 137 69
Other investments 1,425 458 53 17
15 1,626 591 250 121
--------- --------- --------- ------------
6,781 7,128 1,649 1,122
--------- --------- --------- ------------
CURRENT ASSETS
Stocks and contracts in progress 16 946 1,721 720 356
Debtors: amounts falling due within one
year 17 1,995 2,438 1,410 803
Debtors: amounts falling after more than
one year 17 253 297 94 59
Investments 18 69 26 15 --
Cash at bank and in hand 18 555 343 1,361 1,062
--------- --------- --------- ------------
3,818 4,825 3,600 2,280
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE
YEAR 19 (4,408) (4,351) (4,356) (3,611)
--------- --------- --------- ------------
NET CURRENT (LIABILITIES)/ASSETS (590) 474 (756) (1,331)
--------- --------- --------- ------------
TOTAL ASSETS LESS CURRENT LIABILITIES 6,191 7,602 893 (209)
CREDITORS: AMOUNTS FALLING DUE AFTER MORE
THAN ONE YEAR 19 (1,078) (2,574) (2,278) (2,107)
PROVISIONS FOR LIABILITIES AND CHARGES 21 (693) (714) (505) (456)
--------- --------- --------- ------------
NET ASSETS/(LIABILITIES) BEFORE RETIREMENT
BENEFIT SURPLUSES AND DEFICITS 4,420 4,314 (1,890) (2,772)
Retirement benefit scheme surpluses 26 347 240 19 --
Retirement benefit scheme deficits 26 (229) (120) (145) (439)
--------- --------- --------- ------------
NET ASSETS/(LIABILITIES) AFTER RETIREMENT
BENEFIT SURPLUSES AND DEFICITS 4,538 4,434 (2,016) (3,211)
========= ========= ========= ============
CAPITAL AND RESERVES
Called-up share capital 22 141 143 143 143
Share premium account 22 371 700 700 700
Capital redemption reserve 22 9 9 9 9
Revaluation reserve 22 1,156 267 -- --
Profit and loss account 22 2,845 3,300 (2,880) (4,072)
--------- --------- --------- ------------
Equity shareholders' interests 4,522 4,419 (2,028) (3,220)
Equity minority interests 8 16 15 12 9
--------- --------- --------- ------------
4,538 4,434 (2,016) (3,211)
========= ========= ========= ============
320
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
CONSOLIDATED CASH FLOW STATEMENT
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
Note L million L million L million L million
---- --------- --------- --------- ------------
NET CASH (OUTFLOW)/INFLOW FROM OPERATING
ACTIVITIES BEFORE EXCEPTIONAL ITEMS 23 (67) 10 (142)
Exceptional cash flows from operating
activities 4(d) (39) (368) (181)
Net cash outflow from operating activities
after exceptional items -- continuing
operations (324) (409) (282)
Net cash inflow/(outflow) from operating
activities after exceptional items --
discontinued operations 218 51 (41)
NET CASH INFLOW/(OUTFLOW) FROM OPERATING
ACTIVITIES AFTER EXCEPTIONAL ITEMS 610 (106) (358) (323)
Dividends from joint ventures and
associates 68 68 29 --
Returns on investments and servicing of
finance 23 (34) (134) (253) (158)
Tax paid 23 (114) (137) (13) (13)
Capital expenditure and financial
investment 23 (394) (34) (196) (25)
Acquisitions and disposals 23 (3,974) (658) 995 387
Non-operating exceptional cash flows
related to merger/demerger 4(e) 1,386 (56) -- --
Equity dividends paid to shareholders (697) -- -- --
--------- --------- --------- ------------
NET CASH (OUTFLOW)/INFLOW BEFORE USE OF
LIQUID RESOURCES AND FINANCING (3,149) (1,057) 204 (132)
Net cash inflow/(outflow) from management
of liquid resources 23 656 166 186 (77)
Net cash inflow/(outflow) from financing
Issues of ordinary shares 22 161 303 -- --
Net cash inflow/(outflow) from changes in
debt and lease financing 23 1,987 217 1,034 (38)
--------- --------- --------- ------------
(DECREASE)/INCREASE IN CASH AND NET BANK
BALANCES REPAYABLE ON DEMAND (345) (371) 1,424 (247)
========= ========= ========= ============
321
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET MONETARY DEBT
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
Note L million L million L million L million
---- --------- --------- --------- ------------
(Decrease)/increase in cash and net bank
balances repayable on demand in the
period (345) (371) 1,424 (247)
Net cash (inflow)/outflow from management
of liquid resources (656) (166) (186) 77
Net cash (inflow)/outflow from increase in
debt and lease financing (2,103) (217) (1,034) 38
--------- --------- --------- ------------
Change in net monetary debt resulting from
cash flows (3,104) (754) 204 (132)
Net debt (acquired)/disposed with
subsidiaries (120) (23) (3) 17
Other non-cash changes (248) (56) 242 (223)
Effect of foreign exchange rate changes 155 (256) 4 159
--------- --------- --------- ------------
Movement in net monetary funds/(debt) in
the period (3,317) (1,089) 447 (179)
Net monetary funds/(debt) at beginning of
period 24 624 (2,693) (3,782) (3,335)
--------- --------- --------- ------------
Net monetary debt at end of period 24 (2,693) (3,782) (3,335) (3,514)
========= ========= ========= ============
322
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
Note L million L million L million L million
---- --------- --------- --------- ------------
Profit/(loss) on ordinary activities
attributable to the shareholders
Corp Group 515 (292) (5,902) (820)
Share of joint ventures 18 13 9 (35)
Share of associates 4 6 (183) (70)
537 (273) (6,076) (925)
Listed fixed asset investments
Surplus/(deficit) due to movement in share
price 419 (375) (30) --
Exchange rate adjustments (110) 6 -- --
309 (369) (30) --
Offset due to gains on hedging 76 -- -- --
--------- --------- --------- ------------
385 (369) (30) --
Unrealised gain on exchange of businesses -- -- 9 --
Exchange differences on translation
Corp Group 48 240 (67) 106
Share of associates 15 (4) 3 -- --
22 44 243 (67) 106
Tax charge on exchange differences -- -- -- (3)
Actuarial gain/(loss) recognised on retirement
benefit schemes
Difference between the expected and actual
return on scheme assets 26 170 (186) (277) (183)
Changes in assumptions underlying the
present value of the scheme liabilities
-- gains/(losses) 26 48 164 (83) (149)
Experience (losses) and gains on scheme
liabilities 26 (63) (51) 9 (41)
155 (73) (351) (373)
Tax (debit)/credit on net retirement benefit
items credited/debited in the statement of
total recognised gains and losses (54) 38 68 --
--------- --------- --------- ------------
TOTAL RECOGNISED GAINS AND LOSSES RELATED TO
THE PERIOD 1,067 (434) (6,447) (1,195)
========= ========= ========= ============
323
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' INTERESTS
Six months
Year ended 31 March ended
---------------------- 30 September
2001 2002 2002
Note L million L million L million
---- --------- --------- ------------
Total recognised gains and losses related to the
period (434) (6,447) (1,195)
Issues of ordinary shares 22 331 -- --
Corp Group share of associates' shares to be
issued -- -- 3
--------- --------- ------------
Total movement in the period (103) (6,447) (1,192)
Equity shareholders' interests at beginning of
period 4,522 4,419 (2,028)
--------- --------- ------------
Equity shareholders' interests at end of period 4,419 (2,028) (3,220)
========= ========= ============
324
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
NOTES TO THE FINANCIAL INFORMATION
1. ACCOUNTING POLICIES
The financial information set out in this Appendix has been prepared in
accordance with applicable accounting standards generally accepted in the United
Kingdom. The more important Corp Group accounting policies are summarised below
to facilitate interpretation of the financial information.
BASIS OF COMPILATION
Corp was permitted under Section 228 of the Act not to prepare, and did not
prepare, consolidated financial statements. The consolidated financial
information presented in this report has been derived from plc's audited
consolidated financial statements, adjusted for balances and transactions
relating to plc and those subsidiaries of plc which do not form part of the Corp
Group.
BASIS OF PREPARATION -- GOING CONCERN
Corp owes approximately L2.1 billion under a syndicated credit facility (the
"Bank Facility") which was due for repayment on 25 March 2003. Borrowings under
the facility are repayable on demand and no further funds may be drawn under its
terms. Corp also has in issue Bonds with a face value of approximately L2.1
billion. plc guarantees Corp's debt obligations under the Bonds and the Bank
Facility. As at 30 September 2002, net debt of the Corp Group stood at
approximately L3.2 billion.
On 29 August 2002, plc announced that non-binding indicative Heads of Terms,
which set out the principles for the financial restructuring of Corp and plc,
had been concluded with the co-ordination committee of Syndicate Banks and an
informal ad hoc committee of Bondholders. On 16 December 2002, plc announced
that modifications to the non-binding indicative Heads of Terms had been
concluded. The non-binding indicative Heads of Terms envisage that the creditors
of Corp and plc, other than certain excluded creditors, will be subject to
schemes of arrangement ("Schemes") under which creditor claims will be
compromised in consideration for cash, New Shares, and New Notes. As part of the
Restructuring Corp will become the listed parent for the Group and, following
completion of the plc Scheme, it is currently intended that plc will be
liquidated or dissolved. The Restructuring will leave existing plc Shareholders
with 0.5 per cent. of the equity in Corp.
On 17 March 2003, documentation for the proposed Schemes was filed with the High
Court of England and Wales, initiating the final steps towards implementation of
the Restructuring.
The non-binding indicative Heads of Terms envisage a new capital structure for
the Group that is appropriate to the latest business plan developed by the
Group. The implementation of this capital structure involves, amongst other
things, the payment of L340 million of cash (in addition to L95 million accrued
interest on Corp's financial debt, paid in September and October 2002), the
issue of New Shares and the issue of New Notes with a face value, using 30
September 2002 exchange rates, of approximately L758 million by Corp to Scheme
Creditors through the operation of the Schemes.
As part of the arrangements to implement the Restructuring, the majority of the
Corp Group's cash resources are currently held in secured accounts which are
subject to interim security arrangements in favour of the Corp Group's Syndicate
Banks and Bondholders (including the bond trustees, but excluding Ancrane, a
subsidiary of plc which holds Bonds) and also in favour of one ESOP Derivative
Bank who committed to support the proposed Restructuring within the required
time period. At 30 September 2002, the balance of this secured cash amounted to
L735 million. The Corp Group is dependent on amounts available to it from the
secured amounts in order to meet its short-term liquidity needs.
Prior to the release of interim security and so long as an enforcement event
does not occur, monthly releases from the secured accounts will be allowed in
accordance with an agreed cash flow schedule, subject to specified maximum
amounts. This agreed cash flow schedule is consistent with the Corp Group's
expectations as to its liquidity needs for the period to the end of June 2003.
When the non-binding indicative Heads of Terms were announced on 29 August 2002,
the Group indicated that the Restructuring was scheduled to be completed by 31
January 2003 (the "Effective Date"). This date was
325
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
extended to 15 March 2003 in December 2002. As a result of the complexity of the
Restructuring the Effective Date of the Schemes is now expected to be on or
around 19 May 2003. The change to the timing of the Restructuring introduces
risks associated with certain financial debt falling due in March 2003. In
particular, as noted above, the Bank Facility was due for repayment on 25 March
2003 and interest payments were due on the Yankee Bonds on 17 March 2003 and are
due on the Eurobonds on 31 March 2003. Failure to repay the Bank Facility has
given rise to direct rights on the part of individual Syndicate Banks to bring
actions for recovery of the debt owing to them and will, in addition, after the
expiry of a five business day grace period, result in a cross default under the
Bonds. In common with the Group's approach to other Scheme claims, pending the
outcome of the Schemes, the Group does not intend to make payment in respect of
such obligations, in full or in part.
The fact of the aforementioned payments falling due represents a risk to the
Restructuring, due to consequential legal action which Syndicate Banks or
Bondholders who are not supportive of the Restructuring process could take
against Corp or plc. However, Corp is of the view that, given the timing
associated with any such legal action as well as the likely attitude of the
English and New York Courts to a creditor seeking to frustrate the Restructuring
(which is intended to be for the benefit of all Scheme creditors), these risks
should be manageable.
The interim security is subject to various enforcement events, some of which are
tied to the prospects of successfully completing the Restructuring in accordance
with the non-binding indicative Heads of Terms (and within the agreed timetable,
which is currently 30 June 2003). The occurrence of an enforcement event
entitles the requisite majority of creditors to block withdrawals from the
secured accounts and/or enforce the interim security.
Letters of current intention to support the Restructuring and to vote for the
Corp and the plc Schemes were obtained from the joint lead co-ordinators of the
Syndicate Banks and from each of the members of the Bondholder committee in
December 2002. Neither Corp nor plc has received any notice of any changes to
this intention.
The proposed Restructuring, and Admission of the New Shares, Warrants and New
Notes to Listing, are dependent on the Corp Scheme becoming effective. The Corp
Scheme will become effective on delivery of the Court's order sanctioning the
Corp Scheme to the Registrar of Companies in England and Wales, following,
amongst other things, securing the necessary level of support of the Syndicate
Banks, Bondholders and other creditors whose claims will be compromised in the
relevant creditors' meetings to be held as part of the scheme of arrangement
process, as well as the approval of the Court and the granting of a permanent
injunction order by the US Bankruptcy Court.
Corp considers that, once the Corp Scheme becomes effective, Corp and the Corp
Group will have sufficient borrowings and facilities in place to meet their
present liabilities and working capital requirements as they fall due for at
least a year from the date of the Prospectus, and accordingly the financial
information in this Appendix has been drawn up on a going concern basis. Should
the Corp Group's Syndicate Banks, Bondholders and other creditors cease to
support the Corp Group before the completion of the Restructuring, or should all
of the conditions for the Restructuring not be met, there would be no realistic
alternative for plc and Corp but to commence insolvency proceedings and the
going concern basis of preparation would no longer be applicable; adjustments
would be necessary to record additional liabilities and to write down assets to
their recoverable amount. It is not practicable to quantify with reasonable
accuracy these possible adjustments.
ACCOUNTING CONVENTION
The financial information has been prepared under the historical cost
convention, as modified by the valuation of listed fixed and current asset
investments.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Corp and its
subsidiaries. All intercompany balances and transactions have been eliminated
upon consolidation.
326
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
TURNOVER
Turnover, excluding VAT, comprises sales to outside customers, and the Corp
Group's percentage interest in sales by their joint ventures. The Corp Group
records transactions as sales when the delivery of products or performance of
services takes place in accordance with the terms of sale. Turnover on long-term
contracts is calculated as the proportion of the total contract value based on
the ratio of costs incurred to date compared with the total expected costs for
that contract.
CURRENCY TRANSLATION
Transactions denominated in foreign currencies are translated into the
functional currency at the rates ruling at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the balance
sheet date are retranslated at the rates ruling at that date. These translation
differences are dealt with in the profit and loss account with the exception of
certain gains and losses arising under hedging transactions as described below.
Profits and losses of overseas subsidiaries, joint ventures and associates and
cash flows of overseas subsidiaries are translated at the average rates of
exchange during the period. Net assets are translated at period end rates of
exchange. Key rates used are as follows:
Average rates Period end rates
---------------------------------------- ---------------------------------------
Year ended 31 March Six months ended At 31 March
--------------------- 30 September --------------------- At 30 September
2000 2001 2002 2002 2000 2001 2002 2002
----- ----- ----- ---------------- ----- ----- ----- ---------------
US dollar 1.62 1.48 1.43 1.52 1.60 1.42 1.42 1.57
Italian lira 3,015 3,153 3,152 n/a 3,228 3,114 n/a n/a
Euro 1.56 1.63 1.63 1.58 1.67 1.67 1.63 1.59
===== ===== ===== ================ ===== ===== ===== ===============
The differences arising from the restatement of profits and losses and the
retranslation of the opening net assets/(liabilities) to period end rates are
taken to reserves.
ACQUISITION AND DISPOSALS
On the acquisition of a business, including an interest in an associated
undertaking, fair values are attributed to the Group's share of separable net
assets. Where the cost of acquisition exceeds the fair values attributable to
such net assets, the difference is treated as purchased goodwill and capitalised
in the balance sheet in the year of acquisition.
The profit or loss on the disposal or closure of a previously acquired business
includes the attributable amount of any purchased goodwill relating to that
business not previously charged to the profit and loss account.
The results and cash flows relating to a business are included in the
consolidated profit and loss account and the consolidated cash flow statement
from the date of acquisition or up to the date of disposal.
FINANCIAL INSTRUMENTS
The Corp Group uses financial instruments, including interest rate swaps,
currency swaps and other derivatives, solely for the purposes of raising finance
for its operations and managing interest and currency risk associated with the
Corp Group's underlying business activities. There is no trading activity in
financial instruments.
FORWARD FOREIGN EXCHANGE CONTRACTS
Forward foreign exchange contracts generally exhibit a high correlation to the
hedged items and are designated and considered effective as hedges of the
underlying assets, liabilities and firm commitments. Gains and losses on forward
foreign exchange contracts which are designated as hedges of assets, liabilities
and firm commitments of
327
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
the Corp Group are recognised in the profit and loss account or as adjustments
to carrying amounts when the hedged transactions occurs.
HEDGES OF THE NET INVESTMENT IN OVERSEAS SUBSIDIARIES
The Corp Group's policy has been to finance its activities in the same
currencies as those used for its foreign investments in order to hedge foreign
currency exposure of net investments in foreign operations. This policy is
implemented either by financing in the related currency or using derivatives,
such as currency swaps, which provide a synthetic effect of a foreign currency
loan, thereby reducing the exchange risk.
Exchange gains or losses arising on the hedging borrowings and on the notional
principal of currency swaps during their life and at termination or maturity,
together with the tax thereon, are dealt with as a movement in reserves, to the
extent they offset losses or gains on the hedged investment.
In respect of hedges of net investments, the Corp Group enters into tax
equalisation swaps, the gains and losses of which are recognised through the
statement of total recognised gains and losses (in accordance with the
underlying transaction and the tax thereon) with any forward premium or discount
recognised over the life of the contract in the profit and loss account.
EQUITY FORWARD CONTRACTS
The Corp Group has established three trusts for the purchase of shares and
share-related instruments for the benefit of employees -- the Marconi Employee
Trust ("MET"), the GEC Employee Share Trust ("EST") and the GEC Special Purpose
Trust. These trusts are consolidated in the financial statements of the Corp
Group.
The independent trustee of the MET, Bedell Cristin Trustees Limited ("BCT"), has
entered into contracts with three financial institutions (the "Equity Forward
Contracts") to hedge the potential cost of the Corp Group's share plans. On or
before maturity of the Equity Forward Contracts, the MET may either take
delivery of plc Shares at the contracted purchase price (including accrued
interest) or settle the contracts for cash for a net amount based on the
difference between the plc share price and the contract purchase price
(including accrued interest). The obligation to settle the contracts including
accrued interest is classified as a provision within the Corp Group's balance
sheet. The liability is calculated by taking the number of shares under contract
and applying the difference between plc's share price and the contract purchase
price per share, adjusted for brokerage costs, on a contract-by-contract basis.
No cash is exchanged until the maturity of the contract (or earlier upon either
exercises of options by employees or cash settlement of the contracts at the
MET's option) unless collateral is required. Where the MET has provided
collateral this has been offset against the provision in the consolidated
balance sheet.
Interest costs on the equity notional amount are calculated at LIBOR plus a
margin less dividends, if any, and are accrued on a monthly basis, with a debit
to interest and a credit to provisions.
INTEREST RATE RISK EXPOSURES
The Corp Group hedges its exposure to movements in interest rates associated
with its borrowing primarily by means of interest rate swaps and forward rate
agreements. Payments and receipts under interest rate swap agreements
specifically designated for hedging purposes are recorded in the profit and loss
account on an accruals basis.
Gains and losses arising on termination of hedging instruments where the
underlying exposure remains are recognised in the profit and loss account over
the remaining life of the underlying exposure.
TANGIBLE FIXED ASSETS
Property, plant, machinery, fixtures, fittings, tools and equipment are recorded
at cost and depreciated on a straight-line basis over their estimated useful
lives from the time they are brought into use. Freehold land does not bear
depreciation where the original cost of purchase was separately identified.
Provision is made for any impairment.
328
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Tangible fixed assets are depreciated using the following rates:
Freehold property -- 2 per cent. to 4 per cent. per annum
Leasehold property -- over the period of the lease or 50 years for long leases
Plant and machinery -- 10 per cent. per annum on average
Fixtures, fittings, tools and
equipment -- 10 per cent. per annum
LEASED ASSETS
Assets held under finance leases and other similar contracts, which confer
rights and obligations similar to those attached to owned assets, are
capitalised as tangible fixed assets and are depreciated over the shorter of the
lease terms and their useful lives. The capital elements of future lease
obligations are recorded as liabilities, while the interest elements are charged
to the profit and loss account over the period of the leases to produce a
constant rate of charge on the balance of capital repayments outstanding. Hire
purchase transactions are dealt with similarly except that assets are
depreciated over their useful lives.
Rentals under operating leases are charged on a straight-line basis over the
lease term, even if the payments are not made on such a basis.
GOODWILL
Purchased goodwill is capitalised and amortised on a straight-line basis over
its estimated useful economic life. Each acquisition is separately evaluated for
the purposes of determining the useful economic life, up to a maximum of 20
years. The useful economic lives are reviewed annually and revised if necessary.
Provision is made for any impairment.
RESEARCH AND DEVELOPMENT
Expenditure incurred in the period is charged against profit unless specifically
chargeable to and receivable from customers under agreed contract terms.
STOCKS
Stocks are stated at the lower of cost and net realisable value. Provision is
made for obsolete, slow-moving or defective items where appropriate.
CONTRACTS IN PROGRESS
Profit on long-term contracts in progress is taken when a sale is recorded on
part-delivery of products or part-performance of services, provided that the
outcome of the contract can be assessed with reasonable certainty. Amounts
recoverable on long-term contracts, which are included in debtors, are stated at
the net sales value of the work done less amounts received as progress payments
on account. Excess progress payments are included in creditors as payments
received in advance. Cumulative costs incurred net of amounts transferred to
cost of sales, less provision for contingencies and anticipated future losses on
contracts, are included as long-term contract balances in stock.
WARRANTIES
Provisions for estimated expenses related to product warranties are made at the
time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims.
TAXATION
Taxation on profit on ordinary activities is that which has been paid or becomes
payable in respect of the profits for the period. Deferred taxation is provided
in full on timing differences that result in an obligation at the balance sheet
date to pay more tax, or a right to pay less tax, at a future date, at rates
expected to apply when they crystallise based on current tax rates and law.
Timing differences arise from the inclusion of items of income or expenditure in
taxation computations in periods different from those in which they are included
in the financial
329
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
statements. Deferred tax assets are recognised to the extent that it is regarded
as more likely than not that they will be recovered. Deferred tax assets and
liabilities are not discounted.
INVESTMENTS
Joint ventures comprise long-term investments where control is shared under a
contractual arrangement. The sector analysis of turnover, profit and net assets
includes the Corp Group's share of the results and net assets of joint ventures.
Associates consist of long-term investments in which the Group holds a
participating interest and over which it exercises significant influence.
Investments in joint ventures and associates, other than Easynet Group Plc are
stated at the amount of the Corp Group's share of net assets, including goodwill
at the end of the period derived from audited or management accounts made up to
that date. Easynet Group Plc's results are included for the year to 31 December
for the Corp Group's results for the three years to 31 March and for the six
months to 30 June for the Corp Group's results for the six months to 30
September. Profit/(loss) before taxation includes the Corp Group's share of
joint ventures and associates.
Other unlisted fixed asset investments are stated at cost less provision for
impairment in value. Listed fixed asset investments are stated at market value.
Current asset investments are stated at the lower of cost and net realisable
value except dated listed securities which are stated at market value.
Investments in the shares of plc, held within the EST, the GEC Special Purpose
Trust and the MET, are included on the Corp Group balance sheet at cost, less
provision for impairment.
PENSIONS AND OTHER POST RETIREMENT BENEFITS
The operating cost of providing pensions and other post retirement benefits, as
calculated periodically by independent actuaries, is charged to the Corp Group's
operating profit or loss in the period that those benefits are earned by
employees. The financial return expected on the pension schemes' assets is
recognised in the period in which they arise as part of finance income and the
effect of unwinding of the discounted value of the schemes' liabilities is
treated as part of finance costs. The changes in value of the pension schemes'
assets and liabilities are reported as actuarial gains or losses as they arise
in the consolidated statement of total recognised gains and losses. The pension
schemes' surpluses, to the extent they are considered recoverable, or deficits
are recognised in full and presented in the balance sheet net of any related
deferred tax.
SHARE OPTIONS
The costs of awarding shares under employee share plans are charged to the
profit and loss account over the period to which the performance criteria
relate. When share options granted lapse, any associated costs that were treated
as costs of acquisition are credited to either goodwill, or to the profit and
loss account if there is no remaining goodwill.
FINANCE COSTS
Finance costs of debt are recognised in the profit and loss account over the
term of such instruments at a constant rate on the carrying amount.
DEBT
Debt is initially stated at the amount of the net proceeds after deduction of
issue costs. The carrying amount is increased by the finance cost in respect of
the accounting period and reduced by payments made in the period.
LIQUID RESOURCES
Liquid resources comprise term deposits with an original maturity of generally
less than one year and other readily disposable current asset investments.
330
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
2. PRINCIPAL ACTIVITIES, PROFIT/(LOSS) CONTRIBUTIONS, MARKETS AND NET
ASSETS/(LIABILITIES)
ANALYSIS OF RESULTS AND NET ASSETS/(LIABILITIES) BY CLASS OF BUSINESS
Profit/(loss) on ordinary activities before taxation Turnover
---------------------------------------------------- ---------------------------------
Six months
Year ended 31 March ended Year ended 31 March
------------------------------------ 30 September ---------------------------------
2000 2001 2002 2002 2000 2001 2002
L million L million L million L million L million L million L million
---------- ---------- ---------- ------------- --------- --------- ---------
Network Equipment 415 442 (464) (179) 2,583 3,359 1,804
Network Services 71 102 35 5 543 1,016 969
Other (including intra-activity
sales) (23) (15) (64) (31) (10) (39) (32)
--------- --------- --------- ------------ --------- --------- ---------
463 529 (493) (205) 3,116 4,336 2,741
Capital 56 1 (74) (28) 737 579 422
--------- --------- --------- ------------ --------- --------- ---------
Continuing operations 519 530 (567) (233) 3,853 4,915 3,163
Discontinued operations 210 224 104 (2) 1,871 2,027 1,404
--------- --------- --------- ------------ --------- --------- ---------
729 754 (463) (235) 5,724 6,942 4,567
========= ========= =========
Goodwill amortisation and goodwill (765) (673) (433) (55)
Operating exceptional items (note
4(a)) (107) (32) (5,216) (237)
--------- --------- --------- ------------
(143) 49 (6,112) (527)
Associates 7 8 (181) (67)
--------- --------- --------- ------------
Operating (loss)/profit (136) 57 (6,293) (594)
Non-operating exceptional items
(note 4(c)) 741 (4) 638 (17)
Write off of funding receivable
from plc (note 4(d)) -- -- -- (186)
Net interest payable and interest
bearing assets and liabilities (99) (150) (244) (119)
Net finance income 32 41 34 2
Unallocated net liabilities -- -- -- --
Amounts owing to plc companies not
in the Corp Group -- -- -- --
--------- --------- --------- ------------
538 (56) (5,865) (914)
========= ========= ========= ============
Turnover Net assets/(liabilities)
------------ ------------------------------------
Six months
ended As at 31 March As at
30 September --------------------- 30 September
2002 2001 2002 2002
L million L million L million L million
------------ --------- --------- ------------
Network Equipment 600 1,977 607 451
Network Services 392
Other (including intra-activity
sales) (5) 35 8 11
------------ --------- --------- ------------
987 2,012 615 462
Capital 32 7 54 (19)
------------ --------- --------- ------------
Continuing operations 1,019 2,019 669 443
Discontinued operations 87 623 196 --
------------ --------- --------- ------------
1,106 2,642 865 443
============
Goodwill amortisation and goodwill 5,413 877 672
Operating exceptional items (note
4(a))
Associates 45 137 69
Operating (loss)/profit
Non-operating exceptional items
(note 4(c))
Write off of funding receivable
from plc (note 4(d))
Net interest payable and interest
bearing assets and liabilities (2,958) (3,199) (3,211)
Net finance income
Unallocated net liabilities (234) (615) (889)
Amounts owing to plc companies not
in the Corp Group (474) (81) (295)
--------- --------- ------------
4,434 (2,016) (3,211)
========= ========= ============
331
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
The Corp Group has divided its business into two segments: Core and Capital.
The Corp Group's Core businesses are the provision of optical networks,
broadband routing and switching and broadband access technologies and associated
installation, maintenance and other value-added services. Their customer base
includes telecommunications companies, and providers of Internet services for
their public networks, and to certain large corporations, government departments
and agencies, utilities and educational institutions for their private networks.
Core activities are divided into Network Equipment, Network Services and Other.
Capital comprises the businesses the Corp Group manages for value and ultimately
for disposal. The Corp Group's share of joint ventures' profit, turnover and net
assets are included under Capital.
The net assets of Network Equipment and Network Services cannot be separately
identified, as the same assets are, generally, used to generate sales in each of
these segments. The results of these segments are separately reportable.
Goodwill arising on acquisitions is amortised over a period not exceeding 20
years. Separate components of goodwill are identified and amortised over the
appropriate useful economic life. The remaining goodwill on the consolidated
balance sheet at 30 September 2002 will be amortised over an average period of
approximately seven years.
Transactions between Corp Group companies and joint ventures and associates are
as follows:
Six months
Year ended 31 March ended
----------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Sales 65 60 40 16
Purchases (4) (1) (14) --
========= ========= ========= ============
The contribution of subsidiaries acquired in each period is as analysed below:
Six months
Year ended 31 March ended
----------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Turnover 1,254 237 12 --
Operating profit before goodwill
amortisation and operating exceptional
items 133 10 1 --
========= ========= ========= ============
Assets and liabilities arising out of the Retirement Benefit Plan are treated as
unallocated net liabilities.
It is not meaningful to disclose, on a full segmental basis, goodwill and
goodwill amortisation as any allocation would be arbitrary.
332
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
ANALYSIS OF TURNOVER BY CLASS OF BUSINESS
To customers in the United Kingdom To customers overseas
------------------------------------------------ ------------------------------------------------
Six months Six months
Year ended 31 March ended Year ended 31 March ended
--------------------------------- 30 September --------------------------------- 30 September
2000 2001 2002 2002 2000 2001 2002 2002
L million L million L million L million L million L million L million L million
--------- --------- --------- ------------ --------- --------- --------- ------------
Network Equipment 773 984 355 128 1,810 2,375 1,449 472
Network Services 240 354 367 126 303 662 602 266
Other (including
intra-activity sales) 14 8 1 1 (24) (47) (33) (6)
--------- --------- --------- ------------ --------- --------- --------- ------------
1,027 1,346 723 255 2,089 2,990 2,018 732
Capital 447 340 271 7 290 239 151 25
--------- --------- --------- ------------ --------- --------- --------- ------------
Continuing operations 1,474 1,686 994 262 2,379 3,229 2,169 757
Discontinued operations 32 91 90 11 1,839 1,936 1,314 76
--------- --------- --------- ------------ --------- --------- --------- ------------
1,506 1,777 1,084 273 4,218 5,165 3,483 833
========= ========= ========= ============ ========= ========= ========= ============
ANALYSIS OF TURNOVER BY TERRITORY OF DESTINATION
Turnover
------------------------------------------------
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
United Kingdom 1,506 1,777 1,084 273
The Americas 2,359 2,852 1,760 342
Rest of Europe 1,234 1,677 1,151 293
Africa, Asia and Australasia 625 636 572 198
--------- --------- --------- ------------
5,724 6,942 4,567 1,106
========= ========= ========= ============
333
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
ANALYSIS OF OPERATING PROFIT/(LOSS) BEFORE GOODWILL AMORTISATION AND EXCEPTIONAL
ITEMS, TURNOVER AND NET ASSETS/(LIABILITIES) BY TERRITORY OF ORIGIN
Operating profit/(loss) Turnover
------------------------------------------------ ---------------------------------
Six months
Year ended 31 March ended Year ended 31 March
--------------------------------- 30 September ---------------------------------
2000 2001 2002 2002 2000 2001 2002
L million L million L million L million L million L million L million
--------- --------- --------- ------------ --------- --------- ---------
United Kingdom 364 349 (249) (69) 1,993 2,286 1,328
The Americas 303 155 (166) (57) 2,499 2,927 1,842
Rest of Europe 25 223 (28) (90) 870 1,334 1,079
Africa, Asia and Australasia 37 27 (20) (19) 362 395 318
--------- --------- --------- ------------ --------- --------- ---------
729 754 (463) (235) 5,724 6,942 4,567
========= ========= ========= ============ ========= ========= =========
Turnover Net assets/(liabilities)
------------ ------------------------------------
Six months
ended As at 31 March As at
30 September --------------------- 30 September
2002 2001 2002 2002
L million L million L million L million
------------ --------- --------- ------------
United Kingdom 372 953 293 435
The Americas 340 944 154 60
Rest of Europe 309 665 386 (75)
Africa, Asia and Australasia 85 80 32 23
------------ --------- --------- ------------
1,106 2,642 865 443
============ ========= ========= ============
334
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
3. GROUP OPERATING (LOSS)/PROFIT
Year ended 31 March 2000
---------------------------------------------------------
Continuing Discontinued Exceptional items Total
L million L million L million L million
---------- ------------ ----------------- ---------
Turnover 3,566 1,871 -- 5,437
Cost of sales (2,159) (1,335) -- (3,494)
---------- ------------ ----------------- ---------
Gross profit 1,407 536 -- 1,943
Selling and distribution expenses (277) (157) -- (434)
Administrative expenses -- other (346) (86) (106) (538)
Research and development (311) (75) -- (386)
Goodwill amortisation (741) (22) -- (763)
Administrative expenses -- total (1,398) (183) (106) (1,687)
Other operating income/(expense) 21 (8) -- 13
---------- ------------ ----------------- ---------
Operating (loss)/profit (247) 188 (106) (165)
========== ============ ================= =========
Year ended 31 March 2001
---------------------------------------------------------
Continuing Discontinued Exceptional items Total
L million L million L million L million
---------- ------------ ----------------- ---------
Turnover 4,626 2,027 -- 6,653
Cost of sales (2,846) (1,384) -- (4,230)
---------- ------------ ----------------- ---------
Gross profit 1,780 643 -- 2,423
Selling and distribution expenses (548) (210) -- (758)
Administrative expenses -- other (269) (112) (32) (413)
Research and development (525) (101) -- (626)
Goodwill amortisation (642) (29) -- (671)
Administrative expenses -- total (1,436) (242) (32) (1,710)
Other operating income 70 4 -- 74
---------- ------------ ----------------- ---------
Operating (loss)/profit (134) 195 (32) 29
========== ============ ================= =========
Year ended 31 March 2002
---------------------------------------------------------
Continuing Discontinued Exceptional items Total
L million L million L million L million
---------- ------------ ----------------- ---------
Turnover 2,906 1,404 -- 4,310
Cost of sales (2,277) (976) (830) (4,083)
---------- ------------ ----------------- ---------
Gross profit/(loss) 629 428 (830) 227
Selling and distribution expenses (450) (140) -- (590)
Administrative expenses -- other (222) (86) (703) (1,011)
Research and development (547) (81) -- (628)
Goodwill amortisation (406) (25) -- (431)
Goodwill impairment -- -- (3,677) (3,677)
Administrative expenses -- total (1,175) (192) (4,380) (5,747)
Other operating income/(expense) 12 (17) -- (5)
---------- ------------ ----------------- ---------
Operating (loss)/profit (984) 79 (5,210) (6,115)
========== ============ ================= =========
335
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Six months ended 30 September 2002
---------------------------------------------------------
Continuing Discontinued Exceptional items Total
L million L million L million L million
---------- ------------ ----------------- ---------
Turnover 1,019 87 -- 1,106
Cost of sales (842) (63) (24) (929)
---------- ------------ ----------------- ---------
Gross profit/(loss) 177 24 (24) 177
Selling and distribution expenses (152) (11) -- (163)
Administrative expenses -- other (65) (6) (182) (253)
Research and development (182) (11) -- (193)
Goodwill amortisation (51) (3) -- (54)
Administrative expenses -- total (298) (20) (182) (500)
Other operating (expense)/income (7) 2 -- (5)
---------- ------------ ----------------- ---------
Operating loss (280) (5) (206) (491)
========== ============ ================= =========
Exceptional items are shown in further detail in note 4.
The Corp Group disposed of its Medical Systems, Data Systems and Commerce
Systems activities during the year ended 31 March 2002 and the Strategic
Communications business during the six months ended 30 September 2002. It is
these activities which are shown as discontinued operations in the note above.
Further information on disposals is provided in note 25(b).
4. EXCEPTIONAL ITEMS
Details of the tax (credited)/charged in relation to exceptional items is
provided in note 7(a).
These charges have been analysed as follows:
(A) OPERATING EXCEPTIONALS
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
Note L million L million L million L million
---- --------- --------- --------- ------------
Stock write-downs and related costs (1) -- -- (672) --
Restructuring costs (2) -- -- (158) (24)
--------- --------- --------- ------------
Included in cost of sales -- -- (830) (24)
--------- --------- --------- ------------
Impairment of goodwill and tangible fixed
assets (3) -- -- (3,831) (31)
Restructuring and reorganisation costs (4) (63) (32) (324) (166)
System implementation costs (5) (43) -- (75) 7
Provisions for doubtful debts (6) -- -- (150) 8
--------- --------- --------- ------------
Included in administrative expenses (106) (32) (4,380) (182)
--------- --------- --------- ------------
Corp Group operating exceptionals (106) (32) (5,210) (206)
Share of joint ventures' operating
exceptionals (1) -- (6) (31)
Share of associates' operating exceptionals -- -- (173) (18)
--------- --------- --------- ------------
Total operating exceptionals (107) (32) (5,389) (255)
========= ========= ========= ============
---------------
336
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
NOTES
(1) The stock write-downs and related costs charged to cost of sales in the
year ended 31 March 2002 includes L581 million for obsolescence and
slow-moving provisions against a number of product lines, predominantly
optical networking products, and L91 million in respect of supplier
commitments.
(2) In the year ended 31 March 2002 restructuring costs classified within cost
of sales includes a charge of L127 million representing additional costs
incurred as a consequence of the decision to outsource certain
manufacturing operations to Jabil Circuit Inc. ("Jabil"). Under the terms
of the agreement, payments of L77 million were made during the year, L19
million provided against stocks and L31 million is expected to be paid in
the future.
The remaining charge of L31 million in the year ended 31 March 2002
relates to onerous contracts representing certain liabilities to which the
Corp Group is committed as a result of the operational restructuring. This
includes liabilities, relating to equipment leasing contracts and supply
contracts under which it has been agreed to purchase minimum volumes of
goods and services which will offer no economic value to the business as a
result of its reduced size.
In the six months ended 30 September 2002 L24 million was charged to
restructuring costs. This relates mostly to additional payments to Jabil,
arising in the six month period.
(3) In the year ended 31 March 2002, in line with its accounting policies, the
Corp Group reassessed the carrying values of goodwill, fixed assets,
inventory and debtors. As a consequence of the more uncertain sales
outlook and more conservative future assessment of future growth prospects
of acquired businesses the Corp Group recorded an exceptional charge of
L3,831 million to write down goodwill and tangible fixed assets. The
goodwill impairment relates primarily to FORE Systems, Inc., RELTEC
Corporation, Metapath Software International, Inc. ("MSI"), Mariposa
Technology, Inc., ipsaris Limited (formerly Fibreway Ltd), Systems
Management Specialists, Inc. ("SMS") and Albany Partnership Limited
("APT").
In light of declining industry and economic trends on current and expected
future operations, the Corp Group reassessed the carrying values of
goodwill and tangible fixed assets in the six months ended 30 September
2002. Tangible fixed assets were impaired by L31 million.
(4) In the year ended 31 March 2000, the Corp Group incurred restructuring and
reorganisation costs relating to restructuring of existing businesses (L43
million) and restructuring of acquisitions (L20 million).
In the year ended 31 March 2001, the Corp Group incurred net restructuring
and reorganisation costs of L32 million relating to a charge for voluntary
redundancy schemes and one-off restructuring costs (L65 million) partially
offset by favourable settlements of contract commitments (L33 million).
As part of the Corp Group's cost reduction actions, a charge of L324
million was recorded during 31 March 2002 associated with employee
severance, site rationalisation costs and other restructuring costs.
In the six months ended 30 September 2002 a further charge of L166 million
was recorded as part of the Corp Group's cost reduction actions.
The site rationalisation costs reflect the charges associated with closing
and consolidating various sites around the world as part of the business
restructuring and the other restructuring costs represent various other
costs associated with the restructuring program.
(5) In the year ended 31 March 2000, the Corp Group incurred L43 million in
relation to year 2000 costs.
During the year ended 31 March 2002 the Corp Group planned to implement a
new global IT system. In light of the revised trading outlook and the
continued focus on cost reduction, the implementation was terminated. The
L75 million charge represents L43 million of capitalised external
consultancy costs associated with the implementation, L24 million of
hardware and software costs expensed, and L8 million of other associated
costs of the project.
337
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
During the six months ended 30 September 2002, the Corp Group was able to
revise its previous estimate of the overall costs leading to the release
of L7 million from the amounts accrued in the year to 31 March 2002.
(6) In light of the declining market and economic trends the Corp Group was
experiencing, an exceptional provision against bad and doubtful debts of
L150 million was charged during the year ended 31 March 2002. Of this
amount, L8 million was paid by the Corp Group's debtors in the six months
to 30 September 2002.
Operating exceptionals for the Corp Group and joint ventures are analysed by
class of business and territory of origin as follows:
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Network Equipment and Services (41) (29) (1,312) (187)
Other (7) 30 (104) 6
Goodwill impairment -- -- (3,544) --
--------- --------- --------- ------------
(48) 1 (4,960) (181)
Capital (5) -- (82) (55)
Goodwill impairment -- -- (133) --
--------- --------- --------- ------------
Continuing operations (53) 1 (5,175) (236)
Discontinued operations (54) (33) (41) (1)
--------- --------- --------- ------------
(107) (32) (5,216) (237)
========= ========= ========= ============
United Kingdom (37) 26 (823) (122)
The Americas (29) (18) (407) (97)
Rest of Europe (35) (28) (282) (12)
Africa, Asia and Australasia (6) (12) (27) (6)
--------- --------- --------- ------------
(107) (32) (1,539) (237)
Goodwill impairment -- -- (3,677) --
--------- --------- --------- ------------
(107) (32) (5,216) (237)
========= ========= ========= ============
(B) ASSOCIATES' AND JOINT VENTURES' OPERATING EXCEPTIONALS
In the six months ended 30 September 2002, the Corp Group has recorded its share
of the operating exceptional charges of its associate, Easynet Group Plc, of L18
million relating to impairment of goodwill and tangible fixed assets and
restructuring and reorganisation costs (year ended 31 March 2002 L173 million).
In the six months ended 30 September 2002, the Corp Group has also recorded its
L31 million share of the operating exceptional charges of its joint ventures,
relating to the impairment of intangible fixed assets in Ultramast Limited.
338
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
(C) NON-OPERATING EXCEPTIONALS
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
Note L million L million L million L million
---- --------- --------- --------- ------------
Gain/(loss) on disposal of discontinued
operations (1) -- -- 358 (5)
Gain/(loss) on disposal of fixed assets
and investments in continuing
operations:
Gains on disposals of subsidiaries and
other fixed asset investments (2) 4 89 189 31
Amounts written off investments (3) -- (110) (200) (40)
Other -- (3) -- --
--------- --------- --------- ------------
4 (24) (11) (9)
Merger/demerger items: (4)
Dividends and other cash receipts 1,409 -- -- --
Separation share option costs (633) -- 291 --
Other separation costs/receipts (15) 20 -- --
Rebranding costs (24) -- -- --
--------- --------- --------- ------------
737 20 291 --
Corp Group share of associates'
non-operating exceptionals -- -- -- (3)
--------- --------- --------- ------------
Included in non-operating exceptional
items 741 (4) 638 (17)
========= ========= ========= ============
---------------
NOTES
(1) In the year ended 31 March 2002 a gain of L358 million was made mainly
relating to the disposal of the systems businesses (Medical Systems,
Commerce Systems and Data Systems).
In the six months ended 30 September 2002 the loss on disposal of the
Strategic Communications business of L41 million was partially offset by
the release of provisions relating to Medical Systems and other previously
completed disposals.
(2) Gains on disposals of subsidiaries and other fixed asset investments in
the year ended 31 March 2001 include the disposal of part of the Alstom
Holding SA ("Alstom"), Avery Berkel Group and Woods Air Movement Limited
Group (note 25(b)).
Gains on disposal of subsidiaries and other fixed asset investments in the
year ended 31 March 2002 relate to the disposal of Lottomatica S.p.A.,
General Domestic Appliances Holdings Limited, Siemens Telecommunications
Pty Limited, ipsaris Limited and the remaining interest in Alstom.
In the six months ended 30 September 2002, the gain on disposal of
subsidiaries and other fixed asset investments relates to a L28 million
curtailment gain associated with retirement benefits arising mainly from
the disposal of the Corp Group's 50 per cent. share in General Domestic
Appliances Holdings Limited, L12 million gain on property disposals and a
net L9 million charge relating to current and prior period disposals,
business closures and other provision movements.
(3) Amounts written off investments of L110 million in the year ended 31 March
2001, L200 million in the year ended 31 March 2002 and L40 million in the
six months ended 30 September 2002 relate to the reduced market valuations
of listed fixed asset investments and provisions for impairment against
unlisted investments.
339
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
(4) The merger/demerger items comprise:
DIVIDENDS AND CASH RECEIPTS
In the year ended 31 March 2000, merger/demerger items comprise L1,409
million of dividends and other cash received by the Group from the defence
businesses, Marconi Electronic Systems ("MES"), that were separated from
GEC (at the time plc merged with the non-defence business), less the cost
of establishing the plc share option plans that were approved at the EGM
in November 1999 and other related costs of launching the new Group. The
separation of the defence businesses is referred to below as the "MES
Transaction".
SEPARATION SHARE OPTION COSTS
plc developed a number of employee share plans. The Corp Group's normal
accounting practice is that the cost of awards to employees that take the
form of shares or rights to shares is recognised as an operating expense
over the period to which the employees' performance relates. A cost
generally arises where the exercise price paid by the option holder is
less than either the market value of the shares at the date of grant or
the cost of plc satisfying the grant with existing shares, purchased
either in the open market or through hedging arrangements.
The plc employee share plans launched at the time of the MES Transaction
fall outside the normal circumstances and have been treated as exceptional
items. The accounting treatment adopted for these plans reflected the
nature of the awards which were directly connected with the separation of
MES since the awards, and associated costs, would not otherwise have
arisen. The estimated cost of awards to Corp Group employees under all
plans was L643 million. In the year ended 31 March 2000, there was an
exceptional charge of L633 million and the remaining L10 million is shown
in note 12(b). The basis of the accounting treatment adopted for the
relevant plans is described below.
Establishment of plans as part of the MES Transaction.
Only employees of the plc Group (including those in acquisitions announced
prior to the completion of the MES Transaction) were eligible to
participate in the Marconi Launch Share Plan. This plan was designed as a
one-off free gift of up to 1,000 free shares for each employee to
recognise the contribution the existing workforce had made and to enable
them to share some of the benefits of the value created by the separation
of MES and the launch of plc. The entitlement to receive the shares was
deferred for at least three years and is contingent on the plc share price
doubling to L16.03. A charge of L319 million represents the market value
at the date of grant of the plc ordinary shares which were expected to be
issued under the Marconi Launch Share Plan together with the estimated
payroll tax liability. This cost has been recharged to the Corp Group from
plc as the participating employees were all within the Corp Group.
The grant of additional options (the matching grant) was a one-off event
designed to encourage employees to remain with the Corp Group when
existing arrangements under the GEC 1997 Executive Scheme became
exercisable early as a consequence of the MES Transaction. Optionholders
could roll over existing GEC options into new plc options on a
value-for-value basis. The matching grant doubled the number of plc
options granted to most participants who rolled over their GEC options
into plc options or who rolled over their GEC phantom options into plc
phantom options. The matching grant was made in direct response to the
risk of employees crystallising their gains on share options and was not
part of ongoing remuneration. The exercise price of options granted under
the matching grant is the market value at the date of grant. In line with
the commitment given to shareholders, plc intended to satisfy a proportion
of the options under the matching grant by purchasing shares in the
market. A charge of L221 million represented the estimated incremental
cost to plc (net of the exercise price paid by the optionholders) of
purchasing the shares in the market expected to be needed to satisfy these
grants, together with the estimated payroll tax liability. As above, this
cost has been recharged to the Corp Group from plc as the participating
employees were all within the Corp Group.
No share options were granted in the period when the MES Transaction was
pending since plc did not exist and, with GEC being the listed holding
company, new GEC share options would have given inappropriate rights to
substitute options for BAE SYSTEMS plc (formerly British Aerospace plc)
shares. plc was
340
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
therefore unable to grant options and offered phantom options to employees
in lieu of grants under existing GEC option schemes. Following the launch
of plc, these phantom options were, where possible, substituted with real
options to acquire plc shares. In line with the commitment given to
shareholders, substituted options had to be satisfied by purchasing shares
in the market. A charge of L93 million represented the estimate of the
incremental cost plc incurred as a result of the increase in the cost of
purchasing shares in the market from the date the phantom options were
granted to the date that hedging this risk on the market could commence.
This cost also related to employees within the Corp Group and therefore
has been recharged to the Corp Group from plc.
For the year ended 31 March 2002, the release of provisions relating to
demerger share options arose due to the significant reduction in plc's
share price and comprises two elements. L247 million relates to a
provision created in respect of the Marconi Launch Share Plan. A further
L44 million has been released that relates to provisions in respect of
other option schemes created at the time of the MES Transaction.
OTHER SEPARATION COSTS/RECEIPTS
The gain of L20 million in the year ended 31 March 2001 represented a
further settlement received in relation to the MES Transaction in the
year.
(D) OTHER EXCEPTIONAL CHARGES
Amounts written off of L186 million in respect of the funding receivable
from plc in the six months ended 30 September 2002 relate to amounts which
Corp no longer considers to be recoverable.
(E) EXCEPTIONAL CASH FLOWS
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Operating
Restructuring costs -- (302) (169)
Systems implementation costs -- (48) (12)
Other (39) (18) --
--------- --------- ------------
(39) (368) (181)
--------- --------- ------------
Non-operating
Merger/demerger receipts 1,386 (56) -- --
Disposal of tangible fixed assets -- -- 116 20
Sales of interests in subsidiary companies and
associates -- 182 1,413 375
--------- --------- --------- ------------
1,386 126 1,529 395
========= ========= ========= ============
Detailed analysis of the exceptional cash flows in the year ended 31 March 2000
has not been provided. As set out in note 4(a) above, in the year ended 31 March
2000, the operating exceptional items primarily related to L63 million of
restructuring and reorganisation costs and L43 million of year 2000 costs. The
year 2000 costs were substantially all incurred prior to 1 January 2000. In
relation to the restructuring of existing businesses and acquisitions, the costs
are generally incurred within six to twelve months of the date of the
announcement of the Restructuring.
Non-operating exceptional cash flows from the disposal of tangible fixed assets
and from the sale of interests in subsidiary companies and associates are
included in note 23.
341
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
5. NET INTEREST PAYABLE
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Interest receivable
Loans and deposits 54 27 31 20
Other 31 9 9 13
--------- --------- --------- ------------
Interest receivable -- total 85 36 40 33
--------- --------- --------- ------------
Income from fixed asset investments --
Listed investments 19 18 2 --
Unlisted investments 3 5 -- --
--------- --------- --------- ------------
Income from fixed asset investments -- total 22 23 2 --
--------- --------- --------- ------------
Interest payable
Bank loans, overdrafts and Bonds (199) (187) (287) (149)
Loan capital (3) (3) (1) (1)
Other (8) (20) -- (3)
--------- --------- --------- ------------
Interest payable -- total (210) (210) (288) (153)
--------- --------- --------- ------------
Net interest payable -- Corp Group (103) (151) (246) (120)
--------- --------- --------- ------------
Share of net income receivable from joint
ventures and associates 4 1 2 1
--------- --------- --------- ------------
Net interest payable (99) (150) (244) (119)
========= ========= ========= ============
Bond interest of L13 million, included above, was payable to Ancrane, a fellow
subsidiary of plc, in the six months ended 30 September 2002 (year ended 31
March 2002 L6 million).
6. NET FINANCE INCOME
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Financing costs
Syndicated loan fees (4) (3) (5) --
Interest on pension scheme liabilities (note
26) (172) (187) (181) (83)
Finance leases -- -- (1) --
Other -- -- -- (2)
--------- --------- --------- ------------
Financing costs -- total (176) (190) (187) (85)
--------- --------- --------- ------------
Finance income
Gain on foreign exchange borrowings -- -- -- 7
Expected return on pension scheme assets
(note 26) 208 231 221 80
--------- --------- --------- ------------
Finance income -- total 208 231 221 87
--------- --------- --------- ------------
Net finance income 32 41 34 2
========= ========= ========= ============
342
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
7. TAX
(A) TAX (CREDIT)/CHARGE ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Current taxation
UK Corporation tax at 30 per cent. in each
period 147 256 -- (1)
Double taxation relief (82) (105) -- --
UK under/(over) provision in respect of prior
periods 1 1 (18) --
Overseas tax 30 96 51 11
Overseas (over)/under provision in respect of
prior periods (5) 1 (15) --
Joint ventures and associates 11 10 4 --
--------- --------- --------- ------------
102 259 22 10
--------- --------- --------- ------------
Deferred taxation
Changes arising from:
Timing differences -- origination and reversal (104) 12 67 --
Estimated recoverable amount of deferred tax
assets -- (59) 121 --
--------- --------- --------- ------------
(104) (47) 188 --
--------- --------- --------- ------------
Total (2) 212 210 10
========= ========= ========= ============
Included in the tax on profit/(loss) on ordinary activities are the following
amounts relating to exceptional items:
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Operating exceptionals (25) (11) (67) --
Non-operating exceptionals (173) 28 298 --
--------- --------- --------- ------------
(198) 17 231 --
========= ========= ========= ============
(B) DEFERRED TAXATION ASSETS/(LIABILITIES)
L million
---------
At 1 April 2000 125
Credited to the profit and loss account 47
Exchange rate adjustment (2)
---------
At 1 April 2001 170
Charged to the profit and loss account (188)
---------
At 1 April 2002 (18)
Disposals 12
---------
At 30 September 2002 (6)
=========
343
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Year ended Six months
31 March ended
--------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Tax effect of timing differences on:
Provisions and accruals for liabilities and charges 195 (12) (6)
Accelerated capital allowances (25) (6) --
--------- --------- ------------
170 (18) (6)
========= ========= ============
Deferred tax liability balances and asset balances are shown in provisions (note
21) and debtors (note 17) respectively.
No provision is made for any taxation that may arise if reserves of overseas
subsidiaries are distributed, as such distributions are not expected to occur in
the foreseeable future.
Included in the net deficit or surplus in respect of retirement benefits (note
26) is a net deferred tax liability of L68 million in respect of the year to 31
March 2001 (2000 L99 million). No net deferred tax has been recognised in
respect of retirement benefits for the year to 31 March 2002 or the six months
ended 30 September 2002.
(C) RECONCILIATION OF CURRENT TAXATION CHARGE/(CREDIT) FOR THE PERIOD
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
(Profit)/loss before tax (538) 56 5,865 914
--------- --------- --------- ------------
Tax charge/(credit) on (profit)/loss at a standard
rate of 34% in each period 183 (19) (1,994) (310)
Non deductible goodwill impairment, amortisation
and other similar items (161) 224 1,569 169
Tax losses and other deferred tax items not
recognised in current tax 84 46 480 151
(Over)/under provision in prior periods (4) 2 (33) --
Other -- 6 -- --
--------- --------- --------- ------------
Current tax charge for the period 102 259 22 10
========= ========= ========= ============
The standard rate is calculated based on the locally enacted statutory rates in
the jurisdictions in which the Corp Group operates.
(D) FACTORS THAT MAY AFFECT FUTURE TAX CHARGES
Deferred tax assets totalling L798 million at 30 September 2002 (31 March 2002
L596 million, 2001 L147 million, 2000 L166 million) have not been recognised in
respect of operating losses, pension scheme deficits and exceptional expenditure
as the Corp Group is not sufficiently certain that it will be able to recover
those assets within a relatively short period of time.
Included in the unrecognised deferred tax asset as at 30 September 2002 of L798
million are amounts that may be forfeited or restricted as a consequence of the
planned restructuring of the Corp Group due to the requirements of tax
legislation in various jurisdictions. It is not possible at this stage to
quantify the amount of unrecognised deferred tax assets that may be forfeited.
344
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
8. EQUITY MINORITY INTERESTS
Equity minority interests represent the share of the profits less losses on
ordinary activities attributable to the interests of equity shareholders in
subsidiaries which are not wholly owned by the Corp Group.
9. EQUITY DIVIDENDS
During the six months ended 30 September 2002, and the years ended 31 March 2002
and 31 March 2001 no dividends were declared. In the year ended 31 March 2000
L349 million of dividends were declared and paid with L49 million (5.2 pence per
share) being an interim dividend and L300 million (30.4 pence per share) as the
final dividend. The number of shares are based on the number of ordinary shares
in issue following the Restructuring (see Note 10).
10. EARNINGS/(LOSS) PER SHARE
Basic earnings/(loss) per share are calculated on the basis of a weighted
average of 1,000 million ordinary shares (31 March 2002 1,000 million ordinary
shares, 2001 992.8 million ordinary shares, 2000 945.4 million ordinary shares)
in issue during the period. The weighted average number of shares is based on
the number of ordinary shares in issue following the Restructuring.
Earnings/(loss) per share has been calculated on a pro forma basis as this
presentation is considered to be more appropriate than presenting
earnings/(loss) per share on a historical basis.
An adjusted basic (loss)/earnings per share has been presented in order to
highlight the underlying performance of the Corp Group, and is calculated as set
out in the table below.
RECONCILIATION OF EARNINGS/(LOSS) PER SHARE EXCLUDING GOODWILL AMORTISATION,
GOODWILL IMPAIRMENT AND EXCEPTIONAL ITEMS
Year ended 31 March Six months ended
------------------------------------------------------------------------ 30 September
2000 2001 2002 2002
---------------------- ---------------------- ---------------------- ----------------------
Earnings/ Earnings/ Earnings/ Earnings/
Earnings/ (loss) Earnings/ (loss) Earnings/ (loss) Earnings/ (loss)
(loss) per share (loss) per share (loss) per share (loss) per share
L million pence L million pence L million pence L million pence
---------- --------- ---------- --------- ---------- --------- ---------- ---------
Earnings/(loss) and basic
earnings/(loss) per share 537 56.8 (273) (27.5) (6,076) (607.6) (925) (92.5)
Exceptional items (note 4)
Operating exceptionals 107 11.3 32 3.2 5,216 521.6 237 23.7
Group share of associates'
operating exceptionals -- -- -- -- 173 17.3 18 1.8
Non-operating exceptionals (741) (78.4) 4 0.4 (638) (63.8) 17 1.7
Other exceptional charges -- -- -- -- -- -- 186 18.6
Taxation arising on goodwill
amortisation and impairment
and exceptional items (note
7(a)) (198) (20.9) 17 1.7 231 23.1 -- --
Goodwill amortisation and
impairment 765 80.9 673 67.8 440 44.0 87 8.7
---------- --------- ---------- --------- ---------- --------- ---------- ---------
470 49.7 453 45.6 (654) (65.4) (380) (38.0)
========== ========= ========== ========= ========== ========= ========== =========
11. DIRECTORS
(A) DIRECTORS' REMUNERATION
Subsequent to the reconstruction of GEC and Listing of Marconi plc in November
1999 the Corp Group was wholly owned by plc and represented substantially the
whole of the plc Group. Accordingly, the following disclosures for Directors'
remuneration, interests and transactions given below all relate to the Directors
of plc for the relevant periods presented.
345
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2000
Excluding Payments to
pension meet pension
Salary & Other contributions Pension Severance commitments
Fees benefits Bonus Total contributions payments on severance
L000 L000 L000 L000 L000 L000 L000
-------- -------- ----- ------------- ------------- --------- ------------
M W J Parton 94 28 87 209 42 -- --
M J Donovan 87 14 44 145 21 -- --
Sir William Castell 25 -- -- 25 -- -- --
The Rt Hon The Baroness Dunn 25 -- -- 25 -- -- --
Sir Alan Rudge 26 -- -- 26 -- -- --
Hon Raymond G H Seitz 25 -- -- 25 -- -- --
N J Stapleton 28 -- -- 28 -- -- --
Sir Roger Hurn 250 16 -- 266 -- -- --
Lord Simpson 669 221 338 1,228 352 -- --
J C Mayo 515 167 260 942 259 -- --
R I Meakin 283 153 143 579 226 -- --
Sir Christopher Harding 22 -- -- 22 -- -- --
-------- -------- ----- ------------- ------------- --------- ------------
2,049 599 872 3,520 900 -- --
======== ======== ===== ============= ============= ========= ============
---------------
NOTES
(1) The remuneration shown in the table above, with the exception of M J Donovan
and M W J Parton, was for the full year 2000 and included remuneration paid
to them by GEC. The remuneration presented for M J Donovan and M W J Parton
is from 1 January 2000, the date on which they were appointed Directors of
plc.
(2) Other benefits included the payment of a non-pensionable earnings supplement
in relation to Funded Unapproved Retirement Benefit Schemes ("FURBS").
(3) Executive Directors received certain taxable benefits, including an
allowance under the Group's car scheme.
(4) The fees of Non-Executive Directors were determined by the Board of plc; the
basic fee paid during the year was L25,000 per annum with a further L5,000
per annum paid to the Chairmen of the Audit Committee and the Remuneration
Committee.
(5) Non-Executive Directors did not have service contracts and did not
participate in any of the incentive arrangements open to Executive Directors
or the Group's pension scheme.
(6) All Directors were reimbursed all necessary and reasonable expenses incurred
in the performance of their duties.
(7) Pension contributions included contributions by the Group to all pension
schemes.
YEAR ENDED 31 MARCH 2001
Excluding Payments to
pension meet pension
Salary & Other contributions Pension Severance commitments
Fees benefits Bonus Total contributions payments on severance
L000 L000 L000 L000 L000 L000 L000
-------- -------- ----- ------------- ------------- --------- ------------
M W J Parton 394 130 -- 524 177 -- --
M J Donovan 388 87 -- 475 156 -- --
Sir William Castell 33 -- -- 33 -- -- --
The Rt Hon The Baroness Dunn 33 -- -- 33 -- -- --
Sir Alan Rudge 40 -- -- 40 -- -- --
Hon Raymond G H Seitz 33 -- -- 33 -- -- --
N J Stapleton 40 -- -- 40 -- -- --
Sir Roger Hurn 269 26 -- 295 -- -- --
Lord Simpson 702 300 -- 1,002 425 -- --
J C Mayo 543 290 -- 833 408 -- --
R I Meakin 297 222 519 314 -- --
-------- -------- ----- ------------- ------------- --------- ------------
2,772 1,055 -- 3,827 1,480 -- --
======== ======== ===== ============= ============= ========= ============
---------------
NOTES
(1) Other benefits included the payment of a non-pensionable earnings supplement
in relation to FURBS.
346
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
(2) Executive Directors received certain taxable benefits, including an
allowance under the Group's car scheme.
(3) The fees of Non-Executive Directors were determined by the Board of plc; the
basic fee paid during the year was L33,000 per annum with a further L7,000
per annum paid to the Chairmen of the Audit Committee and the Remuneration
Committee.
(4) Non-Executive Directors did not have service contracts and did not
participate in any of the incentive arrangements open to Executive Directors
or the Group's pension scheme.
(5) All Directors were reimbursed all necessary and reasonable expenses incurred
in the performance of their duties.
(6) Pension contributions included contributions by the Group to all pension
schemes.
YEAR ENDED 31 MARCH 2002
Excluding Payments to
pension meet pension
Salary & Other contributions Pension Severance commitments
Fees benefits Bonus Total contributions payments on severance
L000 L000 L000 L000 L000 L000 L000
-------- -------- ----- ------------- ------------- --------- ------------
D C Bonham 174 -- -- 174 -- -- --
M W J Parton 400 281 -- 681 177 -- --
M J Donovan 400 87 248 735 94 -- --
S Hare 375 58 -- 433 25 -- --
Sir William Castell 35 -- -- 35 -- -- --
The Rt Hon The Baroness Dunn 33 -- -- 33 -- -- --
Sir Alan Rudge 40 -- -- 40 -- -- --
Hon Raymond G H Seitz 33 -- -- 33 -- -- --
N J Stapleton 40 -- -- 40 -- -- --
Sir Roger Hurn 115 7 -- 122 -- -- --
Lord Simpson 355 152 -- 507 235 300 --
J C Mayo 162 443 -- 605 644 600 428
R I Meakin 300 209 -- 509 314 375 463
-------- -------- ----- ------------- ------------- --------- ------------
2,462 1,237 248 3,947 1,489 1,275 891
======== ======== ===== ============= ============= ========= ============
---------------
NOTES
(1) Other benefits included the payment of a non-pensionable earnings supplement
in relation to FURBS.
(2) Executive Directors received certain taxable benefits, including an
allowance under the Group's car scheme.
(3) The fees of Non-Executive Directors were determined by the Board of plc; the
basic fee paid during the year was L33,000 per annum with a further L7,000
per annum paid to the Chairmen of the Audit Committee and the Remuneration
Committee.
(4) Non-Executive Directors did not have service contracts and did not
participate in any of the incentive arrangements open to Executive Directors
or the Group's pension scheme.
(5) All Directors were reimbursed all necessary and reasonable expenses incurred
in the performance of their duties.
(6) The bonus paid to M J Donovan related to recruitment and retention
arrangements established upon joining plc and before he became a Director.
(7) Pension contributions included contributions by the Group to all pension
schemes.
347
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
Excluding Payments to
pension meet pension
Salary & Other contributions Pension Severance commitments
Fees benefits Bonus Total contributions payments on severance
L000 L000 L000 L000 L000 L000 L000
-------- -------- ----- ------------- ------------- --------- ------------
D C Bonham 90 -- -- 90 -- -- --
M W J Parton 263 46 396 705 91 -- --
M J Donovan 214 307 320 841 320 -- --
S Hare 188 67 281 536 27 -- --
Sir William Castell 15 -- -- 15 -- -- --
The Rt Hon The Baroness Dunn 1 -- -- 1 -- -- --
Sir Alan Rudge 15 -- -- 15 -- -- --
Hon Raymond G H Seitz 15 -- -- 15 -- -- --
N J Stapleton 15 -- -- 15 -- -- --
A L Thomas 42 -- -- 42 -- -- --
-------- -------- ----- ------------- ------------- --------- ------------
858 420 997 2,275 438 -- --
======== ======== ===== ============= ============= ========= ============
---------------
NOTES
(1) Other benefits included the payment of a non-pensionable earnings supplement
in relation to FURBS. The figure stated for M J Donovan also included an
amount paid to him pursuant to the termination of his GEC-USA Deferred
Compensation Plan.
(2) Executive Directors received certain taxable benefits, including an
allowance under the Group's car scheme.
(3) Executive Directors participated in an exceptional incentive plan for the
2002/3 financial year relating to the Restructuring of plc with four staged
payments, the first in May 2002 and the final payment three months after the
successful completion of the Restructuring.
(4) The fees of Non-Executive Directors were determined by the Board of plc.
With effect from 1 April 2002 the fees for the Non-Executive Directors were
reduced to L30,000 per annum. No additional fees were paid to the Chairmen
of Board Committees. A L Thomas was paid a further sum, over and above his
basic fee which related to one day's service to plc per week, for each
additional day devoted to plc's business. The remuneration detailed above in
respect of A L Thomas related to the period from 20 May 2002 being the date
on which he was appointed as a Director of plc.
The remuneration detailed above in respect of The Rt Hon The Baroness Dunn
related to the period up to 11 April 2002 being the date on which she
resigned as a Director of plc.
(5) Non-Executive Directors do not have service agreements and do not
participate in any of the incentive arrangements open to Executive Directors
or the Group's pension scheme.
(6) All Directors were reimbursed all necessary and reasonable expenses incurred
in the performance of their duties.
(7) Pension contributions included contributions by the Group to all pension
schemes.
(B) SHORT-TERM INCENTIVE BONUS
In the year ended 31 March 2000, Executive Directors were eligible to
participate in a short-term incentive plan. The plan paid bonuses only when an
economic value added target (based on profitable growth) was met. The payment
for 'on-target' performance was 25 per cent. of basic salary for Executive
Directors and was subject to a maximum payment in a single year of 50 per cent.
In considering the payment of short-term incentive bonuses, personal performance
was also taken into account. During the year ended 31 March 2000, bonuses were
paid at the rate of 50 per cent; no amounts were carried forward.
In the year ended 31 March 2001, Executive Directors continued to be eligible to
participate in the short-term incentive plan, however no bonuses were awarded
during the year.
In the year ended 31 March 2002, plc's Remuneration Committee approved the
implementation of a short-term incentive plan for Executive Directors with
maximum payment of 100 per cent. of salary, although owing to subsequent events,
no such plan was implemented and no short-term incentive payments were made in
the year ended 31 March 2002.
In the six months ended 30 September 2002, Executive Directors participated in
an exceptional incentive plan with payment related to successful completion of
the Restructuring of the plc Group. The maximum payment under this plan is 150
per cent. of salary. Executive Directors also participate in a quarterly
incentive plan with payments due for the achievement of targets for the
generation of total cash. Payment relating to the six months
348
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
ending 30 September 2002, has not been made under this plan and it is
anticipated that Executive Directors will agree to waive entitlement to these
payments on entering into new employment agreements with Corp.
(C) LONG-TERM INCENTIVE SCHEMES
Aggregate emoluments detailed above do not include any amounts in respect of
long-term incentive schemes. plc operates a number of schemes as described
below.
At a meeting held on 3 November 1999, shareholders approved the introduction of
a number of share plans following the reconstruction of GEC and the Listing of
plc on 30 November 1999. Two main discretionary plans were approved -- the
Marconi 1999 Stock Option Plan and the Marconi Long-Term Incentive Plan with the
Executive Directors eligible to participate in both plans. In addition,
shareholders approved the introduction of the Marconi UK Sharesave Plan and the
Marconi Launch Share Plan in which Executive Directors and all eligible
employees may participate. Full details of options granted to Executive
Directors under these plans are set out below.
In summary, options may be granted under the Marconi 1999 Stock Option Plan for
a period of up to ten years from 30 November 1999. Options granted under the
plan prior to 18 July 2001 become exercisable three years from the date of
grant, provided the performance condition has been met, that is the percentage
increase in plc's earnings per share must be equal to or greater than the
percentage increase in the Retail Prices Index plus 3 per cent. per annum. Thus
the shortest period over which the performance target can be satisfied is three
financial years from the date of grant; if the target is not satisfied after
this period, it can be retested over the four financial years from the date of
grant, and so on.
At the July 2001 plc annual general meeting, shareholders approved amendments to
the plan rules giving the plc Remuneration Committee discretion to grant options
which become exercisable over varying periods of time and which are subject to
performance conditions appropriate to the markets in which plc operates. In
previous years, plc's policy on the granting of options has been to make phased
awards to key employees, based on business and personal performance, with the
value of options granted normally ranging from 50 per cent. to 150 per cent. of
basic salary per annum. Reductions in plc's share price meant that option
holdings built up over a number of years (with the minimum exercise value of any
option granted under the plan having been L6.70) had lost any value as an
incentive, and that grants based on these multiples of salary would result in an
unacceptable level of dilution. In granting options to around 600 key executive,
technical, and sales and marketing staff (including Executive Directors) in
November 2001, the Remuneration Committee sought to balance an appropriate level
of dilution with the need to provide a meaningful level of incentive. In
exercising its discretion in respect of performance targets, the Remuneration
Committee recognised the need for plc to achieve its near-term objectives in
order to deliver longer-term performance. Of each option granted in November
2001, 50 per cent. is subject to the achievement of targets for the reduction in
plc's net debt, and 50 per cent. subject to plc's Total Shareholder Return
("TSR") compared to that of FTSE 100 companies. None of this 50 per cent.
becomes exercisable if plc's TSR is the same as that of the company at the 50th
percentile, all becomes exercisable at the 75th percentile, with progressive
increases between these points. In order to provide a progressive incentive,
options become exercisable, subject to the achievement of the performance
conditions, over four years.
Under the Long-Term Incentive Plan, each year Executive Directors can receive an
award of up to a maximum of 50 per cent. of basic salary, subject to
satisfaction of demanding corporate performance over the three years from the
date of award. After three years from the date of award, provided plc's TSR is
in the top 50 of the FTSE 100 index, participants may be granted a nil cost
option to acquire plc Shares. To the extent that the awards vest, the nil cost
options will normally be exercisable in three tranches, one third immediately
upon vesting, one third on the first anniversary and one third on the second
anniversary of the date of grant. On 30 November 1999, the then Executive
Directors participated in the plan for the first time; their nil cost options
under the plan were to vest in two annual tranches from July 2002; the shorter
performance period and the accelerated vesting of the tranches reflected the
fact that the grant of these awards was delayed by reason of the transaction
with British Aerospace plc (now known as BAE SYSTEMS plc). The employment of
those Executive Directors was subsequently terminated and no options were
granted. Current Executive Directors first received awards in April 1998 and
details of their conditional awards are contained in the table below.
349
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
The conditional awards of notional shares made to Executive Directors are as
follows:
Notional Notional Options Award Notional Award Notional
shares at Notional shares at granted lapses shares at lapses shares at
31 March shares 31 March * 18 June 18 June 31 March 30 June 30 September
2000 awarded 2001 2001 2001 2002 2002 2002
Number Number Number Number Number Number Number Number
--------- -------- --------- ------- ------- --------- -------- ------------
Lord Simpson(1) 42,170 47,740 89,910 n/a n/a n/a n/a n/a
J C Mayo(1) 32,439 36,723 69,162 n/a n/a n/a n/a n/a
R I Meakin(1) 17,841 20,197 38,038 n/a n/a n/a n/a n/a
M J Donovan 55,390 24,718 80,108 6,036 16,153 57,919 33,201 24,718
M W J Parton 72,208 26,483 98,691 28,405 8,389 61,897 35,414 26,483
S Hare(2) n/a n/a 49,884 17,394 -- 32,490 16,600 15,890
======== ======== ======== ======= ======= ======== ======== ============
---------------
* or at date of appointment
NOTES
(1) The employment of Lord Simpson, J C Mayo and R I Meakin terminated prior to
any awards maturing and no options were granted under this plan.
(2) At the date of his appointment on 10 April 2001, S Hare held a conditional
award of 49,884 shares.
(D) DIRECTORS' INTERESTS
The plc Group has previously operated a personal shareholding policy in order to
assist in further aligning the interests of executives and shareholders. The
policy requires Executive Directors to build up, over a period of time, a target
shareholding of plc Shares with a market value equal to three times annual basic
salary. The policy was not applied to the November 2001 option grant as it was
not considered to be practical to do so, given plc's share price.
The Directors' interests as defined by the Act (which include trustee holdings
and family interests including holdings of minor children) in shares of plc and
its Subsidiaries are as follows:
(a) Ordinary shares
As at As at As at As at
31 March 31 March 31 March 30 September
2000 2001 2002 2002
Beneficial Beneficial Beneficial Beneficial
---------- ---------- ---------- ------------
Sir William Castell 10,000 10,000 10,000 10,000
The Rt Hon The Baroness Dunn 10,000 10,000 10,000 n/a
M J Donovan 23,232 67,601 169,670 169,670
Sir Roger Hurn 11,450 31,450 n/a n/a
J C Mayo 164,340 164,343 n/a n/a
R I Meakin 11,050 20,303 n/a n/a
M W J Parton 28,776 28,860 128,122 128,122
Sir Alan Rudge 10,000 10,000 20,000 20,000
Hon Raymond G H Seitz 11,027 11,095 11,099 11,099
Lord Simpson 106,606 133,606 n/a n/a
N J Stapleton 13,752 13,572 21,572 21,572
D C Bonham n/a n/a 156,000 156,000
S Hare n/a n/a 30,121 30,121
A L Thomas n/a n/a n/a --
========== ========== ========== ============
---------------
NOTES
(1) None of the Directors held any non-beneficial interests in the shares of GEC
or plc during the periods above.
350
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
(2) On the date of incorporation of plc, 17 September 1999, and on 4 October
1999, the date on which certain of the Directors were appointed, none of the
Directors at that time held any interests in the share capital of plc.
(3) On 10 April 2001, D C Bonham and S Hare were appointed to the plc Board. On
6 July 2001, J C Mayo resigned from the plc Board. On 4 September 2001, Sir
Roger Hurn and Lord Simpson resigned from the plc Board. On 1 March 2002, R
I Meakin resigned from the plc Board.
On 11 April 2002, The Rt Hon The Baroness Dunn resigned from the plc Board. A
L Thomas was appointed to the plc Board on 20 May 2002, and he resigned on 14
March 2003. On 8 October 2002, Sir William Castell and N J Stapleton resigned
from the plc Board.
On 14 November 2002, S Hare resigned from the plc Board and C C Holden was
appointed to the plc Board and the Company Board. On 16 December 2002, Sir
Alan Rudge and Hon Raymond G H Seitz resigned from the plc Board and M K
Atkinson, J F Devaney and W K Koepf were appointed to the plc Board and the
Company Board.
(4) There have been no other changes in the interests of Directors between 30
September 2002 and 27 March 2003.
(b) Options
DIRECTORS' OPTIONS FOR THE YEAR ENDED 31 MARCH 2000
In accordance with the terms of the reconstruction of GEC, plc Shares were
issued, credited as fully paid to the former shareholders of GEC ordinary shares
of 5 pence each on the register at the close of business on 26 November 1999, on
the basis of one ordinary share of 5 pence each in plc for one ordinary share of
5 pence each in GEC.
The following table shows the interests of Directors in options over ordinary
shares of 5 pence each in GEC under the GEC share plans for the period 1 April
1999 to 28 November 1999, and, subsequently, over plc Shares under the Marconi
1999 Stock Option Plan, the Marconi UK Sharesave Plan and the Marconi Launch
Share Plan for the period 29 November 1999 to 31 March 2000.
At 29 November
At 1 April 1999 1999
and (or subsequently on Granted during the
28 November 1999 appointment) period At 31 March 2000
-------------------- -------------------- -------------------- --------------------
Average Average Average
exercise exercise Exercise exercise
price price price price
No. pence No. pence No. pence No. pence
--------- -------- --------- -------- --------- -------- --------- --------
M J Donovan -- -- 267,271 337 -- -- 267,271 337
-- -- 335,681 844* -- -- 335,681 844*
J C Mayo 1,167,960 423 1,442,791 342 1,000 0.00 1,443,791 342
-- -- -- -- 1,442,791 801.5* 1,442,791 801.5*
R I Meakin 258,255 423 319,024 343 1,000 0.00 321,319 343
-- -- -- -- 1,295 747.5
-- -- -- -- 319,024 801.5* 530,976 853*
-- -- -- -- 211,952 931.5* -- --
M W J Parton -- -- 693,857 388 -- -- 693,857 388
-- -- 684,360 801.5* -- -- 684,360 801.5*
Lord Simpson -- -- 1,405,864 311 1,295 747.5 1,408,159 311
-- -- -- -- 1,000 0.00 -- --
-- -- -- -- 1,543,408 801.5* 1,543,408 801.5*
========= ======= ========= ======= ========= ======== ========= =======
Exercisable
-------------------
From To
-------- --------
M J Donovan Nov 1999 Nov 2009
Nov 2002 Dec 2009
J C Mayo Dec 2000 Nov 2009
Nov 2002 Nov 2009
R I Meakin Dec 2000 Nov 2009
Nov 2002 Jan 2010
-- --
M W J Parton Nov 1999 Nov 2009
Nov 2002 Nov 2009
Lord Simpson Dec 2000 Nov 2009
-- --
Nov 2002 Nov 2009
======== ========
---------------
* Exercise price exceeds market price as at 31 March 2000.
NOTES
(1) The mid-market price of a plc Share as at 31 March 2000 was 749 pence with a
range for the period 30 November 1999 (the first day of dealing in plc's
Shares) to 31 March 2000 of 749 pence to 1,095.5 pence.
(2) The Executive Directors, along with those employees remaining in the plc
Group, were given the opportunity to exchange their GEC options for plc
options on a value-for-value basis and all of the Executive Directors
elected to exchange their options. The exchange of options was effected on
29 November 1999.
(3) The terms of Lord Simpson's service contract with GEC made certain
provisions for awards of shares to be made to him under the rules of the GEC
Employee Share Plan and the grant of a notional option. Upon the
reconstruction of GEC, the service contracts of the Executive Directors were
reviewed and the Remuneration Committee decided, taking account of the
restriction with regard to Lord
351
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Simpson's notional option, to more closely align his incentive arrangements
with those of the other Executive Directors. In exchange for the GEC share
award and notional option held by Lord Simpson each over 625,000 GEC shares
at L3.84 per share, Lord Simpson received, subject to a limitation agreed by
the Remuneration Committee in respect of the notional option, options over
plc Shares, details of which are set out in the table above.
(4) Although the options granted by GEC became exercisable immediately prior to
the Listing of plc, no options were exercised by any of the Directors. J C
Mayo, R I Meakin and Lord Simpson each undertook not to exercise their
options within a period of one year from the date of listing. Accordingly,
no options were exercised during the period and no gains made. A summary and
full details of Directors' shareholdings and options are contained in the
plc's register of Directors' interests.
DIRECTORS' OPTIONS FOR THE YEAR ENDED 31 MARCH 2001
Granted during
At 1 April 2000 the year At 31 March 2001 Exercisable
-------------------- ------------------ -------------------- --------------------
Average Average
exercise Exercise exercise
price price price
No. pence No. pence No. pence From To
--------- -------- ------- -------- --------- -------- -------- ---------
M J Donovan 267,271 337 -- -- 267,271 337 Nov 1999 Nov 2009
335,681 844* 198,048 787* 533,729 823* Nov 2002 Dec 2010
J C Mayo 1,147,303 331 -- -- 1,147,303 331 Dec 2000 Nov 2009
1,739,279 730* 104,828 787* 1,844,107 733* July Dec 2010
2001
R I Meakin 253,185 330 -- -- 253,185 330 Dec 2000 Nov 2009
599,110 801* 57,274 787* 656,384 800* July Dec 2010
2001
M W J Parton 341,321 328 -- -- 341,321 328 Nov 1999 Nov 2009
1,036,896 680* 79,374 777* 1,116,270 687* Nov 1999 Dec 2010
Lord Simpson 1,406,864 311 -- -- 1,406,864 311 Dec 2000 Sept 2003
1,544,703 801.5* -- -- 1,544,703 801.5* Nov 2002 Nov 2009
========= ======== ======= ======== ========= ======== ======== =========
---------------
* Exercise price exceeds market price as at 31 March 2001.
NOTES
(1) No options were exercised during the year to 31 March 2001.
(2) The mid-market price of a plc Share as at 31 March 2001 was 340 pence with a
range during the year of 340 pence to 1,250 pence.
(3) The options set out above relate to those granted under the GEC 1997
Executive Share Option Scheme, the Marconi 1999 Stock Option Plan, the
Marconi and GEC Phantom Option Schemes, the GEC Employee 1992
Savings-Related Share Option Scheme and the Marconi UK Sharesave Plan.
(4) The information provided above is a summary and full details of Directors'
shareholdings and options are contained in the plc's register of Directors'
interests.
DIRECTORS' OPTIONS FOR THE YEAR ENDED 31 MARCH 2002
Exercised Lapsed
Granted during during the during the
At 1 April 2001 the year year year At 31 March 2002
-------------------- -------------------- ------------- ------------- --------------------
Average Average
exercise Exercise exercise
price price price
No. pence No. pence No. Pence No. Pence No. pence
--------- -------- --------- -------- ----- ----- ----- ----- --------- --------
M J Donovan 1,000 Nil 6,036 Nil 737 Nil -- -- 6,299 Nil
800,000 662 2,500,000 35 -- -- -- -- 3,300,000 187
S Hare 1,000 Nil 17,394 Nil 5,798 Nil -- -- 12,596 Nil
484,034 586 2,000,000 35 -- -- -- -- 2,484,034 142
M W J Parton 1,000 Nil 28,405 Nil -- -- -- -- 29,405 Nil
1,456,591 603 3,000,000 35 8,497 203 3,136 538 4,444,958 221
========= ======= ========= ======== ===== ===== ===== ===== ========= =======
Exercisable
--------------------
From To
--------- --------
M J Donovan June 2001 Nov 2009
Nov 1999 Dec 2010
S Hare June 2001 Nov 2009
Feb 1997 Nov 2010
M W J Parton June 2001 Nov 2009
Nov 1999 Dec 2010
========= ========
---------------
NOTES
(1) All options have exercise prices that exceed the market price of a plc Share
as at 28 March 2002, other than nil cost options granted under the Marconi
Launch Share Plan (1,000 shares at nil cost) and the Marconi Long Term
Incentive Plan.
(2) S Hare was appointed a Director of plc on 10 April 2001 and his options are
shown at that date.
352
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
(3) Gains totalling L1,747 were made by M J Donovan in the exercise of share
options during the period 1 April 2001 to 31 March 2002. Gains totalling
L6,436 were made by S Hare in the exercise of share options during the
period 10 April 2001 to 31 March 2002. Gains totalling L11,811 were made by
M W J Parton in the exercise of share options during the period 1 April 2001
to 31 March 2002.
(4) The mid-market price of a plc Share as at 28 March 2002 was 6.96 pence with
a range during the year of 6.25 pence to 424 pence.
(5) The options set out above relate to those granted under the GEC Manager's
1984 Share Option Scheme, the GEC 1997 Executive Share Option Scheme, the
Marconi 1999 Stock Option Plan, the Marconi and GEC Phantom Option Schemes,
the Marconi Launch Share Plan, the Marconi Long-Term Incentive Plan, the GEC
Employee 1992 Savings-Related Share Option Scheme and the Marconi UK
Sharesave Plan.
(6) The information provided above is a summary and full details of Directors'
shareholdings and options are contained in plc's register of Directors'
interests.
DIRECTORS' OPTIONS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002
Granted Exercised Lapsed
during during during At
At 1 April 2002 the year the year the year 30 September 2002
-------------------- -------------- ----------- ------------- --------------------
Average Average
exercise Exercise exercise
price price price
No. pence No. pence No. Pence No. Pence No. pence
--------- -------- --- -------- --- ----- ----- ----- --------- --------
M J Donovan 6,299 Nil -- -- -- -- -- -- 6,299 Nil
3,300,000 187 -- -- -- -- -- -- 3,300,000 187
S Hare 12,596 Nil -- -- -- -- -- -- 12,596 Nil
2,484,034 142 -- -- -- -- 1,036 747.5 2,482,998 142
M W J Parton 29,405 Nil -- -- -- -- -- -- 29,405 Nil
4,444,958 221 -- -- -- -- -- -- 4,444,958 221
========= ======= === ======== === ===== ===== ===== ========= =======
Exercisable
--------------------
From To
--------- --------
M J Donovan June 2001 Nov 2009
Nov 1999 Dec 2010
S Hare June 2001 Nov 2009
Feb 1997 Nov 2010
M W J Parton June 2001 Nov 2009
Nov 1999 Dec 2010
========= ========
---------------
NOTES
(1) The options set out above relate to those granted under the GEC Manager's
1984 Share Option Scheme, the GEC 1997 Executive Share Option Scheme, the
Marconi 1999 Stock Option Plan, the GEC Phantom Option Schemes, the Marconi
Long-Term Incentive Plan, the GEC Employee 1992 Savings-Related Share Option
Scheme, the Marconi Launch Share Plan and the Marconi UK Sharesave Plan.
(2) The mid-market price of a plc Share as at 30 September 2002 was 1.45 pence
with a range during the period of 1.27 pence to 12.55 pence.
(3) All options have exercise prices that exceed the market price of a plc Share
as at 30 September 2002, other than nil cost options granted under the
Marconi Launch Share Plan (1,000 shares at nil cost) and the Marconi
Long-Term Incentive Plan.
(E) RETIREMENT BENEFITS
All Executive Directors are members of (are entitled to be members of) the
Group's approved pension scheme, the GEC 1972 Plan (the "UK Plan"). Members
contribute at the rate of 3 per cent. of salary subject to limits imposed by the
Inland Revenue. plc contributions made during the six months ended 30 September
2002 amounted to 14.2 per cent. of salary, similarly restricted (year ended 31
March 2002 6.6 per cent., 2001 6.6 per cent., 2000 6.6 per cent.). The increase
in contributions resulted from an interim actuarial valuation of the UK Plan,
which was undertaken as at 30 September 2001, following the sale of part of the
business of plc. The results of this valuation revealed that there was a deficit
in the UK Plan at that time of L137 million and, on the advice of the actuary,
the rate of employers' contributions was increased.
Funded unapproved retirement benefit schemes ("FURBS") have been established for
two of the current Directors -- M J Donovan and M W J Parton. In the case of M W
J Parton, gross contributions to the FURBS are paid at the rate of 35 per cent.
of basic salary, with 21 per cent. being paid into the FURBS and the remaining
14 per cent. direct to M W J Parton. The accumulated balance in the FURBS,
including investment returns, is payable to M W J Parton on retirement. M J
Donovan's FURBS is funded on a defined benefit basis, with projected benefits
(including under other plans) of two-thirds of his final pensionable salary. The
current contribution rate (to be reviewed in May 2003) is 39 per cent. of his
base salary (although while M J Donovan is posted to the US, the rate is 46 per
cent., owing to local tax legislation). The pension will be made up from M J
Donovan's benefits under the UK Plan, the FURBS, two BAE pension plans and any
other retained benefits he may have. FURBS contributions for M J Donovan are
paid into the FURBS and to M J Donovan himself in the
353
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
ratio of 60:40 (or as necessary under US tax law). This is because the
contributions are taxable benefits, so the payment to M J Donovan is to offset
the higher income tax charge for which he is liable. The FURBS documents oblige
Corp to fund an unapproved life assurance scheme, which is to provide a lump sum
on death in service of four times basic salary and a widow's pension of
four-ninths of final pensionable salary. An additional contribution of L240,000
was paid into M J Donovan's FURBS in 2002 to make good a deficit shown by its
last actuarial valuation. The normal retirement age is 62 for Executive
Directors. If M J Donovan retires on or after his fifty-fifth birthday, there
will be no actuarial reduction in the value of his benefits. In the event of
cessation of employment before normal retirement age, or at retirement age each
of the Directors is entitled to the amount held in the FURBS established for
him.
FURBS were also established for former Directors -- Lord Simpson, R J Meakin and
J C Mayo. In the case of Lord Simpson, the final contribution to his FURBS was
made in October 2001 and no further contributions are due from plc. In the case
of R J Meakin, a final contribution was paid by plc on 14 January 2003. In the
case of J C Mayo, contributions to fully fund his FURBS were paid on 5 July
2002. There is an ongoing obligation to review the funding level each year for
the FURBS for current employees which may result in additional contributions
being required by plc.
The Remuneration Committee has reviewed the cost of FURBS arrangements for the
Executive Directors and has decided that it is not appropriate to plc's changed
circumstances. Consequently, plc has sought to change the basis of the FURBS it
provides for the current Executive Directors. With effect from 1 April 2002, the
FURBS for M W J Parton was changed to a defined contribution basis as described
below.
For the six months ended 30 September 2002 the only current director who has a
defined benefit FURBS was M J Donovan. His FURBS is disclosed in accordance with
the Actuarial Guidance Note GN11. This is consistent with the treatment of
benefits accrued under the UK Plan.
In accordance with the requirements of the Listing Rules, the disclosures
required for each period are set out below. The figures for pensions shown below
are the contributions paid by the Group in respect of each Director.
In addition to this disclosure, the Directors' remuneration table above also
discloses within pension contributions, the contributions paid by plc in respect
of these FURBS arrangements and all other pension arrangements including the UK
Plan.
The pension benefits earned by the Directors of plc under the UK Plan are:
AS AT 31 MARCH 2000
Cost of pension
benefits accrued
Increase in during the period Accumulated total
Length of pensionable accrued pension net of member's accrued pension as
Name of service during the period contributions at 31 March 2000
Director years L000 L000 L000
-------- --------------------- ----------------- ----------------- ------------------
M J Donovan 1 1 2 2
J C Mayo 2 1 2 4
R I Meakin 3 1 11 5
M W J Parton 9 1 1 14
Lord Simpson 3 1 10 5
===================== ================= ================= ==================
354
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
AS AT 31 MARCH 2001
Cost of pension
benefits accrued
Increase in during the period Accumulated total
Length of pensionable accrued pension net of member's accrued pension at
Name of service during the period contributions 31 March 2001
Director years L000 L000 L000
-------- --------------------- ----------------- ----------------- ------------------
M J Donovan 2 2 5 4
J C Mayo 3 1 1 5
R I Meakin 4 1 9 7
M W J Parton 10 1 1 15
Lord Simpson 4 1 7 7
===================== ================= ================= ==================
AS AT 31 MARCH 2002
Cost of pension
benefits accrued
Increase in during the period Accumulated total
Length of pensionable accrued pension net of member's accrued pension at
Name of service during the period contributions 31 March 2002
Director years L000 L000 L000
-------- --------------------- ----------------- ----------------- ------------------
M J Donovan 3 2 2 6
S Hare 13 18 100 67
J C Mayo* 3 7 58 12
R I Meakin* 5 2 11 9
M W J Parton 11 3 11 24
Lord Simpson* 4 1 8 8
===================== ================= ================= ==================
---------------
* at the date of cessation of employment
AS AT 30 SEPTEMBER 2002
Cost of pension
benefits accrued
Increase in during the period Accumulated total
Length of pensionable accrued pension net of member's accrued pension at
Name of service during the period contributions 30 September 2002
Director years L000 L000 L000
-------- --------------------- ----------------- ----------------- ------------------
M J Donovan 4 1 -- 6
S Hare 13 2 7 71
M W J Parton 11 1 2 25
===================== ================= ================= ==================
---------------
NOTES
(1) The pension entitlement shown is that which would be paid annually at the
normal retirement age based on service to the end of the period.
(2) The increase in accrued pension during the period excludes any increase for
inflation.
(3) The cost of pension benefits accrued during the period net of member's
contributions has been calculated on the basis of actuarial advice in
accordance with Actuarial Guidance Note GN11. The cost of pension benefits
accrued during the period net of member's contributions is a measure of the
capital cost of providing future pension payments and accordingly is a
liability of the Group's pension arrangements and not a sum paid or due to
the Directors of plc.
355
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
(4) The ability of plc to satisfy pension obligations for Directors subject to
the earnings cap from plc's approved pension scheme, rather than unapproved
schemes, is influenced by benefits payable from other approved pension
schemes from their previous employment. In respect of M W J Parton, benefits
accrued under approved plans from previous employment were lower than
anticipated prior to the period ended 31 March 2002. Consequently, a higher
portion of his accrued pension benefit can be paid from the UK Plan, as
opposed to FURBS arrangements and his accrued pension under the UK Plan is
increased in the period ended 31 March 2002 and, as a result his entitlement
under the FURBS arrangements for that period is reduced by a corresponding
amount. With effect from 1 April 2002, M W J Parton's FURBS entitlements are
provided on a defined contribution basis, with benefits accrued under
approved plans payable in addition.
(5) Members of the UK Plan have the option to make additional voluntary
contributions; neither any additional voluntary contributions nor the
resulting benefits are included in the above table.
(6) In the event of death in service, a lump sum of four times pensionable
salary, plus additional benefits for a surviving spouse and/or children,
inclusive of any death benefits arising from the UK Plan, will be held in
trust for the benefit of the dependents of serving Directors who are members
of the UK Plan.
In previous periods, the contributions made to the Directors' FURBS have been
disclosed on a defined contribution basis. For the six months ended 30 September
2002 and the year ended 31 March 2002, owing to certain guarantees from plc
which underpin the Directors' pension entitlements, Corp believes that it is
more appropriate to disclose certain of the FURBS arrangements as a defined
benefit basis in accordance with Actuarial Guidance Note GN11. This is
consistent with the treatment of benefits accrued under the UK Plan. Comparative
disclosures have not been provided for earlier periods, as it is not practical
to do so.
The pension benefits earned by the Directors of plc under the FURBS arrangements
are:
AS AT 31 MARCH 2002
Cost of pension Accumulated
benefits accrued total accrued
Length of Increase in during the period pension at
pensionable accrued pension net of member's 31 March
service during the period contributions 2002
Name of Director years L000 L000 L000
---------------- ------------- ----------------- ----------------- -------------
M J Donovan 3 10 54 68
J C Mayo* 3 25 107 159
R I Meakin* 5 7 66 102
M W J Parton 11 12 58 52
============= ================= ================= =============
---------------
* at the date of cessation of employment.
AS AT 30 SEPTEMBER 2002
Cost of pension
benefits accrued Accumulated
Length of Increase in during the period total accrued
pensionable accrued pension net of member's pension at
service during the period contributions 30 September 2002
Name of Director years L000 L000 L000
---------------- ------------- ----------------- ----------------- -----------------
M J Donovan 4 4 16 68
============= ================= ================= =================
356
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
The following payments have been made to the Trustee of the FURBS:
Six months
Year ended 31 March ended
-------------------- 30 September
2000 2001 2002 2002
Name of Director L000 L000 L000 L000
---------------- ---- ---- ---- ------------
M J Donovan 53 63 64 288
J C Mayo 222 374 633 257
R I Meakin 205 290 290 290
M W J Parton 99 147 147 55
Lord Simpson 308 395 212 --
==== ==== ==== ============
---------------
NOTES
(1) The pension entitlement shown above is that which would be paid annually at
normal retirement age based on service to the end of the period.
(2) The increase in accrued pension during the period excludes any increase for
inflation.
(3) M J Donovan and M W J Parton became Directors during the year ended 31 March
2000. Contributions of L13,212 and L35,625 were paid into their FURBS
respectively, in respect of the period during the year ended 31 March 2000
in which they were Directors of the Group. No entry is shown for Lord
Simpson in the pension benefits tables above as, in his case, his defined
contribution entitlement due under the FURBS was completed in the year ended
31 March 2002 by the payment of L212,000 to the trustees of the FURBS. Lord
Simpson resigned as a Director of plc on 4 September 2001. J C Mayo resigned
as a Director of plc on 6 July 2001 and a payment of L257,000 was paid to
his FURBS in respect of pensionable service for the period to 5 July 2002. R
I Meakin resigned as a Director of plc on 1 March 2002. A contribution of
L568,000 became due immediately. L290,000 was paid to his FURBS in the
period up to 30 September 2002 and a final contribution of L278,000 was paid
by plc on 14 January 2003. A further non-pensionable allowance of L185,000
was paid directly to R I Meakin in final settlement of his FURBS
entitlements.
(4) The contributions are determined each period based on actuarial advice to be
sufficient to meet the obligations. Periodically the contributions are
reviewed by the actuary. An actuarial valuation of M J Donovan's FURBS,
disclosed a deficit of L240,000. A contribution of L240,000 was therefore
paid by plc into the FURBS in addition to regular contributions with a
further non-pensionable allowance of L228,284 being paid directly to M J
Donovan. The accumulated accrued pension shown for M J Donovan for the
period to 31 March 2002 was based on information available to the actuary at
the date of the calculation. Subsequently more up-to-date information was
acquired relating to benefits payable to M J Donovan from previous
employments. The effect of allowing for the revised figures would be to show
a lower accumulated accrued pension at 31 March 2002 of L64,000. In
calculating the disclosure at 30 September 2002 the actuary has taken into
account the additional information.
(5) With effect from 1 April 2002, M W J Parton's FURBS was amended from a
defined benefit FURBS to a defined contribution FURBS. As part of this
process, plc agreed to pay contributions in accordance with the following
table to meet a deficit on the now discontinued defined benefit basis in
addition to the normal contributions. In the event that M W J Parton's
employment is terminated, any payments which have not been made on or before
the date of termination will become due immediately:
FURBS Non-pensionable
contribution allowance
On or before L000 L000
------------ ------------ ---------------
15 April 2003 88 59
15 July 2003 88 59
15 October 2003 88 59
15 January 2004 88 59
============ ===============
357
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
12. EMPLOYEES
(A) AVERAGE MONTHLY NUMBER OF EMPLOYEES BY SECTOR
Six months
Year ended 31 March ended
------------------------ 30 September
2000 2001 2002 2002
Number Number Number Number
(000) (000) (000) (000)
------ ------ ------ ------------
Networks equipment 20 24 19 13
Networks services 5 9 8 6
Other 1 1 -- --
------ ------ ------ ------------
26 34 27 19
Capital 8 3 3 3
------ ------ ------ ------------
Continuing operations 34 37 30 22
Discontinued operations 15 15 15 3
------ ------ ------ ------------
Corp Group employees 49 52 45 25
Share of joint venture employees 4 4 3 --
------ ------ ------ ------------
Corp Group and share of joint venture employees 53 56 48 25
====== ====== ====== ============
(B) STAFF COSTS
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Wages and salaries 1,206 1,423 1,295 370
Social security costs 132 164 156 50
Amounts charged to operating expenses 56 77 67 24
Amounts credited to non-operating exceptional
items -- -- -- (66)
Amounts included in net finance income (note 26) (36) (44) (40) 3
Amounts recognised in the Statement of Total
Recognised Gains and Losses (note 26) (155) 73 351 373
Other pension costs (135) 106 378 334
--------- --------- --------- ------------
1,203 1,693 1,829 754
========= ========= ========= ============
United Kingdom 430 584 942 487
The Americas 468 637 483 127
Rest of Europe 233 397 357 126
Africa, Asia and Australasia 72 75 47 14
--------- --------- --------- ------------
1,203 1,693 1,829 754
========= ========= ========= ============
Included within the staff costs for the six months ended 30 September 2002 are
Lnil (year ended 31 March 2002 L11 million, 2001 L16 million, 2000 L10 million)
of expenses related to ongoing remuneration costs regarding share option
schemes.
358
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
13. GOODWILL
At 31 March At
--------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
COST
At beginning of period 5,573 7,313 6,812
Acquisitions (note 25) 1,274 39 --
Adjustments in respect of prior period acquisitions (note
25) -- (49) (9)
Disposals (note 25) (15) (505) (323)
Exchange rate adjustments 481 14 (405)
--------- --------- ------------
AT END OF PERIOD 7,313 6,812 6,075
--------- --------- ------------
AMORTISATION
At beginning of period (1,176) (1,918) (5,935)
Charged to profit and loss account (671) (431) (54)
Impairment -- (3,677) --
Disposals (note 25) 8 142 202
Exchange rate adjustments (79) (51) 384
--------- --------- ------------
AT END OF PERIOD (1,918) (5,935) (5,403)
--------- --------- ------------
NET BOOK VALUE 5,395 877 672
========= ========= ============
In the year to 31 March 2002 a review of the Corp Group's fixed assets,
including goodwill, resulted in an impairment charge of L3,677 million.
Following the continued difficult market conditions, plc announced expectations
of a delay in market recovery beyond the end of 2003; significant changes to the
Corp Group forecasts have been made, and a further review has been undertaken at
30 September 2002. The average discount rate applied to the future cash flows is
15 per cent. and is based upon a weighted average cost of capital percentage.
The results of the review indicated that no further impairment charge in respect
of goodwill was necessary for the 6 months to 30 September 2002. However, due to
the significant uncertainties over the timing and extent of any recovery in the
telecommunications market, Corp acknowledges that it is likely to have to
continue to review its assumptions against future performance.
359
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
14. TANGIBLE FIXED ASSETS
Fixtures, Payments on
Leasehold property fittings, account and
Freehold --------------------- Plant and tools and assets under
property long short machinery equipment construction Total
L million L million L million L million L million L million L million
--------- --------- --------- --------- --------- ------------ ---------
COST
At 1 April 2000 203 19 37 570 557 91 1,477
Exchange rate
adjustment 15 1 5 38 21 7 87
Additions 50 -- 3 172 192 168 585
Businesses acquired
(note 25) 1 -- 4 16 3 -- 24
Completed construction 40 -- -- 4 24 (68) --
Disposals (13) -- (1) (28) (61) -- (103)
Businesses disposed
(note 25) (12) -- -- (35) (27) (1) (75)
--------- --------- --------- --------- --------- ----------- ---------
At 31 March 2001 284 20 48 737 709 197 1,995
--------- --------- --------- --------- --------- ----------- ---------
Exchange rate
adjustment (3) -- (1) (10) (4) (1) (19)
Reclassification 14 (4) (21) (40) 51 -- --
Additions 13 1 2 128 84 124 352
Businesses acquired
(note 25) 1 -- -- 1 1 -- 3
Completed construction 1 -- -- 26 19 (46) --
Disposals (63) (3) (2) (65) (106) -- (239)
Businesses disposed
(note 25) (87) (3) (19) (257) (158) (234) (758)
--------- --------- --------- --------- --------- ----------- ---------
At 31 March 2002 160 11 7 520 596 40 1,334
--------- --------- --------- --------- --------- ----------- ---------
Exchange rate
adjustment (6) -- -- (22) (8) (1) (37)
Additions 5 -- 1 10 9 7 32
Completed construction 2 -- -- 3 33 (38) --
Disposals (7) (2) -- (5) (13) (4) (31)
Businesses disposed (26) -- -- (133) (73) (4) (236)
--------- --------- --------- --------- --------- ----------- ---------
AT 30 SEPTEMBER 2002 128 9 8 373 544 -- 1,062
========= ========= ========= ========= ========= =========== =========
360
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Fixtures, Payments on
Leasehold property fittings, account and
Freehold --------------------- Plant and tools and assets under
property long short machinery equipment construction Total
L million L million L million L million L million L million L million
--------- --------- --------- --------- --------- ------------ ---------
DEPRECIATION
At 1 April 2000 56 3 9 293 358 -- 719
Exchange rate
adjustment 2 -- 2 22 12 -- 38
Charged to the profit
and loss account 13 -- 3 91 104 -- 211
Impairment of fixed
assets -- -- -- -- -- -- --
Disposals (5) -- -- (17) (41) -- (63)
Businesses disposed (4) -- (1) (24) (23) -- (52)
--------- --------- --------- --------- --------- ----------- ---------
At 31 March 2001 62 3 13 365 410 -- 853
--------- --------- --------- --------- --------- ----------- ---------
Exchange rate
adjustment (1) -- -- (7) (2) -- (10)
Reclassification 10 (1) (5) (14) 10 -- --
Charged to the profit
and loss account 6 1 5 96 137 -- 245
Impairment of fixed
assets 1 -- -- 116 37 -- 154
Disposals (15) -- -- (41) (68) -- (124)
Businesses disposed (26) (1) (10) (180) (89) -- (306)
--------- --------- --------- --------- --------- ----------- ---------
At 31 March 2002 37 2 3 335 435 -- 812
--------- --------- --------- --------- --------- ----------- ---------
Exchange rate
adjustment -- -- -- (16) (3) -- (19)
Charged to the profit
and loss account 4 -- -- 34 41 -- 79
Impairment of fixed
assets 10 -- 2 15 22 -- 49
Disposals (2) -- -- (6) -- -- (8)
Businesses disposed (12) -- -- (104) (64) -- (180)
--------- --------- --------- --------- --------- ----------- ---------
AT 30 SEPTEMBER 2002 37 2 5 258 431 -- 733
========= ========= ========= ========= ========= =========== =========
NET BOOK VALUES
At 31 March 2001 222 17 35 372 299 197 1,142
At 31 March 2002 123 9 4 185 161 40 522
--------- --------- --------- --------- --------- ----------- ---------
AT 30 SEPTEMBER 2002 91 7 3 115 113 -- 329
========= ========= ========= ========= ========= =========== =========
The net book value of tangible fixed assets includes an amount of Lnil (31 March
2002 L6 million, 2001 L4 million) in respect of assets held under finance
leases, on which the depreciation charge for the six months ended 30 September
2002 was Lnil (year ended 31 March 2002 L2 million, 2001 L1 million, 2000 L1
million).
Some assets were reclassified during the year ended 31 March 2002 to reflect a
more appropriate categorisation of items.
361
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
15. FIXED ASSET INVESTMENTS
JOINT VENTURES, ASSOCIATES AND OTHER INVESTMENTS
Joint ventures and associates Other investments
---------------------------------------------------------------- ----------------------
Shares Share of
cost less Goodwill post
amounts cost less acquisition Cost or
written off amortisation reserves Loans Sub total valuation Provisions
L million L million L million L million L million L million L million
----------- ------------ ----------- --------- --------- --------- ----------
At 1 April 2000 146 20 34 1 201 1,427 (2)
Exchange rate
adjustment -- -- 3 -- 3 6 --
Additions -- -- -- 15 15 123 --
Disposals (69) -- (22) -- (91) (619) --
Profits less losses
retained -- -- 7 -- 7 -- --
Goodwill amortisation -- (2) -- -- (2) -- --
Deficit on valuation
of listed
investments -- -- -- -- -- (375) (110)
----------- ------------ ----------- --------- --------- --------- ----------
At 31 March 2001 77 18 22 16 133 562 (112)
Additions 302 72 -- -- 374 80 --
Disposals and
repayments (60) (16) (42) (14) (132) (321) --
Profits less losses
retained -- -- (169) -- (169) -- --
Goodwill amortisation -- (9) -- -- (9) -- --
Deficit on valuation
of listed
investments -- -- -- -- -- -- (156)
----------- ------------ ----------- --------- --------- --------- ----------
At 31 March 2002 319 65 (189) 2 197 321 (268)
Transfer from current
asset investments 15 -- -- -- 15 -- --
Disposals and
impairments -- (27) -- (2) (29) -- (25)
Profits less losses
retained -- -- (73) -- (73) -- --
Goodwill amortisation -- (6) -- -- (6) -- --
Deficit on valuation
of listed
investments -- -- -- -- -- -- (11)
----------- ------------ ----------- --------- --------- --------- ----------
AT 30 SEPTEMBER 2002 334 32 (262) -- 104 321 (304)
=========== ============ =========== ========= ========= ========= ==========
Other investments
-------------------------
Investment
in plc Shares Sub total Total
L million L million L million
------------- --------- ---------
At 1 April 2000 -- 1,425 1,626
Exchange rate
adjustment -- 6 9
Additions 8 131 146
Disposals -- (619) (710)
Profits less losses
retained -- -- 7
Goodwill amortisation -- -- (2)
Deficit on valuation
of listed
investments -- (485) (485)
------------- --------- ---------
At 31 March 2001 8 458 591
Additions 24 104 478
Disposals and
repayments (32) (353) (485)
Profits less losses
retained -- -- (169)
Goodwill amortisation -- -- (9)
Deficit on valuation
of listed
investments -- (156) (156)
------------- --------- ---------
At 31 March 2002 -- 53 250
Transfer from current
asset investments -- -- 15
Disposals and
impairments -- (25) (54)
Profits less losses
retained -- -- (73)
Goodwill amortisation -- -- (6)
Deficit on valuation
of listed
investments -- (11) (11)
------------- --------- ---------
AT 30 SEPTEMBER 2002 -- 17 121
============= ========= =========
JOINT VENTURES AND ASSOCIATES
Additions during the year ended 31 March 2002 consisted primarily of Easynet
Group Plc (L235 million) and Ultramast Limited (L65 million).
Disposals during the year ended 31 March 2002 consisted primarily of General
Domestic Appliances Holdings Limited (L88 million).
362
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
During the six months to 30 September 2002, goodwill on Easynet Group Plc was
impaired by L27 million and an amortisation charge of L5 million was incurred.
OTHER INVESTMENTS
Additions during the year ended 31 March 2001 consisted primarily of
NetDecisions Holdings Limited (L49 million) and Arraycomm, Inc. (L28 million).
Disposals during the year ended 31 March 2001 consisted of part disposals of
Alstom SA (L610 million) and Lagardere SCA (L9 million).
Disposals during the year ended 31 March 2002 consisted primarily of the
remainder of Alstom SA (L236 million) and Lagardere SCA (L73 million).
MARKET VALUES
Listed fixed asset investments are stated at market value, as follows:
As at 31 March As at
---------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Alstom -- listed overseas 236 -- --
Other investments -- listed in the United Kingdom 20 19 8
Other investments -- listed overseas 73 -- --
========= ========= ============
The Corp Group has not provided for tax which could arise if these investments
were realised at the values stated. The Corp Group estimates that the tax charge
arising would be Lnil for the six months ended 30 September 2002 (year ended 31
March 2002 Lnil, 2001 L6 million.).
During the year ended 31 March 2000 the Corp Group acquired a 27 per cent. stake
in Atlantic Telecom Group plc. During the year ended 31 March 2001, Atlantic
Telecom Group plc purchased First Telecom Group plc for L520 million through a
new share issue. The effect of this transaction was to dilute the Corp Group's
stake to below 20 per cent. After careful review of the Corp Group's involvement
in Atlantic Telecom Group plc it did not believe that it exercised significant
influence and, accordingly, treated the investment as a listed fixed asset
investment from the date of acquisition.
After careful review of the Corp Group's involvement in Alstom, the Corp Group
did not believe that it exercised significant influence. On 9 February 2001 the
Corp Group, in conjunction with Alcatel SA, carried out a placement of an equal
number of Alstom shares. The effect of the placement was to further reduce the
Corp Group's shareholding in Alstom to below 10 per cent. from 24 per cent.
Accordingly, Alstom has been treated as a listed fixed asset investment until
disposal on 19 June 2001.
On 26 September 2001, the Corp Group sold its remaining investment in Lagardere
SCA.
On 1 February 2002, the Corp Group acquired an approximate 9 per cent.
shareholding in Bookham Technology plc.
The aggregate historical cost of the listed fixed asset investments was L49
million at 30 September 2002 (31 March 2002 L49 million, 2001 L165 million).
At 27 March 2003 the market value of the investments shown above was in
aggregate L11 million.
363
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
ASSOCIATES AND JOINT VENTURES
As at 30 September 2002, the Corp Group held the following investments in
associates and joint ventures.
Proportion of Number Country of
Associated Company Class of shares shares held held incorporation
------------------ ----------------------- ------------- ----------- -------------
Ultramast Limited Ordinary shares of 100 50.0% 500 Great Britain
pence
Easynet Group Plc Ordinary shares of 4 30,940,597 Great Britain
pence
Convertible non-voting 48,553,661
ordinary shares of 4
pence
Equity share 71.7%
Voting share 49.6%
Easynet Group Plc's year end is 31 December and it has been accounted for under
the equity accounting method. As it is a company quoted on the London Stock
Exchange, information that is not in the public domain cannot be disclosed.
Consequently its results have been accounted for the six month period to 30 June
2002 for inclusion in the Corp Group's results for the six months ended 30
September 2002 (from acquisition (26 July 2001) to 31 December 2001 for
inclusion in the Corp Group's results for the year ended 31 March 2002). Easynet
is a network-based provider of broadband services and internet solutions.
Ultramast Limited builds and markets telecommunications masts for use by mobile
and fixed wireless network operations.
INVESTMENT IN MARCONI PLC SHARES
Investment in plc Shares relates to shares held by the GEC Special Purpose
Trust, the MET and the EST as described in more detail below.
On 22 May 2000, the rights of former employees of GEC to exercise options and
receive a securities package from the GEC Special Purpose Trust (the "Trust"), a
discretionary trust under which employees of the Corp Group were potential
beneficiaries, lapsed.
As at 31 March 2001, the assets of the Trust comprised 4,259,775 plc Shares,
1,832,588 BAE SYSTEMS plc shares and L582,839 of BAE SYSTEMS plc Capital
Amortising Loan Stock ("CALS"). Dividends on shares held in the Trust have not
been waived.
Investments in own shares at 31 March 2001 represented the cost of the plc
Shares. Other investments include the BAE SYSTEMS plc shares and CALS. The
market value of the plc Shares at 31 March 2001 was L14.5 million.
During the year ended 31 March 2002, the Corp Group disposed of all the assets
of the Trust, for an aggregate consideration of L7 million. The Trust has no
remaining investments at 30 September 2002, and will be wound up during the
financial year ending 31 March 2003.
The MET, a discretionary trust for certain employees and former employees of plc
and its subsidiaries, was established on 1 December 1999. The MET acquired
shares in order to satisfy entitlements under certain share option schemes. The
MET held assets of 2,052,731 plc Shares at 30 September 2002 with a market value
of Lnil, (at 31 March 2002 3,918,574 shares with a market value of L0.3 million,
at 2001 nil shares). Dividends receivable by the MET from plc have been waived.
The EST, a discretionary trust for certain employees and former employees of plc
and its subsidiaries, was established on 19 January 1995. The EST acquires
shares in order to satisfy entitlements under certain share option schemes. The
EST held assets of 1,188,414 plc Shares at 30 September 2002 with a market value
of Lnil at 30 September 2002 (1,188,414 plc Shares at 31 March 2002, with a
market value of L0.1 million, 193,319 at 2001 with a market value of L0.7
million). Dividends receivable by the EST from plc have not been waived.
364
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
The Trust, the MET and the EST have been consolidated. All operating expenses
incurred are charged to the Group profit and loss account.
SUBSIDIARY UNDERTAKINGS
The Corp Group's most significant operating subsidiaries at 30 September 2002
are:
Core businesses Country of incorporation
--------------- ------------------------
Networks equipment and services
Marconi Communications Limited Great Britain
Marconi Communications S.p.A. Italy
Marconi Communications, Inc. USA
Marconi Communications GmbH Germany
The above list of subsidiaries includes those businesses that had a material
effect on the consolidated results in the period. All subsidiaries disclosed
above are 100 per cent. owned by Corp or subsidiaries of Corp.
16. STOCKS AND CONTRACTS IN PROGRESS
As at 31 March As at
---------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Raw materials and bought out components 637 203 104
Work in progress 477 241 119
Payments on account (4) (3) (3)
Long-term contract work in progress 80 83 21
Finished goods 531 196 115
--------- --------- ------------
1,721 720 356
========= ========= ============
365
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
17. DEBTORS
As at 31 March As at
---------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Amounts falling due within one year
Trade debtors 2,096 979 628
Amounts recoverable on contracts 37 -- --
Amounts owed by plc 20 207 --
Amounts owed by fellow subsidiaries of plc 32 -- --
Amounts owed by joint ventures and associates 28 26 35
Other debtors 146 96 91
Prepayments and accrued income 79 102 49
--------- --------- ------------
2,438 1,410 803
--------- --------- ------------
Amounts falling due after more than one year
Trade debtors 20 16 3
Amounts recoverable on contracts 6 -- --
Other debtors 87 71 48
Prepayments and accrued income 14 7 8
Deferred taxation (notes 7(b), 21) 170 -- --
--------- --------- ------------
297 94 59
--------- --------- ------------
2,735 1,504 862
========= ========= ============
Amounts owed by joint ventures and associates relate to trading balances.
18. CURRENT ASSET INVESTMENTS AND CASH AT BANK AND IN HAND
(A) CURRENT ASSET INVESTMENTS
As at 31 March As at
---------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Dated securities at market value
Listed securities -- cost Lnil
(31 March 2002 Lnil, 2001 L25 million) 26 -- --
Unlisted investments -- 15 --
--------- --------- ------------
26 15 --
========= ========= ============
(B) CASH AT BANK AND IN HAND
As at 31 March As at
---------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Cash and bank deposits repayable on demand (note 28) 118 1,296 918
Other cash deposits 225 65 144
--------- --------- ------------
Cash at bank and in hand 343 1,361 1,062
========= ========= ============
366
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Included in the amounts above are restricted cash of:
As at 31 March As at
---------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Secured 22 19 775
Collateral against bonding facilities -- 25 79
Held by captive insurance company 25 17 18
Other -- -- 8
--------- --------- ------------
Restricted cash 47 61 880
Other 296 1,300 182
--------- --------- ------------
Cash at bank and in hand 343 1,361 1,062
========= ========= ============
Of the secured cash, L735 million (31 March 2002 Lnil, 2001 Lnil) relates to
amounts held under an interim security by the Corp Group's Syndicate Banks and
Bondholders and also by the ESOP Derivative Banks granted on 13 September 2002.
A further L25 million relates to cash deposited against ESOP Derivative Banks
for the Strategic Communications business (31 March 2002 Lnil, 2001 Lnil) and
L15 million (31 March 2002 L19 million, 2001 L22 million) relates to cash
deposited against secured loans in Italy.
19. CREDITORS
As at 31 March As at
--------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Amounts falling due within one year
Bank loans and overdrafts
Repayable on demand 342 2,351 2,145
Other 1,018 44 11
Debenture loans 44 32 32
Obligations under finance leases 3 9 2
--------- --------- ------------
1,407 2,436 2,190
Payments received in advance 185 101 72
Trade creditors 963 512 284
Amounts owed to plc 526 275 271
Amounts owed to fellow subsidiaries of plc -- 13 24
Amounts owed to joint ventures and associates 9 9 9
Current taxation 164 290 306
Other taxation and social security 107 15 5
Other creditors 364 423 141
Accruals and deferred income 626 282 309
--------- --------- ------------
4,351 4,356 3,611
========= ========= ============
367
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
As at 31 March As at
--------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Amounts falling due after more than one year
Bank loans and overdrafts 23 32 25
Debenture loans 78 -- --
Bonds 2,165 2,147 2,059
Obligations under finance leases 4 -- 7
--------- --------- ------------
2,270 2,179 2,091
Payments received in advance 53 29 --
Trade creditors 1 -- --
Other creditors 250 70 16
--------- --------- ------------
2,574 2,278 2,107
========= ========= ============
368
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
20. BORROWINGS
As at 31 March As at
--------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Bank loans and overdrafts
Secured -- 31 17
Unsecured 1,383 2,396 2,164
Debenture loans
Secured 33 -- --
Unsecured 89 32 32
Bonds 2,165 2,147 2,059
Obligations under finance leases 7 9 9
--------- --------- ------------
3,677 4,615 4,281
Less amounts falling due within one year (1,407) (2,436) (2,190)
--------- --------- ------------
2,270 2,179 2,091
========= ========= ============
Analysis of repayments of long-term borrowings
Bank loans
Between one and two years 23 6 4
Between two and five years -- 14 12
In more than five years -- 12 9
Debenture loans and bonds
Between one and two years 8 -- --
Between two and five years 356 302 312
In more than five years 1,879 1,845 1,747
Finance leases
Between one and two years 2 -- --
Between two and five years 2 -- 1
More than five years -- -- 6
--------- --------- ------------
2,270 2,179 2,091
========= ========= ============
Debenture loans and Bonds
Repayable at par wholly within five years 354 302 312
Repayable at par wholly after five years
Bonds 1,855 1,845 1,747
Other 78 -- --
1,933 1,845 1,747
========= ========= ============
The average rate of interest on debenture loans and Bonds repayable at par
wholly within five years at 30 September 2002 was 5.6 per cent. (31 March 2002
5.6 per cent., 2001 5.5 per cent.).
The average rate of interest on debenture loans and Bonds repayable at par
wholly after five years at 30 September 2002 was 7.5 per cent. (31 March 2002
7.5 per cent., 2001 7.5 per cent.).
BONDS
On 30 March 2000, Corp issued for cash consideration two unsecured Eurobonds.
The first Eurobond has a principal amount of E500 million with a coupon rate of
5.625 per cent. per annum, maturing on 30 March 2005. The second Eurobond has a
principal amount of E1,000 million with a coupon rate of 6.375 per cent. per
annum, maturing on 30 March 2010.
369
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
On 19 September 2000, Corp issued for cash consideration two unsecured US dollar
bonds. The first bond has a principal amount of US$900 million with a coupon
rate of 7.75 per cent. per annum, maturing on 15 September 2010. The second
dollar bond has a principal amount of US$900 million with a coupon rate of 8.375
per cent. per annum, maturing on 15 September 2030.
During the year ended 31 March 2002, Ancrane, a subsidiary of plc, which is not
a subsidiary of Corp, purchased E67.9 million of Eurobonds with a coupon rate of
5.625 per cent. per annum maturing on 30 March 2005, E256.7 million of Eurobonds
with a coupon rate of 6.375 per cent. per annum maturing on 30 March 2010,
US$131 million of US dollar bonds with a coupon rate of 7.75 per cent. per annum
maturing on 15 September 2010 and US$130.1 million of US dollar bonds with a
coupon rate of 8.375 per cent. per annum maturing on 15 September 2030.
SECURITY
The secured loans are all secured upon cash balances with the respective banks.
MATURITY
The material payment obligations greater than five years are all payable wholly
at maturity, of which L624 million (31 March 2002 L606 million, 2001 L618
million) refer to Corp's 6.375 per cent. Eurobonds due 2010, L563 million (31
March 2002 L620 million, 2001 L620 million) refer to Corp's 7.75 per cent. US
dollar bonds due 2010, and L560 million (31 March 2002 L619 million, 2001 L617
million) refer to Corp's 8.375 per cent. US dollar bonds due 2030. Additional
analysis of the maturity of the Corp Group's debt is given in note 28.
BORROWING FACILITIES
The undrawn facilities available at the end of each period were:
As at 31 March As at
--------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Expiring in one year or less 1,679 -- --
Expiring in more than one year but not more than five
years 1,788 -- --
--------- --------- ------------
3,467 -- --
========= ========= ============
370
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
21. PROVISIONS FOR LIABILITIES AND CHARGES
Share Deferred
Restructuring options tax Other Total
L million L million L million L million L million
------------- --------- --------- --------- ---------
At 1 April 2000 68 396 -- 229 693
Exchange rate adjustment 2 -- -- 5 7
Acquisitions 4 42 -- 43 89
Disposals (1) -- -- (4) (5)
Charged 38 16 -- 65 119
Released (43) -- -- (68) (111)
Utilised (22) (12) -- (44) (78)
------------- --------- --------- --------- ---------
At 31 March 2001 46 442 -- 226 714
Exchange rate adjustment -- -- -- (6) (6)
Acquisitions -- -- -- 10 10
Disposals (6) -- -- (32) (38)
Transferred from debtors (notes
7(b),17) -- -- (170) -- (170)
Charged 94 26 188 174 482
Released (10) (52) -- (16) (78)
Utilised (28) (237) -- (144) (409)
------------- --------- --------- --------- ---------
At 31 March 2002 96 179 18 212 505
Exchange rate adjustment (3) -- -- (19) (22)
Disposals -- -- (12) (14) (26)
Charged 26 6 -- 104 136
Released (8) (8) -- (8) (24)
Utilised (42) (1) -- (70) (113)
------------- --------- --------- --------- ---------
AT 30 SEPTEMBER 2002 69 176 6 205 456
============= ========= ========= ========= =========
Share option provisions mainly comprise amounts owed on contracts taken out with
ESOP Derivative Banks to fix the future price at which the Corp Group could
purchase shares to satisfy ESOP liabilities. The reduction in the plc share
price has triggered cash collateral payments to the ESOP Derivative Banks,
utilising part of the provision. The remaining movements relates mainly to the
release of provisions held for employees of previously acquired companies whose
options have lapsed.
Restructuring provisions mainly comprise expected costs for termination of
employee contracts, costs for properties no longer occupied and onerous lease
contracts. At 30 September 2002 the associated outflows are generally expected
to occur over the next year with the vacant property costs being incurred over
the next five years.
Other provisions mainly comprise expected cost of maintenance under guarantees,
other work in respect of products delivered, employee related claims,
environmental liabilities, other litigation and losses on contract work in
progress in excess of related accumulated costs. The associated outflows are
generally expected to occur over the lives of the products and contracts which
are long-term in nature.
371
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
22. EQUITY SHAREHOLDERS' INTERESTS
CALLED-UP SHARE CAPITAL
Number of shares L
---------------- -----------
AUTHORISED
At 31 March 2001, 31 March 2002 and 30 September 2002
Ordinary shares of 5 pence each 6,000,000,000 300,000,000
---------------- -----------
ALLOTTED, CALLED-UP AND FULLY PAID -- --
---------------- -----------
At 31 March 2001, 31 March 2002 and 30 September 2002
Fully paid ordinary shares of 5 pence each 2,866,250,735 143,312,537
================ ===========
40,823,845 ordinary shares with a nominal value of L2,041,192 were issued in the
year ended 31 March 2001 for cash consideration of L303 million and non cash
consideration of L28 million satisfied by the transfer of a liability.
RESERVES
Share Capital Profit and
premium redemption Revaluation loss
account reserve reserve account Total
L million L million L million L million L million
--------- ---------- ----------- ---------- ---------
At 1 April 2000 371 9 1,156 2,845 4,381
Issue of ordinary shares 329 -- -- -- 329
Loss retained for the period -- -- -- (273) (273)
Exchange differences -- -- -- 243 243
Actuarial loss (note 26) -- -- -- (73) (73)
Tax credit on STRGL items -- -- -- 38 38
Deducted during the period -- -- (369) -- (369)
Transferred during the period -- -- (520) 520 --
--------- ---------- ----------- ---------- ---------
At 31 March 2001 700 9 267 3,300 4,276
Loss retained for the period -- -- -- (6,076) (6,076)
Exchange differences -- -- -- (67) (67)
Actuarial loss (note 26) -- -- -- (351) (351)
Tax credit on STRGL items -- -- -- 68 68
(Deducted)/added in the period -- -- (30) 9 (21)
Transferred during the period -- -- (237) 237 --
--------- ---------- ----------- ---------- ---------
At 31 March 2002 700 9 -- (2,880) (2,171)
Loss retained for the period -- -- -- (925) (925)
Exchange differences -- -- -- 106 106
Actuarial loss (note 26) -- -- -- (373) (373)
Tax charge on exchange differences -- -- -- (3) (3)
Corp Group share of associates'
shares to be issued -- -- -- 3 3
--------- ---------- ----------- ---------- ---------
AT 30 SEPTEMBER 2002 700 9 -- (4,072) (3,363)
========= ========== =========== ========== =========
The amount in the profit and loss reserve relating to the defined benefit
liability is L439 million (31 March 2002 L126 million liability, 2001 L120
million asset).
Exchange gains of L11 million (31 March 2002 L17 million, 2001 L265 million
loss) and related tax charges of L3 million (31 March 2002 Lnil, 2001 credit of
L79 million) on borrowings hedged against equity investments denominated in
foreign currencies and losses of Lnil (31 March 2002 L1 million, 2001 L104
million loss) and
372
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
related tax credits of Lnil (31 March 2002 Lnil, 2001 credit of L31 million) on
associated tax equalisation swaps have been taken to Corp Group reserves.
23. CASH FLOW
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES
Year ended
31 March 2000
Total
L million
-------------
Corp Group operating loss after exceptionals (165)
Depreciation charge 155
Goodwill amortisation 763
Increase in stock (122)
Increase in debtors (374)
Increase in creditors 349
Increase in provisions 4
-------------
610
=============
The supplementary voluntary analysis of cash flows between continuing and
discontinued operations in the year ended 31 March 2000 has not been provided as
it was considered impractical to provide this information.
Year ended 31 March 2001
--------------------------------------
Continuing Discontinued Total
L million L million L million
---------- ------------- ---------
Corp Group operating (loss)/profit after exceptionals (133) 162 29
Operating exceptionals (note 4(a)) (1) 33 32
---------- ------------- ---------
Group operating (loss)/profit before exceptionals (134) 195 61
Depreciation charge 168 43 211
Goodwill amortisation 642 29 671
Increase in stock (694) (70) (764)
Increase in debtors (204) (103) (307)
(Decrease)/increase in creditors (51) 180 129
Decrease in provisions (51) (17) (68)
---------- ------------- ---------
(324) 257 (67)
========== ============= =========
373
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Year ended 31 March 2002
--------------------------------------
Continuing Discontinued Total
L million L million L million
---------- ------------- ---------
Corp Group operating (loss)/profit after exceptionals (6,153) 38 (6,115)
Operating exceptionals (note 4(a)) 5,169 41 5,210
---------- ------------- ---------
Group operating (loss)/profit before exceptionals (984) 79 (905)
Depreciation charge 217 28 245
Goodwill amortisation 406 25 431
Decrease/(increase) in stock 115 (20) 95
Decrease in debtors 554 18 572
Decrease in creditors (427) (42) (469)
Increase in provisions 31 10 41
---------- ------------- ---------
(88) 98 10
========== ============= =========
Six months ended 30 September 2002
------------------------------------------
Continuing Discontinued Total
L million L million L million
---------- ----------------- ---------
Corp Group operating loss after exceptionals (485) (6) (491)
Operating exceptionals (note 4(a)) 205 1 206
---------- ----------------- ---------
Group operating loss before exceptionals (280) (5) (285)
Depreciation charge 75 4 79
Goodwill amortisation 54 -- 54
Decrease/(increase) in stock 143 (16) 127
Decrease/(increase) in debtors 102 (1) 101
Decrease in creditors (201) (23) (224)
Increase/(decrease) in provisions 7 (1) 6
---------- ----------------- ---------
(100) (42) (142)
========== ================= =========
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Income from loans, deposits and investments 114 27 24 31
Interest paid (148) (160) (277) (189)
Dividends paid to minority interests -- (1) -- --
--------- --------- --------- ------------
(34) (134) (253) (158)
========= ========= ========= ============
Of the above amount, continuing operations account for an outflow of L156
million for the six months ended 30 September 2002 (year ended 31 March 2002
L243 million, 2001 L127 million) and discontinued operations an outflow of L2
million (year ended 31 March 2002 L10 million, 2001 L7 million).
The supplementary voluntary analysis of cash flows between continuing and
discontinued operations in the year ended 31 March 2000 has not been provided as
it was considered impractical to provide this information.
374
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
TAX PAID
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
UK tax (paid)/repaid (111) (74) 34 3
Overseas tax paid (3) (63) (47) (16)
--------- --------- --------- ------------
(114) (137) (13) (13)
========= ========= ========= ============
The figure for tax paid of L13 million in the year ended 31 March 2002 includes
net tax repayments of L110 million received in the year.
Of the above amount, continuing operations account for an outflow of L13 million
for the six months ended 30 September 2002 (year ended 31 March 2002 L2 million,
2001 L117 million, 2000 L99 million) and discontinued operations an outflow of
Lnil (31 March 2002 L11 million, 2001 L20 million, 2000 L15 million).
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Purchases of tangible fixed assets (305) (578) (361) (27)
Purchases of fixed asset investments (129) (111) (342) (21)
Sales of fixed asset investments -- 638 334 3
Sales of tangible fixed assets 40 17 173 20
--------- --------- --------- ------------
(394) (34) (196) (25)
========= ========= ========= ============
Sales of tangible fixed assets shown above includes an amount of L20 million in
respect of disposals treated as exceptional items in the profit and loss account
in the six months ended 30 September 2002 (year ended 31 March 2002 L116
million, 2001 Lnil, 2000 Lnil).
Of the above amount, continuing operations account for an outflow of L21 million
for the six months ended 30 September 2002 (year ended 31 March 2002 L160
million, 2001 L22 million), and discontinued operations an outflow of L4 million
(31 March 2002 L36 million, 2001 L12 million).
The supplementary voluntary analysis of cash flows between continuing and
discontinued operations in the year ended 31 March 2000 has not been provided as
it was considered impractical to provide this information.
375
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
ACQUISITIONS AND DISPOSALS
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Investments in subsidiary companies (note
25(a)) (4,111) (843) (37) (3)
Net cash acquired with subsidiary company 137 -- -- --
Investments in joint ventures -- -- (65) --
Sales of interests in subsidiary companies and
associates (note 25(b)) -- 182 1,413 375
Net overdraft/(cash) disposed with subsidiary
companies (note 25(b)) -- 3 (316) 15
--------- --------- --------- ------------
(3,974) (658) 995 387
========= ========= ========= ============
NET CASH INFLOW/(OUTFLOW) FROM MANAGEMENT OF LIQUID RESOURCES
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Deposits made with banks and similar financial
institutions (7,041) (1,325) (4,241) (83)
Deposits withdrawn from banks and similar
financial institutions 7,559 1,433 4,378 6
Purchases of Government and similar securities (2) -- -- --
Sales of Government and similar securities 107 -- -- --
Purchases of securities issued by banks and other
corporate bodies (3) (1) (51) --
Sales of securities issued by banks and other
corporate bodies 36 59 100 --
--------- --------- --------- ------------
656 166 186 (77)
========= ========= ========= ============
NET CASH INFLOW FROM FINANCING
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Increase/(decrease) in bank loans 1,146 (918) 1,273 (62)
(Decrease)/increase in debenture loans (249) 27 (90) --
Increase in Bonds 899 1,213 -- --
Capital element of finance lease repayments 7 (6) (2) --
Increase/(decrease) in loans from plc and
fellow subsidiaries of plc 300 (84) 13 24
Decrease in loans to plc and fellow
subsidiaries of plc -- (15) (160) --
--------- --------- --------- ------------
2,103 217 1,034 (38)
Loans repaid to joint ventures (70) -- -- --
Other (46) -- -- --
--------- --------- --------- ------------
1,987 217 1,034 (38)
========= ========= ========= ============
376
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
24. ANALYSIS OF NET MONETARY DEBT
Acquisitions/
disposals
At (excluding Other Exchange At
1 April cash and non-cash rate 31 March
2000 Cash flow overdrafts) changes adjustment 2001
L million L million L million L million L million L million
--------- --------- ------------- --------- ---------- ---------
Cash and bank deposits
repayable on demand 221 (113) -- -- 10 118
Overdrafts (74) (258) -- -- (10) (342)
---------
(371)
---------
Liquid resources 403 (166) -- -- 14 251
---------
Amounts falling due within one
year
Bank loans (1,747) 941 -- -- (212) (1,018)
Debenture loans (8) (36) -- -- -- (44)
Finance leases (1) -- -- (2) -- (3)
Loans from plc and fellow
subsidiaries of plc (548) 84 -- (62) -- (526)
Loans to plc and fellow
subsidiaries of plc -- 15 -- 37 -- 52
Amounts falling due after more
than one year
Bank loans -- (23) -- -- -- (23)
Debenture loans (37) 9 (19) (31) -- (78)
Bonds (894) (1,213) -- (58) (2,165)
Finance leases (8) 6 (4) 2 -- (4)
---------
(217)
--------- --------- ------------- --------- ---------- --------
(2,693) (754) (23) (56) (256) (3,782)
========= ========= ============= ========= ========== ========
Non-cash movements in the year ended 31 March 2001 include an increase of L62
million in loans from plc for the cost of shares to be issued by plc, and an
increase of L32 million in loans to Yeslink Limited for the cost of shares
issued by Corp. There was also an increase of L31 million in debenture loans
issued as consideration for the purchase of APT by Corp during the year.
377
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Acquisitions/
disposals
At (excluding Other Exchange At
1 April cash and non-cash rate 31 March
2001 Cash flow overdrafts) changes adjustment 2002
L million L million L million L million L million L million
--------- --------- ------------- --------- ---------- ---------
Cash and bank deposits
repayable on demand 118 1,188 -- -- (10) 1,296
Overdrafts (342) 236 -- -- (1) (107)
---------
1,424
---------
Liquid resources 251 (186) -- -- -- 65
---------
Amounts falling due within one
year
Bank loans (1,018) (1,267) -- -- (3) (2,288)
Debenture loans (44) 90 -- (78) -- (32)
Finance leases (3) 2 -- (8) -- (9)
Loans from plc and fellow
subsidiaries of plc (526) (13) -- 251 -- (288)
Loans to plc and fellow
subsidiaries of plc 52 160 -- (5) 207
Amounts falling due after more
than one year
Bank loans (23) (6) (3) -- -- (32)
Debenture loans (78) -- 78 -- --
Bonds (2,165) -- -- 18 (2,147)
Finance leases (4) -- 4 -- --
---------
(1,034)
--------- --------- ------------- --------- ---------- --------
(3,782) 204 (3) 242 4 (3,335)
========= ========= ============= ========= ========== ========
Non-cash movements in the year ended 31 March 2002 include a credit of L260
million to the debtor receivable from plc for the cost of shares to be issued by
plc. This cost was previously charged to Corp and is no longer required due to
the significant reduction in plc's share price.
378
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Acquisitions/
disposals
At (excluding Other Exchange At
1 April cash and non-cash rate 30 September
2002 Cash flow overdrafts) changes adjustment 2002
L million L million L million L million L million L million
--------- --------- ------------- --------- ---------- ------------
Cash and bank deposits
repayable on demand 1,296 (326) -- -- (52) 918
Overdrafts (107) 79 -- -- 2 (26)
---------
(247)
---------
Liquid resources 65 77 -- -- 2 144
---------
Amounts falling due within
one year
Bank loans (2,288) 55 17 (54) 140 (2,130)
Debenture loans (32) -- -- -- -- (32)
Finance leases (9) -- -- 7 -- (2)
Loans from plc and
fellow subsidiaries
of plc (288) (24) -- 17 -- (295)
Loans to plc and fellow
subsidiaries of plc 207 -- -- (186) (21) --
Amounts falling due after
more than one year
Bank loans (32) 7 -- -- -- (25)
Bonds (2,147) -- -- -- 88 (2,059)
Finance leases -- -- -- (7) -- (7)
---------
38
--------- --------- ------------- --------- ---------- ------------
(3,335) (132) 17 (223) 159 (3,514)
========= ========= ============= ========= ========== ============
Non-cash movements in the six months ended 30 September 2002 include a decrease
in loans to plc resulting from the write off of amounts which Corp no longer
consider to be recoverable.
The non-cash movement in bank loans results from the settling of an interest
rate derivative by way of an increase in the Corp Group's borrowings.
379
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
25. ACQUISITIONS AND DISPOSALS
(A) INVESTMENTS IN SUBSIDIARY COMPANIES
All acquisitions detailed below have been accounted for using the acquisition
method.
Analysis of fair value of identifiable net assets of subsidiaries acquired in
the year ended 31 March 2001
Fair value
Book value adjustments Total
L million L million L million
---------- ----------- ---------
Tangible fixed assets 24 -- 24
Inventory 31 (3) 28
Debtors 63 (2) 61
Creditors and provisions (80) (12) (92)
Loan capital (19) -- (19)
Finance leases (4) -- (4)
---------- ----------- ---------
15 (17) (2)
---------- ----------- ---------
Satisfied by:
Cash paid 843
Loan notes issued 31
plc shares to be issued 71
Deferred consideration 327
---------
1,272
---------
Net addition in goodwill 1,274
=========
The fair value adjustments made in the year ended 31 March 2001 principally
relate to the revaluation of inventory and debtors to net realisable value and
provisions for professional costs in respect of the aborted pre-acquisition
flotation of MSI.
The cost of the plc shares issued and shares to be issued was recharged from plc
to the Corp Group.
Goodwill arising in the year ended 31 March 2001 is attributable to the
following:
Total
L million
---------
Metapath Software International, Inc. 510
Mariposa Technology, Inc. 195
Splice Transmissao SA 101
Systems Management Specialists, Inc. 90
Albany Partnership Limited 71
Other 307
---------
Net addition in goodwill 1,274
=========
380
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Analysis of fair value of identifiable net assets of subsidiaries acquired in
the year ended 31 March 2002
Accounting
Fair value policy
Book value adjustments adjustments Total
L million L million L million L million
---------- ----------- ----------- ---------
Tangible fixed assets 3 -- -- 3
Investments 6 -- (6) --
Inventory 1 (1) -- --
Debtors 2 -- -- 2
Creditors and provisions (7) (1) -- (8)
Loan capital (3) -- -- (3)
---------- ----------- ---------- ---------
2 (2) (6) (6)
---------- ----------- ---------- ---------
Satisfied by:
Cash paid 23
Deferred consideration 10
---------
33
---------
Goodwill arising in the Corp Group in the year
ended 31 March 2002 39
---------
Deferred consideration paid in respect of
prior acquisitions 14
Adjustment to consideration in respect of
prior acquisitions (77)
Additional fair value adjustments in respect
of prior acquisitions 14
---------
Net reduction in goodwill (10)
=========
Following adjustments to consideration on the acquisition of Splice Transmissao
SA, MSI, Mariposa Technology, Inc. and APT, goodwill has been reduced by L45
million, L19 million, L4 million and L2 million, from L101 million, L510
million, L195 million and L71 million respectively.
Additional consideration paid in respect of Bosch Public Networks Limited during
the year ended 31 March 2002 increased goodwill to L51 million from L44 million.
The fair value adjustments in respect of prior year acquisitions principally
relate to additional provisions for fixed assets and inventory on the
acquisition of SMS. These adjustments increased goodwill from L90 million to
L104 million.
381
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Goodwill arising in the year ended 31 March 2002 is attributable to the
following:
Total
L million
---------
Northwood Technologies Inc. 19
Telit Networks S.p.A. 15
Other 5
---------
Goodwill arising on acquisitions in the year ended 31 March
2002 39
---------
Metapath Software International, Inc. (19)
Mariposa Technology, Inc. (4)
Splice Transmissao SA (45)
Bosch Public Networks 7
Systems Management Specialists, Inc. 14
Albany Partnership Limited (2)
---------
Adjustments to purchase consideration and fair values in
respect of acquisitions in the prior year (49)
---------
Net reduction in goodwill (10)
=========
Northwood Technologies Inc. and Telit Networks S.p.A. were acquired on 24 May
2001 and 18 April 2001 respectively.
No subsidiaries were acquired in the six months to 30 September 2002. In the six
months to 30 September 2002 adjustments were posted to consideration on the
acquisition of MSI and Albany Partnership Limited. Goodwill has been reduced by
L8 million and L1 million respectively.
Goodwill arising in the six months ended 30 September 2002 is attributable to
the following:
Total
L million
---------
Metapath Software International, Inc. (8)
Albany Partnership Limited (1)
---------
Adjustments to purchase consideration and fair values in
respect of acquisitions in the prior year (9)
---------
Net reduction in goodwill (9)
=========
382
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
(B) SALES OF INTERESTS IN SUBSIDIARIES AND ASSOCIATES
During the year ended 31 March 2001 the Corp Group disposed of the Avery Berkel
Group, Woods Air Movement Limited Group and its 50 per cent. interest in
Comstar. Net assets disposed of and the related sales proceeds were as follows:
Total
L million
---------
Net assets sold
Tangible fixed assets 23
Investments in joint ventures and associates 44
Inventory 45
Debtors 65
Overdrafts (3)
Creditors and provisions (39)
Goodwill 7
---------
142
---------
Accounted for by:
Cash consideration, net of transaction costs paid 182
Loan notes 15
---------
Profit on disposal 55
=========
As part of the consideration received in respect of the disposal of the Woods
Air Movement Limited Group, the Corp Group acquired a 42 per cent. shareholding
in Global Air Movement Holdings Limited, this is valued at Lnil, being the Corp
Group's share of the fair value of the net assets of the company.
During the year ended 31 March 2002 the significant businesses disposed of by
the Corp Group and their respective dates of completion, were as follows:
ipsaris Limited 26 July 2001
Marconi Medical Systems, Inc. 19 October 2001
Business of Marconi Optical Components 1 February 2002
Limited
Marconi Commerce Systems, Inc. 1 February 2002
Marconi Data Systems, Inc. 5 February 2002
General Domestic Appliances Holdings Limited 4 March 2002
383
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Net assets disposed of and the related sales proceeds during the year ended 31
March 2002 were as follows:
Medical Commerce Data
Systems Systems Systems Other Total
L million L million L million L million L million
--------- --------- --------- --------- ---------
Net assets sold
Tangible fixed assets 97 70 10 275 452
Investments in joint ventures and
associates 7 1 -- 89 97
Inventory 161 49 21 9 240
Debtors 374 82 49 31 536
Cash at bank 18 11 10 289 328
Overdrafts (1) (9) (2) -- (12)
Creditors and provisions (281) (94) (33) (438) (846)
Goodwill 152 79 40 92 363
--------- -------- --------- --------- ---------
527 189 95 347 1,158
--------- -------- --------- --------- ---------
Accounted for by:
Cash consideration, net of transaction
costs paid 729 225 283 176 1,413
Deferred consideration and accrued
transaction costs (47) (7) (7) (15) (76)
Shares received -- -- -- 263 263
--------- -------- --------- --------- ---------
Profit on disposal 155 29 181 77 442
========= ======== ========= ========= =========
The consideration received in respect of the disposal of ipsaris Limited was
77,508,177 shares in Easynet Group Plc, representing a 70.1 per cent. holding.
This consideration was valued at L235 million.
The consideration received in respect of the disposal of the Marconi Optical
Components' business was 12,891,000 shares in Bookham Technology plc,
representing a 9 per cent. holding. This consideration was valued at L19
million.
Consideration for disposal of 25 per cent. of Marconi Communications South
Africa was a 30 per cent. holding in African Renaissance Holdings Limited. This
consideration was valued at L9 million.
The unrealised gain on disposal of ipsaris Limited of L9 million has been taken
to the Statement of Total Recognised Gains and Losses in accordance with UITF
Abstract 31, "Exchanges of businesses or other non-monetary assets for an
interest in a subsidiary, joint venture or associate".
384
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Net assets disposed of and the related sales proceeds during the six months
ended 30 September 2002 were as follows:
Six months
Marconi ended
Applied Marconi 30 September
Technologies Mobile 2002
Group Holdings S.p.A. Total
L million L million L million
------------ --------------- ------------
Net assets sold
Tangible fixed assets 18 38 56
Inventory 23 191 214
Debtors 19 264 283
Cash at bank 2 36 38
Bank loans and overdrafts -- (70) (70)
Taxation -- (3) (3)
Creditors and provisions (19) (163) (182)
Goodwill 1 120 121
Minority interests -- (4) (4)
Retirement benefit deficit -- (33) (33)
------------ --------------- ------------
44 376 420
Accounted for by:
Cash consideration 50 339 389
Deferred consideration and accrued transaction
costs (2) (4) (6)
------------ --------------- ------------
Profit/(loss) on disposal 4 (41) (37)
============ =============== ============
Marconi Mobile Holdings S.p.A., the holding company for the Group's Strategic
Communications business, was disposed of on 2 August 2002 and the Marconi
Applied Technologies Group was disposed of on 12 July 2002.
26. POST RETIREMENT BENEFITS
The Corp Group operates defined benefit pension plans in the UK, other European
countries and the US and post-retirement benefit plans in the US. The most
significant plan is the GEC 1972 Plan ("UK Plan") in the UK. A full actuarial
valuation for the UK Plan was carried out as at 5 April 2002 and a valuation for
accounting purposes was carried out as at 30 September 2002 by independent
qualified actuaries.
As a result of the separation of Marconi Electronic Systems ("MES") in November
1999, the MES employees ceased to participate in the UK Plan and, on 6 April
2000, were transferred to a new BAE SYSTEMS plc pension scheme (the BAE SYSTEMS
plc 2000 Pension Plan -- the "BAE Plan") providing identical benefits to the UK
Plan. A share of the UK Plan's assets were transferred to the corresponding new
BAE Plan, proportional to the share of the total UK Plan's liabilities as at 6
April 2000 that were attributable to the MES members, based on actuarial
calculations performed as at 6 April 2000.
For the US plans, full valuations were carried out at dates between 1 January
2001 and 31 March 2002 and updated as applicable to 30 September 2002 by
independent qualified actuaries.
For the other European unfunded plans, valuations were carried out for
accounting purposes at 30 September 2002 by independent qualified actuaries.
The contributions made to the plans in the six months ended 30 September 2002
totalled L19 million (year ended 31 March 2002 L36 million, 2001 L46 million).
For the unfunded pension plans and the post retirement medical plans, payments
are made when the benefits are provided.
Since 6 April 2002 the contributions to the UK Plan were 14.2 per cent. of
pensionable pay, reducing to 8.2 per cent. on 1 November, 2002. Other than
Italy, where approximately 7.4 per cent. of pensionable pay is accrued,
385
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
the Corp Group is not making significant contributions to its overseas funded
plans due to the surpluses in the schemes at the time of the last funding
valuation.
The Corp Group operates defined contribution schemes in addition to the defined
benefit schemes listed. Contributions to these schemes amounted to L1 million
for the six months ended 30 September 2002 (year ended 31 March 2002 L25
million, 2001 L20 million).
Contributions to both the defined benefit and defined contribution schemes in
the year ended 31 March 2000 were L26 million.
The major assumptions used by the actuaries to determine the liabilities for the
significant defined benefit plans are set out below:
At 30 September
At 31 March 2000 At 31 March 2001 At 31 March 2002 2002
---------------------- ---------------------- ---------------------- ----------------------
Rest of the Rest of the Rest of the Rest of the
UK world UK world UK world UK world
(% pa) (% pa) (% pa) (% pa) (% pa) (% pa) (% pa) (% pa)
------ ------------- ------ ------------- ------ ------------- ------ -------------
AVERAGE ASSUMPTIONS USED:
Rate of general increase in
salaries 5.00% 4.63% 4.50% 4.92% 4.75% 4.23% 4.50% 3.0%-5.1%
Rate of increase in pensions
in payment 3.00% 2.00% 2.50% 2.00% 2.75% 1.50% 2.50% 1.5%-2.5%
Rate of increase for deferred
pensioners 3.00% N/A 2.50% N/A 2.75% N/A 2.50% N/A
Rate of credited interest 6.00% N/A 5.75% N/A 5.50% N/A 4.00% N/A
Discount rate applied to
liabilities 6.00% 7.64% 6.00% 7.49% 6.00% 6.85% 5.25% 5.5%-6.5%
Inflation assumption 3.00% 2.44% 2.50% 2.44% 2.75% 2.25% 2.50% 1.5%-2.5%
Expected healthcare trend
rates N/A 7% pre 65, N/A 7% pre 65, 9% N/A 6% pre 65, N/A 7% pre 65, 7%
10% post 65 post 65 7.5% post 65 post 65
reducing to reducing to reducing to reducing to
5% after 2005 5% after 2005 5% after 2005 5% after 2005
====== ============= ====== ============= ====== ============= ====== =============
The UK Plan provides benefits to members on the best of three bases. One of
these bases is a money purchase underpin in which credited interest is applied
to a percentage of members' contributions. The assumption reflects the UK Plan
Trustee's practice of declaring credited interest. The interest rate has been
revised between 31 March 2002 and 30 September 2002 so that the level of
credited interest is not as high as previously. The discretionary level of
credited interest has been treated as a constructive obligation.
386
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
PENSION PLANS
The assets in the UK Plan and the expected rates of return were:
Long-term Long-term Long-term Long-term
expected Value at expected Value at expected Value at expected Value at
rate of 31 March rate of 31 March rate of 31 March rate of 30 September
return 2000 return 2001 return 2002 return 2002
% L million % L million % L million % L million
--------- --------- --------- --------- --------- --------- --------- ------------
Equities 8.00% 1,563 8.00% 1,476 8.25% 685 8.50% 502
Bonds 4.75% 937 4.75% 1,050 5.25% 1,322 5.00% 1,699
Property 6.50% 109 7.00% 153 6.75% 108 6.75% 115
Cash 6.00% 123 5.00% -- 4.00% 384 4.00% 39
-------- -------- -------- ------------
Total market value of
assets 6.74% 2,732 6.67% 2,679 5.95% 2,499 5.81% 2,355
-------- -------- -------- ------------
Present value of plan
liabilities (2,515) (2,459) (2,506) (2,653)
-------- -------- -------- ------------
Net pension
asset/(liability)
before deferred tax 217 220 (7) (298)
Deferred tax liability (65) (66) -- --
-------- -------- -------- ------------
Net pension
asset/(liability) after
deferred tax 152 154 (7) (298)
======== ======== ======== ============
The assets in the overseas plans and the expected rates of return were:
Long-term Long-term Long-term Long-term
expected Value at expected Value at expected Value at expected Value at
rate of 31 March rate of 31 March rate of 31 March rate of 30 September
return 2000 return 2001 return 2002 return 2002
% L million % L million % L million % L million
--------- --------- --------- --------- --------- --------- --------- ------------
Equities 10.00% 306 10.00% 336 10.00% 89 10.00% 59
Bonds 6.00% 133 6.00% 146 6.00% 71 6.00% 60
Other 9.00% 54 9.00% 60 9.00% 18 9.00% 16
-------- -------- -------- ------------
Total market value of
assets 8.81% 493 8.81% 542 8.30% 178 8.09% 135
Present value of plan
liabilities (443) (524) (259) (245)
-------- -------- -------- ------------
Net pension
asset/(liability)
before deferred tax 50 18 (81) (110)
Deferred tax liability (52) (20) (9) --
-------- -------- -------- ------------
Net pension liability
after deferred tax (2) (2) (90) (110)
======== ======== ======== ============
OTHER POST RETIREMENT BENEFITS
Present value of plan liabilities and net
pension liability before deferred tax (50) (50) (38) (31)
Deferred tax asset 18 18 9 --
-------- -------- -------- ------------
Net pension liability after deferred tax (32) (32) (29) (31)
======== ======== ======== ============
387
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Analysis of the amount charged to operating profit/(loss)
Year ended 31 March 2000 Year ended 31 March 2001
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Current service cost (38) (15) (2) (55) (46) (16) (1) (63)
Past service cost -- (1) -- (1) -- (2) -- (2)
--------- --------- ---------- --------- --------- --------- ---------- ---------
Total operating charge/(credit) (38) (16) (2) (56) (46) (18) (1) (65)
========= ========= ========== ========= ========= ========= ========== =========
Year ended 31 March 2002 Six months ended 30 September 2002
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Current service cost (37) (16) (1) (54) (15) (8) -- (23)
Past service cost -- -- -- -- -- -- -- --
--------- --------- ---------- --------- --------- --------- ---------- ---------
Total operating charge/(credit) (37) (16) (1) (54) (15) (8) -- (23)
========= ========= ========== ========= ========= ========= ========== =========
Analysis of other amounts charged to the profit and loss account
Year ended 31 March 2000 Year ended 31 March 2001
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Gain/(loss) on settlements -- -- -- -- -- -- -- --
(Loss)/gain on curtailments -- -- -- -- -- (1) 9 8
--------- --------- ---------- --------- --------- --------- ---------- ---------
Net (loss)/gain charged to
profit and loss account -- -- -- -- -- (1) 9 8
========= ========= ========== ========= ========= ========= ========== =========
Year ended 31 March 2002 Six months ended 30 September 2002
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Gain/(loss) on settlements 2 (4) 14 12 -- 33 -- 33
(Loss)/gain on curtailments -- -- -- -- 28 -- 5 33
--------- --------- ---------- --------- --------- --------- ---------- ---------
Net (loss)/gain charged to
profit and loss account 2 (4) 14 12 28 33 5 66
========= ========= ========== ========= ========= ========= ========== =========
Of the amounts above L66 million was credited to non-operating exceptionals for
the six months to 30 September 2002 (year ended 31 March 2002 Lnil, 2001 Lnil,
2000 Lnil). Lnil was charged to operating profit for the six months to 30
September 2002 (year ended 31 March 2002 L12 million, 2001 L8 million, 2000
Lnil).
388
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Analysis of the amount credited to other finance income
Year ended 31 March 2000 Year ended 31 March 2001
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Expected return on pension
scheme assets 168 40 -- 208 181 50 -- 231
Interest on pension scheme
liabilities (140) (28) (4) (172) (147) (36) (4) (187)
--------- --------- ---------- --------- --------- --------- ---------- ---------
Net finance income/(cost) 28 12 (4) 36 34 14 (4) 44
========= ========= ========== ========= ========= ========= ========== =========
Net (cost)/ income (10) (4) (6) (20) (12) (5) 4 (13)
========= ========= ========== ========= ========= ========= ========== =========
Year ended 31 March 2002 Six months ended 30 September 2002
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Expected return on pension
scheme assets 174 47 -- 221 73 7 -- 80
Interest on pension scheme
liabilities (142) (36) (3) (181) (74) (8) (1) (83)
--------- --------- ---------- --------- --------- --------- ---------- ---------
Net finance income/(cost) 32 11 (3) 40 (1) (1) (1) (3)
========= ========= ========== ========= ========= ========= ========== =========
Net (cost)/ income (3) (9) 10 (2) 12 24 4 40
========= ========= ========== ========= ========= ========= ========== =========
The net (cost)/income represents the operating charge plus curtailment and
settlement gains and losses less net finance income.
389
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Analysis of amount recognised in the consolidated statement of total recognised
gains and losses ("STRGL")
Year ended 31 March 2000 Year ended 31 March 2001
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Actual return less expected
return on pension scheme
assets -- (gains)/losses (142) (28) -- (170) 139 47 -- 186
Experience (gains) and losses
arising on the scheme
liabilities 59 4 -- 63 41 9 1 51
Changes in assumptions
underlying the present value
of the scheme liabilities --
(gains)/losses -- (44) (4) (48) (166) 1 1 (164)
--------- --------- ---------- --------- --------- --------- ---------- ---------
Actuarial (gain)/loss
recognised in STRGL (83) (68) (4) (155) 14 57 2 73
========= ========= ========== ========= ========= ========= ========== =========
Year ended 31 March 2002 Six months ended 30 September 2002
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Actual return less expected
return on pension scheme
assets -- (gains)/losses 218 59 -- 277 154 29 -- 183
Experience (gains) and losses
arising on the scheme
liabilities (20) 10 1 (9) 38 2 1 41
Changes in assumptions
underlying the present value
of the scheme liabilities --
(gains)/losses 52 29 2 83 127 20 2 149
--------- --------- ---------- --------- --------- --------- ---------- ---------
Actuarial (gain)/loss
recognised in STRGL 250 98 3 351 319 51 3 373
========= ========= ========== ========= ========= ========= ========== =========
The main element of the amount recognised in the STRGL in all periods has
resulted from the difference between the actual rate of return and expected rate
of return on the plans' assets. For all periods other than the year ended 31
March 2000, actual investment returns in the UK and US plans fell well below
expected investment returns resulting in substantial asset losses.
The second largest element has been the gains and losses resulting from changes
in assumptions underlying the present value of the plans' liabilities. These
have resulted principally from the changes in assumptions used at each period
end for the UK Plan. At 31 March 2001, the assumed rates of increase in
inflation, salary and pension increases fell compared with those used at 31
March 2000. These changes resulted in a decrease in the present value of the
liabilities at 31 March 2001 compared with those calculated at 31 March 2000,
and this gave rise to a gain over the period. The assumptions were all increased
at 31 March 2002 and again at 30 September 2002, resulting in an increase in the
present value of liabilities at both period ends compared with those calculated
at the end of the prior periods, and this gave rise to a loss over both periods.
390
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Movement in surplus/(deficit) during the period
Year ended 31 March 2000 Year ended 31 March 2001
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Surplus/(deficit) at the
beginning of the period 120 24 (52) 92 217 50 (50) 217
Movement in period:
Current service cost (38) (15) (2) (55) (46) (16) (1) (63)
Contributions and benefit
payments 24 5 4 33 29 17 4 50
Past service cost -- (1) -- (1) -- (2) -- (2)
Settlement gain/(loss) -- -- -- -- -- -- -- --
Curtailment (loss)/gain -- -- -- -- -- (1) 9 8
Other finance income/(charge) 28 12 (4) 36 34 14 (4) 44
Actuarial loss 83 68 4 155 (14) (57) (2) (73)
Acquisition -- (50) -- (50) -- -- -- --
Foreign exchange -- 7 -- 7 -- 13 (6) 7
--------- --------- ---------- --------- --------- --------- ---------- ---------
Surplus/(deficit) at end of
the period 217 50 (50) 217 220 18 (50) 188
========= ========= ========== ========= ========= ========= ========== =========
Year ended 31 March 2002 Six months ended 30 September 2002
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Surplus/(deficit) at the
beginning of the period 220 18 (50) 188 (7) (81) (38) (126)
Movement in period:
Current service cost (37) (16) (1) (54) (15) (8) -- (23)
Contributions and benefit
payments 26 10 5 41 16 3 2 21
Past service cost -- -- -- -- -- -- -- --
Settlement gain/(loss) 2 (4) 14 12 -- 33 -- 33
Curtailment (loss)/gain -- -- -- -- 28 -- 5 33
Other finance income/(charge) 32 11 (3) 40 (1) (1) (1) (3)
Actuarial loss (250) (98) (3) (351) (319) (51) (3) (373)
Acquisition -- -- -- -- -- -- -- --
Foreign exchange -- (2) -- (2) -- (5) 4 (1)
--------- --------- ---------- --------- --------- --------- ---------- ---------
Surplus/(deficit) at end of
the period (7) (81) (38) (126) (298) (110) (31) (439)
========= ========= ========== ========= ========= ========= ========== =========
The net surplus/(deficit) is analysed by jurisdiction as follows:
Year ended 31 March 2000 Year ended 31 March 2001
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Surpluses 217 247 -- 464 220 127 -- 347
Deficits -- (197) (50) (247) -- (109) (50) (159)
--------- --------- ---------- --------- --------- --------- ---------- ---------
Net surplus/(deficit) at end of
the period 217 50 (50) 217 220 18 (50) 188
========= ========= ========== ========= ========= ========= ========== =========
Year ended 31 March 2002 Six months ended 30 September 2002
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Surpluses -- 28 -- 28 -- -- -- --
Deficits (7) (109) (38) (154) (298) (110) (31) (439)
--------- --------- ---------- --------- --------- --------- ---------- ---------
Net surplus/(deficit) at end of
the period (7) (81) (38) (126) (298) (110) (31) (439)
========= ========= ========== ========= ========= ========= ========== =========
391
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
History of experience gains and losses
Year ended 31 March 2000 Year ended 31 March 2001
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Difference between the expected
and actual return on scheme
assets (gains)/losses:
Amount (L million) (142) (28) -- (170) 139 47 -- 186
Percentage of scheme assets
(%) (5.2)% (5.7)% -- (5.3)% 5.2% 8.7% -- 5.8%
Experience (gains) and losses
on scheme liabilities:
Amount (L million) 59 4 -- 63 41 9 1 51
Percentage of the present
value of the scheme
liabilities (%) 2.3% (0.9)% -- 2.1% 1.7% 1.7% 2.0% 1.7%
Total amount recognised in
statement of total recognised
(gains) and losses:
Amount (L million) (83) (68) (4) (155) 14 57 2 73
Percentage of the present
value of the scheme
liabilities (%) (3.3)% (15.3)% (8)% (5.1)% 0.6% 10.9% 4.0% 2.4%
========= ========= ========== ========= ========= ========= ========== =========
Year ended 31 March 2002 Six months ended 30 September 2002
---------------------------------------------- ----------------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
pension pension medical pension pension medical
plan plans plans Total plan plans plans Total
L million L million L million L million L million L million L million L million
--------- --------- ---------- --------- --------- --------- ---------- ---------
Difference between the expected
and actual return on scheme
assets (gains)/losses:
Amount (L million) 218 59 -- 277 154 29 -- 183
Percentage of scheme assets
(%) 8.7% 33.1% -- 10.3% 6.5% 21.5% -- 7.3%
Experience (gains) and losses
on scheme liabilities:
Amount (L million) (20) 10 1 (9) 38 2 1 41
Percentage of the present
value of the scheme
liabilities (%) (0.8)% 3.9% 2.6% (0.3)% 1.4% 0.8% 3.2% 1.4%
Total amount recognised in
statement of total recognised
(gains) and losses:
Amount (L million) 250 98 3 351 319 51 3 373
Percentage of the present
value of the scheme
liabilities (%) 10.0% 37.8% 7.9% 12.5% 12.0% 20.8% 9.7% 12.7%
========= ========= ========== ========= ========= ========= ========== =========
The assets and liabilities relating to certain of the overseas pension schemes
are subject to final adjustment after the separation of the schemes as part of
the disposal of the businesses that support them.
392
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
27. OTHER INFORMATION
(A) CONTINGENT LIABILITIES
As at 31 March As at
--------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Contingent liabilities 25 10 30
========= ========= ============
The Corp Group is subject to potential and actual legal claims including
shareholder class actions and claims relating to contracts, industrial injury
and patent infringement. The Corp Group has also provided third party guarantees
and performance bonds. The total amount disclosed above represents the Corp's
best estimate of possible unprovided exposures that may arise in respect of
these legal claims and the guarantees and bonds.
(B) CAPITAL EXPENDITURE
As at 31 March As at
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Commitments contracted at end of period 59 93 3 6
========= ========= ========= ============
(C) OPERATING LEASES
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Charges in the period
Land and buildings 30 37 39 19
Other items 15 16 12 12
--------- --------- --------- ------------
45 53 51 31
========= ========= ========= ============
393
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Year ended Six months
31 March ended
--------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Amounts payable under operating leases which fall due in
the next financial year:
Land and buildings, leases expiring
Within one year 11 3 5
Between two and five years 22 10 16
After five years 14 44 43
Other items, leases expiring
Within one year 3 3 3
Between two and five years 12 13 17
After five years 7 -- 4
--------- --------- ------------
69 73 88
========= ========= ============
(D) FEES PAID TO AUDITORS
Six months
Year ended 31 March ended
--------------------------------- 30 September
2000 2001 2002 2002
L million L million L million L million
--------- --------- --------- ------------
Audit services 2 2 2 1
Audit-related services 4 4 4 6
Tax services and other compliance work 1 1 2 1
Business support and other services 3 2 3 --
--------- --------- --------- ------------
10 9 11 8
========= ========= ========= ============
All business support and other services were awarded after a competitive
tendering process had been undertaken.
28. FINANCIAL INSTRUMENTS
TREASURY POLICIES AND ORGANISATION
plc's Board of Directors has approved the policies and procedures of the Corp
Group's treasury function and assigned the co-ordination of the Corp Group's
treasury activities to the Corp Group. It does not operate as a profit centre.
Treasury advises operational management on treasury matters and undertakes all
derivative transactions except certain forward exchange contracts relating to
the hedging of foreign currency transaction exposures arising in the operating
businesses which have in the past been managed by those operating units as
described below. All treasury related transactions undertaken by our operating
businesses are required to be in accordance with guidelines laid down by our
central treasury function and comply with the group risk management policies.
Short-term debtors and creditors have been excluded from all disclosures within
this note except the currency profile.
394
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
The Corp Group uses financial instruments, including derivatives (principally
interest rate swaps, cancellable interest rate swaps, currency swaps and forward
foreign currency contracts) to manage interest rate and currency risk exposures.
It is the Corp Group's policy that there is no trading in financial instruments,
and all financial instruments are used for the purpose of financing or hedging
identified exposures of the Corp Group.
The main risks faced by the Corp Group in the financial markets are liquidity
risk, interest rate risk, foreign currency risk, counterparty risk and share
price risk. The plc Board reviews and agrees policies for managing each of
these, which are summarised below.
LIQUIDITY RISK
The Corp Group has funded its activities through cash generated from its
operational activities, the proceeds of disposals, bank borrowings and the debt
capital markets.
At 31 March At
--------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Gross borrowings 3,677 4,615 4,281
========= ========= ============
The Corp Group's gross borrowings as at 31 March 2001 reflected increased levels
of working capital as the businesses grew, including higher than normal
inventory of optical components together with increased net capital expenditure
of the growth businesses.
The Corp Group's gross borrowings as at 31 March 2002 reflected operating cash
outflows and financing transactions in the first half of the year, offset by
debt reductions funded from disposal proceeds.
The Corp Group's gross borrowings as at 30 September 2002 reflected the
repayment of local borrowings in Italy as a result of the disposal of the
Strategic Communications business, and a substantial reduction in the sterling
value of the US$ denominated debt due to foreign exchange movements.
The Corp Group's net debt was L3,219 million at 30 September 2002 (31 March 2002
L3,254 million, 2001 L3,308 million).
At 31 March At
--------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Net debt as reported in the reconciliation of net cash flow
to movements in net monetary debt (3,782) (3,335) (3,514)
Net creditor with plc and fellow subsidiaries of the plc
Group 474 81 295
--------- --------- ------------
Net debt as reported in accordance with FRS13 disclosures (3,308) (3,254) (3,219)
========= ========= ============
395
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
The Corp Group's cash and liquid resources are analysed as follows:
At 31 March At
--------------------- 30 September
2001 2002 2002
L million L million L million
--------- --------- ------------
Sterling 99 277 149
US dollars 66 726 508
Euro 124 239 352
Other 80 119 53
--------- --------- ------------
369 1,361 1,062
========= ========= ============
At 30 September 2002, the Corp Group had E3.6 billion (31 March 2002 E3.6
billion, 2001 E7 billion) of syndicated bank facilities. At 30 September 2002
and 31 March 2002 all these syndicated facilities were payable on demand.
As previously disclosed, the majority of the Corp Group's cash resources are
currently held in secured accounts which are subject to interim security
arrangements in favour of the Corp Group's Syndicate Banks and Bondholders
(including the Bond trustees) and also in favour of one of the ESOP Derivative
Banks. The secured accounts were created at the end of April 2002 in accordance
with the previously disclosed lock box arrangements entered into in favour of
the Syndicate Banks and Bondholders.
The interim security arrangements contemplated by the Heads of Terms were
implemented on 13 September 2002, and the balance of this secured cash amounted
to L735 million at 30 September 2002. The Corp Group is dependent on amounts
available to it from the secured amounts in order to meet its short-term
liquidity needs.
Prior to the release of interim security and so long as an enforcement event
does not occur, monthly releases from the secured accounts will be allowed in
accordance with an agreed cash flow schedule, subject to specified maximum
amounts. This agreed cash flow schedule takes account of the Corp Group's
anticipated cash inflows and outflows, and is consistent with the Corp Group's
expectations as to its liquidity needs for the relevant period.
Further details on the interim security and the Corp Group's liquidity risk are
set out in note 1.
INTEREST RATE RISK
It has in the past been Corp Group policy to maintain at least 50 per cent. of
debt at fixed rates of interest. The term structure of interest rates was
managed in observance of this policy using derivative financial instruments such
as interest rate swaps. However, due to the Restructuring process described
above, this has been superseded by the requirement to manage immediate liquidity
including the cancellation of all outstanding derivatives positions.
Consequently, during the first half of the financial year, out-of-the-money
interest rate swap arrangements with fair value of L54 million were converted to
new loan agreements, and cash proceeds of L8 million were received from
unwinding in-the-money interest rate swap arrangements. At 30 September 2002, 53
per cent. (31 March 2002 57 per cent., 2001 74 per cent.) of the Corp Group's
interest-bearing borrowings were at fixed rates after taking account of interest
rate swaps. Of this total, 30 per cent. (31 March 2002 43 per cent., 2001 55 per
cent.) were at fixed dollar rates of interest and 22 per cent. (31 March 2002 14
per cent., 2001 18 per cent.) were at fixed Euro rates of interest.
In the six months ended 30 September 2002, the average interest rate received on
cash and liquid investments was approximately 2.4 per cent. per annum. The
largest proportion of investments was in US$ deposits. The Corp Group held an
average of approximately $850 million in US$ deposits, earning an average
interest rate of 1.75 per cent. per annum.
In the year ended 31 March 2002, the average interest rate received on cash and
liquid investments was approximately 5.2 per cent. per annum. The largest
proportion of investments was in US dollar deposits -- the
396
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
Corp Group held an average of approximately $400 million in US dollar deposits,
earning an average interest rate of 1.9 per cent. per annum. These US dollar
deposits match in part the US dollar borrowings referred to below.
In the year ended 31 March 2001, the average interest rate received on cash and
liquid investments was approximately 4.5 per cent. per annum. The largest
proportion of investments was in sterling deposits -- the Corp Group held an
average of L152 million in sterling deposits, earning an average interest rate
of 5.9 per cent. per annum.
Due to the proportion of fixed rate debt, the Corp Group's interest charge has
limited exposure to interest rate movements. Consequently an increase in market
interest rates of one percentage point would have increased loss before taxation
in the six months ended 30 September 2002 by approximately L5 million (year
ended 31 March 2002 L12 million, 2001 L4 million).
FOREIGN EXCHANGE RISK
The Corp Group is exposed to movements in foreign exchange rates against
sterling for both trading transactions and the translation of net assets and the
profit and loss accounts of overseas subsidiaries. The main trading currencies
of the Corp Group are the US dollar, sterling and the Euro.
The foreign currency management policy of the Corp Group seeks to minimise the
impact of fluctuations in exchange rates on future cash flows and requires
subsidiaries to hedge firm transaction exposures against their local currency at
the time the exposure is identified. These exposures are hedged by the use of
spot and forward exchange contracts.
The Corp Group has overseas subsidiaries that earn profits or incur losses in
their local currencies. It is not the Corp Group's policy to hedge the exposures
arising from the translation of these overseas results into sterling.
Gross borrowings at 30 September 2002 were L4,281 million (31 March 2002 L4,615
million, 2001 L3,677 million) and approximately 84 per cent. (31 March 2002 86
per cent., 2001 96 per cent.) of these were denominated in foreign currencies in
order to form a hedge for the Corp Group's investments in currencies other than
sterling. Of these, 61 per cent. (31 March 2002 62 per cent., 2001 59 per cent.)
denominated in US dollars formed a hedge for the Corp Group's investment in the
US, and 22 per cent. (31 March 2002 23 per cent., 2001 34 per cent.) denominated
in Euros formed a hedge for the Corp Group's investments in the Eurozone.
Under UK tax regulations, the Corp Group is exposed to tax on changes in the
translations into sterling of its foreign currency borrowings. The Corp Group
has in the past had outstanding derivative contracts with certain of its banks
to eliminate the cash flow exposure resulting from these tax payments.
No such contracts were outstanding in the six months ended 30 September 2002.
The Corp Group has subsidiaries in most of the European countries which have
converted to the Euro, and the major subsidiaries are located in Italy and
Germany. Internal Corp Group reporting from companies in the Eurozone was
switched to the Euro on 1 April 2001. The programme to ensure that all Eurozone
subsidiaries convert in a timely and efficient manner has now been brought to a
successful conclusion.
COUNTERPARTY RISK
All deposits are made with creditworthy and authorised counterparties. All
forward contracts, swaps, and other derivative contracts, as described above,
are similarly managed to ensure that the benefits of such financial hedging are
subject to controlled counterparty risk.
In the year ended 31 March 2001, Marconi Finance plc was established to provide
finance to customers of the Corp Group. As at 31 March 2001, the Corp Group had
committed L170 million of vendor finance to customers of which L135 million had
been drawn down.
As at 31 March 2002, the Group had vendor finance commitments of approximately
L100 million ($142 million), of which L58 million ($82 million) had been drawn.
In addition, the Corp Group provided a $90 million counter-indemnity to Phillips
relating to the sale of Medical Systems. Approximately $42 million was paid out
against this indemnity during the period to 31 March 2002.
397
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
As at 30 September 2002, the Corp Group had vendor finance commitments of
approximately L68 million ($107 million) of which L54 million ($84 million) had
been drawn.
The Corp Group, like its competitors, continues to experience demand for
financing from its customers. However, this demand has decreased significantly
due to market conditions and the Corp Group's focus on its core base of
incumbent carrier customers. When the Corp Group has supported customer
financing requests, it has significantly limited its own risk by: i) leveraging
funds from third party financiers having strategic interests aligned with the
Corp Group, and ii) developing innovative commercial alternatives that do not
involve long-term cash investments from Marconi. Through these actions, the Corp
Group has satisfactorily accommodated most customer financing requests and will
not require Corp Group cash resources to fund these activities in the
foreseeable future.
In addition, the Corp Group uses export credit agencies to assist in managing
political and credit risks on major contracts and makes extensive use of export
credit insurance in respect of small to medium-sized contracts.
CONTRACT BONDING FACILITIES
Some customers in the telecommunications market require that bank bonds or
surety bonds (issued by insurance companies) are provided to guarantee
performance of the supplier. The Corp Group had L221 million of Performance
Bonds outstanding as at 30 September 2002 with both banks and insurance
companies worldwide. The reduction from L500 million of bonds outstanding at 31
March 2002 was mainly the result of the disposal of Strategic Communications.
Some of these bonds were covered by counter indemnities from Corp and others
have counter indemnities from other Group companies. The Group's bonding is
normally provided on an uncommitted basis. As a consequence of the Group's
ongoing Restructuring all Performance Bonds currently have to be fully cash
collateralised under a bonding facility agreed with some of the Corp Group's
relationship banks. Since February 2002, Marconi Bonding Ltd (a special purpose
vehicle used for this purpose) has procured the issue of approximately L80
million of performance bonding (on a fully cash collateralised basis) on behalf
of other Corp Group companies.
INSURANCE RISK MANAGEMENT
The Corp Group manages centrally the purchase of global insurance policies in
respect of major insurable risks, including property (material damage/business
interruption), directors' and officers' and public and products liability. The
Corp Group maintains the types of property and liability insurance which Corp
regards as appropriate given the nature of the risks run in the course of its
business, and for amounts which they consider adequate.
When considering the appropriateness of insurance cover, Corp has made detailed
assessments of insurable risks using both in-house professionals and the advice
of insurance brokers. Corp has determined what they believe to be the
appropriate level of cover having regard, among other things, to the Corp
Group's loss record, the industry in which it operates, its risk tolerance
level, the cost of cover relative to the risk, customer and legal requirements
and any relevant and available information on the levels of cover typically
purchased by other comparable companies which operate in the Corp Group's
industry.
The use of global policies and centrally appointed brokers allows the Corp Group
to improve internal control and optimise the overall level of retained risk.
Risk management and insurance spend are concentrated on those insurable risks
which are considered potentially catastrophic to the Corp Group as a whole. The
Corp Group continues to work with its insurers and advisers to improve its loss
prevention and mitigation processes. Insurance market conditions are currently
very challenging and premium rates have increased substantially. However, the
Corp Group benefits from good relationships with its major insurers.
PLC SHARE PRICE RISK
The Corp Group has, in the past, issued share options to its employees under a
number of different option plans, collectively known as the Employee Share
Option Plans ("ESOPs"). Under these plans, options may be satisfied by way of a
transfer of existing plc Shares acquired in the market by an employee trust or
other vehicle, or, under some of the plans only, by an issue of new plc Shares.
398
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
From January 2000, in order to hedge part of the potential cost of the plans
estimated at that time, the independent trustee of the MET, Bedell Cristin
Trustees Limited ("BCT"), entered into swap contracts with three financial
institutions (the ESOP Derivative Banks) to purchase a total of 40 million
shares in the future at prices which were fixed at the date of the contract. At
30 September 2002, the purchase of 38.5 million shares under these contracts was
outstanding. The Corp Group's maximum exposure under the contracts is L337
million, plus accrued finance charges. This amount had been accrued at 30
September 2002. Certain contracts require BCT to deposit cash collateral with
the relevant ESOP Derivative Banks if the share price falls to certain levels
stipulated in those contracts. Corp, at the request of plc, funds the provision
of this collateral. At 30 September 2002, L214 million of collateral, the
maximum amount of collateral payable under these contracts, had been paid. No
further collateral will become due.
Due to the substantial deterioration in plc's share price, only limited amounts
of options with zero exercise price have been or are likely to be exercised.
Following completion of the proposed Restructuring, existing plc options will no
longer be exercisable.
The remaining principal amount of L123 million under these contracts, together
with accrued finance charges of L44 million at 30 September 2002 is the subject
of claims brought against the Corp Group by the ESOP Derivative Banks. As part
of the Corp Group's proposed Restructuring, it was agreed on 28 August 2002 that
L170 million of the Corp Group's cash will be restricted and will be deposited
in an escrow account pending settlement of potential liabilities in respect of
these claims. Further information relating to the proposed post balance sheet
settlement of these claims is set out in note 29.
EXCHANGE RATE SENSITIVITY
Percentage reduction in
Corp Group reported sterling
operating loss before
goodwill amortisation and
exceptional items
----------------------------
For the year
ended For the six
31 March months ended
------------ 30 September
2001 2002 2002
---- ---- ------------
10 PER CENT. REDUCTION IN THE VALUE OF:
US dollar (2.1) (3.6) (2.4)
Euro-traded currencies (2.8) (0.6) (3.9)
Other (0.3) (0.4) (0.8)
---- ---- ------------
Total (5.2) (4.6) (7.1)
==== ==== ============
399
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
(A) CURRENCY AND INTEREST RATE RISK PROFILE OF FINANCIAL LIABILITIES
Financial assets
After taking into account interest rate swaps and forward currency contracts,
the interest rate profile of the Corp Group's financial assets is as follows:
AT 31 MARCH 2001
Fixed rate Non-interest
Floating Fixed Non-interest average Fixed rate bearing weighted
Total rate rate bearing interest rate weighted average period
L million L million L million L million % period years years
--------- --------- --------- ------------ ------------- ------------ ----------------
Sterling 100 95 4 1 5.0 0.1 3.2
US dollar 77 44 22 11 5.2 1.0 3.6
Euro 127 120 4 3 3.0 1.0 1.5
Other 91 74 6 11 3.3 0.5 3.8
--------- --------- --------- ------------ ---------- ---------- --------------
Total 395 333 36 26 4.6 0.8 3.4
--------- --------- --------- ------------ ---------- ---------- --------------
Analysed between:
Cash and bank
deposits repayable
on demand (note 18) 118 104 14 --
Liquid resources
(note 18) 251 229 22 --
Long-term debtors and
amounts recoverable
on contracts 26 -- -- 26
--------- --------- --------- ------------
395 333 36 26
========= ========= ========= ============
AT 31 MARCH 2002
Non-interest
Fixed rate bearing
average Fixed rate weighted
Floating Fixed Non-interest interest weighted average
Total rate rate bearing rate period period
L million L million L million L million % years years
--------- --------- --------- ------------ ---------- ---------- ------------
Sterling 277 277 -- -- -- -- --
US dollar 726 726 -- -- -- -- --
Euro 255 239 -- 16 -- -- 1.4
Other 119 119 -- -- -- -- --
--------- --------- --------- ------------ ---------- ---------- ------------
Total 1,377 1,361 -- 16 -- -- 1.4
--------- --------- --------- ------------ ---------- ---------- ------------
Analysed between:
Cash and bank deposits
repayable on demand
(note 18) 1,296 1,296 -- --
Liquid resources (note
18) 65 65 -- --
Long-term debtors and
amounts recoverable
on contracts 16 -- -- 16
--------- --------- --------- ------------
1,377 1,361 -- 16
========= ========= ========= ============
400
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
AT 30 SEPTEMBER 2002
Non-interest
Fixed rate bearing
average Fixed rate weighted
Floating Fixed Non-interest interest weighted average
Total rate rate bearing rate period period
L million L million L million L million % years years
--------- --------- --------- ------------ ---------- ---------- ------------
Sterling 149 149 -- -- -- -- --
US dollar 508 508 -- -- -- -- --
Euro 355 352 -- 3 -- -- 1.9
Other 53 53 -- -- -- -- --
--------- --------- --------- ------------ ---------- ---------- ------------
Total 1,065 1,062 -- 3 -- -- 1.9
--------- --------- --------- ------------ ---------- ---------- ------------
Analysed between:
Cash and bank deposits
repayable on demand (note
18) 918 918 -- --
Liquid resources (note 18) 144 144 -- --
Long-term debtors and amounts
recoverable on contracts 3 -- -- 3
--------- --------- --------- ------------
1,065 1,062 -- 3
========= ========= ========= ============
Financial liabilities
After taking into account interest rate swaps and forward currency contracts,
the interest rate profile of the Corp Group's financial liabilities is as
follows:
AT 31 MARCH 2001
Non-interest
bearing
Fixed rate Fixed rate weighted
Floating Fixed Non-interest average weighted average
Total rate rate bearing interest period period
L million L million L million L million rate % years years
--------- --------- --------- ------------ ---------- ---------- ------------
Sterling 195 147 -- 48 -- -- 9.2
US dollar 2,172 148 2,024 -- 7.3 14.9 --
Euro 1,273 593 674 6 6.2 8.5 1.5
Other 91 76 15 -- 10.5 0.4 --
--------- --------- --------- ------------ ---------- ---------- ------------
Total 3,731 964 2,713 54 7.0 13.2 8.3
--------- --------- --------- ------------ ---------- ---------- ------------
Analysed between:
Borrowings (note 20) 3,677 964 2,713 --
Long-term trade creditors
and payments in advance 54 -- -- 54
--------- --------- --------- ------------
3,731 964 2,713 54
========= ========= ========= ============
Maturity profile of financial
liabilities
In one year or less, or on
demand 1,407
In more than one year, but
no more than two years 42
In more than two years, but
no more than five years 365
In more than five years 1,917
---------
3,731
=========
401
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
AT 31 MARCH 2002
Non-interest
bearing
Fixed rate Fixed rate weighted
Floating Fixed Non-interest average weighted average
Total rate rate bearing interest period period
L million L million L million L million rate % years years
--------- --------- --------- ------------ ---------- ---------- ------------
Sterling 683 680 -- 3 -- -- 1.9
US dollar 2,842 809 2,010 23 7.3 13.9 2.1
Euro 1,049 403 643 3 6.3 7.7 1.7
Other 70 70 -- -- -- -- --
--------- --------- --------- ------------ ---------- ---------- ------------
Total 4,644 1,962 2,653 29 7.1 12.4 2.1
--------- --------- --------- ------------ ---------- ---------- ------------
Analysed between:
Borrowings (note 20) 4,615 1,962 2,653 --
Long-term trade creditors and
payments in advance 29 -- -- 29
--------- --------- --------- ------------
4,644 1,962 2,653 29
========= ========= ========= ============
Maturity profile of financial
liabilities
In one year or less, or on
demand 2,436
In more than one year, but no
more than two years 25
In more than two years, but
no more than five years 326
In more than five years 1,857
---------
4,644
=========
Floating rate borrowings and assets bear interest based on relevant national
LIBOR equivalents.
402
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
AT 30 SEPTEMBER 2002
Non-interest
Fixed rate bearing
average Fixed rate weighted
Floating Fixed Non-interest interest weighted average
Total rate rate bearing rate period period
L million L million L million L million % years years
--------- --------- --------- ------------ ---------- ---------- ------------
Sterling 682 682 -- -- -- -- --
US dollar 2,608 1,316 1,292 -- 8.1 16.6 --
Euro 956 -- 956 -- 6.0 5.9 --
Other 35 35 -- -- -- -- --
--------- --------- --------- ------------ ---------- ---------- ------------
Total 4,281 2,033 2,248 -- 7.2 12.0 --
--------- --------- --------- ------------ ---------- ---------- ------------
Analysed between:
Borrowings (note 20) 4,281 2,033 2,248 --
Long-term trade
creditors and
payments in advance -- -- -- --
--------- --------- --------- ------------
4,281 2,033 2,248 --
========= ========= ========= ============
Maturity profile of
financial
liabilities
In one year or less,
or on demand 2,190
In more than one year,
but no more than two
years 4
In more than two
years, but no more
than five years 325
In more than five
years 1,762
---------
4,281
=========
(B) CURRENCY PROFILE
After taking into account the effects of currency swaps and forward foreign
exchange contracts, the Corp Group's currency exposures, excluding borrowings
treated as hedges, were as follows:
AT 31 MARCH 2001
Net foreign currency monetary assets/(liabilities)
----------------------------------------------------------
Sterling US dollars Euro Other Total
Functional currency of Corp Group operation L million L million L million L million L million
------------------------------------------- --------- ---------- --------- --------- ---------
Sterling -- 6 1 12 19
US dollar 1 -- 1 (16) (14)
Euro 46 -- -- 7 53
Other 7 4 4 -- 15
--------- ---------- --------- --------- ---------
Total 54 10 6 3 73
========= ========== ========= ========= =========
403
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
AT 31 MARCH 2002
Net foreign currency monetary assets/(liabilities)
----------------------------------------------------------
Sterling US dollars Euro Other Total
Functional currency of Corp Group operation L million L million L million L million L million
------------------------------------------- --------- ---------- --------- --------- ---------
Sterling -- (16) (193) 20 (189)
US dollar -- -- -- 26 26
Euro 17 -- -- 15 32
Other 2 3 -- -- 5
--------- ---------- --------- --------- ---------
Total 19 (13) (193) 61 (126)
========= ========== ========= ========= =========
AT 30 SEPTEMBER 2002
Net foreign currency monetary assets/(liabilities)
----------------------------------------------------------
Sterling US dollars Euro Other Total
Functional currency of Corp Group operation L million L million L million L million L million
------------------------------------------- --------- ---------- --------- --------- ---------
Sterling -- (299) (450) 19 (730)
US dollar -- -- -- 6 6
Euro 17 11 -- 8 36
Other 4 25 2 -- 31
--------- ---------- --------- --------- ---------
Total 21 (263) (448) 33 (657)
========= ========== ========= ========= =========
The Corp Group's net monetary debt and net assets by currency are as follows:
AT 31 MARCH 2001
Net assets
before net Net Net
monetary monetary (liabilities)/
debt debt assets
Functional currency of Corp Group operation L million L million L million
------------------------------------------- ---------- --------- --------------
Sterling 1,234 (3,643) (2,409)
US dollar 6,124 21 6,145
Euro 597 (184) 413
Other 261 24 285
---------- --------- --------------
Total 8,216 (3,782) 4,434
========== ========= ==============
AT 31 MARCH 2002
Net assets
before net Net Net
monetary monetary (liabilities)/
debt debt assets
Functional currency of Corp Group operation L million L million L million
------------------------------------------- ---------- --------- --------------
Sterling (1,244) (3,398) (4,642)
US dollar 2,083 52 2,135
Euro 329 17 346
Other 151 (6) 145
---------- --------- --------------
Total 1,319 (3,335) (2,016)
========== ========= ==============
404
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
AT 30 SEPTEMBER 2002
Net assets
before net Net Net
monetary monetary (liabilities)/
debt debt assets
Functional currency of Corp Group operation L million L million L million
------------------------------------------- ---------- --------- --------------
Sterling (1,471) (3,580) (5,051)
US dollar 1,767 17 1,784
Euro (126) 59 (67)
Other 133 (10) 123
---------- -------- --------------
Total 303 (3,514) (3,211)
========== ======== ==============
(C) FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
The book values and fair values of the Corp Group's financial assets and
liabilities are as follows:
Book Value Fair value
------------------------------------ ------------------------------------
At 31 March At At 31 March At
--------------------- 30 September --------------------- 30 September
2001 2002 2002 2001 2002 2002
L million L million L million L million L million L million
--------- --------- ------------ --------- --------- ------------
Short-term financial
liabilities and current
portion of long-term
borrowings (1,407) (2,436) (2,190) (1,407) (2,436) (311)
Long-term borrowings and
long-term financial
liabilities (2,324) (2,208) (2,091) (2,257) (707) (338)
Financial assets 395 1,377 1,065 387 1,376 1,065
Interest rate swaps -- -- -- (7) (1) (25)
Forward foreign currency
contracts -- -- -- 6 -- --
Tax equalisation swaps (25) -- -- (13) -- --
Equity swaps (13) (160) (167) (215) (160) (167)
========= ========= ============ ========= ========= ============
The fair values of the traded outstanding long-term borrowings and tax
equalisation swaps have been determined by references available from the markets
on which the instruments are traded. Forward foreign currency contracts,
interest rate swaps and other fair values have been calculated by discounting
cash flows at prevailing interest rates.
The book value of the equity swap reflects the existing provisions in respect of
the share option scheme exposures to which the swap relates. The fair value
includes accrued interest of L44 million (31 March 2002 L40 million, 2001 L23
million) which is fully provided for in the book value. The book and fair values
are net of collateral paid of L214 million (31 March 2002 L214 million). This
treatment reflects the change in circumstances due to share price movements in
previous periods.
(D) GAINS AND LOSSES ON HEDGES
The Corp Group enters into forward foreign exchange contracts to eliminate the
currency exposure arising on sales and purchases denominated in foreign
currencies as soon as there is a firm contractual commitment. It also uses
interest rate swaps to manage its interest rate profile.
405
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
An analysis of these unrecognised gains and losses is as follows:
Total net
Gains Losses gains/(losses)
L million L million L million
--------- --------- --------------
Unrecognised gains and losses on hedges at 1 April 2000 143 (13) 130
Gains and losses arising in previous periods that were
recognised in the year (78) 2 (76)
--------- --------- --------------
Gains and losses arising before 1 April 2000 that were
not recognised in the year 65 (11) 54
Gains and losses arising in the year to 31 March 2001
that were not recognised in the year (49) (87) (136)
--------- --------- --------------
Unrecognised gains and losses on hedges at 1 April 2001 16 (98) (82)
Gains and losses arising in previous years that were
recognised in the year (16) 2 (14)
--------- --------- --------------
Gains and losses arising before 1 April 2001 that were
not recognised in the year -- (96) (96)
Gains and losses arising in the year to 31 March 2002
that were not recognised in the year 23 72 95
--------- --------- --------------
Unrecognised gains and losses on hedges at 31 March 2002 23 (24) (1)
Gains and losses arising before 1 April 2002 that were
not recognised in the period -- (5) (5)
Gains and losses arising in the six month period to 30
September 2002 that were not recognised in the period -- (20) (20)
--------- --------- --------------
Unrecognised gains and losses on hedges at 30 September
2002 -- (25) (25)
========= ========= ==============
Of which:
Gains and losses expected to be recognised in the period
to 31 March 2003 -- (25) (25)
--------- --------- --------------
Gains and losses expected to be recognised in the period
to 31 March 2004 or later -- -- --
========= ========= ==============
L1 million of the gains and L1 million of the losses unrecognised at 31 March
2002 were expected to have been recognised in the profit and loss account for
the six months ended 30 September 2002.
The cumulative aggregate gains and losses which are carried forward in the
balance sheet pending their inclusion in the profit and loss account total Lnil
(31 March 2002 Lnil, 2001 L25 million) of which Lnil (31 March 2002 Lnil, 2001
L8 million) is expected to be included in the profit and loss account in the
next accounting period. Aggregate gains of Lnil from previous years were
recognised in the profit and loss account for the six months ended 30 September
2002 (year ended 31 March 2002 L25 million, 2001 L16 million).
In addition to the amounts disclosed above, cumulative aggregate gains of L30
million and losses of L56 million in respect of terminated interest rate swaps
were carried forward in the balance sheet as at 30 September 2002 pending their
recognition in the profit and loss account (31 March 2002 gains of L27 million,
2001 gains of L40 million). Of these carried forward gains and losses, gains of
L7 million and losses of L4 million are expected to be recognised in the profit
and loss account in the next accounting period (31 March 2002 gains of L11
million, 2001 gains of L12 million). Aggregate related gains of L6 million from
previous years were recognised in the profit and loss account in the period
(year ended 31 March 2002 L12 million, 2001 Lnil).
406
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 1: CORP HISTORICAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
29. POST BALANCE SHEET EVENTS
On 7 February 2003 the plc Group announced that it had agreed in principle with
Barclays Bank PLC, Salomon Brothers International Limited and UBS AG to settle
potential claims under ESOP derivative arrangements. This settlement is
conditional upon Corp's scheme of arrangement becoming effective. At this point,
all claims against plc, Corp and its subsidiaries in respect of this matter will
be waived and the total liabilities recorded within liability provisions and net
debt of L169 million will be released for a consideration of L35 million.
On 24 February 2003, Marconi announced that, following approval from the High
Court in the United Kingdom, Corp had completed a return of capital from
Ultramast Limited (a joint venture company set up in December 2000 with
Railtrack Telecom Services Limited) and settled all outstanding litigation
relating to it. As a result of the transaction, Marconi received net cash
proceeds of approximately L41 million.
30. ULTIMATE CONTROLLING PARTY
At 30 September 2002, Corp regarded plc, a company incorporated in Great
Britain, as the ultimate parent company and the ultimate controlling party.
plc is the parent company of the largest and smallest group of which Corp is a
member and for which group financial statements are drawn up. Copies of their
statutory financial statements are available from The Secretary, Marconi plc,
New Century Park, PO Box 53, Coventry, Warwickshire CV3 1HJ.
As Subsidiary undertakings of plc, Corp and its Subsidiary undertakings (90 per
cent. or more of whose voting rights are controlled within the group), have
taken advantage of the exemption in FRS 8 "Related party disclosures" from
disclosing transactions with other members of the group headed by plc.
407
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 2
CORP UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The unaudited pro forma consolidated balance sheet set out below is based on the
consolidated balance sheet of the Corp Group as at 30 September 2002 as set out
in Appendix 1 of this document after making adjustments on the basis set out
below and has been extracted without material amendment from the unaudited pro
forma consolidated balance sheet set out in Part V of the Prospectus.
The unaudited pro forma consolidated balance sheet has been prepared to
illustrate the effect of the Corp Scheme and the Capital Reduction on the 30
September 2002 consolidated balance sheet as if the Corp Scheme and the Capital
Reduction had been completed at that date. No adjustments have been made to
reflect any transactions other than as described in this Appendix. In
particular, no account has been taken of any subsequent transactions including,
but not limited to, trading activities and restructuring costs, and the impact
such transactions will have on the consolidated balance sheet.
The pro forma information has been prepared for illustrative purposes only and,
because of its nature, may not give a true picture of the consolidated balance
sheet which would have been reported if it had been drawn up on the effective
date of the transactions assumed.
408
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 2: CORP UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As at 30 September 2002
----------------------------------------
Corp Group
Consolidated Pro forma
balance sheet Adjustments Corp Group
Note L million L million L million
---- ------------- ----------- ----------
a
FIXED ASSETS
Goodwill 672 -- 672
Tangible assets 329 -- 329
Investments:
Joint ventures -- share of net assets 35 -- 35
Associates 69 -- 69
Other Investments 17 -- 17
121 -- 121
------------- ----------- ----------
1,122 -- 1,122
------------- ----------- ----------
CURRENT ASSETS
Stocks and contracts in progress 356 -- 356
Debtors: amounts falling due within one year 803 -- 803
Debtors: amounts falling due after more than
one year 59 -- 59
Cash at bank and in hand c 1,062 (340) 722
------------- ----------- ----------
2,280 (340) 1,940
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR d (3,611) 2,377 (1,234)
------------- ----------- ----------
NET CURRENT (LIABILITIES)/ASSETS (1,331) 2,037 706
------------- ----------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES (209) 2,037 1,828
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN
ONE YEAR e (2,107) 1,301 (806)
PROVISIONS FOR LIABILITIES AND CHARGES f (456) 18 (438)
------------- ----------- ----------
NET (LIABILITIES)/ASSETS BEFORE RETIREMENT
BENEFIT DEFICITS (2,772) 3,356 584
Retirement benefit scheme deficits (439) -- (439)
------------- ----------- ----------
NET (LIABILITIES)/ASSETS AFTER RETIREMENT
BENEFIT DEFICITS (3,211) 3,356 145
============= =========== ==========
CAPITAL AND RESERVES
Called up share capital g 143 (93) 50
Share premium account g 700 (700) --
Capital redemption reserve g 9 -- 9
Capital reduction reserve g -- 1,382 1,382
Profit and loss account g (4,072) 2,767 (1,305)
------------- ----------- ----------
Equity shareholders' interests (3,220) 3,356 136
------------- ----------- ----------
Equity minority interests 9 -- 9
(3,211) 3,356 145
============= =========== ==========
409
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 2: CORP UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET:
a. The balance sheet information for the Corp Group as at 30 September 2002
has been extracted without adjustment from the Accountants' Report as set
out in Part IV of the Prospectus.
b. As noted in part I, Section 2, Part C.4 of this document, Corp estimates
the total Scheme Claims to be compromised by the Corp Scheme will be
L5.128 billion, made up as follows:
L4,283 million
-- Bank facility and Bond debt (including Ancrane Bonds)
L378 million
-- Indirect claims by plc (excluding Ancrane Bonds)
L467 million
-- Other third party and associated company claims
However, the adjustments in relation to the Corp Scheme illustrated below
show the effect only of those Scheme Claims against Corp that were
recognised in the 30 September 2002 consolidated balance sheet and that
are expected to be compromised by the Corp Scheme.
c. The adjustment of L340 million to Cash at bank and in hand relates to the
cash payment of L340 million to be made under the Corp Scheme as
described in part I, Section 2, Part C.2.
d. The adjustment of L2,377 million to Creditors: Amounts falling due within
one year relates to the cancellation of Scheme Claims against Corp, as
described in part I, Section 2, Part C.4, comprising the amounts below
which are included in the consolidated balance sheet at 30 September
2002:
L million
---------
Cancellation of Scheme Claims:
-- Bank loans and overdrafts -- repayable on demand 2,068
-- Debentures 31
-- Amounts due to plc and non transferring subsidiaries 242
-- Amounts due to other creditors 36
---------
2,377
=========
e. The adjustment of L1,301 million to Creditors: Amounts falling due after
more than one year relates to the cancellation of Scheme claims against
Corp in respect of amounts included in the 30 September 2002 consolidated
balance sheet, as described in part I, Section 2, Part C.4, and the issue
of New Senior Notes and New Junior Notes in part consideration for the
cancellation of Scheme claims, as presented below:
L million
---------
Cancellation of Scheme Claims -- Bonds due over one year 2,059
Principal amount of new debt to be issued:
-- New Senior Notes (due April 2008) (450)
-- New Junior Notes (due October 2008) (308)
---------
1,301
=========
The amount of L308 million shown in respect of the New Junior Notes (due
October 2008) represents US$300 million, translated at the 30 September
2002 exchange rate of $1.57/L, and a further L117.27 million, as
described in part IV, Appendix 8.
f. The adjustment of L18 million to Provisions for liabilities and charges
relates to amounts provided in the 30 September 2002 consolidated
balance sheet in relation to litigation and other matters to be
compromised by the Corp Scheme.
g. The adjustments to Capital and Reserves in the consolidated balance sheet
which are set out in the table below relate not only to the issue of New
Shares in part consideration for the cancellation of Scheme Claims, as
described in further detail in part I, Section 2, Part C.2, but also to
the subsequent Capital Reduction of the existing called up share capital
and share premium account, and the share premium
410
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 2: CORP UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
account created on the issue of the New Shares as described in further
detail in part I, Section 2, Part D.9 of this document.
Capital
reduction of
Effect of Capital share premium
Scheme reduction of account in
and issue existing share respect of
of New capital and New Shares
Shares reserves issued
(i) (ii) (iii) Total
L million L million L million L million
---------- -------------- ------------- ---------
Called up share capital 50 (143) -- (93)
Share premium account 3,306 (700) (3,306) (700)
Capital reduction reserve -- -- 1,382 1,382
Profit and loss account 843 1,924 2,767
i) These adjustments relate to the issue of 1 billion ordinary New
Shares at 5p nominal value in partial consideration for the
cancellation of Scheme Claims as described in further detail in Part
I, Section 2, Part C.2. The share premium account balance is
calculated as the excess of the cancelled Scheme Claims over the
amount of cash paid, the principal amount of the new debt to be
issued, and the nominal value of the New Shares as shown below:
L million
---------
Cancelled Scheme Claims:
-- Creditors: Amounts falling due within one year (note d) 2,377
-- Cancelled Bonds included within creditors falling due
after more than one year (note e) 2,059
-- Provisions for liabilities and charges (note f) 18
Cash paid (note c) (340)
Senior Notes and Junior Notes issued (note e) (758)
---------
3,356
=========
Nominal value of New Shares issued 50
Share Premium on New Shares issued 3,306
---------
3,356
=========
ii) These adjustments relate to the Capital Reduction of Corp's
existing called-up share capital and share premium account to
create a reserve of L843 million which is applied to reduce the
brought forward deficit on Corp's company only profit and loss
account.
411
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 2: CORP UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
iii) These adjustments relate to the Capital Reduction of all of the
share premium account created on the issue of the New Shares, as
described in i) above, to further reduce the remaining brought
forward deficit on the profit and loss account to zero.
Any surplus Capital Reduction is applied to create a capital reduction
reserve in Corp's company only and consolidated balance sheets. The
effect of these reductions on Corp's profit and loss account in the
company only balance sheet as at 30 September 2002, and the calculation
of the credit to the company only and consolidated capital reduction
reserve is illustrated in the table below:
L million
---------
Corp -- company only profit and loss account as contained in
Corp's company only balance sheet as at 30 September 2002
(unaudited) (2,767)
Capital Reduction of existing share capital and share
premium account 843
Capital Reduction of share premium account on New Shares
issued 3,306
---------
Capital reduction reserve created as at 30 September 2002 1,382
=========
412
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 3
PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
The financial information for the two years and six months ended 30 September
2002 set out below in this Appendix has been extracted without material
amendment from the audited statutory accounts of plc for the financial periods
ended 31 March 2001(1) and 31 March 2002 and the audited non-statutory financial
statements of plc for the six months ended 30 September 2002. This financial
information does not constitute statutory accounts within the meaning of the
Act. Audited statutory accounts for plc have been delivered to the Registrar of
Companies for each of the two years ended 31 March 2001 and 2002. Unqualified
audit reports, in accordance with the requirements of the Act, for each of those
two years have been given by the auditors for plc for the relevant financial
periods.
---------------
(1) The financial information for the year ended 31 March 2001 has been based on
the comparatives presented in the audited statutory accounts of plc for the
year ended 31 March 2002. Accounting policies were revised during 31 March
2002 to incorporate the adoption of FRS17 and FRS19 and the 2001
comparatives included in the 31 March 2002 statutory accounts were restated
on a comparable basis.
413
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 March
2001
2002 (restated)
Note L million L million
----- --------- ----------
TURNOVER
Continuing operations 5 3,222 4,892
Discontinued operations 5 1,088 1,761
plc Group 5 4,310 6,653
Share of joint ventures 257 289
--------- ----------
4 4,567 6,942
--------- ----------
OPERATING (LOSS)/PROFIT
plc Group operating (loss)/profit
Excluding goodwill amortisation and exceptional items (474) 732
Goodwill amortisation (431) (671)
Operating exceptional items 6a (5,210) (32)
5 (6,115) 29
Continuing operations (6,160) (114)
Discontinued operations 45 143
5 (6,115) 29
Share of operating profit of joint ventures
Excluding goodwill amortisation and exceptional items 11 22
Goodwill amortisation (2) (2)
Operating exceptional items 6a (6) --
3 20
--------- ----------
(6,112) 49
plc Group and joint venture operating (loss)/profit before goodwill
amortisation and exceptional items (463) 754
Share of operating (loss)/profit of associates
Excluding goodwill amortisation and exceptional items (1) 8
Goodwill amortisation (7) --
Operating exceptional items (173) --
(181) 8
--------- ----------
OPERATING (LOSS)/PROFIT 4 (6,293) 57
Non-operating exceptional items
Gain on disposal of discontinued operations 358 --
Gain/(loss) on disposal of fixed assets and investments in
continuing operations 18 (38)
Merger/demerger items 291 20
6b 667 (18)
--------- ----------
(5,626) 39
Net interest payable
plc Group (240) (151)
Share of joint ventures and associates 2 1
7 (238) (150)
Net finance income
plc Group excluding exceptional items 34 41
Exceptional gain on repurchase of Bonds 6b, 8 166 --
8 200 41
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Excluding goodwill amortisation and exceptional items (668) 653
Goodwill amortisation and exceptional items (4,996) (723)
4 (5,664) (70)
TAX CREDIT/(CHARGE) ON LOSS ON ORDINARY ACTIVITIES
Excluding tax on goodwill amortisation and exceptional
items 21 (195)
Tax on goodwill amortisation and exceptional items (231) (17)
9 (210) (212)
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (5,874) (282)
Equity minority interests 10 (1) (5)
--------- ----------
LOSS ON ORDINARY ACTIVITIES ATTRIBUTABLE TO THE SHAREHOLDERS (5,875) (287)
Equity dividends 11 -- (148)
--------- ----------
RETAINED LOSS FOR THE FINANCIAL YEAR (5,875) (435)
========= ==========
BASIC AND DILUTED LOSS PER SHARE 12 (210.6)p (10.4)p
(LOSS)/EARNINGS PER SHARE EXCLUDING GOODWILL AMORTISATION
AND EXCEPTIONAL ITEMS 12 (23.2)p 16.5p
========= ==========
414
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
BALANCE SHEETS
As at 31 March
plc Group
----------------------- Company
2001 ----------------------
2002 (restated) 2002 2001
Note L million L million L million L million
---- --------- ---------- --------- ---------
FIXED ASSETS
Goodwill 14 877 5,395 -- --
Tangible assets 15 522 1,142 -- --
Investments: 16
Joint ventures
Share of gross assets 71 178 -- --
Share of gross liabilities (11) (90) -- --
--------- ---------- --------- ---------
60 88 -- --
Associates 137 45 -- --
Other investments 53 458 -- --
Shares in plc Group companies -- -- 602 439
250 591 602 439
--------- ---------- --------- ---------
1,649 7,128 602 439
--------- ---------- --------- ---------
CURRENT ASSETS
Stocks and contracts in progress 17 720 1,721 -- --
Debtors 18 1,297 2,683 275 526
Investments 19 15 26 -- --
Cash at bank and in hand 19 1,374 484 1 141
--------- ---------- --------- ---------
3,406 4,914 276 667
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 20 (4,068) (3,920) (207) (115)
--------- ---------- --------- ---------
NET CURRENT (LIABILITIES)/ASSETS (662) 994 69 552
--------- ---------- --------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES 987 8,122 671 991
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 20 (1,902) (2,574) -- --
PROVISIONS FOR LIABILITIES AND CHARGES 22 (505) (714) -- --
--------- ---------- --------- ---------
NET (LIABILITIES)/ASSETS BEFORE RETIREMENT BENEFIT
SURPLUSES AND DEFICITS (1,420) 4,834 671 991
Retirement benefit scheme surpluses 27 19 240 -- --
Retirement benefit scheme deficits 27 (145) (120) -- --
--------- ---------- --------- ---------
NET (LIABILITIES)/ASSETS AFTER RETIREMENT BENEFIT SURPLUSES
AND DEFICITS (1,546) 4,954 671 991
========= ========== ========= =========
CAPITAL AND RESERVES
Called up share capital 140 139 140 139
Shares to be issued 23 45 310 45 310
Share premium account 23 500 489 500 489
Capital reserve 23 375 375 -- --
Revaluation reserve 23 -- 267 -- --
Profit and loss account 23 (2,618) 3,359 (14) 53
--------- ---------- --------- ---------
Equity shareholders' interests (1,558) 4,939 671 991
Equity minority interests 12 15 -- --
--------- ---------- --------- ---------
(1,546) 4,954 671 991
========= ========== ========= =========
415
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 March
2002 2001
Note L million L million
---- --------- ---------
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES BEFORE
EXCEPTIONAL ITEMS 24a 10 (67)
Exceptional cash flows from operating activities 6c (368) (39)
Net cash outflow from operating activities after exceptional
items -- continuing operations (418) (269)
Net cash inflow from operating activities after exceptional
items -- discontinued operations 60 163
NET CASH OUTFLOW FROM OPERATING ACTIVITIES AFTER EXCEPTIONAL
ITEMS (358) (106)
Dividends from joint ventures and associates 29 68
Returns on investments and servicing of finance 24b (262) (134)
Tax paid 24c (13) (137)
Capital expenditure and financial investment 24d (196) (34)
Acquisitions and disposals 24e 1,025 (203)
Non-operating exceptional cash flows related to
merger/demerger 6c -- (56)
Equity dividends paid to shareholders (95) (146)
--------- ---------
CASH INFLOW/(OUTFLOW) BEFORE USE OF LIQUID RESOURCES AND
FINANCING 130 (748)
Net cash inflow from management of liquid resources 24f 186 166
Net cash inflow from financing
Issues of ordinary shares 7 36
Other 24g 972 316
--------- ---------
INCREASE/(DECREASE) IN CASH AND NET BANK BALANCES REPAYABLE
ON DEMAND 1,295 (230)
========= =========
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET MONETARY DEBT
For the year ended 31 March
2002 2001
Note L million L million
---- --------- ---------
Increase/(decrease) in cash and net bank balances repayable
on demand 1,295 (230)
Net cash inflow from management of liquid resources (186) (166)
Net cash inflow from increase in debt and lease financing (972) (316)
--------- ---------
Change in net monetary debt resulting from cash flows 137 (712)
Net debt acquired with subsidiaries (3) (23)
Other non-cash changes 162 (31)
Effect of foreign exchange rate changes 6 (256)
--------- ---------
Movement in net monetary funds in the period 302 (1,022)
Net monetary debt at 1 April 25 (3,167) (2,145)
--------- ---------
Net monetary debt at 31 March 25 (2,865) (3,167)
========= =========
416
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 31 March
2001
2002 (restated)
L million L million
--------- ----------
(Loss)/profit on ordinary activities attributable to the
shareholders
plc Group (5,701) (306)
Share of joint ventures 9 13
Share of associates (183) 6
(5,875) (287)
Listed fixed asset investments
Deficit due to movement in share price (30) (375)
Exchange rate adjustments -- 6
(30) (369)
Unrealised gain on exchange of businesses 9 --
Exchange differences on translation
plc Group (66) 240
Share of associates -- 3
(66) 243
Actuarial loss recognised on retirement benefit schemes
Difference between the expected and actual return on
scheme assets (277) (186)
Changes in assumptions underlying the present value of the
scheme liabilities -- (losses)/gains (83) 164
Experience gains and (losses) on scheme liabilities 9 (51)
(351) (73)
Tax credit on net retirement benefit items debited in the
statement of total recognised gains and losses 68 38
--------- ----------
TOTAL RECOGNISED GAINS AND LOSSES RELATED TO THE YEAR (6,245) (448)
==========
Prior period adjustment 317
---------
TOTAL GAINS AND LOSSES RECOGNISED SINCE THE LAST ANNUAL
REPORT (5,928)
=========
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' (DEFICIT)/FUNDS
For the year ended 31 March
2001
2002 (restated)
L million L million
--------- ----------
Total recognised gains and losses related to the year (6,245) (448)
Equity dividends -- (148)
Release of provision in respect of shares to be issued (260) --
Shares to be issued -- 71
Issues of ordinary shares 8 491
--------- ----------
Total movement in the year (6,497) (34)
Equity shareholders' interests at 1 April as previously
reported 4,622 4,630
Prior period adjustment 317 343
Equity shareholders' interests at 1 April as restated 4,939 4,973
--------- ----------
Equity shareholders' interests at 31 March (1,558) 4,939
========= ==========
417
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
NOTES TO THE ACCOUNTS
1 FUNDAMENTAL UNCERTAINTY IN RESPECT OF THE APPLICATION OF THE GOING
CONCERN BASIS
In the year to 31 March 2002, the plc Group met its day-to-day working capital
requirements through syndicated banking facilities, certain bilateral bank
facilities and its own cash resources. In addition, it has in issue Bonds with a
face value of L1.8 billion, issued in order to finance acquisitions that
occurred in the year to 31 March 2000. As at 31 March 2002, net debt stood at
L2.9 billion.
The plc Group's existing Syndicated Bank Facility expires on 25 March 2003. From
October 2001, the plc Group has been in negotiations with these banks to provide
facilities that would extend beyond this date. However, on 22 March 2002, the
plc Group announced that in the light of the plc Group's revised view of the
extended market downturn, it no longer believed that the refinancing proposal
provided the plc Group with an appropriate capital structure. Accordingly, the
plc Group decided that it was unable to enter into the proposed new Bank
Facility. The bank coordinators indicated that the banks reserve all their
rights under the existing bank facilities. In order to preserve the support of
its Syndicate Banks, the plc Group announced that as a result of this decision,
it had agreed to cancel the undrawn commitments under its syndicated facilities
and to place on demand the drawn portion of the E4.5 billion facilities. The
final maturity of the E4.5 billion Syndicated Bank Facility remains 25 March
2003.
The plc Group has developed a revised business plan and is in discussion with
its banks and bondholders in order to secure a capital structure that is
appropriate to that business plan.
plc has guaranteed certain derivative transactions related to the exercise of
share options previously granted to employees of the plc Group, the borrowings
of its subsidiary, Corp, under the syndicated bank facilities and the Bonds
issued by Corp. The aggregate amount of these guarantees is disclosed in note 28
(a). If the guarantees are called, the extent to which plc ultimately bears the
liabilities will depend on the extent to which the liabilities are satisfied by
other plc Group companies. Given the current state of the negotiations with its
bankers and Bondholders, plc has assessed whether it is probable that these
guarantees will become actual liabilities and decided that the guarantees are
currently not likely to crystallise. Consequently, these guarantees are not
recorded in the plc balance sheet, but are disclosed as a contingent liability.
In the light of the information currently available to them, plc believes that
the plc Group's bankers and Bondholders will support it in achieving an
appropriate capital structure. On this basis, plc considers it appropriate to
prepare the accounts on a going concern basis. Should the plc Group's bankers
and Bondholders not support the plc Group in achieving an appropriate capital
structure, adjustments would be necessary to record additional liabilities and
to write down assets to their recoverable amount. It is not practicable to
quantify with reasonable accuracy these possible adjustments.
2 ACCOUNTING POLICIES
The financial statements have been prepared in accordance with applicable
accounting standards.
The more important plc Group accounting policies are summarised below to
facilitate the interpretation of the financial statements.
ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost convention, as
modified by the valuation of listed fixed asset investments.
BASIS OF CONSOLIDATION
The financial statements consolidate the accounts of plc and all of its
subsidiary undertakings (plc Group companies or subsidiaries).
418
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
All accounts for plc Group companies are made up to 31 March.
TURNOVER
Turnover, excluding VAT, comprises sales to outside customers, and the plc
Group's percentage interest in sales of joint ventures. The plc Group records
transactions as sales when the delivery of products or performance of services
takes place in accordance with the terms of sale.
CURRENCY TRANSLATION
Profits and losses of overseas subsidiaries, joint ventures and associates and
cash flows of overseas subsidiaries are translated at the average rates of
exchange during the year. Non-sterling net assets are translated at year-end
rates of exchange. Key rates used are as follows:
Average rates Year-end rates
-------------- --------------
2002 2001 2002 2001
----- ----- ----- -----
US dollar 1.43 1.48 1.42 1.42
Italian lira 3,152 3,153 3,161 3,114
Euro 1.63 1.63 1.63 1.61
===== ===== ===== =====
Reserves are adjusted to include the differences arising from the restatement to
year-end rates of exchange of profits and losses and the translation of the net
assets of overseas subsidiaries, joint ventures and associates from rates
prevailing at the beginning of the year. All other exchange gains and losses are
included in profit on ordinary activities before taxation.
FINANCIAL INSTRUMENTS
The plc Group uses financial instruments, including interest rate and currency
swaps, solely for the purposes of raising finance for its operations and
managing interest and currency risks associated with the plc Group's underlying
business activities. There is no trading activity in financial instruments.
FOREIGN EXCHANGE TRANSACTION EXPOSURES
The plc Group hedges actual foreign exchange exposure as soon as there is a firm
contractual commitment. Forward contracts are used to hedge the exposure.
Amounts are included in the accounts at the forward exchange contract rate. If
the contract ceases to be a hedge any subsequent gains or losses are recognised
through the profit and loss account.
BALANCE SHEET TRANSLATION EXPOSURES
A large proportion of the plc Group's net assets are denominated in overseas
currencies. Where appropriate, the plc Group hedges these balance sheet
translation exposures by borrowing in relevant currencies and markets, and by
the use of currency swaps. Currency swaps are used only as balance sheet hedging
instruments, and the plc Group does not hedge the currency translation of its
profit and loss account. Exchange gains or losses arising on the hedging
borrowings and on the notional principal of currency swaps during their life and
at termination or maturity, together with the tax thereon, are dealt with as a
movement in reserves, where the conditions for offset are met.
INTEREST RATE RISK EXPOSURE
The plc Group hedges its exposure to movements in interest rates associated with
its borrowing primarily by means of interest rate swaps and forward rate
agreements.
419
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
TANGIBLE FIXED ASSETS
Property, plant, machinery, fixtures, fittings, tools and equipment are recorded
at cost and depreciated on a straight-line basis over their estimated useful
lives. Freehold land does not bear depreciation where the original cost of
purchase was separately identified.
Tangible fixed assets are depreciated using the following rates:
Freehold buildings -- 2 per cent. to 4 per cent. per annum
Leasehold property -- over the period of the lease or 50 years for long leases
Plant and machinery -- 10 per cent. per annum on average
Fixtures, fittings, tools and 10 per cent. per annum
equipment --
LEASED ASSETS
Assets held under finance lease are included in tangible fixed assets and the
present values of lease commitments are included under creditors. Operating
lease payments are charged to the profit and loss account as incurred.
GOODWILL
Purchased goodwill is capitalised and amortised on a straight-line basis over
its estimated useful economic life. Each acquisition is separately evaluated for
the purposes of determining the useful economic life, up to a maximum of 20
years. The useful economic lives are reviewed annually and revised if necessary.
RESEARCH AND DEVELOPMENT
Expenditure incurred in the year is charged against profit unless specifically
chargeable to and receivable from customers under agreed contract terms.
STOCKS AND CONTRACTS IN PROGRESS
Stocks and contracts in progress are valued at the lower of cost, including
appropriate overheads, and estimated net realisable value. Provisions are made
for any losses incurred or expected to be incurred on uncompleted contracts.
Profit on long-term contracts in progress is taken when a sale is recorded on
part-delivery of products or part-performance of services, provided that the
outcome of the contract can be assessed with reasonable certainty. Advance
payments received from customers are shown as creditors unless there is a right
of set-off against the value of work undertaken. Progress payments received are
deducted from the value of the work carried out, any excess being included with
payments received in advance.
TAXATION
Taxation on profit on ordinary activities is that which has been paid or becomes
payable in respect of the profits for the year. Deferred taxation is provided in
full on timing differences that result in an obligation at the balance sheet
date to pay more tax, or a right to pay less tax, at a future date, at rates
expected to apply when they crystallise based on current tax rates and law.
Timing differences arise from the inclusion of items of income or expenditure in
taxation computations in periods different from those in which they are included
in the financial statements. Deferred tax assets are recognised to the extent
that it is regarded as more likely than not that they will be recovered.
Deferred tax assets and liabilities are not discounted.
INVESTMENTS
Joint ventures comprise long-term investments where control is shared under a
contractual arrangement. The sector analysis of turnover, profit and net assets
includes the plc Group's share of the results and net assets of joint ventures.
420
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
Associates consist of long-term investments in which the plc Group holds a
participating interest and over which it exercises significant influence.
Investments in joint ventures and associates, other than Easynet Group Plc, are
stated at the amount of the plc Group's share of net assets, including goodwill,
at 31 March derived from audited or management accounts made up to that date.
Easynet Group Plc's results are included for the period to 31 December. Profit
before taxation includes the plc Group's share of joint ventures and associates.
Other unlisted fixed asset investments and plc's investment in shares in plc
Group companies are stated at cost less provision for impairment in value.
Listed fixed asset investments are stated at market value. Current asset
investments are stated at the lower of cost and net realisable value except
dated listed securities which are stated at market value.
Investments in plc's own shares, held within the GEC Employee Share Trust and
the Marconi Employee Trust, are included on the plc Group balance sheet at cost,
less provision for impairment.
PENSIONS AND OTHER POST RETIREMENT BENEFITS
The operating cost of providing pensions and other post retirement benefits, as
calculated periodically by independent actuaries, is charged to the plc Group's
operating profit or loss in the period that those benefits are earned by
employees. The financial return expected on the pension schemes' assets is
recognised in the period in which they arise as part of finance income and the
effect of the unwinding of the discounted value of the schemes liabilities is
treated as part of finance costs. The changes in value of the pension schemes'
assets and liabilities are reported as actuarial gains or losses as they arise
in the consolidated statement of total recognised gains and losses. The pension
schemes' surpluses, to the extent they are considered recoverable, or deficits
are recognised in full and presented in the balance sheet net of any related
deferred tax.
SHARE OPTIONS
In accordance with UITF Abstract 17, "Employee share schemes", the costs of
awarding shares under employee share plans are charged to the profit and loss
account over the period to which the performance criteria relate.
3 CHANGES IN ACCOUNTING POLICY
Since the last annual report, plc has changed three accounting policies. The
format of the profit and loss account has been amended to improve the clarity
and transparency of financial reporting. This is discussed further in note 5 to
the Accounts.
Financial Reporting Standard ("FRS") 19 "Deferred tax" has been adopted. This
changes the basis of measurement of deferred tax assets and liabilities and the
movements reported in the performance statements (profit and loss account and
consolidated statement of total recognised gains and losses). The adoption of
this accounting standard has had no effect on reported assets or liabilities nor
the amounts recorded in the performance statements in respect of prior years.
FRS 17 "Retirement benefits" has been adopted in full replacing Statement of
Standard Accounting Practice ("SSAP") 24 "Accounting for pension costs" and
Urgent Issues Task Force abstract ("UITF") 6 "Accounting for post-retirement
benefits other than pensions". This changes the measurement basis of the pension
surplus or
421
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
deficit and the amounts charged or credited to the performance statements. The
effect of these changes on the reported results for the years ended 31 March
2002 and 2001 are highlighted below:
2002 2001
---------------------- ----------------------
SSAP 24 & SSAP 24 &
FRS 17 UITF 6 FRS 17 UITF 6
L million L million L million L million
--------- --------- --------- ---------
(CHARGED)/CREDITED TO THE PROFIT AND LOSS
ACCOUNT
Operating profit (42) (52) (57) (4)
Financial income 40 -- 44 --
--------- --------- --------- ---------
Net charge before tax (2) (52) (13) (4)
--------- --------- --------- ---------
(CHARGED)/CREDITED TO THE CONSOLIDATED
STATEMENT OF TOTAL RECOGNISED GAINS AND
LOSSES ("STRGL")
Actuarial loss (351) -- (73) --
Tax on items charged to the STRGL 68 -- 38 --
========= ========= ========= =========
The loss after taxation for the year under FRS 17 is L5,874 million (2001 L282
million) compared to L5,924 million (2001 L266 million) under SSAP 24 and UITF
6.
422
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
4 PRINCIPAL ACTIVITIES, (LOSS)/PROFIT CONTRIBUTIONS, MARKETS AND NET ASSETS
EMPLOYED
ANALYSIS OF RESULTS AND NET ASSETS BY CLASS OF BUSINESS
(Loss)/profit Turnover Net assets
---------------------- ---------------------- ----------------------
2001 2001 2001
2002 (restated) 2002 (restated) 2002 (restated)
L million L million L million L million L million L million
--------- ---------- --------- ---------- --------- ----------
Network equipment (461) 448 1,762 3,318
592 1,961
Network services 35 102 969 1,016
Mobile (6) 13 369 331 223 127
Other (including
intra-activity sales) (64) (15) (25) (39) 8 35
--------- ---------- --------- ---------- --------- ----------
(496) 548 3,075 4,626 823 2,123
Capital (40) 16 404 555 42 (3)
--------- ---------- --------- ---------- --------- ----------
Continuing operations (536) 564 3,479 5,181 865 2,120
Discontinued operations 73 190 1,088 1,761 -- 522
--------- ---------- --------- ---------- --------- ----------
(463) 754 4,567 6,942 865 2,642
--------- ----------
Goodwill and goodwill
amortisation (433) (673) 877 5,413
Operating exceptional items
(note 6 (a)) (5,216) (32)
--------- ----------
(6,112) 49
Associates (181) 8 137 45
--------- ----------
Operating (loss)/profit (6,293) 57
Non-operating exceptional
items (note 6 (b)) 667 (18)
Net interest payable and
interest bearing assets and
liabilities (238) (150) (2,810) (2,817)
Net finance income 200 41
Unallocated net liabilities (615) (329)
--------- ---------- --------- ----------
(5,664) (70) (1,546) 4,954
========= ========== ========= ==========
Goodwill arising on acquisitions is amortised over a period not exceeding 20
years. Separate components of goodwill are identified and amortised over the
appropriate useful economic life. The remaining goodwill on the balance sheet
will be amortised over an average period of approximately 7 years.
Comparative figures have been restated to reflect the changes in the plc Group
structure during the year to 31 March 2002. Currently, the net assets of Network
equipment and Network services cannot be separately identified as the same
assets are, generally, used to generate sales in each of these segments. The
results of these segments are separately reportable.
The plc Group share of joint ventures' profit, turnover and net assets are
included under Capital.
Sales by plc Group companies to joint ventures and associates amounted to L40
million (2001 L60 million). Purchases from joint ventures and associates
amounted to L14 million (2001 L1 million).
The contribution of subsidiaries acquired in the year ended 31 March 2002 was
L12 million to turnover and L1 million to operating profit before goodwill
amortisation and operating exceptional items.
Assets and liabilities arising out of the Retirement Benefit Plan are treated as
unallocated net liabilities.
423
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
It is not practical to disclose on a segmental basis, goodwill and goodwill
amortisation as any allocation would be arbitrary.
ANALYSIS OF TURNOVER BY CLASS OF BUSINESS
To customers in the To customers
United Kingdom overseas
---------------------- ----------------------
2002 2001 2002 2001
L million L million L million L million
--------- --------- --------- ---------
Network equipment 347 971 1,415 2,347
Network services 367 354 602 662
Mobile 44 47 325 284
Other (including intra-activity sales) 1 8 (26) (47)
--------- --------- --------- ---------
759 1,380 2,316 3,246
Capital 277 351 127 204
--------- --------- --------- ---------
Continuing operations 1,036 1,731 2,443 3,450
Discontinued operations 48 46 1,040 1,715
--------- --------- --------- ---------
1,084 1,777 3,483 5,165
========= ========= ========= =========
ANALYSIS OF TURNOVER BY TERRITORY OF DESTINATION
Turnover
----------------------
2002 2001
L million L million
--------- ---------
United Kingdom 1,084 1,777
The Americas 1,760 2,852
Rest of Europe 1,151 1,677
Africa, Asia and Australasia 572 636
--------- ---------
4,567 6,942
========= =========
ANALYSIS OF OPERATING (LOSS)/PROFIT BEFORE GOODWILL AMORTISATION AND EXCEPTIONAL
ITEMS, TURNOVER AND NET ASSETS BY TERRITORY OF ORIGIN
(Loss)/profit Turnover Net assets
---------------------- ---------------------- ----------------------
2002 2001 2002 2001 2002 2001
L million L million L million L million L million L million
--------- --------- --------- --------- --------- ---------
United Kingdom (249) 349 1,328 2,286 293 953
The Americas (166) 155 1,842 2,927 154 944
Rest of Europe (28) 223 1,079 1,334 386 665
Africa, Asia and
Australasia (20) 27 318 395 32 80
--------- --------- --------- --------- --------- ---------
(463) 754 4,567 6,942 865 2,642
========= ========= ========= ========= ========= =========
424
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
5 GROUP OPERATING (LOSS)/PROFIT
Year to 31 March 2002
------------------------------------------------------
Exceptional
Continuing Discontinued items Total
L million L million L million L million
---------- ------------ ----------- ---------
Turnover 3,222 1,088 -- 4,310
Cost of sales (2,500) (753) (830) (4,083)
---------- ------------ ----------- ---------
Gross profit 722 335 (830) 227
Selling and distribution expenses (484) (106) -- (590)
Administrative expenses -- other (234) (74) (703) (1,011)
Research and development (575) (53) -- (628)
Goodwill amortisation (417) (14) -- (431)
Goodwill impairment -- -- (3,677) (3,677)
---------- ------------ ----------- ---------
Administrative expenses -- total (1,226) (141) (4,380) (5,747)
Other operating income/(expense) 24 (29) -- (5)
---------- ------------ ----------- ---------
Operating (loss)/profit (964) 59 (5,210) (6,115)
========== ============ =========== =========
Year to 31 March 2001 (restated)
------------------------------------------------------
Exceptional
Continuing Discontinued items Total
L million L million L million L million
---------- ------------ ----------- ---------
Turnover 4,892 1,761 -- 6,653
Cost of sales (3,021) (1,209) -- (4,230)
---------- ------------ ----------- ---------
Gross profit 1,871 552 -- 2,423
Selling and distribution expenses (579) (179) -- (758)
Administrative expenses -- other (282) (99) (32) (413)
Research and development (549) (77) -- (626)
Goodwill amortisation (651) (20) -- (671)
---------- ------------ ----------- ---------
Administrative expenses -- total (1,482) (196) (32) (1,710)
Other operating income/(expense) 81 (7) -- 74
---------- ------------ ----------- ---------
Operating (loss)/profit (109) 170 (32) 29
========== ============ =========== =========
As discussed further in note 26, the plc Group disposed of its Medical Systems,
Data Systems and Commerce Systems activities during the year and it is these
that are shown as discontinued operations in the note above.
Exceptional items are shown in further detail in note 6.
For the year ended 31 March 2002 plc has altered the presentation of the plc
Group profit and loss account (down to operating (loss)/profit) from a format 2
layout (which classifies expenditure by type) to a format 1 layout, (which
classifies expenditure by function) both formats being defined by the Act.
Accordingly the format 2 profit and loss disclosures have been restated for the
year ended 31 March 2001.
plc believes that format 1 profit and loss disclosures more accurately reflect
the management of the business, improve users' understanding of the accounts,
and aid comparison with the plc Group's competitors.
425
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
6 EXCEPTIONAL ITEMS
plc has provided against several categories of asset and provided for additional
liabilities incurred due to the downturn in the performance of several of the
plc Group's businesses. In addition, the plc Group has incurred restructuring
costs and charges associated with implementing new IT systems across the plc
Group. These (charges)/credits have been analysed as follows:
A OPERATING EXCEPTIONALS
2002 2001
L million L million
--------- ---------
Stock write-downs and related costs (672) --
Restructuring costs (158) --
--------- ---------
Included in cost of sales (830) --
--------- ---------
Impairment of goodwill and tangible fixed assets (3,831) --
Restructuring and systems implementation costs (399) (32)
Provisions for doubtful debts (150) --
--------- ---------
Included in administrative expenses (4,380) (32)
--------- ---------
plc Group operating exceptionals (5,210) (32)
Share of joint ventures' operating exceptionals (6) --
--------- ---------
Total operating exceptionals (5,216) (32)
========= =========
2002 2001
L million L million
--------- ---------
Network equipment and services (1,312) (29)
Mobile (39) (6)
Other (104) 30
Goodwill impairment (3,544) --
--------- ---------
(4,999) (5)
Capital (70) --
Goodwill impairment (133) --
--------- ---------
Continuing operations (5,202) (5)
Discontinued operations (14) (27)
--------- ---------
(5,216) (32)
========= =========
United Kingdom (823) 26
The Americas (407) (18)
Rest of Europe (282) (28)
Africa, Asia and Australasia (27) (12)
--------- ---------
(1,539) (32)
Goodwill impairment (3,677) --
--------- ---------
(5,216) (32)
========= =========
In addition, the plc Group has recorded its share of the operating exceptional
charges (L173 million) of its associate, Easynet Group Plc. During the year to
31 December 2001, Easynet Group Plc impaired the carrying value of its fixed
assets and goodwill and incurred restructuring and reorganisation costs.
426
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
B NON-OPERATING EXCEPTIONALS
2002 2001
L million L million
--------- ---------
Gain on disposal of discontinued operations 358 --
Gain/(loss) on disposal of fixed assets and investments in
continuing operations 18 (38)
Merger/demerger items 291 20
--------- ---------
Included in non-operating exceptional items 667 (18)
========= =========
Gain on repurchase of Bonds 166 --
--------- ---------
Included in net finance income 166 --
========= =========
The release of provisions relating to demerger share options arises due to the
significant reduction in plc's share price and comprises two elements. L247
million relates to a provision created in respect of the Marconi Launch Share
Plan which has been released from shares to be issued within equity
shareholders' (deficit)/funds. A further L44 million has been released from
provisions for liabilities and charges that related to provisions respect of
other option schemes created at the time of the MES business separation.
Merger/demerger receipts for the year ended 31 March 2001 represents a further
settlement of the MES Transaction in the year.
There were no material non-operating exceptionals relating to discontinued
operations incurred prior to disposal.
The gains on the repurchase of Bonds and the sale of subsidiaries are discussed
further in notes 21 and 26 respectively.
C EXCEPTIONAL CASH FLOWS
2002 2001
L million L million
--------- ---------
Operating
Restructuring and systems implementation costs (350) --
Other (18) (39)
--------- ---------
(368) (39)
========= =========
Non-operating
Merger/demerger receipts -- (56)
Disposal of tangible fixed assets 116 --
Sales of interests in subsidiary companies and associates 1,443 --
Repurchase of Bonds (209) --
--------- ---------
1,350 (56)
========= =========
Non-operating exceptional cash flows from the disposal of tangible fixed assets
are included in note 24 (d). Non-operating exceptional cash flows from the sales
of interests in subsidiary companies and associates are included in note 24 (e).
Repurchase of Bonds is covered in notes 21 and 25.
427
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
7 NET INTEREST PAYABLE
2002 2001
L million L million
--------- ---------
Interest receivable
Loans and deposits 31 27
Other 9 9
--------- ---------
Interest receivable -- total 40 36
--------- ---------
Income from fixed asset investments
Listed investments 2 18
Unlisted investments -- 5
--------- ---------
Income from fixed asset investments -- total 2 23
--------- ---------
Interest payable
Bank loans and overdrafts (281) (187)
Loan capital (1) (3)
Other -- (20)
--------- ---------
Interest payable -- total (282) (210)
--------- ---------
Net interest payable -- plc Group (240) (151)
--------- ---------
Share of net income receivable of joint ventures and
associates 2 1
--------- ---------
Net interest payable (238) (150)
========= =========
8 NET FINANCE INCOME
2001
2002 (restated)
L million L million
--------- ----------
Financing costs
Syndicated loan fees (5) (3)
Interest on pension scheme liabilities (note 27) (181) (187)
Finance leases (1) --
--------- ----------
Financing costs -- total (187) (190)
--------- ----------
Finance income
Exceptional gain on the repurchase of Bonds (note 21) 166 --
Expected return on pension scheme assets (note 27) 221 231
--------- ----------
Finance income -- total 387 231
--------- ----------
Net finance income 200 41
========= ==========
As discussed in note 21, the plc Group repurchased Bonds issued by Corp with a
fair value (after unamortised discount) of L375 million.
428
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
9 TAX
A TAX CHARGE/(CREDIT) ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
2001
2002 (restated)
L million L million
--------- ----------
Current taxation
Corporation tax 30 per cent. (2001 30 per cent.) -- 256
Double taxation relief -- (105)
UK (over)/under provision in respect of prior years (18) 1
Overseas tax 51 96
Overseas (over)/under provision in respect of prior years (15) 1
Joint ventures and associates 4 10
--------- ----------
22 259
--------- ----------
Deferred taxation
Changes arising from:
Timing differences -- origination and reversal 67 12
Estimated recoverable amount of deferred tax assets 121 (59)
--------- ----------
188 (47)
--------- ----------
Total 210 212
========= ==========
Included in the tax on (loss)/profit are the following amounts relating to
exceptional items:
2002 2001
L million L million
--------- ---------
Operating exceptionals (67) (11)
Non-operating exceptionals 298 28
--------- ---------
231 17
========= =========
B DEFERRED TAXATION ASSETS/(LIABILITIES)
plc Group Company
L million L million
--------- ---------
At 1 April 2001 -- as previously reported 195 --
Prior period adjustment (25) --
--------- ---------
At 1 April 2001 -- as restated 170 --
Charged to the profit and loss account (188) --
--------- ---------
AT 31 MARCH 2002 (18) --
========= =========
429
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
plc Group Company
----------------------- ----------------------
2001
2002 (restated) 2002 2001
L million L million L million L million
--------- ---------- --------- ---------
Tax effect of timing differences on:
Provisions and accruals for liabilities and
charges (12) 195 -- --
Accelerated capital allowances (6) (25) -- --
--------- ---------- --------- ---------
(18) 170 -- --
========= ========== ========= =========
Deferred tax liability balances and asset balances are shown in provisions (note
22) and debtors (note 18) respectively.
No provision is made for any taxation that may arise if reserves of overseas
subsidiaries were distributed as such distributions are not expected to occur in
the foreseeable future.
Included in the net deficit or surplus in respect of retirement benefits (note
27) is a net deferred tax liability of L68 million in respect of the year to 31
March 2001. No net deferred tax has been recognised in respect of retirement
benefits for the year to 31 March 2002.
C RECONCILIATION OF CURRENT TAXATION CHARGE FOR THE PERIOD
plc Group
----------------------
2002 2001
L million L million
--------- ---------
Loss before tax (5,664) (70)
--------- ---------
Tax credit on loss at a standard rate of 34 per cent. (2001
34 per cent.) 1,926 24
Non deductible goodwill impairment, amortisation and other
similar items (1,503) (229)
Tax losses and other deferred tax items not recognised in
current tax (478) (46)
Over/(under) provision in prior years 33 (2)
Other -- (6)
--------- ---------
Current tax charge for the year (22) (259)
========= =========
The standard rate is calculated based on the locally enacted statutory rates in
the jurisdictions in which the plc Group operates.
D FACTORS THAT MAY AFFECT FUTURE TAX CHARGES
Deferred tax assets totalling L596 million (2001 L147 million) have not been
recognised in respect of operating losses, pension scheme deficits and
exceptional expenditure as the plc Group is not sufficiently certain that it
will be able to recover those assets within a relatively short period of time.
10 EQUITY MINORITY INTERESTS
Equity minority interests represent the share of the profits less losses on
ordinary activities attributable to the interests of equity shareholders in
subsidiaries which are not wholly owned by the plc Group.
430
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
11 EQUITY DIVIDENDS
During the year to 31 March 2002, no dividends were declared. In the year to 31
March 2001 L148 million of dividends were declared with L52 million (1.9 pence
per share) being an interim dividend and L96 million (3.45 pence per share) as
the final dividend.
12 (LOSS)/EARNINGS PER SHARE
Basic and diluted (loss)/earnings per share are calculated by reference to a
weighted average of 2,789.6 million ordinary shares (2001 2,757.7 million
ordinary shares) in issue during the year.
The effect of share options is anti-dilutive for each period presented and has
therefore been excluded from the calculation of diluted weighted average number
of shares.
An adjusted basic (loss)/earnings per share has been presented in order to
highlight the underlying performance of the plc Group, and is calculated as set
out in the reconciliation of (loss)/earnings per share excluding goodwill
amortisation and exceptional items below.
2002 2001 (restated)
---------------------- ----------------------
(Loss)/ (Loss)/
(Loss)/ earnings (Loss)/ earnings
earnings per share earnings per share
L million pence L million pence
--------- --------- --------- ---------
Loss and basic loss per share (5,875) (210.6) (287) (10.4)
Exceptional items (note 6)
Operating exceptionals 5,216 187.0 32 1.2
plc Group share of associates' operating
exceptionals 173 6.2 -- --
Non-operating exceptionals (667) (23.9) 18 0.7
Gain on repurchase of Bonds (166) (6.0) -- --
Taxation arising on goodwill amortisation and
exceptional items (note 9(a)) 231 8.3 17 0.6
Goodwill amortisation 440 15.8 673 24.4
--------- --------- --------- ---------
(648) (23.2) 453 16.5
========= ========= ========= =========
431
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
13 DIRECTORS AND EMPLOYEES
A PLC DIRECTORS' REMUNERATION
Excluding
pension Pension
contributions contributions Payments to
--------------- ------------- meet pension
Salary & Other 2002 2001 2002 2001 Severence commitments
Fees benefits Bonus Total Total Total Total payments on severence
L000 L000 L000 L000 L000 L000 L000 L000 L000
-------- -------- ----- ------ ------ ----- ----- --------- ------------
D C Bonham 174 -- -- 174 -- -- -- -- --
M W J Parton 400 281 -- 681 524 177 177 -- --
M J Donovan 400 87 248 735 475 94 156 -- --
S Hare 375 58 -- 433 -- 25 -- -- --
Sir William Castell 35 -- -- 35 33 -- -- -- --
The Rt Hon The Baroness Dunn 33 -- -- 33 33 -- -- -- --
Sir Alan Rudge 40 -- -- 40 40 -- -- -- --
Hon Raymond G H Seitz 33 -- -- 33 33 -- -- -- --
N J Stapleton 40 -- -- 40 40 -- -- -- --
Sir Roger Hurn 115 7 -- 122 295 -- -- -- --
Lord Simpson 355 152 -- 507 1,002 235 425 300 --
J C Mayo 162 443 -- 605 833 644 408 600 428
R I Meakin 300 209 -- 509 519 314 314 375 463
-------- -------- ----- ------ ------ ---- ---- --------- ------------
2,462 1,237 248 3,947 3,827 1,489 1,480 1,275 891
======== ======== ===== ====== ====== ==== ==== ========= ============
NOTES
(1) Other benefits include the payment of a non-pensionable earnings supplement
in relation to a Funded Unapproved Retirement Benefit Scheme ("FURBS").
(2) Executive Directors receive certain taxable benefits, including an allowance
under the plc Group's car scheme.
(3) The fees of Non-Executive Directors were determined by the plc Board: the
basic fee paid during the year was L33,000 per annum with a further L7,000
per annum paid to the Chairmen of the plc Audit Committee and the plc
Remuneration Committee. With effect from 1 April 2002, the fees of
Non-Executive Directors were reduced to L30,000 per annum. No additional
fees will be paid to the Chairmen of plc Board Committees.
(4) Non-Executive Directors did not have service contracts and do not
participate in any of the incentive arrangements open to executive Directors
or the plc Group's pension scheme.
(5) All plc Directors were reimbursed all necessary and reasonable expenses
incurred in the performance of their duties.
(6) The bonus paid to M J Donovan related to recruitment and retention
arrangements established upon joining plc and before he became a Director.
(7) Pension contributions include contributions by plc to all pension schemes.
SHORT-TERM INCENTIVE BONUS
In the year ended 31 March 2002, plc's Remuneration Committee approved the
implementation short term incentive plan for Executive Directors with a maximum
payment of 100 per cent. of salary although owing to subsequent events, no such
plan was implemented and no short term incentive payments were made to Executive
Directors in the year ended 31 March 2002.
LONG-TERM INCENTIVES
plc, has since its formation, operated two main discretionary plans, the 1999
Stock Option Plan and the Long-Term Incentive Plan.
Options may be granted under the 1999 Stock Option Plan for a period of up to
ten years from 30 November 1999. At the July 2001 plc Annual General Meeting,
shareholders approved amendments to the plan rules giving the plc Remuneration
Committee discretion to grant options which become exercisable over varying
periods of time and which are subject to performance conditions appropriate to
the markets in which plc operates. In previous years, plc's policy on the
granting of options has been to make phased awards to key employees, based on
business and personal performance, with the value of options granted normally
ranging from 50 per cent. to 150 per cent. of basic salary per annum. Reductions
in plc's share price meant both, that option holdings built up
432
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
over a number of years (with the minimum exercise value of any option granted
under the plan having been L6.70) had lost any value as an incentive, and that
grants based on these multiples of salary would result in an unacceptable level
of dilution. In granting options to around 600 key executive, technical, and
sales and marketing staff (including Executive Directors) in November 2001, the
Remuneration Committee sought to balance an appropriate level of dilution with
the need to provide a meaningful level of incentive. In exercising its
discretion in respect of performance targets, the Remuneration Committee
recognised the need for plc to achieve its short-term objectives in order to
deliver longer-term performance. Of each option granted in November 2001, 50 per
cent. is subject to the achievement of targets for the reduction in plc's net
debt, and 50 per cent. subject to plc's Total Shareholder Return ("TSR") being
better than that of the company at the fiftieth percentile for FTSE 100
companies. In order to provide a progressive incentive, options become
exercisable, subject to the achievement of the performance conditions, over four
years.
Under the rules of the Long-Term Incentive Plan, Executive Directors can receive
an annual award of notional shares up to a maximum value of 50 per cent. of base
salary. Three years after the award, participants may be granted a nil cost
option to acquire plc Shares, up to the number covered by the award, subject to
a demanding performance condition. For Executive Directors this requires plc's
TSR to be at or above that of the top 50 companies in the FTSE 100 share index,
for other executives the requirement is for Total Business Return to be above 17
per cent. To the extent that the awards vest, the nil cost options are normally
exercisable in three equal tranches on date of grant and one and two years
thereafter. In respect of awards made in 1998, nil cost options to acquire plc
Shares were granted to Executive Directors on 18 June 2001 as follows: M W J
Parton -- 28,405; M J Donovan -- 6,036; S Hare -- 17,394. Owing to changed
circumstances, no awards were made in the year ended 31 March 2002.
In addition, plc also operates the Marconi UK Sharesave Plan and the Marconi
Launch Share Plan (under which participants are eligible to receive 1,000 nil
cost options in the event of plc's share price reaching L16.03 before November
2004) in which the Executive Directors and all eligible employees may
participate. No award was made under the UK Sharesave Plan in 2001/02.
The plc Group has previously operated a personal shareholding policy in order to
assist further in aligning the interests of executives and shareholders. The
policy requires Executive Directors to build up, over a period of time, a target
shareholding of plc Shares with a market value equal to three times annual basic
salary. The policy was not applied to the November 2001 option grant as it was
not considered to be practical to do so, given plc's share price.
RETIREMENT BENEFITS
All Executive Directors are members of the plc Group's pension scheme, the GEC
1972 Plan (the "UK Plan"). Members contribute at the rate of 3 per cent. of
salary subject to limits imposed by the Inland Revenue. plc contributions made
during the year ended 31 March 2002 amounted to 6.6 per cent. of salary
similarly restricted (2001 6.6 per cent.). plc has announced that, with effect
from 6 April 2002, it will increase employers' contributions to 14.2 per cent.
of salary. Basic salary is the only element of remuneration that is pensionable
other than for S Hare whose bonuses are pensionable in accordance with the terms
of the UK Plan. As with all employees who joined the Plan prior to the
introduction of the statutory earnings cap on pensions introduced in April 1989,
S Hare's bonus is pensionable. Further details about the plc Directors' benefits
under the UK Plan are given below.
Funded unapproved retirement benefit schemes ("FURBS") were operated during the
year for five Executive Directors -- Lord Simpson, J C Mayo, M J Donovan, R I
Meakin and M W J Parton. plc makes contributions to each of the FURBS on the
advice of the actuary; such contributions are calculated to produce a capital
sum targeted to provide benefits at the normal retirement age equivalent to a
two-thirds pension. The targeted benefit takes into account the capital value of
benefits arising from membership of the UK 1972 Plan and any relevant benefit in
payment or otherwise arising from previous employment. Normal retirement age is
62 for Executive Directors. In the event of cessation of employment before
normal retirement age, or at retirement age, each of the Directors is entitled
to the amount held in the FURBS established for him. The Remuneration Committee
has
433
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
reviewed the cost of such arrangements and has decided that it is not
appropriate to plc's changed circumstances and will seek to change the basis of
the FURBS it provides for Executive Directors and senior employees. In future,
with the exception of the FURBS established for the benefit of M J Donovan, all
FURBS will be based upon "defined contribution" rather than the present "defined
benefit" arrangements.
Prior to the year ended 31 March 2002, the contributions made to the plc
Directors' FURBS were disclosed on a defined contribution basis. For the year
ended 31 March 2002, owing to certain guarantees from plc which underpin the
Directors' pension entitlements, plc believes that it is more appropriate to
disclose the FURBS arrangements on a defined benefit basis in accordance with
Actuarial Guidance Note GN11. This is consistent with the treatment of benefits
accrued under the UK Plan.
In addition to this disclosure, the plc Directors' remuneration table above also
discloses within pension contributions, the contributions paid by plc in respect
of these FURBS arrangements and all other pension arrangements, including the UK
Plan.
(a) the pension benefits earned by the Directors of plc under the FURBS
arrangements for the period to 31 March 2002
Length of Increase in gross Net cost of unapproved Accumulated total gross
pensionable unapproved accrued pension benefits accrued unapproved accrued pension
service pension during the year during the year at 31 March 2002
Name of Director (years) L000 L000 L000
---------------- ----------- ----------------------- ------------------------ --------------------------
M J Donovan 3 10 54 68
J C Mayo* 3 25 107 159
R I Meakin* 5 7 66 102
M W J Parton 11 12 58 52
=========== ======================= ======================== ==========================
* at the date of cessation of employment
The pension entitlement shown above is that which would be paid annually at
normal retirement age based on service to 31 March 2002. The increase in accrued
pension during the year excludes any increase for inflation. J C Mayo resigned
as a Director of plc on 6 July 2001 and R I Meakin resigned from plc on 31 March
2002. During the year, plc made the following payments to the Trustee of the
FURBS in respect of individual Directors: J C Mayo L633,000 (2001 L374,000); M J
Donovan L63,966 (2001 L63,181); R I Meakin L290,000 (2001 L290,000); and M W J
Parton L147,000 (2001 L147,000). No entry is shown for Lord Simpson as, in his
case, his defined contribution entitlement due under the FURBS was completed in
the year by the payment of L212,000 to the trustee of the FURBS. The
contributions are determined each year based on actuarial advice to be
sufficient to meet the obligations. Periodically the contributions are reviewed
by the actuary.
(b) the pension benefits earned by the Directors of plc under the UK Plan
Accumulated total
Length of Increase in Cost of pension benefits accrued pension
pensionable accrued pension accrued during the year net at 31 March
service during the year of member's contributions 2002
Name of Director (years) L000 L000 L000
---------------- ----------- --------------- --------------------------- -----------------
M J Donovan 3 2 2 6
S Hare 13 18 100 67
J C Mayo* 3 7 58 12
R I Meakin* 5 2 11 9
M W J Parton 11 3 11 24
Lord Simpson* 4 1 8 8
=========== =============== =========================== =================
* at the date of cessation of employment
434
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
The pension entitlement shown above is that which would be paid annually at
normal retirement age based on service to 31 March 2002. The increase in accrued
pension during the year excludes any increase for inflation. The cost of pension
benefits accrued during the year net of member's contributions has been
calculated on the basis of actuarial advice in accordance with Actuarial
Guidance Note GN11. The cost of pension benefits accrued during the year net of
member's contributions is a measure of the capital cost of providing future
pension payments and accordingly is a liability of the plc Group's pension
arrangements and not a sum paid or due to the Directors of plc.
The ability of plc to satisfy pension obligations for plc Directors subject to
the earnings cap from plc's approved pension scheme, rather than unapproved
schemes, is influenced by benefits payable from other approved pension schemes
from their previous employment. In respect of M W J Parton, benefits accrued
under approved plans from previous employment are lower than previously
anticipated. Consequently, a higher proportion of his accrued pension benefit
can be paid from the UK Plan, as opposed to FURBS arrangements and his accrued
pension under the Plan has been increased as a result. His entitlement under the
FURBS arrangements has been reduced by a corresponding amount.
Members of the UK Plan have the option to make contributions to the Selected
Benefit Scheme (an additional voluntary contribution scheme); neither the
contributions nor the resulting benefits are included in the above table.
DEATH IN SERVICE BENEFITS
In the event of death in service, a lump sum of four times pensionable salary,
plus additional benefits for a surviving spouse and/or children, inclusive of
any death benefits arising from the UK Plan, will be held in trust for the
benefit of dependants of each of M J Donovan, S Hare and M W J Parton.
DIRECTORS' INTERESTS
The plc Directors' interests as defined by the Act (which include trustee
holdings and family interests incorporating holdings of minor children) in
shares of plc and its subsidiaries are as follows:
(A) ORDINARY SHARES
As at 31 March 2002 As at 1 April 2001
Beneficial (or later appointment)
------------------- ----------------------
D C Bonham 156,000 6,000
Sir William Castell 10,000 10,000
The Rt Hon The Baroness Dunn 10,000 10,000
M J Donovan 169,591 67,601
S Hare 30,121 1,660
M W J Parton 128,122 28,860
Sir Alan Rudge 20,000 10,000
Hon Raymond G H Seitz 11,099 11,095
N J Stapleton 21,572 13,572
=================== ======================
None of the plc Directors held any non-beneficial interests in the shares of plc
during the year ended 31 March 2002.
There have been no other changes in the interests of plc Directors between 31
March 2002 and 15 May 2002.
435
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
(B) OPTIONS
The following table shows the interests of plc Directors in options over plc
Shares:
Exercised in Lapsed in
At 1 April 2001 Granted in the year the year the year At 31 March 2002
-------------------- -------------------- ------------- ------------- --------------------
Average Average
exercise Exercise exercise
price price price
No. pence No. pence No. pence No. pence No. pence
--------- -------- --------- -------- ----- ----- ----- ----- --------- --------
M J Donovan 1,000 nil 6,036 nil 737 nil -- -- 6,299 nil
800,000 662 2,500,000 35 -- -- -- -- 3,300,000 187
S Hare 1,000 nil 17,394 nil 5,798 nil -- -- 12,596 nil
484,034 586 2,000,000 35 -- -- -- -- 2,484,034 142
M W J Parton 1,000 nil 28,405 nil -- -- -- -- 29,405 nil
1,456,591 603 3,000,000 35 8,497 203 3,136 538 4,444,958 221
========= ======= ========= ======== ===== ===== ===== ===== ========= =======
Exercisable
--------------------
From To
--------- --------
M J Donovan June 2001 Nov 2009
Oct 2001 Dec 2010
S Hare June 2001 Nov 2009
Feb 1997 Nov 2010
M W J Parton June 2001 Nov 2009
Oct 2000 Dec 2010
========= ========
---------------
NOTES
(1) All options have exercise prices that exceed the market price of a plc share
as at 28 March 2002, other than nil cost options granted under the Launch
Share Plan (1,000 shares at nil cost) and the Long-Term Incentive Plan.
(2) S Hare was appointed a director of plc on 10 April 2001 and his options are
shown at that date.
(3) Gains totalling L1,747 were made by M J Donovan in the exercise of share
options during the period 1 April 2001 to 31 March 2002. Gains totalling
L6,436 were made by S Hare in the exercise of share options during the
period 10 April 2001 to 31 March 2002. Gains totalling L11,811 were made by
M W J Parton in the exercise of share options during the period 1 April 2001
to 31 March 2002.
(4) The mid-market price of a plc share as at 28 March 2002 was 6.96 pence with
a range during the year of 6.25 pence to 424 pence.
(5) The options set out above relate to those granted under the Manager's 1984
Share Option Scheme, the 1997 Executive Share Option Scheme, the Marconi
1999 Stock Option Plan, the Phantom Option Schemes, the Marconi Launch Plan,
the Long-Term Incentive Plan, the Employee 1992 Savings-Related Share Option
Scheme and the Marconi UK Sharesave Plan.
(6) The information provided above is a summary and full details of plc
Directors' shareholdings and options are contained in plc's register of
Directors' interests.
B AVERAGE MONTHLY NUMBER OF EMPLOYEES BY SECTOR
Number ('000)
-------------
2002 2001
---- ----
Networks equipment 19 24
Networks services 8 9
Mobile 5 4
Other -- 1
---- ----
32 38
Capital 3 3
---- ----
Continuing operations 35 41
Discontinued operations 10 11
---- ----
plc Group employees 45 52
Share of joint venture employees 3 4
---- ----
plc Group and share of joint venture employees 48 56
==== ====
436
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
C STAFF COSTS
2001
2002 (restated)
L million L million
--------- ----------
Wages and salaries 1,295 1,423
Social security costs 156 164
Amounts charged to operating expenses 67 77
Amounts included in net finance income (note 27) (40) (44)
Amounts recognised in the Statement of Total Recognised
Gains and Losses (note 27) 351 73
--------- ----------
Other pension costs 378 106
--------- ----------
1,829 1,693
========= ==========
United Kingdom 942 584
The Americas 483 637
Rest of Europe 357 397
Africa, Asia and Australasia 47 75
--------- ----------
1,829 1,693
========= ==========
Included within the staff costs for the year ended 31 March 2002 are L11 million
(2001 L16 million) of expense related to ongoing remuneration costs regarding
share option schemes (see note 22).
D SHARE OPTIONS
At 31 March 2002 options were still outstanding in respect of the plc Shares
under plc's options schemes:
Amount Date
Number of shares Subscription normally
of shares L million price exercisable
----------- --------- ------------ -----------
The Employee 1992 Savings-Related Share
Option Scheme 3,872,995 0.2 203-273p 2001-2003
The 1984 Managers' Share Option Scheme 881,056 -- 183-266p 2001-2004
The 1997 Executive Share Option Scheme 12,004,398 0.6 311-384p 2001-2008
The Marconi UK Sharesave Plan 3,939,944 0.2 538-748p 2003-2006
The Marconi International Sharesave
Plan 1,387,869 0.1 737p 2004-2006
The Marconi Launch Share Plan 39,080,650 2.0 -- 2002-2006
The Marconi 1999 Stock Option Plan 122,015,797 6.1 35-1009p 2002-2010
The MSI 1995 Stock Option Plan 207,083 -- 3-274p 2001-2008
The MSI 1999 Stock Option Plan 3,185,332 0.2 212-957p 2001-2010
The MSIH Stock Option Plan 992,487 -- 212-930p 2001-2005
The Mariposa Technology, Inc 1998
Employee Incentive Plan 1,616,115 0.1 9-56p 2001-2010
The Marconi Restricted Share Plan 4,689,574 0.2 0-947p 2001-2004
The Phantom Option Scheme 72,753,885 3.6 5-1250p 2001-2009
Long Term Incentive Plan 772,188 -- -- 2001-2003
=========== ========= ============ ===========
437
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
14 GOODWILL
Cost
L million
---------
At 1 April 2001 7,313
Acquisitions (note 26 (a)) 39
Adjustments in respect of prior-year acquisitions (note
26(a)) (49)
Disposals (505)
Exchange rate adjustment 14
---------
AT 31 MARCH 2002 6,812
=========
Amortisation
L million
------------
At 1 April 2001 (1,918)
Charged to profit and loss account (431)
Impairment (3,677)
Disposals 142
Exchange rate adjustment (51)
------------
AT 31 MARCH 2002 (5,935)
============
NET BOOK VALUE AT 31 MARCH 2002 877
Net book value at 31 March 2001 5,395
============
The impairment loss has been calculated using forecast cash flows adjusted by a
15 per cent. discount rate.
438
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
15 TANGIBLE FIXED ASSETS
Payments
Leasehold property Fixtures, on
--------------------- fittings, account and
Freehold Plant and tools and assets under
property Long Short machinery equipment construction Total
plc Group L million L million L million L million L million L million L million
--------- --------- --------- --------- --------- --------- ------------ ---------
Cost at 1 April 2001 284 20 48 737 709 197 1,995
Exchange rate
adjustment (3) -- (1) (10) (4) (1) (19)
Reclassification 14 (4) (21) (40) 51 -- --
Additions 13 1 2 128 84 124 352
Businesses acquired 1 -- -- 1 1 -- 3
Completed
construction 1 -- -- 26 19 (46) --
Disposals (63) (3) (2) (65) (106) -- (239)
Businesses disposed (87) (3) (19) (257) (158) (234) (758)
--------- --------- --------- --------- --------- ------------ ---------
COST AT 31 MARCH 2002 160 11 7 520 596 40 1,334
--------- --------- --------- --------- --------- ------------ ---------
Depreciation at 1
April 2001 62 3 13 365 410 -- 853
Exchange rate
adjustment (1) -- -- (7) (2) -- (10)
Reclassification 10 (1) (5) (14) 10 -- --
Charged to profit
and loss account 6 1 5 96 137 -- 245
Impairment of fixed
assets 1 -- -- 116 37 -- 154
Disposals (15) -- -- (41) (68) -- (124)
Businesses disposed (26) (1) (10) (180) (89) -- (306)
--------- --------- --------- --------- --------- ------------ ---------
DEPRECIATION AT 31
MARCH 2002 37 2 3 335 435 -- 812
--------- --------- --------- --------- --------- ------------ ---------
NET BOOK VALUE AT 31
MARCH 2002 123 9 4 185 161 40 522
Net book value at 31
March 2001 222 17 35 372 299 197 1,142
========= ========= ========= ========= ========= ============ =========
The net book value of tangible fixed assets of the plc Group includes an amount
of L6 million (2001 L4 million) in respect of assets held under finance leases,
on which the depreciation charge for the year was L2 million (2001 L1 million).
Some assets have been reclassified during the year to reflect a more appropriate
categorisation of items previously aggregated in the financial statements.
439
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
16 FIXED ASSET INVESTMENTS
A JOINT VENTURES, ASSOCIATES AND OTHER
Joint ventures & associates Other investments
---------------------------------------- -----------------------------------------------
Shares Share
Cost less Goodwill of post Investment
amounts Cost less acquisition Cost or in own
written off amortisation reserves Loans valuation Provisions shares
plc Group L million L million L million L million L million L million L million
--------- ----------- ------------ ----------- --------- --------- ---------- ----------
At 1 April 2001 77 18 22 16 562 (112) 8
Additions 302 72 -- -- 80 -- 24
Disposals and repayments (60) (16) (32) (14) (321) -- (32)
Profits less losses retained -- (9) (179) -- -- -- --
Deficit on valuation of listed
investments -- -- -- -- -- (156) --
----------- ------------ ----------- --------- --------- ---------- ----------
AT 31 MARCH 2002 319 65 (189) 2 321 (268) --
=========== ============ =========== ========= ========= ========== ==========
Total
plc Group L million
--------- ---------
At 1 April 2001 591
Additions 478
Disposals and repayments (475)
Profits less losses retained (188)
Deficit on valuation of listed
investments (156)
---------
AT 31 MARCH 2002 250
=========
Additions during the year consisted mainly of Easynet Group Plc (L235 million)
and Ultramast Limited (L65 million).
MARKET VALUES
Listed fixed asset investments are stated at market value, as follows:
2002 2001
L million L million
--------- ---------
Alstom -- listed overseas -- 236
--------- ---------
Other investments -- listed in the United Kingdom 19 20
--------- ---------
Other investments -- listed overseas -- 73
========= =========
The plc Group has not provided for tax which could arise if these investments
were realised at the values stated. The plc Group estimates that the tax charge
arising would be Lnil (2001 L6 million).
On 19 June 2001, plc sold its remaining investment in Alstom.
On 26 September 2001, plc sold its remaining investment in Lagardere SCA.
On 1 February 2002, the plc Group acquired an approximate 10 per cent.
shareholding in Bookham Technology plc.
At 15 May 2002 the market value of the investments shown above was, in
aggregate, L15 million.
440
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
Number Country of
Associated Companies Class of shares held Incorporation
-------------------- --------------------------------------------- ----------- -------------
Easynet Group Plc
(71.7 per cent.) Ordinary shares of 4 pence 30,940,597 Great Britain
Convertible ordinary shares of 48,553,661
4 pence
Equity share 71.7 per cent.
Voting share 49.7 per cent.
Plessey Holdings Ltd
(50.0 per cent.) 'G' ordinary shares of L1 265,000,500 Great Britain
'S' ordinary shares of L1 --
Equity and voting share 50.0 per cent.
Easynet Group Plc's year end is 31 December 2001. As it is a company quoted on
the London Stock Exchange, its results have been accounted for under the equity
accounting method for the period from acquisition (26 July 2001) to 31 December
2001. Easynet is a network-based provider of broadband services and internet
solutions.
On 22 May 2000, the rights of former employees of GEC to exercise options and
receive a securities package from the GEC Special Purpose Trust lapsed. During
the year ended 31 March 2002, plc disposed of the assets of the GEC Special
Purpose Trust, which comprised 4,259,775 plc Shares, 1,832,588 BAE SYSTEMS plc
shares and L582,839 of BAE SYSTEMS plc Capital Amortising Loan Stock ("CALS"),
for aggregate consideration of L7 million. The trust has no remaining
investments at 31 March 2002, and will be wound up during the next financial
year.
The Marconi Employee Trust ("MET"), a discretionary trust for certain employees
and former employees of plc and its subsidiaries, was established on 1 December
1999. The trust acquires shares in order to satisfy entitlements under certain
share option schemes. The MET held assets of 3,918,574 plc Shares at 31 March
2002, with a market value of L0.3 million. Dividends receivable by MET from plc
have been waived.
The GEC Employee Share Trust ("EST"), a discretionary trust for certain
employees and former employees of plc and its subsidiaries, was established on
19 January 1995. The trust acquires shares in order to satisfy entitlements
under certain share option schemes. The EST held assets of 1,188,414 plc Shares
at 31 March 2002, with a market value of L0.1 million. Dividends receivable by
EST from plc have not been waived.
The GEC Special Purpose Trust, the MET and the EST have been consolidated. All
operating expenses incurred are charged to the plc Group profit and loss
account.
B SHARES IN PLC GROUP COMPANIES
Cost
Company L million
------- ---------
At 1 April 2001 439
Additions 255
Impairments (92)
---------
AT 31 MARCH 2002 602
=========
441
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
The plc Group's most significant operating subsidiaries (by class of business)
are:
Core businesses Country of Incorporation
--------------- ------------------------
NETWORKS EQUIPMENT AND SERVICES
Marconi Communications Ltd. Great Britain
Marconi Communications S.p.A. Italy
Marconi Communications, Inc. USA
Marconi Communications GmbH. Germany
MOBILE COMMUNICATIONS
Marconi Mobile S.p.A. Italy
CAPITAL
Marconi Applied Technologies Ltd Great Britain
OTHER
Corp Great Britain
The above list of subsidiaries includes those businesses that had a material
effect on the consolidated results to 31 March 2002.
17 STOCKS AND CONTRACTS IN PROGRESS
plc Group Company
---------------------- ----------------------
2002 2001 2002 2001
L million L million L million L million
--------- --------- --------- ---------
Raw materials and bought out components 203 637 -- --
Work in progress 241 477 -- --
Payments on account (3) (4) -- --
Long-term contract work in progress 83 80 -- --
Finished goods 196 531 -- --
--------- --------- --------- ---------
720 1,721 -- --
========= ========= ========= =========
442
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
18 DEBTORS
plc Group Company
----------------------- ----------------------
2001
2002 (restated) 2002 2001
L million L million L million L million
--------- ---------- --------- ---------
Amounts falling due within one year
Trade debtors 979 2,096 -- --
Amounts recoverable on contracts -- 37 -- --
Amounts owed by joint ventures and
associates 26 28 -- --
Other debtors 96 146 -- 6
Prepayments and accrued income 102 79 -- --
Amounts owed by Group undertakings -- -- 275 520
--------- ---------- --------- ---------
1,203 2,386 275 526
========= ========== ========= =========
Amounts falling due after more than one year
Trade debtors 16 20 -- --
Amounts recoverable on contracts -- 6 -- --
Other debtors 71 87 -- --
Prepayments and accrued income 7 14 -- --
Deferred taxation (notes 9 (b) and 22) -- 170 -- --
--------- ---------- --------- ---------
1,297 2,683 275 526
========= ========== ========= =========
19 CURRENT ASSET INVESTMENTS AND CASH AT BANK AND IN HAND
plc Group Company
---------------------- ----------------------
2002 2001 2002 2001
L million L million L million L million
--------- --------- --------- ---------
Dated securities at market value
Listed securities -- cost Lnil (2001 L25
million) -- 26 -- --
Unlisted investments 15 -- -- --
--------- --------- --------- ---------
Investments 15 26 -- --
Cash at bank and in hand 1,374 484 1 141
--------- --------- --------- ---------
1,389 510 1 141
========= ========= ========= =========
Divided between
Cash and bank deposits repayable on demand
(note 29) 1,309 259 1 141
Liquid resources (note 29) 65 251 -- --
Other investments 15 -- -- --
--------- --------- --------- ---------
1,389 510 1 141
========= ========= ========= =========
The total restricted cash was L61 million (2001 L47 million) of which L25
million (2001 Lnil) reflects cash collateral placed against bonding facilities,
L17 million (2001 L25 million) reflects cash in the captive insurance company
and L19 million (2001 L22 million) reflects cash deposited against secured loans
in Italy.
443
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
20 CREDITORS
plc Group Company
----------------------- ----------------------
2001
2002 (restated) 2002 2001
L million L million L million L million
--------- ---------- --------- ---------
Amounts falling due within one year
Bank loans and overdrafts
Repayable on demand 2,351 342 -- --
Other 44 1,018 -- --
Debenture loans 32 44 -- --
Obligations under finance leases 9 3 -- --
--------- ---------- --------- ---------
2,436 1,407 -- --
Payments received in advance 101 185 -- --
Trade creditors 512 963 -- --
Amounts owed to joint ventures and
associates 9 9 -- --
Current taxation 290 164 -- --
Other taxation and social security 15 107 -- --
Other creditors 423 363 -- --
Accruals and deferred income 282 626 -- --
Amounts owed to plc Group undertakings -- -- 207 19
Proposed dividend -- 96 -- 96
--------- ---------- --------- ---------
4,068 3,920 207 115
========= ========== ========= =========
Amounts falling due after more than one year
Bank loans and overdrafts 32 23 -- --
Debenture loans -- 78 -- --
Bonds 1,771 2,165 -- --
Obligations under finance leases -- 4 -- --
--------- ---------- --------- ---------
1,803 2,270 -- --
Payments received in advance 29 53 -- --
Trade creditors -- 1 -- --
Other creditors 70 250 -- --
--------- ---------- --------- ---------
1,902 2,574 -- --
========= ========== ========= =========
444
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
21 BORROWINGS
plc Group Company
---------------------- ----------------------
2002 2001 2002 2001
L million L million L million L million
--------- --------- --------- ---------
Bank loans and overdrafts
Secured 31 -- -- --
Unsecured 2,396 1,383 -- --
Debenture loans
Secured -- 33 -- --
Unsecured 32 89 -- --
Bonds 1,771 2,165 -- --
Obligations under finance leases 9 7 -- --
--------- --------- --------- ---------
4,239 3,677 -- --
Less amounts falling due within one year (2,436) (1,407) -- --
--------- --------- --------- ---------
1,803 2,270 -- --
========= ========= ========= =========
Analysis of repayments of long-term
borrowings
Bank loans
Between one and two years 6 23 -- --
Between two and five years 14 -- -- --
In more than five years 12 -- -- --
Bonds
Between one and two years -- 10 -- --
Between two and five years 262 358 -- --
In more than five years 1,509 1,879 -- --
--------- --------- --------- ---------
1,803 2,270 -- --
========= ========= ========= =========
Debenture loans and Bonds
Repayable at par wholly within five years
(average rate 5.6 per cent.) 262 354 -- --
Repayable at par wholly after five years
(average rate 7.5 per cent.)
Bonds 1,509 1,855
Other -- 78 -- --
--------- --------- --------- ---------
1,509 1,933 -- --
========= ========= ========= =========
BONDS
During the year ended 31 March 2002, the plc Group repurchased E67.9 million of
Eurobonds with a coupon rate of 5.625 per cent. per annum maturing on 30 March
2005, E256.7 million of Eurobonds with a coupon rate of 6.375 per cent. per
annum maturing on 30 March 2010, US$131 million of US dollar bonds with a coupon
rate of 7.75 per cent. per annum maturing 15 September 2010 and US$130.1 million
of US dollar bonds with a coupon rate of 8.375 per cent. per annum maturing 15
September 2030.
The plc Group recognised an exceptional gain within finance income on these
repurchases of L166 million.
SECURITY
The secured loans are all secured upon cash balances with the respective banks.
445
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
MATURITY
The material payment obligations greater than five years are all payable wholly
at maturity, of which L450 million refer to Corp's 6.375 per cent. Eurobond due
2010, L530 million refer to Corp's 7.75 per cent. yankee bond due 2010, and L529
million refer to Corp's 8.375 per cent. yankee bond due 2030.
More analysis of the maturity of the plc Group's debt is given in note 29.
BORROWING FACILITIES
The plc Group has no undrawn committed borrowing facilities. The undrawn
facilities available at 31 March 2002 were:
plc Group
----------------------
2002 2001
L million L million
--------- ---------
Expiring in one year or less -- 1,679
Expiring in more than one year but not more than five years -- 1,788
--------- ---------
-- 3,467
========= =========
22 PROVISIONS FOR LIABILITIES AND CHARGES
Share Deferred plc Group Company
Restructuring options tax Other Total Total
L million L million L million L million L million L million
------------- --------- --------- --------- --------- ---------
At 1 April 2001 -- as originally
reported 46 442 -- 394 882 --
Prior period adjustment -- -- -- (168) (168) --
------------- --------- --------- --------- --------- ---------
At 1 April 2001 -- as restated 46 442 -- 226 714 --
Exchange rate adjustment -- -- -- (6) (6) --
Acquisitions -- -- -- 10 10 --
Disposals (6) -- -- (32) (38) --
Transferred from debtors
(notes 9 (b), 18) -- -- (170) -- (170) --
Charged 94 26 188 174 482 --
Released (10) (52) -- (16) (78) --
Utilised (28) (237) -- (144) (409) --
------------- --------- --------- --------- --------- ---------
AT 31 MARCH 2002 96 179 18 212 505 --
============= ========= ========= ========= ========= =========
Other provisions mainly comprise expected cost of maintenance under guarantees,
other work in respect of products delivered, losses on contract work in progress
and provisions for supplier commitments. The associated outflows are generally
expected to occur over the lives of the products and contracts which are long
term in nature.
The prior period adjustment is necessary in order to reflect the adoption of
Financial Reporting Standard 17 "Retirement benefits". This is discussed further
in note 27.
446
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
23 EQUITY SHAREHOLDERS' INTERESTS
A SHARE CAPITAL
Number of shares L
---------------- -----------
Fully paid ordinary shares of 5p each
Shares allotted at 1 April 2001 2,785,189,896 139,259,495
Shares allotted under The Managers' 1984 Share Option
Scheme 14,824 741
Shares allotted under The 1992 Savings-Related Share
Option Scheme 3,007,670 150,384
Shares allotted under The 1997 Executive Share Option
Scheme 62,352 3,118
Shares allotted under Employee Share Purchase Plans 3,326,948 166,347
Shares allotted under The Mariposa 1998 Employee Incentive
Plan 411,380 20,569
Shares allotted under other option schemes 394,861 19,743
Shares allotted in respect of businesses acquired 230,889 11,544
---------------- -----------
Shares allotted at 31 March 2002 2,792,638,820 139,631,941
Unissued ordinary shares 3,207,361,180 160,368,059
---------------- -----------
Authorised 6,000,000,000 300,000,000
================ ===========
All share issues have been satisfied by cash consideration with the exception of
the shares allotted in respect of acquisitions.
B PLC GROUP RESERVES
Shares to Share Capital Revaluation Profit and
be issued premium reserves reserve loss account Total
L million account L million L million L million L million
--------- ------- --------- ----------- ------------ ---------
At 1 April 2001 -- as
previously reported 310 489 375 267 3,042 4,483
Prior period adjustment -- -- -- -- 317 317
--------- ------- --------- ----------- ------------ ---------
At 1 April 2001 -- as restated 310 489 375 267 3,359 4,800
Loss retained for the year -- -- -- -- (5,875) (5,875)
Exchange differences -- -- -- -- (66) (66)
Actuarial loss (note 27) -- -- -- -- (351) (351)
Tax credit on STRGL items -- -- -- -- 68 68
(Deducted)/added in the year (260) 7 -- (30) 9 (274)
Transferred in the year (5) 4 -- (237) 238 --
--------- ------- --------- ----------- ------------ ---------
AT 31 MARCH 2002 45 500 375 -- (2,618) (1,698)
========= ======= ========= =========== ============ =========
Shares to be issued represents the plc Shares to be issued to employees as a
result of acquisitions made.
The amount in the profit and loss reserve relating to the defined benefit
liability is L126 million (2001 L120 million asset).
Exchange gains of L17 million (2001 L265 million loss) and related tax charges
of Lnil (2001 credit of L79 million) on borrowings hedged against equity
investments denominated in foreign currencies and losses of L1 million (2001
L104 million) and related tax credits of Lnil (2001 L31 million) on associated
tax equalisation swaps have been taken to plc Group reserves.
447
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
C COMPANY RESERVES
Profit and
loss account
L million
------------
At 1 April 2001 53
Loss for the year (67)
------------
AT 31 MARCH 2002 (14)
============
Pursuant to section 230 of the Act plc is not presenting its own profit and loss
account in addition to the consolidated profit and loss account. The loss of plc
for the financial year amounted to L67 million (2001 loss L14 million).
24 CASH FLOW
A NET CASH OUTFLOW FROM OPERATING ACTIVITIES
Year to 31 March 2002
-------------------------------------
Continuing Discontinued Total
L million L million L million
---------- ------------ ---------
plc Group operating (loss)/profit after exceptionals (6,160) 45 (6,115)
Operating exceptionals (note 6 (a)) 5,202 8 5,210
---------- ------------ ---------
plc Group operating (loss)/profit before exceptionals (958) 53 (905)
Depreciation charge 227 18 245
Goodwill amortisation 417 14 431
Decrease in stock 90 5 95
Decrease in debtors 540 32 572
Decrease in creditors (423) (46) (469)
Increase in provisions 31 10 41
---------- ------------ ---------
(76) 86 10
========== ============ =========
Year to 31 March 2001
-------------------------------------
Continuing Discontinued Total
L million L million L million
---------- ------------ ---------
plc Group operating (loss)/profit after exceptionals (114) 143 29
Operating exceptionals (note 6 (a)) 5 27 32
---------- ------------ ---------
plc Group operating (loss)/profit before exceptionals (109) 170 61
Depreciation charge 184 27 211
Goodwill amortisation 651 20 671
Increase in stock (746) (18) (764)
Increase in debtors (230) (77) (307)
Increase in creditors 42 87 129
Decrease in provisions (55) (13) (68)
---------- ------------ ---------
(263) 196 (67)
========== ============ =========
448
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
B RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
2002 2001
L million L million
--------- ---------
Income from loans, deposits and investments 24 27
Interest paid (286) (160)
Dividends paid to minority interests -- (1)
--------- ---------
(262) (134)
========= =========
Of the above amount, continuing operations account for an outflow of L261
million (2001 L129 million) and discontinued operations an outflow of L1 million
(2001 L5 million).
C TAX REPAID/(PAID)
2002 2001
L million L million
--------- ---------
UK corporation tax repaid/(paid) 34 (74)
Overseas tax paid (47) (63)
--------- ---------
(13) (137)
========= =========
The figure for tax paid of L13 million includes net tax repayments of L110
million received during the year to 31 March 2002 (2001 net tax repayments of
Lnil).
Of the above amount, continuing operations account for an outflow of L9 million
(2001 L123 million) and discontinued operations an outflow of L4 million (2001
L14 million).
D CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
2002 2001
L million L million
--------- ---------
Purchases of tangible fixed assets (361) (578)
Purchases less sales of fixed asset investments (8) 527
Sales of tangible fixed assets 173 17
--------- ---------
(196) (34)
========= =========
Sales of tangible fixed assets shown above includes an amount of L116 million in
respect of disposals treated as exceptional items in the profit and loss
account.
Of the above amount, continuing operations account for an outflow of L173
million (2001 L42 million) and discontinued operations an outflow of L23 million
(2001 L8 million inflow).
449
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APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
E ACQUISITIONS AND DISPOSALS
2002 2001
L million L million
--------- ---------
Investments in subsidiary companies (note 26 (a)) (37) (388)
Investments in joint ventures (65) --
Sales of interests in subsidiary companies and associates
(note 26 (b)) 1,443 182
Net (cash)/overdraft disposed with subsidiary companies
(note 26 (b)) (316) 3
--------- ---------
1,025 (203)
========= =========
F NET CASH INFLOW FROM MANAGEMENT OF LIQUID RESOURCES
Comprising term deposits generally of less than one year and other readily
disposable current asset investments
2002 2001
L million L million
--------- ---------
Deposits made with banks and similar financial institutions (4,241) (1,325)
Deposits withdrawn from banks and similar financial
institutions 4,378 1,433
Purchases of securities issued by banks and other corporate
bodies (51) (1)
Sales of securities issued by banks and other corporate
bodies 100 59
--------- ---------
186 166
========= =========
G NET CASH INFLOW FROM FINANCING
2002 2001
L million L million
--------- ---------
Increase/(decrease) in bank loans 1,273 (918)
(Decrease)/increase in debenture loans (90) 27
(Decrease)/increase in Bonds (209) 1,213
Capital element of finance lease repayments (2) (6)
--------- ---------
972 316
========= =========
450
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
25 ANALYSIS OF NET MONETARY DEBT
Acquisitions/
disposals
At (excluding Other Exchange At
1 April cash and non-cash rate 31 March
2001 Cash flow overdrafts) changes adjustment 2002
L million L million L million L million L million L million
--------- --------- ------------- --------- ---------- ---------
Cash and bank deposits
repayable on demand 259 1,059 -- -- (9) 1,309
Overdrafts (342) 236 -- -- (1) (107)
---------
1,295
Liquid resources 251 (186) -- -- -- 65
Amounts falling due within
one year
Bank loans (1,018) (1,267) -- -- (3) (2,288)
Debenture loans (44) 90 -- (78) -- (32)
Finance leases (3) 2 -- (8) -- (9)
Amounts falling due after
more than one year
Bank loans (23) (6) (3) -- -- (32)
Debenture loans (78) -- -- 78 -- --
Bonds (2,165) 209 -- 166 19 (1,771)
Finance leases (4) -- -- 4 -- --
---------
(972)
--------- --------- ------------ --------- ---------- ---------
(3,167) 137 (3) 162 6 (2,865)
========= ========= ============ ========= ========== =========
As stated in note 21, the plc Group repurchased Bonds at a discount resulting in
a non cash movement of L166 million.
451
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APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
26 ACQUISITIONS AND DISPOSALS
A INVESTMENTS IN SUBSIDIARY COMPANIES
During the year all acquisitions were made and accounted for using the
acquisition method.
Changes in the structure of the plc Group are shown in the plc Directors'
Report.
Analysis of fair value of identifiable net assets of subsidiaries acquired in
the year
Accounting
Fair value policy 2002 2001
Book value adjustments adjustments Total Total
L million L million L million L million L million
---------- ----------- ----------- --------- ---------
Tangible fixed assets 3 -- -- 3 24
Investments 6 -- (6) -- --
Inventory 1 (1) -- -- 28
Debtors 2 -- -- 2 61
Creditors and provisions (7) (1) -- (8) (92)
Loan capital (3) -- -- (3) (19)
Finance leases -- -- -- -- (4)
---------- ----------- ----------- --------- ---------
2 (2) (6) (6) (2)
========== =========== =========== --------- ---------
Satisfied by:
Cash paid 23 388
Loan notes issued -- 31
Shares issued -- 455
Shares to be issued -- 71
Deferred consideration 10 327
--------- ---------
33 1,272
--------- ---------
Goodwill arising on current year
acquisitions 39 1,274
--------- ---------
Deferred consideration paid in
respect of prior acquisitions 14 --
Adjustment to consideration in
respect of prior acquisitions (77) --
Additional fair value adjustments
in respect of prior acquisitions 14 --
--------- ---------
Net (reduction)/addition in
goodwill (10) 1,274
========= =========
Following the adjustments to consideration on the acquisition of Splice, MSI,
Mariposa and Albany Partnership, goodwill has been reduced by L45 million, L19
million, L4 million and L2 million, from L101 million, L510 million, L195
million and L71 million respectively.
Additional consideration paid in respect of Bosch Public Networks during the
year increased goodwill to L51 million from L44 million.
The fair value adjustments in respect of prior year acquisitions principally
relate to additional provisions for fixed assets and inventory on the
acquisition of Systems Management Specialists. These adjustments increased
goodwill from L90 million to L104 million.
452
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APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
Goodwill arising in the year is attributable to the following:
2002 2001
Total Total
L million L million
--------- ---------
Northwood Technologies Inc. 19 --
Telit Networks S.p.A. 15 --
Metapath Software International, Inc. -- 510
Mariposa Technology, Inc -- 195
Splice Transmissao SA -- 101
Systems Management Specialists, Inc. -- 90
Other 5 334
--------- ---------
Goodwill arising on acquisitions in the year 39 1,230
--------- ---------
Metapath Software International, Inc. (19) --
Mariposa Technology, Inc (4) --
Splice Transmissao SA (45) --
Bosch Public Networks 7 --
Systems Management Specialists, Inc. 14 --
Albany Partnership (2) --
Other -- 44
--------- ---------
Adjustments to purchase consideration and fair values in
respect of acquisitions in the prior year (49) 44
--------- ---------
Net (reductions in)/additions to goodwill (10) 1,274
========= =========
Northwood Technologies Inc. and Telit Networks S.p.A. were acquired on 24 May
2001 and 18 April 2001 respectively.
453
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
B SALES OF INTERESTS IN SUBSIDIARIES AND ASSOCIATES
Medical Commerce Data 2002 2001
Systems Systems Systems Other Total Total
L million L million L million L million L million L million
--------- --------- --------- --------- --------- ---------
Net assets sold
Tangible fixed assets 97 70 10 275 452 23
Investments in joint
ventures and associates 7 1 -- 89 97 44
Inventory 161 49 21 9 240 45
Debtors 374 82 49 31 536 65
Cash at bank 18 11 10 289 328 --
Overdrafts (1) (9) (2) -- (12) (3)
Creditors and provisions (281) (94) (33) (438) (846) (39)
Goodwill 152 79 40 92 363 7
--------- -------- --------- --------- --------- ---------
527 189 95 347 1,158 142
--------- -------- --------- --------- --------- ---------
Accounted for by:
Cash consideration, net of
transaction costs paid 729 225 283 206 1,443 182
Deferred consideration and
accrued transaction
costs (47) (7) (7) (15) (76) --
Shares received -- -- -- 263 263 --
Loan notes -- -- -- -- -- 15
--------- -------- --------- --------- --------- ---------
Profit on disposal 155 29 181 107 472 55
========= ======== ========= ========= ========= =========
The consideration received in respect of the disposal of ipsaris was 77,508,177
shares in Easynet Group Plc, representing a 70.1 per cent. holding. This
consideration was valued at L235 million.
The consideration received in respect of the disposal of the Marconi Optical
Components' business was 12,891,000 shares in Bookham Technology plc,
representing a 10 per cent. holding. This consideration was valued at L19
million.
Consideration for disposal of 25 per cent. of Marconi Communications South
Africa was a 30 per cent. holding in African Renaissance Holdings Limited. This
consideration was valued at L9 million.
The unrealised gain on disposal of ipsaris of L9 million has been taken to the
Statement of Total Recognised Gains and Losses in accordance with UITF Abstract
31, "Exchanges of businesses or other non-monetary assets for an interest in a
subsidiary, joint venture or associate".
A list of the main undertakings disposed of, and their respective dates of
completion, is as follows:
ipsaris 26 July 2001
Marconi Medical Systems 19 October 2001
Marconi Optical Components 1 February 2002
Marconi Commerce Systems 1 February 2002
Marconi Data Systems 5 February 2002
General Domestic Appliances 4 March 2002
27 POST RETIREMENT BENEFITS
Marconi operates defined benefit pension plans in the UK, other European
countries and the US and post-retirement benefit plans in the US. The most
significant plan is the GEC 1972 Plan (the "UK Plan") in the UK.
454
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APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
A full actuarial valuation for the UK Plan was carried out as at 6 April 1999. A
further actuarial investigation was performed for the UK Plan at 30 September
2001, and this was updated to 31 March 2002 by a qualified independent actuary.
For the US plans, full valuations were carried out at dates between 1 January
2001 and 31 March 2002 and updated as applicable to 31 March 2002 by independent
qualified actuaries.
For the other European unfunded plans, valuations were carried out for
accounting purposes at 31 March 2002.
The contributions made to the plans in the accounting period totalled L36
million (2001 L46 million). For the unfunded pension plans and the post
retirement medical plans, payments are made when the benefits are provided.
From 6 April 2002, company contributions to the UK Plan were 14.2 per cent. of
pensionable pay, reducing to 8.2 per cent. on 1 November 2002. Other than Italy,
where approximately 7.4 per cent. of pensionable pay is accrued, the plc Group
is not making significant contributions to its funded plans due to the high
asset values already accumulated.
The plc Group operates defined contribution schemes in addition to the defined
benefit schemes listed. Contributions to these schemes amounted to L25 million
(2001 L20 million).
The major assumptions used by the actuaries to determine the liabilities on a
FRS 17 basis for the significant defined benefit plans are set out below:
At 31 March 2002 At 31 March 2001 At 31 March 2000
---------------------- ---------------------- ----------------------
Rest of Rest of Rest of
UK the world UK the world UK the world
(% pa) (% pa) (% pa) (% pa) (% pa) (% pa)
------ ------------- ------ ------------- ------ -------------
AVERAGE ASSUMPTIONS USED:
Rate of general increase in
salaries 4.75% 4.23% 4.50% 4.92% 5.00% 4.63%
Rate of increase in
pensions in payment 2.75% 1.50% 2.50% 2.00% 3.00% 2.00%
Rate of increase for
deferred pensioners 2.75% N/A 2.50% N/A 3.00% N/A
Rate of credited interest 5.50% N/A 5.75% N/A 6.00% N/A
Discount rate applied to
liabilities 6.00% 6.85% 6.00% 7.49% 6.00% 7.64%
Inflation assumption 2.75% 2.25% 2.50% 2.44% 3.00% 2.44%
Expected healthcare trend
rates N/A 6% pre 65, N/A 7% pre 65, 9% N/A 7% pre 65,
7.5% post 65 post 65 10% post 65
reducing to reducing to reducing to
5% after 2005 5% after 2005 5% after 2005
====== ============= ====== ============= ====== =============
The UK Plan provides benefits to members on the best of three bases. One of the
bases is a money purchase underpin in which credited interest is applied to a
percentage of members' contributions. The assumption has been determined as 0.5
per cent. less than the discount rate and reflects the UK Plan Trustee's
practice in the long term of declaring credited interest broadly in line with
fund returns. The discretionary level of credited interest has been treated as a
constructive obligation.
455
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
PENSION PLANS
The assets in the UK Plan and the expected rates of return were:
Long term Long term Long term
expected Value at expected Value at expected Value at
rate of 31 March rate of 31 March rate of 31 March
return 2002 return 2001 return 2000
% L million % L million % L million
--------- --------- --------- --------- --------- ---------
Equities 8.25% 685 8.00% 1,476 8.00% 1,563
Bonds 5.25% 1,322 4.75% 1,050 4.75% 937
Property 6.75% 108 7.00% 153 6.50% 109
Cash 4.00% 384 5.00% -- 6.00% 123
-------- -------- --------
TOTAL MARKET VALUE OF ASSETS 5.95% 2,499 6.67% 2,679 6.74% 2,732
-------- -------- --------
Present value of plan
liabilities (2,506) (2,459) (2,515)
-------- -------- --------
Net pension (liability)/asset
before deferred tax (7) 220 217
Deferred tax liability -- (66) (65)
-------- -------- --------
Net pension (liability)/asset
after deferred tax (7) 154 152
======== ======== ========
The assets in the overseas plans and the expected rates of return were:
Long term Long term Long term
expected Value at expected Value at expected Value at
rate of 31 March rate of 31 March rate of 31 March
return 2002 return 2001 return 2000
% L million % L million % L million
--------- --------- --------- --------- --------- ---------
Equities 10.00% 89 10.00% 336 10.00% 306
Bonds 6.00% 71 6.00% 146 6.00% 133
Other 9.00% 18 9.00% 60 9.00% 54
-------- -------- --------
TOTAL MARKET VALUE OF ASSETS 8.30% 178 8.81% 542 8.81% 493
-------- -------- --------
Present value of plan
liabilities (259) (524) (443)
-------- -------- --------
Net pension (liability)/asset
before deferred tax (81) 18 50
Deferred tax liability (9) (20) (52)
-------- -------- --------
Net pension (liability)/asset
after deferred tax (90) (2) (2)
======== ======== ========
OTHER POST RETIREMENT BENEFITS
Present value of plan
liabilities and net pension
liability before deferred
tax (38) (50) (50)
Deferred tax asset 9 18 18
-------- -------- --------
Net pension liability after
deferred tax (29) (32) (32)
======== ======== ========
456
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
Analysis of the amount charged to operating profit
2002 (L million) 2001 (L million)
---------------------------------------- ----------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
Pension Pension medical Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- --------- ---------- ----- ------- --------- ---------- -----
Current service cost 37 16 1 54 46 16 1 63
Past service cost -- -- -- -- -- 2 -- 2
(Gain)/loss on settlements (2) 4 (14) (12) -- -- -- --
Loss/(gain) on curtailments -- -- -- -- -- 1 (9) (8)
------- --------- ---------- ----- ------- --------- ---------- -----
Total operating charge 35 20 (13) 42 46 19 (8) 57
======= ========= ========== ===== ======= ========= ========== =====
Analysis of the amount credited to other finance income
2002 (L million) 2001 (L million)
---------------------------------------- ----------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
Pension Pension medical Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- --------- ---------- ----- ------- --------- ---------- -----
Expected return on pension scheme assets 174 47 -- 221 181 50 -- 231
Interest on pension scheme liabilities (142) (36) (3) (181) (147) (36) (4) (187)
------- --------- ---------- ----- ------- --------- ---------- -----
TOTAL FINANCE INCOME 32 11 (3) 40 34 14 (4) 44
======= ========= ========== ===== ======= ========= ========== =====
NET INCOME/(COST) 3 9 (10) 2 12 5 (4) 13
======= ========= ========== ===== ======= ========= ========== =====
The net income/(cost) represents the operating charge less net finance income.
Analysis of amount recognised in the consolidated statement of total recognised
gains and losses ("STRGL")
2002 (L million) 2001 (L million)
---------------------------------------- ----------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
Pension Pension medical Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- --------- ---------- ----- ------- --------- ---------- -----
Actual return less expected return on
pension scheme assets (gains)/losses 218 59 -- 277 139 47 -- 186
Experience (gains) and losses arising on the
scheme liabilities (20) 10 1 (9) 41 9 1 51
Changes in assumptions underlying the
present value of the scheme liabilities
(gains)/losses 52 29 2 83 (166) 1 1 (164)
------- --------- ---------- ----- ------- --------- ---------- -----
Actuarial loss recognised in STRGL 250 98 3 351 14 57 2 73
======= ========= ========== ===== ======= ========= ========== =====
The main element of the amount recognised in the STRGL in both years has
resulted from the difference between the actual rate of return and expected rate
of return on the plans' assets. For both years, actual investment returns in the
UK and US plans fell well below expected investment returns resulting in
substantial asset losses.
The second largest element has been the gains and losses resulting from changes
in assumptions underlying the present value of the plans' liabilities. These
have resulted principally from the changes in assumptions used at each year end
for the Plan. At 31 March 2001, the assumed rates of increase in inflation,
salary increases and pension increases fell compared with those used at 31 March
2000. These changes resulted in a decrease in the present value of the
liabilities at 31 March 2001 compared with those calculated at 31 March 2000,
and this gave rise to a gain over the year. The assumptions were all increased
at 31 March 2002, resulting in an increase in the
457
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
present value of liabilities at 31 March 2002 compared with those calculated at
31 March 2001, and this gave rise to a loss over the year.
Movement in surplus during the year
2002 (L million) 2001 (L million)
---------------------------------------- ----------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
Pension Pension medical Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- --------- ---------- ----- ------- --------- ---------- -----
Surplus/(deficit) at the beginning of the
year 220 18 (50) 188 217 50 (50) 217
Movement in year:
Current service cost (37) (16) (1) (54) (46) (16) (1) (63)
Contributions and benefit payments 26 10 5 41 29 17 4 50
Past service costs -- -- -- -- -- (2) -- (2)
Settlement gain/(loss) 2 (4) 14 12 -- -- -- --
Curtailment (loss)/gain -- -- -- -- -- (1) 9 8
Other finance income/(charge) 32 11 (3) 40 34 14 (4) 44
Actuarial loss (250) (98) (3) (351) (14) (57) (2) (73)
Foreign exchange -- (2) -- (2) -- 13 (6) 7
------- --------- ---------- ----- ------- --------- ---------- -----
(DEFICIT)/SURPLUS AT THE END OF THE YEAR (7) (81) (38) (126) 220 18 (50) 188
======= ========= ========== ===== ======= ========= ========== =====
The net (deficit) or surplus is analysed by jurisdiction as follows:
2002 (L million) 2001 (L million)
---------------------------------------- ----------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
Pension Pension medical Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- --------- ---------- ----- ------- --------- ---------- -----
Surpluses -- 28 -- 28 220 127 -- 347
Deficits (7) (109) (38) (154) -- (109) (50) (159)
------- --------- ---------- ----- ------- --------- ---------- -----
NET (DEFICIT)/SURPLUS AT THE END OF THE YEAR (7) (81) (38) (126) 220 18 (50) 188
======= ========= ========== ===== ======= ========= ========== =====
History of experience gains and losses
2002 2001
---------------------------------------- ----------------------------------------
Rest of Post Rest of Post
UK the world retirement UK the world retirement
Pension Pension medical Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- --------- ---------- ----- ------- --------- ---------- -----
Difference between the expected and actual
return on scheme assets (gains)/losses:
amount (L million) 218 59 -- 277 139 47 -- 186
percentage of scheme assets (%) 8.7% 33.1% -- 10.3% 5.2% 8.7% -- 5.8%
Experience (gains) and losses on scheme
liabilities:
amount (L million) (20) 10 1 (9) 41 9 1 51
percentage of the present value of the
scheme liabilities (%) (0.8)% 3.9% 2.6% (0.3)% 1.7% 1.7% 2.0% 1.7%
Total amount recognised in statement of
total recognised (gains) and losses:
amount (L million) 250 98 3 351 14 57 2 73
percentage of the present value of the
scheme liabilities (%) 10.0% 37.8% 7.9% 12.5% 0.6% 10.9% 4.0% 2.4%
======= ========= ========== ===== ======= ========= ========== =====
The assets and liabilities relating to certain of the overseas pension schemes
are subject to final adjustment after the separation of the schemes as part of
the disposal of the businesses that support them.
458
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
28 OTHER INFORMATION
A CONTINGENT LIABILITIES
plc Group Company
---------------------- ----------------------
2002 2001 2002 2001
L million L million L million L million
--------- --------- --------- ---------
At 31 March 10 25 4,835 --
========= ========= ========= =========
Contingent liabilities relate mainly to the cost of legal proceedings, which in
the opinion of plc, are not expected to have a materially adverse effect on the
plc Group.
The plc Group is engaged in a number of legal proceedings relating to class
shareholder actions, patent and other claims under contracts and in respect of a
dispute in relation to the purchase of a shareholding. The plc Group is
vigorously defending these cases, the estimated cost of which is disclosed
above, and plc currently believes that the claims are unlikely to be settled for
amounts resulting in material cash or other asset outflows.
plc has guaranteed indebtedness and obligations of certain UK subsidiary
undertakings including indebtedness related to Bond issues, which at 31 March
2002 amounted to L4,835 million (2001 L3,608 million).
At 31 March 2002, the plc Group had provided third parties with Guarantees and
performance Bonds, the exercise of which is considered to be remote.
B CAPITAL EXPENDITURE
plc Group Company
---------------------- ----------------------
2002 2001 2002 2001
L million L million L million L million
--------- --------- --------- ---------
Commitments contracted at 31 March 3 93 -- --
========= ========= ========= =========
459
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
C OPERATING LEASES
plc Group Company
---------------------- ----------------------
2002 2001 2002 2001
L million L million L million L million
--------- --------- --------- ---------
Charges in the year
Land and buildings 39 37 -- --
Other items 12 16 -- --
--------- --------- --------- ---------
51 53 -- --
--------- --------- --------- ---------
Amounts payable under operating leases which
fall due in the next financial year
Land and buildings, leases expiring
Within one year 3 11 -- --
Between two and five years 10 22 -- --
After five years 44 14 -- --
Other items, leases expiring
Within one year 3 3 -- --
Between two and five years 13 12 -- --
After five years -- 7 -- --
--------- --------- --------- ---------
73 69 -- --
========= ========= ========= =========
D FEES PAID TO AUDITORS
plc Group Company
---------------------- ----------------------
2002 2001 2002 2001
L million L million L million L million
--------- --------- --------- ---------
Audit services 2 2 -- --
Audit-related services 4 4 -- --
Tax services and other compliance work 2 1 -- --
Business support and other services 3 2 -- --
--------- --------- --------- ---------
11 9 -- --
========= ========= ========= =========
All business support and other services were awarded after a competitive
tendering process had been undertaken.
Of the amounts shown above, L9.2 million (2001 L8.4 million) was charged to
administrative expenditure and L1.4 million (2001 L nil) against our disposal
programme as a non-operating exceptional item. L5.0 million (2001 L2.4 million)
of the amounts charged to administrative expenditure were classified as
exceptional items associated with the restructuring of the plc Group's
activities. L0.1 million (2001 L0.8 million) was capitalised as part of the
investment in newly acquired subsidiaries.
29 FINANCIAL INSTRUMENTS
Treasury policy and the plc Group's use of financial instruments are dealt with
in the plc Group Financial Management report. Short-term debtors and creditors
have been excluded from all disclosures below except the currency profile.
460
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
A CURRENCY AND INTEREST RATE RISK PROFILE OF FINANCIAL LIABILITIES
Financial assets
After taking into account interest rate swaps and forward currency contracts,
the interest rate profile of the plc Group's financial assets at 31 March 2002
and 31 March 2001 was:
31 MARCH 2002
Fixed rate Non-interest
------------------- bearing
Non- Average weighted
Floating Fixed interest interest Weighted average
Total rate rate bearing rate period period
L million L million L million L million % years years
--------- --------- --------- --------- -------- -------- ------------
Sterling 278 278 -- -- -- -- --
US dollars 738 738 -- -- -- -- --
Euro 255 239 -- 16 -- -- 1.4
Other 119 119 -- -- -- -- --
--------- --------- --------- --------- -------- -------- ------------
Total 1,390 1,374 -- 16 -- -- 1.4
--------- --------- --------- --------- -------- -------- ------------
Analysed between
Cash and bank deposits
repayable on demand
(note 19) 1,309 1,309 -- --
Liquid resources (note 19) 65 65 -- --
Long-term debtors and
amounts recoverable on
contracts 16 -- -- 16
--------- --------- --------- ---------
1,390 1,374 -- 16
========= ========= ========= =========
461
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
31 MARCH 2001
Fixed rate Non-interest
------------------- bearing
Non- Average weighted
Floating Fixed interest interest Weighted average
Total rate rate bearing rate period period
L million L million L million L million % years years
--------- --------- --------- --------- -------- -------- ------------
Sterling 241 236 4 1 5.0 0.1 3.2
US dollars 77 44 22 11 5.2 1.0 3.6
Euro 127 120 4 3 3.0 1.0 1.5
Other 91 74 6 11 3.3 0.5 3.8
--------- --------- --------- --------- -------- -------- ------------
Total 536 474 36 26 4.6 0.8 3.4
--------- --------- --------- --------- -------- -------- ------------
Analysed between
Cash and bank deposits
repayable on demand
(note 19) 259 245 14 --
Liquid resources (note 19) 251 229 22 --
Long-term debtors and
amounts recoverable on
contracts 26 -- -- 26
--------- --------- --------- ---------
536 474 36 26
========= ========= ========= =========
462
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
Financial liabilities
After taking into account interest rate swaps and forward currency contracts,
the interest rate profile of the plc Group's financial liabilities at 31 March
2002 and 31 March 2001 was:
31 MARCH 2002
Fixed rate Non-interest
------------------- bearing
Non- Average weighted
Floating Fixed interest interest Weighted average
Total rate rate bearing rate period period
L million L million L million L million % years years
--------- --------- --------- --------- -------- -------- ------------
Sterling 683 680 -- 3 -- -- 1.9
US dollars 2,662 809 1,830 23 7.2 13.5 2.1
Euro 853 403 447 3 6.4 8.0 1.7
Other 70 70 -- -- -- -- --
--------- --------- --------- --------- -------- -------- ------------
Total 4,268 1,962 2,277 29 7.0 12.4 2.1
--------- --------- --------- --------- -------- -------- ------------
Analysed between
Borrowings (note 21) 4,239 1,962 2,277 --
Long-term trade creditors
and payments in advance 29 -- -- 29
--------- --------- --------- ---------
4,268 1,962 2,277 29
--------- --------- --------- ---------
Maturity profile of
financial liabilities
In one year or less, or on
demand 2,436
In more than one year, but
no more than two years 25
In more than two years,
but no more than five
years 286
In more than five years 1,521
---------
4,268
=========
463
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
31 MARCH 2001
Fixed rate Non-interest
------------------- bearing
Non- Average weighted
Floating Fixed interest interest Weighted average
Total rate rate bearing rate period period
L million L million L million L million % years years
--------- --------- --------- --------- -------- -------- ------------
Sterling 195 147 -- 48 -- -- 9.2
US dollars 2,172 148 2,024 -- 7.3 14.9 --
Euro 1,273 593 674 6 6.2 8.5 1.5
Other 91 76 15 -- 10.5 0.4 --
--------- --------- --------- --------- -------- -------- ------------
Total 3,731 964 2,713 54 7.0 13.2 8.3
--------- --------- --------- --------- -------- -------- ------------
Analysed between
Borrowings (note 21) 3,677 964 2,713 --
Long-term trade creditors
and payments in advance 54 -- -- 54
--------- --------- --------- ---------
3,731 964 2,713 54
--------- --------- --------- ---------
Maturity profile of
financial liabilities
In one year or less, or on
demand 1,407
In more than one year, but
no more than two years 42
In more than two years,
but no more than five
years 365
In more than five years 1,917
---------
3,731
=========
Floating rate borrowings and assets bear interest based on relevant national
LIBOR equivalents.
B CURRENCY PROFILE
At 31 March 2002 and 31 March 2001, after taking into account the effects of
currency swaps and forward foreign exchange contracts, the plc Group's currency
exposures, excluding borrowings treated as hedges, were:
31 MARCH 2002
Net foreign currency monetary assets/(liabilities)
----------------------------------------------------------
Sterling US dollars Euro Other Total
Functional currency of plc Group operation L million L million L million L million L million
------------------------------------------ --------- ---------- --------- --------- ---------
Sterling -- (16) 31 20 35
US dollars -- -- -- 26 26
Euro 17 -- -- 15 32
Other 2 3 -- -- 5
--------- ---------- --------- --------- ---------
Total 19 (13) 31 61 98
========= ========== ========= ========= =========
464
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
31 MARCH 2001
Net foreign currency monetary assets/(liabilities)
----------------------------------------------------------
Sterling US dollars Euro Other Total
Functional currency of plc Group operation L million L million L million L million L million
------------------------------------------ --------- ---------- --------- --------- ---------
Sterling -- 6 1 12 19
US dollars 1 -- 1 (16) (14)
Euro 46 -- -- 7 53
Other 7 4 4 -- 15
--------- ---------- --------- --------- ---------
Total 54 10 6 3 73
========= ========== ========= ========= =========
The plc Group's net monetary debt and net assets by currency at 31 March 2002
and 31 March 2001 were:
31 MARCH 2002
Net assets Net Net
before net monetary (liabilities)/
monetary debt debt assets
Functional currency of plc Group operation L million L million L million
------------------------------------------ ------------- --------- --------------
Sterling (1,244) (2,928) (4,172)
US dollars 2,083 52 2,135
Euro 329 17 346
Other 151 (6) 145
------------- --------- --------------
Total 1,319 (2,865) (1,546)
============= ========= ==============
31 MARCH 2001
Net assets Net Net
before net monetary (liabilities)/
monetary debt debt assets
Functional currency of plc Group operation L million L million L million
------------------------------------------ ------------- --------- --------------
Sterling 1,139 (3,028) (1,889)
US dollars 6,124 21 6,145
Euro 597 (184) 413
Other 261 24 285
------------- --------- --------------
Total 8,121 (3,167) 4,954
============= ========= ==============
465
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
C FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
The book values and fair values of the plc Group's financial assets and
liabilities at 31 March 2002 and 31 March 2001 were:
Book value Fair value
--------------------- ---------------------
2002 2001 2002 2001
L million L million L million L million
--------- --------- --------- ---------
Short-term financial liabilities and current
portion of long-term borrowings (2,436) (1,407) (2,436) (1,407)
Long-term borrowings and long-term financial
liabilities (1,832) (2,324) (593) (2,257)
Financial assets 1,390 536 1,389 528
Interest rate swaps -- -- (1) (7)
Forward foreign currency contracts -- -- -- 6
Tax equalisation swaps -- (25) -- (13)
Equity swaps (160) (13) (160) (215)
========= ========= ========= =========
The fair values of the traded outstanding long-term borrowings have been
determined by references available from the markets on which the instruments are
traded. Forward foreign currency contracts, interest rate swaps and other fair
values have been calculated by discounting cash flows at prevailing interest
rates.
The book value of the equity swap reflects the existing provisions in respect of
the share option scheme exposures to which the swap relates. The fair value
includes accrued interest of L40 million which is fully provided for in the book
value. The book and fair values are net of collateral paid of L214 million. This
treatment reflects the change in circumstances due to share price movements in
the year.
D GAINS AND LOSSES ON HEDGES
The plc Group enters into forward foreign exchange contracts to eliminate the
currency exposure arising on sales and purchases denominated in foreign
currencies as soon as there is a firm contractual commitment. It also uses
interest rate swaps to manage its interest rate profile.
An analysis of these unrecognised gains and losses is as follows:
Total net
gains/
Gains Losses (losses)
L million L million L million
--------- --------- ---------
Unrecognised gains and losses on hedges at 1 April 2001 16 (98) (82)
Gains and losses arising in previous years that were
recognised in the year 16 (2) 14
--------- --------- ---------
Gains and losses arising before 1 April 2001 that were not
recognised in the year -- (96) (96)
Gains and losses arising in the year to 31 March 2002 that
were not recognised in the year 23 72 95
--------- --------- ---------
Unrecognised gains and losses on hedges at 31 March 2002 23 (24) (1)
========= ========= =========
Of which:
Gains and losses expected to be recognised in the year to 31
March 2003 1 (1) --
--------- --------- ---------
Gains and losses expected to be recognised in the year to 31
March 2004 or later 22 (23) (1)
========= ========= =========
466
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002
L8 million of the gains and L2 million of the losses unrecognised at 31 March
2001 were expected to have been recognised in the profit and loss account for
the year ended 31 March 2002.
The cumulative aggregate gains and losses which are carried forward in the
balance sheet pending their inclusion in the profit and loss account total Lnil
(2001 L25 million), of which Lnil (2001 L8 million) is expected to be included
in the profit and loss account in the next accounting period. Aggregate gains of
L25 million from previous years were recognised in the profit and loss account
for the year.
In addition to the amounts disclosed above, cumulative aggregate gains of L27
million in respect of terminated interest rate swaps were carried forward in the
balance sheet as at 31 March 2002 pending their recognition in the profit and
loss account (31 March 2001 gains of L40 million). Of these carried forward
gains, approximately L11 million is expected to be recognised in the profit and
loss account in the next accounting period (31 March 2001 gains of L12 million).
Aggregate related gains of L12 million from previous years were recognised in
the profit and loss account in the period (31 March 2001 Lnil).
30 POST BALANCE SHEET EVENTS
On 3 May 2002, the plc Group placed L850 million of cash in an arrangement with
its bankers that restricted the use of that cash to certain limited purposes
until 27 May 2002. After this date, cash can be utilised with five business
days' notice.
467
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Six months to Year to
30 September 31 March
2002 2002
Note L million L million
---- ------------- ---------
TURNOVER
Continuing operations 4 1,019 2,906
Discontinued operations 4 87 1,404
plc Group 4 1,106 4,310
Share of joint ventures -- 257
------------- --------
3 1,106 4,567
------------- --------
OPERATING (LOSS)/PROFIT
plc Group operating loss
Excluding goodwill amortisation and exceptional items (231) (474)
Goodwill amortisation (54) (431)
Operating exceptional items 5a (211) (5,210)
4 (496) (6,115)
Continuing operations (490) (6,153)
Discontinued operations (6) 38
4a (496) (6,115)
Share of operating (loss)/profit of joint ventures
Excluding goodwill amortisation and exceptional items (4) 11
Goodwill amortisation (1) (2)
Operating exceptional items (31) (6)
(36) 3
------------- --------
(532) (6,112)
plc Group and joint venture operating loss before goodwill
amortisation and exceptional items 3 (235) (463)
Share of operating loss of associates
Excluding goodwill amortisation and exceptional items (17) (1)
Goodwill amortisation (5) (7)
Goodwill impairment (27) --
Operating exceptional items (18) (173)
(67) (181)
------------- --------
OPERATING LOSS 3 (599) (6,293)
Non-operating exceptional items
(Loss)/gain on disposal of discontinued operations 5c (5) 358
(Loss)/gain on disposal of fixed assets and investments in
continuing operations 5c (9) 18
Merger/demerger items 5c -- 291
plc Group share of associates' non-operating exceptional
items 5c (3) --
(17) 667
------------- --------
(616) (5,626)
Net interest payable 6 (106) (238)
Net finance income
plc Group excluding exceptional items 2 34
Exceptional gain on repurchase of Bonds 5c -- 166
7 2 200
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
Excluding goodwill amortisation and exceptional items (356) (668)
Goodwill amortisation and exceptional items (364) (4,996)
3 (720) (5,664)
TAX (CHARGE)/CREDIT ON LOSS ON ORDINARY ACTIVITIES
Excluding tax on goodwill amortisation and exceptional
items (10) 21
Tax on goodwill amortisation and exceptional items -- (231)
8 (10) (210)
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (730) (5,874)
Equity minority interests 9 (1) (1)
------------- --------
LOSS ON ORDINARY ACTIVITIES ATTRIBUTABLE TO THE EQUITY
SHAREHOLDERS AND RETAINED LOSS FOR THE FINANCIAL YEAR (731) (5,875)
============= ========
BASIC AND DILUTED LOSS PER SHARE 11 (26.2p) (210.6p)
LOSS PER SHARE EXCLUDING GOODWILL AMORTISATION AND
EXCEPTIONAL ITEMS 11 (13.1p) (23.2p)
============= ========
468
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
CONSOLIDATED BALANCE SHEET
30 September 31 March
2002 2002
Note L million L million
---- ------------ ---------
FIXED ASSETS
Goodwill 14 672 877
Tangible assets 15 329 522
Investments: 16
Joint ventures
Share of gross assets 48 71
Share of gross liabilities (13) (11)
------------ --------
35 60
Associates 69 137
Other investments 17 53
121 250
------------ --------
1,122 1,649
------------ --------
CURRENT ASSETS
Stocks and contracts in progress 17 356 720
Debtors: amounts falling due within one year 18 803 1,203
Debtors: amounts falling due after more than one year 18 59 94
Investments 19 -- 15
Cash at bank and in hand 19 1,071 1,374
------------ --------
2,289 3,406
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 20 (3,316) (4,068)
------------ --------
NET CURRENT LIABILITIES (1,027) (662)
------------ --------
TOTAL ASSETS LESS CURRENT LIABILITIES 95 987
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 20 (1,743) (1,902)
PROVISIONS FOR LIABILITIES AND CHARGES 22 (456) (505)
------------ --------
NET ASSETS BEFORE RETIREMENT BENEFIT SURPLUSES AND
DEFICITS (2,104) (1,420)
Retirement benefit scheme surpluses 27 -- 19
Retirement benefit scheme deficits 27 (439) (145)
------------ --------
NET ASSETS AFTER RETIREMENT BENEFIT SURPLUSES AND
DEFICITS (2,543) (1,546)
============ ========
CAPITAL AND RESERVES
Called up share capital 23 140 140
Shares to be issued 23 40 45
Share premium account 23 500 500
Capital reserve 23 375 375
Profit and loss account 23 (3,607) (2,618)
------------ --------
Equity shareholders' interests (2,552) (1,558)
Equity minority interests 9 12
------------ --------
(2,543) (1,546)
============ ========
469
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
CONSOLIDATED CASH FLOW STATEMENT
Six months to Year to
30 September 31 March
2002 2002
Note L million L million
---- ------------- ---------
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES
BEFORE EXCEPTIONAL ITEMS 24a (142) 10
Exceptional cash flows from operating activities 5d (186) (368)
Net cash outflow from operating activities after
exceptional items -- continuing operations (287) (409)
Net cash (outflow)/inflow from operating activities after
exceptional items -- discontinued operations (41) 51
NET CASH OUTFLOW FROM OPERATING ACTIVITIES AFTER
EXCEPTIONAL ITEMS (328) (358)
Dividends from joint ventures and associates -- 29
Returns on investments and servicing of finance 24b (133) (262)
Tax paid 24c (13) (13)
Capital expenditure and financial investment 24d (25) (196)
Acquisitions and disposals 24e 387 1,025
Equity dividends paid to shareholders -- (95)
------------- --------
CASH (OUTFLOW)/INFLOW BEFORE USE OF LIQUID RESOURCES AND
FINANCING (112) 130
Net cash (outflow)/inflow from management of liquid
resources 24f (77) 186
Net cash (outflow)/inflow from financing
Issues of ordinary shares -- 7
Net cash (outflow)/inflow from changes in debt and
lease financing 24g (62) 972
------------- --------
(DECREASE)/INCREASE IN CASH AND NET BANK BALANCES
REPAYABLE ON DEMAND (251) 1,295
============= ========
470
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET MONETARY DEBT
Six months to Year to
30 September 31 March
2002 2002
Note L million L million
---- ------------- ---------
(Decrease)/increase in cash and net bank balances
repayable on demand (251) 1,295
Net cash outflow/(inflow) from management of liquid
resources 77 (186)
Net cash outflow/(inflow) from decrease/(increase) in
debt and lease financing 62 (972)
------------- --------
Change in net monetary debt resulting from cash flows (112) 137
Net debt disposed/(acquired) with subsidiaries 17 (3)
Other non-cash changes (54) 162
Effect of foreign exchange rate changes 168 6
------------- --------
Movement in net monetary debt in the period 19 302
Net monetary debt at 1 April 25 (2,865) (3,167)
------------- --------
Net monetary debt at the end of the period 25 (2,846) (2,865)
============= ========
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
(Loss)/profit on ordinary activities attributable to the
shareholders
plc Group (626) (5,701)
Share of joint ventures (35) 9
Share of associates (70) (183)
(731) (5,875)
Listed fixed asset investments: deficit due to movement in
share price -- (30)
Unrealised gain on exchange of businesses -- 9
Exchange differences on translation: plc Group 115 (66)
Tax charge on exchange differences (3) --
Actuarial loss recognised on retirement benefit schemes
Difference between the expected and actual return on
scheme assets (183) (277)
Changes in assumptions underlying the present value of
scheme liabilities -- losses (149) (83)
Experience (losses) and gains on scheme liabilities (41) 9
(373) (351)
Tax credit on net retirement benefit items debited in the
statement of total recognised gains and losses -- 68
------------- --------
TOTAL RECOGNISED GAINS AND LOSSES (992) (6,245)
============= ========
471
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' INTERESTS
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Total recognised gains and losses (992) (6,245)
Release of provision in respect of shares to be issued (5) (260)
plc Group share of associates' shares to be issued 3 --
Issues of ordinary shares -- 8
------------- --------
Total movement in the period (994) (6,497)
Equity shareholders' interests at 1 April (1,558) 4,939
------------- --------
Equity shareholders' interests at the end of period (2,552) (1,558)
============= ========
472
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
NOTES
1 FUNDAMENTAL UNCERTAINTY IN RESPECT OF THE APPLICATION OF THE GOING
CONCERN BASIS
Corp owes approximately L2.1 billion under a syndicated credit facility (the
"Bank Facility") which was due for repayment on 25 March 2003. Borrowings under
the facility are repayable on demand and no further funds may be drawn under its
terms. The plc Group also has in issue Bonds with a face value of approximately
L1.7 billion. plc guarantees Corp's debt obligations under the Bonds and the
Bank Facility. As at 30 September 2002, net debt of the plc Group stood at
approximately L2.8 billion.
On 29 August 2002, plc announced that non-binding indicative Heads of Terms,
which set out the principles for the financial Restructuring of Corp and plc,
had been concluded with the co-ordination committee of Syndicate Banks and an
informal ad hoc committee of Bondholders. On 16 December 2002, plc announced
that modifications to the non-binding indicative Heads of Terms had been
concluded. The non-binding indicative Heads of Terms envisage that the creditors
of Corp and plc, other than certain excluded creditors, will be subject to
schemes of arrangement ("Schemes") under which creditor claims will be
compromised in consideration for cash, New Shares and New Notes. As part of the
Restructuring Corp will become the listed parent for the Group and, following
completion of the plc Scheme, it is currently intended that plc will be
liquidated or dissolved. The financial Restructuring will leave existing plc
Shareholders with 0.5 per cent. of the equity in Corp.
On 17 March 2003, documentation for the proposed Schemes was filed with the High
Court of England and Wales, initiating the final steps towards implementation of
the Restructuring.
The non-binding indicative Heads of Terms envisage a new capital structure for
the Group that is appropriate to the latest business plan developed by the plc
Group. The implementation of this capital structure involves, among other
things, the payment of L340 million of cash (in addition to L95 million accrued
interest on Corp's financial debt, paid in September and October 2002), the
issue of New Shares and the issue of New Notes with a face value, using 30
September 2002 exchange rates, of approximately L758 million by Corp to Scheme
Creditors through the operation of the Schemes.
As part of the arrangements to implement the Restructuring, the majority of the
plc Group's cash resources are currently held in secured accounts which are
subject to interim security arrangements in favour of the plc Group's Syndicate
Banks and Bondholders (including the Bond trustees, but excluding Ancrane, a
Subsidiary of plc which holds Bonds) and also in favour of one of the Group's
ESOP Derivative Banks (who committed to support the proposed Restructuring
within the required period). At 30 September 2002, the balance of this secured
cash amounted to L735 million. The plc Group is dependent on amounts available
to it from the secured accounts in order to meet its short-term liquidity needs.
Prior to the release of interim security and so long as an enforcement event
does not occur, monthly releases from the secured accounts will be allowed in
accordance with an agreed cash flow schedule, subject to specified maximum
amounts. This agreed cash flow schedule is consistent with the plc Group's
expectations as to its liquidity needs for the period to the end of June 2003.
When the Heads of Terms were announced on 29 August 2002, the Group indicated
that the Restructuring was scheduled to be completed by 31 January 2003 (the
"Effective Date"). This date was extended to 15 March 2003 in December 2002. As
a result of the complexity of the Restructuring the Effective Date of the
Schemes is now expected to be on or around 19 May 2003. The change to the timing
of the Restructuring introduces risks associated with certain financial debt
falling due in March 2003. In particular, as noted above, the Bank Facility was
due for repayment on 25 March 2003 and interest payments were due on the Yankee
Bonds on 17 March 2003 and are due on the Eurobonds on 31 March 2003. Failure to
repay the Bank Facility has given rise to direct rights on the part of
individual Syndicate Banks to bring actions for recovery of the debt owing to
them and will, in addition, after the expiry of a five business day grace
period, result in a cross default under the Bonds. In common with the Group's
approach to other Scheme claims, pending the outcome of the Schemes, the Group
does not intend to make payment in respect of such obligations, in full or in
part.
473
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
The fact of the aforementioned payments falling due represents a risk to the
Restructuring, due to consequential legal action which Syndicate Banks or
Bondholders who are not supportive of the Restructuring process could take
against Corp or plc. However, plc is of the view that, given the timing
associated with any such legal action as well as the likely attitude of the
English and New York Courts to a creditor seeking to frustrate the Restructuring
(which is intended to be for the benefit of all Scheme creditors), these risks
should be manageable.
The interim security is subject to various enforcement events, some of which are
tied to the prospects of successfully completing the Restructuring in accordance
with the non-binding indicative Heads of Terms (and within the agreed timetable,
which is currently 30 June 2003). The occurrence of an enforcement event
entitles the requisite majority of creditors to block withdrawals from the
secured accounts and/or enforce the interim security.
The proposed Restructuring of plc is dependent on approval of the Corp and plc
Schemes of arrangement. Approval of these Schemes will be dependent on, amongst
other things, securing the necessary level of support of the Syndicate Banks,
Bondholders and other creditors whose claims will be compromised, in the
relevant creditors' meetings to be held as part of the Scheme process, as well
as the approval of the English Court and the granting of a permanent injunction
order by the US Bankruptcy Court.
Letters of current intention to support the Restructuring and to vote for the
Corp and plc Schemes were obtained from the joint lead co-ordinators of the
Syndicate Banks and from each of the members of the Bondholder committee in
December 2002. Neither plc nor Corp has received any notice of any changes to
this intention.
In the light of the information currently available to them, plc believes the
Group's Syndicate Banks, Bondholders and other creditors will support the
Restructuring and that all the conditions for the Restructuring will be
satisfied. On this basis, plc considers it appropriate to prepare the accounts
on the going concern basis. Should the plc Group's Syndicate Banks, Bondholders
and other creditors cease to support the plc Group before the completion of the
Restructuring, or should all of the conditions for the Restructuring not be met,
there would be no realistic alternative for plc and Corp but to commence
insolvency proceedings and the going concern basis of preparation would no
longer be applicable; adjustments would be necessary to record additional
liabilities and to write down assets to their recoverable amount. It is not
practicable to quantify these possible adjustments.
2 ACCOUNTING POLICIES
The non-statutory financial statements have been prepared in accordance with
accounting standards applicable in the UK.
The more important plc Group accounting policies are summarised below to
facilitate the interpretation of the financial statements.
ACCOUNTING CONVENTION
The non-statutory financial statements are prepared under the historical cost
convention, as modified by the valuation of listed current and fixed asset
investments.
BASIS OF CONSOLIDATION
The non-statutory financial statements consolidate the accounts of plc and all
of its Subsidiary undertakings (plc Group companies or Subsidiaries). All
inter-company balances and transactions have been eliminated upon consolidation.
All plc Group companies' accounts have been prepared for the six months ended 30
September 2002.
TURNOVER
Turnover, excluding VAT, comprises sales to outside customers, and the plc
Group's percentage interest in sales by their joint ventures. The plc Group
records transactions as sales when the delivery of products or performance
474
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
of services takes place in accordance with the terms of sale. Turnover on long
term contracts is calculated as a proportion of the total contract value based
on the ratio of costs incurred to date compared with the total expected costs
for that contract.
CURRENCY TRANSLATION
Transactions denominated in foreign currencies are translated into the
functional currency at the rates ruling at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the balance
sheet date are retranslated at the rates ruling at that date. These translation
differences are dealt with in the profit and loss account with the exception of
certain gains and losses arising under hedging transactions as described below.
Profits and losses of overseas subsidiaries, joint ventures and associates and
cash flows of overseas subsidiaries are translated at the average rates of
exchange during the period. Non-sterling net assets are translated at period end
rates of exchange. Key rates used are as follows:
Average rates Period-end rates
------------------------ ------------------------
30 September 31 March 30 September 31 March
2002 2002 2002 2002
------------ -------- ------------ --------
US dollar 1.5204 1.4324 1.5726 1.4240
Italian lira n/a 3,152 n/a 3,161
Euro 1.5813 1.6283 1.5913 1.6323
============ ======== ============ ========
The differences arising from the restatement of profits and losses and the
retranslation of the opening net assets/(liabilities) to period end rates are
taken to reserves.
ACQUISITIONS AND DISPOSALS
On the acquisition of a business, including an interest in an associated
undertaking, fair values are attributed to the plc Group's share of separable
net assets. Where the cost of acquisition exceeds the fair values attributable
to such net assets, the difference is treated as purchased goodwill and
capitalised in the balance sheet in the year of acquisition.
The profit or loss on the disposal or closure of a previously acquired business
includes the attributable amount of any purchased goodwill relating to that
business not previously charged to the profit and loss account.
The results and cashflows relating to a business are included in the
consolidated profit and loss account and the consolidated cashflow statement
from the date of acquisition or up to the date of disposal.
FINANCIAL INSTRUMENTS
The plc Group uses financial instruments, including interest rate swaps,
currency swaps and other derivatives, solely for the purposes of raising finance
for its operations and managing interest and currency risk associated with the
plc Group's underlying business activities. There is no trading activity in
financial instruments.
FORWARD FOREIGN EXCHANGE CONTRACTS
Forward foreign exchange contracts generally exhibit a high correlation to the
hedged items and are designated and considered effective as hedges of the
underlying assets, liabilities and firm commitments. Gains and losses on forward
foreign exchange contracts which are designated as hedges of assets, liabilities
and firm commitments of the Group are recognised in the profit and loss account
or as adjustments to carrying amounts when the hedged transactions occurs.
475
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
HEDGES OF THE NET INVESTMENT IN OVERSEAS SUBSIDIARIES
The plc Group's policy has been to finance its activities in the same currencies
as those used for its foreign investments in order to hedge foreign currency
exposure of net investments in foreign operations. This policy is implemented
either by financing in the related currency or using derivatives, such as
currency swaps, which provide a synthetic effect of a foreign currency loan,
thereby reducing the exchange risk.
Exchange gains or losses arising on the hedging borrowings and on the notional
principal of currency swaps during their life and at termination or maturity,
together with the tax thereon, are dealt with as a movement in reserves, to the
extent they offset losses or gains on the hedged investment. In respect of
hedges of net investments, the plc Group enters into tax equalisation swaps, the
gains and losses of which are recognised through the statement of total
recognised gains and losses (in accordance with the underlying transaction and
the tax thereon) with any forward premium or discount recognised over the life
of the contract in the profit and loss account.
EQUITY FORWARD CONTRACTS
The plc Group has established three trusts for the purchase of shares and
share-related instruments for the benefit of employees -- the Marconi Employee
Trust ("MET"), the GEC Employee Share Trust and the GEC Special Purpose Trust.
These trusts are consolidated in the financial statements of the plc Group.
The independent trustee of the MET, Bedell Cristin Trustees Limited ("BCT") has
entered into contracts (the "Equity Forward Contracts") to hedge the potential
cost of the plc Group's share plans. On or before maturity of the Equity Forward
Contracts, the MET may either take delivery of plc Shares at the contracted
purchase price (including accrued interest) or may cash settle the contracts for
a net amount based on the difference between the plc share price and this
contract purchase price (including accrued interest). The obligation to settle
the contracts including accrued interest is classified as a provision within the
plc Group's balance sheet. This liability is calculated by taking the shares
under contract and applying the difference between plc's share price and the
contract purchase price per share, adjusted for brokerage costs, on a
contract-by-contract basis.
No cash is exchanged until the maturity of the contract (or earlier upon either
option exercises by employees or cash settlement of the contracts at the MET's
option) unless collateral is required. Where the MET has provided collateral
this has been offset against the provision in the balance sheet.
Interest costs on the equity notional are calculated at LIBOR plus a margin less
dividends, if any, and are accrued on a monthly basis, with a debit to interest
and a credit to provisions.
INTEREST RATE RISK EXPOSURE
The plc Group hedges its exposure to movements in interest rates associated with
its borrowing primarily by means of interest rate swaps and forward rate
agreements. Payments and receipts under interest rate swap agreements
specifically designated for hedging purposes are recorded in the profit and loss
account on an accruals basis.
Gains and losses arising on termination of hedging instruments where the
underlying exposure remains are recognised in the profit and loss account over
the remaining life of the underlying exposure.
TANGIBLE FIXED ASSETS
Property, plant, machinery, fixtures, fittings, tools and equipment are recorded
at cost and depreciated on a straight-line basis over their estimated useful
lives from the time they are brought into use. Freehold land does not bear
depreciation where the original cost of purchase was separately identified.
Provision is made for any impairment.
476
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
Tangible fixed assets are depreciated using the following rates:
Freehold buildings -- 2 per cent. to 4 per cent. per annum
Leasehold property -- over the period of the lease or 50 years for long
leases
Plant and machinery -- 10 per cent. per annum on average
Fixtures, fittings, tools and equipment -- 10 per cent. per annum
LEASED ASSETS
Assets held under finance lease and other similar contracts, which confer rights
and obligations similar to those attached to owned asset, are capitalised as
tangible fixed assets and are depreciated over the shorter of the lease terms
and their useful lives. The capital elements of future lease obligations are
recorded as liabilities, while the interest elements are charged to the profit
and loss account over the period of the leases to produce a constant rate of
charge on the balance of the capital repayments outstanding. Hire purchase
transactions are dealt with similarly except that assets are depreciated over
their useful lives.
Rentals under operating leases are charged on a straight-line basis over the
lease term, even if the payments are not made on such a basis.
GOODWILL
Purchased goodwill is capitalised and amortised on a straight-line basis over
its estimated useful economic life. Each acquisition is separately evaluated for
the purposes of determining the useful economic life, up to a maximum of 20
years. The useful economic lives are reviewed annually and revised if necessary.
Provision is made for any impairment.
RESEARCH AND DEVELOPMENT
Expenditure incurred in the period is charged against profit unless specifically
chargeable to and receivable from customers under agreed contract terms.
STOCK
Stock is stated at the lower of cost and net realisable value. Provision is made
for obsolete, slow-moving or defective items where appropriate.
CONTRACTS IN PROGRESS
Profit on long-term contracts in progress is taken when a sale is recorded on
part-delivery of products or part-performance of services, provided that the
outcome of the contract can be assessed with reasonable certainty. Amounts
recoverable on long-term contracts, which are included in debtors, are stated at
the net sales value of the work done less amounts received as progress payments
on account. Excess progress payments are included in creditors as payments
received in advance. Cumulative costs incurred net of amounts transferred to
cost of sales, less provision for contingencies and anticipated future losses on
contracts, are included as long-term contract balances in stock.
WARRANTIES
Provisions for estimated expenses related to product warranties are made at the
time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims.
477
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
TAXATION
Taxation on profit on ordinary activities is that which has been paid or becomes
payable in respect of the profits for the year. Deferred taxation is provided in
full on timing differences that result in an obligation at the balance sheet
date to pay more tax, or a right to pay less tax, at a future date, at rates
expected to apply when they crystallise based on current tax rates and law.
Timing differences arise from the inclusion of items of income or expenditure in
taxation computations in periods different from those in which they are included
in the financial statements. Deferred tax assets are recognised to the extent
that it is regarded as more likely than not that they will be recovered.
Deferred tax assets and liabilities are not discounted.
INVESTMENTS
Joint ventures comprise long-term investments where control is shared under a
contractual arrangement. The sector analysis of turnover, profit and net assets
includes the plc Group's share of the results and net assets of joint ventures.
Associates consist of long-term investments in which the plc Group holds a
participating interest and over which it exercises significant influence.
Investments in joint ventures and associates are stated at the amount of the plc
Group's share of net assets including goodwill at 30 September 2002 derived from
audited or management accounts made up to that date, other than Easynet Group
Plc whose results are included for the six months to 30 June 2002. Loss before
taxation includes the plc Group's share of joint ventures and associates.
Other unlisted fixed asset investments are stated at cost less provision for
impairment in value. Listed fixed asset investments are stated at market value.
Current asset investments are stated at the lower of cost and net realisable
value except dated listed securities which are stated at market value.
Investments in plc's Shares, held within the GEC Employee Share Trust and the
Marconi Employee Trust, are included on the plc Group balance sheet at cost,
less provision for impairment.
PENSIONS AND OTHER POST RETIREMENT BENEFITS
The operating cost of providing pensions and other post retirement benefits, as
calculated periodically by independent actuaries, is charged to the plc Group's
operating profit or loss in the period that those benefits are earned by
employees. The financial return expected on the pension schemes' assets is
recognised in the period in which they arise as part of finance income and the
effect of the unwinding of the discounted value of the schemes liabilities is
treated as part of finance costs. The changes in value of the pension schemes'
assets and liabilities are reported as actuarial gains or losses as they arise
in the consolidated statement of total recognised gains and losses. The pension
schemes' surpluses, to the extent they are considered recoverable, or deficits
are recognised in full and presented in the balance sheet net of any related
deferred tax.
SHARE OPTIONS
The costs of awarding shares under employee share plans are charged to the
profit and loss account over the period to which the performance criteria
relate. Where share options granted lapse, any associated costs that were
treated as cost of acquisition are credited to either goodwill, or to the profit
and loss account if there is no remaining goodwill.
FINANCE COSTS
Finance costs of debt are recognised in the profit and loss account over the
term of such instruments at a constant rate on the carrying amount.
DEBT
Debt is initially stated at the amount of the net proceeds after deduction of
issue costs. The carrying amount is increased by the finance cost in respect of
the accounting period and reduced by payments made in the period.
478
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
LIQUID RESOURCES
Liquid resources comprise term deposits with an original maturity of generally
less than one year and other readily disposable current asset investments.
3 PRINCIPAL ACTIVITIES, (LOSS)/PROFIT CONTRIBUTIONS, MARKETS AND NET
ASSETS/(LIABILITIES) EMPLOYED
ANALYSIS OF RESULTS AND NET ASSETS/(LIABILITIES) BY CLASS OF BUSINESS
(Loss)/profit Turnover Net assets/(liabilities)
-------------------------- -------------------------- -------------------------
Six months to Year to Six months to Year to
30 September 31 March 30 September 31 March 30 September 31 March
2002 2002 2002 2002 2002 2002
L million L million L million L million L million L million
------------- --------- ------------- --------- ------------ ---------
Network equipment (179) (464) 600 1,804
451 607
Network services 5 35 392 969
Other (including intra-activity
sales) (31) (64) (5) (32) 11 8
------------- -------- ------------- -------- ------------ --------
(205) (493) 987 2,741 462 615
Capital (28) (74) 32 422 (19) 54
------------- -------- ------------- -------- ------------ --------
Continuing operations (233) (567) 1,019 3,163 443 669
Discontinued operations (2) 104 87 1,404 -- 196
------------- -------- ------------- -------- ------------ --------
(235) (463) 1,106 4,567 443 865
------------- --------
Goodwill and goodwill amortisation (55) (433) 672 877
Operating exceptional items (note
5a) (242) (5,216)
------------- --------
(532) (6,112)
Associates (67) (181) 69 137
------------- --------
Operating loss (599) (6,293)
Non-operating exceptional items
(note 5b) (17) 667
Net interest payable and interest
bearing assets and liabilities (106) (238) (2,838) (2,810)
Net finance income 2 200
Unallocated net liabilities (889) (615)
------------- -------- ------------ --------
(720) (5,664) (2,543) (1,546)
============= ======== ============ ========
The plc Group has divided its business into two segments: Core and Capital.
The plc Group's Core businesses are the provision of optical networks, broadband
routing and switching and broadband access technologies and associated
installation, maintenance and other value-added services. Their customer base
includes telecommunications companies, providers of Internet services for their
public networks, and to certain large corporations, government departments and
agencies, utilities and educational institutions for their private networks.
Core activities are divided into Network equipment, Network services and Other.
Capital comprises the businesses the plc Group manages for value and ultimately
for disposal.
Goodwill arising on acquisitions is amortised over a period not exceeding 20
years. Separate components of goodwill are identified and amortised over the
appropriate useful economic life. The remaining goodwill on the balance sheet
will be amortised over an average period of approximately 7 years.
Comparative figures have been restated to reflect the changes in the plc Group
structure during the period to 30 September 2002. The net assets of Network
equipment and Network services cannot be separately identified as the same
assets are, generally, used to generate sales in each of these segments. The
results of these segments are separately reportable.
479
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
The plc Group share of joint ventures' (loss)/profit, turnover and net assets
are included under Capital.
Sales by plc Group companies to joint ventures and associates amounted to L16
million (31 March 2002 L40 million). Purchases from joint ventures and
associates amounted to Lnil (31 March 2002 L14 million).
Assets and liabilities arising out of the Retirement Benefit Plan are treated as
unallocated net liabilities.
It is not practical to disclose goodwill amortisation on a segmental basis as
any allocation would be arbitrary.
ANALYSIS OF TURNOVER BY CLASS OF BUSINESS
To customers in the United
Kingdom To customers overseas
----------------------------- --------------------------
Six months to Year to Six months to Year to
30 September 31 March 30 September 31 March
2002 2002 2002 2002
L million L million L million L million
------------- ------------ ------------- ---------
Network equipment 128 355 472 1,449
Network services 126 367 266 602
Other (including intra-activity
sales) 1 1 (6) (33)
------------- ------------ ------------- --------
255 723 732 2,018
Capital 7 271 25 151
------------- ------------ ------------- --------
Continuing operations 262 994 757 2,169
Discontinued operations 11 90 76 1,314
------------- ------------ ------------- --------
273 1,084 833 3,483
============= ============ ============= ========
ANALYSIS OF TURNOVER BY TERRITORY OF DESTINATION
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
United Kingdom 273 1,084
The Americas 342 1,760
Rest of Europe 293 1,151
Africa, Asia and Australasia 198 572
------------- --------
1,106 4,567
============= ========
480
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
ANALYSIS OF OPERATING LOSS BEFORE GOODWILL AMORTISATION AND EXCEPTIONAL ITEMS,
TURNOVER AND NET ASSETS BY TERRITORY OF ORIGIN
Loss Turnover Net assets/(liabilities)
------------------------- ------------------------- -------------------------
Six months to Year to Six months to Year to
30 September 31 March 30 September 31 March 30 September 31 March
2002 2002 2002 2002 2002 2002
L million L million L million L million L million L million
------------- --------- ------------- --------- ------------- ---------
United Kingdom (69) (249) 372 1,328 435 293
The Americas (57) (166) 340 1,842 60 154
Rest of Europe (90) (28) 309 1,079 (75) 386
Africa, Asia and
Australasia (19) (20) 85 318 23 32
------------- -------- ------------- -------- ------------ --------
(235) (463) 1,106 4,567 443 865
============= ======== ============= ======== ============ ========
4 OPERATING (LOSS)/PROFIT (EXCLUDING JOINT VENTURES)
A PLC GROUP
Six months to 30 September 2002
------------------------------------------------------
Exceptional
Continuing Discontinued items Total
L million L million L million L million
---------- ------------ ----------- ---------
Turnover 1,019 87 -- 1,106
Cost of sales (842) (63) (24) (929)
---------- ------------ ----------- ---------
Gross profit 177 24 (24) 177
Selling and distribution expenses (152) (11) -- (163)
Administrative expenses -- other (65) (6) (187) (258)
Research and development (182) (11) -- (193)
Goodwill amortisation (51) (3) -- (54)
Administrative expenses -- total (298) (20) (187) (505)
Other operating expense (7) 2 -- (5)
---------- ------------ ----------- ---------
Operating loss (280) (5) (211) (496)
========== ============ =========== =========
481
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
Year to 31 March 2002
------------------------------------------------------
Exceptional
Continuing Discontinued items Total
L million L million L million L million
---------- ------------ ----------- ---------
Turnover 2,906 1,404 -- 4,310
Cost of sales (2,277) (976) (830) (4,083)
---------- ------------ ----------- ---------
Gross profit 629 428 (830) 227
Selling and distribution expenses (450) (140) -- (590)
Administrative expenses -- other (222) (86) (703) (1,011)
Research and development (547) (81) -- (628)
Goodwill amortisation (406) (25) -- (431)
Goodwill impairment -- -- (3,677) (3,677)
Administrative expenses -- total (1,175) (192) (4,380) (5,747)
Other operating income 12 (17) -- (5)
---------- ------------ ----------- ---------
Operating (loss)/profit (984) 79 (5,210) (6,115)
========== ============ =========== =========
Exceptional items are shown in further detail in note 5.
The plc Group disposed of its Medical Systems, Data Systems and Commerce Systems
businesses during the year ended 31 March 2002 and the Strategic Communications
business during the six months ended 30 September 2002. It is these activities
which are shown as discontinued operations in the note above. Further
information on disposals is provided in note 26 (b).
5 EXCEPTIONAL ITEMS
These charges have been analysed as follows:
A OPERATING EXCEPTIONAL ITEMS
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Stock write-downs and related costs -- (672)
Restructuring costs (24) (158)
------------- --------
Included in cost of sales (24) (830)
------------- --------
Impairment of goodwill & tangible fixed assets (31) (3,831)
Restructuring and reorganisation costs (171) (324)
Systems implementation costs 7 (75)
Releases/(charges) in respect of doubtful debts 8 (150)
------------- --------
Included in administrative expenses (187) (4,380)
------------- --------
plc Group operating exceptional items (211) (5,210)
Share of joint ventures' operating exceptional items (31) (6)
plc Group share of associates' operating exceptional items (18) (173)
------------- --------
Total operating exceptional items (260) (5,389)
============= ========
(i) In the year ended 31 March 2002 the stock write-downs and related costs
charged to cost of sales in the year included L581 million for
obsolescence and slow-moving provisions against a number of product
lines, predominantly optical networking products, and L91 million in
respect of supplier commitments.
482
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
(ii) In the six months ended 30 September 2002 L24 million was charged to
restructuring costs. This relates mostly to additional payments to Jabil
Circuit Inc. arising in the six month period. In the year ended 31 March
2002 restructuring costs classified within cost of sales includes a
charge of L127 million representing additional costs incurred as a
consequence of the decision to outsource certain manufacturing
operations to Jabil Circuit Inc. Under the terms of the agreement,
payments of L77 million were made during the year, L19 million provided
against stocks and L31 million is expected to be paid in the future.
The remaining charge of L31 million in the year ended 31 March 2002 relates
to onerous contracts representing certain liabilities to which the plc
Group is committed as a result of the operational restructuring. This
includes liabilities, relating to equipment leasing contracts and supply
contracts under which it has been agreed to purchase minimum volumes of
goods and services which will offer no economic value to the business as a
result of its reduced size.
(iii) In light of declining industry and economic trends on its current and
expected future operations, the plc Group reassessed the carrying values
of goodwill and tangible fixed assets. In the six months ended 30
September 2002 tangible fixed assets were impaired by L31 million (31
March 2002 L154 million). In the year ended 31 March 2002, as a
consequence of the more uncertain sales outlook and more conservative
future assessment of future growth prospects of acquired businesses the
plc Group recorded an exceptional charge of L3,677 million to write down
goodwill. The goodwill impairment related primarily to FORE Systems,
RELTEC Corporation, Metapath Software International ("MSI"), Mariposa
Technology, ipsaris (formerly Fibreway), Systems Management Specialists
("SMS") and Albany Partnership ("APT").
(iv) As part of the plc Group's cost reduction actions, a charge of L171
million (31 March 2002 L324 million) was recorded during the six months
to 30 September 2002 associated with employee severance, site
rationalisation costs and other restructuring costs.
The site rationalisation costs reflect the charges associated with
closing and consolidating various sites around the world as part of the
business restructuring and the other restructuring costs represent
various other costs associated with the restructuring program.
(v) During the year ended 31 March 2002 the plc Group planned to implement a
new global IT system. In light of the revised trading outlook and the
continued focus on cost reduction, the implementation was terminated. The
L75 million charge represents L43 million of capitalised external
consultancy costs associated with the implementation, L24 million of
hardware and software costs expensed, and L8 million of other associated
costs of the project. During the six months ended 30 September 2002, the
plc Group was able to revise its previous estimate of the overall costs
leading to the release of L7 million from the amounts accrued in the year
to 31 March 2002.
(vi) In light of the declining market and economic trends the plc Group was
experiencing, an exceptional provision against bad and doubtful debts of
L150 million was charged during the year ended 31 March 2002. Of this
amount, L8 million was paid by the plc Group's debtors in the six months
to 30 September 2002.
483
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
ANALYSIS BY SEGMENT
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Network equipment & services (192) (1,315)
Other 6 (104)
Goodwill impairment -- (3,541)
------------- ---------
(186) (4,960)
Capital (55) (79)
Goodwill impairment -- (136)
------------- ---------
Continuing operations (241) (5,175)
Discontinued operations (1) (41)
------------- ---------
(242) (5,216)
============= =========
United Kingdom (127) (823)
The Americas (97) (407)
Rest of Europe (12) (282)
Africa, Asia and Australasia (6) (27)
------------- ---------
(242) (1,539)
Goodwill impairment -- (3,677)
------------- ---------
(242) (5,216)
============= =========
B ASSOCIATES' AND JOINT VENTURES' OPERATING EXCEPTIONAL ITEMS
The plc Group has recorded its L18 million share (31 March 2002 L173 million) of
the operating exceptional charges of its associate, Easynet Group Plc. These
charges related to impairment of goodwill and tangible fixed assets, and
restructuring and reorganisation costs.
In the six month period, the plc Group has also recorded its L31 million share
of the operating exceptional charges of its joint ventures, relating to the
impairment of intangible fixed assets in Ultramast Limited.
484
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
C NON-OPERATING EXCEPTIONALS
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
(Loss)/gain on disposal of discontinued operations (5) 358
(Loss)/gain on disposal of fixed assets and investments in
continuing operations
Gain on disposals of subsidiaries and other fixed asset
investments 31 218
Amounts written off investments (40) (200)
------------- ---------
Subtotal (9) 18
Merger/demerger receipts -- 291
plc Group share of associates' non-operating exceptionals (3) --
------------- ---------
Included in non-operating exceptional items (17) 667
============= =========
Gain on repurchase of Bonds -- 166
------------- ---------
Included in interest and financing costs -- 166
============= =========
---------------
(i) For the six months to 30 September 2002, non-operating exceptional items
of L17 million were charged to net income. This comprised a L5 million
loss on disposal of discontinued operations, a L9 million net loss on
disposal of fixed assets and investments in continuing operations and a
L3 million loss relating to the plc Group's share of associates'
non-operating exceptional charges. In discontinued operations, the loss
on disposal of Strategic Communications (L41 million) was partially
offset by the release of provisions relating to Medical Systems and
other previously completed disposals. Of the L9 million loss on disposal
of fixed assets and investments in continuing operations, L40 million
related to the write-down of some of the plc Group's investments in line
with its accounting policy whereby listed investments are marked to
their market value at the end of each reporting period and unlisted
investments are held at the lower of cost and net realisable value. This
was partially offset by a L28 million curtailment gain associated with
retirement benefits arising mainly from the disposal of the plc Group's
50 per cent. share in General Domestic Appliances, L12 million gain on
property disposals and a net L9 million charge relating to current and
prior period disposals and business closures and other provision
movements. In the year ended 31 March 2002 a gain of L358 million was
made mainly relating to the disposal of the systems businesses (Medical,
Commerce and Data Systems).
Share options
For the year ended 31 March 2002, the release of provisions related to demerger
share options which arose due to the significant reduction in plc's share price
and comprised two elements. L247 million related to a provision created in
respect of the Marconi Launch Share Plan. A further L44 million was released
that related to provisions in respect of other option schemes created at the
time of the MES Transaction.
485
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
D EXCEPTIONAL CASH FLOWS
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Operating
Restructuring costs (174) (302)
Systems implementation costs (12) (48)
Other -- (18)
------------- --------
(186) (368)
------------- --------
Non-operating
Disposal of tangible fixed assets 20 116
Sale of interests in subsidiary companies and associates 375 1,443
Repurchase of Bonds -- (209)
------------- --------
395 1,350
============= ========
Non-operating exceptional cash flows from the disposal of tangible fixed assets
are included in note 24(d). Non-operating exceptional cash flows from the sales
of interests in subsidiary companies and associates are included in note 24(e).
Repurchase of Bonds is covered in note 21 and 24(g).
6 NET INTEREST PAYABLE
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Interest receivable
Loans and deposits 20 31
Other 13 9
------------- --------
Interest receivable -- total 33 40
------------- --------
Income from listed fixed asset investments -- 2
------------- --------
Interest payable
Bank loans and overdrafts (136) (281)
Loan capital (1) (1)
Other (3) --
------------- --------
Interest payable -- total (140) (282)
------------- --------
Net interest payable -- plc Group (107) (240)
------------- --------
Share of net interest receivable of joint ventures and
associates 1 2
------------- --------
Net interest payable (106) (238)
============= ========
486
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
7 NET FINANCE INCOME
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Financing costs
Syndicated loan fees -- (5)
Interest on pension scheme liabilities (83) (181)
Finance leases -- (1)
Other (2) --
------------- --------
Financing costs -- total (85) (187)
------------- --------
Finance income
Exceptional gain on the repurchase of Bonds -- 166
Gain on foreign exchange borrowings 7 --
Expected return on pension scheme assets 80 221
------------- --------
Finance income -- total 87 387
------------- --------
Net finance income 2 200
============= ========
As discussed in note 21, in the year ended 31 March 2002 the plc Group
repurchased Bonds issued by Corp with a fair value (after unamortised discount)
of L375 million.
8 TAX
A TAX CHARGE/(CREDIT) ON LOSS ON ORDINARY ACTIVITIES
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Current taxation
Corporation tax 30% (31 March 2002 30%) (1) --
UK overprovision in respect of prior years -- (18)
Overseas tax 11 51
Overseas overprovision in respect of prior years -- (15)
Joint ventures and associates -- 4
------------- --------
10 22
------------- --------
Deferred taxation
Changes arising from:
Timing differences -- origination and reversal -- 67
Estimated recoverable amount of deferred tax assets -- 121
------------- --------
-- 188
------------- --------
Total 10 210
============= ========
487
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
Included in the tax on loss are the following amounts relating to exceptional
items:
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Operating exceptional items -- (67)
Non-operating exceptional items -- 298
------------- --------
-- 231
============= ========
B DEFERRED TAXATION LIABILITIES
Group
L million
---------
At 1 April 2002 (18)
Disposals 12
---------
AT 30 SEPTEMBER 2002 (6)
=========
30 September 31 March
2002 2002
L million L million
------------ ---------
Tax effect of timing differences on:
Provisions and accruals for liabilities and charges (6) (12)
Accelerated capital allowances -- (6)
------------ --------
(6) (18)
============ ========
No provision is made for any taxation that may arise if reserves of overseas
subsidiaries were distributed as such distributions are not expected to occur in
the foreseeable future.
Included in the net deficit or surplus in respect of retirement benefits (note
27) is a net deferred tax liability of Lnil (31 March 2002 Lnil).
C RECONCILIATION OF CURRENT TAXATION CHARGE FOR THE PERIOD
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Loss before tax (720) (5,664)
------------- --------
Tax credit on loss at a standard rate of 34%. (31 March 2002
34%) 245 1,926
Non deductible goodwill impairment, amortisation and other
similar items (104) (1,503)
Tax losses and other deferred tax items not recognised in
current tax (151) (478)
Overprovision in respect of prior years -- 33
------------- --------
Current tax charge for the year (10) (22)
============= ========
The standard rate is calculated based on the locally enacted statutory rates in
the jurisdictions in which the plc Group operates.
488
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
D FACTORS THAT MAY AFFECT FUTURE TAX CHARGES
Deferred tax assets totalling L798 million (31 March 2002 L596 million) have not
been recognised in respect of operating losses and exceptional expenditure as
the plc Group is not sufficiently certain that it will be able to recover those
assets within a relatively short period of time.
Included in the unrecognised deferred tax asset as at 30 September 2002 of L798
million are amounts that may be forfeited or restricted as a consequence of the
planned Restructuring of the plc Group due to the requirements of tax
legislation in various jurisdictions. It is not possible at this stage to
quantify the amount of unrecognised deferred tax assets that may be forfeited.
9 EQUITY MINORITY INTERESTS
Equity minority interests represent the share of the profits less losses on
ordinary activities attributable to the interests of equity shareholders in
subsidiaries which are not wholly owned by the plc Group.
10 EQUITY DIVIDENDS
plc has decided not to propose any dividends for the year ending 31 March 2003.
No dividends were declared during the year to 31 March 2002.
11 LOSS PER SHARE
Basic and diluted loss per share are calculated by reference to a weighted
average of 2,792.6 million ordinary shares (31 March 2002 2,789.6 million
ordinary shares) in issue during the period.
The effect of share options is anti-dilutive for each period presented and has
therefore been excluded from the calculation of diluted weighted average number
of shares.
An adjusted basic loss per share has been presented in order to highlight the
underlying performance of the plc Group, and is calculated as set out in the
table below.
Reconciliation of loss per share excluding goodwill amortisation and exceptional
items.
Six months to
30 September 2002 Year to 31 March 2002
------------------------ ------------------------
Loss Loss per Loss Loss per
L million share pence L million share pence
--------- ----------- --------- -----------
Loss and basic loss per share (731) (26.2) (5,875) (210.6)
Exceptional items (note 5)
Operating exceptionals 242 8.7 5,216 187.0
Group share of associate's operating
exceptionals 18 0.7 173 6.2
Non-operating exceptionals 17 0.6 (667) (23.9)
Gain on repurchase of Bonds -- -- (166) (6.0)
Taxation arising on goodwill amortisation
and exceptional items (note 8a) -- -- 231 8.3
Goodwill amortisation and impairment 87 3.1 440 15.8
--------- ----------- --------- -----------
(367) (13.1) (648) (23.2)
========= =========== ========= ===========
489
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
12 DIRECTORS
A POLICY AND OBJECTIVES OF THE REMUNERATION COMMITTEE
The role of the Remuneration Committee has been to determine, on behalf of the
Board of plc, the broad framework for executive remuneration including the
remuneration of Executive Directors.
The underlying principles adopted by the Committee have been:
- to ensure that executive remuneration policy and practices support
business strategy and are cost effective;
- to provide remuneration packages which are competitive within plc's
operating environment, enabling plc to attract, retain and motivate
senior executives with high quality and appropriate skills; and
- to operate short and long term incentive plans, as part of total
remuneration, which reward the delivery of results aligned with
shareholders interests while limiting earnings where there is under-
performance.
The exceptional nature of the challenges faced by plc during the period,
including the extremely difficult trading conditions requiring continuing major
reductions in the cost base and the Restructuring process, have all had major
implications for the remuneration of executives under these principles.
In supporting the Restructuring of plc, the objectives of the remuneration
committee have been:
- to ensure that the management team is fairly and equitably rewarded in
accordance with the changed circumstances of plc; and
- to provide management and employees with appropriate incentives focused
on the priorities of cash generation and successful completion, of the
Restructuring.
B PLC DIRECTORS' REMUNERATION
Six months ended 30 September 2002
Payments
Excluding to meet
pension pension
Salary & Other contributions Pension Severance commitments
Fees benefits Bonus Total contributions payments on severance
L000 L000 L000 L000 L000 L000 L000
-------- -------- ----- ------------- ------------- --------- -------------
D C Bonham 90 -- -- 90 -- -- --
M W J Parton 263 46 396 705 91 -- --
M J Donovan 214 307 320 841 320 -- --
S Hare 188 67 281 536 27 -- --
Sir William Castell 15 -- -- 15 -- -- --
The Rt Hon The Baroness Dunn 1 -- -- 1 -- -- --
Sir Alan Rudge 15 -- -- 15 -- -- --
Hon Raymond G H Seitz 15 -- -- 15 -- -- --
N J Stapleton 15 -- -- 15 -- -- --
A L Thomas 42 -- -- 42 -- -- --
-------- -------- ----- ------------- ------------- --------- -------------
858 420 997 2,275 438 -- --
======== ======== ===== ============= ============= ========= =============
---------------
Notes
1. Other benefits include the payment of a non-pensionable earnings supplement
in relation to Funded Unapproved Retirement Benefit Schemes ("FURBS"). The
figure stated for Mr Donovan also includes an amount paid to him pursuant to
the termination of his GEC-USA Deferred Compensation Plan.
2. Executive Directors receive certain taxable benefits, including an allowance
under the plc Group's car scheme.
490
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--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
3. Executive Directors participate in an exceptional incentive plan for the
2002/3 financial year relating to the Restructuring of plc with four staged
payments, the first in May 2002 and the final payment 3 months after the
successful completion of the Restructuring.
4. On 11 April 2002, The Rt Hon The Baroness Dunn resigned from the Board of
plc. A L Thomas was appointed to the Board of plc on 20 May 2002, and he
resigned on 14 March 2003.
5. The fees of Non-Executive Directors are determined by the plc Board. With
effect from 1 April 2002 the fees for the Non-Executive Directors were
reduced to L30,000 per annum. No additional fees are paid to the Chairmen of
plc Board Committees. A L Thomas is paid a further sum, over and above his
basic fee which relates to one day's service to plc per week, for each
additional day devoted to plc's business. The remuneration detailed above in
respect of A L Thomas relates to the period from 20 May 2002 being the date
on which he was appointed as a Director of plc.
The remuneration detailed above in respect of the Rt Hon The Baroness Dunn
relates to the period up to 11 April 2002 being the date on which she
resigned as a Director of plc.
6. Non-executive Directors do not have service agreements and do not
participate in any of the incentive arrangements open to Executive Directors
or to the plc Group's pension scheme.
7. All plc Directors are reimbursed all necessary and reasonable expenses
incurred in the performance of their duties.
8. Pension contributions include contributions by plc to all pension schemes.
Year ended 31 March 2002
Payments
Excluding to meet
pension pension
Salary & Other contributions Pension Severance commitments
Fees benefits Bonus Total contributions payments on severance
L000 L000 L000 L000 L000 L000 L000
-------- -------- ----- ------------- ------------- --------- ------------
D C Bonham 174 -- -- 174 -- -- --
M W J Parton 400 281 -- 681 177 -- --
M J Donovan 400 87 248 735 94 -- --
S Hare 375 58 -- 433 25 -- --
Sir William Castell 35 -- -- 35 -- -- --
The Rt Hon The Baroness Dunn 33 -- -- 33 -- -- --
Sir Alan Rudge 40 -- -- 40 -- -- --
Hon Raymond G H Seitz 33 -- -- 33 -- -- --
N J Stapleton 40 -- -- 40 -- -- --
Sir Roger Hurn 115 7 -- 122 -- -- --
Lord Simpson 355 152 -- 507 235 300 --
J C Mayo 162 443 -- 605 644 600 428
R I Meakin 300 209 -- 509 314 375 463
-------- -------- ----- ------------- ------------- --------- ------------
2,462 1,237 248 3,947 1,489 1,275 891
======== ======== ===== ============= ============= ========= ============
---------------
Notes
1. Other benefits include the payment of a non-pensionable earnings supplement
in relation to FURBS.
2. Executive Directors receive certain taxable benefits, including an allowance
under the plc Group's car scheme.
3. The fees of non-executive Directors are determined by the plc Board; the
basic fee paid during the year was L33,000 per annum with a further L7,000
per annum paid to the Chairmen of the Audit Committee and the remuneration
committee.
4. Non-executive Directors do not have service contracts and do not participate
in any of the incentive arrangements open to Executive Directors or the plc
Group's pension scheme.
5. All plc Directors are reimbursed all necessary and reasonable expenses
incurred in the performance of their duties.
6. The bonus paid to Mr Donovan related to recruitment and retention
arrangements established upon joining plc before he became a Director.
7. Pension contributions include contributions by plc to all pension schemes.
Short-term incentive bonus
In the year ended 31 March 2002, plc's Remuneration Committee approved the
implementation of a short term incentive plan for Executive Directors with
maximum payment of 100 per cent. of salary, although owing to
491
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
subsequent events, no such plan was implemented and no short-term incentive
payments were made to Executive Directors in the year ended 31 March 2002.
In the six months ended 30 September 2002, Executive Directors participated in
an exceptional incentive plan with payment related to successful completion of
the Restructuring of plc Group. The maximum payment under this plan is 150 per
cent. of salary.
Executive Directors also participated in a quarterly incentive plan with
payments due for the achievement of targets for the generation of total cash.
Payment relating to the six months ending 30 September 2002 has not been made
under this plan and it is anticipated that Executive Directors will agree to
waive entitlement to these payments on entering into new employment agreements
with Corp.
Long-term incentive schemes
Aggregate emoluments detailed above do not include any amounts in respect of
long-term incentive schemes. plc operates a number of schemes as described
below.
At a meeting held on 3 November 1999, shareholders approved the introduction of
a number of share plans following the reconstruction of GEC and the Listing of
plc on 30 November 1999. Two main discretionary plans were approved -- the
Marconi 1999 Stock Option Plan and the Marconi Long Term Incentive Plan with the
Executive Directors eligible to participate in both plans. In addition,
shareholders approved the introduction of the Marconi UK Sharesave Plan and the
Marconi Launch Share Plan in which Executive Directors and all eligible
employees may participate. Full details of options granted to Executive
Directors under these plans are set out below.
In summary, options may be granted under the Marconi 1999 Stock Option Plan for
a period of up to ten years from 30 November 1999. Options granted under the
plan prior to 18 July 2001 become exercisable three years from the date of
grant, provided the performance condition has been met, that is the percentage
increase in plc's earnings per share must be equal to or greater than the
percentage increase in the Retail Prices Index plus 3 per cent. per annum. Thus
the shortest period over which the performance target can be satisfied is three
financial years from the date of grant; if the target is not satisfied after
this period, it can be retested over the four financial years from the date of
grant, and so on.
At the July 2001 plc Annual General Meeting, shareholders approved amendments to
the plan rules giving the plc Remuneration Committee discretion to grant options
which become exercisable over varying periods of time and which are subject to
performance conditions appropriate to the markets in which plc operates. In
previous years, plc's policy on the granting of options has been to make phased
awards to key employees, based on business and personal performance, with the
value of options granted normally ranging from 50 per cent. to 150 per cent. of
basic salary per annum. Reductions in plc's share price meant that option
holdings built up over a number of years (with the minimum exercise value of any
option granted under the Plan having been L6.70) had lost any value as an
incentive, and that grants based on these multiples of salary would result in an
unacceptable level of dilution. In granting options to around 600 key executive,
technical, and sales and marketing staff (including Executive Directors) in
November 2001, the Remuneration Committee sought to balance an appropriate level
of dilution with the need to provide a meaningful level of incentive. In
exercising its discretion in respect of performance targets, the Remuneration
Committee recognised the need for plc to achieve its near term objectives in
order to deliver longer term performance. Of each option granted in November
2001, 50 per cent. is subject to the achievement of targets for the reduction in
plc's net debt, and 50 per cent. subject to plc's Total Shareholder Return
("TSR") compared to that of FTSE 100 companies. None of this 50 per cent.
becomes exercisable if plc's TSR is the same as that of the company at the 50th
percentile, all becomes exercisable at the 75th percentile, with progressive
increases between these points. In order to provide a progressive incentive,
options become exercisable, subject to the achievement of the performance
conditions, over four years.
Under the Long Term Incentive Plan, each year Executive Directors can receive an
award of up to a maximum of 50 per cent. of basic salary, subject to
satisfaction of demanding corporate performance over the three years from the
date of award. After three years from the date of award, provided plc's TSR is
in the top 50 of the FTSE 100
492
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
index, participants may be granted a nil cost option to acquire plc Shares. To
the extent that the awards vest, the nil cost options will normally be
exercisable in three tranches, one third immediately upon vesting, one third on
the first anniversary and one third on the second anniversary of the date of
grant. On 30 November 1999, Executive Directors participated in the plan for the
first time; their nil cost options under the plan vest in two annual tranches
from July 2002; the shorter performance period and the accelerated vesting of
the tranches reflect the fact that the grant of these awards was delayed by
reason of the transaction with British Aerospace plc (now known as BAE SYSTEMS
plc). The employment of these Executive Directors was subsequently terminated
and no options have been granted. Current Executive Directors first received
awards in April 1998 and details of conditional awards are contained in the
table below.
The conditional awards of notional shares made to Executive Directors are as
follows:
Notional Award Notional
shares at lapses shares at
31 March 30 June 30 September
2002 2002 2002
Number Number Number
--------- ------- ------------
M J Donovan 57,919 (33,201) 24,718
M W J Parton 61,897 (35,414) 26,483
S Hare 32,490 (16,600) 15,890
======== ======= ============
The plc Group has previously operated a personal shareholding policy in order to
assist in further aligning the interests of executives and shareholders. The
policy requires Executive Directors to build up, over a period of time, a target
shareholding of plc Shares with a market value equal to three times annual basic
salary. The policy was not applied to the November 2001 option grant as it was
not considered to be practical to do so, given plc's share price.
C PLC DIRECTORS' INTERESTS
The plc Directors' interests as defined by the Act (which include trustee
holdings and family interests incorporating holdings of minor children) in plc
and its Subsidiaries are as follows:
(i) Ordinary shares
As at As at
31 March 30 September
2002 2002
Beneficial Beneficial
---------- ------------
Sir William Castell 10,000 10,000
The Rt Hon The Baroness Dunn 10,000 n/a
M J Donovan 169,591 169,670
M W J Parton 128,122 128,122
Sir Alan Rudge 20,000 20,000
Hon Raymond G H Seitz 11,099 11,099
N J Stapleton 21,572 21,572
D C Bonham 156,000 156,000
S Hare 30,121 30,121
A L Thomas n/a --
========== ============
---------------
Notes
1. None of the plc Directors held any non-beneficial interests in the shares of
plc during the periods above.
493
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
2. There have been no other changes in the interests of plc Directors between
30 September 2002 and 27 March 2003.
3. On the date of incorporation, 17 September 1999, and on 4 October 1999, the
date on which certain of the plc Directors were appointed, none of the plc
Directors at that time held any interest in the share capital of plc.
4. A L Thomas was appointed to the Board of plc on 20 May 2002 and he resigned
on 14 March 2003. On 11 April 2002, The Rt Hon The Baroness Dunn resigned
from the Board of plc. On 8 October 2002, Sir William Castell and N J
Stapleton resigned from the Board of plc. On 14 November 2002, S Hare
resigned from the Board of Marconi plc and C C Holden was appointed to the
Board of plc. On 16 December 2002, Sir Alan Rudge and Hon Raymond G H Seitz
resigned from the Board of plc and M K Atkinson, J F Devaney and W K Koepf
were appointed to the Board of plc.
(ii) Options
plc Directors' options as at 30 September 2002
Granted Exercised Lapsed
during the during the during the At 30 September
At 1 April 2002 year year year 2002 Exercisable
-------------------- -------------- ----------- ------------- -------------------- ---------------
Average Average
exercise Exercise exercise
price price price
No. pence No. pence No. Pence No. Pence No. pence From To
--------- -------- --- -------- --- ----- ----- ----- --------- -------- ------ ------
M J Donovan 6,299 Nil -- -- -- -- -- -- 6,299 Nil Jun-01 Nov-09
3,300,000 187 -- -- -- -- -- -- 3,300,000 187 Nov-99 Dec-10
S Hare 12,596 Nil -- -- -- -- -- -- 12,596 Nil Jun-01 Nov-09
2,484,034 142 -- -- -- -- 1,036 747.5 2,482,998 142 Feb-97 Nov-10
M W J Parton 29,405 Nil -- -- -- -- -- -- 29,405 Nil Jun-01 Nov-09
4,444,958 221 -- -- -- -- -- -- 4,444,958 221 Nov-99 Dec-10
========= ======= === ======== === ===== ===== ===== ========= ======= ====== ======
---------------
Notes
1. The options set out above relate to those granted under the Manager's 1984
Share Option Scheme, the 1997 Executive Share Option Scheme, the Marconi
1999 Stock Option Plan, the Phantom Option Schemes, the Long Term Incentive
Plan, the Employee 1992 Savings-Related Share Option Scheme, the Marconi
Launch Share Plan and the Marconi UK Sharesave Plan.
2. The mid-market price of a plc share as at 30 September 2002 was 1.45 pence
with a range during the period of 1.27 pence to 12.55 pence.
3. All options have exercise prices that exceed the market price of a plc share
as at 30 September 2002, other than nil cost options granted under the
Marconi Launch Share Plan (1,000 shares at nil cost) and the Marconi Long
Term Incentive Plan.
D RETIREMENT BENEFITS
All Executive Directors are members of (or are entitled to be members of) the
plc Group's approved pension scheme, the GEC 1972 Plan (the "UK Plan"). Members
contribute at the rate of 3 per cent. of salary subject to limits imposed by the
Inland Revenue. plc contributions made during the six months ended 30 September
2002 amounted to 14.2 per cent. of salary, similarly restricted (year ended 31
March 2002 6.6 per cent.). The increase in contributions resulted from an
interim actuarial valuation of the UK Plan, which was undertaken as at 30
September 2001, following the sale of part of the business of plc. The results
of this valuation revealed there was a deficit in the UK Plan at that time of
L137 million and, on the advice of the actuary, the rate of employers'
contributions was increased.
FURBS have been established for two of the current Directors -- M J Donovan and
M W J Parton. In the case of M W J Parton, gross contributions to the FURBS are
paid at the rate of 35 per cent. of basic salary, with 21 per cent. being paid
into the FURBS and the remaining 14 per cent. direct to M W J Parton. The
accumulated balance in the FURBS, including investment returns, is payable to M
W J Parton on retirement. M J Donovan's FURBS is funded on a defined benefit
basis, with projected benefits (including under other plans) of two-thirds of
his final pensionable salary. The pension will be made up from M J Donovan's
benefits under the UK Plan, the FURBS, two BAE pension plans and any other
retained benefits he may have. The current contribution rate (to be reviewed in
May 2003) is 39 per cent. of his base salary (although while M J Donovan is
posted to the US, the rate is 46 per cent., owing to local tax legislation).
FURBS contributions for M J Donovan are paid into the
494
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
FURBS and to M J Donovan himself in the ratio of 60:40 (or as necessary under US
tax law). This is because the contributions are taxable benefits, so the payment
to M J Donovan is to offset the higher income tax charge for which he is liable.
The FURBS documents oblige Corp to fund an unapproved life assurance scheme,
which is to provide a lump sum on death in service or four times basic salary
and a widow's pension of four-ninths of final pensionable salary. A contribution
of L240,000 was paid into M J Donovan's FURBS in 2002 to make good a deficit
shown by its last actuarial valuation. Normal retirement age is 62 for Executive
Directors. If M J Donovan retires on or after his fifty-fifth birthday, there
will be no actuarial reduction in the value of his benefits. In the event of
cessation of employment before normal retirement age, or at retirement age, each
of the plc Directors is entitled to the amount held in the FURBS established for
him.
FURBS were also established for former Directors -- Lord Simpson, R I Meakin and
J C Mayo. In the case of Lord Simpson, the final contribution to his FURBS was
made in October 2001 and no further contributions are due from plc. In the case
of R I Meakin, a final contribution was paid by plc on 14 January 2003. In the
case of J C Mayo, contributions to fully fund his FURBS were paid on 5 July
2002. There is an ongoing obligation to review the funding level each year in
the FURBS for current employees, which may result in additional contributions
being required.
The remuneration committee has reviewed the cost of FURBS arrangements for the
Executive Directors and has decided that it is not appropriate to plc's changed
circumstances. Consequently, plc has sought to change the basis of the FURBS it
provides for the current Executive Directors. With effect from 1 April 2002, the
FURBS for Mr Parton was changed to a defined contribution basis as described
below.
For the six months ended 30 September 2002 the only current plc Director who has
a defined benefit FURBS was M J Donovan. His FURBS is disclosed in accordance
with the Actuarial Guidance Note GN11. This is consistent with the treatment of
benefits accrued under the Plan.
In accordance with the requirements of the Listing Rules, the disclosures
required for each period are set out below. The figures for pensions shown below
are the contributions paid by the plc Group in respect of each plc Director.
In addition to this disclosure, the plc Directors' remuneration table above also
discloses within pension contributions, the contributions paid by plc in respect
of these FURBS arrangements and all other pension arrangements including the
Plan.
The pension benefits earned by the Directors of plc under the Plan are:
As at 30 September 2002
Cost of pension Accumulated
benefits accrued total accrued
Length of Increase in during the period pension at
pensionable accrued pension net of member's 30 September
service during the period contributions 2002
Name of plc Director Years L000 L000 L000
------------------------------- ----------- ----------------- ----------------- -------------
M J Donovan 4 1 -- 6
S Hare 13 2 7 71
M W J Parton 11 1 2 25
=========== ================= ================= ============
---------------
Notes
1. The pension entitlement shown is that which would be paid annually at the
normal retirement age based on service to the end of the period.
2. The increase in accrued pension during the period excludes any increase for
inflation.
3. The cost of pension benefits accrued during the period net of member's
contributions has been calculated on the basis of actuarial advice in
accordance with Actuarial Guidance Note GN11. The cost of pension benefits
accrued during the period net of member's contributions is a measure of the
capital cost of providing future pension payments and accordingly is a
liability of the plc Group's pension arrangements and not a sum paid or due
to the Directors of plc.
495
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
4. The ability of plc to satisfy pension obligations for plc Directors subject
to the earnings cap from plc's approved pension scheme, rather than
unapproved schemes, is influenced by benefits payable from other approved
pension schemes from their previous employment. In respect of M W J Parton,
benefits accrued under approved plans from previous employment were lower
than anticipated prior to the period ended 31 March 2002. Consequently, a
higher proportion of his accrued pension benefit can be paid from the UK
Plan, as opposed to FURBS arrangements. Consequently, his accrued pension
under the UK Plan is increased in the period ended 31 March 2002 and, as a
result, his entitlement under the FURBS arrangements for that period is
reduced by a corresponding amount. With effect from 1 April 2002, M W J
Parton's FURBS entitlements are provided on a defined contribution basis,
with benefits accrued under approved plans payable in addition.
5. Members of the UK Plan have the option to make additional voluntary
contributions; neither any additional voluntary contributions nor the
resulting benefits are included in the above table.
6. In the event of death in service, a lump sum of four times pensionable
salary, plus additional benefits for a surviving spouse and/or children,
inclusive of any death benefits arising from the UK Plan, will be held in
trust for the benefit of the dependants of serving Directors who are members
of the UK Plan.
The pension benefits earned by the Directors of plc under the FURBS arrangements
are:
As at 30 September 2002
Cost of pension Accumulated
benefits accrued total accrued
Length of Increase in during the period pension at
pensionable accrued pension net of member's 30 September
service during the period contributions 2002
Name of plc Director Years L000 L000 L000
------------------------------- ----------- ----------------- ----------------- -------------
M J Donovan 4 4 16 68
=========== ================= ================= ============
The following payments have been made to the Trustee of the FURBS:
Six months
Year ended ended
31 March 30 September
2002 2002
Name of plc Director L000 L000
-------------------- ---------- ------------
M J Donovan 64 288
J C Mayo 633 257
R I Meakin 290 290
M W J Parton 147 55
Lord Simpson 212 --
========== ============
---------------
Notes
1. The pension entitlement shown above is that which would be paid annually at
normal retirement age based on service to the end of the period.
2. The increase in accrued pension during the period excludes any increase for
inflation.
3. Lord Simpson's defined contribution entitlement due under the FURBS was
completed in the year ended 31 March 2002 by the payment of L212,000 to the
trustees of the FURBS. Lord Simpson resigned as a Director of plc on 4
September 2001. J C Mayo resigned as a Director of plc on 6 July 2001 and a
payment of L257,000 was paid to his FURBS in respect of pensionable service
for the period to 5 July 2002. R I Meakin resigned as a Director of plc on 1
March 2002. A contribution of L568,000 became due immediately. L290,000 was
paid in the period up to 30 September 2002 with the final contribution of
L278,000 to be paid to his FURBS by plc on or before 14 January 2003 with a
further non-pensionable allowance of L185,000 being paid directly to R I
Meakin in final settlement of his FURBS entitlements.
4. The contributions are determined each period based on actuarial advice to be
sufficient to meet the obligations. Periodically the contributions are
reviewed by the actuary. An actuarial valuation of M J Donovan's FURBS,
disclosed a deficit of L240,000. A contribution of L240,000 was therefore
paid by plc into the FURBS in addition to regular contributions with a
further non-pensionable allowance of L228,284 being paid directly to M J
Donovan.
496
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--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
5. With effect from 1 April 2002, M W J Parton's FURBS was amended from a
defined benefit FURBS to a defined contribution FURBS. As part of this
process, plc agreed to pay contributions in accordance with the following
table to meet a deficit on the now discontinued defined benefit basis in
addition to the normal contributions. In the event that M W J Parton's
employment is terminated, any payments which have not been made on or before
the date of termination will become due immediately:
FURBS Non-pensionable
contribution allowance
On or before L000 L000
------------ ------------ ---------------
15 April 2003 88 59
15 July 2003 88 59
15 October 2003 88 59
15 January 2004 88 59
============ ===============
13 EMPLOYEES
A AVERAGE MONTHLY NUMBER OF EMPLOYEES BY SECTOR
Number ('000)
-------------------------
Six Months to Year to
30 September 31 March
2002 2002
------------- --------
Networks equipment 13 19
Networks services 6 8
------------- --------
19 27
Capital 3 3
------------- --------
Continuing operations 22 30
Discontinued operations 3 15
------------- --------
plc Group employees 25 45
Share of joint venture employees -- 3
------------- --------
plc Group and share of joint venture employees 25 48
============= ========
497
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
B STAFF COSTS
Six Months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Wages and salaries 370 1,295
Social security costs 50 156
Amounts charged to operating expenses 24 67
Amounts credited to non-operating exceptional items (66) --
Amounts included in net finance income 3 (40)
Amounts recognised in the Statement of Recognised Gains
and Losses 373 351
Other pension costs 334 378
------------- --------
754 1,829
============= ========
United Kingdom 487 942
The Americas 127 483
Rest of Europe 126 357
Africa, Asia and Australasia 14 47
------------- --------
754 1,829
============= ========
Included within the staff costs for the six months ended 30 September 2002 are
Lnil (31 March 2002 L11 million) of costs related to ongoing remuneration costs
regarding the share option schemes.
C SHARE OPTIONS
At 30 September 2002 options were still outstanding in respect of plc's Shares
under plc's options schemes:
Amount Date
Number of shares Subscription normally
of shares L million price exercisable
----------- --------- ------------ -----------
The Employee 1992 Savings-Related Share
Option Scheme 2,810,765 0.1 203-273p 2002-2003
The 1984 Managers' Share Option Scheme 782,225 -- 183-266p 2002-2004
The 1997 Executive Share Option Scheme 11,049,193 0.6 327-384p 2002-2008
The Marconi UK Sharesave Plan 3,939,944 0.2 538-748p 2003-2006
The Marconi International Sharesave
Plan 1,387,869 0.1 737p 2004-2006
The Marconi Launch Share Plan 38,839,150 1.9 -- 2002-2006
The Marconi 1999 Stock Option Plan 111,695,453 5.6 35-1030p 2002-2011
The MSI 1995 Stock Option Plan 193,104 -- 3-274p 2002-2008
The MSI 1999 Stock Option Plan 3,031,788 0.2 212-957p 2002-2010
The MSIH Stock Option Plan 949,184 -- 212p 2002-2005
The Mariposa Technology, Inc 1998
Employee Incentive Plan 1,616,115 0.1 9-56p 2002-2010
The Marconi Restricted Share Plan 2,836,705 0.1 -- 2002-2004
The Phantom Option Scheme 71,266,632 3.6 17-1250p 2002-2011
Long Term Incentive Plan 716,428 -- -- 2002-2003
498
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
14 GOODWILL
Cost
L million
---------
At 1 April 2002 6,812
Disposals (323)
Adjustments in respect of prior year acquisitions (note
26a) (9)
Exchange rate adjustment (405)
---------
AT 30 SEPTEMBER 2002 6,075
=========
Amortisation
L million
------------
At 1 April 2002 (5,935)
Disposals 202
Charged to profit and loss account (54)
Exchange rate adjustment 384
------------
AT 30 SEPTEMBER 2002 (5,403)
============
NET BOOK VALUE AT 30 SEPTEMBER 2002 672
Net book value at 31 March 2002 877
============
In the year to 31 March 2002 a review of the plc Group's fixed assets, including
goodwill, resulted in an impairment charge of L3,677 million. Following the
continued difficult market conditions, plc announced expectations of a delay in
market recovery beyond the end of 2003; significant changes to the plc Group
forecasts have been made, and a further review has been undertaken at 30
September 2002.
The average discount rate applied to the future cash flows is 15 per cent. and
is based upon a weighted average cost of capital percentage.
The results of the review indicated that no further impairment charge in respect
of goodwill was necessary for the 6 months to 30 September 2002. However, due to
the significant uncertainties over the timing and extent of any recovery in the
telecommunications market, plc acknowledges that it is likely to have to
continue to review its assumptions against future performance.
499
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
15 TANGIBLE FIXED ASSETS
Payments on
Leasehold property Fixtures, account and
Freehold --------------------- Plant and fittings, tools assets under
property Long Short machinery and equipment construction Total
plc Group L million L million L million L million L million L million L million
--------- --------- --------- --------- --------- --------------- ------------ ---------
Cost at 1 April 2002 160 11 7 520 596 40 1,334
Exchange rate adjustment (6) -- -- (22) (8) (1) (37)
Additions 5 -- 1 10 9 7 32
Completed construction 2 -- -- 3 33 (38) --
Disposals (7) (2) -- (5) (13) (4) (31)
Businesses disposed (26) -- -- (133) (73) (4) (236)
--------- --------- --------- --------- -------------- ----------- ---------
COST AT 30 SEPTEMBER 2002 128 9 8 373 544 -- 1,062
--------- --------- --------- --------- -------------- ----------- ---------
Depreciation at 1 April 2002 37 2 3 335 435 -- 812
Exchange rate adjustment -- -- -- (16) (3) -- (19)
Charged to profit and loss account 4 -- -- 34 41 -- 79
Impairment of fixed assets 10 -- 2 15 22 -- 49
Disposals (2) -- -- (6) -- -- (8)
Businesses disposed (12) -- -- (104) (64) -- (180)
--------- --------- --------- --------- -------------- ----------- ---------
DEPRECIATION AT 30 SEPTEMBER 2002 37 2 5 258 431 -- 733
--------- --------- --------- --------- -------------- ----------- ---------
NET BOOK VALUE AT 30 SEPTEMBER 2002 91 7 3 115 113 -- 329
Net book value at 31 March 2002 123 9 4 185 161 40 522
========= ========= ========= ========= ============== =========== =========
The net book value of tangible fixed assets of the plc Group includes an amount
of Lnil (31 March 2002 L6 million) in respect of assets held under finance
leases, on which the depreciation charge for the year was Lnil (31 March 2002 L2
million).
16 FIXED ASSET INVESTMENTS
A JOINT VENTURES, ASSOCIATES AND OTHER
Joint ventures & associates Other investments
---------------------------------------- ----------------------------------------------
Shares Share
Cost less Goodwill of post
amounts Cost less acquisition Cost or
written off amortisation reserves Loans valuation Provisions Total
plc Group L million L million L million L million L million L million L million
--------- ----------- ------------ ----------- --------- --------- ---------- ---------
At 1 April 2002 319 65 (189) 2 321 (268) 250
Transfer from current asset
investments 15 -- -- -- -- -- 15
Disposals, impairments and
repayments -- (27) -- (2) -- (25) (54)
Profits less losses retained -- -- (73) -- -- -- (73)
Goodwill amortisation -- (6) -- -- -- -- (6)
Deficit on valuation of listed
investments -- -- -- -- -- (11) (11)
----------- ------------ ----------- --------- --------- ---------- ---------
AT 30 SEPTEMBER 2002 334 32 (262) -- 321 (304) 121
=========== ============ =========== ========= ========= ========== =========
During the six months to 30 September 2002, goodwill on Easynet Group Plc was
impaired by L27 million and an amortisation charge of L5 million was incurred.
500
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
MARKET VALUES
Listed fixed asset investments are stated at market value, as follows:
30 September 31 March
2002 2002
L million L million
------------ ---------
Other investments -- listed in the United Kingdom 8 19
============ ========
The aggregate historic cost of the listed fixed asset investments was L49
million at 30 September 2002 (31 March 2002 L49 million)
No provision has been made for taxation (31 March 2002 Lnil) which could arise
if these investments were realised at the values stated.
At 27 March 2003 the market value of the investments shown above was, in
aggregate, L11 million.
CORE BUSINESSES
Country of
Voting rights Incorporation
------------- -------------
Networks equipment and services
Marconi Communications Ltd. 100% Great Britain
Marconi Communications S.p.A. 100% Italy
Marconi Communications, Inc. 100% USA
Marconi Communications GmbH 100% Germany
ASSOCIATED COMPANIES
Country of
Class of shares Number held Incorporation
-------------------------------- ----------- -------------
Ultramast Limited Ordinary shares of 100 pence 50.0% 500 Great Britain
Easynet Group Plc Ordinary shares of 4 pence 30,940,597 Great Britain
Convertible non-voting ordinary
shares of 4 pence 48,553,661
Equity share 71.7%
Voting share 49.6%
The principal activity of Ultramast Limited is to build and market
telecommunications masts for use by mobile and fixed wireless network
operations.
Easynet Group Plc's year end is 31 December and it has been accounted for under
the equity accounting method. As it is a company quoted on the London Stock
Exchange, information that is not in the public domain cannot be disclosed.
Consequently its results have been accounted for the six month period to 30 June
2002 for inclusion in the plc Group's results for the six months ended 30
September 2002 and from acquisition (26 July 2001) to 31 December 2001 for
inclusion in the plc Group's results for the year ended 31 March 2002. Easynet
is a network-based provider of broadband services and internet solutions and is
incorporated in Great Britain.
The above list of subsidiaries and associated companies includes those
businesses that had a material effect on the consolidated results to 30
September 2002.
501
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
B INVESTMENT IN PLC SHARES
During the year ended 31 March 2002, plc disposed of the assets of the GEC
Special Purpose Trust, which comprised 4,259,775 plc Shares, 1,832,588 BAE
SYSTEMS plc shares and L582,839 of BAE SYSTEMS plc Capital Amortising Loan Stock
("CALS"), for aggregate consideration of L7 million. The trust has no remaining
investments at 30 September 2002, and will be wound up. The Marconi Employee
Trust ("MET"), a discretionary trust for certain employees and former employees
of plc and its subsidiaries, was established on 1 December 1999. The trust
acquires shares in order to satisfy entitlements under certain share option
schemes. The MET held assets of 2,052,731 plc Shares at 30 September 2002, with
a carrying value and market value of Lnil. Dividends receivable by MET from plc
have been waived.
The GEC Employee Share Trust ("EST"), a discretionary trust for certain
employees and former employees of plc and its subsidiaries, was established on
19 January 1995. The trust acquires shares in order to satisfy entitlements
under certain share option schemes. The EST held assets of 1,188,414 plc Shares
at 30 September 2002, with a carrying value and market value of Lnil. Dividends
receivable by EST from plc have not been waived.
The GEC Special Purpose Trust, the MET and the EST have been consolidated. All
operating expenses incurred are charged to the plc Group profit and loss
account.
17 STOCKS AND CONTRACTS IN PROGRESS
30 September 31 March
2002 2002
L million L million
------------ ---------
Raw materials and bought out components 104 203
Work in progress 119 241
Payments on account (3) (3)
Long-term contract work in progress 21 83
Finished goods 115 196
------------ --------
356 720
============ ========
18 DEBTORS
30 September 31 March
2002 2002
L million L million
------------ ---------
Amounts falling due within one year
Trade debtors 628 979
Amounts owed by joint ventures and associates 35 26
Other debtors 91 96
Prepayments and accrued income 49 102
------------ --------
803 1,203
------------ --------
Amounts falling due after more than one year
Trade debtors 3 16
Other debtors 48 71
Prepayments and accrued income 8 7
------------ --------
862 1,297
============ ========
Amounts owed by joint ventures and associates relate to trading balances.
502
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
19 CURRENT ASSET INVESTMENTS AND CASH AT BANK AND IN HAND
A CURRENT ASSET INVESTMENTS
30 September 31 March
2002 2002
L million L million
------------ ---------
Unlisted investments -- 15
============ =========
B CASH AT BANK AND IN HAND
Cash and bank deposits repayable on demand (note 29) 927 1,309
Other cash deposits (note 29) 144 65
------------ ---------
Cash at bank and in hand 1,071 1,374
============ =========
Included in the amounts above are restricted cash of
30 September 31 March
2002 2002
L million L million
------------ ---------
Secured 775 19
Collateral against bonding facilities 79 25
Held by captive insurance company 18 17
Other 8 --
------------ ---------
Restricted cash 880 61
Other 191 1,313
------------ ---------
Cash at bank and in hand 1,071 1,374
============ =========
Of the secured cash, L735 million (31 March 2002 Lnil) relates to amounts held
under an interim security by the plc Group's Syndicate Banks and Bondholders and
also to ESOP Derivative Banks granted on 13 September 2002. A further L25
million relates to cash deposited against ESOP Derivative Banks for the
Strategic Communications business (31 March 2002 Lnil) and L15 million (31 March
2002 L19 million) relates to cash deposited against secured loans in Italy.
503
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
20 CREDITORS
30 September 31 March
2002 2002
L million L million
------------ ---------
Amounts falling due within one year
Bank loans and overdrafts
Repayable on demand 2,145 2,351
Other 11 44
Debenture loans 32 32
Obligations under finance leases 2 9
------------ ---------
2,190 2,436
Payments received in advance 72 101
Trade creditors 284 512
Amounts owed to joint ventures and associates 9 9
Current taxation 306 290
Other taxation and social security 5 15
Other creditors 141 423
Accruals and deferred income 309 282
------------ ---------
3,316 4,068
============ =========
Amounts falling due after more than one year
Bank loans and overdrafts 25 32
Bonds 1,695 1,771
Obligations under finance leases 7 --
------------ ---------
1,727 1,803
Payments received in advance -- 29
Other creditors 16 70
------------ ---------
1,743 1,902
============ =========
504
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
21 BORROWINGS
30 September 31 March
2002 2002
L million L million
------------ ---------
Bank loans and overdrafts
Secured 17 31
Unsecured 2,164 2,396
Unsecured debenture loans 32 32
Bonds 1,695 1,771
Obligations under finance leases 9 9
------------ --------
3,917 4,239
Less amounts falling due within one year (2,190) (2,436)
------------ --------
1,727 1,803
============ ========
Analysis of repayments of long-term borrowings
Bank loans
Between one and two years 4 6
Between two and five years 12 14
In more than five years 9 12
Bonds
Between two and five years 270 262
In more than five years 1,425 1,509
Finance Leases
Between two and five years 1 --
In more than five years 6 --
------------ --------
1,727 1,803
============ ========
Bonds
Repayable at par wholly within five years (average rate
5.6 per cent.) 270 262
Repayable at par wholly after five years (average rate 7.5
per cent.) 1,425 1,509
============ ========
BONDS
During the year ended 31 March 2002, the plc Group repurchased E67.9 million of
Eurobonds with a coupon rate of 5.625 per cent. per annum maturing on 30 March
2005, E256.7 million of Eurobonds with a coupon rate of 6.375 per cent. per
annum maturing on 30 March 2010, $131 million of US dollar bonds with a coupon
rate of 7.75 per cent. per annum maturing 15 September 2010 and $130.1 million
of US dollar bonds with a coupon rate of 8.375 per cent. per annum maturing 15
September 2030.
The plc Group recognised an exceptional gain within finance income on these
repurchases of L166 million in the year ended 31 March 2002.
SECURITY
The secured loans are all secured upon cash balances with the respective banks.
MATURITY
The material payment obligations greater than five years are all payable wholly
at maturity, of which L465 million refer to Corp's 6.375 per cent. Eurobond due
2010, L481 million refer to Corp's 7.75 per cent. yankee bond due 2010, and L479
million refer to Corp's 8.375 per cent. yankee bond due 2030.
505
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
More analysis of the maturity of the plc Group's debt is given in note 29.
22 PROVISIONS FOR LIABILITIES AND CHARGES
Share Deferred
Restructuring options tax Other Total
L million L million L million L million L million
------------- --------- --------- --------- ---------
At 1 April 2002 96 179 18 212 505
Exchange rate adjustment (3) -- -- (19) (22)
Disposals -- -- (12) (14) (26)
Charged 26 6 -- 104 136
Released (8) (8) -- (8) (24)
Utilised (42) (1) -- (70) (113)
------------- --------- --------- --------- ---------
At 30 September 2002 69 176 6 205 456
============= ========= ========= ========= =========
Share option provisions mainly comprise amounts owed on contracts taken out with
ESOP Derivative Banks to fix the future price at which the plc Group could
purchase shares to satisfy employee share option liabilities. The movement in
the year relates mainly to the release of a provision held for employees of
previously acquired companies whose options have lapsed.
Restructuring provisions mainly comprise expected costs for termination of
employee contracts, costs for properties no longer occupied and onerous lease
contracts. The associated outflows are generally expected to occur over the next
year with vacant property costs being incurred over the next five years.
Other provisions mainly comprise expected cost of maintenance under guarantees,
other work in respect of products delivered, employee related claims,
environmental liabilities, other litigation and losses on contract work in
progress in excess of related accumulated costs. The associated outflows are
generally expected to occur over the lives of the products and contracts which
are long term in nature.
23 EQUITY SHAREHOLDERS' INTERESTS
A SHARE CAPITAL
Number of shares L
---------------- -----------
Fully paid ordinary shares of 5 pence each
Shares allotted at 1 April 2002 and 30 September 2002 2,792,638,820 139,631,941
Unissued ordinary shares 3,207,361,180 160,368,059
---------------- -----------
Authorised 6,000,000,000 300,000,000
================ ===========
506
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
B PLC GROUP RESERVES
Shares Share Profit and
to be premium Capital loss
issued account reserves account Total
L million L million L million L million L million
--------- --------- --------- ---------- ---------
At 1 April 2002 45 500 375 (2,618) (1,698)
Loss retained for the period -- -- -- (731) (731)
Exchange differences -- -- -- 115 115
Actuarial loss (note 27) -- -- -- (373) (373)
Tax charge on exchange differences -- -- -- (3) (3)
Group share of associates' shares
to be issued -- -- -- 3 3
Release of shares to be issued (5) -- -- -- (5)
--------- --------- --------- ---------- ---------
At 30 September 2002 40 500 375 (3,607) (2,692)
========= ========= ========= ========== =========
Shares to be issued represents the plc Shares to be issued to employees as a
result of acquisitions made.
The amount in the profit and loss reserve relating to the defined benefit
liability is L439 million (31 March 2002 L126 million liability).
Exchange gains of L11 million (31 March 2002 L17 million gain) and related tax
charges of L3 million (31 March 2002 Lnil) on borrowings hedged against equity
investments denominated in foreign currencies and losses of Lnil (31 March 2002
L1 million loss) and related tax credits of Lnil (31 March 2002 Lnil) on
associated tax equalisation swaps have been taken to plc Group reserves.
24 CASH FLOW
A NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES
Six months to 30 September 2002
---------------------------------------
Continuing Discontinued Total
L million L million L million
---------- ------------ ---------
plc Group operating loss after exceptionals (490) (6) (496)
Operating exceptionals 210 1 211
---------- ------------ ---------
plc Group operating loss before exceptionals (280) (5) (285)
Depreciation charge 75 4 79
Goodwill amortisation 54 -- 54
Decrease/(increase) in stock 143 (16) 127
Decrease/(increase) in debtors 102 (1) 101
Decrease in creditors (201) (23) (224)
Increase/(decrease) in provisions 7 (1) 6
---------- ------------ ---------
(100) (42) (142)
========== ============ =========
507
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
Year to 31 March 2002
---------------------------------------
Continuing Discontinued Total
L million L million L million
---------- ------------ ---------
plc Group operating loss after exceptionals (6,153) 38 (6,115)
Operating exceptionals 5,169 41 5,210
---------- ------------ ---------
plc Group operating loss before exceptionals (984) 79 (905)
Depreciation charge 217 28 245
Goodwill amortisation 406 25 431
Decrease/(increase) in stock 115 (20) 95
Decrease in debtors 554 18 572
Decrease in creditors (427) (42) (469)
Increase in provisions 31 10 41
---------- ------------ ---------
(88) 98 10
========== ============ =========
B RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Income from loans, deposits and investments 31 24
Interest paid (164) (286)
------------- --------
(133) (262)
============= ========
Of the above amount, continuing operations account for an outflow of L131
million (31 March 2002 L252 million) and discontinued operations an outflow of
L2 million (31 March 2002 L10 million).
C TAX REPAID/(PAID)
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
UK corporation tax repaid 3 34
Overseas tax paid (16) (47)
------------- --------
(13) (13)
============= ========
The figure for tax paid in the year to 31 March 2002 of L13 million includes net
tax repayments of L110 million received during the year to 31 March 2002.
Of the above amount, continuing operations account for an outflow of L13 million
(31 March 2002 L2 million) and discontinued operations an outflow of Lnil (31
March 2002 L11 million).
508
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
D CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Purchases of tangible fixed assets (27) (361)
Purchases of fixed asset investments (21) (342)
Sales of fixed asset investments 3 334
Sales of tangible fixed assets 20 173
------------- --------
(25) (196)
============= ========
Sales of tangible fixed assets shown above includes an amount of L20 million (31
March 2002 L116 million) in respect of disposals treated as exceptional items in
the profit and loss account.
Of the above amount, continuing operations account for an outflow of L20 million
(31 March 2002 L160 million) and discontinued operations an outflow of L4
million (31 March 2002 L36 million)
E ACQUISITIONS AND DISPOSALS
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Investments in subsidiary companies (3) (37)
Investments in joint ventures -- (65)
Sales of interests in subsidiary companies and associates 375 1,443
Net overdraft disposed with subsidiary companies 15 (316)
------------- --------
387 1,025
============= ========
F NET CASH (OUTFLOW)/INFLOW FROM MANAGEMENT OF LIQUID RESOURCES
Comprising term deposits generally of less than one year and other readily
disposable current asset investments
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
Deposits made with banks and similar financial institutions (83) (4,241)
Deposits withdrawn from banks and similar financial
institutions 6 4,378
Purchases of securities issued by banks and other corporate
bodies -- (51)
Sales of securities issued by banks and other corporate
bodies -- 100
------------- --------
(77) 186
============= ========
509
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
G NET CASH (OUTFLOW)/INFLOW FROM FINANCING
Six months to Year to
30 September 31 March
2002 2002
L million L million
------------- ---------
(Decrease)/increase in bank loans (62) 1,273
Decrease in debenture loans -- (90)
Decrease in bonds -- (209)
Capital element of finance lease repayments -- (2)
------------- --------
(62) 972
============= ========
25 ANALYSIS OF NET MONETARY DEBT
Acquisitions/
disposals
At (excluding Other At
1 April cash and non-cash Exchange rate 30 September
2002 Cash flow overdrafts) changes adjustment 2002
L million L million L million L million L million L million
--------- --------- ------------- --------- ------------- ------------
Cash and bank
deposits repayable
on demand 1,309 (330) -- -- (52) 927
Overdrafts (107) 79 -- -- 2 (26)
---------
(251)
Liquid resources 65 77 -- -- 2 144
Amounts falling due
within one year
Bank loans (2,288) 55 17 (54) 140 (2,130)
Debenture loans (32) -- -- -- -- (32)
Finance leases (9) -- -- 7 -- (2)
Amounts falling due
after more than one
year
Bank loans (32) 7 -- -- -- (25)
Bonds (1,771) -- -- -- 76 (1,695)
Finance leases -- -- -- (7) -- (7)
---------
62
--------- --------- ------------- --------- ------------- ------------
(2,865) (112) 17 (54) 168 (2,846)
========= ========= ============= ========= ============= ============
The non-cash movement in bank loans results from the settling of an interest
rate derivative by way of an increase in the plc Group's borrowings.
510
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
26 ACQUISITIONS AND DISPOSALS
A INVESTMENTS IN SUBSIDIARY COMPANIES
During the year all acquisitions were made and accounted for using the
acquisition method. No Subsidiaries were acquired in the six months to 30
September 2002.
Analysis of fair value of identifiable net assets of Subsidiaries acquired
Six months to Year to
30 September 31 March
2002 2002
Total Total
L million L million
------------- ---------
Tangible fixed assets -- 3
Debtors -- 2
Creditors and provisions -- (8)
Loan capital -- (3)
Finance leases -- --
------------- --------
-- (6)
------------- --------
Satisfied by:
Cash paid -- 23
Deferred consideration -- 10
------------- --------
-- 33
============= ========
Goodwill arising on acquisitions -- 39
============= ========
Deferred consideration paid in respect of prior acquisitions -- 14
Adjustment to consideration in respect of prior acquisitions (9) (77)
Additional fair value adjustments in respect of prior
acquisitions -- 14
------------- --------
Net reduction in goodwill (9) (10)
============= ========
Following the adjustments to consideration on the acquisition of MSI and Albany
Partnership Limited ("APT"), goodwill has been reduced by L8 million and L1
million respectively.
In the year to 31 March 2002 adjustments to consideration on Splice Transmissao
SA, MSI, Mariposa Technology, Inc. and APT meant that goodwill was reduced by
L45 million, L19 million, L4 million and L2 million, from L101 million, L510
million, L195 million and L71 million respectively. Additional consideration
paid in respect of Bosch Public Networks Limited during the year to 31 March
2002 increased goodwill to L51 million from L44 million.
The fair value adjustments in respect of prior year acquisitions principally
relate to additional provisions for fixed assets and inventory on the
acquisition of Systems Management Specialists, Inc ("SMS"). These adjustments
increased goodwill from L90 million to L104 million.
511
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--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
Goodwill arising in the year is attributable to the following:
Six months to Year to
30 September 31 March
2002 2002
Total Total
L million L million
------------- ---------
Northwood Technologies Inc. -- 19
Telit Networks S.p.A. -- 15
Other -- 5
------------- --------
Purchases in the year -- 39
------------- --------
Metapath Software International, Inc. (8) (19)
Mariposa Technology, Inc -- (4)
Splice Transmissao SA -- (45)
Bosch Public Networks -- 7
Systems Management Specialists, Inc. -- 14
Albany Partnership Limited (1) (2)
------------- --------
Adjustments to purchase consideration (9) (49)
------------- --------
Net reductions in goodwill (9) (10)
============= ========
B SALES OF INTERESTS IN SUBSIDIARIES AND ASSOCIATES
Marconi Marconi Six months to Year to
Applied Mobile 30 September 31 March
Technologies Holdings 2002 2002
Group S.p.A. Total Total
L million L million L million L million
------------ ------------ ------------- ---------
Net assets sold
Tangible fixed assets 18 38 56 452
Investments in joint ventures and
associates -- -- -- 97
Inventory 23 191 214 240
Debtors 19 264 283 536
Cash at bank 2 36 38 328
Bank loans and overdrafts -- (70) (70) (12)
Taxation -- (3) (3) --
Creditors and provisions (19) (163) (182) (846)
Goodwill 1 120 121 363
Minority interests -- (4) (4) --
Retirement benefit deficit -- (33) (33) --
------------ ------------ ------------- --------
44 376 420 1,158
------------ ------------ ------------- --------
Accounted for by:
Cash consideration 50 339 389 1,443
Deferred consideration and
accrued transaction costs (2) (4) (6) (76)
Shares received -- -- -- 263
------------ ------------ ------------- --------
Profit/(loss) on disposal 4 (41) (37) 472
============ ============ ============= ========
512
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
Marconi Mobile Holdings S.p.A., the holding company for the plc Group's
Strategic Communications business, was disposed of on 2 August 2002 and the
Marconi Applied Technologies Group was disposed of on 12 July 2002.
27 POST RETIREMENT BENEFITS
The plc Group operates defined benefit pension plans in the UK, US and Europe,
and post-retirement benefit plans in the US. The most significant plan is the
GEC 1972 Plan (the "UK Plan") in the UK. A full actuarial valuation for the UK
Plan was carried out as at 5 April 2002 and a valuation for accounting purposes
was carried out as at 30 September 2002 by independent qualified actuaries.
As a result of the separation of Marconi Electronic Systems ("MES") in November
1999, the MES employees ceased to participate in the UK Plan and, on 6 April
2000, were transferred to a new BAE SYSTEMS plc pension scheme (the BAE SYSTEMS
plc 2000 Pension Plan -- the "BAE Plan") providing identical benefits to the UK
Plan. A share of the UK Plan's assets were transferred to the corresponding new
BAE Plan, proportional to the share of the total UK Plan's liabilities as at 6
April 2000 that were attributable to the MES members, based on actuarial
calculations performed as at 6 April 2000.
For the US Plans, full valuations were carried out at dates between 1 January
2001 and 31 March 2002 and updated as applicable to 30 September 2002 by
independent qualified actuaries.
For the European unfunded plans, valuations were carried out for accounting
purposes at 30 September 2002 by independent qualified actuaries.
The contributions made to the plans in the accounting period totalled L19
million (31 March 2002 L36 million). For the unfunded pension plans and the post
retirement medical plans, payments are made when the benefits are provided.
Since April 2002, company contributions to the UK Plan were 14.2 per cent. of
pensionable pay, reducing to 8.2 per cent. on 1 November 2002. Other than Italy,
where approximately 7.4 per cent. of pensionable pay is accrued, the plc Group
is not making significant contributions to its overseas funded plans due to the
high surpluses in the schemes at the time of the last funding valuations.
The plc Group operates defined contribution schemes in addition to the defined
benefit schemes listed. Contributions to these schemes amounted to L1 million
(31 March 2002 L25 million).
The major assumptions used by the actuaries to determine the liabilities on a
FRS17 basis for the significant defined benefit plans are set out below:
At 30 September 2002 At 31 March 2002
------------------------------- -------------------------------
Rest of the Rest of the
UK World UK World
Average assumptions used: (per cent. pa) (per cent. pa) (per cent. pa) (per cent. pa)
------------------------- -------------- -------------- -------------- --------------
Rate of general increase in
salaries 4.50 3.0-5.1 4.75 4.23
Rate of increase in pensions in
payment 2.50 1.5-2.5 2.75 1.50
Rate of increase for deferred
pensioners 2.50 n/a 2.75 n/a
Rate of credited interest 4.00 n/a 5.50 n/a
Discount rate applied to
liabilities 5.25 5.5-6.5 6.00 6.85
Inflation assumption 2.50 1.5-2.5 2.75 2.25
7 pre 65, 6 pre 65,
7 post 65 7.5 post 65
Expected healthcare trend rates n/a reducing to n/a reducing to
5 after 2005 5 after 2005
============== ============= ============== =============
513
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--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
The UK Plan provides benefits to members on the best of three bases. One of the
bases is a money purchase underpin in which credited interest is applied to a
percentage of members' contributions. The practice has been revised further
between 31 March 2002 and 30 September 2002. The discretionary level of credited
interest has been treated as a constructive obligation.
PENSION PLANS
The assets in the UK Plan and the expected rates of return were:
2002
-----------------------------------------------------------
Long term Long term
expected rate Value at expected rate Value at
of return 30 September of return 31 March
(per cent.) L million (per cent.) L million
------------- ------------ ------------- ---------
Equities 8.50 502 8.25 685
Bonds 5.00 1,699 5.25 1,322
Property 6.75 115 6.75 108
Cash 4.00 39 4.00 384
------------ --------
TOTAL MARKET VALUE OF ASSETS 5.81 2,355 5.95 2,499
Present value of plan liabilities (2,653) (2,506)
------------ --------
Net pension liability before and
after deferred tax (298) (7)
============ ========
The assets in the overseas plans and the expected rates of return were:
2002
-----------------------------------------------------------
Long term Long term
expected rate Value at expected rate Value at
of return 30 September of return 31 March
(per cent.) L million (per cent.) L million
------------- ------------ ------------- ---------
Equities 10.00 59 10.00 89
Bonds 6.00 60 6.00 71
Other 9.00 16 9.00 18
------------ --------
TOTAL MARKET VALUE OF ASSETS 8.09 135 8.30 178
Present value of plan liabilities (245) (259)
------------ --------
Net pension liability before deferred
tax (110) (81)
------------ --------
Deferred tax liability -- (9)
------------ --------
Net pension liability after deferred
tax (110) (90)
============ ========
OTHER POST RETIREMENT BENEFITS
Present value of plan liabilities and
net pension liability before and after
deferred tax (31) (38)
Deferred tax asset -- 9
------------ --------
Net pension liability after deferred tax (31) (29)
============ ========
514
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
ANALYSIS OF THE AMOUNT CHARGED TO OPERATING LOSS
30 September 2002 (L million) 31 March 2002 (L million)
------------------------------------------ ------------------------------------------
Rest of the Post Rest of the Post
UK world - retirement UK world - retirement
Pension Pension medical Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- ----------- ---------- ----- ------- ----------- ---------- -----
CURRENT SERVICE COST AND TOTAL
OPERATING CHARGE 15 8 -- 23 37 16 1 54
======= =========== ========== ===== ======= =========== ========== =====
ANALYSIS OF OTHER AMOUNTS CHARGED TO PROFIT AND LOSS ACCOUNT
30 September 2002 (L million) 31 March 2002 (L million)
------------------------------------------ ------------------------------------------
Rest of the Post Rest of the Post
UK world - retirement UK world - retirement
Pension Pension medical Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- ----------- ---------- ----- ------- ----------- ---------- -----
(Gain)/loss on settlements -- (33) -- (33) (2) 4 (14) (12)
Gain on curtailments (28) -- (5) (33) -- -- -- --
------- ----------- ---------- ----- ------- ----------- ---------- -----
NET (GAIN)/LOSS CHARGED TO PROFIT
AND LOSS ACCOUNT (28) (33) (5) (66) (2) 4 (14) (12)
======= =========== ========== ===== ======= =========== ========== =====
Of the amounts above L66 million was credited to non-operating exceptional items
and Lnil to operating profit (31 March 2002 L12 million credited to operating
profit).
ANALYSIS OF THE AMOUNT CREDITED TO OTHER FINANCE INCOME
30 September 2002 (L million) 31 March 2002 (L million)
------------------------------------------ ------------------------------------------
Rest of the Post Rest of the Post
UK world - retirement UK world - retirement
Pension Pension medical Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- ----------- ---------- ----- ------- ----------- ---------- -----
Expected return on pension scheme
assets (73) (7) -- (80) (174) (47) -- (221)
Interest on pension scheme
liabilities 74 8 1 83 142 36 3 181
------- ----------- ---------- ----- ------- ----------- ---------- -----
TOTAL FINANCE COST/(INCOME) 1 1 1 3 (32) (11) 3 (40)
======= =========== ========== ===== ======= =========== ========== =====
NET (INCOME)/COST (12) (24) (4) (40) 3 9 (10) 2
======= =========== ========== ===== ======= =========== ========== =====
The net (income)/cost represents the operating charge plus curtailment and
settlement gains and losses less finance income.
515
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
ANALYSIS OF AMOUNT RECOGNISED IN THE CONSOLIDATED STATEMENT OF TOTAL RECOGNISED
GAINS AND LOSSES ("STRGL")
30 September 2002 (L million) 31 March 2002 (L million)
------------------------------------------ ------------------------------------------
Rest of the Post Rest of the Post
UK world - retirement UK world - retirement
Pension Pension medical Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- ----------- ---------- ----- ------- ----------- ---------- -----
Expected return less actual return
on pension scheme assets losses 154 29 -- 183 218 59 -- 277
Experience losses and (gains)
arising on the scheme 38 2 1 41 (20) 10 1 (9)
Changes in assumptions underlying
the present value of the scheme
liabilities losses 127 20 2 149 52 29 2 83
------- ----------- ---------- ----- ------- ----------- ---------- -----
ACTUARIAL LOSS RECOGNISED IN STRGL 319 51 3 373 250 98 3 351
======= =========== ========== ===== ======= =========== ========== =====
The main element of the amount recognised in the STRGL in both periods has
resulted from the difference between the actual rate of return and expected rate
of return on the Plans' assets. For all the periods actual investment returns in
the UK and US Plans fell well below expected investment returns resulting in
substantial asset losses.
The second largest element has been gains and losses resulting from changes in
assumptions underlying the present value of the Plans' liabilities. These have
resulted principally from the changes in assumptions used at each period end for
the Plan. These assumptions were all increased at 30 September 2002, resulting
in an increase in the present value of liabilities at 30 September 2002 compared
with those calculated at 31 March 2002, and this gave rise to a loss over the
period.
MOVEMENT IN (DEFICIT)/SURPLUS DURING THE YEAR
30 September 2002 (L million) 31 March 2002 (L million)
------------------------------------------ ---------------------------------------------
Rest of the Post Rest of the Post
UK world -- retirement world -- retirement
Pension Pension medical UK Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- ----------- ---------- ----- ---------- ----------- ---------- -----
(Deficit)/surplus at the beginning of
the year (7) (81) (38) (126) 220 18 (50) 188
Movement in year:
Current service cost (15) (8) -- (23) (37) (16) (1) (54)
Contributions and benefit payments 16 3 2 21 26 10 5 41
Settlement gain/(loss) -- 33 -- 33 2 (4) 14 12
Curtailment gain/(loss) 28 -- 5 33 -- -- -- --
Other finance income/(charge) (1) (1) (1) (3) 32 11 (3) 40
Actuarial gain/(loss) (319) (51) (3) (373) (250) (98) (3) (351)
Foreign exchange -- (5) 4 (1) -- (2) -- (2)
------- ----------- ---------- ----- ---------- ----------- ---------- -----
DEFICIT AT THE END OF THE PERIOD (298) (110) (31) (439) (7) (81) (38) (126)
======= =========== ========== ===== ========== =========== ========== =====
516
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
The net (deficit)/surplus is analysed by jurisdiction as follows:
30 September 2002 (L million) 31 March 2002 (L million)
------------------------------------------ ------------------------------------------
Rest of the Post Rest of the Post
UK world -- retirement UK world -- retirement
Pension Pension medical Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- ----------- ---------- ----- ------- ----------- ---------- -----
Surpluses -- -- -- -- -- 28 -- 28
Deficits (298) (110) (31) (439) (7) (109) (38) (154)
------- ----------- ---------- ----- ------- ----------- ---------- -----
NET DEFICIT AT THE END OF THE PERIOD (298) (110) (31) (439) (7) (81) (38) (126)
======= =========== ========== ===== ======= =========== ========== =====
HISTORY OF EXPERIENCE GAINS AND LOSSES
30 September 2002 (L million) 31 March 2002 (L million)
------------------------------------------ ---------------------------------------------
Rest of the Post Rest of the Post
UK world -- retirement world -- retirement
Pension Pension medical UK Pension Pension medical
Plan Plans plans Total Plan Plans plans Total
------- ----------- ---------- ----- ---------- ----------- ---------- -----
Difference between the expected and
actual return on scheme assets
losses:
amount (L million) 154 29 -- 183 218 59 -- 277
Percentage of scheme assets (per
cent.) 6.5 21.5 -- 7.3 8.7 33.1 -- 10.3
Experience losses and (gains) on
scheme liabilities:
amount (L million) 38 2 1 41 (20) 10 1 (9)
Percentage of the present value of
the scheme liabilities (per cent.) 1.4 0.8 3.2 1.4 (0.8) 3.9 2.6 (0.3)
Total amount recognised in statement
of total recognised (gains) and
losses:
amount (L million) 319 51 3 373 250 98 3 351
Percentage of the present value of
the scheme liabilities (per cent.) 12.0 20.8 9.7 12.7 10.0 37.8 7.9 12.5
======= =========== ========== ===== ========== =========== ========== ====
28 OTHER INFORMATION
A CONTINGENT LIABILITIES
30 September 31 March
2002 2002
L million L million
------------ ---------
Contingent liabilities at period end 30 10
============ ========
The plc Group is subject to potential and actual legal claims including
shareholder class actions and claims relating to contracts, industrial injury
and patent infringement. The plc Group has also provided third party guarantees
and performance bonds. The total amount disclosed above represents plc's best
estimate of possible unprovided exposures that may arise in respect of these
legal claims and the guarantees and bonds.
517
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
B CAPITAL EXPENDITURE
30 September 31 March
2002 2002
L million L million
------------ ---------
Commitments contracted at period end 6 3
============ ========
C OPERATING LEASES
30 September 31 March
2002 2002
L million L million
------------ ---------
Charges in the year
Land and buildings 19 39
Other items 12 12
------------ --------
31 51
============ ========
Amounts payable under operating leases which fall due in the
next financial year
Land and buildings, leases expiring
Within one year 5 3
Between two and five years 16 10
After five years 43 44
Other items, leases expiring
Within one year 3 3
Between two and five years 17 13
After five years 4 --
------------ --------
88 73
============ ========
D FEES PAID TO AUDITORS
30 September 31 March
2002 2002
L million L million
------------ ---------
Audit services 1 2
Audit-related services 6 4
Tax services and other compliance work 1 2
Business support and other services -- 3
------------ --------
8 11
============ ========
All business support and other services were awarded after a competitive
tendering process had been undertaken.
Of the amounts shown above, L5.3 million (31 March 2002 L9.2 million) was
charged to administrative expenditure and L2.2 million (31 March 2002 L1.4
million) against the plc Group's disposal programme as a non-operating
exceptional item. L3.6 million (31 March 2002 L5.0 million) of the amounts
charged to administrative expenditure have been classified as exceptional items
associated with the Restructuring of the plc Group's activities of which L3.4
million (31 March 2002 L1.4 million) related to the costs of the financial
Restructuring referred to in note 1. Lnil (31 March 2002 L0.1 million) was
capitalised as part of the investment in newly acquired subsidiaries.
518
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
29 FINANCIAL INSTRUMENTS
A TREASURY POLICIES AND ORGANISATION
The plc Group's treasury activities are coordinated by its treasury function
which operates in accordance with policies and procedures approved by plc. It
does not operate as a profit centre. Treasury advises operational management on
treasury matters and undertakes all derivative transactions except certain
forward exchange contracts relating to the hedging of foreign currency
transaction exposures arising in the operating businesses which have in the past
been managed by those operating units as described below. All treasury related
transactions undertaken by the plc Group's operating businesses are required to
be in accordance with guidelines laid down by the plc Group's central treasury
function and comply with the group risk management policies.
Short-term debtors and creditors have been excluded from all disclosures within
note 29 except the currency profile.
FINANCIAL INSTRUMENTS
The plc Group uses financial instruments, including derivatives (principally
interest rate swaps, cancellable interest rate swaps, currency swaps and forward
foreign currency contracts) to manage interest rate and currency risk exposures.
It is the plc Group's policy that there is no trading in financial instruments,
and all financial instruments are used for the purpose of financing or hedging
identified exposures of the plc Group.
The main risks faced by the plc Group in the financial markets are liquidity
risk, interest rate risk, foreign currency risk, counterparty risk and share
price risk. The plc Board reviews and agrees policies for managing each of
these, which are summarised below.
LIQUIDITY RISK
The plc Group has funded its activities through cash generated from its
operational activities, the proceeds of disposals, bank borrowings and the debt
capital markets.
The plc Group's gross borrowings as at 30 September 2002 were L3,917 million (at
31 March 2002 L4,268 million) and reflected the repayment of local borrowings in
Italy as a result of the disposal of the Strategic Communications business and a
substantial reduction in the sterling value of the US$ denominated debt due to
foreign exchange movements.
At 30 September 2002, the plc Group's cash and liquid resources totalled L1,071
million (31 March 2002 L1,374 million), of which L152 million (31 March 2002
L278 million) was denominated in sterling, L508 million (31 March 2002 L738
million) in US dollars, L358 million (31 March 2002 L239 million) in Euro and
the balance of L53 million (31 March 2002 L119 million) in other currencies.
At 30 September 2002, the plc Group had E3.6 billion (31 March 2002 E3.6
billion) of bank facilities. At 30 September 2002 and 31 March 2002 all
facilities were payable on demand.
As previously disclosed, the majority of the plc Group's cash resources are
currently held in secured accounts which are subject to interim security
arrangements in favour of the plc Group's Syndicate Banks and Bondholders
(including the Bond trustees) and also in favour of one of the ESOP Derivative
Banks (who committed to support the Restructuring within the required period).
The secured accounts were created at the end of April 2002 in accordance with
the previously disclosed lock box arrangements entered into in favour of the
Syndicate Banks and Bondholders. The interim security arrangements contemplated
by the Heads of Terms were implemented on 13 September 2002, the balance of this
secured cash amounted to L735 million at 30 September 2002. The plc Group is
dependent on amounts available to it from the secured amounts in order to meet
its short-term liquidity needs.
Prior to the release of interim security and so long as an enforcement event
does not occur, monthly releases from the secured accounts will be allowed in
accordance with an agreed cash flow schedule, subject to specified maximum
amounts. This agreed cash flow schedule takes account of the plc Group's
anticipated cash inflows and outflows, and is consistent with the plc Group's
expectations as to its liquidity needs for the relevant period.
519
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
Further details on the interim security arrangements and the plc Group's
liquidity risk are set out in note 1.
INTEREST RATE RISK
It has in the past been plc Group policy to maintain at least 50 per cent. of
debt at fixed rates of interest. The term structure of interest rates was
managed in observance of this policy using derivative financial instruments such
as interest rate swaps. However, due to the Restructuring process described
above, this has been superseded by the requirement to manage immediate liquidity
including the cancellation of all outstanding derivatives positions.
Consequently, during the first half of the financial year, out-of-the-money
interest rate swap arrangements with fair value L54 million were converted to
new loan agreements, and cash proceeds of L8 million were received from
unwinding in-the-money interest rate swap arrangements. At 30 September 2002, 48
per cent. (31 March 2002 53 per cent) of the plc Group's interest-bearing
borrowings were at fixed rates after taking account of interest rate swaps. Of
this total, 29 per cent. (31 March 2002 43 per cent) were at fixed dollar rates
of interest and 19 per cent. (31 March 2002 10 per cent) were at fixed Euro
rates of interest.
In the six months ended 30 September 2002, the average interest rate received on
cash and liquid investments was approximately 2.4 per cent. per annum. The
largest proportion of investments was in US$ deposits. The plc Group held an
average of $856 million in US$ deposits, earning an average interest rate of
1.75 per cent. per annum.
Due to the proportion of fixed rate debt, the plc Group's interest charge has
limited exposure to interest rate movements. Consequently an increase in market
interest rates of one percentage point would have increased loss before taxation
in the six months ended 30 September 2002 by approximately L5 million (year
ended 31 March 2002 L12 million).
FOREIGN EXCHANGE RISK
The plc Group is exposed to movements in foreign exchange rates against sterling
for both trading transactions and the translation of net assets and the profit
and loss accounts of overseas subsidiaries. The main trading currencies of the
plc Group are the US dollar, sterling and the Euro.
The foreign currency management policy of the plc Group seeks to minimise the
impact of fluctuations in exchange rates on future cash flows and requires
subsidiaries to hedge firm transaction exposures against their local currency at
the time the exposure is identified. These exposures are hedged by the use of
spot and forward exchange contracts.
The plc Group has overseas subsidiaries that earn profits or incur losses in
their local currencies. It is not the plc Group's policy to hedge the exposures
arising from the translation of these overseas results into sterling.
However, approximately 83 per cent. of gross borrowings were denominated in
foreign currencies in order to form a hedge for investments in currencies other
than sterling. Of these, 63 per cent, denominated in US dollars, formed a hedge
for the plc Group's investment in the United States, and 20 per cent,
denominated in Euro, formed a hedge for the plc Group's investment in the Euro
zone.
Under UK tax regulations, the plc Group is exposed to tax on changes in the
translations into sterling of its foreign currency borrowings. The plc Group has
in the past had outstanding derivative contracts with certain of its banks to
eliminate the cash flow exposure resulting from these tax payments. No such
contracts were outstanding in the six months ended 30 September 2002.
The plc Group has subsidiaries in most of the European countries which have
converted to the Euro, and the major subsidiaries are located in Italy and
Germany. Internal Group reporting from companies in the Eurozone was switched to
the Euro on 1 April 2001. The programme to ensure that all Eurozone subsidiaries
convert in a timely and efficient manner has now been brought to a successful
conclusion.
520
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
EXCHANGE RATE SENSITIVITY
Percentage reduction in plc Group reported
10 per cent. reduction sterling operating loss before goodwill
in the value of: amortisation and exceptional items
---------------------- ------------------------------------------
US Dollar (2.4)
Euro-traded currencies (3.9)
Other (0.8)
------------------------------------------
Total (7.1)
==========================================
COUNTERPARTY RISK
All deposits are made with creditworthy and authorised counterparties. All
forward contracts, swaps, and other derivative contracts, as described above,
are similarly managed to ensure that the benefits of such financial hedging are
subject to controlled counterparty risk.
As at 30 September 2002, the plc Group had vendor finance commitments of
approximately L68 million ($107 million) of which L54 million ($84 million) had
been drawn.
The plc Group, like its competitors, continues to experience demand for
financing from its customers. However, this demand has decreased significantly
due to market conditions and the plc Group's focus on its core base of incumbent
carrier customers. When the plc Group has supported customer financing requests,
it has significantly limited its own risk by: i) leveraging funds from third
party financiers' having strategic interests aligned with the plc Group, and ii)
developing innovative commercial alternatives that do not involve long-term cash
investments from the plc Group. Through these actions, the plc Group has
satisfactorily accommodated most customer financing requests and will not
require plc Group cash resources to fund these activities in the foreseeable
future.
In addition the plc Group uses export credit agencies to assist in managing
political and credit risks on major contracts and makes extensive use of export
credit insurance in respect of small to medium-sized contracts.
CONTRACT BONDING FACILITIES
Some customers in the telecommunications market require that bank bonds or
surety bonds (issued by insurance companies) are provided to guarantee
performance of the supplier. plc Group companies had L221 million of Performance
Bonds outstanding as at 30 September 2002 with both banks and insurance
companies worldwide. The reduction from L500 million of Performance Bonds
outstanding at 31 March 2002 was mainly as a result of the disposal of Strategic
Communications. Some of these facilities are covered by counter-indemnities from
Corp and others have individual indemnities from other plc Group companies. The
plc Group's Performance Bonding is normally provided on an uncommitted basis. As
a consequence of the plc Group's ongoing financial restructuring, all new
Performance Bonds currently have to be cash collateralised. Since February 2002,
Marconi Performance Bonding Limited (a special purpose vehicle used for this
purpose) has procured the issue of approximately L80 million of performance
bonding (on a fully cash collateralised basis) on behalf of other plc Group
companies.
INSURANCE RISK MANAGEMENT
The plc Group has managed centrally the purchase of global insurance policies in
respect of major insurable risks, including property (material damage/business
interruption), directors' and officers and public and products liability.
The Group has maintained the types of property and liability insurance which plc
regard as appropriate given the nature of the risks run in the course of its
business, and for amounts which they consider adequate.
521
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
When considering the appropriateness of insurance cover, plc has made detailed
assessments of insurable risks using both in-house professionals and the advice
of insurance brokers. plc has determined what it believes to be the appropriate
level of cover having regard, among other things, to the Group's loss record,
the industry in which it operates, its risk tolerance level, the cost of cover
relative to the risk, customer and legal requirements and any relevant and
available information on the levels of cover typically purchased by other
comparable companies which operate in the Group's industry. The use of global
policies and centrally appointed brokers allows the plc Group to improve
internal control and optimise the overall level of retained risk. Risk
management and insurance spend are concentrated on those insurable risks which
are considered potentially catastrophic to the plc Group as a whole. The plc
Group continues to work with its insurers and advisers to improve its loss
prevention and mitigation processes. Insurance market conditions are currently
very challenging and premium rates have increased substantially. However, the
plc Group benefits from good relationships with its major insurers and from some
long-term deals.
PLC SHARE PRICE RISK
The plc Group has, in the past, issued share options to it employees under a
number of different option plans, collectively known as the Employee Share
Option Plans ("ESOPs"). Under these plans, options may be satisfied by way of a
transfer of existing plc Shares acquired in the market by an employee trust or
other vehicle, or, under some of the plans only, by an issue of new plc Shares.
From January 2000, in order to hedge part of the potential cost of the plans
estimated at that time, the independent trustee of the Marconi Employee Trust
("MET"), Bedell Cristin Trustees Limited ("BCT"), entered into swap contracts
with three financial institutions (the "ESOP Derivative Banks") to purchase a
total of 40 million shares in the future at prices which were fixed at the date
of the contract. At 30 September 2002, the purchase of 38.5 million shares under
these contracts remain outstanding. The plc Group's maximum exposure under the
contracts was approximately L337 million, plus accrued finance charges as at 30
September 2002. Certain contracts require BCT to deposit cash collateral with
the relevant ESOP Derivative Bank if the share price falls to certain levels
stipulated in those contracts. Corp, at the request of plc, funds the provision
of this collateral. At 30 September 2002, L214 million of collateral, the
maximum amount of collateral payable under these contracts, had been paid. No
further collateral will become due.
Due to the substantial deterioration in the plc Group's share price, only
limited amounts of options with zero exercise price have been or are likely to
be exercised. Following completion of the proposed Restructuring, existing plc
options will no longer be exercisable. The remaining principal amount of
approximately L123 million under these contracts, together with accrued finance
charges of L44 million at 30 September 2002 is the subject of claims brought
against the plc Group by the ESOP Derivative Banks. As part of the plc Group's
proposed Restructuring, it was agreed on 28 August 2002 that L170 million of the
plc Group's cash will be restricted and will be deposited in an escrow account
pending settlement of potential liabilities in respect of these claims. Further
information relating to the proposed post balance sheet settlement of these
claims is set out in note 30.
522
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
B CURRENCY AND INTEREST RATE RISK PROFILE OF FINANCIAL LIABILITIES
FINANCIAL ASSETS
After taking into account interest rate swaps and forward currency contracts,
the interest rate profile of the plc Group's financial assets at 30 September
2002 and 31 March 2002 were:
30 September 2002
Fixed rate Non-interest
Floating Fixed Non-interest Average Weighted bearing weighted
Total rate rate bearing interest rate period average period
L million L million L million L million % years years
--------- --------- --------- ------------ ------------- -------- ----------------
Sterling 152 152 -- -- -- -- --
US dollars 508 508 -- -- -- -- --
Euro 361 358 -- 3 -- -- 1.9
Other 53 53 -- -- -- -- --
--------- --------- --------- ------------ ------------- -------- ----------------
Total 1,074 1,071 -- 3 -- -- 1.9
========= ========= ========= ============ ============= ======== ================
Analysed between
Cash and bank deposits
repayable on demand (note
19) 927 927 -- --
Liquid resources (note 19) 144 144 -- --
Long-term debtors and amounts
recoverable on contracts 3 -- -- 3
--------- --------- --------- ------------
1,074 1,071 -- 3
========= ========= ========= ============
31 March 2002
Fixed rate Non-interest
Floating Fixed Non-interest Average Weighted bearing weighted
Total rate rate bearing interest rate period average period
L million L million L million L million % years years
--------- --------- --------- ------------ ------------- -------- ----------------
Sterling 278 278 -- -- -- -- --
US dollars 738 738 -- -- -- -- --
Euro 255 239 -- 16 -- -- 1.4
Other 119 119 -- -- -- -- --
--------- --------- --------- ------------ ------------- -------- ----------------
Total 1,390 1,374 -- 16 -- -- 1.4
========= ========= ========= ============ ============= ======== ================
Analysed between
Cash and bank deposits
repayable on demand (note
19) 1,309 1,309 -- --
Liquid resources (note 19) 65 65 -- --
Long-term debtors and amounts
recoverable on contracts 16 -- -- 16
--------- --------- --------- ------------
1,390 1,374 -- 16
========= ========= ========= ============
523
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
FINANCIAL LIABILITIES
After taking into account interest rate swaps and forward currency contracts,
the interest rate profile of the plc Group's financial liabilities at 30
September 2002 and 31 March 2002 were:
30 September 2002
Fixed rate Non-interest
Floating Fixed Non-interest Average Weighted bearing weighted
Total rate rate bearing interest rate period average period
L million L million L million L million % years years
--------- --------- --------- ------------ ------------- -------- ----------------
Sterling 682 682 -- -- -- -- --
US dollars 2,445 1,316 1,129 -- 8.1 16.4 --
Euro 755 -- 755 -- 6.0 5.7 --
Other 35 35 -- -- -- -- --
--------- --------- --------- ------------ ------------- -------- ----------------
Total 3,917 2,033 1,884 -- 7.2 12.1 --
========= ========= ========= ============ ============= ======== ================
Analysed between
Borrowings (note 21) 3,917 2,033 1,884 --
Long-term trade creditors
and payments in advance -- -- -- --
--------- --------- --------- ------------
3,917 2,033 1,884 --
========= ========= ========= ============
Maturity profile of financial
liabilities
In one year or less, or on
demand 2,190
In more than one year, but
no more than two years 4
In more than two years, but
no more than five years 283
In more than five years 1,440
---------
3,917
=========
524
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
31 March 2002
Fixed rate Non-interest
Floating Fixed Non-interest Average Weighted bearing weighted
Total rate rate bearing interest rate period average period
L million L million L million L million % years years
--------- --------- --------- ------------ ------------- -------- ----------------
Sterling 683 680 -- 3 -- -- 1.9
US dollars 2,662 809 1,830 23 7.2 13.5 2.1
Euro 853 403 447 3 6.4 8.0 1.7
Other 70 70 -- -- -- -- --
--------- --------- --------- ------------ ------------- -------- ----------------
Total 4,268 1,962 2,277 29 7.0 12.4 2.1
========= ========= ========= ============ ============= ======== ================
Analysed between
Borrowings (note 21) 4,239 1,962 2,277 --
Long-term trade creditors
and payments in advance 29 -- -- 29
--------- --------- --------- ------------
4,268 1,962 2,277 29
--------- ========= ========= ============
Maturity profile of financial
liabilities
In one year or less, or on
demand 2,436
In more than one year, but
no more than two years 25
In more than two years, but
no more than five years 286
In more than five years 1,521
---------
4,268
=========
Floating rate borrowings and assets bear interest based on relevant national
LIBOR equivalents.
C CURRENCY PROFILE
At 30 September 2002 and 31 March 2002, after taking into account the effects of
currency swaps and forward foreign exchange contracts, the plc Group's currency
exposures, excluding borrowings treated as hedges, were:
30 September 2002
Net foreign currency monetary
assets/(liabilities)
----------------------------------------------
Sterling US dollars Euro Other Total
Functional currency of plc Group operation L million L million L million L million L million
------------------------------------------ --------- ---------- --------- --------- ---------
Sterling -- (136) (255) 19 (372)
US dollars -- -- -- 6 6
Euro 17 11 -- 8 36
Other 4 25 2 -- 31
--------- ---------- --------- --------- ---------
Total 21 (100) (253) 33 (299)
========= ========== ========= ========= =========
525
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
31 March 2002
Net foreign currency monetary
assets/(liabilities)
----------------------------------------------
Sterling US dollars Euro Other Total
Functional currency of plc Group operation L million L million L million L million L million
------------------------------------------ --------- ---------- --------- --------- ---------
Sterling -- (16) 31 20 35
US dollars -- -- -- 26 26
Euro 17 -- -- 15 32
Other 2 3 -- -- 5
--------- ---------- --------- --------- ---------
Total 19 (13) 31 61 98
========= ========== ========= ========= =========
The plc Group's net monetary debt and net assets by currency at 30 September
2002 and 31 March 2002 and were:
30 September 2002
Net assets
before net Net Net
monetary monetary (liabilities)/
debt debt assets
Functional currency of plc Group operation L million L million L million
------------------------------------------ ---------- --------- --------------
Sterling (1,471) (2,912) (4,383)
US dollars 1,767 17 1,784
Euro (126) 59 (67)
Other 133 (10) 123
---------- -------- --------------
Total 303 (2,846) (2,543)
========== ======== ==============
31 March 2002
Net (liabilities)/
assets Net Net
before net monetary (liabilities)/
monetary debt debt assets
Functional currency of plc Group operation L million L million L million
------------------------------------------ ------------------ --------- ------------------
Sterling (1,244) (2,928) (4,172)
US dollars 2,083 52 2,135
Euro 329 17 346
Other 151 (6) 145
------------------ -------- ------------------
Total 1,319 (2,865) (1,546)
================== ======== ==================
526
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
D FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
The book values and fair values of the plc Group's financial assets and
liabilities at 30 September 2002 and 31 March 2002 were:
Book value Fair value
------------------------- -------------------------
30 September 31 March 30 September 31 March
2002 2002 2002 2002
L million L million L million L million
------------ --------- ------------ ---------
Short-term financial liabilities and
current portion of long-term
borrowings (2,190) (2,436) (311) (2,436)
Long-term borrowings and long-term
financial liabilities (1,727) (1,832) (291) (593)
Financial assets 1,074 1,390 1,074 1,389
Interest rate swaps -- -- (25) (1)
Equity swaps (167) (160) (167) (160)
The fair values of the traded outstanding long-term borrowings and tax
equalisation swaps have been determined by references available from the markets
on which the instruments are traded. Forward foreign currency contracts,
interest rate swaps and other fair values have been calculated by discounting
cash flows at prevailing interest rates.
The book value of the equity swap reflects the existing provisions in respect of
the share option scheme exposures to which the swap relates. The fair value
includes accrued interest of L44 million (31 March 2002 L40 million) which is
fully provided for in the book value. The book and fair values are net of
collateral paid of L214 million (31 March 2002 L214 million).
E GAINS AND LOSSES ON HEDGES
The plc Group enters into forward foreign exchange contracts to eliminate the
currency exposure arising on sales and purchases denominated in foreign
currencies as soon as there is a firm contractual commitment. It also uses
interest rate swaps to manage its interest rate profile.
An analysis of these unrecognised gains and losses is as follows:
Total net
gains/
Gains Losses (losses)
L million L million L million
--------- --------- ---------
Unrecognised gains and losses on hedges at 1 April 2002 23 (24) (1)
Gains and losses arising in previous years that were
recognised in the period 23 (19) 4
--------- --------- ---------
Gains and losses arising before 1 April 2002 that were not
recognised in the period -- (5) (5)
Gains and losses arising in the period to 30 September 2002
that were not recognised in the period -- (20) (20)
--------- --------- ---------
Unrecognised gains and losses on hedges at 30 September 2002 -- (25) (25)
========= ========= =========
Of which:
--------- --------- ---------
Gains and losses expected to be recognised in the period to
31 March 2003 -- (25) (25)
========= ========= =========
527
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 3: PLC FINANCIAL INFORMATION TO 30 SEPTEMBER 2002
--------------------------------------------------------------------------------
SIX MONTHS ENDED 30 SEPTEMBER 2002
L1 million of the gains and L1 million of the losses unrecognised at 31 March
2002 were expected to have been recognised in the profit and loss account for
the period ended 30 September 2002.
In addition to the amounts disclosed above, cumulative aggregate gains of L30
million and losses of L56 million in respect of terminated interest rate swaps
were carried forward in the balance sheet as at 30 September 2002 pending their
recognition in the profit and loss account (31 March 2002 gains of L27 million).
Of these carried forward gains and losses, gains of L7 million and losses of L4
million are expected to be recognised in the profit and loss account in the next
accounting period (31 March 2002 gains of L11 million). Aggregate related gains
of L6 million from previous years were recognised in the profit and loss account
in the period (year ended 31 March 2002 L12 million).
30 POST BALANCE SHEET EVENTS
On 7 February 2003 the plc Group announced that it had agreed in principle with
Barclays Bank PLC, Salomon Brothers International Limited and UBS AG to settle
potential claims under ESOP derivative arrangements. This settlement is
conditional upon Corp's scheme of arrangement becoming effective. At this point,
all claims against plc, Corp and its subsidiaries in respect of this matter will
be waived and the total liabilities recorded within liability provisions and net
debt of L169 million will be released for a consideration of L35 million.
On 24 February 2003, Marconi announced that, following approval from the High
Court in the United Kingdom, Corp had completed a return of capital from
Ultramast Limited (a joint venture company set up in December 2000 with
Railtrack Telecom Services Limited) and settled all outstanding litigation
relating to it. As a result of the transaction, Marconi received net cash
proceeds of approximately L41 million.
528
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 4
PLC QUARTERLY REPORT TO 31 DECEMBER 2002
AND UPDATED FINANCIAL INFORMATION
The information in Part A of this Appendix is derived without material amendment
from the plc quarterly report for the three months ended 31 December 2002, which
was published on 18 March 2003 and which is unaudited. The major profit and loss
account differences between the unaudited consolidated results of plc and Corp
for the third quarter ended 31 December 2002 and the major balance sheet
differences between the unaudited consolidated financial position of plc and
Corp as at 31 December 2002 are set out under the heading "Basis of Preparation"
in Part A. The information in Part B of this Appendix is derived without
material amendment from annex C to the Restructuring announcement, which was
published on 18 March 2003. The financial information in this Appendix has not
been audited and does not constitute statutory accounts within the meaning of
the Act. As indicated at the time of its publication no reliance should be
placed on the information in Part B of this Appendix and neither Corp nor plc
will be publishing any update in relation to this information.
529
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
PART A
PLC QUARTERLY REPORT TO 31 DECEMBER 2002
MARCONI PLC
OPERATIONAL AND FINANCIAL REVIEW
FOR THE THREE MONTHS ENDED 31 DECEMBER 2002
FORWARD-LOOKING STATEMENTS
This Operational and Financial Review contains certain statements that are or
may be forward-looking. These statements typically contain words such as
"intends", "expects", "anticipates", "estimates" and words of similar import. By
their nature, forward-looking statements involve risk and uncertainty because
they relate to events and depend on circumstances which may occur in the future.
There are a number of factors that could cause actual results and developments
to differ materially from those expressed or implied by such forward-looking
statements. These factors include, but are not limited to future revenues being
lower than expected; increasing competitive pressures within the industry;
general economic conditions or conditions affecting the relevant industries,
both domestically and internationally, being less favourable than expected.
These factors and other factors that could affect these forward-looking
statements are described in the plc's Form 20-F report and Form 6-K reports
filed with the US Securities and Exchange Commission. Corp and plc disclaim any
obligation to publicly update or revise these forward-looking statements,
whether to reflect new information or future events or circumstances or
otherwise.
OVERVIEW
Overall conditions in the telecommunications market remained tough during the
third quarter. Trading levels in EMEA in the third quarter remained stable
despite the continuing difficult market environment. plc is now beginning to
observe some slowing of business in the Middle East as a result of the current
political environment. The North American market continues to be characterised
by further tightening of capital expenditure by a number of large telecom
operators, particularly towards the end of their financial years in December. In
Central and Latin America (CALA), the market was relatively stable during the
quarter although capital expenditure amongst major operators in the region
remained at a low level. In Asia-Pacific (APAC), while the market remains
buoyant in Australia, conditions in the Chinese market are more difficult as a
result of delays in capital expenditure due to the re-organisation of key
customers, delays to the roll-out of certain network build projects and
increased pricing pressure on new business.
Despite the difficult market environment, the Group continued to make
significant progress during the quarter towards its targets to improve operating
performance in the Core business. In particular compared to the previous
quarter, further cost savings achieved during the period led to an approximate
0.5 percentage point increase in Core gross margin (before exceptional items) to
22.1 per cent and an approximate L85 million reduction in Core operating cost
run-rate (before goodwill amortisation and exceptional items) to L550 million at
31 December 2002. Headcount reductions are a major driver of the Group's cost
reduction initiatives. At 31 December 2002, the Group employed just over 16,000
employees in its Core business, down from just over 19,000 at 30 September 2002.
The Group's improved operating performance combined with further progress in all
areas of working capital management, led to a significant improvement in
adjusted operating cash flow, with the Group recording an operating cash inflow
(before exceptional items) of L72 million during the quarter. Non-operating and
exceptional cash outflows (excluding tax) of L88 million relating mainly to the
Group's ongoing operational and financial restructuring processes and interest
paid were partially offset by a net L45 million tax repayment received during
the period. In total during the third quarter, the Group generated cash of L29
million before use of liquid resources and financing.
The Group was awarded a number of important business wins during the period.
These included the first European sale of the Group's BXR-48000 multi-service
switch-router to a large financial institution and the first sale of the Group's
recently launched Softswitch to Jersey Telecom. In addition, since the beginning
of calendar year 2003, the Group has announced two major new business wins from
Telecom Italia: a Euro 80 million
530
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
(approximately L50 million) frame contract for the supply of the Access Hub and
a new 2-year frame contract estimated at approximately Euro 15 million
(approximately L10 million) to build an optical backbone network architecture
based on the Group's recently launched next generation digital cross-connect,
the MSH2K.
BOARD
During the third quarter and more recently, plc has announced a number of
changes to the Boards of Directors as a result of which the Boards of Corp and
plc now comprise:
Executive Directors......... Mike Parton Chief Executive Officer
Mike Donovan Chief Operating Officer
Chris Holden Interim Chief Financial
Officer
Non-Executive Directors..... John Devaney Chairman
Kent Atkinson Chairman of Audit Committee
Derek Bonham*
Ian Clubb(1) Chairman of Remuneration
Committee
Kathleen Flaherty(1)
Werner Koepf
---------------
(1) Ian Clubb and Kathleen Flaherty have agreed to become members of the Corp
Board on Listing of the New Shares, the New Notes and the Warrants. They are
not, and have not agreed to become members of the plc Board.
* Member of the Board of plc only.
Please refer to the Group's announcements dated 14 November 2002, 16 December
2002 and 14 March 2003 for full details of these board changes.
FINANCIAL RESTRUCTURING
On 29 August 2002, plc announced that it had concluded non-binding indicative
heads of terms (the "Heads of Terms") for the financial restructuring of plc and
its wholly owned subsidiary Corp (the "Restructuring").
On 13 September 2002, plc announced that, in accordance with the Heads of Terms,
interim security over the balance of the lockbox accounts established in April
2002 had been granted in favour of the Group's Syndicate Banks, bondholders
(including the Bond trustees) and certain ESOP Derivative Banks.
On 16 December 2002, plc concluded modifications to the Heads of Terms. The
terms of the Restructuring as updated by these modifications were in most
respects, including the initial cash distribution, the same as those announced
by plc on 29 August 2002.
On 7 February 2003, plc announced that Corp and plc had reached agreement in
principle with the Group's ESOP Derivative Banks for a settlement of their ESOP
derivative related claims against the Group. Documentation reflecting this
settlement has now been concluded. As a result of this settlement, the initial
cash distribution to be made as part of the Restructuring is to be increased by
L135 million, in return for a L123 million reduction in the face value of the
New Junior Notes to be issued as part of the Restructuring (ie equivalent to
redemption at 110 per cent. of face value).
In the 7 February 2003 announcement, plc also indicated that the initial cash
distribution was to be increased by an additional L20 million (to a total of
L320 million) in replacement of the surplus cash element of the excess cash
mechanism outlined in the Group's announcement of 16 December 2002. This L320
million figure is in addition to L95 million which, as previously announced, has
already been paid on interest accrued on Corp financial debt in the period to 15
October 2002.
Further proposed changes to the Restructuring were announced on 18 March 2003.
In particular, plc announced proposed modifications to the scheme consideration
including an increase in the face value of the New Junior Notes to the sum of
US$ 300 million and the US dollar equivalent of approximately L117 million and a
proposal that the limited recourse notes no longer be issued, as well as a
further increase to the initial cash distribution of
531
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
an additional L20 million (to a total L340 million). The Group further announced
that documentation for the proposed schemes of arrangement has been filed with
the High Court of England and Wales and that scheme documentation is expected to
be posted to creditors by 31 March 2003, with Restructuring targeted to be
completed by 31 May 2003.
RECENT DEVELOPMENTS
On 24 February 2003, plc announced that, following approval from the High Court
in the United Kingdom, Corp had completed a return of capital from Ultramast
Limited (a joint venture with Railtrack Telecom Services Limited) and settled
all outstanding litigation relating to the joint venture company set up in
December 2000 with RT Group plc. As a result of the transaction, plc received
cash proceeds of approximately L41 million (L20 million of which Corp had
previously paid into court).
On 5 March 2003, plc announced that it had completed, in separate transactions,
the disposal of two of the businesses from its Capital portfolio. First, the
disposal of the Group's Private Mobile Networks division (also known as TETRA)
to Finmeccanica SpA for approximately L2 million in cash, approximately L4.8
million in assumed financial debt and approximately L8.2 million in assumed debt
to suppliers, and second, the disposal of Marconi Online to Coca Cola Amatil
(N.Z.) Limited for approximately L1 million.
OUTLOOK
The market for telecommunications equipment and services remains difficult.
During the first three quarters of the current financial year the annualised
rate of Core sales has declined by around 10 per cent from approximately L2
billion in the first quarter to approximately L1.8 billion in the third quarter.
Corp and plc do not expect that the Group will benefit from a seasonal uplift in
Core sales during the fourth quarter of the financial year compared to the level
recorded in the third quarter (L456 million), contrary to the seasonal pattern
of customer demand in previous years.
Furthermore, Corp and plc believe that market volumes are likely to contract
further during the next financial year and do not expect to benefit from
significant market share gains. As a result, the Group believes that Core sales
could decline by up to a further 5 per cent during the next financial year
compared to the annualised third quarter trading levels (L1.8 billion).
In December 2002, the Group outlined its Core operating model and confirms its
targets to achieve a gross margin run-rate in the range of at least 24 to 27 per
cent of Core sales and an operating expenditure run-rate in the range of 21 to
24 per cent of Core sales during the next financial year ending 31 March 2004.
The Group now believes that it will be able to reduce the Core operating cost
base to an annual run rate below L450 million during the next financial year and
thereby reduce its targeted breakeven level of sales to below L1.7 billion.
532
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
CONSOLIDATED PROFIT AND LOSS ACCOUNT
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
NOTE L MILLION L MILLION
---- ----------- -----------
TURNOVER
Continuing operations 4 466 669
Discontinued operations 4 -- 293
Group 4 466 962
Share of joint ventures -- 79
----------- -----------
3 466 1,041
----------- -----------
OPERATING LOSS
Group operating loss
Excluding goodwill amortisation and exceptional items (49) (116)
Goodwill amortisation (28) (46)
Operating exceptional items 5a (53) (94)
4 (130) (256)
Continuing operations (130) (264)
Discontinued operations -- 8
4 (130) (256)
Share of operating (loss)/profit of joint ventures
Excluding goodwill amortisation and exceptional items (2) 7
Operating exceptional items 5a (1) --
(3) 7
----------- -----------
(133) (249)
----------- -----------
Group and joint venture operating loss before goodwill
amortisation and exceptional items 3 (51) (109)
Share of operating loss of associates
Excluding goodwill amortisation and exceptional items (6) (9)
Goodwill amortisation (2) (2)
Goodwill impairment -- --
Operating exceptional items 5a (3) --
(11) (11)
----------- -----------
OPERATING LOSS 3 (144) (260)
Non-operating exceptional items
(Loss)/gain on disposal of discontinued operations 5b (1) 151
(Loss)/gain on disposal of fixed assets and investments in
continuing operations 5b (9) 190
(10) 341
----------- -----------
(154) 81
----------- -----------
Net interest payable 6 (51) (66)
Net finance income 7 61
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Excluding goodwill amortisation and exceptional items (101) (123)
Goodwill amortisation and exceptional items (97) 199
3 (198) 76
TAX CREDIT/(CHARGE) ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
Excluding tax on goodwill amortisation and exceptional
items -- --
Tax on goodwill amortisation and exceptional items -- --
-- --
(LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION (198) 76
Equity minority interests -- (1)
----------- -----------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES ATTRIBUTABLE TO THE
EQUITY SHAREHOLDERS AND RETAINED (LOSS)/PROFIT FOR THE
FINANCIAL YEAR (198) 75
=========== ===========
BASIC AND DILUTED (LOSS)/EARNINGS PER SHARE 8 (7.1P) 2.7p
LOSS PER SHARE EXCLUDING GOODWILL AMORTISATION AND
EXCEPTIONAL ITEMS 8 (3.6P) (4.4p)
=========== ===========
533
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
31 DECEMBER 30 September
2002 2002
NOTE L MILLION L MILLION
---- ----------- ------------
FIXED ASSETS
Goodwill 9 638 672
Tangible assets 10 280 329
Investments: 11
Joint ventures
Share of gross assets 45 48
Share of gross liabilities (13) (13)
----------- ------------
32 35
Associates 57 69
Other investments 17 17
106 121
----------- ------------
1,024 1,122
----------- ------------
CURRENT ASSETS
Stocks and contracts in progress 12 305 356
Debtors: amounts falling due within one year 13 695 803
Debtors: amounts falling due after more than one year 13 52 59
Cash at bank and in hand 14 1,085 1,071
----------- ------------
2,137 2,289
Creditors: amounts falling due within one year 15 (3,253) (3,316)
----------- ------------
NET CURRENT LIABILITIES (1,116) (1,027)
----------- ------------
Total assets less current liabilities (92) 95
Creditors: amounts falling due after more than one year 15 (1,741) (1,743)
Provisions for liabilities and charges 17 (452) (456)
----------- ------------
NET LIABILITIES BEFORE RETIREMENT BENEFIT SURPLUSES AND
DEFICITS (2,285) (2,104)
Retirement benefit scheme surpluses -- --
Retirement benefit scheme deficits (441) (439)
----------- ------------
NET LIABILITIES AFTER RETIREMENT BENEFIT SURPLUSES AND
DEFICITS (2,726) (2,543)
=========== ============
CAPITAL AND RESERVES
Called up share capital 140 140
Shares to be issued 31 40
Share premium account 500 500
Capital reserve 375 375
Profit and loss account (3,775) (3,607)
----------- ------------
Equity shareholders' interests (2,729) (2,552)
Equity minority interests 3 9
----------- ------------
(2,726) (2,543)
=========== ============
534
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
3 MONTHS TO
31 DECEMBER
2002
L MILLION
-----------
Loss on ordinary activities attributable to the shareholders
Group (184)
Share of joint ventures (3)
Share of associates (11)
(198)
Exchange differences on translation 30
-----------
TOTAL RECOGNISED GAINS AND LOSSES (168)
===========
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' INTERESTS
3 MONTHS TO
31 DECEMBER
2002
L MILLION
-----------
Total recognised gains and losses (168)
Release of reserve in respect of shares to be issued (9)
-----------
Total movement in the period (177)
Equity shareholders' interests at 1 October (2,552)
-----------
Equity shareholders' interests at the end of period (2,729)
===========
535
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
CONSOLIDATED CASH FLOW STATEMENT
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
NOTE L MILLION L MILLION
---- ------------ ------------
Net cash inflow from operating activities before
exceptional items 19a 72 23
Exceptional cash flows from operating activities 5c (82) (107)
Net cash outflow from operating activities after
exceptional items -- continuing operations (10) (61)
Net cash outflow from operating activities after
exceptional items -- discontinued operations -- (23)
Net cash outflow from operating activities after
exceptional items (10) (84)
Dividends from joint ventures and associates -- 1
Returns on investments and servicing of finance 19b (11) (51)
Tax received/(paid) 19c 45 (10)
Capital expenditure and financial investment 19d 3 96
Acquisitions and disposals 19e 2 758
------------ ------------
Cash inflow before use of liquid resources and financing 29 710
Net cash (outflow)/inflow from management of liquid
resources 19f (23) 42
Net cash outflow from financing -- changes in debt and
lease financing 19g (9) (54)
------------ ------------
(Decrease)/increase in cash and net bank balances
repayable on demand (3) 698
============ ============
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET MONETARY DEBT
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
NOTE L MILLION L MILLION
---- ------------ ------------
(Decrease)/increase in cash and net bank balances
repayable on demand (3) 698
Net cash outflow/(inflow) from management of liquid
resources 23 (42)
Net cash outflow from decrease in debt and lease
financing 9 54
------------ ------------
Change in net monetary debt resulting from cash flows 29 710
Net debt disposed with subsidiaries -- 1
Other non-cash changes (30) 51
Effect of foreign exchange rate changes 28 10
------------ ------------
Movement in net monetary debt in the period 27 772
Net monetary debt at 1 October 20 (2,846) (4,282)
------------ ------------
Net monetary debt at the end of the period 20 (2,819) (3,510)
============ ============
BASIS OF PREPARATION
The non-statutory and unaudited financial statements that accompany this Review
have been prepared on a consistent basis with the Group's accounting policies as
stated as at 31 March 2002. However, as these accounts are not statutory
financial statements, the Group has not applied all of the requirements of the
Act or of accounting standards in relation to items of disclosure including, but
not limited to retirement benefits, financial instruments and directors'
emoluments. The last actuarial assessment of the Group's defined benefit pension
536
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
scheme liabilities and valuation of pension assets was performed at 30 September
2002 and has not been updated for the quarter ended 31 December 2002.
Consequently, no amounts have been recognised in the Statement of Total
Recognised Gains and Losses for movements in the actuarial position of plan
assets and plan liabilities.
Unless otherwise stated, references to "Group" in the trading section of this
Financial Review refer to the Group including its share of joint ventures, but
excluding its share of results of associates. The Group currently consists of
plc and its subsidiaries, including Corp. After completion of the proposed
financial restructuring (see Financial Restructuring above), Corp will replace
plc as the parent company of the Group. The major profit and loss differences
between the unaudited consolidated results of plc and Corp for the third quarter
ended 31 December 2002 were:
- plc's share of the fees paid to advisers in connection with the
Restructuring which have been charged to operating exceptional items
(L8 million); and
- interest payable of L1 million on the bonds issued by Corp held by
Ancrane, a subsidiary of plc that does not form part of the Corp group;
The major balance sheet differences between the unaudited consolidated financial
position of plc and Corp as at 31 December 2002 were:
- cash of L1 million held by plc; and
- net balances of L660 million of Corp bonds and other balances held by
members of the plc group that are not members of the Corp group with
members of the Corp group.
Throughout this Operational and Financial Review, the term:
- "adjusted gross profit" refers to gross profit before an exceptional
credit of L7 million (Q3 2002: L19 million exceptional charge) as
disclosed in Note 5a;
- "adjusted operating profit/(loss)" refers to operating profit/(loss)
before exceptional charges of L54 million (Q3 2002: L94 million) as
disclosed in Note 5a and goodwill amortisation of L28 million (Q3 2002:
L46 million) as disclosed in note 4;
- "adjusted operating cost run-rates" and "adjusted operating expenses"
refer to operating cost run rates and operating expenses before
exceptional charges of L60 million (Q3 2002: L75 million) as disclosed
in note 5a and goodwill amortisation of L28 million (Q3 2002: L46
million) as disclosed in note 4;
- "adjusted operating cash flows" refers to operating cash flows before
exceptional cash outflows of L82 million (Q3 2002: L107 million) and
after net capital expenditure of L3 million inflow (Q3 2002: L29
million inflow).
GOING CONCERN
There is no guarantee that the negotiations relating to the Restructuring
(discussed above) will reach a satisfactory conclusion. However, in the light of
the information currently available to them, Corp and plc believe that the
Group's bankers, bondholders and other creditors will support the Group in
achieving an appropriate capital structure and that all the conditions for the
Restructuring will be satisfied. On this basis, plc considers it appropriate to
prepare the accounts on a going concern basis. Should the Group's bankers,
bondholders and other creditors (or some of them) cease to support the Group
before the completion of the Restructuring, or should all of the conditions for
the Restructuring not be met, adjustments would be necessary to record
additional liabilities and to write down assets to their recoverable amount. It
is not practicable to quantify with reasonable accuracy these possible
adjustments.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Corp and plc prepare their financial statements and accompanying notes in
accordance with UK GAAP. One of the notes to these financial statements,
included in this document, describes the significant accounting policies used in
their preparation. The preparation of such non-statutory financial statements
requires Corp and plc to
537
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
make estimates, judgements, and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities. Corp and plc base their estimates on historical
experience and various other assumptions that they believe are reasonable under
the circumstances, the results of which form the basis for making judgements
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. Corp and plc believe that the following are
some of the more critical judgement areas in the application of its accounting
policies that affect their financial position and results of operations.
The development and selection of these critical accounting estimates has been
discussed with Corp is and plc's audit committees.
REVENUE RECOGNITION
Revenue is recognised when all of the following conditions are satisfied 1)
there is persuasive evidence that an arrangement exists; 2) delivery has
occurred or services have been rendered; 3) the fee is fixed or determinable;
and 4) it is probable that the debtor will be converted into cash.
It is common for the Group's sales agreements to cover the delivery of several
products and/or services. These range from arrangements where a contract covers
the delivery and installation of equipment to more complex arrangements, which
also include training of customer personnel, sale of software and other support
services. Revenue from contracts with multiple element arrangements, such as
those including installation and commissioning services, is recognised as each
element is earned based on objective evidence of the relative fair values of
each element and when there are no undelivered elements that are essential to
the functionality of the delivered elements.
Revenues and estimated profits on long-term contracts are recognised under the
percentage-of-completion method of accounting using a cost-to-cost methodology.
Significant judgement is required in determining progress toward completion and
in estimating revenues and costs. Profit estimates are revised periodically
based on changes in facts in the underlying contract. When estimates of total
contract revenues and costs indicate a loss, a provision for the entire amount
of the contract loss is recognised in the period in which the loss becomes
foreseeable. Advance payments received from contracts are recorded as a
liability unless there is a right of set-off against the value of work
undertaken.
IMPAIRMENT OF LONG-LIVED ASSETS
The Group reviews the carrying value of other fixed assets and assets to be
disposed of, including other intangible assets, whenever indicators of
impairment exist. Indicators of impairment include (but are not limited to):
a. a significant adverse change in the extent or manner in which a
long-lived asset or asset group is being used or in its physical
condition;
b. a current-period operating or cash flow loss combined with a history
of operating or cash flow losses or a projection or forecast that
demonstrates continuing losses associated with the use of a long-lived
asset or asset group; and
c. a current expectation that, more likely than not, a long-lived asset
or asset group will be sold or otherwise disposed of significantly
before the end of its previously estimated useful life.
These tests for impairment require significant judgements in determining
estimates of future cash flows and the resulting value in use of the relevant
fixed asset. Estimations of the present value of future cash flows contain
inherent uncertainty and include estimates of market size and market share
information, growth rates, product demand and technological development, costs
of labour and supplier purchases, working capital requirements, and discount
rates to be applied to future cash flows.
If the carrying value of a fixed asset is considered impaired, an impairment
charge is recorded for the amount by which the carrying value of the fixed asset
exceeds the higher of its net realisable value or its value-in-use. In the three
months ended 31 December 2002 and 2001, Corp and plc recorded impairment charges
in relation to tangible fixed assets of L9 million and Lnil million,
respectively. In the year ended 31 March 2002, Corp and plc
538
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
recorded an impairment charge relative to goodwill of L3,677 million. The Group
believes that its estimates of future cash flows are reasonable; however,
changes in such estimates could affect the determination of the net realisable
value or its value-in-use of the relevant fixed asset.
CONTINGENT LIABILITIES
Corp and plc are subject to legal proceedings and other claims arising in the
ordinary course of business. Various claims and proceedings have been or may be
instituted or asserted against Corp and plc relating to class shareholder
actions and the conduct of its business, including those pertaining to patents,
environmental, safety and health, employment and contract matters. Corp and plc
are required to assess the likelihood of any adverse judgements or outcomes to
these matters, as well as potential ranges of probable losses. A determination
of the amount of reserves required, if any, for these contingencies is based on
a careful analysis of each individual issue where appropriate with the
assistance of outside legal counsel. Although the outcome of litigation cannot
be predicted with certainty and some lawsuits, claims or proceedings may be
disposed of unfavourably to Corp and plc, the Group believes that the ultimate
outcome of these matters will not have a material adverse effect on the results
of operations or financial position or cash-flows of Corp and plc, except as
discussed in Note 21 to the non-statutory financial statements.
PENSION AND OTHER POST-RETIREMENT BENEFITS
Pension and other post-retirement benefits costs and obligations are dependent
on actuarial assumptions used in calculating such amounts. These assumptions
include discount rates, health care cost trend rates, benefits earned, interest
cost, expected return on plan assets, mortality rates, and other factors. While
the Group believes that the assumptions used are appropriate, the assumptions
used may differ materially from actual results due to changing market and
economic conditions, higher or lower withdrawal rates or longer or shorter life
spans of participants. These differences may result in a significant impact on
the amount of future pension or post retirement benefits expense and the
resulting liability.
In the three months ended 31 December 2002, the Group charged the profit and
loss account with L6 million of service cost and L2 million of notional interest
in respect of defined benefit schemes on the basis of the 30 September 2002
actuarial assessment. This will be updated during the final quarter of the year
ending 31 March 2003, and any actuarial gains and losses arising on pension
assets and liabilities in the balance sheet will be shown in the statement of
total recognised gains and losses for the year ending 31 March 2003. The
comparative period for the three months 31 December 2001 was based on actuarial
and investment reviews carried out between 1 January 2002 and 31 March 2002.
PRODUCT WARRANTIES
Provisions for estimated expenses related to product warranties are made at the
time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims. The
Group actively studies trends of warranty claims and takes action to improve
equipment quality and minimise warranty claims. The Group believes that the
warranty reserve is appropriate; however, actual claims incurred could differ
from the original estimates, requiring adjustments to the reserve. If Corp and
plc were to experience an increase in warranty claims compared with its
historical experience, or if costs of servicing warranty claims were greater
than the expectations on which the accrual had been based, the Groups' gross
margins could be adversely affected.
REPORTING STRUCTURE
For financial reporting purposes, the Group divides its continuing operations
into two segments: Core and Capital.
Core is further analysed by business-type: Network Equipment, comprising Optical
Networks, Broadband Routing and Switching (BBRS), European Access, North
American Access, Outside Plant & Power (OPP) and Other Network Equipment; and
Network Services comprising Installation, Commissioning & Maintenance (IC&M) and
Value-Added Services (VAS).
539
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
Capital comprises businesses which Marconi manages to create value and
ultimately for disposal. During the third quarter ended 31 December 2002,
Capital included the Group's Tetra and UMTS mobile activities, Marconi Online
and other smaller joint ventures and investments. In the comparative period of
the previous financial year, Capital also included Marconi Applied Technologies.
In addition, the Group has an economic interest of 71.6 per cent, but voting
rights of only 49.6 per cent, in Easynet Group Plc ("Easynet"). This investment
is managed through the Group's Capital division, but is accounted for as an
associate in the Group's consolidated accounts.
None of the Group's businesses were reported as discontinued operations during
the third quarter. Discontinued operations in the previous financial year
included Strategic Communications as well as Medical, Commerce and Data Systems
until the date of their respective disposals.
As part of the proposed Restructuring, it is intended that the Group will
segment its business along geographic lines and report the equipment and
services activities of BBRS, OPP and North American Access (US businesses)
separately from the Group's businesses based in Europe and the Rest of the
World, which comprise Optical Networks, European Access, Other Network Equipment
and the rest of Network Services. As previously disclosed in plc's announcement
of 29 August 2002, OPP and North American Access are being managed for value and
with a view to disposal, the proceeds of which would be used to redeem in part
the Junior Notes proposed as part of the Restructuring (or in the event of
disposal prior to 1 May 2003, to reduce the amount of Junior Notes issued).
RESULTS OF OPERATIONS
GROUP REVIEW
GROUP KEY FIGURES (INCLUDING JOINT VENTURES)
3 MONTHS ENDED
31 DECEMBER
---------------
2002 2001
IN L MILLION ---- -----
Sales 466 1,041
Adjusted Gross Profit 102 241
Adjusted Operating Loss (51) (109)
Goodwill Amortisation (28) (46)
Operating Exceptionals (54) (94)
Operating Loss (133) (249)
Non-Operating Exceptionals (10) 341
Associates (11) (11)
Loss before interest, finance income and tax (154) 81
GROUP SALES
3 MONTHS ENDED
31 DECEMBER
---------------
2002 2001
IN L MILLION ---- -----
Core 456 632
Capital 12 116
Other (2) 0
CONTINUING OPERATIONS 466 748
DISCONTINUED OPERATIONS 0 293
GROUP 466 1,041
Group sales for the three months ended 31 December 2002 amounted to L466
million, representing a decrease of L575 million or 55 per cent to the
corresponding three months of the previous year (Q3 2002: L1,041 million).
540
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
Sales from continuing operations amounted to L466 million, a decrease of L282
million or 38 per cent compared to the third quarter of the previous year. This
decrease was mainly the result of continued reductions in capital expenditure in
the global market for telecommunications equipment and services resulting in
lower sales in the Group's Core business (see Core Business Review below). Sales
in the Group's Capital business have been substantially reduced since the third
quarter of the previous year as a result of business disposals, the major
component of which was the disposal of the Group's 50 per cent stake in General
Domestic Appliances. The L12 million sales in Capital during the period related
to the Group's Mobile Tetra business and represented a L4 million increase
compared to the third quarter of the previous year as a result of an increase in
sales of Tetra products outside the domestic Italian market, particularly in
APAC and CALA.
There were no sales from discontinued operations during the period. The L293
million of sales from discontinued operations for the three months ended 31
December 2001 related to disposed businesses, Strategic Communications, Data,
Commerce and Medical Systems.
GROUP ADJUSTED GROSS PROFIT (INCLUDING JOINT VENTURES)
3 MONTHS ENDED
31 DECEMBER
--------------
2002 2001
IN L MILLION ---- ----
Core 101 122
Capital 1 21
CONTINUING OPERATIONS 102 143
DISCONTINUED OPERATIONS -- 98
GROUP 102 241
Adjusted gross profit at Group level amounted to L102 million, representing an
adjusted gross margin of 21.9 per cent and was almost entirely attributable to
the Group's Core business. The L139 million decrease compared to the third
quarter of the previous year reflected mainly the loss of gross profit
attributed to business disposals from discontinued operations (L98 million) and
from Capital (L20 million). The L21 million reduction in the Core business
related mainly to the lower sales volumes in Network Equipment described in the
Core Business Review below.
GROUP ADJUSTED OPERATING PROFIT/(LOSS) BY SEGMENT
3 MONTHS ENDED
31 DECEMBER
----------------
IN L MILLION 2002 2001
------------ ---- ----
Core (41) (128)
Capital (10) (7)
CONTINUING OPERATIONS (51) (135)
DISCONTINUED OPERATIONS -- 26
GROUP (51) (109)
Group adjusted operating loss was reduced by L58 million from a loss of L109
million in the third quarter of the previous year to a loss of L51 million in
the reporting period. Operating cost savings achieved in the Core business
described in the Core Business Review below were the main driver of the Group's
improved operating performance and more than offset the absence of L26 million
of adjusted operating profit recorded in the previous year relating to
discontinued operations.
541
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
CORE BUSINESS REVIEW
CORE KEY FIGURES
FY03 FY02
------------------------------------------ ------------
IN L MILLION Q1 Q2 Q3 Q3
------------ ------------ ------------ ------------ ------------
Sales 510 482 456 632
Adjusted Gross Profit 89 79 101 122
Adjusted Operating Loss (115) (90) (41) (128)
Adjusted Operating Cash Flow after capital
expenditure (81) (42) 66 (26)
CORE SALES BY GEOGRAPHY
FY03 FY02
------------------------------------------ ------------
IN L MILLION Q1 Q2 Q3 Q3
------------ ------------ ------------ ------------ ------------
EMEA 285 285 287 363
US 153 142 127 167
APAC 47 45 29 61
CALA 25 10 13 41
------------ ------------ ------------ ------------
CORE 510 482 456 632
============ ============ ============ ============
Core sales in the third quarter amounted to L456 million, a decline of L176
million or 28 per cent compared to the corresponding quarter of the previous
year. Sales fell across all major geographic regions as a result of the
significant reductions in capital expenditure by the majority of telecom
operators world-wide. On a sequential basis, the quarter-on-quarter decline in
sales was limited to L26 million or 5 per cent (Q2 2003: L482 million).
Core sales in EMEA fell by L76 million or 21 per cent to L287 million (Q3 2002:
L363 million. L56 million representing almost three-quarters of this decline
occurred in Optical Networks as telecom operators have concentrated their
reduced capital expenditure on maximising utilisation in their existing networks
to the detriment of new network build. A further L10 million of this decline
occurred in BBRS mainly as a result of the expiry of a third party
distributorship agreement in the United Kingdom during the current financial
year. Sales of Network Services in EMEA increased as a result of the phasing of
long-term service contracts particularly in the Middle East, UK and Germany.
Core sales in the US fell by L40 million or 24 per cent to L127 million (Q3
2002: L167 million). This was mainly a result of reduced sales of OPP equipment
and services following substantial reductions in capital expenditure by US
telecom operators. US sales of Optical Networks amounted to less then L1 million
during the period (Q3 2002: L7 million) following the Group's decision to cease
the development and manufacture of its SONET product range in April 2002.
In APAC, Core sales declined by L32 million or 52 per cent to L29 million (Q3
2002: L61 million). The main area of decline was Optical Networks and this was
mainly a result of the lower level of sales recorded in China following the
completion of large network build projects in the region in the previous
financial year and delays to certain network build projects by a number of the
Group's Chinese customers in the current financial year. Sales of Network
Services were also down in the region mainly as a result of business disposals.
Core sales in CALA were down L28 million or 68 per cent to L13 million (Q3 2002:
L41 million). Sales were down across all product and service activities as a
result of the deterioration in economic conditions compared to the prior year
period and the consequent reductions in capital expenditure by most of the major
telecom operators in the region.
542
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
CORE SALES BY PRODUCT AREA
FY03 FY02
------------------------------------------ ------------
IN L MILLION Q1 Q2 Q3 Q3
------------ ------------ ------------ ------------ ------------
Optical Networks 134 108 96 189
Broadband Routing and Switching 38 35 32 40
European Access 59 69 69 85
North American Access 25 23 23 24
Outside Plant & Power 46 34 30 48
Other Network Equipment 14 15 11 21
------------ ------------ ------------ ------------
NETWORK EQUIPMENT 316 284 261 407
------------ ------------ ------------ ------------
IC&M 97 89 93 122
VAS 97 109 102 103
------------ ------------ ------------ ------------
NETWORK SERVICES 194 198 195 225
------------ ------------ ------------ ------------
CORE 510 482 456 632
============ ============ ============ ============
Sales of the group of activities defined as "US businesses" had sales of L125
million during the third quarter and are included in the Core sales reported
above (Q3 2002: L171 million).
NETWORK EQUIPMENT
Sales of Network Equipment amounted to L261 million, a decline of L146 million
or 36 per cent compared to the previous year (Q3 2002: L407 million).
Significant reductions in capital spending by the majority of telecommunications
operators world-wide was the primary reason behind the lower level of sales
across all major product areas. This trend was particularly marked in Optical
Networks and Outside Plant and Power equipment. In some product areas,
particularly European Access, the trend was further exacerbated by the impact of
product line rationalisations undertaken in April 2002 as part of the Group's
operational restructuring.
Optical Networks
Optical Networks sales declined by L93 million, or 49 per cent to L96 million
(Q3 2002: L189 million). Sales were down in all major geographic regions.
Over half of the decline in sales arose in EMEA. In the United Kingdom, the drop
in sales was caused by the substantial decline in demand from second tier
operators, partially offset by slightly higher sales to BT. During the third
quarter, the Group has begun discussions with a number of second tier operators,
who are now beginning to emerge from their own restructuring initiatives, with
regard to their future network plans but this has not yet translated to firm
sales. Sales to major German customers were lower than in the third quarter of
the previous year as a result of lower capital spending amongst operators. Sales
were also lower in Italy due to the phasing of the roll-out of Telecom Italia's
DWDM network, where the third quarter of the previous year was a peak stage in
the deployment of the Group's PLT products.
In APAC, whilst sales into the Australian market increased as a result of SDH
Series 3 sales to Telstra, sales in China were down partly due to the completion
of DWDM sales to China Railcom for the North-West Ring project during the last
financial year but also as a result of the difficult conditions in the Chinese
market.
In CALA, third quarter capital spending by telecom operators remained at a very
low level and this led to reduced Optical Networks sales volumes compared to the
previous year.
Third quarter Optical Networks sales in the US were not material, following the
Group's decision during the first quarter of the financial year to cease the
development of its SONET products for the US market and the subsequent closure
of its North American manufacturing plant.
543
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
During the third quarter, SDH accounted for 89 per cent of Optical Networks
sales (Q3 2002: 91 per cent) and DWDM for 7 per cent (Q3 2002: 9 per cent). The
balance related mainly to network management systems.
Broadband Routing and Switching (BBRS)
Sales of BBRS equipment decreased by L8 million or 20 per cent to L32 million
(Q3 2002: L40 million). The expiry of a distributorship agreement in EMEA
earlier in the current financial year, through which the Group sold a third
party's equipment into the UK market, was the main cause of this decline. Sales
in the US remained stable compared to the third quarter of the previous year
mainly as a result of the consistent seasonal pattern of spending by the US
Federal Government, the largest single customer of the Group's BBRS business.
European Access
European Access sales fell by L16 million or 19 per cent to L69 million (Q3
2002: L85 million). Reductions in capital spending by a number of European
Access customers, particularly second-tier operators in the United Kingdom and
Germany, as well as rationalisation of the Group's legacy product lines
following a strategic review of the Access portfolio in April 2002 were the
primary reasons behind this decline.
Sales of voice systems increased largely due to a software upgrade and the Group
recorded higher sales of its Access Hub compared to the modest initial sales of
this newly launched product platform in the third quarter of the previous year.
These increases were more than offset by lower sales of fixed wireless access
products mainly as a result of significant reductions in capital spending by a
number of German mobile operators and lower sales of other legacy and
discontinued products.
North American Access
At L23 million, North American Access sales remained relatively stable compared
to the third quarter of the previous year fell (Q3 2002: L24 million). This was
mainly the result of the continued deployment of equipment into BellSouth's
access network.
Outside Plant & Power (OPP)
OPP equipment sales fell by L18 million or 38 per cent to L30 million (Q3 2002:
L48 million). This was a result of the significant reductions in capital
spending in the United States and CALA.
Other Network Equipment
Other Network Equipment declined by L10 million or 48 per cent to L11 million.
While Interactive Systems recorded a modest increase in sales, this was more
than offset by declining revenues from legacy businesses, particularly in EMEA.
NETWORK SERVICES
Sales of Network Services decreased by L30 million or 13 per cent to L195
million (Q3 2002: L225 million). This was driven by decline in sales of
Installation, Commissioning and Maintenance activities, particularly in the US,
while sales of Value Added Services remained stable.
Installation, Commissioning and Maintenance (IC&M)
IC&M sales fell by L29 million or 24 per cent to L93 million. Some 65 per cent
of the decline arose in the US market and related to both OPP where sales of
services fell in line with declines in equipment sales and to
enterprise-specific service projects in the region as the Group continues to
refocus activities on the service-provider market. IC&M sales in EMEA remained
stable compared to the third quarter of the previous year mainly as a result of
ongoing long-term support contracts which typically account for approximately 40
per cent of IC&M sales in the region and which provide a more constant revenue
stream. In addition, the Group continues to benefit from new business
opportunities such as long-term support, repair and maintenance contracts as a
result of increased outsourcing of services by major European telecom operators.
Major service contracts were won or
544
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
renewed with BT, Ericsson, Netcologne and Belgacom during the quarter and these
revenue streams were sufficient to offset lower levels of installation and
commissioning activities associated with sales of Network Equipment.
Value-Added Services (VAS)
At L102 million, the Group recorded stable sales of Value-Added Services
compared to the third quarter of the previous year (Q3 2002: L103 million).
Sales were down in Managed Services as a result of the Group's exit from its IT
outsourcing activities completed during December 2002 and in the APAC region as
a result of the sale of part of the Group's Hong Kong based legacy operations in
October 2002. Sales of Wireless Services and BBRS-related services remained
stable while sales of Integrated Systems increased compared to the third quarter
of the previous year mainly as a result of the phasing of long-term service
contracts in the UK, the Middle East and in Germany.
CORE SALES CHANNELS
The Group sells its products and services through its direct sales force and
also through indirect channels such as local partners or distribution partners
such as Ericsson, Italtel, Nokia and Siemens. Sales through channel partners
were significantly lower than the third quarter of the previous year as a result
of the overall reduction in market volumes and particularly, in the case of
sales through Ericsson and Nokia, as a result of the completion of 2G and 2.5G
wireless network rollouts in the previous year and the ongoing delays to the
deployment of 3G network rollouts.
CORE PRICING
A high proportion of Core sales, particularly in Europe, are derived from
existing frame contracts, which typically contain annual price reductions. The
Group estimates that price erosion in Network Equipment under such contracts
ranges up to 8 per cent on an annual basis. The Group aims to continue to match
this price erosion with planned product cost savings to avoid erosion of gross
margins. Network Services tends to be more resilient to price erosion. During
the period, the Group has observed increased pricing pressure when competing for
new business in certain territories (particularly in China) and in certain
product areas (particularly Access and DWDM).
CORE KEY CUSTOMERS
The Core business serves a strong customer base of predominantly incumbent
operators and government agencies. The ten largest customers during the third
quarter were BellSouth, BT, Ericsson, Metro City Carriers, Telecom Italia,
Telkom South Africa, UK Government, US Federal Government, Verizon and Vodafone
Group. In aggregate, these customers accounted for 46 per cent of third quarter
Core sales (Q3 2002: ten largest customers 36 per cent). BT remains the Group's
largest customer and accounted for 19 per cent of Core sales in the third
quarter (Q3 2002: 13 per cent).
In EMEA, the five largest customers during the third quarter were BT, Telecom
Italia, Telkom South Africa, the UK Government and Vodafone Group and in
aggregate accounted for 49 per cent of Core sales in the region during the
period (Q3 2002: top 5 EMEA customers accounted for 41 per cent).
In the US, the five largest customers during the third quarter were BellSouth,
Qwest, SBC, the US Federal Government and Verizon and in aggregate accounted for
52 per cent of Core sales in the region during the period (Q3 2002: top 5 US
customers accounted for 35 per cent). The increased concentration of sales
resulted from the decline in the number of second tier operator and enterprise
customers compared to the third quarter of the previous year.
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CORE COST OF SALES
Core cost of sales in the third quarter amounted to L355 million (Q3 2002: L510
million). Of this, approximately 57 per cent related to Network Equipment (Q3
2002: 64 per cent) and 43 per cent to Network Services (Q3 2002: 36 per cent).
In Network Equipment, approximately 75 per cent of cost of sales is material
costs, around one-third of which relates to outsourced printed circuit board
(PCB) assemblies. The remaining 25 per cent relates to in-house labour and
overhead and includes functions and costs such as planning, supplier management,
supply chain management, logistics, engineering, quality control, final assembly
and test, property costs, asset depreciation, system maintenance and warranty
costs.
The decrease in cost of sales in Network Equipment is due to substantial cost
savings achieved in both the European supply chain and in the Group's US
manufacturing operations. In Europe, material, labour and overhead costs have
been significantly reduced year on year and additional savings achieved through
asset disposal, site rationalisation and warehouse closures. In the US, three
factories have been closed during the current financial year and other plants
rationalised in line with the reduced level of sales volumes.
In Network Services, over 60 per cent of cost of sales relates to the cost of
in-house labour. The balance relates to the cost of sub-contract labour,
materials and other overheads. The reduced costs compared to the previous year
relate mainly to headcount reductions.
CORE ADJUSTED GROSS PROFIT / MARGIN
The Group continued to make good progress in its initiatives to improve gross
margins during the period. Third quarter Core adjusted gross profit amounted to
L101 million, or 22.1 per cent of sales.
The decrease in adjusted gross profit compared to the previous year (Q3 2002:
L122 million) related mainly to the reduced volume of Network Equipment sales,
and particularly the lower level of sales in Optical Networks. This was
partially offset by cost savings achieved in the Group's European supply chain
during the period as a result of further rationalisation and benefits of
improved procurement. These savings were the main contributing factor to the
increase in adjusted gross margin as a percentage of sales compared to the
previous year (Q3 2002: 19.3 per cent of sales).
On a sequential basis, excluding the impact of L25 million of additional stock
provisions charged to cost of sales in the second quarter, adjusted gross profit
in the Core remained relatively stable despite the 5 per cent sequential sales
decline (Q2 2003: adjusted gross profit L104 million reduced to L79 million
after additional stock provisions). This was achieved through cost savings
realised during the period in both Network Equipment and Network Services. These
savings were the main drivers of the sequential improvement in adjusted gross
margin as a percentage of sales in the quarter (Q2 2003: 21.6 per cent of sales
before the impact of additional stock provisions of L25 million). They accounted
for a 3 percentage point increase in Core adjusted gross margin, which was
partially offset by a less favourable business mix (0.5 percentage point
decrease) and one-off items relating to contract completions (2 percentage point
decrease).
CORE ADJUSTED OPERATING EXPENSES
During the third quarter, operating cost reduction remained a key focus of the
Group's strategy.
Core adjusted operating expenses totalled L142 million or 31 per cent of Core
sales during the period, a reduction of L108 million or 43 per cent compared to
the third quarter of the previous year (L250 million; 40 per cent of Core
sales). Significant savings were achieved across all main categories of
operating expenditure.
By 31 December 2002, the Group had reached an annualised adjusted operating cost
run-rate in the Core business of approximately L550 million, reduced from L1.1
billion at the end of September 2001 and L635 million at the end of September
2002.
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CORE OPERATING EXPENSES -- RESEARCH & DEVELOPMENT (R&D)
Core R&D expenditure (before exceptional items) amounted to approximately L64
million, a 12 per cent reduction compared to the previous quarter (Q2 2003: L73
million), and a 44 per cent reduction compared to the third quarter of the
previous financial year (L115 million). Cost savings achieved during the quarter
related mainly to headcount reductions and reduced facility costs as well as
reduced spend on development materials and a reduced level of depreciation
following exceptional asset write-downs relating to development models in prior
periods.
Optical Networks accounted for approximately 40 per cent of the total Core R&D
spend during the third quarter (Q3 2002: approximately 36 per cent). Around half
of this spend was focused on SDH and in particular the release into customer
trials of the Group's new high-capacity SDH platform (MSH2K, MSH64c) and the
development of further enhancements to the data-handling capability of the
Group's next generation low-capacity SDH platform, the SMA Series 4. The Group
also continued to invest in DWDM, targeting feature enhancements across the
Group's existing platforms for Core and Metro applications and further upgrades
to the Group's network management software.
R&D spend across the Group's Access portfolio, in Europe and North America
combined, accounted for a further 23 per cent of total Core R&D (Q3 2002:
approximately 32 per cent). The Group has further cut spend on legacy products
in North America and Europe to focus on R&D programmes relating to Fixed
Wireless Access products, the Access Hub and the recently launched Softswitch.
BBRS accounted for 21 per cent of Core R&D in the quarter (Q3 2002:
approximately 17 per cent). Over 50 per cent of this spend was focused on the
further development of the Group's multi-service core switch-router, the
BXR-48000. Other ongoing initiatives include further enhancements to the Group's
ASX1000 and ASX4000 product ranges and the Group's ViPr project, a virtual
presence desk-top networking terminal which uses The Group's ATM-based
multi-service broadband switch-routing platforms as transport infrastructure.
The remaining 16 per cent of R&D spend in the period related mainly to OPP,
wireless software and Other Network Equipment.
CORE OPERATING EXPENSES -- SALES & MARKETING
Core Sales & Marketing expenditure (before exceptional items) amounted to L59
million, a 2 per cent reduction compared to the previous quarter (Q2 2003: L60
million), and a 45 per cent reduction compared to the third quarter of the
previous financial year (L107 million). Cost savings during the quarter have
been achieved mainly through further headcount reductions, a reduced level of
discretionary marketing spend and the closure of overseas sales offices.
CORE OPERATING EXPENSES -- ADJUSTED ADMINISTRATIVE
Adjusted administrative expenses (before goodwill amortisation and exceptional
items) in the Core amounted to L22 million, a 27 per cent reduction compared to
the previous quarter (Q2 2003: L30 million), and a 45 per cent reduction
compared to the third quarter of the previous financial year (L40 million). Cost
savings during the quarter have been achieved mainly through further headcount
reductions, site rationalisation (including the relocation of the Group's UK
head office) and reduced spend on professional fees incurred in the normal
course of business. Professional fees relating to the Group's financial
restructuring are classified as exceptional costs.
CORE OPERATING EXPENSES -- OTHER
Other Core operating income amounted to approximately L3 million and related
mainly to income from properties and royalties as well as a net favourable
foreign exchange translation gain. (Q2 2003: L6 million operating expense; Q3
2002: L12 million operating income).
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CORE ADJUSTED OPERATING LOSS
FY03 FY02
------------------------------------------ ------------
Q1 Q2 Q3 Q3
------------ ------------ ------------ ------------
IN L MILLION
Network Equipment (96) (83) (49) (80)
Network Services (2) 7 20 (32)
Other* (17) (14) (12) (16)
CORE (115) (90) (41) (128)
---------------
* Other relates mainly to Head Office and other central costs
The Group significantly reduced the adjusted operating loss in its Core business
to L41 million during the third quarter, compared to an adjusted operating loss
of L90 million in the previous quarter and an adjusted operating loss of L128
million in the third quarter of the previous year.
This substantial improvement was driven by a combination of increased gross
margin and reduced operating expenditure resulting from the Group's ongoing
operational cost saving initiatives described above.
Network Equipment
The adjusted operating loss in Network Equipment amounted to L49 million, an
improvement of L34 million or 41 per cent compared to an adjusted operating loss
of L83 million in the previous quarter and an improvement of L31 million or 39
per cent compared to an adjusted operating loss of L80 million in the third
quarter of the previous year. Substantial cost reductions achieved in the
Group's supply chain and manufacturing operations in Europe and the US as well
as in all areas of operating expenditure were the main driver of this
improvement and more than offset the reductions in sales volumes across Network
Equipment.
Network Services
Network Services recorded a marked increase in adjusted operating profit from L7
million in the second quarter of the financial year to L20 million during the
period despite the stable sequential sales profile. This represented a
significant increase compared to the third quarter of the previous year when
Network Services recorded an adjusted operating loss of L32 million. Improved
resource utilisation and other ongoing cost reduction initiatives were the main
drivers behind this enhanced performance. The most marked progress was recorded
in IC&M as a result of increased efficiency and an improved ratio of in-house to
sub-contracted labour, giving rise to greater flexibility in the work-force.
OTHER FINANCIAL ITEMS
EXCEPTIONAL ITEMS
Operating Exceptionals
For the three months to 31 December 2002, exceptional items charged to Group
operating loss (including joint ventures) totalled L54 million. Of this amount
L7 million was credited to restructuring costs classified within cost of sales
and L61 million was charged to administrative expenses.
The L7 million exceptional income arose as a consequence of the Group's
manufacturing outsourcing arrangements whereby plc was able to release stock
provisions where the corresponding components, previously provided for by the
Group, had been utilised by the Group's outsourcing partner.
The L61 million charge, related mainly to exceptional restructuring and
reorganisation costs, comprising costs associated with the Group's operational
restructuring including headcount reductions (L32 million), site rationalisation
(L5 million) and fixed asset impairments (L11 million) as well as costs
associated with the Group's financial restructuring (L20 million). These charges
were partially offset by a L7 million exceptional gain due to lapses of share
options granted to vendors of past acquisitions (MSI and Mariposa).
548
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
In addition, the Group recorded its share of associates' operating exceptional
charges, which amounted to L3 million during the quarter.
During the three months to 31 December 2001, exceptional items charged to Group
operating loss (including joint ventures) totalled L94 million and related
wholly to the Group's operational restructuring.
Non-Operating Exceptionals
For the three months to 31 December 2002, non-operating exceptional charges
amounted to L10 million, which related mainly to the disposals of the Group's
legacy operations in South Africa and wireless operations in APAC as well as to
the write down of fixed asset investments.
During the three months to 31 December 2001, non-operating exceptional income
amounted to L341 million and related mainly to gains on disposals of
subsidiaries and other fixed assets including Medical Systems, properties and
the Group's stakes in Sietel and Lottomattica as well as the mark to market of
some of the Group's other investments, namely Lagardere (since disposed) and
Easynet.
INTEREST AND FINANCE INCOME
In the three months to 31 December 2002, the Group's net interest charge to the
Profit and Loss Account was L51 million (Q3 2002: L66 million).
The charge during the period mainly comprised interest paid and accrued on the
Group's bond and bank debt (L60 million). These charges were partially offset by
interest received on the Group's cash balance and in relation to the tax
repayment received during the period (L4 million).
Finance income amounted to L7 million.
TAXATION
The tax charge during the period was Lnil (Q3 2002: Lnil).
GOODWILL AMORTISATION
The Group incurred a charge of L28 million for goodwill amortisation for the
three months to 31 December 2002 compared to a charge of L46 million in the
corresponding period of the previous year. This significant reduction was a
result of the reduced carrying value of goodwill on the Group's balance sheet
following the exceptional goodwill impairment charges in the year ended 31 March
2002 and the disposal of businesses and related goodwill.
ASSOCIATES
The charge of L11 million for the three months ended 31 December 2002 represents
the Group's share of operating losses and exceptional items of Easynet as well
as the amortisation of related goodwill. The charge in the three months ended 31
December 2001 was L11 million.
EARNINGS PER SHARE
Basic and diluted loss per share, which reflects goodwill amortisation and
exceptional items, was 7.1 pence (Q3 2002: earnings of 2.7 pence).
The loss per share excluding goodwill amortisation and exceptional items was 3.6
pence compared to earnings per share of 4.4 pence in the third quarter of the
previous year.
DIVIDEND
In the light of the Group's ongoing financial restructuring, the Board has
decided not to propose the payment of a dividend for the year ending 31 March
2003. Furthermore, after the Restructuring, Corp will be restricted from
549
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
paying dividends under the terms of the indentures governing the New Notes.
Accordingly Corp does not expect to pay a dividend in the foreseeable future.
FINANCIAL CONDITION
BALANCE SHEET
Net Assets/Liabilities
As at 31 December 2002, net liabilities before net retirement benefit deficits
stood at L2,285 million compared to L2,104 million at 30 September 2002. The
L181 million increase in net liabilities was due to the loss incurred during the
period partially offset by favourable foreign exchange translation movements.
Fixed Assets
The L638 million of goodwill on the balance sheet at 31 December 2002 relates
mainly to the acquisitions of GPT and Reltec and businesses acquired from Nokia
and Bosch. The decrease of L34 million from L672 million at 30 September 2002
related mainly to the amortisation charge during the period (L28 million) and
foreign exchange translation movements.
Tangible assets decreased by L49 million from L329 million at 30 September 2002
to L280 million at 31 December 2002. This was mainly due to depreciation (L28
million), fixed asset disposals (L19 million) and fixed asset impairments as a
result of the downsizing and restructuring of the Core business (L9 million).
The fixed asset disposals related mainly to the disposal of the Group's legacy
South African operations and various properties in EMEA and APAC. Capital
expenditure during the period was restricted to items essential to support the
business.
Investments decreased by L15 million from L121 million at 30 September 2002 to
L106 million at 31 December 2002. This was mainly due to the Group's share of
the losses of joint ventures and associates and the write down of one of the
Group's other investments in Australia, offset by an increase in the value of
the Group's investment in Bookham Technology plc which was marked to market at
the end of the reporting period.
Working Capital
The Group made particularly strong progress in its initiatives to improve
working capital management during the period.
At Group level, net stock and contracts in progress reduced by approximately L51
million to L305 million. This was driven primarily by reductions in the Core
where net stock and contracts in progress fell by L47 million. These reductions
were achieved mainly through improved control and alignment of inventory in-feed
with forecast sales demand, improvements in inventory management practices and
the continued rationalisation of stock locations. The increase in Core net stock
turns from 5.1 in September 2002 to 6.3 in December 2002 reflected this improved
utilisation and management of inventory.
Group net debtors decreased by approximately L115 million to L747 million. In
the Core, net debtors decreased by approximately L116 million to L726 million.
L76 million of the decrease in the Core related to net trade debtors partly as a
result of the reduced trading volumes during the period and partly as a result
of the Group's continued focus on the management of debtor collection and
overdue debts. Net Core trade debtor days decreased from 107 in September 2002
to 100 in December 2002, reflecting the Group's continued focus on cash
collections, particularly in Northern Europe and Middle East and in businesses
in Network Services. Other debtors and prepayments in the Core decreased by L39
million to L151 million mainly as a result of the release and unwind of advances
and prepayments.
Trade, other creditors and accruals fell from L1,142 million at 30 September
2002 to L1,090 million at 31 December 2002, a reduction of L52 million. Trade
creditors in the Core were reduced by L37 million to L225 million. Core trade
creditor days remained stable at approximately 54 days. Other Creditors,
accruals and prepayments on contracts in the Core reduced by L63 million to L442
million. This was mainly due to a lower
550
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
level of contract and payroll-related accruals as a result of the reduced size
of the Core business as well as to the settlement of a legal dispute in the
field of IT.
Provisions
Provisions for liabilities and charges stood at L452 million at 31 December
2002, a net reduction of L4 million compared to L456 million at 30 September
2002.
Share option provisions amounted to L167 million (September 2002: L176 million).
The net reduction of L9 million in share option provisions occurred mainly as a
result of the accrued interest on one of the Group's ESOP derivative contracts
to new loan agreements and the lapse of options relating to previous
acquisitions (namely Mariposa and MSI).
Restructuring provisions amounted to L79 million (September 2002: L69 million).
The Group continues to implement its operational restructuring plans and
recorded a total exceptional charge of L51 million in the period (including
costs arising and settled in the period and a charge to provisions of L25
million). Existing restructuring provisions utilised (L13 million) and released
(L3 million) were partially offset by the creation of new provisions, leading to
the L10 million net increase in restructuring provisions during the quarter.
The balance included provisions for warranty and contract losses, industrial
injury claims, supplier obligations, provisions related to previous disposals
and deferred tax provisions.
LIQUIDITY AND CAPITAL RESOURCES
NET DEBT
Group net debt amounted to L2,819 million at 31 December 2002 compared to L2,846
million at 30 September 2002.
The decrease of L27 million achieved during the third quarter resulted from the
Group's total cash inflow before use of liquid resources and financing of L29
million. A favourable foreign exchange translation gain of L28 million was
offset by a L30 million non-cash reduction in net debt relating to the
termination of interest rate and equity swap arrangements converted to new loan
agreements during the period.
The following table sets forth the composition of the Group's net debt at 31
December 2002 and 30 September 2002:
31.12.02 30.09.02
-------- --------
Euro and US$ Bond Debt 1,699 1,695
Syndicate Bank Debt(1) 2,114 2,117
Bilateral and Other Bank Debt 91 105
Gross Financial Indebtedness 3,904 3,917
Cash(2) 1,085 1,071
----- -----
Net Financial Indebtedness 2,819 2,846
===== =====
---------------
1. including L30 million relating to the termination of interest swap and
equity derivative arrangements during the quarter and L54 million relating
to the conversion of interest swap arrangements to new loan agreements
during the first half.
At 31 December 2002, the Group had a total restricted cash balance, defined
as cash pledged or advanced as collateral, of L868 million. Of this, L701
million reflected the cash in the secured accounts described above, L107
million reflected cash collateral placed against bonding facilities; L17
million reflected cash in the Group's captive insurance company and L16
million reflected cash deposited against secured loans in Italy. In
addition, L27 million has been placed in an escrow account pending
determination of certain claims of the Group's ESOP Derivative Banks in
respect of certain previously disposed companies (see "Share Price Risk" for
further information).
2. Of the Group's L217 million unrestricted cash held outside of the secured
accounts as at 31 December 2002, L110 million was a combination of cash in
transit and global working capital balances held at subsidiary level or
within the Group's joint ventures with the remaining L107 million held in
money market deposits in the Group's Treasury centres.
The Group has not taken into account the impact of its proposed Restructuring
when reporting its financial indebtedness position.
551
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
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CASH FLOW FOR THE THREE MONTHS ENDED 31 DECEMBER 2002
The Group generated a net cash inflow of L29 million before use of liquid
resources and financing during the third quarter. This was driven by a net cash
inflow from operating activities before capital expenditure and exceptional
items of L72 million partially offset by net exceptional and non-operating cash
outflows of L43 million.
During the third quarter, the Group benefited from the receipt of a tax
repayment and the lower level of net interest paid in the context of the
financial restructuring (see Returns on Investments and Servicing of Finance
below), which partially offset the exceptional cash costs relating to the
Group's ongoing operating and financial restructuring processes.
Operating Cash Flow
The Group operating loss before exceptional items of L77 million offset by
depreciation and amortisation of L56 million and a L93 million reduction in
working capital led to the Group's operating cash inflow of L72 million during
the period. After a L3 million inflow from net capital expenditure (including
proceeds of fixed asset disposals), the Group adjusted operating cash inflow was
L75 million.
This was a marked improvement on the adjusted operating cash outflows recorded
during the previous quarters of the year (Q1 2003: L99 million; Q2 2003: L68
million) and was driven mainly by the reduced operating losses and improved
working capital contributions, particularly in the Core business where adjusted
operating cash flow improved from an outflow of L81 million and L43 million in
the first and second quarters respectively to an inflow of L66 million in the
third quarter. The overall reduction in working capital during the third quarter
was largely driven by cash collections from debtors relating to sales in prior
periods when trading volumes were higher than current levels as well as the
utilisation of inventory, partially offset by a reduction in creditors.
Capital Expenditure and Financial Investment
Gross capital expenditure amounted to L7 million during the period and related
primarily to the Core business (L6 million). The Group has maintained capital
expenditure well below the level of depreciation, which amounted to L28 million,
of which L26 million related to the Core. Core capital expenditure is generally
focused on development models, test equipment, sales demonstration equipment and
R&D laboratory equipment. During the third quarter, almost L4 million of Core
capital expenditure was incurred in Optical Networks and BBRS while a further L1
million was spent in North American Access in relation to the purchase of assets
from Jabil as part of the transfer of one of the US facilities to a lower cost
location.
The disposal of property and other tangible fixed assets contributed a L9
million cash inflow during the period.
Returns on Investments and Servicing of Finance
Net interest paid during the period amounted to L11 million, comprising interest
paid of L18 million relating mainly to the payment of interest accrued on the
Group's syndicate bank and bond debt, partially offset by interest received on
the Group's cash balance and in relation to the receipt of a tax repayment
during the quarter (L7 million).
As part of the proposed restructuring, L435 million is to be distributed to the
relevant scheme creditors, of which L95 million represents the payment of due
and accrued interest already made on Corp's financial debt. Of this L95 million,
L78 million was paid during the first half of the financial year and L17 million
was paid during the third quarter. The Group continues to accrue interest on
Corp's financial debt and this is reflected in the Group's Profit and Loss
account but no further cash payments have been made in this respect since the
payment of interest accrued as at 15 October 2002. As disclosed in the Group's
Financial Restructuring announcement dated 18 March 2003, in common with Corp's
and plc's approach to other scheme claims, pending the outcome of the schemes of
arrangement, neither Corp nor plc intends to make payment in respect of its
obligations under its syndicate bank or bond debt due during March 2003, in full
or in part. Accrued but unpaid interest of Corp and plc at the record date for
the schemes of arrangement will form part of the scheme claims.
552
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Exceptional Cash Flows
The Group incurred operating exceptional cash costs of L82 million during the
third quarter. Over half of this amount related to the direct cash cost of
severance payments and site rationalisation and closures in the context of the
Group's operational restructuring and reorganisation. The balance relates mainly
to the payment of fees and expenses to advisors in the context of the Group's
financial restructuring and to cash costs associated with the Group's
manufacturing outsourcing programme.
Cash Flows from Acquisitions and Disposals
Net proceeds from acquisitions and disposals led to a cash inflow of
approximately L2 million during the third quarter. This related mainly to the
disposal of the Group's legacy South African operations.
Tax
The Group received a net tax repayment of approximately L45 million during the
third quarter relating to the repayment of advanced corporation tax in the
United Kingdom on foreign income dividends from previous years.
SYNDICATE BANK AND BOND DEBT
At 31 December 2002, drawings under the Group's remaining Syndicated Facility
amounted to an equivalent of L2,033 million, comprising of actual drawings of
L650 million and US$2,226 million.
At 31 December 2002, Corp had Yankee Bonds outstanding with principal US$1,539
million (L956 million) and Eurobonds outstanding with principal E1,175 million
(L766 million).
CUSTOMER FINANCING COMMITMENTS
The Group, like its competitors, continues to experience demand for financing
from its customers. However, this demand has decreased significantly due to
market conditions and the Group's focus on its core base of incumbent carrier
customers. When the Group has supported customer financing requests, it has
significantly limited its own risk by: i) leveraging funds from third party
financiers' having strategic interests aligned with the Group, and ii)
developing innovative commercial alternatives that do not involve long-term cash
investments from the Group. Through these actions, the Group has satisfactorily
accommodated most customer financing requests and will not require Group cash
resources to fund these activities in the foreseeable future.
As at 31 December 2002, the Group had vendor finance commitments of
approximately L46 million of which L39 million had been drawn. The reduction
compared to commitments of L68 million at 30 September 2002 was primarily due to
the resolution of two of the Group's outstanding positions.
In addition, the Group uses export credit agencies to assist in managing
political and credit risks on major contracts and makes extensive use of export
credit insurance in respect of small to medium-sized contracts.
Some customers in the telecommunications market require that bank bonds or
surety bonds (those issued by insurance companies) are provided to guarantee
performance of the supplier. Group companies had L213 million of such bonds
outstanding as at 31 December 2002 with both banks and insurance companies
world-wide (30 September 2002: L221 million). Some of these bonds are covered by
counter-indemnities from Corp and others have counter-indemnities from other
Group companies. The Group's bonding is normally provided on an uncommitted
basis. As a consequence of the Group's ongoing financial restructuring, all new
bonds currently have to be fully cash collateralised. Since February 2002,
Marconi Bonding Limited (a special purpose vehicle used for this purpose) has
procured the issue of approximately L107 million of performance bonding (on a
fully cash collateralised basis) on behalf of other Group companies.
553
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
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A maturity profile of all bonds and guarantees outstanding at 31 December 2002
is set out below:
31.12.02 30.09.02
IN L MILLION ------------ ------------
YEAR ENDING 31 MARCH,
2003 or earlier 29 48
2004 37 31
2005 16 13
2006 60 49
2007 35 27
Thereafter 8 6
No expiry date 28 47
------------ ------------
Total 213 221
============ ============
A number of the Group's performance bond arrangements carry rights for the
issuer to call for cash collateral, either unconditionally or upon the
occurrence of certain events. The Group estimates that as at 31 December 2002,
performance bonds with a face value of approximately L70 million have varying
conditional or unconditional rights to call for cash collateral.
Bonds will frequently run beyond the contracted maturity dates indicated in the
table above. In addition, there are a number of bonds with no expiry date. These
may be cancelled by the beneficiaries when the guaranteed works are completed.
RISK MANAGEMENT
The main risks faced by the Group in the financial markets are liquidity risk,
interest rate risk, foreign exchange risk and share price risk.
LIQUIDITY RISK
The Group has funded its liquidity requirements mainly through a combination of
internally generated funds, bank borrowings, debt issues in the capital markets
and the disposal of non-core businesses. The Group is currently unable to
arrange any new lending facility or to raise new funds through the issuance of
debt or equity securities. Consequently, the Group has little or no ability to
obtain new external funding and does not expect to have such ability unless and
until the proposed Restructuring is complete.
As previously disclosed, the majority of the Group's cash resources are
currently held in secured accounts which are subject to interim security
arrangements in favour of the Group's Syndicate Banks and bondholders (including
the bond trustees) and also to Barclays, as the sole ESOP Derivative Bank who,
prior to 15 October 2002, committed to support the proposed Restructuring. The
secured accounts were created at the end of April 2002 in accordance with the
previously disclosed lock box arrangements entered into in favour of the Group's
Syndicate Banks and bondholders. The interim security arrangements contemplated
by the Heads of Terms were implemented on 13 September 2002 and were amended on
13 December 2002. As at 13 September 2002, the balance of the secured accounts
was approximately L866 million. At 31 December 2002, the balance of this secured
cash amounted to L701 million. The Group is dependent on amounts available to it
from the secured amounts in order to meet its short-term liquidity needs. The
interim security arrangements described above are not affected by the ESOP
settlement referred to below.
Prior to the release of interim security and so long as an enforcement event
does not occur, monthly releases from the secured accounts are approved in
accordance with an agreed cash flow schedule, subject to specified maximum
amounts. This agreed cash flow schedule is consistent with the Group's
expectations as to its liquidity needs for the relevant period. The schedule,
covering the period to the end of June 2003 is expected to be approved by the
Group's Syndicate Banks and the ad hoc committee of bondholders in connection
with the request for an extension of the timetable for the Restructuring
referred to below.
The interim security is subject to various enforcement events, some of which are
tied to the prospects of successfully completing the Restructuring in accordance
with the non-binding indicative heads of terms (and within the agreed timetable,
which is currently 15 March 2003). The occurrence of an enforcement event would
entitle the requisite majority of creditors to block withdrawals from the
secured accounts and/or enforce the
554
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interim security. As at the present date a request has been made to the Group's
Syndicate Banks and Ad Hoc Committee of Bondholders for an extension of the
timetable for completion of the Restructuring (to 19 May 2003) and plc and Corp
are confident that this extension will be granted.
INTEREST RATE RISK
It has in the past been Group policy to maintain at least 50% of debt at fixed
rates of interest. The term structure of interest rates was managed in
observance of this policy using derivative financial instruments such as
interest rate swaps. However, due to the Restructuring process described above,
this has been superceded by the requirement to manage immediate liquidity, which
involved the cancellation of all outstanding interest-related derivatives
positions. Consequently, in the nine months to 31 December 2002, all the Group's
out-of-the-money interest rate swap arrangements were converted to new loan
agreements. At 31 December 2002, 44 per cent of the Group's interest-bearing
borrowings were at fixed rates after taking account of interest rate swaps. Of
this total, 24 per cent were at fixed dollar rates of interest and 20 per cent
were at fixed euro rates of interest.
In the three months ended 31 December 2002, the average interest rate received
on cash and liquid investments was approximately 2.25 per cent per annum, and
100 per cent of deposits were at floating rates. The largest proportion of
investments was in US dollar deposits -- the Group held an average of
approximately $770 million in US dollar deposits, earning an average interest
rate of approximately 1.5 per cent per annum. These US dollar deposits match in
part the US dollar borrowings referred to under Syndicate Bank and Bond Debt
above.
FOREIGN EXCHANGE RISK
The Group conducts a significant portion of its business activities outside the
United Kingdom in currencies other than sterling. The Group's principal exchange
rate exposures relate to U.S. dollar/pounds sterling and euro/pounds sterling
exchange rates for both transactional and translation related exposures. As a
matter of general policy, the Group enters into foreign currency forward
exchange contracts in the ordinary course of business to protect itself from
adverse currency rate fluctuations on firm contracts where cash receipts or
payments are in a foreign currency different from that of the Group business
which is contracting with customers or suppliers. These contracts are executed
with creditworthy banks. The Group has little or no ability to enter into such
contracts at present and does not expect to have such ability unless and until
the proposed Restructuring is complete.
The Group also has overseas subsidiaries that incur losses/earn profits and
whose net liabilities or net assets are denominated in foreign currencies. It is
not the Group's policy to use derivatives to hedge exposures arising from the
translation of these overseas losses/profits and net liabilities/assets into
pounds sterling. However, approximately 82 per cent of gross borrowings were
denominated in foreign currencies in order to form a hedge for investments in
currencies other than sterling. Of these, 62 per cent, denominated in U.S.
dollars, formed a hedge for the Group's investment in the United States, and 20
per cent, denominated in euro, formed a hedge for the Group's investment in the
euro zone.
If the pound had strengthened such that the average exchange rates used in the
translation of the Group's overseas earnings changed by 10 per cent, our
reported loss from continuing operations would have been reduced by 7.1 per
cent, in the nine months ended 31 December 2002.
SHARE PRICE RISK
The Group has, in the past, issued share options to its employees under a number
of different option plans, collectively known as the Employee Share Option Plans
("ESOP"). Under these plans, options may be satisfied by way of a transfer of
existing plc ordinary shares acquired in the market by an employee trust or
other vehicle, or, under some of the plans only, by an issue of new plc shares.
As previously disclosed, during the first half of calendar year 2000, in order
to hedge part of the potential cost of the plans estimated at that time, the
Marconi Employee Trust entered into contracts with three banks (the "ESOP
Derivative Banks") to purchase a total of 40 million shares in the future at
prices which were fixed at the date of contract, of which as at 6 December 2002,
38.5 million remained outstanding. The equity derivative with UBS which related
to 10 million shares was consensually closed out on 6 December 2002. The Group's
maximum
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exposure under the equity derivative contracts (including the closed out UBS
equity derivative) is L337 million, plus accrued finance charges. This level of
exposure had accrued as at 31 December 2002. For every 10 per cent movement in
the share price, the change in the fair value of the ongoing contracts is
immaterial. One of the equity derivative contracts requires (and, before its
termination, the UBS equity derivative required) the Marconi Employee Trust to
deposit cash collateral with the respective Derivative Banks if the share price
falls to certain levels stipulated in the contracts. Corp has, in the past,
funded the provision of this collateral. Prior to the close out of the UBS
equity derivative (and as at 31 December 2002), L214 million of collateral, the
maximum amount of collateral payable under these contracts, had been paid. No
further collateral will become due.
Due to the substantial deterioration in the Group's share price, only limited
amounts of options with zero exercise price have been or are likely to be
exercised.
The uncollateralised exposure under the ESOP derivative contracts (including the
closed out UBS equity derivative) as at 31 December 2002 is comprised of
principal of L123 million, together with accrued finance charges of L46 million.
As previously announced, up to L145 million (not including the previously
announced L25 million Strategic Communications escrow which benefited all of the
ESOP Derivative Banks) was to be set aside into escrow, on the effective date of
the Corp Scheme, pending determination of potential liabilities of Group
companies to participating ESOP Derivative Banks (those who had undertaken to
support the Restructuring) in relation to the ESOP derivative transactions. Only
Barclays Bank PLC ("Barclays") elected to participate in these arrangements and
on 13 September 2002, Barclays, plc and Corp entered into a restructuring
undertaking agreement under which Barclays undertook, subject to certain
termination events, to vote in favour of the Restructuring.
On 13 December 2002, a definitive agreement setting out the terms of that
proposed escrow arrangement was entered into between, inter alia, plc, Corp and
Barclays. The terms of this escrow which would have applied on the effective
date of the Restructuring have now been superseded somewhat by the ESOP
settlement agreement referred to below.
Corp and plc have reached agreement with the Group's ESOP Derivative Banks for a
settlement of their ESOP derivative related claims against the Group (subject to
obtaining any requisite creditor consents). Under the terms of the settlement,
which is conditional upon the Corp scheme of arrangement becoming effective,
Corp will pay a total of L35 million (the "Settlement Amount") to the ESOP
Derivative Banks in full and final settlement of their ESOP related claims
against the Group.
The Settlement Amount will be paid from the fund of up to L170 million
(including the Strategic Communications escrow) which was to have been set aside
by Corp, as part of the Restructuring, pending resolution of potential
liabilities of Group companies to participating ESOP Derivative Banks in
relation to the ESOP derivative transactions. The settlement has made available
approximately L135 million in cash which will now form part of the L340 million
initial cash distribution referred to above (in return for a L123 million
reduction in the face value of the New Junior Notes to be issued as part of the
Restructuring i.e. equivalent to redemption at 110 per cent of face value).
Without the ESOP settlement, the L135 million sum would not have formed part of
the initial cash distribution.
INSURANCE RISK MANAGEMENT
The Group manages centrally the purchase of global insurance policies in respect
of major insurable risks, including property (material damage/business
interruption), directors' and officers and public and products liability. The
use of global policies and centrally appointed brokers allows the Group to
improve internal control and optimise the overall level of retained risk. Risk
management and insurance expenditure are concentrated on those insurable risks
which are considered potentially catastrophic to the Group as a whole. The Group
continues to work with its insurers and advisers to improve its loss prevention
and mitigation processes. Insurance market conditions are currently very
challenging and premium rates have increased substantially. However, the Group
benefits from good relationships with its major insurers.
556
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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NOTES
1 FUNDAMENTAL UNCERTAINTY IN RESPECT OF THE APPLICATION OF THE GOING
CONCERN BASIS
Corp owes approximately L2.1 billion under a syndicated credit facility (the
"Bank Facility") which was due for repayment on 25 March 2003. Borrowings under
the facility are repayable on demand and no further funds may be drawn under its
terms. The Group also has in issue Eurobonds and Yankee Bonds (the "Bonds") with
a face value of L1.7 billion. plc guarantees Corp's debt obligations under the
Bonds and the Bank Facility. As at 31 December 2002, net debt of the Group stood
at approximately L2.8 billion.
On 29 August 2002, plc announced that non-binding indicative Heads of Terms,
which set out the principles for the financial restructuring of plc and Corp
(the "Restructuring"), had been concluded with the co-ordination committee of
syndicate banks and an informal ad hoc committee of Bondholders. On 16 December
2002 plc announced that modifications to the non-binding indicative Heads of
Terms had been concluded. The non-binding indicative Heads of Terms envisage
that the creditors of plc and Corp, other than certain excluded creditors, will
be subject to schemes of arrangement ("Schemes") under which creditor claims
will be compromised in consideration for cash, new equity and new debt
securities of Corp. As part of the restructuring Corp will become the listed
parent for the Group and, following completion of its Scheme, it is currently
anticipated that plc will be dissolved. The Restructuring will leave existing
plc shareholders with 0.5% of the equity in Corp.
On 17 March 2003, documentation for the proposed Schemes was filed with the High
Court of England and Wales, initiating the final steps towards implementation of
the Restructuring.
The non-binding indicative Heads of Terms envisage a new capital structure for
the Group that is appropriate to the latest business plan developed by the
Group. The implementation of this capital structure involves, among other
things, the payment of L320 million of cash (in addition to L95 million accrued
interest on Corp's financial debt, paid in September and October 2002), the
issue of new equity and the issue of new notes with a face value, using 31
December 2002 exchange rates, of approximately L763 million by Corp to its
schemed creditors through the operation of the Schemes.
As part of the arrangements to implement the Restructuring, the majority of the
Group's cash resources are currently held in secured accounts which are subject
to interim security arrangements in favour of the Group's Syndicate Banks and
Bondholders (including the Bond trustees, but excluding Ancrane, a subsidiary of
plc which holds Bonds) and also to one of the Group's ESOP Derivative Banks (who
committed to support the proposed Restructuring within the required time
period). At 31 December 2002, the balance of this secured cash amounted to L701
million. The Group is dependent on amounts available to it from the secured
amounts in order to meet its short-term liquidity needs.
Prior to the release of interim security and so long as an enforcement event
does not occur, monthly releases from the secured accounts are approved in
accordance with an agreed cash flow schedule, subject to specified maximum
amounts. This agreed cash flow schedule is consistent with the Group's
expectations as to its liquidity needs for the relevant period. The current
agreed cash flow schedule covers the period to the end of March 2003. A revised
schedule, covering the period to the end of June 2003 is expected to be approved
by the Group's Syndicate Banks and the Ad Hoc Committee of Bondholders in
connection with the request for an extension of the timetable for the
Restructuring referred to below.
When the non-binding indicative Heads of Terms were announced on 29 August 2002,
the Group indicated that the Restructuring was scheduled to be completed by 31
January 2003 (the "Effective Date"). This date was extended to 15 March 2003 in
December 2002. As a result of the complexity of the Restructuring the Effective
Date of the Schemes is now expected to be on or around 19 May 2003. The change
to the timing of the Restructuring introduces risks associated with certain
financial debt falling due in March 2003. In particular, as noted above, the
Bank Facility was due for repayment on 25 March 2003 and interest payments were
due on the Yankee Bonds on 17 March 2003 and are due on the Eurobonds on 31
March 2003. Failure to repay the Bank Facility, either on demand or on 25 March
2003, gives rise to direct rights on the part of individual syndicate banks to
bring actions for recovery of the debt owing to them and, in addition, after the
expiry of a five business day grace period, result in a cross default under the
Bonds. In common with the Group's approach to other
557
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
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Scheme claims, pending the outcome of the Schemes, the Group does not intend to
make payment in respect of such obligations, in full or in part.
The fact of the aforementioned payments falling due represents a risk to the
Restructuring, due to consequential legal action which Syndicate Banks or
Bondholders who are not supportive of the Restructuring process could take
against Corp or plc. However, Corp and plc are of the view that, given the
timing associated with any such legal action as well as the likely attitude of
the English and New York Courts to a creditor seeking to frustrate the
Restructuring (which is intended to be for the benefit of all Scheme creditors),
these risks should be manageable.
The interim security is subject to various enforcement events, some of which are
tied to the prospects of successfully completing the restructuring in accordance
with the non-binding indicative Heads of Terms (and within the agreed timetable,
which is currently, as mentioned above, 15 March 2003). The occurrence of an
enforcement event entitles the requisite majority of creditors to block
withdrawals from the secured accounts and/or enforce the interim security. At
the present date, following the delays to the timing of the Restructuring
described above, an unwaived enforcement event is continuing, although no
enforcement action has been taken. Corp's request for a waiver of this
enforcement event is due to be considered by the Group's syndicate banks on 19
March 2003 and by the ad hoc committee of bondholders prior to posting of the
Scheme document to Scheme creditors. Corp and plc are confident that a waiver
will be granted.
The Restructuring of plc is dependent on approval of the Corp and plc Schemes.
Approval of these Schemes will be dependent on, amongst other things, securing
the necessary level of support of the Syndicate Banks, Bondholders and other
creditors whose claims will be compromised, in the relevant creditors' meetings
to be held as part of the Scheme process, as well as the approval of the English
court and the granting of a permanent restraining order by the U.S. Bankruptcy
Court.
Letters of current intention to support the Restructuring and to vote for the
plc and Corp Schemes were obtained from the joint lead coordinators of the
Group's Syndicate Banks and from each of the members of the Ad Hoc Bondholder
Committee in December 2002. Neither plc nor Corp has received any notice of any
changes to this intention.
In the light of the information currently available to them, Corp and plc
believe that the Group's bankers, Bondholders and other creditors will support
the Restructuring and that all the conditions for the Restructuring will be
satisfied. On this basis, plc considers it appropriate to prepare the accounts
on the going concern basis. Should the Group's Syndicate Banks, Bondholders and
other creditors cease to support the Group before the completion of the
Restructuring, or should all of the conditions for the Restructuring not be met,
there would be no realistic alternative for Corp and plc but to commence
insolvency proceedings and the going concern basis of preparation would no
longer be applicable; adjustments would be necessary to record additional
liabilities and to write down assets to their recoverable amount. It is not
practicable to quantify these possible adjustments.
2 ACCOUNTING POLICIES
The more important Group accounting policies are summarised below to facilitate
the interpretation of the non-statutory financial statements.
As disclosed in the 2002 Annual Report and Accounts, the Group accounts for
pension costs and retirement benefits in accordance with FRS 17. This requires
an annual actuarial assessment of the defined benefit pension schemes, which is
carried out by the Group's independent actuarial advisers. The Group carried out
a further actuarial assessment for the six month period ended 30 September 2002.
ACCOUNTING CONVENTION
The non-statutory financial statements are prepared under the historical cost
convention, as modified by the valuation of listed current and fixed asset
investments.
558
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BASIS OF CONSOLIDATION
The non-statutory financial statements consolidate the accounts of plc and all
of its subsidiary undertakings (Group companies or subsidiaries). All
inter-company balances and transactions have been eliminated upon consolidation.
All Group companies' results and cashflows have been prepared for the three
months ended 31 December 2002 and 31 December 2001 with consolidated group
balance sheets at 31 December 2002 and 30 September 2002. Consequently,
comparative information has not been provided for the consolidated statement of
recognised gains and losses and reconciliation of movements in equity
shareholders' interests.
TURNOVER
Turnover, excluding VAT, comprises sales to outside customers, and the Group's
percentage interest in sales by their joint ventures. The Group records
transactions as sales when the delivery of products or performance of services
takes place in accordance with the terms of sale. Turnover on long term
contracts is calculated as a proportion of the total contract value based on the
ratio of costs incurred to date compared with the total expected costs for that
contract.
CURRENCY TRANSLATION
Transactions denominated in foreign currencies are translated into the
functional currency at the rates ruling at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the balance
sheet date are retranslated at the rates ruling at that date. These translation
differences are dealt with in the profit and loss account with the exception of
certain gains and losses arising under hedging transactions as described below.
Profits and losses of overseas subsidiaries, joint ventures and associates and
cash flows of overseas subsidiaries are translated at the average rates of
exchange during the period. Non-sterling net assets are translated at period end
rates of exchange. Key rates used are as follows:
Average rates Period-end rates
---------------------------------------- ----------------------------------------
31 DECEMBER 30 September 31 December 31 DECEMBER 30 September 31 December
2002 2002 2001 2002 2002 2001
----------- ------------ ----------- ----------- ------------ -----------
US dollar 1.5389 1.5204 1.4359 1.6098 1.5726 1.4554
Euro 1.5739 1.5813 1.6239 1.5342 1.5913 1.6346
=========== ============ =========== =========== ============ ===========
The differences arising from the restatement of profits and losses and the
retranslation of the opening net assets/(liabilities) to period end rates are
taken to reserves.
ACQUISITIONS AND DISPOSALS
On the acquisition of a business, including an interest in an associated
undertaking, fair values are attributed to the group's share of separable net
assets. Where the cost of acquisition exceeds the fair values attributable to
such net assets, the difference is treated as purchased goodwill and capitalised
in the balance sheet in the year of acquisition.
The profit or loss on the disposal or closure of a previously acquired business
includes the attributable amount of any purchased goodwill relating to that
business not previously charged to the profit and loss account.
The results and cashflows relating to a business are included in the
consolidated profit and loss account and the consolidated cash flow statement
from the date of acquisition or up to the date of disposal.
559
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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FINANCIAL INSTRUMENTS
The Group uses financial instruments, including interest rate swaps, currency
swaps and other derivatives, solely for the purposes of raising finance for its
operations and managing interest and currency risk associated with the Group's
underlying business activities. There is no trading activity in financial
instruments.
FORWARD FOREIGN EXCHANGE CONTRACTS
Forward foreign exchange contracts generally exhibit a high correlation to the
hedged items and are designated and considered effective as hedges of the
underlying assets, liabilities and firm commitments. Gains and losses on forward
foreign exchange contracts which are designated as hedges of assets, liabilities
and firm commitments of the group are recognised in the profit and loss account
or as adjustments to carrying amounts when the hedged transactions occurs.
HEDGES OF THE NET INVESTMENT IN OVERSEAS SUBSIDIARIES
The Group's policy has been to finance its activities in the same currencies as
those used for its foreign investments in order to hedge foreign currency
exposure of net investments in foreign operations. This policy is implemented
either by financing in the related currency or using derivatives, such as
currency swaps, which provide a synthetic effect of a foreign currency loan,
thereby reducing the exchange risk.
Exchange gains or losses arising on the hedging borrowings and on the notional
principal of currency swaps during their life and at termination or maturity,
together with the tax thereon, are dealt with as a movement in reserves, to the
extent they offset losses or gains on the hedged investment.
In respect of hedges of net investments, the Group enters into tax equalisation
swaps, the gains and losses of which are recognised through the statement of
total recognised gains and losses (in accordance with the underlying transaction
and the tax thereon) with any forward premium or discount recognised over the
life of the contract in the profit and loss account.
EQUITY FORWARD CONTRACTS
The Group has established three trusts for the purchase of shares and
share-related instruments for the benefit of employees -- the Marconi Employee
Trust (MET), the GEC Employee Share Trust and the GEC Special Purpose Trust.
These trusts are consolidated in the financial statements of the Group.
The independent trustee of the MET, Bedell Cristin Trustees Limited ("BCT") has
entered into contracts (the Equity Forward Contracts) to hedge the potential
cost of the Group's share plans. On or before maturity of the Equity Forward
Contracts, the MET may either take delivery of plc shares at the contracted
purchase price (including accrued interest) or may cash settle the contracts for
a net amount based on the difference between the plc share price and the
contract purchase price (including accrued interest). The obligation to settle
the contracts including accrued interest is classified as a provision within the
Group's balance sheet. This liability is calculated by taking the shares under
contract and applying the difference between plc's share price and the contract
purchase price per share, adjusted for brokerage costs, on a
contract-by-contract basis.
No cash is exchanged until the maturity of the contract (or earlier upon either
option exercises by employees or cash settlement of the contracts at the MET's
option) unless collateral is required. Where the MET has provided collateral
this has been offset against the provision in the consolidated balance sheet.
Interest costs on the equity notional are calculated as LIBOR plus a margin less
dividends, if any, and are accrued on a monthly basis, with a debit to interest
and a credit to provisions.
INTEREST RATE RISK EXPOSURE
The Group hedges its exposure to movements in interest rates associated with its
borrowing primarily by means of interest rate swaps and forward rate agreements.
Payments and receipts under interest rate swap agreements specifically
designated for hedging purposes are recorded in the profit and loss account on
an accruals basis.
560
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
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Gains and losses arising on termination of hedging instruments where the
underlying exposure remains are recognised in the profit and loss account over
the remaining life of the underlying exposure.
TANGIBLE FIXED ASSETS
Property, plant, machinery, fixtures, fittings, tools and equipment are recorded
at cost and depreciated on a straight-line basis over their estimated useful
lives from the time they are brought into use. Freehold land does not bear
depreciation where the original cost of purchase was separately identified.
Provision is made for any impairment.
Tangible fixed assets are depreciated using the following rates:
Freehold buildings -- 2 per cent to 4 per cent per annum
Leasehold property -- over the period of the lease or 50 years for long leases
Plant and machinery -- 10 per cent per annum on average
Fixtures, fittings, tools and equipment -- 10 per cent per annum
LEASED ASSETS
Assets held under finance lease and other similar contracts, which confer rights
and obligations similar to those attached to owned asset, are capitalised as
tangible fixed assets and are depreciated over the shorter of the lease terms
and their useful lives. The capital elements of future lease obligations are
recorded as liabilities, while the interest elements are charged to the profit
and loss account over the period of the leases to produce a constant rate of
charge on the balance of the capital repayments outstanding. Hire purchase
transactions are dealt with similarly except that assets are depreciated over
their useful lives.
Rentals under operating leases are charged on a straight-line basis over the
lease term, even if the payments are not made on such a basis.
GOODWILL
Purchased goodwill is capitalised and amortised on a straight-line basis over
its estimated useful economic life. Each acquisition is separately evaluated for
the purposes of determining the useful economic life, up to a maximum of 20
years. The useful economic lives are reviewed annually and revised if necessary.
Provision is made for any impairment.
RESEARCH AND DEVELOPMENT
Expenditure incurred in the period is charged against profit unless specifically
chargeable to and receivable from customers under agreed contract terms.
STOCK
Stock is stated at the lower of cost and net realisable value. Provision is made
for obsolete, slow-moving or defective items where appropriate.
CONTRACTS IN PROGRESS
Profit on long-term contracts in progress is taken when a sale is recorded on
part-delivery of products or part-performance of services, provided that the
outcome of the contract can be assessed with reasonable certainty. Amounts
recoverable on long-term contracts, which are included in debtors, are stated at
the net sales value of the work done less amounts received as progress payments
on account. Excess progress payments are included in creditors as payments
received in advance. Cumulative costs incurred net of amounts transferred to
cost of sales, less provision for contingencies and anticipated future losses on
contracts, are included as long-term contract balances in stock.
561
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APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
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WARRANTIES
Provisions for estimated expenses related to product warranties are made at the
time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims.
TAXATION
Taxation on profit on ordinary activities is that which has been paid or becomes
payable in respect of the profits for the year. Deferred taxation is provided in
full on timing differences that result in an obligation at the balance sheet
date to pay more tax, or a right to pay less tax, at a future date, at rates
expected to apply when they crystallise based on current tax rates and law.
Timing differences arise from the inclusion of items of income or expenditure in
taxation computations in periods different from those in which they are included
in the financial statements. Deferred tax assets are recognised to the extent
that it is regarded as more likely than not that they will be recovered.
Deferred tax assets and liabilities are not discounted.
INVESTMENTS
Joint ventures comprise long-term investments where control is shared under a
contractual arrangement. The sector analysis of turnover, profit and net assets
includes the Group's share of the results and net assets of joint ventures.
Associates consist of long-term investments in which the Group holds a
participating interest and over which it exercises significant influence.
Investments in joint ventures and associates are stated at the amount of the
Group's share of net assets including goodwill at 31 December 2002 derived from
audited or management accounts made up to that date, other than Easynet Group
Plc whose results for the six months to 31 December 2002 have been prorated to
provide a three months movement. Loss before taxation includes the Group's share
of joint ventures and associates.
Other unlisted fixed asset investments are stated at cost less provision for
impairment in value. Listed fixed asset investments are stated at market value.
Current asset investments are stated at the lower of cost and net realisable
value except dated listed securities which are stated at market value.
Investments in plc's shares, held within the GEC Employee Share Trust and the
Marconi Employee Trust, are included on the Group balance sheet at cost, less
provision for impairment.
PENSIONS AND OTHER POST RETIREMENT BENEFITS
The operating cost of providing pensions and other post retirement benefits, as
calculated periodically by independent actuaries, is charged to the Group's
operating profit or loss in the period that those benefits are earned by
employees. The financial return expected on the schemes' assets is recognised in
the period in which they arise as part of finance income and the effect of the
unwinding of the discounted value of the schemes liabilities is treated as part
of finance costs. The changes in value of the schemes' assets and liabilities
are reported as actuarial gains or losses as they arise in the consolidated
statement of total recognised gains and losses. The pension schemes' surpluses,
to the extent they are considered recoverable, or deficits are recognised in
full and presented in the balance sheet net of any related deferred tax.
In the three months ended 31 December 2002 the Group has charged the profit and
loss account with L6 million of service cost and L2 million of notional interest
in respect of defined benefit schemes on the basis of the 30 September 2002
actuarial assessment. This will be updated during the final quarter of the year
ending 31 March 2003, and any actuarial gains and losses arising on pension
assets and liabilities in the balance sheet will be shown in the statement of
total recognised gains and losses for the year ending 31 March 2003.
SHARE OPTIONS
The costs of awarding shares under employee share plans are charged to the
profit and loss account over the period to which the performance criteria
relate. When share options granted lapse, any associated costs that were
562
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
treated as cost of acquisition are credited to either goodwill, or to the profit
and loss account if there is no remaining goodwill.
FINANCE COSTS
Finance costs of debt are recognised in the profit and loss account over the
term of such instruments at a constant rate on the carrying amount.
DEBT
Debt is initially stated at the amount of the net proceeds after deduction of
issue costs. The carrying amount is increased by the finance cost in respect of
the accounting period and reduced by payments made in the period.
LIQUID RESOURCES
Liquid resources comprise term deposits with an original maturity of generally
less than one year and other readily disposable current asset investments.
3 PRINCIPAL ACTIVITIES, (LOSS)/PROFIT CONTRIBUTIONS, MARKETS AND NET
ASSETS/(LIABILITIES) EMPLOYED
ANALYSIS OF RESULTS AND NET ASSETS/(LIABILITIES) BY CLASS OF BUSINESS
Net assets/
(Loss)/profit Turnover (liabilities)
--------------------------- --------------------------- ---------------------------
3 MONTHS TO 3 Months to 3 MONTHS TO 3 Months to
31 DECEMBER 31 December 31 DECEMBER 31 December 31 DECEMBER 30 September
2002 2001 2002 2001 2002 2002
L MILLION L million L MILLION L million L MILLION L million
------------ ------------ ------------ ------------ ------------ ------------
Network equipment (49) (80) 261 407 359 451
Network services 20 (32) 195 225
Other (including intra-activity
sales) (12) (16) (2) -- 3 11
------------ ------------ ------------ ------------ ------------ ------------
(41) (128) 454 632 362 462
Capital (10) (7) 12 116 (33) (19)
------------ ------------ ------------ ------------ ------------ ------------
Continuing operations (51) (135) 466 748 329 443
Discontinued operations -- 26 -- 293 -- --
------------ ------------ ------------ ------------ ------------ ------------
(51) (109) 466 1,041 329 443
------------ ------------
Goodwill and goodwill amortisation (28) (46) 638 672
Operating exceptional items (note
5a) (54) (94)
------------ ------------
(133) (249)
Associates (11) (11) 57 69
------------ ------------
Operating loss (144) (260)
Non-operating exceptional items
(note 5b) (10) 341
Net interest payable and interest
bearing assets and liabilities (51) (66) (2,807) (2,838)
Net finance income 7 61
Unallocated net liabilities (943) (889)
------------ ------------ ------------ ------------
(198) 76 (2,726) (2,543)
============ ============ ============ ============
The Group has divided its business into two segments: Core and Capital.
The Group's Core businesses are the provision of optical networks, broadband
routing and switching and broadband access technologies and associated
installation, maintenance and other value-added services. Their customer base
includes telecommunications companies, providers of Internet services for their
public networks, and to certain large corporations, government departments and
agencies, utilities and educational institutions for their private networks.
Core activities are divided into Network equipment, Network services and Other.
563
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
Capital comprises the businesses the Group manages for value and ultimately for
disposal. The Group's share of joint ventures' (loss)/profit, turnover and net
assets are included under Capital.
Goodwill arising on acquisitions is amortised over a period not exceeding 20
years. Separate components of goodwill are identified and amortised over the
appropriate useful economic life. The remaining goodwill on the balance sheet
will be amortised over an average period of approximately 7 years.
Comparative figures have been restated to reflect the changes in the Group
structure during the period since 31 December 2001. The net assets of Network
equipment and Network services cannot be separately identified as the same
assets are, generally, used to generate sales in each of these segments. The
results of these segments are separately reportable.
Sales by Group companies to joint ventures and associates in the three months
amounted to L6 million (31 December 2001 L10 million). Purchases from joint
ventures and associates amounted to Lnil (31 December 2001 L4 million).
Assets and liabilities arising out of the Retirement Benefit Plan are treated as
unallocated net liabilities.
It is not practical to disclose goodwill amortisation on a segmental basis as
any allocation would be arbitrary.
ANALYSIS OF TURNOVER BY CLASS OF BUSINESS
To customers in the
United Kingdom To customers overseas
------------------------- -------------------------
3 MONTHS TO 3 Months to 3 MONTHS TO 3 Months to
31 DECEMBER 31 December 31 DECEMBER 31 December
2002 2001 2002 2001
L MILLION L million L MILLION L million
----------- ----------- ----------- -----------
Network equipment 63 80 198 327
Network services 61 141 134 84
Other (including intra-activity
sales) -- -- (2) --
----------- ----------- ----------- -----------
124 221 330 411
Capital -- 71 12 45
----------- ----------- ----------- -----------
Continuing operations 124 292 342 456
Discontinued operations -- 31 -- 262
----------- ----------- ----------- -----------
124 323 342 718
=========== =========== =========== ===========
ANALYSIS OF TURNOVER BY TERRITORY OF DESTINATION
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
----------- -----------
United Kingdom 124 323
The Americas 137 323
Rest of Europe 137 305
Africa, Asia and Australasia 68 90
----------- -----------
466 1,041
=========== ===========
564
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
ANALYSIS OF CORE SEGMENT TURNOVER BY PRODUCT GROUPING
3 MONTHS TO 31 3 Months to 31
DECEMBER 2002 December 2001
L MILLION L million
-------------- --------------
Optical networks 96 189
Broadband switching 32 40
European access 69 85
Outside plant & power 30 48
North American access 23 24
Other network equipment 11 21
------------- -------------
Network equipment 261 407
Installation, commissioning and maintenance 93 122
Value-added services 102 103
------------- -------------
Network services 195 225
Other (including intra-activity sales) (2) --
Capital (including joint ventures of Lnil (2001 L79
million)) 12 116
------------- -------------
Continuing operations 466 748
Discontinued operations -- 293
------------- -------------
466 1,041
============= =============
ANALYSIS OF OPERATING LOSS BEFORE GOODWILL AMORTISATION AND EXCEPTIONAL ITEMS,
TURNOVER AND NET ASSETS BY TERRITORY OF ORIGIN
Loss Turnover Net assets/(liabilities)
------------------------------- ------------------------------- --------------------------
3 MONTHS TO 31 3 Months to 31 3 MONTHS TO 31 3 Months to 31 31 DECEMBER 30 September
DECEMBER 2002 December 2001 DECEMBER 2002 December 2001 2002 2002
L MILLION L million L MILLION L million L MILLION L million
-------------- -------------- -------------- -------------- ----------- ------------
United Kingdom (11) (17) 178 339 408 435
The Americas (2) (31) 139 338 54 60
Rest of Europe (34) (56) 115 274 (129) (75)
Africa, Asia and
Australasia (4) (5) 34 90 (4) 23
------------- ------------- ------------- ------------- ----------- ------------
(51) (109) 466 1,041 329 443
============= ============= ============= ============= =========== ============
565
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
4 OPERATING (LOSS)/PROFIT (EXCLUDING JOINT VENTURES)
GROUP
3 MONTHS TO 31 DECEMBER 2002
------------------------------------------
CONTINUING EXCEPTIONAL ITEMS TOTAL
L MILLION L MILLION L MILLION
---------- ----------------- ---------
Turnover 466 -- 466
Cost of sales (364) 7 (357)
---------- ----------------- ---------
GROSS PROFIT 102 7 109
Selling and distribution expenses (61) -- (61)
Administrative expenses -- other (22) (60) (82)
Research and development (71) -- (71)
Goodwill amortisation (28) -- (28)
Administrative expenses -- total (121) (60) (181)
Other operating income 3 -- 3
---------- ----------------- ---------
OPERATING LOSS (77) (53) (130)
========== ================= =========
3 Months to 31 December 2001
---------------------------------------------------------
Continuing Discontinued Exceptional items Total
L million L million L million L million
---------- ------------ ----------------- ---------
Turnover 669 293 -- 962
Cost of sales (547) (195) (19) (761)
---------- ------------ ----------------- ---------
Gross profit/(loss) 122 98 (19) 201
Selling and distribution expenses (110) (32) -- (142)
Administrative expenses -- other (52) (15) (75) (142)
Research and development (126) (18) -- (144)
Goodwill amortisation (44) (2) -- (46)
Administrative expenses -- total (222) (35) (75) (332)
Other operating income/(expense) 21 (4) -- 17
---------- ------------ ----------------- ---------
Operating (loss)/profit (189) 27 (94) (256)
========== ============ ================= =========
Exceptional items are shown in further detail in note 5.
The Group disposed of Medical, Data and Commerce Systems during the year ended
31 March 2002 and the Strategic Communications business during the six months
ended 30 September 2002. It is these activities which are shown as discontinued
operations.
566
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
5 EXCEPTIONAL ITEMS
These charges have been analysed as follows:
A OPERATING EXCEPTIONAL ITEMS
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
----------- -----------
Reversal of stock write-downs and related costs -- 1
Restructuring costs/(credits) 7 (20)
----------- -----------
Included in cost of sales 7 (19)
----------- -----------
Impairment of tangible fixed assets (9) --
Restructuring and reorganisation costs (51) (63)
Systems implementation costs -- (11)
Charges in respect of doubtful debts -- (1)
----------- -----------
Included in administrative expenses (60) (75)
----------- -----------
Group operating exceptional items (53) (94)
Share of joint ventures' operating exceptional items (1) --
Group share of associates' operating exceptional items (3) --
----------- -----------
Total operating exceptional items (57) (94)
=========== ===========
(i) In the three months ended 31 December 2002 L7 million was credited to
restructuring costs classified within cost of sales. This arose as a
consequence of the manufacturing outsourcing arrangement with Jabil
Circuits Inc whereby the Group was able to release stock provisions
where the components had been utilised. In the three months ended 31
December 2001 a charge of L20 million was incurred in respect of such
inventory.
(ii) In the three months ended 31 December 2002 a charge of L9 million was
booked for impairment of Italian fixed assets and UK and US buildings in
continuing operations.
(iii) As part of the Group's cost reduction actions, a charge of L51 million
was recorded during the three months to 31 December 2002 associated with
employee severance, site rationalisation costs and other restructuring
costs (31 December 2001 L63 million).
The site rationalisation costs reflect the charges associated with closing
and consolidating various sites around the world as part of the business
restructuring.
(iv) During the year ended 31 March 2002 the Group planned to implement a new
global IT system. In light of the revised trading outlook and the
continued focus on cost reduction, the implementation was terminated.
During the three months ended 31 December 2001 charges of L11 million
were incurred in this respect.
567
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
ANALYSIS BY SEGMENT (INCLUDING JOINT VENTURES)
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
----------- -----------
Network equipment & services (65) (98)
Other 14 10
----------- -----------
(51) (88)
Capital (3) 13
----------- -----------
Continuing operations (54) (75)
Discontinued operations -- (19)
----------- -----------
(54) (94)
=========== ===========
United Kingdom (34) (81)
The Americas (4) 20
Rest of Europe (13) (31)
Africa, Asia and Australasia (3) (2)
----------- -----------
(54) (94)
=========== ===========
B NON-OPERATING EXCEPTIONAL ITEMS
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
----------- -----------
(Loss)/gain on disposal of discontinued operations (1) 151
(Loss)/gain on disposal of fixed assets and investments in
continuing operations
(Loss)/gain on disposals of subsidiaries and other fixed
assets (8) 124
Amounts written off investments (1) 66
(9) 190
----------- -----------
Included in non-operating exceptional items (10) 341
=========== ===========
---------------
(i) The three months charge to 31 December 2002 comprised of a L1 million
additional charge on the disposal of discontinued operations and a L8
million net loss on disposal of other businesses and fixed assets in
continuing operations. The L1 million net loss related to the revaluation
of some of the Group's investments in line with its accounting policy
whereby listed investments are marked to their market value at the end of
each reporting period and unlisted investments are held at the lower of
cost less provision for impairment.
568
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
C EXCEPTIONAL CASH FLOWS
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
----------- -----------
Operating
Restructuring costs (77) (71)
Systems implementation costs (5) (8)
Other -- (28)
----------- -----------
(82) (107)
----------- -----------
Non-operating
Disposal of tangible fixed assets 8 67
Sale of interests in subsidiary companies and associates 3 810
Repurchase of bonds -- (59)
----------- -----------
11 818
----------- -----------
Non-operating exceptional cash flows from the disposal of tangible fixed assets
are included in note 19(d). Non-operating exceptional cash flows from the sales
of interests in subsidiary companies and associates are included in note 19(e).
6 NET INTEREST PAYABLE
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
----------- -----------
Interest receivable
Loans and deposits 5 --
Other 4 --
----------- -----------
Interest receivable -- total 9 --
----------- -----------
Interest payable
Bank loans and overdrafts (30) (24)
Other (30) (42)
----------- -----------
Interest payable -- total (60) (66)
----------- -----------
Net interest payable (51) (66)
----------- -----------
7 TAX
A DEFERRED TAXATION LIABILITIES
Group
L million
---------
Tax effect of timing differences on:
Provisions and accruals for liabilities and charges (6)
---------
AT 30 SEPTEMBER AND 31 DECEMBER 2002 (6)
=========
No provision is made for any taxation that may arise if reserves of overseas
subsidiaries were distributed as such distributions are not expected to occur in
the foreseeable future.
569
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
B RECONCILIATION OF CURRENT TAXATION CHARGE FOR THE PERIOD
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
----------- -----------
(Loss)/profit before tax (198) 76
Tax credit/(charge) on loss at a standard rate of 34%
(31 December 2001 34%) 67 (26)
Non-deductible goodwill impairment, amortisation and other
similar items (33) 100
Tax losses and other deferred tax items not recognised in
current tax (34) (74)
----------- -----------
Current tax charge for the period -- --
=========== ===========
The standard rate is calculated based on the locally enacted statutory rates in
the jurisdictions in which the Group operates.
C FACTORS THAT MAY AFFECT FUTURE TAX CHARGES
Deferred tax assets totalling L820 million at 31 December 2002 have not been
recognised in respect of operating losses and exceptional expenditure as the
Group is not sufficiently certain that it will be able to recover those assets
within a relatively short period of time.
Included in the unrecognised deferred tax asset as at 31 December 2002 of L820
million are amounts that may be forfeited or restricted as a consequence of the
planned restructuring of the Group due to the requirements of tax legislation in
various jurisdictions. It is not possible at this stage to quantify the amount
of unrecognised deferred tax assets that may be forfeited.
8 (LOSS)/EARNINGS PER SHARE
Basic and diluted (loss)/earnings per share are calculated by reference to a
weighted average of 2,792.6 million ordinary shares (31 December 2001 2,789.6
million ordinary shares) in issue during the period.
The effect of share options is anti-dilutive for each period presented and has
therefore been excluded from the calculation of diluted weighted average number
of shares.
An adjusted basic loss per share has been presented in order to highlight the
underlying performance of the Group, and is calculated as set out in the table
below.
RECONCILIATION OF (LOSS)/EARNINGS PER SHARE EXCLUDING GOODWILL AMORTISATION AND
EXCEPTIONAL ITEMS
3 MONTHS TO 3 Months to
31 DECEMBER 2002 31 December 2001
-------------------- --------------------
LOSS PER Loss per
LOSS SHARE LOSS SHARE
L MILLION PENCE L MILLION PENCE
--------- -------- --------- --------
(Loss)/earnings and basic (loss)/earnings per share (198) (7.1) 75 2.7
Exceptional items (note 5)
Operating exceptional items 54 1.9 94 3.4
Group share of associate's operating exceptional
items 3 0.1 -- --
Non-operating exceptional items 10 0.4 (341) (12.2)
Goodwill amortisation 30 1.1 48 1.7
--------- -------- --------- --------
(101) (3.6) (124) (4.4)
========= ======== ========= ========
570
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
9 GOODWILL
Cost
L million
---------
At 1 October 2002 6,075
Adjustments in respect of prior year acquisitions (4)
Exchange rate adjustment (89)
---------
AT 31 DECEMBER 2002 5,982
=========
Amortisation
L million
------------
At 1 October 2002 (5,403)
Charged to profit and loss account (28)
Exchange rate adjustment 87
------------
AT 31 DECEMBER 2002 (5,344)
============
NET BOOK VALUE AT 31 DECEMBER 2002 638
Net book value at 30 September 2002 672
============
Following the continued difficult market conditions a further review of the
carrying value of goodwill has been undertaken at 31 December 2002.
The average discount rate applied to the future cash flows is 15 per cent. and
is based upon a weighted average cost of capital percentage.
The results of the review indicated that no further impairment charge in respect
of goodwill was necessary for the three months to 31 December 2002. However, due
to the significant uncertainties over the timing and extent of any recovery in
the telecommunications market, the directors acknowledge that they are likely to
have to continue to review their assumptions against future performance.
10 TANGIBLE FIXED ASSETS
Fixtures, Payments on
Leasehold property fittings, account and
Freehold --------------------- Plant and tools and assets under
property Long Short machinery equipment construction Total
Group L million L million L million L million L million L million L million
----- --------- --------- --------- --------- --------- ------------ ---------
Cost at 1 October 2002 128 9 8 373 544 -- 1,062
Exchange rate adjustment 1 -- -- 2 1 -- 4
Additions -- -- -- 5 2 -- 7
Disposals (17) (7) -- (25) (17) -- (66)
Businesses disposed -- -- -- (6) (17) -- (23)
--------- --------- --------- --------- --------- ----------- ---------
COST AT 31 DECEMBER 2002 112 2 8 349 513 -- 984
--------- --------- --------- --------- --------- ----------- ---------
Depreciation at 1 October 2002 37 2 5 258 431 -- 733
Exchange rate adjustment -- -- -- -- (2) -- (2)
Charged to profit and loss account -- -- -- 8 20 -- 28
Impairment of fixed assets -- -- -- -- 9 -- 9
Disposals (4) (1) -- (24) (17) -- (46)
Businesses disposed -- -- -- (4) (14) -- (18)
--------- --------- --------- --------- --------- ----------- ---------
DEPRECIATION AT 31 DECEMBER 2002 33 1 5 238 427 -- 704
--------- --------- --------- --------- --------- ----------- ---------
NET BOOK VALUE AT 31 DECEMBER 2002 79 1 3 111 86 -- 280
Net book value at 30 September 2002 91 7 3 115 113 -- 329
========= ========= ========= ========= ========= =========== =========
571
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
11 FIXED ASSET INVESTMENTS
A JOINT VENTURES, ASSOCIATES AND OTHER
Shares Share of
Cost less post
amounts Goodwill Goodwill acquisition
written off cost amortisation reserves Total
JOINT VENTURES AND ASSOCIATES L million L million L million L million L million
----------------------------- ----------- --------- ------------ ----------- ---------
At 1 October 2002 334 79 (47) (262) 104
Profits less losses retained -- -- -- (13) (13)
Goodwill amortisation -- -- (2) -- (2)
----------- -------- ------------ ----------- ---------
AT 31 DECEMBER 2002 334 79 (49) (275) 89
=========== ======== ============ =========== =========
Cost or
valuation Provisions Total
OTHER INVESTMENTS L million L million L million
----------------- --------- ---------- ---------
At 1 October 2002 321 (304) 17
Disposals, impairments and repayments -- (4) (4)
Reversal of past impairment of listed investments -- 4 4
--------- ---------- ---------
AT 31 DECEMBER 2002 321 (304) 17
========= ========== =========
JOINT VENTURES, ASSOCIATES AND OTHER INVESTMENTS AT 31
DECEMBER 2002 106
Joint ventures, associates and other investments at 30
September 2002 121
---------
During the 3 months to 31 December 2002, amortisation of L2 million (31 December
2001 L2 million) was charged for goodwill relating to Easynet Group Plc.
MARKET VALUES
Listed fixed asset investments are stated at market value, as follows:
31 DECEMBER 30 September
2002 2002
L MILLION L million
----------- ------------
Other investments -- listed in the United Kingdom 12 8
=========== ============
The aggregate historic cost of the listed fixed asset investments was L49
million at 31 December 2002 (30 September 2002 L49 million).
No provision has been made for taxation (30 September 2002 Lnil) which could
arise if these investments were realised at the values stated.
At 14 March 2003 the market value of the investments shown above was, in
aggregate, L11 million.
572
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
Voting Country of
CORE BUSINESSES rights Incorporation
--------------- ------ -------------
Networks equipment and services
Marconi Communications Ltd. 100% Great Britain
Marconi Communications S.p.A. 100% Italy
Marconi Communications Inc. 100% USA
Marconi Communications GmbH. 100% Germany
Number Country of
ASSOCIATED COMPANIES Class of shares held Incorporation
-------------------- --------------- ---------- -------------
Ultramast Ltd. Ordinary shares of 100 pence 50.0% 500 Great Britain
Easynet Group Plc Ordinary shares of 4 pence 30,940,597 Great Britain
Convertible non-voting ordinary 48,553,661
shares of 4 pence
Equity share 71.6%
Voting share 49.6%
The principal activity of Ultramast Limited is to build and market
telecommunications masts for use by mobile and fixed wireless network
operations.
Easynet Group Plc's year end is 31 December and it has been accounted for under
the equity accounting method. As it is a company quoted on the London Stock
Exchange, information that is not in the public domain cannot be disclosed.
Consequently its results for the six month period to 31 December 2002 have been
prorated for inclusion in the Group's results for the three months ended 31
December 2002 and the results for the six month period ended 31 December 2001
for inclusion in the Group's results for the three months ended 31 December
2001. Easynet is a network-based provider of broadband services and internet
solutions and is incorporated in Great Britain.
The above list of subsidiaries and associated companies includes those
businesses that had a material effect on the consolidated results to 31 December
2002.
B INVESTMENT IN PLC SHARES
The Marconi Employee Trust (MET), a discretionary trust for certain employees
and former employees of plc and its subsidiaries, was established on 1 December
1999. The trust acquires shares in order to satisfy entitlements under certain
share option schemes. The MET held assets of 1,208,545 plc ordinary 5p shares at
31 December 2002, with a market value of Lnil. Dividends receivable by MET from
plc have been waived.
The GEC Employee Share Trust (EST), a discretionary trust for certain employees
and former employees of plc and its subsidiaries, was established on 19 January
1995. The trust acquires shares in order to satisfy entitlements under certain
share option schemes. The EST held assets of 1,135,644 plc ordinary 5p shares at
31 December 2002, with a market value of Lnil. Dividends receivable by EST from
plc have not been waived.
The GEC Special Purpose Trust, the Marconi Employee Trust and the GEC Employee
Share Trust have been consolidated. All operating expenses incurred are charged
to the Group profit and loss account.
573
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
12 STOCKS AND CONTRACTS IN PROGRESS
31 DECEMBER 30 September
2002 2002
L MILLION L million
----------- ------------
Raw materials and bought out components 63 104
Work in progress 109 119
Payments on account (2) (3)
Long-term contract work in progress 20 21
Finished goods 115 115
----------- ------------
305 356
=========== ============
13 DEBTORS
31 DECEMBER 30 September
2002 2002
L MILLION L million
----------- ------------
Amounts falling due within one year
Trade debtors 559 628
Amounts owed by joint ventures and associates 30 35
Other debtors 58 91
Prepayments and accrued income 48 49
----------- ------------
695 803
----------- ------------
Amounts falling due after more than one year
Trade debtors 2 3
Other debtors 43 48
Prepayments and accrued income 7 8
----------- ------------
747 862
=========== ============
Amounts owed by joint ventures and associates relate to trading balances.
14 CURRENT ASSET INVESTMENTS AND CASH AT BANK AND IN HAND
CASH AT BANK AND IN HAND
31 DECEMBER 30 September
2002 2002
L MILLION L million
----------- ------------
Cash and bank deposits repayable on demand 921 927
Other cash deposits 164 144
----------- ------------
Cash at bank and in hand 1,085 1,071
=========== ============
Included in the amounts above are restricted cash of
----------- ------------
Secured 744 775
Collateral against bonding facilities 107 79
Held by captive insurance company 17 18
Other -- 8
----------- ------------
Restricted cash 868 880
Unrestricted cash 217 191
----------- ------------
Cash at bank and in hand 1,085 1,071
=========== ============
574
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
Of the secured cash, L701 million (30 September 2002 L735 million) relates to
amounts held under an interim security arrangement by the Group's Syndicate
Banks and Bondholders and also to ESOP Derivative Banks granted on 13 September
2002. A further L27 million relates to cash deposited against ESOP Derivative
Banks for the Strategic Communications business (30 September 2002 L25 million)
and L16 million (30 September 2002 L15 million) relates to cash deposited
against secured loans in Italy.
15 CREDITORS
31 DECEMBER 30 September
2002 2002
L MILLION L million
----------- ------------
Amounts falling due within one year
Bank loans and overdrafts
Repayable on demand 2,174 2,145
Other -- 11
Debenture loans -- 32
Obligations under finance leases -- 2
----------- ------------
2,174 2,190
Payments received in advance 73 72
Trade creditors 258 284
Amounts owed to joint ventures and associates 9 9
Current taxation 345 306
Other taxation and social security 14 5
Other creditors 108 141
Accruals and deferred income 272 309
----------- ------------
3,253 3,316
=========== ============
Amounts falling due after more than one year
Bank loans 25 25
Bonds 1,699 1,695
Obligations under finance leases 6 7
----------- ------------
1,730 1,727
Other creditors 11 16
----------- ------------
1,741 1,743
=========== ============
575
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
16 BORROWINGS
31 DECEMBER 30 September
2002 2002
L MILLION L million
----------- ------------
Bank loans and overdrafts
Secured 15 17
Unsecured 2,184 2,164
Unsecured debenture loans -- 32
Bonds 1,699 1,695
Obligations under finance leases 6 9
----------- ------------
3,904 3,917
Less amounts falling due within one year (2,174) (2,190)
----------- ------------
1,730 1,727
=========== ============
Analysis of repayments of long-term borrowings
Bank loans
Between one and two years 4 4
Between two and five years 12 12
In more than five years 9 9
Bonds
Between two and five years 278 270
In more than five years 1,421 1,425
Finance leases
Between two and five years -- 1
In more than five years 6 6
----------- ------------
1,730 1,727
=========== ============
Bonds
Repayable at par wholly within five years (average rate
5.6 per cent) 278 270
Repayable at par wholly after five years (average rate 7.5
per cent) 1,421 1,425
=========== ============
SECURITY
The secured loans are all secured upon cash balances with the respective banks.
MATURITY
The material payment obligations greater than five years are all payable wholly
at maturity, of which L479 million refer to Corp's 6.375 per cent. Eurobond due
2010, L471 million refer to Corp's 7.75 per cent. Yankee Bond due 2010, and L471
million refer to Corp's 8.375 per cent. Yankee Bond due 2030.
576
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
17 PROVISIONS FOR LIABILITIES AND CHARGES
Share Deferred
Restructuring options tax Other TOTAL
L million L million L million L million L MILLION
------------- --------- --------- --------- ---------
At 1 October 2002 69 176 6 205 456
Exchange rate adjustment 2 -- -- (8) (6)
Disposals (1) -- -- -- (1)
Charged 25 5 -- 17 47
Released (3) (3) -- (10) (16)
Utilised (13) (11) -- (4) (28)
------------- --------- --------- --------- ---------
At 31 December 2002 79 167 6 200 452
============= ========= ========= ========= =========
Share option provisions mainly comprise amounts owed on contracts taken out with
ESOP Derivative Banks to fix the future price at which the Group could purchase
shares to satisfy employee share option liabilities. The release in the period
relates mainly to the reduction of a provision held for employees of previously
acquired companies whose options have lapsed. The utilisation in the period
relates mainly to the conversion of accrued interest on the ESOP derivatives
into borrowings. An agreement to settle the ESOP derivative is explained in note
22.
Restructuring provisions mainly comprise expected costs for termination of
employee contracts, costs for properties no longer occupied and onerous lease
contracts. The associated outflows are generally expected to occur over the next
year with vacant property costs being incurred over the next five years.
Other provisions mainly comprise the expected cost of maintenance under
guarantees, other work in respect of products delivered, employee related
claims, environmental liabilities, other litigation and losses on contract work
in progress. The associated outflows are generally expected to occur over the
lives of the products and contracts which are long term in nature.
18 DISPOSALS
On 4 October 2002 the Group disposed of Marconi Communications Israel Limited
and on 24 December 2002 the Group disposed of ATC Pty Ltd for cash consideration
totalling L3 million.
577
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
19 CASH FLOW
A NET CASH INFLOW FROM OPERATING ACTIVITIES
3 MONTHS TO
31 DECEMBER
2002
-----------
TOTAL
CONTINUING
L MILLION
-----------
Group operating loss after exceptional items (130)
Operating exceptional items 53
-----------
Group operating loss before exceptional items (77)
Depreciation charge 28
Goodwill amortisation 28
Decrease in stock 51
Decrease in debtors 114
Decrease in creditors (68)
Decrease in provisions (4)
-----------
72
===========
3 Months to 31 December 2001
----------------------------------------
Continuing Discontinued TOTAL
L million L million L MILLION
---------- ------------ ----------
Group operating loss after exceptional items (256) -- (256)
Operating exceptional items 75 19 94
---------- ------------ ----------
Group operating loss before exceptional items (181) 19 (162)
Depreciation charge 49 6 55
Goodwill amortisation 44 2 46
(Increase)/decrease in stock (213) 16 (197)
Decrease/(increase) in debtors 185 (8) 177
Decrease in creditors (96) (10) (106)
Increase in provisions 207 3 210
---------- ------------ ----------
(5) 28 23
========== ============ ==========
B RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
----------- ------------
Income from loans, deposits and investments 7 --
Interest paid (18) (51)
----------- ------------
(11) (51)
=========== ============
Of the above amount, continuing operations account for an outflow of L11 million
(31 December 2001 L48 million) and discontinued operations an outflow of Lnil
(31 December 2001 L3 million).
578
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
C TAX RECEIVED/(PAID)
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
----------- ------------
UK corporation tax received/(paid) 46 (10)
Overseas tax paid (1) --
----------- ------------
45 (10)
=========== ============
Tax repayments of L46 million were received during the 3 months ended 31
December 2002 (31 December 2001 Lnil repayments). Continuing operations account
for L45 million inflow (31 December 2001 L10 million outflow) and discontinued
operations Lnil (31 December 2001 Lnil).
D CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
----------- ------------
Purchases of tangible fixed assets (7) (57)
Purchases less sales of fixed asset investments 1 77
Sales of tangible fixed assets 9 76
----------- ------------
3 96
=========== ============
Sales of tangible fixed assets shown above includes an amount of L8 million (31
December 2001 L67 million) in respect of disposals treated as exceptional items
in the profit and loss account.
Of the above amount, continuing operations account for an inflow of L3 million
(31 December 2001 L75 million) and discontinued operations an inflow of Lnil (31
December 2001 L21 million).
E ACQUISITIONS AND DISPOSALS
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
------------ ------------
Investments in subsidiary companies -- (11)
Investments in joint ventures -- 22
Sales of interests in subsidiary companies and associates 3 768
Net overdraft/(cash) disposed with subsidiary companies (1) (21)
------------ ------------
2 758
============ ============
579
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
F NET CASH OUTFLOW/(INFLOW) FROM MANAGEMENT OF LIQUID RESOURCES
Comprising term deposits generally of less than one year and other readily
disposable current asset investments
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
------------ ------------
Deposits withdrawn from banks and similar financial
institutions -- (42)
Deposits made with banks and similar financial institutions 23 --
------------ ------------
23 (42)
============ ============
G NET CASH OUTFLOW FROM FINANCING
3 MONTHS TO 3 Months to
31 DECEMBER 31 December
2002 2001
L MILLION L million
------------ ------------
Decrease in bank loans, debenture loans and finance leases 9 3
Decrease in bonds -- 51
------------ ------------
9 54
============ ============
20 ANALYSIS OF NET MONETARY DEBT
Acquisitions/
disposals
(excluding Other
At 1 October cash and non-cash Exchange rate AT 31 DECEMBER
2002 Cash flow overdrafts) changes adjustment 2002
L million L million L million L million L million L MILLION
------------ ---------- ------------- --------- ------------- --------------
Cash at bank and in hand 927 (1) -- -- (5) 921
Overdrafts (26) (2) -- -- 1 (27)
(3)
Liquid resources 144 23 -- -- (3) 164
Amounts falling due within one
year
Bank loans (2,130) 6 -- (62) 39 (2,147)
Debenture loans (32) -- -- 32 -- --
Finance leases (2) 3 -- (1) -- --
Amounts falling due after more
than one year
Bank loans (25) -- -- -- -- (25)
Bonds (1,695) -- -- -- (4) (1,699)
Finance leases (7) -- -- 1 -- (6)
9
------------ ---------- ------------- -------- ------------- --------------
(2,846) 29 -- (30) 28 (2,819)
============ ========== ============= ======== ============= ==============
The non-cash movement in bank loans results from the settling of an interest
rate swap, an ESOP swap and a debenture loan by way of an increase in the
Group's borrowings.
580
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
21 CONTINGENT LIABILITIES
30 DECEMBER 30 September
2002 2002
L MILLION L million
----------- ------------
Contingent liabilities at period end 30 30
=========== ============
The Group is subject to potential and actual legal claims including shareholder
class actions and claims relating to contracts, industrial injury and patent
infringement. The Group has also provided third party guarantees and Performance
Bonds. The total amount disclosed above represents Corp and plc's best estimate
of possible unprovided exposures that may arise in respect of these legal claims
and the guarantees and bonds.
22 POST BALANCE SHEET EVENTS
On 7 February 2003 the Group announced that it had agreed in principle with
Barclays Bank PLC, Salomon Brothers International Limited and UBS AG to settle
potential claims under ESOP derivative arrangements. This settlement is
conditional upon the Corp Scheme of Arrangement becoming effective. At this
point, all claims against plc, Corp and its subsidiaries in respect of this
matter will be waived and the total liabilities recorded within liability
provisions and net debt of L169 million will be released for a consideration of
L35 million.
On 24 February 2003, plc announced that, following approval from the High Court
in the United Kingdom, Corp had completed a return of capital from Ultramast
Limited (a joint venture company set up in December 2000 with Railtrack Telecom
Services Limited) and settled all outstanding litigation relating to it. As a
result of the transaction, plc received net cash proceeds of approximately L41
million.
581
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
PART B
UPDATED FINANCIAL INFORMATION
As previously disclosed in the 16 December 2002 announcement, in order to
facilitate the Restructuring discussions, certain non-public information (the
"Information") has been presented to the Syndicate Banks and certain
bondholders. Prior to the presentation of the Information, Corp and plc entered
into non-disclosure agreements with certain of the bondholders which required
Corp and plc to publish the Information on a specified date and which restricted
such bondholders from dealing in Corp and plc securities until the publication
of the Information. In order to facilitate this announcement, Corp and plc
agreed to publish such Information at the conclusion of these discussions.
The Information contained in this Part B of this Appendix has been prepared
based on certain assumptions and projections with respect to the Group's revenue
generating capability, capital expenditures and operating expenses and trading
conditions in the telecommunications equipment market and on the basis of
information known at the time it was prepared. The Information was prepared by
Group management for internal purposes and not with a view to public disclosure.
The assumptions used in preparing the Information are inherently subject to
significant uncertainties and actual results will differ, perhaps materially,
from those projected. Neither Corp nor plc gives any assurance that the
assumptions that underpin the Information are correct or that the projections
and estimates contained in this Part B of this Appendix will reflect actual
results of operations and cash flows. No representation is made or intended to
be made with respect to the likely existence of any particular future set of
facts or circumstances. No reliance should be placed on the Information or any
part of it and it is not intended to persuade or incite anyone to engage in
investment activity. Neither Corp nor plc will be publishing any updates in
relation to any part of the Information.
Corp and plc are providing the following statement by way of general caution and
in order to utilise the "Safe Harbor"provision of the US Private Securities
Litigation Reform Act of 1995. Except for reported financial results or other
historical information, certain statements in this press release are
forward-looking statements, including, but not limited to, statements that are
predictions of or indicate future events, trends, plans or objectives. Reliance
should not be placed on such statements because, by their nature, they are
subject to known and unknown risk and uncertainties and can be affected by other
factors which are beyond the control of plc and its subsidiaries, including
Corp, and may cause actual results, performance and achievements to differ
materially from anticipated future results, performance and achievements
expressed or implied in the forward-looking statements (and from the past
results, performance and achievement). Although not exhaustive, the following
factors could cause such differences: any major disruption in production at the
Group's or its strategic suppliers' key facilities; changes in tax,
environmental and other laws and regulations, which, among other things, could
cause the Group to incur substantial additional capital expenditures and
operation and maintenance costs; and adverse changes in the markets for the
Group's products. These factors and other factors that could affect these
forward-looking statements, whether to reflect new information or future events
or circumstances or otherwise.
ILLUSTRATIVE FISCAL 2005 ANALYSIS
The Group's Sensitised Business Plan, as published on 29 August 2002 and 16
December 2002, has been refined as part of the Group's ongoing forecasting
process. As described in the 29 August 2002 announcement and the Q2 trading
update announcement of 22 October 2002, the Group's Sensitised Business Plan was
based on the Group's Business Plan forecasts prepared in April 2002, to which a
set of sensitivities were applied to reflect the scenario of more difficult
market conditions and, in particular, a delay in market recovery beyond the end
of 2003 as assumed in the Business Plan.
The market for telecommunications equipment and services remains difficult.
During the first three quarters of the current financial year the annualised
rate of Core sales has declined by around 10 per cent. from approximately L2
billion in the first quarter to approximately L1.8 billion in the third quarter.
582
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
Corp and plc do not expect that the Group will benefit from a seasonal uplift in
Core sales during the fourth quarter of the current financial year compared to
the level recorded in the third quarter (L456 million), contrary to the seasonal
pattern of customer demand in previous years.
Furthermore, Corp and plc believe that market volumes are likely to contract
further during the next financial year and do not expect to benefit from
significant market share gains. As a result, the Group believes that Core sales
could decline by a further 5 per cent. during the next financial year compared
to the annualised third quarter trading levels (L1.8 billion).
In December 2002, the Group outlined its Core operating model and confirmed its
targets to achieve a gross margin run-rate in the range of 24 to 27 per cent. of
Core sales and an operating expenditure run-rate in the range of 21 to 24 per
cent. of Core sales during the next financial year ending 31 March 2004. The
Group now believes that it will be able to reduce the Core operating cost base
to an annual run rate below L450 million during the next financial year and
thereby reduce its estimated breakeven level of sales to below L1.7 billion.
The numbers in the illustrative analysis for fiscal 2005 have been reduced from
the numbers presented in the Sensitised Business Plan published on 29 August
2002 and the updates provided in the 16 December 2002 announcement. These
reductions reflect the difficulty in forecasting a market recovery and the
additional cost saving measures that the Group has taken. Although it is
difficult to predict the timing of a market upturn, the measures taken by the
Group should position the Group well to benefit from any increase in demand,
both financially and operationally.
Year ended
31 March 2005
L million
-------------
Sales
Rest of World 1,305
US Business 510
-------------
Total Sales 1,815
Gross Profit
Rest of World 365
US Business 178
-------------
Gross Profit 543
EBITDA
Rest of World 104
US Business 64
-------------
Total EBITDA 168
=============
CASH TO BE RETAINED BY THE GROUP IMMEDIATELY FOLLOWING THE RESTRUCTURING
Corp and plc expect the Restructuring to be completed by no later than 31 May
2003. The tables below show projected financial information for the Group as at
that date.
Since the 16 December 2003 announcement, the Group has refined the projected
cash it will need to retain after the Restructuring for the purposes of working
capital, funding to breakeven and other restricted cash requirements. The
expected cash balance retained has been reduced from L724 million to L602
million primarily as a result of the removal of the ESOP escrow.
583
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 4: PLC QUARTERLY REPORT TO 31 DECEMBER 2002
--------------------------------------------------------------------------------
The estimated cash balances as at 31 May 2003, assuming the Corp Scheme becomes
effective on that date, are as follows:
L million
-------------
Projected net cash outflows to breakeven (including net
interest payable) (note 1) 96
Global working capital (note 2) 112
Cash in transit (note 3) 30
Working capital retained for Core business (note 4) 197
Cash collateralisation of performance bonds (note 5) 167
-------------
602
=============
Note 1: Net Cash Outflows to Breakeven
Cash retained by the Group to fund the business to its estimated breakeven
point. This figure includes gross interest payable on the New Senior Notes of
L36 million per annum and assumes that interest payable on the New Junior Notes
is paid in kind. Gross cash outflows are shown net of proceeds (L27 million)
forecast to be received after 31 May 2003 from certain identified asset
disposals in the period to breakeven.
Note 2: Global Working Capital
It is estimated that approximately Ll12 million of cash is generally held at
subsidiary levels and within joint ventures within the business as working
capital for the worldwide operations of the Group.
Note 3: Cash in Transit
Normally, and hence also upon Restructuring, it is estimated that approximately
L30 million of cash will be in transit and therefore not available for
distribution.
Note 4: Working Capital Retained for Core Business
L197 million of cash will be retained for the working capital needs of the Core
business. Working capital requirements include the funding of normal working
capital swings which are the result of timing differences between receipts and
payments, additional provisions for known and unknown contingent liabilities, as
well as trading sensitivities to meet working capital requirements. Marconi
Communications, Inc. expects to enter into a US working capital facility in an
amount totalling approximately US$22.5 million (approximately L14 million).
Note 5: Cash Collateralisation of Performance Bonds
During the period prior to the Restructuring, certain new performance bonding
agreements entered into by the Group have been structured on a cash
collateralised basis. It is not anticipated that this cash will initially be
available for distribution. In addition, a number of the Group's performance
bond arrangements carry rights for the issuer to call for cash collateral,
either unconditionally or upon the occurrence of certain events. The L167
million of cash retained with respect to performance bonds includes L42 million
to be held in escrow to fund potential calls for collateral under these bonds. A
further maximum of L25 million of cash released from performance bonds may be
required under the new Performance Bonding Facility prior to being used to
mandatorily redeem the New Junior Notes.
584
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 5
CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Unless the context otherwise requires, this Appendix assumes that the Schemes
will be implemented in accordance with their terms.
The following discussion of the Corp Group's financial condition and trading
performance should be read in conjunction with its consolidated financial
statements and the related notes and the other financial information included in
Appendices 1 and 2.
Further information relevant to the following discussion and analysis can be
found in the part I of this Document, and in particular:
(i) the description of the Group contained in part I, Section 2, Part A;
(ii) the risk factors described in part I, Section 2, Part F;
(iii) the plc quarterly report contained in Appendix 4; and
(iv) the financial information contained in Appendices 1 and 2.
This commentary discusses and is based on the following financial information:
(i) the audited financial information of the Corp Group for the three
years ended 31 March 2002 and the six months ended 30 September 2002
contained in Appendix 1; and
(ii) relevant unaudited financial information of the Corp Group for the
six months ended 30 September 2001 contained in Appendix 2.
The Group's consolidated financial statements are prepared in accordance with UK
GAAP. This discussion contains forward looking statements based on assumptions
about the Corp Group's future business, see "Forward Looking Statements". There
are a number of factors that could cause the Corp Group's actual results and
developments to differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause or contribute to such
differences include but are not limited to those discussed below and elsewhere
in this document, particularly in part I, Section 2, Part F, Risk Factors.
OVERVIEW
The Group is a major international vendor of telecommunications equipment and
services. The Group's customers include many of the leading telecommunications
operators throughout the world, with whom it has a large base of installed
equipment.
CONTINUING OPERATIONS
For the purposes of financial reporting, the Group, effective as of 31 March
2002, divided its continuing operations into two segments: Core and Capital.
The Group divides its Core activities into two main business types: Network
Equipment, comprising Optical Networks, Broadband Routing and Switching
("BBRS"), European Access, North American Access, Outside Plant and Power
("OPP") and Other Network Equipment; and Network Services, comprising
Installation, Commissioning and Maintenance ("IC&M") and Value Added Services
("VAS"). Previously European Access, North American Access and OPP had been
reported as Access Systems.
The Group's customer base includes telecommunications companies and providers of
internet services for their public networks, and certain large corporations,
government departments and agencies, utilities and educational institutions for
their private networks.
Capital comprises certain non-core businesses the Group manages for value and
ultimately for disposal. Assets in Capital include the Group's holdings in
Easynet Group Plc, as well as a number of other minor activities, investments
and assets.
585
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
On a geographic basis, the UK, rest of Europe, Middle East and Africa ("EMEA")
and North America are the Group's main markets. The majority of the Group's
revenues in the EMEA region relate to Optical Networks. Revenues in North
America are driven by North American Access, OPP, and BBRS.
DISCONTINUED OPERATIONS
During the year ended 31 March 2002, the Group disposed of its Medical Systems,
Data Systems and Commerce Systems activities which were previously managed
within Marconi's Capital division. In August 2002, the Group completed the
disposal of its Strategic Communications business which had previously
represented substantially all of the Group's former Mobile division. In the
accompanying financial information, Medical Systems, Data Systems, Commerce
Systems and the Group's Strategic Communications businesses have been treated as
discontinued operations throughout all periods.
Further information on acquisitions and disposals is set out in part I, Section
2, Part A.2 and part IV, Appendix 19, Section 1.2 and 1.3.
DEFINITIONS OF KEY PERFORMANCE INDICATORS
In the subsequent discussion of the financial condition and results of
operations of the Group, management has applied the following definitions:
(a) Adjusted gross profit is defined as gross profit before exceptional
items;
(b) Adjusted gross margin is defined as gross margin before exceptional
items;
(c) Adjusted operating profit/(loss) is defined as operating
profit/(loss) but before goodwill amortisation and exceptional
items;
(d) Adjusted operating costs are defined as research and development,
selling and distribution and general and administrative expenses and
the associated depreciation of tangible fixed assets and before
goodwill amortisation and exceptional items;
(e) Adjusted operating cash flow is defined as operating cash flows
before exceptional cash flows and after net capital expenditure; and
(f) Book to bill ratio is defined as orders received in the financial
reporting period divided by sales made in the period.
Additional key performance indicators and other terms are defined in part V.
Unless otherwise stated, references to the "Group" refer to the Corp Group
including its share of results of joint ventures but excluding its share of
results of associates.
Inflation has not had a material impact on the Group's results of operations for
the six months ended 30 September 2002 and the three years ended 31 March 2002.
One of the Group's strategic objectives is to maintain capital expenditure below
the level of depreciation.
BUSINESS REORGANISATION
Following a profits warning published on 4 July 2001, the Group undertook an
operational review of its activities. The results of the operational review were
announced in September 2001 and included a change of management with the
appointment of a new Chief Executive Officer and Interim Chairman. It also
covered the Group's markets, its operations and scope of business and focused on
adapting the Group to the changed circumstances of the telecommunications market
during the substantial decline in market demand.
The review resulted in:
(a) the re-organisation of the Group into the Core businesses and a
non-core Capital business from which the Group targeted to realise
cash proceeds from disposals of at least L500 million by 31 March
2002,
586
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
(b) a plan to reduce plc Group indebtedness from L4.4 billion at 31
August 2001 to between L2.7 billion and L3.2 billion by 31 March
2002, which included a series of business disposals,
(c) action plans to reduce the annualised operating expense run-rate in
the then Core businesses (including the Group's Mobile assets) from
around L1.4 billion at 31 March 2001 to around L1 billion by 31
March 2002.
By 31 March 2002, the new management team had achieved all of these financial
objectives.
DIVIDEND POLICY
Corp does not intend to pay a dividend in the foreseeable future. Further
information relating to the dividend policy is provided in part I, Section 2,
Part A.9.
RESULTS OF OPERATIONS
6 MONTHS ENDED 30 SEPTEMBER 2002 COMPARED WITH 6 MONTHS ENDED 30 SEPTEMBER 2001
GROUP REVIEW
GROUP KEY FIGURES
6 months ended
30 September
----------------
2001 2002
------ ------
in L million
Turnover 2,578 1,106
Adjusted gross profit (excluding Joint Ventures) 628 201
Adjusted operating loss (238) (235)
Operating exceptionals (4,502) (237)
Non-Operating exceptionals 75 (14)
Associates 5 (70)
Retained loss (5,076) (925)
GROUP TURNOVER BY SEGMENT
6 months ended
30 September
--------------
2001 2002
----- -----
in L million
Core 1,448 992
Capital 207 32
Other (27) (5)
----- -----
Continuing operations 1,628 1,019
Discontinued operations 950 87
----- -----
Group 2,578 1,106
===== =====
Group sales for the six months ended 30 September 2002 amounted to L1,106
million, representing a decrease of L1,472 million or 57 per cent. compared to
the first six months of the previous year (L2,578 million).
Sales from continuing operations amounted to L1,019 million, a decrease of L609
million or 37 per cent. compared to the corresponding period of the previous
financial year. This decrease was mainly the result of reduced demand in the
global market for telecommunications equipment and services by
telecommunications operators resulting in lower sales in the Group's Core
businesses and the disposal of businesses from Capital,
587
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
including the Group's 50 per cent. stake in General Domestic Appliances ("GDA")
and Marconi Optical Components completed during the previous financial year, as
well as the sale of Marconi Applied Technologies Group completed in July 2002.
Sales from discontinued operations amounted to L87 million during the period and
related mainly to Strategic Communications prior to its disposal in August 2002.
Of the L950 million of sales from discontinued operations during the first half
of the previous year, approximately L133 million related to Strategic
Communications. The balance of L817 million related to other business disposals
including Medical Systems, Data Systems and Commerce Systems.
GROUP ADJUSTED GROSS PROFIT (EXCLUDING JOINT VENTURES)
6 months ended
30 September
----------------
2001 2002
------ ------
in L million
Continuing operations 358 177
Discontinued operations 270 24
------ ------
Group 628 201
====== ======
Adjusted gross profit at Group level amounted to L201 million, representing an
adjusted gross margin of 18 per cent. (Sept 2001: L628 million; 26 per cent. of
sales). Of this amount, the Group's continuing operations contributed an
adjusted gross profit of L177 million and an adjusted gross margin of 17 per
cent. (Sept 2001: L358 million; 22 per cent. of sales) and discontinued
operations contributed an adjusted gross profit of L24 million and an adjusted
gross margin of 28 per cent. (Sept 2001: L270 million; 28 per cent. of sales).
The overall decrease in adjusted gross profit compared to the previous year at
Group level was mainly attributable to the reduction in sales volumes in the
Core businesses, unfavourable business mix and some price erosion, particularly
in Optical Networks. As the Group was not able to reduce costs quickly enough,
this led to under-utilisation of resources and under-recovery of costs in the
supply chain. Business disposals included in discontinued operations also
contributed to the absolute decrease in adjusted gross profit. In addition, a
L25 million stock write-off was made in September 2002. Significant cost savings
were made during the period but there were not able to offset the effect of the
reductions in revenues.
GROUP ADJUSTED OPERATING PROFIT/(LOSS) BY SEGMENT
6 months ended
30 September
----------------
2001 2002
------ ------
in L million
Core (247) (205)
Capital (40) (28)
------ ------
Continuing operations (287) (233)
Discontinued operations 49 (2)
------ ------
Group (238) (235)
====== ======
Operating cost savings achieved mainly in the Core businesses (see "Core
Business Review" below) during the first half were more than offset by the
reduction in gross profitability, leading to an overall Group adjusted operating
loss of L235 million. This represented a L3 million improvement compared to the
first half of the previous year. (Sept 2001: adjusted operating loss of L238
million).
588
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Of this, an adjusted operating loss of L233 million was attributable to the
Group's continuing operations (L205 million of which related to the Core
businesses and L28 million to Capital) and an adjusted operating loss of L2
million was attributable to the Group's discontinued operations.
CORE BUSINESS REVIEW
6 MONTHS ENDED 30 SEPTEMBER 2002 COMPARED WITH 6 MONTHS ENDED 30 SEPTEMBER 2001
CORE KEY FIGURES
6 months ended
30 September 2002
---------------------------
6 months ended First Second
30 September 2001 quarter quarter Total
----------------- ------- ------- -----
in L million in L million
Turnover 1,448 510 482 992
Gross profit 340 89 79 168
Adjusted operating loss (247) (115) (90) (205)
Adjusted operating cash flow (358) (81) (43) (124)
TURNOVER BY GEOGRAPHY
6 months ended
30 September 2002
---------------------------
6 months ended First Second
30 September 2001 quarter quarter Total
----------------- ------- ------- -----
in L million in L million
Europe, Middle East and Africa 752 285 285 570
North America 463 153 142 295
Asia Pacific 107 47 45 92
Central and Latin America 126 25 10 35
----------------- ------- ------- -----
CORE 1,448 510 482 992
================= ======= ======= =====
Overall Core sales fell L456 million or 31 per cent. to L992 million. The
decline in second quarter sales compared to the first quarter was limited to L28
million, or 5 per cent.
Market conditions have deteriorated in all geographic areas but the extent of
the decline varies from country to country and depends on individual telecom
operators' spending profiles.
Sales in Europe, the Middle East and Africa ("EMEA") fell by L182 million, or
approximately 24 per cent. to L570 million compared to the corresponding period
of the previous financial year. Within the six months ended 30 September 2002,
sales in the region remained stable quarter on quarter. Market dynamics in the
UK showed signs of stabilisation. BT continued its broadband access campaign,
which, while not leading to immediate sales for the Group, Corp expects over
time to lead to increased traffic flows onto BT's core transmission network,
requiring renewed spending in optical equipment. Italian market volumes also
remained relatively stable mainly as a result of the absence of 3G debt issues
amongst Italian telecommunications operators, although the pricing environment
in Southern Europe generally became increasingly challenging. Elsewhere in
Europe, major operators continued to cut capital expenditure budgets as they
focused on debt reduction. This particularly impacted Core sales in Germany
during this period.
The further market decline was most marked in the Americas. Sales in the United
States fell by L168 million, or approximately 36 per cent. to L295 million,
while sales in CALA were down L91 million, or approximately 72 per cent. to L35
million compared to the corresponding period in the previous financial year. In
the US, regional
589
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APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
bell operating companies continued to maintain tight controls over capital
expenditure, further reducing overall budgets during the period, whilst
political and macro-economic issues in CALA had a significant negative impact on
the telecommunications market, particularly in Brazil and Mexico.
Sales in APAC fell by L15 million or approximately 14 per cent. to L92 million.
The decrease occurred mainly in Optical Networks as a result of increased
competition and pricing pressure in the region.
SALES CHANNELS
Sales through channel partners were significantly lower than the first half of
the previous year as a result of the overall reduction in market volumes and
particularly, in the case of sales through Ericsson and Nokia, as a result of
the completion of 2G and 2.5G wireless networks rollouts in the previous year
and the ongoing delays to the deployment of 3G network rollout.
PRICING
A high proportion of Core sales, particularly in Europe, are derived from
existing frame contracts. The Group estimates that price erosion in Network
Equipment under such contracts ranges up to 8 per cent. on an annual basis. The
Group aims to continue to match this price erosion with planned product cost
savings to avoid further erosion of gross margins. Network Services tends to be
more resilient to price erosion.
COST OF SALES
Material costs currently account for approximately three quarters of Network
Equipment cost of sales, of which approximately one third relates to printed
circuit board (PCB) assemblies outsourced through to CEMs and OEMs. The
remaining cost of sales, which relates to in-house labour and overhead, includes
costs associated with planning, supplier management, supply chain management and
logistics, engineering, quality, final assembly and test, property costs, asset
depreciation, logistics, system maintenance and warranty.
Over 60 per cent. of Network Services' cost of sales currently relate to the
cost of in-house labour. The remainder relates primarily to the cost of
subcontract labour, materials and miscellaneous overheads.
As a result of the rapid decline in revenues throughout the year ended 31 March
2002, the Group was not able to reduce its cost of sales quickly enough to avoid
margin erosion. However, significant reductions in cost of sales have now been
achieved in the Network Equipment supply chain and in Network Services. The
rationalisation of all production and service areas is largely complete and the
Irish and Montreal production facilities have been closed. In addition,
substantial reductions in inventory levels have resulted in significant savings
in warehousing and other inventory control costs.
KEY CUSTOMERS
The Core businesses serve a strong customer base of predominantly incumbent
operators and government agencies. The ten largest customers during the first
six months were BT, BellSouth, Metro City Carriers (Germany), Telecom Italia,
Telkom South Africa, UK Government, US Federal Government, Verizon, Vodafone
Group and Wind (Italy). In aggregate, these customers accounted for 46 per cent.
of Core sales during the period (Sept 2001: 32 per cent.). BT remains the
Group's largest customer and accounted for 17 per cent. of Core sales during the
period (Sept 2001: 11 per cent.).
In EMEA, the five largest customers during the first six months were BT, Metro
City Carriers, Telecom Italia, UK Government and Vodafone Group. These
customers, in aggregate, accounted for 55 per cent. of Core sales in the region
during the period (Sept 2001: top five EMEA customers accounted for 31 per
cent.).
In the US, the five largest customers during the first six months were
BellSouth, Qwest, SBC, Sprint, US Federal Government and Verizon and in
aggregate accounted for 47 per cent. of Core sales in the region during the
period (Sept 2001: top five US customers accounted for 46 per cent.).
590
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APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
ADJUSTED GROSS PROFIT
Core gross profit amounted to L168 million, or 17 per cent. of Core sales. This
included the impact of additional stock provisions of approximately L25 million
charged to cost of sales in the second quarter of the financial year. In line
with the Group's accounting policy, these stock provisions were created as a
consequence of the continued decline in market conditions. They related mainly
to optical networking and access equipment.
For the purposes of this Core Business Review, the Group has analysed Core
adjusted gross margin on an underlying basis, excluding the impact of these
stock provisions.
Underlying adjusted gross profit in the Core businesses (excluding inventory
write-downs of L25 million) amounted to L193 million or 19 per cent. of sales
(Sept 2001: L340 million; 23 per cent. of sales). The decrease compared to the
previous year related mainly to reduced sales volumes in Network Equipment and
IC&M activities, unfavourable business mix and some price erosion, particularly
in Optical Networks. Significant cost savings were achieved and further cost
reduction plans were implemented in order to address the continued
under-utilisation of resources, particularly in the supply chain.
On a sequential basis within the period, first quarter Core adjusted gross
margin declined to approximately 17.5 per cent. of sales compared to 20 per
cent. in the final quarter of the previous financial year. This was mainly due
to the reduced level of sales volumes in the period (over L180 million lower
than in the previous quarter) and the unfavourable business mix which more than
offset cost reductions achieved in the supply chain during the period.
In the second quarter, underlying adjusted gross margin in the Core businesses
(excluding inventory write-downs of L25 million) improved sequentially to
approximately 22 per cent. despite the further decline in Core sales.
Approximately two-thirds of this improvement over the first quarter related to
direct cost savings which included further manufacturing rationalisation,
improved utilisation of resources in services and procurement and engineering
cost reductions. The balance was driven by the more favourable business mix
compared to the previous quarter.
ADJUSTED OPERATING EXPENSES
Core adjusted operating expenses totalled L373 million or 38 per cent. of Core
sales during the period, a reduction of L214 million or 36 per cent. compared to
the first half of the previous year (L587 million; 41 per cent. of Core sales).
Significant savings were achieved across all main categories of operating
expenditure.
By the end of September 2002, the Group had reached an annualised operating
expense run-rate in the Core business of L635 million, reduced from L1.1 billion
at the end of September 2001 and L890 million at the end of March 2002.
OPERATING EXPENSES -- RESEARCH & DEVELOPMENT ("R&D")
Core R&D expenditure amounted to L163 million, (16.4 per cent. of Core sales) a
35 per cent. reduction compared to the first half of the previous financial year
(L249 million: 17.2 per cent. of Core sales).
Optical Networks accounted for almost 40 per cent. of the total Core R&D
expenditure during the first half of the financial year (Sept 2001:
approximately 30 per cent.). The main focus of R&D in Optical Networks remained
the continued development of the Group's next generation SDH Series 4 product
range and digital cross connect, the PMM metro DWDM product range and further
upgrades to the Group's network management software. In July 2002, the Group
announced its decision to terminate the development of its SONET technology and
the consequent closure of its Canadian-based SONET facility, contributing to the
overall R&D savings achieved during the period.
R&D expenditure across the Group's access portfolio, in Europe and North America
combined, accounted for a further 25 per cent. of total Core R&D expenditure.
Ongoing development programmes were focused on fixed wireless access, Softswitch
and Access Hub platforms as well as sustaining investment on certain legacy
products to support existing customers. R&D investment in the North American
Access Business was significantly reduced as a result of the Group's decision to
cease investing in next generation fibre-to-the-home technologies.
591
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
BBRS accounted for 23 per cent. of Core R&D expenditure. Over 50 per cent. of
this expenditure was focused on the development of the Group's new multi-service
core switch, the BXR 48000. Other ongoing programmes include the further
development of the ASX 1000 and ASX 4000 platforms.
The remaining 12 per cent. of R&D expenditure in the period related mainly to
the OPP Business, wireless software and Other Network Equipment.
OPERATING EXPENSES -- SELLING AND DISTRIBUTION EXPENSES
Core selling and distribution expenses amounted to L145 million, a 36 per cent.
reduction compared to the first half of the previous financial year (L228
million). These savings were achieved mainly through headcount reductions,
reduced spend on marketing programmes and initiatives, the consolidation and
closure of several sales offices worldwide, and the transition to indirect sales
channels in a number of countries, particularly in the APAC region.
OPERATING EXPENSES -- ADJUSTED ADMINISTRATIVE EXPENSES
Adjusted administrative expenses (defined as administrative expenses excluding
goodwill amortisation, goodwill impairment and exceptional items, and excluding
joint ventures) in the Core businesses amounted to L59 million, a 45 per cent.
reduction compared to the first half of the previous financial year (L108
million). Savings were achieved mainly through headcount reductions and reduced
spend on professional fees incurred in the normal course of business.
Professional fees relating to the Group's Restructuring are classified as
exceptional costs.
OPERATING EXPENSES -- OTHER
Other Core operating expenses amounted to approximately L6 million and related
mainly to patent and royalty fees as well as to foreign exchange. (Sept 2001:
operating income L2 million).
ADJUSTED OPERATING LOSS
6 months ended
30 September 2002
---------------------------
6 months ended First Second
30 September 2001 quarter quarter Total
----------------- ------- ------- -----
in L million in L million
Network Equipment (216) (96) (83) (179)
Network Services 2 (2) 7 5
Other (33) (17) (14) (31)
----------------- ------- ------- -----
CORE (247) (115) (90) (205)
================= ======= ======= =====
Core adjusted operating loss for the six months ended 30 September 2002 was
reduced to L205 million (Sept 2001: L247 million). The significant reduction in
adjusted gross profit was more than offset by the adjusted operating cost
savings achieved during the period, giving rise to an overall improvement to
adjusted operating loss of L42 million or 17 per cent.
Core adjusted operating loss comprised an adjusted operating loss of L179
million in Network Equipment and an adjusted operating profit of L5 million in
Network Services. In addition, the Core businesses incurred L31 million of other
costs mainly relating to head office and other central costs.
592
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
ANALYSIS BY BUSINESS TYPE
CORE SALES BY PRODUCT AREA
6 months ended
30 September 2002
---------------------------
6 months ended First Second
30 September 2001 quarter quarter Total
----------------- ------- ------- -----
in L million in L million
Optical Networks 357 134 108 242
BBRS 113 38 35 73
European Access 189 59 69 128
North American Access 65 25 23 48
OPP 156 46 34 80
Other Network Equipment 63 14 15 29
----------------- ------- ------- -----
NETWORK EQUIPMENT 943 316 284 600
----------------- ------- ------- -----
IC&M 271 97 89 186
VAS 234 97 109 206
----------------- ------- ------- -----
NETWORK SERVICES 505 194 198 392
----------------- ------- ------- -----
CORE 1,448 510 482 992
================= ======= ======= =====
Sales of the Group's Ringfenced Entities amounted to L295 million during the
first half and are included in the Core sales reported above (Sept 2001: L479
million).
NETWORK EQUIPMENT
SALES
Sales of Network Equipment amounted to L600 million, a decline of L343 million
or 36 per cent. (Sept 2001: L943 million). Sales declined across all major
product areas as a result of the further reductions in capital expenditure by
the majority of telecommunications operators worldwide.
Optical Networks
Optical Networks sales declined by L115 million or 32 per cent. to L242 million
(Sept 2001: L357 million). All areas of the business were affected as a result
of a combination of three main factors: i) the general market downturn arising
from further reductions in capital spending by many telecommunications
operators; ii) priority by many operators to maximise utilisation in their
existing core networks rather than proceeding with new network roll-outs; iii) a
refocusing of the reduced investment, by certain customers, from core
transmission networks to broadband access equipment.
Sales of SDH equipment accounted for around 80 per cent. of total Optical
Networks sales during the period (Sept 2001: 75 per cent.) and DWDM for around
15 per cent. (Sept 2001: 15 per cent.). This split reflected the higher
proportion of orders for in-fill equipment relating to existing networks which
are typically based on low-capacity SDH technology, as opposed to new network
build which would be oriented towards high-capacity SDH and DWDM technology. The
balance represented sales of network management software and a small amount of
SONET equipment sold prior to the Group's decision to cease further development
and sales of this technology.
Despite the overall reduction in market size, and the 27 per cent. decline in
sales of SDH equipment during the period, the Group maintained its market share
in all areas of SDH with the exception of its position in digital cross
connects. In September 2002, the Group announced the availability of its next
generation digital cross connect, the MSH2K, which is currently on trial in a
number of European customers' labs and for which the Group has been awarded
initial orders.
593
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Sales of DWDM equipment fell 28 per cent. compared to the level recorded in the
first half of the previous year. This was mainly a result of the high proportion
of sales to China Railcom in the previous year as the Group completed the
deployment of equipment for the North West Ring project, which was not repeated
in the first half of 2003.
Sales were down across all geographic regions. In EMEA, the Group's main market
for Optical Networks equipment, sales performance varied across countries. Sales
increased in the United Kingdom in comparison to the low level recorded in the
first half of the previous year, and also in Italy as a result of continued
network rollouts, particularly by Wind and Vodafone-Omnitel. These increases
were more than offset, however, by declines in direct and indirect sales through
channel partners in other European markets mainly as a result of general market
softness. This trend was particularly marked in Germany as a result of the
completion of the Group's rollout of SDH equipment under a frame contract to
Deutsche Telekom ("DT"), and continued capital expenditure reductions by DT and
other German wireline and wireless operators. Sales in CALA were affected by the
uncertain macroeconomic and political environment prevalent in the region during
the period. Sales in APAC decreased as a result of the completion of the North
West Ring project in China in the previous year and because of increased
competition in the region.
Broadband Routing and Switching (BBRS)
BBRS comprises mainly sales of multi-service switching products such as the ASX
4000 multi-service core switch and the smaller ASX and TNX edge switches and a
range of legacy ATM switching and routing products designed for enterprise
customers. During the period, the Group began to ship the first units of its new
high capacity multi-service core switch, the BXR 48000, to the US Federal
Government.
Sales of BBRS equipment decreased by L40 million or 35 per cent. to L73 million
(Sept 2001: L113 million).
Sales to customers requiring carrier-class networks accounted for 64 per cent.
of BBRS sales during the first half (Sept 2001: 62 per cent. of sales). This
included sales to the US Federal Government, the Group's single largest customer
for BBRS equipment, which increased in comparison to the prior period, mainly as
a result of increased shipments of ATM edge switching equipment and the first
sale of the BXR 48000. This increase partially offset the substantial decline in
sales to service provider customers resulting from the significantly reduced
capital spending by US operators.
Sales to enterprise customers accounted for 36 per cent. of BBRS sales during
the first half (Sept 2001: 38 per cent). This decrease in sales to enterprise
customers followed the Group's decision, in 2001, to refocus its technical and
commercial resources towards customers requiring carrier class networks.
BBRS service sales are reported as part of VAS within Network Services. These
amounted to L43 million during the first half of the financial year, a 16 per
cent. increase on the corresponding period in the prior year (L37 million). This
increase was due to one specific major contract for airport communications
services in the United States, which the Group expects to complete before the
end of the current financial year.
European Access
European Access comprises Fixed Wireless Access (accounting for approximately 34
per cent. of European Access sales), Multimedia Voice Systems (approximately 24
per cent.), the Group's High Density DSLAM, the Access Hub (over 10 per cent.)
and other, mainly narrowband access products (representing the balance of
approximately 30 per cent.).
Sales of European Access equipment fell by L61 million or 32 per cent. to L128
million (Sept 2001: L189 million). Within the period, at L69 million, second
quarter sales were 17 per cent. higher than the first quarter (L59 million) as a
result of increased sales of High Density DSLAM in Italy and voice systems in
the United Kingdom.
Sales fell compared to the prior period across all main product areas with the
exception of sales of the Group's High Density DSLAM product, launched during
the first half of the previous financial year. The increase in DSLAM sales was
due particularly to increased volumes in the Italian market during the second
quarter of the financial year, as Telecom Italia aggressively deployed the
Group's equipment under an existing frame contract.
594
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Conditions remained tough in Germany, the Group's main market for its fixed
wireless access products. Sales were down compared to the first half of the
previous year mainly as a result of the high levels of debt amongst German
mobile operators, leading them to focus on balance sheet restructuring and tight
constraints on capital spending. Delays to planned 3G network rollouts during
the first half also contributed to the difficult business environment. Two major
operators, O(2) and D2 Vodafone, have recently confirmed 3G network rollout
plans and are now beginning initial deployments of equipment. In October 2002,
the Group was awarded a major new frame contract from mobile operator O(2)'s
German subsidiary for the supply of fixed wireless access and optical networking
equipment to support its planned 3G network roll-out.
Sales of multimedia voice systems were down compared to the corresponding period
in the previous year as the Group's customers, including BT, continued to switch
investment from their narrowband access to broadband access networks.
North American Access
Sales fell by L17 million or 26 per cent. to L48 million (Sept 2001: L65
million). This was mainly due to the difficult market conditions in North
America and the continued slowdown of narrowband access infrastructure
investment. Sales of the Group's legacy DISC*S copper product range were
particularly affected following the Group's announcement in March 2002 that it
had discontinued future research and development spending in this area.
Outside Plant and Power (OPP)
OPP equipment sales fell by L76 million or 49 per cent. to L80 million (Sept
2001: L156 million). This was mainly a result of the significant reductions in
capital spending in the United States, which accounted for L74 million of OPP
sales during the period (Sept 2001: L129 million). The general market downturn
in CALA also contributed to the sales decline. OPP recorded L6 million of sales
in CALA during the first six months, compared to L26 million in the
corresponding period of the previous financial year.
OPP service sales are reported as part of IC&M within Network Services. These
amounted to L51 million during the first half of the financial year, a reduction
of L57 million, or 53 per cent. compared to L108 million in the corresponding
period of the previous year. This decline was a direct result of the reduced
level of sales of OPP equipment.
Other Network Equipment
Other Network Equipment comprises mainly MIS, the Group's interactive systems
activity, as well as legacy operations in South Africa and APAC.
Sales in this group of activities fell by L34 million or 54 per cent. to L29
million (Sept 2001: L63 million). This was mainly the result of reduced sales in
the Group's legacy optical cable business in South Africa and the absence of
sales in Hong Kong following completion of a major long-term contract during the
previous financial year. Sales of interactive systems remained stable during the
period.
NETWORK EQUIPMENT: ADJUSTED OPERATING LOSS
Network Equipment incurred an adjusted operating loss of L179 million, an
improvement of L37 million or 17 per cent. compared to an adjusted operating
loss of L216 million in the first six months of the previous financial year. The
main product areas contributing to this improvement during the period were BBRS
and North American Access. Operating performance improvement in Optical Networks
remains difficult in the face of continued volume reductions, contractual annual
price negotiations under existing frame contracts and some price erosion on new
orders as well as issues relating to business and geographic mix.
595
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
NETWORK SERVICES
SALES
Sales of Network Services amounted to L392 million, a reduction of L113 million
or 22 per cent. (Sept 2001: L505 million). Whilst sales fell across both main
types of service activity, the decline was most marked in the field of IC&M,
which accounted for 47 per cent. of Network Services sales during the period
(Sept 2001: 54 per cent.).
Installation, Commissioning and Maintenance (IC&M)
IC&M sales fell by L85 million or 31 per cent. to L186 million (Sept 2001: L271
million) as a direct result of the decline in equipment sales to telecom
operators with which these services are associated.
Approximately L65 million, or around 76 per cent. of this decline, occurred in
the Americas and related mainly to sales of OPP services.
In EMEA, which accounted for approximately 65 per cent. of IC&M sales during the
period (Sept 2001: 52 per cent.), sales were down around 14 per cent., with an
increased level of installation and commissioning activity in Italy partially
off-setting higher percentage declines in other countries. This was due to the
phasing of network deployments by Telecom Italia, Vodafone-Omnitel and Wind
during the final quarter of the previous year and during the first half of the
current year.
IC&M sales are not common in APAC as these activities tend to be handled by the
Group's local partners in the area.
Value Added Services (VAS)
Overall, VAS sales fell by L28 million or 12 per cent. to L206 million (Sept
2001: L234 million). Sales in Integrated Systems and Managed Services remained
relatively stable and were offset by a decline in Wireless Services. On a
sequential basis, VAS sales increased from L97 million in the first quarter to
L109 million in the second quarter as a result of increased trading under
long-term service contracts, particularly in the transportation and government
sectors.
During the first half of the previous financial year, Integrated Systems
benefited from a high proportion of sales arising from the completion of the
long-term Jubilee Line Extension communications project for London Underground.
Excluding the impact of this one major contract, the increase in underlying
sales of Integrated Systems was driven by trading under long-term service
contracts during the period, particularly in the United Kingdom (e.g. West Coast
Main Line) and Germany (e.g. Ramstein).
Managed Services recorded a single-digit percentage decrease during the period.
Increased sales of BBRS-related services were offset by lower sales of IT
outsourcing services prior to the Group's ongoing managed exit from this
activity.
Sales of Wireless Services decreased by over 30 per cent. during the period.
This was mainly a result of reduced capital expenditure in the wireless market
affecting all geographic areas, but most notably the Americas.
NETWORK SERVICES: ADJUSTED OPERATING PROFIT
Network Services recorded an improvement in adjusted operating profit from L2
million in the first half of the previous financial year to L5 million during
the period. Improved resource utilisation in IC&M and other ongoing cost
reduction initiatives were the main drivers of the increased profitability.
While improvements were recorded across most major service activities, wireless
services generated an operating loss during the period mainly as a result of the
substantially lower sales recorded during the period.
596
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
GROUP REVIEW -- OTHER FINANCIAL ITEMS
6 MONTHS ENDED 30 SEPTEMBER 2002 COMPARED WITH 6 MONTHS ENDED
30 SEPTEMBER 2001
EXCEPTIONAL ITEMS
OPERATING EXCEPTIONALS
For the six months ended 30 September 2002, exceptional items charged to Group
operating loss (excluding joint ventures and associates) totalled L206 million,
of which L24 million was charged to cost of sales and L182 million was charged
to administrative expenses.
Of the total, exceptional restructuring and reorganisation costs amounted to
L190 million. Impairment of tangible fixed assets, relating mainly to impairment
of the Group's remaining assets for mobile communications (included in Capital)
and operations in South Africa, and a provision for onerous leases amounted to
L31 million. These were partially offset by exceptional income of L15 million
arising from the release of previously established exceptional provisions with
respect to certain doubtful debtors mainly in the United Kingdom, and to the
settlement of litigation relating to IT costs at an amount less than originally
envisaged.
The exceptional restructuring costs related mainly to the restructuring of the
Group's supply chain and other facilities, including fixed asset impairments
associated with the downsizing of the Core businesses (L98 million) and costs
associated with headcount reductions (L67 million). The balance related mainly
to costs associated with the Group's Restructuring.
A further review of the carrying value of the Group's fixed assets (subsequent
to the review performed at 31 March 2002), including goodwill, was undertaken at
30 September 2002. The average discount rate applied to the future cash flows
was 15 per cent. and was based upon a weighted average cost of capital
percentage. The results of the review indicated that no further goodwill
impairment charge was necessary for the six months to 30 September 2002.
However, due to the significant uncertainties over the timing and extent of any
recovery in the telecommunications market, Corp acknowledges that the Group is
likely to have to continue to review its assumptions against future performance.
In addition, the Group recorded L18 million of exceptional costs in relation to
its share in associates and L31 million relating to the impairment of intangible
assets in its joint ventures.
Exceptional items charged to Group operating loss (excluding joint ventures and
associates) in the six months ended 30 September 2001 totalled L4,501 million.
This was made up of a L3,493 million charge to write-down goodwill and tangible
fixed assets, a L148 million to increase doubtful debt provisions and a L518
million increase in provisions for slow-moving stock and related charges.
Restructuring and reorganisation charges totalled L342 million and included
exceptional charges for workforce reductions and the IT systems implementation
programme.
The more uncertain sales outlook and more conservative assessment of future
growth prospects of acquired businesses led to the Corp's decision to write-down
the value of historical goodwill and tangible fixed assets by L3,493 million.
This charge comprised L3,407 million to write-off purchased goodwill and L86
million for the impairment of tangible fixed assets. The goodwill impairment
related primarily to FORE Systems, RELTEC Corporation, Metapath Software
International, Inc. ("MSI") and Mariposa Technology, Inc.
The increase in provisions for slow-moving and obsolete stock and related
charges was taken as a consequence of the more uncertain sales outlook and the
decision to scale back certain product lines.
Corp's decision to increase doubtful debt provisions was taken following a
review of debtor balances in light of the changed conditions in customers'
markets and recognised the possibility of payment concerns with respect to
specific customer groups.
597
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
NON-OPERATING EXCEPTIONALS
For the six months ended 30 September 2002, non-operating exceptional charges
(excluding joint ventures and associates) amounted to L14 million. This
comprised a L5 million net loss on disposal of discontinued operations, a L9
million net loss on disposal of fixed assets and investments in continuing
operations.
In addition, a L3 million loss was recorded relating to the Group's share of
associates' non-operating exceptional charges.
Of the L9 million net loss in continuing operations, L40 million related to the
write-down of some of the Group's investments in accordance with its accounting
policy whereby listed investments are marked to their market value at the end of
each reporting period and unlisted investments are booked at their net
realisable value. This write-down was partially offset by a L28 million
curtailment gain associated with retirement benefits arising mainly from the
disposal of the Group's share in GDA, a L12 million gain on property disposals
and a net L9 million charge relating to current and prior period disposals and
business closures and other provision movements.
In discontinued operations, the loss on disposal of Strategic Communications
(L41 million) was partially offset by the release of provisions relating to
Medical Systems and other previously completed disposals.
INTEREST AND FINANCE INCOME
In the six months ended 30 September 2002, the Group's net interest payable was
L119 million (Sept 2001: L122 million). The interest charge decreased as a
result of the Group's reduced net debt position.
The charge during the period mainly comprised approximately L77 million of
interest charged on the Group's bond debt and approximately L52 million of
interest charged on the Group's Syndicate Bank debt, partially offset by
interest income on the Group's cash balances and repayment supplement on tax
refunds.
Net finance income amounted to L2 million.
TAXATION
The tax charge on ordinary activities was L10 million in the period compared
with a credit of L36 million in the first half of the previous year. The net tax
impact of exceptionals was Lnil (Sept 2001: Lnil).
GOODWILL AMORTISATION
The Group incurred a charge of L55 million for goodwill amortisation for the six
months ended 30 September 2002 (including L1 million for amortisation of
goodwill relating to joint ventures) compared to a charge of L350 million in the
corresponding period of the previous year. This significant reduction was a
result of the reduced carrying value of goodwill on the Group's balance sheet
following the exceptional goodwill impairment charges in the year ended 31 March
2002.
EARNINGS PER SHARE
Basic and diluted loss per share, which reflects goodwill amortisation and
exceptional items was 92.5 pence (Sept 2001; loss of 182.3 pence).
The loss per share excluding goodwill amortisation and exceptional items was
38.0 pence compared to a loss per share of 10.7 pence in the first half of the
previous year.
30 SEPTEMBER 2002 -- FINANCIAL CONDITION
BALANCE SHEET
Three main factors have contributed to the overall change in shape of the
Group's balance sheet during the first half of the financial year: (i) the
disposal of Strategic Communications; (ii) the losses incurred during the period
and (iii) the further market decline and continued downsizing of the Group's
Core businesses.
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NET ASSETS/LIABILITIES
As at 30 September 2002, net liabilities before net retirement benefit deficits
stood at L2,772 million compared to L1,890 million at 31 March 2002. The
increase in net liabilities was mainly due to the loss incurred during the
period. As at 30 September 2002, the Group had net current liabilities of L1,331
million compared to net current liabilities of L756 million as at 31 March 2002.
The increase in net current liabilities was mainly due to reductions in cash due
to continuing losses, and reduction in stock and debtors reflecting lower sales,
offset by a reduction in trade creditors and short-term borrowings.
FIXED ASSETS
The L672 million of goodwill on the balance sheet at 30 September 2002 related
mainly to the acquisitions of GPT and RELTEC Corporation, businesses acquired
from Nokia and Bosch, respectively. The decrease from L877 million at 31 March
2002 arose as a result of the disposal of Strategic Communications and Marconi
Applied Technologies (L121 million), the amortisation charge incurred during the
period (L54 million), currency effects (L21 million) and a reduction of L9
million due to the lapsing of certain share option consideration relating to
acquisitions in previous periods.
Tangible assets decreased by L193 million from L522 million at 31 March 2002 to
L329 million at 30 September 2002. This was mainly due to depreciation (L79
million), the disposals of Strategic Communications and Marconi Applied
Technologies (L56 million), fixed asset impairments as a result of the
downsizing and restructuring of the Core businesses (L49 million), and foreign
exchange movements. Capital expenditure during the period was restricted to
items essential to support the business.
Investments decreased by L129 million from L250 million at 31 March to L121
million at 30 September 2002. This was mainly due to the Group's share of the
losses of Easynet Group Plc and write-downs of a number of the Group's other
investments.
WORKING CAPITAL
The disposal of Strategic Communications led to a reduction of L162 million in
net stock and contracts in progress, a reduction of L318 million in net debtors
and a reduction of L320 million in trade, other creditors and accruals compared
to the position at 31 March 2002.
At Group level, net stock and contracts in progress reduced by approximately
L364 million to L356 million (31 March 2002: L720 million). In the Core
businesses, net stock and contracts in progress reduced by L177 million. L25
million of this reduction related to the additional stock provisions raised
during the period. Significant improvement in the Group's process to align the
purchase of new stock with forecast sales demand was a major driver behind the
inventory reduction achieved during the period. The increase in Core net stock
turns from 4 to 5.1 reflected this improved utilisation and management of
inventory.
Group net debtors decreased by approximately L642 million to L862 million (31
March 2002: L1,504 million). Core net trade debtors decreased by approximately
L105 million partly as a result of the reduced trading volumes during the period
and partly as a result of the Group's focus on the management of debtor
collection and overdue debts.
Net Core trade debtor days increased from 87 at 31 March 2002 to 107 at 30
September 2002. The low level in March 2002 reflected the impact of the one-off
sale of SDH inventory to BT in the final quarter of the previous year. Excluding
this impact, net Core trade debtor days at 31 March 2002 stood at 103. The level
of net trade Core debtor days remained high mainly as a result of the relatively
high proportion of sales in Southern Europe and APAC, where payment terms tend
to be significantly longer than average.
Other debtors and prepayments in the Core businesses increased by L27 million to
L190 million. This was mainly due to an increase in prepayments on annual
contracts payable at the beginning of the financial year.
Trade, other creditors and accruals fell from L1,920 million at 31 March 2002 to
L1,421 million, a reduction of L499 million. Trade creditors in the Core
businesses were reduced by L65 million to L262 million. Core trade creditor days
remained stable during the period at 54 days after adjusting the March position
to exclude the one-off impact of the sale of SDH inventory to BT in the final
quarter of the previous year. Other creditors and accruals in the Core
businesses reduced by L243 million to L505 million due largely to the conversion
of interest
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--------------------------------------------------------------------------------
swap arrangements into loans, the payment of accrued interest on the Group's
Eurobonds and a payment made to Court in relation to litigation concerning one
of the Group's joint ventures, Ultramast Limited.
PROVISIONS
Provisions for liabilities and charges stood at L456 million at 30 September
2002, a net reduction of L49 million compared to 31 March 2002 (L505 million).
Share option and restructuring provisions accounted for L176 million (31 March
2002: L179 million) and L69 million (31 March 2002: L96 million), respectively.
The remainder included provisions for warranty and contract losses, industrial
injury claims, supplier obligations and provisions related to previous
disposals.
In addition to the normal movements in warranty and contract loss provisions,
provisions were increased to provide for losses on industrial injuries. These
movements were offset by disposals and currency movements.
RETIREMENT BENEFITS
The net retirement benefit deficit increased by L313 million from L126 million
at 31 March 2002 to L439 million at 30 September 2002. This was mainly the
result of adverse variances between the actuarial assumptions and actual results
for returns on plan assets and discount rates used to value liabilities. These
actuarial assumption losses are reflected through the Statement of Total
Recognised Gains and Losses.
The main component of the pension liability at 30 September 2002 is the deficit
on the funded UK Plan (L298 million). The balance relates to retirement benefit
plans in Germany, Italy and the United States.
The UK Plan's exposure to equity markets is limited to 21 per cent. of plan
assets totalling L2,355 million. The remaining scheme assets are held in bonds
(72 per cent.) and property and cash (7 per cent.).
In assessing the funding rate, the actuary uses a different set of assumptions
to that required by the FRS17 accounting standard and takes a broader view of
the fund's income generating capacity over a longer period. Based on a
preliminary view of the actuary to the UK Plan's latest triennial actuarial
review, the Group and the trustee of the UK Plan have agreed adjustments to
pension contributions with effect from 1 November 2002.
At L23 million, the operating charge relating to retirement benefits for the six
months ended 30 September 2002 was lower than the corresponding charge in the
previous year (H1 2002: L26 million) due to a reduction in the number of plan
members.
The Group recognised curtailment and settlement gains during the reporting
period of L66 million. These related mainly to the disposal of Strategic
Communications and the Group's 50 per cent. stake in GDA.
VENDOR FINANCE
The Group, like its competitors, continues to experience demand for financing
from its customers. However, this demand has decreased significantly due to
market conditions and the Group's focus on its core base of incumbent carrier
customers. When the Group has supported customer financing requests, it has
significantly limited its own risk by: i) leveraging funds from third party
financiers' having strategic interests aligned with the Group, and ii)
developing innovative commercial alternatives that do not involve long-term cash
investments from the Group. Through these actions, the Group has satisfactorily
accommodated most customer financing requests and will not require Group cash
resources to fund these activities in the foreseeable future.
As at 30 September 2002, the Group had vendor finance commitments of
approximately L68 million, of which L54 million had been drawn. The reduction,
compared to commitments of L100 million at 31 March 2002, was primarily due to
an agreement with a customer to cancel vendor finance commitments which had
become unlikely to be drawn.
In addition, the Group uses export credit agencies to assist in managing
political and credit risks on major contracts and makes extensive use of export
credit insurance in respect of small to medium-sized contracts.
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--------------------------------------------------------------------------------
NET DEBT
Net debt was L3,514 million at 30 September 2002 compared to L3,335 million at
31 March 2002. The increase of L179 million resulted from the Group's cash
outflow of L132 million, a favourable foreign exchange movement of L159 million
and a net L206 million of other non-cash movements relating to interest swap
arrangements converted to new loan agreements during the period, debt
transferred to Finmeccanica S.p.A upon disposal of Strategic Communications and
the write-off of the loan balance with Marconi plc.
At 30 September 2002, net debt comprised L4,576 million of gross financial debt
made up of L2,059 million of Eurobond debt and US dollar bond debt, L2,117
million of the Syndicate Bank debt (including L51 million as at 30 September
2002 relating to the conversion of interest swap arrangements to new US dollar
loans with the Syndicate Banks during the period) and L105 million of bilateral
and other bank debt, together with a L295 million creditor with plc and fellow
subsidiaries of the plc Group and L1,062 million of cash.
SYNDICATE BANK AND BOND DEBT
At 30 September 2002, drawings under the Group's Bank Facility Agreement
amounted to an equivalent of L2,066 million, comprising of actual drawings of
L650 million and US$2,226 million.
At 30 September 2002, the Group had Yankee Bond debt outstanding with principal
amount US$1,800 million (L1,146 million) and Eurobond debt outstanding with
principal amount E1,500 million (L943 million). The difference between the
principal amounts totalling L2,089 million and the balance sheet value of bond
debt totalling L2,059 million related to discounts and related fees.
The sterling equivalent amounts of Syndicate bank debt and Bonds outstanding
reduced compared to the respective values at 31 March 2002 as a result of
foreign exchange translation. In addition, interest rate swap arrangements
totalling approximately L54 million were converted to new loan agreements during
the period.
6 MONTHS ENDED 30 SEPTEMBER 2002 -- CASH FLOW
The Group incurred a L132 million cash outflow before use of liquid resources
and financing during the six months ended 30 September 2002. The main components
of this outflow were a net adjusted cash outflow from operating activities
before exceptional items of L142 million, an exceptional cash outflow from
operating activities of L181 million, net interest paid of L158 million and
other net cash outflows of L38 million. These outflows were partially offset by
net cash inflows from disposals of L387 million.
ADJUSTED OPERATING CASH FLOW
Adjusted operating losses of L285 million, partially offset by depreciation and
amortisation of L133 million and a L10 million cash inflow from working capital
movements led to the Group's operating cash outflow before capital expenditure
of L142 million during the period.
The Group recorded significant progress in reducing adjusted operating cash
outflows within the period, with the outflow of L117 million after capital
expenditure in the first quarter reducing to L52 million in the second quarter.
This improvement was predominantly driven by progress within the Core
businesses, where adjusted operating cash outflow reduced from L81 million in
the first quarter to L43 million in the second quarter. This was a result of the
reduced operating losses and increased contribution from working capital. There
was a L30 million reduction from working capital during the first half, which
was largely driven by improved utilisation of inventory, partially offset by a
reduction in creditors.
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
One of the Group's strategies is to maintain capital expenditure below the level
of depreciation.
Capital expenditure amounted to L27 million during the period, of which L19
million related to the Core businesses. The Group has maintained capital
expenditure well below the level of depreciation, which amounted to L79 million,
of which L70 million related to the Core businesses. Core capital expenditure is
generally focused on development models, test equipment, sales demonstration
equipment and R&D laboratory equipment. During
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
the period, the majority of Core capital expenditure was incurred in the Optical
Networks and BBRS Businesses. Proceeds from disposals of fixed assets amounted
to L20 million and mainly related to property disposals.
Financial investments contributed a net L18 million cash outflow during the
period. This related mainly to a cash payment made in to Court in relation to
litigation concerning one of the Group's joint ventures, Ultramast Limited.
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Net interest paid during the period amounted to L158 million, comprising mainly
interest paid on the Group's syndicate bank and bond debt, partially offset by
interest received on a refund relating to tax paid in prior years and on the
Group's cash balances. Interest paid on the Group's outstanding Eurobond and
Yankee Bond debt amounted to approximately L129 million. This comprised L56
million paid on 2 April 2002, the first business day following the bond coupon
due date of 30 March 2002 and L73 million interest due and accrued up to 15
September 2002 and paid prior to 30 September 2002. Approximately L52 million of
interest was paid on the Group's syndicate bank debt.
As part of the proposed Restructuring, L340 million is to be distributed to the
relevant Scheme creditors, in addition to L95 million paid in respect of due and
accrued interest. Of this L95 million, L8 million was paid on 30 August 2002,
L66 million was paid on 15 September 2002 and L4 million was paid on 30
September 2002. In addition, after the period end, L14 million was paid on 15
October 2002 and L3 million was paid on 4 November 2002.
EXCEPTIONAL CASH FLOWS
The Group incurred operating exceptional cash costs of L181 million during the
first half of the year. Over half of this amount related to the direct cash cost
of severance payments and site closures in the context of the Group's
operational restructuring and reorganisation. The balance related to cash costs
associated with the Group's manufacturing outsourcing programme and payments
made under onerous contracts and as a result of supplier liability claims. The
payment of fees and expenses to advisors in the context of the Group's
Restructuring is also included in operating exceptional cash flows.
CASH FLOWS FROM ACQUISITIONS AND DISPOSALS
Net proceeds from acquisitions and disposals led to a net cash inflow of L387
million during the first half of the year. This related mainly to the disposals
of Strategic Communications and Marconi Applied Technologies, partially offset
by the payment of transaction-related costs and fees.
TAX PAID
The Group paid L13 million net of repayments in relation to tax including US
state taxes on gains on disposals. There were no tax payments or receipts
relating to hedging arrangements during the period.
CURRENT LIQUIDITY POSITION
The Group has funded its liquidity requirements mainly through a combination of
internally generated funds, bank borrowings, debt issues in the capital markets
and the disposal of non-Core businesses. Prior to the completion of the
Restructuring, the Group is unable to arrange any new lending facility or to
raise new funds through the issuance of debt or equity securities. Consequently,
the Group has little or no ability to obtain new external funding and does not
expect to have such ability unless and until the proposed Restructuring is
complete.
As previously disclosed, the majority of the Group's cash resources are
currently held in secured accounts which are subject to interim security
arrangements in favour of the Group's Syndicate Banks and Bondholders (including
the bond trustees) and also in favour of Barclays, as the sole ESOP Derivative
Bank who, prior to 15 October 2002, committed to support the proposed
Restructuring. The secured accounts were created at the end of April 2002 in
accordance with the previously disclosed lock box arrangements entered into in
favour of the Syndicate Banks and Bondholders. The interim security arrangements
contemplated by the Heads of Terms were
602
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APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
implemented on 13 September 2002. At that time, the balance of the secured
accounts was approximately L866 million. At 30 September 2002, the balance of
the secured cash amounted to L735 million. The Group is dependent on amounts
available to it from the secured amounts in order to meet its short-term
liquidity needs.
Prior to the release of interim security and so long as an enforcement event
does not occur, releases from the secured accounts will be approved in
accordance with the Group's revised monthly cash flow forecast, subject to
specified maximum amounts. This schedule takes account of the Group's
anticipated cash inflows and outflows, and is consistent with the Group's
expectations as to its liquidity needs in the period prior to the expected
completion of the Restructuring.
At 30 September 2002, the Group had a total restricted cash balance, defined as
cash pledged or advanced as collateral, of L880 million. Of this, L775 million
reflected the cash in the secured accounts described above, L79 million
reflected cash collateral placed against bonding facilities; L18 million
reflected cash in the Group's captive insurance company and L15 million
reflected cash deposited against secured loans in Italy. In addition, L25
million has been placed in an escrow account pending determination of certain
claims of the Group's ESOP Derivative Banks in respect of certain previously
disposed companies. The remaining L8 million represents other restricted cash.
Of the Group's L182 million unrestricted cash held outside of the secured
accounts as at 30 September 2002, L116 million was a combination of cash in
transit and global working capital balances with the remaining L66 million held
in money market deposits in the Group's treasury centres.
CONTRACT BONDING FACILITIES
Some customers in the telecommunications market require that bank bonds or
surety bonds (those issued by insurance companies) are provided to guarantee
performance of the supplier. Group companies had L221 million of such bonds
outstanding as at 30 September 2002 with both banks and insurance companies
world-wide. The reduction from L500 million of bonds outstanding at 31 March
2002 was mainly the result of the disposal of Strategic Communications. Some of
these facilities are covered by counter indemnities from Corp and others have
individual indemnities from other Group companies. The Group's bonding is
normally provided on an uncommitted basis. As a consequence of the Group's
ongoing Restructuring, all new bonds currently have to be cash collateralised.
Since February 2002, Marconi Bonding Limited (a special purpose vehicle used for
this purpose) has procured the issue of approximately L80 million of performance
bonding (on a fully cash collateralised basis) on behalf of other Group
companies.
A maturity profile of all bonds and guarantees outstanding at 30 September 2002
is set out below:
As at
30 September
2002
------------
Lm
2003 or earlier 72
2004 10
2005 16
2006 45
2007 25
Thereafter 4
No expiry date 49
------------
Total 221
============
A number of the Group's performance bonding arrangements carry rights for the
issuer to call for cash collateral, either unconditionally or upon the
occurrence of certain events. The Group estimates that as at 30 September 2002,
performance bonds with a face value of approximately L89 million have varying
rights to call for cash collateral.
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
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--------------------------------------------------------------------------------
Bonding and guarantee facilities will frequently run beyond the contracted
maturity dates indicated in the table above. In addition, there are a number of
bonds with no expiry date. These may be cancelled by the beneficiaries when the
guaranteed works are completed.
OBLIGATIONS
The Group has obligations beyond the current financial period in terms of
long-term debt, equity forward contracts, finance leases and operating leases.
In addition to the L2,091 million of long-term debt and finance leases reported
as at 30 September 2002, other long-term financial obligations were as follows:
As at 30 September 2002
-------------------------------
Equity
Forward Operating
Contracts Leases Total
--------- --------- -----
in L million
2004 -- 26 26
2005 123 23 146
2006 -- 19 19
2007 -- 17 17
Thereafter -- 79 79
--------- --------- -----
TOTAL 123 164 287
========= ========= =====
In addition, at 30 September 2002, the equity forward contracts had accrued
interest of L44 million.
YEAR ENDED 31 MARCH 2002 COMPARED WITH YEAR ENDED 31 MARCH 2001
GROUP REVIEW
GROUP TURNOVER BY SEGMENT
Year ended
31 March
--------------
2001 2002
----- -----
in L million
Network Equipment 3,359 1,804
Network Services 1,016 969
Other (including intra-activity sales) (39) (32)
----- -----
Core 4,336 2,741
Capital 579 422
----- -----
Continuing operations 4,915 3,163
Discontinued operations 2,027 1,404
----- -----
Group 6,942 4,567
===== =====
Group sales for the year ended 31 March 2002 amounted to L4,567 million,
representing a decrease of L2,375 million or 34 per cent. compared to the prior
year (2001: L6,942 million), of which L3,163 million related to the Group's
continuing operations (2001: L4,915 million) and L1,404 million to the Group's
discontinued operations (2001: L2,027 million).
Sales from continuing operations decreased L1,752 million or 36 per cent.
compared to the corresponding period of the previous financial year. This
decrease was mainly the result of reduced demand in the global market for
telecommunications equipment and services by telecommunications operators and
companies.
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APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
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--------------------------------------------------------------------------------
Sales from discontinued operations decreased L623 million or 31 per cent.
compared to the corresponding period of the previous financial year. This
decrease was mainly the result of the inclusion of only five months trading for
Medical Systems, and ten months trading for Commerce Systems and Data Systems in
the year ended 31 March 2002 compared to a full twelve months in the year ended
31 March 2001.
TURNOVER BY GEOGRAPHY
Year ended 31 March
2001 2002
-------------- --------------
% of % of
L Total L Total
----- ----- ----- -----
L million
United Kingdom 1,777 26 1,084 24
The Americas 2,852 41 1,760 39
Rest of Europe 1,677 22 1,151 25
Africa, Asia and Australia 636 11 572 12
----- ----- ----- -----
6,942 100 4,567 100
===== ===== ===== =====
ADJUSTED GROSS PROFIT
Adjusted gross profit at Group level excluding joint ventures was L1,057
million, representing adjusted gross margin of 25 per cent. (2001: 36 per
cent.). The reduction in adjusted gross profit in the period was most
significant in the Core businesses, accounting for approximately 79 per cent. of
the decline. A significant proportion of this was due to the sizeable reduction
in trading volumes experienced during the year. The speed of this deterioration
in sales was more rapid than the Group's ability to re-scale the cost base of
the business. This, in turn, led to an under-utilisation of resources in the
Network Services business and under-recovery of cost in the supply chain, which
accounted for the further reduction in adjusted gross profit. Contractual annual
price negotiations under existing frame contracts, some price erosion on new
Optical Networks orders and issues relating to business mix also contributed to
the decline.
Within Capital, the disposal of businesses completed during the year, such as
the Group's optical components business and GDA, contributed to a L30 million
decrease in adjusted gross profit, while the businesses disposed in fiscal 2001
such as Woods Air Movement and Avery Berkel Group contributed approximately L22
million to adjusted gross profit in 2001, which was not repeated in fiscal 2002.
GROUP ADJUSTED OPERATING PROFIT/(LOSS) BY SEGMENT
Year ended
31 March
------------
2001 2002
---- ----
in L million
Network Equipment 442 (464)
Network Services 102 35
Other (15) (64)
---- ----
Core 529 (493)
Capital 1 (74)
---- ----
Continuing operations 530 (567)
Discontinued operations 224 104
---- ----
Group 754 (463)
==== ====
During the year ended 31 March 2002, the Group incurred an adjusted operating
loss of L463 million, comprising an adjusted operating loss of L567 million
contributed by its continuing operations and an adjusted operating
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--------------------------------------------------------------------------------
profit of L104 million by its discontinued operations. This compares to a Group
adjusted operating profit of L754 million in the previous year.
The decline in adjusted gross profit before exceptional items was partly offset
by savings in operating expenses achieved during the year as a result of cost
reduction initiatives arising from the Group's operational review completed in
September 2001.
OPERATING EXPENSES -- R&D
Total Group expenditure on R&D (excluding joint ventures) amounted to L628
million (2001: L626 million), representing approximately 15 per cent. of sales
(2001: 9 per cent.). The Group invested L486 million (2001: L469 million) of
this amount in Core businesses, an increase of approximately 4 per cent.
compared to the previous year. This investment represented 18 per cent. of Core
sales (2001: 11 per cent.). This increase in absolute expenditure and as a
percentage of sales was mainly the result of higher R&D costs in the BBRS and
Optical Networks businesses, driven by the development and launch of key
products such as the BXR 48000 multi-service core switch, new additions to the
Group's range of photonics equipment, notably Ultra Long Haul and Metro DWDM
product ranges as well as further development of the Group's SDH technology to
produce a fourth generation SDH multiplexer. The Group also increased R&D
investment in its Mobile businesses. R&D investment in a number of access
product lines was scaled back during the year in line with the Group's strategy
to focus spend on certain broadband access product lines, notably in fixed
wireless access and the recently launched Access Hub. Expenditure on a number of
narrowband access platforms was reduced and research programmes in areas such as
fibre-in-the-loop and wireless-ip-in-the-local-loop ("WipLL") were terminated.
OPERATING EXPENSES -- SELLING AND DISTRIBUTION EXPENSES
Selling and distribution expenses (excluding joint ventures) reduced by L168
million to L590 million, representing 14 per cent. of sales in the year ended 31
March 2002 (2001: L758 million, 11 per cent. of sales).
OPERATING EXPENSES -- ADJUSTED ADMINISTRATIVE EXPENSES
Adjusted administrative expenses amounted to L308 million, or 7 per cent. of
sales, a reduction in absolute spend of L73 million (2001: L381 million, 6 per
cent. of sales). The majority of the cost savings achieved in this area during
the year related to headcount reductions as well as the rationalisation of a
number of sales offices around the world and the termination of a number of
marketing programmes and initiatives. The disposal of businesses in the current
and previous financial years also led to a reduction in selling and distribution
and administrative costs during the year of L21 million.
The relative increase in these costs as a percentage of sales was mainly the
result of the severe downturn in sales volumes.
OPERATING EXPENSES -- OTHER
Other operating expenses amounted to L5 million during the financial year ended
31 March 2002 compared to other income of L74 million in the previous year. The
Group recorded an increase in head office and other central costs which had been
offset in the previous year by income from the sale of trademarks, settlement of
a legal claim and the release of provisions no longer required against
insurance-related liabilities. In addition, there was a charge of L11 million in
respect of share incentive plans compared to a charge of L16 million in the
previous year.
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APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
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--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2002 COMPARED WITH YEAR ENDED 31 MARCH 2001
CORE BUSINESS REVIEW
CORE KEY FIGURES
Year ended
31 March
--------------
2001 2002
----- -----
in L million
Turnover 4,336 2,741
Adjusted gross profit 1,689 599
Adjusted operating profit/(loss) 529 (493)
TURNOVER
The Core business serves a strong global customer base of predominantly
incumbent operators. The ten largest customers of Network Equipment and Network
Services during the year were BT (UK), Bell South (USA), Metro City Carriers
(Germany), Qwest (USA), SBC (USA), Sprint (USA), Telecom Italia (Italy), UK
Ministry of Defence (UK), Verizon (USA), Vodafone-Omnitel (UK, Germany and
Italy). This group of customers accounted for 37 per cent. of Core sales in
2002. BT remains the Group's largest customer and accounted for 14 per cent. of
Core sales in 2002 (2001: 19 per cent.).
CORE ADJUSTED OPERATING LOSS
The Core businesses recorded an adjusted operating loss of L493 million during
the year (2001: adjusted operating profit of L529 million). This substantial
decline was driven by a significant drop in adjusted gross margins caused by the
decline in sales volumes and the Group's inability to restructure its cost base
sufficiently rapidly within the year to offset the speed of the sales decline.
The operating performance year on year declined across all major product
segments but was most marked in Network Equipment.
ANALYSIS BY BUSINESS TYPE
NETWORK EQUIPMENT: SALES
In the year ended 31 March 2002, Network Equipment sales amounted to L1,804
million compared to L3,359 million in the previous year, a decline of L1,555
million or 46 per cent. Sales declined across all major product areas as a
result of the general decline in demand for telecommunications equipment as the
majority of telecom operators significantly reduced their capital spending
budgets in order to focus on their own profitability and cash generation.
Optical Networks
In the year ended 31 March 2002, sales in this predominantly European business
decreased by 47 per cent. to L737 million. The main factor contributing to this
decline was the significant fall in sales of SDH equipment, which accounted for
around 85 per cent. of total Optical Networks sales during the year ended 31
March 2002. SDH sales were predominantly focused on lower-capacity products as
telecom operators sought to maximise utilisation in their existing networks
rather than proceeding with the construction of new networks. Overall, the
underlying decline was broadly in line with the overall industry trend in the
SDH market, but was exacerbated by the phasing of capital expenditure of the
Group's major incumbent customers. These telecommunication network operators
decreased spend more rapidly and ahead of other operators.
During the first half of the year, the six months ended 30 September 2001,
Optical Networks sales decreased by 43 per cent. to L357 million compared to the
first half of the 2001 financial year. The UK market was hardest hit, mainly due
to the significant reduction in spending by UK second operators, although sales
to BT, the Group's largest customer, were also down in the period. Sales of DWDM
equipment were sustained at a comparable level to the second half of the
previous financial year of over L50 million as these products continued to gain
market acceptance following their launch one year previously.
607
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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During the second half of the year to 31 March 2002, Optical Networks sales
decreased by 51 per cent. to L380 million compared to the second half of 2001
financial year. The continued decline in sales of SDH equipment was partially
offset by increased sales of DWDM, which were a result of the first shipments of
this type of equipment to Telecom Italia under the previously awarded exclusive
five year frame contract, and a number of new customer frame contracts including
Vodafone-Omnitel. In addition during this period, the Group made shipments of
ultra-broadband DWDM equipment to BT under the existing five year frame
contract. Given the nature of this contract, revenue relating to ultra-broadband
products will be recognised when the circuits provided by this equipment are
utilised. As none of the circuits provided by this equipment were utilised prior
to 31 March 2002, no revenues associated with these shipments were recognised
during the financial year.
Adverse fluctuations in foreign exchange rates accounted for L9 million of the
overall sales decrease in this product area.
Access Systems
Broadband access sales were flat at L145 million. Network operators, in
particular, Bell South, deferred deployment of next-generation fibre solutions
for economic reasons and instead rolled-out lower volumes of mature access
products such as copper and digital loop carriers, leading to lower sales levels
in these areas. Increasing sales of the Group's Access Hub products and
broadband point-to-point radio systems, particularly to German mobile operators
for use in 2.5G and 3G networks, offset these decreases. First sales of Access
Hubs were also made to Telecom Italia and Telkom South Africa during the year.
Sales in mature access were down equally across OPP, narrowband access products
and voice systems. OPP sales were down to L247 million compared to L465 million
in the previous year as the result of the general slowdown in the market for
equipment, primarily in the United States and Mexico, particularly as a result
of the rapid decline in the North American emerging carrier market. Sales of
other mature access products, including our copper and fibre-based DISC*S access
platform decreased during the first half as a result of capital expenditure
reductions amongst North American incumbent local carriers, particularly Bell
South and Sprint. In voice systems, a predominantly UK-based business, sales
declined because previously awarded contracts reached completion and were not
replaced by new contracts as customers refocused investment away from narrowband
switching installed bases.
BBRS
BBRS sales decreased by L218 million or 51 per cent. to L209 million for the
year ended 31 March 2002. During the first half of the year, sales decreased by
53 per cent. to L113 million and during the second half, sales decreased by 49
per cent. to L96 million. Sales decreased in all major geographic zones.
Overall, two main factors contributed to the sales decline.
Sales to enterprise customers declined substantially in the period, although the
US Federal Government remained the largest single customer of the Group's
broadband switching equipment. This trend reflected the continued impact of the
Group's actions, commenced during the previous financial year, to focus its
technical and commercial resources within the BBRS Business towards customers
requiring carrier-class networks, namely telecommunications service providers
and selected enterprise customers such as governments and armed forces who
require more resilient switching capacity.
Sales to US service providers decreased during the year. Sales to BBRS'
traditional service provider customer base of CLECs and Internet Service
Providers ("ISPs") declined as they reduced their capital spending and were not
replaced as rapidly as the Group had anticipated by sales to established
operators due to capital spending restrictions and the consequent absence of
major new contract wins.
In addition, the Group has historically sold a third party's broadband switching
equipment into the UK market under an original equipment manufacturer's ("OEM")
distribution agreement. Sales under this agreement declined during the year as a
result of reduced customer spending in the UK market and the impact of the
pending termination of this contract during the first half of the financial year
ending 31 March 2002.
608
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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During the first half of the year, the Group made initial shipments of its new
MPLS products and during the second half, the Group's new multi-service core
switch, the BXR 48000, was successfully launched and shipped to the US Federal
Government and BTexact Technologies for field trials.
NETWORK EQUIPMENT: ADJUSTED OPERATING LOSS
Network Equipment incurred an adjusted operating loss of L464 million during the
year, a decline of L906 million, or 205 per cent., for the year ended 31 March
2002 (2001: adjusted operating profit L442 million). Adjusted operating margins
fell to negative 26 per cent. (2001: positive 13 per cent.).
This decline was driven by the substantially reduced adjusted gross margin. This
resulted from the decline in sales recorded during the year, which led to
under-recovery of costs in the supply chain. Contractual annual price reductions
under existing frame contracts, some price erosion on new Optical Networks
orders and an unfavourable business mix also contributed to the decline, but to
a much lesser extent.
The decline in adjusted operating profit during the first half of the year was
mainly due to the significantly reduced sales volumes and the inability of the
Group to adjust its cost base sufficiently rapidly in reaction to this decline.
The reduced sales volumes led to under-utilisation of assets in the supply chain
and manufacturing processes, which the Group addressed and continues to address
through its cost reduction strategy put in place as a result of the operational
review announced in September 2001. Adjusted gross margins were also impacted by
an adverse change in business mix, with the decline of sales of broadband
switching and certain narrowband access products, which have historically
achieved higher than average adjusted gross margins.
Adjusted operating losses increased during the second half impacted by the
continuing reduction in sales volumes as well as some price erosion on certain
new contracts, previously agreed contractual price reductions offered to
customers under existing frame contracts which the Group was unable to offset
with corresponding product cost reductions and the continuing change in business
mix away from higher margin products. Also, during the second half, the Group
incurred a number of one-off marketing costs to terminate previously committed
marketing activities and programmes in order to achieve longer-term cost
savings. R&D costs also increased, particularly in the final quarter of the
year, as a result of the development and launch of key products including the
BXR 48000 and new additions to the Group's range of DWDM products, notably Ultra
Long Haul and Metro DWDM product ranges as well as further development of SDH
technology to produce a more cost effective fourth generation SDH multiplexer.
This increase was partially offset by the scaling back of the Group's access
systems business to focus more on broadband access product lines, notably in
fixed wireless and the recently launched Access Hub high density DSLAM platform.
NETWORK SERVICES: SALES
Sales of Network Services decreased by L47 million, or 5 per cent., to L969
million for the year ended 31 March 2002 (2001: L1,016 million). Excluding the
impact of acquisitions completed since 1 April 2000, such as MSI, APT and
Northwood Technologies, Network Services sales decreased by 7 per cent. The main
driver of this decline was a fall in sales of installation and commissioning
services following the downturn in Network Equipment supply.
IC&M
IC&M sales decreased by 20 per cent. to L528 million during the year ended 31
March 2002. The decrease in installation and commissioning activities relating
to Group products reflected the lower volume of Network Equipment sales. The
decrease was partially offset by an increase in demand for cable installation in
the UK, as well as maintenance services world-wide, as network operators sought
to maximise the utilisation of their existing networks in order to reduce
capital expenditure.
VAS
VAS sales increased by 15 per cent. to L414 million during the year ended 31
March 2002. Excluding the impact of acquisitions, sales increased by 14 per
cent. The major driver of this growth related to the Group's project-based
Integrated Systems activity which serves non-telecom industry sectors such as
government and
609
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
transportation. In particular, sales grew in the UK due to the conclusion of the
London Underground Jubilee Line extension contract, as well as in the Middle
East. During the first half of the year, sales of Wireless Services grew
substantially driven by the increased difficulty for operators to secure new
radio sites and increased demand for wireless network planning consultancy
services as operators maximised efficiency in their existing networks and began
to plan the roll out of 2.5G and 3G networks. This growth was not sustained in
the second half of the year however as a result of delayed 3G network rollouts,
leading to relatively flat sales of Wireless Services for the year as a whole.
NETWORK SERVICES: ADJUSTED OPERATING PROFIT
Network Services adjusted operating profit decreased by L67 million, or 66 per
cent., to L35 million for the year ended 31 March 2002 (2001: L102 million).
Adjusted operating margins fell to 3.6 per cent. from 10 per cent. in the
previous year.
Adjusted operating profit fell across all service activities, but the level of
decline was most substantial in IC&M. This labour-intensive activity saw
significant sales growth in the year ended 31 March 2001 and the operating cost
base, in particular the workforce, was geared up to deal with demand at that
time. During the year ended 31 March 2002, demand for installation and
commissioning activities dropped quarter on quarter following lower Network
Equipment supply orders and this led to under-utilisation of resources in this
area. The Group was unable to reduce costs quickly enough, particularly during
the first half of the financial year, to prevent operating margin erosion.
During the second half, the business began to benefit from the savings achieved
as a result of the Group's cost reduction initiatives, but these were not
sufficient to compensate for the continued decline of Network Equipment sales.
The delay in the deployment of 3G networks by mobile operators, particularly in
the UK, and the change in business mix in the US resulting in a higher
proportion of software sales but a decline in consulting services, also led to
the under-utilisation of resources in the VAS business.
CAPITAL
During the year ended 31 March 2002, Capital sales amounted to L422 million, a
decrease of L157 million, or approximately 27 per cent., compared to sales of
L579 million in the previous year. Of this decrease, the disposal of certain
businesses within the year accounted for a L44 million decrease, while the
non-recurrence of sales by businesses disposed in the year ended 31 March 2001
accounted for a further L84 million decrease. The remaining decrease was
accounted for in other elements of the Capital business.
In February 2002, the Group completed the disposal of the Marconi Optical
Components business to Bookham Technology plc in exchange for approximately 9
per cent. of the new enlarged issued share capital of Bookham Technology plc.
GROUP REVIEW -- OTHER FINANCIAL ITEMS
YEAR ENDED 31 MARCH 2002 COMPARED WITH YEAR ENDED 31 MARCH 2001
EXCEPTIONAL ITEMS
OPERATING EXCEPTIONALS
For the year to 31 March 2002, exceptional items charged to Group operating loss
(excluding joint ventures and associates) totalled L5,210 million. Of this
amount, L830 million was charged against gross profit and L4,380 million against
operating expenses. This had the effect of reducing the Group's gross profit
(excluding share of joint venture gross profit) to L227 million and increasing
the Group's operating loss to L6,115 million.
This was made up of a L3,831 million charge to write-down goodwill and tangible
fixed assets, a L672 million increase in provisions for slow-moving and obsolete
stock and related charges, restructuring and reorganisation charges totalling
L482 million relating to the Group's on-going rationalisation programme
including charges for headcount reductions, and exceptional IT spend of L75
million. There was also a charge of L150 million to increase doubtful debt
provisions (of which L148 million was charged during the first half and a
further L2 million during the second half).
610
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Goodwill and tangible fixed asset write-down
The carrying values of goodwill and tangible fixed assets were assessed in the
year to 31 March 2002. This assessment was undertaken in line with the Group's
accounting policies and in the light of the declining industry and economic
trends prevalent during the year. The assessment measured the amount by which
the carrying values of the goodwill and tangible fixed assets exceeded the
present value of expected future cash flows from operations. The declining
industry and economic trends and more conservative assessment of future growth
prospects of acquired businesses led to Corp's decision to write down the value
of historical goodwill and tangible fixed assets by L3,831 million (of which
L3,493 million was charged during the first half of the year and L338 million
during the second half). This charge comprises L3,677 million to write-off
purchased goodwill and L154 million for the impairment of tangible fixed assets.
The L3,677 million impairment charge in the year was predominantly against FORE
Systems (L1,980 million), RELTEC Corporation (L748 million), MSI (L353 million)
and Mariposa Technologies, Inc. (L166 million). The remaining L430 million was
against several other acquisitions completed in previous years.
Stock provisions
For the year ended 31 March 2002, the Group increased provisions for slow-moving
and obsolete stock and related charges by L672 million. Of this total amount,
L518 million was charged during the first half of the year and L154 million
during the second half. The decision to record these charges was made as a
consequence of the more uncertain sales outlook, predominantly in relation to
optical networking products as well as the Group's decision to scale-back
certain product lines. L91 million of the total charge related to charges for
onerous supplier commitments, of which L51 million was paid out during the year.
Restructuring and reorganisation charges
During the year ended 31 March 2002, the Group incurred an exceptional charge of
L482 million (L342 million during the first half and L140 million in the second
half) mainly in relation to the actions and initiatives undertaken to
restructure and reorganise the Group operationally as a result of the sudden and
significant downturn in trading in the global telecommunications markets.
L127 million of the total represented additional costs incurred as a consequence
of the Group's decision to outsource certain manufacturing operations to Jabil
Circuit, Inc. Under the terms of the agreement, the Group made payments of L77
million during the financial year, provided L19 million against stock with L31
million expected to be paid in the future. This was charged to gross profit as
part of the overall charge of L830 million.
L31 million of the total charge was taken in respect of onerous contracts and
represents certain liabilities to which the Group is committed as a result of
the operational restructuring. This included liabilities relating to equipment
leasing contracts and supply contracts under which the Group had previously
agreed to purchase minimum volumes of goods and services which will offer no
economic value to the business as a result of its reduced size. This was also
charged to gross profit as part of the overall charge of L830 million.
Restructuring costs relating to employee severance associated, in particular,
with voluntary redundancy payments for approximately 10,000 employees amounted
to L239 million during the financial year. The Group made cash payments of L207
million during the year. The balance of L30 million accrued at 31 March 2002 was
to cover severance payments to approximately 700 employees, predominantly in the
UK and Germany, who had volunteered for redundancy prior to the year end but
whose leaving dates fall in the current financial year to 31 March 2003.
A charge of L40 million was taken in respect to site rationalisation and
reflected the costs associated with the closure and consolidation of various
Group sites around the world.
Other restructuring costs of L45 million related to various other costs and
contractual commitments associated with the Group's restructuring programme.
611
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Other exceptional items
During the financial year, the Group planned and began to implement a new global
IT system. In the light of the revised trading outlook and the Group's continued
focus on cost reduction, the systems implementation was terminated. L75 million
of the total charges for restructuring and reorganisation represented costs
associated with other systems implementation and related costs, L43 million in
relation to capitalised external consultancy costs, L24 million of hardware and
software costs expensed during the year and L8 million of other associated
project costs.
NON-OPERATING EXCEPTIONALS
The Group incurred non-operating exceptional charges of L638 million during the
year ended 31 March 2002.
Gain on disposal of subsidiaries and other fixed assets
During the year ended 31 March 2002, the Group recorded an overall net gain of
L347 million in relation to gains on disposal of subsidiaries and other fixed
assets and investments.
L358 million of this gain related to the disposal of the discontinued operations
Medical Systems, Data Systems and Commerce Systems.
The Group's continuing operations incurred a net loss of L11 million on the
disposal of fixed assets and investments. Gains on disposals of property and the
Group's investments in Lottomattica S.p.A., GDA, Siemens Telecommunications Pty
Limited and other assets and investments amounted to L189 million. This was more
than offset by losses on the sale of the Marconi Optical Components business and
write-downs on the value of some of the Group's investments, including
NetDecisions Holdings Limited, Easynet Group Plc and Atlantic Telecom Group Plc.
Release of provisions relating to share options
At the time of the demerger of the Group's defence and electronics business to
BAE SYSTEMS plc (formerly British Aerospace plc), the Group set up a
non-operating profit and loss account provision of L633 million relating to
share option schemes, L7 million of which was utilised in prior years. L247
million was recorded in shares to be issued within equity shareholders' funds
and L386 million within provisions. At 31 March 2002, L291 million of this
provision had been released as a non-operating exceptional item, reflecting the
Group's view that the market price of its shares will not reach the trigger
price of the options within the specified timeframes. L247 million of the
release related to the Marconi Launch Share Plan and L44 million to other share
option schemes. At 31 March 2002, gross provisions of L374 million remained on
the balance sheet to cover the Group's share hedging arrangements. Collateral
payments of L214 million made during the year were offset against this amount.
INTEREST AND FINANCE INCOME
In the twelve months to 31 March 2002, the Group's net interest charge was L244
million (2001: L150 million). The interest charge increased as a function of the
Group's higher net debt position.
In the year to 31 March 2002, net finance income fell to L34 million from L41
million in the previous year.
TAXATION
The tax credit on ordinary activities before goodwill amortisation and
exceptional items was L21 million in the reporting period, compared with a
charge of L195 million in the corresponding period in the prior year. The net
tax charge on exceptional items was L231 million.
The Group paid L13 million in relation to tax, after hedging. This comprised
L110 million net tax repayments, offset by payments of L123 million related to
tax on foreign exchange rate movements. For the year ended 31 March 2001, the
comparable amounts were L137 million of tax payments and L33 million of receipts
related to tax on foreign exchange rate movements.
612
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Deferred tax assets of L596 million (2001: L147 million) were not recognised in
respect of operating losses, pension scheme deficits and exceptional expenditure
as the Group was not sufficiently certain that it would be able to recover those
assets within a relatively short period of time.
GOODWILL AMORTISATION
The total Group goodwill amortisation charge for the year decreased to L433
million (2001: L673 million) of which L350 million was incurred in the first
half and L83 million in the second half. This decrease is a result of the
reduced carrying value of goodwill following the exceptional goodwill impairment
discussed under "Goodwill and tangible fixed asset write-down" above.
EARNINGS PER SHARE
Basic and diluted loss per share, which reflects goodwill amortisation and
exceptional items, was 607.6 pence (2001: 27.5 pence).
The loss per share excluding exceptional items and goodwill amortisation was
65.4 pence compared to earnings per share of 45.6 pence in 2001.
31 MARCH 2002 -- FINANCIAL CONDITION
BALANCE SHEET
As at 31 March 2002, net liabilities before net retirement benefit deficits
stood at L1,890 million compared to net assets before net retirement benefit
surpluses of L4,314 million at 31 March 2001. The main contributing factor to
this decrease was the write-down of goodwill and other operating and
non-operating exceptional items, offset by the release of provisions for shares
to be issued and the gains on disposals of businesses, investments, land,
property and other assets; as discussed above. Other contributing factors
included the Group's operating loss, interest costs and currency movements.
NET (LIABILITIES)/ASSETS
As at 31 March 2002, the Group had net current liabilities of L756 million,
including drawings of approximately L2.2 billion under the Group's bank credit
facility which has been placed on demand in the context of the Group's proposed
Restructuring, and around L260 million drawn under bilateral arrangements.
WORKING CAPITAL
Stocks and contracts in progress reduced by approximately L1 billion during the
year ended 31 March 2002. Of this amount, approximately L760 million related to
the Core businesses and L230 million to discontinued operations. In the Core,
stocks and contracts in progress were reduced by approximately L520 million as a
result of net provision movements. The balance of the reduction was achieved
through normal trading following the Group's improved management of the supply
chain process and better integrated planning between sales and operations.
Group debtors decreased by approximately L1.2 billion during the year ended 31
March 2002. Of this amount, approximately L710 million related to the Core
businesses and L430 million to discontinued operations. In the Core businesses,
the main driver of the reduction in debtors was the reduced trading volumes
experienced during the year. Net debtor provision movements accounted for
approximately L107 million. During the first half of the year, debtor days in
the Core businesses increased from 89 days net at 31 March 2001 to 104 days net
at 30 September 2001. This was mainly the result of difficult trading
conditions. During the second half, the Group focused on cash collection and
made significant improvements in the management of overdue debts, leading to a
reduction in Core debtor days to 103 days net (excluding the impact of the
one-off sale of SDH inventory to BT) by March 2002. The increase year on year
was due to the negative impact of a higher proportion of Southern European
sales, where payment terms are typically longer.
Trade, other creditors and accruals reduced by approximately L1.0 billion during
the year ended 31 March 2002. Of this reduction, approximately L350 million
related to the Core businesses and L350 million to discontinued
613
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
operations. The balance related to non-Core activities and other business
disposals not considered discontinued operations. The reduction in the Core
businesses was mainly due to the reduced trading volumes experienced during the
year. Creditor days in the Core businesses reduced to 54 days (after adjusting
for the exclusion of the one-off impact of the sale of SDH inventory to BT in
the final quarter of the year ended 31 March 2002) at 31 March 2002 from 64 days
at 31 March 2001. This was mainly due to the increased proportion of outsourced
manufacturing in Europe and North America, where payment terms stand at 30 days.
PROVISIONS
Provisions for liabilities and charges decreased by L209 million to L505 million
at 31 March 2002.
Of the decrease, L263 million related to movements in share option provisions,
L214 million of which was in respect of cash paid to collateralise the Group's
obligations under share hedging arrangements and L44 million to the release of
provisions, accounted for as a non-operating exceptional item. The balance of
the movement related to L31 million of provisions utilised or released against
share options issued to employees at the time of previous acquisitions, offset
by accrued interest on the Group's share hedging arrangements and other charges
of L26 million.
Reorganisation and restructuring provisions increased, after amounts spent in
the period, by a net L50 million. Other provisions decreased by a net L14
million. The majority of the Group's rationalisation programmes were treated on
a cash basis, with costs charged to the profit and loss account as the cost was
incurred. However, provisions for restructuring were created to cover those
parts of the Group's rationalisation programme, mainly in Germany and the UK,
where as at 31 March 2002, individuals had been identified to leave the Group
during the course of the current financial year.
VENDOR FINANCE
As at 31 March 2002, the Group had vendor finance commitments of approximately
L100 million ($142 million), of which L58 million ($82 million) had been drawn.
In addition, the Group provided a $90 million (L63 million) counter-indemnity to
Koninklijke Philips Electronics N.V. relating to the sale of Marconi Medical
Systems, Inc. Approximately L29 million was paid out against this indemnity
during the year to 31 March 2002.
Management does not intend to extend any significant further financing using the
Group's own funds. Instead, through its in-house vendor finance specialists, it
will continue to provide innovative and structured financing solutions for its
customers through third party financing institutions.
NET DEBT
Net debt at 31 March 2002 was reduced to L3,335 million from L3,782 million at
31 March 2001. At 31 March 2002, net debt comprised cash and liquid resources of
L1,361 million, gross debt of L4,696 million, and net L81 million (2001: L474
million) owed to plc and subsidiaries of plc.
The gross debt at 31 March 2002 included L2.1 billion in Bonds (2001: L2.2
billion) with a principal of $1.8 billion, and approximately L260 million in
drawings under local bilateral bank agreements.
YEAR ENDED 31 MARCH 2002 -- CASH FLOW
ADJUSTED OPERATING CASH FLOW
After capital expenditure of L361 million (2001: L578 million), the Group
incurred an adjusted operating cash outflow of L351 million for the year ended
March 2002 (2001: L645 million). This was predominantly driven by the Group's
adjusted operating loss of L463 million, offset by an improvement in working
capital of L239 million. Following a L533 million cash outflow after capital
expenditure during the first half of the year, the Group generated positive
operating cash flow of L182 million during the second half. This excluded
proceeds of L116 million from the sale of properties. This sequential
improvement resulted mainly from the Group's increased focus on cash collection
from debtors and improved management of overdue debt, as well as from increased
utilisation of inventory.
614
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Net capital expenditure and financial investment amounted to L196 million for
the year ended 31 March 2002.
Total capital expenditure in the Group decreased by L217 million, or 38 per
cent., to L361 million for the year ended 31 March 2002.
In line with the Group's strategy of reducing capital expenditure to the level
of depreciation, capital expenditure in the Core businesses decreased during the
year. The main focus of this expenditure related to equipment for participation
in technology trials with key customers and test equipment which supports on
going research and development activity, the purchase of software licences as
part of the Group's planned implementation of a new IT system and expenditure
related to site and facility developments. The software licences were
subsequently written off as the implementation of the IT project was terminated.
Financial investments represented a net cash outflow of L8 million and included
L214 million of collateral payments paid under the Group's share option related
hedging arrangements, L24 million repurchase of shares to satisfy the Group's
obligations under option schemes relating to various previously acquired
companies, and other fixed asset investments of approximately L70 million,
including the Group's investment in Confirmant Limited, a joint venture with
Oxford GlycoSciences. This was offset by some L320 million proceeds from the
sale of the Group's remaining interests in Alstom SA and other smaller financial
investments, including Lagardere SCA and Lottomatica S.p.A.
ACQUISITIONS AND DISPOSALS
Net cash inflows relating to acquisitions and disposals amounted to L995 million
for the year ended 31 March 2002. This comprised approximately L1.4 billion net
cash proceeds from the disposal of businesses, including Marconi Medical
Systems, Inc., Marconi Commerce Systems Group and Marconi Data Systems Group,
and the Group's 50 per cent. stake in GDA, which were offset by cash outflows
relating to the demerger of ipsaris Limited into Easynet Group Plc, the creation
of Ultramast Limited, a joint venture with Railtrack Telecom Services Limited
and other smaller acquisitions.
EXCEPTIONAL CASH FLOWS
The Group incurred operating exceptional cash costs of L368 million during the
year, related mainly to restructuring and rationalisation, including costs
associated with the Group's manufacturing outsourcing programme, and the
implementation of a new information technology system (which was subsequently
terminated).
Other cash flows relate primarily to interest, dividends and tax.
615
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
YEAR ENDED 31 MARCH 2001 COMPARED WITH YEAR ENDED 31 MARCH 2000
GROUP REVIEW
GROUP TURNOVER BY SEGMENT
Year ended
31 March
--------------
2000 2001
----- -----
in L million
Network Equipment 2,583 3,359
Network Services 543 1,016
Other (including intra-activity sales) (10) (39)
----- -----
Core 3,116 4,336
Capital 737 579
----- -----
Continuing Operations 3,853 4,915
Discontinued Operations 1,871 2,027
----- -----
Group 5,724 6,942
===== =====
CONTINUING OPERATIONS
Core sales increased from L3,116 million by L1,220 million to L4,336 million or
by 39 per cent., 77 per cent. (2000: 83 per cent.) of these sales were in
Network Equipment and 23 per cent. (2000: 17 per cent.) in Network Services.
Capital sales fell by L158 million, or 21 per cent., to L579 million for the
year ended 31 March 2001 (2000: L737 million) due principally to the disposals
of Avery Berkel and parts of the Group's Marconi Software Solutions business.
DISCONTINUED OPERATIONS
Sales in discontinued operations increased by L156 million, or 8 per cent., to
L2,027 million (2000: L1,871 million).
TURNOVER BY GEOGRAPHY
2000 2001
-------------- --------------
% of % of
L Total L Total
----- ----- ----- -----
L million
United Kingdom 1,506 26 1,777 26
The Americas 2,359 41 2,852 41
Rest of Europe 1,234 22 1,677 24
Africa, Asia and Australia 625 11 636 9
----- ----- ----- -----
5,724 100 6,942 100
===== ===== ===== =====
Total revenues increased by L1,218 million, or 21 per cent., to L6,942 million
in the year to 31 March 2001 compared to the year to 31 March 2000.
The increase in revenues in the UK (up by L271 million) and Rest of Europe (up
by L443 million) in the year to 31 March 2001 compared to the year to 31 March
2000, was primarily the result of like-for-like increases in sales of optical
networks and network services products and the effect of acquisitions,
principally the full-year effect of the acquisition of the public networks
business of Bosch.
616
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
GROUP ADJUSTED OPERATING PROFIT/(LOSS) BY SEGMENT
Year ended
31 March
------------
2000 2001
---- ----
in L million
Network Equipment 415 442
Network Services 71 102
Other (including intra-activity sales) (23) (15)
---- ----
Core 463 529
Capital 56 1
---- ----
Continuing Operations 519 530
Discontinued Operations 210 224
---- ----
Group 729 754
==== ====
The Group generated an adjusted operating profit of L754 million, comprising an
adjusted operating profit of L530 million contributed by its continuing
operations and an adjusted operating profit of L224 million by its discontinued
operations. This compares to a Group adjusted operating profit of L729 million
in the year ended 31 March 2000.
Continuing Operations
Core adjusted operating profit amounted to L529 million, an increase of L66
million, or 14 per cent., compared to an adjusted operating profit of L463
million recorded in the previous year.
Adjusted operating profit in the Network Equipment business increased in the
Group's optical networks and access systems equipment businesses, mainly as a
result of the increase in revenues. Within the Group's broadband switching and
other networks businesses, adjusted operating profit was reduced by a number of
factors: a reduction in like-for-like revenues, increased expenditure in the
areas of selling, marketing and global advertising and an increase in the level
of research and development expenditure.
In the Network Services business, adjusted operating profit increased due to
growth in like-for-like revenues, offset in part by higher overheads to support
the rapid expansion. Adjusted operating profit in the Capital business decreased
as the result of the disposal of businesses and the decreased profit performance
of the division's emerging and mature businesses.
Discontinued Operations
Adjusted operating profit in discontinued operations increased by L14 million or
by 7 per cent. to L224 million (2000: L210 million).
SEGMENTAL ANALYSIS
Network Equipment
In the year ended 31 March 2001, Network Equipment sales amounted to L3,359
million, an increase of L776 million, or 30 per cent., compared to sales of
L2,583 million recorded in the previous year. Sales increased across all major
product areas and was particularly marked in Optical Networks and in the Group's
Access businesses as telecom operators increased their spending on these types
of equipment to augment the capacity of their existing networks or to deploy new
networks. In Optical Networks, sales growth was driven mainly by increased
volumes of SDH products, particularly in the UK, as well as initial shipments to
European customers of the Group's new range of DWDM products, which was launched
during the first half of the year. Increased sales in the Group's access
businesses was driven by increased volumes of OPP equipment in the US and fixed
wireless access products in Europe. Sales of broadband switching equipment
remained flat as a result of the
617
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
combination of reduced sales to enterprise customers, offset by the full year
effect of the acquisition of FORE Systems in the previous year and a foreign
exchange translation gain due to the strengthening of the US dollar against
sterling.
Network Equipment adjusted operating profit increased by L27 million, or 7 per
cent., to L442 million for the year ended 31 March 2001. Adjusted operating
margins fell to 13 per cent. from 16 per cent.
The decline in adjusted operating margins was due to the higher level of R&D
expenditure funded directly by the Group as a percentage of sales and increased
selling and marketing expenditure as a percentage of sales.
Network Services
Network Services sales increased by L473 million, or 87 per cent., to L1,016
million in the year ended 31 March 2001. The effect of the acquisitions of MSI,
APT and SMS completed during the year and the full year effect of the
acquisition of Bosch Public Networks in the previous year accounted for L201
million of this sales growth. Excluding the effect of these acquisitions, sales
growth was driven primarily by higher demand for network planning and build
services from European incumbent operators. A number of new contracts were won
during the year including a contract for the design, installation and
maintenance of communications for the West Coast Main Line in the UK, a contract
for electronic traffic monitoring and control for Texas Department of
Transportation and network design and configuration services for North Kansas
City Hospital, both in the US. In addition, during the period, the Group entered
the market for managed services with contracts for BT Ignite Nederland and
Jersey Telecom.
Adjusted operating profit in Network Services increased by L31 million, or 44
per cent., to L102 million for the year ended 31 March 2001 (2000: L71 million).
Adjusted operating margins decreased to 10 per cent. (2000: 13.1 per cent.).
The increase in Network Services' adjusted operating profit was due to the
increased sales in this segment, partially off-set by higher overheads to
support the rapid expansion of the Group's service activities. The acquisition
of businesses with lower adjusted operating profit margins led to the erosion of
the margin in the period.
YEAR ENDED 31 MARCH 2001 COMPARED WITH YEAR ENDED 31 MARCH 2000
GROUP REVIEW -- OTHER FINANCIAL ITEMS
EXCEPTIONAL ITEMS
OPERATING EXCEPTIONALS
In the year ended 31 March 2001, the Group incurred net restructuring and
reorganisation costs of L32 million relating to a charge for voluntary
redundancy schemes and one-off restructuring costs of L65 million, partially
offset by favourable settlements of contract commitments of L33 million.
NON-OPERATING EXCEPTIONALS
Gains on disposals of subsidiaries and other fixed asset investments of L89
million included the disposal of part of the Alstom Holding, Avery Berkel Group
and Woods Air Movement. Amounts written off investments of L110 million related
to the reduced market valuations of fixed asset investments. Other separation
receipts of L20 million represented a further settlement received in relation to
the MES transaction in the year.
INTEREST AND FINANCE INCOME
Net finance income increased from L32 million to L41 million or by 28 per cent.
TAXATION
The tax charge on loss on ordinary activities before goodwill amortisation and
exceptional items amounted to L195 million (2000: L196 million). The net charge
on goodwill amortisation and exceptional items was
618
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
L17 million, compared to a credit of L198 million in the prior year that
crystallised as a result of the MES Transaction.
The Group paid L137 million in relation to tax, compared to L114 million in the
year ended 31 March 2000. L74 million (2000: L111 million) was paid in the UK
and L63 million (2000: L3 million) overseas.
Deferred tax assets of L147 million (2000: L166 million) were not recognised in
respect of operating losses, retirement benefit scheme deficits and exceptional
expenditure as the Group was not sufficiently certain that it would be able to
recover those assets within a relatively short period of time.
GOODWILL AMORTISATION
Goodwill amortisation reduced from L765 million to L673 million or by 12 per
cent. This was due primarily to the one-off impact in the year ended March 2000
of writing off in-process research and development arising in the newly acquired
FORE Systems and RELTEC Corporation.
EARNINGS/(LOSS) PER SHARE
Basic and diluted loss per share, which reflects goodwill amortisation and
exceptional items, was 27.5 pence (2000: earnings per share of 56.8 pence).
Earnings per share excluding exceptional items and goodwill amortisation was
45.6 pence compared to earnings per share of 49.7 pence in the prior year.
31 MARCH 2001 -- FINANCIAL CONDITION
NET ASSETS
As at 31 March 2001, the Group had net assets before net retirement benefit
surpluses of L4,314 million, compared to L4,420 million at 31 March 2000.
During the period, there was a L1 billion increase in the value of goodwill,
largely due to the Group's acquisitions, which included MSI, Mariposa
Technology, Inc., Systems Management Specialists, Inc., Splice Transmissao S.A.
and Albany Partnership Limited, and a L0.8 billion increase in the value of
stocks and contracts in progress. These increases were offset by an
approximately L1 billion reduction in fixed asset investments, predominantly due
to the flotation of Alstom, the disposal of part of the Group's investment in
Lagardere SCA, the write-down of the Group's investment in Atlantic Telecom
Group plc, and an approximately L1.1 billion increase in the Group's net debt
balance.
WORKING CAPITAL
Stocks and contracts in progress increased by L775 million during the year ended
31 March 2001. Of this increase, the majority related to the Core businesses,
with the balance being attributable to discontinued operations. Within the Core
businesses, the increase in the levels of stock was in response to the
significant increase in sales volumes experienced in the year to 31 March 2001
which, at the time, was expected to continue into the following financial year.
Group debtors increased by approximately L532 million during the year ended 31
March 2001. The majority of this increase related to the Core businesses, with
the balance being attributable to discontinued operations. The increase in
debtors in the Core businesses was due predominantly to the increase in sales
experienced during the period.
Trade, other creditors and accruals increased by approximately L370 million
during the year ended 31 March 2001. Of this increase, the majority related to
disposed and discontinued operations, with the remainder relating to the Core
businesses.
619
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
PROVISIONS
Provisions for liabilities and charges increased by L21 million to L714 million
during the year ended 31 March 2001.
The slight increase in the provisions balance was the result of a L46 million
increase in share option provisions, which was partially offset by a reduction
in the reorganisation and restructuring and other provisions. The L46 million
increase in the share option provision was primarily the result of issuing share
options in respect of businesses acquired during the period, including MSI and
Mariposa Technology, Inc.
NET DEBT
Net debt increased by L1,089 million to L3,782 million in the year to 31 March
2001. At 31 March 2001, net debt comprised cash and liquid resources of L369
million (2000: L624 million), gross debt of L3,677 million (2000: L3,317
million) including amounts owing to plc and subsidiaries of plc which are not
subsidiaries of Corp, of L474 million (2000: L548 million).
The gross debt at 31 March 2001 included L2.2 billion in Bonds (2000: L894
million), which represented an increase on the previous financial year following
the issue of two unsecured US dollar bonds with principal amounts of $1.8
billion and L1,014 million of drawings under the E7 billion multi-currency
revolving syndicated credit facilities.
As a result of the movement in foreign exchange rates from 31 March 2000 to 31
March 2001, the value of net debt increased by L256 million in the year.
CASH FLOW
ADJUSTED OPERATING CASH FLOW
After capital expenditure of L578 million (2000: L305 million), the Group
incurred an adjusted operating cash outflow of L645 million (2000: L411 million
inflow).
The reduction was due to the increase in working capital, particularly in stock
and debtors, and the increase in capital expenditure, which was largely a result
of the growth of the business. The increase in inventory was a result of the
build-up of optical components in advance of scheduled new product deployments
and the expected increased sales volumes in the 2002 financial year.
ACQUISITIONS AND DISPOSALS
Cash outflows related to acquisitions and disposals, including the non-operating
exceptional cash flows related to the merger/demerger of MES, decreased from
L3,974 million in the year ended 31 March 2000 to L658 million in the year ended
31 March 2001. In the year ended 31 March 2001 the outflow of L658 million was
due to the various acquisitions made during the year, including MSI, Mariposa
Technology, Inc., Systems Management Specialists and Albany Partnership Limited,
with a further L56 million representing further settlements of the amounts in
respect of the merger/demerger of GEC's defence business with BAE SYSTEMS plc
(the "MES Transaction") in March 2000. In the year ended 31 March 2000, the
outflow of L3,974 million was largely due to our acquisitions of FORE Systems
and RELTEC Corporation, along with relatively smaller outflows in respect of the
Bosch Public Networks Division and the SDH and DWDM manufacturing business of
Nokia. This was offset by a L1,386 million inflow in relation to the MES
Transaction, which represented dividends and other cash receipts from those
businesses separated.
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Net capital expenditure and financial investment for the year was an outflow of
L34 million compared to an outflow of L394 million in the year ended 31 March
2000.
Total capital expenditure in the Group increased by L273 million, or 89.5 per
cent., to L578 million for the year ended 31 March 2001.
620
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 5: CORP'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Net financial investment amounted to L527 million of which L629 million was
realised on the disposal of part of the Group's stake in Alstom, which was
offset by the purchase of NetDecisions and other smaller investments.
DIVIDENDS
The Group paid no dividends in the year to 31 March 2001 compared to L349
million in the year to 31 March 2000. This outflow was paid out to fellow
subsidiaries of plc outside the Corp Group.
Other cash flows related primarily to tax and interest.
621
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 6
INSOLVENCY ANALYSIS
1.1 PURPOSE OF THE INSOLVENCY ANALYSIS
The purpose of this Appendix is to assist Scheme Creditors of either Corp
and/or plc in determining whether to accept the proposals set out in the
Explanatory Statement. The insolvency analysis sets out a comparison
between the position that would be likely to face Scheme Creditors if plc
and Corp were to go into administration as at 30 April 2003 and the
position under the proposed Schemes, to enable Scheme Creditors to decide
whether to vote in favour of the proposed Schemes.
Each Scheme Creditor must make up its own mind whether the Relevant
Scheme operates to its benefit. Each Scheme Creditor should, in
particular, consider whether the certain and immediate payment (in the
form of cash, notes and equity) that it might receive under the Relevant
Scheme would be better than a dividend arising from an administration or
liquidation of plc or Corp.
Scheme Creditors are invited to read carefully the significant
limitations and uncertainties set out in section 1.5 below.
1.2 WHY VOTE FOR THE SCHEMES?
If the Restructuring is not approved, the nature of the Group's financial
position is such that Corp and plc would have no reasonable prospect of
avoiding insolvency proceedings. Corp and plc strongly believe that,
given the Group's financial position, the proposed Restructuring is in
the best interests of all stakeholders, including Scheme Creditors and
plc Shareholders.
A KEY BENEFIT OF THE SCHEMES IS TO AVOID THE SERIOUS AND INEVITABLE
UNCERTAINTY AND DELAY WHICH WOULD ARISE IN INSOLVENCY PROCEEDINGS FOR
BOTH UNSECURED CREDITORS AND SECURED CREDITORS (ASSUMING THE INTERIM
SECURITY HAS NOT BEEN RELEASED).
CORP AND PLC BELIEVE THAT THE SCHEMES ARE MORE BENEFICIAL TO SCHEME
CREDITORS THAN AN INSOLVENCY PROCEEDING OR ENFORCEMENT OF SECURITY AND
SHOULD RESULT IN A BETTER RETURN, GREATER CERTAINTY AND AN IMMEDIATE DAY
ONE DISTRIBUTION TO SCHEME CREDITORS. NONE OF THESE BENEFITS WOULD BE
POSSIBLE UNDER THE INSOLVENCY ALTERNATIVES.
1.3 WHAT HAPPENS IF THE SCHEMES ARE APPROVED AND BECOME EFFECTIVE?
If the Schemes are approved and become effective, each Scheme Creditor
that participates in the First Initial Distribution will be entitled to
receive for each L1,000,000 of Admitted Scheme Claim, an Initial
Distribution of cash, New Notes and New Shares of approximately the
amounts set out in Table 1 below:
622
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 6: INSOLVENCY ANALYSIS
--------------------------------------------------------------------------------
TABLE 1 -- ILLUSTRATIVE FIRST INITIAL DISTRIBUTION FOR EACH L1,000,000 OF
ADMITTED SCHEME CLAIM
CORP AND PLC
-----------------
CORP PLC Illustrative
--------------------------- --------------------------- aggregate
L equivalent L equivalent estimated %
in aggregate in aggregate recovery for
principal principal Admitted Scheme
amount/number Estimated amount/number Estimated Creditors of both
of New Shares % recovery of New Shares % recovery Corp and plc
------------- ---------- ------------- ---------- -----------------
Cash L 64,196 6.42% L 9,446 0.94% 7.36%
New Senior Notes (at
par) L 85,022 8.50% L 14,554 1.46% 9.96%
New Junior Notes (at
par) L 58,177 5.82% L 9,959 1.00% 6.82%
Number of New Shares 187,993 See Table 2 32,182 See Table 2 See Table 2
For the purpose of the above calculation, Known Claims that are
denominated in a currency other than sterling and the New Junior Notes
that will be issued by reference to a US dollar amount have been converted
at the Voting Rate. The final calculations will be made at the Scheme Rate
(which will be set five Business Days before the Effective Date).
CASH
The cash element of the distribution will be increased by the net proceeds
of any asset disposals, other than up to L82 million of excluded asset
disposal proceeds, received on or after 1 December 2002 and before 1 May
2003. The aggregate principal amount of the New Junior Notes will be
decreased by 10/11ths of the sterling amount by which the cash element is
increased.
NEW NOTES
The New Senior Notes will bear interest from their issue date at a per
annum rate of 8 per cent. payable quarterly in cash on each 15 January, 15
April, 15 July and 15 October, commencing 15 July 2003. The New Junior
Notes will bear interest from their issue date at a per annum rate of 10
per cent. payable quarterly in cash or, at Corp's option, at a per annum
rate of 12 per cent. payable quarterly in kind (by issuing additional New
Junior Notes to the holders of New Junior Notes) on each 31 January, 30
April, 31 July and 31 October, commencing 31 July 2003. On the first
interest payment date for the New Notes, Corp will pay, in addition to
accrued interest on the outstanding principal amount of the New Notes, an
amount per New Note equal to the amount of interest that would have been
accrued on New Notes if the New Notes had been outstanding for the period
from 1 May 2003 to the issue date of the New Notes.
All of the outstanding New Notes may be redeemed at Corp's option in
whole, but not in part, at any time at a redemption price in cash equal to
the greater of (i) 110 per cent. of their principal amount, and (ii) a
make-whole amount equal to the sum of the present values of remaining
scheduled payments of principal and interest, using a discount rate that
is 50 basis points above the yield on US treasuries of similar maturity to
the New Senior Notes and New Junior Notes, as applicable, plus, in each
case, accrued and unpaid interest.
The New Notes are subject to mandatory early redemption in certain
circumstances. The New Notes must be redeemed prior to their stated
maturity in whole or in part using the proceeds from the Mandatory
Redemption Escrow Account, which is an escrow account to be established
for redemption of the New Notes into which Corp will be required to
deposit from time to time:
623
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 6: INSOLVENCY ANALYSIS
--------------------------------------------------------------------------------
(a) releases to, or upon the order or instructions of, Corp or its
subsidiaries of certain cash collateral or security for performance
bonding (as described in more detail in Section 2, Part D.4); and
(b) all net proceeds of asset sales received on or after 1 May 2003,
other than up to L82 million of net proceeds from disposals of
certain exempt specified assets and, if there are no New Junior
Notes outstanding, proceeds reinvested in the non-US core business
within specified time periods.
Corp will apply amounts in the Mandatory Redemption Escrow Account to
redeem first the New Junior Notes and then, under certain circumstances,
the New Senior Notes, in each case at a redemption price in cash of 110
per cent. of their principal amount plus accrued and unpaid interest.
In addition, in the event of either a Change of Control of Corp or the
merger, consolidation or sale of all or substantially all the assets of
Corp and its subsidiaries, taken as a whole, all of the New Notes must be
redeemed in whole, but not in part, at a redemption price in cash equal to
the greater of (i) 110 per cent. of their principal amount, and (ii) a
make-whole amount equal to the sum of the present values of remaining
scheduled payments of principal and interest, using a discount rate that
is 50 basis points above the yield on US treasuries of similar maturity to
the New Senior Notes and New Junior Notes, as applicable, plus, in each
case, accrued and unpaid interest.
CORP BELIEVES THAT INTEREST AND REDEMPTION (OPTIONAL AND MANDATORY)
PAYMENTS WILL BE MET IN FULL AND ON TIME. CORP INTENDS TO REDEEM THE NEW
NOTES AS QUICKLY AS POSSIBLE.
THE VALUE OF THE NEW NOTES REFERRED TO ABOVE ARE SHOWN AT NOMINAL (FACE)
VALUE FOR ILLUSTRATIVE PURPOSES AND SHOULD NOT BE TAKEN AS A GUIDE TO WHAT
MARKET VALUES MAY BE ACHIEVED ONCE THE SCHEMES BECOMES EFFECTIVE.
DETAILS OF THE RISKS RELATED TO OWNERSHIP OF THE NEW NOTES ARE SET OUT IN
SECTION 2, PART F.4.
NEW SHARES
There is currently no public trading market for the New Shares. In
addition, there can be no assurance as to the development or liquidity of
any market for the New Shares. FURTHER DETAILS OF THE RISKS RELATING TO
OWNERSHIP OF THE NEW NOTES ARE SET OUT IN SECTION 2, PART F.4.
In light of the risks referred to above it is not possible for Corp or plc
to assign a value to the New Shares referred to in Table 1 above. Scheme
Creditors will therefore need to determine for themselves, based on the
information set out in the Explanatory Statement and other publicly
available information, the value to be ascribed to the New Shares. The
following table is provided to assist Scheme Creditors to convert the
value they ascribe to the New Shares into a recovery percentage based on
the number of New Shares received for each L1,000,000 of Admitted Scheme
Claim (refer to Table 1). Table 2 (which should not be construed as a
valuation) is provided for illustrative purposes only.
TABLE 2 -- ILLUSTRATIVE PERCENTAGE RECOVERY FOR EVERY L1,000,000 OF
ADMITTED SCHEME CLAIM BASED ON A RANGE OF NOTIONAL EQUITY
VALUES
CORP AND PLC
-------------------
Illustrative
CORP PLC aggregate estimated
------------- ------------- % recovery for
Illustrative equity 187,993 New 32,182 New Admitted Scheme
values ascribed to Shares Shares Creditors of both
the New Shares (see Table 1) (see Table 1) Corp and plc
------------------- ------------- ------------- -------------------
L100m 1.9% 0.3% 2.2%
L200m 3.8% 0.6% 4.4%
L300m 5.6% 1.0% 6.6%
L400m 7.5% 1.3% 8.8%
L500m 9.4% 1.6% 11.0%
624
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 6: INSOLVENCY ANALYSIS
--------------------------------------------------------------------------------
1.4 WHAT ARE THE ALTERNATIVES?
If neither Scheme becomes effective, or both are terminated before the
First Initial Distribution, the nature of the Group's financial position
is such that Corp and plc would have no reasonable prospect of avoiding
insolvency proceedings. If the Corp Scheme became effective but the plc
Scheme did not become effective, then plc would inevitably have to enter
some form of insolvency proceeding. If this occurred, Admitted Scheme
Claims in the Corp Scheme would still receive their pro rata portion of
the Restructuring Consideration.
The UK insolvency proceeding alternatives to the Restructuring are as
follows:
(a) liquidation; or
(b) administration.
Of the two insolvency procedure alternatives, Corp and plc believe that a
more advantageous realisation of Corp and plc's assets would be effected
on an administration rather than on a liquidation. Accordingly, the
insolvency analysis discussed in this Appendix does not specifically
consider the possible returns that might be realised on a liquidation of
either plc or Corp.
An administrator is appointed by order of the Court, which must be
satisfied by evidence that the statutory grounds for an appointment exist.
The administrator will take charge of the company's affairs, business and
property during the period for which the administration order is in force.
The administrator displaces the company's board of directors from the
management function and has the power to remove or appoint directors.
The presentation of a petition for an administration order imposes an
automatic moratorium on creditor action. Accordingly, except with the
leave of the Court or the consent of the administrator, no steps may be
taken to enforce security or repossess goods and no other proceedings may
be commenced or continued against the company.
In arriving at the conclusion that the Schemes are to be preferred to
insolvency proceedings, and that administration would be more advantageous
than liquidation, Corp and plc took into account the fact that certain
causes of action are available to an administrator or a liquidator which
are not available under a scheme of arrangement alone. In particular, a
liquidator or administrator may be able to recover monies for the benefit
of the company where it has given any voidable preference or been party to
a transaction at an undervalue, and a liquidator (but not an
administrator) may be able to do so where there has been wrongful or
fraudulent trading in respect of which its past or present directors or
others may be liable to contribute to its assets. Neither Corp nor plc is
aware of any circumstances which might give rise to a claim of this
nature. As between administration and liquidation, Corp and plc believe
that the possibility of a claim existing which is not available to an
administrator is outweighed by the more advantageous realisations expected
from an administration. As between the Schemes and insolvency proceedings,
Corp and plc believe that the possibility of such claims being available
in insolvency proceedings is outweighed by the problems, uncertainties and
delays which would be involved in an administration, which are discussed
below.
In relation to administration, there are two options available in relation
to Corp (although in practice an administrator might choose to pursue some
combination of the two):
(a) a "trading administration" -- whereby the administrator would
continue to fund the Group with a view to achieving a going concern
sale of the businesses; or
(b) a "liquidating administration" -- whereby the administrator would
not fund the Group but instead would seek to sell Corp's assets on a
break up or forced sale basis.
As plc is not a trading company, the only insolvency option in relation to
plc would be a "liquidating administration" or a liquidation.
625
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 6: INSOLVENCY ANALYSIS
--------------------------------------------------------------------------------
1.5 CAVEATS, LIMITATIONS AND UNCERTAINTIES OF THE INSOLVENCY ANALYSIS
The insolvency analysis represents an illustrative estimate of insolvency
values and recovery percentages based upon hypothetical insolvency
proceedings as at 30 April 2003 whereby assets are converted into cash.
The insolvency analysis is based on 31 December 2002 balance sheets, with
the exception of cash in respect of Corp, where projected balances as at
30 April 2003 have been used. Certain deposits are denominated in foreign
currencies and will be subject to foreign exchange fluctuations.
In so far as insolvency might be an event that occurs in the future, the
ultimate return to creditors will be determined by a series of complex
circumstances relevant at the time of the insolvency. There may be
unforeseen events, changes in economic conditions, and many other
potential variations that could impact upon and change this analysis.
PLC AND CORP HAVE PREPARED THE INSOLVENCY ANALYSIS ON THE BASIS OF CERTAIN
ASSUMPTIONS WHICH THEY BELIEVE ARE REASONABLE IN THE CIRCUMSTANCES.
HOWEVER, THE ASSUMPTIONS ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES WHICH
ARE BEYOND ANYONE'S CONTROL, AND UNANTICIPATED EVENTS AND CIRCUMSTANCES
MIGHT MATERIALLY AFFECT THE ANTICIPATED RESULTS.
Furthermore, given the complex international and multi-jurisdictional
nature of the Group and the specialised nature of its businesses, together
with the substantial interdependency of many of the Group's subsidiaries
and the complex intercompany position (which is further explained in
Section 1.6 below), estimating an illustrative insolvency recovery is an
extremely difficult task. Any insolvency of a group as large as the Group
will inevitably be a lengthy process and there is a serious risk (due to
the international nature of a significant proportion of the Group and its
assets) that Corp and plc would become subject to ancillary proceedings in
other jurisdictions, which would increase the cost, uncertainty and delay
associated with any such procedures and might reduce ultimate
realisations. Unsecured creditors would not normally expect to receive
their full entitlement until all assets had been realised, and all
liabilities finally determined.
Neither the assumptions nor the numbers generated in this comparison have
been audited. While the insolvency values are presented with some
specificity (albeit within a range), the actual results achieved would in
all likelihood vary, and could vary in ways that may be material.
Accordingly, there can be no assurance that the assumptions employed in
determining the insolvency value of the assets will result in accurate
estimations of such insolvency values. Similarly, the ability to channel
proceeds through a large number of other entities, many of which are
offshore and could be subject to their own individual insolvency
proceedings and applicable laws, cannot be estimated with any high degree
of certainty.
The wide range of insolvency outcomes set out below reflect the following
major uncertainties:
(a) the telecommunications market continues to be significantly
depressed, therefore there may be a shortage of suitable purchasers
of Group companies, businesses or assets;
(b) complex inter-company claims would only return a dividend to Corp
and plc in an insolvency after significant delays and uncertainties
relating to insolvency proceedings, many of which would take place
outside the United Kingdom;
(c) as a result of the complex structure of the Group, and the fact that
the Group is run on business lines as opposed to entity lines,
substantial difficulties may be perceived by prospective purchasers
in satisfying their legal and due diligence requirements;
(d) there is a serious risk of a significant decline in the operating
companies' trading prospects in an insolvency scenario. In
particular, there would potentially be a serious loss of value as a
result of customer and supplier actions, as well as loss of key
employees;
(e) since March 2002 few credible, motivated and well financed
purchasers of Group companies, businesses or assets have emerged;
(f) lengthy litigation may be required to resolve certain claims before
an insolvency practitioner would be prepared or able to declare a
dividend in an insolvency;
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(g) in the secured insolvency scenario, there is a possibility of a
legal challenge in relation to the interim security; and
(h) disputes as to the priority of major intercompany and external
claims against Corp and plc will inevitably add to uncertainty and
delay.
As further explained in section 1.8, unless previously released certain
creditors will have the benefit of interim security over cash in the
Lockbox Accounts. Notwithstanding such security, plc and Corp believe that
due to the complex nature of the Group and the likelihood of ancillary
proceedings in other jurisdictions, THERE COULD BE A CONSIDERABLE DELAY
BEFORE ANY DISTRIBUTION COULD BE MADE TO SECURED CREDITORS.
Neither, Corp, plc, the Directors nor their advisers make any
representation or warranty that the actual results would or would not
approximate to the assumptions contained herein.
Nothing in this Appendix constitutes a valuation. Where present values for
different scenarios are shown they are provided for illustrative purposes
only and are subject to the assumptions set out in this Appendix.
1.6 LIQUIDATING ADMINISTRATION ANALYSIS
Under UK insolvency proceedings the liquidation of a company generally
consists of the cessation of business, the identification and collection
of assets and the sale of the company's assets by an insolvency
practitioner, with subsequent distribution of the net proceeds to
creditors in accordance with statutory priorities. Generally speaking, the
position is the same in a so-called liquidating administration.
Normally, in a liquidating administration sale values would be realised on
a break up or forced sale basis. In a situation such as this it may be
possible for an insolvency practitioner to achieve greater realisations
based on the dependency of certain customers on the relevant company's
products, and their willingness to pay, at least in the short term, to
avoid disruption to their business. However, it is not possible to
estimate the effect of this, and it may be the case that an administrator,
as an officer of the Court, may be restricted in what he can or cannot do
to realise the assets. In addition, the Group's primary point of leverage
in this situation would be the know-how invested in its staff. In the
event of an insolvency, key people within the Group may not be prepared to
remain with the Group other than in the short term.
The proceeds from any insolvency asset sales and recoveries would be first
applied to satisfy the claims of secured creditors (assuming the interim
security has not been released) and the costs and expenses of winding up
the company (such as the fees for the insolvency practitioner, and of
lawyers and other professionals including financial advisors and
accountants retained by the insolvency practitioner, asset disposal
expenses, litigation costs, and claims arising from the wind-down of
operations of the companies' business).
The liquidating administration analysis has been prepared assuming that
Corp's and plc's assets, including the assets of their subsidiaries, are
liquidated as at 30 April 2003. This analysis is based on the unaudited
book values as at 31 December 2002 and projected cash balance as at 30
April 2003. Corp and plc are not aware of any events subsequent to 31
December 2002 which would materially alter the unaudited book numbers. The
analysis represents an illustrative estimate of the hypothetical proceeds
from the sale of assets based on the application of certain realisation
percentages to the various categories of assets held by the Group's major
subsidiaries. These are discussed further below.
The assets of plc are primarily comprised of its entitlement to
intercompany receivables and dividends from subsidiaries. The asset of
Corp primarily comprise cash under its control and its entitlement to
intercompany receivables and dividends from subsidiaries.
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Factors considered in the liquidating administration analysis include the
following:
CASH AND EQUIVALENTS
Cash and equivalents consists of cash in banks or operating accounts
and liquid investments with maturities of three months or less and are
assumed to be fully recoverable. Various cash balances which are
secured or otherwise encumbered have not been included in the
analysis. Some of these encumbered cash balances may be released over
time, but the quantum cannot be known with certainty at this time. The
balances in respect of Corp are based on projected book values of cash
and cash equivalents as at 30 April 2003. Some of the deposits are
denominated in foreign currencies and will be subject to foreign
exchange fluctuations.
INVESTMENTS
This comprises the value of the Group's long term investments in
certain listed and unlisted securities, discounted in certain cases to
reflect possible lack of liquidity.
ACCOUNTS RECEIVABLE
Accounts receivable consists mostly of outstanding frame contract debt
and accrued sales. The recovery of accounts receivable is based on
management's estimate of collection, given such factors as that
certain of the receivables are due from customers which are themselves
in financial distress or undergoing liquidation, the ageing and
historical collection patterns of the receivables, the status of
work-in-process orders, advances received from customers, and the
likelihood of set-off or counter claim in relation to interrupted
contracts.
In a liquidating administration, it is highly unlikely that accounts
receivable will be fully collectable. Potential recoveries are very
likely to be subject to substantial warranty/counter claims and
therefore their timely receipt cannot be certain.
For the purpose of this analysis, the recovery of accounts receivable
from net external debtors has been assumed to fall within the range 10
per cent. to 30 per cent. of book value.
INVENTORY
Inventory comprises finished goods/goods shipped but not invoiced and
work in progress ("WIP"). Many finished goods are specialist products
and many are bespoke to individual contracts and would have little
market value in a liquidating administration. Corp considers the sale
value of stock held in WIP, for incomplete contracts, will not be
substantial. This balance is also likely to comprise obsolete, or
unsaleable stock or stock held as spares for current contracts.
For the purposes of the insolvency analysis, Corp estimates the net
amount recoverable from the sale of inventory is unlikely to exceed 5
per cent. of book value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment includes freehold and leasehold
property, fixtures and fittings, leasehold improvements, computer
equipment, motor vehicles, and network assets. The majority of the
value in property, plant and equipment resides in the Marconi office
premises in Germany, USA, Italy and the UK.
For the purposes of the liquidating administration analysis, Corp
estimates the overall net amount recoverable from tangible fixed
assets (including taking account of the current market value of
freehold property), will fall within the range 10 per cent. to 20 per
cent. of net book value.
INTANGIBLES
Corp believes that the source codes of the Group's network software
could have value to major customers and competitors in a going concern
sale. However, significant negotiation would be required between the
insolvency practitioner and the purchaser to settle warranty and/or
counter-indemnity claims, business interruption claims, accounts
receivable balances and related inventory
628
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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balances before any value would be realised. It is not possible to
estimate accurately the time it would take to resolve these issues.
In a liquidating administration there would be little time for
negotiation. Accordingly, while Corp's and plc's trade names and other
intangible assets may have some value, no liquidation value has been
assumed in the liquidating administration analysis. In any case, Corp
does not believe that any value ultimately realised from intangibles
would materially affect the dividend received from a liquidating
administration.
DILUTION
One of the primary disadvantages of insolvency is the serious
uncertainty and delay which would arise in insolvency proceedings.
This uncertainty and delay is difficult to analyse accurately in a
group of the size and complexity of the Group, but would materially
decrease any return to Scheme Creditors in an insolvency proceeding.
On the basis that Corp and plc were to go into an insolvency
procedure, it is assumed that absent financial support from the rest
of the Group, the majority of the United Kingdom and foreign
Subsidiaries would go into some form of local law insolvency
procedure. There are substantial intercompany claims against Corp and
plc. These intercompany claims would likely rank pari passu with
unsecured trade and financial creditors of Corp and plc. Assuming pari
passu distribution on an insolvency, a large percentage of any cash
distribution made by an insolvency practitioner would have to be made
to related Group companies, many of whom are non-United Kingdom based.
Although Corp and plc believe that a proportion of cash held or
controlled by Corp will find its way back to Corp and plc by means of
intercompany balances and shareholdings, there is a significant risk
in relation to these monies (for example legal challenges and priority
of major intercompany and external claims, together with litigation at
the Subsidiary level for breach of contract and other damages claims).
Therefore, a risk factor of 50 per cent. to 70 per cent. has been
applied to the cash balances to account for this, which would include
the effect of the crystallisation of off balance-sheet liabilities.
CREDITOR AND CONTINGENT CREDITOR CLAIMS
Total actual and contingent creditor claims against Corp and plc
comprise Scheme Creditors and Excluded Creditors (the most significant
of which are inter-company creditors). Provision has also been made
for additional claims specific to a liquidating administration, such
as redundancy.
In addition, there may be further claims as a result of warranties,
breach of contract, business interruption and other factors. All of
these would decrease realisations to creditors.
For the purposes of the analysis, illustrative amounts of contingent
claims of L100 million to L500 million in relation to Corp and L50
million to L100 million in relation to plc have been used to represent
this further potential dilution risk.
ESTIMATED OUTCOMES FROM A LIQUIDATING ADMINISTRATION
Subject to the caveats and assumptions set out in this Appendix, CORP
BELIEVES THAT THE RETURN TO CORP UNSECURED CREDITORS FROM A LIQUIDATING
ADMINISTRATION WOULD BE IN THE RANGE OF 10 PER CENT. TO 12 PER CENT. This
also assumes that the interim security has been released (see Section 1.8
below). SIMILARLY, THE RETURN TO PLC UNSECURED CREDITORS FROM A
LIQUIDATING ADMINISTRATION WOULD BE APPROXIMATELY 2 PER CENT.
IF THE INTERIM SECURITY HAS NOT BEEN RELEASED, THE ESTIMATED RETURN TO
CORP UNSECURED CREDITORS WOULD BE APPROXIMATELY 2 PER CENT. AND THE RETURN
TO PLC UNSECURED CREDITORS WILL LIKELY BE LESS THAN 1 PER CENT.
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NONE OF THESE ESTIMATES APPLY DISCOUNTS FOR THE TIME VALUE OF MONEY. AS
STATED IN SECTION 1.5, THERE IS LIKELY TO BE A SIGNIFICANT DELAY BEFORE
ANY DISTRIBUTIONS ARE MADE.
1.7 TRADING ADMINISTRATION ANALYSIS
Unlike a liquidating administration, the insolvency practitioner in a
trading administration will try to maintain subsidiaries by drip feeding
cash to keep them trading where it is cost effective to do this with a
view to selling them as a going concern. There may be subsidiaries and
businesses where it is not appropriate or cost-effective to provide
funding and these will be dealt with in the same way as the liquidating
administration scenario. In this scenario, many of the trading businesses
and companies would be sold by foreign entities under the control of local
insolvency procedures.
In order to effect a successful trading administration substantial funding
will be necessary. Corp and plc estimate this to be of the order of L200
million to L250 million. If the interim security has not been released,
Corp does not believe that there will be sufficient free cash to fund a
trading administration. Accordingly, the trading administration analysis
necessarily assumes that the interim security has been released.
The asset realisations in a trading administration are, where possible,
derived from sales of shares in going concern entities. Given the
generally depressed state of the telecommunications industry there is no
certainty that the sale of shares will realise the values indicated, or
indeed would be capable of achieving a going concern sale at all.
The factors considered in the trading administration analysis include the
following:
ENTERPRISE VALUE AND BONDING CASH
Consideration of the value of certain business lines has been
undertaken and attempts have been made to allocate these to legal
entities within the Group. Insolvency proceedings are likely to damage
the goodwill and customer confidence in the business and hence the
value of Corp's operating subsidiaries. Corp and plc have estimated
the enterprise values for these business lines and have discounted the
estimated enterprise values to reflect the discounted realisations
under an insolvency scenario. It is assumed that bonding cash
collateral may be freed to some extent in the case of a going concern
sale. For the purposes of this analysis, it has been assumed that 10
per cent. to 40 per cent. of the bonding cash collateral will be
released.
DILUTION
Significant dilution has been assumed for similar reasons to those
stated in Section 1.6.
The dilution amount differs between the trading administration and
liquidating administration scenarios due to different realisation
methods (sale of shares in a trading administration as opposed to sale
of assets in a liquidating administration). A sale of shares has the
additional benefit that a substantial amount of trade creditors and
employee liabilities would pass to the purchaser, thereby reducing the
effect of dilution. A reduced risk factor of 25 per cent. to 35 per
cent. has therefore been applied to reflect the reliance on funds
being remitted from other insolvency proceedings, particularly those
outside the United Kingdom.
DIFFICULTIES WITH A TRADING ADMINISTRATION
Corp and plc believe that the following difficulties would be
encountered in a trading administration:
(a) few credible, motivated and well financed buyers have emerged
since March 2002;
(b) a trading administration may be difficult to manage in practice
due to factors such as:
(i) cross border insolvency procedures and differing
jurisdictional frameworks; and
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(ii) impacts of Chapter 11 in the US and potential
"quarantining" restrictions imposed by the US Courts;
(c) risk/reward of funding the trading administration through the
sale process in return for a limited upside;
(d) the substantial instability caused by insolvency procedures may
cause significant damage to the Group's ability to hold onto
customers and key employees. Certain customer contracts may also
be terminated by virtue of insolvency; and
(e) it is possible that a Government or group of large customers
will intervene and force disposal of certain businesses to
specific competitors, further depressing values.
ESTIMATED OUTCOME FROM A TRADING ADMINISTRATION
Subject to the caveats and assumptions set out in this Appendix, CORP
BELIEVES THAT THE RETURN TO CORP UNSECURED CREDITORS FROM A TRADING
ADMINISTRATION WOULD BE IN THE RANGE 11 PER CENT. TO 17 PER CENT. This
assumes that the interim security has been released (see Section 1.8
below). Because plc is not a trading company, the only insolvency option
in relation to plc would be a liquidating administration or a liquidation
(see Section 1.6 above).
THE ESTIMATED RANGES DOES NOT APPLY A DISCOUNT FOR TIME VALUE OF MONEY. AS
MENTIONED IN SECTION 1.5, THERE ARE LIKELY TO BE SIGNIFICANT DELAYS BEFORE
ANY DISTRIBUTIONS ARE MADE.
1.8 INTERIM SECURITY
As part of the arrangements to effect the Restructuring, Corp agreed to
provide interim security (over the cash held by Highrose Limited in the
Lockbox Accounts) to the Group's principal lenders, being the Bank
Creditors and the Secured Bondholders (other than plc's wholly owned
subsidiary Ancrane) as well as to Barclays (as the only participating ESOP
Derivative Bank which committed to support the Restructuring prior to 15
October 2002).
Provision has been made for the interim security to be released prior to
the Corp Scheme Meeting in circumstances tied to the prospects of the Corp
Scheme being successfully implemented (as described more fully in Section
2, Part D.1).
If for whatever reason the interim security has not been released prior to
the Corp Scheme Meeting, neither Corp nor plc will proceed with their
respective Schemes and the interim security will remain in place in any
subsequent insolvency proceedings (meaning that the Bank Creditors,
Bondholders and Barclays would rank ahead of all unsecured creditors of
Corp with respect to the cash held in the Lockbox Accounts). The cash in
the Lockbox Accounts is held in sterling, euro and US dollars accounts.
The actual outcome from an enforcement of the interim security is
therefore difficult to predict, and will fluctuate depending upon the time
of enforcement and currency values.
PLC AND CORP BELIEVE THAT DUE TO THE COMPLEX NATURE OF THE GROUP AND THE
LIKELIHOOD OF ANCILLARY PROCEEDINGS IN OTHER JURISDICTIONS, THERE COULD BE
A CONSIDERABLE DELAY BEFORE ANY DISTRIBUTION COULD BE MADE TO SECURED
CREDITORS.
Subject to the foregoing, CORP ESTIMATES THE RETURN TO SECURED CREDITORS
WOULD BE 18 PER CENT. TO 20 PER CENT. (the range is narrow because the
secured creditors principally benefit from the projected cash in the
Lockbox Account) AND THE RETURN TO UNSECURED CREDITORS 2 PER CENT. OR
LESS. DURING APRIL 2003, CORP MAY MAKE APPROVED CASH WITHDRAWALS FROM THE
LOCKBOX ACCOUNTS. AN ENFORCEMENT OF THE INTERIM SECURITY AT THE BEGINNING
OF APRIL 2003 WOULD THEREFORE LIKELY YIELD A HIGHER RETURN (APPROXIMATELY
1 PER CENT.) THAN AN ENFORCEMENT ON 30 APRIL 2003. THE RETURN TO PLC
UNSECURED CREDITORS IS LIKELY TO BE LESS THAN 1 PER CENT.
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1.9 CONCLUSION
For all the reasons stated above, Corp and plc believe that the Schemes
are more beneficial to Scheme Creditors than an insolvency proceeding or
enforcement of security. Corp and plc believe that the Schemes give
greater certainty overall and the certainty of the day one distribution of
cash, New Notes and New Shares is a major benefit to Scheme Creditors.
This certainty would not be available under insolvency proceedings or
enforcement of security.
Furthermore, whilst the ultimate return to Scheme Creditors through an
insolvency process is fraught with uncertainty, Corp and plc believe that
in all likelihood Scheme Creditors (whether secured or unsecured) will get
a better overall return from the Schemes, especially when the time value
of money is taken into account.
632
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APPENDIX 7
ESCROW AND DISTRIBUTION AGREEMENT
THIS AGREEMENT is made by way of deed on 27 March, 2003 BETWEEN:
(1) MARCONI CORPORATION PLC, a public limited company incorporated in England
and Wales with registered number 00067307 ("CORP");
(2) MARCONI PLC, a public limited company incorporated in England and Wales
with registered number 03846429 ("PLC");
(3) REGENT ESCROW LIMITED, a limited liability company incorporated in
England and Wales with registered number 4659445 ("ESCROW TRUSTEE");
(4) THE BANK OF NEW YORK, a New York banking corporation acting through its
London branch (in its capacity as distribution agent, the "DISTRIBUTION
AGENT" and in its capacity as Trustee and Book-Entry Depositary of the
Yankee Bonds (as defined in the Schemes which expression is, in turn,
defined below), "BONY");
(5) THE LAW DEBENTURE TRUST CORPORATION P.L.C., a public limited company
incorporated in England and Wales with registered number 01675231 (in its
capacity as trustee of the Eurobonds, the "EUROBOND TRUSTEE");
(6) ANCRANE, an unlimited liability company incorporated in England and Wales
with registered number 4308188 ("ANCRANE");
(7) BONDHOLDER COMMUNICATIONS GROUP, a New York corporation ("BONDHOLDER
COMMUNICATIONS"); and
(8) subject to their accession as provided in clause 2(4), PHILIP WALLACE and
RICHARD HEIS of KPMG, 8 Salisbury Square, London EC4Y 8BB (the
"SUPERVISORS", which expression shall include any other persons holding
office as Supervisor of the Schemes from time to time).
WHEREAS:
(A) Corp proposes to enter into a scheme of arrangement (the "CORP SCHEME")
under section 425 of the Companies Act 1985 (the "ACT") with its Scheme
Creditors (as defined in the Corp Scheme).
(B) Plc also proposes to enter into a scheme of arrangement (the "PLC
SCHEME", together with the Corp Scheme, the "SCHEMES" and each a
"SCHEME") under section 425 of the Act with its Scheme Creditors (as
defined in the plc Scheme).
(C) The Corp Scheme and the plc Scheme are set out in sections II and III
respectively of the circular (the "SCHEME DOCUMENT") relating to the
Schemes prepared by Corp and plc incorporating an explanatory statement
in accordance with section 426 of the Act and filed with the court on 20
March, 2003 as the same may be approved or modified by the court.
(D) Philip Wallace and Richard Heis are expected to be appointed as
Supervisors by the Court on the Effective Date and to undertake to the
court to be bound to carry out their designated functions under each
Scheme. Upon their appointment as Supervisors, it is anticipated that the
Supervisors will accede to this Agreement.
(E) Each Scheme provides for the appointment of an escrow trustee and a
distribution agent who will be responsible for, amongst other things,
holding the Scheme Consideration (as separately defined in each Scheme)
on trust for and distributing the Scheme Consideration to the relevant
Scheme Creditors and Designated Recipients (as both of these terms are
defined in the Schemes) who become entitled thereto pursuant to the
operation of the relevant Scheme.
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(F) The Escrow Trustee has been incorporated and will act as trustee in
respect of the Scheme Consideration under the Schemes. The Distribution
Agent will agree on the terms of this Agreement to act as custodian of
the Trust Funds for the Escrow Trustee and to distribute the Scheme
Consideration to Admitted Scheme Creditors and Designated Recipients in
accordance with the terms of the Schemes and this Agreement.
(G) Each of the Escrow Trustee, the Distribution Agent, the Supervisors, the
Eurobond Trustee, BoNY and Bondholder Communications will undertake to
the court to act in accordance with the terms of this Agreement.
(H) This Agreement is entered into in contemplation of, and certain
provisions of this Agreement are conditional upon, either or both of the
Schemes becoming effective.
(I) It is the intention of the parties that this Agreement be executed as a
deed.
IT IS AGREED AND THIS DEED WITNESSES as follows:
1. INTERPRETATION
(1) Capitalised terms used in this Agreement have the meanings given to them
in each Scheme unless otherwise expressly provided.
(2) In this Agreement:
"ACCESSION LETTER" means the letter to be executed as a deed by the
Supervisors on the Effective Date in or substantially in the form set out
in Schedule 1 to this Agreement, pursuant to its undertaking to the
court;
"ADMITTED KNOWN CORP SCHEME CREDITORS ESCROW ACCOUNTS" means each of the
following accounts:
(i) the interest bearing cash account to be established under the
designation Marconi Admitted Known Corp Scheme Creditors Trust
Account with The Bank of New York, One Canada Square, London E14
5AL; and
(ii) the securities account to be established under the designation
Marconi Admitted Known Corp Scheme Creditors Trust Account with The
Bank of New York, account number 490320
and a reference to one or more Admitted Known Corp Scheme Creditors
Escrow Accounts is a reference to any one or more of those accounts;
"ADMITTED KNOWN CORP SCHEME CREDITORS FUND" means the assets paid into or
allocated to the Admitted Known Corp Scheme Creditors Escrow Accounts in
accordance with clause 5 as the same may be increased or reduced in
accordance with clauses 6, 7 and 11;
"ADMITTED KNOWN PLC SCHEME CREDITORS ESCROW ACCOUNTS" means each of the
following accounts:
(i) the interest bearing cash account to be established under the
designation Marconi Admitted Known plc Scheme Creditors Trust
Account with The Bank of New York, One Canada Square, London E14
5AL; and
(ii) the securities account to be established under the designation
Marconi Admitted Known plc Scheme Creditors Trust Account with The
Bank of New York, account number 490327
and a reference to one or more Admitted Known plc Scheme Creditors Escrow
Accounts is a reference to any one or more of those accounts;
"ADMITTED KNOWN PLC SCHEME CREDITORS FUND" means the assets paid into or
allocated to the Admitted Known plc Scheme Creditors Escrow Accounts in
accordance with clause 5 as the same may be increased or reduced in
accordance with clauses 6, 8 and 11;
"ANCRANE DIRECTION LETTER" means the letter to be executed as a deed by
Ancrane in or substantially in the form set out in Schedule 2 to this
Agreement;
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"CLEARSTREAM, LUXEMBOURG" means Clearstream Banking, societe anonyme;
"CORPORATE EXPENSES ACCOUNT" means the current account at The Bank of New
York established by the Escrow Trustee for the sole purpose of depositing
the fees it will receive for acting as Escrow Trustee in accordance with
clause 17 of this Agreement, for depositing any sum it receives under the
indemnity given by Corp set out in clause 9(4) of this Agreement and for
making Permitted Withdrawals;
"CORPORATE NOMINEE" means the corporate nominee service to be operated by
Computershare Investor Services PLC on behalf of Corp in respect of part
of the plc Shareholder Stock and the Warrants referred to in the Letter of
Instruction (as defined below);
"CUSTODY INSTRUCTIONS" means instructions given by an Account Holder to
Euroclear, Clearstream, Luxembourg or DTC, as the case may be, to block
from trading the Bonds identified in an Account Holder Letter and which
must be given no later than 5.00 p.m. (local time) on the Business Day
immediately prior to the date on which that Account Holder Letter is
delivered to Bondholder Communications;
"DISTRIBUTION AGENT FEE LETTER" means a letter dated 14 March, 2003 from
the Distribution Agent to the Supervisors, Corp and plc setting out the
fees and expenses of the Distribution Agent;
"DTC" means The Depository Trust Company of New York;
"ESCROW ACCOUNTS" means each of the Admitted Known Corp Scheme Creditors
Escrow Accounts, the Unadmitted Known Corp Scheme Creditors Escrow
Accounts, the Reserve Corp Scheme Creditors Escrow Accounts and the plc
Shareholders Account (such accounts, together, the "CORP ESCROW ACCOUNTS")
and each of the Admitted Known plc Scheme Creditors Escrow Accounts, the
Unadmitted Known plc Scheme Creditors Accounts and the Reserve plc Scheme
Creditors Accounts (such accounts, together, the "PLC ESCROW ACCOUNTS");
"ESCROW TAX FUND" means a fund of not more than L4,500,000 set aside by
Corp comprising any input value added tax recovered by Corp (whether by
means of a payment from HM Customs & Excise or by way of reduction of the
output value added tax for which Corp would otherwise be required to
account to HM Customs & Excise) incurred in relation to the issue of New
Shares or New Notes under the Corp Scheme;
"ESCROW TRUSTEE FEE LETTER" means a letter dated the date of this
Agreement from the Escrow Trustee to the Supervisors, Corp and plc setting
out of the fees and expenses of the Escrow Trustee;
"EUROBOND MEETING" means a meeting of holders of a series of the
Eurobonds, duly convened and held in accordance with the terms of the
relevant Trust Deed;
"EUROCLEAR" means Euroclear Bank S.A./N.V. as operator of the Euroclear
System;
"LETTER OF INSTRUCTION" means the letter of instruction from Corp, the
Escrow Trustee and the Distribution Agent to Computershare Investor
Services PLC in or substantially in the form set out as Schedule 3 to this
Agreement;
"PERMITTED WITHDRAWAL" means any withdrawal by the Escrow Trustee from the
Corporate Expenses Account for the sole purpose of paying for one or more
of the following expenses:
(i) any expense arising under, or contemplated by, the terms of this
Agreement; and
(ii) any expense incurred in order to comply with its obligations under
the Act (including, but without limitation to the generality of the
foregoing, any expenses incurred in making any requisite annual or
other filings at Companies House) or any other law or regulation
applicable to companies generally;
"PLC SHAREHOLDERS ACCOUNT" means the securities account to be established
under the designation Marconi plc Shareholders Trust Account with The Bank
of New York, account number 490328;
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"PLC SHAREHOLDERS FUND" means the assets allocated to the plc Shareholders
Account in accordance with clause 5 as the same may be reduced in
accordance with clause 7(9);
"RESERVE CORP SCHEME CREDITORS ESCROW ACCOUNTS" means each of the
following accounts:
(i) the interest bearing cash account to be established under the
designation Marconi Reserve Corp Scheme Creditors Trust Account with
The Bank of New York, One Canada Square, London E14 5AL; and
(ii) the securities account to be established under the designation
Marconi Reserve Corp Scheme Creditors Trust Account with The Bank
of New York, account number 490322
and a reference to one or more Reserve Corp Scheme Creditors Escrow
Accounts is a reference to any one or more of those Accounts;
"RESERVE CORP SCHEME CREDITORS FUND" means the assets paid into or
allocated to the Reserve Corp Scheme Creditors Escrow Accounts in
accordance with clause 5 as the same may be increased or reduced in
accordance with clauses 6, 7 and 11;
"RESERVE PLC SCHEME CREDITORS ESCROW ACCOUNTS" means each of the following
accounts:
(i) the interest bearing cash account to be established under the
designation Marconi Reserve plc Scheme Creditors Trust Account with
The Bank of New York, One Canada Square, London E14 5AL; and
(ii) the securities account to be established under the designation
Marconi Reserve plc Scheme Creditors Trust Account with The Bank of
New York, account number 490326
and a reference to one or more Reserve plc Scheme Creditors Accounts is a
reference to any one or more of those accounts;
"RESERVE PLC SCHEME CREDITORS FUND" means the assets paid into or
allocated to the Reserve plc Scheme Creditors Escrow Accounts in
accordance with clause 5 as the same may be increased or reduced in
accordance with clauses 6, 8 and 11;
"SECURITY INTEREST" means any mortgage or sub-mortgage, standard security,
sub-standard security, charge or sub-charge (whether legal or equitable),
encumbrance, pledge, lien, hypothecation, assignment by way of security,
assignation in security or other security interest or title retention
arrangement any agreement, trust or arrangement having substantially the
same economic or financial effect as any of the foregoing;
"TRANSFER NOTICE" means an irrevocable notice served by the Supervisors on
the Escrow Trustee (with a copy to the Distribution Agent) instructing the
Escrow Trustee to cause the Distribution Agent to credit or transfer any
Scheme Consideration to or between any Escrow Accounts;
"TRUSTEES" means the Eurobond Trustee and BoNY (in its capacity as trustee
of the Yankee Bonds);
"TRUST FUNDS" means the Admitted Known Corp Scheme Creditors Fund, the
Admitted Known plc Scheme Creditors Fund, the plc Shareholders Fund, the
Reserve Corp Scheme Creditors Fund, the Reserve plc Scheme Creditors Fund,
the Unadmitted Known Corp Scheme Creditors Fund and the Unadmitted Known
plc Scheme Creditors Fund;
"UNADMITTED KNOWN CORP SCHEME CREDITORS ESCROW ACCOUNTS" means each of the
following accounts:
(i) the interest bearing cash account to be established under the
designation Marconi Unadmitted Known Corp Scheme Creditors Trust
Account with The Bank of New York, One Canada Square, London E14
5AL; and
(ii) the securities account to be established under the designation
Marconi Unadmitted Known Corp Scheme Creditors Trust Account with
The Bank of New York, account number 490321
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and a reference to one or more Unadmitted Known Corp Scheme Creditors
Escrow Accounts is a reference to any one or more of those Accounts;
"UNADMITTED KNOWN CORP SCHEME CREDITORS FUND" means the assets paid into
or allocated to the Unadmitted Known Corp Scheme Creditors Escrow Accounts
in accordance with clause 5 as the same may be increased or reduced in
accordance with clauses 6, 7 and 11;
"UNADMITTED KNOWN PLC SCHEME CREDITORS ESCROW ACCOUNTS" means each of the
following accounts:
(i) the interest bearing cash account to be established under the
designation Marconi Unadmitted Known plc Scheme Creditors Trust
Account with The Bank of New York, One Canada Square, London E14
5AL; and
(ii) the securities account to be established under the designation
Marconi Unadmitted Known plc Scheme Creditors Trust Account with
The Bank of New York, account number 490325
and a reference to one or more Unadmitted Known plc Scheme Creditors
Escrow Accounts is a reference to any one or more of those Accounts; and
"UNADMITTED KNOWN PLC SCHEME CREDITORS FUND" means the assets paid into or
allocated to the Unadmitted Known plc Scheme Creditors Escrow Accounts in
accordance with clause 5 as the same may be increased or reduced in
accordance with clauses 6, 8 and 11.
(3) In this Agreement:
(a) references to a person include an individual, firm, partnership,
company, corporation, unincorporated body of persons and any state
or state agency;
(b) references to a natural person include his estate and personal
representatives;
(c) references to a party to this Agreement include references to the
successors or assigns (immediate or otherwise) of that party; and
(d) references to the singular include the plural and vice versa and
words importing one gender shall include all genders.
(4) In this Agreement any reference, express or implied, to an enactment
includes references to:
(a) that enactment as re-enacted, amended, extended or applied by or
under any other enactment (before or after the signature of this
Agreement);
(b) any enactment which that enactment re-enacts (with or without
modification); and
(c) any subordinate legislation made (before or after the signature of
this Agreement) under that enactment, as re-enacted, amended,
extended or applied as described in paragraph (a) above or under any
enactment referred to in paragraph (b) above,
and "ENACTMENT" includes any legislation in any jurisdiction.
(5) Sub-clauses (1) to (4) above apply unless the contrary intention appears.
(6) The headings in this Agreement do not affect its interpretation.
2. CONDITIONS PRECEDENT, COMMENCEMENT AND ACCESSION
(1) Save as provided in clauses 3, 13, 18, 19 and 21 and in sub-clauses (2) to
(4) below, the obligations of the parties pursuant to this Agreement shall
have effect from the Effective Time of the Corp Scheme as regards matters
relevant to the Corp Scheme and the Effective Time of the plc Scheme as
regards matters relevant to the plc Scheme. For the avoidance of doubt, if
the Effective Time does not occur under the plc Scheme, this circumstance
will have no effect on the provisions in this Agreement relating to the
Corp Scheme if the Effective Time occurs under the Corp Scheme.
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(2) Corp shall notify promptly each of the other parties to this Agreement
upon the occurrence of the Effective Time of the Corp Scheme and plc
shall notify promptly each of the other parties to this Agreement upon
the occurrence of the Effective Time of the plc Scheme.
(3) The obligations of Corp set out in clause 4 of this Agreement and of the
Escrow Trustee set out in clause 5(1) of this Agreement, respectively,
shall have effect from the date of this Agreement.
(4) Prior to the Effective Time, this Agreement shall operate as a contract
between each of the parties to it other than the Supervisors.
Accordingly, each of the parties to this Agreement (other than the
Supervisors) acknowledges that following the appointment by the Court of
Philip Wallace and Richard Heis as Supervisors, the Supervisors will
become parties to this Agreement by executing the Accession Letter on the
Effective Date. Prior to their execution of the Accession Letter, no
provision of this Agreement shall operate to confer any right or impose
any obligation on the Supervisors.
3. AGREEMENT TO ACT
(1) The Escrow Trustee hereby agrees to act as trustee in relation to each
Scheme on the terms of this Agreement.
(2) The Escrow Trustee shall apply the Scheme Consideration received by it in
accordance with the terms of the Scheme pursuant to which it was received
and agrees that its holding of Scheme Consideration on bare trusts for
Scheme Creditors shall not affect the principles under which Scheme
Consideration is distributed in accordance with the terms of each Scheme.
(3) The Distribution Agent hereby agrees to act as custodian of the Trust
Funds and as distribution agent in relation to the Scheme Consideration
under each Scheme.
4. CORP DECLARATION OF TRUST
Corp hereby declares as follows:
(a) it holds 1,000 fully paid ordinary shares of L1.00 each (the
"ESCROW TRUSTEE SHARES") in the Escrow Trustee (being the Escrow
Trustee's entire issued share capital) on an irrevocable bare trust
for the Scheme Creditors of each of the Corp Scheme and plc Scheme
and each Designated Recipient absolutely;
(b) it will hold all dividends and other distributions of profits or
assets in respect of the Escrow Trustee Shares and all other
property and rights arising out of or derived from the Escrow
Trustee Shares on trust for the Scheme Creditors of each of the
Corp Scheme and plc Scheme and each Designated Recipient absolutely
in the same manner as the Escrow Trustee Shares and references to
the Escrow Trustee Shares will be construed accordingly;
(c) it will only deal with and dispose of the Escrow Trustee Shares and
exercise all rights conferred by its holding of the Escrow Trustee
Shares as the Supervisors direct; and
(d) the power of appointing a new trustee or new trustees is vested in
the Supervisors.
5. ESTABLISHMENT OF ESCROW ACCOUNTS
(1) As soon as reasonably practicable after the date of this Agreement the
Escrow Trustee shall establish the Escrow Accounts and each such account
shall be designated by the Escrow Trustee as a trust account. The Escrow
Trustee shall provide to the Prospective Supervisors, Corp and plc prompt
confirmation of the establishment of the Escrow Accounts.
(2) On the Effective Date, Corp shall transfer, issue and allot the Basic
Scheme Consideration and the plc Shareholder Stock to the Escrow Trustee
or, in the case of any New Shares comprised therein, to its nominee to be
held by the Escrow Trustee on the trusts set out in sub-clause (7) below
and to be paid into or allocated to the following Escrow Accounts:
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(a) in the case of the portion of the Known Claims Segment which is to
be distributed in accordance with the First Initial Distribution
Notice, the relevant Admitted Known Corp Scheme Creditors Escrow
Account;
(b) in the case of the balance of the Known Claims Segment, the relevant
Unadmitted Known Corp Scheme Creditors Escrow Account;
(c) in the case of the Reserve Claims Segment, the relevant Reserve Corp
Scheme Creditors Escrow Account; and
(d) in the case of the plc Shareholder Stock, the plc Shareholders'
Account.
Except where defined herein, capitalised terms used in sub-clauses (2) and
(3) of this clause 5 have the meanings given to them in the Corp Scheme.
(3) Any Scheme Consideration, not being Basic Scheme Consideration, shall be
paid into or allocated to the relevant Escrow Accounts by Corp in the
manner directed by the Supervisors (acting in accordance with the
authority given to them in the Corp Scheme) by a Transfer Notice.
(4) On the Effective Date, plc shall, in accordance with clause 34 of the plc
Scheme, direct that the Basic Scheme Consideration shall be transferred
to the Escrow Trustee to be held by the Escrow Trustee on the trusts set
out in sub-clause (7) below and to be paid into or allocated to the
following Escrow Accounts:
(a) in the case of the portion of the Known Claims Segment which is to
be distributed in accordance with the First Initial Distribution
Notice, the relevant Admitted Known plc Scheme Creditors Escrow
Account;
(b) in the case of the balance of the Known Claims Segment, the relevant
Unadmitted Known plc Scheme Creditors Escrow Account; and
(c) in the case of the Reserve Claims Segment, the relevant Reserve plc
Scheme Creditors Escrow Account.
Except where defined herein, capitalised terms used in sub-clauses (4) and
(5) of this clause 5 have the meanings given to them in the plc Scheme.
(5) Any Scheme Consideration, not being Basic Scheme Consideration, shall be
paid into or allocated to the relevant Escrow Accounts by plc in the
manner directed by the Supervisors (acting in accordance with the
authority given to them under the plc Scheme) by a Transfer Notice.
(6) The Escrow Trustee shall, promptly after receipt of any Scheme
Consideration pursuant to any of sub-clauses (2) to (5) above, provide:
(a) to Corp and the Supervisors an acknowledgement of the receipt of
each part of the Scheme Consideration (as defined in the Corp
Scheme) and plc Shareholder Stock transferred, issued and allotted
to it; and
(b) to plc and the Supervisors an acknowledgement of the receipt of each
part of the Scheme Consideration (as defined in the plc Scheme)
transferred to it.
The Escrow Trustee shall maintain records of all its dealings with the
Scheme Consideration and shall make such records (or copies thereof)
available to Corp, plc and the Supervisors at all reasonable times upon
request.
(7) The Escrow Trustee shall hold:
(a) the Admitted Known Corp Scheme Creditors Fund on bare trust for the
Admitted Known Creditors named in the First Initial Distribution
Notice absolutely in proportion to their respective entitlements to
the First Initial Distribution under clause 23 of the Corp Scheme;
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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(b) the Unadmitted Known Corp Scheme Creditors Fund and the Reserve
Corp Scheme Creditors Fund on bare trust for the Scheme Creditors
absolutely for application by the Escrow Trustee on their behalf in
accordance with the Corp Scheme and this Agreement;
(c) the plc Shareholder Fund on trust for the plc Shareholders
absolutely in proportion to their respective entitlements under
sub-clause 31(3) of the Corp Scheme;
(d) the Admitted Known plc Scheme Creditors Fund on bare trust for the
Admitted Known Creditors named in the First Initial Distribution
Notice absolutely in proportion to their respective entitlements to
the First Initial Distribution under clause 23 of the plc Scheme;
and
(e) the Unadmitted Known plc Scheme Creditors Fund and the Reserve plc
Scheme Creditors Fund on bare trust for the Scheme Creditors
absolutely for application by the Escrow Trustee on their behalf in
accordance with the plc Scheme and this Agreement.
Except where defined herein, capitalised terms used in paragraphs (a) to
(c) of this sub-clause (7) have the meanings given to them in the Corp
Scheme and capitalised terms used in paragraphs (d) and (e) of this
sub-clause (7) have the meanings given to them in the plc Scheme.
(8) It shall be a term of each trust constituted by sub-clause (7) above
that:
(a) the Supervisors of each Scheme shall have authority to give
instructions to the Escrow Trustee and the Distribution Agent in
order to give effect to the terms of the relevant Scheme and that
the Distribution Agent shall have authority to act on the
instructions of the Supervisors of the relevant Scheme, the
directions of the Trustees and Ancrane contained in clauses 7(6)
and 8(6) of this Agreement and in the Ancrane Direction Letter, the
directions of Corp (on behalf of the persons absolutely entitled
thereto) contained in clauses 7(11) and (12) of this Agreement and
the directions of plc (on behalf of the persons absolutely entitled
thereto) contained in clauses 8(8) and (9) of this Agreement with
regard to the distribution of the property the subject of such
trust;
(b) the Escrow Trustee is authorised to take any action which the
Supervisors may instruct for the purposes of the relevant Scheme,
including by way of Distribution Notice and Transfer Notice; and
(c) the duties of the Escrow Trustee in relation to each trust of
confidentiality and acting in the interests only of the
beneficiaries of such trust are disapplied to the extent necessary
to enable the Escrow Trustee to take action in accordance with the
terms of each Scheme.
(9) The entity with which any Escrow Account is held may only be changed if
the Escrow Trustee is directed to make such a change by the Supervisors
and, if the Supervisors do make such a direction, the Distribution Agent
shall use all reasonable efforts to assist in that change.
(10) Neither the Escrow Trustee nor the Distribution Agent shall have, and
each of them shall procure that none of their respective delegates shall
have, any right of indemnity, set off, combination of accounts or any
other right whatsoever to apply the assets comprised in the Trust Funds
or any of them in discharge or satisfaction of any cost, right of
reimbursement, expense, loss or other liability of the Escrow Trustee or,
as the case may be, the Distribution Agent, and all such rights are
hereby released by the Escrow Trustee and the Distribution Agent.
6. UNDERTAKINGS
(1) Subject as provided in clause 7 (in the case of paragraphs (a) to (c)
below) and clause 8 (in the case of paragraphs (d) to (f) below), the
Escrow Trustee hereby undertakes in favour of the Supervisors, each
Admitted Scheme Creditor (including, for the avoidance of doubt, the
Eurobond Trustee and BoNY upon their Scheme Claims being Admitted) and
each Designated Recipient as follows:
(a) against receipt of the First Initial Distribution Notice under the
Corp Scheme, to direct (and it hereby does direct) the Distribution
Agent to transfer on behalf of the Admitted Known Creditors named
in the First Initial Distribution Notice from the Admitted Known
Corp Scheme Creditors Escrow Fund such amounts and securities as
are equal to the Distribution Entitlement in respect of
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the Admitted Known Claims the subject of the First Initial
Distribution Notice to the Admitted Scheme Creditors named in the
First Initial Distribution Notice;
(b) against receipt of any Distribution Notice (other than the First
Initial Distribution Notice) under the Corp Scheme, to direct (and
it hereby does direct) the Distribution Agent to transfer on behalf
of the Scheme Creditors from the relevant Corp Escrow Accounts such
amounts and securities as are specified in the Distribution Notice
to the Admitted Scheme Creditors named in the Distribution Notice;
(c) against receipt of a Transfer Notice relating to any Corp Scheme
Consideration, to direct (and it hereby does direct) the
Distribution Agent to take the action required by that Transfer
Notice;
(d) against receipt of the First Initial Distribution Notice under the
plc Scheme, to direct (and it hereby does direct) the Distribution
Agent to transfer on behalf of the Admitted Known Creditors named in
the First Initial Distribution Notice from the Admitted Known plc
Scheme Creditors Escrow Fund such amounts and securities as are
equal to the Distribution Entitlement in respect of the Admitted
Known Claims the subject of the First Initial Distribution Notice to
the Admitted Scheme Creditors named in the First Initial
Distribution Notice;
(e) against receipt of any Distribution Notice (other than the First
Initial Distribution Notice) under the plc Scheme, to direct (and it
hereby does direct) the Distribution Agent to transfer on behalf of
the Scheme Creditors from the relevant plc Escrow Accounts such
amounts and securities as are specified in the Distribution Notice
to the Admitted Scheme Creditors named in the Distribution Notice;
and
(f) against receipt of a Transfer Notice relating to any plc Scheme
Consideration, to direct (and it hereby does direct) the
Distribution Agent to take the action required by that Transfer
Notice.
Each of the Escrow Trustee and the Distribution Agent agrees that it shall
have no discretion in the making or withholding of any Distribution or
credit or transfer required by a Transfer Notice, or portion thereof, and
undertakes at all times to comply with the terms of Distribution Notices
and Transfer Notices and any other directions given to it by the
Supervisors and, in the case of the Distribution Agent, the Escrow
Trustee.
Except where defined herein, capitalised terms used in paragraphs (a) to
(c) of this sub-clause (1) have the meanings given to them in the Corp
Scheme and capitalised terms used in paragraphs (d) to (f) of this
sub-clause (1) have the meanings given to them in the plc Scheme.
(2) Each of the Escrow Trustee and the Distribution Agent undertakes that it
will take any and all action required by the Supervisors of the relevant
Scheme in order to give effect to the provisions of that Scheme.
(3) Subject as provided in sub-clause (2) above, each of the Escrow Trustee
and the Distribution Agent undertakes that, save with the prior written
consent of the Supervisors of the relevant Scheme, it will not take any
action affecting the trust property or any part of it except where
necessary to give effect to either Scheme or as required by clause 7 and
8 of this Agreement.
(4) Any Distribution or transfer made in accordance with sub-clause (1) above
shall only be made following receipt by the Escrow Trustee and the
Distribution Agent of a duly signed Distribution Notice or Transfer
Notice from the Supervisors and then only in accordance with the terms of
that Distribution Notice or Transfer Notice. Each Distribution Notice and
Transfer Notice shall constitute deemed directions from the Escrow
Trustee to the Distribution Agent to make the relevant Distribution or
transfer.
(5) The Escrow Trustee hereby undertakes in favour of the Supervisors and the
other parties to this Agreement that it will act honestly and in good
faith and will exercise the diligence expected of a reasonably prudent
trustee and custodian in the fulfilment and/or exercise of its duties and
obligations under this Agreement.
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(6) The Distribution Agent hereby undertakes in favour of the Supervisors and
the other parties to this Agreement that it will act honestly and in good
faith and will exercise the diligence expected of a reasonably prudent
custodian and agent in comparable circumstances in the fulfilment and/or
exercise of its duties and obligations under this Agreement.
(7) Bondholder Communications hereby undertakes in favour of the Supervisors,
the Eurobond Trustee, BoNY and the other parties to this Agreement that
it will act honestly and in good faith and will exercise the diligence of
a reasonably prudent expert in comparable circumstances in the fulfilment
and/or exercise of its duties and obligations under this Agreement.
(8) Conditional upon the proposed reduction in its share capital and
repayment of capital in specie being effected as contemplated by the
Scheme Implementation Deed, Ancrane hereby undertakes in favour of each
of the other parties to this Agreement that it shall execute the Ancrane
Direction Letter on or before 17th April, 2003. Subject to Ancrane
executing the Ancrane Direction Letter, in accordance with the proposed
direction set out in paragraph 4(b) of that letter, each of the Eurobond
Trustee, BoNY, the Escrow Trustee and the Supervisors hereby direct the
Distribution Agent to pay all Corp and plc Scheme Consideration to which
Ancrane would otherwise have been entitled through its Scheme Claim and
as a Bondholder to plc.
7. DISTRIBUTIONS UNDER THE CORP SCHEME
(1) Capitalised terms used in this clause 7 and not otherwise defined in this
Agreement have the meanings given to them in the Corp Scheme. This clause
7 applies only to Distributions made under the Corp Scheme.
(2) As set out in the Corp Scheme, the Supervisors shall determine the Scheme
Claims and shall decide whether or not they shall be Admitted.
(3) In respect of each Distribution, the Supervisors will deliver to the
Escrow Trustee (with a copy to the Distribution Agent) a duly completed
Distribution Notice (in the form agreed between the Supervisors, the
Escrow Trustee and the Distribution Agent) identifying each Admitted
Scheme Creditor (which expression, in this sub-clause (3), includes the
Eurobond Trustee and BoNY but does not include Account Holders or
Designated Recipients who are dealt with as provided in sub-clause (6)
below) to which the Distribution is to be made, the amount of each
Element of Scheme Consideration (and the relevant Trust Funds and Escrow
Accounts from which it should be taken) to be received by that Admitted
Scheme Creditor, the cash or securities accounts of that Admitted Scheme
Creditor to which the relevant portion of the Scheme Consideration is to
be credited and, if applicable, whether that Admitted Scheme Creditor has
elected to receive ADRs instead of New Creditor Shares. In respect of
each Distribution Notice that contains a reference to BoNY or the
Eurobond Trustee, the words "to be distributed to Designated Recipients
in accordance with the directions contained in clauses 7 and 8 of the
Escrow and Distribution Agreement dated 27 March 2003 given by such
Scheme Creditor" shall be inserted in parentheses following each such
reference.
(4) Except in the case of the First Initial Distribution, the Distribution
Agent will make the relevant Distribution on behalf of the Escrow Trustee
within 5 Business Days after having received a duly completed
Distribution Notice from the Supervisors. Subject as provided in
sub-clause (6)(f), the Distribution Agent will make the First Initial
Distribution on the Effective Date.
(5) Each of the Eurobond Trustee and BoNY has submitted or will submit a
Claim Form and is expected to become an Admitted Scheme Creditor entitled
to participate in the First Initial Distribution. Account Holders have
been invited in the Scheme Document to complete and return to Bondholder
Communications Account Holder Letters giving details of the manner in
which the Scheme Consideration attributable to the Trustees but the
subject of the direction set out in sub-clause (6) below should be
delivered to Designated Recipients. Bondholder Communications undertakes
in favour of each Trustee, the Escrow Trustee, the Distribution Agent,
Corp, plc, the Supervisors, each Designated Recipient and each Definitive
Holder:
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(a) to collate all Account Holder Letters received;
(b) to liaise with the relevant Account Holders with a view to
completing any missing information and correcting any manifest
errors in each Account Holder Letter received by it;
(c) to liaise with each of DTC, Euroclear and Clearstream, Luxembourg
with a view to ensuring that all Bonds the subject of an Account
Holder Letter have been blocked and that appropriate Custody
Instruction References or VOI numbers, as the case may be, have been
granted;
(d) to complete and distribute copies of Account Holder Letters and
forms of proxy to Definitive Holders wishing to attend a Scheme
Meeting in person or by proxy and to compile and distribute one or
more omnibus proxies in respect of each Definitive Holder wishing to
appoint the chairman of a Scheme Meeting as his proxy, all in
accordance with the instructions given in duly completed Account
Holder Letters;
(e) to prepare definitive Yankee Bonds and an initial register of Yankee
Bond holders in accordance with the instructions given in duly
completed Account Holder Letters and to distribute such Yankee Bonds
and register in the manner agreed between Bondholder Communications,
BoNY and Corp;
(f) to prepare individual global Eurobonds in accordance with the
instructions given in duly completed Account Holder Letters and to
distribute such Eurobonds in the manner agreed between Bondholder
Communications, the Eurobond Trustee and Corp;
(g) in the case of all duly completed Account Holders Letters received
by it on or before 5.00 p.m. (New York City time) on 17th April,
2003, to provide by no later than 10th May, 2003 all information
necessary to the Distribution Agent to enable the Distribution Agent
to make the Distributions directed in sub-clause (6) below as soon
as may be practicable but subject always as provided in sub-clause
(6)(f); and
(h) to maintain records of all Account Holder Letters received and the
Designated Recipients and Definitive Holders named therein and to
make such records (or copies thereof) available to Corp, plc and the
Supervisors at all reasonable times upon request.
(6) Subject to the Scheme Claims of the Eurobond Trustee and BoNY being the
subject of a Distribution Notice, each of the Eurobond Trustee or BoNY,
as the case may be, with the authority and approval hereby given of the
Supervisors, the Escrow Trustee and Ancrane, hereby directs the
Distribution Agent, acting on behalf of the Escrow Trustee, to:
(a) in the case of the Eurobond Trustee, pay, at the same time as the
relevant Distribution is made, the Cash Element of each Distribution
which would otherwise have been made to it to (i) all Account
Holders (other than Morgan Stanley & Co. Incorporated ("MORGAN
STANLEY") to the extent that Morgan Stanley is the Account Holder
for Ancrane) which had Eurobonds credited to their accounts on the
Effective Date by a pro rata distribution through Euroclear and
Clearstream, Luxembourg or (ii) if (for any reason), such a pro rata
distribution through Euroclear and Clearstream, Luxembourg is not
possible, in the manner contemplated in paragraph (b) below;
(b) in the case of BoNY (or the Eurobond Trustee pursuant to sub-clause
(6)(a)(ii) above), subject as provided in paragraph (f) below, pay
to each Designated Recipient, at the Specified Time (as defined
below), such Designated Recipient's proportion of the Cash Element
(together with any entitlement to interest thereon) which would
otherwise have been made to BoNY in respect of the Yankee Bonds or
the Eurobond Trustee in respect of the Eurobonds, as the case may
be, in accordance with the cash payment directions contained in the
relevant Account Holder Letter; and
(c) subject to sub-clauses (11) and (12) and as provided in paragraph
(f) below, distribute to each Designated Recipient, at the Specified
Time, such Designated Recipient's proportion of the New Notes
Element and the New Creditor Shares Element of the relevant
Distribution (and any entitlement to interest and dividends) which
would otherwise have been distributed to the relevant Trustee in
accordance with the security delivery directions (including, for the
avoidance of doubt,
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directions as to the currency of the Senior Notes to be delivered
and in relation to any ADRs to be delivered in lieu of New Creditor
Shares) contained in the relevant Account Holder Letters;
(d) other than any payments of Cash made in accordance with
sub-paragraph (a)(i) above, if the Relevant Conditions (as defined
below) have not been satisfied in relation to a Designated Recipient
of Scheme Consideration initially attributable to the Eurobond
Trustee or BoNY, as the case may be, (whether in the Initial
Distribution or any Further Distribution) before the termination of
the Scheme, to (i) (in the case of the Eurobond Trustee) hold that
Scheme Consideration to the order of the Eurobond Trustee pending
any directions from it, which directions will be given by the
Eurobond Trustee if and to the extent that it is authorised or
directed by an extraordinary resolution passed at a Eurobond Meeting
or by court order and (ii) (in the case of BoNY) transfer all such
Scheme Consideration to BoNY or to its order (including, but without
limitation, by way of a payment into court);
(e) in this sub-clause (6), "RELEVANT CONDITIONS" in relation to a
Designated Recipient means that (i) a duly completed Account Holder
Letter naming that Designated Recipient and (ii) confirmation
satisfactory to Bondholder Communications that corresponding Custody
Instructions have been given have been received by Bondholder
Communications and confirmed by it to the Distribution Agent and all
information necessary to make the relevant Distribution has been
provided by Bondholder Communications to the Distribution Agent and
"SPECIFIED TIME" means the same time as the relevant Distribution is
made where the Relevant Conditions have been satisfied in relation
to a Designated Recipient or, where this is not the case, as soon as
practicable after the Relevant Conditions have been satisfied in
relation to that Designated Recipient. For the avoidance of doubt,
once the Relevant Conditions are met in respect of a Designated
Recipient, the Distribution Agent will pay or transfer to that
Designated Recipient all Scheme Consideration (and any income
accrued in respect of it) to which that Designated Recipient would
have been entitled had the Relevant Conditions in relation to it
been met prior to 17th April, 2003 without further direction from
any of the parties to this Agreement; and
(f) in recognition of the fact that the Distribution Agent is limited in
its ability to prepare and process payment and transfer instructions
("INSTRUCTIONS"), the Distribution Agent shall act in the following
manner in preparing and giving effect to the First Initial
Distribution:
(i) prepare preliminary Instructions as soon as practicable after
it has received the necessary information from the Supervisors
in accordance with sub-clause (3) above or Bondholder
Communications in accordance with sub-clause (5)(g) above and
complete such Instructions in the Order of Priority (as
defined below) as swiftly as possible following the
determination of both the Scheme Rate and the Effective Date;
(ii) on the Effective Date process as many Instructions which have
been completed as it is able to do in the Order of Priority;
and
(iii) on each Business Day after the Effective Date until
completion of the First Initial Distribution, process as many
Instructions which have been completed as it is able to in
the Order of Priority.
For the purpose of this sub-clause (f), "ORDER OF PRIORITY" means,
first, to each of the Scheme Creditors named in the First Initial
Distribution Notice (which, for the avoidance of doubt, shall
include the Trustees but not Designated Recipients) and, secondly,
to each Designated Recipient by reference to the principal amount of
Bonds represented by the Account Holder Letter in which it is named
as the Designated Recipient starting with the Designated Recipient
which has the highest principal amount so represented.
It is currently envisaged that the Distribution Agent will be able
to complete a maximum of 1,000 Instructions per Business Day and to
process a maximum of 5,000 Instructions per Business Day.
(7) Reflecting the directions and undertakings set out in the Ancrane
Direction Letter and its undertaking not to vote at either Scheme
Meeting, Ancrane undertakes in favour of each of the other parties to
this
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Agreement that it will procure that its Account Holder does not deliver
an Account Holder Letter in respect of its holdings of Bonds. Ancrane
further irrevocably authorises and directs the Distribution Agent to
instruct Euroclear and/or Clearstream, Luxembourg, as the case may be,
not to credit any cash to which Ancrane would otherwise be entitled in
respect of its holdings of Eurobonds to Morgan Stanley's account with
such clearing system and undertakes in favour of each of the other
parties to this Agreement that it will procure that Morgan Stanley will
give corresponding instructions to the relevant clearing system. Ancrane
undertakes to each of the other parties to this Agreement that it will
irrevocably confirm to Morgan Stanley that it will not direct Morgan
Stanley to process any transfer transactions unless and until the Corp
Scheme is not approved or does not become effective in relation to any of
its Bonds and hereby confirms that it will not give any such direction.
Ancrane hereby confirms in favour of each of the other parties to this
Agreement that it is incorporated in the United Kingdom.
(8) In respect of each Distribution Notice that directs the Escrow Trustee
and the Distribution Agent to distribute ADRs instead of New Creditor
Shares in accordance with sub-clause (3) above and any elections in
Account Holder Letters to receive ADRs instead of New Creditor Shares
communicated to the Distribution Agent in accordance with sub-clause (5)
above, the Escrow Trustee shall procure that the Distribution Agent,
acting on behalf of the Escrow Trustee, shall:
(a) subject to paragraph (c) below, transfer the New Creditor Shares
relating to the relevant Eligible Recipient to the ADR Depositary;
(b) arrange for the distribution of ADRs relating to those New Creditor
Shares to entitled Eligible Recipients; and
(c) where there are any New Creditor Shares which are not sufficient in
number to equate to one ADR and which therefore cannot be
transferred to the ADR Depositary in accordance with paragraph (a)
above, sell those New Creditor Shares and deal with the proceeds as
instructed by the Supervisors by Transfer Notice.
(9) Corp hereby directs the Escrow Trustee and the Escrow Trustee shall
procure that the Distribution Agent:
(a) transfers the plc Shareholder Stock to the CREST account of the
Registrars by means of a matched transaction in CREST bearing a "no
change in beneficial ownership" denotation as soon as practicable
following the Effective Date; and
(b) instructs the Registrars to hold part of the plc Shareholders Stock
through the Corporate Nominee and otherwise to deal with the plc
Shareholder Stock and Warrants as set out in the Letter of
Instruction.
(10) In respect of each Distribution Notice that directs the Escrow Trustee
and the Distribution Agent to distribute New Creditor Shares, the Escrow
Trustee shall procure that the Distribution Agent transfers on its behalf
the requisite number of New Creditor Shares to the Registrars and
instruct the Registrars to transfer the same to the relevant Eligible
Recipient in accordance with the relevant Distribution Notice and
sub-clause (6) above. For this purpose the Escrow Trustee shall give the
Registrars standing instructions in the Letter of Instruction to effect
the transfers contemplated by this sub-clause (10) and hereby irrevocably
agrees not to withdraw or alter such instructions without the prior
approval of the Supervisors.
(11) Where an Account Holder Letter is submitted to Bondholder Communications
in which the confirmations set out in section 5, paragraphs (D), (E) and
(F) of that Account Holder Letter are not made or a Claim Form is
submitted to the Supervisors by a Scheme Creditor (other than the
Eurobond Trustee or BoNY) whose Scheme Claim is subsequently Admitted in
which the confirmations set out in paragraphs (3) and (4) of Box 3 of
that Claim Form are not made, Bondholder Communications or, as the case
may be, the Supervisors shall inform the Distribution Agent accordingly
and Corp may direct that (i) if the New Creditor Shares or New Notes or
any of them are listed on a securities exchange, the Distribution Agent
shall, on behalf of the Escrow Trustee, sell or procure the sale of the
New Notes and the New Creditor Shares which would otherwise have been
Distributed and shall instead pay the cash proceeds of such sale to the
relevant Eligible Recipient (after deducting all applicable expenses
including foreign currency
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conversion costs incurred) to the cash account set out in the relevant
Account Holder Letter or Claim Form; or (ii) if the New Creditor Shares
or New Notes or any of them are not listed on a securities exchange, the
Distribution Agent shall, on behalf of the Escrow Trustee, pay a sum of
cash which is substantially equivalent in value to such New Creditor
Shares or New Notes determined in accordance with clause 30(7)(e)(ii) of
the Corp Scheme to the cash account set out in the relevant Account
Holder Letter or Claim Form. Any sale made pursuant to sub-paragraph (i)
of this sub-clause (11) shall be made for the best terms reasonably
available at the time of the sale.
(12) Where an Account Holder Letter or Claim Form is submitted in which the
confirmations set out in section 5, paragraphs (D), (E) and (F) of that
Account Holder Letter or paragraphs (3) and (4) of Box 3 of that Claim
Form are made but, on the face of the Account Holder Letter or Claim
Form, as the case may be, it is apparent that the confirmations may be
inaccurate or Corp has reason to believe that a Distribution made in
accordance with the Account Holder Letter or Claim Form, as the case may
be, might be in breach of any of the securities laws described in part 1,
Section 2 of Parts D.16 and D.17 of the Scheme Document:
(a) in the case of the Account Holder Letter, Bondholder Communications
shall draw that Account Holder Letter to the attention of Corp and
the Supervisors; and
(b) in the case of the Claim Form, the Supervisors shall draw that
Claim Form to the attention of Corp; and
Corp may, after such investigation as it may deem appropriate in the
circumstances, direct the Distribution Agent (acting on behalf of the
Escrow Trustee) (i) if the New Creditor Shares or New Notes or any of
them are listed on a securities exchange, to sell or procure the sale of
the New Notes and the New Creditor Shares which would otherwise have been
Distributed and instead and pay the cash proceeds of such sale to the
relevant Eligible Recipient (after deducting all applicable expenses
including foreign currency conversion costs incurred) to the cash account
set out in the relevant Account Holder Letter or Claim Form; or (ii) if
the New Creditor Shares or New Notes or any of them are not listed on a
securities exchange, to pay a sum of cash in sterling which is
substantially equivalent in value to such New Creditor Shares or New
Notes and determined in accordance with clause 30(7)(e)(ii) of the Corp
Scheme to the cash account set out in the relevant Account Holder Letter
or Claim Form. Any sale made pursuant to sub-paragraph (i) of this
sub-clause (12) shall be made for the best terms reasonably available at
the time of the sale.
(13) In relation to each Distribution made by it, in any case where it would
otherwise be required to distribute a fraction of a New Note or a
fraction of a New Creditor Share to an Eligible Recipient, the
Distribution Agent (acting on behalf of the Escrow Trustee) shall, in
accordance with sub-clause 30(6) of the Corp Scheme, (a) if the New
Creditor Shares or New Notes or any of them are Listed, aggregate all
such fractions and sell the relevant number of New Notes and New Creditor
Shares in the market and pay the net proceeds of such sale (after
deducting all costs of the sale and paying all fractional entitlements)
to the Escrow Account specified for this purpose in a Transfer Notice and
(b) if the New Creditor Shares or New Notes are not Listed, round down to
zero all fractional entitlements of Eligible Recipients to such unlisted
New Creditor Shares and New Notes and transfer (if required) to the
Escrow Account specified for this purpose in a Transfer Notice all
fractional entitlements to those New Shares and New Notes (as the case
may be) which, but for this sub-paragraph (b), Eligible Recipients would
have received. No fraction of a unit of currency shall be Distributed by
the Distribution Agent and any cash remaining after the relevant
Distribution as a result of any such fractional entitlements shall be
paid by the Distribution Agent to Corp. In this paragraph, the "RELEVANT
NUMBER OF NEW NOTES OR NEW CREDITOR SHARES" means the number of New Notes
and New Creditor Shares that would have resulted from the aggregation of
all fractional entitlements and the rounding down of the result to the
nearest whole New Note and New Creditor Share, respectively.
(14) In each case where Undistributed Scheme Consideration is to be applied in
reimbursing Corp for any SDRT Expense it has incurred in excess of
L500,000 in accordance with clause 25(2) of the Corp Scheme,
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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the Supervisors shall give the Distribution Agent the directions
necessary to make that reimbursement including, but not limited to, the
following:
(a) the amount of the SDRT Expense that is to be reimbursed;
(b) if any Element of Undistributed Scheme Consideration other than
cash is required, the number of New Creditor Shares and/or New
Notes to be sold; and
(c) Corp's bank account details to which the reimbursement should be
made.
8. DISTRIBUTIONS UNDER THE PLC SCHEME
(1) Capitalised terms used in this clause 8 and not otherwise defined in this
Agreement have the meanings given to them in the plc Scheme. This clause
8 applies only to Distributions made under the plc Scheme.
(2) As set out in the plc Scheme, the Supervisors shall determine the Scheme
Claims and shall decide whether or not they shall be Admitted.
(3) In respect of each Distribution, the Supervisors will deliver to the
Escrow Trustee (with a copy to the Distribution Agent) a duly completed
Distribution Notice (in the form agreed between the Supervisors, the
Escrow Trustee and the Distribution Agent) identifying each Admitted
Scheme Creditor (which expression, in this sub-clause (3), includes the
Eurobond Trustee and BoNY but does not include Account Holders or
Designated Recipients who are dealt with as provided in sub-clause (6)
below) to which the Distribution is to be made, the amount of each
Element of Scheme Consideration (and the relevant Trust Funds and Escrow
Accounts from which it should be taken) to be received by that Admitted
Scheme Creditor, the cash or securities accounts of that Admitted Scheme
Creditor to which the relevant portion of the Scheme Consideration is to
be credited and, if applicable, whether that Admitted Scheme Creditor has
elected to receive ADRs instead of New Creditor Shares. In respect of
each Distribution Notice that contains a reference to BoNY or the
Eurobond Trustee, the words "to be distributed to Designated Recipients
in accordance with the directions contained in clauses 7 and 8 of the
Escrow and Distribution Agreement dated 27 March 2003 given by such
Scheme Creditor" shall be inserted in parentheses following each such
reference.
(4) Except in the case of the First Initial Distribution, the Distribution
Agent will make the relevant Distribution on behalf of the Escrow Trustee
within 5 Business Days after having received a duly completed
Distribution Notice from the Supervisors. Subject as provided in
sub-clause (6)(f), the Distribution Agent will make the First Initial
Distribution on the Effective Date.
(5) Each of the Eurobond Trustee and BoNY has submitted or will submit a
Claim Form and is expected to become an Admitted Scheme Creditor entitled
to participate in the First Initial Distribution. Account Holders have
been invited in the Scheme Document to complete and return to Bondholder
Communications Account Holder Letters giving details of the manner in
which the Scheme Consideration attributable to the Trustees but the
subject of the direction set out in sub-clause (6) below should be
delivered to Designated Recipients. Bondholder Communications undertakes
in favour of each Trustee, the Escrow Trustee, the Distribution Agent,
Corp, plc, the Supervisors, each Designated Recipient and each Definitive
Holder:
(a) to collate all Account Holder Letters received;
(b) to liaise with the relevant Account Holders with a view to
completing any missing information and correcting any manifest
errors in each Account Holder Letter received by it;
(c) to liaise with each of DTC, Euroclear and Clearstream, Luxembourg
with a view to ensuring that all Bonds the subject of an Account
Holder Letter have been blocked and that appropriate Custody
Instruction References or VOI numbers, as the case may be, hav
been granted;
(d) to complete and distribute copies of Account Holder Letters and
forms of proxy to Definitive Holders wishing to attend a Scheme
Meeting in person or by proxy and to compile and distribute one or
more omnibus proxies in respect of each Definitive Holder wishing
to appoint the chairman
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of a Scheme Meeting as his proxy, all in accordance with the
instructions given in duly completed Account Holder Letters;
(e) to prepare definitive Yankee Bonds and an initial register of Yankee
Bond holders in accordance with the instructions given in duly
completed Account Holder Letters and to distribute such Yankee Bonds
and register in the manner agreed between Bondholder Communications,
BoNY and Corp;
(f) to prepare individual global Eurobonds in accordance with the
instructions given in duly completed Account Holder Letters and to
distribute such Eurobonds in the manner agreed between Bondholder
Communications, the Eurobond Trustee and Corp;
(g) in the case of all duly completed Account Holders Letters received
by it on or before 5.00 p.m. (New York City time) on 17 April, 2003,
to provide by no later than 10th May, 2003 all information necessary
to the Distribution Agent to enable the Distribution Agent to make
the Distributions directed in sub-clause (6) below as soon as may be
practicable but subject always as provided in sub-clause (6)(f); and
(h) to maintain records of all Account Holder Letters received and the
Designated Recipients and Definitive Holders named therein and to
make such records (or copies thereof) available to Corp, plc and the
Supervisors at all reasonable times upon request.
(6) Subject to the Scheme Claims of the Eurobond Trustee and BoNY being the
subject of a Distribution Notice, each of the Eurobond Trustee or BoNY,
as the case may be, with the authority hereby given and approval of the
Supervisors, the Escrow Trustee and Ancrane, hereby directs the
Distribution Agent, acting on behalf of the Escrow Trustee, to:
(a) in the case of the Eurobond Trustee, pay, at the same time as the
relevant Distribution is made, the cash Element of each Distribution
which would otherwise have been made to it to (i) all Account
Holders (other than Morgan Stanley to the extent that Morgan Stanley
is the Account Holder for Ancrane) which had Eurobonds credited to
their accounts on the Effective Date by a pro rata distribution
through Euroclear and Clearstream, Luxembourg or (ii) if (for any
reason), such a pro rata distribution through Euroclear and
Clearstream, Luxembourg is not possible, in the manner contemplated
in paragraph (b) below;
(b) in the case of BoNY (or the Eurobond Trustee pursuant to sub-clause
(6)(a)(ii) above), subject as provided in paragraph (f) below, pay
to each Designated Recipient, at the Specified Time (as defined
below), such Designated Recipient's proportion of the cash Element
(together with any entitlement to interest thereon) which would
otherwise have been made to BoNY in respect of the Yankee Bonds or
the Eurobond Trustee in respect of the Eurobonds, as the case may
be, in accordance with the cash payment directions contained in the
relevant Account Holder Letter; and
(c) subject to sub-clauses (8) and (9) and subject as provided in
paragraph (f) below, distribute to each Designated Recipient, at the
Specified Time, such Designated Recipient's proportion of the New
Notes Element and the New Creditor Shares Element of the relevant
Distribution (and any entitlement to interest and dividends) which
would otherwise have been distributed to the relevant Trustee in
accordance with the security delivery directions (including, for the
avoidance of doubt, directions as to the currency of the Senior
Notes to be delivered and in relation to any ADRs to be delivered in
lieu of New Creditor Shares) contained in the relevant Account
Holder Letters;
(d) other than any payments of cash made in accordance with
sub-paragraph (a)(i) above, if the Relevant Conditions (as defined
below) have not been satisfied in relation to a Designated Recipient
of Scheme Consideration initially attributable to the Eurobond
Trustee or BoNY, as the case may be, (whether in the Initial
Distribution or any Further Distribution) on or before the
termination of the Scheme, to (i) (in the case of the Eurobond
Trustee) hold that Scheme Consideration to the order of the Eurobond
Trustee pending any directions from it, which directions will be
given by the Eurobond Trustee if and to the extent that it is
authorised or directed by an extraordinary resolution passed at a
Eurobond Meeting or by court order and (ii) (in the case of BoNY)
transfer all such
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Scheme Consideration to BoNY or to its order (including, but without
limitation, by way of a payment into court);
(e) in this sub-clause (6), "RELEVANT CONDITIONS" in relation to a
Designated Recipient means that (i) a duly completed Account Holder
Letter naming that Designated Recipient; and (ii) confirmation
satisfactory to Bondholder Communications that corresponding Custody
Instructions have been given have been received by Bondholder
Communications and confirmed by it to the Distribution Agent and all
information necessary to make the relevant Distribution has been
provided by Bondholder Communications to the Distribution Agent and
"SPECIFIED TIME" means the same time as the relevant Distribution is
made where the Relevant Conditions have been satisfied in relation
to a Designated Recipient or, where this is not the case, as soon as
practicable after the Relevant Conditions have been satisfied in
relation to that Designated Recipient. For the avoidance of doubt,
once the Relevant Conditions are met in respect of a Designated
Recipient, the Distribution Agent will pay or transfer to that
Designated Recipient all Scheme Consideration (and any income
accrued in respect of it) to which that Designated Recipient would
have been entitled had the Relevant Conditions in relation to it
been met prior to 17th April, 2003 without further direction from
any of the parties to this Agreement; and
(f) in recognition of the fact that the Distribution Agent is limited
in its ability to prepare and process payment and transfer
instructions ("INSTRUCTIONS"), the Distribution Agent shall act in
the following manner in preparing and giving effect to the First
Initial Distribution:
(i) prepare preliminary Instructions as soon as practicable after
it has received the necessary information from the Supervisors
in accordance with sub-clause (3) above or Bondholder
Communications in accordance with sub-clause (5)(g) above and
complete such Instructions in the Order of Priority (as
defined below) as swiftly as possible following the
determination of both the Scheme Rate and the Effective Date;
(ii) on the Effective Date process as many Instructions which have
been completed as it is able to do in the Order of Priority;
and
(iii) on each Business Day after the Effective Date until
completion of the First Initial Distribution, process as many
Instructions which have been completed as it is able to in the
Order of Priority.
For the purpose of this sub-clause (f), "ORDER OF PRIORITY" means,
first, to each of the Scheme Creditors named in the First Initial
Distribution Notice (which, for the avoidance of doubt, shall
include the Trustees but not Designated Recipients) and, secondly,
to each Designated Recipient by reference to the principal amount of
Bonds represented by the Account Holder Letter in which it is named
as the Designated Recipient starting with the Designated Recipient
which has the highest principal amount so represented.
It is currently envisaged that the Distribution Agent will be able
to complete a maximum of 1,000 Instructions per Business Day and to
process a maximum of 5,000 Instructions per Business Day.
(7) In respect of each Distribution Notice that directs the Escrow Trustee
and the Distribution Agent to distribute ADRs instead of New Creditor
Shares in accordance with sub-clause (3) above and any elections in
Account Holder Letters to receive ADRs instead of New Creditor Shares
communicated to the Distribution Agent in accordance with sub-clause (5)
above, the Escrow Trustee shall procure that the Distribution Agent,
acting on behalf of the Escrow Trustee, shall:
(a) subject to paragraph (c) below, transfer the New Creditor Shares
relating to the relevant Eligible Recipient to the ADR Depositary;
(b) arrange for the distribution of ADRs relating to those New Creditor
Shares to entitled Eligible Recipients; and
(c) where there are any New Creditor Shares which are not sufficient in
number to equate to one ADR and which therefore cannot be
transferred to the ADR Depositary in accordance with paragraph (a)
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above, sell those New Creditor Shares and deal with the proceeds as
instructed by the Supervisors by Transfer Notice.
(8) Where an Account Holder Letter is submitted to Bondholder Communications
in which the confirmations set out in section 5, paragraphs (D), (E) and
(F) of that Account Holder Letter are not made or a Claim Form is
submitted to the Supervisors by a Scheme Creditor (other than the
Eurobond Trustee or BoNY) whose Scheme Claim is subsequently Admitted in
which the confirmations set out in paragraphs (3) and (4) of Box 3 of
that Claim Form are not made, Bondholder Communications or, as the case
may be, the Supervisors shall inform the Distribution Agent accordingly
and plc may direct that (i) if the New Creditor Shares or New Notes or
any of them are listed on a securities exchange, the Distribution Agent
shall, on behalf of the Escrow Trustee, sell or procure the sale of the
New Notes and the New Creditor Shares which would otherwise have been
Distributed and shall instead pay the net cash proceeds of such sale to
the relevant Eligible Recipient (after deducting all applicable expenses
including foreign currency conversion costs incurred) to the cash account
set out in the relevant Account Holder Letter or Claim Form; or (ii) if
the New Creditor Shares or New Notes or any of them are not listed on a
securities exchange, the Distribution Agent shall, on behalf of the
Escrow Trustee, pay to the relevant Eligible Recipient a sum of cash
which is substantially equivalent in value to such New Creditor Shares or
New Notes and determined in accordance with clause 32(7)(e)(ii) of the
plc Scheme to the cash account set out in the relevant Account Holder
Letter or Claim Form. Any sale made pursuant to sub-paragraph (i) of this
sub-clause (8) shall be made for the best terms reasonably available at
the time of the sale.
(9) Where an Account Holder Letter or Claim Form is submitted in which the
confirmations set out in section 5, paragraphs (D), (E) and (F) of that
Account Holder Letter or paragraphs (3) and (4) of Box 3 of that Claim
Form are made but, on the face of the Account Holder Letter or Claim
Form, as the case may be, it is apparent that the confirmations may be
inaccurate or plc has reason to believe that a Distribution made in
accordance with the Account Holder Letter or Claim Form, as the case may
be, might be in breach of any of the securities laws described in part 1,
and Section 2 of Parts D.16 and D.17 of the Scheme Document:
(a) in the case of the Account Holder Letter, Bondholder Communications
shall draw that Account Holder Letter to the attention of plc and
the Supervisors; and
(b) in the case of the Claim Form, the Supervisors shall draw that
Claim Form to the attention of plc; and
plc may, after such investigation as it may deem appropriate in the
circumstances, direct the Distribution Agent (i) if the New Creditor
Shares or New Notes or any of them are listed on a securities exchange,
to sell or procure the sale of the New Notes and the New Creditor Shares
which would otherwise have been Distributed and instead either (i) pay
the cash proceeds of such sale to the relevant Eligible Recipient in
sterling (after deducting all applicable expenses including foreign
currency conversion costs incurred) or (ii) if the New Creditor Shares or
New Notes or any of them are not listed on a securities exchange, to pay
a sum of cash in sterling which is substantially equivalent in value to
such New Creditor Shares or New Notes and determined in accordance with
clause 32(7)(e)(ii) of the plc Scheme to the cash account set out in the
relevant Account Holder Letter or Claim Form. Any sale made pursuant to
this sub-clause (9) shall be made for the best terms reasonably available
at the time of the sale.
(10) In respect of each Distribution Notice that directs the Escrow Trustee
and the Distribution Agent to distribute New Creditor Shares, the Escrow
Trustee shall procure that the Distribution Agent transfers on its behalf
the requisite number of New Creditor Shares to the Registrars and
instruct the Registrars to transfer the same to the relevant Scheme
Creditor or Designated Recipient in accordance with the relevant
Distribution Notice and sub-clause (6) above. For this purpose the Escrow
Trustee shall give the Registrars standing instructions in the Letter of
Instruction to effect the transfers contemplated by this sub-clause (10)
and hereby irrevocably agrees not to withdraw or alter such instructions
without the prior approval of the Supervisors.
(11) In relation to each Distribution made by it, in any case where it would
otherwise be required to distribute a fraction of a New Note or a
fraction of a New Creditor Share to an Eligible Recipient, the
Distribution
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Agent (acting on behalf of the Escrow Trustee) shall, in accordance with
sub-clause 32(6) of the plc Scheme, (i) if the New Creditor Shares or New
Notes or any of them are Listed, aggregate all such fractions and sell
the relevant number of New Notes and New Creditor Shares in the market
and pay the net proceeds of such sale (after deducting all costs of the
sale and paying all fractional entitlements) to the Escrow Account
specified for this purpose in a Transfer Notice; and (ii) if the New
Creditor Shares or New Notes are not Listed, round down to zero all
fractional entitlements of Eligible Recipients to such unlisted New
Creditor Shares and New Notes and transfer (if required) to the Escrow
Account specified for this purpose in a Transfer Notice all fractional
entitlements to those New Shares and New Notes (as the case may be)
which, but for this sub-paragraph (b), Eligible Recipients would have
received. No fraction of a unit of currency shall be Distributed by the
Distribution Agent and any cash remaining after the relevant Distribution
as a result of any such fractional entitlements shall be paid by the
Distribution Agent to plc. In this paragraph, the "RELEVANT NUMBER OF NEW
NOTES OR NEW SHARES" means the number of New Notes and New Creditor
Shares that would have resulted from the aggregation of all fractional
entitlements and the rounding down of the result to the nearest whole New
Note and New Creditor Share, respectively.
9. RIGHTS, POWERS AND DUTIES OF THE ESCROW TRUSTEE AND THE DISTRIBUTION
AGENT
(1) Neither the Escrow Trustee nor the Distribution Agent will exercise any
voting rights attaching to the New Notes or the New Shares whilst they
are held in any of the Trust Funds.
(2) The duties, responsibilities and obligations of the Escrow Trustee and
the Distribution Agent shall be limited to those expressly set forth
herein and no duties, responsibilities or obligations shall be inferred
or implied. Neither the Escrow Trustee nor the Distribution Agent shall
be required to, and nor shall either of them, expend or risk any of its
own funds or otherwise incur any financial liability in the performance
of any of its duties under this Agreement save where the same arises as a
result of its negligence, misfeasance, breach of duty or wilful default.
(3) Each of the Escrow Trustee and the Distribution Agent shall not be
responsible for, or charged with knowledge of, the terms and conditions
of any other agreement, instrument or document executed between the other
parties and to which it is not a party, other than the Schemes and except
such agreements, instruments or documents as may be specifically referred
to in this Agreement.
(4) Corp agrees (subject as provided in sub-clause (5)) to reimburse each of
the Escrow Trustee and the Distribution Agent on demand for, and to
indemnify (on an after tax basis) and hold each of the Escrow Trustee and
the Distribution Agent harmless against and with respect to, any and all
loss, liability, damage or expense (including, but without limitation,
reasonable legal fees, costs and disbursements) that the Escrow Trustee
or, as the case may be, the Distribution Agent may suffer or incur in
connection with it acting in accordance with the Corp Scheme, the plc
Scheme or this Agreement, except to the extent that such loss, liability,
damage or expense arises from its own negligence, misfeasance, breach of
duty or wilful default.
(5) In case any action shall be brought against either the Escrow Trustee or
the Distribution Agent (the "INDEMNIFIED PERSON") in respect of which
recovery may be sought from Corp (the "INDEMNIFIER"), under sub-clause
(4), the indemnified person shall promptly notify the indemnifier in
writing but (subject as provided below) failure to do so will not relieve
the indemnifier from any liability under this Agreement. Subject to
sub-clause (6), the indemnifier may participate at its own expense in the
defence of any action.
(6) If it so elects within a reasonable time after receipt of the notice
referred to in sub-clause (5), the indemnifier may assume the defence of
the action with legal advisers chosen by it and approved by the
indemnified person. Notwithstanding such election the indemnified person
may employ separate legal advisers, and the indemnifier shall bear the
fees and expenses of such separate legal advisers if:
(a) the use of the legal advisers chosen by the indemnifier to
represent the indemnified person would present such legal advisers
with a conflict of interest;
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(b) the actual or potential defendants in, or targets of, any such
action include both the indemnified person and the indemnifier and
the indemnified person concludes that there may be legal defences
available to it which are different from or additional to those
available to the indemnifier;
(c) the indemnifier has not employed legal advisers satisfactory to the
indemnified person (acting reasonably) to represent the indemnified
person within a reasonable time after notice of the institution of
such action; or
(d) the indemnifier authorises the indemnified person to employ separate
legal advisers at the expense of the indemnifier.
If the indemnifier assumes the defence of the action, the indemnifier
shall not be liable for any fees and expenses of legal advisers of the
indemnified person incurred thereafter in connection with the action,
except as stated above.
(7) Corp shall not be liable in respect of any settlement of any action
effected without its consent, such consent not to be unreasonably withheld
or delayed. Corp shall not, without the prior written consent of the
indemnified person, where the indemnified person is an actual or is
reasonably likely to be a potential party to such claim or action, settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim or action in respect of which recovery may be
sought hereunder unless such settlement, compromise or consent includes an
unconditional release of the indemnified person from all liability arising
out of such claim or action and does not include a statement as to or an
admission of fault, culpability or failure to act by or on behalf of the
indemnified person.
(8) Subject as provided in sub-clause (9), Corp agrees to reimburse each
Designated Recipient on demand for, and to indemnify and hold each of them
harmless against and with respect to, any Loss to the extent that such
Loss arises out of any negligence, fraud, breach of duty, wilful
misconduct or misfeasance of Bondholder Communications. For this purpose
"LOSS" means any loss suffered by a Designated Recipient:
(a) in the case of the First Initial Distribution under each Scheme,
through it failing to receive any part of its part of that First
Initial Distribution or it receiving any part of its part of that
First Initial Distribution after the Effective Date of the relevant
Scheme; and
(b) in the case of the Initial Distribution (other than the First
Initial Distribution) under each Scheme, through it failing to
receive any part of its part of that Initial Distribution,
in each case except where the failure to receive any part of the
Distribution is as a result of the operation of any of clause 7(11),
7(12), 7(13), 8(8), 8(9) and 8(11) of this Agreement.
(9) The right of reimbursement and indemnity set out in sub-clause (8) will
not apply:
(a) in the case of the First Initial Distribution under either Scheme,
where an Account Holder Letter was submitted after 5.00 p.m. (New
York City time) on 17th April 2003, or was submitted before that
time and date but was incomplete or contained any error or
inconsistency which had not been rectified by that time and date to
Bondholder Communications' satisfaction (acting as a reasonably
prudent expert); or
(b) to the extent that the loss arose as a result of any action taken or
omitted by the relevant Designated Recipient or its connected
Bondholder, Account Holder or Intermediary or any clearing system or
agent of a clearing system or any other party to this Agreement
(other than Corp or plc); or
(c) where all necessary information in respect of a Designated Recipient
has been given by Bondholder Communications to the Distribution
Agent by the date specified in, and as required by, but subject as
provided in, clause 7(5)(g) or 8(5)(g), as the case may be, Scheme
Consideration under either Scheme is not received by that Designated
Recipient or, in the case of the First Initial Distribution, is not
received by him on the Effective Date of the relevant Scheme.
(10) Each of the Escrow Trustee and the Distribution Agent may obtain and pay
for such legal or other expert advice or services as it may reasonably
consider necessary in relation to this Agreement, may rely on the
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opinion of or advice obtained from any accountant, lawyer or other expert
of good repute and shall incur no liability and shall be fully protected
in acting in good faith in accordance with such opinion or advice.
(11) Each of the Escrow Trustee and the Distribution Agent may call for and
shall be at liberty to accept as sufficient evidence of any fact or
matter or the expediency of any transaction or thing a certificate signed
by the Supervisors or (but only where specifically provided in this
Agreement that Corp or plc may give directions to the Escrow Trustee or,
as the case may be, the Distribution Agent) by any two directors of Corp
or plc, as the case may be, and neither the Escrow Trustee nor the
Distribution Agent shall be bound in any such case to call for further
evidence or be responsible for any liability that may be occasioned by it
or any other person acting on such certificate.
(12) Each of the Escrow Trustee and the Distribution Agent shall be at liberty
to hold this Agreement and any other documents relating to it or to
deposit them in any part of the world with any banker or banking company
or company whose business includes undertaking the safe custody of
documents or lawyer or firm of lawyers considered by the Escrow Trustee
or, as the case may be, the Distribution Agent to be of good repute and
neither the Escrow Trustee nor the Distribution Agent shall be
responsible for or required to insure against any liability incurred in
connection with any such holding or deposit and may pay all sums required
to be paid on account of or in respect of any such deposit.
(13) Neither the Escrow Trustee nor the Distribution Agent shall (unless and
to the extent ordered so to do by a court of competent jurisdiction) be
required to disclose to any Scheme Creditor any information (including,
without limitation, information of a confidential, financial or price
sensitive nature) made available to it by any other party to this
Agreement or any other person in connection with this Agreement.
(14) Neither the Escrow Trustee nor the Distribution Agent shall be required
to take any legal action or proceedings unless it has been indemnified
and/or provided with security to its satisfaction against all actions,
proceedings, claims and demands to which it may render itself liable and
all costs, charges, damages, expenses and liabilities which it may incur
by so doing.
(15) Each of the parties to this Agreement agrees (a) that it will not take
any proceedings, or assert or seek to assert any claim, against any
officer or employee of any of the Escrow Trustee, the Distribution Agent,
Bondholder Communications, the Eurobond Trustee or BoNY in respect of any
claim it might have against the Escrow Trustee, the Distribution Agent,
Bondholder Communications, the Eurobond Trustee or BoNY (as the case may
be) or in respect of this Agreement and (b) that any officer or employee
of the Escrow Trustee, the Distribution Agent, Bondholder Communications,
the Eurobond Trustee or BoNY may enforce this provision. Each of the
parties to this Agreement agrees (a) that it will not take any
proceedings, or assert or seek to assert any claim, against any partner
(not being a Supervisor) in the same firm as the Supervisors, or any
individual or natural person (provided that such person is not a
Supervisor) employed, whether under a contract of service or a contract
for services, by that firm or any company owned by that firm in respect
of any claim it might have against the Supervisors or in respect of this
Agreement and (b) that any such partner in the same firm as the
Supervisors, or any such person employed, whether under a contract of
service or a contract for services, by that firm or any company owned by
that firm may enforce this provision.
(16) Each of the Escrow Trustee and the Distribution Agent may (without any
responsibility for any resulting loss) rely on:
(a) any written communication, certificate, legal opinion or other
document received or obtained by it in the course of performing its
obligations under this Agreement and believed by it to be genuine
and correct and to have been signed by, or with the authority of,
the proper person; and
(b) any written statement made to it in the course of, and as part of,
performing its obligations under this Agreement by a director,
officer, partner or employee of any person regarding any matters
which may reasonably be assumed to be within the maker's knowledge
or within the maker's power to verify.
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(17) Any opinion, advice or information described in sub-clause (16) on which
the Escrow Trustee or, as the case may be, the Distribution Agent relies
or intends to rely may be sent or communicated by letter or facsimile
transmission. Neither the Escrow Trustee nor the Distribution Agent shall
be liable for acting properly and in accordance with this Agreement on
any opinion, advice or information which is so conveyed, even if the
opinion, advice or information contains some error of which the Escrow
Trustee or, as the case may be, the Distribution Agent is not aware or
which is not manifest.
(18) Each of the Escrow Trustee and the Distribution Agent may retain for its
own benefit, without liability to account to any other person, any fee or
other sum received by it for its own account.
(19) The Distribution Agent may provide advisory or other services to or
engage in any kind of business with any person party to, or affected by,
the arrangements the subject of this Agreement and may do so without any
obligation to account to or disclose any such arrangements to any person
but not in respect of the Schemes unless permitted by a Scheme or this
Agreement.
(20) Each of the Escrow Trustee and the Distribution Agent may exercise any of
its rights and perform any of its duties, obligations and
responsibilities under this Agreement through its paid or unpaid agents,
which may be corporations, partnerships or individuals (whether or not
lawyers or other professional persons) and, provided that it has
exercised reasonable care in the selection of any such agent, shall not
be responsible for any misconduct or omission on the part of, or be bound
to supervise the proceedings or acts of, any such agent save where the
same arises as a result of the negligence, misfeasance, breach of duty or
wilful default on the part of the agent. Any such agent which is engaged
in any profession or business shall be entitled to charge and be paid all
usual fees, expenses and other charges for its services.
(21) Each of the Escrow Trustee and the Distribution Agent may refrain from
doing anything which would or might in its opinion be contrary to any law
or any directive or regulation of or having the force of law to which it
is subject or which would or might otherwise render it liable to any
person and may do anything which is, in its reasonable opinion, necessary
to comply with such law, directive or regulation.
(22) If so instructed by the Supervisors, each of the Escrow Trustee and the
Distribution Agent shall concur with the other parties to this Agreement
in the making of any modification to this Agreement which is certified by
the Supervisors in writing as (a) relating to administrative matters or
being a technical amendment arising out of a manifest or proven error and
(b) not in the Supervisor's reasonable opinion materially prejudicial the
Scheme Creditors or Designated Recipients affected by such modification.
10. COVENANTS OF THE ESCROW TRUSTEE
The Escrow Trustee shall not:
(1) create or permit to subsist any mortgage, standard security, pledge,
lien, charge or other Security Interest whatsoever (unless arising by
operation of law), upon the whole or any part of its assets or its
undertakings, present or future;
(2) sell, assign, transfer, convey, lease or otherwise dispose of, or deal
with, or grant any option or present or future right to acquire all or
any of its properties, assets, or undertakings or any interest, estate,
right, title or benefit therein or thereto or agree or attempt to purport
to do any of the foregoing except, in all cases, to the extent necessary
to perform its obligations under this Agreement;
(3) save in respect of the trusts created by this Agreement, permit any
person other than itself to have any equitable interest in any of its
assets or undertakings or any interest, estate, right, title or benefit
therein;
(4) have an interest in any bank account, other than the bank accounts
comprised in the Escrow Accounts and the Corporate Expenses Account or to
withdraw any sum from the Corporate Expenses Account other than a
Permitted Withdrawal;
(5) carry on any business other than as Escrow Trustee for the Schemes and
the related activities described in the Schemes or as contemplated in
this Agreement;
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(6) incur any indebtedness whatsoever or give any guarantee or indemnity in
respect of any indebtedness or obligation of any person;
(7) consolidate or merge with any other person or convey or transfer
substantially all of its properties or assets to any other person;
(8) have any employees or premises or subsidiaries; and
(9) pay any dividend or make any other distribution to its shareholders or
issue any further shares or alter any rights attaching to its shares as
at the date of this Agreement.
11. INVESTMENTS
(1) The Escrow Trustee hereby directs the Distribution Agent to credit all
interest earned (including any interest in the form of debt securities)
and dividends (or any other rights or benefits) or other cash or property
received in respect of any assets in any Escrow Account to the relevant
account forming part of that Escrow Account until payment or transfer to
Admitted Scheme Creditors in accordance with the provisions of this
Agreement. The Supervisors shall have the power to direct (but shall not
be obliged to direct) that any such property that cannot be conveniently
held by the Escrow Trustee shall be sold and the cash proceeds of such
sale dealt with in accordance with this clause.
(2) Any payment of interest earned (including any interest in the form of
debt securities) or dividends received in respect of any assets in any
Escrow Account ("PROFITS") to Eligible Recipients shall only be made by
the Distribution Agent (acting on behalf of the Escrow Trustee) if the
Supervisors have so instructed the Distribution Agent, having first
instructed the Distribution Agent (as agent for the Escrow Trustee) to
retain a reserve in respect of any and all taxes payable by the Escrow
Trustee, or required to be deducted by the Escrow Trustee (whether by law
or by agreement with the Inland Revenue), in respect of such Profits
being distributed.
12. CONDUCT OF TAXATION MATTERS
(1) For the purposes of this clause 12, a "BARE TRUST" is a trust which is
not a settlement for the purposes of section 43 Inheritance Tax Act 1984,
whereby the trust property is held by the Escrow Trustee for another
person absolutely entitled as against the Escrow Trustee within the
meaning of section 60(2) Taxation of Chargeable Gains Act 1992 and which
is a bare trust for all income tax purposes.
(2) As soon as reasonably practicable after the Effective Date, the Escrow
Trustee shall seek confirmation from the Inland Revenue that the
arrangements constituted by the Corp Scheme, the plc Scheme and this
Agreement result in the Trust Funds being held on bare trust (such
confirmation being a "FAVOURABLE CONFIRMATION"). The Escrow Trustee shall
notify Corp and the Supervisors within 21 days of a receipt of a
Favourable Confirmation.
(3) If the Inland Revenue at any time confirms to the Escrow Trustee that the
Trust Funds are not held on bare trust or commences an enquiry into any
tax return submitted on the basis that the Trust Funds are held on bare
trust (an "ADVERSE CONFIRMATION"), the provisions of sub-clauses (6) and
(8) shall apply. If the Inland Revenue declines to give a Favourable
Confirmation, or has not given a Favourable Confirmation within 3 months
of the date on which confirmation was sought under sub-clause (2) above,
but does not give an Adverse Confirmation (a "NON-CONFIRMATION"), the
provisions of sub-clauses (7) and (8) shall apply.
(4) Unless and until the Escrow Trustee receives or becomes aware of an
Adverse Confirmation or Non-Confirmation, it shall direct the
Distribution Agent to make distributions to Eligible Recipients without
retaining or deducting any amounts on account of tax, save as provided in
sub-clause 11(2). For the avoidance of doubt, nothing in this clause 12
affects the obligations of the Distribution Agent in clause 11(2).
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(5) Corp agrees that, if and when it recovers any input value added tax
incurred by it in relation to the issue of New Shares or New Notes under
the Corp Scheme, it shall establish the Escrow Tax Fund as a separate
fund to be applied only in accordance with the following provisions.
(a) Subject to paragraph (b) below, the Escrow Tax Fund shall only be
used:
(i) to make any repayment of the input value added tax comprising
the Escrow Tax Fund for which Corp is determined or agreed to
be liable to HM Customs & Excise (together with any
applicable interest or penalties) (a "VAT REPAYMENT");
(ii) to meet any Tax Liability (as defined in sub-clause (8)(d)
below) of the Escrow Trustee; or
(iii) to pay any Costs as provided in sub-clause (9).
(b) The Escrow Tax Fund shall be used to meet a VAT Repayment in
priority to a Tax Liability or any Costs (as defined in sub-clause
(9)). If any or all of the Escrow Tax Fund has been used to meet a
Tax Liability or any Costs (as defined in sub-clause (9)) and is
later required to meet a VAT Repayment, such that there are
insufficient sums in the Escrow Tax Fund to meet Corp's liability to
make the VAT Repayment, the Supervisors hereby direct the Escrow
Trustee (which hereby directs the Distribution Agent) to pay to Corp
an amount equal to the deficiency from the Reserve Corp Scheme
Creditors Fund or the Combined Corp Funds, or the Reserve plc Scheme
Creditors Fund or the Combined plc Funds, as the case may be.
(c) Corp may cease to hold the Escrow Tax Fund as a separate fund, and
its use shall cease to be subject to the restrictions referred to in
paragraph (a) above on the occurrence of any of the following:
(i) the Escrow Trustee's receipt of a Favourable Confirmation
(including a Favourable Confirmation as set out in sub-clause
(7)(c));
(ii) the determination by a court of competent jurisdiction from
which neither party appeals that the Scheme Consideration is
held on bare trust; or
(iii) after the closure of all the Escrow Accounts as set out in
clause 13, the confirmation by the Escrow Trustee that it has
no further Tax Liability (as defined in sub-clause (8)(d)) in
connection with its activities as escrow trustee under the
Schemes.
(d) For the avoidance of doubt, nothing in this sub-clause (5) shall
require Corp to conduct its tax affairs in a particular manner, to
disclose any information relating to its tax affairs, or to contest
any assessment to value added tax made by HM Customs & Excise.
(6) This sub-clause applies if the Escrow Trustee receives an Adverse
Confirmation.
(a) The Escrow Trustee shall, within 21 days of receiving the Adverse
Confirmation, inform the Supervisors. Unless and until the Escrow
Trustee receives a subsequent Favourable Confirmation, it shall
retain a reserve for any tax liability it may have on the basis that
the Trust Funds are not held on bare trust, in accordance with
sub-clause (8).
(b) The Escrow Trustee shall take reasonable steps to pursue
correspondence with the Inland Revenue to obtain a Favourable
Confirmation.
(c) If, after taking the steps referred to in paragraph (b) above, the
Escrow Trustee is unable to obtain a Favourable Confirmation, the
Escrow Trustee shall take reasonable steps to pursue any available
appeal. The Escrow Trustee shall not be required to take any steps
where, in the opinion of the Supervisors, the cost of undertaking
those steps outweighs any likely benefit or where leading tax
counsel has advised either that an appeal is not likely to succeed
or that it would not be reasonable to pursue an appeal in the light
of any settlement offered.
(d) Until (i) the Adverse Confirmation is upheld by a court of competent
jurisdiction from whose decision the Escrow Trustee does not appeal,
(ii) the Escrow Trustee is not required to take any further steps in
respect of the Adverse Confirmation in accordance with paragraph (c)
above, or
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(iii) leading tax counsel advises the Escrow Trustee otherwise, and
in so far as it is able to do so without incurring any penalty, the
Escrow Trustee shall file any tax returns on the basis that the
Trust Funds are held on bare trust. This paragraph is without
prejudice to sub-clause (8) below.
(7) This sub-clause applies if the Escrow Trustee receives or becomes aware
of a Non-Confirmation.
(a) The Escrow Trustee shall, within 21 days of receiving or becoming
aware of the Non-Confirmation, inform the Supervisors. Unless and
until the Escrow Trustee receives a subsequent Favourable
Confirmation, it shall retain a reserve for any tax liability it may
have on the basis that the Trust Funds are not held on bare trust,
in accordance with sub-clause (8).
(b) The Escrow Trustee shall file any tax returns on the basis that the
Trust Funds are held on bare trust, unless leading tax counsel
advises the Escrow Trustee to file on a different basis. This
paragraph is without prejudice to sub-clause (8) below.
(c) The agreement by the Inland Revenue of any tax return filed by the
Escrow Trustee on the basis that the Trust Funds are held on bare
trust shall be taken as a Favourable Confirmation. Where the Escrow
Trustee has filed such a tax return and no notice of enquiry has
been issued pursuant to Schedule 18 Finance Act 1998 within the
prescribed time period, there shall be deemed to have been a
Favourable Confirmation unless leading tax counsel advises
otherwise.
(d) If at any point the Escrow Trustee receives an Adverse Confirmation,
the provisions of sub-clause (6) will apply.
(8) If the Escrow Trustee receives an Adverse Confirmation or
Non-Confirmation, the Supervisors hereby direct the Escrow Trustee (which
hereby directs the Distribution Agent) to pay or set aside amounts
(taking into account any amounts already paid or set aside under
sub-clause 11(2) and the balance of the Escrow Tax Fund) on account of
any tax payable by the Escrow Trustee (on the assumption that the Trust
Funds are not held on bare trust) in respect of (i) assets or income
comprising distributions to Scheme Creditors which have already been made
("PAST TAX LIABILITY"), and (ii) distributions of assets or income
comprising distributions to Scheme Creditors which have not yet been made
("FUTURE TAX LIABILITY") in the following manner:
(a) If the Supervisors have not terminated the Waiting Period in
accordance with clause 24 of the Corp Scheme, or clause 24 of the
plc Scheme as the case may be, the Distribution Agent shall set
aside amounts from the Reserve Corp Scheme Creditors Fund or the
combined Unadmitted Known Corp Scheme Creditors Fund and Reserve
Corp Scheme Creditors Fund (the "COMBINED CORP FUNDS") or from the
Reserve plc Scheme Creditors Fund or the combined Unadmitted Known
plc Scheme Creditors Fund and Reserve plc Scheme Creditors Fund (the
"COMBINED PLC FUNDS"), as the case may be:
(i) in the case of amounts in respect of the Past Tax Liability,
forthwith after the receipt by the Escrow Trustee of the
Adverse Confirmation or Non-Confirmation; and
(ii) in the case of amounts in respect of a Future Tax Liability,
at the time at which the distribution to which that liability
relates is made. If, however, at that time the Supervisors
have terminated the Waiting Period as set out above, amounts
in respect of a Future Tax Liability shall be retained as
provided for in paragraph (b)(ii) below.
(b) If the Supervisors have terminated the Waiting Period as set out in
paragraph (a) above or decide to do so as a result of the operation
of this sub-clause (8),
(i) amounts shall be set aside in respect of the Past Tax
Liability from the Combined Corp Funds or the Combined plc
Funds, as the case may be, forthwith after the receipt by the
Escrow Trustee of the Adverse Confirmation or
Non-Confirmation; and
(ii) amounts in respect of any Future Tax Liability shall be
retained by the Distribution Agent out of the distribution to
which that liability relates.
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(c) The quantum of any amounts set aside or retained pursuant to this
sub-clause (8) shall be directed by the Supervisors.
(d) Any amounts which are determined or agreed to be payable on account
of any tax liability of the Escrow Trustee (a "TAX LIABILITY") shall
be met out of the following amounts and in the following priority:
(i) in the first instance, out of amounts already paid or set
aside under sub-clause 11(2);
(ii) secondly, out of the Escrow Tax Fund; and
(iii) thirdly, out of any amounts set aside in accordance with this
sub-clause (8),
Corp hereby agrees to make any payments necessary pursuant to the
operation of this paragraph from the Escrow Tax Fund to the Escrow
Trustee. The Supervisors hereby direct the Escrow Trustee (which
hereby directs the Distribution Agent) to pay any amounts to be paid
in accordance with paragraphs (i) and (iii) above in satisfaction of
its Tax Liability.
(e) To the extent that any amounts set aside pursuant to this sub-clause
(8) are not, in the event, required to meet a Tax Liability, or, in
the case of any amounts paid in satisfaction of a Tax Liability, are
subsequently repaid by the Inland Revenue, then such amounts shall
be dealt with as follows and in the following order of priority:
(i) where an amount has been retained and/or paid out of a
distribution made to an Eligible Recipient pursuant to
paragraph (b)(ii) above, an equivalent sum shall be paid to
that Eligible Recipient;
(ii) an amount has been set aside and/or paid from the Reserve
Corp Scheme Creditors Fund or the Combined Corp Funds, or the
Reserve plc Scheme Creditors Fund or the Combined plc Funds,
an equivalent sum shall be returned to that fund (or any fund
into which the contents of that fund have been transferred
pursuant to this Agreement); and
(iii) where an amount has been paid from the Escrow Tax Fund, an
equivalent sum shall be returned to that fund,
unless Corp has made a payment to the Escrow Trustee pursuant to
sub-clause (10) (an "INDEMNITY PAYMENT"), in which case the amounts
shall first be paid over to Corp to the extent of such Indemnity
Payment.
(9) The cost of any steps taken pursuant to this clause 12 ("COSTS") shall be
met first out of the Escrow Tax Fund and subsequently:
(a) before the end of the Waiting Period, out of the Reserve Corp Scheme
Creditors Fund, or from the Reserve plc Scheme Creditors Fund as the
case may be; and
(b) after the end of the Waiting Period, out of the Combined Corp Funds
or the Combined plc Funds, as the case may be.
(10) Clause 9(4) of this Agreement shall not apply to any Tax Liability or any
Costs of the Escrow Trustee and instead the following provisions shall
apply:
(a) Corp shall indemnify (on an after tax basis) the Escrow Trustee
against any Tax Liability or any Costs (whether arising in relation
to the Corp or plc Scheme) insofar as such Tax Liability or Costs
cannot be met out of amounts retained for the purpose pursuant to
sub-clause 11(2) or this clause 12. For the purposes of this
sub-clause, a Tax Liability includes any interest or penalties
thereon.
(b) The Escrow Trustee shall promptly give notice to Corp if it appears
to it that it may incur or suffer a potential Tax Liability. It
shall demonstrate to Corp's reasonable satisfaction the extent to
which (if at all) such Tax Liability or any Costs cannot be met out
of the amounts referred to in paragraph (a) above.
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(c) If it appears that Corp may be obliged to make payment to the Escrow
Trustee in accordance with this sub-clause, Corp shall be entitled
to resist the Tax Liability in the name of the Escrow Trustee and
have the conduct of any proceedings relating to that Tax Liability,
having indemnified the Escrow Trustee against all charges, costs and
expenses which it might incur in resisting the Tax Liability.
13. TERMINATION
(1) Promptly after each Escrow Account ceases to have any cash or securities
credited to it, the Escrow Trustee shall, subject to obtaining the prior
consent of the Supervisors, arrange for that Escrow Account to be closed.
(2) Once all of the Escrow Accounts have been closed and the Distribution
Agent's obligations fulfilled, the trusts set out in this Agreement shall
be wound up.
(3) Upon closure of all of the Escrow Accounts in accordance with the terms
of this Agreement, each of the Escrow Trustee, the Distribution Agent and
Bondholder Communications shall have no further duties, responsibilities
or obligations hereunder save for such obligations as may have arisen
prior to such closure, which obligations have not as at the time of such
closure been fulfilled or discharged.
14. REPRESENTATIONS AND WARRANTIES
(1) Each of the parties to this Agreement represents and warrants to each of
the others that it has the capacity, power and authority to enter into
this Agreement and that the obligations assumed by it (if any) are legal,
valid and binding obligations on it.
(2) Each of the parties to this Agreement represents and warrants to each of
the others that neither the execution by it of, nor the performance by it
of its respective obligations (if any) in accordance with the terms of,
this Agreement will:
(a) so far as that party is aware, violate or conflict with, or
constitute a default under, any agreement or other obligation to
which that party is subject or by which it is bound; or
(b) so far as that party is aware, contravene or conflict with or
constitute a violation of any provision of any law, rule,
regulation, judgement, order or decree which is binding on it.
(3) Each of the parties to this Agreement represents and warrants to each of
the other parties that it has obtained the power, capacity and authority
to execute, and perform its respective obligations (if any) in accordance
with the terms of, this Agreement.
(4) Corp represents and warrants to each of the other parties to this
Agreement that the Escrow Trustee has not carried on any business since
the date of its incorporation to the date of this Agreement.
15. EXCLUSION OF PERSONAL LIABILITY
Nothing in this Agreement shall impose any personal liability on the
Supervisors or either of them but without prejudice to the Supervisors
obligations under the Schemes. This clause is without prejudice to the
provisions of clause 16.
16. EXCLUSION OF LIABILITY
(1) None of the Supervisors, the Escrow Trustee, the Distribution Agent and
Bondholder Communications (and their related parties (if any), delegates
and agents appointed pursuant to the provisions of the Schemes) shall
have any liability in respect of or arising from making the
determinations or exercising any of the powers or performing any of the
duties provided for in the Scheme or this Agreement or any matter
relating to such determinations, powers or duties (including, without
limitation, any payment made or not made to any person), other than as a
direct consequence of its own wilful default, misfeasance, breach of duty
or negligence (or that of its related parties (if any), delegates or
agents). For the purpose of this clause 16, "RELATED PARTIES" means any
partner in the same firm as the Supervisors, or any person
659
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
employed, whether under a contract of service or a contract for services,
by that firm or any company owned by that firm.
(2) Neither the Eurobond Trustee nor BoNY (except where it is acting as
Distribution Agent) shall have any liability or any obligations
whatsoever to any person under or pursuant to this Agreement.
17. FEES AND EXPENSES
(1) The Escrow Trustee shall be paid fees and expenses for its services under
this Agreement in accordance with the Escrow Trustee Fee Letter.
(2) The Distribution Agent shall be paid fees and expenses for its services
under this Agreement in accordance with the Distribution Agent Fee
Letter.
(3) The fees and expenses referred to in sub-clauses (1) and (2) above shall
be paid by Corp and plc in the proportions agreed between them without
recourse to any of the Trust Funds.
18. FURTHER ASSURANCE
The parties shall do and execute, or procure to be done and executed, all
necessary acts, deeds and documents, including but not limited to giving
the necessary instructions to their solicitors, to effect the release of
the contents of any of the Escrow Accounts in accordance with any
termination of any of them pursuant to clause 13, and shall provide each
other with all necessary mutual support for the purposes of doing so and
giving effect to the terms of this Agreement.
19. FURTHER TERMS AND CONDITIONS
(1) If at any time either the Escrow Trustee or the Distribution Agent is
served with any judicial or administrative order, judgment, decree, writ
or other form of judicial or administrative process which in any way
affects the Escrow Accounts (each a "JUDICIAL NOTICE"), the Escrow
Trustee or, as the case may be, the Distribution Agent may comply
therewith in any manner as it or legal counsel of its choosing deems
appropriate; provided that, if reasonably practicable, it shall notify
Corp and/or plc (as the case may be) of such Judicial Notice received and
shall use its best efforts to discuss the manner in which it proposes to
comply with that Judicial Notice with Corp and/or plc prior to doing so.
If the Escrow Trustee or, as the case may be, the Distribution Agent
complies with any Judicial Notice, it shall not be liable to any other
person or entity even though such Judicial Notice may be subsequently
modified or vacated or otherwise determined to have been without legal
force or effect.
(2) The Distribution Agent shall provide the Escrow Trustee and the
Supervisors with monthly statements identifying the transactions, charges
(if any) and Profits earned on the Escrow Accounts and undistributed
balances of the Escrow Accounts.
(3) Subject to the provisions of sub-clause (4), the Distribution Agent may
resign at any time by giving to the other parties not less than 90 days'
prior written notice.
(4) If the Distribution Agent has given notice of resignation as provided in
sub-clause (5), the Escrow Trustee shall promptly appoint a successor
Distribution Agent. A successor Distribution Agent shall deliver a
written acceptance of its appointment to the retiring Distribution Agent
and the Escrow Trustee. A resignation of the Distribution Agent shall not
become effective until a successor Distribution Agent is appointed. The
retiring Distribution Agent shall ensure that the successor Distribution
Agent becomes the custodian of the Escrow Accounts and the successor
Distribution Agent shall have all the rights, powers and duties of the
Distribution Agent under this Agreement.
(5) No variation or amendment may be made to any provision in this Agreement
that would have the effect of altering or extinguishing the entitlement
of any Admitted Scheme Creditor or Designated Recipient unless consented
to by that Admitted Scheme Creditor or Designated Recipient.
660
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
(6) None of the parties to this Agreement shall be in breach of its
obligations (if any) under this Agreement as a result of any delay or
non-performance of its obligations (if any) under this Agreement arising
from any Force Majeure.
20. COUNTERPARTS
This Agreement may be signed in any number of counterparts, all of which
taken together shall constitute one and the same instrument.
21. NOTICES
(1) Any notice or other document to be served under this Agreement may be
delivered or sent by post or facsimile process to the party to be served
as follows:
(a) to Corp at: (b) to plc at:
Marconi Corporation plc Marconi plc
New Century Park New Century Park
PO Box 53 PO Box 53
Coventry Coventry
Warwickshire Warwickshire
CV3 1HT CV3 1HT
Fax: 024 7656 3377 Fax: 024 7656 3377
Marked for the attention of Marked for the attention of The
The Company Secretary, Company Secretary,
(c) to the Distribution Agent and BoNY (d) to the Eurobond Trustee at:
at: The Law Debenture Trust
The Bank of New York Corporation p.l.c.
One Canada Square Fifth Floor
London E14 5AL 100 Wood Street
London EC2V 7EX
Fax: 020 7964 6399 Fax: 020 7606 0643
Marked for the attention of Marked for the attention of Abigail
Corporate Trust Administration, Holladay,
(e) to Ancrane at: (f) to Bondholder Communications at:
Ancrane Bondholder Communications Group
New Century Park 30 Broad Street, 46th Floor
PO Box 53 New York, NY 10004
Coventry
Warwickshire
CV3 1HT
Fax: 024 7656 3377 Fax: + 212 422 0790
Marked for the attention of Marked for the attention of Donna
The Company Secretary, Martini,
661
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
(g) to the Supervisors at: (h) to the Escrow Trustee at:
KPMG Regent Escrow Limited
8 Salisbury Square New Century Park
London EC4Y 8BS PO Box 53
Coventry
Warwickshire
CV3 1HT
Fax: +44 20 7694 3011 Fax: 024 7656 3377
Marked for the attention of Marked for the attention of the
Richard Heis, Company Secretary,
or at such other address or facsimile number as it may have notified to
the other parties in accordance with this clause. Any notice or other
document sent by post shall be sent by prepaid first class post (if
within the United Kingdom) or by prepaid airmail (if elsewhere).
(2) In proving service of a notice or document it shall be sufficient to
prove that delivery was made or that the envelope containing the notice
or document was properly addressed and posted (either by prepaid first
class post or by prepaid airmail, as the case may be) or that the
facsimile message was properly addressed and despatched, as the case may
be.
22. THIRD PARTY RIGHTS
(1) The parties to this Agreement agree that wherever in this Agreement a
right is specifically expressed to be given to (or an undertaking is
expressed to be in favour of) a person (being a Scheme Creditor
(including a Definitive Holder) or a Designated Recipient) who is not a
party to this Agreement, such language is intended to confer benefits on
that person thereby granting to him rights capable of being enforced by
him separately under the Contracts (Rights of Third Parties) Act 1999.
Subject as stated in the previous sentence, a person who is not a party
to this Agreement may not enforce any of its terms under the Contracts
(Rights of Third Parties) Act 1999.
(2) Nothing in sub-clause (1) above shall confer a right on any Designated
Recipient to disturb a prior Distribution under either Scheme, whether on
the grounds that there remains insufficient Scheme Consideration to
satisfy that Designated Recipient's entitlement to any part of a
Distribution pursuant to the direction given in clause 7 or, as the case
may be, clause 8 or otherwise.
662
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 7: ESCROW AND DISTRIBUTION AGREEMENT
--------------------------------------------------------------------------------
23. GOVERNING LAW AND JURISDICTION
This Agreement is governed by, and shall be construed in accordance with,
the laws of England. Each party irrevocably agrees that the courts of
England are to have exclusive jurisdiction to settle any dispute which may
arise out of or in connection with this Agreement and that accordingly any
suit, action or proceedings arising out of or in connection with this
Agreement (together referred to as "PROCEEDINGS") may be brought in such
courts. Each party irrevocably waives any objection which it may have now
or hereafter to the laying of the venue of any Proceedings in the courts of
England and any claim that any Proceedings have been brought in an
inconvenient forum. Each of the Bank of New York (in its capacity as both
the Distribution Agent and the Yankee Bond Trustee) and Bondholder
Communications appoint the General Manager at the London branch of The Bank
of New York and the Manager at the London branch of Bondholder
Communications, respectively, as its agent for service of process in
England in respect of any Proceedings and each undertakes that in the event
of such agent ceasing so to act it will appoint another person as its agent
for that purpose. Nothing in this Agreement shall affect the right to serve
process in any other manner permitted by law.
IN WITNESS of which this Agreement has been executed as a deed and has been
delivered on the date which appears first on page 1.
663
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 7: ESCROW AND DISTRIBUTION AGREEMENT
--------------------------------------------------------------------------------
SCHEDULE 1
FORM OF ACCESSION LETTER
[to be amended as appropriate if the plc Scheme does not become effective]
[Effective Date] 2003
BY FACSIMILE AND BY POST
To: Marconi Corporation plc
Marconi plc
Regent Escrow Limited
Ancrane
The Bank of New York
The Law Debenture Trust Corporation p.l.c.
Bondholder Communications Group
c/o Marconi Corporation plc
4th Floor
Regents Place
338 Euston Road
London NW1 3BT
Fax No.: 0207 409 7748
Dear Sirs,
MARCONI CORPORATION PLC:
SCHEME OF ARRANGEMENT UNDER SECTION 425 OF THE COMPANIES ACT 1985 (THE "CORP
SCHEME")
MARCONI PLC:
SCHEME OF ARRANGEMENT UNDER SECTION 425 OF THE COMPANIES ACT 1985 (THE "PLC
SCHEME" AND, TOGETHER WITH THE CORP SCHEME, THE "SCHEMES")
We refer to the Escrow and Distribution Agreement (the "AGREEMENT") dated 27
March, 2003 between yourselves and confirm that we have been appointed today by
the High Court of England and Wales as the Supervisors of each of the Schemes.
Accordingly, we both jointly and severally agree to become a party to, and be
bound by the terms of, the Agreement from the date of this Accession Letter and
hereby accede to the Agreement in accordance with clause 2(4) thereof. We both
intend that this Accession Letter shall take effect as a deed poll for the joint
and several benefit of each of the addressees of this Accession Letter.
We may each sign a counterpart of this Accession Letter, both of which taken
together shall constitute one and the same instrument. If one of us does not
sign this Accession Letter, this shall not affect the validity of this Accession
Letter with respect to the Supervisor who has signed it.
Capitalised terms used in this Accession Letter shall have the same meaning
given to them in the Agreement.
664
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 7: ESCROW AND DISTRIBUTION AGREEMENT
--------------------------------------------------------------------------------
IN WITNESS whereof this Accession Letter has been entered into as a deed poll by
both of us on the date first set out above.
SIGNED as a deed by
PHILIP WALLACE, without
personal liability in his
capacity as a Supervisor
of the Schemes, in the presence of:
Witness's signature:
Name:
Address:
SIGNED as a deed by
RICHARD HEIS, without
personal liability in his
capacity as a Supervisor
of the Schemes, in the presence of:
Witness's signature:
Name:
Address:
665
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 7: ESCROW AND DISTRIBUTION AGREEMENT
--------------------------------------------------------------------------------
SCHEDULE 2
FORM OF ANCRANE DIRECTION LETTER
[LETTERHEAD OF ANCRANE]
To: Marconi plc
New Century Park
PO Box 53
Coventry
Warwickshire
CV3 1HT
("PLC")
Marconi Corporation plc
New Century Park
PO Box 53
Coventry
Warwickshire
CV3 1HT
("CORP")
[date], 2003
Dear Sirs,
ESCROW AND DISTRIBUTION AGREEMENT -- DIRECTIONS OF ANCRANE
1. We refer to the escrow and distribution agreement (the "ESCROW
AGREEMENT") entered into on 27 March, 2003 between, inter alios, plc,
Corp and Ancrane (the "COMPANY"). Except as otherwise provided in this
letter, capitalised terms in this letter shall have the meaning ascribed
to them in the Escrow Agreement and where there is a conflict, the
definition in this letter shall prevail.
2. It is proposed that Corp and plc will each enter into a scheme of
arrangement whereby, under the plc Scheme, the Scheme Claims of plc
Scheme Creditors against plc will be compromised in exchange for a
distribution of plc's assets pursuant to the plc Scheme and, under the
Corp Scheme, the Scheme Claims of Corp Scheme Creditors against Corp will
be compromised for a distribution of cash, new equity and new debt
securities of Corp pursuant to the Corp Scheme.
3. The Company has repaid capital in specie, being all of its assets other
than L100, to plc as contemplated in the scheme implementation deed (the
"SCHEME IMPLEMENTATION DEED") entered into on 27 March, 2003 between,
inter alios, plc, Corp and the Company. The Company is a Scheme Creditor
of Corp for the purpose of the Corp Scheme and is also entitled to Corp
Scheme Consideration and plc Scheme Consideration by virtue of its
holding of Bonds.
4. (a) The Company hereby irrevocably directs Corp to deliver to plc any
Scheme Consideration (as defined in the Corp Scheme) to which the
Company is entitled pursuant to the Claim Form filed by it in the
Corp Scheme. This delivery is being directed in connection with the
repayment of capital in specie to plc contemplated by the Scheme
Implementation Deed.
(b) The Company hereby irrevocably authorises and directs each of the
Eurobond Trustee, BoNY, the Escrow Trustee and the Supervisors to
direct the Distribution Agent to pay all Corp and plc Scheme
Consideration to which it is entitled by virtue of its holding of
Bonds to plc. This delivery is being directed in connection with
the repayment of capital in specie to plc contemplated by the
Scheme Implementation Deed.
5. This letter may be executed in one or more counterparts, each of which
will be deemed an original and all of which will constitute one and the
same letter.
666
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
6. In the event that any provision of this letter is void and unenforceable
by reason of any applicable law, it shall be deleted and the remaining
provisions of this letter shall continue in full force and effect, and if
necessary be so amended as necessary to give effect to the spirit of this
letter so far as possible.
7. This letter will be governed by, and construed in accordance with,
English law. Each party irrevocably submits to the jurisdiction of the
English courts for all purposes relating to this letter.
If you agree with the above, please sign where indicated below.
Yours faithfully
------------------------------------------------------ Date:
For
ANCRANE
Authorised Signatory
Copy: Regent Escrow Limited Philip Wallace and Richard Heis
New Century Park c/o KPMG LLP
PO Box 53 8 Salisbury Square
Coventry London
Warwickshire EC4Y 8BB
CV3 1HT
The Law Debenture Trust The Bank of New York
Corporation p.l.c. One Canada Square
Fifth Floor London E14 5AL
100 Wood Street
London EC2V 7EX
FORM OF ACKNOWLEDGEMENT
We hereby agree with the above letter and will carry out the directions of
Ancrane as set out in the above letter.
------------------------------------------------------ Date:
For
MARCONI PLC
Authorised Signatory
------------------------------------------------------ Date:
For
MARCONI CORPORATION PLC
Authorised Signatory
667
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 7: ESCROW AND DISTRIBUTION AGREEMENT
--------------------------------------------------------------------------------
SCHEDULE 3
FORM OF INSTRUCTION LETTER TO THE REGISTRARS
To: Computershare Investor Services PLC
P.O. Box 82
The Pavilions
Bridgwater Road
Bristol BS99 7NH
Dear Sirs,
MARCONI CORPORATION PLC:
SCHEME OF ARRANGEMENT UNDER SECTION 425 OF THE COMPANIES ACT 1985 (THE "CORP
SCHEME")
MARCONI PLC:
SCHEME OF ARRANGEMENT UNDER SECTION 425 OF THE COMPANIES ACT 1985 (THE "PLC
SCHEME" AND, TOGETHER WITH THE CORP SCHEME, THE "SCHEMES")
Pursuant to the terms of the Schemes and the Escrow and Distribution Agreement
(the "AGREEMENT") dated 27 March, 2003 between, among others, Marconi
Corporation plc, Marconi plc, Regent Escrow Limited, Bondholder Communications
Group, The Bank of New York, The Law Debenture Trust Corporation p.l.c. and
Philip Wallace and Richard Heis (in their capacity as Supervisors of the
Schemes), we are giving this Letter of Instruction to you as Corp's share and
warrant registrars. Capitalised terms used in this Letter of Instruction shall
have the same meaning given to them in the relevant Scheme and the Agreement.
We hereby direct you as follows:
1. Each plc Shareholder on the register of members shall receive one New
Share and such additional New Shares and Warrants as provided below.
2. The allocation of New Shares and Warrants to plc Shareholders shall be
calculated as provided in clause 31(3) of the Corp Scheme.
3. Except as provided in paragraph 4, final allocations of New Shares and
Warrants shall be distributed by you to the plc Shareholders as follows:
3.1 You shall transfer to your CREST securities account or that of your
subsidiary which will operate the Corporate Nominee, such number of New
Shares and Warrants as are allocated to plc Shareholders who hold share
certificates in respect of plc Shares, are aged 18 or more and have a
registered address in the United Kingdom, Channel Islands, Isle of Man or
Ireland.
3.2 You shall transfer to the relevant plc Shareholders' CREST securities
accounts by means of a USE message in CREST, such number of New Shares
and Warrants as are allocated to plc Shareholders who hold their
interests in plc Shares in CREST.
3.3 You shall issue new certificates to the relevant holders of the remainder
of the New Shares and Warrants within five business days of the date of
this Letter of Instruction.
3.4 All such transfers and issues shall be effected in such a way as not to
incur stamp duty or stamp duty reserve tax.
4. Clauses 31(6) and (7) of the Corp Scheme shall apply in respect of plc
Shareholders in certain jurisdictions and you will perform the
responsibilities of the Registrars as referred to therein.
5. Following the issuance by the Supervisors of a Distribution Notice under
one or both of the Schemes, the Escrow Trustee will procure that the
Distribution Agent (on its behalf) transfers sufficient New Creditor
Shares to you. Based on specific instructions given to you by the Escrow
Trustee in relation to each such Distribution Notice, we hereby direct
you as follows:
668
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 7: ESCROW AND DISTRIBUTION AGREEMENT
--------------------------------------------------------------------------------
5.1 You shall transfer any New Creditor Shares to the CREST accounts
designated in Claim Forms and in those Account Holder Letters which
specify that New Creditor Shares are to be delivered in this manner by
issuing USE instructions.
5.2 You shall issue and post any share certificates to the persons identified
as receiving such in Claim Forms and the Account Holder Letters.
6. This letter shall be governed by English law.
Yours faithfully,
By: By:
-------------------------------------------- --------------------------------------------
For and on behalf of For and on behalf of
Regent Escrow Limited Marconi Corporation plc
(as Escrow Trustee)
By:
--------------------------------------------
For and on behalf of
The Bank of New York
(as Distribution Agent)
669
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 7: ESCROW AND DISTRIBUTION AGREEMENT
--------------------------------------------------------------------------------
SIGNATORIES
EXECUTED as a deed
by MARCONI CORPORATION PLC, ----------------------------------
acting by and director
----------------------------------
director/secretary
EXECUTED as a deed
by MARCONI PLC, ----------------------------------
acting by and director
----------------------------------
director/secretary
EXECUTED as a deed
by REGENT ESCROW LIMITED, ----------------------------------
acting by and director
----------------------------------
director/secretary
EXECUTED as a deed
by THE BANK OF NEW YORK,
acting by
acting on the authority of that company
in the presence of:
Witness's signature:
Name:
Address:
670
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 7: ESCROW AND DISTRIBUTION AGREEMENT
--------------------------------------------------------------------------------
The COMMON SEAL of
THE LAW DEBENTURE
TRUST CORPORATION P.L.C. ----------------------------------
was affixed to this director
deed in the presence of:
----------------------------------
director/secretary
EXECUTED as a deed
by BONDHOLDER COMMUNICATIONS GROUP,
acting by
acting on the authority of that company
in the presence of:
Witness's signature:
Name:
Address:
EXECUTED as a deed
by ANCRANE, ----------------------------------
acting by and director
----------------------------------
director/secretary
671
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 8
SUMMARY OF THE TERMS OF THE NEW SENIOR NOTES
AND THE NEW JUNIOR NOTES
CONTENTS
Clause Page
------ ----
Brief Description of the Terms of the Notes and the
Guarantees Thereof 674
Brief Description of the Senior Notes 674
Brief Description of the Junior Notes 675
Brief Description of the Guarantees of the Notes 675
Description of the Initial Transaction Security and the
Initial Security Documents 676
Pledge of Shares of Specified Subsidiaries 677
Mortgages on Real Property 677
UK Owned Patents 677
German Owned Intellectual Property 677
US Owned Patents 677
Other Assets 678
Escrow Accounts 678
Limitations on Guarantees of the Notes and Transaction
Security 678
Other Provisions Relating to the Transaction Security and
the Security Documents 678
Description of the Notes 679
Principal, Maturity and Interest of the Senior Notes 679
Principal, Maturity and Interest of the Junior Notes 680
Escrow Accounts 680
Funding of Escrow Accounts 681
Payments out of the Mandatory Redemption Escrow Account 681
Payments out of the Existing Performance Bond Escrow
Account 682
Security 682
Redemption 682
Mandatory Redemption 682
Optional Redemption of the Senior Notes and the Junior
Notes in Whole 683
Optional Clean-Up Redemption of the Junior Notes 683
Redemption upon Changes in Withholding Taxes 683
Optional Payment of Redemption Amounts in British
Pounds Sterling 684
Payments With Respect to Partial Redemptions 684
Payment Blockage Provisions 684
Certain Covenants 685
Affirmative Financial Covenants Applicable to the
Senior Notes 685
Covenants Regarding US Core Businesses 686
Change of Control 686
Asset Sales 687
Restricted Payments 687
Purchase and Cancellation of Notes 691
Acquisitions 691
Indebtedness and Preferred Stock 691
Derivative Transactions 692
Liens 692
Dividend and Other Payment Restrictions Affecting
Subsidiaries 692
Merger, Consolidation or Sale of Assets 693
Transactions with Affiliates 695
Sale and Leaseback Transactions 697
Limitation on Issuances and Sales of Equity Interests
in Subsidiaries 698
672
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 8: SUMMARY OF THE TERMS OF THE NEW SENIOR NOTES AND THE NEW JUNIOR
NOTES
--------------------------------------------------------------------------------
Clause Page
------ ----
Guarantor Coverage Requirements 698
Requirements with respect to Additional Guarantors 700
Release of Guarantees and Collateral 703
Limitations on Issuances of Guarantees of Indebtedness 703
Restrictions on Amendments 704
Business Activities 704
Payments for Consent 704
SEC Reports; Other Information 704
Impairment of Security Interests 706
Use of Intellectual Property 706
New Patent Applications 707
Assignment of Patents 707
UK and US IP SPVs 707
Listing 707
Additional Covenants 707
Governing Law 707
Currency Indemnity 707
Events of Default 708
Remedies Applicable to the Senior Notes 711
Remedies Applicable to the Junior Notes 713
Form of Notes 716
Payments on the Global Notes 717
Information regarding DTC, Euroclear and Clearstream 718
Euroclear and Clearstream 718
Global Clearance and Settlement Under the Book-Entry System 718
Secondary Market Trading 719
The Deposit Agreement 719
Redemption 719
Issuance of Definitive Registered Notes and Termination of
the Deposit Agreement 719
Reports 720
Action by Depositary 720
Amendment of Deposit Agreement 721
Resignation or Removal of Depositary 721
Obligations of Depositary 721
Additional Amounts 721
Amendment, Supplement and Waiver 722
Notice of Redemption 724
Satisfaction and Discharge 725
Parallel Debt Obligation 725
No Personal Liability of Directors, Officers, Employees and
Stockholders 726
Concerning the Note Trustees 726
Listing 726
Consent to Jurisdiction and Service 727
Notices 727
Certain Definitions 727
673
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 8: SUMMARY OF THE TERMS OF THE NEW SENIOR NOTES AND THE NEW JUNIOR
NOTES
--------------------------------------------------------------------------------
Marconi Corporation plc (the "Issuer") will issue the Senior Notes under an
indenture (the "Senior Note Indenture") among itself, the Guarantors (as defined
herein) and Law Debenture Trust Company of New York, as trustee (the "Senior
Note Trustee"). The Issuer will issue the Junior Notes under an indenture (the
"Junior Note Indenture" and together with the Senior Note Indenture, the
"Indentures" and each an "Indenture") among itself, the Guarantors and JPMorgan
Chase Bank, as trustee (the "Junior Note Trustee", and, together with the Senior
Note Trustee, the "Note Trustees" and each a "Note Trustee").
The terms of the Notes will include those stated in the applicable Indenture and
those made part of such Indenture by reference to the United States Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Certain defined
terms relating to the Senior Notes and the Junior Notes are set forth under the
caption "Description of the Notes -- Certain Definitions". Certain defined terms
used herein but not defined below have the meanings assigned to them in the
applicable Indenture.
Depending on the elections made by Scheme Creditors pursuant to the
Restructuring, the Issuer will issue the Senior Notes initially in the form of
Euro Senior Notes and/or Dollar Senior Notes and, if both Euro Senior Notes and
Dollar Senior Notes are initially issued, Convertible Euro Senior Notes. The
Convertible Euro Senior Notes, if any, will be exchangeable into either Dollar
Senior Notes or Euro Senior Notes at the election of the holder thereof.
Pursuant to the Escrow and Distribution Agreement, the holder of the Convertible
Euro Senior Notes, if any, will exchange such Notes for either Dollar Senior
Notes or Euro Senior Notes prior to the distribution of such Notes to Scheme
Creditors and after giving effect to valid elections of Scheme Creditors to whom
such Notes are to be distributed. A global security representing an interest of
100 per cent. of the Convertible Euro Senior Notes, if any, a global security
representing an interest of 100% of the Dollar Senior Notes, if any, a global
security representing an interest of 100 per cent. of the Euro Senior Notes, if
any, and a global security representing an interest of 100 per cent. of the
Junior Notes, will each be deposited on the Issue Date with The Bank of New
York, as depositary (the "Depositary"). The global securities will be deposited
when each Series of Notes is issued, will be in bearer form and will not have
coupons for payment attached. The Bank of New York will hold the global
securities on behalf of The Depository Trust Company ("DTC"), Euroclear Bank
S.A./NV ("Euroclear") and/or Clearstream Banking societe anonyme
("Clearstream"), their successors or their nominees. Each of the global
securities will be held under a single deposit agreement to be dated as of the
Issue Date between the Issuer and the Depositary.
The following description is a summary of the material provisions of the Senior
Notes, the Junior Notes, the Guarantees of the Notes and the Indentures. It does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all of the provisions of the Indentures, the Notes and the
Guarantees of the Notes. Such instruments, and not this description, will define
the rights of the holders of the Notes. Current drafts of the Indentures, the
forms of the Notes and the Guarantees thereof will be available for inspection
as set forth in Part D.34.
BRIEF DESCRIPTION OF THE TERMS OF THE NOTES AND THE GUARANTEES THEREOF
BRIEF DESCRIPTION OF THE SENIOR NOTES
The Senior Notes will:
- be direct secured obligations of the Issuer;
- rank at least pari passu in right of payment with all existing and
future unsecured and unsubordinated indebtedness of the Issuer, and
effectively senior to such indebtedness to the extent of the value of
the security provided by the Issuer in respect of the Senior Notes;
- rank senior in right of payment to all existing and future indebtedness
of the Issuer that is expressly subordinated to the Senior Notes, and,
as a result of the terms of the Security Trust and Intercreditor Deed,
effectively senior in right of payment to the Junior Notes except (save
in certain circumstances) as to amounts standing to the credit of the
Mandatory Redemption Escrow Account;
- effectively rank junior in right of payment to all external liabilities
of Subsidiaries of the Issuer that are not Guarantors of the Senior
Notes;
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- effectively rank, as a result of the terms of the Security Trust and
Intercreditor Deed, junior in right of payment to the obligations of
the Issuer under the New Bonding Facility Agreement; and
- be guaranteed by each Guarantor.
BRIEF DESCRIPTION OF THE JUNIOR NOTES
The Junior Notes will:
- be direct secured obligations of the Issuer;
- rank at least pari passu in right of payment with all existing and
future unsecured and unsubordinated indebtedness of the Issuer, and
effectively senior to such indebtedness to the extent of the value of
the security provided by the Issuer in respect of the Junior Notes;
- rank senior in right of payment to all existing and future indebtedness
of the Issuer that is expressly subordinated to the Junior Notes;
- effectively rank, as a result of the terms of the Security Trust and
Intercreditor Deed, junior in right of payment to the Senior Notes
except (save in certain circumstances) as to amounts standing to the
credit of the Mandatory Redemption Escrow Account;
- effectively rank junior in right of payment to all external liabilities
of Subsidiaries of the Issuer that are not Guarantors of the Junior
Notes;
- effectively rank, as a result of the terms of the Security Trust and
Intercreditor Deed, junior in right of payment to the obligations of
the Issuer under the New Bonding Facility Agreement; and
- be guaranteed by each Guarantor.
BRIEF DESCRIPTION OF THE GUARANTEES OF THE NOTES
Each Guarantee of the Senior Notes issued pursuant to the Senior Note Indenture
will:
- be a guarantee of the obligations of the Issuer in respect of the
Senior Notes;
- be a direct secured obligation of the relevant Guarantor, except as
described below;
- rank at least pari passu in right of payment with all existing and
future unsecured and unsubordinated indebtedness of the relevant
Guarantor, and effectively senior to such indebtedness to the extent of
the value of the security provided by the relevant Guarantor in respect
of its Guarantee of the Senior Notes;
- rank senior in right of payment to all existing and future indebtedness
of the relevant Guarantor that is expressly subordinated to such
Guarantor's Guarantee of the Senior Notes, and, as a result of the
terms of the Security Trust and Intercreditor Deed, effectively senior
in right of payment to its Guarantee of the Junior Notes;
- effectively rank junior to all external liabilities of Subsidiaries of
such Guarantor that are not Guarantors of the Senior Notes;
- effectively rank, as a result of the terms of the Security Trust and
Intercreditor Deed, junior in right of payment to the obligations of
such Guarantor under the New Bonding Facility Agreement; and
- be fully and unconditionally released upon the disposal of all of the
equity interests in the relevant Guarantor in accordance with the
covenant regarding Asset Sales described below.
Marconi Communications Telemulti Ltda, which is a Brazilian company that will
neither Guarantee the Senior Notes nor provide any Transaction Security but the
quotas (equity interests) in which will be pledged as Transaction Security by
its parent company, will be deemed to be a Guarantor for purposes of the
covenants in the Senior Notes and the Senior Note Indenture. In addition, as
described in Part 2 of Appendix 10, each Guarantor as of the Issue Date that is
incorporated in the Netherlands, Switzerland, Mexico or Guernsey will
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provide security limited to a pledge over its shares, if any, in any other
Guarantors. Furthermore, subject to compliance with the requirements set forth
under the captions "Description of the Notes -- Certain Covenants -- Guarantor
Coverage Requirements" and "-- Requirements with respect to Additional
Guarantors", entities that become Additional Guarantors of the Senior Notes in
the future may in some cases not be required to provide Transaction Security, in
which case their obligations under their Guarantee of the Senior Notes will not
be secured.
Each Guarantee of the Junior Notes issued pursuant to the Junior Note Indenture
will:
- be a guarantee of the obligations of the Issuer in respect of the
Junior Notes;
- be a direct secured obligation of the relevant Guarantor, except as
described below;
- rank at least pari passu in right of payment with all existing and
future unsecured and unsubordinated indebtedness of the relevant
Guarantor, and effectively senior to such indebtedness to the extent of
the value of the security provided by the relevant Guarantor in respect
of its Guarantee of the Junior Notes;
- rank senior in right of payment to all existing and future indebtedness
of the relevant Guarantor that is expressly subordinated to such
Guarantor's Guarantee of the Junior Notes;
- effectively rank junior in right of payment to all external liabilities
of Subsidiaries of the relevant Guarantor that are not Guarantors of
the Junior Notes;
- effectively rank, as a result of the terms of the Security Trust and
Intercreditor Deed, junior in right of payment to such Guarantor's
Guarantee of the Senior Notes;
- effectively rank, as a result of the terms of the Security Trust and
Intercreditor Deed, junior in right of payment to the obligations of
such Guarantor under the New Bonding Facility Agreement; and
- be fully and unconditionally released upon the disposal of all of the
equity interests in the relevant Guarantor in accordance with the
covenant regarding Asset Sales described below.
Marconi Communications Telemulti Ltda, which will neither Guarantee the Junior
Notes nor provide any Transaction Security but the quotas (equity interests) in
which will be pledged as Transaction Security by its parent company, will be
deemed to be a Guarantor for purposes of the covenants in the Junior Notes and
the Junior Note Indenture. In addition, as described in Part 2 of Appendix 10,
each Guarantor as of the Issue Date that is incorporated in the Netherlands,
Switzerland, Mexico or Guernsey will provide security limited to a pledge over
its shares, if any, in any other Guarantors. Furthermore, subject to compliance
with the requirements set forth under the captions "Description of the Notes --
Certain Covenants -- Guarantor Coverage Requirements" and "-- Requirements with
respect to Additional Guarantors", entities that become Additional Guarantors of
the Junior Notes in the future may in some cases not be required to provide
Transaction Security, in which case their obligations under their Guarantee of
the Junior Notes will not be secured.
DESCRIPTION OF THE INITIAL TRANSACTION SECURITY AND THE INITIAL SECURITY
DOCUMENTS
The Issuer and the Guarantors will enter into the Initial Security Documents no
later than the Issue Date to secure their respective obligations under the
Senior Notes, the Senior Note Indenture, the Junior Notes, the Junior Note
Indenture and the Guarantees of the Notes, as well as the obligations of the
Issuer and its Subsidiaries under the New Bonding Facility Agreement and the
other Secured Obligations. The Guarantors as of the Issue Date will be organized
or incorporated under the laws of England and Wales, the Republic of Ireland,
Italy, Germany, the State of Delaware (United States of America), Mexico,
Switzerland, the Netherlands, Brazil, Australia, Hong Kong and Guernsey.
Pursuant to the Initial Security Documents, the Issuer and the Guarantors will
grant to the Security Trustee, on behalf of the Note Trustees (for the benefit
of the holders of the Notes) and the other Secured Creditors, security interests
over the Initial Transaction Security. The Issuer will also grant to the
Security Trustee an assignment by way of security of the Escrow Accounts
established pursuant to the Escrow Agreement in order to secure its obligations
under the Senior Notes, the Senior Note Indenture, the Junior Notes and the
Junior Note Indenture. The security interests over the Initial Transaction
Security, as well as any other Transaction Security that is granted in the
future, will also secure the obligations of the Issuer and the Guarantors
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under certain other existing and future obligations of those parties described
in, and subject to the ranking, subordination and payment priority provisions
set forth in, Section 4.1 of Appendix 10.
Upon the occurrence of an Enforcement Event, the Senior Note Trustee may, on
behalf of the holders of the Senior Notes (and upon receiving instructions from
the requisite percentage of the holders of the Senior Notes will), direct the
Security Trustee to take action to enforce the security granted over the
Transaction Security pursuant to the Security Documents, subject to the terms
and conditions of the Security Trust and Intercreditor Deed, by any of the
following procedures: (1) sale of all or part of the Transaction Security; (2)
proceeding in a court of competent jurisdiction for the appointment of a
receiver or for the sale of all or any part of the Transaction Security; and/or
(3) foreclosure or any other remedy or proceeding authorized by the Security
Documents or by applicable law.
Without the consent of the Senior Note Trustee, the Junior Note Trustee will
not, prior to repayment in full of the Senior Notes, have the ability to
instruct the Security Trustee to enforce the security interests contained in the
Security Documents. See the description of the Security Trust and Intercreditor
Deed set forth in Section 4.1 of Appendix 10. The holders of the Junior Notes
also will be subject to the payment blockage provisions described under the
caption "Description of the Notes -- Events of Default -- Remedies Applicable to
the Junior Notes".
Except as may be required by applicable law or by an order of a court of
competent jurisdiction, the proceeds from any realization of the security
granted over the Transaction Security pursuant to the Security Documents will be
applied by the Security Trustee in the manner required by the Security Trust and
Intercreditor Deed, which is described in Section 4.1 of Appendix 10.
The following is a brief description of the Initial Transaction Security
provided to secure the payment of principal, premium, if any, interest and
Additional Amounts, if any, on the Senior Notes, the Junior Notes, the
Guarantees thereof and the obligations of the Issuer and the Guarantors to the
other Secured Creditors.
PLEDGE OF SHARES OF SPECIFIED SUBSIDIARIES. The Issuer and the Guarantors will
pledge all or substantially all of the Equity Interests of the Guarantors
(including the IPR SPVs) owned by them to the Security Trustee, on behalf of the
Note Trustees (for the benefit of the holders of the Notes) and the other
Secured Creditors.
MORTGAGES ON REAL PROPERTY. The Issuer and the Guarantors will grant first
ranking (to the extent possible and where there is real property situated in
that jurisdiction) fixed security over all or substantially all of their key
freehold and leasehold properties (determined by reference to whether such
property is key to the business of the Group as a whole) in the United Kingdom,
the United States (other than the Pittsburgh Facility, on which the security
shall be second ranking), the Republic of Ireland, Australia and Italy to the
Security Trustee, on behalf of the Note Trustees (for the benefit of the holders
of the Notes) and the other Secured Creditors.
UK OWNED PATENTS. On or prior to the Issue Date, the Issuer and the UK IP Opcos
will assign all of their legal and beneficial title to Patents to the UK IPR Co.
The parent company of the UK IPR Co will pledge all of the Equity Interests in
the UK IPR Co to the Security Trustee, as described above. The UK IPR Co will
also guarantee the Notes and grant a floating charge over all the right, title
and interest in all its assets, properties and rights (including its Patents) to
the Security Trustee, on behalf of the Note Trustees (for the benefit of the
holders of the Notes) and the other Secured Creditors.
GERMAN OWNED INTELLECTUAL PROPERTY. The German IP Guarantor will transfer by
way of security all its right, title and interest in its Intellectual Property
to the Security Trustee, on behalf of the Note Trustees (for the benefit of the
holders of the Notes) and the other Secured Creditors.
US OWNED PATENTS. On or prior to the Issue Date, the US IP Opcos will assign
all of their legal and beneficial title in Patents to (i) in the case of Patents
used or useful in the US Core Businesses, the Ringfenced IPR Co and (ii) in the
case of other Patents owned by the US IP Opcos, the US IPR Co. The parent
companies of the US IPR Co and the Ringfenced IPR Co will pledge all of the
Equity Interests in US IPR Co and the Ringfenced IPR Co to the Security Trustee.
Each of the US IPR Co and the Ringfenced IPR Co will grant in favor of the
Security Trustee, on behalf of the Note Trustees (for the benefit of the holders
of the Notes) and the other Secured Creditors, a security interest in its assets
(including its Patents) by way of a security agreement together with any
appropriate Uniform Commercial Code (Article 9) and United States Patent and
Trademark Office filings.
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OTHER ASSETS. The Issuer and each Guarantor organized or incorporated in
England, the Republic of Ireland, Australia, Hong Kong, or any state of the
United States will grant fixed and floating charges (or similar types of
security) over all or substantially all of its assets (including Intellectual
Property) to the Security Trustee, on behalf of the Note Trustees (for the
benefit of the holders of the Notes) and the other Secured Creditors.
Intellectual Property will be covered by a floating charge to the extent legally
possible over the assets of the Issuer and each Guarantor.
The Guarantors organized or incorporated in Germany and Italy will grant (to the
extent legally possible) a first priority and exclusive security interest in or
will transfer by way of security, all their right, title and interest in certain
material assets, including accounts receivable, bank accounts and certain
moveables, to the Security Trustee, on behalf of the Note Trustees (for the
benefit of the holders of the Notes) and the other Secured Creditors.
ESCROW ACCOUNTS. The Issuer will grant an assignment by way of security of the
Escrow Accounts to the Security Trustee, on behalf of the Note Trustees (for the
benefit of the holders of the Notes) and the other Secured Creditors.
LIMITATIONS ON GUARANTEES OF THE NOTES AND TRANSACTION SECURITY. The
obligations of each Guarantor under its Guarantee of the Notes, and the related
Security Documents, will be limited under the relevant laws applicable to such
Guarantor and the granting of such Guarantees and/or security (including laws
relating to corporate benefit, capital preservation, financial assistance,
fraudulent conveyances and transfers or transactions under value) to the maximum
amount payable or secured such that such Guarantees or security will not
constitute a fraudulent conveyance, fraudulent transfer or a transaction under
value, or otherwise cause the Guarantor to be insolvent under relevant law or
such Guarantees or security to be void or unenforceable or cause the directors
of such Guarantor to be held in breach of applicable corporate or commercial law
for providing such Guarantee or security. Such limitations will be set forth in
the Security Trust and Intercreditor Deed and will be incorporated into the
Guarantees of the Secured Obligations. See "Risk Factors -- Risks related to
ownership of the New Shares, the New Notes and the Warrants -- The value of the
guarantees and the collateral may be limited by applicable laws" in Section I,
Part F.4.
OTHER PROVISIONS RELATING TO THE TRANSACTION SECURITY AND THE SECURITY DOCUMENTS
Prior to an Event of Default, the Indentures will permit the dispositions of
Transaction Security in accordance with the Security Trust and Intercreditor
Deed and in accordance with, to the extent applicable, or otherwise in
compliance with, the Asset Sale covenants in the Indentures.
In connection with the security arrangements in respect of the Notes, the
Indentures will provide that the Issuer will not, and will not permit any of its
Subsidiaries to, take or omit to take any action that could reasonably be
expected to have the effect of adversely affecting the security granted over the
Transaction Security pursuant to the Security Documents (but not the assets
constituting the Transaction Security, unless otherwise required under the terms
of the Indentures) to the Security Trustee on behalf of, inter alia, the Note
Trustees for the benefit of the holders of the Notes, as described under the
caption "Description of the Notes -- Certain Covenants -- Impairment of Security
Interests". In addition, the Indentures will provide that the Issuer will, and
will cause each of its Subsidiaries to, comply with all covenants and agreements
contained in the Security Documents and the Security Trust and Intercreditor
Deed the failure to comply with which would have a material adverse effect on
the Liens created thereby.
Any future Subsidiary of the Issuer that is required to Guarantee the Notes
pursuant to the covenant described under the caption "Description of the Notes
-- Certain Covenants -- Guarantor Coverage Requirements" or that otherwise
Guarantees the Notes will be required to provide security for its obligations
under the Guarantees of the Notes over such of its assets as are specified, and
in accordance with the principles set forth, under the caption "Description of
the Notes -- Certain Covenants -- Security Requirements with respect to
Additional Guarantors".
The Transaction Security will not include the Equity Interests in or properties
or assets of certain Subsidiaries of the Issuer that on the Issue Date are not
material. There can be no assurance that the proceeds of the sale or other
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realization of the Transaction Security will be sufficient to satisfy the
payments due on either Tranche of the Notes.
Each Indenture provides that each holder of a Note, by its acceptance thereof,
is deemed to have consented and agreed to the terms of the Security Documents
and the Security Trust and Intercreditor Deed (including, without limitation,
the provisions providing for foreclosure and release of the Transaction
Security, as the same may be in effect or may be amended from time to time in
accordance with their terms) and is deemed to authorise and direct (i) the Note
Trustee, who shall in turn be authorized to instruct the Security Trustee, with
respect to each of the Security Documents to which it is a party and the
Security Trust and Intercreditor Deed, and (ii) the applicable Note Trustee,
with respect to the Security Trust and Intercreditor Deed, to perform their
respective obligations and exercise their respective rights thereunder in
accordance therewith.
DESCRIPTION OF THE NOTES
PRINCIPAL, MATURITY AND INTEREST OF THE SENIOR NOTES
Depending on the elections made by Scheme Creditors pursuant to the
Restructuring, the Issuer will issue the Senior Notes initially in the form of
Euro Senior Notes and/or Dollar Senior Notes and, if both Euro Senior Notes and
Dollar Senior Notes are initially issued, Convertible Euro Senior Notes. The
Sterling Equivalent of the aggregate principal amount of any and all Euro Senior
Notes, Convertible Euro Senior Notes and Dollar Senior Notes as of the Issue
Date shall be equal to L450 million. The Convertible Euro Senior Notes, if any,
will be exchangeable into either Dollar Senior Notes or Euro Senior Notes at the
election of the holder thereof. Pursuant to the Escrow and Distribution
Agreement, the holder of the Convertible Euro Senior Notes will exchange such
Notes for either Dollar Senior Notes or Euro Senior Notes prior to the
distribution of such Notes to Scheme Creditors and after giving effect to valid
elections of Scheme Creditors to whom such Notes are distributed. The
Convertible Euro Senior Notes, if any, and the Euro Senior Notes, if any, shall
be issued in denominations of E1.00 and integral multiples thereof. The Dollar
Senior Notes, if any, shall be issued in denominations of US$1.00 and integral
multiples thereof. The Senior Notes will mature on April 30, 2008 when they will
be redeemed in cash at their outstanding principal amount together with any
other amounts due thereunder. All payments of principal, premium, if any,
interest, Additional Amounts, if any, and any other amounts due on the Senior
Notes shall be made in the Relevant Currency.
The Senior Notes will accrue interest from the Issue Date (or if interest has
already been paid on the Senior Notes, from the most recent Senior Note Interest
Payment Date to which interest has been paid), on their outstanding principal
amount at the rate of 8 per cent. per annum payable quarterly in arrear on each
Senior Note Interest Payment Date. Interest will be computed on the basis of a
360-day year of twelve 30-day months. If any Senior Note Interest Period
comprises two or more Senior Note Interest Accrual Periods, the amount of
interest payable in respect of such Senior Note Interest Period will be the sum
of the amounts of interest payable in respect of each of those Senior Note
Interest Accrual Periods. Interest on overdue principal and interest will accrue
at the Default Rate.
On the first Senior Note Interest Payment Date, the Issuer shall pay, in
addition to accrued interest on the outstanding principal amount of the Senior
Notes, an amount per Senior Note in the Relevant Currency equal to the amount of
interest that would have accrued on such Senior Note if the principal amount of
such Senior Note as of the Issue Date had been outstanding for the period from
and including 1 May 2003 to but excluding the Issue Date, using an interest rate
of 8 per cent. per annum and computed on the basis of a 360-day year of twelve
30-day months.
In certain circumstances, the Issuer may be required to pay Additional Amounts
on the Senior Notes as described below under the caption "Additional Amounts".
In the event that any date for the payment of principal, premium, if any,
interest or Additional Amounts, if any, on the Senior Notes is not a Business
Day, such payment may be made on the next succeeding day that is a Business Day,
and, other than with respect to any payment of principal or premium, if any (in
which case interest shall accrue), no interest shall accrue or be payable on any
such payment as a result of any such delay.
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PRINCIPAL, MATURITY AND INTEREST OF THE JUNIOR NOTES
The Junior Notes will be denominated in US dollars in an initial aggregate
principal amount of US$300 million plus the Dollar Equivalent of L117,270,000,
unless the cash element of the distribution to the Issuer's Scheme Creditors
pursuant to the Restructuring is increased by the Net Proceeds of any Asset
Sales (in which event the initial aggregate principal amount of the New Junior
Notes will be decreased by 10/11ths of the sterling amount by which the cash
element is increased (such calculation to reduce the L117,270,000 figure
referred to above)). The Junior Notes shall be issued in denominations of
US$1.00 and integral multiples thereof. The Junior Notes will mature on October
31, 2008 when they will be redeemed in cash at their outstanding principal
amount together with any other amounts due thereunder. All payments of
principal, premium, if any, interest, Additional Amounts, if any and any other
amounts due on the Junior Notes shall be made in the Relevant Currency.
The Junior Notes will accrue interest from the Issue Date (or if interest has
already been paid on the Junior Notes, from the most recent Junior Note Interest
Payment Date to which interest has been paid) on their outstanding principal
amount at the applicable Junior Note Interest Rate payable quarterly in arrear
on each Junior Note Interest Payment Date. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. If any Junior Note Interest
Period comprises two or more Junior Note Interest Accrual Periods, the amount of
interest payable in respect of such Junior Note Interest Period will be the sum
of the amounts of interest payable in respect of each of those Junior Note
Interest Accrual Periods. Interest on overdue principal and interest will accrue
at the Default Rate.
Subject to the following paragraph, the Issuer may, by giving written notice to
the Junior Note Trustee, the holders of Junior Notes and the Paying Agent not
less than 15 days prior to a Junior Note Interest Payment Date, elect to pay all
(and not only some) of the interest (and any Additional Amounts) due on such
Junior Note Interest Payment Date in Junior PIK Notes. Any such Junior PIK Notes
will, immediately upon their issue, be consolidated and form a single series
with the Junior Notes then in issue.
The Issuer may not elect to pay interest (or any Additional Amounts) due on the
final maturity date of the Junior Notes in Junior PIK Notes and shall pay all
such sums in cash. In the circumstances described below under the caption
"Description of the Notes -- Payment Blockage Provisions", the Issuer shall be
obliged to pay interest (and any Additional Amounts) due in respect of any
Junior Note Interest Period in Junior PIK Notes and not in cash.
Junior PIK Notes will be deemed for all purposes to be issued on the date on
which the interest being paid by the issue of the Junior PIK Notes is due.
Interest on the Junior PIK Notes will accrue from their issue date at the
applicable Junior Note Interest Rate.
On the first Junior Note Interest Payment Date, the Issuer shall pay, in
addition to accrued interest on the outstanding principal amount of the Junior
Notes, an amount per Junior Note in the Relevant Currency equal to the amount of
interest that would have accrued on such Junior Note if the principal amount of
such Junior Note as of the Issue Date had been outstanding for the period from
and including 1 May 2003 to but excluding the Issue Date, using the Junior Note
Interest Rate applicable to the first Junior Note Interest Period and computed
on the basis of a 360-day year of twelve 30-day months. If the Issuer elects to
pay accrued interest on the Junior Notes that is due on the first Junior Note
Interest Payment Date in cash, the Issuer shall pay such amount in cash;
otherwise the Issuer shall pay such amount in the form of Junior PIK Notes.
In certain circumstances, the Issuer may be required to pay Additional Amounts
on the Junior Notes as described below under the caption "Additional Amounts".
In the event that any date for the payment of principal, premium, if any,
interest or Additional Amounts, if any, on the Junior Notes is not a Business
Day, such payment may be made on the next succeeding day that is a Business Day,
and, other than with respect to any payment of principal or premium, if any (in
which case interest shall accrue), no interest shall accrue or be payable on any
such payment as a result of any such delay.
ESCROW ACCOUNTS
The Issuer will enter into the Escrow Agreement with, among others, the Security
Trustee in order to (i) fund the mandatory redemption of some or all of the
Notes and (ii) satisfy certain of its obligations under Existing
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Performance Bonds. Under the terms of the Escrow Agreement, the Issuer will
establish the Mandatory Redemption Escrow Account and the Existing Performance
Bond Escrow Account.
Funding of Escrow Accounts. The Issuer, notifying the Security Trustee of the
same, shall deposit or cause to be deposited all of the following into the
Mandatory Redemption Escrow Account:
(1) all Cash Collateral Releases, other than Cash Collateral Releases
required to be delivered to the New Bonding Facility Security
Trustee as described below; and
(2) all Net Proceeds of Asset Sales and all Liquidation Proceeds (in
each case other than Excluded Asset Sale and Liquidation Proceeds),
to the extent required by the covenant set forth under the caption
"Description of the Notes -- Certain Covenants -- Asset Sales".
On the Issue Date, the Issuer shall deposit or cause to be deposited into the
Existing Performance Bond Escrow Account an amount of not less than L41.86
million (or the Sterling Equivalent), to be applied in the manner described
below under the caption "-- Escrow Accounts -- Payments out of the Existing
Performance Bond Escrow Account".
The Issuer shall transfer or cause to be transferred to the New Bonding Facility
Security Trustee all Cash Collateral Releases (other than Cash Collateral
Releases described in clause (2) of the definition thereof), until the aggregate
of all such Cash Collateral Releases, including all amounts transferred from the
Existing Performance Bond Escrow Account to the New Bonding Facility Security
Trustee (including all interest earned on such amounts), is equal to the New
Bonding Facility Funding Amount.
If at any time at which any Junior Notes or Senior Notes remain outstanding the
amount transferred to the New Bonding Facility Security Trustee to be held as
collateral under the New Bonding Facility Agreement, whether pursuant to Cash
Collateral Releases or otherwise (including all interest earned on all such
amounts), exceeds the lesser of (i) L50 million (or the Sterling Equivalent) or
(ii) the aggregate facility limit then in effect under the New Bonding Facility
Agreement, the New Bonding Facility Security Trustee will, within three (3)
Business Days, transfer the amount of such excess to the Mandatory Redemption
Escrow Account.
Payments out of the Mandatory Redemption Escrow Account. If at any time the
balance standing to the credit of the Mandatory Redemption Escrow Account is
equal to or greater than the lesser of (1) L20 million (or the Sterling
Equivalent), (2) in the event that Junior Notes are outstanding at a time when
Junior Notes may be redeemed as described in clause (i) below, an amount
sufficient to redeem all outstanding Junior Notes at the redemption price
specified below (as certified by the Issuer to the Security Trustee) or (3) in
the event that no Junior Notes are outstanding, an amount sufficient to redeem
all outstanding Senior Notes at the redemption price specified below (as
certified by the Issuer to the Security Trustee), upon notification being given
to the Senior Note Trustee, the Junior Note Trustee, any Registrar and the
Paying Agent, the Issuer shall, within five (5) London Business Days, cause a
notice of redemption to be given to the holders of Notes required to be redeemed
(with a copy to the Security Trustee) and the Security Trustee shall instruct
the Escrow Bank to transfer an amount equal to the lesser of (a) the balance
then standing to the credit of the Mandatory Redemption Escrow Account and (b)
the amount specified in clause (2) or (3) above, as applicable, to such
account(s) as the Security Trustee (acting on the instructions of the relevant
Note Trustee) may direct in order for such moneys to be applied on the
redemption date specified in such notice (which redemption date shall be not
less than ten (10) but not more than fifteen (15) London Business Days after
such notice of redemption is given) to (i) so long as no Payment Stop Event has
occurred and is continuing and no Standstill Period (as defined below) is in
effect, redeem outstanding Junior Notes for cash or (ii) in the event that no
Junior Notes remain outstanding, redeem outstanding Senior Notes for cash.
Notwithstanding the foregoing, (1) any outstanding balance in the Mandatory
Redemption Escrow Account on the first day of any Standstill Period, provided
that on the preceding day no Standstill Period was in effect, shall be applied
to redeem outstanding Junior Notes, if any, in accordance with the procedures
described in the preceding paragraph, (2) subject to and after giving effect to
the payment described in clause (1) of this sentence, following the occurrence
of a Payment Stop Event and while it is continuing, any outstanding balance in
the Mandatory Redemption Escrow Account in excess of L2.5 million shall be
applied to redeem outstanding Senior Notes in accordance with the procedures
described in the preceding paragraph and (3) subject to and after giving
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effect to the payment described in clause (1) of this sentence, in the event
that any Junior Notes remain outstanding and a Standstill Period is in effect
but no Payment Stop Event has occurred and is continuing, then neither Senior
Notes nor Junior Notes shall be redeemed pursuant to the preceding paragraph.
Any such redemption shall be at a redemption price in cash of 110 per cent. of
the outstanding principal amount of the Junior Notes or the Senior Notes, as the
case may be, plus in each case accrued and unpaid interest thereon and
Additional Amounts in respect thereof, if any, to the date of redemption.
Payments out of the Existing Performance Bond Escrow Account. Under the terms
of the Escrow Agreement, the Security Trustee shall at any time prior to the
first anniversary of the Issue Date and promptly following receipt of a
certificate from the Issuer certifying such release, release and transfer an
amount or amounts in cash specified by the Issuer from the Existing Performance
Bond Escrow Account (1) first, to any bank, insurance company or other financial
institution (as certified in such certificate) that has issued an Existing
Performance Bond and has made a valid demand, pursuant to an enforceable right,
for cash collateral pursuant to such Existing Performance Bond (or any related
instrument or document), which amount of cash shall be used to collateralize the
obligations of the Issuer or any of its Subsidiaries in relation to such
Existing Performance Bond or (2) second, in the event that the aggregate amount
standing to the credit of the Existing Performance Bond Escrow Account is in
excess of the amount needed to satisfy the obligations of the Issuer and its
Subsidiaries under the Existing Performance Bonds, as determined in good faith
by the Issuer (the amount of such excess being the "Excess Amount"), (a) first,
to the New Bonding Facility Security Trustee, in an amount that is certified by
the New Bonding Facility Security Trustee to the Security Trustee as being,
together with all other Cash Collateral Releases transferred to the New Bonding
Facility Security Trustee since the Issue Date (together with all interest
earned on such transferred amounts), equal to the New Bonding Facility Funding
Amount and (b) second, to the extent of any Excess Amount remaining after giving
effect to clause (a) above, to the Mandatory Redemption Escrow Account, (which
shall be applied in the manner described under the caption "Description of the
Notes -- Escrow Accounts -- Payments out of the Mandatory Redemption Escrow
Account").
On the first anniversary of the Issue Date, the Security Trustee shall transfer
all amounts remaining in the Existing Performance Bond Escrow Account to (a)
first to the New Bonding Facility Security Trustee, in an amount that is
certified by the New Bonding Facility Security Trustee to the Security Trustee
as being, together with all other Cash Collateral Releases transferred to the
New Bonding Facility Security Trustee since the Issue Date (together with all
interest earned on such transferred amounts), equal to the New Bonding Facility
Funding Amount and (b) second, to the extent of any amount remaining after
giving effect to clause (a) above, to the Mandatory Redemption Escrow Account
(to be applied in the manner described above under the caption "Description of
the Notes -- Escrow Accounts -- Payments out of the Mandatory Redemption Escrow
Account").
Security. The Issuer shall grant an assignment by way of security of the Escrow
Accounts to the Security Trustee, on behalf of the Note Trustees (for the
holders of the Notes) and the other Secured Creditors, as described under the
caption "Description of the Initial Transaction Security and Initial Security
Documents" above. If such security interests become enforceable, any amounts
realized upon such enforcement shall be applied in the manner required under the
Security Trust and Intercreditor Deed, which is described in Section 4.1 of
Appendix 10.
REDEMPTION
Mandatory Redemption. Junior Notes and/or Senior Notes must be redeemed in
whole or in part using certain Cash Collateral Releases, certain Liquidation
Proceeds and the Net Proceeds of certain Asset Sales, in the circumstances
described under the caption "Description of the Notes -- Escrow Accounts" above,
in each case at a redemption price in cash of 110 per cent. of their outstanding
principal amount, plus accrued and unpaid interest thereon and Additional
Amounts in respect thereof, if any, to the date of redemption and upon notice
(which notice will be irrevocable) of not less than ten (10) but not more than
fifteen (15) London Business Days.
Senior Notes and Junior Notes must also be redeemed upon a Change of Control in
accordance with the covenant set forth under the caption "Description of the
Notes -- Certain Covenants -- Change of Control" or upon a
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merger, consolidation or reorganization of the Issuer with any Person, or a
sale, assignment, transfer, conveyance, lease or other disposition of all or
substantially all of the properties or assets of the Issuer and its
Subsidiaries, taken as a whole, in each case in accordance with the covenant set
forth under the caption "Description of the Notes -- Certain Covenants --
Merger, Consolidation or Sale of Assets" below. In such cases, notice of
redemption shall be given in accordance with the applicable covenant set forth
below.
Optional Redemption of the Senior Notes and the Junior Notes in Whole. The
Senior Notes and the Junior Notes may be redeemed in whole (but not in part) at
the option of the Issuer at any time upon not less than 30 days' but not more
than 60 days' notice (which notice will be irrevocable) at a redemption price in
cash equal to the applicable Optional Redemption Price for such Notes, provided
that the Issuer may only redeem the Senior Notes and the Junior Notes if the
Issuer simultaneously redeems all outstanding Senior Notes and Junior Notes in
accordance with the provisions of the applicable Note Indentures.
Optional Clean-Up Redemption of the Junior Notes. Junior Notes may be redeemed
in whole (but not in part) at the option of the Issuer at any time upon not less
than 30 days' but not more than 60 days' notice (which notice will be
irrevocable), in cash at the Optional Redemption Price, if at any time (other
than during a Standstill Period or at a time when a Payment Stop Event has
occurred and is continuing) the aggregate principal amount of the then
outstanding Junior Notes is less than 10 per cent. of the aggregate principal
amount of the Junior Notes issued on the Issue Date.
Redemption upon Changes in Withholding Taxes. The Issuer at its option may at
any time redeem all, but not less than all, of the Senior Notes or the Junior
Notes, as applicable, (or, in the event that the Senior Notes or Junior Notes
are in the form of Definitive Registered Notes (as defined in "Description of
the Notes -- Form of Notes"), all, but not less than all, of the affected Senior
Notes or Junior Notes, as applicable) in cash at 100 per cent. of the principal
amount of such Notes, plus any accrued and unpaid interest thereon and
Additional Amounts, if any, to the Repayment Date, upon not less than 30 nor
more than 60 days' notice (which notice will be irrevocable). This right of
redemption applies only if, as a result of any amendment to, or change in, the
laws (including any regulations or rulings thereunder) of the United Kingdom
(including any European Union law or directive that has the effect of law in the
United Kingdom) or any other jurisdiction in which the Issuer is organized,
engaged in business, resident for Tax purposes or generally subject to Tax, or
any political subdivision or Taxing Authority of or in any of the foregoing (any
of the aforementioned being a "Taxing Jurisdiction"), or any amendment to or
change in any official position concerning the administration, application or
interpretations of such laws or regulations (including a judgment by a court of
competent jurisdiction), which amendment or change is announced and effective on
or after the Issue Date, the Issuer satisfies the applicable Note Trustee
immediately before giving any notice referred to above that it has become or
will become obligated to pay Additional Amounts (as described under the caption
"Additional Amounts") which are more than a de minimis amount (as determined by
the Issuer in its reasonable judgment) on the next date on which any amount
would be payable with respect to such Notes and the Issuer determines in good
faith that such obligation cannot be avoided by the use of reasonable measures
available to the Issuer (including, without limitation, by changing the
jurisdiction from which or through which payments on such Notes are made).
No such notice of redemption may be given earlier than 45 days prior to the
earliest date on which the Issuer would be obligated to pay such Additional
Amounts were a payment in respect of the Senior Notes or the Junior Notes, as
applicable, then due. The Issuer may give such notice only if, at the time such
notice of redemption is given, such obligation to pay such Additional Amounts
remains in effect. Immediately prior to giving any notice of redemption
described above, the Issuer will deliver to the Senior Note Trustee or Junior
Note Trustee, as applicable, (1) an officers' certificate (as specified in the
applicable Indenture) stating that the Issuer is entitled to elect to effect
such redemption and setting forth a statement of facts showing that the
conditions precedent to the right of the Issuer so to elect to redeem have
occurred and (2) an opinion of counsel (as specified in the applicable
Indenture) qualified under the laws of the relevant Taxing Jurisdiction in form
and substance reasonably satisfactory to the relevant Note Trustee to the effect
that the Issuer has or will become obligated to pay such Additional Amounts as a
result of such amendment or change and that the Issuer cannot avoid the payment
of such Additional Amounts by taking reasonable measures available to it. The
applicable Note Trustee shall be entitled to accept such certificate and opinion
as sufficient evidence of the satisfaction of the circumstances referred to
above, in which event they shall be conclusive and binding on the holders of the
applicable Notes.
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Notwithstanding the foregoing, the Issuer shall not have the right to redeem the
Junior Notes as provided under this caption "Redemption upon Changes in
Withholding Taxes" at any time during a Standstill Period or when a Payment Stop
Event has occurred and is continuing.
Optional Payment of Redemption Amounts in British Pounds Sterling. In the event
of mandatory or optional redemption of the Senior Notes or the Junior Notes, the
redemption price to be paid by the Issuer on the applicable Repayment Date for
the relevant Notes shall be payable in the currency in which the applicable
Notes are denominated (Euro or United States dollars, as the case may be),
unless the Issuer elects to make payment in British pounds sterling, which
election shall be irrevocable and shall be set forth in the applicable notice of
redemption. If the Issuer elects to make payment in British pounds sterling, the
amount payable in respect of each relevant Note shall be the Sterling Equivalent
of the principal amount of the applicable Note (in Euro or United States
dollars, as the case may be) multiplied by the applicable redemption price,
multiplied by 1.005 and rounded (if necessary) to the nearest penny (with L0.005
being rounded upwards). Such calculation shall be made by the Issuer. If the
Issuer so elects to pay British pounds sterling, the Issuer shall deliver to the
Senior Note Trustee or the Junior Note Trustee, as applicable, on the applicable
Repayment Date, an officers' certificate of the Issuer stating the amount in
British pounds sterling to be paid in respect of each Euro or United States
dollar principal amount of the applicable Notes, as the case may be, and stating
that such calculation complies with the applicable clause of the applicable
Indenture.
Payments With Respect to Partial Redemptions. If less than all of the Notes of
a Tranche are to be redeemed at any time, the principal amount of the Notes of
such Tranche to be redeemed shall be allocated among all of the Notes of such
Tranche at the time outstanding in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof not theretofore called for
redemption, subject to compliance with the requirements of the principal
securities exchange on which the Notes of such Tranche are listed, if the Notes
of such Tranche are listed on any securities exchange. For purposes of
determining the proportionate allocation of redemption amounts among all the
Senior Notes, the aggregate principal amount of all Dollar Senior Notes then
outstanding, if any, and if there are Euro Senior Notes outstanding, shall be
translated into Euro using the Fixed Exchange Rate.
PAYMENT BLOCKAGE PROVISIONS
Subject to, and after giving effect to, the payment described in the immediately
succeeding sentence, neither the Issuer nor any Subsidiary of the Issuer may pay
principal of, premium (if any) or interest or Additional Amounts (if any) on the
Junior Notes, other than interest or Additional Amounts in Junior PIK Notes, and
none of them may otherwise purchase, repurchase, redeem or otherwise acquire or
retire for value any Junior Notes (collectively, "pay the Junior Notes") if a
Payment Stop Event has occurred and is continuing.
If at any time a Standstill Event has occurred, neither the Issuer nor any
Subsidiary of the Issuer may pay the Junior Notes (other than, for the avoidance
of doubt, the payment of interest and Additional Amounts, if any, on the Junior
Notes in the form of Junior PIK Notes) during the applicable Standstill Period;
provided, however, that any balance in the Mandatory Redemption Escrow Account
on the first day of any Standstill Period, provided that on the preceding day no
Standstill Period was in effect, shall be applied to redeem outstanding Junior
Notes as described above under the caption "Description of the Notes -- Escrow
Accounts -- Payments out of the Mandatory Redemption Escrow Account".
Notwithstanding the provisions described in the immediately preceding paragraph
(but subject to the provisions contained in the second preceding and in the
immediately succeeding paragraph), unless the holders of the Senior Notes or the
Senior Note Trustee have accelerated the maturity of the Senior Notes, the
Issuer may resume payments on the Junior Notes after the end of such Standstill
Period, including any missed payments. Any payments that would otherwise have
been due during the Standstill Period (other than payments of interest and
Additional Amounts, if any, on the Junior Notes) will not become due until after
the end of such Standstill Period.
No Default that existed or was continuing on the date of the commencement of any
Standstill Period with respect to the Senior Notes initiating such Standstill
Period shall be, or be made, the basis of the commencement of a subsequent
Standstill Period by the Senior Note Trustee, unless such Default shall have
been cured or waived for
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a period of not less than 90 consecutive days. Except as provided in the
preceding sentence, there is no limit on the number or frequency of Standstill
Periods that may arise.
The Guarantee of the Junior Notes will contain substantially identical
provisions relating to each Guarantor's obligations under its Guarantee of the
Junior Notes and the Security Trust and Intercreditor Deed will contain
substantially identical provisions relating to the obligations of the Issuer and
the Guarantors with respect to the Junior Notes and the Guarantee thereof.
If the Issuer fails to make any payment on the Junior Notes when due as a result
of the payment blockage provisions following the occurrence of a Payment Stop
Event referred to above, such failure would constitute a Default and, after the
expiration of any grace period, an Event of Default, under the Junior Note
Indenture. See "Events of Default".
If payment of the Junior Notes is accelerated because of an Event of Default,
the Issuer shall promptly notify the Junior Note Trustee, the holders of the
Junior Notes, the Senior Note Trustee and the holders of the Senior Notes.
If payment of the Senior Notes is accelerated because of an Event of Default,
the Issuer shall promptly notify the Senior Note Trustee, the holders of the
Senior Notes, the Junior Note Trustee and the holders of the Junior Notes.
CERTAIN COVENANTS
The Senior Note Indenture will contain the covenants set forth below under the
caption " -- Affirmative Financial Covenants Applicable to the Senior Notes".
The Senior Note Indenture and the Junior Note Indenture each will contain each
of the other covenants set forth under this caption " -- Certain Covenants".
Affirmative Financial Covenants Applicable to the Senior Notes
(1) The ratio of (a) Consolidated EBITDA of the Issuer and its
Subsidiaries (less the Consolidated EBITDA of the US Parent and its
Subsidiaries if on the applicable date specified below any Junior
Notes are outstanding) to (b) Consolidated Gross Finance Charges of
the Issuer and its Subsidiaries (less the Consolidated Gross Finance
Charges of the US Parent and its Subsidiaries plus any Consolidated
Gross Finance Charges paid or payable to the Issuer and the Non-US
Subsidiaries by the US Parent and its Subsidiaries, if on the
applicable date specified below any Junior Notes are outstanding)
shall, on each date specified below and calculated for the Relevant
Period ending on such date, equal or exceed the applicable ratio set
out opposite such date:
Relevant Period ending Ratio
---------------------- -----
September 30, 2005 2.0
March 31, 2006 3.0
September 30, 2006 3.0
March 31, 2007 4.0
September 30, 2007 4.0
March 31, 2008 4.5
(2) The ratio of (a) Consolidated Indebtedness of the Issuer and its
Subsidiaries (less the Consolidated Indebtedness of the US Parent
and its Subsidiaries if on the applicable date specified below any
Junior Notes are outstanding and in each case excluding the Junior
Notes) to (b) Consolidated EBITDA of the Issuer and its Subsidiaries
(less the Consolidated EBITDA of the US Parent and its Subsidiaries
except for an amount equivalent to any dividends that are paid in
cash from the US Parent and its Subsidiaries to the Issuer and the
Non-US Subsidiaries if on the applicable date specified below any
Junior Notes are outstanding) shall, on each date specified below
and calculated using (i) Consolidated Indebtedness of the Issuer and
its Subsidiaries (less the Consolidated Indebtedness of the US
Parent and its Subsidiaries if on the applicable date specified
below any Junior Notes are outstanding and in each case excluding
the Junior Notes) on such date and (ii) Consolidated EBITDA of the
Issuer and its Subsidiaries (less the Consolidated EBITDA of the US
Parent and its Subsidiaries except for an amount equivalent to any
dividends that are paid in
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cash from the US Parent and its Subsidiaries to the Issuer and the
Non-US Subsidiaries if on the applicable date specified below any
Junior Notes are outstanding) for the Relevant Period ending on such
date, not exceed the applicable ratio set out opposite such date:
Relevant Period ending Ratio
---------------------- -----
September 30, 2005 7.0
March 31, 2006 6.0
September 30, 2006 5.5
March 31, 2007 5.0
September 30, 2007 4.5
March 31, 2008 4.0
The financial ratios required to be maintained pursuant to paragraphs (1) and
(2) above shall be calculated by dividing the appropriate component by the other
component (in each case expressed in whole British pound sterling amounts),
carrying the result to two decimal places and rounding the result to one decimal
place (with 0.05 being rounded up and 0.04 being rounded down). For purposes of
determining compliance with the ratios required to be maintained pursuant to
paragraph (2) above, the Consolidated EBITDA of the Issuer and its Subsidiaries
(less the Consolidated EBITDA of the US Parent and its Subsidiaries except for
an amount equivalent to any dividends that are paid in cash from the US Parent
and its Subsidiaries to the Issuer and the Non-US Subsidiaries if on the
applicable date specified above any Junior Notes are outstanding) for the
Relevant Period ending September 30, 2005 shall be multiplied by two (2).
As of the end of each fiscal year and each fiscal half year of the Issuer, the
Issuer shall deliver, within the applicable time period after the end of each
such fiscal year and each such fiscal half year during which a domestic US
issuer that is an "accelerated filer" would be required to file annual reports
on Form 10-K and quarterly reports on Form 10-Q by the rules and regulations of
the SEC from time to time in effect (but in no event later than the applicable
date on which the Issuer publicly releases its annual or half year consolidated
financial statements for any such period), to the Senior Note Trustee an
officers' certificate stating whether or not the Issuer was in compliance, on
the last day of such Relevant Period, with the covenants set forth in paragraphs
(1) and (2) above and setting forth the calculations required by the above
covenants and the basis upon which such calculations were made.
Covenants Regarding US Core Businesses. The Issuer will, no later than the
second anniversary of the Issue Date, cause each of the US Core Businesses to be
held by a US Core Business Subsidiary or US Core Business Subsidiaries
designated as such by the Issuer, provided however that (1) no US Core Business
Subsidiary may engage in more than one US Core Business and (2) no US Core
Business Subsidiary may be a direct or indirect Subsidiary of any other US Core
Business Subsidiary that is not engaged in the same US Core Business.
Prior to the date on which each US Core Business is held by a US Core Business
Subsidiary or US Core Business Subsidiaries designated as such by the Issuer,
the Issuer will procure that, in the event any US Core Business becomes
significantly cash-flow negative (which for this purpose shall mean such US Core
Business has negative earnings before interest, taxes, depreciation and
amortization over a period of two successive fiscal quarters, taken as a whole,
of US$15 million (or the Dollar Equivalent) or more, as determined from the
management accounts for such US Core Business prepared on a basis consistent
with the preparation of such accounts prior to the Scheme Launch Date), the
relevant Subsidiaries take, as soon as reasonably practicable, such commercially
reasonable and practicable remedial action as is designed to eliminate or, to
the fullest extent commercially reasonable and practicable, reduce any
continuing negative operating cash flow condition.
From and after the date on which each US Core Business is held by a US Core
Business Subsidiary or US Core Business Subsidiaries designated as such by the
Issuer, the Issuer will not, and will not permit any Subsidiary of the Issuer
that is not a US Core Business Subsidiary to, make any Investment in any US Core
Business Subsidiary and will not permit any US Core Business Subsidiary to make
any Investment in any other US Core Business Subsidiary that is not engaged in
the same business.
Change of Control. If the Issuer becomes aware of the occurrence of a Change of
Control, the Issuer shall within five (5) London Business Days thereof call for
redemption, upon not less than 30 but not more than
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60 days' notice, and shall redeem, on the date specified in such notice, all
outstanding Senior Notes and Junior Notes at a redemption price in cash equal to
the applicable Optional Redemption Price for such Notes.
Asset Sales. The Issuer will not, and will not permit any of its Subsidiaries
to, directly or indirectly, consummate an Asset Sale unless:
(1) the Issuer or such Subsidiary, as the case may be, receives
consideration at least equal to the Fair Market Value at the time of
the Asset Sale of the assets, properties, rights or Equity Interests
that are the subject of the Asset Sale;
(2) if the consideration for such Asset Sale exceeds L10 million (or the
Sterling Equivalent), the determination of such Fair Market Value is
evidenced by a resolution of the Issuer's Board of Directors set
forth in an officers' certificate delivered to the Senior Note
Trustee (in the case of the Senior Notes) or the Junior Note Trustee
(in the case of the Junior Notes); and
(3) at least 85 per cent. of the consideration received in the Asset
Sale by the Issuer or such Subsidiary is in the form of Cash
Equivalents.
In the event that the Junior Notes are outstanding, the Issuer will, on the
later of the Issue Date and the date that is five (5) London Business Days
following receipt, deposit or cause to be deposited the Net Proceeds of any
Asset Sale (other than Excluded Asset Sale and Liquidation Proceeds) that are
received on or after 1 May 2003 into the Mandatory Redemption Escrow Account.
In the event that no Junior Notes remain outstanding, the Issuer may apply, or
procure the application of, the Net Proceeds of any Asset Sale within 90 days
after receipt of such Net Proceeds to:
(1) fund any Capital Expenditure in the Permitted Core Business by the
Issuer or any Subsidiary of the Issuer; or
(2) fund the acquisition of other assets (excluding Investments, other
than Permitted Investments) by the Issuer or any Subsidiary of the
Issuer that are used or useful in the Permitted Core Business;
provided that if the Issuer or the relevant Subsidiary of the Issuer has
contractually committed to apply such Net Proceeds in accordance with clause (1)
or (2) above within such 90 days, the Issuer or such Subsidiary may apply such
Net Proceeds in accordance with such commitment within 180 days after the
receipt of such Net Proceeds. All Net Proceeds of any Asset Sale (other than
Excluded Asset Sale and Liquidation Proceeds) which are not applied in the
manner described in clause (1) or (2) of the preceding sentence within the
applicable time period specified above shall be deposited into the Mandatory
Redemption Escrow Account within three (3) London Business Days after the
expiration of the applicable time period specified above.
The Issuer will deposit or cause to be deposited all Liquidation Proceeds (other
than Excluded Asset Sale and Liquidation Proceeds) and all Net Proceeds of Asset
Sales described under the caption "Certain Covenants -- Purchase and
Cancellation of Notes" into the Mandatory Redemption Escrow Account within five
(5) London Business Days following receipt.
All Liquidation Proceeds and all Net Proceeds of Asset Sales that constitute
cash or Cash Equivalents other than British pounds sterling, Euro or United
States dollars and that are required to be deposited into the Mandatory
Redemption Escrow Account shall be converted into British pounds sterling, Euro
or United States dollars by the Issuer or its Subsidiaries prior to deposit of
such Liquidation Proceeds or Net Proceeds of Asset Sales into the Mandatory
Redemption Escrow Account.
Restricted Payments
Issuer and Non-US Subsidiaries. The Issuer will not, and will not permit any of
its Non-US Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution (a) on account of the Issuer's Equity Interests or any
Equity Interests of any Subsidiary of the Issuer (including, without
limitation, any payment in connection with any merger or
consolidation involving the Issuer or any Subsidiary of the Issuer)
or (b) to the direct or indirect holders of the Equity Interests of
the Issuer
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or any Subsidiary of the Issuer in their capacity as such (other
than, in the case of each of (a) and (b), dividends or distributions
payable (i) in Equity Interests (other than Disqualified Stock) of
the Issuer or such Non-US Subsidiary or (ii) to the Issuer or a
Non-US Subsidiary); or
(2) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value (including, without limitation, in connection with any
merger or consolidation involving the Issuer or any Subsidiary of
the Issuer) any outstanding Equity Interests of the Issuer or any
Subsidiary of the Issuer (other than any Equity Interests of a
Non-US Subsidiary owned by the Issuer or any other Non-US
Subsidiary); or
(3) make any payment of principal on or with respect to, or purchase,
repurchase, redeem, defease or otherwise acquire or retire for
value, any Subordinated Indebtedness of the Issuer or any Guarantor;
or
(4) make any Investment in any Person (other than any Permitted
Investments) (all such payments and other actions set forth in these
clauses (1) through (4) being collectively referred to as "Non-US
Restricted Payments");
unless, at the time of, and after giving effect to, such Non-US Restricted
Payment:
(a) no Default has occurred and is continuing or would occur as a
consequence of such Non-US Restricted Payment;
(b) the amount of such Non-US Restricted Payment, together with the
aggregate amount of all other Non-US Restricted Payments declared or
made by the Issuer and its Non-US Subsidiaries on or after the Issue
Date (excluding Non-US Restricted Payments permitted by clauses (2),
(4), (5) and (9) under the caption "Description of the Notes --
Certain Covenants -- Restricted Payments -- Exceptions Applicable to
the Issuer, Non-US Subsidiaries and US Subsidiaries" below) shall
not exceed the sum, without duplication, of:
(i) 50 per cent. of the Consolidated Profit After Taxes of the
Issuer and its Subsidiaries (less the Consolidated Profit
After Taxes of the US Parent and its Subsidiaries) for the
period (taken as one accounting period) from the beginning of
the fiscal quarter immediately following the fiscal quarter
during which the Issue Date occurs to the end of the most
recent fiscal quarter for which consolidated financial
statements of the Issuer and its Subsidiaries are available at
the time of such Non-US Restricted Payment (or, if such
Consolidated Profit After Taxes for such period is a deficit,
less 100 per cent. of such deficit), plus
(ii) 100 per cent. of the aggregate net cash proceeds received by
the Issuer since the Issue Date as a contribution to its
ordinary equity capital or from the issue or sale of Equity
Interests of the Issuer (other than Disqualified Stock) or
from the issue or sale of convertible or exchangeable
Disqualified Stock or convertible or exchangeable Indebtedness
of the Issuer that has been converted into or exchanged for
such Equity Interests (other than Equity Interests (or
Disqualified Stock or debt securities) sold to a Subsidiary of
the Issuer), except as otherwise provided in clause (4) of the
first paragraph under the caption "Description of the Notes --
Certain Covenants -- Restricted Payments -- Exceptions
Applicable to the Issuer, Non-US Subsidiaries and US
Subsidiaries" below;
(c) the ratio of (i) Consolidated EBITDA of the Issuer and its
Subsidiaries (less the Consolidated EBITDA of the US Parent and its
Subsidiaries if on the date of such Non-US Restricted Payment any
Junior Notes are outstanding) to (ii) Consolidated Gross Finance
Charges of the Issuer and its Subsidiaries (less the Consolidated
Gross Finance Charges of the US Parent and its Subsidiaries, plus
any Consolidated Gross Finance Charges paid or payable to the Issuer
and the Non-US Subsidiaries by the US Parent and its Subsidiaries,
if on the date of such Non-US Restricted Payment any Junior Notes
are outstanding), as if such Non-US Restricted Payment had been made
at the beginning of the applicable period, shall, in respect of the
four fiscal quarters ended prior to the date of such Non-US
Restricted Payment, be not less than 4.5: 1; and
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(d) if such Non-US Restricted Payment is of a kind identified in clause
(1) or (2) or (3) under the caption "Description of the Notes --
Certain Covenants -- Restricted Payments -- Issuer and Non-US
Subsidiaries" above and, in the case of clause (1) and (2), is in
respect of the Issuer's Equity Interests, interest due on the Junior
Notes was paid in full in cash on the two consecutive scheduled
Junior Note Interest Payment Dates immediately preceding the date of
such Non-US Restricted Payment.
US Subsidiaries. The Issuer will not permit any of its US Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution (a) on account of the Issuer's Equity Interests or any
Equity Interests of any Subsidiary of the Issuer (including, without
limitation, any payment in connection with any merger or
consolidation involving the Issuer or any Subsidiary of the Issuer)
or (b) to the direct or indirect holders of the Equity Interests of
the Issuer or any Subsidiary of the Issuer in their capacity as such
(other than, in the case of each of (a) and (b), dividends or
distributions payable (i) in Equity Interests (other than
Disqualified Stock) of such US Subsidiary or (ii) to (A) a US
Subsidiary, (B) the Issuer or (C) the holder of the Equity Interests
in the US Parent);
(2) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value (including, without limitation, in connection with any
merger or consolidation involving the Issuer or any Subsidiary of
the Issuer) any outstanding Equity Interests of the Issuer or any
Subsidiary of the Issuer (other than any Equity Interests of a US
Subsidiary owned by any other US Subsidiary);
(3) make any payment of principal on or with respect to, or purchase,
repurchase, redeem, defease or otherwise acquire or retire for
value, any Subordinated Indebtedness of the Issuer or any Guarantor;
or
(4) make any Investment in any Person (other than any Permitted
Investments) (all such payments and other actions set forth in these
clauses (1) through (4) being collectively referred to as "US
Restricted Payments" and, together with Non-US Restricted Payments,
"Restricted Payments"),
unless, at the time of, and after giving effect to, such US Restricted
Payment:
(a) no Default has occurred and is continuing or would occur as a
consequence of such US Restricted Payment;
(b) the amount of such US Restricted Payment, together with the
aggregate amount of all other US Restricted Payments declared
or made by the US Subsidiaries on or after the Issue Date
(excluding US Restricted Payments permitted by clauses (3),
(4) and (5) under the caption "Description of the Notes --
Certain Covenants -- Restricted Payments -- Exceptions
Applicable to the Issuer, Non-US Subsidiaries and US
Subsidiaries" below) shall not exceed 50 per cent. of the
Consolidated Profit After Taxes of the US Parent and its
Subsidiaries for the period (taken as one accounting period)
from the beginning of the fiscal quarter immediately following
the fiscal quarter during which the Issue Date occurs to the
end of the most recent fiscal quarter for which consolidated
financial statements of the US Parent and its Subsidiaries are
available at the time of such US Restricted Payment (or, if
such Consolidated Profit After Taxes for such period is a
deficit, less 100 per cent. of such deficit);
(c) the ratio of (i) Consolidated EBITDA of the US Parent and its
Subsidiaries to (ii) Consolidated Gross Finance Charges of the
US Parent and its Subsidiaries, as if such US Restricted
Payment had been made at the beginning of the applicable
period, shall, in respect of the four fiscal quarters ended
prior to the date of such US Restricted Payment, be not less
than 4.5: 1; and
(d) if such US Restricted Payment is of a kind identified in
clause (1) or (2) or (3) under the caption "Description of the
Notes -- Certain Covenants -- Restricted Payments -- US
Subsidiaries" above and, in the case of clause (1) and (2), is
in respect of the Issuer's
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Equity Interests, interest due on the Junior Notes was paid in
full in cash on the two consecutive scheduled Junior Note
Interest Payment Dates immediately preceding the date of such US
Restricted Payment.
Exceptions Applicable to the Issuer, Non-US Subsidiaries and US
Subsidiaries. The provisions under the captions "Description of the Notes --
Certain Covenants -- Restricted Payments -- Issuer and Non-US Subsidiaries" and
"Description of the Notes -- Certain Covenants -- Restricted Payments -- US
Subsidiaries" above will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the
dividend payment would have complied with the provisions of the
Senior Note Indenture (in the case of the Senior Notes) or the
Junior Note Indenture (in the case of the Junior Notes);
(2) the payment of principal on or with respect to or the purchase,
repurchase, redemption, defeasance or other acquisition or
retirement for value of any Indebtedness owed by the Issuer or a
Non-US Subsidiary to the Issuer or a Subsidiary of the Issuer, if
and to the extent permitted by the Security Trust and Intercreditor
Deed;
(3) the payment of principal on or with respect to or the purchase,
repurchase, redemption, defeasance or other acquisition or
retirement for value of any Indebtedness owed by a US Subsidiary to
the Issuer or a Subsidiary of the Issuer, if and to the extent
permitted by the Security Trust and Intercreditor Deed;
(4) so long as no Default has occurred and is continuing or would be
caused thereby under the Senior Notes or the Junior Notes, as the
case may be, the repayment, redemption, repurchase, retirement,
defeasance or other acquisition of any Subordinated Indebtedness of
the Issuer or any Guarantor, or any Equity Interests of the Issuer,
in each case in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the
Issuer) of, Equity Interests of the Issuer (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that
are utilized for any such repayment, redemption, repurchase,
retirement, defeasance or other acquisition will be excluded from
clause (b)(ii) under the caption "Description of the Notes --
Certain Covenants -- Restricted Payments -- Issuer and Non-US
Subsidiaries" above;
(5) so long as no Default has occurred and is continuing or would be
caused thereby under the Senior Notes or the Junior Notes, as the
case may be, the repayment, redemption, repurchase, retirement,
defeasance or other acquisition of any Subordinated Indebtedness of
the Issuer or any Guarantor (other than Indebtedness between or
among the Issuer or any of its Subsidiaries) with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(6) the payment of any dividend or other distribution by a Non-US
Subsidiary to a minority holder of any Equity Interest in such
Non-US Subsidiary that is made on a pro rata basis to such minority
holder and to all other holders of such class of Equity Interests of
such Non-US Subsidiary at the time such dividend or other
distribution is made;
(7) the payment of any dividend or other distribution by a US Subsidiary
to a minority holder of any Equity Interest in such US Subsidiary
that is made on a pro rata basis to such minority holder and to all
other holders of such class of Equity Interests of such US
Subsidiary at the time such dividend or other distribution is made;
(8) payments of cash in lieu of the issuance of fractional shares of
Capital Stock as a dividend or distribution; and
(9) any transfer by FS Holdings Corp. of Equity Interests in Marconi
Communications Inc. to the US Parent.
The amount of all Restricted Payments (other than cash) will be the Fair Market
Value on the date of such Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by the Issuer or such Subsidiary of
the Issuer, as the case may be, pursuant to such Restricted Payment. The Fair
Market Value of any
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assets or securities that are required to be valued by this covenant will be
determined by (1) an executive officer of the Issuer, if such assets or
securities have a Fair Market Value equal to or less than L10 million (or the
Sterling Equivalent) or (2) if such assets or securities have a Fair Market
Value greater than L10 million (or the Sterling Equivalent), the Board of
Directors of the Issuer whose resolution with respect thereto will be set forth
in an officers' certificate delivered to the Senior Note Trustee (in the case of
the Senior Notes) or the Junior Note Trustee (in the case of the Junior Notes).
The determination of the Board of Directors of the Issuer must be based upon an
opinion or appraisal issued by an accounting, appraisal or investment banking
firm of international standing if the Fair Market Value exceeds L20 million (or
the Sterling Equivalent). Not later than the fifth Business Day after the date
of making any Restricted Payment in excess of L10 million (or the Sterling
Equivalent) (other than any Restricted Payment permitted under any of clauses
(1) through (9) under the caption " -- Certain Covenants -- Restricted Payments
-- Exceptions Applicable to the Issuer, Non-US Subsidiaries and US Subsidiaries"
above), the Issuer will deliver to the Senior Note Trustee (in the case of the
Senior Notes) or the Junior Note Trustee (in the case of the Junior Notes) an
officers' certificate stating that such Restricted Payment is permitted and
setting forth the calculations required by this "Restricted Payments" covenant
and the basis upon which such calculations were made, together with a copy of
any opinion or appraisal required by the applicable Indenture.
Purchase and Cancellation of Notes. The Issuer will not, and will not permit
any of its Subsidiaries to, purchase, repurchase, redeem or otherwise acquire or
retire for value any Notes (other than pursuant to the redemption provisions in
the Note Indentures), provided that (1) the Issuer or any of the Guarantors may
purchase, repurchase or otherwise acquire or retire for value, in the open
market or otherwise and at any price, any Senior Notes or Junior Notes at any
time after the second scheduled Senior Note Interest Payment Date or Junior Note
Interest Payment Date, as the case may be, if (a) no Default or Event of Default
has occurred and is continuing under the Senior Note Indenture (in the case of
the Senior Notes) or the Junior Note Indenture (in the case of the Junior
Notes), (b) the payment of interest on the Junior Notes on the preceding two
Junior Note Interest Payment Dates was made in cash (rather than in Junior PIK
Notes), and (c) the Issuer has not given notice pursuant to the Junior Note
Indenture electing to pay the interest (and any Additional Amounts) due on the
next Junior Note Interest Payment Date on the outstanding Junior Notes in Junior
PIK Notes and (2) the Issuer may acquire Notes for distribution to its Scheme
Creditors pursuant to any scheme of arrangement, reorganization or insolvency
proceeding in relation to Marconi plc.
All Notes redeemed by the Issuer or any of its Subsidiaries shall be immediately
cancelled and may not be reissued or resold. All Notes purchased, repurchased or
otherwise acquired or retired by the Issuer or any of its Subsidiaries (other
than Notes acquired pursuant to clause (2) of the preceding paragraph) shall be
cancelled not later than ninety (90) days after such Notes are purchased,
repurchased or otherwise acquired or retired by the Issuer or any of its
Subsidiaries and may not be reissued or resold to any Person other than the
Issuer or any Guarantor. Any Notes acquired by the Issuer pursuant to clause (2)
of the preceding paragraph shall be promptly delivered to The Bank of New York,
as distribution agent under the Restructuring. Notwithstanding any other
provision in the Indentures, all payments of principal, premium, if any,
interest and Additional Amounts, if any, on all Senior Notes and all Junior
Notes owned by the Issuer or any of its Subsidiaries (other than Notes acquired
pursuant to clause (2) of the preceding paragraph, provided that such Notes are
held in escrow for distribution to Scheme Creditors) shall constitute Net
Proceeds of Asset Sales.
Acquisitions. The Issuer will not, and will not permit any of its Subsidiaries
to, make any Acquisition from any Person other than: (1) an Acquisition by the
Issuer or a Subsidiary of the Issuer from a Subsidiary of the Issuer or the
Issuer; or (2) an Investment that is permitted to be made by the covenant
described above under the caption "Description of the Notes -- Restricted
Payments".
Indebtedness and Preferred Stock. The Issuer will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
Guarantee, permit to be outstanding or otherwise be or become directly or
indirectly liable, contingently or otherwise, with respect to any Indebtedness
(including Acquired Debt), and the Issuer will not issue or have in issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue or have
in issue any shares of Preferred Stock or any shares of Disqualified Stock,
other than, in each case, any Permitted Debt.
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For the purposes of determining compliance with this covenant:
(1) the outstanding principal amount of any particular Indebtedness
shall be counted only once and any obligation arising under any
Guarantee, indemnity, Lien, letter of credit or similar instrument
supporting such Indebtedness shall be disregarded to the extent of
the outstanding principal amount of such Indebtedness included in
any clause of the definition of Permitted Debt;
(2) in the event that an item of Indebtedness meets the criteria of more
than one of the types of Permitted Debt, the Issuer, in its sole
discretion, will classify such item of Indebtedness and will only be
required to include the amount and type of such Indebtedness in one
of the clauses of the definition of Permitted Debt; and
(3) in the event that an item of Indebtedness meets the criteria of more
than one of the types of Permitted Debt, the Issuer, in its sole
discretion, may divide and classify such item of Indebtedness under
more than one of the types of Permitted Debt.
For purposes of determining compliance with any sterling-denominated restriction
on Indebtedness, if the Indebtedness incurred is denominated in a currency other
than sterling, the amount of such Indebtedness will be the Sterling Equivalent,
determined on the date of the incurrence of such Indebtedness (or, if later, the
Issue Date). For purposes of determining compliance with any United States
dollar-denominated restriction on Indebtedness, if the Indebtedness incurred is
denominated in a currency other than United States dollars, the amount of such
Indebtedness will be the Dollar Equivalent, determined on the date of the
incurrence of such Indebtedness (or, if later, the Issue Date).
Derivative Transactions. The Issuer will not, and will not permit any of its
Subsidiaries to, enter into any Derivative Transaction other than a Permitted
Hedging Transaction or a Permitted Intra-Group Hedging Transaction.
Liens. The Issuer will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind on any property or asset now owned or hereafter acquired, except Permitted
Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The Issuer will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
create or permit to exist or be or become effective any consensual encumbrance
or restriction on the ability of any Subsidiary of the Issuer to:
(1) pay dividends or make any other distributions on its Capital Stock
to the Issuer or any Subsidiary of the Issuer, or with respect to
any other interest or participation in, or measured by, its profits;
(2) pay any indebtedness owed to the Issuer or any Subsidiary of the
Issuer;
(3) make loans or advances to the Issuer or any Subsidiary of the
Issuer; or
(4) transfer any of its properties or assets to the Issuer or any
Subsidiary of the Issuer.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Permitted Debt that imposes restrictions of the nature described in
clause (4) of the preceding paragraph;
(2) agreements as in effect on the Scheme Launch Date or entered into to
give effect to, or otherwise implement, the Restructuring, and any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of those
agreements; provided that the amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive, taken as a
whole, with respect to such dividend and other payment restrictions
than those contained in those agreements on the Scheme Launch Date
or, if any such agreement is entered into or amended to give effect
to, or otherwise implement, the Restructuring, on the date of such
agreement or amendment;
(3) the Indentures, the Senior Notes, the Junior Notes, the Guarantees
of the Notes, the Security Documents and the Security Trust and
Intercreditor Deed;
(4) any mandatory provision of applicable law;
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(5) any instrument or agreement of a Person acquired by the Issuer or
any Subsidiary of the Issuer as in effect at the time of such
acquisition (except to the extent such encumbrance or restriction,
or the related instrument or agreement, was created, incurred or
assumed in connection with or in contemplation of such acquisition),
which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired; provided that, in
the case of Indebtedness, such Indebtedness was permitted by the
terms of the applicable Indenture to be incurred;
(6) customary non-assignment or similar provisions in any contract,
agreement or undertaking entered into in the ordinary course of
business;
(7) Purchase Money Obligations for property acquired in the ordinary
course of business that impose restrictions on that property of the
nature described in clause (4) of the preceding paragraph;
(8) any agreement for the sale or other disposition of a Subsidiary of
the Issuer or any assets of the Issuer or any Subsidiary of the
Issuer pending sale or other disposition;
(9) Permitted Liens;
(10) any customary encumbrances or restrictions required by any
governmental, local or regulatory authority having jurisdiction over
the Issuer or any Subsidiary of the Issuer or any of their
businesses in connection with any development grant made or other
assistance provided to the Issuer or any Subsidiary of the Issuer by
such governmental authorities;
(11) with respect to any joint venture formed after the Issue Date in
compliance with the applicable Indenture and any Subsidiary of the
Issuer that is a co-venturer therein, the terms of the agreements
governing such joint venture and the organizational documents of the
entities constituting the joint venture; provided, however, that any
such encumbrance or restriction (a) is customary in joint venture
agreements and (b) will not materially affect the Issuer's and the
Guarantors' ability to make principal and interest payments on the
Notes, as determined by the Board of Directors of the Issuer in good
faith at the time of entering into such agreements (and at the time
of any amendment, modification, restatement, renewal, supplement or
replacement thereof); and
(12) the US Working Capital Facility.
Merger, Consolidation or Sale of Assets. The Issuer will not, in a single
transaction or through a series of related transactions, directly or indirectly,
(1) consolidate, merge or reorganize with or into another Person (whether or not
the Issuer is the surviving corporation) or (2) sell, assign, transfer, convey,
lease or otherwise dispose of all or substantially all of the properties or
assets of the Issuer and its Subsidiaries, taken as a whole, in each case unless
immediately prior to, or contemporaneously with, such transaction or series of
related transactions, all outstanding Senior Notes and Junior Notes are
simultaneously redeemed, upon not less than ten (10) but not more than thirty
(30) days' notice, at a redemption price in cash equal to the applicable
Optional Redemption Price for such Notes.
The preceding sentence includes a phrase relating to the direct or indirect
sale, assignment, transfer, conveyance, lease or other disposition of "all or
substantially all" of the properties or assets of the Issuer and its
Subsidiaries, taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all", there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Senior Notes or Junior Notes to require the Issuer to redeem its Notes
as a result of a sale, assignment, transfer, conveyance, lease or other
disposition of less than all of the assets of the Issuer and its Subsidiaries,
taken as a whole, to another Person or group may be uncertain.
The Issuer will not permit any of its Subsidiaries, in a single transaction or
through a series of related transactions, to, directly or indirectly,
consolidate, merge or reorganize with or into another Person unless the
provisions of clause (1) or (2) below are satisfied:
(1) Such consolidation, merger or reorganization complies with the
covenant described above under the caption "Description of the Notes
-- Certain Covenants -- Asset Sales" or is excepted from the
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definition of Asset Sale pursuant to clause (1), (4) or (8) of the
second paragraph of the definition thereof contained in the
applicable Indenture; or
(2) (a) in the case of a consolidation, merger or reorganization of a
Non-US Subsidiary with or into another Person, such other
Person is a Non-US Subsidiary, and if either of such Non-US
Subsidiaries is a Non-US Guarantor, the Person formed by or
surviving such consolidation, merger or reorganization is a
Non-US Guarantor;
(b) in the case of a consolidation, merger or reorganization of a
US Subsidiary with or into another Person, such other Person
is a US Subsidiary, and if either of such US Subsidiaries is a
US Guarantor, the Person formed by or surviving such
consolidation, merger or reorganization is a US Guarantor
(provided that a US Core Business Subsidiary may not,
consolidate, merge or reorganize with (i) any US Core Business
Subsidiary engaged in any other US Core Business or (ii) the
US Parent);
(c) if the person formed by or surviving such consolidation,
merger or reorganization is a Guarantor, such Guarantor shall
have delivered a written instrument in form and substance
reasonably satisfactory to the Senior Note Trustee (in the
case of the Senior Notes) and the Junior Note Trustee (in the
case of the Junior Notes) confirming that its obligations
under the applicable Security Documents, the Security Trust
and Intercreditor Deed, the applicable Indenture and its
Guarantees of the applicable Notes remain valid and, where
such Guarantor is not bound by the Security Documents entered
into by the relevant Subsidiary or the security created by
such Security Documents does not constitute valid and
perfected security over all or substantially all of the assets
of such Guarantor, such Guarantor shall have executed and
delivered to the Security Trustee, on behalf of the Note
Trustees (for the benefit of the holders of the Notes) and the
other Secured Creditors, Security Documents that provide New
Security (as defined below) for the obligations of such
Guarantor under its Guarantee of the Notes and such other
Secured Obligations of such Guarantor, which complies, if so
required to comply, with the requirements set forth in the
covenant set forth under the caption "Description of the Notes
-- Certain Covenants -- Requirements with respect to
Additional Guarantors", including clauses (1) to (8) thereof,
as if such Guarantor were an Additional Guarantor; and
(d) immediately after such transaction, no Default exists or will
result from such transaction.
The Issuer will not, and will not permit any of its Subsidiaries, in a single
transaction or through a series of related transactions, to, directly or
indirectly, sell, assign, transfer, convey, lease or otherwise dispose of all or
substantially all of the properties or assets of any Subsidiary of the Issuer,
in one or more related transactions, to another Person unless the provisions of
clause (1) or (2) below are satisfied:
(1) Such sale, assignment, transfer, conveyance, lease or other disposal
complies with the covenant described above under the caption
"Description of the Notes -- Certain Covenants -- Asset Sales" or is
excepted from the definition of Asset Sale pursuant to clause (1),
(4) or (8) of the second paragraph of the definition thereof
contained in the applicable Indenture; or
(2) (a) in the case of a sale, assignment, transfer, conveyance, lease
or other disposition of all or substantially all of the
properties or assets of a Non-US Subsidiary, the Person
acquiring the properties or assets is the Issuer or a Non-US
Subsidiary or, in the case of the sale, assignment, transfer,
conveyance, lease or other disposition of Equity Interests of
Marconi Communications, Inc., the US Parent;
(b) in the case of a sale, assignment, transfer, conveyance, lease
or other disposition of all or substantially all of the
properties or assets of a US Subsidiary, the Person acquiring
the properties or assets is a US Subsidiary;
(c) each transferor and transferee that is a Guarantor shall have
delivered a written instrument in form and substance
reasonably satisfactory to the Senior Note Trustee (in the
case of the Senior Notes) and the Junior Note Trustee (in the
case of the Junior Notes) confirming that its
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obligations under the applicable Security Documents covering
properties or assets such Guarantor owns after the transaction,
the Security Trust and Intercreditor Deed, the applicable
Indenture and its Guarantees of the applicable Notes remain
valid and, where the Security Documents entered into by the
transferee Guarantor do not create valid and perfected security
over or in respect of the relevant properties and/or assets
transferred to the transferee Guarantor, such Guarantor that is
a transferee shall have executed and delivered to the Security
Trustee, on behalf of the Note Trustees (for the benefit of the
holders of the Notes) and the other Secured Creditors, Security
Documents that provide New Security (as defined below) for the
obligations of such Guarantor under its Guarantee of the Notes
and such other Secured Obligations of such Guarantor, which
complies, if so required to comply, with the requirements set
forth in the covenant set forth under the caption "Description
of the Notes -- Certain Covenants -- Requirements with respect
to Additional Guarantors", including clauses (1) to (8) thereof,
as if such Guarantor were an Additional Guarantor; and
(d) immediately after such transaction, no Default exists or will
result from such transaction.
For purposes of this covenant any US Core Business Sale will not be considered a
sale of "all or substantially all" of the properties or assets of the Issuer and
its Subsidiaries taken as a whole.
Transactions with Affiliates. Except as provided below, the Issuer will not,
and will not permit any of its Subsidiaries to, directly or indirectly, make any
payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, arrangement, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each such
transaction individually or, where identified as part of a series with one or
more other transactions, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is entered into in good faith and in
writing and is on terms that are no less favorable to the Issuer or
such Subsidiary of the Issuer than those that would have been
obtained in a comparable transaction by the Issuer or such
Subsidiary of the Issuer with an unrelated Person; and
(2) the Issuer delivers to the Senior Note Trustee (in the case of the
Senior Notes) and the Junior Note Trustee (in the case of the Junior
Notes):
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of L2 million (or the Sterling Equivalent), an
officers' certificate from two disinterested officers of the
Issuer certifying that such Affiliate Transaction or series of
related Affiliate Transactions complies with clause (1) above;
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of L10 million (or the Sterling Equivalent), a
resolution of the Board of Directors of the Issuer set forth
in an officers' certificate certifying that such Affiliate
Transaction or series of related Affiliate Transactions
complies with this covenant and that such Affiliate
Transaction or series of related Affiliate Transactions has
been approved by a majority of the Disinterested Directors of
the Board of Directors of the Issuer, or, if there are no
Disinterested Directors, by a majority of all members of the
Board of Directors of the Issuer; and
(c) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of L20 million (or the Sterling Equivalent), a written
opinion as to the fairness to the Issuer or such Subsidiary of
such Affiliate Transaction or series of related Affiliate
Transactions from a financial point of view issued by an
accounting, appraisal or investment banking firm of
international standing.
The following items will not be subject to the foregoing requirements:
(1) any transaction between or among the Issuer and/or Non-US
Subsidiaries;
(2) any transaction between or among US Subsidiaries;
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(3) any employment, collective bargaining or service agreement entered
into by the Issuer or any Subsidiary of the Issuer with any of their
respective officers, directors or employees (or any bargaining
entities on their behalf) in the ordinary course of business and
which is customary in the industry in which the Issuer or such
Subsidiary operates;
(4) sales of Equity Interests of the Issuer (other than Disqualified
Stock) to Affiliates of the Issuer other than any Subsidiary of the
Issuer;
(5) Restricted Payments that are permitted by the provisions of the
Senior Note Indenture (in the case of the Senior Notes) or the
Junior Note Indenture (in the case of the Junior Notes) described
above under the caption "Description of the Notes -- Certain
Covenants -- Restricted Payments";
(6) Permitted Investments which (other than Permitted Intra-Group
Hedging Transactions) are on arm's-length terms;
(7) transactions with Affiliates solely in their capacity as holders of
Indebtedness of or Equity Interests in the Issuer or any Subsidiary
of the Issuer where such Affiliates are treated no more favorably
than holders of such Indebtedness or such Equity Interests
generally;
(8) payment of compensation or reimbursement or advances of expenses by
the Issuer or any Subsidiary of the Issuer to their respective
officers, directors or employees in the ordinary course of business
and which are customary in the industry in which the Issuer or such
Subsidiary operates;
(9) maintenance in the ordinary course of business (and payments
required thereby) of benefit programs, or arrangements for
employees, officers or directors, including vacation plans, health
and life insurance plans, deferred compensation and other stock
option plans, directors' and officers' indemnification agreements
and retirement or saving plans and similar plans, provided that any
such plan or agreement which is entered into or adopted on or after
the Scheme Launch Date shall have been approved by a majority of the
Disinterested Directors of the Board of Directors of the Issuer, or,
if there are no Disinterested Directors, by a majority of all
members of the Board of Directors of the Issuer;
(10) a Permitted Intra-Group Transfer (and payments required thereby);
(11) Permitted Intra-Group Indebtedness (and payments required thereby);
(12) supply, purchase or sale transactions with suppliers or purchasers
or sellers of goods or services (other than the Issuer and its
Subsidiaries), in each case in the ordinary course of business and
otherwise in compliance with the terms of the applicable Indenture,
which, if initially effected on or after the Issue Date, are fair to
the Issuer or such Subsidiary of the Issuer or are on terms (taken
as a whole) at least as favorable as might reasonably have been
obtained at such time from an unaffiliated party, in the reasonable
determination of (a) a majority of the Disinterested Directors of
the Board of Directors of the Issuer or, if there are no
Disinterested Directors, a majority of all members of the Board of
Directors of the Issuer or (b) two disinterested officers of the
Issuer;
(13) sale or other disposition of inventory and/or related services (and
payments related thereto) in the ordinary course of business on an
arm's-length basis between or among the Issuer and/or any Non-US
Subsidiaries, on the one hand, and any US Subsidiaries, on the
other;
(14) payments made pursuant to or in relation to an obligation (a)
between or among the Issuer and/or its Subsidiaries or (b) between
or among the Issuer and/or its Subsidiaries, on the one hand, and
any Person in which the Issuer and/or its Subsidiaries own an Equity
Interest (other than any such Person that is an Affiliate of a
director or officer of the Issuer or any of its Subsidiaries by
virtue of such director or officer owning an Equity Interest in such
Person), on the other hand, in each case (1) that exists on the
Scheme Launch Date and (2) other than an obligation that constitutes
Indebtedness;
(15) the provision of administrative, treasury, finance, tax, legal,
accounting, human resources, pension and benefits, insurance, risk
management, intellectual property, information technology, sales
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support and other central services to or by the Issuer or one or
more Non-US Subsidiaries by or to one or more US Subsidiaries in the
ordinary course of business and on an arm's-length basis pursuant to
an instrument in writing, provided that with respect to any such
services provided by any US Subsidiary to the Issuer or a Non-US
Subsidiary, services of such type were provided by such US
Subsidiary prior to the Issue Date;
(16) allocation of costs between or among the US Subsidiaries, the Non-US
Subsidiaries and/or the Issuer relating to (a) tax, information
technology, intellectual property, insurance, audit, real estate,
statutory compliance and employee benefit and welfare plans
(including health and life insurance plans, deferred compensation
and other stock option plans and retirement and savings plans) or
(b) any products or services provided by Persons other than the
Issuer or any of its Subsidiaries to multiple Group Companies, in
the case of each of (a) and (b) pursuant to an instrument in
writing; and
(17) payments made pursuant to or in relation to either (a) trading and
other accrued current liabilities existing on the Issue Date or (b)
Existing Indebtedness, to the extent permitted by the Security Trust
and Intercreditor Deed.
The Issuer shall not, and shall not permit any Non-US Subsidiary to, enter into
or effect any Affiliate Transaction with, or for the benefit of, any US
Subsidiary other than:
(1) an Affiliate Transaction that falls within clause (11), (12) or (14)
of the definition of Permitted Intra-Group Transfer, and payments
required thereby;
(2) an Affiliate Transaction that falls within clause (9), (10), (13),
(14) or (15) of the definition of Permitted Intra-Group
Indebtedness, and payments required thereby to the extent permitted
by the Security Trust and Intercreditor Deed;
(3) an Affiliate Transaction that falls within clause (13), (15), (16)
or (17) of the preceding paragraph;
(4) payments made pursuant to or in relation to an obligation between or
among the Issuer and/or its Subsidiaries that exists on the Scheme
Launch Date, other than an obligation that constitutes Indebtedness,
provided that if the aggregate of all payments made or to be made on
or after the Issue Date pursuant to or in relation to any such
obligation exceeds L5 million (or the Sterling Equivalent), such
obligation shall be set forth in a schedule to each Indenture; and
(5) an Affiliate Transaction or series of related Affiliate Transactions
involving payments, or having a value, of less than L500,000 (or the
Sterling Equivalent).
Any Affiliate Transaction permitted by the preceding sentence shall not be
subject to the restrictions or requirements of the first paragraph hereof.
Sale and Leaseback Transactions. The Issuer will not, and will not permit any
of its Subsidiaries to, enter into any Sale and Leaseback Transaction; provided
that the Issuer or any Subsidiary of the Issuer may enter into a Sale and
Leaseback Transaction if:
(1) the Issuer or such Subsidiary, as applicable, could have (a)
outstanding Indebtedness in an amount equal to the Attributable Debt
relating to such Sale and Leaseback Transaction pursuant to the
covenant described above under the caption "Description of the Notes
-- Certain Covenants -- Indebtedness and Preferred Stock", provided
that the aggregate amount of such Attributable Debt outstanding at
any time shall not exceed L27 million (or the Sterling Equivalent)
and (b) incurred a Lien to secure such Indebtedness pursuant to the
covenant described above under the caption "Description of the Notes
-- Certain Covenants -- Liens";
(2) the gross cash proceeds of that Sale and Leaseback Transaction are
at least equal to the Fair Market Value of the property that is the
subject of that Sale and Leaseback Transaction, as determined in
good faith by the Board of Directors of the Issuer and, if such
proceeds exceed L10 million, an officers' certificate shall be
delivered to the applicable Note Trustee certifying such
determination by the Board of Directors; and
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(3) the transfer of assets in that Sale and Leaseback Transaction is not
restricted by, or if applicable the Issuer applies the proceeds of
such transaction in compliance with, the covenant described above
under the caption "Description of the Notes -- Certain Covenants --
Asset Sales".
Limitation on Issuances and Sales of Equity Interests in Subsidiaries. Except
as provided below, the Issuer will not, and will not permit any of its
Subsidiaries to, transfer, convey, sell or otherwise dispose of any Equity
Interests in any Subsidiary of the Issuer to any Person (other than, in the case
of Equity Interests in a Non-US Subsidiary, to the Issuer or a Non-US Subsidiary
or, in the case of Equity Interests in a US Subsidiary, to a US Subsidiary, or
in any case to the extent necessary to comply with any applicable law or
regulation), unless (1) such transfer, conveyance, sale or other disposition is
of all the Equity Interests in such Subsidiary (except in the case of a
Subsidiary of the Issuer that is not a Wholly-Owned Subsidiary of the Issuer on
the Issue Date, in which case the Issuer or a Subsidiary of the Issuer may
transfer, convey, sell or otherwise dispose of any Equity Interest of such
Subsidiary) and the Net Proceeds from such transfer, conveyance, sale or other
disposition are applied in accordance with the covenant described above under
the caption "Description of the Notes -- Certain Covenants -- Asset Sales" or
(2) such transfer, conveyance, sale or other disposition is permitted by the
covenant described above under the caption "Description of the Notes -- Certain
Covenants -- Restricted Payments".
In addition, the Issuer will not permit any of its Subsidiaries to issue any of
their respective Equity Interests (other than shares of Capital Stock
constituting directors' qualifying shares or otherwise to the extent necessary
to comply with any applicable law or regulation) to any Person other than (1) in
the case of the issuance of Equity Interests by a Non-US Subsidiary, an issuance
to the Issuer or a Non-US Subsidiary, (2) in the case of the issuance of Equity
Interests by a US Subsidiary, an issuance to a US Subsidiary or an issuance of
Equity Interests of the US Parent to FS Holdings Corp., (3) an issuance by a
Subsidiary of the Issuer to an existing holder of Capital Stock of such
Subsidiary pursuant to legal or contractual requirements applicable to such
Subsidiary in an amount that is no greater than is contractually or legally
required for such holder, provided that after giving effect to such issuance
such Subsidiary remains a Subsidiary of the Issuer or (4) an issuance that is
permitted by the covenant described above under the caption "Description of the
Notes -- Certain Covenants -- Restricted Payments".
Guarantor Coverage Requirements. The Issuer shall ensure that the following
requirements are met as of the end of the second fiscal quarter and the fourth
fiscal quarter of each fiscal year of the Issuer commencing with the quarter
ending September 30, 2003 (each a "Semi-Annual Test Date") and as of any date on
which the Issuer or any of its Subsidiaries acquires from, or disposes of to,
any Person (other than the Issuer or any of its Subsidiaries) any Significant
Subsidiary (or assets, properties or rights that would, if held by a single
Subsidiary of the Issuer, constitute a Significant Subsidiary), other than any
date on or prior to September 30, 2003 on which the Issuer or any of its
Subsidiaries consummates a disposition of the North American Access Business
(each such date an "Interim Test Date" and, together with the Semi-Annual Test
Dates, the "Guarantor Test Dates"):
(1) if any of (a) the aggregate of the unconsolidated Total Assets, (b)
the aggregate of the unconsolidated External Assets, (c) the
aggregate of the unconsolidated External Sales or (d) commencing as
of March 31, 2005, the aggregate of the unconsolidated EBITDA of all
of the Guarantors as of any Guarantor Test Date (other than, with
respect to Interim Test Dates only, unconsolidated Total Assets,
which shall not be tested as of such Interim Test Dates) are less
than 80 per cent. of the (w) aggregate of the unconsolidated Total
Assets of the Issuer and each of its Subsidiaries or the (x)
consolidated External Assets, (y) consolidated External Sales or (z)
Consolidated EBITDA, respectively, of the Issuer and its
Subsidiaries, taken as a whole, as of such Guarantor Test Date, then
the Issuer shall procure that, on or prior to the applicable
Guarantor Certification Date (as defined below), sufficient
Additional Guarantor(s) execute and deliver supplemental indentures
to the Senior Note Indenture and the Junior Note Indenture in form
and substance reasonably satisfactory to the applicable Note Trustee
pursuant to which they become Guarantors of the Notes issued
thereunder such that each of (a) the aggregate of the unconsolidated
Total Assets, (b) the aggregate of the unconsolidated External
Assets, (c) the aggregate of the unconsolidated External Sales and
(d) from and after March 31, 2005, the aggregate of the
unconsolidated EBITDA of all of the Guarantors are not less than 80
per cent. of the (w) aggregate
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of the unconsolidated Total Assets of the Issuer and each of its
Subsidiaries and the (x) consolidated External Assets, (y)
consolidated External Sales and (z) Consolidated EBITDA,
respectively, of the Issuer and its Subsidiaries, taken as a whole,
as of such Guarantor Test Date and
(2) if any Subsidiary of the Issuer that is not a Guarantor would be a
Significant Subsidiary as of any Guarantor Test Date (other than,
with respect to Interim Test Dates only, a Subsidiary that would be
a Significant Subsidiary by virtue of its unconsolidated Total
Assets, which shall not be tested as of such Interim Test Dates)
then, on or prior to the applicable Guarantor Certification Date,
any such Subsidiary shall execute and deliver supplemental
indentures to the Senior Note Indenture and the Junior Note
Indenture in form and substance reasonably satisfactory to the
applicable Note Trustee pursuant to which they become Guarantors of
the Notes issued thereunder.
As of the end of the second fiscal quarter and the fourth fiscal quarter of each
fiscal year of the Issuer, and as of each other Guarantor Test Date, the Issuer
shall deliver, within the applicable time period after the end of each such
fiscal quarter or fiscal year (in the case of the fourth fiscal quarter) during
which a domestic US issuer that is an "accelerated filer" would be required to
file an annual report on Form 10-K or a quarterly report on Form 10-Q, as
applicable, by the rules and regulations of the SEC (but in no event later than
the date on which the Issuer publicly releases its annual and quarterly
consolidated financial statements for such periods), and within 30 days after
each other Guarantor Test Date (each such foregoing date being a "Guarantor
Certification Date"), to the Senior Note Trustee (in the case of the Senior
Notes) and the Junior Note Trustee (in the case of the Junior Notes), an
officers' certificate stating whether or not the Issuer is in compliance with
the above clauses (1) and (2) and setting forth the calculations required by
this "Guarantor Coverage Requirements" covenant as of the applicable Guarantor
Test Date and the basis on which such calculations were made. For the avoidance
of doubt, additional Guarantors may enter into Guarantees of the Notes
irrespective of the above tests being met.
For the purpose of this covenant:
(a) For the purposes of clause (1) above (i) the aggregate of the
unconsolidated Total Assets, (ii) the aggregate of the
unconsolidated External Assets, (iii) the aggregate of the
unconsolidated External Sales and (iv) the aggregate of the
unconsolidated EBITDA of all of the Guarantors that have not
provided any Transaction Security may not account for more than 5
per cent. of the (w) aggregate of the unconsolidated Total Assets of
the Issuer and each of its Subsidiaries or the (x) consolidated
External Assets, (y) consolidated External Sales or (z) Consolidated
EBITDA, respectively, of the Issuer and its Subsidiaries, taken as a
whole, as of any Guarantor Test Date (for further information
regarding Guarantors that will not provide any Transaction Security,
see Part 2 of Appendix 10);
(b) the unconsolidated Total Assets, unconsolidated External Assets,
unconsolidated External Sales and unconsolidated EBITDA of a
Subsidiary of the Issuer as of any date will be determined from the
accounting records upon which the latest consolidated financial
statements of the Issuer and its Subsidiaries have been based and,
in the case of unconsolidated EBITDA and unconsolidated External
Sales, for the period consisting of the four fiscal quarters ended
on or (in the case of an Interim Test Date) prior to the Guarantor
Test Date (or, in the case of unconsolidated EBITDA for any
Guarantor Test Date prior to December 31, 2005, the period
consisting of each completed fiscal quarter of the Issuer commencing
on or after January 1, 2005);
(c) if a Person becomes a Subsidiary of the Issuer after the date as of
which the latest consolidated financial statements of the Issuer and
its Subsidiaries have been prepared, the unconsolidated Total
Assets, unconsolidated External Assets, unconsolidated External
Sales and unconsolidated EBITDA of that Subsidiary will be
determined from such Subsidiary's latest financial statements, and
in the case of unconsolidated EBITDA and unconsolidated External
Sales, for the period consisting of the four fiscal quarters ended
on or (in the case of an Interim Test Date) prior to the Guarantor
Test Date (or, in the case of unconsolidated EBITDA for any
Guarantor Test Date prior to December 31, 2005, the period
consisting of each completed fiscal quarter of the Issuer commencing
on or after January 1, 2005);
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(d) the aggregate of the unconsolidated Total Assets of the Issuer and
each of its Subsidiaries, and the consolidated External Assets,
consolidated External Sales and Consolidated EBITDA of the Issuer
and its Subsidiaries, taken as a whole, will be determined from the
Issuer's latest consolidated financial statements, and, in the case
of consolidated External Sales and consolidated EBITDA, for the
period consisting of the four fiscal quarters ended on or (in the
case of an Interim Test Date) prior to the Guarantor Test Date (or,
in the case of Consolidated EBITDA for any Guarantor Test Date prior
to December 31, 2005, the period consisting of each completed fiscal
quarter of the Issuer commencing on or after January 1, 2005),
adjusted (where appropriate) to reflect the Total Assets, External
Assets, External Sales and EBITDA of any Significant Subsidiary (or
assets, properties or rights that would, if held by a single
Subsidiary of the Issuer, constitute a Significant Subsidiary) that
has been subsequently disposed of or acquired; and
(e) the Issuer shall not be obliged to meet the requirements of
paragraph (2) of this covenant in respect of any Subsidiary of the
Issuer that would otherwise be required to provide a Guarantee of
the Notes thereunder if:
(i) such Subsidiary cannot provide a Guarantee of the Notes by
reason of any legal or regulatory impediment which is beyond
the reasonable control of the Issuer and its Subsidiaries;
(ii) such Subsidiary cannot provide a Guarantee of the Notes by
reason of any contractual restriction or obligation in effect
prior to the Scheme Launch Date, provided that the Issuer
certifies to the Senior Note Trustee and the Junior Note
Trustee that such restriction or obligation was in existence
prior to the Scheme Launch Date;
(iii) in respect of any Person that becomes a Subsidiary of the
Issuer after the Issue Date, such Subsidiary cannot meet such
requirements by reason of any contractual restriction or
obligation which was in existence when that Person became a
Subsidiary of the Issuer, provided that, such contractual
restriction or obligation was not created in contemplation of
or in connection with that Person becoming a Subsidiary of
the Issuer and such restriction or obligation continues in
effect; or
(iv) there is any material risk that the directors of such
Subsidiary could be held to be in breach of applicable
corporate, criminal or other law as a result of such
Subsidiary providing a Guarantee of the Notes.
The Issuer shall notify the Senior Note Trustee and the Junior Note
Trustee supplying details of the relevant Subsidiary of the Issuer
and the relevant circumstances affecting such Subsidiary no later
than the applicable Guarantor Certification Date in the event that
any such Subsidiary does not provide a Guarantee of the Notes by
virtue of clause (e) above.
Requirements with respect to Additional Guarantors. The Issuer will ensure that
any of its Subsidiaries that guarantees any of the Senior Notes or the Junior
Notes after the Issue Date:
(1) executes and delivers supplemental indentures to the Senior Note
Indenture and the Junior Note Indenture pursuant to which it becomes
a Guarantor of the Notes issued thereunder, in each case, in form
and substance reasonably satisfactory to the applicable Note
Trustee;
(2) executes and delivers a Guarantee (which, for the avoidance of
doubt, may be an accession letter to the Guarantee) of all
outstanding Notes in form and substance reasonably satisfactory to
the applicable Note Trustee; and
(3) becomes a party to the Security Trust and Intercreditor Deed.
On or prior to the date on which any Additional Guarantor executes a
supplemental indenture to guarantee the Notes, the Issuer shall, and shall
procure that its relevant Subsidiaries (including the Additional Guarantor),
execute and deliver to the Security Trustee, on behalf of the Note Trustees (for
the benefit of the holders of the Notes) and the other Secured Creditors,
Security Documents that provide security (the "New Security") for the
obligations of such Additional Guarantor under its Guarantees of the Notes and
such other Secured Obligations of such Additional Guarantor, which complies with
the requirements set forth in this covenant, including
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clauses (1) to (8) in the third succeeding paragraph. The Issuer shall deliver,
on each date on which an Additional Guarantor executes a supplemental indenture
and a Guarantee of the Notes, to the Senior Note Trustee (in the case of the
Senior Notes) and the Junior Note Trustee (in the case of the Junior Notes), an
officers' certificate stating that the Issuer and its relevant Subsidiaries have
complied with this covenant and an opinion of counsel in form and substance
reasonably satisfactory to the applicable Note Trustee with respect to such
Guarantee and any New Security.
The New Security shall be subject to the general principles in clause (4) of the
second succeeding paragraph and shall consist of:
(1) share pledges over the Equity Interests in such Additional
Guarantor;
(2) fixed security over any key freehold or leasehold real property
(determined by reference to whether such property is key to the
business of the Group as a whole) owned by such Additional
Guarantor;
(3) with respect to any Additional Guarantor that is incorporated or
organized under the laws of England, the Republic of Ireland, any
state of the United States, Australia, Canada or Hong Kong or any
other jurisdiction in which a floating charge (or similar security)
is recognized, floating charges (or similar types of security) over
all or substantially all of the assets of such Additional Guarantor;
(4) with respect to any Additional Guarantor that is incorporated or
organized under the laws of Italy, Germany, or any other
jurisdiction in which a floating charge (or similar security) is not
recognized, security over all material assets (including Equity
Interests in any Wholly-Owned Subsidiary of such Additional
Guarantor that is directly owned by such Additional Guarantor,
receivables, bank accounts, Intellectual Property and movables) of
such Additional Guarantor.
In addition, the Issuer shall, and shall cause each of its relevant Subsidiaries
to, take all necessary action to ensure that the organizational documents of any
Subsidiary of the Issuer whose Equity Interests are the subject of a share
pledge shall not contain any restrictions or limitations on the transfer of the
pledged Equity Interests, including any transfer pursuant to any enforcement of
such share pledge.
For the purposes of this covenant:
(1) Share Pledges. With respect to share pledges over Equity Interests,
unless required by applicable law as the only means of procuring a
security interest but provided also that the Security Trustee shall
not be required to accept such transfer if it may be prejudiced
thereby, the taking of security shall not require transfer of legal
title to the pledged Equity Interests to the Security Trustee. Until
the occurrence of an Enforcement Event, (a) the pledgor of Equity
Interests constituting New Security shall be permitted to exercise
voting rights with respect to the Equity Interests pledged in such
manner as it sees fit, provided that such exercise would not
constitute a Default under any Relevant Document; (b) the pledgor of
the Equity Interests constituting the New Security shall be
permitted to receive and retain dividends and other distributions on
such Equity Interests; and (c) to the extent that legal title to the
pledged Equity Interests is vested in the Security Trustee, the
Security Trustee, as the holder of such Equity Interests, shall
(subject to the terms of the Security Trust and Intercreditor Deed)
be required to pay all dividends and distributions on such Equity
Interests and exercise all voting and other rights with respect to
such Equity Interests in such manner as the pledgor of such Equity
Interests may reasonably direct, provided that any such action by
the Security Trustee would not result in a Default under any
Relevant Document.
(2) Bank Accounts. With respect to bank accounts, all security over
such accounts shall permit the relevant Additional Guarantor to
operate those accounts freely without reference to the Security
Trustee prior to a notice being served by the Security Trustee
following the occurrence of an Enforcement Event.
(3) Notification/Perfection Requirements. With respect to security over
the following assets, the notification/perfection requirement shall
be as follows:
(a) Initial Notification/Perfection Requirements: In relation to
any jurisdiction where New Security is to be provided, the
relevant Additional Guarantor shall (where such action is
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required for the creation, continued effectiveness or perfection
of the New Security), on the date such Additional Guarantor
executes any Relevant Document:
(i) procure the endorsement of the share pledge on the
Additional Guarantor's share register or share
certificates or deliver share certificates or blank stock
transfer forms and satisfy other notification or
perfection requirements;
(ii) provide a list of bank accounts and serve notices of the
creation of the relevant security interest (or permit the
Security Trustee to serve notices) to account banks;
(iii) (in Italy and Germany and in any other jurisdiction the
law of which may impose similar obligations on an
Additional Guarantor) send to the Security Trustee details
of pledged receivable claims;
(iv) where relevant, notify the insurer of the assignment or
charge of an insurance policy; and
(v) deliver to the Security Trustee real estate documents of
title.
(b) Ongoing Notification/Perfection Requirements in Italy: Any
Additional Guarantor organized or incorporated under Italian law
shall, within ten (10) London Business Days of the end of each
calendar quarter, provide to the Security Trustee, (x) the most
recent monthly bank statements from each account bank, (y) a
list of all receivable claims together with contact details of
all debtors, and, within ten (10) London Business Days of the
acquisition of any shares, carry out the steps required to
perfect security over future shareholdings. Any Additional
Guarantor incorporated under the law of a jurisdiction where
similar on-going requirements apply to the creation, continued
effectiveness or perfection of New Security will comply with
such requirements.
(4) General Principles. Subject to the terms of the Security Trust and
Intercreditor Deed, any security shall (to the extent legally
possible and without the Security Trustee or the directors of the
relevant Subsidiary being exposed to material personal risk) secure
the obligations of such Additional Guarantor under the Relevant
Documents and shall (to the extent legally possible and subject to
the other provisions below) create valid, perfected and first
priority security over such assets.
With regard to any security to be provided by an Additional
Guarantor, due regard shall be had to:
(a) any risk that the Security Trustee or the directors of a
Subsidiary being asked to provide or receive, as the case
may be, security could be held to be in breach of
applicable corporate, criminal or other law in providing
such security;
(b) the practicality and costs involved in taking any such
security;
(c) the value of the proposed security to the Secured Creditors
in light of the whole of the security already provided to
them at such time; and
(d) legitimate operational requirements of the Additional
Guarantor;
provided that if security is to be provided by an Additional Guarantor
in any jurisdiction where security has been taken on the Issue Date,
such Additional Guarantor shall grant the same types of security
(assuming such Additional Guarantor has the same types of assets) in
such jurisdiction as the Guarantors as of the Issue Date in that
jurisdiction unless there has been an amendment to or change in the
laws, regulations or rulings of such jurisdiction, or any amendment to
or change in any position concerning the administration, application
or interpretation of such laws, regulations or rulings, which
amendment or change has become effective on or after the Issue Date
and is relevant to the granting of security in such jurisdiction (in
which case the security granted by such Additional Guarantor shall
take into account any such amendment or change).
In the event that the terms of the Indentures and the Notes do not
restrict the freedom of an Additional Guarantor to deal in assets over
which security has been granted, the Additional
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Guarantor shall have freedom to deal under the terms of the Security
Documents granting New Security.
(5) Security Trustee. To the extent possible, all security shall be
granted in favor of the Security Trustee and not other Secured
Creditors individually. "Parallel debt" provisions shall be used,
which provisions shall be as contained in the Security Trust and
Intercreditor Deed and not the Security Documents granting New
Security. To the extent possible, no action shall be required to be
taken in relation to New Security when any Secured Creditor
transfers any of its participation in any Relevant Document to
another Person.
(6) No Commercial Provisions. The provisions of the Security Documents
granting New Security shall operate only so as to create and
preserve effective security and shall not impose commercial
undertakings or include any provisions which are credit protections
or which seek to preserve the value of assets or any indemnities,
unless those are legally required for the creation, continued
effectiveness or perfection of the New Security. Representations and
further assurance provisions shall be included in the Security
Documents granting New Security to the extent necessary or desirable
to create security under applicable law. Additional undertakings
shall only be included if they will not unduly interfere with the
normal running of the business of such Additional Guarantor.
(7) Enforcement. All Transaction Security shall only be enforceable upon
an Enforcement Event. Security Documents granting New Security shall
include any limitations on enforcement of security which are needed
in order to give effect to the general principles in clause (4)
above.
(8) Release of Security. The circumstances under which the Security
Trustee shall be required to release New Security, which shall be as
set forth in the Security Trust and Intercreditor Deed, shall not be
included in the Security Documents granting New Security unless
pursuant to applicable law those provisions must be set forth in
such Security Documents in order to give effect to the provisions
set forth in the Security Trust and Intercreditor Deed or required
by applicable law and any such provisions in any Security Document
shall be consistent with those set forth in the Security Trust and
Intercreditor Deed.
Release of Guarantees and Collateral. The Guarantee of the Notes by any
Guarantor under each of the Indentures will be released upon a sale or other
disposition of all of the Equity Interests of such Guarantor by the Issuer or a
Subsidiary of the Issuer, in compliance, to the extent applicable, with the
covenant entitled "Description of the Notes -- Certain Covenants -- Asset
Sales". In addition, each of the Guarantors will be discharged from its
obligations in respect of its Guarantee of the Notes in the circumstances set
forth under "Satisfaction and Discharge" below.
Pursuant to the terms of the Security Trust and Intercreditor Deed, the
Transaction Security relating to the Guarantee of the Notes by any Guarantor
under each of the Indentures will be released upon the sale or other disposition
of the assets constituting such Transaction Security by the Issuer or any of its
Subsidiaries in compliance, to the extent applicable, with the covenant entitled
"Description of the Notes -- Certain Covenants -- Asset Sales".
Notwithstanding the foregoing, the Guarantee of the Notes by MCHI and any
Transaction Security related thereto shall be released at the request of the
Issuer upon certification provided by the Issuer to the Security Trustee, the
Senior Note Trustee and Junior Note Trustee that, subject to such releases, MCHI
has completed all distributions to the stockholders of MCHI pursuant to and in
accordance with the MCHI Plan of Liquidation and Dissolution.
Limitations on Issuances of Guarantees of Indebtedness. The Issuer will not
permit any of its Subsidiaries that is not a Guarantor to, directly or
indirectly, Guarantee any Indebtedness of the Issuer or any Guarantor unless
such Subsidiary simultaneously executes and delivers supplemental indentures in
form and substance satisfactory to the applicable Note Trustee providing for the
Guarantee of all outstanding Senior Notes and Junior Notes by such Subsidiary,
which Guarantees will, subject to the terms of the Security Trust and
Intercreditor Deed, be at least pari passu with such Subsidiary's Guarantee of
such other Indebtedness, and be secured by New Security in
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accordance with the principles set forth under the caption "Certain Covenants --
Requirements with respect to Additional Guarantors" above.
This provision shall not apply to any counter-indemnity obligation permitted by
clause (11), (12), (14) or (15) of the definition of Permitted Intra-Group
Indebtedness.
Restrictions on Amendments. The Issuer will not, and will not permit any of its
Subsidiaries to, (1) amend, modify or alter the Security Trust and Intercreditor
Deed except as provided for in the Security Trust and Intercreditor Deed or (2)
amend, modify or supplement the Junior Note Indenture, the Junior Notes or the
Guarantees thereof while any Senior Notes are outstanding, other than:
(a) to give effect to required amendments to the Junior Notes and/or the
Junior Note Indenture as a result of amendments made to the Senior
Notes and/or the Senior Note Indenture as more fully described under
the caption "Description of the Notes -- Remedies Applicable to the
Senior Notes";
(b) to amend or supplement the Junior Note Indenture, the Junior Notes
or the Guarantee thereof in the manner specified in any of clauses
(2), (3), (4) or (5) of the fourth paragraph under the caption
"Description of the Notes -- Amendment, Supplement and Waiver"; or
(c) with the prior written consent of the Senior Note Trustee.
Business Activities. The Issuer will not, and will not permit any of its
Subsidiaries to, engage in any business other than Permitted Businesses.
Payments for Consent. The Issuer will not, and will not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any holder of Senior Notes or Junior
Notes, as applicable, for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the applicable Indenture, the
applicable Notes or any Guarantee of such Notes unless such consideration is
offered to be paid and is paid to all holders of such Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
SEC Reports; Other Information. Whether or not required by the SEC, (1) so long
as any Senior Notes are outstanding, the Issuer will file with or furnish to the
SEC and furnish to the Senior Note Trustee and (2) so long as any Junior Notes
are outstanding, the Issuer will file with or furnish to the SEC and furnish to
the Junior Note Trustee:
(a) from and after September 30, 2003, within the applicable period
required for domestic US issuers that are "accelerated filers" by
the rules and regulations of the SEC:
(i) annual reports on Form 10-K (or any successor form) in
respect of each of the Issuer's fiscal years, commencing with
the fiscal year ended March 31, 2004,
(ii) quarterly reports on Form 10-Q (or any successor form) in
respect of the first three fiscal quarters of each of the
Issuer's fiscal years, commencing with the fiscal quarter
ended September 30, 2003, and
(iii) current reports on Form 8-K (or any successor form),
in each case (i), (ii) and (iii) containing:
(A) the information required to be contained therein (or required
in such successor form) as if the Issuer were a domestic US
issuer with equity securities registered pursuant to Section
12(b) of the US Exchange Act and were not a "foreign private
issuer" as such term is defined by Rule 3b-4 under the US
Exchange Act including, for the avoidance of doubt, in the case
of Form 10-Ks and 10-Qs, consolidated income statements,
consolidated balance sheets and consolidated statements of cash
flows, in each case prepared in accordance with US GAAP,
together with a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that meets the
requirements of Item 303 of Regulation S-K ("MD&A") and
includes a discussion of segment information;
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(B) certifications applicable to such filings of the principal
executive officer or officers and the principal financial officer
or officers or persons performing similar functions ("Executive
Officers") of the Issuer required under Sections 302 and 906 of
the US Sarbanes-Oxley Act of 2002 as amended from time to time
(or any successor law) and any rules and regulations adopted
thereunder by the SEC or any governmental authority as if the
Issuer were a domestic US issuer with equity securities
registered pursuant to Section 12(b) of the US Exchange Act and
were not a "foreign private issuer"; and
(C) prior to the date on which all previously issued Junior Notes
have been repaid in full and there are no outstanding Obligations
under the Junior Notes or the Junior Note Indenture, the
following supplemental information:
(1) consolidated income statements, consolidated balance sheets
and consolidated statements of cash flows, in each case
prepared in accordance with US GAAP, in respect of each of
(x) the Issuer and its Non-US Subsidiaries and (y) the US
Parent and its Subsidiaries; provided that the Issuer shall
not be required to include consolidated financial
statements for the Issuer and its Non-US Subsidiaries or
the US Parent and its Subsidiaries as of any date prior to
April 1, 2003 or for any period prior to the fiscal quarter
commencing April 1, 2003; and
(2) an MD&A for each of (x) the Issuer and its Non-US
Subsidiaries and (y) the US Parent and its Subsidiaries,
provided that, in respect of reports relating to fiscal
periods ending on or prior to March 31, 2004 such MD&A will
be required to include discussions of the material changes
in financial condition and results of operations as of or
for the fiscal quarter then ended from the financial
condition and results of operations as of or for the
previous fiscal quarter instead of as of or for the
corresponding fiscal quarter in the fiscal year ended March
31, 2003.
(b) within 90 days after the Issuer's fiscal year ending March 31, 2003,
an annual report on Form 20-F containing:
(i) consolidated income statements, consolidated balance sheets
and consolidated cash flow statements of the Issuer and its
Subsidiaries prepared in accordance with either (x) Floating
UK GAAP, consistently applied, and reconciled to US GAAP in
accordance with the requirements of Item 18 of Form 20-F or
(y) US GAAP (but with any financial statement schedules
prepared in accordance with Floating UK GAAP, consistently
applied);
(ii) all non-financial statement disclosures required by Form 10-K
that are not otherwise required to be contained in Form 20-F,
as if the Issuer were a domestic US issuer required to file
such form and were not a "foreign private issuer", other than
quarterly financial data required by Item 302 of Regulation
S-K; and
(iii) certifications of Executive Officers of the Issuer required
under Sections 302 and 906 of the US Sarbanes-Oxley Act of
2002 as amended from time to time (or any successor law) and
any rules and regulations adopted thereunder by the SEC or any
governmental authority that are applicable to Form 10-K as if
the Issuer were a domestic US issuer with equity securities
registered pursuant to Section 12(b) of the US Exchange Act
and were not a "foreign private issuer";
(c) within 60 days after the Issuer's fiscal quarter ending June 30,
2003, a quarterly report on Form 6-K containing:
(i) consolidated financial statements of the Issuer and its
Subsidiaries prepared in accordance with either (x) Floating
UK GAAP, consistently applied, and reconciled to US GAAP in
accordance with the requirements of Item 18 of Form 20-F or
(y) US GAAP (but with any financial statement schedules
prepared in accordance with Floating UK GAAP, consistently
applied);
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(ii) all non-financial statement disclosures required by Form 10-Q
as if the Issuer were a domestic US issuer required to file
such form and were not a "foreign private issuer"; and
(iii) certifications of Executive Officers of the Issuer required
under Sections 302 and 906 of the US Sarbanes-Oxley Act of 2002
as amended from time to time (or any successor law) and any
rules and regulations adopted thereunder by the SEC or any
governmental authority that are applicable to Form 10-Q as if
the Issuer were a domestic US issuer with equity securities
registered pursuant to Section 12(b) of the US Exchange Act and
were not a "foreign private issuer".
Within three (3) London Business Days after each annual and quarterly filing
described above and within three (3) London Business Days after the release of
its consolidated financial statements for each fiscal quarter and each fiscal
year described above, the Issuer shall also (1) file a press release with one or
more internationally recognized wire services in connection with such report and
(2) post such press release on its website. In addition, within three (3) London
Business Days after the release of its consolidated financial statements for
each fiscal quarter and each fiscal year described above, the Issuer shall also
host a conference call, at a time during the Business Day in each of New York
City, London and Frankfurt, to discuss the results for such fiscal quarter or
year.
In addition, (1) so long as any Senior Notes are outstanding, the Issuer will
furnish to the Senior Note Trustee and (2) so long as any Junior Notes are
outstanding, the Issuer will furnish to the Junior Note Trustee,
(a) audited consolidated financial statements of the Issuer and its
Subsidiaries for each fiscal year prepared in accordance with
Floating UK GAAP, consistently applied, as soon as the Issuer
publicly releases such financial statements, but in any event within
90 days after the end of such fiscal year; and
(b) consolidated financial statements of the Issuer and its
Subsidiaries, which may be unaudited, for the first half of each of
the Issuer's fiscal years prepared in accordance with Floating UK
GAAP, consistently applied, as soon as the Issuer publicly releases
such financial statements, but in any event within 60 days after the
end of such fiscal half year.
Impairment of Security Interests.
(1) The Senior Note Indenture and the Junior Note Indenture each will
provide that the Issuer will not, and will not permit any of its
Subsidiaries to, take or omit to take any action which action or
omission could reasonably be expected to have the result of
adversely affecting or impairing the security granted over the
Transaction Security pursuant to the Security Documents (but not the
assets constituting the Transaction Security, unless otherwise
required under the terms of the applicable Indenture) in favor of
the Security Trustee for the benefit of the Senior Note Trustee or
the Junior Note Trustee, respectively, for the benefit of the
holders of the Senior Notes and the Junior Notes, respectively, and
the other Secured Creditors in any of the Transaction Security,
other than as expressly contemplated by the applicable Indenture or
the Security Documents.
(2) The Issuer and the Guarantors may not effect the release of the Lien
of any of the Transaction Security for the benefit of the holders of
the Senior Notes or the Junior Notes except in accordance with the
provisions of the Security Trust and Intercreditor Deed and in
accordance with or otherwise in compliance with, the covenant in the
applicable Indenture described under the caption "Description of the
Notes -- Certain Covenants -- Asset Sales", provided that no Event
of Default under the applicable Indenture has occurred and is
continuing or would occur as a result of such release.
Use of Intellectual Property. Each licence or sublicence, directly or
indirectly, of Intellectual Property (other than trade and service marks)
between or among the Issuer and any of its Subsidiaries (or between or among any
of its Subsidiaries) on or after the Issue Date shall be recorded in writing.
The Issuer shall procure that the Group Licence Agreement is not amended or
terminated so as to deprive the Issuer or any of its Subsidiaries of any rights
or benefits enjoyed under such licence so long as such Group Company remains
within the Group.
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New Patent Applications. The Issuer shall procure that all new Patent
applications owned by the Issuer or a Subsidiary of the Issuer incorporated or
organized in the United Kingdom or under the laws of the United States, any
state thereof or the District of Columbia, if not filed in the name of the
relevant IPR SPV, will be assigned to the relevant IPR SPV concurrently with
such application, or if that is not procedurally possible, as soon as reasonably
practicable thereafter. The Issuer shall procure that each Subsidiary of the
Issuer filing a Patent application in the United States, any state thereof, the
District of Columbia or Germany notifies the Security Trustee of the relevant
patent office details, the name of the patentee, the application number and the
date of filing.
Assignment of Patents. The Issuer will not permit any IPR SPV to transfer,
dispose of or grant any exclusive licence under any Patent such IPR SPV owns,
whether to a Subsidiary of the Issuer or any other Person, other than:
(1) to a Subsidiary of the Issuer in the context of infringement
proceedings against a third party where, absent such transfer,
disposal or grant, substantial damages would be irrecoverable (in
which case the relevant Patent or Patents shall be re-transferred
back to such IPR SPV as soon as such condition no longer prevails);
(2) to a third party or to a Subsidiary of the Issuer, in either case in
connection with any disposal (which is otherwise permitted by the
applicable Indenture), of such Subsidiary or assets, property or
rights of such Subsidiary; or
(3) to a customer of the Issuer or of any Subsidiary of the Issuer where
the Patent has been commissioned by a customer and developed by a
Group Company (whether alone or jointly with the customer) for such
customer's exclusive use pursuant to a development agreement.
UK and US IP SPVs. The Issuer shall procure that the UK IPR Co and the US IPR Co
remain Wholly-Owned Subsidiaries of the Issuer.
Listing. The Issuer shall (1) use its reasonable endeavours to procure that as
soon as possible on or after the effective date of the Restructuring, each of
the Senior Notes and the Junior Notes, excluding the Junior PIK Notes, and (2)
procure that as of their respective dates of issuance the Junior PIK Notes, if
any, are admitted to the Official List of the UK Listing Authority and trading
on the London Stock Exchange plc and such listings are maintained at all times
until none of the Senior Notes or the Junior Notes (including the Junior PIK
Notes), as the case may, remain outstanding.
Additional Covenants. The Senior Note Indenture and the Junior Note Indenture
will also contain covenants with respect to the following matters: (1) payment
of principal, premium, if any, interest and Additional Amounts, if any, on the
Senior Notes and the Junior Notes, respectively; (2) maintenance of an office or
agency in the City of New York and the City of London; (3) arrangements
regarding the handling of money held in trust; (4) maintenance of corporate
existence; (5) payment of taxes and other claims; (6) maintenance of properties;
(7) maintenance of insurance; and (8) payment of renewal and other fees in
relation to registered Intellectual Property and applications for registration
of Intellectual Property except where a decision has been taken by the Issuer to
abandon a Patent.
GOVERNING LAW
The Senior Note Indenture, the Junior Note Indenture, the Senior Notes, the
Junior Notes, the Guarantee of the Senior Notes and the Guarantee of the Junior
Notes each will be governed by, and construed in accordance with, the laws of
England and Wales.
CURRENCY INDEMNITY
All sums payable by the Issuer or the Guarantors under (1) the Senior Notes, the
Guarantees thereof and the Senior Note Indenture (in the case of the Senior
Notes) and (2) the Junior Notes, the Guarantees thereof and the Junior Note
Indenture (in the case of the Junior Notes), shall be payable in the Relevant
Currency. Any amount received or recovered in a currency other than the Relevant
Currency with respect to the Senior Notes or the Junior Notes, as the case may
be (whether as a result of, or of the enforcement of, a judgment or order of a
court
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of any jurisdiction, in the winding up or dissolution of the Issuer, any
Guarantor, any Subsidiary of the Issuer or otherwise), by the holder of such
Notes in respect of any sum expressed to be due to it from the Issuer or any
Guarantor shall constitute a discharge of the Issuer or any Guarantor only to
the extent of the Relevant Currency amount which the recipient is able to
purchase with the amount so received or recovered in other currency on the date
of receipt of that recovery (or, if it is not possible to make that purchase on
that date, on the first date on which it is possible to do so). If that Relevant
Currency amount is less than the Relevant Currency amount expressed to be due to
the recipient under any Senior Note or Junior Note, as the case may be, the
Issuer and each Guarantor, jointly and severally, shall indemnify the recipient
against the cost of making any such purchase. For the purposes of this
indemnity, it will be sufficient for the holder to certify (indicating the
sources of information used) that it would have suffered a loss had the actual
purchase of the Relevant Currency been made with the amount so received in that
other currency on the date of receipt or recovery (or, if a purchase of the
Relevant Currency on such date had not been possible, on the first date on which
it would have been possible). These indemnities, to the extent permitted by law:
(1) constitute a separate and independent obligation from the other obligations
of the Issuer and each Guarantor; (2) shall give rise to a separate and
independent cause of action; (3) shall apply irrespective of any waiver granted
by any holder of Senior Notes or Junior Notes, as the case may be; and (4) shall
continue in full force and effect despite any other judgment, order, claim or
proof for a liquidated amount in respect of any sum due under any Senior Note or
Junior Note, as the case may be, or any other judgment or order.
EVENTS OF DEFAULT
Each of the following is an "Event of Default" under the Senior Notes and/or
Junior Notes, as specified below:
(1) default for 14 days or more in the payment when due of interest on,
or Additional Amounts with respect to, the Senior Notes (in the case
of the Senior Notes) or the Junior Notes (in the case of the Junior
Notes and whether or not prohibited by the payment blockage
provisions described above under "Description of the Notes --
Payment Blockage Provisions");
(2) default in payment when due of all or any part of the principal of
or premium, if any, on, the Senior Notes (in the case of the Senior
Notes) or the Junior Notes (in the case of the Junior Notes and
whether or not prohibited by the payment blockage provisions
described above under "Description of the Notes -- Payment Blockage
Provisions"), whether at Stated Maturity, upon acceleration,
optional or mandatory redemption, if any, or otherwise including for
these purposes, the failure to call the applicable Tranche of Notes
for redemption in accordance with the provisions set forth under the
caption "Description of the Notes -- Certain Covenants -- Change of
Control" or " -- Asset Sales";
(3) failure by the Issuer or any of its Subsidiaries to comply with the
provisions described under the caption "Description of the Notes --
Certain Covenants -- Merger, Consolidation or Sale of Assets"
contained in the Senior Note Indenture (in the case of the Senior
Notes) or the Junior Note Indenture (in the case of the Junior
Notes), provided, however, with respect to any failure to comply
that is capable of being remedied, such failure shall not become an
Event of Default unless it continues unremedied for a period of 30
days;
(4) in the case of the Senior Notes, failure by the Issuer or any of its
Subsidiaries to comply with any of the other covenants or agreements
in the Senior Note Indenture or the Senior Notes (a) (i) for 90 days
after notice from the Senior Note Trustee or the Required Holders of
at least 35 per cent. in aggregate principal amount of the then
outstanding Senior Notes or (ii) for 30 days after notice from the
Required Holders of at least 66 2/3 per cent. in aggregate principal
amount of the then outstanding Senior Notes, in the case of each of
clause (a)(i) and (a)(ii) if there are any Junior Notes outstanding
(within the meaning of the Junior Note Indenture) on the date of the
applicable notice or (b) for 30 days after notice from the Senior
Note Trustee or the Required Holders of at least 25 per cent. in
aggregate principal amount of the then outstanding Senior Notes, if
there are no Junior Notes outstanding (within the meaning of the
Junior Note Indenture) on the date of such notice;
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(5) in the case of the Junior Notes, failure by the Issuer or any of its
Subsidiaries to comply with any of the other covenants or agreements
in the Junior Note Indenture or the Junior Notes (a)(i) for 90 days
after notice from the Junior Note Trustee or the Required Holders of
at least 35 per cent. in aggregate principal amount of the then
outstanding Junior Notes or (ii) for 30 days after notice from the
Required Holders of at least 66 2/3 per cent. in aggregate principal
amount of the then outstanding Junior Notes, in the case of each of
clause (a)(i) and (a)(ii) if there are any Senior Notes outstanding
(within the meaning of the Senior Note Indenture) on the date of the
applicable notice or (b) for 30 days after notice from the Junior
Note Trustee or the Required Holders of at least 25 per cent. in
aggregate principal amount of the then outstanding Junior Notes, if
there are no Senior Notes outstanding (within the meaning of the
Senior Note Indenture) on the date of such notice;
(6) default under any mortgage, trust deed, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Issuer or any
of its Subsidiaries (or the payment of which is Guaranteed by the
Issuer or any of its Subsidiaries), in each case other than
Indebtedness solely between or among the Issuer and any of its
Subsidiaries, whether such Indebtedness or Guarantee now exists, or
is created after the Issue Date, if that default:
(a) is caused by a failure to pay principal of, or interest or
premium, if any, on, such Indebtedness prior to the expiration
of any applicable grace period provided in such Indebtedness
on the date of such default (a "Payment Default"), or
(b) results in the acceleration of such Indebtedness prior to its
stated maturity;
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates L15 million (or the
Sterling Equivalent) or more;
(7) failure by the Issuer or any of its Subsidiaries to pay final
judgments aggregating in excess of L15 million (or the Sterling
Equivalent) which judgments remain unpaid or undischarged for a
period of 60 days (not including any period during which such
judgments are stayed);
(8) (a) the Guarantee of the Senior Notes (in the case of the Senior
Notes) or the Junior Notes (in the case of the Junior Notes) by any
Guarantor being held in any judicial proceeding to be unenforceable
or invalid or ceasing for any reason to be in full force and effect
except as expressly permitted under the Indentures, provided that
such unenforceability, invalidity or cessation shall not become an
Event of Default unless it continues unremedied for a period of 30
days after the Issuer or the relevant Guarantor has actual knowledge
of such unenforceability, invalidity or cessation or (b) any Person
acting on behalf of any Guarantor denying or disaffirming such
Guarantor's obligations under its Guarantee of such Notes;
(9) entry by a court of competent jurisdiction of (a) a decree or order
for relief in respect of the Issuer, any Guarantor or any
Significant Subsidiary, in an involuntary case or proceeding under
any Bankruptcy Law or (b) a decree or order (i) adjudging the
Issuer, any Guarantor or any Significant Subsidiary bankrupt or
insolvent, (ii) approving as properly filed a petition seeking
moratorium, reorganization, arrangement, adjustment or composition
of or in respect of the Issuer, any Guarantor or any Significant
Subsidiary under any Bankruptcy Law, (iii) appointing a custodian,
receiver, manager, liquidator, assignee, trustee, sequestrator or
other similar official of the Issuer, any Guarantor or any
Significant Subsidiary or of any substantial part of their
respective properties, or (iv) ordering the winding up or
liquidation of the affairs of the Issuer, any Guarantor or any
Significant Subsidiary, and in each case any such decree or order
for relief continues to be in effect, or any such other decree or
order continues unstayed and in effect, for a period of 60
consecutive calendar days, in the case of each of clauses (a) and
(b) otherwise than, in the case of a Subsidiary of the Issuer, for
the purposes of or pursuant to an amalgamation, reorganization or
restructuring while solvent on terms approved by the Senior Note
Trustee (in the case of the Senior Notes) or the Junior Note Trustee
(in the case of the Junior Notes) or by the Required Holders of at
least 25 per
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cent. in aggregate principal amount of the then outstanding Senior
Notes (in the case of the Senior Notes) or the Junior Notes (in the
case of the Junior Notes);
(10) (a) commencement by the Issuer, any Guarantor or any Significant
Subsidiary of a voluntary case or proceeding or process
(whether or not requiring the order of a court or tribunal)
under any Bankruptcy Law or of any other case or proceeding to
be adjudicated bankrupt or insolvent, or filing for or having
been granted a moratorium on payment of its debts or files for
bankruptcy or is declared bankrupt,
(b) consent by the Issuer, any Guarantor or any Significant
Subsidiary to the entry of a decree or order for relief in
respect of the Issuer, any Guarantor or any Significant
Subsidiary in an involuntary case or proceeding under any
Bankruptcy Law or to the commencement of any bankruptcy or
insolvency case or proceeding against the Issuer, any
Guarantor or any Significant Subsidiary,
(c) filing of a petition or answer or consent by the Issuer, any
Guarantor or any Significant Subsidiary seeking reorganization
or relief under any Bankruptcy Law,
(d) the Issuer, any Guarantor or any Significant Subsidiary (i)
consenting to the filing of such petition or to the
appointment of, or taking possession by, an administrator,
custodian, receiver, administrative receiver, manager,
liquidator, assignee, trustee, sequestrator or other similar
official of the Issuer, any Guarantor or such Significant
Subsidiary or of any substantial part of their respective
properties, (ii) making an assignment for the benefit of its
creditors generally or (iii) admitting in writing its
inability to pay its debts generally as they become due,
(e) the approval by stockholders of the Issuer, any Guarantor or
any Significant Subsidiary of any plan or proposal for the
liquidation or dissolution of the Issuer, any Guarantor or any
Significant Subsidiary,
(f) the whole or any substantial part of the assets of the Issuer,
any Guarantor or any Significant Subsidiary being placed under
administration, receivership or administrative receivership,
or
(g) the Issuer, any Guarantor or any Significant Subsidiary taking
any corporate action in furtherance of any actions in clause
(9) above or this clause (10),
in the case of each of clauses (a) through (g) otherwise than (i),
in the case of a Subsidiary of the Issuer, for the purposes of or
pursuant to an amalgamation, reorganization or restructuring while
solvent on terms approved by the Senior Note Trustee (in the case of
the Senior Notes) or the Junior Note Trustee (in the case of the
Junior Notes) or by the Required Holders of at least 25 per cent. in
aggregate principal amount of the then outstanding Senior Notes (in
the case of the Senior Notes) or the Junior Notes (in the case of
the Junior Notes) or (ii) in furtherance of, or otherwise in
connection with, the liquidation or dissolution of MCHI pursuant to
the MCHI Plan of Liquidation and Dissolution;
(11) failure by the Issuer or any of its Subsidiaries to comply with any
material obligations set forth in any Intellectual Property Licence
Agreement that continues unremedied for 30 days after the Issuer has
actual knowledge of such failure;
(12) (a) failure by the Issuer or any of its Subsidiaries to comply with
any material obligation set forth in the Security Trust and
Intercreditor Deed, (b) the Security Trust and Intercreditor Deed
being held in any judicial proceeding to be unenforceable or invalid
or ceasing for any reason to be in full force and effect, or (c) the
Security Trust and Intercreditor Deed being declared null and void,
provided that any such cessation or declaration shall not become an
Event of Default unless it continues unremedied for 30 days after
the Issuer or any of its Subsidiaries has actual knowledge of such
cessation or declaration;
(13) (a) any of the Security Documents in respect of the Senior Notes or
the Junior Notes being held in any judicial proceeding to be
unenforceable or invalid or ceasing for any reason to be in full
force
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and effect or to secure the payment of the Obligations payable under
the applicable Notes, the applicable Guarantee thereof or the
applicable Indenture, (b) except as permitted under the Senior Note
Indenture (in the case of the Senior Notes) or the Junior Note
Indenture (in the case of the Junior Notes), any of the Security
Documents ceasing to give the Security Trustee, on behalf of the
Note Trustees (for the benefit of the holders of the applicable
Notes) any of the Liens created thereby or to secure the payment of
the Obligations payable under the applicable Notes, the applicable
Guarantee thereof or the applicable Indenture or (c) any of the
Security Documents being declared null and void, provided that, in
the case of any such cessation or declaration that does not
materially adversely affect the rights of the holders of the
applicable Tranche of Notes, such cessation or declaration shall not
become an Event of Default unless it continues unremedied for 30
days after the Issuer or any of its Subsidiaries receives actual
knowledge of such cessation or declaration; and
(14) with respect to the Senior Notes, any Event of Default under the
Junior Notes has occurred and is continuing.
REMEDIES APPLICABLE TO THE SENIOR NOTES
In the case of an Event of Default under the Senior Note Indenture arising from
any event specified in clause (9) or (10) under the caption "Description of the
Notes -- Events of Default" with respect to the Issuer, all outstanding Senior
Notes will become due and payable immediately without further action or notice.
If any other Event of Default under the Senior Note Indenture occurs and is
continuing (other than an Event of Default specified in clause (4) under the
caption "Description of the Notes -- Events of Default"), the Senior Note
Trustee or the Required Holders of at least 25 per cent. in aggregate principal
amount of the then outstanding Senior Notes may declare by written notice to the
Issuer and the Senior Note Trustee the principal amount of, premium, if any, and
any accrued interest and any Additional Amounts on all the Senior Notes to be
due and payable immediately unless prior to such date all Events of Default
under the Senior Note Indenture have been cured. If an Event of Default under
the Senior Note Indenture occurs and is continuing under clause (4) under the
caption "Description of the Notes -- Events of Default", the Senior Note Trustee
or the Required Holders of at least 35 per cent. (or, in the event that no
Junior Notes are outstanding within the meaning of the Junior Note Indenture, 25
per cent.) in aggregate principal amount of the then outstanding Senior Notes
may declare by written notice to the Issuer and the Senior Note Trustee the
principal amount of, premium, if any, and any accrued interest and any
Additional Amounts on all the Senior Notes to be due and payable immediately
unless prior to such date all Events of Default under the Senior Note Indenture
have been cured. Upon any such declaration of acceleration, such principal
amount, premium, if any, and any accrued interest and any Additional Amounts on
the Senior Notes will become immediately due and payable without presentment,
demand, protest or notice of any kind, all of which are expressly waived in the
Senior Note Indenture.
After a declaration of acceleration, but before a judgment or decree of payment
of the money due has been obtained by the Senior Note Trustee, the Required
Holders of at least a majority in aggregate principal amount of the then
outstanding Senior Notes, by written notice to the Issuer and the Senior Note
Trustee, may rescind and annul such declaration and its consequences if:
(1) the Issuer has paid or deposited with the Senior Note Trustee a sum
sufficient to pay (a) all sums paid or advanced by the Senior Note
Trustee under the Senior Note Indenture and the reasonable
compensation, expenses, disbursements and advances of the Senior
Note Trustee, its agents and counsel, (b) all overdue interest on
all Senior Notes then outstanding, (c) the principal of, and premium
and Additional Amounts, if any, on any Senior Notes then outstanding
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Senior
Notes, and (d) to the extent that payment of such interest is
lawful, interest upon overdue interest at the Default Rate;
(2) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and
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(3) all Events of Default, other than the non-payment of principal of,
premium, if any, and interest and Additional Amounts, if any, on the
Senior Notes which have become due solely by such declaration of
acceleration, have been cured or waived as provided in the Senior
Note Indenture.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
No holder of Senior Notes shall have any right to institute any proceeding,
judicial or otherwise, with respect to the Senior Note Indenture or the Senior
Notes, or for the appointment of a receiver or trustee, or for any other remedy,
unless:
(1) such holder has previously given written notice to the Senior Note
Trustee of a continuing Event of Default under the Senior Note
Indenture;
(2) the Required Holders of at least (a) 25 per cent., in the case of
any Event of Default other than an Event of Default specified in
clause (4) under the caption "Description of the Notes -- Events of
Default", (b) 25 per cent., in the case of an Event of Default
specified in clause (4) under the caption "Description of the Notes
-- Events of Default" if no Junior Notes are outstanding within the
meaning of the Junior Note Indenture or (c) 35 per cent., in the
case of an Event of Default specified in clause (4) under the
caption "Description of the Notes -- Events of Default" if any
Junior Notes are outstanding within the meaning of the Junior Note
Indenture, in aggregate principal amount of the then outstanding
Senior Notes have made written request to the Senior Note Trustee to
institute proceedings in respect of such Event of Default in its own
name;
(3) such holder has offered to the Senior Note Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred
with such request;
(4) the Senior Note Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
proceeding; and
(5) no direction inconsistent with such written request has been given
to the Senior Note Trustee during such 60 day period by the Required
Holders of at least a majority in aggregate principal amount of the
then outstanding Senior Notes.
The Required Holders of at least a majority in aggregate principal amount of the
Senior Notes then outstanding by notice to the Senior Note Trustee may on behalf
of the holders of all of the Senior Notes waive any existing Default or Event of
Default and its consequences under the Senior Note Indenture, except a
continuing Default or Event of Default in the payment of interest or Additional
Amounts, if any, on, or the principal of or premium, if any, on the Senior Notes
or a Default or Event of Default in respect of a covenant that may not be
modified or amended without the consent of the holder of each Senior Note
affected. Upon any such waiver, such Event of Default or Default shall cease to
exist, and any Event of Default or Default arising therefrom will be deemed to
have been cured and not to have occurred for purposes of the Senior Note
Indenture. No such waiver will extend to any subsequent or other Event of
Default or Default or impair any right consequent thereon.
Holders of the Senior Notes may not enforce the Senior Note Indenture or the
Senior Notes except as provided in the Senior Note Indenture. The Required
Holders of at least a majority in aggregate principal amount of the Senior Notes
then outstanding shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Senior Note Trustee,
or exercising any trust or power conferred on the Senior Note Trustee with
respect to the Senior Notes, provided that:
(1) such direction is not in conflict with any rule of law or with the
Senior Note Indenture; and
(2) the Senior Note Trustee may take any other action deemed proper by
the Senior Note Trustee which is not inconsistent with such
direction.
If an Event of Default under the Senior Note Indenture has occurred and is
continuing, the Required Holders of at least:
(1) 25 per cent., in the case of any Event of Default other than an
Event of Default specified in clause (4) under the caption
"Description of the Notes -- Events of Default",
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(2) 25 per cent., in the case of an Event of Default specified in clause
(4) under the caption "Description of the Notes -- Events of
Default" if no Junior Notes are outstanding within the meaning of
the Junior Note Indenture, or
(3) 35 per cent., in the case of an Event of Default specified in clause
(4) under the caption "Description of the Notes -- Events of
Default" if any Junior Notes are outstanding within the meaning of
the Junior Note Indenture,
in aggregate principal amount of the Senior Notes then outstanding shall have
the right to direct the Senior Note Trustee in writing to direct the Security
Trustee to (a) take action to enforce the security interests in favor of the
Security Trustee on behalf of the Secured Creditors in the Transaction Security,
subject to the terms of the Security Trust and Intercreditor Deed, provided that
no direction inconsistent with such written direction has been given to the
Senior Note Trustee by the Required Holders of at least a majority in aggregate
principal amount of the Senior Notes then outstanding or (b) take enforcement
action in relation to any of the Intra-Group Liabilities pursuant to the
Security Trust and Intercreditor Deed, subject to the terms thereof.
The Senior Note Indenture provides that in case an Event of Default occurs and
is continuing under the Senior Note Indenture, the Senior Note Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
person in the conduct of his, her or its own affairs. The Senior Note Trustee
may refuse to follow any direction that conflicts with law, the Senior Note
Indenture or the Security Trust and Intercreditor Deed, or that may involve the
Senior Note Trustee in personal liability.
If a Default or Event of Default has occurred and is continuing under the Senior
Notes, the Senior Note Trustee shall notify the Issuer, the Security Trustee and
the Junior Note Trustee. Subject to the restrictions in the Security Trust and
Intercreditor Deed, if the holders of the Senior Notes agree to waive such
Default or Event of Default and/or amend the Senior Notes and/or the Senior Note
Indenture to address the circumstances leading to such Default or Event of
Default during the related Standstill Period, the holders of the Junior Notes
will be deemed to have waived any existing corresponding Default or Event of
Default under the Junior Notes and/or amended the corresponding provisions of
the Junior Notes and the Junior Note Indenture and, in the case of any such
amendment, the Issuer and the Junior Note Trustee shall enter into a
supplemental indenture to the Junior Note Indenture without the consent of any
holder of any Junior Notes to effect such amendment, provided however, that no
such deemed amendment or waiver shall be effected with respect to any provision
which, pursuant to the terms of the Junior Note Indenture, may not be amended
without the consent of each holder of Junior Notes, as described under the
caption "-- Amendment, Supplement and Waiver".
Notwithstanding any other provision in the Senior Note Indenture, each holder of
the Senior Notes shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any), interest, if any, and
Additional Amounts, if any, on the Senior Notes and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such holder.
The Issuer is required to deliver to the Senior Note Trustee a semi-annual
statement regarding compliance with the Senior Note Indenture. Furthermore, upon
becoming aware of any Default or Event of Default under the Senior Note
Indenture, the Issuer is required to deliver to the Senior Note Trustee and
Security Trustee a statement specifying such Default or Event of Default. The
Senior Note Trustee shall give the holders of the Senior Notes notice of each
Default under the Senior Note Indenture known to such Trustee, within 30 days
after the occurrence thereof, as and to the extent provided by the Trust
Indenture Act, unless such Default shall have been cured or waived.
REMEDIES APPLICABLE TO THE JUNIOR NOTES
In the case of an Event of Default under the Junior Note Indenture arising from
events specified in clause (9) or (10) under the caption "Description of the
Notes -- Events of Default" with respect to the Issuer, all outstanding Junior
Notes will become due and payable immediately without further action or notice.
If any other Event of Default under the Junior Note Indenture occurs and is
continuing (other than an Event of Default specified in clause (5) under the
caption "Description of the Notes -- Events of Default"), the Junior Note
Trustee or the Required Holders of at least 25 per cent. in aggregate principal
amount of the then outstanding Junior Notes may, subject to the restrictions in
the Security Trust and Intercreditor Deed, declare by written notice to the
Issuer and
713
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 8: SUMMARY OF THE TERMS OF THE NEW SENIOR NOTES AND THE NEW JUNIOR
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the Junior Note Trustee the principal amount of, premium, if any, and any
accrued interest and any Additional Amounts on all the Junior Notes to be due
and payable immediately unless prior to such date all Events of Default under
the Junior Note Indenture have been cured. If an Event of Default under the
Junior Note Indenture occurs and is continuing under clause (5) under the
caption "Description of the Notes -- Events of Default", the Junior Note Trustee
or the Required Holders of at least 35 per cent. (or, in the event that no
Senior Notes are outstanding within the meaning of the Senior Note Indenture, 25
per cent.) in aggregate principal amount of the then outstanding Junior Notes
may, subject to the restrictions in the Security Trust and Intercreditor Deed,
declare by written notice to the Issuer and the Junior Note Trustee the
principal amount of, premium, if any, and accrued interest and any Additional
Amounts on all the Junior Notes to be due and payable immediately unless prior
to such date all Events of Default under the Junior Notes Indenture have been
cured. Upon any such declaration of acceleration, such principal amount,
premium, if any, and any accrued interest and any Additional Amounts on the
Junior Notes will become immediately due and payable without presentment,
demand, protest or notice of any kind, all of which are expressly waived in the
Junior Note Indenture.
After a declaration of acceleration, but before a judgment or decree of payment
of the money due has been obtained by the Junior Note Trustee, the Required
Holders of at least a majority in aggregate principal amount of the then
outstanding Junior Notes, by written notice to the Issuer and the Junior Note
Trustee, may rescind and annul such declaration and its consequences if:
(1) the Issuer has paid or deposited with the Junior Note Trustee a sum
sufficient to pay (a) all sums paid or advanced by the Junior Note
Trustee under the Junior Note Indenture and the reasonable
compensation, expenses, disbursements and advances of the Junior
Note Trustee, its agents and counsel, (b) all overdue interest on
all Junior Notes then outstanding, (c) the principal of, and premium
and Additional Amounts, if any, on any Junior Notes then outstanding
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Junior
Notes, and (d) to the extent that payment of such interest is
lawful, interest upon overdue interest at the Default Rate;
(2) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and
(3) all Events of Default, other than the non-payment of principal of,
premium, if any, and interest and Additional Amounts, if any, on the
Junior Notes which have become due solely by such declaration of
acceleration, have been cured or waived as provided in the Junior
Note Indenture.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
No holder of Junior Notes shall have any right to institute any proceeding,
judicial or otherwise, with respect to the Junior Note Indenture or the Junior
Notes, or for the appointment of a receiver or trustee, or for any other remedy,
unless:
(1) such holder has previously given written notice to the Junior Note
Trustee of a continuing Event of Default under the Junior Note
Indenture;
(2) the Required Holders of at least (a) 25 per cent., in the case of
any Event of Default other than an Event of Default specified in
clause (5) under the caption "Description of the Notes -- Events of
Default", (b) 25 per cent., in the case of an Event of Default
specified in clause (5) under the caption "Description of the Notes
-- Events of Default" if no Senior Notes are outstanding within the
meaning of the Senior Note Indenture or (c) 35 per cent., in the
case of an Event of Default specified in clause (5) under the
caption "Description of the Notes -- Events of Default" if any
Senior Notes are outstanding within the meaning of the Senior Note
Indenture, in aggregate principal amount of the then outstanding
Junior Notes have made written request to the Junior Note Trustee to
institute proceedings in respect of such Event of Default in its own
name;
(3) such holder has offered to the Junior Note Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred
with such request;
714
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 8: SUMMARY OF THE TERMS OF THE NEW SENIOR NOTES AND THE NEW JUNIOR
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(4) the Junior Note Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
proceeding; and
(5) no direction inconsistent with such written request has been given
to the Junior Note Trustee during such 60 day period by the Required
Holders of at least a majority in aggregate principal amount of the
then outstanding Junior Notes.
The Required Holders of at least a majority in aggregate principal amount of the
Junior Notes then outstanding by notice to the Junior Note Trustee may on behalf
of the holders of all of the Junior Notes waive any existing Default or Event of
Default and its consequences under the Junior Note Indenture, except a
continuing Default or Event of Default in the payment of interest or Additional
Amounts, if any, on, or the principal of or premium, if any, on the Junior Notes
or a Default or Event of Default in respect of a covenant that may not be
modified or amended without the consent of the holder of each Junior Note
affected. Upon any such waiver, such Event of Default or Default shall cease to
exist, and any Event of Default or Default arising therefrom will be deemed to
have been cured and not to have occurred for purposes of the Junior Note
Indenture. No such waiver will extend to any subsequent or other Event of
Default or Default or impair any right consequent thereon.
If a Default or Event of Default has occurred and is continuing under the Senior
Notes, the Senior Note Trustee shall notify the Issuer, the Security Trustee and
the Junior Note Trustee. Subject to the restrictions in the Security Trust and
Intercreditor Deed, if the holders of the Senior Notes agree to waive such
Default or Event of Default and/or amend the Senior Notes and/or the Senior Note
Indenture to address the circumstances leading to such Default or Event of
Default during the related Standstill Period, the holders of the Junior Notes
will be deemed to have waived any existing corresponding Default or Event or
Default under the Junior Notes and/or amended the corresponding provisions of
the Junior Notes and the Junior Note Indenture and, in the case of any such
amendment, the Issuer and Junior Note Trustee shall enter into a supplemental
indenture to the Junior Note Indenture without the consent of any holder of any
Junior Notes to effect such amendment, provided however, that no such deemed
amendment or waiver shall be effected with respect to any provision which,
pursuant to the terms of the Junior Note Indenture, may not be amended without
the consent of each holder of Junior Notes, as described under the caption
"Amendment, Supplement and Waiver".
Holders of the Junior Notes may not enforce the Junior Note Indenture or the
Junior Notes except as provided in the Junior Note Indenture. The Required
Holders of at least a majority in aggregate principal amount of the Junior Notes
then outstanding shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Junior Note Trustee,
or exercising any trust or power conferred on the Junior Note Trustee with
respect to the Junior Notes, provided that:
(1) such direction is not in conflict with any rule of law or with the
Junior Note Indenture; and
(2) the Junior Note Trustee may take any other action deemed proper by
the Junior Note Trustee which is not inconsistent with such
direction.
Subject in each case to the prior rights of the holders of the Senior Notes
under the Security Trust and Intercreditor Deed, if an Event of Default under
the Junior Note Indenture has occurred and is continuing, the Required Holders
of at least:
(1) 25 per cent., in the case of any Event of Default other than an
Event of Default specified in clause (5) under the caption
"Description of the Notes -- Events of Default",
(2) 25 per cent., in the case of an Event of Default specified in clause
(5) under the caption "Description of the Notes -- Events of
Default" if no Senior Notes are outstanding within the meaning of
the Senior Note Indenture, or
(3) 35 per cent., in the case of an Event of Default specified in clause
(5) under the caption "Description of the Notes -- Events of
Default" if any Senior Notes are outstanding within the meaning of
the Senior Note Indenture,
in aggregate principal amount of the Junior Notes then outstanding shall have
the right to direct the Junior Note Trustee in writing to direct the Security
Trustee to (a) take action to enforce the security interests in favor of the
Secured Creditors in the Transaction Security, subject to the terms of the
Security Trust and Intercreditor Deed,
715
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APPENDIX 8: SUMMARY OF THE TERMS OF THE NEW SENIOR NOTES AND THE NEW JUNIOR
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provided that no direction inconsistent with such written direction has been
given to the Junior Note Trustee by the Required Holders of at least a majority
in aggregate principal amount of the Junior Notes then outstanding or (b) take
enforcement action in relation to any of the Intra-Group Liabilities pursuant to
the Security Trust and Intercreditor Deed, subject to the terms thereof.
The Junior Note Indenture provides that in case an Event of Default occurs and
is continuing under the Junior Note Indenture, the Junior Note Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
person in the conduct of his, her or its own affairs. The Junior Note Trustee
may refuse to follow any direction that conflicts with law, the Junior Note
Indenture or the Security Trust and Intercreditor Deed, or that may involve the
Junior Note Trustee in personal liability.
Notwithstanding any other provision in the Junior Note Indenture, each holder of
the Junior Notes shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any), interest, if any, and
Additional Amounts, if any, on the Junior Notes and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such holder.
The Issuer is required to deliver to the Junior Note Trustee a semi-annual
statement regarding compliance with the Junior Note Indenture. Furthermore, upon
becoming aware of any Default or Event of Default under the Junior Note
Indenture, the Issuer is required to deliver to the Junior Note Trustee and
Security Trustee a statement specifying such Default or Event of Default. The
Junior Note Trustee shall give the holders of the Junior Notes notice of each
Default under the Junior Note Indenture known to such Trustee, within 30 days
after the occurrence thereof, as and to the extent provided by the Trust
Indenture Act, unless such Default shall have been cured or waived.
FORM OF NOTES
Each Series of each Tranche of Notes will initially be represented by one or
more global notes in bearer form without interest coupons attached (each a
"Global Note" and together the "Global Notes"). Title to the Global Notes will
pass by delivery. The holder of any certificate representing any Series of any
Tranche of Notes, including any Global Note (the "holder"), is the person that
has possession of the certificate, in the case of a bearer certificate, and the
person in whose name the certificate is registered, in the case of a certificate
in registered form.
The Global Notes will be deposited on issue with The Bank of New York, as
depositary (the "Depositary") under the Deposit Agreement. Under the Deposit
Agreement, the Depositary will issue to DTC, Euroclear and/or Clearstream
certificateless depositary interests, which together represent a 100 per cent.
interest in each underlying Global Note. The certificateless depositary
interests will be registered in the name of Cede & Co., as nominee of DTC (with
respect to certificateless depositary interests issued to DTC) or the nominee of
a common depositary for Euroclear and Clearstream (with respect to
certificateless depositary interests issued to Euroclear and/or Clearstream).
Upon acceptance by DTC, Euroclear and/or Clearstream of a certificateless
depositary interest for entry into their respective book-entry settlement
systems, beneficial interests in the certificateless depositary interests (the
"Book-Entry Interests") will be issued by DTC, Euroclear and/or Clearstream and
traded through their respective book-entry systems.
The Book-Entry Interests will not be held in definitive form. Book-Entry
Interests will be held by or through persons that have accounts with DTC,
Euroclear and/or Clearstream ("direct participants") or persons that hold
interests through direct participants ("indirect participants" and, together
with direct participants, "participants"). The laws of some jurisdictions,
including certain states of the United States, may require that certain
investors in securities take physical delivery of such securities in definitive
form. The foregoing limitations may impair the ability of investors to own,
transfer or pledge Book-Entry Interests. In addition, while the Notes are in
global form, "holders" of Book-Entry Interests will not be considered the owners
or "holders" of Notes for any purpose.
Ownership of the Book-Entry Interests will be shown on, and the transfer of
ownership will be effected only through, records maintained in book-entry form
by DTC, Euroclear, Clearstream and their participants. Book-Entry Interests will
be transferable only as units in the same authorized denominations as the Notes
of the Series to which they correspond. Unless any Series of Notes is exchanged
in whole or in part for other securities of the
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Issuer, or the applicable Global Note is exchanged for Notes in definitive
registered form ("Definitive Registered Notes"), the certificateless depositary
interests representing Notes of a Series held by DTC, Euroclear and/or
Clearstream may not be transferred except as a whole between DTC, Euroclear
and/or Clearstream, a nominee of DTC, the nominee of a common depositary for
Euroclear and Clearstream, or their respective successors.
So long as the Depositary or its nominee is the holder of the Global Note(s)
representing Notes of a Series, the Depositary or its nominee will be considered
the sole holder of the Global Note(s) for all purposes under the applicable
Indenture. Except as described below under the caption "The Deposit Agreement --
Issuance of Definitive Registered Notes and Termination of the Deposit
Agreement", no participant or other person will be entitled to have Notes
registered in its name, receive or be entitled to receive physical delivery of
Definitive Registered Notes or be considered the owner or holder of the Notes
under the applicable Indenture or the Deposit Agreement. Accordingly, each
person owning a Book-Entry Interest must rely on the procedures of the
Depositary and DTC, Euroclear and/or Clearstream and, if the person is not a
direct participant in DTC, Euroclear and/or Clearstream, on the procedures of
the direct participant or other securities intermediary through which the person
owns its interest, to exercise any rights and obligations of a holder under the
applicable Indenture, the applicable Series of Notes or the Deposit Agreement.
The Issuer will not impose any fees or other charges in respect of the Notes;
however, holders of the Book-Entry Interests may incur fees normally payable in
respect of the maintenance and operation of accounts in DTC, Euroclear and/or
Clearstream.
None of the Issuer, the Guarantors, the Note Trustees, the Security Trustee, the
Depositary, any Paying Agent or any of their agents will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Book-Entry Interests.
PAYMENTS ON THE GLOBAL NOTES. Payments of any amounts relating to any Global
Note will be made through the Paying Agents to the Depositary, as the holder of
the Global Note. The Issuer and its agents will be discharged, by payment to or
to the order of the Depositary, from any responsibility or liability for each
amount paid in this manner. Under the Deposit Agreement, the Depositary will pay
an amount equal to all these payments to DTC, Euroclear and/or Clearstream,
except as described below. None of the Issuer, the Guarantors, the applicable
Note Trustee, the Security Trustee, the Depositary, any Paying Agent or any of
their agents will have any responsibility or liability for any aspect of the
records relating to payments made by DTC, Euroclear and/or Clearstream or their
participants on account of Book-Entry Interests or for maintaining, supervising
or reviewing any records relating to the Book-Entry Interests.
A holder of a Book-Entry Interest issued by DTC denominated or repayable in a
Relevant Currency other than US dollars electing to receive payments of
principal or interest, if any, in a currency other than US dollars must notify
the DTC participant through which its interest is held on or prior to the
applicable record date, in the case of a payment of interest, and on or prior to
the twelfth day prior to the date of payment of principal, in the case of
principal, of such beneficial owner's election to receive all or a portion of
such payment in a Relevant Currency other than US dollars, together with wire
transfer payment instructions to an account in the Relevant Currency. Any such
election in respect of a payment of principal or interest shall be irrevocable.
In the case of a payment of interest, such DTC participant must notify DTC of
such election on or prior to the third Business Day after such record date. DTC
will notify the Paying Agent of such election on or prior to the fifth Business
Day after such record date for any payment of interest. In the case of a payment
of principal, such DTC participant must notify DTC of such election on or prior
to the twelfth day prior to the payment of principal. DTC will notify the Paying
Agent of such election on or prior to the tenth Business Day prior to the
payment of principal.
If complete instructions are received by the DTC participant and forwarded by
the DTC participant to DTC, and by DTC to the Paying Agent, on or prior to such
dates, the beneficial owner will receive payments of principal and or interest
in the Relevant Currency; otherwise only US dollar payments will be made by the
Paying Agent through DTC. If any holder of a certificateless depositary interest
issued by DTC does not elect to receive principal or interest payments in the
Relevant Currency in accordance with the rules and procedures of DTC, such
payments will be made in US dollars. Conversion of the Relevant Currency into US
dollars will be made by the Depositary. In particular, holders of
certificateless depositary interests issued by DTC should be aware that
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the Depositary has the right to deduct from payments made in US dollars all
costs of converting amounts in the Relevant Currency to US dollars.
INFORMATION REGARDING DTC, EUROCLEAR AND CLEARSTREAM
DTC, Euroclear and Clearstream have advised the Issuer of the following
information:
DTC. DTC is:
- a limited-purpose trust company organized under the New York Banking
Law;
- a "banking organization" within the meaning of the New York Banking
Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
- a "clearing agency" registered under Section 17A of the US Exchange
Act.
DTC was created to hold securities of its participants and to facilitate the
clearance and settlement of transactions among its participants in these
securities through electronic book-entry changes in accounts of the
participants, eliminating the need for physical movement of securities
certificates. Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. Some of these
participants, along with some of their representatives and others, own DTC.
Access to the DTC book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
The Issuer understands that DTC will take any action permitted to be taken by a
holder of a beneficial interest in the applicable Series of Notes only at the
direction of participants to whose account with DTC Book-Entry Interests are
credited and only for the principal amount of the Book-Entry Interests as to
which these participants have given such direction.
EUROCLEAR AND CLEARSTREAM. Some beneficial owners of the Notes may hold
Book-Entry Interests through their accounts with Euroclear and Clearstream. Each
of Euroclear and Clearstream holds securities for its account holders and
facilitates the clearance and settlement of transactions by electronic
book-entry transfers between its account holders, eliminating the need for
physical movements of certificates and any risk from lack of simultaneous
transfers of securities.
Euroclear and Clearstream provide various services including safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Euroclear and Clearstream also deal with
domestic securities markets in several countries through established depositary
and custodial relationships. Euroclear and Clearstream have established an
electronic bridge between their two systems across which their account holders
may settle trades with each other.
Account holders in Euroclear and Clearstream are world-wide financial
institutions including underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to Euroclear and
Clearstream is available to other institutions that clear through or maintain a
custodial relationship with an account holder of either system.
Account holders' overall contractual relations with Euroclear and Clearstream
are governed by the respective rules and operating procedures of Euroclear and
Clearstream, and any applicable laws. Euroclear and Clearstream act under these
rules and operating procedures only on behalf of their respective account
holders. They have no record of or relationship with persons holding through
their respective account holders.
GLOBAL CLEARANCE AND SETTLEMENT UNDER THE BOOK-ENTRY SYSTEM
The Book-Entry Interests representing interests in the Global Notes of a Series
are expected to be listed on the London Stock Exchange plc. Book-Entry Interests
issued by DTC are expected to trade in DTC's same-day funds settlement system,
and secondary market trading activity in such Book-Entry Interests will,
therefore, be required by DTC to be settled in immediately available funds.
Book-Entry Interests issued by Euroclear and/or
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Clearstream are expected to settle in same-day funds. The Issuer expects that
secondary trading in any Definitive Registered Notes will also be settled in
immediately available funds. Cross-market transfers between participants in DTC,
on the one hand, and Euroclear or Clearstream participants, on the other hand,
will be done through DTC in accordance with DTC's rules on behalf of each of
Euroclear or Clearstream by its common depository; however, such cross-market
transactions will require delivery of instructions to Euroclear or Clearstream
by the counterparty in such system in accordance with the rules and regulations
and within the established deadlines of such system (Brussels time). Euroclear
or Clearstream will, if the transaction meets its settlement requirements,
deliver instructions to the common depositary to take action to effect final
settlement on its behalf by delivering or receiving Book-Entry Interests by DTC,
and making and receiving payment in accordance with normal procedures for
same-day funds settlement application to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the common
depository.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing a Book-Entry Interest from a participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and Clearstream)
immediately following the settlement date of DTC. Cash received in Euroclear and
Clearstream as a result of a sale of a Book-Entry Interest by or through a
Euroclear or Clearstream participant to a participant in DTC will be received
with value on the settlement date of DTC but will be available in the relevant
Euroclear or Clearstream cash account only as of the business day for Euroclear
or Clearstream following DTC's settlement date.
Although DTC, Euroclear and Clearstream currently follow the foregoing
procedures in order to facilitate transfers of Book-Entry Interests among
participants in DTC, Euroclear and Clearstream, as the case may be, they are
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued or modified at any time. None of the Issuer, the
Guarantors, the Note Trustees, the Security Trustee, the Depositary, any Paying
Agent or any of their agents will have any responsibility for the performance of
DTC, Euroclear or Clearstream or their respective participants or indirect
participants, of their respective obligations under the rules and procedures
governing their operations.
SECONDARY MARKET TRADING
The Book-Entry Interests will trade through participants of DTC, Euroclear
and/or Clearstream and will settle in same-day funds. Since the purchaser
determines the place of delivery, it is important to establish at the time of
trading of any Book-Entry Interests where both the purchaser's and the seller's
accounts are located to ensure that the settlement can be made on the desired
value date.
THE DEPOSIT AGREEMENT
REDEMPTION. In the event that a Global Note or any portion of a Global Note is
redeemed, the Depositary will redeem an equal amount of the certificateless
depositary interest or interests issued by DTC, Euroclear and/or Clearstream.
ISSUANCE OF DEFINITIVE REGISTERED NOTES AND TERMINATION OF THE DEPOSIT
AGREEMENT. So long as DTC, Euroclear and/or Clearstream holds the
certificateless depositary interest or interests representing Notes of a Series,
the Book-Entry Interests (and corresponding Global Notes) will not be
exchangeable for Definitive Registered Notes except if:
- DTC, Euroclear or Clearstream notifies the Depositary that it is
unwilling or unable to continue to hold the certificateless depositary
interest or interests, or if at any time DTC is unable to or ceases to
be a clearing agency registered under the US Exchange Act, and in
either case a successor to DTC, Euroclear and/or Clearstream, as
applicable, is not appointed by the Depositary within 120 days;
- the Depositary notifies the Issuer and the relevant Note Trustee that
it is unwilling or unable to continue to act as Depositary, and the
Issuer is unable to appoint a successor Depositary within 120 days; or
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- if so requested by either DTC, Euroclear, Clearstream, the Issuer or
the applicable Note Trustee, in the event of a winding-up of the Issuer
or an Event of Default, as defined in the applicable Indenture, has
occurred and is continuing.
To receive or direct the delivery of possession of any Definitive Registered
Notes, each person owning a Book-Entry Interest must rely exclusively on the
provisions of the Deposit Agreement, the rules or procedures of DTC, Euroclear
and/or Clearstream and any agreement with any participant or any other
securities intermediary through which that person holds its interest.
If Definitive Registered Notes are issued by the Issuer in exchange for a
particular Global Note, the Depositary will promptly notify DTC, Euroclear
and/or Clearstream that the corresponding Global Note will be exchanged in whole
or in part for Definitive Registered Notes. Definitive Registered Notes will be
issued in such names and amounts as DTC, Euroclear and/or Clearstream may
specify upon cancellation of the corresponding certificateless depositary
interests and all Book-Entry Interests relating to the certificateless
depositary interests. The Depositary will promptly surrender the corresponding
Global Note held by it to the relevant Note Trustee in connection with such
exchange for cancellation.
Any Definitive Registered Notes will be issued in registered form in the same
authorized denominations as the applicable Notes of the Series to which they
correspond. Payments of principal, interest or other amounts in respect of the
Definitive Registered Notes will be made to the person in whose name the
Definitive Registered Notes are registered in the register. Payments on
Definitive Registered Notes will be payable at the corporate trust office or
agency of the relevant Note Trustee in New York City and at the specified office
of the Paying Agent in London maintained for such purposes, against surrender of
the relevant Definitive Registered Notes in the case of payment of principal,
and at other offices as may be designated from time to time. In addition,
payments may be made by check drawn on a bank in New York City or London or, at
the request of the holder, by transfer to an account of the holder in New York
City or London. Definitive Registered Notes should be presented to any Paying
Agent for redemption.
A Definitive Registered Note may be transferred upon the surrender at the
specified office of any transfer agent of the certificate representing the
Definitive Registered Note to be transferred, together with any forms and other
evidence that the transfer agent may reasonably require. In the event of a
partial transfer of Definitive Registered Notes, new Definitive Registered Notes
in permitted denominations will be obtainable as soon as practicable at the
office of the relevant Note Trustee or any transfer agent. The transfer agent
will not be required to transfer any Definitive Registered Note during the
period of 15 days preceding the due date for any payment of principal, interest
or other amounts, if any, due, or the date on which the applicable Tranche of
Notes is scheduled for redemption.
If any Definitive Registered Note is mutilated, destroyed, stolen or lost, it
may be replaced at the specified office of the relevant Note Trustee or any
transfer agent or Paying Agent. Replacement will be made upon payment by the
claimant of the expenses incurred by the Issuer in connection with such
replacement, including the fees and expenses of the relevant Note Trustee,
transfer agent or Paying Agent, together with any indemnity that such parties
and the Issuer may reasonably require from the claimant. Mutilated Definitive
Registered Notes must be surrendered before replacements will be issued.
To the extent permitted by law, the Issuer, the relevant Note Trustee and any
agents of either of them will be entitled to treat the person in whose name any
Definitive Registered Notes are registered as the absolute owner of such
Definitive Registered Notes.
REPORTS. The Deposit Agreement requires the Depositary promptly to send to DTC,
Euroclear and/or Clearstream, as applicable, a copy of any notices, reports and
other communications received relating to the Issuer or the applicable Notes of
a Tranche.
ACTION BY DEPOSITARY. The Deposit Agreement requires the Depositary to exercise
any of its rights or powers vested in it by the Deposit Agreement as requested
by DTC, Euroclear and/or Clearstream, so long as the Depositary has been offered
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request.
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AMENDMENT OF DEPOSIT AGREEMENT. The Depositary and the Issuer may only amend
the Deposit Agreement without the consent of DTC, Euroclear and/or Clearstream
or the owners of Book-Entry Interests:
- to cure any ambiguity, omission, defect or inconsistency in the Deposit
Agreement;
- to add to the covenants and agreements of the Depositary or the Issuer;
- to evidence or effectuate the assignment of the Depositary's rights and
duties to a qualified successor;
- to comply with the US Securities Act of 1933, the US Exchange Act, the
US Investment Company Act of 1940, the Trust Indenture Act or any other
applicable law, rule or regulation; or
- to modify, alter, amend or supplement the Deposit Agreement in a manner
that is not adverse to the interests of DTC, Euroclear and/or
Clearstream or the owners of Book-Entry Interests.
RESIGNATION OR REMOVAL OF DEPOSITARY. The Depositary may at any time, following
60 days' written notice to the Issuer and DTC, Euroclear and Clearstream, resign
as Depositary. The Depositary may be removed by the Issuer at any time upon 90
days' written notice or, under certain circumstances, immediately. A resignation
or removal will become effective upon the appointment of a successor Depositary.
If the Issuer is unable to appoint a successor Depositary promptly, DTC,
Euroclear and/or Clearstream or the Depositary may, on behalf of itself and all
others similarly situated, at the expense of the Issuer, petition any court of
competent jurisdiction for the appointment of a successor Depositary, unless
Definitive Registered Notes have been issued for all outstanding Notes in
accordance with the applicable Indenture.
OBLIGATIONS OF DEPOSITARY. The Depositary will assume no obligation or
liability under the Deposit Agreement or any agreement with DTC, Euroclear
and/or Clearstream other than to use good faith and reasonable care in the
performance of its duties under the Deposit Agreement. The Issuer will agree to
indemnify the Depositary against certain liabilities incurred by it under the
Deposit Agreement.
ADDITIONAL AMOUNTS
All payments made under, or with respect to, the Senior Notes, the Junior Notes
and the Guarantees thereof will be made free and clear of, and without
withholding or deduction for or on account of, any present or future Taxes,
unless the Issuer or any Guarantor is required to withhold or deduct Taxes by
law or by the interpretation or administration thereof. If the Issuer or any
Guarantor is required to withhold or deduct any amount for, or on account of,
Taxes imposed by the United Kingdom or by any other jurisdiction in which the
Issuer or any Guarantor is organized or resident for Tax purposes or any
political subdivision thereof or any Taxing Authority therein (each, a "Relevant
Taxing Jurisdiction"), from any payment made under or with respect to the Senior
Notes, the Junior Notes or the Guarantees thereof, the Issuer or the applicable
Guarantor will pay such additional amounts ("Additional Amounts") as may be
necessary so that the net amount received by each holder (including Additional
Amounts) after such withholding or deduction will equal the amount the holder
would have received had no such withholding or deduction been required;
provided, however, that no Additional Amounts will be payable with respect to
any Tax:
(a) that would not have been imposed, payable or due:
(1) but for the existence of any connection between the holder (or
the Beneficial Owner of, or Person ultimately entitled to
obtain an interest in, the Senior Notes, the Junior Notes or
the Guarantees thereof) and the Relevant Taxing Jurisdiction
(including being a citizen or resident or national of, or
carrying on a trade or business or maintaining a permanent
establishment or fixed base in, or being physically present in,
or having made an election, the effect of which is to subject
the holder to such Taxes in, in each case whether by himself or
through an agent, of the Relevant Taxing Jurisdiction) other
than the mere holding of the Senior Notes, the Junior Notes or
the Guarantees thereof, as applicable, or enforcement of rights
thereunder or the receipt of payments in respect thereof;
(2) if the presentation of the Senior Notes or the Junior Notes, as
applicable, (where presentation is required) for payment had
occurred within 30 days after the date such payment was due and
payable or was duly provided for, whichever is later except to
the extent that the holder
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of such Notes would have been entitled to such Additional
Amounts on presenting such Notes for payment on the last day of
such period of 30 days; or
(b) on a payment to an individual where such withholding or deduction is
required to be made pursuant to any European Union Directive on the
taxation of savings implementing the conclusions of the ECOFIN
Council meeting of 26-27 November 2000 or any law implementing or
complying with or introduced in order to conform to, such Directive;
or
(c) if the holder of the Senior Note or Junior Note, as applicable,
would have been able to avoid such withholding or deduction by
presenting the Senior Note or the Junior Note, as applicable, to
another Paying Agent in a money-center in a member state of the
European Union; or
(d) where the payment of such Additional Amounts is prevented by any
combination of (a), (b) or (c).
With respect to paragraph (c) above, the Issuer will undertake to ensure that it
maintains a paying agent in a European Union member state that will not be
obliged to withhold or deduct tax pursuant to the European Union Directive.
If the Issuer or any Guarantor will be obliged to pay Additional Amounts with
respect to any payment under or with respect to the Senior Notes or the Junior
Notes, or the Guarantees thereof, the Issuer or any Guarantor will deliver to
the applicable Note Trustee at least 30 days prior to the date of that payment
(unless the obligation to pay Additional Amounts arises after the 30th day prior
to that payment date, in which case the Issuer or any Guarantor shall notify the
applicable Note Trustee promptly thereafter) an officers' certificate stating
the fact that Additional Amounts will be payable and the amount so payable. The
officers' certificate must also set forth any other information necessary to
enable the Paying Agent to pay Additional Amounts to holders on the relevant
payment date.
The Issuer or any Guarantor will make all required withholdings and deductions
and will remit the full amount deducted or withheld to the relevant authority in
accordance with applicable law. The Issuer and such Guarantor will use their
respective reasonable efforts to obtain certified copies of tax receipts
evidencing the payment of any Taxes so deducted or withheld from each Taxing
Authority. The Issuer or any Guarantor will furnish to the applicable Note
Trustee, within 60 days after the date the payment of any Taxes so deducted or
withheld is due pursuant to applicable law, certified copies of tax receipts
evidencing payment by the Issuer or any Guarantor, or if, notwithstanding the
Issuer's and such Guarantor's efforts to obtain receipts, receipts are not
obtained, other evidence of payments by the Issuer or such Guarantor.
The Issuer or any Guarantor will pay any stamp duty reserve tax, stamp duty,
court or documentary taxes, or any other excise or property taxes, charges or
similar levies or Taxes which arise from the initial execution, delivery or
registration of the Senior Notes or the Junior Notes, as applicable, and the
enforcement of such Notes following the occurrence of any Event of Default with
respect to such Notes.
Whenever in the applicable Indenture or in any Tranche of Notes there is
mentioned, in any context, the payment of amounts based upon the principal
amount of such Notes or of principal, interest, premium, if any, or of any other
amount payable under, or with respect to, the applicable Tranche of Notes, such
mention shall be deemed to include mention of the payment of Additional Amounts
to the extent that, in such context, Additional Amounts are, were or would be
payable in respect thereof.
AMENDMENT, SUPPLEMENT AND WAIVER
The Senior Note Indenture and the Junior Note Indenture each contain a covenant
that the Issuer will not, and will not permit any of its Subsidiaries to, amend,
modify or supplement the Junior Note Indenture, the Junior Notes or the
Guarantee thereof while any Senior Notes are outstanding, with limited
exceptions, as described under the caption "Description of the Notes -- Certain
Covenants -- Restrictions on Amendments". In addition, under the Security Trust
and Intercreditor Deed, the Issuer and the Junior Note Trustee will agree that
until all Secured Obligations arising under the Senior Notes and the Senior Note
Indenture have been discharged in full, no amendments to the Junior Notes or the
Junior Note Indenture are permitted, with limited exceptions, as described under
the caption "The Security Trust and Intercreditor Deed -- Amendments, Consents
and
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Waivers" in Section 4.1 of Appendix 10. Accordingly, prior to the repayment in
full of the Senior Notes, the ability to amend the Junior Notes or the Junior
Note Indenture is subject to substantial limitations.
Subject to the preceding paragraph and the succeeding paragraph, the applicable
Indenture, the applicable Tranche of Notes and the Guarantees thereof may be
amended or supplemented with the consent of the Required Holders of at least a
majority in aggregate principal amount of the applicable Tranche of Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, the applicable Tranche of
Notes), and any existing Default or compliance with any provision of the
applicable Indenture, the applicable Tranche of Notes or the Guarantees thereof
may be waived with the consent of the Required Holders of at least a majority in
aggregate principal amount of the applicable Tranche of Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, the applicable Tranche of Notes).
Notwithstanding any other provision of the applicable Indenture to the contrary,
without the consent of each holder affected, an amendment or waiver may not
(with respect to any Senior Note or Junior Note, as applicable, held by a
non-consenting holder):
(1) reduce the percentage of Required Holders of the aggregate principal
amount of such Tranche of Notes that must consent to an amendment,
supplement or waiver or rescind any acceleration of the maturity of
the applicable Tranche of Notes;
(2) reduce the principal of or change the fixed maturity of such Note or
alter the provisions with respect to the mandatory or optional
redemption of such Note, including the provisions with respect to
the amount payable upon the optional or mandatory redemption of such
Note or the time at which such Note may or must be redeemed but
excluding the definitions of "Asset Sale" and "Cash Collateral
Releases" and the covenant described under the caption "Description
of the Notes -- Certain Covenants -- Asset Sales";
(3) reduce the rate of, or change the time for payment of, interest on
such Note;
(4) waive a Default or Event of Default in the payment of principal of,
or interest, premium or Additional Amounts, if any, on, such Note
(except a rescission of acceleration of a Tranche of Notes by the
Required Holders of at least a majority in aggregate principal
amount of such Tranche of Notes and a waiver of the payment default
on such Tranche of Notes solely to the extent that it resulted from
such acceleration);
(5) make such Note payable in money other than that stated in such Note;
(6) make any change in the provisions of the applicable Indenture
relating to waivers of past Defaults or Events of Default or the
rights of holders of the applicable Tranche of Notes to receive
payments of principal of, or interest, premium or Additional
Amounts, if any, on, the relevant Tranche of Notes when due or to
bring suits to enforce those payments;
(7) waive a redemption payment with respect to such Note;
(8) release any Guarantor from any of its obligations under any
Guarantee of the applicable Tranche of Notes or the applicable
Indenture, except in accordance with the terms of the applicable
Indenture;
(9) amend or modify the provisions described under the captions
"Description of the Notes -- Redemption upon Changes in Withholding
Taxes" or "Additional Amounts" with respect to the applicable
Tranche of Notes or amend the terms of such Tranche of Notes or the
applicable Indenture in a way that would result in the loss of an
exemption from any of the Taxes described thereunder;
(10) with respect to the Senior Notes, modify the provisions described
under the caption "Description of the Notes -- Payment Blockage
Provisions";
(11) make any change in any Guarantee of the Notes that would adversely
affect the holders of the Notes;
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(12) make any change in any Security Document or the provisions of the
applicable Indenture relating to the Security Documents that would
adversely affect the holders of the Notes; or
(13) make any change in the preceding amendment and waiver provisions.
Notwithstanding the first and second preceding paragraphs, without the consent
of any holder of any Senior Note or Junior Note, as applicable, the Issuer, the
Guarantors and the applicable Note Trustee may amend or supplement the
applicable Indenture, the applicable Notes or the Guarantee thereof:
(1) subject to the third preceding paragraph, to add to the covenants of
the Issuer or any Guarantor for the benefit of the holders of the
applicable Tranche of Notes or to surrender any right or power
conferred upon the Issuer or any Guarantor in the applicable
Indenture, the Notes of the applicable Tranche or in any Guarantee
of the Notes of the applicable Tranche;
(2) to cure any ambiguity, or to correct or supplement any provision in
the applicable Indenture or any supplemental indenture to the
applicable Indenture, the Notes of the applicable Tranche or any
Guarantee of the Notes of the applicable Tranche which may be
defective or inconsistent with any other provision in the applicable
Indenture, the Notes of the applicable Tranche or any Guarantee of
the Notes of the applicable Tranche, provided that such provisions
shall not adversely affect the interests of the holders of the
applicable Tranche of Notes;
(3) to provide for uncertificated Notes of such Tranche in place of
certificated Notes of such Tranche, provided that such provisions
shall not adversely affect the interests of the holders of the
applicable Tranche of Notes and such uncertificated Notes are issued
in registered form;
(4) to add a Guarantor under the applicable Indenture and to provide for
the grant of New Security for the benefit of the holders of the
Notes, or to mortgage, pledge, hypothecate or grant a security
interest in favor of the Security Trustee and the Note Trustees for
the benefit of the holders of the Notes as additional security for
the payment and performance of the Issuer's and any Guarantor's
obligations under the Indentures, in any property or assets,
including any which are required to be mortgaged, pledged or
hypothecated, or in which a security interest is required to be
granted to the Security Trustee and the Note Trustees pursuant to
the Indentures, the Security Trust and Intercreditor Deed or
otherwise; or
(5) to evidence and provide for the acceptance of the appointment of a
successor Note Trustee under the applicable Indenture.
Subject to the restrictions in the Security Trust and Intercreditor Deed, if the
holders of Senior Notes agree to waive a Default or Event of Default and/or
amend the terms of any covenant in the Senior Notes and/or the Senior Note
Indenture to address the circumstances leading to such Default or Event of
Default during any Standstill Period, the Issuer and the Junior Note Trustee
will enter into a supplemental indenture to the Junior Note Indenture to amend
the Junior Notes to the same effect, without the consent of the holders of any
Junior Notes, provided that no such amendment shall effect any of the changes
specified in the second preceding paragraph without the consent of each holder
of Notes affected thereby.
NOTICE OF REDEMPTION
Notices of redemption pursuant to (1) the provisions described above under the
captions "Description of the Notes -- Redemption -- Optional Redemption of the
Senior Notes and the Junior Notes in Whole", "Description of the Notes --
Redemption -- Optional Clean-Up Redemption of the Junior Notes" and "-- Certain
Covenants -- Change of Control" shall be made not less than 30 but not more than
60 days before the Repayment Date, (2) the provisions described above under the
caption "Description of the Notes -- Redemption -- Mandatory Redemption" shall
be made not less than ten (10) but not more than fifteen (15) London Business
Days before the Repayment Date and (3) the provisions described above under the
caption "Description of the Notes -- Certain Covenants -- Merger, Consolidation
or Sale of Assets" shall be made not less than ten (10) but not more than thirty
(30) days before the Repayment Date. The notices of redemption may not be
conditional and shall be irrevocable.
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If any Tranche of Notes is to be redeemed in part only, the notice of redemption
that relates to such Tranche of Notes will state the portion of the principal
amount of such Tranche of Notes that is to be redeemed. The Notes of a Tranche
called for redemption become due on the date fixed for redemption.
For Notes of a Tranche which are represented by certificateless depositary
interests held on behalf of DTC, Euroclear and/or Clearstream, notices may be
given by delivery of the notices to DTC, Euroclear and/or Clearstream for
communication to entitled account holders in substitution for the aforesaid
notices.
SATISFACTION AND DISCHARGE
The applicable Indenture will be discharged and will cease to be of further
effect as to all Notes issued thereunder, when:
(1) either:
(a) all such Notes that have been authenticated, except lost,
stolen or destroyed Notes that have been replaced or paid and
Notes for whose payment money has been deposited in trust and
thereafter repaid to the Issuer or discharged from such trust,
have been delivered to the applicable Note Trustee for
cancellation; or
(b) all such Notes that have not been delivered to the applicable
Note Trustee for cancellation:
(i) have become due and payable by reason of the giving or
delivery of a notice of redemption or otherwise,
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the applicable Note Trustee
for the giving of notice of redemption,
and in the case of (i), (ii) or (iii) above the Issuer has
irrevocably deposited or caused to be deposited with the
applicable Note Trustee as trust funds in trust solely for the
benefit of the holders cash denominated in the Relevant
Currency, in such amounts as will be sufficient without
consideration of any reinvestment of interest, to pay and
discharge the entire indebtedness on the applicable Tranche of
Notes not delivered to the applicable Note Trustee for
cancellation, including principal and premium, if any, and
accrued interest and Additional Amounts, if any, to the date of
maturity or redemption, as the case may be;
(2) no Default or Event of Default with respect to such Notes has
occurred and is continuing on the date of the deposit or will occur
as a result of the deposit and the deposit will not result in a
breach or violation of, or constitute a default under, any other
instrument to which the Issuer or any Subsidiary of the Issuer is a
party or by which the Issuer or any Subsidiary of the Issuer is
bound;
(3) the Issuer has paid or caused to be paid all sums payable by it
under the applicable Indenture; and
(4) if applicable, the Issuer has delivered irrevocable instructions to
the applicable Note Trustee under the applicable Indenture to apply
the deposited money toward the payment of such Notes at maturity or
the Repayment Date, as the case may be.
In addition, the Issuer must deliver an officers' certificate and an opinion of
counsel to the applicable Note Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
PARALLEL DEBT OBLIGATION
Each Indenture will provide that each Obligor agrees and covenants with the
applicable Note Trustee by way of an abstract acknowledgement of debt that,
notwithstanding anything to the contrary in the applicable Indenture, the
applicable Tranche of Notes or the Guarantee thereof, it shall pay to the
applicable Note Trustee sums equal to, and in the currency or currencies of, the
amounts owed by such Obligor from time to time to the holders of the applicable
Tranche of Notes under the applicable Indenture, the applicable Tranche of Notes
and the Guarantee thereof (with respect to each Tranche of Notes, the "Principal
Obligations"), as and when the same fall due for
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payment under the applicable Indenture, the applicable Tranche of Notes and the
Guarantee thereof (with respect to each Tranche of Notes, the "Parallel
Obligations").
The applicable Note Trustee shall have its own independent right to demand and
require payment to it of the Parallel Obligations with respect to the applicable
Tranche of Notes by the Obligors (such demand to be made in accordance with, and
only in the circumstances permitted under, the applicable Indenture, the
applicable Tranche of Notes and the Guarantee thereof and only if permitted by
the Security Trust and Intercreditor Deed). The rights of the holders of the
applicable Tranche of Notes to receive payment of the applicable Principal
Obligations are several from the rights of the applicable Note Trustee to
receive the applicable Parallel Obligations, provided that the payment by an
Obligor of its Parallel Obligations with respect to a Tranche of Notes to the
applicable Note Trustee in accordance with the applicable Indenture shall be a
good discharge of the corresponding Principal Obligations owed by it and the
payment by an Obligor of its Principal Obligations with respect a Tranche of
Notes in accordance with the provisions of the applicable Indenture, the
applicable Tranche of Notes and the Guarantee thereof shall be a good discharge
of the corresponding Parallel Obligations owed to the applicable Note Trustee
under the applicable Indenture. In the event of a good discharge of any
Principal Obligations with respect to a Tranche of Notes the applicable Trustee
shall not be entitled to demand payment of the corresponding Parallel
Obligations and such Parallel Obligations shall be discharged to the same
extent. In the event of a good discharge of any Parallel Obligations with
respect to a Tranche of Notes, the holders of such Tranche of Notes shall not be
entitled to demand payment of the corresponding Principal Obligations and such
Principal Obligations shall be discharged to the same extent.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Issuer or any Guarantor, as such, will have any liability for
any obligations of the Issuer or such Guarantor under (a) the Senior Notes, the
Senior Note Indenture, or the Guarantee of the Senior Notes, or (b) the Junior
Notes, the Junior Note Indenture, or the Guarantee of the Junior Notes,
respectively, or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of a Note by accepting such Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the applicable Tranche of Notes. The waiver may
not be effective to waive liabilities under the federal securities laws of the
United States.
CONCERNING THE NOTE TRUSTEES
The Senior Note Trustee will be Law Debenture Trust Company of New York.
The Junior Note Trustee will be JPMorgan Chase Bank.
If the applicable Note Trustee becomes a creditor of the Issuer or any
Subsidiary of the Issuer, the applicable Indenture limits its right to obtain
payment of claims in certain cases, or to realise on certain property received
in respect of any such claim as security or otherwise. The applicable Note
Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90 days
or resign.
Each Indenture will provide that the applicable Note Trustee shall be entitled
to accept any certificate delivered to it by the Issuer, and any opinion of
counsel to the Issuer delivered to it, pursuant to such Indenture as sufficient
evidence of the satisfaction of the applicable conditions in, and/or compliance
with the applicable requirements of, the applicable Indenture and, in the
absence of manifest error, no liability to any holder of a Note will attach to
the applicable Note Trustee for so relying on any such certificate or opinion of
counsel.
LISTING
Applications will be made for the Notes of each Tranche to be admitted to
listing on the Official List of the UK Listing Authority and to trading on the
London Stock Exchange.
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CONSENT TO JURISDICTION AND SERVICE
The Senior Note Indenture and the Junior Note Indenture will each provide that
the Issuer and each Guarantor will appoint Marconi Inc. as its agent for service
of process in any suit, action or proceeding with respect to such Indenture, the
Notes issued thereunder or the Guarantees thereof and for actions brought under
United States federal or state securities laws brought in any federal or state
court located in the City of New York, and will submit to such jurisdiction on a
non-exclusive basis.
The Senior Note Indenture and the Junior Note Indenture will each provide that
the Issuer and each Guarantor will appoint the Issuer as its agent for service
of process in any suit, action or proceeding with respect to such Indenture, the
Notes issued thereunder or the Guarantee thereof brought in any court of England
and Wales, and will submit to such jurisdiction on a non-exclusive basis.
NOTICES
All notices to the holders of any Tranche of Notes will be valid if published in
a leading English language daily newspaper published in London and a leading
English language daily newspaper published in New York City or such other
English language daily newspaper with general circulation in Europe or the
United States, as the case may be, as the applicable Note Trustee may approve
and, so long as the Notes of a Tranche are listed on the London Stock Exchange,
in one daily newspaper published in London approved by the applicable Note
Trustee. Any notice will be deemed to have been given on the date of publication
or, if so published more than once on different dates, on the date of first
publication. It is expected that publication will normally be made in the
Financial Times and The Wall Street Journal. If publication as provided above is
not practicable, notice will be given in such other manner, and shall be deemed
to have been given on such date, as the applicable Note Trustee may approve.
Notices will also be sent simultaneously to DTC, Euroclear and/or Clearstream,
as applicable, while the Notes are in global form and represented by Book-Entry
Interests.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Senior Note Indenture and
the Junior Note Indenture. Reference is made to the Senior Note Indenture and
the Junior Note Indenture for full disclosure of all such terms applicable to
the Senior Notes and the Junior Notes, respectively, as well as any other
capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or becomes a Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging
with or into, or becoming a Subsidiary of, such specified Person;
and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Acquisition" means any acquisition or purchase, directly or indirectly,
including without limitation by merger, consolidation or reorganization, of any
business or any assets constituting a business or line of business.
"Additional Amounts" has the meaning set forth under the caption "Additional
Amounts".
"Additional Guarantor" means any Person that becomes a Guarantor of the Senior
Notes or the Junior Notes after the Issue Date.
"Adjusted Treasury Rate" means, with respect to any Repayment Date for the
Senior Notes or the Junior Notes, as the case may be, the rate per annum equal
to the quarterly equivalent yield to maturity of the Comparable Treasury Issue
for the applicable Tranche of Notes, assuming a price for the Comparable
Treasury Issue for the applicable Tranche of Notes (expressed as a percentage of
its principal amount) equal to the Comparable Treasury Price for the applicable
Tranche of Notes for the Repayment Date plus 0.5 per cent..
"Affected Pension Participants" means (1) employees associated with the assets
that are the subject of an Asset Sale at the time of any such Asset Sale, (2)
employees formerly associated with the assets that are the subject of
727
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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an Asset Sale, and (3) beneficiaries, survivor payees and alternate payees of an
employee or former employee described in (1) or (2) of this definition.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person, and, in the case of a natural Person, any
immediate family member of such Person. For purposes of this definition,
"control", as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial ownership of 10
per cent. or more of the Voting Stock of a Person will be deemed to be control.
For purposes of this definition, the terms "controlling", "controlled by" and
"under common control with" have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, transfer, conveyance or other disposition, directly
or indirectly, of any assets, properties or rights (including, for
the avoidance of doubt, Equity Interests of a Subsidiary of the
Issuer), including by way of merger, consolidation or
reorganization, provided that the sale, lease, transfer, conveyance
or other disposition, in one or a series of related transactions, of
all or substantially all of the properties or assets of the Issuer
and its Subsidiaries, taken as a whole, including for the avoidance
of doubt the Equity Interests in any holding company for such
property or assets, to any "person" (as that term is defined in
Section 13(d)(3) of the US Exchange Act including, for the avoidance
of doubt, any person or persons acting in concert with such person),
or any merger, consolidation or reorganization of the Issuer with
any Person, will be governed by the provisions of the Senior Note
Indenture and the Junior Note Indenture, respectively, described
above under the caption "Description of the Notes -- Certain
Covenants -- Merger, Consolidation or Sale of Assets" and not by the
provisions of the Senior Note Indenture and the Junior Note
Indenture, respectively, described above under the caption
"Description of the Notes -- Certain Covenants -- Asset Sales"; and
(2) the issuance of Equity Interests by any of the Issuer's
Subsidiaries.
Notwithstanding the preceding, the following items will not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that
involves assets, property or rights having a Fair Market Value of
less than L500,000;
(2) the sale, lease, transfer, conveyance or other disposition (other
than pursuant to a Sale and Leaseback Transaction) of inventory
(including equipment that constitutes inventory) or accounts
receivable, in each case in the ordinary course of business and on
arm's-length terms;
(3) the sale or other disposition of cash or Cash Equivalents;
(4) any transaction constituting a Restricted Payment or an Investment
that is permitted by the covenant described under the caption
"Description of the Notes -- Certain Covenants -- Restricted
Payments";
(5) a Permitted Intra-Group Transfer;
(6) the waiver, compromise, settlement, release or surrender of any
right or claim in the ordinary course of business;
(7) a disposition constituting, or resulting from, the enforcement of a
Permitted Lien or the liquidation, dissolution, administration or
winding up of a Subsidiary of the Issuer;
(8) the sale or other disposition of any assets (other than cash or Cash
Equivalents) in exchange for equity securities that are listed on an
internationally recognized securities exchange, provided that the
aggregate Fair Market Value (determined as of the respective dates
on which the Issuer and its Subsidiaries enter into binding
commitments to sell such assets for such equity securities) of all
such equity securities received by the Issuer and its Subsidiaries
from and after the Issue Date does not exceed L50 million (or the
Sterling Equivalent), provided further that all such equity
securities
728
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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are disposed of for Cash Equivalents in an Asset Sale within 90 days
of the later of (a) receipt and (b) the expiration of any period not
longer than 180 days in which the Issuer or any Subsidiary of the
Issuer agrees in or pursuant to the documentation relating to such
sale or disposition not to dispose of any part of such equity
securities without the consent of a third party;
(9) Italian Invoice Discounting;
(10) leases, subleases and licences of assets, properties or rights,
other than Intellectual Property;
(11) licences, sub-licences and non-exclusive escrow and access
agreements of or with respect to Intellectual Property of the Issuer
and any of its Subsidiaries entered into in the ordinary course of
business, provided that (a) any such transaction is expressly
permitted under or approved in accordance with the terms of the
applicable Intellectual Property Licence Agreements or (b) if such
Intellectual Property is not the subject of the Intellectual
Property Licence Agreements, the Issuer provides express prior
written consent to such transaction;
(12) the sale, lease, sublease, transfer, conveyance or license of
Intellectual Property from UK IPR Co, US IPR Co or Ringfenced IPR Co
to a Subsidiary of the Issuer in connection with any disposition of
such Subsidiary or of assets, properties or rights by such
Subsidiary which is otherwise permitted by the applicable Indenture;
(13) the sale or other disposition of assets received in compromise or
settlement of claims of the Issuer or any of its Subsidiaries
against a customer or other trade debtor; and
(14) the sale or other disposition of promissory notes, loan notes or
evidences of indebtedness of customers received by the Issuer or any
of its Subsidiaries pursuant to vendor finance arrangements in the
ordinary course of business and on arm's-length terms.
"Attributable Debt" in respect of a Sale and Leaseback Transaction, the lease
portion of which is a finance or capital lease that would be required to be
capitalized on a balance sheet in accordance with generally accepted accounting
principles applicable in the United Kingdom as in effect at the time such lease
was entered into, means, at the time of determination, the present value of the
obligation of the lessee for net rental payments during the remaining term of
the lease included in such Sale and Leaseback Transaction, including any period
for which such lease has been extended or may, at the option of the lessor, be
extended. Such present value shall be calculated using a discount rate equal to
the rate of interest implicit in such transaction, determined in accordance with
generally accepted accounting principles applicable in the United Kingdom as in
effect at the time such lease was entered into.
"Bankruptcy Law" means Title 11 of the United States Code (11 U.S.C. 101 et.
seq.), or any similar United States federal or state law or any relevant law in
any other jurisdiction of organization or location of any assets of any Obligor
or Significant Subsidiary or any similar law (including, without limitation, (1)
the laws of the United Kingdom relating to moratorium, administration,
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or
relief of debtors, and (2) the laws of any other jurisdiction relating to
bankruptcy, moratorium, insolvency, receivership, reorganization or other relief
of debtors and composition with creditors, or any amendment to, succession to or
change in such law).
"BBRS Business" means the broadband routing and switching business of the US
Subsidiaries.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule
13d-5 under the US Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is defined in Section
13(d)(3) of the US Exchange Act including, for the avoidance of doubt, any
person or persons acting in concert with such person) such "person" will be
deemed to have beneficial ownership of all securities that such "person" has the
right to acquire by conversion or exercise of other securities, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned"
have a corresponding meaning.
"Board of Directors" means:
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(1) with respect to a corporation, the board of directors or other
equivalent body (or any duly authorized committee thereof) of the
corporation and, in the case of any corporation having both a
supervisory board and an executive or management board, the
supervisory board (or any duly authorized committee thereof);
(2) with respect to a partnership, the board of directors or other
equivalent body (or any duly authorized committee thereof) of the
general partner of the partnership; and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Business Day" means a day (other than a Saturday or Sunday) on which commercial
banks in the locations specified (or if no locations are specified, in London
and New York) are open for general business.
"Capital Expenditure" means any capital expenditure accounted for as a purchase
of property, plant or equipment in accordance with Floating UK GAAP.
"Capital Lease Obligation" means, at the time any determination is to be made,
the amount of the liability in respect of a finance or capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
generally accepted accounting principles applicable in the United Kingdom as in
effect at the time such lease was entered into.
"Capital Stock" means:
(1) in the case of a corporation, any and all shares, interests,
participations, or other equivalent (however designated and whether
or not voting) of share capital;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalent
(however designated and whether or not voting) of share capital;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited);
and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Captive Insurance Company" means Marconi Insurance Limited, a limited liability
company incorporated under the laws of Guernsey.
"Cash Collateral Releases" means all releases to, or upon the order or
instructions of, the Issuer or any of its Subsidiaries of (1) collateral or
security constituting cash or Cash Equivalents from any Person (other than the
Issuer and its Subsidiaries), which collateral or security was provided by the
Issuer or any of its Subsidiaries (a) prior to the Issue Date, (b) in the form
of deposits into the Existing Performance Bond Escrow Account, (c) to the New
Bonding Facility Security Trustee under the New Bonding Facility Agreement, (d)
to any agent, security trustee or lender under, or otherwise in respect of, any
Replacement New Bonding Facility Agreement, (e) in respect of an Existing
Performance Bond, or (f) in respect of the Interim Bonding Facilities; provided
that (i) releases of collateral or security constituting cash or Cash
Equivalents in connection with any surety bond, appeal bond, bid bond,
performance bond, letter of credit, bank guarantee or other obligation of a like
nature issued by or on behalf of the Captive Insurance Company shall not
constitute a Cash Collateral Release to the extent that the Captive Insurance
Company retains such cash and Cash Equivalents, (ii) releases of collateral or
security constituting cash or Cash Equivalents by the New Bonding Facility
Security Trustee to a lender under the New Bonding Facility Agreement shall not
constitute a Cash Collateral Release to the extent that such lender retains such
cash and Cash Equivalents to secure the obligations owed to it under the New
Bonding Facility Agreement, (iii) releases of collateral or security
constituting cash or Cash Equivalents in connection with any Italian Easy Loan
shall not constitute a Cash Collateral Release and (iv) releases of collateral
or security constituting cash or Cash Equivalents in connection with the renewal
or extension of any surety bond, appeal bond, bid bond, performance bond, letter
of credit, bank guarantee or other obligation of a like nature issued under the
Interim Bonding Facilities shall not constitute a Cash Collateral Release to the
extent that the issuer of the renewed or extended surety bond, appeal bond, bid
bond, performance bond, letter of credit, bank guarantee or like obligation
retains such cash or Cash Equivalents under the terms of an Interim Bonding
Facility or
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(2) cash or Cash Equivalents held in escrow with respect to sales, transfers or
other dispositions of assets or property by the Issuer or any of its
Subsidiaries prior to the Issue Date.
"Cash Equivalents" means:
(1) United States dollars, British pounds sterling, Euros, any other
currency that is freely convertible into any of the foregoing or a
claim on the European Central Bank;
(2) securities (i) issued or directly and fully guaranteed or insured by
the US government or any agency or instrumentality of the US
government (provided that the full faith and credit of the United
States is pledged in support of those securities), or (ii) which are
denominated in Euros or British pounds sterling and are issued by,
or directly and fully guaranteed or insured by a member of the
European Union, or any agency or instrumentality thereof, and which
mature, in each case, within six months after the date of
acquisition;
(3) certificates of deposit and Eurodollar time deposits issued by a
Highly Rated Financial Counterparty and which mature within six
months after the date of acquisition;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with a Highly Rated Financial Counterparty;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services (or any
successor to the ratings business of either of the foregoing) and
which matures within six months after the date of acquisition;
(6) marketable direct obligations of any member of the European Union in
each case rated at least "AAA" or the equivalent thereof by both
Moody's Investors Service Inc. and Standard & Poor's Rating Services
(or any successor to the ratings business of either of the
foregoing), or obligations fully and unconditionally guaranteed by
one of those sovereign nations (or any agency thereof), of the type
and maturity described in clauses (2) through (5) above, which have
ratings described in such clauses or equivalent ratings from
comparable foreign rating agencies; and
(7) money market funds with at least 95 per cent. of the fund's assets
constituting Cash Equivalents of the kinds described in clauses (1)
through (6) of this definition.
"Change of Control" means the occurrence of any of the following:
(1) the adoption of a plan relating to the solvent liquidation or
dissolution of the Issuer;
(2) the consummation of any transaction the result of which is that any
"person" (as defined in the definition of Beneficial Owner above)
becomes the Beneficial Owner, directly or indirectly, of more than
30 per cent. of the Voting Stock of the Issuer, measured by voting
power rather than number of shares, provided that it shall not
constitute a Change of Control if such person acquired Beneficial
Ownership of Voting Stock of the Issuer inadvertently (including,
without limitation, because (a) such person was unaware that it
Beneficially Owned more than 30 per cent. of the Voting Stock of the
Issuer or (b) such person was aware of the extent of such Beneficial
Ownership but such person acquired Beneficial Ownership of such
Voting Stock without any plan or intention to change or influence
the control of the Issuer), and such person promptly (and in any
event within fifteen (15) London Business Days) divests sufficient
Voting Stock of the Issuer so that such person ceases to be the
Beneficial Owner, directly or indirectly, of more than 30 per cent.
of the Voting Stock of the Issuer, measured by voting power rather
than number of shares; or
(3) the first day on which a majority of the members of the Board of
Directors of the Issuer are not Continuing Directors.
"Comparable Treasury Issue" means, with respect to the Senior Notes or the
Junior Notes, the United States Treasury security selected by an independent
investment banking firm in London (selected by the Issuer and approved by the
Senior Note Trustee or, if either (1) no Senior Notes are outstanding or (2)
only Junior Notes are being redeemed pursuant to the provisions described under
the caption "Description of the Notes --
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Redemption -- Optional Clean-Up Redemption of the Junior Notes", approved by the
Junior Note Trustee) as having a maturity comparable to the remaining term of
the applicable Tranche of Notes that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities denominated in United States dollars of comparable
maturity to the remaining term of the applicable Tranche of Notes.
"Comparable Treasury Price" means, with respect to any Repayment Date for the
Senior Notes or the Junior Notes, (1) the average of the bid and asked prices
for the applicable Comparable Treasury Issue for such Tranche of Notes
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such Repayment Date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for US
Government Securities" or (2) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (a) the average
of the Reference Treasury Dealer Quotations for such Repayment Date after
excluding the highest and lowest of such Reference Treasury Dealer Quotations or
(b) if the applicable Note Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such quotations.
"Consolidated EBITDA" means, with respect to any specified Person and such of
its Subsidiaries as are specified (or in the event no Subsidiaries of such
Person are specified, such Person) for any period, the Consolidated Profit
Before Taxes of such Person and such of its Subsidiaries as are specified (or in
the event no Subsidiaries of such Person are specified, of such Person) for such
period:
(1) plus an amount equal to any extraordinary or exceptional (whether
operating or non-operating) costs or losses realized by such Person
and such of its Subsidiaries as are specified (or in the event no
Subsidiaries of such Person are specified, such Person) for such
period, to the extent such costs or losses were deducted in
computing such Consolidated Profit Before Taxes,
(2) minus an amount equal to any extraordinary or exceptional (whether
operating or non-operating) income or gains realized by such Person
and such of its Subsidiaries as are specified (or in the event no
Subsidiaries of such Person are specified, such Person) for such
period, to the extent such income or gain was included in computing
such Consolidated Profit Before Taxes,
(3) plus an amount equal to any costs or losses realized by such Person
and such of its Subsidiaries as are specified (or in the event no
Subsidiaries of such Person are specified, such Person) in respect
of discontinued operations for such period, to the extent such costs
or losses were deducted in computing such Consolidated Profit Before
Taxes;
(4) minus an amount equal to any income or gains realized by such Person
and such of its Subsidiaries as are specified (or in the event no
Subsidiaries of such Person are specified, such Person) in respect
of discontinued operations for such period, to the extent such
losses were deducted in computing such Consolidated Profit Before
Taxes;
(5) plus an amount equal to the Consolidated Gross Finance Charges for
such Person and such of its Subsidiaries as are specified (or in the
event no Subsidiaries of such Person are specified, for such Person)
for such period, to the extent that such Consolidated Gross Finance
Charges were deducted in computing such Consolidated Profit Before
Taxes,
(6) plus an amount equal to interest paid or accrued on the Junior Notes
for such period to the extent such amount was deducted in computing
such Consolidated Profit Before Taxes;
(7) minus an amount equal to the Consolidated Gross Finance Income for
such Person and such of its Subsidiaries as are specified (or in the
event no Subsidiaries of such Person are specified, for such Person)
for such period, to the extent that such Consolidated Gross Finance
Income was included in computing such Consolidated Profit Before
Taxes,
(8) plus an amount equal to the equity in net losses of joint ventures
and associates of such Person and such of its Subsidiaries as are
specified (or in the event no Subsidiaries of such Person are
specified, of such Person) for such period, to the extent that such
amounts were deducted in computing such Consolidated Profit Before
Taxes,
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(9) minus an amount equal to the equity in net income of joint ventures
and associates of such Person and such of its Subsidiaries as are
specified (or in the event no Subsidiaries of such Person are
specified, of such Person) for such period, to the extent that such
amounts were included in computing such Consolidated Profit Before
Taxes,
(10) plus an amount equal to depreciation and amortization (including
amortization or impairment of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a
prior period) of such Person and such of its Subsidiaries as are
specified (or in the event no Subsidiaries of such Person are
specified, of such Person) for such period, to the extent that such
depreciation and amortization were deducted in computing such
Consolidated Profit Before Taxes,
(11) minus an amount equal to any foreign exchange gains recorded in the
profit and loss account in respect of the retranslation of the
balances outstanding under the Junior and Senior Notes for such
period, to the extent such foreign exchange gains were included in
computing such Consolidated Profit Before Taxes,
(12) plus an amount equal to any foreign exchange losses recorded in the
profit and loss account in respect of the retranslation of the
balances outstanding under the Junior and Senior Notes for such
period, to the extent such foreign exchange losses were deducted in
computing such Consolidated Profit Before Taxes,
(13) minus an amount equal to any finance income related to the expected
return on pension and other retirement benefit schemes' assets for
such period, to the extent such finance income was included in
computing such Consolidated Profit Before Taxes,
(14) plus an amount equal to any financing costs related to the interest
on pension and other retirement benefit schemes' liabilities for
such period, to the extent such financing costs were deducted in
computing such Consolidated Profit Before Taxes,
(15) plus an amount equal to any non-cash expense recorded in the profit
and loss account in respect of share options for such period, to the
extent such non-cash expense was deducted in computing such
Consolidated Profit Before Taxes,
(16) minus an amount equal to any credit or provision release recorded in
the profit and loss account in respect of share options for such
period, to the extent such credit or provision release was included
in computing such Consolidated Profit Before Taxes,
in each case, on a consolidated basis and determined in accordance with
Fixed UK GAAP, consistently applied.
"Consolidated Gross Finance Charges" means, with respect to any specified Person
and such of its Subsidiaries as are specified (or in the event no Subsidiaries
of such Person are specified, such Person) for any period, without duplication,
the aggregate amount of interest or amounts in the nature of interest, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings), commissions, fees, discounts and other finance
payments payable by such Person and such of its Subsidiaries as are specified,
in each case in respect of Indebtedness and paid or accrued in such period
(including any commissions, fees, discounts and other finance payments payable
by such Person and such of its Subsidiaries as are specified under any Permitted
Hedging Transaction), on a consolidated basis, determined in accordance with
Fixed UK GAAP, consistently applied, minus any interest paid or accrued on the
Junior Notes.
"Consolidated Gross Finance Income" means, with respect to any specified Person
and such of its Subsidiaries as are specified (or in the event no Subsidiaries
of such Person are specified, such Person) for any period, without duplication,
the aggregate amount of interest or amounts in the nature of interest
(including, without limitation, non-cash interest income), commissions, fees,
discounts and other finance payments received by such Person and
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such of its Subsidiaries as are specified (or in the event no Subsidiaries of
such Person are specified, such Person), including any commissions, fees,
discounts and other finance payments received by such Person and such of its
Subsidiaries as are specified under any Permitted Hedging Transaction, on a
consolidated basis, determined in accordance with Fixed UK GAAP, consistently
applied.
"Consolidated Indebtedness" means, with respect to any Person at any time, the
consolidated Indebtedness of such Person and such of its Subsidiaries as are
specified at such time that is required to appear on a balance sheet of such
Person and such of its Subsidiaries as are specified in accordance with Fixed UK
GAAP, consistently applied.
"Consolidated Profit After Taxes" means, with respect to any specified Person
for any period, the aggregate of the Profit After Taxes of such Person and such
of its Subsidiaries as are specified for such period, on a consolidated basis,
determined in accordance with Floating UK GAAP, consistently applied; provided
that:
(1) the Profit After Taxes (but not loss) of any Person that is not a
Subsidiary of such Person or that is accounted for by the equity
method of accounting will be included only to the extent of the
amount of dividends or distributions paid in cash to the specified
Person or such of its Subsidiaries as are Wholly-Owned Subsidiaries
of such Person;
(2) the Profit After Taxes of any specified Subsidiary of such Person
will be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Profit
After Taxes is not at the date of determination permitted without
any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its
organizational documents or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable
to that Subsidiary or its stockholders;
(3) the Profit After Taxes of any Person acquired in a pooling of
interests transaction for any period prior to the date of such
acquisition will be excluded;
(4) any discharge of indebtedness income and any income or gain arising
as a result of consummation of the Restructuring will be excluded;
and
(5) the cumulative effect of a change in accounting principles will be
excluded.
"Consolidated Profit Before Taxes" means, with respect to any specified Person
and such of its Subsidiaries as are specified (or in the event no Subsidiaries
of such Person are specified, such Person) for any period, the profit (loss)
before taxes of such Person and such of its Subsidiaries as are specified (or in
the event no Subsidiaries of such Person are specified, of such Person) for such
period, on a consolidated basis, determined in accordance with Fixed UK GAAP,
consistently applied; provided that:
(1) the profit (loss) before taxes of any Person acquired in a pooling
of interests transaction for any period prior to the date of such
acquisition will be excluded; and
(2) any discharge of indebtedness income and any income or gain arising
as a result of consummation of the Restructuring will be excluded.
"Continuing Directors" means, as of any date of determination, any member of the
Board of Directors of the Issuer who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of those members of such Board of
Directors at the time of such nomination or election who were either
(a) a member of such Board of Directors on the Issue Date or (b)
nominated for election or elected in accordance with this clause
(2).
"Convertible Euro Senior Notes" means any Senior Notes that are deposited with
The Bank of New York, as distribution agent pursuant to the Escrow and
Distribution Agreement under the Restructuring, with rights to convert into Euro
Senior Notes or Dollar Senior Notes.
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"Default" means any event that is, or with the passage of time or the giving of
notice or the making of any determination or any combination thereof would be,
an Event of Default.
"Default Rate" means, in the case of the Senior Notes, 10 per cent. per annum
and, in the case of the Junior Notes, 12 per cent. per annum.
"Deposit Agreement" means the deposit agreement dated as of the Issue Date
between the Issuer and The Bank of New York, as book-entry depositary.
"Depositary" means The Bank of New York, as book-entry depositary under the
Deposit Agreement.
"Derivative Transaction" means any transaction (including an agreement with
respect thereto) which is a rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, equity derivative transaction, bond option,
interest rate option, credit default swap, credit derivative transaction,
foreign exchange transaction (other than a spot foreign exchange transaction),
cap transaction, floor transaction, collar transaction, currency swap
transaction, cross-currency rate swap transaction, currency option, futures
contract, futures transaction, any other derivative contract or any other
similar transaction (including any option or future with respect to any of these
transactions), and any combination of these transactions.
"Disinterested Director" means, with respect to any transaction or series of
related transactions, a member of the Board of Directors of the Issuer who does
not have any material direct or indirect financial interest in or with respect
to such transaction or series of related transactions. Ownership of the Issuer's
Equity Interests and/or employment arrangements with the Issuer or any of its
Subsidiaries shall not constitute a material direct or indirect financial
interest in or with respect to a transaction or series of related transactions
not directly related to such ownership or such employment arrangement.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms
of any security into which it is convertible, or for which it is exercisable or
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or is redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that
is one year after the date on which the Senior Notes (in the case of the Senior
Notes) or the Junior Notes (in the case of the Junior Notes) mature.
Notwithstanding the preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders of the Capital Stock have the
right to require the Issuer to repurchase such Capital Stock upon the occurrence
of a change of control or an asset sale will not constitute Disqualified Stock
if the terms of such Capital Stock provide that the Issuer may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described above under the caption
"Description of the Notes -- Certain Covenants -- Restricted Payments".
"Dollar Equivalent" means, with respect to any monetary amount in a currency
other than United States dollars, at any time of determination thereof, the
amount of United States dollars obtained by translating the amount of such
foreign currency into United States dollars at the spot rate for the purchase of
United States dollars with the applicable foreign currency as published in the
Wall Street Journal on the date that is two (2) New York Business Days prior to
such determination (or in the case of the determination of the principal amount
of the Junior Notes to be issued in the Restructuring, by translating the amount
of any such foreign currency at the Currency Rate (as defined in Part V)).
Except as described under the caption "Description of the Notes -- Certain
Covenants -- Indebtedness and Preferred Stock", whenever it is necessary to
determine compliance with any covenant that contains an amount expressed in
United States dollars in the applicable Indenture and an amount is expressed in
a currency other than United States dollars, such amount will be treated as the
Dollar Equivalent determined as of the date such amount is initially determined
in such currency.
"Dollar Senior Notes" means any Senior Notes that are denominated in United
States dollars.
"Enforcement Event" means the acceleration of any Secured Obligations (other
than Secured Obligations arising under the New Bonding Facility Agreement) or
any declaration that any Secured Obligations (other than Secured
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Obligations arising under the New Bonding Facility Agreement) are prematurely
due and payable (other than solely as a result of it becoming unlawful for a
Secured Creditor to perform its obligations under the Relevant Documents) or any
failure by any Obligor to pay any principal amount in respect of any Secured
Obligations (other than Secured Obligations arising under the New Bonding
Facility Agreement) whether on maturity or otherwise.
"Equity Interests" means Capital Stock and all warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exercisable or exchangeable for, Capital Stock).
"Escrow Accounts" means the Mandatory Redemption Escrow Account and the Existing
Performance Bond Escrow Account established pursuant to the Escrow Agreement.
"Escrow Agreement" means the escrow agreement dated on or about the date of
Security Trust and Intercreditor Deed and made between, among others, the
Security Trustee and the Issuer establishing and setting out the terms and
conditions of each of the Escrow Accounts.
"Escrow Bank" means the bank holding the Escrow Accounts in accordance with the
Escrow Agreement.
"Escrow and Distribution Agreement" means the escrow and distribution agreement
dated on or before the Issue Date between the Issuer, Marconi plc, the escrow
trustee named therein, The Bank of New York as distribution agent, The Law
Debenture Trust Corporation p.l.c., Ancrane, Bondholder Communications Group and
the Supervisors (as defined therein) with respect to the Restructuring.
"Euro" or "E" means the currency introduced at the start of the third stage of
the European economic and monetary union pursuant to the Treaty establishing the
European Community, as amended by the Treaty on European Union.
"Euro Senior Notes" means any Senior Notes (other than Convertible Euro Senior
Notes) that are denominated in Euros.
"European Union" means the European Union, including the countries of Austria,
Belgium, Denmark, France, Finland, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Spain, Sweden and the United Kingdom, but not
including any country which becomes a member of the European Union after the
Issue Date.
"Events of Default" has the meaning set forth under the caption "Description of
the Notes -- Events of Default".
"Excluded Asset Sale and Liquidation Proceeds" means (1) the first L82 million
(or the Sterling Equivalent) of Net Proceeds and/or Liquidation Proceeds
received by the Issuer and its Subsidiaries with respect to Excluded Assets,
minus (2) the aggregate Net Proceeds and/or Liquidation Proceeds received by the
Issuer and its Subsidiaries with respect to Excluded Assets prior to the Issue
Date.
"Excluded Assets" means assets, rights and properties that are identified as
such in writing by the Issuer to the Senior Note Trustee, the Junior Note
Trustee and the Security Trustee and that are confirmed in writing by
PricewaterhouseCoopers.
"Existing Indebtedness" means Indebtedness of the Issuer and its Subsidiaries
(other than Indebtedness owed to the Issuer or any Subsidiary of the Issuer) in
existence (i) on the Scheme Launch Date or (ii) incurred after the Scheme Launch
Date and in existence on the Issue Date and as set forth in a schedule to each
Indenture, in each case until such amounts are repaid.
"Existing Intercompany Indebtedness" means Indebtedness owed by the Issuer or
any of its Subsidiaries to the Issuer or any other Subsidiary of the Issuer (for
purposes of this definition, the "creditor") on the Issue Date, in each case
until such amounts are repaid, provided that (1) in the event a particular
Subsidiary of the Issuer is the creditor under Indebtedness of the Issuer and
all its Subsidiaries that in the aggregate exceeds L20 million (or the Sterling
Equivalent), such creditor Subsidiary shall be a party to the Security Trust and
Intercreditor Deed and (2) such Indebtedness shall be unsecured. For purposes of
this definition, any Subsidiary of the Issuer that owns or holds any shares of
Preferred Stock or Disqualified Stock issued by the Issuer or any of its other
Subsidiaries shall constitute the creditor with respect to such Preferred Stock
or Disqualified Stock.
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"Existing Performance Bond Escrow Account" means the Escrow Account established
pursuant to the Escrow Agreement to be used to satisfy certain obligations of
the Issuer and its Subsidiaries to provide cash collateral under Existing
Performance Bonds.
"Existing Performance Bonds" means surety bonds, appeal bonds, bid bonds,
performance bonds, letters of credit, bank guarantees or other obligations of a
like nature issued by a bank, insurance company or other financial institution
on behalf of the Issuer or any of its Subsidiaries in existence on the Issue
Date and not issued pursuant to the Interim Bonding Facilities, until such
bonds, letters of credit, guarantees or other obligations expire, terminate or
are cancelled.
"External Assets" means, with respect to any specified Person on any date, the
total assets of such Person, after eliminating intercompany assets and
investments in Subsidiaries, on such date and in accordance with Floating UK
GAAP.
"External Sales" means, with respect to any specified Person for any period, the
total revenues of such Person, after eliminating intercompany sales, for such
period and in accordance with Floating UK GAAP.
"Fair Market Value" means, with respect to any asset, right or property, the
sale value that would be obtained in an arm's-length free market transaction
between an informed and willing seller and an informed and willing buyer.
"Fixed Exchange Rate" means the fixed exchange rate for the translation of
United States dollars into Euro equal to the spot rate for the purchase of Euro
with United States dollars as published in the Financial Times on the date that
is two (2) London Business Days prior to the Issue Date.
"Fixed UK GAAP" means generally accepted accounting principles applicable in the
United Kingdom including Financial Reporting Standards and Statements of
Standard Accounting Practices issued by the Accounting Standards Board Limited
and as in effect on March 31, 2003.
"Floating UK GAAP" means generally accepted accounting principles applicable in
the United Kingdom including Financial Reporting Standards and Statements of
Standard Accounting Practices issued by the Accounting Standards Board Limited
and as in effect from time to time.
"German IP Guarantor" means Marconi Communications GmbH.
"Group" means all the Group Companies.
"Group Company" means the Issuer or any Subsidiary of the Issuer.
"Group Licence Agreement" means an intra-group licence agreement to be entered
into between the Issuer and the operating companies within the Group providing
for a licence authorizing the Issuer and each of its Subsidiaries to use the
Intellectual Property of each of them to the extent that such use is ongoing on
the Issue Date.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, of the obligation of another Person in any manner including, without
limitation, by way of a pledge of assets or through letters of credit or
reimbursement agreements in respect thereof, of all or any part of any
Indebtedness of any Person.
"Guarantor" means each Non-US Guarantor and each US Guarantor.
"Highly Rated Financial Counterparty" means a bank or financial institution
whose financial obligations are rated P-1 by Moody's Investors Service, Inc. or
A-1 by Standard and Poor's Rating Services (or any successor to the ratings
business of either of the foregoing) or the equivalent rating category of
another internationally recognized rating agency.
"Indebtedness" means, with respect to any specified Person, without duplication:
(1) all indebtedness of such Person for borrowed money;
(2) all obligations of such Person evidenced by bonds, notes,
debentures, loan stock or similar instruments;
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(3) all obligations, contingent or otherwise, of such Person in respect
of surety bonds, appeal bonds, bid bonds, performance bonds or other
obligations of a like nature;
(4) all obligations, contingent or otherwise, of such Person in respect
of letters of credit, banker's acceptances, bank guarantees,
acceptance or other similar facilities, in each case, including
reimbursement obligations or agreements in respect thereof;
(5) all Capital Lease Obligations of such Person;
(6) all obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by
such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to
repossession or sale of such property), and all obligations of such
Person representing the balance deferred and unpaid of the purchase
price of any property or services, but in each case excluding trade
payables and other accrued current liabilities arising in the
ordinary course of business;
(7) all Attributable Debt with respect to any Sale and Leaseback
Transaction of such Person;
(8) receivables sold or discounted (including, for the avoidance of
doubt, transactions having the economic effect of a sale or
discounting of receivables) by such Person, provided that
receivables to the extent they are sold or discounted on a
non-recourse basis shall be disregarded, and for this purpose, where
recourse:
(a) is limited to the receivables sold; and/or
(b) arises as a result of breach of warranties (or the equivalent),
including warranties (or the equivalent) regarding the validity
and enforceability of the receivables sold but excluding
warranties (or the equivalent) in respect of the
creditworthiness of the receivable debtor;
the sale or discounting of such receivable shall be deemed to be on
a non- recourse basis;
(9) any amount raised under any other transaction by such Person
(including any forward sale or purchase agreement) having the
commercial effect of a borrowing, excluding trade payables and other
accrued current liabilities arising in the ordinary course of
business;
(10) all obligations of such Person under any Derivative Transaction (the
amount of any such obligations to be equal at any time to the
termination value of such agreement or arrangement giving rise to
such obligation that would be payable by such Person at such time);
(11) the greater of the voluntary or involuntary maximum fixed repurchase
price of all Disqualified Stock of such Person; and
(12) any Preferred Stock issued by any Subsidiary of such Person.
In addition, the term "Indebtedness" includes all Indebtedness of other Persons,
the payment of which is secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
or with respect to any asset or property of the specified Person (whether or not
such Indebtedness is assumed by the specified Person) and, to the extent not
otherwise included, any Guarantee or indemnity of the specified Person with
respect to any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) in the case of any Indebtedness issued with original issue discount,
the accreted value of the Indebtedness; and
(2) in the case of any other Indebtedness, the principal amount of the
Indebtedness, together with any interest on the Indebtedness that is
more than 30 days past due.
"Indentures" means the Senior Note Indenture and the Junior Note Indenture
collectively.
"Initial Security Documents" means the security documents to be dated on or
before the Issue Date that are set forth in a schedule to the Indentures.
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"Initial Transaction Security" means all assets, properties and rights of the
Issuer and its Subsidiaries that are subject to Liens pursuant to the terms and
provisions of the Initial Security Documents in order to secure the Secured
Obligations.
"Intellectual Property" means all industrial and intellectual property rights
whether registered or not including pending applications for registration of
such rights and the right to apply for registration of such rights including but
not limited to Patents, utility models, design patents, registered designs,
design rights, trade and service marks, copyrights (including copyright and
equivalent rights in computer software), rights in inventions, technical
information, rights in know-how, business names, database rights, processes,
models, formulae and experiments and all rights of equivalent or similar effect
to any of those which may subsist anywhere in the world.
"Intellectual Property Licence Agreements" means (1) the licences from the IPR
SPVs (and in the case of the German IP Guarantor, the Security Trustee) to the
relevant Subsidiaries of the Issuer, (2) the Research and Development Cost
Sharing Agreement and (3) the Group Licence Agreement.
"Interim Bonding Facilities" means (1) the interim bonding facility dated May
10, 2002, as amended, among Barclays Bank PLC, HSBC Bank plc and JP Morgan Chase
Bank and Marconi Bonding Limited providing for the issuance of surety bonds,
appeal bonds, bid bonds, performance bonds, letters of credit, bank guarantees
or other obligations of a like nature and (2) the temporary bonding facility
dated February 8, 2002 among Barclays Bank PLC, HSBC Bank plc and Marconi
Bonding Limited providing for the issuance of surety bonds, appeal bonds, bid
bonds, performance bonds, letters of credit, bank guarantees or other
obligations of a like nature.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Subsidiaries and
Affiliates) in the form of loans (including Guarantees or similar arrangements),
advances or capital contributions (by means of any transfer of cash or other
property to a Person other than the Issuer or any of its Subsidiaries or any
payment for property or services for the account or use of a Person other than
the Issuer or any of its Subsidiaries) or purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with Floating UK GAAP. The acquisition by the Issuer or
any Subsidiary of the Issuer of a Person that becomes a Subsidiary of the Issuer
or any Subsidiary of the Issuer and that holds an Investment in a third Person
will be deemed to be an Investment by the Issuer or such Subsidiary in such
third Person in an amount equal to the Fair Market Value of the Investment held
by the acquired Person in such third Person in an amount determined as provided
in the final paragraph of "Description of the Notes -- Certain Covenants --
Restricted Payments -- Exceptions Applicable to the Issuer, Non-US Subsidiaries
and US Subsidiaries" above.
"IPR SPV" means each of UK IPR Co, US IPR Co and Ringfenced IPR Co.
"Issue Date" means the date on which the Notes are first originally issued.
"Issuer" means Marconi Corporation plc and any successor thereto.
"Italian Easy Loans" means the subsidized loans existing as of the Issue Date
granted by the Italian Ministry of Productive Activities (formerly, Ministry of
Industry), either directly or through its authorised agents, in favor of Marconi
Communications S.p.A. and Marconi Sud S.p.A. or any other Subsidiary of the
Issuer incorporated under the laws of Italy pursuant to the provisions of Law
no. 46 dated February 17, 1982 and Legislative Decree No. 297 dated July 27,
1999.
"Italian Invoice Discounting" means the discounting or factoring (including, for
the avoidance of doubt, transactions having the economic effect of discounting
or factoring) by Non-US Subsidiaries organized in Italy of trade receivables
owed to such Non-US Subsidiaries in the ordinary course of business on
arm's-length terms, provided that (1) the aggregate gross proceeds received from
all such trade receivables discounted or factored from and after the Issue Date
does not exceed E60 million (or the equivalent in other currencies) and (2) such
discounting or factoring is on a non-recourse basis within the meaning specified
in clause (8) of the definition of Indebtedness.
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"Junior Note Interest Accrual Period" means, in respect of each Junior Note
Interest Period, (1) if no Repayment Date has occurred during such Junior Note
Interest Period, such Junior Note Interest Period or (2) if one or more
Repayment Dates have occurred during such Junior Note Interest Period, each
successive period beginning on (and including) the first day of such Junior Note
Interest Period and ending on (but excluding) the next Repayment Date and
thereafter each period beginning on (and including) such Repayment Date and
ending on (but excluding) the next Repayment Date, or if none the next Junior
Note Interest Payment Date.
"Junior Note Interest Payment Date" means each 31 January, 30 April, 31 July and
31 October, commencing 31 July 2003.
"Junior Note Interest Period" means each period beginning on (and including) the
Issue Date or any Junior Note Interest Payment Date and ending on (but
excluding) the next Junior Note Interest Payment Date.
"Junior Note Interest Rate" means, with respect to any Junior Note Interest
Period, (a) if the Issuer elects to pay and actually pays interest on the Junior
Notes on the relevant Junior Note Interest Payment Date in cash, 10 per cent.
per annum, otherwise (b) 12 per cent. per annum.
"Junior Notes" means the Guaranteed Junior Secured Notes due 2008 issued by the
Issuer pursuant to the Restructuring and any Junior PIK Notes.
"Junior PIK Notes" means any Junior Notes issued and constituting interest or
Additional Amounts paid in kind on outstanding Junior Notes.
"Lien" means, with respect to any asset or property, any mortgage or deed of
trust, lien (statutory or otherwise), pledge, charge, security interest,
assignment, deposit, easement, hypothecation, or other encumbrance of any kind
upon or in respect of such asset or property, whether or not filed, recorded or
otherwise perfected under applicable law, including any conditional sale,
capital lease or other title retention agreement, any lease in the nature
thereof, any agreement to give a charge, mortgage or other security interest in
and any filing of or agreement to give any financing statement under a statute
or regulation of any jurisdiction.
"Liquidation Proceeds" means the aggregate cash and Cash Equivalents received by
the Issuer or any of its Subsidiaries (i) in respect of the liquidation,
dissolution or winding up of any Subsidiary of the Issuer in its capacity as
holder of any Equity Interest in such Subsidiary that occurs following or
otherwise in connection with the sale of all or substantially all of the assets
of such Subsidiary to a Person other than the Issuer or any of its Subsidiaries
or (ii) in respect of the liquidation, dissolution or winding up of any
Investment in a Person other than the Issuer or any of its Subsidiaries that is
owned by the Issuer or a Subsidiary of the Issuer, net of, without duplication:
(1) any cash investment in, or payment or repayment of any Indebtedness
or other liability of, any Subsidiary of the Issuer being
liquidated, dissolved, placed under administration or wound-up that
is made by the Issuer or any other Subsidiary of the Issuer
contemporaneously with such liquidation, dissolution, administration
or winding-up, but only to the extent of the amount of such cash
investment, payment or repayment;
(2) the direct costs actually incurred by the Issuer or such Subsidiary
including, without limitation, legal, accounting and investment
banking fees, sales commissions, and taxes required to be paid or
accrued as a liability under Floating UK GAAP as a consequence of
such liquidation, dissolution, administration or winding-up, in each
case, after taking into account any available tax credits or
deductions and any tax sharing arrangements; and
(3) all distributions and other payments required to be made to minority
interest holders in any Subsidiary of the Issuer as a result of such
liquidation, dissolution, administration or winding-up.
"Make-Whole Amount" means, with respect to the Senior Notes and the Junior Notes
and any Repayment Date, an amount equal to the sum of the present values of the
remaining scheduled payments of principal and interest after such Repayment Date
(assuming, in the case of the Junior Notes, the payment of interest in Junior
PIK Notes, unless at any time after the second scheduled Junior Note Interest
Payment Date, the Issuer has paid interest on the Junior Notes in full in cash
on the two consecutive Junior Note Interest Payment Dates preceding such
Repayment Date, in which case the payment of interest in cash shall be assumed)
on the applicable Tranche
740
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of Notes discounted to the Repayment Date of such Notes on a quarterly basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate for such Tranche of Notes as determined by an independent
investment banking firm in London (selected by the Issuer and approved by the
Senior Note Trustee or, if no Senior Notes are outstanding, the Junior Note
Trustee).
"Mandatory Redemption Escrow Account" means the Escrow Account established
pursuant to the Escrow Agreement to receive deposits to be applied to, inter
alia, the mandatory redemption of the Junior Notes and/or the Senior Notes.
"MCHI" means Marconi Communications Holdings, Inc., a Delaware corporation.
"MCHI Plan of Liquidation and Dissolution" means the Plan of Complete
Liquidation and Dissolution adopted and approved by the Board of Directors and
stockholders, respectively, of MCHI in March 2001 as in effect on the Issue
Date.
"Net Proceeds" means the aggregate cash and Cash Equivalents received by the
Issuer or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, payments in respect of deferred payment arrangements (to the
extent corresponding to the principal, but not interest, component thereof) when
received in the form of, and any non-cash consideration received in any Asset
Sale when disposed of for, cash or Cash Equivalents), net of, without
duplication (but in each case provided that the Issuer may, in its discretion,
elect not to deduct all or any portion of the following amounts from the
aggregate cash and Cash Equivalents received):
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred (including fees and expenses of counsel,
actuaries, accountants and investment bankers) in connection with
such Asset Sale;
(2) all taxes required to be paid or accrued as a liability under
Floating UK GAAP, consistently applied as a consequence of such
Asset Sale, in each case, after taking into account any available
tax credits or deductions and any tax sharing arrangements;
(3) all distributions and other payments required to be made to minority
interest holders in any Subsidiary of the Issuer as a result of such
Asset Sale;
(4) amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the assets, properties or rights that were the
subject of such Asset Sale, or Indebtedness which pursuant to
applicable law must be repaid out of the proceeds of such Asset
Sale;
(5) amounts required to be applied to the repayment of Existing
Indebtedness which by its terms, or in order to obtain a necessary
consent to such Asset Sale, must be repaid out of the proceeds of
such Asset Sale;
(6) the provision of appropriate amounts by the Issuer or any of its
Subsidiaries as a reserve against any liabilities and/or
indemnification obligations retained and/or assumed by the Issuer or
any of its Subsidiaries pursuant to such Asset Sale, as determined
in accordance with, and only to the extent required by, Floating UK
GAAP, as reflected in an officers' certificate of the Issuer
delivered to the applicable Note Trustee; and
(7) to the extent required pursuant to any binding agreement between the
Pension Benefit Guaranty Corporation and the Issuer or its
Subsidiaries (a "PBGC Agreement") any amount contributed to the
Marconi USA Employees' Retirement Plan or the RELTEC Corporation
Retirement Plan (or any successor plans thereto) for any Affected
Pension Participants representing not more than the allocable
portion of any underfunding under such pension plan or plans
attributable to Affected Pension Participants, to the extent that,
in connection with such Asset Sale, the assets and liabilities under
the applicable pension plan or plans attributable to such Affected
Pension Participants are not transferred to a pension plan
maintained by or on behalf of the acquirer in such Asset Sale (for
purposes of this clause (7) the net underfunding shall be computed
based on the present value of the applicable plan's assets and
liabilities as of the date of the Asset Sale and using the
applicable actuarial assumptions then being used by the Pension
Benefit Guaranty Corporation of the United States for purposes of
calculating plan termination liability and using such other
actuarial
741
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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NOTES
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assumptions and methods considered reasonable by the Issuer to
determine such liabilities on the sale date based on employee data
as of the previous plan valuation date updated to reflect
significant demographic changes or, if less, in accordance with any
PBGC Agreement), it being understood that, to the extent required
under a PBGC Agreement upon the sale of the OPP Business or, if
later, the sale of the North American Access Business, the RELTEC
Corporation Retirement Plan shall be fully funded or the sponsorship
thereof transferred to a third-party buyer of either such business
unit;
provided, however, that if either (i) the instrument or agreement governing such
Asset Sale requires the transferor to maintain a portion of the purchase price
in escrow or otherwise segregate and set aside a portion of the purchase price,
whether as a reserve for adjustment of the purchase price or otherwise, for a
period not in excess of nine months or (ii) the Issuer, in its reasonable
judgment, determines that it is desirable to segregate and set aside funds as a
reserve for post-closing adjustments to the purchase price or post-closing
balance sheet adjustments for a period not in excess of nine months, the portion
of the cash or Cash Equivalents that is actually placed in escrow or segregated
and set aside by the transferor shall not be deemed to be Net Proceeds until the
escrow terminates or the transferor ceases to segregate and set aside such
funds, in whole or in part, and then only to the extent of the proceeds released
from escrow to the transferor or that are no longer segregated and set aside by
the transferor.
For the avoidance of doubt, the term "Net Proceeds" shall also include those
amounts described under the caption "Description of the Notes -- Certain
Covenants -- Purchase and Cancellation of Notes".
"New Bonding Facility Agreement" means the L50 million committed revolving
bonding facility agreement to be entered into on or prior to the Issue Date
among the Issuer, Marconi Bonding Limited, the New Bonding Facility Security
Trustee, the New Bonding Facility Banks and certain Non-US Subsidiaries
providing for the issuance of surety bonds, appeal bonds, bid bonds, performance
bonds, letters of credit, bank guarantees or other obligations of a like nature
on behalf of the Issuer and/or any Non-US Subsidiary, as such agreement may be
amended, extended, supplemented or otherwise modified from time to time
(including, without limitation, any successive amendments, extensions,
supplements or other modifications of the foregoing); provided that (1) the
aggregate principal amount of Indebtedness at any one time outstanding
thereunder shall not exceed L50 million (or the Sterling Equivalent) and (2) the
term of such facility shall not extend beyond the date that is 30 months after
the Issue Date (but, for the avoidance of doubt, Indebtedness and other
obligations incurred or arising under such facility on or prior to the date that
is 30 months after the Issue Date may extend beyond such date in accordance with
the provisions of such facility).
"New Bonding Facility Banks" means those banks party to the Security Trust and
Intercreditor Deed as New Bonding Facility Banks.
"New Bonding Facility Funding Amount" means at any time the lesser of (i)
L25,000,000 (or the Sterling Equivalent) and (ii) one half of the aggregate
facility limit under the New Bonding Facility Agreement.
"New Bonding Facility Security Trustee" means HSBC Bank plc or any successor
appointed as agent and security trustee pursuant to the New Bonding Facility
Agreement.
"Non-US Guarantor" means each of:
(1) Metapath Software International Limited
Mobile Systems International Holdings Limited
GPT Special Project Management Limited
Marconi Communications Limited
Marconi Communications International Limited
Marconi Communications China Limited
Marconi Communications International Investments Limited
Marconi Communications International Holdings Limited
Marconi Communications Investments Limited
Marconi Communications Holdings Limited
Marconi Corporation plc
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NOTES
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Marconi (Bruton Street) Limited
Marconi (DGP1) Limited
Marconi (DGP2) Limited
Marconi Bonding Limited
Marconi Optical Components Limited
Associated Electrical Industries Limited
English Electric Company Ltd
Marconi (Elliott Automation) Limited
Elliott-Automation Holdings Limited
Marconi Aerospace Unlimited
Marconi UK Intellectual Property Limited
Marconi (NCP) Limited
Highrose Limited
Marconi Inc.
Marconi Communications Holdings, Inc.
Marconi Communications North America Inc.
FS Holdings Corp
FS Finance Corp
Marconi Software International, Inc.
Metapath Software International (US), Inc.
Metapath Software International, Inc.
Marconi Intellectual Property (US), Inc.
Marconi Communications Holdings GmbH
Marconi Communications GmbH
Marconi Communications Real Estate GmbH
Marconi Holdings SpA
Marconi Communications SpA
Marconi Sud SpA
Marconi Communications Telemulti Ltda
Marconi Australia Holdings Pty Limited (change of registration
details from Marconi Australia Holdings Limited expected to be
effective from 11 April 2003)
Marconi Australia Pty Limited
Marconi Communications Asia Limited
G.E.C. (Hong Kong) Limited
Bruton Street Overseas Investments Limited; and
Bruton Street Partnership (a Delaware general partnership to be
converted to a Delaware corporation prior to the Issue Date);
(2) any other Non-US Subsidiary that executes a Guarantee of (a) the
Senior Notes pursuant to the Senior Note Indenture and (b) the Junior
Notes pursuant to the Junior Note Indenture; and
(3) each of their respective successors and assigns.
"Non-US Subsidiary" means any Subsidiary of the Issuer other than a US
Subsidiary.
"North American Access Business" means that portion of the network equipment
business of the US Subsidiaries comprising the North American access systems
business, which develops, manufactures, markets and sells last-mile copper and
fiber digital network equipment for the connection of business and consumer end-
users to communications networks in the United States and Canada (including a
service provider's switch or local exchange or an internet service provider),
but excluding the Outside Plant and Power Business and the BBRS Business.
"Note Trustees" means the Senior Note Trustee and the Junior Note Trustee
collectively, or either of them, if the context requires.
"Notes" means the Senior Notes and the Junior Notes collectively, or either of
them, if the context requires.
743
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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NOTES
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"Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities (including,
without limitation, contingent and prospective liabilities) payable under the
documentation governing any Indebtedness.
"Obligor" means each of the Issuer, the Guarantors and any Additional Guarantor.
"Optional Redemption Price" means, with respect to the Senior Notes and the
Junior Notes, an amount per Note equal to the greater of (1) the applicable
Make-Whole Amount for such Note and (2) 110 per cent. of the principal amount of
such Note, plus in each case accrued and unpaid interest and Additional Amounts,
if any, to the date of redemption.
"Outside Plant and Power Business" means that portion of the network equipment
access systems business of the US Subsidiaries that comprises outside plant and
power products that power, connect, protect or enclose parts of a
telecommunications network and services related to the installation,
engineering, maintenance and repair of and training for telecommunications
products.
"Patents" means all pending patent applications and registered patents.
"Paying Agent" means any Person appointed as a paying agent under the Senior
Note Indenture and/or the Junior Note Indenture, as applicable and which
initially shall be The Bank of New York under the Senior Note Indenture and the
Junior Note Indenture.
"Payment Stop Event" means the occurrence of either of the following:
(1) the failure by an Obligor to pay on the due date any amount payable
under the Senior Notes or the Senior Note Indenture, or
(2) the acceleration of the maturity of the Senior Notes following the
occurrence of an Event of Default under the Senior Notes or the
Senior Note Indenture,
provided that a Payment Stop Event shall cease to be continuing if:
(a) the relevant Default under the Senior Notes or the Senior Note
Indenture has been remedied or waived and any such acceleration has
been rescinded in accordance with the Senior Note Indenture;
(b) the Required Holders of at least a majority in aggregate principal
amount of the then outstanding Senior Notes consent in writing to
the cessation of such Payment Stop Event; or
(c) the Secured Obligations under the Senior Notes and the Senior
Indenture have been discharged in full and there are no further
Obligations under the Senior Notes or the Senior Note Indenture.
"Permitted Business" means business of the general nature of the Issuer and its
Subsidiaries conducted on the Issue Date and businesses ancillary or reasonably
related or complementary thereto.
"Permitted Core Business" means the telecommunications network equipment and
network services businesses conducted by the Issuer and its Non-US Subsidiaries
on the Issue Date, excluding the US Core Businesses.
"Permitted Debt" means any of the following:
(1) Existing Indebtedness and Existing Intercompany Indebtedness;
(2) Permitted Refinancing Indebtedness;
(3) Indebtedness represented by the Senior Notes and the Junior Notes
and the Guarantees thereof;
(4) Indebtedness of the Issuer or any Non-US Subsidiary incurred in the
ordinary course of business under the New Bonding Facility Agreement
or any Replacement New Bonding Facility Agreement;
(5) Permitted Intra-Group Indebtedness;
(6) Indebtedness of the Issuer and its Subsidiaries in respect of surety
bonds, appeal bonds, bid bonds, performance bonds, letters of
credit, bank guarantees or other obligations of a like nature
incurred in the ordinary course of business;
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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(7) Indebtedness of the Issuer and its Subsidiaries arising from
agreements for indemnification or purchase price adjustment or
similar obligations incurred or assumed in connection with the
disposition or purchase of any assets, provided, in the case of a
sale, that the maximum assumable liability in respect of all such
obligations shall at no time exceed the gross proceeds actually
received by the Issuer and its Subsidiaries (including the Fair
Market Value of any non-cash proceeds);
(8) Indebtedness of the Issuer and its Subsidiaries in respect of
workers' compensation and other claims or obligations arising under
or in connection with social security, welfare, employment-related
or similar regulation, or in connection with self-insurance or
similar requirements related thereto, in each case arising in the
ordinary course of business, including for the avoidance of doubt,
Guarantees of any obligations of the foregoing nature;
(9) the accrual of interest on Indebtedness of the Issuer and its
Subsidiaries that has not been capitalized or added to the principal
amount of such Indebtedness or the accretion or amortization of
original issue discount with respect to Indebtedness, which
Indebtedness was in each case permitted by another clause of this
definition;
(10) Indebtedness of the Captive Insurance Company in an aggregate
principal amount at any one time outstanding not to exceed L20
million (or the Sterling Equivalent);
(11) Indebtedness of the Issuer and its Subsidiaries consisting of
advance or extended payment terms in the ordinary course of business
provided that no Lien (other than a Permitted Lien) is created in
connection with such advance or extended payment terms;
(12) Indebtedness of the Issuer and its Subsidiaries pursuant to
Permitted Hedging Transactions;
(13) the Guarantee by the Issuer or any Non-US Guarantor of Indebtedness
of the Issuer or any other Non-US Guarantor, which Indebtedness is
permitted by another clause of this definition;
(14) the Guarantee by any US Guarantor that is not a US Core Business
Subsidiary of Indebtedness of any other US Guarantor that is not a
US Core Business Subsidiary, which Indebtedness is permitted by
another clause of this definition;
(15) the Guarantee by any US Core Business Subsidiary of Indebtedness of
another US Core Business Subsidiary engaged in the same US Core
Business, which Indebtedness is permitted by another clause of this
definition;
(16) Indebtedness of any US Subsidiary under the US Working Capital
Facility in an aggregate principal amount at any one time
outstanding for all US Subsidiaries not to exceed US$22.5 million
(or the Dollar Equivalent);
(17) Indebtedness of the Issuer or any of its Subsidiaries arising from
an indemnity or similar obligation to any export credit agency or
similar governmental or quasi-governmental entity of any member
state of the Organisation for Economic Co-operation and Development
in each case in an amount not to exceed the portion of the price to
be paid to the Issuer or any of its Subsidiaries under a contract
for goods or services that is guaranteed, insured or otherwise
supported by such export credit agency or similar governmental or
quasi-governmental entity and in an aggregate amount at any time
outstanding not to exceed L50 million (or the Sterling Equivalent);
(18) Indebtedness of the Issuer and the Non-US Subsidiaries in an
aggregate principal amount (or accreted value, as applicable) at any
time outstanding pursuant to this clause (18) which, when aggregated
with all other Indebtedness of the Issuer and all Non-US
Subsidiaries not permitted by any other clause of this definition,
does not exceed (a) in the event all previously issued Junior Notes
have been repaid in full and there are no outstanding Obligations
under the Junior Notes or the Junior Note Indenture, L75 million (or
the Sterling Equivalent), or otherwise (b) L50 million (or the
Sterling Equivalent); and
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(19) Indebtedness of the US Subsidiaries in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding pursuant
to this clause (19) which, when aggregated with all other
Indebtedness of all US Subsidiaries not permitted by any other
clause of this definition, does not exceed (a) in the event all
previously issued Junior Notes have been repaid in full and there
are no outstanding Obligations under the Junior Notes or the Junior
Note Indenture, US$15 million (or the Dollar Equivalent), or
otherwise (b) US$10 million (or the Dollar Equivalent).
"Permitted Hedging Transaction" means any Derivative Transaction that is a
currency option agreement or forward foreign exchange agreement entered into by
the Issuer or any of its Subsidiaries with any Person (other than the Issuer or
any of its Subsidiaries) (1) designed to protect against fluctuations in
currency values solely with respect to (a) trade receivables, (b) trade
payables, (c) the obligations of the Issuer to make payments of principal,
premium, if any, interest or Additional Amounts, if any, on the Senior Notes or
the Junior Notes or (d) consideration receivable in the form of cash or Cash
Equivalents pursuant to Asset Sales, and (2) other than in the case of clause
(1)(c), in the ordinary course of business and with a non-extendable term of not
more than 12 months.
"Permitted Intra-Group Hedging Transaction" means any Derivative Transaction
that is a currency option agreement or forward foreign exchange agreement
between or among the Issuer and any of its Subsidiaries designed to protect
against fluctuations in currency values and entered into in the ordinary course
of business and on arm's-length pricing.
"Permitted Intra-Group Indebtedness" means Indebtedness created, incurred or
acquired after the Issue Date and owed by the Issuer or any of its Subsidiaries
(for purposes of this definition, the "debtor") to the Issuer or any of its
Subsidiaries (for the purposes of this definition, the "creditor") that complies
with the criteria set out in one or more of the following clauses:
(1) the debtor is the Issuer or any Non-US Guarantor and the creditor is
the Issuer or any Non-US Guarantor; or
(2) the debtor is any US Guarantor and the creditor is any US Guarantor;
or
(3) the debtor is the Issuer or any Non-US Guarantor, the creditor is
any Non-US Subsidiary that is not a Non-US Guarantor and the
creditor is a direct or indirect Subsidiary of the debtor, provided
that, in the event such Indebtedness in respect of which a
particular Subsidiary of the Issuer is the creditor exceeds an
aggregate of L20 million (or the Sterling Equivalent), such
Subsidiary shall be a party to the Security Trust and Intercreditor
Deed; or
(4) the debtor is any US Guarantor, the creditor is any US Subsidiary
that is not a US Guarantor and the creditor is a direct or indirect
Subsidiary of the debtor, provided that, in the event such
Indebtedness in respect of which a particular Subsidiary of the
Issuer is the creditor exceeds an aggregate of L20 million (or the
Sterling Equivalent), such Subsidiary shall be a party to the
Security Trust and Intercreditor Deed; or
(5) the debtor is a Non-US Subsidiary that is not a Non-US Guarantor and
the creditor is any other Non-US Subsidiary that is not a Non-US
Guarantor; or
(6) the debtor is a US Subsidiary that is not a US Guarantor and the
creditor is any other US Subsidiary that is not a US Guarantor; or
(7) the debtor is a Non-US Subsidiary that is not a Non-US Guarantor,
the creditor is the Issuer or a Non-US Guarantor, and the aggregate
principal amount of all such Indebtedness outstanding pursuant to
this clause does not at any time exceed L50 million (or the Sterling
Equivalent); or
(8) the debtor is a US Subsidiary that is not a US Guarantor, the
creditor is a US Guarantor, and the aggregate principal amount of
all such Indebtedness outstanding pursuant to this clause does not
at any time exceed US$30 million (or the Dollar Equivalent); or
(9) the debtor is the Issuer or a Non-US Guarantor that directly or
indirectly owns all of the Equity Interests of the US Parent and the
creditor is a US Subsidiary; or
746
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(10) such Indebtedness is incurred under a Permitted Intra-Group Hedging
Transaction; or
(11) the debtor is a Non-US Subsidiary that is not a Non-US Guarantor and
such Indebtedness arises by virtue of a counter-indemnity obligation
owed to Marconi Bonding Limited with respect to Marconi Bonding
Limited's obligation under any surety bond, appeal bond, bid bond,
performance bond, letter of credit, bank guarantee or other
obligation of a like nature issued for the account or benefit of
such Non-US Subsidiary; or
(12) the debtor is a US Subsidiary that is not a US Guarantor and such
Indebtedness arises by virtue of a counter-indemnity obligation owed
to a US Guarantor with respect to such US Guarantor's obligation
under any surety bond, appeal bond, bid bond, performance bond,
letter of credit, bank guarantee or other obligation of a like
nature issued for the account or benefit of such US Subsidiary,
provided that if such US Guarantor is a US Core Business Subsidiary,
such US Subsidiary is engaged in the same US Core Business as such
US Guarantor; or
(13) the debtor is a US Subsidiary and the creditor is the Issuer or any
other Subsidiary of the Issuer pursuant to a loan the proceeds of
which are used solely to pay the costs of the liquidation,
administration, dissolution, closure, suspension of business or
winding up of such US Subsidiary or the termination of a business or
operation of such US Subsidiary;
(14) the debtor is a Subsidiary of the Issuer and such Indebtedness
arises by virtue of a counter-indemnity obligation owed to Marconi
Inc. with respect to a letter of credit, bank guarantee or other
obligation of a like nature issued for the account or benefit of
Marconi Inc. in connection with any insurance arrangements of
Marconi Inc. undertaken or arranged for the benefit of such
Subsidiary; or
(15) the debtor is the Issuer or a Subsidiary of the Issuer and such
Indebtedness arises by virtue of a counter-indemnity obligation owed
to the Issuer or another Subsidiary of the Issuer with respect to
any Indebtedness of the Issuer or such other Subsidiary of the type
described in clause (8) of the definition of Permitted Debt in
connection with any claim or other obligation that is attributable
to the debtor.
provided, however, that (a) with respect to Indebtedness in clauses (1),
(2), (3), (4), (9) and (10) above, if the Issuer or any Guarantor is the
debtor in respect of such Indebtedness, such Indebtedness must be
unsecured, and (b) with respect to Indebtedness in clauses (1), (2) and
(9) above, both the creditor and the debtor in respect of such
Indebtedness must be parties to the Security Trust and Intercreditor Deed.
For purposes of this definition, (1) if the Issuer or any Subsidiary of
the Issuer has shares of Preferred Stock or Disqualified Stock
outstanding, the Issuer or such Subsidiary shall constitute the "debtor"
with respect to such Preferred Stock or Disqualified Stock and (2) if the
Issuer or any Subsidiary of the Issuer owns or holds any shares of
Preferred Stock or Disqualified Stock described in clause (1), the Issuer
or such Subsidiary shall constitute the "creditor" with respect to such
Preferred Stock or Disqualified Stock.
"Permitted Intra-Group Transfer" means
(1) a sale, lease, transfer, conveyance or other disposition, directly
or indirectly, of inventory (including equipment that constitutes
inventory) between or among the Issuer and any Non-US Subsidiaries
in the ordinary course of business;
(2) a sale, lease, transfer, conveyance or other disposition, directly
or indirectly, of inventory (including equipment that constitutes
inventory) between or among US Subsidiaries (other than US Core
Business Subsidiaries engaged in different US Core Businesses) in
the ordinary course of business;
(3) a sale, lease, transfer, conveyance or other disposition, directly
or indirectly, of any assets, properties or rights between or among
the Issuer and any Non-US Guarantors or between or among any Non-US
Guarantors, provided however, that where the parties thereto are not
in the Same Jurisdiction, such transaction is made at Fair Market
Value;
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(4) a sale, lease, transfer, conveyance or other disposition, directly
or indirectly, of any assets, properties or rights between or among
any Non-US Subsidiaries that are not Guarantors;
(5) a sale, lease, transfer, conveyance or other disposition, directly
or indirectly, of any assets, properties or rights between or among
Non-US Subsidiaries that are not Guarantors and the Issuer or any
Non-US Guarantors, provided however, that such transaction is made
at Fair Market Value;
(6) a sale, lease, transfer, conveyance or other disposition, directly
or indirectly, of any assets, properties or rights from a US
Guarantor that is not a US Core Business Subsidiary to another US
Guarantor that is not a US Core Business Subsidiary, provided
however, that where the parties thereto are not in the Same
Jurisdiction, such transaction is made at Fair Market Value;
(7) a sale, lease, transfer, conveyance or other disposition, directly
or indirectly, of any assets, properties or rights between or among
any US Subsidiaries that are not Guarantors;
(8) a sale, lease, transfer, conveyance or other disposition, directly
or indirectly, of any assets, properties or rights between or among
US Subsidiaries that are not Guarantors and any US Guarantors,
provided however, that such transaction is made at Fair Market
Value;
(9) a sale, lease, transfer, conveyance or other disposition, directly
or indirectly, of any assets, properties or rights between or among
US Core Business Subsidiaries engaged in the same US Core Business;
(10) a sale, lease, transfer, conveyance or other disposition, directly
or indirectly, of assets of a US Core Business by a transferor to a
US Guarantor that is incorporated either (a) under the laws of the
United States, any state thereof or the District of Columbia or (b)
in the Same Jurisdiction as the transferor, in each case solely in
compliance with and to the extent necessary to comply with the
covenant described under the caption "Description of the Notes --
Certain Covenants -- Covenants Regarding US Core Businesses";
(11) tax loss surrenders between or among the Issuer and its
Subsidiaries;
(12) a licence, sublicence or transfer of Intellectual Property between
or among the Issuer and any of its Subsidiaries or between or among
its Subsidiaries, provided that (a) such licence, sublicence or
transfer is expressly permitted under or approved in accordance with
the terms of the applicable Intellectual Property Licence Agreements
or (b) if such Intellectual Property is not the subject of the
Intellectual Property Licence Agreements, the Issuer provides
express prior written consent to such transaction;
(13) a transfer of assets that constitutes a Permitted Investment or
Restricted Payment that is permitted by the covenant described under
the caption "Description of the Notes -- Certain Covenants --
Restricted Payments"; and
(14) a transfer by FS Holdings Corp of Equity Interests in Marconi
Communications Inc. to the US Parent.
"Permitted Investments" means:
(1) any Investment by the Issuer or a Non-US Subsidiary in the Issuer or
a Non-US Subsidiary (including, for these purposes, a newly
organized Person that will as a result of such Investment become a
Non-US Subsidiary);
(2) any Investment by a US Subsidiary in a US Subsidiary (including, for
these purposes, a newly organized Person that will as a result of
such Investment become a US Subsidiary);
(3) any Investment by FS Holdings Corp in Equity Interests in US Parent
solely in exchange for Equity Interests in Marconi Communications
Inc;
(4) any Investment in cash or Cash Equivalents;
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(5) any Investment made as a result of the receipt of non-cash or
deferred consideration from an Asset Sale that was made in
compliance with the covenant described above under the caption
"Description of the Notes -- Certain Covenants -- Asset Sales";
(6) Investments received upon the sale or disposition of assets that
were excluded from the definition of "Asset Sale" pursuant to clause
(1) of the second paragraph of the definition thereof (other than
Investments in Equity Interests) or clause (9) of the second
paragraph of the definition thereof;
(7) Investments solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Issuer;
(8) Investments received by the Issuer or any Subsidiary of the Issuer
(a) as a result of the waiver, compromise, settlement, release or
surrender, in each case in the ordinary course of business, of any
right or claim of the Issuer or such Subsidiary, including any debt
owing to the Issuer or such Subsidiary, or (b) in satisfaction of
judgments or pursuant to any plan of reorganization, compromise,
scheme or similar arrangement upon the bankruptcy or insolvency of a
debtor;
(9) any refinancing, amendment, renewal, extension, modification or
replacement (including in connection with or as a result of a
bankruptcy, insolvency, workout, reorganization or recapitalization)
of any Investment existing on the Issue Date or any Investment made
subsequent to the Issue Date that was permitted to be made under the
applicable Indenture, in each case so long as no additional
Investment is made;
(10) receivables (including extended payment terms) created or acquired
in the ordinary course of business by the Issuer or any Subsidiary
of the Issuer and payable or dischargeable in accordance with its
customary trade terms;
(11) negotiable instruments held for deposit or collection in the
ordinary course of business;
(12) Investments resulting from the acquisition of a Person that at the
time of such acquisition held instruments constituting Investments
that were not acquired in contemplation of, or in connection with,
the acquisition of such Person, provided that the acquisition of
such Person is permitted pursuant to another clause of the
definition of "Permitted Investments";
(13) loans or advances by the Issuer or any Subsidiary of the Issuer to
their respective officers, directors or employees for travel,
transportation, entertainment, moving, relocation and other business
expenses that are made in the ordinary course of business in an
aggregate amount at any time outstanding not to exceed L3 million
(or the Sterling Equivalent);
(14) Investments consisting of loans or advances by the Issuer or any
Non-US Subsidiary to customers for the purposes of financing all or
a portion of the purchase of goods or services from the Issuer or
any Non-US Subsidiary, provided that such Investments do not involve
the provision of cash by the Issuer or any Non-US Subsidiary to the
recipient of such financing, and provided further that the aggregate
amount of all such outstanding Investments made after the Issue Date
does not at any time exceed L20 million (or the Sterling Equivalent)
(provided that Investments lasting for no more than five (5) London
Business Days in connection with arrangements to transfer such loans
or advances to third parties will not be included in the calculation
of such amount until the expiration of such five (5) London Business
Days);
(15) Investments consisting of loans or advances by any US Subsidiary to
customers for the purposes of financing all or a portion of the
purchase of goods or services from any US Subsidiary, provided that
such Investments do not involve the provision of cash by any US
Subsidiary to the recipient of such financing, and provided further
that the aggregate amount of all such outstanding Investments made
after the Issue Date does not at any time exceed US$10 million (or
the Dollar Equivalent) (provided that Investments lasting for no
more than five (5) London Business Days in connection with
arrangements to transfer such loans or advances to third parties
will not be included in the calculation of such amount until the
expiration of such five (5) London Business Days);
(16) Investments made with respect to or in connection with the
incurrence of workers' compensation, unemployment or casualty
insurance, social security or welfare obligations and other related
types of statutory obligations (including, for the avoidance of
doubt, counter-indemnities from the Issuer
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or a Subsidiary of the Issuer to the Issuer or another Subsidiary of
the Issuer in respect of any of the foregoing and Guarantees
provided by the Issuer or any Subsidiary with respect to or in
connection with any obligations of the foregoing nature);
(17) Investments made pursuant to contractual commitments in effect on
the Scheme Launch Date;
(18) Investments made pursuant to contractual commitments in effect on
the Issue Date that are listed in a schedule to each Indenture;
(19) Permitted Hedging Transactions and Permitted Intra-Group Hedging
Transactions;
(20) Investments in the Issuer by any US Subsidiary resulting from the
repurchase of any outstanding Notes by such US Subsidiary or the
cancellation of such Notes;
(21) Investments consisting of loans from a US Subsidiary to the Issuer
or a Non-US Guarantor that directly or indirectly owns all of the
Equity Interests of the US Parent that are permitted by clause (9)
of the definition of Permitted Intra-Group Indebtedness;
(22) any Investment by the Issuer or a Non-US Subsidiary in a US
Subsidiary the proceeds of which are used solely to pay the costs of
the liquidation, administration, dissolution, closure, suspension of
business or winding-up of such US Subsidiary or the termination of a
business or operation of such US Subsidiary;
(23) Investments consisting of Indebtedness that is permitted by clause
(14) of the definition of Permitted Intra-Group Indebtedness;
(24) with respect to the Issuer and the Non-US Subsidiaries, other
Investments in any Person (including, for the avoidance of doubt,
any joint venture) having an aggregate Fair Market Value (measured
on the date each such Investment was made and without giving effect
to subsequent changes in value) that, when taken together with all
other Investments made pursuant to this clause (24) that are at the
time outstanding, do not exceed (a) L30 million (or the Sterling
Equivalent) or (b) from and after the earlier of the second
anniversary of the Issue Date and the date on which all previously
issued Junior Notes have been repaid in full and there are no
outstanding Obligations under the Junior Notes or the Junior Note
Indenture, L75 million (or the Sterling Equivalent), provided
however, that solely with respect to clause (a), the aggregate Fair
Market Value of all Investments made in each twelve-month period
commencing on the Issue Date and the first anniversary of the Issue
Date shall not exceed L15 million (or the Sterling Equivalent),
provided further, that in the case of each of clauses (a) and (b),
such amounts shall be calculated after giving effect to any
reductions in the amount of any Investments as a result of the
repayment or other disposition of the Investments for cash or Cash
Equivalents, the amount of the reduction not to exceed the amount of
the Investments previously made pursuant to this clause (24); and
(25) with respect to the US Subsidiaries, other Investments in any Person
(including, for the avoidance of doubt, any joint venture) having an
aggregate Fair Market Value (measured on the date each such
Investment was made and without giving effect to subsequent changes
in value), that when taken together with all other Investments made
pursuant to this clause (25) that are at the time outstanding, do
not exceed (a) US$10 million (or the Dollar Equivalent) or (b) from
and after the earlier of the second anniversary of the Issue Date
and the date on which all previously issued Junior Notes have been
repaid in full and there are no outstanding Obligations under the
Junior Notes or the Junior Note Indenture, US$25 million (or the
Dollar Equivalent), provided however, that in the case of each of
clauses (a) and (b), such amounts shall be calculated after giving
effect to any reduction in the amount of any Investments as a result
of the repayment or other disposition of the Investments for cash or
Cash Equivalents, the amount of the reduction not to exceed the
amount of the Investments previously made pursuant to this clause
(25).
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"Permitted Liens" means:
In relation to the Issuer and its Subsidiaries:
(1) Liens on assets or property existing at the time of acquisition of
the assets or property by the Issuer or any Subsidiary of the
Issuer, Liens on assets or property of a Person existing at the time
such Person becomes a Subsidiary of the Issuer and Liens on Capital
Stock of an acquired Person that becomes a Subsidiary of the Issuer
as a result of such acquisition; provided that such Liens were not
created, incurred or assumed in connection with, or in contemplation
of, such acquisition or such Person becoming a Subsidiary of the
Issuer and do not extend to or cover any other assets or property of
the Issuer or any of its Subsidiaries;
(2) Liens to secure Purchase Money Obligations or Capital Lease
Obligations, in each case that are permitted under the definition of
Permitted Debt;
(3) Liens arising pursuant to, or as a result of, any leases of property
or licensing or escrow arrangements that are excepted from the
definition of Asset Sale;
(4) any Lien the principal purpose and effect of which is to allow the
setting-off or netting of obligations with those of a financial
institution in the ordinary course of the cash management
arrangements of the Issuer or any Subsidiary of the Issuer;
(5) Liens pursuant to the Security Documents, the Indentures, the
Guarantees of the Notes, the Escrow Agreement and the Security Trust
and Intercreditor Deed;
(6) Liens existing on the Scheme Launch Date;
(7) Liens existing on the Issue Date that are listed in a schedule to
the Indentures;
(8) Liens (not securing Indebtedness) for Taxes, assessments or
governmental charges or claims that are not yet delinquent or that
are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as is required in conformity
with Floating UK GAAP has been made therefor;
(9) Liens incurred or deposits made in connection with workers'
compensation, unemployment insurance, other types of social security
or welfare obligations and other types of related statutory
obligations;
(10) Liens arising in relation to Existing Performance Bonds as a result
of the provision of cash collateral for such Existing Performance
Bonds from the Existing Performance Bond Escrow Account;
(11) Liens (not securing Indebtedness) in favor of customs or revenue
authorities to secure payment of customs duties in connection with
the importation of goods in the ordinary course of business;
(12) easements, rights of way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering
in any material respect with the ordinary conduct of the business of
the Issuer or any of its Subsidiaries;
(13) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business in respect of obligations that are not yet due or that are
bonded or that are being contested in good faith and by appropriate
proceedings; provided adequate reserves with respect to such Lien
are maintained on the books of the Issuer or any Subsidiary of the
Issuer for whom the Lien relates, as the case may be, in accordance
with Floating UK GAAP;
(14) Liens arising by operation of law;
(15) rights of set-off under contracts entered into in the ordinary
course of business;
(16) any Lien the principal purpose and effect of which is to allow the
setting-off or netting of obligations with those of a financial
institution under or in connection with any Permitted Hedging
Transaction;
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(17) any retention of title reserved by any seller of goods or any Lien
imposed, reserved or granted over goods supplied by such seller in
the ordinary course of business;
(18) Liens arising out of or in connection with pre-judgment legal
process or a judgment or a judicial award relating to security for
costs;
(19) any right of first refusal, right of first offer, option, contract,
or other agreement to sell or otherwise dispose of an asset of the
Issuer or any Subsidiary of the Issuer;
(20) Liens arising from Uniform Commercial Code financing statement
filings regarding operating leases entered into by the Issuer or any
Subsidiary of the Issuer in the ordinary course of business,
provided that such Liens do not extend to any property or assets
which are not the subject of such operating leases;
(21) Liens resulting from escrow arrangements entered into in connection
with a disposition of property or assets;
In relation to the Issuer and the Non-US Subsidiaries only:
(22) Liens arising from the provision of collateral by the Captive
Insurance Company that are required for the captive insurance
arrangements of the Issuer and its Subsidiaries, provided that the
Fair Market Value of such collateral does not exceed L20 million (or
the Sterling Equivalent) in the aggregate at any time;
(23) Liens arising out of or in connection with Italian Invoice
Discounting;
(24) Liens on cash (including, for the avoidance of doubt, any rights in
respect of deposits with a bank or financial institution) with
respect to outstanding Indebtedness and other obligations under the
New Bonding Facility Agreement and any Replacement New Bonding
Facility Agreement (which Lien, for the avoidance of doubt, may
constitute a Lien ranking prior to any Lien on cash collateral
constituting Transaction Security), provided that the aggregate at
any time of all cash collateral provided by the Issuer and its
Subsidiaries to (a) the New Bonding Facility Security Trustee
(excluding all Cash Collateral Releases transferred to the New
Bonding Facility Security Trustee and all amounts transferred from
the Existing Performance Bond Escrow Account to the New Bonding
Facility Security Trustee), and (b) any agent, security trustee or
lender under, or otherwise in respect of, any Replacement New
Bonding Facility Agreement, does not exceed L25 million (or the
Sterling Equivalent);
(25) in the event all previously issued Junior Notes have been repaid in
full and there are no outstanding Obligations under the Junior Notes
or the Junior Note Indenture, Liens with respect to surety bonds,
appeal bonds, bid bonds, performance bonds, letters of credit, bank
guarantees or other obligations of a like nature issued on behalf of
the Issuer and/or any Non-US Subsidiary (which Liens in relation to
cash, for the avoidance of doubt, may constitute a Lien ranking
prior to any Lien on cash collateral constituting Transaction
Security), provided that (a) the aggregate of all outstanding
Indebtedness and other obligations under all such instruments or
agreements secured by any Lien does not at any time exceed L35
million (or the Sterling Equivalent), provided that for purposes of
determining compliance with such L35 million (or the Sterling
Equivalent) aggregate amount, any such Indebtedness or other
obligation that is secured by a Lien solely on cash (including, for
the avoidance of doubt, rights to any deposit at a bank or other
financial institution) shall be deemed to be in an amount equal to
the amount of such cash (and not the amount of such Indebtedness or
other obligation) and (b) each such Lien shall be incurred by, and
be solely in respect of the property or assets of, the Issuer or
such Non-US Subsidiary on whose behalf such surety bond, appeal
bond, bid bond, performance bond, letter of credit, bank guarantee
or other obligation of a like nature is issued; and
(26) Liens with respect to outstanding Indebtedness or other obligations
of the Issuer or any Non-US Subsidiary (which Liens in relation to
cash, for the avoidance of doubt, may constitute a Lien ranking
prior to any Lien on cash collateral constituting Transaction
Security) that do not in the
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aggregate for the Issuer and each Non-US Subsidiary at any time
exceed (a) in the event all previously issued Junior Notes have been
repaid in full and there are no outstanding Obligations under the
Junior Notes or the Junior Note Indenture, L35 million (or the
Sterling Equivalent), or otherwise (b) L20 million (or the Sterling
Equivalent), provided that for purposes of determining compliance
with such L35 million (or the Sterling Equivalent) or L20 million
(or the Sterling Equivalent) aggregate amount, as the case may be,
any such Indebtedness or other obligation that is secured by a Lien
solely on cash (including, for the avoidance of doubt, rights to any
deposit at a bank or other financial institution) shall be deemed to
be in an amount equal to the amount of such cash (and not the amount
of such Indebtedness or other obligation);
In relation to the US Subsidiaries only:
(27) Liens with respect to surety bonds, appeal bonds, bid bonds,
performance bonds, letters of credit, bank guarantees or other
obligations of a like nature issued on behalf of any US Subsidiary
(which Liens in relation to cash, for the avoidance of doubt, may
constitute a Lien ranking prior to any Lien on cash collateral
constituting Transaction Security), provided that the aggregate of
all outstanding Indebtedness and other obligations under all such
instruments or agreements secured by any Lien does not at any time
exceed US$15 million (or the Dollar Equivalent), provided further
that for purposes of determining compliance with such US$15 million
(or the Dollar Equivalent) aggregate amount, any such Indebtedness
or other obligation that is secured by a Lien solely on cash
(including, for the avoidance of doubt, rights to any deposit at a
bank or other financial institution) shall be deemed to be in an
amount equal to the amount of such cash (and not the amount of such
Indebtedness or other obligation);
(28) Liens on the Pittsburgh Facility and related assets and rights
securing Indebtedness under the US Working Capital Facility,
provided that the aggregate principal amount of all such outstanding
Indebtedness does not at any time exceed US$22.5 million (or the
Dollar Equivalent); and
(29) Liens with respect to outstanding Indebtedness or other obligations
of any US Subsidiary (which Liens in relation to cash, for the
avoidance of doubt, may constitute a Lien ranking prior to any Lien
on cash collateral constituting Transaction Security) that do not in
the aggregate for all US Subsidiaries at any time exceed (a) in the
event all previously issued Junior Notes have been repaid in full
and there are no outstanding obligations under the Junior Notes or
the Junior Note Indenture, US$15 million (or the Dollar Equivalent),
or otherwise (b) US$5 million (or the Dollar Equivalent), provided
that for purposes of determining compliance with such US$15 million
(or the Dollar Equivalent) or US$5 million (or the Dollar
Equivalent) aggregate amount, as the case may be, any such
Indebtedness or other obligation that is secured by a Lien solely on
cash (including, for the avoidance of doubt, rights to any deposit
at a bank or other financial institution) shall be deemed to be in
an amount equal to the amount of such cash (and not the amount of
such Indebtedness or other obligation).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Issuer or any
Subsidiary of the Issuer issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund any
Indebtedness that constitutes Permitted Debt pursuant to clauses (1), (2), (6),
(7), (8), (9) or (11) of the definition of Permitted Debt, other than
Indebtedness between or among the Issuer and its Subsidiaries, provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal
amount (or accreted value, if applicable) of the Indebtedness
extended, refinanced, renewed, replaced, defeased or refunded (plus
all accrued interest on such Indebtedness and the amount of all
expenses and premiums incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded;
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(3) solely in the case of the Senior Notes, if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Senior Notes, such Permitted
Refinancing Indebtedness is subordinated in right of payment to the
Senior Notes and the Guarantees thereof on terms at least as
favorable to the holders of Senior Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded;
(4) solely in the case of the Junior Notes, if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Junior Notes, such Permitted
Refinancing Indebtedness is subordinated in right of payment to the
Junior Notes and the Guarantees thereof on terms at least as
favorable to the holders of Junior Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and
(5) such Permitted Refinancing Indebtedness is incurred either by (a) if
the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is the Issuer, the Issuer, (b) if the
obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is a Non-US Subsidiary, the Issuer or
such Non-US Subsidiary or (c) if the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded
is a US Subsidiary, such US Subsidiary.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Pittsburgh Facility" means the property located at 1000 Marconi Drive,
Warrendale, Pennsylvania, USA.
"Preferred Stock" means, with respect to any Person, any Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Equity Interest of any other class in such Person.
"Profit After Taxes" means, with respect to any specified Person for any period,
the profit (loss) after tax of such Person, determined in accordance with
Floating UK GAAP, consistently applied, and before any reduction in respect of
preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for
Taxes on such gain (but not loss), realized in connection with (a)
any Asset Sale or (b) the disposition of any securities by such
Person or any of its Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Subsidiaries; and
(2) any extraordinary or exceptional gain (but not loss), together with
any related provision for Taxes on such extraordinary or exceptional
gain (but not loss).
"Purchase Money Obligation" means any Indebtedness secured by a Lien on assets
or property used or useful in the Permitted Core Business and any additions and
accessions thereto, which are purchased by the Issuer or any Subsidiary of the
Issuer at any time after the Issue Date; provided that:
(1) the security agreement or conditional sales or other title retention
contract pursuant to which the Lien on such assets is created
(collectively a "Purchase Money Security Agreement") shall be
entered into within 360 days after the purchase or substantial
completion of the construction of such assets and such Liens shall
at all times be confined solely to the assets so purchased or
acquired, any additions and accessions thereto and any proceeds
therefrom;
(2) at no time shall the aggregate principal amount of the outstanding
Indebtedness secured thereby be increased, except in connection with
the purchase of additions and accessions to the assets so purchased
or acquired and except in respect of fees and other obligations in
respect of such Indebtedness; and
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(3) (a) the aggregate outstanding principal amount of Indebtedness
secured thereby (determined on a per asset basis in the case of any
additions and accessions) shall not at the time such Purchase Money
Security Agreement is entered into exceed 100 per cent. of the
purchase price to the Issuer or such Subsidiary of the assets
subject thereto or (b) the Indebtedness secured thereby shall be
with recourse solely to the assets so purchased or acquired, any
additions and accessions thereto and any proceeds therefrom.
"Reference Treasury Dealer" means a primary US Government securities dealer in
New York City selected by the Senior Note Trustee or, if no Senior Notes are
outstanding, the Junior Note Trustee.
"Reference Treasury Dealer Quotations" means, with respect to each of the Senior
Notes and the Junior Notes, each Reference Treasury Dealer and any Repayment
Date, the average, as determined by the Senior Note Trustee, or if no Senior
Notes are outstanding, the Junior Note Trustee, of the bid and asked prices for
the applicable Comparable Treasury Issue (expressed in each case as a percentage
of its principal amount) quoted in writing to such Note Trustee by such
Reference Treasury Dealer at 5:00 p.m. (London Time) on the third Business Day
preceding such Repayment Date.
"Registrar" means an office or agency maintained by the Issuer where Notes in
registered form may be presented for transfer, exchange or payment under the
Senior Note Indenture and/or the Junior Note Indenture, as applicable, which
initially shall be The Bank of New York under the Senior Note Indenture and the
Junior Note Indenture.
"Relevant Currency" means (i) in the case of the Dollar Senior Notes and the
Junior Notes, United States dollars, (ii) in the case of the Euro Senior Notes
and the Convertible Euro Senior Notes, Euros and (iii) in the event the Issuer
elects to pay a redemption amount in British pounds sterling as described under
the caption entitled "Description of the Notes -- Redemption -- Optional Payment
of Redemption Amounts in British Pounds Sterling", British pounds sterling.
"Relevant Documents" means the Security Trust and Intercreditor Deed, any
Agent/Trustee/New Bonding Facility Bank Accession Letter, any Guarantor
Accession Letter, the Indentures, the Escrow Agreement, the Notes, the New
Bonding Facility Agreement, the Security Documents, certain fee letters and any
notices issued and any other documents or agreements entered into in connection
with or relating to such documents.
"Relevant Period" means each of the following periods: (1) the six months ending
September 30, 2005; and (2) the twelve months ending on each of March 31, 2006,
September 30, 2006, March 31, 2007, September 30, 2007 and March 31, 2008.
"Repayment Date" means, in respect of the Senior Notes, each date upon which the
Issuer redeems all or part of the outstanding Senior Notes and, in respect of
the Junior Notes, each date upon which the Issuer redeems all or part of the
outstanding Junior Notes.
"Replacement New Bonding Facility Agreements" means any facility agreement or
agreements entered into on or after the Issue Date between or among the Issuer
and/or any Non-US Subsidiary with any bank, insurance company or other financial
institution providing for the issuance of surety bonds, appeal bonds, bid bonds,
performance bonds, letters of credit, bank guarantees or other obligations of a
like nature on behalf of the Issuer and/or any Non-US Subsidiary, as such
agreement or agreements may be amended, extended, supplemented or otherwise
modified from time to time (including, without limitation, any successive
amendments, extensions, supplements or other modifications of the foregoing);
provided that (1) the term of each such facility shall not extend beyond the
date that is 30 months after the Issue Date (but, for the avoidance of doubt,
Indebtedness and other obligations incurred or arising under any such facility
on or prior to the date that is 30 months after the Issue Date may extend beyond
such date in accordance with the provisions of any such facility) and (2) no
such facility agreement shall require the Issuer and/or any Non-US Subsidiary to
cash-collateralize any instrument issued thereunder, or otherwise require the
Issuer and/or any Non-US Subsidiary to grant any Lien to secure any instrument
issued thereunder on any property or asset having a value, in excess of 50 per
cent. of the face or principal amount of any such instrument.
"Required Holders" means, at any time and with respect to any Tranche of Notes,
the holder or holders of at least the specified percentage of the aggregate
principal amount of the outstanding Notes of such Tranche (in the
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case of the Senior Notes, including all Dollar Senior Notes, Euro Senior Notes
and all Convertible Euro Senior Notes) at the time outstanding (exclusive of
Notes of such Tranche then owned by the Issuer or any of its Affiliates or held
in escrow for distribution to Scheme Creditors). Solely for the purpose of
making a determination of "Required Holders" with respect to a Tranche of Notes,
the aggregate principal amount of all Dollar Senior Notes outstanding (exclusive
of Notes of such Tranche then owned by the Issuer or any of its Affiliates or
held in escrow for distribution to Scheme Creditors) at any time shall be
translated into Euro using the Fixed Exchange Rate.
"Research and Development Cost Sharing Agreement" means the research and
development cost sharing agreement entered into on or prior to the Issue Date by
Marconi Communications GmbH, Marconi Communications Inc, Marconi Communications
Limited and Marconi Communications SpA.
"Restructuring" means the Scheme of Arrangement under Section 425 of the
Companies Act 1985 between Marconi Corporation plc and its Scheme Creditors (as
defined therein) in the High Court of Justice of England and Wales.
"Ringfenced IPR Co" means Marconi Intellectual Property (Ringfence) Inc., a
Wholly-Owned Subsidiary of Marconi Communications Inc. that is incorporated
under the laws of the State of Delaware, United States of America, to which all
legal and beneficial ownership of Patents relating to the North American Access
Business, the BBRS Business and the Outside Plant and Power Business owned by
any US IP Opco are transferred on or prior to the Issue Date.
"Sale and Leaseback Transaction" means an arrangement relating to assets or
property now owned or hereafter acquired whereby the Issuer or any Subsidiary of
the Issuer transfers such assets or property to a Person and the Issuer or any
Subsidiary of the Issuer leases it from such Person, if the amount of the
liability in respect of such lease would at that time be required to be
capitalized on a balance sheet in accordance with Floating UK GAAP.
"Same Jurisdiction" means (1) with respect to any Person organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia, any of such jurisdictions and (2) with respect to any
Person organized and existing under the laws of any other jurisdiction, such
other jurisdiction.
"Scheme Creditors" means the creditors of the Issuer and Marconi plc in respect
of the Restructuring.
"Scheme Launch Date" means the date of the explanatory statement for the
Restructuring that is distributed to Scheme Creditors.
"SEC" means the US Securities and Exchange Commission.
"Secured Creditors" means the Security Trustee, any Receiver or Delegate, the
Depositary, the Paying Agent, the Registrar, the Senior Note Trustee (for itself
and as trustee for the holders of the Senior Notes), the Junior Note Trustee
(for itself and as trustee for the holders of the Junior Notes), the New Bonding
Facility Security Trustee and each of the New Bonding Facility Banks and their
successors and assigns.
"Secured Obligations" means all present and future indebtedness, liabilities and
obligations (for the avoidance of doubt, including any liabilities and
obligations which have been cash-collateralized by the Obligors) at any time of
any Obligor under the Relevant Documents, both actual and contingent and whether
incurred solely or jointly or in any other capacity together with any of the
following matters relating to or arising in respect of those liabilities and
obligations:
(1) any refinancing, novation, deferral or extension;
(2) any obligation relating to any increase in the amount of such
obligations;
(3) any claim for damages or restitution; and
(4) any claim as a result of any recovery by an Obligor of a payment or
discharge, or non-allowability, on the grounds of preference,
and any amounts that would be included in any of the above but for any
discharge, non-provability or unenforceability of those amounts in any
insolvency or other proceedings (including interest accruing after the
commencement of any insolvency or other proceedings).
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"Security Documents" means (1) the Initial Security Documents securing the
Secured Obligations, (2) any other pledge agreements, security agreements,
mortgages, deeds of trust and other agreements, instruments and documents
entered into from time to time by the Issuer or any Subsidiary of the Issuer
creating or granting any Guarantee, indemnity or Lien in favor of any of the
Secured Creditors or the Security Trustee, as trustee for the Secured Creditors,
as security for any of the Secured Obligations and (3) any other agreements,
instruments and documents executed and delivered pursuant to any of the
foregoing, in the case of each of clauses (1) through (3), as amended, modified,
restated or supplemented from time to time.
"Security Trust and Intercreditor Deed" means the Security Trust and
Intercreditor Deed dated the Issue Date between Marconi Corporation plc, the
Security Trustee, the Guarantors, the Senior Note Trustee, the Junior Note
Trustee, the Obligors, the New Bonding Facility Agent, the New Bonding Facility
Banks, the Depositary, the Paying Agent, the Registrar, the Intra-Group
Creditors (as defined therein) and the Intra-Group Borrowers (as defined
therein) as amended, modified, restated or supplemented from time to time.
"Security Trustee" means The Law Debenture Trust Corporation p.l.c., as security
trustee under the Security Trust and Intercreditor Deed and its successors and
assigns thereunder.
"Senior Note Interest Accrual Period" means, in respect of each Senior Note
Interest Period, (1) if no Repayment Date has occurred during a Senior Note
Interest Period, such Senior Note Interest Period or (2) if one or more
Repayment Dates have occurred during such Senior Note Interest Period, each
successive period beginning on (and including) the first day of such Senior Note
Interest Period and ending on (but excluding) the next Repayment Date and
thereafter each period beginning on (and including) such Repayment Date and
ending on (but excluding) the next Repayment Date, or if none the next Senior
Note Interest Payment Date.
"Senior Note Interest Payment Date" means each January 15, April 15, July 15 and
October 15, commencing July 15, 2003.
"Senior Note Interest Period" means each period beginning on (and including) the
Issue Date or any Senior Note Interest Payment Date and ending on (but
excluding) the next Senior Note Interest Payment Date.
"Senior Notes" means the Guaranteed Senior Secured Notes due 2008 issued by the
Issuer pursuant to the Restructuring.
"Series" means (1) with respect to the Senior Notes, each of the Convertible
Euro Senior Notes, the Euro Senior Notes and the Dollar Senior Notes and (2) the
Junior Notes.
"Significant Subsidiary" means any Subsidiary of the Issuer if any of the (a)
unconsolidated Total Assets, (b) unconsolidated External Assets, (c)
unconsolidated External Sales, or (d) commencing on March 31, 2005,
unconsolidated EBITDA of such Subsidiary is greater than 5 per cent. of the (w)
aggregate of the unconsolidated Total Assets of the Issuer and each of its
Subsidiaries, or the (x) consolidated External Assets, (y) consolidated External
Sales or (z) Consolidated EBITDA, respectively, of the Issuer and its
Subsidiaries, taken as a whole (calculated in the manner specified in paragraphs
(a)-(e) of the covenant set forth under the caption "Description of the Notes --
Certain Covenants -- Guarantor Coverage Requirements"). Solely for the purposes
of determining whether an Event of Default has occurred under the Senior Note
Indenture or Junior Note Indenture, or an Insolvency Event has occurred under
the Security Trust and Intercreditor Deed (in each case other than with respect
to the approval by stockholders of a Subsidiary of the Issuer (other than a
Guarantor or a Subsidiary of the Issuer that is a Significant Subsidiary in its
own right) of any plan or proposed plan for the solvent liquidation or
dissolution of such Subsidiary), "Significant Subsidiary" shall include any
Subsidiaries of the Issuer that would, in the aggregate, collectively constitute
a Significant Subsidiary.
"Standstill Event" means the occurrence of a Default under the Senior Notes.
"Standstill Notice" means a notice delivered by the Senior Note Trustee to the
Security Trustee (with a copy to the Issuer and the Junior Note Trustee)
notifying the Security Trustee of a Standstill Event.
"Standstill Period" means the period from the date of the issuance of a
Standstill Notice by the Senior Note Trustee and ending on the earlier of:
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(1) the expiration of a period of 179 days after the date of the
issuance of such Standstill Notice by the Senior Note Trustee;
(2) the date on which the Senior Note Trustee has confirmed in writing
to the Security Trustee (with a copy to the Issuer and the other
Debt Representatives) that the Default under the Senior Notes in
respect of which that Standstill Notice was issued is no longer
continuing;
(3) the date on which the Senior Note Trustee has confirmed in writing
to the Security Trustee (with a copy to the Issuer and the other
Debt Representatives) that the Standstill Notice has been cancelled
by the Senior Note Trustee acting on the instructions of the
Required Holders of at least a majority of the aggregate principal
amount of the then outstanding Senior Notes; and
(4) the date on which the Senior Notes Trustee has confirmed in writing
to the Security Trustee (with a copy to the Issuer and the other
Secured Creditors) that the Secured Obligations under the Senior
Notes and the Senior Note Indenture have been discharged in full and
there are no further liabilities under the Senior Notes or the
Senior Note Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any Indebtedness, the date on which the payment of interest or
principal was scheduled to be paid in the original documentation governing such
Indebtedness.
"Sterling Equivalent" means, with respect to any monetary amount in a currency
other than British pounds sterling, at any time of determination thereof, the
amount of British pounds sterling obtained by translating the amount of such
foreign currency into British pounds sterling at the spot rate for the purchase
of sterling with the applicable foreign currency as published in the Financial
Times on the date that is two (2) London Business Days prior to such
determination (or, in the case of the determination of the principal amount of
the Senior Notes to be issued in the Restructuring, by translating the amount of
any such foreign currency at the Currency Rate (as defined in Part V)).
Except as described under the caption "Description of the Notes -- Certain
Covenants -- Indebtedness and Preferred Stock", whenever it is necessary to
determine (1) compliance with any covenant that contains an amount expressed in
British pounds sterling in the applicable Indenture or (2) whether a Default has
occurred, and in either case an amount is expressed in a currency other than
British pounds sterling, such amount will be treated as the Sterling Equivalent
determined as of the date such amount is initially determined in such currency.
"Subordinated Indebtedness" means (1) with respect to the Issuer, any
Indebtedness that is expressly subordinated to the Senior Notes or the Junior
Notes and (2) with respect to any Guarantor, any Indebtedness of such Guarantor
that is expressly subordinated to such Guarantor's Guarantee of the Senior Notes
or the Junior Notes.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50 per cent. of the total voting power of its Capital Stock
entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees of the
corporation, association or other business entity is at the time
owned or controlled, directly or indirectly, by that Person or one
or more of the other Subsidiaries of that Person (or a combination
thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person, or
(b) the only general partners of which are that Person or one or
more Subsidiaries of that Person (or any combination thereof).
"Taxes" means any tax, duty, levy, impost, assessment or other governmental
charge of whatever nature (including penalties, interest and other liabilities
related thereto).
"Taxing Authority" means any government or political sub-division or territory
or possession of any government or any authority or agency therein or thereof
having power to impose a Tax.
"Total Assets" means, with respect to any specified Person at any date, the
total gross assets of such Person on such date in accordance with Floating UK
GAAP.
758
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"Tranche" means the Senior Notes or the Junior Notes.
"Transaction Security" means all assets, properties and rights of the Issuer and
its Subsidiaries that are subject to Liens pursuant to the terms and provisions
of the Security Documents in order to secure the Secured Obligations.
"UK IP Opcos" means all Non-US Subsidiaries organized or incorporated in the
United Kingdom having legal and beneficial ownership of Patents.
"UK IPR Co" means Marconi UK Intellectual Property Limited, a Wholly-Owned
Subsidiary of Marconi Communications Limited that is incorporated under the laws
of England and Wales, that is a Non-US Subsidiary and to which all legal and
beneficial ownership of Patents owned by UK IP Opcos are transferred on or prior
to the Issue Date.
"US Core Business Sale" means any direct or indirect sale, assignment,
conveyance, lease or other disposition of all or substantially all of the Equity
Interests, properties or assets of one or more of the US Core Businesses or one
or more of the US Core Business Subsidiaries, or any consolidation, merger,
sale, assignment, transfer, lease or other disposition of or involving one or
more of the US Core Businesses or one or more of the US Core Business
Subsidiaries or any of their respective Equity Interests, properties or assets.
"US Core Business Subsidiary" means a US Subsidiary that is a direct or indirect
Wholly-Owned Subsidiary of the Issuer and designated as a holder of a US Core
Business by the Issuer by notice to the applicable Note Trustee.
"US Core Businesses" means the assets and liabilities of each of:
(1) the Outside Plant and Power Business;
(2) the North American Access Business; and
(3) the BBRS Business.
"US Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"US GAAP" means generally accepted accounting principles in the United States,
consistently applied, and as in effect from time to time.
"US Guarantor" means each of:
(1) Marconi Communications, Inc.
Marconi Networks Worldwide, Inc.
Marconi Communications Technology, Inc.
Marconi Communications Federal, Inc.
Marconi Acquisition Corp.
Marconi Intellectual Property (Ringfence) Inc.
Marconi Communications Limited (Ireland)
Marconi Communications Optical Networks Limited
Marconi Communications, S.A. de C.V.
Marconi Communications de Mexico, S.A. de C.V.
Marconi Communications Exportel, S.A. de C.V.
Administrativa Marconi Communications, S.A. de C.V.
Marconi Communications BV; and
Marconi Communications GmbH (Switzerland);
(2) any other US Subsidiary that executes a Guarantee of (a) the Senior
Notes pursuant to the Senior Note Indenture and (b) the Junior Notes
pursuant to the Junior Note Indenture; and
(3) each of their respective successors and assigns.
"US IP Opcos" means all Subsidiaries of the Issuer organized or incorporated
under the laws of the United States, any state thereof or the District of
Columbia having legal and beneficial ownership of Patents.
759
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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"US IPR Co" means Marconi Intellectual Property (US) Inc., a Wholly-Owned
Subsidiary of Marconi Inc. that is incorporated under the laws of the State of
Delaware, United States of America, to which all legal and beneficial ownership
of Patents (other than any Patents transferred to Ringfenced IPR Co) owned by
any US IP Opco are transferred on or prior to the Issue Date.
"US Parent" means either (1) Marconi Communications Inc. or (2) a Wholly-Owned
Subsidiary of the Issuer which: (a) is incorporated after the Issue Date; (b)
becomes a US Guarantor; and (c) acquires the Equity Interests in Marconi
Communications Inc.
"US Subsidiary" means each of US Parent and each of its Subsidiaries, provided
that they constitute a Subsidiary of the Issuer.
"US Working Capital Facility" means the US$22.5 million working capital facility
entered into on or about the Issue Date, among Marconi Communications, Inc. and
Liberty Funding, LLC providing for revolving credit or working capital loans, as
such agreement, in whole or in part, may be amended, renewed, extended,
substituted, refinanced, restructured, replaced, supplemented or otherwise
modified from time to time (including, without limitation, any successive
amendments, renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplements or other modifications of the foregoing in whole or in
part, whether by the same or a different borrower or borrowers and/or lender or
group of lenders), which facility or facilities either is secured solely by a
Lien on the Pittsburgh Facility and related assets and rights or is unsecured.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final
maturity, in respect of the Indebtedness, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly-Owned Subsidiary" of any specified Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) are at the time owned by such
Person or by one or more Wholly-Owned Subsidiaries of such Person.
760
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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APPENDIX 9
EXCLUDED CLAIMS
The following definitions are used in this Appendix:
"CORP PENSION PROMISES OR ARRANGEMENTS" means any promise or arrangement to
provide pensions, allowances, lump sums or other like benefits on retirement,
death, termination of employment (whether voluntary or not), or during periods
of sickness or disablement, which are for the benefit of any officer or former
officer or employee or former employee of the Marconi Group or for the benefit
of persons dependent on any such persons, including any guarantees and
indemnities given by Corp to trustees or administrators of arrangements
providing such benefits, and any statutory liabilities owing to any government
authority (including PBGC) in respect of any such promises or arrangements.
"ESOP ESCROW AGREEMENT" means the escrow agreement between plc, Corp, HSBC Bank
plc and Barclays Bank PLC dated 13 December 2002.
"MOBILE ESCROW AGREEMENT" means the escrow agreement between Corp, plc, Marconi
Bruton Street Limited, HSBC Bank plc, the ESOP Derivative Banks, Bedell Cristin
Trustees Limited and Slaughter and May dated 2 August 2002.
"ITALIAN IMPLIED GUARANTEE" means the Guarantee implied under Article 2362 of
the Italian Civil Code which may arise as a result of Corp's sole shareholding
in Marconi Finanziaria SpA for the period from March 2000 to 29 October 2001.
"ORDINARY COURSE OF BUSINESS" means the ordinary day-to-day business activities
carried on by Corp, conducted with a degree of regularity, or a one-off
transaction concluded in the nature of trade and with a view to a profit and
being such as might reasonably be expected to occur without requiring the
specific authority of the board of Directors.
"PLC PENSION PROMISES OR ARRANGEMENTS" means any promise or arrangement to
provide pensions, allowances, lump sums or other like benefits on retirement,
death, termination of employment (whether voluntary or not), or during periods
of sickness or disablement, which are for the benefit of any officer or former
officer or employee or former employee of the Marconi Group or for the benefit
of persons dependent on any such persons, including any guarantees and
indemnities given by plc to trustees or administrators of arrangements providing
such benefits, but only to the extent such promise or arrangement represents a
Preferential Claim or is protected by a lien or under sections 91 and/or 92 of
the Pensions Act 1995 and/or is a liability under section 75 of that Act.
"PLC SERVICES" means the services provided by plc's auditors, plc's insurance
brokers, registrars and advisers in respect of regulatory matters in connection
with the implementation of the plc Scheme.
"PRE-DISPOSAL LIABILITIES" means any liability of Corp to a third party in
respect of a former Affiliate of Corp which has been the subject of a disposal
and arising as a result of:
a. any financial or other guarantee, indemnity, counter indemnity or similar
arrangement given by Corp in respect of the obligations of that former
Affiliate; or
b. any claim being made under a performance bond, bank guarantee or similar
instrument in respect of that former Affiliate.
"RESTRUCTURING PARTIES AND ADVISERS" means:
a. all advisers to the relevant Scheme Company;
b. the Prospective Supervisors and their advisers;
c. the Escrow Trustee and its advisers;
d. the Distribution Agent and its advisers;
e. the Eurobond Trustee and its advisers;
f. the Yankee Bond Trustee and its advisers;
761
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
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g. the Co-ordination Committee and its advisers;
h. the Informal Committee of Bondholders and its advisers;
i. Bondholder Communications;
j. the Sponsors and their advisers;
k. the ESOP Derivative Banks and their advisers;
l. the trustee of the New Senior Notes and its advisers;
m. the trustee of the New Junior Notes and its advisers; and
n. the security trustee in respect of the New Notes.
"TRADING OBLIGATIONS" means obligations of a commercial character incurred in
the Ordinary Course of Business any of which arise from the supply of goods or
services in exchange for payment in money or money's worth.
762
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
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PART I -- LIST OF EXCLUDED CLAIMS UNDER THE CORP SCHEME
SUMMARY OF EXCLUDED CLAIMS
The following Liabilities (as at the Record Date) will be excluded from the Corp
Scheme:
(1) claims of employees of Corp (who were employees at the Record Date) under
their respective contracts of employment and fee arrangements of
Directors (who were Directors at the Record Date) including those set out
below;
(2) Corp's Liability in respect of any Corp Pension Promises or Arrangements
including those set out below;
(3) certain guarantee or indemnity obligations of Corp given in respect of
obligations of Affiliates which are considered to be beneficial to that
Affiliate's ongoing operations as set out below;
(4) Liabilities in respect of Trading Obligations of Corp or its Affiliates
under contracts where, and to the extent that, Corp is a joint or joint
and several obligor with one or more Affiliates including those set out
below;
(5) contractual obligations, including warranty and indemnity obligations, of
Corp under disposals and acquisitions (each otherwise than in the
Ordinary Course of Business), demergers, mergers and joint ventures and
any Pre-Disposal Liabilities including those set out below;
(6) intra-group loan and trading account claims against Corp by any
Affiliate;
(7) Corp's Liabilities under commercial contracts or licences relating to the
Wider Corp Group and ongoing trading operations of Affiliates to which
Corp is a party and which are regarded as beneficial to the Wider Corp
Group's ongoing operations and the documentation which has been entered
into in connection with the Restructuring prior to the Record Date in
each case as set out below;
(8) Ordinary Course of Business liabilities incurred in connection with the
supply of goods and/or services to Corp as set out below;
(9) Corp's Liabilities to third parties which are covered by a Corp Insurance
Policy and Liabilities of Corp which would be covered by a Corp Insurance
Policy but for:
a. any excess, deductible or limit of liability applicable under any
Corp Insurance Policy to any such liability; or
b. any insurer failing to satisfy any Corp Insurance Policy claim in
full when payable when the insurer is in liquidation or provisional
liquidation or administration under the Insolvency Act 1986 (as
amended from time to time) or subject to any scheme of arrangement
under section 425 of the Act (or any equivalent or analogous
proceeding or arrangement in any other jurisdiction, including any
proceeding under chapter 11 of the Bankruptcy Code); or
c. the Corp Insurance Policy or any claim under it being void or
avoided by any insurer,
being Liabilities of Corp in respect of which the third party would have
rights against the insurer under that Corp Insurance Policy by virtue of
section 1 of the 1930 Act in the event that any of the events set out in
section 1(1)(b) of the 1930 Act occurred with respect to Corp.
(10) Preferential Claims;
(11) rights of indemnity of directors and officers of Corp (who were directors
and/or officers of Corp at the Record Date) against Corp under its
articles of association and at common law;
(12) costs, fees and expenses of the Restructuring Parties and Advisers (and
any Liability under any engagement letter or similar arrangement entered
into by Corp with such parties) incurred in connection with the
consideration, negotiation and implementation of the Restructuring in
each case as set out below;
(13) Liabilities of Corp to a creditor where all such liabilities in aggregate
to that creditor do not exceed L5,000 which, for the avoidance of doubt,
do not include any liabilities in respect of Bonds;
763
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
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(14) Liabilities in respect of dividends declared prior to the Record Date on
the shares in the capital of Corp but not claimed by the relevant
shareholder or former shareholder;
(15) Liabilities in respect of the lease of the property at 329-333 High
Street, Stratford, London;
(16) Corp's Liabilities under the restructuring undertaking agreements of each
ESOP Derivative Bank, the ESOP Escrow Agreement, Mobile Escrow Agreement,
Subsequently Sold Opco Escrow Agreements and the ESOP Settlement
Agreement (as more fully described in part I Section 2, Part D.2.);
(17) Corp's Liability in respect of any personal injury claims which are not
excluded from the Corp Scheme under paragraph (9) above; and
(18) Corp's Liability (if any) in respect of the Italian Implied Guarantee.
LISTS OF CLAIMS
Notes:
(1) To avoid duplication claims that may fall into two or more categories
have been assigned to one category and only listed once.
(2) For the avoidance of doubt, liabilities of plc which are being novated to
Corp on or prior to the Effective Date are excluded and have been listed
below where appropriate.
(3) Lists have not been provided for categories 6, 10, 11 and 13 to 18.
CATEGORY 1
CLAIMS OF EMPLOYEES OF CORP (WHO WERE EMPLOYEES AT THE RECORD DATE) UNDER THEIR
RESPECTIVE CONTRACTS OF EMPLOYMENT AND FEE ARRANGEMENTS OF DIRECTORS (WHO WERE
DIRECTORS AT THE RECORD DATE)
A. EMPLOYEES
1. Cunliffe, John
2. Abraham, Nigel
3. Claringburn, Harry
4. Hoste, Colin
5. Griffin, Philip
6. Sharrat, Michael
7. Stoney, David
8. Harris, Peter
9. Towler, Daney
10. Whitford, Gillian
11. Wood, Mike
12. Kedney, Sharon
13. Johnson, Peter
14. Smith, Rod
15. Kendall, Richard
16. Surrey, Mike
17. Sutcliffe, Neil
18. Butcher, Paul
19. Plato, Mark
20. Kindt, Stefan
21. Brown, Peter
22. Green, Rob
23. Ghiggino, Pierpaolo
24. Copley, Steve
25. Milnes-James, Richard
26. Butler, Kim
27. Evans, Christopher
28. Hallifax, Rodney
29. Akehurst, David
30. Parry, Ewan
31. Alam, Salim S
32. Banks, Robert
33. Reid, Damian
34. Bailey, Christine
35. Wilson, Philip
36. Gordon, Elizabeth
37. Robinson, Fiona
38. Metcalfe, Christopher
39. Johnson, William
40. Baldwin, Nigel
41. Robinson, Richard
42. Wanklyn, John
43. Widdowson, Andrew
44. Lewis, Helen
45. Banks, Caroline
46. Ritchie, Fiona
47. Harriman, Martin
48. Keech, Lucy
49. Thwaites, Claire
50. Shaikh, Roohi
51. Donaldson, Craig
52. Green, Heather
53. Ben David, Jayne
54. Smith, Trevor
55. Shepherd, Thomas
56. McPhail, Richard
57. Din, Zakia
58. Pace, Steve
59. Gregory, Paul
60. Chapple, Chris
61. Burgess, Mike
62. Evans, Simon G
63. Maddison, Derek
64. Knott, Gavin
65. O'Boyle, Kevin James
66. Clarke, Paula
67. Gardiner, Josephine
68. Gosden, Cary
69. Mixture, Kim
70. Pollard, Audrey
71. Purver, Anna
72. Weathersby, Ann
73. Randall, Jane
74. Maisuria, Rajesh
75. Bates, Susan
76. Cockayne, Gillian
77. Pike, Alma
78. Bradley, Roy
79. Camp, Ronald
80. Ferns, Anthony
81. Tolfree, Roger
82. Waters, Jeffrey
83. Bradley, David John
84. Lee, David John
85. Elsley, Christopher Neil
86. Kimberlye, David Michael
87. Voss, Peter Donald
88. Branigan, Mark St. John
89. Lee, Simon Edward Redvers
90. Maltby, Ian
91. Foulkes, Anthony
92. Goodwin, David John
93. Cross, Ian Stewart
94. Fradley, David Maurice
95. Allen, Graham
96. Dean, Andrea
97. Lea, Lesley Amanda
98. Dodd, Karen Jayne
99. Strain, Elaine
100. Hampton, Dawn
101. Towers, Sharon Joan
102. Marsden, Anne
764
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
103. Jones, Linzi
104. Taylor, Anne-Marie
105. Stevens, Lisa
106. Morris, Jackie Louise
107. Young, Paula Jayne
108. Dawson, Margaret Ann
109. Stone, Susan Ann
110. Luft, Pamela Gay
111. Hancocks, Michelle
112. Crutchley, Sandra Norma
113. Ward, Tamasine Louise
114. Denne, Clare Louise
115. Jones, Julie Anne
116. Sides, Claire
117. Worthington, Philip Michael
118. Bonnelame, Steven
119. Stephenson, Emma
120. Hurley, Miles
121. Ranson, Jodie
122. Etheridge, Louise
123. Kelly, Joe
124. Scott, Jonathan Cape
125. Oldham, Joanne
126. Geraci, Christina
127. Parsons, Timothy John
128. Cini, Nicholas Jonathan
129. Beck, David Clive
130. Fitzpatrick, Liam
131. Randell, Kathleen May
132. Skelly, Mary
133. Holden, Emma Louise
134. Sihra, Surinderjit
135. Burdon Bailey, Elizabeth
136. Jacobs, Michael
137. Patel, Parag
138. Rankin, Andrew Charles Maclean
139. Wright, Trevor
140. Champken, Graham
141. Jamison, Louise
142. Loveday, Jane
143. Parton, Michael
144. Donovan, Michael
145. Holden, Christopher
146. Smith, Kevin D.
147. Manuel, Paul
148. Devaney, John
B. DIRECTORS
Name Document Descriptions Date
---- --------------------- ----
1. Atkinson, Michael Kent Engagement letter 16/12/02
2. Koepf, Werner Karl Engagement letter 16/12/02
CATEGORY 2
CORP'S LIABILITY IN RESPECT OF ANY CORP PENSION PROMISES OR ARRANGEMENTS
LIST OF PENSION SCHEMES
UK
The UK Plan (including the deed of indemnity dated 1 October 1999 made between
Corp (then called The General Electric Company plc) and Stanhope Pension Trust
Limited)
Funded Unapproved Retirement Benefit Schemes for:
Michael Parton Marc Mabon
Michael Donovan Stephen Pace
Peter Rowley Damian Reid
Kevin O'Boyle Rod Smith
Salim Alam Neil Sutcliffe
David Beck Philip Wilson
Patricia Dooley John Mayo
Unfunded Unapproved Retirement Benefits Schemes for:
Lady Weinstock
Anthony Cobbe
UNITED STATES
Marconi USA Employees' Retirement Plan
RELTEC Corporation Retirement Plan
RELTEC Supplemental Executive Retirement Plan
765
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
CATEGORY 3
CERTAIN GUARANTEE OR INDEMNITY OBLIGATIONS OF CORP GIVEN IN RESPECT OF
OBLIGATIONS OF AFFILIATES WHICH ARE CONSIDERED TO BE BENEFICIAL TO THAT
AFFILIATE'S ONGOING OPERATIONS
NB THIS LIST SETS OUT THE ONLY CLAIMS WHICH FALL INTO THIS CATEGORY
Description Recipient Date
----------- --------- ----
1. General counter indemnity in respect of Federal Insurance Company and Alliance Assurance 01/01/71
the following performance bonds issued by Company (Chubb)
Federal Insurance Company and Alliance
Assurance Company (Chubb) on behalf of
subsidiaries of Corp:
Contracting Subsidiary Beneficiary Issue date
----------------------------------------- ------------------------------------------------------ --------------
G.E.C. (Hong Kong) Limited Route 3 Contractors Consortium 29/02/96
G.E.C. (Hong Kong) Limited Mass Transit Corporation of MTR Tower 02/08/99
G.E.C. (Hong Kong) Limited Mass Transit Railway Corporation 28/11/97
2. Counter indemnity obligations to American American Home Assurance Company (AHAC) 09/12/93
Home Assurance Company (AHAC) in respect
of the following performance bonds issued
by AHAC on behalf of G.E.C. (Hong Kong)
Ltd in favour of Lantau Fixed Crossing
Highway Department:
Contracting Subsidiary Beneficiary Issue date
----------------------------------------- ------------------------------------------------------ --------------
G.E.C. (Hong Kong) Limited Lantau Fixed Crossing -- Highway Dept (Part N) 09/12/93
G.E.C. (Hong Kong) Limited Lantau Fixed Crossing -- Highway Dept (Part X & Y) 09/12/93
3. Parent Company Guarantee of the The Government of the Hong Kong SAR 08/12/93
obligations of G.E.C. (Hong Kong) Limited
under a maintenance contract for the Hong
Kong Traffic Control System
4. Parent Company Guarantee of the Nishimatsu Construction Co and Kumagai Gumi Co Limited 30/06/94
obligations of G.E.C. (Hong Kong) Limited
under a sub-contract for electrical and
mechanical engineering works for the
Western Harbour Crossing, Hong Kong
5. Specific counter indemnity to Standard Standard Chartered Bank Hong Kong 06/07/94
Chartered Bank Hong Kong in respect of a
performance bond given by them to
Nishimatsu Kumagai Joint Venture relating
to the sub-contract dated 30/06/94 at 4
above
6. Parent Company Guarantee of the Nishmatsu Construction Co. Limited and Dragages et 21/03/96
obligations of G.E.C. (Hong Kong) Limited Travaux Publics (HK) Limited in a joint venture
under a sub-contract dated 21/03/96
7. Parent Company Guarantee of the The Airport Authority 13/02/97
obligations of G.E.C. (Hong Kong) Limited
under a contract dated 13/02/97
8. Parent Company Guarantee of the Dragages-Zen Pacific Joint Venture 09/08/99
obligations of G.E.C. (Hong Kong) Limited
under a sub-contract dated 03/08/99
9. Corp's obligations under the All Monies Midland Bank Ltd (now HSBC Bank plc) 12/03/02 and
Guarantee dated 12/03/02 and the 09/12/68
Guarantee letter dated 09/12/68 in
respect of the following performance
bonds:
Contracting Subsidiary Beneficiary Issue date
----------------------------------------- ------------------------------------------------------ --------------
G.E.C. (Hong Kong) Ltd Dragages-Zen Pacific Joint Venture 30/11/99
Marconi Communications Asia Ltd MTR Corporation Limited 13/10/00
Marconi Communications Asia Ltd ERG Transit Systems (HK) Limited 30/08/01
766
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Description Recipient Date
----------- --------- ----
Marconi Communications International Ltd Loxley Business Information Technology Co Ltd 15/08/01
Marconi Communications International Ltd Loxley Business Information Technology Co Ltd 15/10/01
Marconi Communications International Ltd Korea Telecom 27/09/01
Marconi Communications SpA Omnitel Pronto Italia S.p.A. 17/12/01
Marconi Communications Inc Indemnity Insurance Co of North America 01/01/02
Marconi Communications Ltd Merseyside Fire Service 20/11/01
Marconi Communications Ltd Secretary of State for Transport 15/01/02
Marconi Communications SpA Albacom 01/01/02
Marconi Communications China Ltd World Tender Industrial Ltd 07/01/02
MNI Tecnologias e Sistemas de Comunicacao Onitelecom-Infocomunicacoes S.A. 09/01/02
S.A.
MNI Tecnologias e Sistemas de Comunicacao Onitelecom-Infocomunicacoes S.A. 09/01/02
S.A.
Marconi Communications International Ltd Compania de Telecomunicaciones de Chile (C.T.C.) 24/01/02
Marconi Communications Asia Ltd China National Machinery I/E Co. 16/01/02
Marconi Communications GmbH Wasser-Und Schiff Ltd 01/01/02
Marconi Communications GmbH Commerzbank AG 05/08/02
Marconi Communications GmbH Mannesmann Mobilfunk GmbH, Dusseldorf 24/01/02
Marconi Communications International Ltd Alstom Transport 20/12/02
Marconi Inc. ACE Insurance Company 06/06/02
Marconi Communications GmbH Mannesmann Mobilfunk GmbH, Dusseldorf 24/01/02
Marconi Communications Ltd H M Customs & Excise 18/06/02
Marconi Middle East LLC Ministry of Communications 24/05/02
Beijing Marconi Communications Technology CITIC Industrial Bank 06/06/02
Co. Limited
Marconi Communications International Ltd Alstom Transport 20/12/02
Marconi Communications GmbH Deutsche Bank AG 05/08/02
Marconi Communications China Ltd ANZ Bank, London for MoR contract 28/05/02
Marconi Communications China Ltd China National Machinery Import and Export Corporation 10/07/02
Marconi Middle East LLC Electronic Components Industries 28/06/02
Marconi Australia Pty Ltd IP1 (Australia) PTY Ltd. 06/06/02
Marconi Communications Ltd/Marconi ANZ 01/01/02
Communications International Ltd
Marconi Communications International Ltd Ashada S.A.J 25/11/02
Marconi Communications SpA Batelco. 31/05/02
Marconi Communications GmbH Syrian Arab Republic 04/11/02
Marconi Communications GmbH LAT Fernmedle-Montagen 11/07/02
Marconi Communications GmbH Syrian Arab Republic 04/11/02
Marconi Communications GmbH Martina Schmidt 20/08/02
Marconi Communications International Ltd VSNL Mumbai 08/07/02
Marconi Communications GmbH Mobilcom Mulitmedia 03/07/02
Marconi Communications GmbH Manfred Bohret 20/08/02
Marconi Communications GmbH Westmontage Kabel und Netzwerk GmbH 24/06/02
Marconi Communications China Ltd China National Technical Import and Export Corporation 25/07/02
Marconi Communications International Ltd VSNL 05/06/02
Marconi Communications China Ltd CNTEIC 28/06/02
Marconi Communications GmbH Alcatel SEL AG Berlin 22/07/02
Metapath Software International Ltd Cellcom Israel Ltd 05/07/02
Metapath Software International Ltd Tunisia Telecom 31/05/02
Marconi Communications International Ltd Maltacom 06/06/02
Marconi Communications International Ltd Oni Telecom 16/07/02
Marconi Communications SpA Cyprus Telecommunications Authority 29/09/00
Marconi Communications Ltd Tetrel Loan Notes 24/02/99
767
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Description Recipient Date
----------- --------- ----
Marconi Communications Asia Ltd CLP Power Hong Kong Ltd 11/02/02
Marconi Communications GmbH Deutsche Auto-Leasing GmbH, Bad Homburg 17/12/01
Marconi Communications Ltd HM Customs 01/11/96
Marconi Communications International Ltd Birmingham CoC -- US Customs 04/10/00
Marconi Communications Ltd S.A.G.R.O. 05/04/94
Marconi Communications International Ltd PT Comunicacoes SA 11/10/01
Marconi Communications Ltd Heather Trust for the Arts 28/10/99
Marconi Communications Ltd S.A.G.R.O. 24/07/85
10. Corp's obligations under a guarantee National Westminster Bank Ltd 22/12/80
letter dated 22/12/80 in respect of the
following performance bonds:
Contracting Subsidiary Beneficiary Issue date
----------------------------------------- ------------------------------------------------------ --------------
Metapath Software International Ltd China Resources (Hldg) Co Ltd 07/11/96
Marconi Defence Overseas Ltd Ministry of National Defence 21/06/01
Marconi Mobile (International) Ltd Emirates Holdings Electronics 22/08/01
Marconi Defence Overseas Ltd Ministry of National Defence 07/03/96
Metapath Software International Ltd Tunisia Telecom 06/10/00
CATEGORY 4
LIABILITIES IN RESPECT OF TRADING OBLIGATIONS OF CORP OR ITS AFFILIATES UNDER
CONTRACTS WHERE, AND TO THE EXTENT THAT, CORP IS A JOINT OR JOINT AND SEVERAL
OBLIGOR WITH ONE OR MORE AFFILIATES
Document Description Parties Date
-------------------- ------- ----
1. Licence Agreement relating to sub-hire IVC Contract Hire Limited, Marconi Fleet 26/09/01
Management Limited and Corp
2. Agreement for the provision of mobility The General Electric Company plc, General 01/08/98
services and equipment Domestic Appliances Holdings Limited,
Thomson Marconi Sonar Limited and British
Telecommunications plc
CATEGORY 5
CONTRACTUAL OBLIGATIONS, INCLUDING WARRANTY AND INDEMNITY OBLIGATIONS, OF CORP
UNDER DISPOSALS AND ACQUISITIONS (EACH OTHERWISE THAN IN THE ORDINARY COURSE OF
BUSINESS), DEMERGERS, MERGERS AND JOINT VENTURES AND ANY PRE-DISPOSAL
LIABILITIES
A. CONTRACTUAL OBLIGATIONS, INCLUDING WARRANTY AND INDEMNITY OBLIGATIONS, OF
CORP UNDER DISPOSALS AND ACQUISITIONS (EACH OTHERWISE THAN IN THE
ORDINARY COURSE OF BUSINESS), DEMERGERS AND JOINT VENTURES
Document Description Parties Date
-------------------- ------- ----
1. Fibreway Ltd arrangements with British British Waterways Board, Fibreway Ltd and 09/05/00 to
Waterways Board Corp 17/07/00
768
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Document Description Parties Date
-------------------- ------- ----
2. Reverse takeover of Easynet Group plc
Merger Agreement Easynet Group plc and Corp 26/06/01
BWB/Ipsaris Implementation Agreement and British Waterways Board, Ipsaris Ltd,
Easynet Undertaking Easynet Group plc and Corp
Railtrack/Ipsaris Relationship Agreement Railtrack Telecom Services Ltd, Ipsaris Ltd,
and Easynet Undertaking Easynet Group plc and Corp
Relationship Agreement Easynet Group plc and Corp
Ipsaris Subscription Agreement Ipsaris Ltd and Corp
Core Transmission Agreement Ipsaris Ltd and Marconi Communications
International Limited
Preferred Partner Agreement Easynet Group plc and Corp
Separation Agreement Ipsaris Ltd, Easynet Group plc and Corp
Sponsorship Agreement Easynet Group plc, Executive Directors,
Ipsaris Ltd, Hoare Govett Ltd, ABN AMRO
Corporate Finance Ltd and Corp
ABN AMRO Engagement Letter ABN AMRO Corporate Finance Ltd, Easynet
Group plc and Hoare Govett Ltd
Comfort Letter Ipsaris Ltd and Corp
3. Sale by Corp of the entire share capital of Olive Holdings Ltd and Corp 15/12/97
GEC Distributors (Ireland) Ltd
4. Sale by Corp of the entire issued share Lynton Group Ltd, Lynton Group, Inc. and 05/12/97
capital of Magec Aviation Ltd Corp
5. Sale by Corp of the entire issued share ASEA Brown Boveri Ltd, ABB Holdings Ltd and 08/12/96
capital of GEC Meters Ltd and GEC Meters Corp
Trading Ltd
6. Sale of GEC Australia Ltd and GEC (New Rexel SA, AEI Ltd and Corp 18/12/97
Zealand) Ltd
7. Sale of 50 per cent. of the shares in Merloni Elettrodomestici SpA (Merloni 20/12/01;
General Domestic Appliances Holdings Ltd Elettrodomestici UK Ltd) and Corp restated
04/03/02
8. Sale by Corp of the share capital of Siebe Environmental Systems (Europe) Ltd and 31/12/96
Satchwell Controls Ltd Corp
9. Sale of the share capital of Express Lift Cepat Holdings, North Sea Lifts, Inc. and 31/03/96
Company Ltd Corp
10. Sale of shares in Marconi Instruments Ltd IFR Systems Ltd, IFR Systems, Inc. and Corp 04/02/98
and Marconi Instruments, Inc.
11. Sale of Marconi Data Systems, Inc., Marconi LaunchChange Ltd, Kollmorgen SAS, DH 10/01/02
Data Systems Ltd, Marconi Data Systems Holdings Corporation, Marconi Systems
Europe BV and Marconi Data Systems BV Holdings, Inc., A.B. Dick Holdings Ltd, plc
and Corp
12. Sale of 58 per cent. of the Woods Group Global Air Movement Holdings Ltd, American 31/01/01
Fan Company Holdings, Inc. and Corp
13. Sale of the GEC Plessey Semiconductors Group Mitel Telecom Ltd, Mitel Corporation and 12/02/98
Corp
14. Sale of shares in Avery Berkel Companies Weigh-Tronix UK Ltd and Corp 03/00 (except
sale of Berkel
Produktie 01/02)
15. Sale of Marconi Optical Business Bookham Technology plc and Corp 17/12/01
Supplemental
Agreement
31/01/02
16. Sale of Marconi Medical Systems UK Limited Marconi Systems Holdings, Inc., Koninklijke 03/07/01
and Marconi Medical Systems Holdings, Inc. Philips Electronics NV, plc and Corp
17. Sale of the outstanding shares in A.B. Dick Paragon Corporate Holdings, Inc., NESCO, 19/12/96
Company Inc. and Corp
18. Sale of Marconi Commerce Systems, Inc. and DH Holdings Corporation, LaunchChange Ltd, 20/12/01
Marconi Commerce Systems Ltd plc, Marconi Systems Holdings, Inc. and Corp
19. Sale of shares in Lagadere SLA Salomon Brothers International Ltd and Corp 26/09/01
769
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Document Description Parties Date
-------------------- ------- ----
20. Flotation of Alstom SA Alstom, Alcatel Alsthom Compagnie Generale 21/06/98
d'Electricite and its subsidiary Societe
Immobiliere Kleber-Lauriston, Credit Suisse
First Boston (Europe) Ltd, Goldman Sachs
International (on behalf of the
underwriters) and Corp
Underwriting Agreement
Cross Indemnity Agreement
Securities and Lending Agreement
Indemnity Agreement
Reimbursement and Funding Agreement GEC Alsthom NV, Mr P Bilger, Mr F Newey and
Corp
21. Sale of NNC Ltd NNC Holdings Ltd and Corp and Lloyds Bank 06/09/99
plc
22. Sale of businesses of GEC Henley, AEI Cables Automotive Electrical Systems Ltd, TT Top 19/03/97
and Cables Group Headquarters and sale of Link Ltd, TT Group plc and Corp
shares in London Electric Wire Company &
Smiths Ltd
23. Asset Transfer Agreement in respect of the Marconi Medical Systems UK Limited, Marconi 17/10/01
Healthcare Information business Systems Holdings, Inc., Marconi
Communications Ltd and Corp
24. Asset Transfer Agreement in respect of the Marconi Medical Systems, Inc., Marconi 17/10/01
Healthcare Information business Systems Holdings, Inc., Marconi HCIS, Inc.
and Corp
25. Disposal of MES Business British Aerospace plc and Corp 01/11/99
Agreement for the sale and purchase of EASAMS Limited and GEC plc 23/11/99
the software business of EASAMS Limited
Power of Attorney GEC plc, Alastair Syvret and Jacqueline 23/11/99
Richomme
Power of Attorney GEC plc, Edward B Claxton and John Leopold 27/11/99
Power of Attorney GEC plc and Minter Ellison 27/11/99
26. Sale of the entire issued share capital of Finmeccanica SpA, plc, Marconi (Bruton 02/08/02
Marconi Mobile Holdings SpA Street) Ltd (and Corp following novation)
27. Sale of Marconi Applied Technologies Ltd, Redwood 2002 Ltd and Corp 12/07/02
Marconi Applied Technologies Inc. and the
assets of Marconi Applied Technologies S.A.
28. Atlantic Telecom Strategic Partnership Fibreway Ltd, Marconi Communications Ltd, 12/11/99
Atlantic Telecommunications Ltd, Atlantic
Telecom Group plc and Corp
29. Deed of continuing liability relating to the IVC Contract Hire Ltd and Corp 26/09/01
sale of vehicles to Inchcape and associated
arrangements
30. Purchase of the P1 business Marconi Communications Real Estate GmbH, 24/11/99
Marconi Communications GmbH, Robert Bosch
GmbH, Bosch Telecom GmbH, Marconi
Communications Ltd, and Corp
31. Shareholders' Agreement relating to the The Existing Ordinary Shareholders, Chris 13/03/01
second round financing of Highspeed Office Butchers, John Allen, the other Financial
Ltd Investors and Corp
32. Acquisition of Northwood Technologies, Inc. Various shareholders, Northwood 07/05/01,
Technologies, Inc. and Corp (assigned to amended 12/05/01
3056333 Nova Scotia Ltd) and assigned
23/05/01
33. Acquisition of Series G Preferred Stock and ArrayComm, Inc. and Corp 02/02/01
Pre-emptive Rights Agreement
34. Arrangements in relation to Ultramast Railtrack Telecom Services Ltd, British 26/04/01
Limited Waterways Board, Ultramast Ltd and Corp
35. Conditional fee letter relating to Arc Partners Ltd 23/11/00
investment banking advice in relation to
investment in
Highspeed Office Ltd
36. Purchase of shares in the capital of GPT Siemens Aktiengesellschaft and Corp 24/06/98
Holdings Ltd
37. Confirmant Joint Venture Oxford Glycosciences (UK) Ltd, Confirmant 15/06/01
Ltd and Corp
770
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Document Description Parties Date
-------------------- ------- ----
38. TransACT Communications Pty Ltd transaction
documents
Power of Attorney Corp, Shawn Wytenburg, Jeremy King and the 27/03/02
partners of Clayton Utz
Subscription Agreement TransACT Communications Pty Ltd, 28/03/02
Commonwealth Bank of Australia, MTAA
Superannuation Fund (TransACT) Utilities Pty
Ltd, TVG Transact Holdings Ltd, ACTEW
Corporation Ltd, AGL TransACT Pty Ltd,
Australian Capital Ventures Ltd, ACTEW
Distribution Ltd, AGL Gas Company (ACT) Ltd
and Corp
Shareholders' Agreement Commonwealth Bank of Australia, MTAA 05/04/02
Superannuation Fund (TransACT) Utilities Pty
Ltd, TVG Transact Holdings Ltd, ACTEW
Corporation Ltd, AGL TransACT Pty Ltd,
Australian Capital Ventures Ltd, TransACT
Communications Pty Ltd and Corp
39. Assignment of rights to Ultramast Agreement British Waterways Board and Corp 26/04/01
40. Sale of the reinforced plastics division of Techbuild Composites Ltd and Corp 22/04/96
GEC Engineering (Accrington)
41. Sale of certain of the businesses and assets EASAMS Ltd, ITNET UK Ltd, ITNET plc and Corp 18/03/00
of EASAMS Ltd
42. Sale of the share and loan capital of Itek Photonics Holdings Ltd and Corp 24/12/93
Colour Graphics
43. Sale of the heating products division of GEC Accrington Products and Engineering Contract 27/03/95
Engineering (Accrington) Services Ltd and Corp
44. Sale of the share capital of Walsall Marlowe Holdings Ltd and Corp 28/01/94
Conduits Ltd
45. Offer for VSEL plc VSEL plc and Corp 01/06/95
46. Agreement for the sale and purchase of Corp and plc 18/07/02
shares in Systems Management Specialists,
Inc.
47. Acquisition of Netscient Ltd 3i Group plc and others and Corp Various
48. Assignment Agreement with respect to the Corp and plc 18/10/02
Merger Agreement relating to the acquisition
of Mariposa Technology, Inc. of 20 September
2002
49. Subscription Agreement relating to Simon Merchant, Erik Wastlund, Harley Street 27/04/01
Investment in Enargeia Global Networks Ltd Investment SPRL, Enargeia Global Networks
Ltd and Corp
50. Sale of the lifts and escalators business Including: The General Electric Company of 06/09/00
Hong Kong Ltd, GEC China Ltd, Excelco
Elevator Company Pty Ltd and GEC Brunei Sdh
Bdh
51. Sale of the business of the Dunchurch First! Venues Ltd and Corp 24/01/01
Conference Centre
52. Sale of the freehold and leasehold property Paul Smith Ltd and Corp Date not known
known as Kemble House (but completed
03/02)
53. Shareholders' Agreement in relation to BICC plc, Trafalgar House plc and Corp 13/01/94
Eurorail Ltd
54. Shareholders' Agreement Rural Radio Systems Ltd, various 10/07/98
shareholders of Rural Radio Systems Ltd and
Corp
55. Shareholders' Agreement and Put Option Systems Integrators Ltd, Ho Yiu Wah, Law 25/04/01
relating to GEC Services (Hong Kong) Ltd Kwong Fung, Chow Kai Mon, Yeung Ching Kong,
Wong Tat Lut Lun George and Corp
56. Overage Agreements Key Property Investments (Number Two) Ltd, Date not known
Key Property Investments (Number Three) Ltd
and Corp
57. Underwriting Agreement Alcatel SA, Alstom SA, Credit Suisse First 08/02/01
Boston (Europe) Ltd, Societe Generale,
Merrill Lynch International and Corp
58. Share Sale Agreement Credit Suisse First Boston (Europe) Ltd and 19/06/01
any of its affiliates and Corp
59. Share Sale Agreement Airspan Communications Ltd, Marconi 30/09/02
Communications Israel Ltd and Corp
771
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Document Description Parties Date
-------------------- ------- ----
60. Termination Deed Manoj Badale, Charles Mindenhall, 24/04/02
Netdecisions Holdings Limited and Corp
61. Settlement and Mutual Release Agreement LaunchChange Limited, DH Holdings Corp, 07/08/02
Marconi Inc. and Corp
62. Settlement and Mutual Release Agreement LaunchChange Limited, Kollmorgen SAS, DH 07/08/02
Holdings Corp, Marconi Inc., A.B. Dick
Holdings Limited and Corp
63. Settlement Deed RT Group Telecom Services Limited, RT Group 19/12/02
plc (in Members Voluntary Liquidation),
Ultramast Limited, James Smith and Nicholas
Dargan (as joint liquidators of RT Group
plc) and Corp
64. Letters of Indemnity RA Leggetter, PO Gershon, AE Cook, MH Dates not known
Ronald, P Lynas and Corp
65. Deed of Assignment of Marconi Trade Mark Yeslink Unlimited and Corp 02/11/01
Rights
66. Share Sale Agreement relating to the shares Corp and plc 15/08/00
in Albany Partnership Limited
67. Sale and purchase of entire issued share Corp and Megahertz Communications Limited 14/05/99
capital of Eddystone Radio Limited
68. Marconi Rolls-Royce (Power Generation) Corp and another Date not known
Limited joint venture
69. Osram A/S joint venture Corp and Siemens Date not known
70. Investment in TRF Corp Date not known
71. Oyster Lane (Properties) Holdings Limited Corp and Vickers Properties Limited Date not known
joint venture
72. British Sealed Beams Limited joint venture Corp, EMI Group plc and Lucas Industries plc Date not known
73. Sale of Wembley East Lane Business Park Geoffrey M Warren and Corp 12/11/01
74. Settlement Agreement British Waterways Board, Ultramast and Corp 20/02/03
B. PRE-DISPOSAL LIABILITIES
Guarantee Recipient Date
--------- --------- ----
1. Guarantee of Marconi Electronic Systems International Military Service Limited 20/02/85
Limited
2. Guarantee of Marconi Electronic Systems International Military Service Limited 18/06/85
Limited
3. Guarantee of Marconi Electronic Systems The Secretary of State for Defence 12/07/85
Limited
4. Guarantee of Marconi Electronic Systems International Military Service Limited 13/12/85
Limited
5. Guarantee of Marconi Electronic Systems Various Regional Electricity Boards 26/01/90
Limited
6. Guarantee of Marconi Electronic Systems The Secretary of State for Trade and 13/02/91
Limited Industry
7. Guarantee of Marconi Electronic Systems The Secretary of State for Trade and 13/02/91
Limited Industry
8. Guarantee of Marconi Electronic Systems The Secretary of State for Trade and 13/02/91
Limited Industry
9. Guarantee of Marconi Electronic Systems The Secretary of State for Trade and 13/02/91
Limited Industry
10. Guarantee of Marconi Electronic Systems The Secretary of State for Trade and 13/02/91
Limited Industry
11. Guarantee of Marconi Electronic Systems The Secretary of State for Trade and 13/02/91
Limited Industry
12. Guarantee of Marconi Electronic Systems The Secretary of State for Trade and 06/03/91
Limited Industry
13. Guarantee of Marconi Electronic Systems The Department of Trade and Industry 29/08/92
Limited
14. Guarantee of Marconi Electronic Systems Eurofighter Jadflugzeug GmbH 13/03/92
Limited
15. Guarantee of Marconi Electronic Systems United Airlines, Inc. 15/09/92
Limited
16. Guarantee of Marconi Electronic Systems The County Council of South Glamorgan 01/07/93
Limited
17. Guarantee of Marconi Electronic Systems Coopers & Lybrand Services APS 07/04/94
Limited
18. Guarantee of Marconi Electronic Systems Coopers & Lybrand Services Limited 03/06/94
Limited
19. Guarantee of Marconi Electronic Systems United Arab Emirates Offsets Group 26/07/94
Limited
20. Guarantee of Marconi Electronic Systems Thyssen Noordseewerk GmbH and Howaldtswerke- 10/11/94
Limited Deutsch Werft A.G.
21. Guarantee of Marconi Electronic Systems Vosper Thornycroft (UK) Limited 08/07/96
Limited
22. Guarantee of Marconi Electronic Systems The Secretary of State for Defence 20/03/97
Limited
23. Guarantee of Marconi Electronic Systems Gateshead Metropolitan Borough Council 08/05/97
Limited
772
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Guarantee Recipient Date
--------- --------- ----
24. Guarantee of Marconi (Japan) Limited The Secretary of State for Defence 19/12/85
25. Guarantee of Matra Marconi Space France SA Lagadere S.C.A 08/01/97
26. Guarantee of Elliott Brothers (London) Vosper Thornycroft (UK) Limited 06/02/85
Limited
27. Guarantee of Marconi Avionics (Holdings) Eurofighter Jadflugzeug GmbH 01/05/90
Limited
28. Guarantee of Marconi, Inc. Boeing Company 09/07/90
29. Guarantee of Marconi, Inc. United Airlines, Inc. 30/12/93
30. Guarantee of Marconi Avionics Limited International Military Services Limited 13/12/85
31. Guarantee of Marconi Avionics Limited Eurofighter Jadflugzeug GmbH 28/05/93
32. Guarantee of Marconi Company Limited National Guard of the Kingdom of Saudi 26/06/84
Arabia
33. Guarantee of GEC-Marconi Inflight Systems United Airlines, Inc. 30/12/93
Overseas Limited/GEC, Inc.
34. Guarantee of GEC-Marconi Inflight Systems United Airlines, Inc. 25/06/96
Overseas Limited/Marconi Inflight Systems,
Inc./GEC, Inc.
35. Guarantee of Marconi Marine (VSEL) Limited The Secretary of State for Defence 24/07/96
36. Guarantee of Marconi Marine (VSEL) Limited Procurement Executive, MOD 18/03/97
37. Guarantee of Marconi Marine (VSEL) Limited The Secretary of State for Defence 13/08/86
38. Guarantee of Marconi Marine (VSEL) Limited The Secretary of State for Defence 20/07/88
39. Guarantee of Marconi Marine (VSEL) Limited The Secretary of State for Defence 18/04/91
40. Guarantee of Marconi Marine (VSEL) Limited The Secretary of State for Defence 19/02/92
41. Guarantee of Marconi Marine (VSEL) Limited The Secretary of State for Defence 13/03/96
42. Guarantee of Marconi Marine (VSEL) Limited The Secretary of State for Defence 29/03/96
43. Guarantee of NNC Limited Nuclear Electric plc 10/01/92
44. Guarantee of NNC Limited Nuclear Electric plc 11/01/92
45. Guarantee of NNC Limited Nuclear Electric plc 24/03/92
46. Guarantee of NNC Limited Nuclear Electric plc 09/06/92
47. Guarantee of NNC Limited Nuclear Electric plc 30/06/92
48. Guarantee of NNC Limited Nuclear Electric plc 07/09/92
49. Guarantee of NNC Limited Nuclear Electric plc 19/11/92
50. Guarantee of NNC Limited Nuclear Electric plc 05/02/93
51. Guarantee of NNC Limited Nuclear Electric plc 14/05/93
52. Guarantee of NNC Limited Nuclear Electric plc 15/06/93
53. Guarantee of NNC Limited Nuclear Electric plc 25/08/93
54. Guarantee of NNC Limited Scottish Nuclear Limited 03/09/93
55. Guarantee of NNC Limited Nuclear Electric plc 02/03/94
56. Guarantee of NNC Limited Nuclear Electric plc 05/07/94
57. Guarantee of NNC Limited Nuclear Electric plc 29/07/94
58. Guarantee of NNC Limited Nuclear Electric plc 14/11/94
59. Guarantee of NNC Limited Nuclear Electric plc 16/01/95
60. Guarantee of NNC Limited Fellside Heat and Power Limited 16/03/95
61. Guarantee of NNC Limited UKAEA 27/11/96
62. Guarantee of GEC Installation Equipment British Nuclear Fuels Limited 26/07/84
Limited
63. Guarantee of GEC Large Machines Limited Thames Water Authority 27/01/89
64. Guarantee of GEC Traction Limited Krauss-Maffei AG 06/06/84
65. Guarantee of GEC Traction Limited Metro-Cammell Limited 02/01/86
66. Guarantee of GEC Transmission & Distribution Crown Agents -- Java 28/03/84
Projects Ltd.
67. Guarantee of GEC Transportation Projects John Mowlem & Company plc 03/07/84
Limited
68. Guarantee of GEC Transportation Projects Metro-Cammell Limited 07/02/85
Limited
69. Guarantee of GEC Transportation Projects Kowloon Canton Railway Corporation 03/06/85
Limited
70. Guarantee of GEC Transportation Projects British Railways Board 13/08/86
Limited
71. Guarantee of GEC Transportation Projects London Regional Transport 17/07/87
Limited
72. Guarantee of GEC Transportation Projects Metro-Cammell Limited 15/10/87
Limited
773
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Guarantee Recipient Date
--------- --------- ----
73. Guarantee of GEC Transportation Projects London Regional Transport 24/11/87
Limited
74. Guarantee of GEC Transportation Projects Alsthom S.A. 14/04/88
Limited
75. Guarantee of GEC Transportation Projects Metro-Cammell Limited 21/04/88
Limited
76. Guarantee of GEC Transportation Projects AMEC plc/John Mowlem and Company plc 22/02/89
Limited
77. Guarantee of GEC Turbine Generation Limited South of Scotland Electricity Board 19/05/88
78. Guarantee of GEC Turbine Generation Limited Bharat Aluminium Company Limited 19/09/84
79. Guarantee of GEC Turbine Generation Limited Bharat Aluminium Company Limited 18/09/84
80. Guarantee of Paxman Diesels Limited Yarrow Shipbuilders Limited 07/11/84
81. Guarantee of Ruston Diesels Limited Anglian Water Authority 06/04/84
82. Guarantee of GEC Electrical Projects Limited Davy McKee (Poole) Limited 18/09/85
83. Guarantee of GEC Electrical Projects Limited Swan Hunter Shipbuilders Limited 15/08/89
84. Guarantee of GEC Electrical Projects Limited Harland and Wolff plc 13/09/89
85. Guarantee of GEC Engineering (Accrington) British Nuclear Fuels 02/02/90
Limited
86. Guarantee of London Electric Wire Company & The Secretary of State for Trade and 03/08/90
Smiths Limited Industry
87. Guarantee of Satchwell Control Systems British Airport Services Limited 24/10/88
Limited
88. Guarantee of Satchwell Control Systems John Mowlem & Company plc 14/02/91
Limited
89. Guarantee of Satchwell Control Systems Strathclyde Regional Council 20/07/93
Limited
90. Guarantee of the Express Lift Company John Mowlem & Company plc 13/08/85
Limited
91. Guarantee of the Express Lift Company The Royal Borough of Kensington and Chelsea 30/09/86
Limited
92. Guarantee of the Express Lift Company NNC Property Limited 13/12/89
Limited
93. Guarantee of the Express Lift Company Laing Management Contracting Limited 28/12/90
Limited
94. Guarantee of the Express Lift Company Skanska AB 22/08/91
Limited
95. Guarantee of the Express Lift Company Nuclear Electric plc 10/01/92
Limited
96. Guarantee of the Express Lift Company NNC Property Limited 18/06/93
Limited
97. Guarantee of the Express Lift Company The Secretary of State for Defence 13/10/93
Limited
98. Guarantee of the Express Lift Company John Laing Construction Limited 16/12/94
Limited
99. Guarantee of the Express Lift Company National Westminster Bank plc 11/01/96
Limited
100. Guarantee of Express Lifts (Overseas) Kuala Lumpur City Centre Berhad 12/08/93
Limited
101. Guarantee of Woods Air Movement Limited Liberty International Underwriting Services 23/04/98
Limited
102. Guarantee of Woods Air Movement Limited JWP (UK) Limited and Drake & Scull 16/01/95
Engineering Limited
103. Guarantee of Marconi Mobile (International) Guernsey Police 02/01/02
Ltd
104. Guarantee of Marconi Mobile SpA Direccion General de Infra 15/03/02
105. Guarantee of Marconi Mobile (International) Jeraisy Computer & Communications Services 10/06/02
Ltd
106. Guarantee of Marconi Mobile SpA Iran Communications Industries 03/07/02
107. Guarantee of Marconi Mobile (International) International Aeradio (Emirates) L Dubai 31/10/01
Ltd
108. Guarantee of Marconi Mobile (International) Guernsey Police 02/01/02
Ltd
109. Guarantee of Marconi Mobile (International) Hrvatska Blektroprivredadd 15/09/98
Ltd
774
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
CATEGORY 7
CORP'S LIABILITIES UNDER COMMERCIAL CONTRACTS OR LICENCES RELATING TO THE WIDER
CORP GROUP AND ONGOING TRADING OPERATIONS OF ITS AFFILIATES TO WHICH CORP IS A
PARTY AND WHICH ARE REGARDED AS BENEFICIAL TO THE WIDER CORP GROUP'S ONGOING
OPERATIONS AND THE DOCUMENTATION WHICH HAS BEEN ENTERED INTO IN CONNECTION WITH
THE RESTRUCTURING PRIOR TO THE RECORD DATE
NB THIS LIST SETS OUT THE ONLY CLAIMS WHICH FALL INTO THIS CATEGORY
A. COMMERCIAL CONTRACTS OR LICENCES
Document Description Parties Date
-------------------- ------- ----
1. a. Letter dated 6 April 2002 updating the General Electric Company plc and UUNET Various
attachment to the Network Services Agreement Technologies, Inc. and Compuserve, Inc.
b. Letters attaching the attachment to the
Network Services Agreement
c. Network Services Agreement, Customer
Elections and attachment to Network Services
Agreement
2. Software End-User Licence Agreement Corp and Documentum, Inc. 19/06/01
3. Rover Car Scheme Agreement Alphabet (GB) Limited, Rover Group Limited Various
and Corp
6. Master Services Agreement (Contract Corp and the Tolly Group, Inc. 12/03/02
reference No. 02-0268-SVC)
7. Patent Licence Agreement Alcatel CIT and Corp 01/05/02
8. Patent Licence Agreement -- relating to Lucent Technologies GRL Corporation and Corp 01/01/01
Products and Services
9. Vehicle Fleet Management Agreement Corp and Venson Automotive Solutions Limited Effective
01/07/02
10. Virtual Learning Resource Centre Customer Corp and Ashridge (Bonar Law Memorial) Trust 01/10/02
Agreement
11. Subscription Library Agreement 015228 and Corp and Thomson NetG Limited Various
Addenda
12. Consultancy Agreement Corp and Kevin Crane (trading as Kinetic) 12/10/99
Extended
01/07/02
13. Patent Cross-Licence The General Electric Company plc and 01/01/90
International Business Machines Corporation
14. Agreement for the provision of catering and Corp and Catering Alliance 27/04/01
vending services
15. Security Agreement Executive Group Limited and Corp 10/07/00
16. Declaration of obligation (Stuttgart to/from Corp and British Airways plc 25/05/01
Birmingham)
17. a. Agreement for Computer Maintenance The General Electric Company plc and 19/11/98 &
Datapact Limited 20/10/98
b. Letter setting out Contractual Notes
18. a. Corporate Incentive Agreement (Business British Airways plc and Corp 17/04/00
Nets plus Incentive Rebates)
b. Amendments to Corporate Incentive
Agreement
19. Corporate Incentive Agreement -- payments British Airways plc and Corp 22/11/99
20. a. Corporate Agreement for the purchase of Maersk Air Limited (British Airways plc) and 01/12/00
air travel Corp
b. Amendment to Corporate Agreement for the
purchase of air travel
21. Incentive Agreement Emirates and Corp 01/04/01
22. Corporate Travel Agreement and addendum American Airlines, Inc. and Corp 07/03/01
23. Corporate Incentive Agreement British Airways plc and Corp 01/08/01
24. Preferred Carrier Trading Agreement Qantas Airways and Corp 01/06/01
25. Bonus Agreement 2001 Volkswagen AG and Corp 19/06/01
26. Business Agreement and Select Agreement Corp and Microsoft Ireland Operations 20/09/01
Limited
27. Framework Procurement Agreement for the The General Electric Company plc and QA 23/11/99
Procurement of Goods, Programs and/or Myriad Limited (now Hays IT)
Services
28. Framework Procurement Agreement for the The General Electric Company plc and 23/11/99
Procurement of Goods, Programs and/or Computer People Limited
Services
29. Framework Agreement for the provision of Corp and Celoxica Limited 27/10/00
Licences and Services
30. Framework Procurement Agreement for the The General Electric Company plc and 23/11/99
Procurement of Goods, Programs and/or Olympian Consultancy Limited (now Plexian)
Services
775
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Document Description Parties Date
-------------------- ------- ----
31. Parent Company Undertaking The General Electric Company plc and The Date not known
Airport Authority
32. Framework Procurement Agreement for the The General Electric Company plc and 23/11/99
Procurement of Goods, Programs and/or Olympian Consultancy Limited (now Plexian)
Services
33. Parent Company Undertaking The General Electric Company plc and The 13/02/97
Airport Authority
34. Parent Company Undertaking The General Electric Company plc and The 08/12/93
Government of Hong Kong
35. Parent Company Undertaking The General Electric Company plc and 09/08/99
Dragages-Zen Pacific Joint Venture
36. Framework procurement agreement Corp and the University of Warwick 26/6/00
37. Framework Procurement Agreement: Summary The General Electric Company plc and Adecco 23/11/99
Agreement for the provision of temporary (UK) Limited
staff
38. Framework Procurement Agreement: Summary The General Electric Company plc and Brook 23/11/99
Agreement for the provision of temporary Street Bureau plc
staff
39. Framework Procurement Agreement: Summary The General Electric Company plc and Capital 23/11/99
Agreement for the provision of temporary Software Limited
staff
40. Framework Procurement Agreement: Summary The General Electric Company plc and Easams 23/11/99
Agreement for the provision of temporary Limited
staff
41. Framework Procurement Agreement: Summary The General Electric Company plc and Elan 23/11/99
Agreement for the provision of temporary Computing Limited
staff
42. Framework Procurement Agreement (No Corp and Rational Software Limited 21/06/01
Mc/980363/04) with attached Products Licence
Agreement and Schedules 1 to 4
43. Framework Procurement Agreement Corp and Carnegie Mellon University 18/07/00
44. Amendment Agreement -- Number 1 (Original Corp and Deloitte and Touche (previously 11/12/00
Agreement dated 13 July 2000) Development Associates Group Limited)
45. Framework Procurement Agreement The General Electric Company plc and 09/11/99
National Car Rental Limited
46. Framework Procurement Agreement -- related The General Electric Company plc and
Supply Agreement (Rental Cars) -- Interim National Car Rental Limited
Arrangements
47. Addendum to Framework Procurement Agreement The General Electric Company plc and 22/12/00
(Original Agreement dated 9 November 1999) National Car Rental Limited
48. Framework Procurement Agreement (with Corp and Compaq Computer Corporation 21/12/00
attached correspondence and Terms and
Conditions)
49. Framework Procurement Agreement The General Electric Company plc and 24/11/99
Guilbert UK Limited
50. Framework Procurement Agreement The General Electric Company plc and Sun 26/11/99
Microsystems, Inc.
51. Framework Procurement Agreement The General Electric Company plc and 22/11/99
Rosenbluth International (UK) Limited
52. Framework Procurement Agreement for the The General Electric Company plc and IKON
Provision of Copier Fleet Management Managed Office Solutions, Inc.
Print Services and/or Facilities Management
(Appendices A to F attached)
53. Framework Procurement Agreement Corp and Agilent Technologies UK Limited 01/11/00
54. Framework Procurement Agreement Dell Computer Corporation Limited and Corp 29/01/02 and
22/01/02
55. Microsoft Select Agreement, Header Corp and Microsoft Ireland Operations 20/09/01
Sheet/Checklist, Business Agreement Terms Limited
and Conditions, Licence Purchase Forecast
Form
56. Software Licence Agreement GEC plc and Hyperion Solutions (UK) plc 22/06/99
57. IBM Replacement Patent Cross Licence International Business Machines Corporation 01/01/00
Agreement (License Reference Number L003992) and Corp
58. Agreement The General Electric Company Limited and 12/10/71
Thomson CSF
59. Mutual Non-Disclosure Agreement MarchFirst Ltd and Corp 30/03/01
60. Confidentiality Agreement Corp and Accenture 08/02/01
61. Confidentiality Agreement Corp and Oxford GlycoSciences (UK) Ltd. 12/02/01
63. Confidentiality Agreement Corp and Acterna LLC 01/06/01
64. Participation Agreement Corp and Ultramast Limited 24/09/01
65. Agreement for Managed Recruitment Services Corp and Alexander Mann Solutions Limited 02/04/02
66. Statement of Work Corp and Kevin Crane Undated
67. Confidentiality Agreement Corp and Development Dimensions 06/12/01
International UK Limited
69. Scheme Agreement relating to the Marconi Entegria Limited and Corp 08/06/98
Healthcare Scheme
776
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Document Description Parties Date
-------------------- ------- ----
70. Employee Licence Agreement no. 50576 (and Oracle Corporation UK Limited and Corp Effective
related orders, Payment Plan Agreement and 24/05/01
Payment Schedule)
B. DOCUMENTATION RELATING TO THE RESTRUCTURING
Document Description Parties Date
-------------------- ------- ----
1. Scheme Implementation Deed Corp, plc, Ancrane, E-A Continental Limited 27/03/03
and Marconi Nominees Limited and others
2. Performance bonding facility relating to a Marconi Bonding Limited ("MBL") (as 27/03/03
new L50 million committed revolving facility applicant), Corp, HSBC Bank plc (as agent
and security trustee) ("HSBC"), the original
issuing banks named therein, the original
banks named therein and the original
indemnifying Subsidiaries named therein
3. Collaterisation of Syndicate Bank existing 27/03/03
bond exposures, evidenced by the agreements
set out below:
Letter agreement Banca Antoniana Populare Veneta and Corp 27/03/03
Letter agreement Australia and New Zealand Banking Group 27/03/03
Limited and Corp
Letter agreement Banca Nazionale del Lavoro and Corp 27/03/03
Letter agreement BNP Paribas and Corp 27/03/03
Letter agreement The Hong Kong and Shanghai Banking 27/03/03
Corporation Limited (UK) and Corp
Letter agreement The Hong Kong and Shanghai Banking 27/03/03
Corporation Limited (Hong Kong) and Corp
Letter agreement Banca Monte dei Paschi di Siena SpA and Corp 27/03/03
Letter agreement National Westminster Bank plc and Corp 27/03/03
Letter agreement Banco Santander and Corp 27/03/03
Letter agreement Unicredit Banca d'Impresa and Corp 27/03/03
Letter agreement Intesa BCI S.p.A. and Corp 27/03/03
4. Statement and Waiver Agreement Corp, plc and certain other Group Companies 27/03/03
5. Deed of Assignment relating to assignment by E-A Continental, plc and Corp 27/03/03
E-A Continental of the E-A Continental
receivable
6. Deed of assignment relating to assignment by Corp, plc and Ancrane 27/03/03
plc of the E-A Continental receivable
7. BAE Deed of Novation Corp, plc and BAE 26/03/03
8. Finmeccanica Guarantee Deed Of Novation Finmeccanica, Corp and plc 26/03/03
9. Receivables Assignment Agreement Corp and plc 27/03/03
10. Bondholder Confirmation Letter Corp, plc, The Law Debenture Trust 27/03/03
Corporation p.l.c. and Bank of New York
11. Deed of novation relating to the licence Corp, plc and Lemelson Medical, Education 26/03/03
agreement dated 1 December 1999 between and Research Foundation Limited Partnership
Lemelson Medical, Education and Research
Foundation, Limited Partnership and plc
12. Memorandum of Understanding in connection Corp, plc and the Pension Benefit Guaranty 25/03/03
with the US pension schemes Corporation
13. Second Supplemental Trust Deeds in respect Corp, plc and The Law Debenture Trust 24/03/03
of the Eurobonds Corporation p.l.c.
14. Deed of Waiver Corp and Marconi Communications, Inc. 27/03/03
15. Escrow and Distribution Agreement Corp, plc, Regent Escrow Limited, The Bank 27/03/03
of New York, The Law Debenture Trust
Corporation p.l.c., Ancrane, Bondholder
Communications Group, Philip Wallace and
Richard Heis
777
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
CATEGORY 8
ORDINARY COURSE OF BUSINESS LIABILITIES INCURRED IN CONNECTION WITH THE SUPPLY
OF GOODS AND/OR SERVICES TO CORP
NB THIS LIST SETS OUT THE ONLY CREDITORS OR TYPES OF CREDITOR WHICH FALL INTO
THIS CATEGORY
Slaughter & May Everatt & Company
Cravath, Swaine & Moore Weightman Vizard
Fox Williams Hill Dickinson
Clyde & Co Blake Dawson Waldron
Mayer Brown Rowe & Maw Bowne International Limited
Deloitte & Touche Kinross & Render
Michael Dunford Kirkpatrick & Lockart LLP
Computershare Investor Services plc Moody's Investor Services Limited
Deloitte & Touche Italy Smith & Moore LLP
Ernst & Young Foley & Lardner
Gary France Allen & Overy
Van Landuyt Professor Gerry Salkin
John Hogg Providers of mobile phones and related services
A A Khosla Guilbert Ltd
Watson Wyatt LLP Makinson Cowell
Hewitts Bell Pottinger Communications
Prospective Insurance Bond Offerings Berrier Associates
Reuters Bowne Global Solutions
Bloomberg Standard & Poor
The Association of Corporate Treasurers Cazenove & Co Ltd.
BPP Holdings plc Holland & Knight LLP
Emile Wolfe Colleges Akerman, Senterfitt & Eidson, P.A.
Richmond Software Ltd Coral Corporation Limited
Robert Half Ltd Compaq Computer Corporation
Reed Business Information Ltd NetDecisions Limited
GEE Publishing Ltd Mentor Graphics Corporation
Copp Clark Ltd Mentor Graphics (Ireland) Limited
DLA Mentor Graphics Singapore
Wilmer, Cutler & Pickering Softmart Product Services
Bonelli Erede Pappalardo Infobank Software Corporation plc
Greg Lowson/Pinsent Curtis Biddle Transcat Calibration Services
Riker Danzig Scherer Hyland & Perretti LLP Dell Products
Kennedys Tektronix, Inc
Berrymans Lace Mawer Development Dimensions International UK Limited
Morgan Cole Hewlett Packard Limited
BT Ignite Solutions Robert Bosch GmbH
Computer Patent Annuities Concisely
Cable and Wireless DHL International
Royal Mail Parcel Force
Pro Delta Systems Limited Garrett & Campbell
Falcon Translations ABC Translations
Initial Textile Services Micro Warehouse
Mayfield Cleaning Contractors Micropatent
Lexis-Nexis Derwent
STN International Compumark
Oce (UK) Ltd RS Components Ltd
WIPO Sweet & Maxwell
Masterpoint Precis -- press-cutting
Nature Springs Herzog, Fox & Neeman
ccbn.com Bank of New York
The Law Debenture Trust Corporation p.l.c. Amerada Hess Gas Limited
British Telecommunications plc Vertias Software Corporation
Comshare Limited McDermott, Will & Emery
Baker & Hostetler Jones Day Reavis & Pogue
Arendt Fox
Smith Moore LLP
778
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Insurance companies and underwriters who have insured assets, revenues or risks
of Corp in the ordinary course of its business in respect of premiums and other
monies owed to them in relation to those insurances, and insurance brokers who
have arranged those insurances, including, but not limited to:
AIG Hiscox PLC Willis
AIG Europe Wellington Underwriting plc Aon Trade Credit Ltd
New Hampshire Insurance Company Limit Underwriting Limited Berry Palmer & Lyle
FM Insurance Company Ltd AON Limited CBC (UK) Limited
Gerling Nederlandsche Credietverzekering Marsh UK Limited
AIG Europe (UK) Ltd Maatschappij NV Gerling NCM
Chubb Insurance Company of Europe Export Credits Guarantee Department Lloyds of London
ACE Jubilee
Patent or trade mark advisors including but not limited to:
Philips/JVC D. Daujotienes Patentiniu Paslaugu Quisumbing Torres
BTG Firma Ridout & Maybee
Degussa AG Elzaburu S.A. Reichel und Reichel
Adams and Adams Estudio Colmenares SRL Remfry & Sagar
A.G. Da Cunha Ferreira, Lda, Elzaz Noordzij Dr. Reinhold Cohn & Partners
Arias, Fabrega & Fabrega Faktor Company Patentbureau Venable, Baetjer, Howard & Civiletti
Abu-Setta & Partners Francisco de Novaes LLP
Andre Flach Haug Patent Group Grischenko & Partners Breese Majerowicz Simonnot
Abu-Ghazaleh Intellectual Property Hofman-Bang & Boutard, Lehmann & Saba Kypris & Co
Baldwin Shelston Waters Ree A/S Spruson & Ferguson
Bulgarian Chamber of Commerce and Honey & Blanckenberg S.B.G. & K. Patent and Law Office
Industry H H & B Trademark Services Limited Gorodissky & Partners Limited
Berggren Oy Ab Hunter & Greig SARGENT & KRAHN
Bryns Zacco a/s Hoet Pelaez Castillo & Dunque Stock Industrial Services A.S.
Bovard AG Dipl. Ernst Krause, Wilhelm Casati Saba & Co. (Jordan)
Bharucha & Co Kirschstein, Ottinger, Israel & Saba & Co. (Kuwait)
Ing. Barzano & Zanardo (Milano) spa Schiffmiller pc Saba & Co. (Oman)
Bojinov & Bojinov F.R. Kelly & Company Saud M.A.Shawwaf Law Office
Berkemeyer Lee and Li Stockholms Patentbyra
Bacot & Bacot International Lynes Quashie-Idun & Co J.K. Thorsens Patentbureau
China Patent Agent (H.K.) Ltd Momsen, Leonardos & CIA, Tomkins & Company
Cabinet Beau de Lomenie Marval, O'Farrell & Mairal, Dr. P.D. Theodorides
S. Y. Cha Patent Office W.A.Mendez & Asociados S.R.L. TMP Trademark, Patent & Design
Clarke Modet Y Cia De Mexico SA Muller & Eilbracht B.V. Registration Agents
Cermak, Horejs, Vrba Mohamed Shafi A. Karim, UHTHOFF, GOMEZ
Clarke, Modet & Co., Lda Nakamura & Partners Victor Vargas Valenzuela,
CCPIT Patent and Trademark Law Oy Kolster AB Vserecka, Zelany, Svorcik, Kalensky
Office, Kypris & Company and
Cohen, Zedek & Rappaport A.J. Park & Son Partners
Cavelier Abogados Patentmark Watermark
Drew and Napier LLC Patrafee ab Webber Wentzel Bowens
Domnern, Somgiat & Boonma Ltd Papula Rein Lahtela Oy Zuric i Partneri
Deacons Graham & James Polservice
Liabilities incurred in connection with extension of credit and other banking
fees (but not including, for the avoidance of doubt, the principal financial
indebtedness which is to be schemed) with respect to:
HSBC Bank plc
JP Morgan Chase
Barclays Bank PLC
The Royal Bank of Scotland plc
Lloyds TSB Bank plc
779
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
CATEGORY 9
CORP'S LIABILITIES TO THIRD PARTIES WHICH ARE COVERED BY A CORP INSURANCE POLICY
AND LIABILITIES OF CORP WHICH WOULD BE COVERED BY A CORP INSURANCE POLICY BUT
FOR:
A. ANY EXCESS, DEDUCTIBLE OR LIMIT OF LIABILITY APPLICABLE UNDER ANY CORP
INSURANCE POLICY TO ANY SUCH LIABILITY; OR
B. ANY INSURER FAILING TO SATISFY ANY CORP INSURANCE POLICY CLAIM IN FULL
WHEN PAYABLE WHEN THE INSURER IS IN LIQUIDATION OR PROVISIONAL
LIQUIDATION OR ADMINISTRATION UNDER THE INSOLVENCY ACT 1986 (AS AMENDED
FROM TIME TO TIME) OR SUBJECT TO ANY SCHEME OF ARRANGEMENT UNDER SECTION
425 OF THE ACT (OR ANY EQUIVALENT OR ANALOGOUS PROCEEDING OR ARRANGEMENT
IN ANY OTHER JURISDICTION, INCLUDING ANY PROCEEDING UNDER CHAPTER 11 OF
THE US BANKRUPTCY CODE); OR
C. THE CORP INSURANCE POLICY OR ANY CLAIM UNDER IT BEING VOID OR AVOIDED BY
ANY INSURER,
BEING LIABILITIES OF CORP IN RESPECT OF WHICH THE THIRD PARTY WOULD HAVE RIGHTS
AGAINST THE INSURER UNDER THAT CORP INSURANCE POLICY BY VIRTUE OF SECTION 1 OF
THE 1930 ACT IN THE EVENT THAT ANY OF THE EVENTS SET OUT IN SECTION 1(1)(B) OF
THE 1930 ACT OCCURRED WITH RESPECT TO CORP
This category applies to liabilities of Corp to third parties which are covered
by:
a. any contract of employers' liability insurance effected pursuant to
section 1 of the Employers' Liability (Compulsory Insurance) Act 1969,
and any contract of motor liability insurance effected pursuant to the
Road Traffic Act 1988, and
b. any other contract of liability insurance in circumstances in which
Corp's rights against the insurer under the contract in respect of the
liability would be transferred to and vest in that third party pursuant
to the 1930 Act in the event that any of the events set out in section
1(1)(b) of the 1930 Act occurred with respect to Corp.
Any liability of Corp to a third party in excess of any limit of liability in
any such contract of insurance applicable to that liability shall also be an
Excluded Claim.
This category extends to any such liability which would be covered by any such
insurance but for (i) any excess or deductible applicable under the insurance
contract to the liability concerned, or (ii) any insurer failing to satisfy any
insurance claim in full when payable by reason of any insolvency or
administration proceeding under the Insolvency Act 1986 (as amended from time to
time) or of any scheme of arrangement entered into by it under section 425 of
the Companies Act 1985 (or any equivalent proceeding or arrangement in any other
jurisdiction, including any proceeding under chapter 11 of the Bankruptcy Code).
Claims of which Corp is currently aware and which it believes could fall into
this category of Excluded Claims comprise:
a. various claims insured under motor liability insurance policies; and
b. industrial injury and disease claims by former and current employees of
Corp which are insured under employee liability insurance policies,
including claims insured with Chester Street Insurance Holdings Limited
(in provisional liquidation).
Corp maintains insurance against a variety of liabilities to third parties,
including general products and aviation liability and directors, officers and
pension trustee liability under which claims could arise that would be Excluded
Claims under this Category 9 by reference to liabilities of Corp existing at the
Record Date.
IF YOU ARE IN ANY DOUBT AS TO WHETHER YOUR CLAIM WOULD FALL WITHIN THIS
CATEGORY, YOU SHOULD SUBMIT A CLAIM FORM IN THE CORP SCHEME.
780
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
CATEGORY 12
COSTS, FEES AND EXPENSES OF THE RESTRUCTURING PARTIES AND ADVISERS (AND ANY
LIABILITY UNDER ANY ENGAGEMENT LETTER OR SIMILAR ARRANGEMENT ENTERED INTO BY
CORP WITH SUCH PARTIES) INCURRED IN CONNECTION WITH THE CONSIDERATION,
NEGOTIATION AND IMPLEMENTATION OF THE RESTRUCTURING
NB THIS LIST SETS OUT THE ONLY CREDITORS OR CLAIMS WHICH FALL INTO THIS
CATEGORY
LIST OF RESTRUCTURING PARTIES AND ADVISERS
Allen & Overy
Clifford Chance LLP
Cravath Swaine & Moore
The Law Debenture Trust Corporation p.l.c.
Theodore Goddard
McCann Fitzgerald
Freshfields Bruckhaus Deringer
Bondholder Communications Group
Talbot Hughes McKillop LLP
Wegner Plattner
Lazard Brothers & Co., Limited
Bingham McCutchen LLP
A&L Goodbody
Advokatfirman Cederquist
Bell Gully
Harney, Westwood & Riegels
Harry B. Sands, Lobosky & Company
Maitland & Co
Mallesons Stephen Jaques
Maples and Calder
Niederer Kraft & Frey
Ogier & Le Masurier
Morgan Lewis (Pennsylvania)
Global
Linklaters, London
BDO Stoy Hayward
KPMG LLP
Deloitte & Touche
Deloitte & Touche, Italy
LEK Consulting
Marsh UK Limited
White & Case LLP
Greenhill & Co. International LLP
Morgan Stanley & Co. Limited
PricewaterhouseCoopers LLP
Richard Alvarez, Esq
Appleby, Spurling & Kempe
Demarest e Almeida Advogados
Freehills
Ritch Heather y Mueller, S.C.
Ogilvy Renault
Stikeman Elliot
Vasconcelos, F. Sa Carneiro, Fontes & Associados
Zaid Ibrahim & Co
Stewart McKelvey Stirling Scales
Kirkpatrick & Lockhart LLP
Liabilities incurred in connection with costs, fees and expenses incurred as
described above (but not including, for the avoidance of doubt, the principal
financial indebtedness which is to be schemed) with respect to:
Barclays Bank PLC
JP Morgan Chase Bank
Commerzbank Aktiengesellschaft, London Branch
Cargill Financial Markets PLC
AIG Global Investment Corp
HSBC Bank plc, London Branch
The Royal Bank of Scotland plc
Intesa BCI S.p.A.
Appaloosa Management LP
Teachers Insurance and Annuity Association of America
781
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
DETAILS OF ANY ENGAGEMENT LETTERS/SIMILAR ARRANGEMENTS
Document Description Parties Date
-------------------- ------- ----
1. Engagement letter White & Case LLP, plc and Corp 31/12/02
2. Engagement letter and subsequent variation of Talbot Hughes LLP, (now Talbot 24/05/02, 05/09/02 and 01/10/02
terms Hughes McKillop LLP) Corp and plc
3. Engagement letter Greenhill & Co., LLP, Greenhill & 20/05/02
Co. International LLP, the Ad Hoc
Bondholders Committee, Corp and plc
4. Engagement letter and indemnity Lazard Brothers & Co., Limited and 04/12/01 as amended on
plc (novated to Corp) 07/05/01 and novated on 13/03/01
5. Engagement letter and indemnity Morgan Stanley & Co. Limited and 20/06/02 novated on 26/03/03
plc (novated to Corp)
6. Sponsors' Agreement Corp, plc, Morgan Stanley & Co. (Prior to Record Date)
Limited and Lazard Brothers & Co.,
Limited
7. Fee agreement Bingham McCutchen LLP, Corp and plc 06/03/03
8. Engagement letter Allen & Overy and Corp 13/03/03
9. Engagement letter KPMG, Corp and plc 10/10/02 as amended on 17/03/03
and 26/03/03
10. Engagement letter PricewaterhouseCoopers LLP, Corp 11/03/03
and plc
11. Terms of engagement in relation to due Allen & Overy, Corp, plc, Lazard 26/03/03
diligence reports Brothers & Co., Limited and Morgan
Stanley & Co., Limited
12. Distribution Agent Fee Letter Corp, plc and The Bank of New York 14/03/03
13. Escrow Trustee Fee Letter Corp plc and Regent Escrow Limited 27/03/03
782
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
PART II -- EXPLANATION FOR EXCLUSIONS AT CORP LEVEL
GENERAL
Despite the fact that the Corp Scheme is intended to be an all-creditor scheme,
it has become necessary to exclude certain categories of creditor. The
commercial rationale for excluding such creditors is to ensure that the
Restructuring is successful and that the Group can continue operations going
forward with the minimum of disruption once the Corp Scheme becomes effective.
The claims of certain creditors have been excluded from the Corp Scheme for a
variety of reasons as follows:
a. that Corp will continue to carry on business as the holding company of a
very substantial group of companies, comprising some 300 subsidiaries,
with an aggregate turnover, in the six months ended 31 December 2002, of
approximately L1.5 billion and it is necessary to exclude such claims to
ensure the continuing viability of the restructured Corp Group -- those
categories which are attributable (in whole or in part) to the
continuation of the restructured group are Categories 1, 2, 3, 4, 5, 6,
7, 8, 11, 15 and 16;
b. that the only type of scheme which Corp's principal financial creditors
are prepared to support is a scheme which involves an immediate
distribution calculated by reference to specific reserves; and an
immediate distribution which consists of the whole amount to which, when
calculated by reference to those specific reserves, an admitted scheme
creditor is entitled -- the categories which are attributable (in whole
or in part) to the nature of the proposed Scheme are Categories 2, 3, 4,
5, 9, 17 and 18;
c. that certain claims would be preferential if Corp were to be wound up --
the categories which are attributable (in whole or in part) to the
preferential nature of the claims comprised in them are Categories 1, 2
and 10;
d. that certain claims would, or might, be incapable of being compromised by
means of a scheme -- the category which is attributable (in whole or in
part) to the inability to compromise obligations is Category 2;
e. that certain claims would, unless excluded, form a separate class which
it would be impractical to consult on that basis -- the categories which
are attributable (in whole or in part) to impractical class problems are
Categories 9 and 14;
f. that there are certain claims which it would be uneconomic to include --
the categories which are attributable (in whole or in part) to the costs
of including them are Categories 13 and 14; and
g. claims that relate to parties who are assisting in the consideration,
negotiation and/or implementation of the Corp Scheme -- the category
which is attributable (in whole or in part) to the implementation of the
Corp Scheme is Category 12.
Further details of the specific reasons for each Category are set out below.
CATEGORY 1
CLAIMS OF EMPLOYEES OF CORP (WHO WERE EMPLOYEES AT THE RECORD DATE) UNDER THEIR
RESPECTIVE CONTRACTS OF EMPLOYMENT AND FEE ARRANGEMENTS OF DIRECTORS (WHO WERE
DIRECTORS AT THE RECORD DATE)
The success of the restructured Group relies heavily upon the commitment to the
restructuring and to the restructured Group of the employees and directors who
will remain with the Group. It would therefore be commercially impractical for
these liabilities to be compromised.
In addition, part of the employee claims may be preferential in the event of a
liquidation of Corp.
CATEGORY 2
CORP'S LIABILITY IN RESPECT OF ANY CORP PENSION PROMISES OR ARRANGEMENTS
Any sum which is owed by Corp and which is a sum to which Schedule 4 to the
Pension Schemes Act 1993 applies (contributions to occupational pension schemes
and state scheme premiums) would be preferential on a winding up of Corp and
therefore it would be inequitable to scheme these liabilities.
783
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
In addition, sections 91 and 92 of the Pensions Act 1995 provide that
entitlements to a pension under an occupational pension scheme or rights to a
future pension under such a scheme are generally inalienable and cannot be
forfeited. It is considered that sections 91 and 92 would probably prevent the
compromise or arrangement of certain pension liabilities by way of a scheme of
arrangement. In addition it was thought that the right by the trustees under
certain pension plans to collect any debt due to existing underfunding of these
schemes could also not be schemed because of these provisions.
In addition, those US pension plans where the US pensions government agency, the
PBGC, may be in a position to take action against Corp will be excluded,
together with any liabilities owed by Corp to the PBGC. As the liability will
remain in the Group at the Affiliate level, it is thought impracticable to
scheme these liabilities as it may accelerate claims or other action which would
not otherwise be made or taken.
Furthermore, the beneficiaries of a number of the pension schemes are continuing
employment with Corp and accordingly it is considered commercially impracticable
to scheme these liabilities.
CATEGORY 3
CERTAIN GUARANTEE OR INDEMNITY OBLIGATIONS OF CORP GIVEN IN RESPECT OF
OBLIGATIONS OF AFFILIATES WHICH ARE CONSIDERED TO BE BENEFICIAL TO THAT
AFFILIATE'S ONGOING OPERATIONS
It is fundamental to the ongoing operations and business of the Corp Group going
forward that trading and financial relationships which are beneficial to members
of the Corp Group are preserved. Corp has guarantee or indemnity obligations in
respect of certain obligations of Affiliates which are considered to be
beneficial to the relevant Affiliate. To scheme these liabilities of Corp may
have the effect of precipitating action by the counterparty to that contract
which could threaten the viability of that Affiliate as a business and therefore
threaten the future of the Corp Group. Accordingly where a liability of Corp may
have the effect of impacting on a relationship or contract which is beneficial
to an Affiliate in this way, the liability will be excluded.
CATEGORY 4
LIABILITIES IN RESPECT OF TRADING OBLIGATIONS OF CORP OR ITS AFFILIATES UNDER
CONTRACTS WHERE, AND TO THE EXTENT THAT, CORP IS A JOINT OR JOINT AND SEVERAL
OBLIGOR WITH ONE OR MORE AFFILIATES
It is fundamental to the ongoing operations and business of the Corp Group going
forward that the Trading Obligations under contacts where Corp is joint and
severally liable with one or more of its Affiliates are not schemed, thereby
precipitating action against Corp or the Affiliate which may impact the future
of the Corp Group.
CATEGORY 5
CONTRACTUAL OBLIGATIONS, INCLUDING WARRANTY AND INDEMNITY OBLIGATIONS, OF CORP
UNDER DISPOSALS AND ACQUISITIONS (EACH OTHERWISE THAN IN THE ORDINARY COURSE OF
BUSINESS) DEMERGERS, MERGERS AND JOINT VENTURES AND ANY PRE-DISPOSAL LIABILITIES
There is a risk that including such claims may encourage or accelerate claims
which would not otherwise be made as many of the liabilities under disposal
contracts or Pre-Disposal Liabilities are presently contingent liabilities.
In addition scheming such liabilities:
a. would be inconsistent with the concept of the early First Initial
Distribution and may have the effect of preventing closure of the Corp
Scheme; and
b. may detrimentally affect the success of the Corp Scheme as exposure to
such claims would impact upon the ability to include in the Scheme an
immediate distribution to Admitted Scheme Creditors and upon the ability
to demonstrate the adequacy of the reserve.
784
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
CATEGORY 6
INTRA-GROUP LOAN AND TRADING ACCOUNT CLAIMS AGAINST CORP BY ANY AFFILIATE
Given the complex matrix of intra-group lending and trading accounts (in which
Corp is the treasury vehicle) including these liabilities in the Scheme would
impact upon the ability of the Corp Group to operate and/or trade and in some
cases may affect the solvency of the members of the Corp Group and its
Affiliates. Accordingly these creditors will be excluded in order to maintain
stability.
In addition we refer you to the arrangements relating to the statement and
waiver of intra-group claims described more fully in part I, Section 2, Part
D.6.
CATEGORY 7
CORP'S LIABILITIES UNDER COMMERCIAL CONTRACTS OR LICENCES RELATING TO THE WIDER
CORP GROUP AND ONGOING TRADING OPERATIONS OF AFFILIATES TO WHICH CORP IS A PARTY
AND WHICH ARE REGARDED AS BENEFICIAL TO THE WIDER CORP GROUP'S ONGOING
OPERATIONS AND THE DOCUMENTATION WHICH HAS BEEN ENTERED INTO IN CONNECTION WITH
THE RESTRUCTURING PRIOR TO THE RECORD DATE
These liabilities are not being schemed as the contracts, the goods or services
supplied thereunder and/or the ongoing relationship with the counterparty are
considered to be important or beneficial to the ongoing operations of the Wider
Corp Group.
In addition a number of these contracts have been entered into in connection
with the Restructuring and it is therefore necessary to exclude the liabilities
created thereunder.
CATEGORY 8
ORDINARY COURSE OF BUSINESS LIABILITIES INCURRED IN CONNECTION WITH THE SUPPLY
OF GOODS AND/OR SERVICES TO CORP
These liabilities are not being schemed as the goods and services supplied
and/or the ongoing relationship with the counterparty is important or beneficial
to the operations of the Wider Corp Group.
CATEGORY 9
CORP'S LIABILITIES TO THIRD PARTIES WHICH ARE COVERED BY A CORP INSURANCE POLICY
AND LIABILITIES OF CORP WHICH WOULD BE COVERED BY A CORP INSURANCE POLICY BUT
FOR:
A. ANY EXCESS, DEDUCTIBLE OR LIMIT OF LIABILITY APPLICABLE UNDER ANY CORP
INSURANCE POLICY TO ANY SUCH LIABILITY; OR
B. ANY INSURER FAILING TO SATISFY ANY CORP INSURANCE POLICY CLAIM IN FULL
WHEN PAYABLE WHEN THE INSURER IS IN LIQUIDATION, PROVISIONAL LIQUIDATION
OR ADMINISTRATION UNDER THE INSOLVENCY ACT 1986 (AS AMENDED FROM TIME TO
TIME) OR SUBJECT TO ANY SCHEME OF ARRANGEMENT UNDER SECTION 425 OF THE
ACT (OR ANY EQUIVALENT OR ANALOGOUS PROCEEDING OR ARRANGEMENT IN ANY
OTHER JURISDICTION, INCLUDING ANY PROCEEDING UNDER CHAPTER 11 OF THE
BANKRUPTCY CODE); OR
C. THE CORP INSURANCE POLICY OR ANY CLAIM UNDER IT BEING VOID OR AVOIDED BY
ANY INSURER,
BEING LIABILITIES OF CORP IN RESPECT OF WHICH THE THIRD PARTY WOULD HAVE RIGHTS
AGAINST THE INSURER UNDER THAT CORP INSURANCE POLICY BY VIRTUE OF SECTION 1 OF
THE 1930 ACT IN THE EVENT THAT ANY OF THE EVENTS SET OUT IN SECTION 1(1)(B) OF
THE 1930 ACT OCCURRED WITH RESPECT TO CORP
These claims are covered by a third party insurer in circumstances where Corp's
rights against the insurer in respect of its liability to the third party
concerned would be transferred to and vest in the third party by virtue of the
Third Party (Rights Against Insurers) Act 1930 (the "1930 Act") if Corp were to
enter into a administration or insolvency proceeding. The 1930 Act has the
effect of putting creditors in this category into an equivalent position to a
creditor with security, and accordingly those creditors would constitute a
separate class of creditor for the purposes of the Scheme if their insured
claims were treated as Scheme Claims.
785
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
This category of Excluded Claims extends to claims that would be recoverable
from an insurer but for the fact that the insurer concerned has entered into an
insolvency proceeding under the Insolvency Act 1986 (or any equivalent
proceeding under any foreign jurisdiction). Corp has a contingent liability for
industrial injury and disease claims from former and current employees where its
liability was insured with Chester Street Insurance Holdings Limited ("Chester
Street") which was formerly known as Iron Trades Holdings Limited. Chester
Street is insolvent and in provisional liquidation. Certain of these employers
liability claims will be recoverable in full, notwithstanding Chester Street's
insolvency, by virtue of compensation schemes operated by Financial Services
Compensation Scheme Limited pursuant to the Financial Services and Markets Act
2000 or the Policyholders Protection Act 1975. Where that is the case, the
claimant would have the right to payment under the appropriate compensation
scheme by virtue of the 1930 Act if Corp were to enter into any insolvency
proceeding.
The potential application of the compensation schemes to certain third parties
with claims insured by Corp with an insolvent insurer means that, unless treated
as Excluded Creditors, such creditors might still be better off if Corp were to
enter into insolvency or administration proceedings under the Insolvency Act
1986. It is not practicable to distinguish between those creditors in respect of
which Corp's potential liability is covered under a contract of UK employers
liability or motor liability who would benefit from a compensation scheme and
those who are not.
Corp does not regard it as practical to scheme any insurance policy deductible
or excess applicable to a claim covered by insurance for the following reasons:
a. the amounts involved are not expected to be material in the context of
the Scheme; and
b. it would be impossible to determine in advance who would be excluded and
who would be schemed if the amounts over and above the deductibles and
excesses were treated as Scheme Claims.
In addition, Corp does not regard it as practicable to scheme any liability to a
third party in an amount greater than the third party would have been able to
recover from the insurer if the 1930 Act applied by reason of any applicable
limit of liability within the policy. This is for the following reasons:
a. the scheming of potential claims in respect of industrial injury, which
could potentially arise a number of years from the Effective Date, may
have the effect of preventing closure of the Corp Scheme; and
b. scheming such liabilities may detrimentally affect the success of the
Corp Scheme as exposure to such claims would impact upon the ability to
include in the Scheme an immediate distribution to Admitted Scheme
Creditors and upon the ability to demonstrate the adequacy of the
reserve.
CATEGORY 10
PREFERENTIAL CLAIMS
These creditors are being excluded on the basis that, in a liquidation of Corp,
they would rank in priority to the other creditors of plc. Accordingly these
creditors would be likely to receive the full amount of their claim in a
liquidation of Corp. To include them as Scheme Creditors would prejudice their
rights.
CATEGORY 11
RIGHTS OF INDEMNITY OF DIRECTORS AND OFFICERS OF CORP (WHO WERE DIRECTORS AND/OR
OFFICERS AT THE RECORD DATE) AGAINST CORP UNDER ITS ARTICLES OF ASSOCIATION AND
AT COMMON LAW
The directors are assisting with the implementation of the Restructuring for the
benefit of the creditors and stakeholders of the Marconi Group and it would be
unfair for them to do so without the indemnity.
786
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
CATEGORY 12
COSTS, FEES AND EXPENSES OF THE RESTRUCTURING PARTIES AND ADVISERS (AND ANY
LIABILITY UNDER ANY ENGAGEMENT LETTER OR SIMILAR ARRANGEMENT ENTERED INTO BY
CORP WITH SUCH PARTIES) INCURRED IN CONNECTION WITH THE CONSIDERATION,
NEGOTIATION AND IMPLEMENTATION OF THE RESTRUCTURING
It is essential that parties that are working in connection with the proposed
restructuring of Corp are paid in full in order to ensure their continued
assistance in the process.
CATEGORY 13
LIABILITIES OF CORP TO A CREDITOR WHERE ALL SUCH LIABILITIES IN AGGREGATE TO
THAT CREDITOR DO NOT EXCEED L5,000 WHICH, FOR THE AVOIDANCE OF DOUBT, DO NOT
INCLUDE ANY LIABILITIES IN RESPECT OF BONDS
These liabilities are being excluded on the basis that their claims are de
minimis and the costs of distributing the scheme document to such claimants,
administering such claims under the Scheme and distributing the Scheme
Consideration is disproportionate to the benefit derived from not paying such
claims in full.
CATEGORY 14
LIABILITIES IN RESPECT OF DIVIDENDS DECLARED PRIOR TO THE RECORD DATE ON THE
SHARES IN THE CAPITAL OF CORP BUT NOT CLAIMED BY THE RELEVANT SHAREHOLDER OR
FORMER SHAREHOLDER
By reason of section 74(2)(f) of the Insolvency Act 1986 creditors in respect of
unclaimed dividends would, if Corp were to be wound up, be subordinated; and
that therefore they would be in a separate class from that of general unsecured
creditors. As by reason of Article 136 of Corp's Articles of Association claims
of this nature are not barred until the expiration of 12 years, there are tens
of thousands of such creditors. It would be excessively expensive to identify
them, to send the Scheme Document to each of them and, in the event that the
recipients of the Scheme Document did make a claim, to administer their claim
and distribute Scheme Consideration to them. As a practical matter it would be
necessary to provide that the Scheme could take effect even if, at the separate
class meeting of creditors in this category, the statutory majority (or a
sufficiently representative turnout) were not obtained, and this would remove
any incentive for the class to vote in favour of the Scheme. Given the fact that
almost all claims would in any event be excluded under Category 13, the decision
has been taken to exclude whatever other claims of this nature remain
outstanding.
CATEGORY 15
LIABILITIES IN RESPECT OF THE LEASE OF THE PROPERTY AT 329-333 HIGH STREET,
STRATFORD, LONDON
The property at 329-333 High Street, Stratford is considered to be an asset as
opposed to a liability of Corp.
CATEGORY 16
CORP'S LIABILITIES UNDER THE RESTRUCTURING UNDERTAKING AGREEMENTS OF EACH ESOP
DERIVATIVE BANK, THE ESOP ESCROW AGREEMENT, MOBILE ESCROW AGREEMENT,
SUBSEQUENTLY SOLD OPCO ESCROW AGREEMENTS AND THE ESOP SETTLEMENT AGREEMENT
Details of the arrangements with the ESOP Derivative Banks are described in part
I, Section 2, Part D.2. The settlement of the claims of the ESOP Derivative
Banks has been negotiated on the basis that the claims of the ESOP Derivative
Banks will be excluded from the Schemes.
CATEGORY 17
CORP'S LIABILITY IN RESPECT OF ANY PERSONAL INJURY CLAIMS WHICH ARE NOT EXCLUDED
FROM THE CORP SCHEME UNDER CATEGORY 9 ABOVE
It is thought necessary to exclude such liabilities on the grounds that
potential claimants under these categories may be unaware of their contingent
right to claim as personal injury claims are often latent in nature. To include
such creditors in the Scheme may give rise to unfairness issues.
787
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Furthermore, in order to scheme such claims it would be necessary to ensure that
sufficient Scheme Consideration is reserved for such creditors. Accurately
estimating the provision necessary to adequately cover the potential claims is
considered to be extremely difficult. In addition:
a. scheming such claims may have the effect of preventing closure of the
Corp Scheme; and
b. scheming such liabilities may detrimentally affect the success of the
Corp Scheme as exposure to such claims would impact upon the ability to
include in the Scheme an immediate distribution to Admitted Scheme
Creditors and upon the ability to demonstrate the adequacy of the
reserve.
CATEGORY 18
CORP'S LIABILITY (IF ANY) IN RESPECT OF THE ITALIAN IMPLIED GUARANTEE
Article 2362 of the Italian Civil Code provides that, in the insolvency of an
SpA, its sole shareholder (if it is 100 per cent. owned by one entity) is liable
for all obligations incurred by that SpA during the period in which it was the
sole shareholder. The sole shareholder is liable whether or not it is itself an
Italian company.
Between March 2000 and 29 October 2001, Corp was the direct holding company of
the Italian group, by virtue of being the sole shareholder in Marconi
Finanziaria SpA (now Marconi Holdings SpA) ("MHSpA"). MHSpA in turn was the 100
per cent. owner of the Italian operating companies, primarily Marconi
Communications SpA and Marconi Mobile SpA ("Secure Comms"). MHSpA has since been
demerged into MHSpA and Mobile.
As a result of its 100 per cent. shareholding in MHSpA between March 2000 and 29
Oct 2001, should MHSpA become, or be declared, insolvent at any time, Corp would
have implied guarantee obligations with respect to all debts/obligations
incurred by MHSpA between March 2000 and 29 October 2001. MHSpA may in turn have
an implied guarantee obligation in respect of Marconi Communications SpA and
Secure Comms (for the period in which it was the 100 per cent. owner of those
companies).
The implied guarantee would normally be enforced by the trustee in bankruptcy if
the SpA is formally declared insolvent; however, prior to formal declaration of
insolvency, individual creditors would still have rights under Article 2362.
As the liabilities are ones which may not arise, it is intended that any
liability under the implied guarantee should be excluded; to include this claim
may encourage or accelerate a claim which may not otherwise be made, which could
have a detrimental effect on the ability to include in the Scheme an immediate
distribution to Admitted Scheme Creditors and the ability to demonstrate the
adequacy of the reserve.
788
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
PART III -- LIST OF EXCLUDED CLAIMS UNDER THE PLC SCHEME
The following Liabilities (as at the Record Date) will be excluded from the plc
Scheme:
(1) commercial contracts that will be novated to Corp on or before the
Effective Date as set out below;
(2) plc's Liability in respect of any plc Pensions Promises or Arrangements;
(3) Preferential Claims;
(4) Liabilities in respect of dividends declared prior to the Record Date on
the shares in the capital of plc but not claimed by the relevant
shareholder or former shareholder;
(5) costs, fees and expenses of the Restructuring Parties and Advisers (and
any Liability under any engagement letter entered into by plc with such
parties) incurred in connection with the consideration, negotiation and
implementation of the Restructuring and the costs, fees and expenses of
advisers to plc in connection with the plc ongoing litigation as set out
below;
(6) Liabilities of plc to parties which will be providing the plc Services;
(7) fee and service arrangements of Directors (who were Directors at the
Record Date);
(8) Liabilities of plc to a creditor where all such Liabilities in aggregate
of that creditor do not exceed L5,000 which for the avoidance of doubt,
do not include any Liabilities in respect of Bonds; and
(9) Liabilities of plc under:
(a) the restructuring undertaking agreements of each ESOP Derivative
Bank, the ESOP Escrow Agreement, Mobile Escrow Agreement,
Subsequently Sold Opco Escrow Agreements, the ESOP Settlement
Agreement and the plc guarantee of the ESOP Derivative Transactions
(more fully described in part I, Section 2, Part D.2); and
(b) the documentation which has been entered into in connection with
the Restructuring prior to the Record Date as set out below.
LIST OF CLAIMS
Note: Lists have not been provided for Categories 3, 4, 8 and 9(a).
CATEGORY 1
COMMERCIAL CONTRACTS THAT WILL BE NOVATED TO CORP ON OR BEFORE THE EFFECTIVE
DATE
Description Recipient/ parties Date
-------------------------------------------- -------------------------------------------- ----------------
1. Guarantee of the obligations of Marconi Finmeccanica SpA 02/08/02
(Bruton Street) Limited under the sale and
purchase agreement entered into in
connection with the disposal of the entire
issued capital of Marconi Mobile Holdings
SpA to Finmeccanica SpA
2. Licence agreement between Lemelson Medical, Corp, plc and Lemelson Medical, Education 01/12/99
Education and Research Foundation, Limited and Research Foundation, Limited Partnership
Partnership and plc
3. Transactions Agreement (as supplemented by a The General Electric Company, p.l.c. and 27/4/99 as
supplementary agreement entered into between British Aerospace Public Limited Company amended on
The General Electric Company, p.l.c. and 7/10/99
British Aerospace Public Limited Company
dated 7 October 1999)
4. Payment Deed The General Electric Company, p.l.c. and 27/4/99
British Aerospace Public Limited Company
5. Letter Agreement amending the terms of the Marconi plc and BAe SYSTEMS plc 2/11/01
Transactions Agreement and the Payment Deed
6. General Deed of Covenant Marconi plc and British Aerospace Public 29/11/99
Limited Company
7. Deed of Undertaking and Guarantee Marconi plc, The General Electric Company 29/11/99
plc and British Aerospace Public Limited
Company
789
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
Description Recipient/ parties Date
-------------------------------------------- -------------------------------------------- ----------------
8. Tax Deed of Covenant Marconi plc and British Aerospace Public 29/11/99
Limited Company
9. EASAMS Agreement Marconi plc and British Aerospace Public 29/11/99
Limited Company
10. Services Agreement Marconi plc and British Aerospace Public 29/11/99
Limited Company
11. Technology Access Agreement Marconi plc and British Aerospace Public 29/11/99
Limited Company
12. Completion Accounts Agreement Marconi plc and British Aerospace Public 11/2/00
Limited Company
13. Agreement relating to the JORN Project Marconi plc and British Aerospace Public 11/02/00
Limited Company
CATEGORY 2
PLC'S LIABILITY IN RESPECT OF ANY PLC PENSION PROMISES OR ARRANGEMENTS
UK
Liabilities to the UK Plan in respect of current and former plc employees
including any Liabilities which might arise in respect of plc as a result of
section 75 of the Pensions Act 1995.
Funded Unapproved Retirement Benefit Schemes for John Mayo, Michael Parton and
Michael Donovan.
CATEGORY 5
COSTS, FEES AND EXPENSES OF THE RESTRUCTURING PARTIES AND ADVISERS (AND ANY
LIABILITY UNDER ANY ENGAGEMENT LETTER OR SIMILAR ARRANGEMENT ENTERED INTO BY PLC
WITH SUCH PARTIES) INCURRED IN CONNECTION WITH THE CONSIDERATION, NEGOTIATION
AND IMPLEMENTATION OF THE RESTRUCTURING AND COSTS, FEES AND EXPENSES OF ALL
ADVISERS TO PLC INCURRED IN CONNECTION WITH THE PLC ONGOING LITIGATION
NB THIS LIST SETS OUT THE ONLY CREDITORS OR CLAIMS WHICH FALL INTO THIS
CATEGORY.
LIST OF RESTRUCTURING PARTIES AND ADVISERS
Allen & Overy
Clifford Chance LLP
Bingham McCutchen LLP
Cravath, Swaine & Moore
Freshfields Bruckhaus Deringer
McCann Fitzgerald
Global
Linklaters
White & Case
PricewaterhouseCoopers LLP
Lazard Brothers & Co. Limited
KPMG LLP
Deloitte & Touche
Talbot Hughes McKillop LLP
The Law Debenture Trust Corporation p.l.c.
Theodore Goddard
Greenhill & Co. International LLP
Cazenove & Co. Ltd
LEK Consulting
Morgan Stanley & Co. Limited
Bank of New York
Liabilities incurred in connection with costs, fees and expenses as described
above (but not including, for the avoidance of doubt, the principal financial
indebtedness which is to be schemed) with respect to:
Barclays Bank PLC
HSBC Bank plc, London Branch
JP Morgan Chase Bank
The Royal Bank of Scotland plc
Commerzbank Aktiengesellschaft, London Branch
Intesa BCI S.p.A.
Cargill Financial Markets PLC
Appaloosa Management LP
AIG Global Investment Corp
Teachers Insurance and Annuity Association of America
790
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
DETAILS OF ANY ENGAGEMENT LETTERS
Document Description Parties Letter Date
-------------------- ------- -----------
1. Engagement letter Deloitte & Touche and plc 22/04/02
(Supplements
letters of
18/09/01 and
01/11/01)
2. Engagement letter and indemnity and Morgan Stanley & Co. Limited, Corp and plc 20/06/02 and
subsequent variation of terms 26/03/03
3. Engagement letter White & Case LLP, plc and Corp 31/12/02
4. Engagement letter and indemnity Lazard Brothers & Co., Limited and plc 04/12/01 as
amended on
07/05/01
5. Engagement letter and subsequent variation Talbot Hughes LLP (now Talbot Hughes 24/05/02,
of terms McKillop LLP), Corp and plc 05/09/02 and
01/10/02
6. Fee agreement Bingham Dana LLP (now Bingham McCutchen LLP) 24/04/02
and plc
7. Fee agreement Bingham McCutchen LLP, Corp and plc 6/03/03
8. Engagement letter Cazenove & Co. Ltd and plc 07/05/02
9. Engagement letter PricewaterhouseCoopers LLP and plc 24/09/02
(Supplements
letters of
26/03/02,
10/04/02,
18/04/02,
24/04/02,
07/06/02 and
16/08/02)
10. Engagement letter PricewaterhouseCoopers LLP, Corp and plc 11/03/03
11. Engagement letter Greenhill & Co., LLP, Greenhill & Co. 20/05/02
International LLP, the Ad Hoc Bondholders
Committee, Corp and plc
12. Sponsors' Agreement Corp, plc, Morgan Stanley & Co Limited and (May be prior to
Lazard Brothers & Co., Limited Record Date)
13. Engagement letter KPMG, Corp and plc 10/10/02 as
amended on
17/03/03 and
26/03/03
14. Terms of engagement in relation to due Allen & Overy, Corp, plc, Lazard Brothers & 26/03/03
diligence reports Co., Limited and Morgan Stanley & Co.,
Limited
15. Distribution Agent Fee Letter Corp, plc and The Bank of New York 14/03/03
16. Escrow Trustee Fee Letter Corp, plc and Regent Escrow Limited 27/03/03
PLC ONGOING LITIGATION ADVISORS
Allen & Overy
DLA
Clyde & Co.
Pinsent Curtis Biddle
Latham & Watkins LLP
Smith Moore LLP
Foley & Lardner
Herbert Smith
Kirkpatrick & Lockhart LLP
Freshfields Bruckhaus Deringer
Cravath, Swaine & Moore
Baker & Hostetler
McDermott, Will & Emery
791
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
CATEGORY 6
LIABILITIES OF PLC TO PARTIES WHICH WILL BE PROVIDING THE PLC SERVICES
NB THIS LIST SETS OUT THE ONLY CREDITORS WHICH FALL INTO THIS CATEGORY
Deliotte & Touche
Computershare Investor Services plc
Marsh UK Limited
Arendt Fox
CATEGORY 7
FEE AND SERVICE ARRANGEMENTS OF DIRECTORS (WHO WERE DIRECTORS AT THE RECORD
DATE)
NB THIS LIST SETS OUT THE ONLY CREDITORS WHICH FALL INTO THIS CATEGORY
Name Document Description Date
---- -------------------- ----
1. Devaney, John Francis Service agreement 14/03/03
2. Atkinson, Michael Kent Engagement letter 16/12/02
3. Koepf, Werner Karl Engagement letter 16/12/02
4. Bonham, Derek Engagement letter 10/04/01
CATEGORY 9(B)
DOCUMENTATION RELATING TO THE RESTRUCTURING
NB THIS SETS OUT THE ONLY DOCUMENTATION WHICH FALLS INTO THIS CATEGORY
Document Description Parties Date
-------------------- ------- ----
1. Deed of novation relating to the licence Corp, plc and Lemelson Medical, Education 26/03/03
agreement dated 1 December 1999 between and Research Foundation Limited
Lemelson Medical, Education and Research
Foundation Limited and plc
2. BAE Deed of Novation Corp, plc and BAE 26/03/03
3. Finmeccanica Guarantee Deed of Novation Finmeccanica, Corp and plc 26/03/03
4. Scheme Implementation Deed Corp, plc, E-A Continental Limited, Marconi 27/03/03
Nominees Limited and others
5. Security Power of Attorney plc 27/03/03
6. Receivables Assignment Agreement Corp and plc 27/03/03
7. Statement and Waiver Agreement Corp, plc and certain other Group Companies 27/03/03
8. Memorandum of Understanding in connection Corp, plc and the Pension Benefit Guaranty 25/03/03
with the US pension schemes Corporation
9. Escrow and Distribution Agreement Corp, plc, Regent Escrow Limited, The Bank 27/03/03
of New York, The Law Debenture Trust
Corporation p.l.c., Ancrane, Bondholder
Communications Group, Philip Wallace and
Richard Heis
10. Deed of Assignment relating to assignment by E-A Continental, plc and Corp 27/03/03
E-A Continental of the E-A Continental
receivable
11. Deed of Assignment relating to assignment by Corp, plc and Ancrane 27/03/03
plc of the E-A Continental receivable
12. Bondholder Confirmation Letter Corp, plc, The Law Debenture Trust 27/03/03
Corporation p.l.c. and The Bank of New York
13. Second Supplemental Trust Deeds Corp, plc and The Law Debenture Trust 24/03/03
Corporation p.l.c.
792
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
PART IV -- EXPLANATION FOR EXCLUSIONS AT PLC LEVEL
GENERAL
There are limited exclusions for the plc Scheme. The claims of certain creditors
have been excluded from the plc Scheme for a variety of reasons as follows:
(a) contracts that will be novated to Corp or claims that will be settled --
the categories which are attributable (in whole or in part) to this are
Categories 1 and 9;
(b) claims that would be preferential if plc were to be wound up -- the
categories which are attributable (in whole or part) to the preferential
nature of the claims comprised in them are Categories 2 and 3;
(c) claims that would, or might, be incapable of being compromised by means
of a scheme -- the category which is in part attributable to this being
incapable of compromise is Category 2;
(d) claims that would, unless excluded, form a separate class which it would
be impractical to consult on that basis -- the category which is
attributable to impractical class problems is category 4;
(e) claims which it would be uneconomic to include -- the category which is
attributable to the cost of including them is Category 8; and
(f) claims that relate to parties who are assisting in the consideration,
negotiation and/or implementation of the plc Scheme -- the categories
which are attributable (in whole or in part) to assisting in the
implementation of the plc Scheme are Categories 5, 6, 7 and 9.
CATEGORY 1
COMMERCIAL CONTRACTS THAT WILL BE NOVATED TO CORP ON OR BEFORE THE EFFECTIVE
DATE
plc's guarantee of the obligations of Marconi (Bruton Street) Limited under the
sale and purchase agreement entered into in connection with the disposal of the
entire issued capital of Marconi Mobile Holdings SpA to Finmeccanica SpA
On 2 August 2002, Marconi (Bruton Street) Limited ("MBSL") disposed of the
entire issued share capital of Marconi Mobile Holdings SpA (the holding company
for the Marconi Mobile group in Italy) ("Mobile") to Finmeccanica SpA. As part
of that disposal, plc guaranteed the obligations of MBSL under the sale and
purchase agreement (the "Finmeccanica Guarantee"). The sale and purchase
agreement also provided that if, as a result of a restructuring of the Marconi
group, plc ceases to be the ultimate parent company of MBSL, plc is obliged to
novate the Finmeccanica Guarantee to the ultimate holding company of the
restructured group. Finmeccanica is obliged to execute that novation agreement
and thereby release plc from its obligations under the Finmeccanica Guarantee.
Under a side letter between Corp and plc, Corp agreed that if, as a result of
such a restructuring, Corp became the ultimate holding company of MBSL, it would
accept such a novation of the Finmeccanica Guarantee (or, if another entity
became the ultimate holding company of MBSL, Corp would procure that such
company would enter into a novation agreement). Corp agreed to this as it
received a benefit from the sale of Mobile.
The license granted by Lemelson Medical, Education and Research Foundation
Limited dated 1 December 1999
Under an agreement dated 1 December 1999 between Lemelson Medical, Education and
Research Foundation, Limited Partnership ("Lemelson") and plc ("Lemelson
Agreement") Lemelson licenses certain patents to plc for the benefit of plc and
relevant members of the Marconi Group. The royalty payments due under the
Lemelson Agreement were paid by plc on behalf of the relevant members of the
Group (and, in effect, charged back to such Group members). The Lemelson
Agreement was entered into as a result of patent litigation commenced by
Lemelson against plc. The Lemelson Agreement is of ongoing benefit to members of
the Group but is of no direct benefit to plc. It is therefore appropriate for
the Lemelson Agreement to be novated to Corp.
793
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
The agreements entered into between plc and BAE or entered into between Corp and
BAE and subsequently novated from Corp to plc, in respect of the merger of the
Group's defence business with BAE
The separation of the Group's defence businesses ("MES") and subsequent merger
with BAE was completed in November 1999. The original transactions agreement and
payment deed which set out the principles of the merger were entered into
between Corp and BAE. These agreements were subsequently novated from Corp to
plc and plc also became the relevant Marconi party to all other agreements
entered into at completion of the merger (the "BAE Merger Agreements"). As part
of the transaction plc agreed to try and obtain the release of any MES companies
from arrangements (including guarantees) which they had made for the benefit of
the businesses retained by plc and further agreed to indemnify the relevant BAE
company for any payment which arose under those arrangements should plc fail to
obtain such a release. Equally BAE agreed to try and obtain the release of any
Group companies from arrangements (including guarantees) made for the benefit of
MES companies and also agreed to indemnify the relevant Group company against
any payments which subsequently arose in the event that BAE failed to obtain
such release. The BAE Merger Agreements would, in the normal course of events,
be schemed and thus both BAE and the Group would lose the benefit of the
indemnities going forward. Therefore, in order to ensure that these existing
arrangements continue it is necessary to novate all of the BAE Merger Agreements
to Corp.
CATEGORY 2
PLC'S LIABILITIES IN RESPECT OF ANY PLC PENSION PROMISES OR ARRANGEMENTS
Any sum which is owed by plc and is a sum to which Schedule 4 to the Pension
Schemes Act 1993 applies (contributions to occupational pension schemes and
state scheme premiums) would be preferential on a winding up of plc and
therefore it would be inequitable to scheme these liabilities.
In addition, sections 91 and 92 of the Pensions Act 1995 provide that
entitlements to a pension under an occupational pension scheme or rights to a
future pension under such a scheme are generally inalienable and cannot be
forfeited. It is considered that sections 91 and 92 would probably prevent the
compromise or arrangement of certain pension liabilities by way of a scheme of
arrangement. In addition, it was thought that the right by the trustees under
certain pension plans to collect any debt due to existing underfunding of these
schemes could also not be schemed because of those provisions. Legal authority
is unclear as to whether any Liability which plc might have under section 75 of
the Pensions Act 1995 is safeguarded by sections 91 and/or 92 of that Act and
accordingly specific wording has been included to clarify that liabilities under
section 75 are excluded. In any event, plc does not consider that any Liability
would arise under section 75 in respect of plc.
Furthermore certain beneficiaries are continuing their employment with Corp and
accordingly Corp will take on plc's liabilities post-Effective Date.
CATEGORY 3
PREFERENTIAL CLAIMS
These creditors are being excluded on the basis that, in a liquidation of plc,
they would rank in priority to the other creditors of plc. Accordingly these
creditors would be likely to receive the full amount of their claim in a
liquidation of plc. To include them as Scheme Creditors would prejudice their
rights.
CATEGORY 4
LIABILITIES IN RESPECT OF DIVIDENDS DECLARED PRIOR TO THE RECORD DATE ON THE
SHARES IN THE CAPITAL OF PLC BUT NOT CLAIMED BY THE RELEVANT SHAREHOLDER OR
FORMER SHAREHOLDER
In an insolvent liquidation of plc the claims of creditors in respect of
unclaimed dividends would be subordinated to the claims of all other creditors.
They are therefore in a different class from other creditors of plc. There are
three ways in which these creditors could be treated: they could be included in
the Scheme; they could be excluded from the Scheme and left unpaid on the ground
that with their subordinated status they have no interest in plc's assets; or
they could be excluded from the Scheme and paid if and when a claim is made.
794
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
The first way would involve a separate class meeting of these creditors. This
has been rejected because it would be exceedingly expensive to identify them, to
send the Scheme Document to each of them and, in the event that the recipients
of the Scheme Document did make a claim, to administer their claim and
distribute Scheme Consideration to them. As a practical matter it would be
necessary, in order to be on the safe side, to provide that the Scheme could
take effect even if, at the separate class meeting of creditors in this
category, the statutory majority (or a sufficiently representative turnout) were
not obtained, and this would remove any incentive for the class to vote in
favour of the Scheme.
The second way would leave them with unpaid claims against plc in the capacity
as creditor and could therefore result in an insolvent liquidation of plc. This
approach has been rejected because if this were to occur in the early stages of
the implementation of the Schemes, it may have implications for the reputation
of the Marconi name and accordingly may impact upon the trust of third parties
to deal with members of the Corp Group going forward.
In addition given the fact that almost all claims would in any event be excluded
under Category 8, the decision was taken to exclude whatever other claims of
this nature remain outstanding.
Therefore it is proposed that they be excluded from the plc Scheme and paid in
full if and when a claim is made.
CATEGORY 5
COSTS, FEES AND EXPENSES OF THE RESTRUCTURING PARTIES AND ADVISERS (AND
LIABILITY UNDER ANY ENGAGEMENT LETTER OR SIMILAR ARRANGEMENT ENTERED INTO BY PLC
WITH SUCH PARTIES), INCURRED IN CONNECTION WITH THE CONSIDERATION, NEGOTIATION
AND IMPLEMENTATION OF THE RESTRUCTURING AND COSTS, FEES AND EXPENSES OF ALL
ADVISERS TO PLC IN CONNECTION WITH THE PLC ONGOING LITIGATION
It is essential that parties that are working in connection with the plc Scheme
are paid in full in order to ensure their continued assistance in the process.
Furthermore parties are advising plc in connection with the defence of claims
brought against plc and it would be unreasonable to expect the relevant parties
to continue to offer their services after the Effective Date if any existing
claims that they may have were to be schemed.
CATEGORY 6
LIABILITIES OF PLC TO PARTIES WHICH WILL BE PROVIDING THE PLC SERVICES
These liabilities are being excluded on the basis that the services of these
parties are required following the Effective Date of the plc Scheme and it would
be unreasonable to expect the relevant parties to continue to offer their
services after the Effective Date if any existing claims that they may have were
to be schemed.
CATEGORY 7
FEE AND SERVICE ARRANGEMENTS OF DIRECTORS (WHO WERE DIRECTORS AT THE RECORD
DATE)
These liabilities are being excluded on the basis that the services of these
parties are required following the Effective Date of the plc Scheme and it would
be unreasonable to expect the relevant parties to continue to offer their
services after the Effective Date if any existing claims that they may have were
to be schemed.
CATEGORY 8
LIABILITIES OF PLC TO A CREDITOR WHERE ALL SUCH LIABILITIES IN AGGREGATE OF THAT
CREDITOR DO NOT EXCEED L5,000 WHICH, FOR THE AVOIDANCE OF DOUBT, DO NOT INCLUDE
ANY LIABILITIES IN RESPECT OF BONDS
These liabilities are being excluded on the basis that their claims are de
minimus and the costs of distributing the Scheme Document to such claimants,
administering their claims under the Scheme and distributing the Scheme
Consideration would be disproportionate to the benefit derived from not paying
such claims in full.
795
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 9: EXCLUDED CLAIMS
--------------------------------------------------------------------------------
CATEGORY 9
LIABILITIES OF PLC UNDER:
A. THE RESTRUCTURING UNDERTAKING AGREEMENTS OF EACH ESOP DERIVATIVE BANK, THE
ESOP ESCROW AGREEMENT, MOBILE ESCROW AGREEMENT, SUBSEQUENTLY SOLD OPCO
ESCROW AGREEMENTS, THE ESOP SETTLEMENT AGREEMENT AND THE PLC GUARANTEE OF
THE ESOP DERIVATIVE TRANSACTIONS; AND
B. THE DOCUMENTATION WHICH HAS BEEN ENTERED INTO IN CONNECTION WITH THE
RESTRUCTURING PRIOR TO THE RECORD DATE
Details of the equity derivative and settlement arrangements with the ESOP
Derivative Banks are described in part I, Section 2, Part D.2. The settlement of
the claims of the ESOP Derivative Banks referred to in that Part has been
negotiated on the basis that the ESOP related claims of the ESOP Derivative
Banks will be excluded from the plc Scheme.
As plc is entering into a number of agreements in connection with the
Restructuring, it is considered necessary to exclude those agreements.
796
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 10
SECURITY AND INTERCREDITOR ARRANGEMENTS
The New Senior Notes, the New Junior Notes and the Performance Bonding Facility
will benefit from guarantees ("GUARANTEES") to be provided by each of the Group
Companies set out below ("GUARANTORS") with the exception of (1) Marconi
Communications Telemulti Ltda, which is a Brazilian company that will neither
provide a Guarantee nor provide any Security except the quotas (equity
interests) which will be pledged as Security by its non-Brazilian parent
company, both of which will be deemed to be Guarantors for the purposes of the
covenants in the Indentures; and (2) Corp, which will not provide guarantees of
the New Senior Notes or New Junior Notes because it is the issuer of those
Notes. Except as described in Part 2 of this Appendix 10, each Guarantee will be
supported by security over certain assets of the respective Guarantor
("SECURITY"). Those Group Companies marked with an * will constitute "US
Guarantors" under the New Notes; all other Group Companies listed below will
constitute "Non-US Guarantors" under the New Notes. US Guarantors comprise the
Guarantors that are Ringfenced Entities, and Non-US Guarantors comprise all
other Guarantors. All Security and Guarantees shall be provided subject to
limitations imposed by applicable law or arising by reason of directors'
fiduciary duties or other potential liabilities. The limitation language will be
set out in the Security Trust and Intercreditor Deed. See "Risk Factors --Risks
related to ownership of the New Shares, the New Notes and the Warrants -- The
value of the guarantees and the collateral may be limited by applicable laws" in
Section I, Part F.4. Subject to local law, the Security will be granted to the
Security Trustee which will hold the Security on behalf of the trustees of the
New Notes (on behalf of the holders of the New Notes), the banks providing the
Performance Bonding Facility and certain other Secured Creditors. The ranking of
the Guarantees and Security, as between the New Senior Notes, the New Junior
Notes and the Performance Bonding Facility is set out in the Security Trust and
Intercreditor Deed, and a summary of it is detailed below.
1. GUARANTORS AS AT THE ISSUE DATE
Capitalised terms in this Section "Guarantors as at the Issue Date" have the
meaning given to them in Appendix 8: Terms of the New Senior Notes and New
Junior Notes.
On the Issue Date, each of the following Group Companies will be Guarantors:
AUSTRALIA
Marconi Australia Holdings Pty Limited (change of registration details from
Marconi Australia Holdings Limited expected to be effective from 11 April 2003)
Marconi Australia Pty Limited
BRAZIL
Marconi Communications Telemulti Ltda
GERMANY
Marconi Communications GmbH
Marconi Communications Holdings GmbH
Marconi Communications Real Estate GmbH
GUERNSEY
Bruton Street Overseas Investments Limited
HONG KONG
G.E.C. (Hong Kong) Limited
797
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 10: SECURITY AND INTERCREDITOR ARRANGEMENTS
--------------------------------------------------------------------------------
Marconi Communications Asia Limited
IRELAND
Marconi Communications Limited* (Ireland)
Marconi Communications Optical Networks Limited*
ITALY
Marconi Communications SpA
Marconi Holdings SpA
Marconi Sud SpA
MEXICO
Administrativa Marconi Communications, S.A. de C.V.*
Marconi Communications de Mexico, S.A. de C.V.*
Marconi Communications Exportel, S.A. de C.V.*
Marconi Communications, S.A. de C.V.*
NETHERLANDS
Marconi Communications BV*
SWITZERLAND
Marconi Communications GmbH* (Switzerland)
UK
Associated Electrical Industries Limited
Elliott-Automation Holdings Limited
English Electric Company Limited
GPT Special Project Management Limited
Highrose Limited
Metapath Software International Limited
Marconi Aerospace Unlimited
Marconi (Bruton Street) Limited
Marconi (DGP1) Limited
Marconi (DGP2) Limited
Marconi Bonding Limited
Marconi Communications China Limited
Marconi Communications Holdings Limited
Marconi Communications International Holdings Limited
Marconi Communications International Investments Limited
Marconi Communications International Limited
798
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 10: SECURITY AND INTERCREDITOR ARRANGEMENTS
--------------------------------------------------------------------------------
Marconi Communications Investments Limited
Marconi Communications Limited
Marconi Corporation plc
Marconi (Elliott Automation) Limited
Marconi (NCP) Limited
Marconi Optical Components Limited
Marconi UK Intellectual Property Limited
Mobile Systems International Holdings Limited
US
Bruton Street Partnership (a general partnership to be converted to a
corporation prior to the Issue Date)
FS Finance Corp.
FS Holdings Corp.
Metapath Software International, Inc.
Metapath Software International (US), Inc.
Marconi Acquisition Corp.*
Marconi Communications Federal, Inc.*
Marconi Communications Holdings, Inc.
Marconi Communications, Inc.*
Marconi Intellectual Property (Ringfence) Inc.*
Marconi Intellectual Property (US) Inc.
Marconi Communications North America Inc.
Marconi Communications Technology, Inc.*
Marconi Inc.
Marconi Networks Worldwide, Inc.*
Marconi Software International, Inc.
On an ongoing basis, Corp is required to ensure under the terms of the New Notes
that:
a. each Significant Subsidiary is or becomes a Guarantor (provided that
in the event that such Subsidiary cannot provide a Guarantee by
reason of any legal or regulatory impediment which is beyond the
reasonable control of Corp and its Subsidiaries, by reason of any
contractual restriction or obligation in effect prior to the Scheme
Launch Date, (in the case of a Person which becomes a Subsidiary of
Corp after the Issue Date) by reason of any contractual restriction
or obligation which was in existence when that person became a
Subsidiary of Corp (provided such restriction or obligation was not
created in contemplation of or in connection with that person
becoming a Subsidiary of Corp) or by reason of there being a
material risk that the directors of such Subsidiary could be held to
be in breach of applicable corporate, criminal or other law as a
result of such Subsidiary of Corp becoming a Guarantor, such
Subsidiary shall not be required to become a Guarantor);
b. the aggregate Total Assets, aggregate External Assets, aggregate
External Sales and (commencing on 31 March 2005) aggregate EBITDA of
the Guarantors (each of which is tested on an
799
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 10: SECURITY AND INTERCREDITOR ARRANGEMENTS
--------------------------------------------------------------------------------
unconsolidated basis) respectively represents at least 80 per cent.
of the aggregate unconsolidated Total Assets of Corp and each of its
Subsidiaries, and the consolidated External Assets, consolidated
External Sales and (commencing on 31 March 2005) Consolidated EBITDA
of Corp and each of its Subsidiaries taken as a whole and;
c. for the purposes of clause b above, the aggregate of the
unconsolidated Total Assets, the aggregate of the unconsolidated
External Assets, the aggregate of the unconsolidated External Sales
and the aggregate of the unconsolidated EBITDA of all of the
Guarantors that have not provided any Security may not account for
more than 5 per cent. of the aggregate of the unconsolidated Total
Assets of Corp and each of its Subsidiaries, or the consolidated
External Assets, consolidated External Sales or Consolidated EBITDA,
respectively, of Corp and its Subsidiaries taken as a whole.
The guarantor coverage requirements are set out in detail in Appendix 8 under
the caption "Description of the Notes -- Certain Covenants -- Guarantor Coverage
Requirements".
2. SECURED ASSETS
It has been agreed that the Guarantees will be supported by the following
security package:
a. each Guarantor incorporated in England, Ireland, Hong Kong,
Australia and any subsequently added common law jurisdictions will
grant a fixed charge and/or mortgage (or equivalent) over the shares
of the Guarantors (including the shares of subsidiaries of the
Guarantors where significant), certain key real estate, certain
significant intercompany loans and monetary claims relating to
intellectual property, with a floating charge or equivalent over all
remaining assets of each Guarantor (including its Intellectual
Property). The Intellectual Property arrangements to be entered into
by Guarantors incorporated in England is set out in Part 1, Section
2, part A.5;
b. each Guarantor incorporated in the United States will grant a
security interest in the shares it owns in Guarantors (including the
shares of subsidiaries of the Guarantors where significant) by way
of a share pledge agreement. In addition, each such Guarantor will
grant a security interest in its key real property by way of a
mortgage and in its personal property (including certain significant
intercompany loans) by way of a security agreement. The security
agreement will also cover each US Guarantor's intellectual property,
including without limitation the Patents that it will subsequently
assign to Ringfenced IPR Co. or US IPR Co., any future-acquired or
future-developed Intellectual Property and any rights it may have or
acquire as licensee or licensor. Immediately after the grant of the
security each such Guarantor (other than Ringfenced IPR Co. or US
IPR Co.) will assign the Patents it owns to either Ringfenced IPR
Co. or US IPR Co., as applicable;
c. each Guarantor incorporated in Germany, Italy and any subsequently
added civil law jurisdictions will provide fixed security over
certain material assets, in particular receivables, certain
significant intercompany loans, bank accounts, moveable assets and
the shares of the Guarantors (including the shares of subsidiaries
of the Guarantors where significant) as a floating charge is not
available in civil law jurisdictions. No Guarantors incorporated in
any civil law jurisdiction will provide security over intellectual
property except those Guarantors which own Intellectual Property and
which are incorporated in Germany and they shall provide security as
described in part 1, Section 2, Part A.5;
d. each Guarantor incorporated in the Netherlands, Switzerland, Mexico
and Guernsey will provide security limited to a pledge over its
shares granted by its parent companies and a pledge over its shares
in Guarantors; and
e. each Guarantor incorporated in Brazil will neither provide a
Guarantee nor provide any security but the quotas (equity interests)
in such Guarantor will be pledged as security by its non-Brazilian
parent company, and such Guarantor will be deemed to be a Guarantor
for the purposes of the covenants in the Indentures.
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3. INTELLECTUAL PROPERTY
The Intellectual Property arrangements are set out in detail in part 1, Section
2, Part A.5.
4. INTERCREDITOR ARRANGEMENTS
Capitalised terms set out in this Section "Intercreditor arrangements" will have
the meanings given to them below.
4.1 THE SECURITY TRUST AND INTERCREDITOR DEED
DESCRIPTION OF THE SECURITY TRUST AND INTERCREDITOR DEED
The intercreditor arrangements in respect of certain creditors of Marconi
Corporation plc and the other Obligors under the Notes and the other Secured
Liabilities are contained in the Security Trust and Intercreditor Deed, which
binds each of the Secured Creditors, each of the Obligors and each of the
Intra-Group Parties (each as defined below).
The rights of the Secured Creditors are subject to the Security Trust and
Intercreditor Deed pursuant to which the exercise by the Secured Creditors of
their rights under the Security Documents may in certain circumstances be
directed by, and is in most circumstances subject to the prior consent of, other
parties to the Security Trust and Intercreditor Deed.
The purpose of the Security Trust and Intercreditor Deed is to regulate, inter
alia: (1) the ranking of claims of the Secured Creditors; (2) the exercise,
acceleration and enforcement of rights by the Secured Creditors; (3) the rights
of Secured Creditors to instruct the Security Trustee; (4) the rights of the
Senior Note Trustee to issue a Standstill Notice; (5) the rights of the Secured
Creditors during a Standstill Period and the effects of a Standstill Period; (6)
the giving of consents and waivers and the making of modifications to the
Relevant Documents; and (7) the rights of the Secured Creditors and the
priorities following a Payment Stop Event.
The Security Trust and Intercreditor Deed sets out the priority of payment of
the claims of the Secured Creditors and provides for the subordination of
certain intercompany claims by the Issuer and those of its Subsidiaries that are
parties to the Security Trust and Intercreditor Deed.
RANKING OF SECURED OBLIGATIONS AND PRIORITIES
Each of the parties to the Security Trust and Intercreditor Deed will agree that
the Secured Obligations owed by, and the Transaction Security granted by, the
Obligors to the Secured Creditors and the Intra-Group Liabilities are subject to
the payment priorities set out in the Security Trust and Intercreditor Deed and
described below.
PAYMENT PRIORITIES PRIOR TO A PAYMENT STOP EVENT
Pursuant to the Security Trust and Intercreditor Deed, unless the Senior Note
Trustee has notified the other Secured Creditors in writing that a Payment Stop
Event has occurred and is continuing, all monies credited to the Existing
Performance Bond Escrow Account shall continue to be applied in accordance with
the terms of the Escrow Agreement, and all monies credited to the Mandatory
Redemption Escrow Account shall be applied in accordance with the following
priorities:
a. first, to the Junior Note Trustee, to be applied to the satisfaction of
liabilities to the holders of the Junior Notes;
b. second, to the Senior Note Trustee to be applied to the satisfaction of
liabilities to the holders of the Senior Notes;
c. third, to any other person (other than the Issuer) so entitled to the
proceeds; and
d. fourth, to the Issuer.
Upon the occurrence of a payment event of default under the New Bonding Facility
Agreement and at any time thereafter while the same is continuing, but prior to
the New Bonding Facility Agent being notified by the Senior
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Note Trustee of the occurrence of a Payment Stop Event, the New Bonding Facility
Agent shall (on its own behalf and on behalf of the New Bonding Facility Banks)
be entitled to demand from the obligors under the New Bonding Facility Agreement
an amount sufficient to ensure that the Secured Obligations arising under the
New Bonding Facility Agreement are fully cash-collateralised.
PAYMENT PRIORITIES FOLLOWING A PAYMENT STOP EVENT
Upon being notified in writing of the occurrence of a Payment Stop Event (which
notice shall, in accordance with the provisions of the section captioned
"Standstill Notice", be contained in the Standstill Notice required to be
delivered to the Security Trustee), the Security Trustee will promptly instruct
the Escrow Bank (1) to act in accordance with paragraph a. of the section
captioned "Standstill Period and Payment from Escrow Accounts"; and (2)
following the date of such notification and while the Payment Stop Event is
continuing and after giving effect to any payment required by paragraph a. of
the section captioned "Standstill Period and Payments from Escrow Accounts" to
pay all monies credited to the Mandatory Redemption Escrow Account to the
Security Trustee for it to apply such moneys, together with the proceeds of all
recoveries received by the Security Trustee pursuant to any Enforcement Action,
in accordance with the following payment priorities:
a. first, to the fees and expenses of the Security Trustee, the Note Trustees
and other agents;
b. second, to the New Bonding Facility Agent, to be applied to the
satisfaction of liabilities to the New Bonding Facility Banks under the
New Bonding Facility Agreement;
c. third, to the Senior Note Trustee, to be applied to the satisfaction of
all liabilities to the holders of the Senior Notes;
d. fourth, to the Junior Note Trustee, to be applied to the satisfaction of
all liabilities to the holders of the Junior Notes;
e. fifth, to any other person (other than the Issuer) so entitled to the
proceeds; and
f. sixth, to the Issuer,
provided that such payments will only be made out of the Mandatory Redemption
Escrow Account if the balance in such account is equal to or greater than L2.5
million.
For the avoidance of doubt, when a Payment Stop Event ceases to be continuing,
and provided that no Standstill Period is in effect, monies credited to the
Mandatory Redemption Escrow Account shall thereafter be applied in accordance
with the payment priorities specified above in this section with the caption
"Payment Priorities Prior to a Payment Stop Event".
UNDERTAKINGS
Undertakings of Secured Creditors
Each Secured Creditor will undertake and the Issuer will acknowledge that the
Secured Creditors will not, except to the extent expressly permitted by the
Security Trust and Intercreditor Deed:
a. permit or require the Issuer or any other Obligor to discharge any of the
Secured Obligations owed to it or any person which it represents;
b. permit or require the Issuer or any other Obligor to pay, prepay, repay,
redeem, purchase or voluntarily terminate or otherwise acquire any of the
Secured Obligations owed to such Secured Creditor or any person which it
represents;
c. other than pursuant to the terms of the Relevant Documents, take, accept
or receive the benefit of any Security (other than the Transaction
Security) in respect of any of the Secured Obligations owed to it or any
person which it represents;
d. take or receive from the Issuer or any other Obligor by cash receipt, set
off, any right of combination of accounts or in any other manner
whatsoever, the whole or any part of the Secured Obligations owed to it or
any person which it represents;
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e. agree to any amendment of the Relevant Documents to which it is a party;
or
f. take or omit to take any other action in relation to the Relevant
Documents, the Secured Obligations or the Transaction Security whereby any
ranking and/or subordination contemplated by the Security Trust and
Intercreditor Deed may be impaired.
Undertakings of the Obligors
Each Obligor will undertake that it will not, except to the extent expressly
permitted or required by the Security Trust and Intercreditor Deed:
a. discharge any of the Secured Obligations;
b. pay, prepay, repay, redeem, purchase, voluntarily terminate or otherwise
acquire any of the Secured Obligations;
c. other than pursuant to the terms of the Relevant Documents, create or
permit to subsist any Security (other than the Transaction Security) for,
or in respect of, any of the Secured Obligations;
d. discharge the whole or any part of any of the Secured Obligations by cash
payment, set-off, any right of combination of accounts or in any other
manner whatsoever;
e. agree to any amendment of the Relevant Documents to which it is a party;
or
f. take or omit to take any other action in relation to the Relevant
Documents, the Secured Obligations or the Transaction Security whereby any
ranking and/or subordination contemplated by the Security Trust and
Intercreditor Deed may be impaired.
Undertakings of the Intra-Group Borrowers
Each Intra-Group Borrower will undertake that it will not, and the Intra-Group
Creditors and the Issuer will acknowledge that the Intra-Group Borrowers which
owe Intra-Group Liabilities to them will not, except as expressly permitted or
required by the Security Trust and Intercreditor Deed or with the prior written
consent of the Security Trustee (acting upon instructions of the Instructing
Trustee):
a. pay, prepay, repay, redeem, make any distribution in respect of, purchase
or acquire any Intra-Group Liabilities in cash or in kind or apply any
money or property in or towards discharge of any Intra-Group Liabilities;
b. discharge any Intra-Group Liabilities by set-off, cash payment, any right
of combination of accounts or in any other manner whatsoever;
c. create or permit to subsist any Security for, or in respect of, any
Intra-Group Liabilities unless permitted or required to do so pursuant to
the terms of the Indentures; or
d. take or omit to take any other action in relation to the Intra-Group
Liabilities, the Relevant Documents, the Secured Obligations or the
Transaction Security whereby the ranking and/or subordination contemplated
by the Security Trust and Intercreditor Deed may be impaired.
Undertakings of the Intra-Group Creditors
Each Intra-Group Creditor will undertake that it will not, and the Issuer and
Intra-Group Borrowers which owe Intra-Group Liabilities to them will acknowledge
that the Intra-Group Creditors will not, except as expressly permitted or
required by the Security Trust and Intercreditor Deed or with the prior written
consent of the Security Trustee (acting on the instructions of the Instructing
Trustee):
a. demand or receive payment, prepayment, repayment, redemption or any
distribution in respect of any Intra-Group Liabilities owed to it in cash
or in kind or apply any money or property in or towards discharge of any
such Intra-Group Liabilities;
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b. exercise any right of combination of accounts or set-off against the whole
or any part of Intra-Group Liabilities owed to it;
c. take, accept or permit to subsist or receive the benefit of any Security
for, or in respect of, any Intra-Group Liabilities owed to it unless
permitted or required to do so pursuant to the terms of the Indentures or
the Security Trust and Intercreditor Deed; or
d. take or omit to take any other action in relation to the Intra-Group
Liabilities, the Secured Obligations or the Transaction Security whereby
the ranking and/or subordination contemplated by the Security Trust and
Intercreditor Deed may be impaired.
PREPAYMENT, REDEMPTION AND GRANT OF SECURITY FOR NOTES
Each of the parties to the Security Trust and Intercreditor Deed will agree and
acknowledge that:
a. the Obligors may pay, prepay, repay, redeem or purchase the Secured
Obligations (i) under the Senior Notes and/or the Senior Note Indenture on
each relevant Payment Date in accordance with the terms thereof and of the
Security Trust and Intercreditor Deed and (ii) under the New Bonding
Facility Agreement (including payments or repayments by way of cash
collateralization or the provision of letters of credit, guarantees or
similar instruments) on each relevant Payment Date in accordance with the
terms thereof and of the Security Trust and Intercreditor Deed;
b. the Obligors may pay, prepay, repay, redeem or purchase the Secured
Obligations under the Junior Notes and/or the Junior Note Indenture
provided such payments constitute Permitted Payments and are made in
accordance with the terms of the Junior Notes, the Junior Note Indenture
and the Security Trust and Intercreditor Deed; and
c. the Note Trustees, as trustees for the holders of the relevant Notes, and
the New Bonding Facility Agent, as trustee for the New Bonding Facility
Banks, may, with the Security Trustee's prior written consent (not to be
unreasonably withheld or delayed), take, accept or receive the benefit of
any Security in addition to the Transaction Security only if the same
Security is at the same time granted to and held by the Security Trustee
as trustee for the Secured Creditors under the terms of the Security Trust
and Intercreditor Deed.
The Intra-Group Creditors will acknowledge and agree that any rights they may
have against the Intra-Group Borrowers in relation to Intra-Group Liabilities
are subordinated to the rights of the Secured Creditors against the Obligors and
the Intra-Group Borrowers in accordance with the terms of the Security Trust and
Intercreditor Deed.
PERMITTED PAYMENTS
a. Unless a Payment Stop Event is continuing or a Standstill Period is in
effect, the Obligors may make Permitted Payments to the Secured Creditors
on the relevant Payment Dates under the Relevant Documents and may, in
respect of the Junior Notes, issue Junior PIK Notes to the holders of the
Junior Notes on the relevant Payment Dates under the Junior Note
Indenture. Notwithstanding the foregoing or any other provision of the
Security Trust and Intercreditor Deed, the New Bonding Facility Agent, the
New Bonding Facility Banks and the Senior Note Trustee may at all times
receive payments on the applicable Payment Dates. These provisions will
not prevent (i) the payment of amounts in the Mandatory Redemption Escrow
Account otherwise in accordance with the Security Trust and Intercreditor
Deed or (ii) the issue of Junior PIK Notes in the event of a Payment Stop
Event or a Standstill Period.
b. The Intra-Group Borrowers may make, and the Intra-Group Creditors may
accept, any Permitted Payments in respect of Intra-Group Documents or, as
the case may be, Intra-Group Liabilities provided that following the
occurrence of an Event of Default which is continuing under the Senior
Notes, the Senior Note Indenture, the Junior Notes or the Junior Note
Indenture, unless otherwise requested by the Security Trustee in
accordance with the Section captioned "Intra-Group Creditors: No
Enforcement Action" the Intra-Group Borrowers which are also Guarantors
shall only be permitted to make, and the Intra-Group Creditors shall only
be permitted to accept, such payments to the extent they are made in order
to fund the working capital or cash management requirements of the Group
in the ordinary course of business; and,
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unless requested by the Security Trustee in accordance with the Security
Trust and Intercreditor Deed such Permitted Payments shall in any event
not be permitted to be made following (i) the occurrence of an Insolvency
Event in relation to the Intra-Group Creditor making the relevant loan, or
(ii) after the taking of any Action or Enforcement Action by any Secured
Creditor.
STANDSTILL NOTICE
If the Senior Note Trustee becomes aware that a Standstill Event has occurred,
it shall deliver to the Security Trustee (with a copy to the Issuer and the
other Debt Representatives) a Standstill Notice and promptly on receipt of such
notice the Security Trustee shall notify the other Secured Creditors of such
Standstill Event. A Standstill Period shall commence on the date of the issuance
of the Standstill Notice by the Senior Note Trustee, and shall end on the
earlier of the dates specified in the definition of "Standstill Period" below.
If the relevant Standstill Event is a Payment Stop Event the Standstill Notice
delivered to Security Trustee shall state that to be the case.
No Default with respect to the Senior Notes that existed or was continuing on
the date a Standstill Notice was issued shall be, or be made, the basis of the
issuance or an instruction for the issuance of another Standstill Notice unless
such Default shall have been cured or waived for a period of not less than 90
consecutive days.
STANDSTILL PERIOD AND PAYMENTS FROM ESCROW ACCOUNTS
Promptly upon receipt of a Standstill Notice by the Security Trustee and the
commencement of a Standstill Period, the Security Trustee will instruct the
Escrow Bank:
a. on the date of such notification and provided that on the preceding day no
Standstill Period was in effect, to pay all monies credited to the
Mandatory Redemption Escrow Account to the Security Trustee to be applied
in accordance with the payment priorities set forth under the caption
"Payment Priorities Prior to a Payment Stop Event" above; and
b. following such date and while a Standstill Period is continuing, to hold
any amounts credited to the Mandatory Redemption Escrow Account in such
account and not apply such amounts until the earlier of cessation of such
Standstill Period (in accordance with the definition thereof) and the
occurrence of a Payment Stop Event.
Following the cessation of the Standstill Period:
a. provided no Payment Stop Event is continuing and no other Standstill
Period is in effect, monies standing to the credit of the Mandatory
Redemption Escrow Account shall be applied in accordance with the payment
priorities set forth under the caption "Payment Priorities Prior to a
Payment Stop Event" above; or
b. if a Payment Stop Event is continuing, monies standing to the credit of
the Mandatory Redemption Escrow Account shall be applied in accordance
with the payment priorities set forth under the caption "Payment
Priorities Following a Payment Stop Event" above.
EFFECT OF PAYMENT STOP EVENT AND STANDSTILL PERIOD
Whilst a Payment Stop Event is continuing or a Standstill Period is in effect,
the Issuer shall not make and the Junior Note Trustee shall not accept any
payments in respect of the Junior Notes (other than, to the extent permitted by
the Security Trust and Intercreditor Deed, payments out of the Escrow Accounts
in accordance with the priorities set out in the Security Trust and
Intercreditor Deed), provided that the Issuer shall not be prohibited from
issuing and the Junior Note Trustee and the holders of the Junior Notes shall be
entitled to receive Junior PIK Notes.
A failure to make a payment due as a result of a Payment Stop Event or a
Standstill Notice shall not prevent the occurrence of a Default or an Event of
Default as a consequence of that non-payment in relation to the Relevant
Document.
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ENFORCEMENT ACTION
Except as permitted by the Security Trust and Intercreditor Deed, no Secured
Creditor or Intra-Group Party shall take any Action, and no Debt Representative
shall instruct the Security Trustee to take any Enforcement Action, at any time.
The Holders of the Junior Notes: Permitted Action
If an Event of Default has occurred and is continuing under the Junior Notes
and/or the Junior Note Indenture and all Secured Obligations arising under the
Senior Notes and/or the Senior Note Indenture have not been discharged in full,
the Junior Note Trustee (acting on the instructions of the relevant percentage
of the holders of the Junior Notes required by the provisions of the Junior Note
Indenture) may on the earlier of:
a. the date on which the Secured Obligations arising under the Senior Notes
and the Senior Note Indenture have been declared to be immediately due and
payable; or
b. the termination of any Standstill Period,
take any Action and/or if the Senior Note Trustee has given its prior written
consent to the Junior Note Trustee and the Security Trustee, and upon the
occurrence of an Enforcement Event in relation to the Secured Obligations under
the Junior Notes and/or the Junior Note Indentures instruct the Security Trustee
to take Enforcement Action.
Following the satisfaction in full of all Secured Obligations arising under the
Senior Notes and the Senior Note Indenture and provided that an Event of Default
has occurred and is continuing under the Junior Notes and/or the Junior Note
Indenture, the Junior Note Trustee may (acting on the instructions of the
relevant percentage of the holders of the Junior Notes required by the
provisions of the Junior Note Indenture) take any Action in relation to the
Secured Obligations owing under the Junior Notes and/or the Junior Note
Indenture and provided that an Enforcement Event has occurred under the Junior
Notes and/or the Junior Note Indenture, instruct the Security Trustee to take
Enforcement Action.
The Holders of the Senior Notes: Permitted Action
If an Event of Default has occurred and is continuing under the Senior Notes
and/or the Senior Note Indenture, the Senior Note Trustee (acting on the
instructions of the relevant percentage of the holders of the Senior Notes
required by the provisions of the Senior Note Indenture), may take any Action in
relation to the Secured Obligations owing under the Senior Notes and/or the
Senior Note Indenture and upon the occurrence of an Enforcement Event in
relation to the Senior Notes and/or the Senior Note Indenture instruct the
Security Trustee to take Enforcement Action.
New Bonding Facility Agreement: Permitted Action
Upon the occurrence of a payment event of default under the New Bonding Facility
Agreement and at all times thereafter while the same is continuing, the New
Bonding Facility Agent may (on its own behalf and on behalf of the New Bonding
Facility Banks), and having notified the Security Trustee and the other Debt
Representatives of the occurrence of such payment event of default, take the
action set out in the second paragraph under the caption "Payment Priorities
Prior to a Payment Stop Event" and on the earlier of (1) the date falling 180
days or more after notice to the Security Trustee of the occurrence of such
payment event of default under the New Bonding Facility Agreement; and (2) the
date on which the Secured Obligations arising under the Senior Notes and the
Senior Note Indenture have been accelerated, may take any Action in relation to
the Secured Obligations arising under the New Bonding Facility Agreement.
The Debt Representatives: Permitted Action on an Insolvency Event
Notwithstanding the limitations imposed relating to the taking of Actions by (i)
the Junior Note Trustee under the caption "The Holders of the Junior Notes:
Permitted Actions"; and (ii) the New Bonding Facility Agent under the caption
"New Bonding Facility Agreement: Permitted Action", the Security Trustee (if so
instructed by each Note Trustee and to the extent instructed to do so) and the
New Bonding Facility Agent (on behalf of the New
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Bonding Facility Finance Parties) shall, following the occurrence of an
Insolvency Event, demand payment of and/or sue for the recovery of the Secured
Obligations, commence any insolvency proceedings and/or prove in the liquidation
of the Obligors (or any of them) for any and all of the Secured Obligations.
Intra-Group Creditors: No Enforcement Action
a. Subject to the following clause b., no Intra-Group Creditor shall (without
the prior written consent of the Security Trustee acting in accordance
with the instructions of the Instructing Trustee) take or be entitled to
take any Action in relation to any Intra-Group Liabilities.
b. Following the occurrence of a payment event of default under any of the
Relevant Documents or an acceleration of amounts under any of the Relevant
Documents, each Intra-Group Creditor shall, at the request of the Security
Trustee (acting on the instructions of the Instructing Trustee):
(i) release each Intra-Group Borrower from all or part of the
Intra-Group Liabilities owed to it; and/or
(ii) request that each Intra-Group Borrower provides cash collateral in
favour of the Security Trustee up to an amount equal to the
Intra-Group Liabilities owed by such Intra-Group Borrower and each
Intra-Group Borrower will agree to provide the same; and/or
(iii) assign the benefit of its claims under all Intra-Group Documents to
which it is a party to the Security Trustee or, if any Intra-Group
Liabilities are not evidenced by Intra-Group Documents, assign all
of its rights in respect of such Intra-Group Liabilities to the
Security Trustee provided that the Security Trustee shall not be
obliged to accept the benefit of such assignment of claims if in
its discretion (such discretion to be exercised reasonably and in a
timely fashion) it considers the taking of such assignment of
claims to be prejudicial to it in its capacity as Security Trustee
under the Relevant Documents; and/or
(iv) make a claim against the relevant Intra-Group Borrower for the
recovery of all or part of the Intra-Group Liabilities owed to it
and promptly pay the proceeds of such recovery to the Security
Trustee.
AMENDMENTS, CONSENTS AND WAIVERS
a. The Security Trustee may, if requested by any Secured Creditor or the
Issuer, without the need to obtain instructions from the Debt
Representatives, agree to any amendment that has been requested by such
Secured Creditor or the Issuer to be made to the Security Trust and
Intercreditor Deed or any other Relevant Document to which it is a party
where in the sole opinion of the Security Trustee such amendment is to be
made to correct a manifest error or is of a formal, minor, administrative
or technical nature.
b. Subject to paragraph a. above and the provisions of the Security Trust and
Intercreditor Deed, in respect of any proposed amendment to be made, and
any proposed consent or waiver to be made or given in relation to, any
provision of any Relevant Document (other than the Security Trust and
Intercreditor Deed) to which the Security Trustee is a party, the Security
Trustee shall not agree to any such amendment or grant any such waiver or
consent without the prior written instructions of:
(i) prior to the discharge in full of the Secured Obligations arising
under the Senior Notes and the Senior Note Indenture, the Senior
Note Trustee (with the Senior Note Trustee confirming to the
Security Trustee that it is acting on the instructions of the
Relevant Holders of the Senior Notes); and
(ii) following the discharge in full of the Secured Obligations arising
under the Senior Notes and the Senior Note Indenture but prior to
the payment in full of the Secured Obligations arising under the
Junior Notes and the Junior Note Indenture, the Junior Note Trustee
(with the Junior Note Trustee confirming to the Security Trustee
that it is acting on the instructions of the Relevant Holders of
the Junior Notes).
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c. The parties to the Security Trust and Intercreditor Deed will acknowledge
and agree that any amendment to and any consent or waiver in relation to
any provision of the Security Trust and Intercreditor Deed shall require
the prior written consent of each Debt Representative and the Issuer.
d. Except for amendments:
(i) made to correct a manifest error or which relate to formal, minor,
administrative or technical matters; or
(ii) which are permitted by sub-clause g. below; or
(iii) of specified types which may be made without the consent of the
holders of the Junior Notes under the Junior Note Indenture; or
(iv) which are made with the prior written consent of the Senior Note
Trustee,
the Issuer and the Junior Note Trustee will acknowledge and agree that until all
Secured Obligations arising under the Senior Notes and the Senior Note Indenture
have been discharged in full, no amendments to the Junior Notes or the Junior
Note Indenture are permitted and no such amendment will be made.
e. Each Secured Creditor will acknowledge and agree that the Senior Note
Trustee (without the need for the consent of the other Secured Creditors
or the Obligors, other than the consent of the Issuer) acting on the
instructions of the holders of the Senior Notes required under the Senior
Note Indenture, may waive and/or amend the provisions of the Senior Notes
and/or the Senior Note Indenture provided that the Senior Note Trustee and
the Issuer will not waive and/or amend the provisions of the Senior Notes
and/or the Senior Note Indenture:
(i) without the prior consent of the Required Holders of at least 50
per cent. of the principal amount of the then outstanding Junior
Notes, if such amendment or waiver would constitute a Material
Amendment; and
(ii) without the relevant consents required and/or set out in the Senior
Note Indenture.
f. Each Secured Creditor will acknowledge and agree that the New Bonding
Facility Agent may (subject to the terms of the New Bonding Facility
Agreement) with the consent of the Issuer waive or amend the provisions of
the New Bonding Facility Agreement provided that the New Bonding Facility
Agent, the New Bonding Facility Banks and the Issuer will agree that they
will not waive or amend the provisions of the New Bonding Facility
Agreement if such waiver or amendment would:
(i) constitute a Material Amendment;
(ii) extend the Availability Period (as defined in the New Bonding
Facility Agreement) of the New Bonding Facility Agreement, except
for an extension specifically provided therein;
(iii) have the effect of incorporating new covenants and/or events of
default into the New Bonding Facility Agreement; or
(iv) have the effect of rendering the existing covenants and/or events
of default contained in the New Bonding Facility Agreement more
onerous for the obligors under the New Bonding Facility Agreement.
g. Each Secured Creditor will acknowledge, and the Junior Note Trustee and
the Issuer will undertake, that if the Senior Note Trustee confirms to the
Junior Note Trustee and the Issuer that the holders of the Senior Notes
have agreed to waive a Default or Event of Default arising in respect of
the Senior Notes or the Senior Note Indenture and/or have agreed to amend
the terms of any covenant in the Senior Notes and/or Senior Note Indenture
during any Standstill Period to address the circumstances resulting in a
Default or Event of Default, the Issuer and the Junior Note Trustee
(without the need for obtaining the consent of the holders of the Junior
Notes provided that, in the case of any amendment, such amendment is not a
Material Amendment) will enter into a supplemental indenture or any other
documents that may be required to provide a waiver to the same effect
and/or amend the Junior Notes and the Junior Note Indenture to the same
effect.
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h. Each Secured Creditor will acknowledge and agree that the Escrow Agreement
may be amended only with the consent of each Note Trustee and the Security
Trustee.
i. Each Obligor, each Intra-Group Creditor and each Intra-Group Borrower (in
each case other than the Issuer) will agree that its consent will not be
required to implement any amendments, consents or waivers effected
pursuant to the provisions of clauses a. through i. hereof and that it
will be bound by any such amendments, consents or waivers once implemented
in accordance with the provisions of clauses a. through i. hereof.
RELEASE OF TRANSACTION SECURITY ON DISCHARGE OF SECURED OBLIGATIONS
At the written request and cost of the Issuer and having received prior written
instructions from all Debt Representatives confirming that:
a. all of the Secured Obligations have been paid and discharged in full; and
b. none of the Secured Creditors, nor any person which a Debt Representative
represents, is under any further actual or contingent obligation to make
advances or provide other financial accommodation to the Issuer or any
other Obligor under any of the Relevant Documents,
the Security Trustee shall release the Transaction Security and where applicable
reassign or transfer any relevant assets, rights or properties that are subject
to the Transaction Security. For the avoidance of doubt, it is agreed that if
any Debt Representative (on the basis of legal advice received by it for this
purpose) considers that an amount paid to the Security Trustee or any Secured
Creditor for application in or towards repayment of the Secured Obligations is
(having regard to circumstances then existing) capable of being avoided or
otherwise set aside on the liquidation or administration of any Obligor or
otherwise, such Debt Representative shall not be obliged to provide the Security
Trustee with any confirmation, such amount shall not be considered to have been
paid, such Secured Obligations shall not be considered to have been discharged
in full and the Security Trustee shall not be obliged to release the relevant
Transaction Security.
RELEASE OF TRANSACTION SECURITY IN CONNECTION WITH PERMITTED DISPOSALS
a. Subject to sub-clause (c) below, the Security Trustee shall be and is
instructed by each Secured Creditor and every other party to the Security
Trust and Intercreditor Deed, upon receipt of a written request from the
Issuer (in which the Issuer certifies either that the disposal is not an
Asset Sale or is not prohibited by the Indentures) and at the cost of the
Issuer, to execute on behalf of itself and each other Secured Creditor and
every other party to the Security Trust and Intercreditor Deed where
required, and without the need for any further referral or authority from
any person, all releases of or, where applicable, reassignments or
transfers in connection with, any of the Transaction Security which relate
to an asset which is the subject of such a disposal by any Obligor. For
the avoidance of doubt, these provisions shall not apply to any disposal
(not being an Asset Sale or disposal prohibited by the Indentures) of an
asset where as a matter of law such asset may be disposed of free of the
security created by the Security Documents without the need for any action
by the Security Trustee or, as the case may be, the Secured Creditors.
b. If an asset which is being disposed of by an Obligor consists of all of
the shares in the share capital of a Guarantor or an Intra-Group Party or
any holding company of a Guarantor or Intra-Group Party, the Security
Trustee shall (upon receipt of a certificate from such Guarantor or
Intra-Group Party certifying that it is neither owed nor does it owe any
Intra-Group Liabilities) be instructed by each other Secured Creditor and
each Obligor to execute (at or immediately before the time of the relevant
disposal) on behalf of each Secured Creditor and each Obligor:
(i) a release of the relevant Guarantor or Intra-Group Party and any
Subsidiary which is a Guarantor or Intra-Group Party thereof from
all liabilities it may have, both actual and contingent, in its
capacity as a Guarantor or Intra-Group Party including all such
liabilities under the Security Trust and Intercreditor Deed and any
liability to any other Obligor by way of guarantee, contribution or
indemnity; and
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(ii) a release of or, where applicable, a reassignment or transfer of
the assets in connection with any Transaction Security granted by
that Guarantor or Subsidiary over any of its assets, rights or
properties under any of the Security Documents (provided that in
doing so the Security Trustee shall only take such steps as are
specifically and expressly required under the relevant Security
Documents or, as the case may be, required under the law of the
relevant jurisdiction for the purpose of releasing or reassigning
the relevant Transaction Security).
c. If any disposal contemplated under sub-clause (a) or (b) above is
certified by the Issuer as being an Asset Sale, the Security Trustee will
only take the actions set out in sub-clause (a) or (b) above if an
authorised representative of the Issuer has provided the Security Trustee,
with a copy to each Debt Representative, with a written notice: (i)
stating that such disposal is permitted under the Indentures; (ii) stating
that no Event of Default has occurred and is continuing under the
Indentures, (iii) detailing the asset which is being disposed of; and (iv)
certifying that the proceeds of such disposal are to be applied in
accordance with the Indentures and the Escrow Agreement.
GOVERNING LAW
The Security Trust and Intercreditor Deed will be governed by English law.
CERTAIN DEFINITIONS APPLICABLE TO THE SECURITY TRUST AND INTERCREDITOR DEED
Set forth below are certain defined terms used in the Security Trust and
Intercreditor Deed and this Appendix 10. Reference is also made to the Security
Trust and Intercreditor Deed for full disclosure of all such terms applicable to
the Security Trust and Intercreditor Deed.
"ACTION" means:
(1) the acceleration of any Secured Obligations or any Intra-Group Liabilities
or any declaration that any Secured Obligations or any Intra-Group
Liabilities are prematurely due and payable (other than solely as a result
of it becoming unlawful for a Secured Creditor to perform its obligations
under the Relevant Documents) or (other than in respect of an Intra-Group
Liability which is payable on demand in accordance with its original
terms) payable on demand;
(2) the exercise of any right of set-off or the taking or receiving of any
payment, other than in each case in respect of Permitted Payments whilst
permitted under the Security Trust and Intercreditor Deed in respect of
any Secured Obligations or any Intra-Group Liabilities;
(3) suing for, commencing or joining any legal or arbitration proceedings to
recover, or in respect of, any Secured Obligations or any Intra-Group
Liabilities;
(4) the entering into of any composition, assignment or arrangement with any
Obligor in connection with any Secured Obligations or any Intra-Group
Liabilities of that Obligor (other than any arrangement whereby the
Intra-Group Liabilities of any Intra-Group Borrower owed to any
Intra-Group Creditor are waived or released);
(5) petitioning, applying or voting for, or taking any steps (including the
appointment of any liquidator, receiver, examiner, administrator,
custodian, manager, assignee, trustee, sequestrator or similar officer) in
relation to, the winding up, dissolution, administration, examinership or
reorganisation of any Obligor, or any analogous procedure or step in any
jurisdiction; and
(6) the making of any demand in relation to any guarantee, indemnity or other
assurance against loss in respect of any Secured Obligations or the
exercising of any right to require any Obligor to pay, prepay, redeem,
purchase, terminate or otherwise acquire any Secured Obligations (other
than in each case in respect of Permitted Payments at any time while
permitted by the provisions described under the caption "Permitted
Payments").
"ADDITIONAL AMOUNTS" shall have the meaning ascribed to it in the applicable
Indenture.
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"ADDITIONAL GUARANTOR" means any member of the Group which accedes to the
Security Trust and Intercreditor Deed as a Guarantor.
"AGENT/TRUSTEE/NEW BONDING FACILITY BANK ACCESSION LETTER" means an accession
letter pursuant to which persons accede to the Security Trust and Intercreditor
Deed as agent, trustee or New Bonding Facility Bank.
"ASSET SALE" shall have the meaning ascribed to it in the Indentures.
"BANKRUPTCY LAW" means Title 11 of the United States Code (11 U.S.C. 101 et.
seq.), or any similar United States federal or state law or any relevant law in
any other jurisdiction of organisation or location of any assets of any Obligor
or Significant Subsidiary or any similar law (including, without limitation, (a)
the laws of the United Kingdom relating to moratorium, administration,
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganisation or
relief of debtors, and (b) the laws of any other jurisdictions relating to
bankruptcy, moratorium, insolvency, receivership, reorganisation or other relief
of debtors and composition with creditors or any amendment to, succession to or
change in such law).
"BUSINESS DAY" means a day (other than a Saturday or Sunday) on which commercial
banks are open for general business in London and New York and (in relation to
any date for payment or purchase of a currency other than euro) the principal
financial centre of that currency.
"DEBT REPRESENTATIVE" means, in relation to the Senior Notes, the Senior Note
Trustee, in relation to the Junior Notes, the Junior Note Trustee and, in
relation to the New Bonding Facility Agreement, the New Bonding Facility Agent.
"DEFAULT" has the meaning ascribed to it in the applicable Indenture.
"DELEGATE" means any delegate, agent, attorney, co-trustee or additional but
separate trustee, custodian, depository or Receiver appointed by the Security
Trustee in accordance with the terms of the Security Trust and Intercreditor
Deed and/or the Security Documents.
"ENFORCEMENT ACTION" means:
(1) the taking of any steps to enforce or collect or require the enforcement
or collection of any of the Transaction Security (including the
crystallisation of any floating charge forming part of the Transaction
Security); and
(2) the making of any demand in relation to any guarantee, indemnity or other
assurance against loss in respect of any Secured Obligations or the
exercising of any right to require any Obligor to pay, prepay, redeem,
purchase, terminate or otherwise acquire any Secured Obligations (other
than in each case in respect of Permitted Payments at any time while
permitted by the provisions described under the caption "Permitted
Payments").
"ENFORCEMENT EVENT" means the acceleration of any Secured Obligations (other
than Secured Obligations arising under the New Bonding Facility Agreement) or
any declaration that any Secured Obligations (other than Secured Obligations
arising under the New Bonding Facility Agreement) are prematurely due and
payable (other than solely as a result of it becoming unlawful for a Secured
Creditor to perform its obligations under the Relevant Documents) or any failure
by any Obligor to pay any principal amount in respect of any Secured Obligations
(other than Secured Obligations arising under the New Bonding Facility
Agreement) whether on maturity or otherwise.
"ESCROW ACCOUNTS" means the Existing Performance Bond Escrow Account and the
Mandatory Redemption Escrow Account.
"ESCROW AGREEMENT" means the escrow agreement dated on or about the date of the
Security Trust and Intercreditor Deed and made between the Escrow Bank, the
Security Trustee and the Issuer establishing and setting out the terms and
conditions of each of the Escrow Accounts.
"ESCROW BANK" means the bank holding the Escrow Accounts in accordance with the
Escrow Agreement.
"EVENT OF DEFAULT" means any event or circumstance specified as such in any of
the Relevant Documents.
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"EXISTING PERFORMANCE BOND ESCROW ACCOUNT" means the Escrow Account established
pursuant to the Escrow Agreement to be used to satisfy any liabilities owed by
the Issuer and its Subsidiaries to certain providers of Performance Bonds in
respect of such Performance Bonds issued and/or outstanding on the issue date of
the Notes for a period of 12 months from such issue date.
"GROUP" means the Issuer and its Subsidiaries from time to time.
"GUARANTEE" means any guarantee of any of the Secured Obligations.
"GUARANTOR ACCESSION LETTER" means an accession letter pursuant to which members
of the Group accede to the Security Trust and Intercreditor Deed as Additional
Guarantors.
"INDENTURES" means the Senior Note Indenture and the Junior Note Indenture
collectively and "INDENTURE" means either of them.
"INSOLVENCY EVENT" means any of the following events:
(1) the entry by a court of competent jurisdiction of (a) a decree or order
for relief in respect of any Obligor or any Significant Subsidiary, in an
involuntary case or proceeding under any Bankruptcy Law or (b) a decree or
order (i) adjudging any Obligor or any Significant Subsidiary bankrupt or
insolvent, (ii) approving as properly filed a petition seeking moratorium,
reorganization, arrangement, adjustment or composition of or in respect of
any Obligor or any Significant Subsidiary under any Bankruptcy Law, (iii)
appointing a custodian, administrator, receiver, administrative receiver,
manager, liquidator, assignee, trustee, sequestrator or other similar
official of any Obligor or any Significant Subsidiary or of any
substantial part of their respective properties, or (iv) ordering the
winding up or liquidation of the affairs of any Obligor or any Significant
Subsidiary, and in each case any such decree or order for relief continues
to be in effect, or any such other decree or order continues unstayed and
in effect, for a period of 60 consecutive calendar days, in the case of
each of clauses (a) and (b) otherwise than, in the case of a Subsidiary of
the Issuer, for the purposes of or pursuant to an amalgamation,
reorganization or restructuring while solvent on terms approved by the
Senior Note Trustee (in the case of the Senior Notes) or the Junior Note
Trustee (in the case of the Junior Notes) or by the Relevant Holders of
the Senior Notes (in the case of the Senior Notes) or the Junior Notes (in
the case of the Junior Notes);
(2) (a) commencement by any Obligor or any Significant Subsidiary of a
voluntary case or proceeding or process (whether or not requiring
the order of a court or tribunal) under any Bankruptcy Law or of any
other case or proceeding to be adjudicated bankrupt or insolvent, or
filing for or having been granted a moratorium on payment of its
debts or files for bankruptcy or is declared bankrupt,
(b) consent by any Obligor or any Significant Subsidiary to the entry of
a decree or order for relief in respect of any Obligor or any
Significant Subsidiary in an involuntary case or proceeding under
any Bankruptcy Law or to the commencement of any bankruptcy or
insolvency case or proceeding against any Obligor or any Significant
Subsidiary,
(c) filing of a petition or answer or consent by any Obligor or any
Significant Subsidiary seeking reorganization or relief under any
Bankruptcy Law,
(d) any Obligor or any Significant Subsidiary (i) consenting to the
filing of such petition or to the appointment of, or taking
possession by, an administrator, custodian, receiver, manager,
liquidator, assignee, trustee, sequestrator or other similar
official of any Obligor or such Significant Subsidiary or of any
substantial part of their respective properties, (ii) making an
assignment for the benefit of its creditors generally or (iii)
admitting in writing its inability to pay its debts generally as
they become due,
(e) the approval by stockholders of any Obligor or any Significant
Subsidiary of any plan or proposal for the liquidation or
dissolution of any Obligor or any Significant Subsidiary,
(f) the whole or any substantial part of the assets of any Obligor or
any Significant Subsidiary being placed under administration or
receivership or administrative receivership or other analogous
proceedings under any relevant Jurisdictions; or
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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(g) any Obligor or any Significant Subsidiary taking any corporate action
in furtherance of any such actions in this definition,
in the case of each of clauses (a) through (g) otherwise than (i), in the case
of a Subsidiary of the Issuer, for the purposes of or pursuant to an
amalgamation, reorganization or restructuring while solvent on terms approved by
the Senior Note Trustee (in the case of the Senior Notes) or the Junior Note
Trustee (in the case of the Junior Notes) or by Relevant Holders of the Senior
Notes (in the case of the Senior Notes) or the Junior Notes (in the case of the
Junior Notes) or (ii) in furtherance of, or otherwise in connection with, the
liquidation or dissolution of MCHI pursuant to the MCHI plan of Liquidation and
Dissolution.
"INSTRUCTING TRUSTEE" means:
(1) prior to the discharge in full of the Secured Obligations under the Senior
Notes and the Senior Note Indenture, the Senior Note Trustee acting on the
instructions of the Relevant Holders of the Senior Notes; and
(2) following the discharge in full of the Secured Obligations under the
Senior Notes and the Senior Note Indenture and prior to the discharge in
full of the Secured Obligations under the Junior Notes and the Junior Note
Indenture, the Junior Note Trustee acting on the instructions of the
Relevant Holders of the Junior Notes.
"INTRA-GROUP BORROWERS" means those companies party to the Security Trust and
Intercreditor Deed as intra-group borrowers under the Intra-Group Documents.
"INTRA-GROUP CREDITOR" means those companies party to the Security Trust and
Intercreditor Deed as intra-group creditors under the Intra-Group Documents.
"INTRA-GROUP DOCUMENTS" means any and all agreements and other instruments under
or by which any Intra-Group Liabilities are outstanding or evidenced including
any instrument pursuant to which the same is novated, varied, supplemented or
amended from time to time.
"INTRA-GROUP LIABILITIES" means all present or future sums, liabilities and
obligations whatsoever (actual or contingent) payable, owing, due or incurred by
any Intra-Group Borrower to any Intra-Group Creditor (whether pursuant to an
Intra-Group Document or otherwise), other than sums, liabilities and obligations
arising in the ordinary course of business which do not constitute Indebtedness
(as defined in the Indentures).
"INTRA-GROUP PARTIES" means the Intra-Group Borrowers and the Intra-Group
Creditors from time to time.
"JUNIOR NOTE INDENTURE" means the indenture pursuant to which the Junior Notes
are issued.
"JUNIOR NOTES" has the meaning given to it in Appendix 8.
"JUNIOR PIK NOTES" means any Junior Notes issued and constituting interest or
Additional Amounts paid in kind on outstanding Junior Notes.
"MANDATORY REDEMPTION ESCROW ACCOUNT" means the Escrow Account established
pursuant to the Escrow Agreement into which, in accordance with the Junior Note
Indenture and the Senior Note Indenture, certain amounts will be paid to be
applied, inter alia, towards the mandatory redemption of the Junior Notes and/or
the Senior Notes.
"MATERIAL AMENDMENT" means any amendment or waiver to the Senior Notes, the
Senior Note Indenture or the New Bonding Facility Agreement which:
(1) increases or changes the basis on which interest accrues or is payable;
(2) alters any provisions relating to the amount, currency or date of any
repayment;
(3) increases the maximum principal amount of the Senior Notes or the amount
of the available commitment under the New Bonding Facility Agreement from
the principal amount and available commitment as at the date hereof;
(4) changes the basis on which fees or other like payments are made or
calculated;
(5) in relation to the Senior Note Indenture only, amends the definition of
Asset Sale or the covenant relating to Asset Sales; and
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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(6) in relation to the Senior Notes and the Senior Note Indenture only,
introduces any new covenants, defaults or events of default.
"NEW BONDING FACILITY AGENT" means HSBC Bank plc.
"NEW BONDING FACILITY AGREEMENT" means the L50,000,000 (or the equivalent in
other currencies) committed revolving bonding facility agreement entered into or
to be entered into among the New Bonding Facility Agent, the New Bonding
Facility Banks, Marconi Corporation plc, Marconi Bonding Limited and the other
members of the Group specified therein for the issuance of bonds, guarantees,
letters of credit, indemnities and similar instruments.
"NEW BONDING FACILITY BANKS" means those banks party to the Security Trust and
Intercreditor Deed as New Bonding Facility Banks.
"NEW BONDING FACILITY FINANCE PARTIES" means the Finance Parties (as defined in
the New Bonding Facility Agreement).
"NOTE TRUSTEES" means each of the Senior Note Trustee and the Junior Note
Trustee and "NOTE TRUSTEE" means either of them.
"NOTES" means the Senior Notes and the Junior Notes, collectively.
"OBLIGOR" means each of the Issuer and the Guarantors.
"PAYMENT DATE" means any date on which a payment, prepayment, purchase or
redemption (whether such payment, prepayment, purchase or redemption is a
payment, prepayment, purchase or redemption of principal, interest or premium or
is a payment or prepayment of additional amounts, fees, commission or otherwise)
is made or is permitted to be made by an Obligor (including, without limitation,
whether directly or indirectly by use of amounts standing to the credit of an
Escrow Account in accordance with the Escrow Agreement) in accordance and in
compliance with the terms of the Relevant Documents.
"PAYMENT STOP EVENT" means:
(1) the failure by any Obligor to pay on the due date any amount payable under
the Senior Notes or the Senior Note Indenture; and/or
(2) the acceleration of amounts due under the Senior Notes or the Senior Note
Indenture following the occurrence of an Event of Default under the Senior
Notes or the Senior Note Indenture,
provided that a Payment Stop Event shall cease to be continuing if:
(a) the relevant Default under the Senior Notes or the Senior Note
Indenture has been remedied or waived and, if amounts due under the
Senior Notes have been accelerated, any such acceleration has been
rescinded in accordance with the Senior Note Indenture; or
(b) the Required Holders of at least a majority of the principal amount
of the then outstanding Senior Notes consent in writing to the
cessation of the relevant Payment Stop Event; or
(c) the Secured Obligations arising under the Senior Notes or the Senior
Note Indenture have been discharged in full,
and, in the case of (a), (b) or (c), the Senior Note Trustee will promptly issue
a written notice to the other Debt Representatives, the Security Trustee and the
Issuer notifying them that the relevant Payment Stop Event has ceased to be
continuing.
"PERFORMANCE BOND" means surety bonds, appeal bonds, bid bonds, performance
bonds, bank guarantees, letters of credit, indemnities and any other similar
instruments.
"PERMITTED PAYMENTS" means, in relation to any Relevant Document or Intra-Group
Document or, as the case may be, Intra-Group Liability:
(1) scheduled payments (which shall include the payment on demand of
Intra-Group Liabilities which are payable on demand in accordance with the
original terms of the relevant Intra-Group Liabilities) and
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mandatory prepayments of principal, premium, if any, and interest
(including default interest) payable in accordance with the terms of the
Relevant Document or Intra-Group Document;
(2) the exercise of any right of set-off in relation to Intra-Group
Liabilities;
(3) any payment or reimbursement of costs, expenses, commitment commissions,
Taxes (other than a tax on income) letter of credit, bond or guarantee
issuance fees and fees (including legal fees) payable to, and sums payable
under any indemnity to, any agent, trustee or issuing bank (which for the
avoidance of doubt shall include the Security Trustee and the Note
Trustees, the New Bonding Facility Agent and the New Bonding Facility
Banks) payable in accordance with the terms of the Relevant Document or,
as the case may be, the Intra-Group Documents;
(4) any payment of any Intra-Group Liabilities arising in respect of any
applicable indemnity, counter-indemnity, reimbursement, Tax gross-up or
increased costs obligation (whether arising under contract or applicable
law) of any Intra-Group Borrower to any Intra-Group Creditor in connection
with any indemnity given by the Intra-Group Creditor to certain providers
of Existing Performance Bonds (as defined in the Escrow Agreement);
(5) sums payable in respect of any applicable indemnity, counter-indemnity,
Tax gross-up or of any increased costs in accordance with the terms of the
Relevant Documents or, as the case may be, the Intra-Group Documents;
(6) prepayment in accordance with the terms of the Relevant Document, or as
the case may be, the Intra-Group Liabilities as a result of it becoming
unlawful for an Obligor, a Secured Creditor, or as the case may be, an
Intra-Group Creditor or an Intra-Group Borrower to perform its obligations
under the Relevant Document or, as the case may be, the relevant
Intra-Group Liabilities;
(7) voluntary prepayment of Intra-Group Liabilities which are advanced as term
loans under the Intra-Group Documents;
(8) the acquisition of the Intra-Group Liabilities by a member of the Group in
any manner which is not restricted by the terms of the Indentures;
(9) application of amounts standing to the credit of the Escrow Accounts in
prepayment of the Notes in accordance with the terms of the Escrow
Agreement and the Indentures; and
(10) the optional redemption, purchase, repurchase, acquisition or retiring for
value, in the open market or otherwise and at any price by the Issuer or
any Guarantors of any Senior Notes or Junior Notes in each case in
accordance with and subject to the restrictions contained in the
Indentures,
provided that any Intra-Group Liabilities owed by the Issuer or a Non-US
Guarantor to a Subsidiary of the US Parent (as defined in the Indentures) shall
be excluded from the definition of Permitted Payment.
"RECEIVER" means a receiver or manager or administrative receiver of the whole
or any part of the Transaction Security.
"RELEVANT DOCUMENTS" means the Security Trust and Intercreditor Deed, any
Agent/Trustee/New Bonding Facility Bank Accession Letter, any Guarantor
Accession Letter, the Indentures, the Escrow Agreement, the Notes, the New
Bonding Facility Agreement, the Security Documents, certain fee letters and any
notices issued and any other documents or agreements entered into in connection
with or relating to such documents.
"RELEVANT HOLDERS" means, in relation to any tranche of Notes, the Required
Holders of at least 25 per cent. of the principal amount of the then outstanding
Notes in such tranche.
"RELEVANT JURISDICTION" means, in relation to a Guarantor, its jurisdiction of
incorporation, or, if not incorporated, its seat or principal place of business.
"REQUIRED HOLDERS" shall have the meaning ascribed to it in the applicable
Indenture.
"SECURED CREDITORS" means the Security Trustee, any Receiver or Delegate, the
Depositary, the Paying Agent, the Registrar, the Senior Note Trustee (for itself
and as trustee for the holders of the Senior Notes), the Junior
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Note Trustee (for itself and as trustee for the holders of the Junior Notes),
the New Bonding Facility Agent and each of the New Bonding Facility Banks and
their successors and assigns.
"SECURED OBLIGATIONS" means all present and future indebtedness, liabilities and
obligations (for the avoidance of doubt, including any liabilities and
obligations which have been cash-collateralised by the Obligors) at any time of
any Obligor under the Relevant Documents, both actual and contingent and whether
incurred solely or jointly or in any other capacity together with any of the
following matters relating to or arising in respect of those liabilities and
obligations:
(1) any refinancing, novation, deferral or extension;
(2) any obligation relating to any increase in the amount of such obligations;
(3) any claim for damages or restitution; and
(4) any claim as a result of any recovery by an Obligor of a payment or
discharge, or non-allowability, on the grounds of preference,
and any amounts that would be included in any of the above but for any
discharge, non-provability or unenforceability of those amounts in any
insolvency or other proceedings (including interest accruing after the
commencement of any insolvency or other proceedings).
"SECURITY" means a mortgage, charge, pledge, lien or other security interest
securing any obligation of any person or any other agreement or any guarantee,
indemnity or assurance against loss or arrangement having a similar effect.
"SECURITY DOCUMENTS" means the security or guarantee documents (including, but
not limited to, the Guarantees) entered into by the Obligors securing or
guaranteeing the Secured Obligations and any other document entered into from
time to time by any of the Obligors creating any guarantee, indemnity or
Security in favour of the Security Trustee or any of the other Secured Creditors
as security for any of the Secured Obligations.
"SENIOR NOTE INDENTURE" means the indenture pursuant to which the Senior Notes
are issued.
"SENIOR NOTES" has the meaning given to it in Appendix 8.
"SIGNIFICANT SUBSIDIARY" shall have the meaning ascribed to it in the relevant
Indenture.
"STANDSTILL EVENT" means the occurrence of a Default under the Senior Notes.
"STANDSTILL NOTICE" means a notice delivered to the Security Trustee (with a
copy to the Issuer and the other Debt Representatives) by the Senior Note
Trustee, notifying it of a Standstill Event.
"STANDSTILL PERIOD" means the period from the date of a Standstill Notice and
ending on the earlier of:
(1) the expiration of a period of 179 days after the date of the issuance of
such Standstill Notice by the Senior Note Trustee; or
(2) the date on which the Senior Note Trustee has confirmed in writing to the
Security Trustee (with a copy to the Issuer and the other Secured
Creditors) that the Default under the Senior Notes in respect of which
that Standstill Notice was issued is no longer continuing; or
(3) the date on which the Senior Note Trustee has confirmed in writing to the
Security Trustee (with a copy to the Issuer and the other Secured
Creditors) that the Standstill Notice has been cancelled by the Senior
Note Trustee acting on the instructions of the Required Holders of at
least a majority of the aggregate principal amount of the then outstanding
Senior Notes; or
(4) the date on which the Senior Note Trustee has confirmed in writing to the
Security Trustee (with a copy to the Issuer and the other Secured
Creditors) that the Secured Obligations under the Senior Notes and the
Senior Note Indenture have been discharged in full and there are no
further liabilities under the Senior Notes or the Senior Note Indenture.
"SUBSIDIARY" has the meaning ascribed to it in the applicable Indenture.
816
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 10: SECURITY AND INTERCREDITOR ARRANGEMENTS
--------------------------------------------------------------------------------
"TRANSACTION SECURITY" means any guarantee (including the Guarantees)
guaranteeing the payment of the Secured Obligations and any Security created or
expressed to be created in favor of the Security Trustee or any Secured Creditor
under the Security Documents.
4.2 US INTERCREDITOR AGREEMENT
As mentioned in part I, Section 2, Part D.4, the Working Capital Facility will
be secured by a first mortgage lien on the Marconi Communications, Inc. property
located in Warrendale, Pennsylvania (and a related assignment or leases and
rents). A second lien on the property (and related leases and rents) will be
granted in favour of the Secured Creditors. Consequently an intercreditor
agreement will be entered between Liberty Funding LLC ("LIBERTY"), as provider
of the Working Capital Facility, and the Security Trustee. Under the terms of
the US intercreditor agreement the Security Trustee will agree that it shall not
take any enforcement action against the Warrendale property (or the related
leases and rents) until satisfaction by Marconi Communications, Inc. in full of
its liabilities under the Working Capital Facility or with the consent of
Liberty.
The US intercreditor agreement will not otherwise restrict the ability of the
Security Trustee to take Enforcement Action in relation to any other security
which it holds on behalf of the Secured Creditors or to take action against
Marconi Communications, Inc, in its capacity as a Guarantor.
817
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 11
ESOP FACILITIES
Date of ISDA
Trade Effective Master Date of
Party A Party B Date Date Agreement Confirmation
------- ------- -------- ---------- ------------ ------------
1. Salomon Brothers Bedell Cristin 13/01/00 21/01/00 15/12/99 13/01/00
International Ltd Trustees Limited
as trustee of The
Marconi Employee
Trust
2. Salomon Brothers Bedell Cristin 26/01/00 31/01/00 15/12/99 26/01/00
International Ltd Trustees Limited
as trustee of The
Marconi Employee
Trust
3. Salomon Brothers Bedell Cristin 02/02/00 16/02/00 15/12/99 02/02/00
International Ltd Trustees Limited
as trustee of The
Marconi Employee
Trust
4. Barclays Bank PLC Bedell Cristin 16/03/00 24/03/00 16/03/00 04/07/00
Trustees Limited
as trustee of The
Marconi Employee
Trust
5. Barclays Bank PLC Bedell Cristin 17/03/00 24/03/00 16/03/00 05/07/00
Trustees Limited
as trustee of The
Marconi Employee
Trust
6. Barclays Bank PLC Bedell Cristin 22/05/00 30/05/00 16/03/00 05/07/00
Trustees Limited
as trustee of The
Marconi Employee
Trust
7. UBS AG Bedell Cristin 15/06/00 23/06/00 16/06/00 19/06/00
Trustees Limited
as trustee of The
Marconi Employee
Trust
818
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 12
CONDITIONS OF THE WARRANTS
The Warrants will be issued subject to and with the benefit of the conditions
set out below.
1. (A) In these Conditions, unless there is something in the subject matter or
context inconsistent therewith, the words and expressions set out below
shall have the following meanings:
ACT means the Companies Act 1985;
CERTIFICATED means a security which is not in uncertificated form;
COMPANY means Marconi Corporation plc, a company incorporated under the
Companies Act 1862 to 1898 and registered in England and Wales with
registered number 67307;
CONDITIONS means the terms and conditions set out herein as modified from
time to time in accordance with the provisions set out herein and
CONDITION refers to the relative numbered paragraph of the Conditions;
CORP SCHEME means the scheme of arrangement of the Company including any
modifications of, additions or conditions to, that scheme of arrangement
as approved or imposed by the Court pursuant to Section 425 of the Act;
COURT means the High Court of Justice of England and Wales;
CREST means the system enabling title to securities to be evidenced and
transferred in uncertificated form operated by CREST Co. Limited in
accordance with the CREST Regulations;
CREST REGULATIONS means the Uncertificated Securities Regulations 2001
(SI 2001/3755), as amended;
DEED POLL means the instrument by way of a deed poll to be dated prior to
the Effective Date and executed by the Company under which the Warrants
are constituted;
EFFECTIVE DATE means the date on which an office copy of the order of
Court sanctioning the Corp Scheme shall have been delivered to the
Registrar of Companies for registration;
EXERCISE DATE means the London Business Day next following the date on
which the requirements relating to the exercise of the Warrants in
Condition 2 have been complied with in full or, if later, the date on
which payment is actually received by the Company in accordance with
Condition 2;
EXTRAORDINARY RESOLUTION means a resolution passed at a meeting of the
Warrant Holders duly convened and held and carried by a majority
consisting of not less than three-fourths of the votes cast upon a show
of hands or, if a poll is duly demanded, by a majority consisting of not
less than three-fourths of the votes cast on a poll;
INDEPENDENTLY DETERMINED means determined by an independent investment
bank of international repute in London selected by the Company and acting
as an expert;
LONDON BUSINESS DAY means a day (other than a Saturday or Sunday) on
which commercial banks and foreign exchange markets are open for business
in London;
OPERATOR means CREST Co. Limited or any additional or alternative
operator from time to time approved by the Company in relation to the
Warrants and in accordance with the CREST Regulations;
OPERATOR REGISTER means the Operator register of corporate securities (as
defined in the CREST Regulations);
REGISTER means the register of Warrant Holders holding Warrants in
certificated form required to be maintained pursuant to Clause 3 of the
Deed Poll;
REGISTRAR means Computershare Investor Services plc or any other person
who is appointed by the Company to maintain the Register at any time;
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 12: CONDITIONS OF THE WARRANTS
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REGISTRAR OF COMPANIES means the registrar or other officer performing
under the Act the duty of registration of companies in England and Wales
and including a deputy registrar;
REGISTRATION STATEMENT means a registration statement filed by the Company
with the SEC in respect of the Warrants and the Shares issuable on
exercise of the Warrants;
SCHEME DOCUMENT means a circular sent to certain creditors of the Company
and to certain creditors of Marconi plc dated 31 March 2003 setting out
proposals in relation to, inter alia, a scheme of arrangement between the
Company and certain of its creditors pursuant to Section 425 of the Act;
SEC means the US Securities and Exchange Commission;
SECURITIES ACT means the US Securities Act of 1933, as amended;
SHARES means ordinary shares (currently of 5p each) in the capital of the
Company as authorised from time to time and all other (if any) stock or
shares in the equity share capital of the Company from time to time and
for the time being ranking pari passu therewith and all other (if any)
shares or stock in the equity share capital of the Company resulting from
any sub-division, consolidation or re-classification of the Shares;
SPECIFIED NUMBER means, in relation to each Warrant, one Share, unless
there has been an adjustment to the number of Shares issuable on exercise
of a Warrant pursuant to Condition 5(A), in which case it means such
adjusted number of Shares issuable on exercise of each Warrant as has,
from time to time, been determined in accordance with such Conditions;
SPECIFIED OFFICE means the office of the Registrar specified below or any
other office of the Registrar which may from time to time be notified to
Warrant Holders in accordance with Condition 12;
SUBSCRIPTION PERIOD means the period commencing on (and including) the
date following the day upon which Warrants are first issued under the Deed
Poll and expiring on (and including) the fourth anniversary of the date of
issue (or, if that is not a London Business Day, the preceding London
Business Day), provided that with respect to any Warrant held by a person
in the United States (as defined in Regulation S under the Securities
Act), the Subscription Period will not commence until the date on which
the Registration Statement is declared effective by the SEC;
SUBSCRIPTION PRICE means the amount payable in respect of each Specified
Number of Shares for which the holder of one Warrant is entitled upon
exercise of the Warrant to require the subscription, such amount being
150p per Specified Number of Shares or such other amount as may for the
time being be applicable in accordance with the provisions of Condition 5;
SUBSCRIPTION RIGHTS means the subscription rights in respect of Shares
granted by the Company to Warrant Holders pursuant to the Deed Poll, or
such of those rights as are for the time being outstanding;
SUBSIDIARY means any subsidiary within the meaning of Section 736 of the
Act;
SUPERVISORS means the persons holding office as supervisors of the Corp
Scheme from time to time;
THE STOCK EXCHANGE means the London Stock Exchange plc or any other body
to which its functions have been transferred (or, to the extent the Shares
are no longer listed, quoted or admitted to trading on the London Stock
Exchange plc, such other body on which the Shares are listed, quoted or
admitted to trading);
UNCERTIFICATED means a security which is for the time being recorded on
the relevant Operator register as being held in CREST, and title to which,
by virtue of the CREST Regulations, may be transferred by way of CREST;
WARRANT CERTIFICATES means the certificates to be issued in the name of
Warrant Holders holding their Warrants in certificated form substantially
in the form set out in the First Schedule to the Deed Poll, as from time
to time modified in accordance with the provisions set out in the Deed
Poll;
820
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 12: CONDITIONS OF THE WARRANTS
--------------------------------------------------------------------------------
WARRANT EXERCISE NOTICE means a notice substantially in the form set out
on the reverse of each Warrant Certificate which must be completed in
order to exercise the Warrant comprised in that Warrant Certificate or, in
the case of Warrants held in uncertificated form, such form of
notification as complies with Condition 2(A)(i);
WARRANT HOLDER means, in relation to any Warrant held in uncertificated
form, the Accountholder (as defined in Condition 8) and, in relation to
any Warrant in certificated form, the person or persons who is or are for
the time being registered in the Register as the holder or joint holders
of a Warrant; and
WARRANTS means the rights created by the Deed Poll entitling the Warrant
Holders, upon the valid exercise of such rights, to subscribe for Shares
on the terms set out in the Deed Poll and in the Conditions.
(B) Unless the context otherwise requires terms importing the singular number
only shall include the plural and vice versa, terms importing persons
shall include firms and corporations and terms importing one gender only
shall include the other gender.
2.(A) Each Warrant may be exercised at any time during the Subscription Period,
provided it is on or after the Effective Date, by either:
(i) in the case of Warrants held in uncertificated form, arranging for
the payment in favour of the Company, through CREST, of the
aggregate Subscription Price for the Shares being subscribed (as
provided in sub-paragraph 2(B) below) and sending to the Registrar,
via the Operator, a Warrant Exercise Notice, being a properly
authenticated dematerialised instruction:
(1) in the form from time to time prescribed by the directors of the
Company (the DIRECTORS) and having the effect determined by the
Directors from time to time; and
(2) that is addressed to the Company, is attributable to the Warrant
Holder and identifies (in accordance with the form prescribed by the
Directors as aforesaid) the number of Warrants in respect of which
the Subscription Rights are to be exercised;
provided always that
(3) the Directors may in their discretion permit a Warrant Holder in
uncertificated form to exercise his Subscription Rights by some
other means (including if the Company or any sponsoring system-
participant acting on behalf of the Company is unable, at any time
and for any reason, to receive properly authenticated dematerialised
instructions);
(4) the Directors may in their discretion require, in addition to
receipt of a properly authenticated dematerialised instruction as
referred to above, the Warrant Holder in uncertificated form to
complete and deliver to the Company (or its Registrar) on or within
28 London Business Days prior to the relevant Exercise Date, a
notice in such form as may from time to time be prescribed by the
Directors;
(5) the Directors may in their discretion determine when any such
properly authenticated dematerialised instruction and/or other
instruction or notification is to be treated as received by the
Company or by such other person as it may require for those
purposes, being the date on which such notice is deemed delivered;
(6) for the avoidance of doubt, the form of the properly authenticated
dematerialised instruction as referred to above, may be such as to
divest the Warrant Holder concerned of the power to transfer such
Warrant to another person; and
(7) all notices, instructions and any other provisions required to be
complied with pursuant to this sub-paragraph 2(A)(i) shall be
subject always to the facilities and requirements of CREST, CREST
Regulations and the Operator; or
(ii) in the case of Warrants in certificated form, by delivery of the
Warrant Certificate evidencing title to the Warrant to the Specified
Office during normal business hours on any London Business Day
821
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 12: CONDITIONS OF THE WARRANTS
--------------------------------------------------------------------------------
together with the Warrant Exercise Notice endorsed on it duly
completed and executed and accompanied by payment in favour of the
Company, as provided below.
The exercise of Warrants under Condition 2(A)(i) and 2(A)(ii) shall
be irrevocable and must be made subject to, and in compliance with,
any applicable fiscal and other laws and regulations for the time
being in force and upon payment of any taxes, duties and other
governmental charges payable by reason of the exercise (other than
United Kingdom taxes and duties imposed on the Company).
(B) Payment by a Warrant Holder on the exercise of any Warrant shall be made
by the payment in sterling of the Subscription Price applicable on the
Exercise Date either, in the case of Warrants held in uncertificated form,
through CREST in accordance with CREST Regulations or, in the case of
Warrants in certificated form, by cheque sent to the Registrar, in each
case in favour of the Company.
(C) Each Warrant entitles its holder to subscribe for the Specified Number of
Shares at the then applicable Subscription Price.
(D) Notwithstanding anything herein to the contrary, unless satisfied that the
exemption from registration provided by Regulation S under the Securities
Act is available, the Directors may in their discretion refuse to permit
any Warrant Holder to exercise his Subscription Rights: (i) at any time
when a Registration Statement under the Securities Act is not effective
with respect to such exercise and the issuance of Shares arising on such
exercise or (ii) during any Blackout Period imposed as described in
Condition 2(E) below.
(E) In the event that, in the opinion of the Directors, it is advisable to
suspend use of the Registration Statement or the prospectus forming a part
of the Registration Statement, due to (i) any request by the SEC or any
other US federal or state governmental authority for amendments or
supplements to a registration statement or related prospectus or for
additional information; (ii) the issuance by the SEC or any other US
federal or state governmental authority of any stop order suspending the
effectiveness of a registration statement or the initiation or threat of
any proceedings for that purpose; (iii) the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Shares for sale in any
jurisdiction or the initiation or threat of any proceeding for such
purpose; (iv) the existence of any fact or the happening of any event
which makes any statement of a material fact in the Registration Statement
or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue or which would require the making
of any changes in the Registration Statement or prospectus in order that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and that in the case of the prospectus, it will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; (v) the Directors' determination that a post-effective
amendment to the Registration Statement would be appropriate; or (vi)
pending material corporate developments or similar material events that
have not yet been publicly disclosed and as to which the Directors believe
public disclosure will be prejudicial to the Company, the Company shall
give written notice to the Registrar to the effect of the foregoing and to
the effect that the Warrants may not be exercised during such time period
as may be specified in such notice (a BLACKOUT PERIOD). In the event that
the Warrant Holder seeks to exercise his Subscription Rights during a
Blackout Period, the Registrar will notify the Warrant Holder, in
accordance with Condition 12, that a Blackout Period is in effect. In no
event shall the Company impose a Blackout Period within sixty (60) days
prior to the expiration of the Subscription Period.
(F) The Registrar, and the Company, reserve the right to delay taking any
action on any particular instructions from the Warrant Holder if the
Registrar considers that it needs to do so to obtain further information
from the Warrant Holder or to comply with any legal or regulatory
requirement binding on it (including the obtaining of evidence of identity
to comply with money laundering regulations), or to investigate any
concerns it may have about the validity of or any other matter relating to
the instruction.
822
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 12: CONDITIONS OF THE WARRANTS
--------------------------------------------------------------------------------
3. (A) Provided the requirements of Condition 2 have been satisfied, the Company
shall allot the Specified Number of Shares issuable on the exercise of
the relevant Warrants not later than 10 London Business Days after the
Exercise Date (or, in the case of any Shares to be allotted and issued
pursuant to Condition 5(A)(iv)(g) as a result of a Retroactive Adjustment
(as defined in Condition 5(A)(iv)(g), not later than 10 London Business
Days after the relevant adjustment to the Specified Number takes place).
(B) All Shares so allotted shall be fully paid and shall rank pari passu in
all respects with the other fully paid Shares in issue on the Exercise
Date, and shall accordingly entitle the holders of those Shares to
participate in full in all dividends and distributions paid or made on
the Shares after the Exercise Date, other than any dividend or other
distribution which shall previously have been announced, declared,
recommended or resolved by the Directors to be paid or made on the
Shares, the record date for which is prior to the Exercise Date and
notice of the intended dividend or other distribution and of the record
date shall have been given in accordance with the rules of The Stock
Exchange prior to the Exercise Date.
(C) In the case of Warrants in uncertificated form, Shares arising on
exercise of any Warrants shall be allotted and issued in uncertificated
form and credited by the Operator (in accordance with the instructions of
the Company and CREST Regulations) to the CREST stock accounts of the
person or persons designated in the relevant Warrant Exercise Notice
within 10 London Business Days after the Exercise Date (subject as set
out in Condition 3(A) in relation to a Retroactive Adjustment). In the
case of the exercise of Warrants in certificated form, the Company will
by not later than 20 London Business Days after the allotment procure the
issue of a share certificate in the name of the person stated in the
Warrant Exercise Notice and send, or procure the sending of, such
certificate to such person at the address stated in the Warrant Exercise
Notice or otherwise as directed in accordance with the Warrant Exercise
Notice, by ordinary post at the risk of the person entitled to the
Shares.
4. (A) While any Subscription Rights remain exercisable the Company will, save
with the approval of an Extraordinary Resolution and subject as provided
in Condition 4(B) below:
(i) at all times keep available for issue free from pre-emptive
rights out of its authorised but unissued share capital the
aggregate Specified Number of Shares as would be issued if all of
the Warrants and all other rights of subscription for and exercise
into Shares were to be exercised;
(ii) not issue or pay up any securities, in either case by way of
capitalisation of profits or reserves, other than (1) by the issue
of fully paid Shares to the holders of Shares (SHAREHOLDERS) and
other holders of shares in the capital of the Company which by
their terms entitle the holders thereof to receive Shares on a
capitalisation of profits or reserves or (2) by the issue of Shares
paid up in full out of profits or reserves (in accordance with
applicable law) and issued wholly, ignoring fractional
entitlements, in lieu of the whole or part of a cash dividend or
(3) by the issue of fully paid equity share capital (other than
Shares) to the holders of equity share capital of the same class
and other holders of shares in the capital of the Company which by
their terms entitle the holders thereof to receive equity share
capital (other than Shares) on a capitalisation of profits or
reserves, unless, in any such case, the same gives rise (or would,
but for the fact that the adjustment would be less than one per
cent. of the Subscription Price then in effect, give rise) to an
adjustment of the Subscription Price or the Specified Number on
exercise of each Warrant;
(iii) not in any way modify the rights attaching to the Shares with
respect to voting, dividends or liquidation, nor issue any other
class of equity share capital carrying any rights which are more
favourable than such rights, but so that nothing in this Condition
4(A) (iii) shall prevent (1) the issue of any equity share capital
to employees (including directors holding executive office),
whether of the Company or any of its subsidiary or associated
companies, by virtue of their office or employment pursuant to any
scheme or plan approved by the Company in general meeting or which
is established pursuant to such a scheme or plan which is or has
been so approved or (2) any consolidation or subdivision of the
Shares or the conversion of any Shares into stock or vice versa or
(3) any modification of such rights which is Independently
Determined not to be materially prejudicial to the interests of the
Warrant Holders or (4) without prejudice to any rule of law or
legislation (including regulations made under Section 207 of the
Companies Act 1989 or any other
823
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 12: CONDITIONS OF THE WARRANTS
--------------------------------------------------------------------------------
provision of that or any other legislation), the conversion of
Shares into, or the issue of any Shares in, uncertificated form (or
the conversion of Shares in uncertificated form into certificated
form) or any amendment of the Articles of Association of the
Company made in connection with the matters described in this
Condition 4 or which is supplemental or incidental to any of the
foregoing (including any amendment made to enable or facilitate
procedures relating to such matters and any amendment dealing with
the rights and obligations of holders of securities, including
Shares, dealt with under such procedures) or (5) any issue of
equity share capital where the issue of such equity share capital
results, or would, but for the fact that the adjustment would be
less than one per cent. of the Subscription Price then in effect or
that the consideration per Share receivable therefor is at least 95
per cent. of the Current Market Price (as defined in Condition 5)
per Share, otherwise result in an adjustment of the Subscription
Price and/or the Specified Number or (6) any issue of equity share
capital or modification of rights attaching to the Shares where
prior thereto it was Independently Determined what (if any)
adjustments should be made to the Subscription Price and/or the
Specified Number as being fair and reasonable to take account
thereof and such determination shall have concluded either that no
adjustment is required or that an adjustment resulting in a
reduction of the Subscription Price is required and/or an increase
in the Specified Number is required and, if so, the new
Subscription Price and/or Specified Number as a result thereof and
the basis upon which such adjustment is to be made and, in any such
case, the date on which the adjustment shall take effect (and so
that the adjustment shall be made and shall take effect
accordingly);
(iv) procure that no securities (whether issued by the Company or any of
its Subsidiaries or procured by the Company or any of its
Subsidiaries to be issued) issued without rights to convert into or
exchange or subscribe for or purchase Shares shall subsequently be
granted such rights exercisable at a consideration per Share which
is less than 95 per cent. of the Current Market Price per Share at
close of business on the dealing day last preceding the date of the
announcement of the proposed inclusion of such rights unless the
same gives rise (or would, but for the fact that the adjustment
would be less than one per cent. of the Subscription Price then in
effect, give rise) to an adjustment of the Subscription Price
and/or the Specified Number pursuant to Condition 5(A)(iii) and
that at no time shall there be in issue Shares of differing nominal
values, save where such Shares have the same economic rights;
(v) not make any issue, grant or distribution or take any other action
if the effect thereof would be that, on the exercise of a Warrant,
Shares would (but for the provisions of Condition 5(A)) have to be
issued at a discount to their par value or otherwise could not,
under any applicable law then in effect, be legally issued as fully
paid;
(vi) not reduce its issued share capital, share premium account or
capital redemption reserve or any uncalled liability in respect
thereof, except (a) pursuant to the terms of issue of the relevant
share capital or (b) by means of a purchase or redemption of share
capital of the Company to the extent permitted by applicable law or
(c) as permitted by Section 130(2) of the Act or (d) a reduction of
the share premium account which requires the confirmation of the
Court and which does not involve the return, either directly or
indirectly, of an amount standing to the credit of the share
premium account of the Company and in respect of which the Company
shall have tendered to the Court such undertaking as it may require
prohibiting, so long as any of the Warrants remains outstanding,
the distribution (except by way of capitalisation issue) of any
reserve which may arise in the books of the Company as a result of
such reduction or (e) where the reduction does not involve any
distribution of assets and is effected by way of cancellation for
the purposes of a scheme of arrangement pursuant to Section 425 of
the Act or (f) by way of transfer of reserves as permitted under
applicable laws or (g) solely in relation to a change in the
currency in which the nominal amount of the Shares is expressed or
(h) where the reduction is permitted by applicable law and it is
Independently Determined that the interests of Warrant Holders
would not be prejudiced by such reduction or (i) where the
reduction results in (or would, but for the fact that the
adjustment would be less than one per cent. of the Subscription
Price then in effect, result in) an adjustment to the Subscription
Price and/or the Specified Number; and
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 12: CONDITIONS OF THE WARRANTS
--------------------------------------------------------------------------------
(vii) endeavour to ensure that the Shares issued upon exercise of any
Warrant will be admitted to the Official List (as defined in
Condition 5) and will be listed, quoted or traded on any other stock
exchange or securities market on which the Shares may then be listed
or quoted or traded.
(B) Nothing in this Condition 4 shall prevent, and no adjustment to the
Subscription Price and/or the Specified Number shall be made as a result
of, any actions taken by the Company to effect the capital reduction
described in the Scheme Document or any issue of Shares pursuant to the
Corp Scheme.
5. (A) The Subscription Price or the Specified Number, as specified below, will
be adjusted in the following circumstances:
(i) Consolidation or Subdivision: If there shall be an alteration to
the nominal value of the Shares as a result of consolidation or
sub-division, the Specified Number shall be adjusted in accordance
with the following formula:
n
NE = OE X --
N
where:
NE means the Specified Number after adjustment;
OE means the Specified Number prior to adjustment;
N means the number of Shares outstanding immediately before such
event; and
n means the number of Shares outstanding immediately following
such event.
Such adjustment shall become effective on the date of such
alteration.
(ii) Capitalisation of Profits or Reserves: If and whenever the Company
shall issue any Shares credited as fully paid to the Shareholders
by way of capitalisation of profits or reserves (including any
share premium account or capital redemption reserve) other than
Shares issued wholly, ignoring fractional entitlements, in lieu of
the whole or part of a cash dividend which the Shareholders would
or could otherwise have received, the Specified Number shall be
adjusted in accordance with the following formula:
n
NE = OE X --
N
where:
NE means the Specified Number after adjustment;
OE means the Specified Number prior to adjustment;
N means the number of Shares outstanding immediately before such
event; and
n means the number of Shares outstanding immediately following
such event.
Such adjustment shall become effective on the date of issue of such
Shares.
(iii) Other Events: If the Company determines that an adjustment should
be made to the Subscription Price and/or the Specified Number as a
result of one or more events or circumstances not referred to in
Conditions 5(A)(i) and (ii), the Company shall, at its own expense
and acting reasonably, have Independently Determined as soon as
practicable what adjustment (if any) to the Subscription Price
and/or the Specified Number is fair and reasonable to take account
thereof and the date on which such adjustment should take effect
and upon such determination such adjustment (if any) shall be made
and shall take effect in accordance with such determination. No
such adjustment will be made where the effect would be to vary the
Subscription Price by less than one per cent.
(iv) General
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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(a) On any adjustment to the Subscription Price pursuant to this
Condition 5(A), the resultant Subscription Price, if not an integral
multiple of one penny, shall be rounded to the nearest whole penny
(0.5 pence being rounded upwards). No adjustment shall be made to
the Subscription Price where such adjustment (rounded if applicable)
would be less than one per cent. of the Subscription Price then in
effect. Any adjustment not required to be made, and any amount by
which the Subscription Price has been rounded, shall be carried
forward and taken into account in any subsequent adjustment but such
subsequent adjustment shall be made on the basis that the adjustment
not required to be made had been made at the prior relevant time.
Notice of any adjustments to the Subscription Price or the Specified
Number shall be given to the Warrant Holders in accordance with
Condition 12 as soon as practicable after the determination thereof.
(b) No adjustment will be made to the Subscription Price or the
Specified Number where Shares or other securities (including rights,
warrants or options) are issued, offered, exercised, allotted,
appropriated, modified or granted to employees (including directors
holding executive office) of the Company or any Subsidiary or any
associated company of the Company pursuant to any employees' share
scheme (as defined in Section 743 of the Act or any modification or
re-enactment thereof).
(c) The Subscription Price may not be reduced and the Specified Number
may not be adjusted so that, on exercise of the Warrants, Shares
would be issued at a discount to their nominal value.
(d) Where more than one event which gives or may give rise to an
adjustment to the Subscription Price or the Specified Number occurs
within such a short period of time that it is Independently
Determined that a modification to the operation of the adjustment
provisions is required in order to give the intended result, such
modification shall be made to the operation of the adjustment
provisions as may be advised by such investment bank to be in its
opinion appropriate to give such intended result.
(e) Where the circumstances giving rise to any adjustment pursuant to
this Condition 5(A) have already resulted or will result in an
adjustment to the Subscription Price and/or the Specified Number or
where the circumstances giving rise to any adjustment arise by
virtue of any other circumstances which have already given or will
give rise to an adjustment to the Subscription Price and/or the
Specified Number, such modification shall be made to the operation
of the provisions of this Condition 5(A) as may be Independently
Determined to be appropriate to give the intended result.
(f) If any doubt shall arise as to the appropriate adjustment to the
Subscription Price and/or the Specified Number a certificate
providing the Independently Determined adjustment shall be
conclusive and binding on all concerned, save in the case of
manifest or proven error.
(g) If the Exercise Date in relation to any Warrant shall be after the
record date for any such issue as is mentioned in Condition
5(A)(ii), but before the adjustment becomes effective under this
Condition 5(A) (such adjustment a RETROACTIVE ADJUSTMENT), the
Company shall (conditional upon the Retroactive Adjustment becoming
effective) procure that there shall be allotted to the relevant
Warrant Holder, in accordance with the provisions of Condition 3,
such number of additional Shares as, together with the Shares
allotted or to be allotted to the relevant Warrant Holder on
exercise of the relevant Warrant, is equal to the number of Shares
which would have been required to be allotted on exercise of such
Warrant if the relevant adjustment to the Specified Number
(reflecting the event referred to in Condition 5(A)(ii)) had in fact
been made and became effective immediately after the relevant record
date.
(h) References to any issue or offer to Shareholders AS A CLASS BY WAY
OF RIGHTS shall be taken to be references to an issue or offer to
all or substantially all Shareholders by way of rights other than
Shareholders to whom, by reason of the laws of any territory or
requirements of any recognised regulatory body or any other stock
exchange in any territory or in connection with fractional
entitlements, or any other disapplication right of the Directors of
the Company granted in the Articles, it is determined not to make
such issue or offer.
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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(vi) Fractions of Shares
No exercise of Warrants shall result in the issue of a fraction of a
Share (including, for the avoidance of doubt, by virtue of a
Retroactive Adjustment). If a Warrant Holder exercising his Warrants
would, but for the preceding sentence and after aggregating all
Warrants being exercised by him, be entitled to receive a number of
Shares which includes a fraction of Shares, such Warrant Holder's
entitlement to receive such number shall be rounded down to the
nearest integral number of Shares to exclude fractions, whereupon he
shall be paid the amount (in sterling) equal to the value of the
fraction of Share forgone, as determined by the Company. Such payment
shall be made, in each case subject to any applicable exchange
control or other laws or regulations, (A) in the case of a Warrant
held in uncertificated form, to the relevant Warrant Holder's cash
memorandum account with the Operator in accordance with the rules of
the Operator or (B) in the case of a Warrant held in certificated
form, by cheque by ordinary uninsured mail to the exercising Warrant
Holder (in accordance with the instructions contained in the Warrant
Exercise Notice but at the risk of the exercising Warrant Holder).
(B) For the purposes of paragraph (A) of this Condition:
CURRENT MARKET PRICE means, in respect of a Share at a particular date,
the average of the bid and offer quotations published by, or derived from,
the Relevant Stock Exchange for one Share for the five consecutive dealing
days ending on the dealing day immediately preceding such date; provided
that if at any time during the said five day period the Shares shall have
been quoted ex-dividend (or ex-any other entitlement) and during some
other part of that period the Shares shall have been quoted cum-dividend
(or cum-any other entitlement) then:
(a) if the Shares to be issued do not rank for the dividend (or other
entitlement) in question, the quotations on the dates on which the
Shares shall have been quoted cum-dividend (or cum-any other
entitlement) shall for the purpose of this definition be deemed to
be the amount thereof reduced by an amount equal to the amount of
that dividend or other entitlement (where it is a cash dividend or
entitlement) or, as the case may be, the Fair Market Value of that
dividend or other entitlement (where it is not a cash dividend or
entitlement) per Share as at the date of announcement of such
dividend or entitlement (excluding any associated tax credit and
less the tax (if any) falling to be deducted on payment thereof to a
resident of the United Kingdom); or
(b) if the Shares to be issued do rank for the dividend (or other
entitlement) in question, the quotations on the dates on which the
Shares shall have been quoted ex-dividend (or ex-any other
entitlement) shall for the purpose of this definition be deemed to
be the amount thereof increased by such similar amount,
and provided further that if the Shares on each of the said five dealing
days have been quoted cum-dividend (or cum-any other entitlement) in
respect of a dividend (or other entitlement) which has been declared or
announced but the Shares to be issued do not rank for that dividend (or
other entitlement) the quotations on each of such dates shall for the
purposes of this definition be deemed to be the amount thereof reduced by
an amount equal to the amount of that dividend or other entitlement (where
it is a cash dividend or entitlement) or, as the case may be, the Fair
Market Value of that dividend or other entitlement (where it is not a cash
dividend or entitlement) per Share as at the date of announcement of such
dividend or entitlement (excluding any associated tax credit and less the
tax (if any) falling to be deducted on payment thereof to a resident of
the United Kingdom).
DEALING DAY means a day on which the Relevant Stock Exchange is open for
business and Shares may be dealt in on the Relevant Stock Exchange.
DIVIDEND means any dividend or distribution, whether of cash, assets or
other property, and whenever paid or made and however described (and for
these purposes a distribution of assets includes without limitation an
issue of shares or other securities credited as fully or partly paid up
(other than an issue of Shares falling within Condition 5(A)(ii) by way of
capitalisation of profits or reserves)).
EQUITY SHARE CAPITAL has the meaning ascribed to it in Section 744 of the
Act.
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 12: CONDITIONS OF THE WARRANTS
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FAIR MARKET VALUE means, with respect to any property on any date, the
Independently Determined fair market value of that property provided that
(1) the fair market value of a cash Dividend paid or to be paid shall be
the amount of such cash Dividend, (2) where options, warrants or other
rights are publicly traded in a market of adequate liquidity, as
Independently Determined, the fair market value of such options, warrants
or other rights shall equal the arithmetic mean of the daily closing
prices of such options, warrants or other rights during the period of five
trading days on the relevant market commencing on the first such trading
day such options, warrants or other rights are publicly traded, or such
shorter period as such options, warrants or other rights are publicly
traded, (3) where options, warrants or other rights are not publicly
traded (as aforesaid), the fair market value of such options, warrants or
other rights will be as Independently Determined on the basis of a
commonly accepted market valuation method and taking account of such
factors as are Independently Determined to be appropriate, including the
market price per Share, the dividend yield of a Share, the volatility of
such market price, prevailing interest rates and the terms of such
options, warrants or other rights, including as to the expiry date and
exercise price (if any) thereof, and (4) in the case of (1), converted
into sterling (if declared or paid in a currency other than sterling) at
the rate of exchange used to determine the amount payable to Shareholders
who were paid or are to be paid the cash Dividend in sterling; and in the
absence of such a stated rate of exchange and in the case of (2) and (3),
converted into sterling (if expressed in a currency other than sterling)
at such rate of exchange Independently Determined to be the spot rate at
the close of business on that date (or if no such rate is available on
that date the equivalent rate on the immediately preceding date on which
such a rate is available).
OFFICIAL LIST means the official list of the United Kingdom Listing
Authority for the purposes of Part VI of the Financial Services and
Markets Act 2000.
RELEVANT STOCK EXCHANGE means at any time, in respect of the Shares, the
Official List and/or, as the context requires, the market for listed
securities of the London Stock Exchange or, if the Shares are not at that
time so listed, the principal stock exchange or securities market on which
the Shares are then listed or quoted or dealt in.
SECURITIES includes, without limitation, shares in the share capital of
the Company.
(C) If an effective resolution is passed during the Subscription Period for
the voluntary winding up of the Company then:
(i) if such winding up be for the purpose of a reconstruction or
amalgamation pursuant to a scheme or arrangement to which the
Warrant Holders have consented by means of a Extraordinary
Resolution, the terms of such scheme or arrangement shall be binding
on all the Warrant Holders; and
(ii) in any other case, the Company shall forthwith publish a notice in
accordance with the provisions of Condition 12, stating that such a
resolution has been passed and the Warrant Holder shall be entitled
at any time within three months after the date such notice is
published to elect by notice in writing to the specified office of
the Registrar to be treated as if he had, immediately before the
date of the passing of the winding up resolution, exercised his
Warrants and he shall be entitled to receive out of the assets which
would otherwise be available in the liquidation to the holders of
Shares, such a sum (if any) as he would have received had he been
the holder of and paid for the Shares to which he would have become
entitled by virtue of such exercise, after deducting from such sum
an amount equal to the moneys which would have been payable by him
in respect of such Shares if he had exercised his Warrants but
nothing contained in this sub-paragraph shall have the effect of
requiring the Warrant Holder to make any actual payment to the
Company.
6. The provisions for convening meetings of Warrant Holders to consider any
matter affecting their interests, including the modification by
Extraordinary Resolution of the Conditions, shall be as set out in
Schedule 4 to the Deed Poll. An Extraordinary Resolution duly passed in
accordance with the provisions of Schedule 4 to the Deed Poll at any
meeting of the Warrant Holders shall be binding on all Warrant Holders,
whether present or not.
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 12: CONDITIONS OF THE WARRANTS
--------------------------------------------------------------------------------
7. Should any Warrant Certificate be mutilated, defaced, lost, stolen or
destroyed it may be replaced at the Specified Office upon payment by the
claimant of such costs incurred in connection therewith and on such terms
as to evidence and indemnity as the Registrar and the Company may
reasonably require. Mutilated or defaced Warrant Certificates must be
surrendered before replacements will be issued.
8. Title to a Warrant in certificated form shall be transferable in any
usual or common form or in any other form which may be approved by the
Directors in units or multiples of one Warrant (provided that title to
the Warrants comprised in a Warrant Certificate shall pass only on
registration in the Register). The Company may deem and treat the Warrant
Holder in certificated form as the absolute owner thereof for all
purposes and shall not be affected by any notice to the contrary (except
as ordered by a court of competent jurisdiction or required by law) and
shall not (except as aforesaid) be bound to recognise any equitable or
other claim to an interest in such Warrant. Transfers of Warrants in
certificated form may be effected by delivery of the Warrant Certificate
to the Specified Office with a completed form of transfer executed by the
Warrant Holder without charge, but upon (i) payment of any taxes, duties
and other governmental charges, (ii) the Registrar being satisfied with
the evidence of title and identity of the person requesting transfer and
of due execution of the transfer and subject to such reasonable
regulations as the Registrar and the Company may prescribe. The Registrar
will, within five London Business Days of such delivery, deliver at its
Specified Office to the transferee or (subject to any applicable laws and
regulations) despatch by mail (at the risk of the transferee) to such
address as the transferee may request, a new Warrant Certificate in
respect of the Warrant transferred. In the case of transfer of some only
of the Warrants represented by the Warrant Certificate, a new Warrant
Certificate in respect of the balance of the Warrants will be so
delivered or despatched without charge to the transferor.
For so long as a Warrant is held in uncertificated form, the person
(other than a clearing system) who is for the time being shown in the
Operator register as the Warrant Holder (an ACCOUNTHOLDER) (in which
regard any certificate or other document issued by the Operator as to the
amount of Warrants standing to the account of any person shall be
conclusive and binding for all purposes) shall be treated as the holder
of such amount of Warrants (and the expression Warrant Holder and holding
Warrants shall be construed accordingly).
Warrants held in uncertificated form may be transferred in accordance
with the CREST Regulations.
No Warrant, either in certificated or uncertificated form, shall be
transferable or exercisable until the Effective Date.
If the Effective Date does not occur on or prior to the date falling
thirty calendar days after the issue of the Warrants, the Warrants
automatically become void.
9. The Company has the right to terminate the appointment of the Registrar
provided that it will at all times maintain a Registrar with a specified
office in England. Not less than 30 days' notice of any such termination
or appointment shall be given by the Company to the Warrant Holders in
accordance with Condition 12.
10. The Company will pay any United Kingdom stamp, issue, registration or
similar taxes and any capital duties imposed on the Company in the United
Kingdom (i) in connection with the issue of Shares on exercise of the
Subscription Rights, except where the Shares are issued to a person whose
business is, or includes, issuing depositary receipts, or a nominee of or
agent for such a person, or a person whose business is, or includes, the
provision of clearance services for the purchase or sale of chargeable
securities, or a nominee of or agent for such a person, or (ii) payable
upon the Deed Poll being produced in evidence in any proceedings in
connection with the enforcement of the Deed Poll, the Warrants or the
Subscription Rights. For the avoidance of doubt, other than United
Kingdom taxes and duties imposed on the Company, the Company is not
responsible for the payment of any taxes, duties and other governmental
charges as may be payable in relation to the transfer of a Warrant.
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 12: CONDITIONS OF THE WARRANTS
--------------------------------------------------------------------------------
11. All notices to be given hereunder by Warrant Holders to the Registrar
shall be delivered at, or mailed by pre-paid air-mail to, the Specified
Office for the time being of such person and shall be deemed to have been
given upon delivery or, in the case of mailing, upon receipt thereof.
12. All notices to be given to Warrant Holders holding Warrants in
certificated form pursuant to these Conditions will be duly given if sent
in the manner and to the address provided for in Schedule 3 to the Deed
Poll. All notices to be given to Warrant Holders holding their Warrants
in uncertificated form will be given by delivery of the relevant notice
to the Operator for transmission to Warrant Holders.
13. Warrant Holders are deemed to have notice of all the provisions of the
Deed Poll and such provisions are binding on them. Copies of the Deed
Poll will be available for inspection at the Specified Office.
14. The Warrants are governed by, and shall be construed in accordance with,
the laws of England.
The English Courts have exclusive jurisdiction to settle any dispute
arising out of or in connection with the Warrants and the Company and
each Warrant Holder irrevocably submit to the exclusive jurisdiction of
the English Courts.
The Company and each Warrant Holder irrevocably waive any objection to
the English Courts on grounds that they are an inconvenient or
inappropriate forum to settle any such dispute.
SPECIFIED OFFICE
REGISTRAR
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 7NH
830
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 13
CORP SHARE CAPITAL
1. The authorised, issued and fully paid share capital of Corp as at the
date of publication of this document is as follows:
Authorised Issued
----------------------------- ------------------------------
Number Amount(L) Number Amount(L)
------------- ------------- ------------- --------------
6,000,000,000 300,000,000 ordinary shares of 5p each 2,866,250,735 143,312,536.75
2. The authorised, issued and fully paid share capital of Corp as it is
expected to be on the allotment of the New Shares pursuant to the Corp
Scheme is as follows:
Authorised Issued
------------------------------ ------------------------------
Number Amount(L) Number Amount(L)
------------- -------------- ------------- --------------
3,133,749,265 156,687,463.25 ordinary shares of 5p each 1,000,000,000 50,000,000
2,866,250,735 143,312,536.75 non-voting deferred shares 2,866,250,735 143,312,536.75
of 5p each
A maximum of 50,000,000 authorised, but unissued ordinary shares will be
reserved for issue pursuant to the conditions of the Warrants described at
Appendix 12. Authorised but unissued ordinary shares may also be issued
pursuant to the share incentive arrangements in accordance with the
relevant limits set out in part 1, Section 2, Part D.10.
The Board of Corp may propose a resolution for the consolidation of its
ordinary shares at its next annual general meeting. However, at this time,
no decision has been made to propose a consolidation.
3. On 23 November 1999 the authorised share capital of Corp was L175,000,000
divided into 3,500,000,000 ordinary shares of 5 pence each, of which
2,723,486,794 were issued fully paid and the remainder were unissued.
Since that date the following changes have been made to the authorised and
issued ordinary share capital of Corp:
a. On 26 November 1999 the issued ordinary share capital of Corp of
2,723,486,794 ordinary shares of 5 pence each was cancelled, such
cancellation having been confirmed by an order of the Court dated 22
November 1999.
b. On 26 November 1999 pursuant to a scheme of arrangement sanctioned
by the order of the Court referred to in sub-paragraph (a) above,
Corp issued 2,723,486,794 ordinary shares of 5 pence each to GEC
Reconstructions Limited credited as fully paid.
c. Between 5 January 2000 and 12 October 2000, the following ordinary
shares were allotted and issued to IRG Trustees Limited, as agent
for share option holders. The shares so allotted were then acquired
by Yeslink Limited pursuant to the arrangements relating to the
reconstruction of GEC and the merger of the MES business with
British Aerospace plc (now known as BAE SYSTEMS plc) which was
effected in November 1999.
Date of issue Number of Corp Shares
------------- ---------------------
5 January 2000 394,698
5 January 2000 17,000
11 January 2000 8,384
17 January 2000 78,622
24 January 2000 31,543
27 January 2000 41,139
4 February 2000 40,237
831
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 13: CORP SHARE CAPITAL
--------------------------------------------------------------------------------
Date of issue Number of Corp Shares
------------- ---------------------
9 February 2000 35,299
18 February 2000 56,485
28 February 2000 406,892
20 March 2000 5,143
20 March 2000 410,487
28 March 2000 413,467
14 April 2000 2,105,936
19 April 2000 68,778
9 May 2000 924,219
9 May 2000 1,265,887
11 May 2000 248,909
6 June 2000 1,589,502
6 June 2000 1,192,971
21 June 2000 399,895
21 June 2000 2,250,502
29 June 2000 19,245
19 July 2000 15,161
3 August 2000 253
4 October 2000 3,419
12 October 2000 471
12 October 2000 3,882
4. On 15 August 2000 the authorised share capital of Corp was increased from
L175,000,000 to L300,000,000 by the creation of an additional
2,500,000,000 ordinary shares of 5 pence each.
5. By a resolution of Corp passed on 26 March 2003 it was resolved that:
a. for the purpose of giving effect to the Corp Scheme and forthwith
and conditionally upon the Court making an order sanctioning the
Corp Scheme:
(i) the Corp Directors be generally and unconditionally authorised, in
accordance with section 80 of the Act, to exercise all powers of
Corp to allot relevant securities (as defined for the purposes of
that section) up to a maximum nominal amount of L69,100,000;
(ii) the authority referred to in sub-paragraph (i) above shall expire on
the day five years after the passing of the resolution;
(iii) Corp may, before the authority referred to in sub-paragraph (i)
above expires, make an offer or agreement which would or might
require relevant securities to be allotted after it expires;
(iv) all previous authorities under section 80 of the Act shall cease to
have effect;
(v) the Corp Directors be given power to allot for cash equity
securities (as defined for the purposes of section 89 of the Act)
pursuant to the general authority referred to in sub-paragraph (i)
above as if section 89(1) of that Act does not apply to any such
allotment, but that power, which expires on the day five years after
the passing of the resolution, will be limited to:
(A) the allotment of equity securities pursuant to the terms of the
Corp Scheme;
(B) the allotment of equity securities in connection with an offer
or issue to or in favour of ordinary shareholders on the
register on a date fixed by the Corp Directors where the equity
securities respectively attributable to the interests of all
those shareholders are proportionate (as nearly as practicable)
to the respective number of ordinary shares held by them on
that date but the Corp Directors may make such exclusions or
other arrangements as they consider expedient in relation to
fractional entitlements, shares represented by depositary
receipts, legal or practical problems under the laws in any
territory or the requirements of any relevant regulatory body
or stock exchange; and
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 13: CORP SHARE CAPITAL
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(C) the allotment (otherwise than under sub-paragraphs (A) or (B)
above) of equity securities having a nominal amount not
exceeding in aggregate L2,500,000;
(vi) all previous authorities under section 95 of the Act shall cease to
have effect; and
(vii) Corp may, before the power (referred to in sub-paragraph (v))
expires, make an offer or agreement which would or might require
equity securities to be allotted after it expires;
b. forthwith and conditionally upon the allotment of the New Shares
pursuant to the Corp Scheme:
(i) Corp alter its existing memorandum of association by the insertion
of a new object giving Corp the power to establish and operate share
incentive plans and to establish trusts to operate in conjunction
with those plans;
(ii) Corp adopt the Articles in substitution for the existing articles
of association of Corp;
(iii) the existing 2,866,250,734 shares in Corp held by plc and the
additional existing share in Corp held by Marconi Nominees Limited
be converted into and re-designated as Non-Voting Deferred Shares,
such shares having the rights and being subject to the restrictions
described at Appendix 15; and
c. forthwith and conditionally upon the conversion into and
re-designation of the existing shares in Corp as Non-Voting Deferred
Shares referred to in (b)(iii) above and the entry in the register
of members of Corp of the names of the persons to whom the New
Shares to be allotted pursuant to the Corp Scheme have been
allotted:
(i) the share capital of Corp be reduced by the cancellation of all of
the 2,866,250,735 Non-Voting Deferred Shares referred to in (b)(iii)
above; and
(ii) the share premium account of Corp (including the share premium
account arising on the allotment of the New Shares pursuant to the
Corp Scheme) be cancelled.
6. Section 89 of the Act confers on shareholders certain rights of
pre-emption in respect of the allotment of equity securities which are, or
are to be, paid up in cash other than by way of allotment to employees
under an employee's share scheme as defined in section 743 of the Act.
Following Listing of the New Shares, Corp will be subject to the
continuing obligations of the UKLA with regard to the issue of securities
for cash and the statutory rights of pre-emption in section 89 of the Act.
The statutory rights of pre-emption apply to the balance of the
authorised, but unissued, ordinary share capital of Corp which is not the
subject of the disapplication referred to in paragraph 5a.(v) above
(including shares reserved for issue in connection with the Warrants) or
the share options arrangements referred to in paragraph 2 above. The
statutory rights of pre-emption have been disapplied as set out in
paragraph 5a.(v) above to:
a. permit the Directors to allot the New Shares and Warrants pursuant
to the Corp Scheme;
b. give the Directors flexibility in relation to pre-emptive offers of
Corp shares to ordinary shareholders; and
c. permit the Directors to allot Corp Shares for cash following the
Corp Scheme becoming effective up to a nominal value of 5 per cent.
of the issued ordinary share capital of Corp immediately following
the Corp Scheme becoming effective.
7. Save as disclosed above and in part I, Section 2, Part D.10:
a. no share or loan capital of Corp or any of its subsidiaries has
within three years before the date of this document (other than
intra-group issues by wholly owned subsidiaries or pursuant to the
Schemes) been issued or been agreed to be issued fully or partly
paid, either for cash or for a consideration other than cash and no
such issue is now proposed;
b. no commissions, discounts, brokerages or other special terms have
been granted by Corp or any of its subsidiaries within the three
years immediately preceding the date of this document in connection
with the issue or sale of any share or loan capital of any such
company; and
c. no share or loan capital of Corp or any of its subsidiaries is under
option or agreed, conditionally or unconditionally, to be put under
option.
8. The Corp Shares are in registered form and, subject to the provisions of
the CREST Regulations, the Directors may permit the holding of shares in
any class of shares in uncertificated form and title to such
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 13: CORP SHARE CAPITAL
--------------------------------------------------------------------------------
shares may be transferred by means of a relevant system (as defined in
the CREST Regulations). Where Corp Shares are held in certificated form,
share certificates will be sent to the registered members by first class
post at the risk of the relevant shareholders.
9. No temporary documents of title have been or will be issued in respect of
the New Shares.
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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APPENDIX 14
SUMMARY OF CERTAIN PROVISIONS OF THE MEMORANDUM AND
ARTICLES OF CORP
MEMORANDUM
The memorandum of association of Corp will be altered conditionally on the
allotment of the New Shares pursuant to the Corp Scheme, by the insertion of a
new object giving Corp the power to establish and operate share incentive plans
and to establish trusts to operate in conjunction with those plans. The
Memorandum provides that its objects are, amongst other things, to carry on any
business (other than life insurance) which may seem to Corp capable of being
conveniently carried on, either in connection with or in addition to any of
those referred in the Memorandum. The amended objects of Corp are set out in
full in clause 4 of its Memorandum which is available for inspection as
described in part I, Section 2, Part D.34.
ARTICLES
In this Appendix "Statutes" means the Act and every other statute, statutory
instrument, regulation or order for the time being in force concerning companies
registered under the Act.
The Articles of Corp have been adopted conditionally on the allotment of the New
Shares pursuant to the Corp Scheme. A summary of certain provisions of the
Articles is set out below. For further detail, please refer to the Articles
which are available for inspection as described in part 1, Section 2, Part D.34.
a. RIGHTS ATTACHING TO CORP SHARES
(i) Dividends
Subject to the provisions of the Statutes, Corp may by ordinary resolution
declare a dividend in accordance with the respective rights of the
members, and may fix the time for payment of such dividend provided that
no dividend shall exceed the amount recommended by the Corp Board.
Except as otherwise provided by the rights attached to shares, all
dividends shall be declared and paid according to the amounts paid up on
the shares on which the dividend is paid. Except as otherwise provided by
the rights attached to shares, all dividends shall be apportioned and paid
proportionately according to the amounts paid up on the shares during any
portion of the period in respect of which the dividend is paid.
Subject to the provisions of the Statutes, Corp may pay interim dividends
if it appears to the Corp Board that they are justified by the financial
position of Corp. Corp may also pay any dividend payable at a fixed rate
at intervals settled by the Corp Board whenever the financial position of
Corp, in the opinion of the Corp Board, justifies its payment. If the Corp
Board acts in good faith, none of the Directors shall incur any liability
to the holders of shares conferring preferred rights for any loss such
holders may suffer in consequence of the payment of an interim dividend on
any shares having deferred or non-preferred rights. No dividend or other
monies payable by Corp on or in respect of a share shall bear interest
against Corp unless otherwise provided by the rights attached to the
share. There are no fixed dates on which entitlement to dividends arise.
The Corp Board may make payment of any interim dividend wholly or partly
by the distribution of specific assets and, in particular, including
without limitation, of property interests, intellectual property rights or
the benefit of contractual or other rights, paid up shares, debentures or
debenture stock of any other company or in any one or more of such ways.
Where any difficulty arises in regard to such distribution, the Corp Board
may settle the same as it thinks expedient.
A general meeting declaring a dividend may, on the recommendation of the
Corp Board, by ordinary resolution, direct that payment of any dividend
may be satisfied in whole or in part by the distribution of specific
assets, including without limitation paid up shares or debentures of
another body corporate. The Corp Board may make any arrangements it thinks
fit to settle any difficulty arising in connection with
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such distribution. The Corp Board may, if authorised by an ordinary
resolution of Corp, offer any holders of shares the right to elect to
receive further shares (whether or not of that class) credited as fully
paid instead of cash in respect of any dividend or part thereof. The offer
shall be on the terms and be made in the manner specified in the Articles.
All unclaimed dividends, interest or other sums payable may be invested or
otherwise made use of by the Board for the benefit of Corp until claimed.
Any dividend which has remained unclaimed for twelve years from the date
when it became due for payment shall, if the Corp Board so resolves, be
forfeited and shall cease to remain owing by Corp.
Corp may cease sending dividend warrants and cheques by post or otherwise
to a member if such instruments have been returned undelivered to, or left
uncashed by, that member on at least two consecutive occasions, or,
following one such occasion, reasonable enquiries have failed to establish
any new address of the member. Corp must resume sending warrants and
cheques if the member claims a dividend or cashes a dividend warrant or
cheque.
(ii) Voting rights
Subject to the Articles and to any rights or restrictions as to voting for
the time being attached to any class of shares, on a show of hands, every
member who is present in person or by proxy or (being a corporation) is
present by a duly authorised corporate representative, not being himself a
member, at a general meeting, shall have one vote and, on a poll, every
member present in person or by proxy or (being a corporation) is present
by a duly authorised corporate representative shall have one vote for
every share of which he is the holder. Save that where a member appoints
more than one proxy to attend on the same occasion with respect to
different shares, the proxies so appointed shall not be entitled to vote
on a show of hands in the case of a special or extraordinary resolution.
Unless the Corp Board otherwise decides, no member shall be entitled to
vote at a general meeting or at a separate meeting of the holders of any
class of shares in the capital of Corp, either in person or by proxy, in
respect of any share held by him unless all monies presently payable by
him in respect of that share have been paid.
(iii) Rights attaching to Corp Shares on a distribution of assets
On a winding-up of Corp, the liquidator may, with the sanction of an
extraordinary resolution and any other sanction required by the Insolvency
Act 1986, divide among the members in specie the whole or any part of the
assets of Corp in such manner as he may determine or vest the whole or any
part of the assets in trustees upon such trusts for the benefit of the
members as he, with like sanction, determines. No member shall be
compelled to accept any assets on which there is a liability.
(iv) Transfer of Corp Shares
All transfers of Corp shares held in certificated form may be effected by
an instrument of transfer in any usual form or in any other form approved
by the Corp Board. The instrument of transfer of a share shall be signed
by or on behalf of the transferor and, unless the share is fully paid, or
is a forfeited or surrendered share, by or on behalf of the transferee.
The Corp Board may, in its absolute discretion and without giving any
reason for its decision, refuse to register any instrument of transfer of
a certified share which is not fully paid up (but, in the case of a class
of shares which has been admitted to the Official List, not so as to
prevent dealings in the shares from taking place on an open and proper
basis) or on which Corp has a lien. Subject to the requirements of the UK
Listing Authority, the Corp Board may also refuse to register any
instrument of transfer unless:
(A) it is lodged, duly stamped (if stampable), at the registered office
or at such other place as the Corp Board may appoint accompanied by
the share certificate for the shares to which it relates and such
other evidence (if any) as the Corp Board may reasonably require to
show the right of the transferor to make the transfer;
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(B) it is in respect of only one class of shares; and
(C) it is in favour of not more than four transferees as joint holders.
Corp shall register the transfer of any shares held in uncertificated form
in accordance with the Statutes. The Board may, in its absolute discretion
and without giving any reason for its decision, refuse to register any
transfer of an uncertificated share where permitted by the Statutes.
If the Corp Board refuses to register a transfer of a share, it shall give
the transferee notice of its refusal within two months after the date on
which the instrument of transfer was lodged with Corp or the
operator-instruction was received, as the case may be. The registration of
transfers of any shares or any class of shares may be suspended at such
times and for such periods (not exceeding 30 days in any year) as the Corp
Board may determine, except that the registration of transfers of any
shares or any class of shares which are for the time being participating
securities may only be suspended as permitted by the Statutes.
b. DISCLOSURE OF INTERESTS IN SHARES
If the holder of or other person appearing to be interested in any share
of Corp has been duly given a notice under section 212 of the Act and, in
respect of that share, has been in default for a period of fourteen days
after such notice has been given in supplying to Corp the information
thereby required, then certain restrictions shall apply.
The restrictions available are the suspension of voting or other rights
conferred by membership in relation to meetings of Corp in respect of the
relevant shares and, additionally, in the case of a shareholding
representing at least 0.25 per cent. of the class of shares concerned, the
withholding of payment of dividends on, and the restriction of transfers
of, the relevant shares.
The restrictions on transfer shall not prejudice the right of either the
member holding the shares or, if different, any person having a power of
sale over those shares to sell or agree to sell those shares under an
exempt transfer.
c. CHANGES IN SHARE CAPITAL
(i) Subject to the Statutes and without prejudice to any rights attached
to any existing shares or class of shares, any share may be issued
with such rights or restrictions as Corp may by ordinary resolution
determine or, subject to and in default of such determination, as
the Corp Board shall determine. Subject to the provisions of the
Statutes and without prejudice to any rights attached to any
existing shares, Corp may issue shares which are, or at the option
of Corp or the holder are, liable to be redeemed. Subject to the
provisions of the Statutes and the Articles, unissued shares are at
the disposal of the Corp Board.
(ii) Corp may by ordinary resolution: increase the share capital;
consolidate and divide all or any of its share capital into shares
of larger amounts than its existing shares; subject to the Statutes,
subdivide its shares, or any of them, into shares of smaller amount
than is fixed by the Memorandum or the Articles; and cancel any
shares which have not been taken or agreed to be taken by any person
and diminish the amount of its share capital by the amount of the
shares so cancelled.
(iii) Whenever any members are entitled to fractions of a share as a
result of a consolidation and division or sub-division of shares,
the Corp Board may deal with the fractions as it thinks fit.
(iv) Subject to the Statutes and to any relevant rights attached to any
class of shares, Corp may by special resolution reduce its share
capital, any capital redemption reserve and any share premium
account and may also, subject to the Statutes, the requirements of
the UK Listing Authority, and the rights attached to any class of
shares, purchase its own shares.
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d. VARIATION OF RIGHTS
(i) If at any time the capital of Corp is divided into different classes
of shares, all or any of the rights for the time being attached to
any class of shares in issue may from time to time (whether or not
Corp is being wound up) be varied in such manner as those rights may
provide or (if no such provision is made) either with the consent in
writing of the holders of three-fourths in nominal value of the
issued shares of that class or with the authority of an
extraordinary resolution passed at a separate general meeting of the
holders of those shares.
(ii) Unless otherwise expressly provided by the rights attached to any
class of shares those rights shall not be deemed to be varied by the
creation or issue of further shares ranking pari passu with them or
by the purchase or redemption by Corp of any of its own shares.
e. LIEN AND FORFEITURE
Corp will have a first and paramount lien on every share (not being a
fully paid share) for all amounts payable to Corp (whether presently or
not) in respect of that share. Subject to the Articles, the Corp Board may
call any monies unpaid on shares and may forfeit shares on which calls
payable are not duly paid. The forfeiture shall include all dividends
declared and other monies payable in respect of the forfeited share which
have not been paid before the forfeiture.
f. CORP DIRECTORS' INTERESTS
(i) A Corp Director shall not vote (or be counted in the quorum at a
meeting) in relation to any resolution relating to any contract or
arrangement or other proposal in which he has an interest which
(together with any interest of any person connected to him) is to
his knowledge a material interest and, if he purports to do so, his
vote shall not be counted, but the prohibition shall not apply and a
Corp Director may vote (and be counted in the quorum) in respect of
any resolution concerning any one or more of the following matters:
(A) any contract in which he is interested by virtue of an interest
in shares, debentures or other securities of Corp or otherwise
in or through Corp;
(B) the giving of any guarantee, security or indemnity in respect
of money lent or obligations incurred by him or by any other
person at the request of, or for the benefit of, Corp or any of
its subsidiary undertakings or a debt or obligation of Corp or
any of its subsidiary undertakings for which he himself has
assumed responsibility in whole or in part (either alone or
jointly with others) under a guarantee or indemnity or by the
giving of security;
(C) any issue or offer of shares, debentures or other securities of
Corp or any of its subsidiary undertakings in respect of which
he is or may be entitled to participate in his capacity as a
holder of any such securities or as an underwriter or
sub-underwriter;
(D) any contract concerning any other company in which he and any
connected persons do not to his knowledge hold an interest in
shares (within the meaning of sections 198 to 211 of the
Companies Act) representing one per cent. or more of any class
of the equity share capital of that company or of the voting
rights available to members of that company;
(E) any arrangement for the benefit of employees of Corp or any of
its subsidiary undertakings which does not accord to him any
privilege or benefit not generally accorded to the employees to
whom the arrangement relates; and
(F) the purchase or maintenance of insurance for the benefit of
the Corp Directors or for the benefit of persons including the
Corp Directors.
(ii) A Corp Director shall not vote (or be counted in the quorum at a
meeting) in respect of any resolution concerning his own
appointment (including fixing or varying its terms) or the
termination of his own appointment, as the holder of any office or
place of profit with Corp or any other company in which Corp is
interested.
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g. REMUNERATION OF CORP DIRECTORS
(i) The fees of the Non-Executive Corp Directors for their services
(excluding amounts payable under any other provision of the Articles
described below) shall not exceed in aggregate L1.5 million per
annum or such higher amount as Corp may from time to time by
ordinary resolution determine. Subject thereto, each such
Non-Executive Corp Director shall be paid a fee (which shall be
deemed to accrue from day to day) at such rate as may from time to
time be determined by the Corp Board. Any Corp Director who is
appointed to any executive office shall be entitled to receive such
remuneration as the Corp Board may determine.
(ii) Any Corp Director who does not hold executive office and who serves
on any committee of the Corp Board, who by the request of the Corp
Board goes or resides abroad for any purpose of Corp or otherwise
performs special services which in the opinion of the Corp Board are
outside the scope of the ordinary duties of a Non-Executive Corp
Director, may (without prejudice to subparagraph (i) above) be paid
such extra remuneration by way of salary, commission or otherwise as
the Corp Board may determine.
(iii) The Corp Board may exercise all the powers of Corp to pay, provide
or procure the grant of benefits, whether by the payment of
gratuities, pensions or by insurance or otherwise, for any past or
present Corp Director or employee of Corp or any company which is or
was the holding company, subsidiary or associated company, and for
any member of his family (including a spouse and a former spouse),
or any person who is or was dependent on him and may (as well before
as after he ceases to hold such office or employment) contribute to
any fund and pay premiums for the purchase or provision of any such
benefit.
(iv) Without the prior approval by ordinary resolution of the
shareholders in general meeting, no bonus arrangement or scheme or
any long term incentive scheme for persons who are participants in
the Management Plan (other than participants who are eligible to
receive commission and/or bonus payments that relate to sales) shall
be introduced within the period commencing with the date on which
the Articles come into force and ending on the date on which all the
tranches of options granted in the initial grant under the
Management Plan have either lapsed or become capable of exercise.
(v) The Corp Directors may be paid by Corp all travelling, hotel and
other expenses properly incurred by them in attending meetings of
the Corp Board or committees of the Corp Board or general meetings
or otherwise in connection with the discharge of their duties.
h. APPOINTMENT AND RETIREMENT OF CORP DIRECTORS
(i) Corp Directors may be appointed by Corp by ordinary resolution or by
the Corp Board. Unless otherwise determined by ordinary resolution,
the number of Corp Directors (other than alternate directors) shall
not be less than three nor more than twenty-four in number.
(ii) At each annual general meeting any Corp Director then in office who
has been appointed by the Corp Board since the previous annual
general meeting or at the date of the annual general meeting would
have held office for more than three years since he was appointed or
last re-appointed by Corp in a general meeting shall retire from
office but shall be eligible for re-appointment.
(iii) A Director shall retire at the first annual general meeting
following the birthday at which he attains 70 years of age. A
Director may be re-appointed after attaining 70 years of age
provided that he is appointed by Corp in general meeting, special
notice is given of the resolution appointing the Director and the
notice states the age of the prospective Director. A Director who is
re-appointed after attaining 70 years of age must retire at every
annual general meeting thereafter but may be re-appointed in
accordance with the procedure set out above.
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i. BORROWING POWERS
(i) The Corp Board may exercise all the powers of Corp to borrow money,
to guarantee, to indemnify, to mortgage or charge all or any part of
its undertaking, property, assets (both present and future) and
uncalled capital, and to issue debentures and other securities
whether outright or as collateral security for any debt, liability
or obligation of Corp or of any third party.
(ii) The Corp Board shall restrict the borrowings of Corp and exercise
all voting and other rights or powers of control exercisable by Corp
in relation to its subsidiary undertakings (if any) so as to secure
(but as regards subsidiary undertakings only so far as by such
exercise it can secure) that the aggregate principal amount
outstanding at any time in respect of all borrowings by the Group
(exclusive of any borrowings which are owed by one Group company to
another Group company) after deducting the amount of cash at the
bank and in hand will not, without the previous authority of Corp in
general meeting exceed the higher of an amount equal to two times
adjusted capital and reserves (as defined in the Articles) or L1.5
billion (or any higher limit fixed by ordinary resolution of Corp
which is applicable at the relevant time).
(iii) The limits set out in sub-paragraphs (i) and (iii) immediately above
shall be deemed not to have been breached until the amount of
borrowings has exceeded that limit for 30 consecutive days and this
provision overrides all other provisions of the relevant article.
j. INDEMNITY OF OFFICERS
Subject to the Statutes but without prejudice to any indemnity to which a
Corp Director may otherwise be entitled, every Corp Director or other
officer (excluding an auditor) shall be indemnified out of the assets of
Corp against any liability incurred by him in defending any proceedings
whether criminal or civil in which judgement is given in his favour (or
the proceedings are otherwise disposed of without any finding or admission
of any material breach of duty on his part) or in which he is acquitted or
in connection with any application in which relief is granted to him by
the Court from liability for negligence, default, breach of duty or breach
of trust in relation to the affairs of Corp.
k. UNTRACED SHAREHOLDERS
Corp shall be entitled to sell, at the best price reasonably obtainable,
the shares of a member or the shares to which a person is entitled by
transmission provided that:
(i) during a period of twelve years prior to the date of advertising its
intention to sell such shares at least three dividends in respect of
such shares have been declared and all dividend warrants and cheques
sent have remained uncashed;
(ii) as soon as practicable after the expiry of the period referred to in
sub-paragraph (i) above Corp inserts advertisements in a national
daily newspaper and in a newspaper circulating in the area of the
last known address of the member or other person giving notice of
its intention to sell the shares;
(iii) during the period referred to in sub-paragraph (i) above and the
period of three months following the publication of the
advertisements referred to in sub-paragraph (ii) above Corp receives
no indication of the whereabouts or existence of the member or other
person; and
(iv) if the shares are listed on the London Stock Exchange's market for
listed securities, Corp gives notice to the London Stock Exchange of
its intention to sell the shares prior to publication of the
advertisements referred to in sub-paragraph (ii) above.
The net proceeds of such sale shall belong to Corp, which shall be obliged
to account to the former member or other person previously entitled to the
shares for an amount equal to the proceeds as a creditor of Corp.
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l. NOTICES TO MEMBERS
Except where otherwise expressly provided within the Articles, any notice
to be given to or by any person under the Articles shall be in writing or,
to the extent permitted by the Statutes and subject to the Articles,
contained in an electronic communication. The Corp Board may from time to
time specify the form and manner in which a notice may be given to the
members by electronic means and a notice may be given to the members by
electronic means only if it is given in accordance with the requirements
specified by the Corp Board.
A notice in writing, document or other communication may be given or
served by Corp to any member either personally or by sending it through
the post addressed to the member at his registered address or by leaving
it at that address. A member whose registered address is not within the
United Kingdom shall be entitled to have notices given to him at that
address if, at the time of giving that notice, he is the registered holder
of one per cent. or more of the issued share capital of Corp. Any other
member whose registered address is not within the United Kingdom and who
gives Corp an address within the United Kingdom at which notices may be
given to him shall be entitled to have notices given to him at that
address but, unless he does so, shall not be entitled to receive any
notice from Corp.
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APPENDIX 15
RIGHTS AND RESTRICTIONS ATTACHING TO THE NON-VOTING DEFERRED SHARES
A Non-Voting Deferred Share:
a. does not entitle its holder to receive any dividend or other
distribution;
b. does not entitle its holder to receive notice of or to attend or
vote at any general meeting of Corp;
c. entitles its holder on a return of capital on a winding-up (but not
otherwise) only to repayment of the amounts paid up on that share
after payment in respect of each ordinary share of the capital paid
up on it and the further payment of L10,000,000 on each ordinary
share; and
d. does not entitle its holder to any further participation in the
capital of Corp.
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APPENDIX 16
DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS
This Appendix sets out a summary of the material terms of the ADRs. For
information with respect to the issuance of ADRs pursuant to the Schemes, the
listing of the ADRs on NASDAQ and trading of ADRs in the secondary market,
please see part I, Section 2, Parts C.2 and D.15.
The Bank of New York, as depositary (the "ADR Depositary"), will issue the ADRs.
Each ADR represents an ownership interest in 10 Corp Shares, or evidences the
right to receive 10 Corp Shares. Corp will deposit the Corp Shares (or the right
to receive such shares) with the custodian, the principal London office of The
Bank of New York (together with any successor or successors thereto, the
"Custodian"), currently located at 1 Canada Square, Canary Wharf, London E14
5AL, England. Each ADR will also represent securities, cash or other property
deposited with The Bank of New York but not distributed to ADR holders. The Bank
of New York's Corporate Trust office is located at 101 Barclay Street, New York,
NY 10286. The Bank of New York's principal executive office is located at One
Wall Street, New York, NY 10286.
ADRs may be held either directly or indirectly through a broker or other
financial institution. The discussion below assumes the ADRs are held directly,
in which case the direct holder is referred to as the "ADR holder". Only persons
in whose names ADRs are registered on the books of the ADR Depositary will be
treated by the ADR Depositary and Corp as ADR holders. If the ADRs are held
indirectly, then the procedures of the broker or other financial institution
must be relied on to assert the rights of ADR holders described in the
discussion below. Holders should consult with their broker or financial
institution to find out what those procedures are.
Because The Bank of New York will actually hold the Corp Shares, direct and
indirect holders of ADRs must rely on it to exercise the rights of a
shareholder. The obligations of The Bank of New York will be set out in a
Deposit Agreement among Corp, The Bank of New York, as depositary, ADR holders,
and the owners of beneficial interests in the ADRs (the "Deposit Agreement").
The agreement and the ADRs are generally governed by New York law.
The following is a summary of the Deposit Agreement (including all exhibits
thereto). This summary does not purport to be complete and is qualified in its
entirety by reference to the Deposit Agreement. Copies of the Deposit Agreement
and the ADR are available for inspection at the principal London office of The
Bank of New York, currently located at 1 Canada Square, Canary Wharf, London E14
5AL, England and at The Bank of New York's Corporate Trust office, currently
located at 101 Barclay Street, New York, NY 10286. Terms used herein and not
otherwise defined shall have the meanings set forth in the Deposit Agreement.
IMPORTANT NOTICE REGARDING RESPONSIBILITY FOR FEES AND TAXES
PERSONS ELECTING TO RECEIVE ADRS PURSUANT TO THE SCHEMES
Scheme Creditors and Designated Recipients who receive New Shares in the form of
ADRs pursuant to the Schemes at any time will not be responsible for any fees or
expenses of The Bank of New York, or any UK stamp duty or SDRT, in respect of
the initial issuance of such ADRs. The Bank of New York has agreed to waive its
fees and expenses in this connection, and any such UK stamp duty or SDRT will be
met by Corp.
Such persons will, however, be responsible for any other taxes or charges
arising in connection with such initial issuance of ADRs, as well as any fees,
expenses, taxes or charges arising in connection with any subsequent transaction
involving ADRs (except to the extent described below under "General fee
holiday").
PERSONS ELECTING TO RECEIVE NEW SHARES PURSUANT TO THE SCHEMES
Subject to compliance with the procedures referred to below, Scheme Creditors
and Designated Recipients who receive New Shares pursuant to the Schemes will
not be responsible for any fees or expenses of The Bank of New York in respect
of the initial issuance of ADRs upon deposit of those New Shares (or an
equivalent number of Corp Shares) in exchange for ADRs, if such deposit is
effected prior to the earlier of (x) the date falling two months after the
effectiveness of the NASDAQ listing of the ADRs and (y) 30 September 2003. The
Bank of New York has agreed to waive its fees and expenses in this connection.
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In addition, subject to compliance with the procedures referred to below, Scheme
Creditors and Designated Recipients who receive New Shares pursuant to the
Schemes will not be responsible for any UK stamp duty or SDRT arising in
connection with the initial issuance of ADRs upon deposit of those New Shares
(or an equivalent number of Corp Shares) in exchange for ADRs, if such deposit
is effected prior to the date falling two month after the effectiveness of the
NASDAQ listing of the ADRs. Any such UK stamp duty or SDRT will be met by Corp.
To qualify for the treatment described above, Scheme Creditors and Designated
Recipients must comply with certain procedures, including providing such
certifications or other evidence as Corp and The Bank of New York may reasonably
require in order to permit verification of the number of New Shares obtained by
the depositor pursuant to the Schemes. For information with respect to the
relevant procedures, Scheme Creditors and Designated Recipients should contact
The Bank of New York's office in London on (attention Mr Peter Ridgwell),
telephone +44 207 964 6168, facsimile +44 207 964 6043.
Except insofar as these arrangements apply, Scheme Creditors and Designated
Recipients will be responsible for all taxes or charges arising in connection
with the initial issuance of ADRs as described above, as well as any fees,
expenses, taxes or charges arising in connection with any subsequent issuance of
or other transaction involving ADRs (except to the extent described below under
"General fee holiday").
GENERAL FEE HOLIDAY
The Bank of New York has agreed to waive any payment in respect of its fees and
expenses that would otherwise be required under the Deposit Agreement in
connection with any deposit of Corp Shares in exchange for ADRs that is effected
prior to the date falling two months after the Effective Date of the Corp
Scheme. This "fee holiday" will be implemented without regard to the special
arrangements for Scheme Creditors and Designated Recipients described above.
Persons depositing Corp Shares during this period (other than Scheme Creditors
and Designated Recipients, to the extent described above) will, however, be
responsible for any taxes or other charges (including UK stamp duty or SDRT)
arising in connection with the issuance of ADRs.
SHARE DIVIDENDS AND OTHER DISTRIBUTIONS
The Bank of New York has agreed to pay to the ADR holders the cash dividends or
other distributions it or the Custodian receives on shares or other deposited
securities after deducting its fees and expenses. Each ADR holder will receive
these distributions in proportion to the number of shares its ADRs represent.
CASH
The Bank of New York will convert any cash dividend or other cash distribution
Corp pays on the Corp shares into US dollars, if it can do so on a reasonable
basis and can transfer the US dollars to the US. If that is not possible or if
any approval from the UK government is needed and cannot be obtained, the
agreement allows The Bank of New York, following consultation with Corp, to
distribute the sterling only to those ADR holders to whom it is possible to do
so. It will hold the sterling it cannot convert for the account of the ADR
holders who have not been paid. It will not invest the sterling and it will not
be liable for interest.
Before making a distribution, any withholding taxes that must be paid under
English law will be deducted. For a further description of tax considerations,
refer to Appendix 17. The Bank of New York will distribute only whole US dollars
and cents and will round fractional cents to the nearest whole cent. If the
exchange rates fluctuate during a time when The Bank of New York cannot convert
the UK's currency, some or all of the value of the distribution may be lost.
SHARES
The Bank of New York may, and shall if Corp requests distribute new ADRs
representing any Corp Shares Corp may distribute as a dividend or free
distribution, if Corp furnishes it promptly with satisfactory evidence that it
is legal to do so. The Bank of New York will only distribute whole ADRs. It will
sell shares which would require it to deliver a fractional ADR and distribute
the net proceeds in the same way as it does with cash. If The Bank of
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New York does not distribute additional ADRs, each ADR will also represent the
proportional number of new Corp Shares.
RIGHTS TO RECEIVE ADDITIONAL SHARES
If Corp offers holders of Corp Shares any rights to subscribe for additional
shares or any other rights, The Bank of New York, after consultation with Corp,
will have discretion as to the procedure to be followed in making these rights
available to the ADR holder or in disposing of such rights for the benefit of
any ADR holders and making the net proceeds available to such ADR holders.
However, if by the terms of such rights offering or by reason of applicable law,
The Bank of New York may not either make such rights available to any ADR
holders or dispose of such rights and make net proceeds available to such ADR
holders, then The Bank of New York shall allow the rights to lapse. In that
case, the ADR holder will receive no value for them.
In circumstances in which rights would not otherwise be distributed, if any ADR
holder requests the distribution of warrants or other instruments in order to
exercise the rights allocable to the ADRs of such holder, The Bank of New York
will make such rights available to such ADR holder as promptly as practicable
upon written notice from Corp to The Bank of New York that (i) Corp has elected
in its sole discretion to permit such rights to be exercised and (ii) such
holder has executed such documents as Corp has determined in its sole discretion
are reasonably required under applicable law.
If The Bank of New York makes rights available to the ADR holder, upon
instruction from such ADR holder, it will exercise the rights and purchase the
shares on the ADR holder's behalf. The Bank of New York will then deposit the
shares and issue ADRs to the ADR holder. It will only exercise rights if the ADR
holder pays to The Bank of New York the exercise price and any other charges the
rights require to be paid, as well as The Bank of New York's fees.
US securities laws may restrict the sale, deposit, cancellation and transfer of
the ADRs issued after exercise of rights. For example, an ADR holder may not be
able to trade the ADRs freely in the US. In this case, The Bank of New York may
issue the ADRs under a separate restricted deposit agreement which will contain
the same provisions as the Deposit Agreement, except for the changes needed to
put the restrictions in place.
OTHER DISTRIBUTIONS
The Bank of New York will send to the ADR holder anything else Corp distributes
in respect of deposited securities by any means it thinks is legal, fair and
practical. If it cannot make the distribution in that way, The Bank of New York
has a choice. Following consultation with Corp, it may decide to sell what Corp
distributed and distribute the net proceeds in the same way as it does with cash
or it may decide to hold what Corp distributed, in which case the ADRs will also
represent the newly distributed property.
The Bank of New York is not responsible if it decides that it is unlawful or
impractical to make a distribution available to any ADR holders. Corp has no
obligation to register ADRs, shares, rights or other securities under the
Securities Act. Corp also has no obligation to take any other action to permit
the distribution of ADRs, shares, rights or anything else to ADR holders. This
means that the ADR holder may not receive the distribution Corp makes on its
shares or any value for them if it is illegal or impractical for Corp to make
them available to the ADR holder.
DEPOSIT, WITHDRAWAL AND CANCELLATION
The Bank of New York will issue ADRs if the ADR holder or its broker deposits
shares or evidence of rights to receive shares with the Custodian. Subject to
the special arrangements relating to the Restructuring described above under
"Important notice regarding responsibility for fees and taxes," upon payment of
its fees and expenses and of any taxes or charges, such as stamp taxes or stock
transfer taxes or fees, The Bank of New York will register the appropriate
number of ADRs in the names requested by the ADR holder and will deliver the
ADRs at its Corporate Trust office to the persons requested by the ADR holder.
The ADR holder may turn in its ADRs at The Bank of New York's Corporate Trust
office. Upon payment of its fees and expenses and of any taxes or charges, such
as stamp taxes or stock transfer taxes or fees, The Bank of
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New York will deliver the underlying Corp Shares to an account designated by the
ADR holder and any other deposited securities underlying the ADR at the office
of the custodian. Or, at the ADR holder's request, risk and expense, The Bank of
New York will deliver the deposited securities at its Corporate Trust office.
RECORD DATES
The ADR Depositary will, after consultation with Corp if practicable, fix a
record date (which will be as near as practicable to any corresponding record
date set by Corp) for the determination of the ADR holders who will be entitled
to receive any distribution on or in respect of the deposited Corp Shares or the
net proceeds thereof, to give instructions for the exercise of any voting rights
in respect of those Corp Shares, to receive any notice or to act in respect of
other matters and only such ADR holders at the close of business on such record
date will be so entitled.
VOTING RIGHTS
The ADR holder may instruct The Bank of New York to vote the Corp Shares
underlying the ADRs unless Corp requests otherwise. If Corp makes such a
request, an ADR holder will not be able to exercise its right to vote unless it
withdraws the Corp Shares underlying its ADRs. There can be no assurance that
the ADR holder will receive notice of the meeting enough in advance to withdraw
its shares.
Unless instructed otherwise by Corp, The Bank of New York will notify the ADR
holders of the upcoming vote and arrange to deliver Corp's voting materials to
the ADR holders. The materials will describe the matters to be voted on and
explain how each ADR holder, on a certain date, may instruct The Bank of New
York to vote the Corp Shares or other deposited securities. For instructions to
be valid, The Bank of New York must receive them on or before the date
specified. The Bank of New York will try, as far as practical, subject to
English law and the provisions of Corp's Memorandum and Articles, to vote or to
have its agents vote the Corp Shares or other deposited securities as the ADR
holder instructs. The Bank of New York will only vote or attempt to vote as the
ADR holder instructs. However, if The Bank of New York does not receive the ADR
holder's voting instructions, it will give a proxy to vote their Corp Shares to
Corp's designated representative. A proxy will not be given with respect to any
matter as to which Corp informs The Bank of New York in writing that Corp does
not wish such proxy to be given.
Corp cannot assure that the ADR holder will receive the voting materials in time
to ensure that it can instruct The Bank of New York to vote their Corp Shares.
In addition, The Bank of New York and its agents are not responsible for failing
to carry out voting instructions or for the manner of carrying out voting
instructions. This means that the ADR holder may not be able to exercise their
right to vote and there may be nothing the ADR holder can do if the shares are
not voted as requested.
DISCLOSURE OF INTERESTS
The ADR holder is deemed in the agreement to have agreed to provide any
information Corp may request in a disclosure notice given pursuant to the Act
and Corp's Memorandum and Articles. If the ADR holder does not provide the
information requested in a disclosure notice and the ADR holder is (or appears
to be) an interested person under the Act and its Memorandum and Articles, Corp
may impose sanctions. These sanctions currently could include:
a. the withdrawal of the ADR holder's voting rights under the Corp Shares;
b. the withholding of dividends and other capital payments on the Corp
Shares; and
c. the restriction of the ADR holder's right to transfer their Corp Shares.
The ADR holder must also notify Corp as required by the Act if it becomes
interested in 3 per cent. or more of the Corp Shares, or if the ADR holder
becomes aware that any person or persons that it is holding ADRs for becomes so
interested, or if subsequent changes in the ADR holder's or their interest with
respect to the Corp Shares occur. The ADR holder must notify Corp within two UK
business days after becoming interested or aware that another person is
interested in 3 per cent. or more of the Corp Shares. After that time, the ADR
holder must
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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notify Corp of any change of at least 1 per cent. of Corp Shares. If the ADR
holder fails to do so, Corp may impose sanctions against the ADR holder similar
to those described above.
FEES AND EXPENSES
Subject to the special arrangements relating to the Restructuring described
above under "Important notice regarding responsibility for fees and taxes":
ADR holders must pay: For:
--------------------- ----
US$5.00 (or less) per 100 ADRs Each issue of an ADR, including as a result
of a distribution of shares or rights or
other property
Each cancellation of an ADR, including if
the Deposit Agreement terminates
US$0.02 (or less) per ADR Any cash payment, except for distributions
of cash dividends
Registration or transfer fees Registration and transfer of shares on the
share register of Corp's registrar,
Computershare Services, from the holder's
name to the name of The Bank of New York or
its agent when shares are deposited or
withdrawn
Expenses of The Bank of New York Conversion of sterling to US dollars and
cable, telex and facsimile transmission
expenses
Taxes and other governmental charges The As necessary
Bank of New York or the Custodian have to
pay on any ADR or share underlying an ADR,
for example, stock transfer taxes, stamp
duty or withholding taxes
PAYMENT OF TAXES
Subject to the special arrangements relating to the Restructuring described
above under "Important notice regarding responsibility for fees and taxes," the
ADR holder will be responsible for any taxes or other governmental charges
payable on its ADRs or on the deposited securities underlying its ADRs. The Bank
of New York may refuse to transfer an ADR holder's ADRs or allow it to withdraw
the deposited securities underlying its ADRs until such taxes or other charges
are paid. It may apply payments owed to the ADR holder or sell deposited
securities underlying the ADRs to pay any taxes owed and the ADR holder will
remain liable for any deficiency. If The Bank of New York sells deposited
securities, it will, if appropriate, reduce the number of ADRs to reflect the
sale and pay to the ADR holder any proceeds, or send to you any property,
remaining after it has paid the taxes.
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RECLASSIFICATIONS, RECAPITALISATIONS AND MERGERS
If Corp does any of the following: Then:
---------------------------------- -----
Change the nominal or par value of the Corp The cash, shares or other securities
Shares received by The Bank of New York will become
deposited securities. Each ADR will
Reclassify, split-up or consolidate any of automatically represent its equal share of
the deposited securities the new deposited securities.
Distribute securities on the shares that are The Bank of New York may, and will if Corp
not distributed to holders asks it to, distribute some or all of the
cash, shares or other securities it
Recapitalise, reorganise, merge, liquidate, received. It may also issue new ADRs or ask
sell all or substantially all of Corp's holders to surrender their outstanding ADRs
assets, or take any similar action in exchange for new ADRs, identifying the
new deposited securities.
REPORTS AND OTHER COMMUNICATIONS
The ADR Depositary has undertaken to make available at its Corporate Trust
offices in the US, for inspection by Corp and the ADR holders, the Deposit
Agreement and any reports, notices and written communications received from Corp
which are made generally available to the holders of such deposited Corp shares
by Corp. The ADR Depositary has agreed to mail copies of such reports, notices
and communications (or English translations or summaries thereof) to ADR holders
when furnished by Corp.
Corp has agreed to transmit to the ADR Depositary, on or before the first date
on which Corp makes any communication available to holders of Corp Shares, a
copy (in English or with an English translation or summary) of any
communications it makes generally available (by publication or otherwise) to
holders of Corp shares. Corp has delivered to the ADR Depositary and the
Custodian a copy of its Memorandum and Articles and all other provisions adopted
by it or governing Corp Shares and any other deposited securities issued by Corp
or any Affiliate of Corp and, promptly upon any change thereto, Corp will
deliver a copy of such provisions as so changed. All copies will be in English
or accompanied by English translations. Corp has agreed that the ADR Depositary
and its agents may rely upon Corp's delivery of all such communications,
information and provisions for all purposes of the Deposit Agreement.
AMENDMENT AND TERMINATION
Corp may agree with The Bank of New York to amend the Deposit Agreement and the
ADRs without the ADR holders' consent for any reason. If the amendment adds or
increases fees or charges, except for taxes and other governmental charges or
registration fees, cable, telex or facsimile transmission costs, delivery costs
or other such expenses, or prejudices an important right of ADR holders, it will
only become effective 30 days after The Bank of New York notifies the ADR
holders of the amendment. At the time an amendment becomes effective, the ADR
holder is considered, by continuing to hold its ADRs, to agree to the amendment
and to be bound by the ADRs and the Deposit Agreement is amended.
The Bank of New York will terminate the Deposit Agreement if Corp asks it to do
so. The Bank of New York may also terminate the Deposit Agreement if The Bank of
New York has told Corp that it would like to resign and Corp has not appointed a
new depositary bank within 90 days. In both cases, The Bank of New York must
notify the ADR holders at least 30 days before termination.
No amendment will impair the right of ADR holders to surrender their ADRs and
receive the underlying shares unless such an impairment is necessary in order to
comply with mandatory provisions of applicable law.
After termination, The Bank of New York and its agents will be required to only
collect distributions on the deposited securities and deliver shares and other
deposited securities upon cancellation of ADRs.
At any time after one year from the date of termination, The Bank of New York
may sell property and rights and convert deposited securities into cash by
public or private sale. After that, The Bank of New York will hold the
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proceeds of the sale, as well as any other cash it is holding under the
agreement for the pro rata benefit of the ADR holders that have not surrendered
their ADRs. It will not invest the money and will have no liability for
interest. The Bank of New York's only obligations will be to account for the
proceeds of the sale and other cash. After termination Corp's only obligations
will be with respect to indemnification and to pay certain amounts to The Bank
of New York.
LIMITATIONS ON OBLIGATIONS AND LIABILITY TO ADR HOLDERS
The Deposit Agreement expressly limits Corp's obligations and the obligations of
The Bank of New York, and it limits Corp's liability and the liability of The
Bank of New York. Corp and The Bank of New York:
a. are only obligated to take the actions specifically set forth in the
agreement without negligence, wilful misconduct or bad faith;
b. are not liable if either is prevented or delayed by law or circumstances
beyond their control from performing their obligations under the
agreement;
c. are not liable if either exercises discretion permitted under the
agreement;
d. have no obligation to become involved in a lawsuit or other proceeding
related to the ADRs or the agreement on your behalf or on behalf of any
other party; and
e. may rely upon any documents they believe in good faith to be genuine and
to have been signed or presented by the proper party.
In the Deposit Agreement, Corp and The Bank of New York agree to indemnify each
other under certain circumstances.
REQUIREMENTS FOR ADR DEPOSITARY ACTIONS
Before The Bank of New York will issue or register transfer of an ADR, make a
distribution on an ADR, or withdrawal of shares, The Bank of New York may
require:
a. payment of stock transfer or other taxes or other governmental charges
and transfer, registration or conversion fees charged by third parties
for the transfer of any shares or other deposited securities as well as
The Bank of New York's fees;
b. production of satisfactory proof of the identity and genuineness of any
signature or other information it deems necessary; and
c. compliance with regulations it may establish, from time to time,
consistent with the agreement, including presentation of transfer
documents.
The Bank of New York may refuse to deliver, transfer, or register transfers of
ADRs generally when the books of The Bank of New York or Corp's transfer books
are closed, or at any time if The Bank of New York or Corp think it advisable to
do so.
ADR holders have the right to cancel their ADRs and withdraw the underlying
shares at any time except:
a. when temporary delays arise because:
(i) The Bank of New York or Corp has closed its or Corp's transfer
books;
(ii) the transfer of shares is blocked to permit voting at a
shareholders' meeting; or
(iii) Corp is paying a dividend on the shares;
b. when ADR holders seeking to withdraw shares owe money to pay fees taxes
and similar charges; or
c. when it is necessary to prohibit withdrawals in order to comply with any
laws or governmental regulations that apply to ADRs or to the withdrawal
of shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of the
Deposit Agreement.
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PRE-RELEASE OF ADRS
Unless requested by Corp to cease doing so, in certain circumstances, subject to
the provisions of the Deposit Agreement and any limitations established by The
Bank of New York, The Bank of New York may issue ADRs before deposit of the
underlying Corp Shares. This is called a pre-release of the ADR. The Bank of New
York may also deliver Corp Shares upon cancellation of pre-released ADRs (even
if the ADRs are cancelled before the pre-release transaction has been closed
out). A pre-release is closed out as soon as the underlying Corp Shares are
delivered to The Bank of New York. The Bank of New York may receive ADRs instead
of Corp Shares to close out a pre-release. The Bank of New York may pre-release
ADRs only under the following conditions:
a. before or at the time of the pre-release, the person to whom the
pre-release is being made must represent to The Bank of New York in
writing that the person or its customer
(i) owns the Corp Shares or ADRs to be deposited;
(ii) assigns all beneficial rights, title and interest in the Corp
Shares or ADRs to The Bank of New York for the benefit of the
transferee; and
(iii) will not take any action relating to the Corp Shares or ADRs that
is inconsistent with the transfer of beneficial ownership;
b. the pre-release must be fully collateralised (such collateral marked to
market daily) with cash, US government securities or other collateral
that The Bank of New York determines, in good faith, will provide
substantially similar liquidity and security; and
c. The Bank of New York must be able to close out the pre-release on not
more than five business days' notice.
In addition, The Bank of New York will limit the number of ADRs that may be
outstanding at any time as a result of pre-release (this number will not
normally exceed 20 per cent. of the shares deposited under the agreement),
although The Bank of New York may disregard the limit from time to time, if it
thinks it is appropriate to do so.
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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APPENDIX 17
TAX
This Appendix describes certain UK and US tax consequences for Scheme Creditors
and Bondholders of implementation of the Schemes and of holding the Scheme
Consideration. Discussion of the UK tax consequences can be found in Part A of
this Appendix, and discussion of the US tax consequences in Part B. It will be
noted that there are significant differences between the tax consequences for
Scheme Creditors and Bondholders in the UK and the US, which result from the
differences in the underlying tax systems. The discussion of the tax
consequences in the UK and US does not purport to be comprehensive, and the tax
consequences of the proposals in other jurisdictions are not discussed. Scheme
Creditors and Bondholders considering the Restructuring are therefore encouraged
to consult their own tax advisers concerning the tax consequences of the
proposals for them in the light of their particular circumstances.
PART A -- UK TAXATION
The following summary describes certain UK tax consequences for Scheme Creditors
and Bondholders of the implementation of the Schemes and of ownership of the New
Shares and the New Notes, but does not purport to be comprehensive. Except where
noted, it relates only to the position of persons who hold the Scheme Claims,
New Shares and New Notes as investments and who are the absolute beneficial
owners of Scheme Claims, New Shares and New Notes. The statements may not apply
to special situations, such as those of dealers in securities or persons
connected with Corp or plc. Furthermore, the discussion below is generally based
upon the provisions of UK tax law and UK Inland Revenue practice as of the date
hereof, and such provisions may be repealed, revoked or modified (possibly with
retrospective effect) so as to result in UK tax consequences different from
those discussed below.
Scheme Creditors or Bondholders considering the Restructuring should consult
their own tax advisers concerning UK tax consequences in the light of their
particular situations as well as any consequences arising under the law of any
other relevant jurisdiction. No representations are made with respect to the tax
consequences to any particular holder of Scheme Claims, New Shares or New Notes.
Specifically, the comments below do not address the tax consequences in a
jurisdiction other than the UK of the Restructuring or of any subsequent holding
or disposal of New Shares or New Notes. Holders of Scheme Claims, New Shares or
New Notes in a jurisdiction other than the UK are strongly urged to consult
their professional advisers to determine their own tax position.
TAX EFFECTS OF IMPLEMENTATION OF THE SCHEMES
The following description assumes that the Schemes are both implemented in
accordance with the Restructuring proposals but does not deal with all possible
eventualities. The tax consequences of implementation of the Schemes for Scheme
Creditors are not in all cases clear cut. Tax consequences for a Scheme Creditor
will depend on the nature of the Scheme Creditor's Scheme Claim. The Inland
Revenue has confirmed that Bondholders that are within the charge to taxation of
chargeable gains will be taxed as described below. Scheme Creditors whose claims
are not described in this section, or who are in any doubt about their tax
position, are encouraged to consult their own tax advisers.
CLAIMS IN THE CORP SCHEME
The tax consequences for Corp Scheme Creditors and Bondholders receiving a
distribution in the Corp Scheme may depend on whether the distribution is part
of the Initial Distribution or part of any further distribution under the
Scheme.
Tax Treatment on Effective Date
Scheme Creditors or Bondholders within the Charge to Corporation Tax
a. A Scheme Creditor whose Scheme Claim represents a loan relationship and
who holds the Scheme Claim as an investment or a Bondholder holding the
Bonds as investments and within the charge to corporation tax will not
realise a chargeable gain for the purposes of UK taxation of chargeable
gains on the cancellation of the Scheme Claim or Bonds. It will, however,
be charged to tax on all returns, profits or
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 17: TAX
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gains and fluctuations in value of the Scheme Claim or Bonds, including
those deriving from receipt of Scheme Consideration (and whether
attributable to currency fluctuations or otherwise), broadly in
accordance with its authorised accounting treatment.
b. Bondholders within the Charge to Capital Gains Tax
A Bondholder holding the Bonds as investments and within the charge to
capital gains tax will be treated for tax purposes as receiving cash, New
Notes, New Shares and a right to a further distribution under the Scheme,
should one be made (a "Further Distribution Right").
To the extent that a Bondholder receives New Notes and New Shares, this
will be treated as a "conversion of securities" and, therefore, will not
be treated as a disposal of the Bondholder's Bonds. However, to the
extent that a Bondholder receives cash or a Further Distribution Right,
this will be treated as a part disposal of the Bondholder's Bonds on the
Effective Date of the Corp Scheme. Accordingly, it will be necessary for
a Bondholder to apportion his base cost between the New Notes and New
Shares on the one hand and the cash and the Further Distribution Right on
the other. This apportionment should be done in the ratio of the market
value on the Effective Date of the New Notes and New Shares to the market
value on the Effective Date of the Further Distribution Right and the
amount of the cash. (This is subject to any apportionment the Bondholder
makes between the Corp and plc Schemes -- see further below.) On receipt
of the cash and the Further Distribution Right, a Bondholder may realise
an allowable loss or a chargeable gain. The Bondholder's New Notes and
New Shares will be treated as if they were acquired at the same time as
the original Bonds and for the apportioned base costs.
c. Scheme Creditors within the Charge to Capital Gains Tax
A Scheme Creditor holding a debt as an investment which is not a
qualifying corporate bond for the purposes of capital gains tax and which
is within the charge to capital gains tax will be treated for tax
purposes as set out above under Bondholders within the charge to Capital
Gains Tax.
d. Scheme Creditors with Scheme Claims which are Debts
A Scheme Creditor whose Scheme Claim is in respect of a debt owed by Corp
(which is not a trade debt) and whose position is not dealt with in the
preceding paragraphs will realise neither a chargeable gain nor an
allowable loss. The cash should be treated as satisfying the equivalent
amount of the Scheme Creditor's claim. The Scheme Creditor will be
treated as acquiring the New Notes, the New Shares and the Further
Distribution Right for their market value on the Effective Date. In the
case of a Scheme Creditor which is an original creditor against Corp
(i.e. which is not a Scheme Creditor as a result of the assignment to it
of the Scheme Claim or the underlying debt), any chargeable gain which
might otherwise be realised on a subsequent disposal of the New Notes
and/or New Shares will be reduced so as not to exceed the chargeable gain
(if any) which would accrue if the Scheme Creditor had acquired the New
Notes and/or New Shares for the full amount of its Scheme Claim (less any
amount satisfied by cash or attributable to the Further Distribution
Right).
e. Scheme Creditors with Scheme Claims which are another form of Capital
Asset
A Scheme Creditor with a Scheme Claim which is another form of capital
asset (such as a right to an indemnity) will be treated as disposing of
that Scheme Claim on the Effective Date of the Corp Scheme in return for
cash, New Notes, New Shares and the Further Distribution Right for the
purposes of taxation on chargeable gains. The New Notes, New Shares and
the Further Distribution Right will be treated as acquired at their
market value on the Effective Date. Accordingly, a chargeable gain or an
allowable loss may arise.
f. Tax Treatment of Further Distributions
A Scheme Creditor or Bondholder within the charge to corporation tax
should bring any further distributions made under the Corp Scheme into
account in accordance with its authorised accounting treatment.
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For Scheme Creditors or Bondholders within the charge to capital gains tax,
receipt of a further distribution under the Scheme will be treated as the
disposal of the Further Distribution Right in consideration for the value
of the assets received on the further distribution. Accordingly, a
chargeable gain or an allowable loss may arise.
Claiming an Allowable Loss
A Scheme Creditor or Bondholder who realises a loss for the purposes of taxation
on chargeable gains must give notice to an officer of the Board of the Inland
Revenue quantifying the amount of that loss before it will be an allowable loss.
The notice must be given within 5 years of 31 January following the year of
assessment in which the Effective Date falls.
FURTHER TAX ISSUES AFFECTING SCHEME CREDITORS AND BONDHOLDERS
It is expected that the arrangements under which Scheme Consideration is held
for the Scheme Creditors by the Escrow Trustee will constitute a bare trust
(such bare trust being subject to an obligation on the Escrow Trustee -- as
directed by the Supervisors on behalf of the Scheme Creditors -- to make
distributions in accordance with the Schemes). This has the following potential
consequences for Scheme Creditors:
a. To the extent that the distributions made by the Escrow Trustee in
accordance with the Schemes do not match exactly the beneficial
entitlements of Scheme Creditors under the bare trust, the strict
technical position may be that some Scheme Creditors have made
disposals of their entitlements to other Scheme Creditors. However,
these disposals are for no consideration, and the Scheme Creditor
receiving the entitlement would acquire it at nil base cost.
Accordingly, it is not expected that this technical analysis should
affect the tax treatment outlined above.
b. Where income (in the form of interest on the New Notes, or on any
cash balances held by the Escrow Trustee) accrues on the Scheme
Consideration held by the Escrow Trustee, this is strictly the
income of the Scheme Creditor with the beneficial entitlement to it
under the bare trust, and may be taxable when it arises or accrues,
rather than when it is received. Taking a strict technical position,
this could result in a Scheme Creditor or Bondholder being taxed on
income he has not received. However, the Inland Revenue has agreed
that, if it is satisfied that the Scheme Consideration is held on
bare trust as outlined above, the Escrow Trustee should deduct tax
at the basic rate (currently 22 per cent.) from any such income
which arises on the Scheme Consideration before paying the remainder
as part of a distribution. Scheme Creditors and Bondholders will
receive a certificate showing the amount of tax deducted, and may be
liable to pay additional amounts of tax or able to reclaim the tax
already paid, depending on their circumstances.
CLAIMS IN THE PLC SCHEME
The tax consequences for plc Scheme Creditors should be the same as for Corp
Scheme Creditors, subject to the following qualification in respect of the
claims of Bondholders.
The claims of Bondholders under the plc Scheme are in respect of the guarantees
given by plc of Corp's obligations under the Bonds. Accordingly, there will not
be a conversion of securities for Bondholders under the plc Scheme. Rather,
Bondholders within the charge to capital gains tax may realise a chargeable gain
in respect of the Scheme Consideration received in the plc Scheme. A Bondholder
may, however, make an election to attribute some of the base cost in its Bonds
to the Scheme Claim against plc. This would have the effect of reducing the
amount of any chargeable gain realised (and could result in an allowable loss)
on the receipt of the Scheme Consideration in the plc Scheme. The proportion of
the Bondholder's base cost in its Bonds which may be attributed to the claim in
the plc Scheme is A/(A + B), where A is the market value on the Effective Date
of the assets received in the plc Scheme and B is the market value on the
Effective Date of the assets received in the Corp Scheme.
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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TAXATION OF THE NEW NOTES
INTEREST ON THE NEW NOTES
The interest on the New Notes should be treated as interest for the purposes of
both income tax and corporation tax.
Payment of Interest on the New Notes
Interest on the New Notes will be payable without withholding or deduction on
account of UK tax provided that the New Notes are, and remain, listed on a
"recognised stock exchange", as defined in section 841 of ICTA 1988. The London
Stock Exchange is a recognised stock exchange. Under an Inland Revenue published
practice, securities will be treated as listed on the London Stock Exchange if
they are admitted to the Official List by the UKLA and admitted to trading on
the London Stock Exchange.
Interest on the New Notes may also be paid without withholding or deduction on
account of UK tax where interest on the New Notes is paid to a person who
belongs in the UK and, at the time the payment is made, Corp reasonably believes
that either:
a. the person beneficially entitled to the interest payment is within the
charge to UK corporation tax as regards the payment of interest; or
b. the payment is made to (or, in the case of section 349B(6) of ICTA 1988,
the person beneficially entitled to the interest payment is) one of the
classes of exempt bodies or persons set out in section 349B(3) to (6) of
ICTA 1988,
provided that the Inland Revenue has not given a direction (in circumstances
where it has reasonable grounds to believe that it is likely that none of the
conditions specified in section 349B of ICTA 1988 will be satisfied in respect
of such payment of interest at the time the payment is made) that the exception
is not to apply in relation to such a payment.
In all other cases, an amount will be withheld from payments of interest on the
New Notes on account of UK income tax, generally at the lower rate (currently 20
per cent.), and subject to any direction to the contrary by the Inland Revenue
under an applicable double taxation treaty.
Holders of New Notes who are individuals may wish to note that the Inland
Revenue has power to obtain information (including the name and address of the
beneficial owner of the interest) from any person in the UK who either pays
interest to or receives interest for the benefit of an individual (whether or
not the interest has been subject to deduction at source and whether or not the
holder is resident in the UK for UK tax purposes). Information so obtained may,
in certain circumstances, be passed on by the Inland Revenue to the tax
authorities of other jurisdictions.
Proposed EU Savings Directive
On 21 January 2003 the European Council of Economics and Finance Ministers
("ECOFIN") provisionally agreed on proposals under which Member States will be
required to provide to the tax authorities of another Member State details of
payments of interest (or similar income) paid by a person within its
jurisdiction to an individual resident in that other Member State, except that,
for a transitional period only, Belgium, Luxembourg and Austria will instead be
required to operate a withholding system in relation to such payments (the
ending of such transitional period being related to the conclusion of certain
other agreements relating to information exchange with certain other countries).
The proposed directive may be subject to further amendment and/or clarification.
Further UK Income Tax Issues
Interest on the New Notes constitutes UK source income for tax purposes and, as
such, may be subject to income tax by direct assessment even where paid without
withholding.
However, interest with a UK source received without deduction or withholding on
account of UK tax will not be chargeable to UK tax in the hands of a holder of
New Notes (other than certain trustees) who is not resident for
854
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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tax purposes in the UK in most cases unless that holder carries on a trade,
profession or vocation in the UK through a UK branch or agency in connection
with which the interest is received or to which the New Notes are attributable.
There are exemptions for interest received by certain categories of agent (such
as some brokers and investment managers). The provisions of an applicable double
taxation treaty may also be relevant for such holders.
Where the New Notes are to be, or may fall to be, redeemed at a premium or where
a payment is made in respect of interest which would have accrued prior to the
Issue Date, and that payment is treated as a premium, then any such element of
premium may constitute a payment of interest, subject to UK taxation and
reporting requirements as outlined above. Where additional New Notes are issued
in lieu of payment of interest in cash, this will be treated for UK tax purposes
as if it were the payment of an amount of that interest equal to the value of
the additional New Notes at the time of their issue which value may not be equal
to the par value of such New Notes and may therefore be different from the
amount of cash interest payable.
UK CORPORATION TAX PAYERS
In general holders of New Notes which are within the charge to UK corporation
tax in respect of those Notes (other than authorised unit trusts and open-ended
investment companies) will be treated for tax purposes as realising profits or
losses in respect of the New Notes on a basis which is broadly in accordance
with their statutory accounting treatment so long as the accounting treatment is
in accordance with a mark-to-market basis or an accruals basis which is
authorised for tax purposes. Such profits and losses will be taken into account
in computing taxable income for corporation tax purposes. With effect from the
beginning of their first accounting period commencing on or after 1 October
2002, holders of New Notes that are authorised unit trusts or open ended
investment companies will be subject to the same taxation treatment in respect
of the New Notes as other holders that are within the charge to UK corporation
tax, other than (in each case) with respect to profits and losses of a capital
nature in respect of the New Notes.
OTHER UK TAX PAYERS
Taxation of Capital Gains
A disposal of the New Notes by an individual holder who is resident or
ordinarily resident in the United Kingdom or who carries on a trade, profession
or vocation in the United Kingdom through a branch or agency to which the New
Notes are attributable, may give rise to a chargeable gain or allowable loss for
the purposes of UK taxation of chargeable gains.
Accrued Income Scheme
A holder disposing of New Notes will be chargeable to tax on income, under the
rules of the accrued income scheme as set out in Chapter II of Part XVII of ICTA
1988, on any interest which has accrued since the last interest payment date on,
and, to the extent it is treated as interest, any premium on redemption of the
New Notes, on a just and reasonable basis, if that holder is resident or
ordinarily resident in the United Kingdom or carries on a trade in the United
Kingdom through a branch or agency to which the New Notes are attributable.
TAXATION OF THE NEW SHARES
DIVIDENDS
Under current UK tax law, Corp will not be required to withhold tax at source
from dividend payments it makes.
UK Corporation Tax Payers
A shareholder which is within the charge to UK corporation tax will not normally
be subject to corporation tax on any dividend received from Corp. Such a
shareholder will not be able to claim repayment of the tax credit attaching to
any dividend.
855
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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Other UK Tax Payers -- Individuals
An individual shareholder who is resident in the UK for tax purposes and who
receives a dividend from Corp will be entitled to a tax credit which may be set
off against his total income tax liability on the dividend. Such an individual
shareholder's liability to income tax is calculated on the aggregate of the
dividend and the tax credit (the "gross dividend") which will be regarded as the
top slice of the individual's income. The tax credit will be equal to 10 per
cent. of the "gross dividend" (i.e. the tax credit will be one-ninth of the
amount of the dividend).
Generally, a UK resident individual shareholder who is not liable to income tax
in respect of the gross dividend will not be entitled to reclaim any part of the
tax credit. A UK resident shareholder who is not liable to income tax at a rate
in excess of the basic rate will be subject to income tax on the dividend at the
rate of 10 per cent. of the gross dividend so that the tax credit will satisfy
in full such shareholder's liability to income tax on the dividend. A UK
resident individual shareholder liable to income tax at the higher rate will be
subject to income tax on the gross dividend at 32.5 per cent. but will be able
to set the tax credit off against part of this liability. The effect of the
set-off of the tax credit is that such a shareholder will have to account for
additional tax equal to 25 per cent. of the cash dividend received.
Pension Funds
UK pension funds will not be entitled to reclaim the tax credit attaching to any
dividend paid by Corp.
Non-residents
A shareholder who is resident outside the UK will not generally be entitled to
any payment from the Inland Revenue in respect of the tax credit attaching to
any dividend paid by Corp, subject to the provisions of any double tax treaty
between the UK and his country of residence. Persons who are not resident in the
UK should consult their own professional advisers as to whether they are
entitled to reclaim any part of the tax credit, the procedure for doing so and
what relief or credit may be claimed in the jurisdiction in which they are
resident for tax purposes in respect of such tax credit.
TAXATION OF CAPITAL GAINS
A disposal of the New Shares by a shareholder who is either resident or
ordinarily resident in the UK for tax purposes, or is not UK resident but
carries on a trade, profession or vocation in the UK through a branch or agency
or, for accounting periods beginning on or after 1 January 2003, a permanent
establishment and has used, held or acquired the New Shares for the purposes of
such trade, profession or vocation or such branch or agency, or, as the case may
be, permanent establishment may, depending on the shareholder's circumstances
and subject to any available exemption or relief, give rise to a chargeable gain
or an allowable loss for the purposes of the taxation of capital gains.
A shareholder who is an individual normally resident or ordinarily resident in
the UK and who has, on or after 17 March 1998, become neither resident nor
ordinarily resident in the UK for tax purposes for a period of less than five
years of assessment and who disposes of the New Shares during that period may
also be liable on his return to the UK to tax on any capital gain realised
(subject to any available exemption or relief). There are special rules for
individuals who leave the UK part way through a year of assessment.
Persons who are not resident or ordinarily resident in the UK for tax purposes
will not be within the charge to UK tax on capital gains on the disposal of the
New Shares unless they carry on a trade, profession or vocation in the UK
through a branch or agency as described above.
For individuals, taper relief may apply in relation to periods after 5 April
1998 so that the effective rate of capital gains tax on any gain on a disposal
by an individual of the New Shares will be reduced the longer the New Shares are
held, up to a maximum of, generally, 10 years.
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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STAMP DUTY AND STAMP DUTY RESERVE TAX ("SDRT")
There will be no charge to UK stamp duty or SDRT in respect of cancellation of
the Bonds.
ISSUE AND TRANSFER OF THE NEW NOTES
No stamp duty or SDRT should be payable on the issue or transfer by delivery of
the New Notes.
No stamp duty or SDRT should be payable by a Scheme Creditor or a Bondholder in
respect of the arrangements for the distribution of New Notes under the Schemes.
The transfer or sale of New Notes in definitive registered form will be liable
to ad valorem stamp duty at the rate of 0.5 per cent. of the consideration paid,
or the agreement to make that transfer will be liable to SDRT at the rate of 0.5
per cent of the consideration paid. The purchaser of the New Notes will
generally pay the stamp duty or, as the case may be, SDRT.
ISSUE OF NEW SHARES UNDER THE SCHEMES
In relation to the New Shares being issued by Corp and subject to the comments
below, no liability to stamp duty or SDRT will arise on the issue of, or on the
issue of definitive share certificates in respect of, such shares by Corp. The
New Shares are being issued into CREST. Where a Scheme Creditor or Bondholder is
entitled to receive New Shares under the Schemes, there will be no charge to
stamp duty or SDRT on the transfer of New Shares to the CREST account of that
Scheme Creditor or Bondholder, or to the CREST account of a person holding the
New Shares on his behalf.
Scheme Creditors and Designated Recipients who receive New Shares in the form of
ADRs pursuant to the Schemes at any time will not be required to pay any UK
stamp duty or SDRT in respect of the initial issuance of such ADRs.
Scheme Creditors and Designated Recipients who receive New Shares in non-ADR
form pursuant to the Schemes will not be required to pay any stamp duty or SDRT
in respect of the initial issuance of ADRs upon deposit of those New Shares or
an equivalent number of New Shares (but not any additional Corp Shares) in
exchange for ADRs, if such transfer is effected prior to the date falling two
calendar months after the effectiveness of the NASDAQ listing of the ADRs and
the procedures referred to in Appendix 16 in the paragraph headed "Persons
electing to receive New Shares pursuant to the Schemes" are complied with.
The position with regard to the issue of ADRs is discussed more fully in the
paragraph headed "Clearance Services and ADRs" below.
No stamp duty or SDRT should be payable by a Scheme Creditor or a Bondholder in
respect of the arrangements for the distribution of New Shares under the
Schemes.
SUBSEQUENT TRANSFERS OF NEW SHARES
Under the CREST system for paperless share transfers, deposits of New Shares
into CREST will generally not be subject to stamp duty or SDRT unless such a
transfer is made for a consideration in money or money's worth, in which case a
liability to SDRT will arise usually at the rate of 0.5 per cent. of the value
of the consideration given. Paperless transfers of New Shares within CREST are
generally liable to SDRT, rather than stamp duty, at the rate of 0.5 per cent.
of the amount or value of the consideration payable. CREST is obliged to collect
SDRT from the purchaser of the New Shares on relevant transactions settled
within the system.
The conveyance or transfer on sale of the New Shares outside the CREST system
will generally be subject to ad valorem stamp duty on the instrument of transfer
at the rate of 0.5 per cent. of the amount or value of the consideration given.
Such ad valorem stamp duty will be rounded up to the nearest L5. Stamp duty is
normally the liability of the purchaser or transferee of the New Shares. An
unconditional agreement to transfer New Shares will normally give rise to a
charge to SDRT at the rate of 0.5 per cent. of the amount or value of the
consideration for the New Shares. However, where within six years of the date of
the agreement, an instrument of transfer is executed and duly stamped, the SDRT
liability will be cancelled and any SDRT which has been paid will be repaid.
SDRT is normally the liability of the purchaser or transferee of the New Shares.
The position with regard
857
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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to the transfer of New Shares to a clearance service or to an issuer of ADRs is
discussed in the paragraph headed "Clearance Services and ADRs" below.
CLEARANCE SERVICES AND ADRS
Where New Shares are issued or transferred (i) to, or to a nominee for, a person
whose business is or includes the provision of clearance services or (ii) to, or
to a nominee or agent for, a person whose business is or includes issuing
depositary receipts, (for example where a Scheme Creditor elects to receive New
Shares in the form of ADRs) ad valorem stamp duty (in the case of a transfer
only to such persons) or SDRT may be payable at a rate of 1.5 per cent. of the
amount or value of the consideration payable, or, in certain circumstances, the
value of the New Shares or, in the case of an issue to such persons, the issue
price of the New Shares. Ad valorem stamp duty will be rounded up to the nearest
L5. Strictly the depositary or clearance operator, or its nominee, as the case
may be, will be accountable for this liability for stamp duty or SDRT. However,
it will in practice generally be reimbursed by participants in the clearance
service or depositary receipt scheme. As noted above, special arrangements have
been made in certain circumstances in relation to the payment of SDRT on the
issue of New Shares in ADR form pursuant to the Schemes and the payment of stamp
duty and SDRT on the issue of ADRs upon deposit of New Shares in exchange for
ADRs. Clearance service providers may opt, under certain circumstances, for the
normal rates of stamp duty and SDRT to apply to an issue (i.e. no stamp duty or
SDRT) or transfer (i.e. 0.5 per cent.) of New Shares into, and to transactions
within (i.e. 0.5 per cent.), the service instead of the higher rate applying to
an issue or transfer of the New Shares into the clearance system and the
exemption for dealings in the New Shares whilst in the system.
The above statements are intended as a general guide to the current position.
Certain categories of person, including market intermediaries, are not liable to
stamp duty or SDRT and others may be liable at a higher rate or may, although
not primarily liable for tax, be required to notify and account for it under the
Stamp Duty Reserve Tax Regulations 1986.
ANY PERSON WHO IS IN ANY DOUBT AS TO HIS TAX POSITION OR WHO MAY BE SUBJECT TO
TAX IN ANY JURISDICTION OTHER THAN THE UK SHOULD CONSULT HIS PROFESSIONAL
ADVISER.
For further information, see "Description of American Depositary Receipts" in
Appendix 16.
PART B -- US FEDERAL INCOME TAXATION
The following summary describes certain US federal income tax consequences that
may be relevant to the acquisition, ownership and disposition of New Shares, New
Senior Notes, New Junior Notes, and/or ADRs. This summary addresses only US
federal income tax considerations for holders that acquire the New Shares, New
Senior Notes, New Junior Notes, and/or ADRs as a result of the transactions
described in this document and that hold their Scheme Claim and will hold the
New Shares, New Senior Notes, New Junior Notes, and/or ADRs as capital assets.
It does not purport to be a comprehensive description of all the tax
considerations that may be relevant to a decision to acquire New Shares, New
Senior Notes, New Junior Notes, and/or ADRs. In particular, this summary does
not address tax considerations applicable to holders that may be subject to
special tax rules including, without limitation, the following: (a) financial
institutions; (b) insurance companies; (c) dealers or traders in securities or
currencies; (d) tax-exempt entities; (e) persons that will hold the New Shares,
New Senior Notes, New Junior Notes, and/or ADRs as part of a "hedging" or
"conversion" transaction or as a position in a "straddle" or as part of a
"synthetic security" or other integrated transaction for US federal income tax
purposes; (f) persons that have a "functional currency" other than the US
dollar; (g) persons that own (or are deemed to own) 5 per cent. or more (by
voting power or value) of Corp's stock; (h) regulated investment companies; and
(i) persons who hold the New Shares, New Senior Notes, New Junior Notes, and/or
ADRs through partnerships or other pass-through entities. Further, this summary
does not address alternative minimum tax consequences or the indirect effects on
the holders of equity interests in a holder of New Shares, New Senior Notes, New
Junior Notes and/or ADRs.
This summary is based on the US Internal Revenue Code of 1986, as amended (the
"CODE"), US Treasury regulations and judicial and administrative interpretations
thereof, and the Convention Between the Government of the United States of
America and the Government of the United Kingdom of Great Britain and Northern
858
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Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income and Capital Gains signed on 31 December
1975 and entered into force on 25 April 1981 (the "Current Treaty"), in each
case as in effect and available on the date of the Schemes described in these
documents. All of the foregoing are subject to change, which change could apply
retroactively and could affect the tax consequences described below. The United
States and United Kingdom have signed a new income tax treaty (the "New Treaty")
which will enter into force only after ratification by each country and it
cannot be determined when that will occur.
PERSONS CONSIDERING THE PROPOSALS INCLUDED IN THESE DOCUMENTS SHOULD CONSULT
THEIR OWN TAX ADVISER WITH RESPECT TO THE US FEDERAL, ESTATE, STATE, LOCAL, GIFT
AND OTHER TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF NEW SHARES, NEW
SENIOR NOTES, NEW JUNIOR NOTES, AND/OR ADRS.
US HOLDERS SHOULD ALSO REVIEW THE DISCUSSION UNDER "UK TAXATION" FOR THE UK TAX
CONSEQUENCES TO A US HOLDER OF NEW SHARES, NEW SENIOR NOTES, NEW JUNIOR NOTES,
AND/OR ADRS.
For the purposes of this summary a "US Holder" is a beneficial owner of a Scheme
Claim, New Shares, New Senior Notes, New Junior Notes, or ADRs that is, for US
federal income tax purposes: (a) a citizen or resident of the US; (b) a
corporation or other entity treated as a corporation for US tax purposes,
created or organised in or under the laws of the US or any state thereof
(including the District of Columbia); (c) an estate, the income of which is
subject to US federal income taxation regardless of its source; or (d) a trust
if (i) a court within the US is able to exercise primary supervision over its
administration and (ii) one or more US persons have the authority to control all
of the substantial decisions of such trust. If a partnership holds a Scheme
Claim, New Shares, New Senior Notes, New Junior Notes, or ADRs, the consequences
to a partner will generally depend upon the status of the partner and upon the
activities of the partnership. A partner of a partnership holding a Scheme
Claim, New Shares, New Senior Notes, New Junior Notes, or ADRs should consult
its tax adviser. A "Non-US Holder" is a beneficial owner of a Scheme Claim, New
Shares, New Senior Notes, New Junior Notes, or ADRs that is not a US Holder.
EXCHANGE OR DISPOSAL OF SCHEME CLAIMS
Consequences to plc Scheme Creditors
A US Holder that is a plc Scheme Creditor should generally recognise gain or
loss on the exchange of a Scheme Claim in an amount equal to the difference
between the amount realised on the exchange (except to the extent such amounts
are attributable to accrued but unpaid interest which will be taxable as such)
and the US Holder's tax basis in the Scheme Claim. The amount realised on the
exchange of a Scheme Claim will generally be the fair market value (in US
dollars) of the cash, New Shares, New Senior Notes, New Junior Notes, and/or
ADRs, (i) on the date such property is received in the case of a cash basis US
Holder, (ii) on the date of the exchange in the case of an accrual basis US
Holder, or (iii) in the case of Scheme Claims traded on an established
securities market (as defined in the applicable US Treasury regulations) that
are exchanged by a cash basis US Holder, or an electing accrual basis US Holder,
the US dollar value on the settlement date of the exchange.
Gain or loss recognised by a US Holder on the exchange of a Scheme Claim that is
attributable to changes in currency exchange rates will be ordinary income or
loss and will be characterised as principal exchange gain or loss. Principal
exchange gain or loss will equal the difference between the US dollar value of
the US Holder's purchase price of the Scheme Claim in foreign currency
determined on the date of the exchange, and the US dollar value of the US
Holder's purchase price of the Scheme Claim in foreign currency determined on
the date the US Holder acquired the Scheme Claim. Such gain or loss will be
recognised only to the extent of the total gain or loss recognised by the US
Holder on the exchange of the Scheme Claim, and will generally be treated as
from sources within the US for US foreign tax credit limitation purposes.
Any gain or loss recognised by a US Holder in excess of principal exchange gain
or loss recognised on the exchange of the Scheme Claim will generally be US
source capital gain or loss. Persons considering the proposals included in these
documents should consult their own tax advisers with respect to the treatment of
capital gains (which may be taxed at lower rates than ordinary income for
taxpayers who are individuals, trusts or estates that held Scheme Claims for
more than one year) and capital losses (the deductibility of which is subject to
limitations).
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To the extent a US Holder's Scheme Claim includes an obligation of plc that is a
"market discount" bond, any gain (other than foreign currency gain) recognised
by the US Holder on the exchange of such Scheme Claim for cash, New Shares, New
Senior Notes, New Junior Notes, and/ or ADRs, may be characterised as ordinary
interest income to the extent of the "accrued market discount". Generally, a
bond issued by plc will have "market discount" where the bond's "stated
redemption price at maturity" (i.e. an amount equal to the sum of all payments
provided under the bond other than "qualified stated interest payments" as
described below in "New Senior Notes, and New Junior Notes -- Original Issue
Discount"), exceeds a US Holder's tax basis in such bond immediately after the
US Holder acquired the bond (except in general, for an acquisition of a bond at
original issuance). Where a bond contains "original issue discount", then the
stated redemption price at maturity shall be the sum of the bond's issue price
and the aggregate amount of the original issue discount, excluding any
"acquisition premium" includible in the gross income of all holders of the bond
during period or periods before the US Holder acquired the bond (the "revised
issue price"). The amount of "accrued market discount" is the product of the
total market discount and the ratio of the number of days the US Holder has held
the bond to the total number of days after the acquisition date up to, and
including, the date of maturity of the bond, unless such Holder had made an
irrevocable election to include such market discount in its gross income on a
constant yield basis. For purposes of determining the source of the income,
withholding or information reporting, any gain treated as ordinary income will
not be characterised as interest. Persons considering the proposals included in
these documents should consult with their own tax advisors with respect to the
applicability of the market discount bond rules under the Code, including
special rules where a market discount bond may contain original issue discount
and/or provide for two or more principal payments, to their own individual
circumstances and the appropriate US federal income tax consequences that may be
applicable to them arising from the exchange of a Scheme Claim that includes a
"market discount" bond for cash, New Shares, New Senior Notes, New Junior Notes
and/or ADRs.
All distributions to a plc Scheme Creditor as a result of the transactions
described in this document will be treated as described above.
A US Holder's basis in the property received should equal the fair market value
of such property.
Foreign currency received on the exchange of a Scheme Claim will have a tax
basis equal to its US dollar value at the time the payment is received. Gain or
loss, if any, recognised on the subsequent sale, conversion or disposition of
such foreign currency will be ordinary income or loss, and will generally be
income or loss from sources within the US for foreign tax credit limitation
purposes. However, if such foreign currency is converted into US dollars on the
date received by the US Holder, a cash basis or electing accrual basis US Holder
should not recognise any gain or loss on such conversion.
Subject to the discussion under "Backup Withholding and Information Reporting",
a Non-US Holder generally will not be subject to US federal income or
withholding tax on any gain realised on the exchange of a Scheme Claim unless:
(a) that gain is effectively connected with the conduct by that Non-US Holder of
a trade or business in the US, (b) in the case of any gain realised by an
individual Non-US Holder, that holder is present in the US for 183 days or more
in the taxable year of disposition and certain conditions are met, or (c) the
Non-US Holder is subject to tax pursuant to provisions of the Code applicable to
certain expatriates. A Non-US Holder generally will not be subject to US federal
income or withholding tax on any amount realised on the exchange of a Scheme
Claim that is attributable to accrued but unpaid interest unless that income is
effectively connected with the conduct by that Non-US Holder of a trade or
business within the US.
Consequences to Corp Scheme Creditors
The US federal income tax consequences to US Holders who are Corp Scheme
Creditors depends in part on whether the New Senior Notes and New Junior Notes
on the one hand, and Scheme Claims, on the other hand, are "securities". The
determination of whether a debt instrument constitutes a security for US federal
income tax purposes depends on its terms and conditions, and upon other facts
and circumstances. Due to the inherently factual nature of whether a debt
instrument is a security for US federal income tax purposes, the US Internal
Revenue Service (the "IRS") or a court could determine that the New Senior
Notes, New Junior Notes, and Scheme Claims do not constitute securities. In such
case the tax consequences to a US Holder would be as set
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forth above under "Consequences to plc Scheme Creditors". The remainder of this
discussion assumes that the New Senior Notes, New Junior Notes, and Scheme
Claims are securities for US federal income tax purposes.
A US Holder should generally not recognise gain or loss on the exchange of a
Scheme Claim for New Shares, New Senior Notes, New Junior Notes, and/or ADRs,
(i.e., securities received in the exchange except to the extent such securities
are attributable to accrued but unpaid interest which will be taxable as such)
("Nonrecognition Exchange"). A US Holder should recognise gain, but not loss, to
the extent of cash and the principal amount of securities received in excess of
the principal amount of securities surrendered (such cash and excess principal
amount being referred to as "Other Property") less any amounts attributable to
accrued but unpaid interest which will be taxable as such. Such gain may be
characterised as a dividend to the extent of the US Holder's ratable share of
Corp's undistributed earnings and profits (as determined for US federal income
tax purposes). PERSONS CONSIDERING THE PROPOSALS INCLUDED IN THESE DOCUMENTS
SHOULD CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE CHARACTERISATION OF
GAIN ON THE EXCHANGE. The amount recognised on the exchange of a Scheme Claim
for cash, New Shares, New Senior Notes, New Junior Notes, and/or ADRs, should be
the difference between (a) the US dollar value of such cash, New Shares, New
Senior Notes, New Junior Notes, and/or ADRs, (i) on the date the property is
received in the case of a cash basis US Holder, (ii) on the date of the exchange
in the case of an accrual basis US Holder, or (iii) in the case of Scheme Claims
traded on an established securities market (as defined in the applicable US
Treasury regulations) that are exchanged by a cash basis US Holder, or an
electing accrual basis US Holder, the US dollar value on the settlement date of
the exchange, and (b) the US Holder's tax basis in the Scheme Claim; provided,
however, if the fair market value of the Other Property is less than the total
gain recognised under the foregoing formula than the gain recognised will be the
fair market value of the Other Property.
A US Holder's basis in the securities received should equal such US Holder's
basis in the Scheme Claim exchanged therefor, decreased by the amount of Other
Property received (excluding Other Property attributable to accrued but unpaid
interest) and increased by the amount of gain recognised on the exchange.
Gain recognised by a US Holder on the exchange of a Scheme Claim that is
attributable to changes in currency exchange rates will be ordinary and will be
characterised as principal exchange gain. Principal exchange gain will equal the
difference between the US dollar value of the US Holder's purchase price of the
Scheme Claim in foreign currency determined on the date of the exchange, and the
US dollar value of the US Holder's purchase price of the Scheme Claim in foreign
currency determined on the date the US Holder acquired the Scheme Claim. Such
gain will be recognised only to the extent of the total gain recognised by the
US Holder on the exchange of the Scheme Claim, and will generally be treated as
from sources within the US for US foreign tax credit limitation purposes.
Any gain recognised by a US Holder in excess of principal exchange gain
recognised on the exchange of the Scheme Claim would generally be US source
capital gain (except to the extent such amounts are attributable to accrued but
unpaid interest which will be taxable as such). PERSONS CONSIDERING THE
PROPOSALS INCLUDED IN THESE DOCUMENTS SHOULD CONSULT THEIR OWN TAX ADVISERS WITH
RESPECT TO THE TREATMENT OF CAPITAL GAINS (WHICH MAY BE TAXED AT LOWER RATES
THAN ORDINARY INCOME FOR TAXPAYERS WHO ARE INDIVIDUALS, TRUSTS OR ESTATES THAT
HELD THE SCHEME CLAIMS FOR MORE THAN ONE YEAR).
To the extent a US Holder's Scheme Claim includes an obligation of Corp that is
a market discount bond, as described in "Consequences to plc Scheme Creditors"
above, and the US Holder's basis in the securities received is determined in
part by the basis of such Holder's Scheme Claim, any gain (other than foreign
currency gain) recognised on the exchange of the Scheme Claim for cash, New
Shares, New Junior Notes and/or ADRs may be recharacterised as ordinary income
to the extent of "accrued market discount", if any, on such market discount
bond. Depending upon the individual circumstances of each US Holder exchanging a
market discount bond of Corp, any additional amount of accrued market discount
not recognised as ordinary income on the exchange would be treated as (i)
accrued market discount with respect to any market discount bond received in the
exchange, if any; (ii) original issue discount with respect to any New Senior
Notes and/or New Junior Notes received to the extent such notes do not have any
market discount; and (iii) ordinary income upon the sale, exchange or
disposition of any New Shares and/or ADRs received. Any accrued market discount
on a market discount bond, if any, may be accrued on a ratable basis or accrued
and recognised on a constant yield basis as described in "Consequences to plc
Scheme Creditors" above. Any original issue discount on the New Senior
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Notes and/or New Junior Notes received by a US Holder in the Nonrecognition
Exchange that is attributed to any accrued market discount from a market
discount obligation of Corp will be accounted for as discussed below under "New
Senior Notes, and New Junior Notes -- Original Issue Discount". The basis of any
New Senior Notes and/or New Junior Notes shall be increased by the amount of
ordinary income attributable to accrued market discount recognised under the
market discount rules. Persons considering the proposals included in these
documents should consult their own tax advisers regarding the applicability of
the market discount rules under the Code, including special rules regarding the
exchange of a market discount bond in a Nonrecognition Exchange, to each of
their own individual circumstances and the appropriate US federal income tax
treatment that may be applicable with respect to each US Holder arising from the
exchange of a Scheme Claim that includes a market discount bond for cash, New
Shares, New Senior Notes, New Junior Notes and/or ADRs.
Foreign currency received on the exchange of a Scheme Claim will have a tax
basis equal to its US dollar value at the time the payment is received. Gain or
loss, if any, recognised on the subsequent sale, conversion or disposition of
such foreign currency will be ordinary income or loss, and will generally be
income or loss from sources within the US for foreign tax credit limitation
purposes. However, if such foreign currency is converted into US dollars on the
date received by the US Holder, a cash basis or electing accrual basis US Holder
should not recognise any gain or loss on such conversion.
Subject to the discussion under "Backup Withholding and Information Reporting",
a Non-US Holder generally will not be subject to US federal income or
withholding tax on any gain realised on the exchange of a Scheme Claim unless:
(a) that gain is effectively connected with the conduct by that Non-US Holder of
a trade or business in the US, (b) in the case of any gain realised by an
individual Non-US Holder, that holder is present in the US for 183 days or more
in the taxable year of disposition and certain conditions are met, or (c) the
Non-US Holder is subject to tax pursuant to provisions of the Code applicable to
certain expatriates. A Non-US Holder generally will not be subject to US federal
income or withholding tax on any amount realised on the exchange of a Scheme
Claim that is attributable to accrued but unpaid interest unless that income is
effectively connected with the conduct by that Non-US Holder of a trade or
business within the US.
NEW SENIOR NOTES, AND NEW JUNIOR NOTES
The New Senior Notes will, and the New Junior Notes should, be treated as
indebtedness for US federal income tax purposes. In the unlikely event the New
Junior Notes are treated as equity, their US tax consequences would be generally
as described below at "The New Shares and ADRs". The remainder of this
discussion assumes that the New Junior Notes will constitute indebtedness for US
federal income tax purposes.
Treatment of Interest Attributable to the Period Prior to the Issuance of the
New Senior Notes and New Junior Notes
This section addresses the treatment of amounts paid on the New Senior Notes and
New Junior Notes that represent interest attributable to the period prior to the
issuance thereof, i.e., 1 May 2003 until the date on which the New Senior Notes
and New Junior Notes are issued.
The US federal income tax treatment of such amounts is not entirely clear. It is
possible that such amounts would be treated as additional cash consideration
received in exchange for a US Holder's Scheme Claim. Such additional cash would
either increase a US Holder's recognised gain or reduce such US Holder's tax
basis in the New Senior Notes and/or New Junior Notes. Alternatively, in the
case of Senior Notes such amounts may be treated as amortisable bond premium
subject to the discussion below under "Bond Premium". PERSONS CONSIDERING THE
PROPOSALS INCLUDED IN THESE DOCUMENTS SHOULD CONSULT THEIR OWN TAX ADVISERS AS
TO THE PROPER TREATMENT OF AMOUNTS PAID ON THE NEW SENIOR NOTES AND NEW JUNIOR
NOTES THAT REPRESENT INTEREST ATTRIBUTABLE TO PERIODS PRIOR TO THE ISSUANCE
THEREOF.
Payment of Interest on New Junior Notes
Corp may pay interest on the New Junior Notes in cash. If Corp does not pay
interest in cash, interest on the New Junior Notes may be paid by issuing
additional New Junior Notes in a principal amount equal to the amount of
interest payable (referred to for purposes of the following discussion as the
"Additional Notes").
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Because the terms of the New Junior Notes issued on the original issue date (the
"Original Notes") provide that US Holders may receive Additional Notes of Corp
in lieu of actual cash interest payments, certain provisions of the Treasury
regulations relating to "original issue discount" ("OID") instruments (the "OID
Regulations" as described below under "Original Issue Discount") require that
any Additional Notes issued be aggregated with the Original Notes in order to
determine the yield on the Original Notes and Additional Notes. As a result, the
issue of Additional Notes is not considered to be a cash payment made on the
Original Notes and OID accruals are determined as if all payments on the New
Junior Notes were deferred until maturity. Accordingly, for purposes of this
discussion, the Original Notes and the Additional Notes shall, unless otherwise
indicated, be referred to collectively as the "New Junior Notes".
With respect to the option to pay interest in cash or in Additional Notes (as
just described), the US Treasury regulations assume for US federal income tax
purposes that Corp will choose the option that would minimise the yield on the
Original Notes. Should Corp choose the payment option that is contrary to the
one assumed in accordance with the Treasury regulations, the US Holder must make
a subsequent adjustment. If cash payment is assumed and Corp issues Additional
Notes, then the New Junior Notes will be treated as retired and then reissued
for an amount equal to the "adjusted issue price" of the New Junior Notes. The
"adjusted issue price" ("AIP") of a debt instrument at the beginning of an
accrual period is defined generally as the issue price of the debt instrument
plus the aggregate amount of OID that accrued in all prior accrual periods less
any amounts paid on the debt instruments in all prior accrual periods (other
than "qualified stated interest", as described below at "Original Issue
Discount"). If Additional Notes payment option is assumed and Corp subsequently
makes cash interest payments (which for this purpose shall include any
additional amounts payable and any UK tax withheld), such cash payments will be
treated as "pro rata prepayments" (as defined in the OID Regulations) resulting
in a deemed retirement of a portion of the New Junior Notes and capital gain or
loss. The amount of gain or loss realised would be equal to the difference
between the US dollar value of the cash payment and the tax basis of the portion
of the New Junior Notes deemed retired. See also the discussion of foreign
currency gain or loss under "New Senior Notes and New Junior Notes -- Sale,
Exchange or Retirement". Under such circumstances, the AIP and adjusted basis of
the New Junior Notes would be reduced by an amount equal to the basis of the
portion of the New Junior Notes deemed retired.
It is anticipated that payment of interest in cash would minimise the yield on
the Original Notes, and is therefore the option Corp will be assumed to choose
for purposes of the US Treasury regulation. The remainder of this disclosure
presumes this to be the case.
ALTHOUGH THERE ARE NO AUTHORITIES DIRECTLY ADDRESSING SIMILAR TRANSACTIONS
INVOLVING NOTES ISSUED BY AN ENTITY WITH TERMS SIMILAR TO THOSE OF THE NEW
JUNIOR NOTES, CORP BELIEVES THAT THE NEW JUNIOR NOTES SHOULD LIKELY BE SUBJECT
TO THE SPECIAL OID REGULATIONS RELATING TO THE OPTION OF PAYING INTEREST
"IN-KIND", AS DESCRIBED ABOVE. HOWEVER, THE IRS'S TREATMENT OF THE NEW JUNIOR
NOTES COULD DIFFER FROM THE TREATMENT DESCRIBED ABOVE. TO THE EXTENT THE OID
REGULATIONS RELATING TO THE OPTIONS OF PAYING INTEREST "IN-KIND" DO NOT APPLY,
THE NEW JUNIOR NOTES WOULD BE CONSIDERED CONTINGENT PAYMENT DEBT INSTRUMENTS AND
WOULD BE SUBJECT TO THE TREASURY REGULATIONS DESCRIBED IN THE "CONTINGENT
PAYMENT NOTES" DISCUSSION BELOW. THE APPLICATION OF THE OID REGULATIONS,
INCLUDING THE CONTINGENT PAYMENT DEBT INSTRUMENT REGULATIONS, TO DEBT
INSTRUMENTS SUCH AS THE NEW JUNIOR NOTES THAT PROVIDE FOR THE OPTION OF PAYING
INTEREST "IN-KIND" ARE COMPLEX AND US HOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISERS WITH RESPECT TO THE PROPER APPLICATION OF THE OID REGULATIONS OR THE
CONTINGENT PAYMENT DEBT INSTRUMENT REGULATIONS TO THE NEW JUNIOR NOTES.
Contingent Payment Notes
As discussed under "New Senior Notes and New Junior Notes -- (i) Payment of
Interests with Junior PIK Notes", above, if the New Junior Notes are not treated
as subject to the OID Regulations relating to the option of paying interest
"in-kind", then such Notes will be treated as contingent payment debt
instruments under applicable Treasury regulations.
In general, regulations dealing with contingent payment debt instruments (the
"CPDI Regulations") may cause the timing and character of income, gain or loss
reported on a contingent payment debt instrument to differ substantially from
the timing and character of income, gain or loss reported on a contingent
payment debt instrument under general principles of current US federal income
tax law. The CPDI Regulations generally
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require a US Holder of such an instrument to include future contingent and
noncontingent interest payments in income as such interest accrues based on a
projected payment schedule (the "noncontingent bond method"). Moreover, in
general, under the CPDI Regulations, all or a portion of gain recognised by a US
Holder on the sale, exchange or retirement of a contingent payment debt
instrument will be treated as ordinary income and all or a portion of any loss
realised could be treated as ordinary loss as opposed to capital loss (depending
on the circumstances).
Under the noncontingent bond method, for each accrual period prior to and
including the maturity date of the New Junior Note, the amount of interest that
accrues, as OID, equals the product of (i) the adjusted issue price at the
beginning of the accrual period and (ii) the "comparable yield" (adjusted for
the length of the accrual period). This amount is rateably allocated to each day
in the accrual period and is includible as ordinary interest income by a US
Holder for each day in the accrual period on which the US Holder holds the New
Junior Note. The adjusted issue price for purposes of the noncontingent bond
method is equal to the New Junior Note's issue price (as set forth below under
"Original Issue Discount"), increased by the interest previously accrued on the
New Junior Note and decreased by the amount of any "projected payments" (as
defined below) and any noncontingent payments previously made on the New Junior
Note. The "comparable yield" is the annual yield that Corp would pay, as of the
issue date, on a fixed rate debt instrument with no contingent payment but with
terms and conditions otherwise comparable to those of the New Junior Notes,
including the level of subordination, term, timing of payments and general
market conditions. Amounts treated as interest under the foregoing contingent
payment debt rules are treated as OID for all US federal income tax purposes.
Under the noncontingent bond method, Corp is required, solely for US federal
income tax purposes, to provide a schedule (the "Schedule") of the projected
amounts of payments (which shall not include qualified stated interest, if any)
(the "Projected Payments") on the New Junior Notes. The Schedule must produce
the comparable yield. Corp's Schedule must be used to determine the US Holder's
contingent payment accruals and adjustments, unless Corp does not create a
Schedule or the US Holder determines that the Corp's Schedule is unreasonable,
in which case the US Holder must disclose its own schedule with its US federal
income tax return filings and the reason why it is not using the Corp's
Schedule. Corp does not anticipate, however, that it will be providing a
Schedule. If during any taxable year the sum of any actual payments (including
the fair market value of any property received in that year) with respect to the
New Junior Note for that taxable year (including, in the case of the taxable
year which includes the maturity date of the New Junior Note, the amount of cash
received at maturity) exceeds the total amount of Projected Payments for that
taxable year, the difference will produce a "net positive adjustment", which
will be treated as additional interest for the taxable year. If the actual
amount received in a taxable year is less than the amount of the Projected
Payments for that taxable year, the difference will produce a "net negative
adjustment", which will (i) reduce the US Holder's interest income for that
taxable year, and (ii) to the extent of any excess after the application of (i),
give rise to an ordinary loss to the extent of the US Holder's interest income
on the New Junior Note during the prior taxable years (reduced to the extent
such interest was offset by prior net negative adjustments). If a New Junior
Note is classified as a contingent payment debt instrument subject to the
noncontingent bond method, any gain or loss realised on the sale or exchange of
a New Junior Note may be treated as ordinary income or loss, in whole or in
part.
A US Holder's basis in a contingent payment debt instrument is increased by the
portion of the Projected Payments accrued by the US Holder under the relevant
Schedule and determined without regard to adjustments made to reflect
differences between actual and Projected Payments and reduced by the amount of
any noncontingent payments and the Projected Payments previously made on the New
Junior Note. Where a US Holder's basis in the New Junior Note is greater than
the adjusted issue price, the difference is allocated to a Projected Payment and
is treated as a negative adjustment on the date the Projected Payment is made.
On the date of the adjustment, the US Holder's basis is reduced by the amount of
the negative adjustment. The bond premium amortisation rules under the Code do
not apply to debt instruments governed by the CDPI Regulations. PERSONS
CONSIDERING THE PROPOSALS INCLUDED IN THESE DOCUMENTS SHOULD CONSULT THEIR OWN
TAX ADVISERS REGARDING THE POSSIBLE APPLICABILITY AND CONSEQUENCES OF THE
CONTINGENT PAYMENT DEBT INSTRUMENT RULES TO THE NEW JUNIOR NOTES.
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Payment of Interest on New Senior Notes
Interest (including any additional amounts payable and any UK tax withheld) paid
on a New Senior Note will be taxable to a US Holder as ordinary interest income
at the time it is received or accrued, depending on the US Holder's method of
accounting for US federal income tax purposes.
A US Holder utilising the cash method of accounting for US federal income tax
purposes that receives an interest payment denominated in foreign currency will
be required to include in income the US dollar value of that interest payment,
based on the exchange rate in effect on the date of receipt, regardless of
whether the payment is in fact converted into US dollars.
An accrual basis US Holder is required to include in income the US dollar value
of the amount of interest accrued on a New Senior Note during the accrual
period. An accrual basis US Holder may determine the amount of the interest to
be recognised in accordance with either of two methods. Under the first accrual
method, the amount of interest accrued will be based on the average exchange
rate in effect during the interest accrual period or, with respect to an
interest accrual period that spans two taxable years, the part of the period
within each taxable year. Under the second accrual method, the US Holder may
elect to determine the amount of interest accrued on the basis of the exchange
rate in effect on the last day of the accrual period or, in the case of an
accrual period that spans two taxable years, the exchange rate in effect on the
last day of the part of the period within each taxable year. If the last day of
the accrual period is within five Business Days of the date the interest payment
is actually received, an electing accrual basis US Holder may instead translate
that interest payment at the exchange rate in effect on the day of actual
receipt. Any election to use the second accrual method will apply to all debt
instruments held by the US Holder at the beginning of the first taxable year to
which the election applies or thereafter acquired by the US Holder and will be
irrevocable without the consent of the IRS. A US Holder utilising either of the
foregoing two accrual methods will generally recognise ordinary income or loss
with respect to accrued interest income on the date of receipt of the interest
payment (including a payment attributable to accrued but unpaid interest upon
the sale or retirement of a New Senior Note). The amount of ordinary income or
loss will equal the difference between the US dollar value of the interest
payment received (determined on the date the payment is received) in respect of
the accrual period and the US dollar value of interest income that has accrued
during that accrual period (as determined under the accrual method utilised by
the US Holder).
Foreign currency received as interest on a New Senior Note will have a tax basis
equal to its US dollar value on the date the interest payment is received. Gain
or loss, if any, realised by a US Holder on a sale or other disposition of the
foreign currency will be ordinary income or loss and will generally be income
from sources within the US for foreign tax credit limitation purposes. Interest
received by a US Holder will be treated as foreign source income for the
purposes of calculating that holder's foreign tax credit limitation.
The limitation on foreign taxes eligible for the US foreign tax credit is
calculated separately with respect to specific classes of income. For this
purpose, interest on a New Senior Note should generally constitute "passive
income," or in the case of certain US Holders, "financial services income."
If UK tax is withheld from payments of interest, a US Holder may be entitled to
a deduction or credit for such withholding tax subject to applicable
limitations. PERSONS CONSIDERING THE PROPOSALS INCLUDED IN THESE DOCUMENTS ARE
URGED TO CONSULT THEIR TAX ADVISERS REGARDING THE AVAILABILITY OF THE FOREIGN
TAX CREDIT UNDER THEIR PARTICULAR CIRCUMSTANCES.
Subject to the discussion under "Backup Withholding and Information Reporting",
a Non-US Holder generally will not be subject to US federal income or
withholding tax on interest received on a New Senior Note unless that income is
effectively connected with the conduct by that Non-US Holder of a trade or
business within the US.
Original Issue Discount
Subject to discussion under "Exchange or Disposal of Scheme Claims --
Consequences to Corp Scheme Creditors", the New Senior Notes will not be treated
as issued with OID for US federal income tax purposes provided that the fair
market value of the New Senior Notes on the date of the exchange is equal to
their face amount. If the fair market value of the New Senior Notes on the date
of the exchange is less than their face amount, such amount will be OID that
must be taken into account as described below. The balance of this
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discussion assumes that the New Senior Notes will not be treated as issued with
OID for US federal income tax purposes. The New Junior Notes will be treated as
issued with OID for US federal income tax purposes. The amount of the OID, will
equal the excess of the "stated redemption price at maturity" (i.e. an amount
equal to the sum of all payments provided under the New Junior Notes (other than
"qualified stated interest payments")), over the "issue price" of the New Junior
Notes. "Qualified stated interest" is generally interest paid that is
unconditionally payable at least annually at a single fixed rate. The "issue
price" of a New Junior Note is the fair market value of the New Junior Notes on
the date of the exchange. Should Additional Notes be issued, the Additional
Notes will not be considered to be a cash payment made on the Original Notes,
and under the OID Regulations the stated redemption price at maturity of a New
Junior Note will include all stated interest and principal payments to be made
in respect thereof (whether made on an Original Note or Additional Note).
Consequently, all interest payments to be received by a US Holder in respect of
the New Junior Notes that are paid in Additional Notes will increase the amount
of OID that must be included in income on a constant yield basis. See "Payment
of Interest on New Junior Notes" above for additional discussion regarding
Additional Notes and OID.
A US Holder will be required to include OID on a New Junior Note in income (as
ordinary income) as it accrues, calculated on a constant-yield to maturity
method, before the actual receipt of cash attributable to that income,
regardless of the US Holder's method of accounting for US federal income tax
purposes. Generally, the amount of OID required to be included in an interest
accrual period is equal to the AIP at the beginning of the accrual period times
the calculated yield to maturity of the New Junior Note. Under this method, US
Holders generally will be required to include in income increasingly greater
amounts of OID over the life of the New Junior Note. Payments of cash interest
on a New Junior Note will not be separately included in a US Holder's income,
but instead will be treated first as a payment of OID accrued as of the date
payment is due and not allocated to prior payments and second as a payment of
principal. PERSONS CONSIDERING THE PROPOSALS INCLUDED IN THESE DOCUMENTS SHOULD
CONSULT THEIR OWN TAX ADVISERS TO DETERMINE THE US FEDERAL INCOME TAX
IMPLICATIONS OF THE CONSTANT-YIELD METHOD AND REGARDING THE ACCRUAL OF OID
GENERALLY.
OID on a New Junior Note denominated in foreign currency for any accrual period
will be determined in foreign currency and then translated into US dollars in
the same manner as interest payments accrued by an accrual basis US Holder, as
described under "Payments of Interest on New Senior Notes" above. Upon receipt
of an amount attributable to OID in these circumstances, a US Holder may
recognise ordinary income or loss.
OID on a New Junior Note will be treated as foreign source income for the
purposes of calculating a US Holder's foreign tax credit limitation. The
limitation on foreign taxes eligible for the US foreign tax credit is calculated
separately with respect to specific classes of income. For this purpose, OID on
a New Junior Note should generally constitute "passive income" or, in the case
of certain US Holders, "financial services income."
Subject to the discussion under "Backup Withholding and Information Reporting",
a Non-US Holder generally will not be subject to US federal income tax on OID on
a New Junior Note unless that income is effectively connected with the conduct
by that Non-US Holder of a trade or business within the US.
A US Holder will have acquisition premium with respect to New Senior Notes and
New Junior Notes to the extent such US Holder's adjusted tax basis, determined
on the date of the exchange (as discussed above under "Exchange or Disposal of
Scheme Claims"), exceeds the issue price of the New Senior Notes and New Junior
Notes. If a US Holder has acquisition premium with respect to a New Senior Note
or New Junior Note, the amount includible in each taxable year as OID will be
reduced by that portion of the acquisition premium properly allocable to such
year or, alternatively, a US Holder may elect to treat its tax basis as the
issue price of such New Senior Notes and New Junior Notes.
Bond Premium
The New Senior Notes and New Junior Notes will have bond premium if their fair
market values on the date of the exchange exceeds their stated redemption price
at maturity. A US Holder may elect to amortise any bond premium over the life of
the New Senior Notes and New Junior Notes, as applicable, as an offset to
interest income. The amortisation will be made using a constant yield method. If
a US Holder makes the premium amortisation election, it generally applies to all
debt instruments held by that US Holder at the time of the
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election and any subsequently acquired debt instruments other than tax-exempt
debt instruments. Once the election to amortise bond premium is made, it can not
be revoked without the consent of the IRS. US Holders electing to amortise bond
premium must reduce their tax basis in the affected New Senior Notes or New
Junior Notes by the amount of premium amortised during their holding period for
such New Senior Notes or New Junior Notes. The bond premium amortisation rules
do not apply to any note that may be treated as a contingent payment debt
instrument (as described above).
Sale, Exchange or Retirement
A US Holder's tax basis in a New Senior Note or New Junior Note will be as set
forth above under "Exchange or Disposal of Scheme Claims" and "Contingent
Payment Notes", increased by the amount of any OID included in the US Holder's
income with respect to the New Senior Note or New Junior Note and reduced by the
amount of any payments received by the US Holder with respect to the New Senior
Note or New Junior Note that are not qualified stated interest payments.
Although there is no authority directly on point, a US Holder that sells one or
more Additional Notes (without also selling the related Original Note) would
likely determine its tax basis in the Additional Notes by proportionately
allocating the total tax basis held in the Original Note among the Additional
Notes and the Original Note in accordance with their respective fair market
values. PERSONS CONSIDERING THE PROPOSALS INCLUDED IN THESE DOCUMENTS SHOULD
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE ALLOCATION OF TAX BASIS AMONG
THE ADDITIONAL NOTES AND THE ORIGINAL NOTE.
A US Holder will generally recognise gain or loss, on the sale, exchange or
retirement of a New Senior Note or New Junior Note in a manner similar to that
described above under "Consequences to plc Scheme Creditors". Gain or loss
recognised by a US Holder on the sale, exchange or retirement of a New Senior
Note that is attributable to changes in currency exchange rates will be ordinary
income or loss and will be characterised as principal exchange gain or loss.
Gain or loss recognised by a US Holder on the sale, exchange or retirement of a
New Junior Note that is attributable to changes in currency exchange rates will
be ordinary income or loss and will be characterised as OID exchange gain or
loss and principal exchange gain or loss. OID exchange gain or loss will equal
the difference between the US dollar value of the amount received on the sale,
exchange or retirement of a New Junior Note that is attributable to accrued but
unpaid OID as determined by using the exchange rate on the date of sale,
exchange or retirement and the US dollar value of the accrued but unpaid OID as
determined by the US Holder under the rules described above under "Original
Issue Discount". Principal exchange gain or loss will equal the difference
between the US dollar value of the US Holder's acquisition price of the New
Senior Note or New Junior Note in foreign currency determined on the date of the
sale, exchange or retirement, and the US dollar value of the US Holder's
acquisition price of the New Senior Note or New Junior Note in foreign currency
determined on the date the US Holder acquired the New Senior Note or New Junior
Note. Such gain or loss will be recognised only to the extent of the total gain
or loss recognised by the US Holder on the sale, exchange or retirement of the
New Senior Note or New Junior Note, and will generally be treated as from
sources within the United States for US foreign tax credit limitation purposes.
Any gain or loss recognised by a US Holder on the sale, exchange or retirement
of the New Senior Note or New Junior Note in excess of principal exchange gain
or loss, in the case of a New Senior Note, and principal exchange gain or loss
and OID exchange gain or loss, in the case of a New Junior Note, will generally
be US source capital gain or loss (except to the extent such amounts are
attributable to accrued but unpaid interest which will be taxable as such).
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE
TREATMENT OF CAPITAL GAINS (WHICH MAY BE TAXED AT LOWER RATES THAN ORDINARY
INCOME FOR TAXPAYERS WHO ARE INDIVIDUALS, TRUSTS OR ESTATES THAT HOLD NEW SENIOR
NOTES OR NEW JUNIOR NOTES FOR MORE THAN ONE YEAR) AND CAPITAL LOSSES (THE
DEDUCTIBILITY OF WHICH IS SUBJECT TO LIMITATIONS).
To the extent the New Senior Notes and/or New Junior Notes have accrued market
discount as discussed above in "Exchange or Disposal of Scheme Claims --
Consequences to Corp Scheme Creditors", any gain arising from the sale, exchange
or retirement of a New Senior Note and/or New Junior Note may be recognised as
ordinary income to the extent of such accrued market discount. Persons
considering the proposals included in these documents should consult their own
tax advisors regarding the applicability of the market discount rules under the
Code to each of their own individual circumstances and the US federal income tax
consequences
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relating to the sale, exchange or retirement of New Senior Notes and/or New
Junior Notes having accrued market discount.
Subject to the discussion under "Backup Withholding and Information Reporting",
a Non-US Holder generally will not be subject to US federal income or
withholding tax on any gain realised on the exchange or other disposition of a
New Senior Note or New Junior Note unless: (a) that gain is effectively
connected with the conduct by that Non-US Holder of a trade or business in the
US, (b) in the case of any gain realised by an individual Non-US Holder, that
holder is present in the US for 183 days or more in the taxable year of
disposition and certain conditions are met, or (c) the Non-US Holder is subject
to tax pursuant to provisions of the Code applicable to certain expatriates.
THE NEW SHARES AND ADRS
The US Treasury Department has expressed concern that depositaries for
depositary receipts, or other intermediaries between the holders of shares of an
issuer and the issuer, may be taking actions that are inconsistent with the
claiming of US foreign tax credits by US Holders of such receipts or shares.
Accordingly, the analysis regarding the availability of a US foreign tax credit
for UK taxes and sourcing rules described below could be affected by future
actions taken by the US Treasury Department.
Distributions
Subject to the discussion under "Passive Foreign Investment Company
Considerations", the gross amount of any distributions of cash or property
(including any amounts withheld in respect of any applicable withholding tax and
the Tax Credit Amount (as described below)) that are actually or constructively
received by a US Holder with respect to New Shares and/or ADRs will be a
dividend includible in gross income of a US Holder as ordinary income to the
extent of Corp's current and accumulated earnings and profits as determined
under US federal income tax principles. Dividends paid on New Shares and/or ADRs
generally will constitute income from sources outside the US and will not be
eligible for the "dividends received" deduction.
A distribution to a US Holder in excess of Corp's current and accumulated
earnings and profits will be treated first as a non-taxable return of capital to
the extent of such US Holder's adjusted tax basis in its New Shares or ADRs, and
any distribution in excess of such basis will constitute capital gain from the
sale or exchange of property, and will be long-term capital gain (taxable at a
reduced rate for individual holders, trusts or estates) if the New Shares or
ADRs were held for more than one year. A further reduced tax rate may apply to
capital gains on New Shares and/or ADRs held by individual holders for more than
five years.
Corp does not maintain its calculations of its earnings and profits under US
federal income tax principles. Therefore, a US Holder should expect that a
distribution will generally be treated as a dividend even if that distribution
would otherwise be treated as a non-taxable return of capital or as capital gain
under the rules described above. The amount of any distribution of property
other than cash will be the fair market value of the property on the date of the
distribution.
The gross amount of any distribution paid in foreign currency will be included
in the gross income of a US Holder in an amount equal to the US dollar value of
the foreign currency calculated by reference to the exchange rate in effect on
the date received by the US Holder, regardless of whether the foreign currency
is converted into US dollars. If the foreign currency is converted into US
dollars on the date of receipt, a US Holder generally should not be required to
recognise foreign currency gain or loss in respect of the dividend. If the
foreign currency received as a dividend is not converted into US dollars on the
date of receipt, a US Holder will have a basis in the foreign currency equal to
its US dollar value on the date of receipt. Any gain or loss on a subsequent
conversion or other disposition of the foreign currency will be treated as
ordinary income or loss, and will generally be income or loss from sources
within the US for foreign tax credit limitation purposes.
A US Holder that is a US resident for the purposes of the Current Treaty and
that receives a dividend on New Shares and/or ADRs generally is entitled to
receive a payment from the UK Inland Revenue equal to the amount of the tax
credit that a UK individual would be eligible to receive with respect to an
identical dividend (the "Tax Credit Amount"), subject to a reduction for UK
withholding taxes of up to a maximum of 15 per cent. of the sum of the dividend
and Tax Credit Amount ("UK Withholding Tax"). As of 6 April 1999, the Tax Credit
Amount is
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equal to one-ninth of the cash dividend paid on the New Shares and/or ADRs and
the UK Withholding Tax will exactly equal the Tax Credit Amount. As a result,
and because of the UK Withholding Tax and Tax Credit Amount offset, US Holders
will not receive any net payment under the Current Treaty.
A US Holder that receives a dividend on New Shares and/or ADRs may elect to
include the Tax Credit Amount as an additional distribution by filing an
election on IRS Form 8833 with the US Holder's US federal income tax return for
the relevant year. If a US Holder makes the election, the US Holder will be
subject to US taxation on the sum of the dividend and the Tax Credit Amount. A
US Holder will also, in such a case, be treated as paying UK Withholding Tax
equal to the Tax Credit Amount that, subject to generally applicable
limitations, is eligible for credit against such US Holder's US federal income
tax liability or, at the US Holder's election, may be deducted in computing
taxable income. Foreign tax credits will not be allowed for withholding taxes
imposed in respect of certain short-term or hedged positions in securities or in
respect of arrangements in which a US Holder's expected economic profit, after
non-US taxes, is insubstantial.
The New Treaty, however, does not provide for payment of the Tax Credit Amount
(except during the first year after the New Treaty comes into force).
For purposes of calculating the foreign tax credit, dividends paid on New Shares
and/or ADRs will be treated as income from sources outside the US and will
generally constitute "passive income" or, in the case of certain US Holders,
"financial services income." In certain circumstances, a US Holder that (i) has
held New Shares and/or ADRs for less than a specified minimum period during
which it is not protected from risk of loss or (ii) is obliged to make payments
related to the dividends, will not be allowed a foreign tax credit for UK
Withholding Taxes imposed on dividends paid on New Shares and/or ADRs. PERSONS
CONSIDERING THE PROPOSALS INCLUDED IN THESE DOCUMENTS ARE URGED TO CONSULT THEIR
TAX ADVISERS REGARDING THE AVAILABILITY OF THE FOREIGN TAX CREDIT UNDER THEIR
PARTICULAR CIRCUMSTANCES.
Subject to the discussion under "Backup Withholding and Information Reporting",
a Non-US Holder generally will not be subject to US federal income or
withholding tax on dividends received on New Shares and/or ADRs unless that
income is effectively connected with the conduct by that Non-US Holder of a
trade or business within the US.
However, as discussed in the "Dividend Policy" discussion above, Corp does not
expect to pay a dividend in the forseeable future.
Sale or Other Disposition of New Shares and/or ADRs
Subject to the discussion under "Passive Foreign Investment Company
Considerations", a US Holder will generally recognise a gain or loss for US
federal income tax purposes upon the sale or exchange of New Shares and/or ADRs
in an amount equal to the difference between the US dollar value of the amount
realised from such sale or exchange and the US Holder's tax basis in such New
Shares and/or ADRs. Such gain or loss will be a capital gain or loss and will be
long-term capital gain (taxable at a reduced rate for individuals, trusts or
estates) if the New Shares and/or ADRs were held for more than one year. A
further reduced tax rate may apply to capital gain on New Shares and/or ADRs
held by individual holders for more than five years. Any such gain or loss would
generally be treated as from sources within the US. The deductibility of capital
losses is subject to significant limitations.
To the extent US Holders receive the New Shares and/or ADRs pursuant to an
exchange described above in "Exchange or Disposal of Scheme Claims --
Consequences to Corp Scheme Creditors", any gain arising from the sale or other
disposition of the New Shares and/or ADRs may be characterised as ordinary
income to the extent of any accrued market discount attributable to such New
Shares and/or ADRs. Persons considering the proposals included in these
documents should consult their own tax advisors regarding the applicability of
the market discount rules under the Code to each of their own individual
circumstances and the US federal income tax consequences relating to the sale or
other disposition of the New Shares and/or ADRs with accrued market discount.
A US Holder that receives foreign currency on the sale or other disposition of
New Shares and/or ADRs will realise an amount equal to the US dollar value of
the foreign currency on the date of sale (or in the case of cash
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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basis and electing accrual basis taxpayers, the US dollar value of the foreign
currency on settlement date). If a US Holder receives foreign currency upon a
sale or exchange of New Shares and/or ADRs, gain or loss, if any, recognised on
the subsequent sale, conversion or disposition of such foreign currency will be
ordinary income or loss, and will generally be income or loss from sources
within the US for foreign tax credit limitation purposes. However, if such
foreign currency is converted into US dollars on the date received by the US
Holder, a cash basis or electing accrual US Holder should not recognise any gain
or loss on such conversion.
Subject to the discussion under "Backup Withholding and Information Reporting",
a Non-US Holder generally will not be subject to US federal income or
withholding tax on any gain realised on the sale or exchange of New Shares
and/or ADRs unless: (a) that gain is effectively connected with the conduct by
that Non-US Holder of a trade or business in the US, (b) in the case of any gain
realised by an individual Non-US Holder, that holder is present in the US for
183 days or more in the taxable year of the sale or exchange and certain other
conditions are met, or (c) the Non-US Holder is subject to tax pursuant to
provisions of the Code applicable to certain expatriates.
Redemption of New Shares and/or ADRs
Subject to the discussion under "Passive Foreign Investment Company
Considerations", a redemption of New Shares and/or ADRs by Corp will be treated
as a sale of the redeemed New Shares and/or ADRs by the US Holder (which is
taxable as described under "Sale or Other Disposition of New Shares and/or
ADRs") or in certain circumstances, as a distribution to the US Holder (which is
taxable as described under "Distributions").
Passive Foreign Investment Company Considerations
A corporation organised outside the US generally will be classified as a passive
foreign investment company ("PFIC") for US federal income tax purposes in any
taxable year in which either: (a) at least 75 per cent. of its gross income is
"passive income", or (b) on average at least 50 per cent. of the gross value of
its assets is attributable to assets that produce "passive income" or are held
for the production of passive income. Passive income for this purpose generally
includes dividends, interest, royalties, rents and gains from commodities and
securities transactions. In determining whether it is a PFIC a foreign
corporation is required to take into account a pro rata portion of the income
and assets of each corporation in which it owns, directly or indirectly, at
least a 25 per cent. interest.
Corp believes that it is not, and it does not expect to become, a PFIC, for US
federal income tax purposes. However, because this is a factual determination
made annually at the end of the taxable year, there can be no assurance that
Corp will not be considered a PFIC for any future taxable year. If it were a
PFIC in any year, special, possibly materially adverse, consequences would (as
discussed below) result for US Holders.
If Corp were a PFIC in any year during which a US Holder owns New Shares and/or
ADRs the US Holder will be subject to additional taxes on any excess
distributions received from Corp and any gain realised from the sale or other
disposition of the New Shares and/or ADRs (whether or not Corp continues to be a
PFIC). A US Holder has an excess distribution to the extent that distributions
on the New Shares and/or ADRs during a taxable year exceed 125 per cent. of the
average amount of distributions received during the three preceding taxable
years (or, if shorter, the US Holder's holding period). To compute the tax on
the excess distributions or any gain, (a) the excess distribution or the gain is
allocated rateably over the US Holder's holding period, (b) the amount allocated
to the current taxable year and any year before Corp became a PFIC is taxed as
ordinary income in the current year, and (c) the amount allocated to other
taxable years is taxed at the highest applicable marginal rate in effect for
each year and an interest charge is imposed to recover the deemed benefit from
the deferred payment of the tax attributable to each year.
Some of the rules with respect to distributions and dispositions described above
may be avoided if a US Holder makes a valid "mark-to-market" election (in which
case, subject to certain limitations, the US Holder would essentially be
required to take into account the difference, if any, between the fair market
value and the adjusted tax basis of its New Shares and/or ADRs at the end of a
taxable year as ordinary income (or, subject to certain limitations, ordinary
loss), in calculating its income for such year). In addition, gains from an
actual sale or other disposition of New Shares and/or ADRs will be treated as
ordinary income, and any losses will be treated as
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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ordinary losses to the extent of any "mark-to-market" gains for prior years. A
"mark-to-market" election is only available to US Holders in any tax year that
the PFIC stock is considered "regularly traded" on a "qualified exchange" within
the meaning of applicable US Treasury regulations. PFIC stock is "regularly
traded" if, among other requirements, it is traded on at least 15 days during
each calendar quarter. Both the London Stock Exchange and NASDAQ will constitute
a qualified exchange for this purpose. PERSONS CONSIDERING THE PROPOSALS
INCLUDED IN THESE DOCUMENTS SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO WHETHER
THE NEW SHARES AND/OR ADRS WOULD QUALIFY FOR THE MARK-TO-MARKET ELECTION AND
WHETHER SUCH ELECTION IS ADVISABLE.
The foregoing rules with respect to distributions and dispositions may be
avoided if a US Holder is eligible for and timely makes a valid "QEF election"
(in which case the US Holder would be required to include in income on a current
basis its pro rata share of Corp's ordinary income and net capital gains). In
order to be able to make the QEF election, Corp would be required to provide a
US Holder with certain information. Corp may decide not to provide the required
information
Each US Holder of New Shares and/or ADRs must make an annual return on IRS Form
8621, reporting distributions received and gains realised with respect to each
PFIC in which it holds a direct or indirect interest.
PERSONS CONSIDERING THE PROPOSALS INCLUDED IN THESE DOCUMENTS ARE URGED TO
CONSULT THEIR OWN TAX ADVISERS REGARDING WHETHER AN INVESTMENT IN NEW SHARES
AND/OR ADRS WILL BE TREATED AS AN INVESTMENT IN PFIC STOCK AND THE CONSEQUENCES
OF AN INVESTMENT IN A PFIC.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding and information reporting requirements may apply to certain
payments to US Holders of dividends on New Shares and/or ADRs, principal or
interest (including OID) paid or accrued on New Senior Notes and New Junior
Notes, and to the proceeds of a sale or redemption of New Shares, New Senior
Notes, New Junior Notes or ADRs. Corp, its agent, a broker, or any paying agent,
as the case may be, may be required to withhold tax from any payment that is
subject to backup withholding at a maximum rate of 30 per cent. (which rate is
scheduled to change as a result of recent US legislation) of such payment if the
US Holder fails (a) to furnish the US Holder's taxpayer identification number,
(b) to certify that such US Holder is not subject to backup withholding or (c)
to otherwise comply with the applicable requirements of the backup withholding
rules. Certain US Holders (including, among others, corporations) are not
subject to the backup withholding and information reporting requirements. Non-US
Holders who hold their New Shares, New Senior Notes, New Junior Notes or ADRs
through a US broker or agent or through the US office of a non-US broker or
agent may be required to comply with applicable certification procedures to
establish that they are not US Holders in order to avoid the application of such
information reporting requirements and backup withholding. Backup withholding is
not an additional tax. Any amounts withheld under the backup withholding rules
from a payment to a holder generally may be claimed as a credit against such
holder's US federal income tax liability provided that the required information
is timely furnished to the IRS.
PERSONS CONSIDERING THE PROPOSALS INCLUDED IN THESE DOCUMENTS SHOULD CONSULT
THEIR OWN TAX ADVISERS AS TO THEIR QUALIFICATION FOR EXEMPTION FROM BACKUP
WITHHOLDING AND THE PROCEDURE FOR OBTAINING THIS EXEMPTION.
871
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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APPENDIX 18
PARTICULARS OF THE SCHEME IMPLEMENTATION DEED
As described in part I, Section 2, Part D.5 the Scheme Implementation Deed was
entered into for the primary purpose of ensuring that legally binding
arrangements were in place governing the rights and obligations between Corp,
plc, E-A Continental Limited, Ancrane, Marconi Nominees Limited, British Sealed
Beams Limited and various other Group Companies. The detailed obligations and
undertakings contained in the Scheme Implementation Deed may be summarised as
follows:
a. NON-VOTING UNDERTAKINGS
Ancrane, a subsidiary of plc, has various claims against Corp and plc.
Ancrane has undertaken not to attend or vote or to use any other rights or
powers available to it as either a Corp Scheme Creditor, a plc Scheme
Creditor or as a Bondholder at any of the Scheme Meetings at which it is
entitled to attend and vote. Ancrane has also undertaken not to take any
steps to canvass, solicit or entice any other person, firm or company to
attend and/or vote on its behalf at any of the Scheme Meetings at which it
is entitled to attend and vote.
It should be noted that these arrangements do not however prevent Ancrane
from submitting a Scheme Claim or Scheme Claims under either or both of
the Corp Scheme and the plc Scheme.
Corp has a claim against plc and has undertaken not to attend or vote at
the plc Scheme Meeting nor submit a Form of Proxy with respect to its
Scheme Claim. This does not, however, prevent Corp from submitting a
Scheme Claim under the plc Scheme.
Certain other Group Companies and British Sealed Beams Limited have
various claims against Corp and plc and have therefore also undertaken not
to attend or vote at the Scheme Meetings or use any other rights or powers
available to them as either a Corp Scheme Creditor or a plc Scheme
Creditor to attend or vote at any of the Scheme Meetings at which they are
entitled to attend and vote.
b. ANCRANE/E-A CONTINENTAL ARRANGEMENTS
E-A Continental Limited, a subsidiary of Corp, owed plc approximately L219
million and had a receivable of approximately L363 million due from Corp.
Pursuant to a deed of assignment entered into on 27 March 2003 between
Corp, plc and E-A Continental Limited, Corp agreed to the assignment by
E-A Continental Limited to plc of its L363 million receivable. The
assignment of the L363 million receivable was in consideration for the
release by plc of the L219 million owed to plc by E-A Continental Limited
and the transfer by E-A Continental Limited to plc of the balance of
approximately L2,000,000 held on account with HSBC. On 27 March 2003, a
deed of assignment was entered into between Corp, plc and Ancrane under
which plc agreed to the assignment of the L363 million receivable to
Ancrane in consideration for the issue to plc by Ancrane of a share at a
premium equal to the market value of the L363 million receivable.
Ancrane re-registered as an unlimited company pursuant to section 49 of
the Act on 25 March 2003. Ancrane will prior to the Scheme Meeting of the
plc Scheme Creditors reduce its share capital (including for this purpose
its share premium account) to L100 to enable it to make a repayment of
capital in specie to plc of its interest in all of its assets, save for
L100 and the benefit of a specific covenant by Corp, and will make a
repayment of such capital in specie to plc.
c. APPROVALS
Corp's shareholders, plc and Marconi Nominees Limited, have agreed to vote
in favour of all shareholder resolutions as are, in the reasonable opinion
of the Corp Board, necessary or desirable to give effect to the Corp
Scheme, and to consent in writing to each and every variation of the
rights attached to their respective shareholdings in Corp as may be
involved in the passing and implementation of such shareholder
resolutions.
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plc and Marconi Nominees Limited have also undertaken not to instigate, or
take, certain actions including, but not limited to, removing or appointing
any of the Corp Directors, giving any directions by special resolution
pursuant to Corp's articles of association, passing any additional
shareholder resolutions as shareholders of Corp (save as may be required in
the reasonable opinion of Corp), transferring or granting any rights to
call for the transfer of shares of Corp (save as may be required in the
reasonable opinion of Corp) or in any way frustrate, delay or interfere
with the performance, approval or implementation of the Scheme
Implementation Deed and/or the Schemes.
D. BAE DEED OF NOVATION
In 1999, Corp (which was, at the time, named The General Electric Company,
p.l.c.) separated its international aerospace, naval shipbuilding, defence
electronics and defence systems business and sold it to BAE. The original
transaction agreement and payment deed were entered into between Corp and
BAE and subsequently novated from Corp to plc. All other transaction
documentation in relation to the sale was entered into by plc.
Corp and plc have agreed to novate the transaction agreement, payment deed
and various other agreements from plc back to Corp with effect from the
Effective Date of the Corp Scheme. Both Corp and plc have agreed to use all
reasonable endeavours to procure that BAE enters into the novation.
In addition, plc, Corp and BAE have agreed that no amount should be paid by
plc or Corp to BAE in relation to certain claims made by the parties under
the BAE Merger Agreements and that Corp will reduce any amounts which may
be payable to it in the future by BAE under the BAE Merger Agreements by
US$18,600,000.
E. SERVICE CONTRACTS
Corp has agreed to procure that nine specified employees of Corp will enter
into new service agreements in a specified form so that the new terms and
conditions will take effect on the Effective Date.
F. EXCHANGE OF GLOBAL BONDS
Corp has undertaken to procure the issue of individual global Eurobonds and
registered definitive Yankee Bonds to Definitive Holders named in duly
completed Account Holder Letters.
G. BONDHOLDER CONFIRMATION LETTER
plc has undertaken to the Eurobond Trustee, the Yankee Bond Trustee and the
Definitive Holders that the guarantees given by it in respect of Corp's
obligations under the Bonds shall remain in full force and effect and that
the benefit of the guarantee has been extended to Definitive Holders. In
addition, Corp has undertaken to the Eurobond Trustee, the Yankee Bond
Trustee and the Definitive Holders that it will not deliver to the Eurobond
Trustee the certificate required in order to terminate the guarantees given
by plc in respect of Corp's obligations under the Bonds.
H. EUROBOND TRUSTEE
Corp and plc have confirmed and agreed that the arrangements relating to
the remuneration, costs, charges, expenses and liabilities of the Eurobond
Trustee contained in each of the Trust Deeds (including, without
limitation, the indemnity in each Trust Deed) shall extend to the role of
the Eurobond Trustee in the implementation of the Schemes (including,
without limitation, under or pursuant to the Escrow and Distribution
Agreement). In addition, Corp and plc have undertaken to pay to the
Eurobond Trustee all reasonable additional fees charged by the Eurobond
Trustee in relation to its functions under the Schemes, including all
matters contemplated under the Escrow and Distribution Agreement.
873
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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I. FINMECCANICA GUARANTEE
Under a Share Purchase Agreement dated 2 August 2002, Marconi (Bruton
Street) Limited sold all of the shares in Mobile (the Italian holding
company for the strategic communications business) to Finmeccanica SpA. A
parent company guarantee in favour of Finmeccanica SpA was required to be
given as part of the share sale (the "Finmeccanica Guarantee"). plc was
therefore party to the Share Purchase Agreement (as guarantor) pursuant to
which, among other things, it guaranteed the performance by Marconi (Bruton
Street) Limited of its obligations under the Share Purchase Agreement and
the related transaction documents (including a tax covenant, a transitional
services agreement, a custody deed and a disclosure letter).
Finmeccanica SpA, Corp and plc have entered into a deed of novation and
amendment (the "Finmeccanica Guarantee Deed of Novation") under which, with
effect from the Effective Date of the Corp Scheme, the Finmeccanica
Guarantee and all other remaining obligations of plc under the Share
Purchase Agreement will be novated from plc to Corp. As a result of that
novation, Corp will become the guarantor of Marconi (Bruton Street)
Limited's obligations under the Share Purchase Agreement and related
transaction documentation (and will assume all other obligations of plc
under the Share Purchase Agreement) and plc will be released from all of
its obligations under the Finmeccanica Guarantee and the Share Purchase
Agreement. Corp's obligations under the Share Purchase Agreement (including
the Finmeccanica Guarantee) will be excluded obligations for the purposes
of the Corp Scheme (see Appendix 9).
j. LEMELSON LICENCE
Under an agreement between plc and Lemelson Medical, Education and Research
Foundation, Limited Partnership (the "Lemelson Foundation Partnership"),
dated 1 December 1999, Lemelson Foundation Partnership granted to plc for
itself and the benefit of its subsidiaries a non-exclusive licence for
certain licensed patents relating principally to bar coding (the "Lemelson
Agreement").
Corp and plc have agreed to novate the existing Lemelson Agreement to Corp
and have agreed to use all reasonable endeavours to procure that Lemelson
Foundation Partnership enters into the novation.
k. IPR SPVS
plc has agreed to provide all reasonable assistance and information and
undertake all reasonable acts and deeds requested by Corp in preparing to
give effect to the IPR arrangements (as more particularly described in part
I, Section 2, Part A.5.) and shall procure that the IPR arrangements are
entered into by the relevant US IP Opco or UK IP Opco on or immediately
prior to the Effective Date.
l. LITIGATION
In the event that either Corp or plc becomes aware of anything which is
likely to give rise to a claim or threat of litigation to it or the other
entity, it shall inform the other of the relevant information as soon as
possible and shall assist, so far as reasonably practicable, in
investigating and defending the claim. In addition, Corp is entitled to
require plc to take such steps and proceedings as Corp believes is
necessary to defend such proceedings and plc shall not admit any liability
or agree any compromise of such actions without Corp's prior written
consent.
m. MARCONI NAME
Corp has agreed with effect from the Effective Date of the Corp Scheme to
license the Marconi name to plc for an initial period of twelve months. The
licence is non-exclusive, non-transferable and royalty free. plc has
covenanted to use the Marconi name solely as its corporate name and not for
any other purpose.
plc has agreed that it will propose a resolution to its shareholders to
change its company name at each and every general meeting convened for the
transaction of business until such resolution is passed.
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The licence terminates immediately upon the occurrence of certain events,
for example any breach of the licence or an order for plc's winding-up,
administration or dissolution being made or a liquidator, trustee in
bankruptcy or receiver being appointed for plc.
n. TAX
Corp has agreed to surrender up to a maximum of L200 million of group
relief to Ancrane and plc.
plc has also undertaken to enter into an election with Corp and companies
in the Corp Group, the effect of which will be the surrender of capital
losses of approximately L15 billion to companies in the Corp Group by plc.
Corp has agreed to make payments to plc as and when it or a subsidiary
chooses to use these losses or one of the transferees of the losses is sold
out of the Corp Group with unutilised capital losses.
Corp has agreed to pay corporation tax on behalf of plc and Ancrane to the
extent that it arises in their accounting periods commencing 1 April 2003
in respect of foreign exchange movements in relation to the Bonds and an
inter-company loan to Highrose Limited.
o. HIGHROSE DEBT
Ancrane and plc have agreed, with effect from the Effective Date, to
release Highrose Limited, a subsidiary of Corp, from its obligation to
repay an inter-company loan of approximately L24 million to Ancrane.
p. VAT GROUP
Currently, several companies within the Group are not registered for VAT.
It is proposed that some of these companies will apply to Customs & Excise
to join the VAT group of which Corp is the representative member (the "Corp
VAT group"). This will result in greater administrative efficiency and
convenience.
q. INTERCOMPANY TRADE BALANCES
At the date of the Scheme Implementation Deed, plc was owed intra-group
trade receivables from five Corp subsidiaries in an aggregate amount of
L5,540,623. plc assigned the benefit of these intra-group trade receivables
to Corp in consideration for Corp reducing the balance of L165,748,102 due
to it from plc by an amount of L19,160,663.
r. COUNTER INDEMNITIES AND WAIVERS
Corp has agreed to indemnify plc for any claims (including related costs)
against plc from Marconi Communications Limited arising as a result of any
payment made by Marconi Communications Limited in settling plc's
obligations under the contracts and termination of employment of Robert
Meakin and Stephen Hare.
Corp has also agreed to meet certain costs and expenses of various
professional advisers in relation to the Restructuring, and has irrevocably
and unconditionally waived any right of counter indemnity or right of
reimbursement or other claim against plc in relation thereto, whether
arising under contract, operation of law or otherwise.
s. ESOP ESCROW AGREEMENT RELEASE
Following payment by Corp to each ESOP Derivative Bank of its respective
settlement payment pursuant to the ESOP Settlement Agreement, plc has
agreed to unconditionally and irrevocably release all of its claims against
its subsidiaries to the extent that they relate to the ESOP Derivative
Transactions and the Funding Letters. Upon such release by plc, Corp will
unconditionally and irrevocably release any claims that it has against plc
arising from Corp's funding of Bedell Cristin Trustees in respect of cash
collateral calls from the ESOP Derivatives Banks.
875
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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t. SECURITY POWER OF ATTORNEY
plc has granted an irrevocable power of attorney by way of security for its
obligations under the Scheme Implementation Deed in favour of Corp, such
that Corp is able to do or cause to be done all such acts and things on
plc's behalf in order to give effect to plc's obligations under the Scheme
Implementation Deed.
u. PLC WAIVERS
Each company within the New plc Group has irrevocably and unconditionally
agreed to waive and release each company within the Corp Group from any
claim it may have against that Corp Group company which arises out of any
matter or circumstance existing on or before the Effective Date other than
any claim set out in the Statement and Waiver Agreement that is expressed
to continue, notwithstanding the terms of that agreement, and any other
claim intended to be excluded by the terms of either Scheme or contemplated
by the Scheme Implementation Deed or the transactions contemplated by the
Scheme Implementation Deed.
plc has agreed that the distribution of plc Scheme Consideration to plc
Scheme Creditors in respect of any guarantee or indemnity given by plc of
any other Group Company (including plc's guarantee of the Bonds) will not
give rise to any counter indemnity or right of reimbursement or other claim
by plc against the relevant Group Company.
v. STATEMENT AND WAIVER
Each of Corp and plc and certain other Group Companies have agreed to enter
into the statement and waiver arrangements in relation to certain
inter-company balances described in part I, Section 2, Part D.6.
w. PLC SCHEME EXPENSES
Corp has agreed to procure the issue of a letter of credit (under the
Performance Bonding Facility) in an amount of L2 million in favour of the
plc Scheme Supervisors from time to time for them to draw on in relation to
any Ongoing Costs. Corp has agreed to waive any right to reimbursement
against plc arising as a result of any payment made by Corp as a result of
any drawings by the plc Scheme Supervisors under such letter of credit. In
the event that Corp is unable to procure the issue of the letter of credit,
it has undertaken to provide the sum of L2 million for the plc Scheme
Supervisors for drawing in relation to any Ongoing Costs on similar terms
to those set out in the Scheme Implementation Deed and the Performance
Bonding Facility Agreement in relation to the letter of credit.
876
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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APPENDIX 19
MATERIAL CONTRACTS
The following is a summary of the principal contents of each material contract
(not being a contract entered into in the ordinary course of business) entered
into by any member of the Group within the two years immediately preceding the
date of this document and those contracts entered into, or to be entered into,
by any member of the Group not in the ordinary course of business which contain
any provision under which any member of the Group has, or will have, any
obligation or entitlement which is material to the Group at the date of this
document or on or about the date of implementation of the Restructuring.
In this Appendix, + denotes a contract to which only a member or members of New
plc Group is or are a party or parties, or will be a party or parties, while *
denotes those contracts to which a member or members of New plc Group is or are
a party or parties, or will be a party or parties, along with a member or
members of Corp Group.
Where this Appendix refers to a material contract to which Corp and/or plc is a
party as excluded from the Corp Scheme or the plc Scheme, this indicates that
liabilities to Corp and/or plc (as applicable) under such a contract are not to
be compromised by the relevant Scheme and are expected to be satisfied by the
relevant entity in accordance with the terms of that contract. Liabilities of
members of the Group (other than Corp and plc) under the material contracts set
out in this Appendix will not be subject to the Schemes and are expected to be
satisfied in accordance with the terms of that contract.
The terms of the Corp and plc Schemes (set out in parts II and III respectively)
and the provisions of Appendix 9 shall take precedence over any statement
contained in this Appendix that liabilities are compromised pursuant to, or
excluded from, or not subject to, the Corp or plc Schemes.
1. CONTRACTS PREVIOUSLY ENTERED INTO
1.1 EQUITY
(a) SETTLEMENT DEED DATED 19 DECEMBER 2002 BETWEEN RT GROUP TELECOM
SERVICES LIMITED ("RTSL"), RT GROUP PLC, CORP, ULTRAMAST LIMITED,
JAMES SMITH AND NICHOLAS DARGAN. The shares in Ultramast Limited
held by Corp have been cancelled through a capital reduction and a
repayment of capital has been made to Corp. The Settlement Deed
contains several indemnities: (1) Corp agreed to indemnify
Ultramast Limited in respect of two employees seconded from the
Corp Group, this indemnity is capped at L300,000; (2) Corp agreed
to indemnify RT Group Telecom Services Limited in relation to a
contract between Ente Sardo e Fognature and Ultramast Limited; this
indemnity is capped at L1.68 million; and (3) Corp agreed to
indemnify Ultramast Limited and RT Group Telecom Services Limited
in respect of a side letter between plc and British Waterways Board
("BWB") (now known as British Waterways); this indemnity is capped
at L10 million. Liabilities of Corp under this agreement are
excluded from the Corp Scheme.
1.2 ACQUISITIONS
(a) MERGER AGREEMENT DATED 26 JUNE 2001 BETWEEN CORP AND EASYNET GROUP
PLC ("EASYNET") RELATING TO THE MERGER OF IPSARIS LIMITED WITH
EASYNET.
Immediately following the completion of this transaction, Corp was
the registered holder of approximately 30.9 million ordinary shares
and approximately 48.6 million convertible ordinary shares in
Easynet. The merger was completed on 26 July 2001 at which time the
Easynet consideration shares issued to Corp in consideration for
the disposal of Corp's shares in ipsaris Limited were admitted to
the Official List of the UKLA. In February 2002 RTSL exercised the
remaining part of its put option in respect of 1,324,054 ordinary
shares in Easynet for an exercise price of approximately L20
million, although Corp disputed its obligation to pay this exercise
price and claimed against RTSL in relation to alleged breaches by
RTSL in respect of the performance of its obligations to Ultramast
Limited (a joint venture company owned 50:50 by Corp and RTSL).
This litigation has now been settled and the settlement provided
for Corp to acquire the 1,324,054
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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ordinary shares in Easynet. Liabilities of Corp under this agreement
are excluded from the Corp Scheme.
(b) RELATIONSHIP AGREEMENT DATED 26 JUNE 2001 BETWEEN CORP AND EASYNET
GROUP PLC ("EASYNET").
The Relationship Agreement provides that Corp will exercise its powers
of control to ensure Easynet is capable of carrying on its business
independently of Corp and that all transactions and future
relationships between the companies are at arm's length and on a
normal commercial basis. The Relationship Agreement also includes
provisions regarding the composition of the Easynet board of
directors, restrictions on the acquisition of Easynet shares by Corp,
the conversion of Easynet convertible ordinary shares into ordinary
shares, non-competition between Corp and Easynet and confidentiality.
Liabilities of Corp under this agreement are excluded from the Corp
Scheme.
(c) SUBSCRIPTION AGREEMENT DATED 6 OCTOBER 2000 BETWEEN MARCONI
COMMUNICATIONS INTERNATIONAL HOLDINGS LIMITED AND SPLICE DO BRASIL
TELECOMMUNICACOES E ELECTRONICA S.A. ("SPLICE").
The agreement relates to the purchase of the business and certain
assets of the transmission division of Splice in Brazil for a total
consideration of up to US$169 million. The total consideration
includes up to US$90 million subject to certain performance targets
being met over a three year period. During the first year a
performance-related payment of US$6.5 million was paid, and no
performance-related payments are expected in respect of the second
year. The maximum performance-related payments outstanding are US$83.5
million.
1.3 DISPOSALS
(a) US RATIONALIZATION AGREEMENT DATED 28 AUGUST 2002 BETWEEN MARCONI
COMMUNICATIONS, LIMITED; MARCONI COMMUNICATIONS S.P.A.; MARCONI SUD
S.P.A.; MARCONI COMMUNICATIONS, INC. AND JABIL CIRCUIT, INC.
("JABIL").
Pursuant to the manufacturing agreement of 13 June 2001 referred to in
(o) below, a US Rationalization Agreement was entered into on 28
August 2002 by which all parties agreed to implement a rationalisation
plan which involves the closure of the Bedford, Texas operation
acquired by Jabil from the Group in 2001. The members of the Corp
Group which are parties to the agreement will bear the costs of
rationalisation.
(b) SHARE PURCHASE AGREEMENT DATED 2 AUGUST 2002 BETWEEN MARCONI (BRUTON
STREET) LIMITED, PLC AND FINMECCANICA SPA.
On 2 August 2002 Marconi (Bruton Street) Limited entered into a Share
Purchase Agreement to sell its interest in Marconi Mobile Holdings SpA
to Finmeccanica SpA for a purchase price of E571.1 million in cash
with E42.9 million in assumed debt (net of cash on the disposed
business' balance sheet). Of the E571.1 million cash proceeds, E20
million was withheld as security in escrow for purchaser warranty
claims. As part of the subsequent sale of OTE SpA to Finmeccanica SpA
on 4 March 2003 E4 million of the funds held in escrow was released to
the Group. E4 million was also put into a new escrow account in
respect of trade payables from the Group to OTE. Marconi Mobile
Holdings SpA and its subsidiaries conducted plc's strategic
communications business. The strategic communications business
designs, manufactures and supplies communications and information
systems, primarily for defence and security applications, including
ground, naval, avionic, communications/command and control systems.
The proceeds were received in the form of cash and in debt assumed by
Finmeccanica SpA. The transaction closed on 2 August 2002. plc
provided a guarantee for the performance of the obligations of Marconi
(Bruton Street) Limited under the Share Purchase Agreement.
Finmeccanica SpA has notified Marconi (Bruton Street) Limited and plc
that it believes it has various claims under this agreement. Subject
to the Corp Scheme becoming effective, the above guarantee will be
novated from plc to Corp and will remain a
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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liability of Corp after the Restructuring as it will be excluded from
the Corp Scheme (see paragraph 2.9 below for further details).
(c) EUROPEAN RATIONALISATION AGREEMENT DATED 11 APRIL 2002 BETWEEN
MARCONI COMMUNICATIONS LIMITED, MARCONI COMMUNICATIONS S.P.A., MARCONI
SUD S.P.A., MARCONI COMMUNICATIONS, INC. AND JABIL CIRCUIT, INC.
Pursuant to the manufacturing agreement of 13 June 2001 referred to in
(o) below, a European Rationalisation Agreement was entered into on 11
April 2002 by which all parties agreed to implement a rationalisation
plan, which involves a downsizing and some relocation of Jabil's
operations in England and in Italy which had previously been acquired
from the Group in June 2001. The members of the Corp Group which are
parties to the agreement will bear the costs of the rationalisation.
(d) STOCK PURCHASE AGREEMENT DATED 10 JANUARY 2002 IN RESPECT OF THE
SALE OF PLC'S DATA SYSTEMS SUBSIDIARIES BY MARCONI SYSTEMS HOLDINGS,
INC., CORP AND AB DICK HOLDINGS LIMITED TO DH HOLDINGS CORP.,
LAUNCHCHANGE LIMITED AND KOLLMORGEN S.A.S. AND A GUARANTEE DATED 10
JANUARY 2002 FROM PLC IN FAVOUR OF DH HOLDINGS CORP., LAUNCHCHANGE AND
KOLLMORGEN S.A.S.*
On 10 January 2002 subsidiaries of plc entered into a Stock Purchase
Agreement to sell their interests in Marconi Data Systems Inc. and
certain affiliated entities to subsidiaries of Danaher Corporation plc
for a purchase price of approximately US$400 million. The companies
sold conducted plc's ink jet printing business. The transaction closed
on 5 February 2002. plc provided a guarantee for the performance of
the obligations of Corp, Marconi Systems Holdings Inc. and AB Dick
Holdings Limited under the Stock Purchase Agreement. DH Holdings Corp.
has notified Corp and plc that it believes it has various claims under
this Agreement. Liabilities of plc under the guarantee will be
compromised pursuant to the plc Scheme. Liabilities of Corp under this
agreement are excluded from the Corp Scheme.
(e) SALE AND PURCHASE AGREEMENT DATED 20 DECEMBER 2001, AS RESTATED, FOR
THE SALE OF CORP'S 50 PER CENT. SHAREHOLDING IN GENERAL DOMESTIC
APPLIANCES HOLDINGS LIMITED ("GDA") BETWEEN MERLONI ELETTRODOMESTICI
SPA AND CORP, FOR A CASH CONSIDERATION OF E195.5 MILLION.
The transaction, which was subject to regulatory approval and other
closing conditions, closed on 8 March 2002. Prior to completion of the
transaction, plc received a dividend of L23 million from GDA. This
comprised the annual cash dividend associated with plc's stake in GDA,
together with a special dividend relating to the proceeds from the
sale by GDA of its subsidiary, GDA Applied Energy Ltd. Liabilities of
Corp under this agreement are excluded from the Corp Scheme.
(f) STOCK PURCHASE AGREEMENT DATED 20 DECEMBER 2001 BETWEEN CORP,
MARCONI SYSTEMS HOLDINGS INC., DH HOLDINGS CORP AND LAUNCHCHANGE
LIMITED.
On 20 December 2001 subsidiaries of plc entered into a Stock Purchase
Agreement to sell their interests in Marconi Commerce Systems Inc. and
Marconi Commerce Systems Limited to subsidiaries of Danaher
Corporation plc for a purchase price of US$325 million. The companies
being sold conducted the Group's fuel dispensing equipment and retail
automation businesses. The transaction closed on 1 February 2002. plc
provided a guarantee for the performance of the obligations of its
subsidiaries under the Stock Purchase Agreement. DH Holdings Corp has
notified Corp and plc that it believes it has various claims under
this Agreement. The liabilities of plc under the guarantee will be
compromised pursuant to the plc Scheme. Liabilities of Corp under this
agreement are excluded from the Corp Scheme.
(g) ASSET PURCHASE AGREEMENT DATED 17 DECEMBER 2001, AS AMENDED, BETWEEN
CORP, MARCONI OPTICAL COMPONENTS LIMITED AND BOOKHAM TECHNOLOGY P.L.C.
("BOOKHAM").
On 17 December 2001 Marconi Optical Components Limited agreed to sell
the assets and liabilities of its optical components business based at
Caswell, Northamptonshire and Chelmsford, Essex, to
879
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 19: MATERIAL CONTRACTS
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Bookham in exchange for 12,891,000 ordinary shares in Bookham,
equivalent to 9 per cent. of the issued ordinary share capital of
Bookham. Based on the mid-market closing share price of Bookham on 14
December 2001, Marconi Optical Components Limited received shares then
worth L19,723,230. The transaction closed on 1 February 2002. Pursuant
to a subsequent agreement between Bookham and Nortel Technologies
Inc., Corp now owns approximately 6 per cent. of Bookham. Liabilities
of Corp under the Asset Purchase Agreement, as amended, are excluded
from the Corp Scheme.
(h) GLOBAL PROCUREMENT AGREEMENT DATED 17 DECEMBER 2001 BETWEEN MARCONI
COMMUNICATIONS, INC. AND BOOKHAM TECHNOLOGY P.L.C. ("BOOKHAM").
On 17 December 2001 Marconi Communications, Inc. entered into a supply
agreement with Bookham pursuant to which Marconi Communications, Inc.
agreed to purchase L30 million of Bookham's optical components with
the benefit of a guarantee from Corp given under the Asset Purchase
Agreement referred to in (g) above. The purchase commitment is split
on a quarter-by-quarter basis and will end on 30 June 2003.
Liabilities of Corp under the guarantee are excluded from the Corp
Scheme.
(i) BLOCK TRADE AGREEMENT DATED 28 NOVEMBER 2001 BETWEEN MARCONI MOBILE
SPA AND SALOMON BROTHERS INTERNATIONAL LIMITED UNDER WHICH MARCONI
MOBILE SPA DISPOSED OF 6,163,641 OF ITS 11,083,625 SHARES IN
LOTTOMATICA SPA, AN ITALIAN REGISTERED COMPANY FOR A TOTAL
CONSIDERATION OF APPROXIMATELY E40 MILLION.
These sales formed part of the Group's programme of disposing of
certain investments in its non-core asset portfolio. Pursuant to the
agreement, Marconi Mobile SpA sold to Salomon Brothers International
Limited an aggregate of 6,163,641 ordinary shares in the share capital
of Lottomatica SpA, a company organised under the laws of Italy. The
purchase price was a net price of E6.52 per share making a total
consideration of E40,186,939.32. The completion of the sale and
purchase of the shares took place on 3 December 2001. The shares were
purchased by Salomon Brothers International Limited as a block trade
subject to the rules of Consob and the Mercato Telematico Azionario
and additional matters set out in the agreement. The remaining
4,919,984 shares were sold pursuant to De Agostini's public offer for
Lottomatica shares for a total cash consideration of approximately E32
million received on 4 February 2002.
(j) SALE AGREEMENT RELATING TO THE SALE BY CORP OF ITS REMAINING
SHAREHOLDING OF 1.49 PER CENT. IN LAGARDERE SCA, A LISTED FRENCH
COMPANY, TO SALOMON BROTHERS INTERNATIONAL LIMITED ON 26 SEPTEMBER
2001 FOR APPROXIMATELY E69 MILLION.
This sale formed part of the Group's programme of disposing of certain
investments in its non-core asset portfolio. Liabilities of Corp under
this agreement are excluded from the Corp Scheme.
(k) ASSET SALE AND LEASEBACK AGREEMENT DATED 26 SEPTEMBER 2001 BETWEEN
MARCONI FLEET MANAGEMENT LIMITED AND INCHCAPE VEHICLE CONTRACTS
LIMITED AND IVC CONTRACT HIRE LIMITED.
On 26 September 2001 Marconi Fleet Management Limited, a wholly-owned
subsidiary of Corp, entered into a sale agreement for a substantial
part of its fleet of motor vehicles with Inchcape Vehicle Contracts
Limited. Gross sale proceeds of L28.5 million were received by Marconi
Fleet Management Limited, which on the same date entered into a lease
agreement in respect of the said vehicles with IVC Contract Hire
Limited, an associated company of Inchcape Vehicle Contracts Limited.
As part of this transaction a Deed of Continuing Indemnity was entered
into dated 26 September 2001 between Corp and IVC Contract Hire
Limited under which Corp agreed to indemnify IVC Contract Hire Limited
against certain losses payable by Marconi Fleet Management Limited
resulting from or arising out of the agreements entered into with
Marconi Fleet Management on or after 26 September 2001. This includes
amounts due on termination of all or any of the agreements or
acceptance by IVC Contract Hire Limited of repudiation by Marconi
Fleet
880
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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Management Limited. Liabilities of Corp under these agreements are
excluded from the Corp Scheme.
(l) SALE AND PURCHASE AGREEMENT DATED 12 JULY 2002 BETWEEN CORP AND
REDWOOD 2002 LIMITED IN RESPECT OF THE SALE OF MARCONI APPLIED
TECHNOLOGIES LIMITED, MARCONI APPLIED TECHNOLOGIES INC. AND THE ASSETS
OF MARCONI APPLIED TECHNOLOGIES S.A. TO REDWOOD 2002 LIMITED FOR L57
MILLION.
The consideration for the sale to Redwood 2002 Limited, a company
owned by 3i and funds associated with 3i, comprised L50 million in
cash and a L7 million vendor loan note. The sale of Marconi Applied
Technologies Limited and Marconi Applied Technologies Inc. completed
on 12 July 2002; the sale of the assets of Marconi Applied
Technologies S.A., which was subject to French regulatory consent,
completed on 23 August 2002. Liabilities of Corp under this agreement
are excluded from the Corp Scheme.
(m) STOCK PURCHASE AGREEMENT DATED 3 JULY 2001 (AS AMENDED) BETWEEN CORP,
MARCONI SYSTEMS HOLDINGS, INC. AND KONINKLIJKE PHILIPS ELECTRONICS
N.V. ("PHILIPS ELECTRONICS").*
On 3 July 2001 subsidiaries of plc entered into a Stock Purchase
Agreement with Koninklijke Philips Electronics N.V. pursuant to which
such subsidiaries sold to Philips Electronics their interests in
Marconi Medical Systems Holdings, Inc. and certain affiliates for a
purchase price of US$1.1 billion. The subsidiaries being sold
conducted plc's medical imaging equipment business and its
radiological supplies distribution business. The transaction closed on
19 October 2001. By an amendment agreement dated 15 July 2002 the
consideration was reduced to US$837 million. plc provided a guarantee
for the performance of the obligations of its subsidiaries under the
Stock Purchase Agreement. In connection with the post-closing
adjustments provided for in the Stock Purchase Agreement, certain of
the Group's obligations under the Stock Purchase Agreement have been
terminated and a Communications Solutions Agreement, under which
Philips Electronics was obligated to make certain purchases from the
Group, has been terminated. The liabilities of plc under the guarantee
will be compromised pursuant to the plc Scheme. Liabilities of Corp
under this agreement are excluded from the Corp Scheme.
(n) PURCHASE AND SALE AGREEMENT DATED 19 JUNE 2001 BETWEEN CREDIT SUISSE
FIRST BOSTON (EUROPE) LIMITED AND CORP.
The Purchase and Sale Agreement was entered into by Corp in order to
sell 12,200,640 shares it held in Alstom S.A. to Credit Suisse First
Boston (Europe) Limited and its affiliates. The net purchase price was
E31.75 per share, for an aggregate purchase price of E387,370,320. The
sale of shares to Credit Suisse First Boston (Europe) Limited took
place outside of the United States pursuant to Regulation D of the US
Securities Act. The Purchase and Sale Agreement contained customary
representations and warranties and covenants including an undertaking
by Credit Suisse First Boston (Europe) Limited and its affiliates and
persons acting on their behalf not to sell the shares in the United
States except as set forth in the Annex to the Purchase and Sale
Agreement, not to engage in any general advertising or general
solicitation within the meaning of Regulation D of the US Securities
Act or in any manner involving a public offering within the meaning of
Section 4(2) of the US Securities Act of 1933 and not to engage in any
directed selling efforts or conditioning of the market for shares in
the United States or to United States persons, except as permitted
under US federal and state securities laws. Settlement of the
aggregate purchase price was made on 25 June 2001. Liabilities of Corp
under this agreement are excluded from the Corp Scheme.
(o) MANUFACTURING AGREEMENT DATED 13 JUNE 2001 BETWEEN MARCONI
COMMUNICATIONS LIMITED, MARCONI COMMUNICATIONS S.P.A., MARCONI SUD
S.P.A., MARCONI COMMUNICATIONS GMBH, MARCONI COMMUNICATIONS, INC. AND
JABIL CIRCUIT, INC. ("JABIL")
Pursuant to the Business Sale Agreement dated 11 January 2001 referred
to in (s) below, a Manufacturing Agreement was entered into under
which Jabil agreed to manufacture, assemble,
881
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 19: MATERIAL CONTRACTS
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test, package and deliver certain products (mostly those which were
manufactured in the facilities sold under the Business Sale Agreement
thereafter) to members of the Group. The Agreement is for an initial
term of four years and continues until not less than six months'
written notice of termination is given.
(p) AGREEMENT FOR REPAIR SERVICES DATED 13 JUNE 2001 BETWEEN MARCONI
COMMUNICATIONS LIMITED; MARCONI COMMUNICATIONS S.P.A.; MARCONI SUD
S.P.A.; MARCONI COMMUNICATIONS GMBH; MARCONI COMMUNICATIONS, INC. AND
JABIL CIRCUIT, INC. ("JABIL")
Pursuant to the Business Sale Agreement dated 11 January 2001 referred
to in (s) below, a Repair Services Agreement was entered into by which
Jabil agreed to provide a warehouse storage, inventory management,
product repair and return service to members of the Group. The
Agreement is for an initial term of four years and continues
thereafter until not less than six months' written notice of
termination is given.
(q) DISPOSAL OF VARIOUS PROPERTIES.
Since 25 March 2001, the Group has sold a number of sites to various
purchasers. The four largest disposals were between Corp and Geoffrey
M. Warren for L34 million in respect of the freehold site at Wembley
East Lane Business Park; Marconi Communications Limited and B.L.C.T.
(14033) Limited for L21 million for the freehold site at New Century
Park, Coventry; between Corp and Paul Smith Limited for L10.7 million
for the leasehold site at Kemble House, London, and Marconi
Communications International Holdings Limited in respect of the sale
of the freehold of Edge Land, Liverpool to the North West Development
Agency for L17.25 million. Liabilities of Corp under the agreement
between Corp and Geoffrey M. Warren and the agreement between Corp and
Paul Smith Limited are excluded from the Corp Scheme.
(r) UNDERWRITING AGREEMENT DATED 8 FEBRUARY 2001 BETWEEN CREDIT SUISSE
FIRST BOSTON (EUROPE) LIMITED, SOCIETE GENERALE AND MERRILL LYNCH
INTERNATIONAL AS UNDERWRITERS, ALCATEL S.A. ("ALCATEL"), CORP AND
ALSTOM S.A. ("ALSTOM").
Under the Underwriting Agreement, Corp and Alcatel sold to Credit
Suisse First Boston (Europe) Limited, Societe Generale, Merrill Lynch
International and other underwriters an equal number of shares of
Alstom in connection with a global offering of 63,970,074 shares. In
addition, Credit Suisse First Boston (Europe) Limited, Societe
Generale, Merrill Lynch International and other underwriters agreed to
purchase from Alcatel and Corp such of 7,107,786 Alstom shares (if
any) as were not sold in a French retail offering. The underwriters
were also granted an option to purchase further Alstom shares in order
to cover overallotments in relation to the offering. Each of the
underwriters received an underwriting commission in respect of its
underwriting commitment. Corp sold approximately 76 per cent. of its
approximate 24 per cent. ownership in Alstom for cash proceeds of L631
million. The Underwriting Agreement contained customary warranties,
undertakings and indemnities from Alstom, Corp and Alcatel.
Liabilities of Corp under this agreement are excluded from the Corp
Scheme.
(s) SUPPLEMENTAL AGREEMENT DATED 13 JUNE 2001 BETWEEN MARCONI
COMMUNICATIONS LIMITED, MARCONI COMMUNICATIONS S.P.A., MARCONI SUD
S.P.A., MARCONI COMMUNICATIONS GMBH, MARCONI COMMUNICATIONS REAL
ESTATE GMBH, MARCONI COMMUNICATIONS LIMITED, JABIL CIRCUIT OF TEXAS
LP, JABIL CIRCUIT UK LIMITED, JABIL CIRCUIT, INC. ("JABIL") AND JABIL
CIRCUIT ITALIA SRL.
Pursuant to a Business Sale Agreement dated 11 January 2001 between
members of the Group and Jabil, members of the Group agreed to sell to
Jabil certain of their manufacturing and related assets located in
England, Italy, Germany and the United States. A Supplemental
Agreement dated 13 June 2001 was agreed by the parties by which
further manufacturing and related assets located in England and the
United States were sold to Jabil and certain amendments were made to
the Business Sale Agreement. The transaction completed in the UK and
Italy on 13 June 2001 and in the US on 15 October 2001 for a total
consideration of US$184 million. The previously announced
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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transfer of the operation at Offenburg, Germany did not proceed for
legal and operational reasons. Marconi Communications Limited is
guarantor for the performance of the obligations of its associated
companies under both the Business Sale Agreement and the Supplemental
Agreement.
(t) AMENDMENT AGREEMENT DATED 22 JANUARY 2003 BETWEEN MARCONI
COMMUNICATIONS LIMITED, MARCONI COMMUNICATIONS S.P.A., MARCONI SUD
S.P.A., JABIL CIRCUIT UK LIMITED, JABIL CIRCUIT, INC. AND JABIL
CIRCUIT ITALIA SRL.
Pursuant to a Business Sale Agreement dated 11 January 2001 and a
Supplemental Agreement dated 13 June 2001 referred to in (s) above, an
Amendment Agreement was entered into by which the parties agreed to
amend certain terms within the Business Sale Agreement and the
Supplemental Agreement including, inter alia, the payment of deferred
premia by Jabil Circuit UK Limited and Jabil Circuit Italia Srl and
the volume payments due from Marconi Communications Limited and
Marconi Sud S.p.A.
1.4 FINANCINGS
(a) AGREEMENT DATED 6 AUGUST 2002 BETWEEN CORP AND BARCLAYS RELATED TO
THE TERMINATION OF CERTAIN INTEREST RATE SWAP TRANSACTIONS.
On 6 August 2002 Corp and Barclays agreed to terminate certain
interest rate swap transactions with effect from 7 August 2002. As
part of that termination, Barclays agreed to lend to Corp
approximately US$24.8 million in payment of the settlement amount
related to the termination.
The loan bears interest at LIBOR plus 2.25 per cent. With effect from
25 March 2003, the loan is repayable on demand.
The loan is secured on, and subject to, the terms of the interim
security described below in paragraph 1.7. The liabilities of Corp
under this agreement will be compromised pursuant to the Corp Scheme.
(b) AGREEMENT DATED 6 AUGUST 2002 BETWEEN JPMORGAN CHASE BANK
("JPMORGAN") AND CORP RELATED TO THE TERMINATION OF CERTAIN INTEREST
RATE SWAP AND FOREIGN EXCHANGE TRANSACTIONS.
On 6 August 2002 Corp and JPMorgan agreed to terminate certain
interest rate swap and foreign exchange transactions with effect from
7 August 2002. As part of that termination, JPMorgan agreed to lend to
Corp approximately US$56.1 million in payment of the settlement amount
related to the termination.
The loan bears interest at LIBOR plus 2.25 per cent. With effect from
25 March 2003, the loan is repayable on demand.
The loan is secured on, and subject to, the terms of the interim
security described below in paragraph 1.7. The liabilities of Corp
under this agreement will be compromised pursuant to the Corp Scheme.
(c) AGREEMENT DATED 4 NOVEMBER 2002 BETWEEN UBS AG ("UBS") AND CORP
RELATED TO THE PAYMENT OF INTEREST ON CERTAIN INTEREST RATE SWAP
TRANSACTIONS.
Pursuant to this agreement Corp paid an amount of US$4,388,542 to UBS
("True-up Payment"), being a pro-rata portion (by reference to the
period from 3 May 2002 to 15 October 2002) of the contractual payment
due from Corp to UBS under an interest rate swap in respect of the
period from 3 May 2002 to 4 November 2002. This pro-rata payment was
consistent with the Heads of Terms.
Following the making of the True-up Payment, UBS unilaterally
terminated the interest rate swap, as a result of which a termination
sum of US$30,950,000 (the "Termination Sum") became payable by Corp to
UBS.
With effect from 25 March 2003, each of the unpaid portion of the
contractual payment (US$531,944.11) ("Unpaid Portion") and the
Termination Sum is payable on demand.
883
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The Termination Sum is accruing interest (from 4 November 2002) at a
rate of 2.6525 per cent. per annum.
At the time the agreement was entered into, the liability of Corp to
UBS in respect of the interest rate swap (including the Unpaid Portion
and the Termination Sum) was subject to the interim security described
below in paragraph 1.7. The liabilities of Corp in respect of the
Unpaid Portion and the Termination Sum will be compromised pursuant to
the Corp Scheme.
(d) INTERIM BONDING FACILITY DATED 10 MAY 2002 BETWEEN HSBC, BARCLAYS
AND MARCONI BONDING LIMITED ("MBL") (AS AMENDED BY AN AMENDMENT LETTER
DATED 24 OCTOBER 2002, UNDER WHICH JPMORGAN CHASE BANK ("JPMORGAN")
ACCEDED AS A NEW BANK PURSUANT TO THE INTERIM BONDING FACILITY AND AS
FURTHER AMENDED BY AN AMENDMENT LETTER DATED 28 MARCH 2003), COUNTER
INDEMNITY AGREEMENT BETWEEN MBL AND EACH OF HSBC AND BARCLAYS DATED 10
MAY 2002, SECURITY OVER CASH AGREEMENT BETWEEN MBL AND EACH OF HSBC
AND BARCLAYS DATED 10 MAY 2002, COUNTER INDEMNITY AGREEMENT GIVEN BY
MBL IN FAVOUR OF JPMORGAN DATED 29 OCTOBER 2002 AND SECURITY OVER CASH
AGREEMENT GIVEN BY MBL IN FAVOUR OF JPMORGAN DATED 29 OCTOBER 2002.
In May 2002 an interim bonding facility of L60 million was provided by
HSBC and Barclays under which MBL can request bonds to be issued by
those banks on behalf of members of the Group. The bonds are required
to be fully cash collateralised and security is required to be given
over all cash deposits under separate agreements between MBL and each
bank. In October 2002 the interim bonding facility was amended to
increase the facility limit to L150 million and to introduce JPMorgan
as a party to the interim bonding facility. The availability period
under the interim bonding facility expires on the date notified to MBL
by HSBC, Barclays and JPMorgan. The banks may notify expiry of
availability on the Schemes becoming effective and implemented in
accordance with their terms.
(e) TEMPORARY BONDING FACILITY AGREEMENT DATED 8 FEBRUARY 2002 BETWEEN
HSBC, BARCLAYS AND MARCONI BONDING LIMITED ("MBL") (AS AMENDED),
COUNTER INDEMNITY AGREEMENTS BETWEEN MBL AND EACH OF HSBC AND BARCLAYS
DATED 8 FEBRUARY 2002, CASH COLLATERAL AGREEMENTS BETWEEN MBL AND EACH
OF HSBC AND BARCLAYS DATED 8 FEBRUARY 2002.
In February 2002 a temporary bonding facility was provided by HSBC and
Barclays under which MBL could request bonds to be issued by those
banks on behalf of members of the Group. The bonds were required to be
fully cash collateralised (although security was not given over those
deposits). If any bond issued under the facility is extended, security
must be given over the relevant deposit. The availability period under
the temporary bonding expired on 29 March 2002.
(f) PURCHASE AGREEMENTS DATED 17 DECEMBER 2001 AS EXTENDED ON 14 JANUARY
2002 BETWEEN ANCRANE, A SUBSIDIARY OF PLC, MORGAN STANLEY & CO.
INCORPORATED AND MORGAN STANLEY AND CO. INTERNATIONAL LIMITED FOR THE
PURCHASE ON BEHALF OF ANCRANE FROM VARIOUS PRIVATE VENDORS OF
E500,000,000 5.625 PER CENT. BONDS DUE 2005, E1,000,000,000 6.375 PER
CENT. BONDS DUE 2010, US$900,000,000 7 3/4 PER CENT. BONDS DUE 2010
AND US$900,000,000 8 3/8 PER CENT. BONDS DUE 2030 ISSUED BY CORP.+
Pursuant to these transactions during December 2001 and January 2002,
Ancrane has purchased in privately negotiated transactions E67.9
million in principal amount (13.6 per cent.) of the E500,000,000 5.625
per cent. bonds due 2005 (the 2005 Eurobonds), approximately E256.7
million in principal amount (25.7 per cent.) of the E1,000,000,000
6.375 per cent. bonds due 2010 (the 2010 Eurobonds), approximately
US$131.0 million in principal amount (14.6 per cent.) of the
US$900,000,000 7 3/4 per cent. bonds due 2010 (the 2010 Yankee Bonds)
and approximately US$130.1 million in principal amount (14.5 per
cent.) of the US$900,000,000 8 3/8 per cent. bonds due 2030 (the 2030
Yankee Bonds) issued by Corp. Following this purchase, approximately
E432.1 million in principal amount of the 2005 Eurobonds,
approximately E743.3 million in principal amount of the 2010
Eurobonds, approximately US$769.0 million in principal amount of the
2010 Yankee Bonds and approximately US$769.9 million in principal
amount of the 2030
884
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Yankee Bonds remain in issue and not held by plc or any of its
subsidiaries. Liabilities of Corp under these bonds will be
compromised pursuant to the Corp Scheme.
(g) BANK FACILITY AGREEMENT DATED 25 MARCH 1998 ("BANK FACILITY")
BETWEEN THE GENERAL ELECTRIC COMPANY, P.L.C. (NOW KNOWN AS CORP), HSBC
INVESTMENT BANK PLC (NOW KNOWN AS HSBC BANK PLC) ("HSBC"), AS THE
AGENT, MARINE MIDLAND BANK, AS THE US SWINGLINE AGENT, THE BANKS WHICH
HAVE PARTICIPATED IN PROVIDING THE CREDIT FACILITY, AND OTHER
FINANCIAL INSTITUTIONS, AS THE JOINT LEAD ARRANGERS, AS AMENDED FROM
TIME TO TIME.*
The Bank Facility originally provided for the banks to make available
to Corp and certain of its subsidiaries a committed multicurrency
364-day revolving credit facility up to the amount of E1,500,000,000
and a 5-year committed multicurrency revolving credit facility up to
the amount of E4,500,000,000. plc guarantees the facilities. The
purpose of the revolving facilities was:
(i) in the case of the 364-day facility, to finance the bridging
and liquidity requirements of plc and its subsidiaries; and
(ii) in the case of the 5-year facility, to finance the general
corporate purposes of plc and its subsidiaries.
The 364-day facility expired on 22 March 2001 and the 5-year facility
expired on 25 March 2003. On 22 March 2002, Corp and plc agreed to
cancel all undrawn commitments under the 5-year facility and that all
borrowings under the 5-year facility would be repayable on demand by
HSBC, as agent for the banks. No demand for the repayment of the
borrowings, or any part thereof, has been made by HSBC.
Borrowings under the 5-year facility originally carried interest at a
rate equal to the aggregate of LIBOR plus 0.175 per cent. On 1 April
2002, Corp and plc agreed to increase the interest margin on
borrowings from 0.175 per cent. to 2.25 per cent. with effect from 1
April 2002. Accrued interest on the borrowings is repayable on the
last day of each interest period. With effect from 30 September 2002,
each outstanding advance under the five-year facility was converted
into a term loan.
Borrowings under the 5-year facility are secured on, and subject to,
the terms of the interim security detailed in paragraph 1.7 below. The
liabilities of each of Corp and plc under this agreement will be
compromised pursuant to the Corp Scheme and plc Scheme, respectively.
1.5 DEBT OFFERINGS
(a) INDENTURE DATED 19 SEPTEMBER 2000 RELATING TO US$900,000,000 7 3/4
PER CENT. BONDS DUE 2010 (THE "2010 BONDS") AND US$900,000,000 8 3/8
PER CENT. BONDS DUE 2030 (THE "2030 BONDS") BETWEEN CORP, PLC AND THE
BANK OF NEW YORK (TOGETHER THE "YANKEE BONDS").*
Corp is the issuer of the Yankee Bonds and plc guarantees the Yankee
Bonds. The guarantee will terminate on the date that plc is
unconditionally and irrevocably released from all its obligations as
guarantor under the Bank Facility and the Eurobond trust deeds dated
30 March 2000. The Yankee Bonds are listed on the Luxembourg Stock
Exchange and are governed by New York law.
The 2010 bonds will mature on 15 September 2010 and the 2030 bonds
will mature on 15 September 2030. Interest is payable on the Yankee
Bonds on 15 March and 15 September of each year, beginning on 15 March
2001. The Yankee Bonds may be redeemed in whole or in part at any time
at a redemption price determined in accordance with the terms of the
indenture plus accrued interest to the date of redemption. The
indenture includes the following provisions:
(i) limitations on the ability of Corp to merge or consolidate with
another company, or to transfer or sell all or substantially all
of the Group's assets;
(ii) limitations on the ability of Corp or any material subsidiary to
incur any debt secured by an encumbrance on the property or
equity interests of Corp or any material subsidiary unless the
Yankee Bonds are equally secured, subject to certain exceptions;
885
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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(iii) limitations on the ability of plc to guarantee any debt
securities of Corp without providing a similar guarantee in
respect of the Yankee Bonds, subject to certain exceptions; and
(iv) limitations on the ability of Corp or any material subsidiary to
enter into sale and leaseback transactions, subject to certain
exceptions.
The indenture for the Yankee Bonds contains events of default,
including:
(i) bankruptcy or insolvency of Corp or plc;
(ii) failure by Corp to pay interest when due on the Yankee Bonds if
not cured within a period of 14 days;
(iii) failure of Corp or plc to perform or observe its obligations
under the Yankee Bonds or the indenture (if not cured within 30
days);
(iv) an event of default under existing agreements for borrowed money
causing amounts due under those agreements to become due
prematurely, or Corp or plc failing to make payment of such
amounts within five business days of the due date for payment
or, if longer, within any applicable grace period; and
(v) plc's guarantee of the Yankee Bonds not being, or being claimed
by plc not to be, in full force and effect (other than following
its termination in accordance with its terms).
The failure to repay borrowings under the Bank Facility would trigger
an event of default under the Yankee Bonds.
The Yankee Bonds rank at least equal to all other existing and future
senior unsecured debt of Corp.
The bonds are represented by a global security deposited with The Bank
of New York as depositary for The Depositary Trust Company or its
successor or nominee.
The Yankee Bonds are secured on, and subject to, the terms of the
interim security described below in paragraph 1.7. The liabilities of
each of Corp and plc under the Yankee Bonds will be compromised
pursuant to the Corp Scheme and plc Scheme respectively.
(b) TRUST DEED DATED 30 MARCH 2000 RELATING TO E500,000,000 5.625 PER
CENT. BONDS DUE 2005 BETWEEN CORP, PLC AND THE LAW DEBENTURE TRUST
CORPORATION P.L.C., AND TRUST DEED DATED 30 MARCH 2000 RELATING TO
E1,000,000,000 6.375 PER CENT. BONDS DUE 2010 BETWEEN CORP, PLC AND
THE LAW DEBENTURE TRUST CORPORATION P.L.C. (THE "EUROBONDS")*
Corp is the issuer of the Eurobonds and plc guarantees the Eurobonds.
The guarantee will terminate on the date that Corp certifies to the
Eurobond Trustee that plc has been unconditionally and irrevocably
released from all its obligations as guarantor under the Bank
Facility. The Eurobonds are traded on the London Stock Exchange's
market for listed securities. The Eurobonds bear interest at a fixed
rate per annum on their outstanding principal amount from and
including 30 March 2000, payable annually in arrears on 30 March. The
first interest payment date was 30 March 2001. Corp or any of its
subsidiaries may purchase the Eurobonds in any manner and at any time.
The trust deeds governing the Eurobonds provide for events of default,
including:
(i) bankruptcy or insolvency of Corp or plc;
(ii) failure by Corp to pay interest when due on the Eurobonds if not
cured within a period of 14 days;
(iii) failure of Corp or plc to perform or observe its obligations
under the trust deeds governing the Eurobonds (if not cured
within a period of 30 days);
(iv) an event of default under existing agreements for borrowed money
causes amounts due under those agreements in excess of a
specified sum to become due prematurely, or Corp or plc failing
to make payment of such amounts within five business days of the
due date for payment, or, if longer, within any applicable grace
period; and
886
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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(v) plc's guarantee of the Eurobonds is not, or is claimed by plc
not to be, in full force and effect (other than following its
termination in accordance with its terms).
The failure to repay borrowings under the Bank Facility would
trigger an event of default under the Eurobonds.
For so long as the Eurobonds remain outstanding, Corp has agreed
that it will not, without taking actions which satisfy the Eurobond
trustee or 75 per cent. of the holders of the Eurobonds, create or
have outstanding any mortgage, charge, pledge, lien or other
security interest on any of its present or future assets or
revenues to secure debt securities. Except for the guarantee of the
Eurobonds by plc, Corp has agreed that it will not, without taking
actions which satisfy the Eurobond trustee or 75 per cent. of the
holders of the Eurobonds, permit to exist any other guarantee of or
indemnity or any arrangement having similar effect from plc
relating to debt securities of Corp. These provisions are not
violated by the interim security.
The Eurobonds are secured on, and subject to, the terms of the
interim security described below in paragraph 1.7. The liabilities
of each of Corp and plc under the Eurobonds will be compromised
pursuant to the Corp Scheme and the plc Scheme, respectively.
(c) FLOATING RATE UNSECURED GUARANTEED LOAN NOTES DUE 28 JULY 2005
ISSUED BY CORP RELATING TO THE ACQUISITION OF ALBANY PARTNERSHIP
LIMITED ("APT") WITH A TOTAL FACE VALUE OF L31,416,000 (THE "LOAN
NOTES"), BANK GUARANTEE BY HSBC BANK PLC DATED 28 JULY 2000 IN
FAVOUR OF THE HOLDER OF LOAN NOTE NO. 1, (THE "HSBC GUARANTEE") AND
BANK GUARANTEES BY COMMERZBANK AG DATED 16 AUGUST 2000 IN FAVOUR OF
THE HOLDERS OF LOAN NOTES NO. 2 AND NO. 3 RESPECTIVELY (THE
"COMMERZBANK GUARANTEES").
plc issued the Loan Notes to the sellers of shares in APT on 28
July 2000 as part of the consideration for the purchase of APT by
plc. The Loan Notes were guaranteed by HSBC and Commerzbank AG. On
15 August 2000, the shares in APT were transferred from plc to
Corp, the consideration for which consisted of a cash payment, the
forgiveness of a debt owed by plc to Corp and the substitution of
Corp as principal debtor under the Loan Notes.
The final repayment date under the Loan Notes was 28 July 2005.
However, the holders of the Loan Notes were first entitled to
redeem the Loan Notes on 28 October 2002. Redemption notices were
issued by the holders of the Loan Notes on 29 July 2002 and 22
August 2002 requiring Corp to redeem the Loan Notes on 28 October
2002. When the Loan Notes were not redeemed by Corp on that date,
the Loan Note holders claimed under the HSBC Guarantee and
Commerzbank Guarantees respectively. As a result of the payment of
the outstanding principal and interest on the Loan Notes under the
HSBC Guarantee and the Commerzbank Guarantees, the Loan Notes are
no longer outstanding, but each of HSBC and Commerzbank AG has a
counter indemnity claim against Corp. The liabilities of Corp under
those counter-indemnities will be compromised pursuant to the Corp
Scheme.
1.6. BANK AND BONDHOLDER UNDERTAKINGS
(a) LETTER OF UNDERTAKING DATED 25 APRIL 2002 FROM CORP AND PLC TO THE
CO-ORDINATION COMMITTEE AND HSBC INVESTMENT BANK PLC (NOW KNOWN AS
"HSBC BANK PLC") AS AGENT UNDER THE BANK FACILITY, AS AMENDED AND
SUPPLEMENTED.*
On 25 April 2002, plc and Corp gave certain undertakings in favour
of the Group's Syndicate Banks. The undertakings extend to
activities of the members of the Group and include restrictions,
subject to certain exceptions, on the incurrence of additional
financial indebtedness, the repayment of financial indebtedness,
disposals of assets, acquisitions of businesses and shares, the
creation of security, the entry into Intellectual Property
arrangements with customers, the payment of dividends and other
distributions and intra-group transactions. Following the expected
release of the interim security on the Release Date, the
undertakings will also govern the arrangements with respect to the
Lockbox Accounts. The undertakings do not restrict activities that
are conducted by Group
887
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 19: MATERIAL CONTRACTS
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members in the ordinary course of trading. The undertakings, which
were renewed and modified on 28 March 2003, will terminate
automatically on the Effective Date of the Corp Scheme.
(b) LETTER OF UNDERTAKING DATED 30 MAY 2002 FROM CORP AND PLC TO THE
INFORMAL COMMITTEE OF BONDHOLDERS, AS AMENDED AND SUPPLEMENTED.*
On 30 May 2002 Corp and plc gave certain undertakings in favour of an
ad-hoc informal committee of the Group's bondholders. The undertakings
extend to activities of the members of the Group and include
restrictions, subject to certain exceptions, on the incurrence of
additional financial indebtedness, the repayment of financial
indebtedness, disposals of assets, acquisitions of businesses and
shares, the creation of security, the entry into Intellectual Property
arrangements with customers, the payment of dividends and other
distributions and intra-group transactions. Following the expected
release of the interim security on the Release Date (as defined in
part I, Section 2, Part D.1), the undertakings will also govern the
arrangements with respect to the Lockbox Accounts. The undertakings do
not restrict activities that are conducted by Group members in the
ordinary course of trading. The undertakings, which were renewed and
modified on 28 March 2003, will terminate automatically on the
Effective Date of the Corp Scheme.
1.7 INTERIM SECURITY
TRUST DEED DATED 13 SEPTEMBER 2002 (AS AMENDED BY AMENDMENT DEEDS DATED 13
DECEMBER 2002 AND 28 MARCH 2003) BETWEEN HSBC INVESTMENT BANK PLC (NOW
KNOWN AS "HSBC BANK PLC") AS A TRUSTEE, CORP AND HIGHROSE LIMITED, BANKS'
SECURITY OVER CASH DEED DATED 13 SEPTEMBER 2002 BETWEEN HSBC INVESTMENT
BANK PLC AS TRUSTEE AND HIGHROSE LIMITED, AND BONDHOLDERS' SECURITY OVER
CASH DEED DATED 13 SEPTEMBER 2002 BETWEEN HSBC INVESTMENT BANK PLC AS
TRUSTEE AND HIGHROSE LIMITED.
On 13 September 2002 interim security was granted over the cash held by
Highrose Limited (a special purpose subsidiary of Corp) in the Lockbox
Accounts in favour of the Group's Bank Creditors and Secured Bondholders
(each as defined in part I, Section 2, Part D.1) and Barclays Bank PLC (in
its capacity as an ESOP Derivative Bank). Some of the terms of the
security were amended on 13 December 2002 and were further amended on 28
March 2003. The Interim Security is expected to be released prior to the
Scheme Meetings. A more detailed summary of the terms of the interim
security is contained in part I, Section 2, Part D.1.
2. SCHEME SUPPORT AND IMPLEMENTATION
2.1 SCHEME IMPLEMENTATION DEED DATED 27 MARCH 2003 ("SID") BETWEEN CORP, PLC,
ANCRANE, E A CONTINENTAL LIMITED, MARCONI NOMINEES LIMITED AND OTHERS.*
A detailed summary of the SID is contained in Appendix 18.
2.2 STATEMENT AND WAIVER OF INTERCOMPANY BALANCES AGREEMENT DATED ON OR ABOUT
27 MARCH 2003 BETWEEN CORP, PLC AND CERTAIN OTHER GROUP COMPANIES*.
In order to facilitate the effective implementation of the Schemes, and in
particular to effect a clean up of existing inter-company claims owed to
or by Corp and plc and certain other Group Companies Corp and plc have
entered into a statement and waiver of intercompany balances agreement
("Statement and Waiver Agreement") with certain other Group Companies,
listed below. A more detailed summary of the statement and waiver
arrangements is set out in part I, Section 2, Part D.6. The following
Group Companies have already agreed to participate in the Statement and
Waiver Agreement:
A.B. Dick Holdings Ltd AEI Furnaces Pty Ltd Albany Partnership Ancrane
Limited
APT Nederlands BV APT Telecommuniciones Arrow Ltd Associated Automation
SL Ltd
Associated Electrical Associated Electrical Associated Electrical Associated Electrical
Industries (Manchester) Industries Holdings Ltd Industries Industries Limited
Ltd International Limited
888
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 19: MATERIAL CONTRACTS
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Associated Electrical Beijing Marconi Bruton Street Bruton Street Overseas
Industries Ltd (Now Communications Investments Limited Investments Limited
known as Marconi Technology Co Ltd
Australia Holdings Pty.
Limited)
Bruton Street Clanville Limited Combined Electrical Coppenhall Nominees
Partnership Manufacturers Ltd Limited
Daymo Ltd EA Continental Limited Elliot Automation Elliott-Automation
Continental SA Holdings Limited
FF Chrestian & Co Ltd Fore Systems Limitada Fore Systems Limited FS Finance Corp
FS Holding Corp GEC (Hong Kong) Limited GEC of Pakistan Limited GEC Zambia Limited
GPT (Nederland) BV GPT Consumer Products GPT Middle East Limited GPT Payphone Systems
Ltd Ltd
GPT Reliance Ltd GPT Special Project Harman Information Highrose Limited
Management Limited Technology Pty Ltd
Krayford Ltd Larnerway Ltd Layana Limited Marconi (Bruton Street)
Limited
Marconi (DGP1) Limited Marconi (DGP2) Limited Marconi (Elliott Marconi (Fifteen)
Automation) Limited Limited
Marconi (Fifty-Nine) Marconi (Fifty-Three) Marconi (Forty-Five) Marconi (Forty-Four)
Ltd Ltd Limited Ltd
Marconi (Forty-Three) Marconi (Holdings) Marconi (NCP) Limited Marconi (Nine) Limited
Limited Limited
Marconi (Sixteen) Marconi (Sixty-Nine) Marconi (Sixty-Two) Ltd Marconi (Thirteen)
Limited Limited Limited
Marconi (Thirty-One) Marconi (Thirty-Two) Marconi (TLC) Ltd Marconi (Twenty-Seven)
Limited Limited Limited
Marconi (WCGL) Marconi Acquisition Marconi Aerospace Marconi Ansty Limited
Unlimited Corp Unlimited
Marconi Applied Marconi Australia Pty Marconi Bonding Limited Marconi Capital Limited
Tecnologies SA Limited
Marconi Caswell Marconi Channel Markets Marconi Columbia SA Marconi Communications
Developments Limited GmbH (CIS) Limited
Marconi Communications Marconi Communications Marconi Communications Marconi Communications
AB Africa (Pty) Limited Argentina SA Asia Limited
Marconi Communications Marconi Communications Marconi Communications Marconi Communications
B.V. (Netherlands) BVBA Canada Holdings Inc. Canada Inc
Marconi Communications Marconi Communications Marconi Communications Marconi Communications
China Limited de Mexico SA de CV do Brasil Ltda Federal Inc
Marconi Communications Marconi Communications Marconi Communications Marconi Communications
Global Networks Limited GmbH (Germany) GmbH (Switzerland) Holdings GmbH (Germany)
Marconi Communications Marconi Communications Marconi Communications Marconi Communications
Holdings Inc. Holdings Limited Inc International Holdings
Limited
Marconi Communications Marconi Communications Marconi Communications Marconi Communications
International International Limited Investments Limited Limited (Bermuda)
Investments Limited
Marconi Communications Marconi Communications Marconi Communications Marconi Communications
Limited (Canada) Limited (Ireland) Limited (UK) North America Inc.
Marconi Communications Marconi Communications Marconi Communications Marconi Communications
Optical Fibres Limited Optical Networks Corp Optical Networks Overseas Services
Limited (Ireland) Limited
Marconi Communications Marconi Communications Marconi Communications Marconi Communications
Real Estate GmbH SA (France) SARL Software Systems GmbH &
Co KG
889
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 19: MATERIAL CONTRACTS
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Marconi Communications Marconi Communications Marconi Communications Marconi Communications
Software Systems Ver. South Africa Pty South East Asia Pte Ltd Technology Inc
GmbH Limited
Marconi Communications Marconi Marconi Corporation plc Marconi Defense
Telemulti Limitada CommunicationsSpA Overseas Limited
Marconi Finance Inc. Marconi Finance plc Marconi Fleet Marconi G.M. Limited
Management Limited
Marconi Holdings SpA Marconi Iberia SA Marconi Inc Marconi India Limited
Marconi Information Marconi Insurance Marconi International Marconi Middle East
Systems Limited Limited SpA (Saudi Arabia)
Marconi Middle East LLC Marconi Mobile Access Marconi Mobile Systems Marconi New Zealand
(Dubai) SpA Limited Limited
Marconi Nominees Marconi Optical Marconi Photonica Marconi plc
Limited Components Limited Limited
Marconi Projects Hong Marconi Property Ltd Marconi Software Marconi Software
Kong Ltd International Inc Solutions Limited
Marconi Sud SpA Marconi Marconi Venezuela CA MarconiCom Limited
Telecommunications
India Private Ltd
McMichael Limited Metapath Software Metapath Software Metapath Software
International International (France) International (Hong
(Australia) Pty Ltd SA Kong) Limited
Metapath Software Metapath Software Metapath Software Metapath Software
International (India) International (US) Inc International AB International Brasil
Private Limited Ltda
Metapath Software Metapath Software Metapath Software Metropolitan-Vickers
International Inc. International Limited International Nominees Electrical Co Ltd
Limited
Micro Scope Limited MNI Tecnologiase e Mobile Systems Mobile Systems (UK) Ltd
Sistemas de (Holdings) Ltd
Communicacao SA
Mobile Systems Group Mobile Systems Mobile Systems Services MSI Cellular
Ltd International Holdings Ltd Invesmtents (One) Ltd
Limited
Netscient Limited Northwood Technologies Northwood Technologies Palmaz Ltd
Inc. Limited
Photonica Limited Photoniqa Limited Pyford Limited Rainford Group Trustees
Ltd
Rainford Racks Ltd RELTEC (Coventry) Ltd RELTEC Mexico SA de CV RELTEC Services (UK)
(now known as Marconi Limited
Communications, S.A. de
C.V.)
Robert Stephenson & Ronaldi Ltd Salplex Ltd SNC Composants & Cie
Hawthorns Ltd
Styles & Mealing Systems Management TCL Projects Limited Telephone Cables
Limited Specialists Inc Limited
Tetrel Limited The English Electric The General Electric The Kingsway Housing
Company, Limited Company of Singapore Association Ltd
Private Limited
(Now known as Marconi
Singapore Pte Ltd)
The M-O Valve Co Ltd The Rotary Engineering The Vulcan Foundry Ltd Woods of Colchester
Company Limited Housing Society Limited
Yeslink Unlimited Zipbond Ltd
890
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 19: MATERIAL CONTRACTS
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2.3 RESTRUCTURING UNDERTAKING AGREEMENT DATED 13 SEPTEMBER 2002 BETWEEN CORP,
PLC AND BARCLAYS, AS AMENDED*.
Under this restructuring undertaking agreement, Barclays has agreed to
support the Restructuring through the Schemes and to exercise all votes
which it is entitled to exercise in its capacity as a Syndicate Bank,
bilateral lender to Corp, beneficiary of a Corp guarantee or an ESOP
Derivative Bank in favour of the Restructuring and the Schemes. The
agreement terminates automatically on the occurrence of one of the
relevant events set out therein, including that: (a) the Effective Date
for the Corp Scheme has not occurred on or before 31 December 2003; (b) an
enforcement event occurs under the interim security (unless the Corp
scheme will nevertheless proceed); or (c) a demand is made by the agent
for the repayment of the Bank Facility. Barclays may terminate its
obligations under the agreement if, among other things: (i) Corp or plc
materially breaches any representation, warranty or covenant in the
agreement; (ii) at the Creditors Meeting for the Corp Scheme, the
requisite approval for the Corp Scheme is not obtained; or (iii) the Court
sanction for the Corp Scheme is not obtained.
2.4 RESTRUCTURING UNDERTAKING AGREEMENT DATED 26 MARCH 2003 BETWEEN CORP, PLC
AND UBS AG ("UBS")*.
Under this restructuring undertaking agreement, UBS has agreed to exercise
in favour of the Schemes, at the Scheme Meetings, all votes which it is
entitled to exercise in its capacity as a Syndicate Bank, a bilateral
lender to Corp, a beneficiary of a Corp guarantee or an ESOP Derivative
Bank in respect of such claims as it holds as at the date of that
agreement and which it continues to hold at such time as any vote is
required of it, but only to the extent that such a vote is reasonably
necessary for implementing the Schemes and the Restructuring. The voting
undertaking shall not apply if UBS is entitled to vote at any Creditors
Meeting in respect of any Bonds it may hold and such vote cannot be cast
separately (including by means of a separate creditor vote or a split
vote) from its vote or votes cast in respect of the above mentioned
claims.
In addition, the agreement terminates on the occurrence of one of the
relevant events set out in the ESOP Settlement Agreement, including: (a)
the release of Funding Letters (as described in Part I, Section 2, Part
D.2) in certain circumstances; (b) the enforcement of the interim
security; (c) the Corp Scheme not obtaining the requisite approval at the
Corp Scheme Meeting; (d) the Court sanction for the Corp Scheme not being
obtained; (e) a demand being made by the agent for the repayment of the
Bank Facility; (f) an insolvency event occurring in relation to Corp or,
subject to certain limitations, plc; or (g) the Effective Date for the
Corp Scheme not occurring on or before 31 December 2003.
2.5 RESTRUCTURING UNDERTAKING AGREEMENT DATED 26 MARCH 2003 BETWEEN CORP,
PLC, CITIBANK, N.A. ("CITIBANK") AND SBIL*.
Under this restructuring undertaking agreement, Citibank has agreed to
exercise in favour of the Schemes, at the Scheme Meetings, all votes which
it is entitled to exercise in its capacity as a Syndicate Bank, a
bilateral lender to Corp or a beneficiary of a Corp guarantee in respect
of such claims as it holds as at the date of that agreement and which it
continues to hold at such time as any vote is required of it, but only to
the extent that such a vote is reasonably necessary for implementing the
Schemes and the Restructuring.
The agreement terminates on the occurrence of one of the relevant events
set out in the ESOP Settlement Agreement, including: (a) the release of
Funding Letters (as described in Part I, Section 2, Part D.2) in certain
circumstances; (b) the enforcement of the interim security; (c) the Corp
Scheme not obtaining the requisite approval at the Corp Scheme Meeting;
(d) the Court sanction for the Corp Scheme not being obtained; (e) a
demand being made by the agent for the repayment of the Bank Facility; (f)
an insolvency event occurring in relation to Corp or, subject to certain
limitations, plc; (g) the Effective Date for the Corp Scheme not occurring
on or before 31 December 2003.
2.6 DEED POLL
The deed poll requires that in the event any creditor, who has the benefit
of a guarantee from plc in respect of his claim against Corp, is required
to give credit to plc in a liquidation for any recoveries made
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under the Corp Scheme, plc will pay a further sum equal to the amount of
the distribution received. More details are set out in part I, Section 2,
Part D.3.
2.7 DEED OF NOVATION DATED 26 MARCH 2003 BETWEEN CORP, PLC AND BAE.*
Under this deed, all obligations under the BAE Merger Agreements will be
novated to Corp with effect from the Effective Date of the Corp Scheme. In
addition, plc, Corp and BAE have agreed that no amount should be paid by
plc or Corp to BAE in relation to certain claims made by the parties under
the BAE Merger Agreement and that Corp will reduce any amounts which may
be payable to it in the future by BAE under the BAE Merger Agreements by
US$18,600,000.
Further details are set out in paragraph (d) of Appendix 18.
2.8 NOVATION AGREEMENT DATED 26 MARCH 2003 BETWEEN CORP, PLC AND LEMELSON
MEDICAL, EDUCATION AND RESEARCH FOUNDATION, LIMITED PARTNERSHIP (THE
"LEMELSON AGREEMENT")*
Under this novation, the Lemelson Agreement shall be novated from plc to
Corp. Further details are set out in paragraph (j) of Appendix 18.
2.9 DEED OF NOVATION AND AMENDMENT DATED 26 MARCH 2003 BETWEEN CORP, PLC AND
FINMECCANICA SPA ("FINMECCANICA")*
Pursuant to this deed, all obligations of plc under the share purchase
agreement dated 2 August 2002 between plc (as guarantor), Marconi (Bruton
Street) Limited (as vendor) and Finmeccanica (as purchaser) will be
novated to Corp with effect from the Effective Date of the Corp Scheme.
Further details are set out in paragraph (i) of Appendix 18.
2.10 SPONSORS' AGREEMENT DATED 31 MARCH 2003 BETWEEN CORP, PLC, LAZARD AND
MORGAN STANLEY*.
Under the Sponsors' Agreement, Lazard and Morgan Stanley have agreed to
act as joint Sponsors for Corp in connection with Listing of the New
Shares, the New Notes and the Warrants. Corp and plc have given Lazard and
Morgan Stanley certain representations and warranties regarding, inter
alia, the accuracy of information contained in this document and the
Prospectus. plc and Corp have also given certain indemnities in relation
to the Schemes and other indemnities on customary terms against certain
liabilities in connection with the accuracy of information contained in
this document and the Prospectus and certain other documents in connection
with Listing of the New Shares, the New Notes and the Warrants. The
agreement may be terminated prior to Listing of the New Shares, the New
Notes and the Warrants in certain circumstances, including where any
statement contained in the Prospectus or this document or any of the
representations and warranties in the agreement is or has become untrue,
incorrect or misleading in any material respect. Certain expenses relating
to the Listing of the New Shares, New Notes and the Warrants and the
Schemes are payable by Corp.
2.11 DEPOSIT AGREEMENT DATED ON OR AROUND 31 MARCH 2003 BETWEEN CORP, THE BANK
OF NEW YORK AS DEPOSITARY, AND OWNERS AND BENEFICIAL OWNERS OF AMERICAN
DEPOSITARY RECEIPTS.
This agreement governs the rights and obligations of Corp, The Bank of New
York, as depositary, and the owners and beneficial owners from time to
time of American Depositary Receipts issued in respect of ordinary shares
of Corp, as more fully described in Appendix 16.
2.12 ESCROW AND DISTRIBUTION AGREEMENT DATED 27 MARCH 2003 BETWEEN CORP, PLC,
THE ESCROW TRUSTEE, THE DISTRIBUTION AGENT, THE EUROBOND TRUSTEE,
ANCRANE, BONDHOLDER COMMUNICATIONS AND THE SUPERVISORS.
The form of the Escrow and Distribution Agreement is contained in Appendix
7.
3. ESOP ARRANGEMENTS
3.1 ESOP ESCROW AGREEMENT DATED 13 DECEMBER 2002 BETWEEN CORP, PLC, HSBC
INVESTMENT BANK PLC AND BARCLAYS*.
The ESOP Escrow Agreement implements the substantive provisions of the
ESOP Term Sheet concluded on 28 August 2002 and provides the basis on
which two escrow accounts may be funded and held
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pending agreement or determination of Barclays' claims (if any) against
certain operating subsidiaries of plc ("Opcos") in relation to certain
potential liabilities. Which escrow account is established will depend on
whether the Restructuring is successful or not. The ESOP Escrow Agreement:
(i) sets out the terms on which, upon the Corp Scheme becoming
effective, approximately L145 million will be held in escrow and
creates a framework for resolving Barclays' entitlement (if any)
to the balance of such cash;
(ii) provides for a number of detailed assumptions to assist a court
with such determination;
(iii) sets out the terms, if the Corp Scheme does not become effective,
on which a certain amount of cash will be paid into escrow in
accordance with the interim security arrangements and creates a
framework for resolving Barclays' entitlement (if any) to the
balance of such cash; and
(iv) provides for the release (on the Corp Scheme becoming effective)
of any claims that plc or Barclays may have against each of the
Opcos under certain funding letters entered into by the Opcos.
The terms of the ESOP Escrow Agreement dealing with the money to be held
in escrow upon the Corp Scheme becoming effective have been superseded by
the ESOP Settlement Agreement referred to below. In other respects, the
ESOP Escrow Agreement continues to apply.
3.2 LOAN FACILITY AGREEMENT BETWEEN CORP AND BEDELL CRISTIN TRUSTEES LIMITED
("BCTL") DATED 21 FEBRUARY 2001 (AS AMENDED)*.
Corp has set up a loan facility for BCTL; the current level of the
drawdown is approximately L215 million. BCTL is entitled to drawdown from
the facility only as and when collateral payments become due under equity
derivative transactions with Salomon Brothers International Limited
("SBIL") and UBS AG ("UBS"). The maximum collateral payments have now been
made. The loan is limited in recourse. BCTL will incur no liability to
repay the loan until its obligations to SBIL and UBS have been fully
discharged. BCTL's liabilities to Corp are further restricted to the
remaining assets of the trust fund (roughly L40,000). Accordingly there is
no likelihood that BCTL will be able to repay the loan.
3.3 AGREEMENT DATED 6 DECEMBER 2002 BETWEEN PLC, BEDELL CRISTIN TRUSTEES
LIMITED (AS TRUSTEES OF THE MARCONI EMPLOYEE TRUST) ("BCTL") AND UBS AG
("UBS") RELATED TO THE CLOSE-OUT OF THE EQUITY DERIVATIVE TRANSACTION
BETWEEN BCTL AND UBS+.
On 6 December 2002, BCTL, UBS and plc agreed to close out the equity
derivative transaction between BCTL and UBS (in respect of which plc
guaranteed BCTL's obligations). As a result of that close out the parties
agreed that a net termination amount of L11,230,249.68 is owed by BCTL to
UBS and that plc's liability under its guarantee is limited to that net
termination amount (plus interest). The net termination amount bears
interest at 5.01 per cent. per annum. With effect from 25 March 2003, the
net termination amount is payable on demand. However UBS's right to demand
payment is now limited by the standstill provisions in the ESOP Settlement
Agreement as described in part I, section 2, Part D.2.
3.4 ESOP SETTLEMENT AGREEMENT DATED 26 MARCH 2003 BETWEEN CORP, PLC, HSBC,
BARCLAYS, SBIL, UBS AG AND BEDELL CRISTIN TRUSTEES LIMITED.*
On 26 March 2003, Corp and plc reached agreement with the ESOP Derivative
Banks for a settlement of their ESOP derivative related claims against the
Group. Under the terms of the settlement, which is conditional upon the
Corp Scheme becoming effective, Corp will pay a total of L35 million to
the ESOP Derivative Banks in full and final settlement of their respective
ESOP related claims against the Group. A more detailed summary of the
terms of the ESOP settlement agreement is contained in part I, Section 2,
Part D.2.
4 WORKING CAPITAL AND PERFORMANCE BONDING FACILITIES
4.1 PERFORMANCE BONDING FACILITY DATED 27 MARCH 2003 RELATING TO A NEW L50
MILLION COMMITTED REVOLVING FACILITY BETWEEN MARCONI BONDING LIMITED
("MBL") (AS APPLICANT), CORP, HSBC
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BANK PLC (AS AGENT AND SECURITY TRUSTEE), THE ORIGINAL ISSUING BANKS NAMED
THEREIN, THE ORIGINAL BANKS NAMED THEREIN AND THE ORIGINAL INDEMNIFYING
SUBSIDIARIES NAMED THEREIN AND THE SECURITY OVER CASH AGREEMENT DATED 27
MARCH 2003 BETWEEN MBL AND HSBC.
The Performance Bonding Facility will be used for the issuance of bonds,
guarantees, letters of credit, indemnities or similar instruments
("Performance Bonds") at the request of MBL for the purpose of supporting
(directly or indirectly) obligations of members of the Group to third
parties for obligations incurred in the ordinary course of the Group's
trade or business. The purposes for which the Performance Bonding Facility
is available include supporting financing facilities which have been
provided to members of the Group for the purpose of supporting directly
obligations of members of the Group in the ordinary course of the Group's
trade or business (other than obligations in respect of financial
indebtedness). For example, this may be used in connection with supporting
a facility in a foreign currency where such foreign currency is not
available under the Performance Bonding Facility. See part I, Section 2,
Part D.4 for a more detailed description of the terms of the Performance
Bonding Facility. Under the Security Over Cash Agreement, MBL has granted,
in favour of HSBC (as security trustee), security over the accounts into
which cash collateral deposits will be made in respect of bonds issued
under the Performance Bonding Facility.
4.2 WORKING CAPITAL FACILITY DATED 26 MARCH 2003 RELATING TO A NEW US$22.5
MILLION REVOLVING CREDIT FACILITY BETWEEN MARCONI COMMUNICATIONS, INC.
("MCI") AS BORROWER AND LIBERTY FUNDING, L.L.C. ("LIBERTY"), AS LENDER.
Subject to customary exculpatory exceptions, MCI's obligations under the
Working Capital Facility will be limited recourse, and will be secured by
a first mortgage lien on MCI's real property and improvements, including
fixtures, located in Warrendale, Pennsylvania, USA. part I, Section 2,
Part D.4 contains a more detailed description of the terms of the Working
Capital Facility.
In addition to the loan agreement, the following documents have been
executed in relation to the Working Capital Facility:
(i) note dated 26 March 2003 between MCI as maker and Liberty, as payee
under which MCI promises to pay to the order of Liberty the
principal sum of $22,500,000, or the amount advanced under the loan
agreement, together with interest as set out in the loan agreement;
(ii) mortgage dated 26 March 2003 between MCI as mortgagor and Liberty
as mortgagee, which is an open-end mortgage on property in
Warrendale, Pennsylvania, securing future advances up to a maximum
principal amount of $22,500,000 plus other costs and expenses;
(iii) assignment of leases and rent dated 26 March 2003 between MCI as
assignor and Liberty as assignee, which serves as additional
security for the Working Capital Facility and the performance of
all of MCI's obligations under the loan agreement, note, mortgage
and all other documents evidencing or securing the Working Capital
Facility. MCI has agreed to assign to Liberty all of its rights
under all leases affecting the property, including all extensions,
renewals and modifications and subleases, together with all
guarantees of any tenant's or subtenant's performance; and
(iv) environmental indemnity dated 26 March 2003 between MCI and
Liberty, under which MCI agrees to provide Liberty with assurances,
agreements and indemnities regarding environmental matters, as a
material inducement for Liberty to make the loan.
4.3 COLLATERISATION OF SYNDICATE BANK EXISTING BOND EXPOSURES.
In order to be satisfied that, on a portfolio view, the L55 million
deposit which was permitted to be made into the Existing Performance Bond
Escrow Account by Corp would be an adequate reserve in respect of existing
performance bonds, Corp entered into arrangements with the Syndicate Bank
issuers of existing performance bonds. These arrangements, which are
described in more detail in part 1, Section 2, Part D.4, were evidenced by
letters from Corp to the banks named below which were countersigned by
those banks:
(i) letter dated 14 March 2003 from Corp to Australia and New Zealand
Banking Group Limited;
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(ii) letter dated 26 February 2003 from Corp to BNP Paribas;
(iii) letter dated 28 February 2003 from Corp to The HongKong and
Shanghai Banking Corporation Limited (UK);
(iv) letter dated 19 February 2003 from Corp to The HongKong and
Shanghai Banking Corporation Limited (Hong Kong);
(v) letter dated 14 February 2003 from Corp to Banca Monte dei Paschi
di Siena SpA;
(vi) letter dated 18 February 2003 from Corp to National Westminster
Bank plc; and
(vii) letter dated 18 March 2003 from Corp to Unicredit Banca d'Impresa.
5. CONTRACTS TO BE ENTERED INTO PURSUANT TO THE RESTRUCTURING
The following is a summary of the principal contents of each material
contract (not being entered into in the ordinary course of business) which
is expected to be entered into upon or subsequent to the implementation of
the Restructuring.
5.1 DEBT OFFERINGS
(a) INDENTURE TO BE DATED ON OR ABOUT THE ISSUE DATE RELATING TO THE
L450 MILLION EQUIVALENT OF NEW SENIOR NOTES DUE 2008 BETWEEN CORP, THE
GUARANTORS (AS DEFINED THEREIN AND AS SET FORTH IN APPENDIX 10), AND
LAW DEBENTURE TRUST COMPANY OF NEW YORK AS TRUSTEE.
The New Senior Notes will be issued in three series (if appropriate
currency elections are made) or in a single series (if they are not)
in an aggregate amount equivalent to L450 million (translated into
sterling using the Currency Rate). Corp will issue the New Senior
Notes as part of the Scheme Consideration. The New Senior Notes are
expected to be traded on the London Stock Exchange's market for listed
securities. The New Senior Notes bear interest payable quarterly in
arrears in cash at a rate of 8 per cent. per annum. The indenture
governing the New Senior Notes will provide for events of default and
restrictive covenants. The terms of the New Senior Notes and the
guarantees of the New Senior Notes are as set forth in Appendix 8.
The obligations of Corp under the New Senior Notes will be
unconditionally and irrevocably (subject to limitations imposed by
applicable law or arising by reason of directors' fiduciary duties or
other potential liabilities) guaranteed by each Guarantor (except Corp
and Marconi Communications Telemulti Ltda) pursuant to a Senior Note
Guarantee executed by each Guarantor pursuant to the indenture for the
New Senior Notes. The Issuer and the Guarantors will secure their
respective obligations under the New Senior Notes and the Guarantee
thereof under the Security Documents set out in Section 5.4 below.
(b) INDENTURE TO BE DATED ON OR ABOUT THE ISSUE DATE RELATING TO THE NEW
JUNIOR NOTES DUE 2008 BETWEEN CORP, THE GUARANTORS (AS DEFINED THEREIN
AND AS SET FORTH IN APPENDIX 10), AND JPMORGAN CHASE BANK AS TRUSTEE.
The New Junior Notes will be denominated in US dollars in an initial
maximum aggregate principal amount equal to US$300 million plus the US
dollar equivalent of L117.27 million (translated into sterling using
the Currency Rate). Corp will issue the New Junior Notes as part of
the Scheme Consideration. The New Junior Notes are expected to be
traded on the London Stock Exchange's market for listed securities.
The New Junior Notes bear interest payable quarterly in arrears in
cash at a rate of 10 per cent. per annum or, at Corp's option, in kind
at a rate of 12 per cent. per annum. The indenture governing the New
Junior Notes will provide for events of default and restrictive
covenants. The terms of the New Junior Notes and the guarantees of the
New Junior Notes are as set out in Appendix 8.
The obligations of Corp under the New Junior Notes will be
unconditionally and irrevocably (subject to limitations imposed by
applicable law or arising by reason of directors' fiduciary duties or
other potential liabilities) guaranteed by each Guarantor (except Corp
and Marconi
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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Communications Telemulti Ltda) pursuant to a Junior Note Guarantee
executed by each Guarantor pursuant to the indenture for the New
Junior Notes. The Issuer and the Guarantors will secure their
respective obligations under the New Junior Notes and the Guarantee
thereof under the Security Documents set out in Section 5.4 below.
5.2 EQUITY OFFERINGS
INSTRUMENT BY WAY OF DEED POLL TO BE DATED PRIOR TO THE EFFECTIVE DATE AND
TO BE EXECUTED BY CORP.
Pursuant to the Instrument by way of Deed Poll, Corp will create and issue
Warrants to the existing holders of plc Shares, entitling the holders of
the Warrants to subscribe for shares in aggregate equal to 5 per cent. of
Corp's issued share capital immediately post-Restructuring at a strike
price equivalent to a post-Restructuring market capitalisation of Corp of
L1.5 billion. The Warrants shall be issued in registered form and may be
held in certificated or uncertificated form. The Warrants will expire four
years after the Restructuring, if not exercised prior to that date. The
conditions of the Warrants, including adjustments to the strike price upon
the occurrence of certain events, are as more fully set out in Appendix
12.
5.3 GUARANTEES
Guarantees of the New Senior Notes, the New Junior Notes, the Performance
Bonding Facility to be dated on or before the Issue Date as noted below.
(a) Guarantee to be dated on or before the Issue Date relating to the
obligations of Corp under the New Senior Notes between inter alia
the Guarantors (except for Corp and Marconi Communications
Telemulti Ltda) and the Security Trustee.
(b) Guarantee to be dated on or before the Issue Date relating to the
obligations of Corp under the New Junior Notes between inter alia
the Guarantors (except for Corp and Marconi Communications
Telemulti Ltda) and the Security Trustee.
(c) Composite Guarantee to be dated on or before the Issue Date
relating to obligations under the Security Trust and Intercreditor
Deed, the Performance Bonding Facility and each of the Security
Documents between the Guarantors (except for Marconi Communications
Telemulti Ltda) and the Security Trustee.
5.4 SECURITY
SECURITY DOCUMENTS TO BE DATED ON OR BEFORE THE ISSUE DATE SECURING THE
NEW SENIOR NOTES, THE NEW JUNIOR NOTES AND THE PERFORMANCE BONDING
FACILITY AGREEMENT AS NOTED BELOW. A general description of security to be
granted for the New Notes and Performance Bonding Facility Agreement is
set out in Appendix 10. A brief description of each of the security
documents is set out below. The list of security documents set out below
may be amended, supplemented or reduced as is necessary to give effective
security over the assets described in Appendix 10 and in order to reflect
changes in the ownership of those assets prior to the Issue Date.
(a) Australian Security Documents
(i) FIXED AND FLOATING CHARGE DATED ON OR BEFORE THE ISSUE DATE
GRANTED BY MARCONI AUSTRALIA PTY LIMITED ("MAPL") IN FAVOUR
OF THE SECURITY TRUSTEE.
Under this charge and with respect to all present and future
assets of MAPL located in New South Wales, Victoria,
Tasmania, South Australia, Queensland and Western Australia,
MAPL grants a fixed charge over any freehold or leasehold
property interests, any goodwill, any uncalled or called but
unpaid capital of MAPL, any encumbrances over any real or
personal property or any guarantee, any document evidencing
a right to any real or personal property, all monetary
claims as a result of any claims in relation to any
insurance policy relating to real property, certain shares,
the designated account and any
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monetary claims in relation to any intellectual property rights
or intra-group loan contracts (but not the proceeds of any such
debt) and a floating charge over the balance of the relevant
assets. The fixed and floating charge will secure all amounts
owing by MAPL but the amount recoverable under the charge is
limited to the asset values in the relevant jurisdictions from
time to time subject to the Security Trustee increasing the
amount recoverable to reflect the asset values from time to
time.
(ii) FIXED AND FLOATING CHARGE DATED ON OR BEFORE THE ISSUE DATE
GRANTED BY MARCONI AUSTRALIA PTY LIMITED ("MAPL") IN FAVOUR OF
THE SECURITY TRUSTEE.
Under this charge and with respect to all present and future
assets of MAPL located in the Australian Capital Territory, the
Northern Territory and outside Australia, MAPL grants a fixed
charge over any freehold or leasehold property interests, any
goodwill, any uncalled or called but unpaid capital of MAPL,
any encumbrances over any real or personal property or any
guarantee, any document evidencing a right to any real or
personal property, all monetary claims as a result of any
claims in relation to any insurance policy relating to real
property, certain shares, the designated account and any
monetary claims in relation to any intellectual property rights
or intra-group loan contracts (but not the proceeds of any such
debt) and a floating charge over the balance of the relevant
assets. The fixed and floating charge will secure all amounts
owing by MAPL but the amount recoverable under the charge is
limited to the asset values in the relevant jurisdictions from
time to time subject to the Security Trustee increasing the
amount recoverable to reflect the asset values from time to
time.
(iii) FIXED AND FLOATING CHARGE DATED ON OR BEFORE THE ISSUE DATE
GRANTED BY MARCONI AUSTRALIA HOLDINGS PTY LIMITED ("MAHL") IN
FAVOUR OF THE SECURITY TRUSTEE.
Under this charge and with respect to all present and future
assets of MAHL located in New South Wales, Victoria, Tasmania,
South Australia, Queensland and Western Australia, MAHL grants
a fixed charge over any freehold or leasehold property
interests, any goodwill, any uncalled or called but unpaid
capital of MAHL, any encumbrances over any real or personal
property or any guarantee, any document evidencing a right to
any real or personal property, all monetary claims as a result
of any claims in relation to any insurance policy relating to
real property, certain shares, the designated account and any
monetary claims in relation to any intellectual property rights
or intra-group loan contracts (but not the proceeds of any such
debt) and a floating charge over the balance of the relevant
assets. The fixed and floating charge will secure all amounts
owing by MAHL but the amount recoverable under the charge is
limited to the asset values in the relevant jurisdictions from
time to time subject to the Security Trustee increasing the
amount recoverable to reflect the asset values from time to
time.
(iv) FIXED AND FLOATING CHARGE DATED ON OR BEFORE THE ISSUE DATE
GRANTED BY MARCONI AUSTRALIA HOLDINGS PTY LIMITED ("MAHL") IN
FAVOUR OF THE SECURITY TRUSTEE.
Under this charge and with respect to all present and future
assets of MAHL located in the Australian Capital Territory, the
Northern Territory and outside Australia, MAHL grants a fixed
charge over any freehold or leasehold property interests, any
goodwill, any uncalled or called but unpaid capital of MAHL,
any encumbrances over any real or personal property or any
guarantee, any document evidencing a right to any real or
personal property, all monetary claims as a result of any
claims in relation to any insurance policy relating to real
property, certain shares, the designated account and any
monetary claims in relation to any intellectual property rights
or intra-group loan contracts (but not the proceeds of any such
debt) and a floating charge over the balance of the relevant
assets. The fixed and floating charge will secure all amounts
owing by MAHL but the amount recoverable under the charge is
limited to the asset values in the relevant jurisdictions from
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time to time subject to the Security Trustee increasing the
amount recoverable to reflect the asset values from time to
time.
(v) SHARE MORTGAGE RELATING TO SHARES IN MARCONI AUSTRALIA HOLDINGS
PTY LIMITED DATED ON OR BEFORE THE ISSUE DATE BETWEEN ASSOCIATED
ELECTRICAL INDUSTRIES LIMITED, AS MORTGAGOR, AND THE SECURITY
TRUSTEE, AS MORTGAGEE.
(b) Brazilian Security Document
QUOTA PLEDGE AGREEMENT RELATING TO THE PLEDGE OF QUOTAS HELD BY MARCONI
COMMUNICATIONS INTERNATIONAL HOLDINGS LTD ("MCIHL") IN THE CAPITAL STOCK
OF MARCONI COMMUNICATIONS TELEMULTI LTDA ("TELEMULTI"), DATED ON OR BEFORE
THE ISSUE DATE BETWEEN MCIHL, AS PLEDGOR, MARCONI COMMUNICATIONS DO BRASIL
LTDA, AS QUOTAHOLDER AND CONSENTING PARTY, TELEMULTI, AS ACKNOWLEDGING
PARTY AND THE SECURITY TRUSTEE, THE SENIOR NOTE TRUSTEE, THE JUNIOR NOTE
TRUSTEE, THE NEW BONDING FACILITY AGENT, THE DEPOSITARY, THE PRINCIPAL
PAYING AGENT AND THE REGISTRAR, AS PLEDGEES.
Under this agreement, MCIHL grants a pledge over all the current quotas it
holds in the capital stock of Telemulti, a company incorporated in Brazil,
and also commits to pledge any additional quotas of Telemulti which may be
acquired by MCIHL, together with all options or rights of any nature
whatsoever that may be issued or granted by Telemulti, to MCIHL in the
future.
(c) Dutch Security Document
NOTARIAL DEED OF PLEDGE OF SHARES RELATING TO SHARES IN MARCONI
COMMUNICATIONS B.V. DATED ON OR BEFORE THE ISSUE DATE BETWEEN MARCONI
COMMUNICATIONS, INC., AS PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
(d) English Security Document
COMPOSITE DEBENTURE DATED ON OR BEFORE THE ISSUE DATE GRANTED BY THE
ISSUER AND ALL GUARANTORS REGISTERED IN ENGLAND AND WALES, IN FAVOUR OF
THE SECURITY TRUSTEE.
Under this debenture, the Issuer and each Guarantor registered in England
and Wales grants a fixed charge or legal mortgage (as applicable) over the
right, title, interest from time to time and related rights of such person
in specified real property, tangible moveable property, goodwill, the
uncalled capital of such person, certain shares, all monetary claims
relating to Intellectual Property and the proceeds of any insurance policy
relating to secured real property. The Issuer and these Guarantors will
also assign their right, title and interest in all rights and claims
relating to specified escrow accounts and specified intra-group loan
contracts. A floating charge will also be granted by the Issuer and these
Guarantors over the whole of their undertakings and assets, present or
future, other than those validly and effectively charged or assigned by
way of fixed security; however this floating charge over any accounts held
by the Issuer and these Guarantors shall not restrict the ability of these
persons to create any security which secures obligations under or in
respect of the Interim Bonding Facility Letter, the Performance Bonding
Facility Agreement, the Existing Performance Bonds and any other bonding
facility, as a result of the provision of cash collateral. For tax reasons
property located in any Australian State or Territory may be excluded from
the composite debenture or secured under a separate security instrument.
(e) German Security Documents
(i) SHARE PLEDGE AGREEMENT (VERPFANDUNG VON GESELLSCHAFTSANTEILEN)
RELATING TO SHARES IN MARCONI COMMUNICATIONS REAL ESTATE GMBH DATED
ON OR BEFORE THE ISSUE DATE BETWEEN MARCONI COMMUNICATIONS HOLDINGS
GMBH, AS PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
(ii) SHARE PLEDGE AGREEMENT (VERPFANDUNG VON GESELLSCHAFTSANTEILEN)
RELATING TO SHARES IN MARCONI COMMUNICATIONS GMBH DATED ON OR BEFORE
THE ISSUE DATE BETWEEN MARCONI COMMUNICATIONS HOLDINGS GMBH, AS
PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
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(iii) SHARE PLEDGE AGREEMENT (VERPFANDUNG VON GESELLSCHAFTSANTEILEN)
RELATING TO SHARES IN MARCONI COMMUNICATIONS HOLDINGS GMBH DATED ON
OR BEFORE THE ISSUE DATE BETWEEN MARCONI COMMUNICATIONS
INTERNATIONAL HOLDINGS LTD., AS PLEDGOR, AND THE SECURITY TRUSTEE,
AS PLEDGEE.
(iv) SHARE PLEDGE AGREEMENT (VERPFANDUNG VON GESELLSCHAFTSANTEILEN)
RELATING TO SHARES IN MARCONI COMMUNICATIONS ONDATA GMBH DATED ON
OR BEFORE THE ISSUE DATE BETWEEN MARCONI COMMUNICATIONS HOLDINGS
GMBH, AS PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
(v) SHARE PLEDGE AGREEMENT (VERPFANDUNG VON GESELLSCHAFTSANTEILEN)
RELATING TO SHARES IN MARCONI COMMUNICATIONS SOFTWARE SYSTEMS
VERWALTUNGSGESELLSCHAFT MBH DATED ON OR BEFORE THE ISSUE DATE
BETWEEN MARCONI COMMUNICATIONS GMBH, AS PLEDGOR, AND THE SECURITY
TRUSTEE, AS PLEDGEE.
(vi) ACCOUNT PLEDGE AGREEMENT (KONTOVERPFANDUNG) DATED ON OR BEFORE THE
ISSUE DATE BETWEEN MARCONI COMMUNICATIONS REAL ESTATE GMBH, AS
PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
Under this agreement, the pledgor pledges to the pledgee all
present and future credit balances, including all interest payable
from time to time standing to the credit on certain bank accounts
(including any sub-account, renewal, redesignation, or replacement
thereof).
(vii) ACCOUNT PLEDGE AGREEMENT (KONTOVERPFANDUNG) DATED ON OR BEFORE THE
ISSUE DATE BETWEEN MARCONI COMMUNICATIONS HOLDINGS GMBH, AS
PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
Under this agreement, the pledgor pledges to the pledgee all
present and future credit balances, including all interest payable
from time to time standing to the credit on certain bank accounts
(including any sub-account, renewal, redesignation or replacement
thereof).
(viii) ACCOUNT PLEDGE AGREEMENT (KONTOVERPFANDUNG) DATED ON OR BEFORE THE
ISSUE DATE BETWEEN MARCONI COMMUNICATIONS GMBH, AS PLEDGOR, AND THE
SECURITY TRUSTEE, AS PLEDGEE.
Under this agreement, the pledgor pledges to the pledgee all
present and future credit balances, including all interest payable
from time to time standing to the credit on certain bank accounts
(including any sub-account, renewal, redesignation or replacement
thereof).
(ix) LIMITED PARTNER'S INTEREST PLEDGE AGREEMENT (VERPFANDUNG VON
KOMMANDITANTEILEN) DATED ON OR BEFORE THE ISSUE DATE BETWEEN
MARCONI COMMUNICATIONS GMBH, AS PLEDGOR, AND THE SECURITY TRUSTEE,
AS PLEDGEE.
Under this agreement, the existing and future limited partner's
interest in the capital of Marconi Communications Software Systems
GmbH & Co KG, together with all ancillary rights and claims will be
pledged. These include, but are not limited to, the present and
future rights to receive profits payable in relation to these
interests, liquidation proceeds, redemption proceeds, repaid
capital in case of a capital decrease, any compensation in case of
termination (Kundigung) and/or withdrawal of a partner of Marconi
Communications Software Systems GmbH & Co KG, the surplus in case
of surrender, any claim to a distribution quote and all other
pecuniary claims associated with these interests, as well as all
other rights and benefits attributable to these interests.
(x) SECURITY TRANSFER AGREEMENT (SICHERUNGSUBEREIGNUNG) DATED ON OR
BEFORE THE ISSUE DATE BETWEEN MARCONI COMMUNICATIONS GMBH, AS
TRANSFEROR, AND THE SECURITY TRUSTEE, AS TRANSFEREE.
Under this agreement, title to all current assets (Umlaufvermogen)
(including, but not limited to, the entire stock (Warenbestand))
and all fixed assets (Anlagevermogen) which are located at
specified premises or which will be located at these specified
premises from time to time in the future, will be transferred to
the Security Trustee.
(xi) GLOBAL ASSIGNMENT AGREEMENT (GLOBALABTRETUNG) DATED ON OR BEFORE
THE ISSUE DATE BETWEEN MARCONI COMMUNICATIONS GMBH, AS ASSIGNOR,
AND THE SECURITY TRUSTEE, AS ASSIGNEE.
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Under this agreement, subject to consent requirements, if any,
receivables (together with all securities, collateral and ancillary
rights) being all present and future rights and claims owing to the
assignor and originating from selling goods and/or providing
services (Lieferungen und Leistungen) and all present and future
rights and claims to which the assignor is now or may become
entitled to in respect of all present and future insurance
contracts or any part thereof, will be assigned to the Security
Trustee. In the event that the assignor maintains a current account
management with its customers (Kontokorrentverhaltnis), the
assignment includes all claims from any existing or future current
account balances, the right to determine the net balance and the
right to terminate the current account relationship.
(xii) SECURITY TRANSFER AND ASSIGNMENT AGREEMENT (SICHERUNGSUBEREIGNUNG
UND - ABTRETUNG) DATED ON OR BEFORE THE ISSUE DATE BETWEEN MARCONI
COMMUNICATIONS GMBH, AS TRANSFEROR, AND THE SECURITY TRUSTEE, AS
TRANSFEREE.
Under this agreement, subject to consent requirements, if any,
know-how, utility models, patents, registered designs, trademarks,
inbound licences of third parties and the unlimited, unrestricted,
exclusive right to use any copyrights will be assigned to the
Security Trustee to the extent legally possible.
(xiii) SHAREHOLDER LOAN ASSIGNMENT AGREEMENT (ABTRETUNG VON
GESELLSCHAFTSDARLEHEN) RELATING TO ALL PRESENT AND FUTURE RIGHTS
AND CLAIMS OWING TO THE ASSIGNOR ORIGINATING FROM SHAREHOLDER LOANS
THE AGGREGATE OF WHICH EXCEED L20 MILLION DATED ON OR BEFORE THE
ISSUE DATE BETWEEN MARCONI COMMUNICATIONS HOLDINGS GMBH, AS
ASSIGNOR, AND THE SECURITY TRUSTEE, AS ASSIGNEE.
Under this agreement, all present and future rights and claims
owing to the assignor and originating from certain shareholder
loans will be assigned to the Security Trustee for itself and as
trustee on behalf of the Secured Creditors.
(xiv) SHAREHOLDER LOAN ASSIGNMENT AGREEMENT (ABTRETUNG VON
GESELLSCHAFTSDARLEHEN) RELATING TO ALL PRESENT AND FUTURE RIGHTS
AND CLAIMS OWING TO THE ASSIGNOR ORIGINATING FROM SHAREHOLDER LOANS
THE AGGREGATE OF WHICH EXCEED L20 MILLION DATED ON OR BEFORE THE
ISSUE DATE BETWEEN MARCONI COMMUNICATIONS GMBH, AS ASSIGNOR, AND
THE SECURITY TRUSTEE, AS ASSIGNEE.
Under this agreement, all present and future rights and claims
owing to the assignor and originating from certain shareholder
loans will be assigned to the Security Trustee for itself and as
trustee on behalf of the Secured Creditors.
(xv) SHAREHOLDER LOAN ASSIGNMENT AGREEMENT (ABTRETUNG VON
GESELLSCHAFTSDARLEHEN) RELATING TO ALL PRESENT AND FUTURE RIGHTS
AND CLAIMS OWING TO THE ASSIGNOR ORIGINATING FROM SHAREHOLDER LOANS
THE AGGREGATE OF WHICH EXCEED L20 MILLION DATED ON OR BEFORE THE
ISSUE DATE BETWEEN MARCONI COMMUNICATIONS REAL ESTATE GMBH, AS
ASSIGNOR, AND THE SECURITY TRUSTEE, AS ASSIGNEE.
Under this agreement, all present and future rights and claims
owing to the assignor and originating from certain shareholder
loans will be assigned to the Security Trustee for itself and as
trustee on behalf of the Secured Creditors.
(f) Guernsey Security Document
SECURITY INTEREST AGREEMENT RELATING TO SHARES IN BRUTON STREET OVERSEAS
INVESTMENTS LIMITED DATED ON OR BEFORE THE ISSUE DATE BETWEEN CORP AND THE
SECURITY TRUSTEE.
(g) Hong Kong Security Documents
(i) COMPOSITE DEBENTURE GRANTED BY MARCONI COMMUNICATIONS ASIA LIMITED
("MCAL") IN FAVOUR OF THE SECURITY TRUSTEE DATED ON OR BEFORE THE
ISSUE DATE.
Under this debenture, MCAL grants a first fixed charge over
tangible moveable property (excluding any for the time being
forming part of its stock in trade or work in progress), goodwill,
rights in relation to its uncalled share capital, monetary claims
relating to Intellectual Property and existing
900
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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real property insurance (if any), certain intra-group shares (if
any), dividends, interests and other monies payable in respect of
those shares and grants an assignment of all rights, title and
interests in contracts in respect of intra-group loans. A floating
charge is granted over its remaining assets (subject to certain
limitations).
(ii) COMPOSITE DEBENTURE DATED ON OR BEFORE THE ISSUE DATE GRANTED BY
G.E.C. (HONG KONG) LIMITED IN FAVOUR OF THE SECURITY TRUSTEE.
Under this debenture, G.E.C. (Hong Kong) Limited grants a first
fixed charge over tangible moveable property (excluding any for the
time being forming part of its stock in trade or work in progress),
goodwill, rights in relation to its uncalled share capital, monetary
claims relating to Intellectual Property and existing real property
insurance (if any), certain intra-group shares (if any), dividends,
interests and other monies payable in respect of those shares and
grants an assignment of all rights, title and interests in contracts
in respect of intra-group loans. A floating charge is granted over
its remaining assets (subject to certain limitations).
(iii) SHARES CHARGE RELATING TO SHARES IN MARCONI COMMUNICATIONS ASIA
LIMITED DATED ON OR BEFORE THE ISSUE DATE BETWEEN MARCONI
COMMUNICATIONS INTERNATIONAL HOLDINGS LIMITED, AS CHARGOR, AND THE
SECURITY TRUSTEE.
(iv) SHARES CHARGE RELATING TO SHARES IN G.E.C. (HONG KONG) LIMITED DATED
ON OR BEFORE THE ISSUE DATE BETWEEN CORP, AS CHARGOR, AND THE
SECURITY TRUSTEE.
(h) Irish Security Documents
(i) COMPOSITE MORTGAGE DEBENTURE DATED ON OR BEFORE THE ISSUE DATE
GRANTED BY MARCONI COMMUNICATIONS LIMITED AND MARCONI COMMUNICATIONS
OPTICAL NETWORKS LIMITED IN FAVOUR OF THE SECURITY TRUSTEE.
Under this debenture, specified freehold and leasehold property,
together with any future estate or interest in such property, is to
be granted, conveyed, demised, or charged, as applicable, and all
title and interest in certain contracts, monetary claims resulting
from claims relating to Intellectual Property or insurances relating
to secured real property, ancillary covenants and compensation
rights are to be assigned. A fixed charge is also to be granted over
specified property which has a yearly or lesser tenancy interest,
any future estate or interest which may be acquired in certain
property, any other property not specified in the Composite Mortgage
Debenture, plant and machinery, all monetary claims other than any
claims which are otherwise subject to an assignment pursuant to the
Composite Mortgage Debenture, present and future goodwill and
present and future uncalled capital. A floating charge is granted
over all its undertaking, property and assets not subject to any
legal mortgage, security assignment or fixed charge created by the
Composite Mortgage Debenture.
(ii) MEMORANDUM OF DEPOSIT OF SHARES AS SECURITY RELATING TO SHARES IN
MARCONI COMMUNICATIONS OPTICAL NETWORKS LIMITED DATED ON OR BEFORE
THE ISSUE DATE BETWEEN MARCONI COMMUNICATIONS, INC. AND THE SECURITY
TRUSTEE.
(iii) MEMORANDUM OF DEPOSIT OF SHARES AS SECURITY RELATING TO SHARES IN
MARCONI COMMUNICATIONS OPTICAL NETWORKS LIMITED DATED ON OR BEFORE
THE ISSUE DATE BETWEEN MARCONI NETWORKS WORLDWIDE, INC. AND THE
SECURITY TRUSTEE.
(iv) MEMORANDUM OF DEPOSIT OF SHARES AS SECURITY RELATING TO SHARES IN
MARCONI COMMUNICATIONS LIMITED DATED ON OR BEFORE THE ISSUE DATE
BETWEEN MARCONI COMMUNICATIONS GMBH AND THE SECURITY TRUSTEE.
(i) Italian Security Documents
(i) PLEDGE OVER SHARES OF MARCONI COMMUNICATIONS S.P.A. DATED ON OR
BEFORE THE ISSUE DATE BETWEEN MARCONI HOLDINGS S.P.A., AS PLEDGOR,
AND THE SECURITY TRUSTEE, AS PLEDGEE.
901
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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(ii) PLEDGE OVER SHARES OF MARCONI HOLDINGS S.P.A. DATED ON OR BEFORE
THE ISSUE DATE BETWEEN MARCONI BRUTON STREET LIMITED, AS PLEDGOR,
AND THE SECURITY TRUSTEE, AS PLEDGEE.
(iii) PLEDGE OVER SHARES OF MARCONI MOBILE ACCESS S.P.A., DATED ON OR
BEFORE THE ISSUE DATE BETWEEN MARCONI HOLDINGS S.P.A., AS PLEDGOR,
AND THE SECURITY TRUSTEE, AS PLEDGEE.
(iv) PLEDGE OVER SHARES OF MARCONI INTERNATIONAL S.P.A. DATED ON OR
BEFORE THE ISSUE DATE BETWEEN MARCONI COMMUNICATIONS S.P.A. AND
MARCONI SUD S.P.A., AS PLEDGORS, AND THE SECURITY TRUSTEE, AS
PLEDGEE.
(v) PLEDGE OVER SHARES OF MARCONI SUD S.P.A., DATED ON OR BEFORE THE
ISSUE DATE BETWEEN MARCONI COMMUNICATIONS S.P.A., AS PLEDGOR, AND
THE SECURITY TRUSTEE, AS PLEDGEE.
(vi) PLEDGE OVER THE CLAIMS OF MARCONI COMMUNICATIONS S.P.A. DATED ON OR
BEFORE THE ISSUE DATE BETWEEN MARCONI COMMUNICATIONS S.P.A., AS
PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
Under this agreement, the pledgor grants in pledge to the Security
Trustee certain existing claims and undertakes to grant in pledge
certain future claims in relation to customers connected with the
supply of commercial products or services, and the possible sale of
the real property referred to under (xiv) and all inter-company
loans once such inter-company loans in aggregate exceed the
materiality threshold.
(vii) PLEDGE OVER THE CLAIMS OF MARCONI SUD S.P.A. DATED ON OR BEFORE THE
ISSUE DATE BETWEEN MARCONI SUD S.P.A., AS PLEDGOR, AND THE SECURITY
TRUSTEE, AS PLEDGEE.
Under this agreement, the pledgor grants in pledge to the Security
Trustee certain existing claims and undertakes to grant in pledge
certain future claims in relation to customers connected with the
supply of commercial products or services, and all inter-company
loans once such inter-company loans in aggregate exceed the
materiality threshold.
(viii) UNDERTAKING FOR THE CREATION OF A PLEDGE OVER THE FUTURE CLAIMS OF
MARCONI HOLDINGS S.P.A. DATED ON OR BEFORE THE ISSUE DATE BETWEEN
MARCONI HOLDINGS S.P.A., AS PLEDGOR, AND THE SECURITY TRUSTEE, AS
PLEDGEE.
Under this agreement, the pledgor undertakes to grant in pledge to
the Security Trustee any future claim, in relation to any party,
that falls within the materiality threshold.
(ix) PLEDGE OVER THE CURRENT ACCOUNTS OF MARCONI COMMUNICATIONS S.P.A.
DATED ON OR ABOUT THE ISSUE DATE BETWEEN MARCONI COMMUNICATIONS
S.P.A., AS PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
Under this agreement, the pledgor grants in pledge to the Security
Trustee: (i) all of its rights on the bank current accounts held in
Italy; (ii) all the sums from time to time credited on the current
accounts, including any future payments made by third parties or by
order of the pledgor on such accounts; and (iii) its claims for
restitution of the balance from time to time existing on the bank
accounts.
(x) PLEDGE OVER THE CURRENT ACCOUNTS OF MARCONI HOLDINGS S.P.A. DATED
ON OR BEFORE THE ISSUE DATE BETWEEN MARCONI HOLDINGS S.P.A., AS
PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
Under this agreement, the pledgor grants in pledge to the Security
Trustee: (i) all of its rights on the bank current accounts held in
Italy; (ii) all the sums from time to time credited on the current
accounts, including any future payments made by third parties or by
order of the pledgor on such accounts; and (iii) its claims for
restitution of the balance from time to time existing on the bank
accounts.
(xi) PLEDGE OVER THE CURRENT ACCOUNTS OF MARCONI SUD S.P.A. DATED ON OR
BEFORE THE ISSUE DATE BETWEEN MARCONI SUD S.P.A., AS PLEDGOR, AND
THE SECURITY TRUSTEE, AS PLEDGEE.
Under this agreement, the pledgor grants in pledge to the Security
Trustee: (i) all of its rights on the bank current accounts held in
Italy; (ii) all the sums from time to time credited on the current
902
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 19: MATERIAL CONTRACTS
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accounts, including any future payments made by third parties or by
order of the pledgor on such accounts; and (iii) its claims for
restitution of the balance from time to time existing on the bank
accounts.
(xii) TO THE EXTENT PERMITTED BY LAW, MORTGAGE OVER REAL PROPERTY LOCATED
IN MARCIANISE (CASERTA) DATED ON OR BEFORE THE ISSUE DATE BETWEEN
MARCONI SUD S.P.A., AS GRANTOR, AND THE SECURITY TRUSTEE, JUNIOR
NOTE TRUSTEE AND SENIOR NOTE TRUSTEE IN THEIR CAPACITY AS SECURED
CREDITORS, AS MORTGAGEE.
(xiii) TO THE EXTENT PERMITTED BY LAW, MORTGAGE OVER REAL PROPERTY LOCATED
IN GENOVA DATED ON OR BEFORE THE ISSUE DATE BETWEEN MARCONI
COMMUNICATIONS S.P.A., AS GRANTOR, AND THE SECURITY TRUSTEE, JUNIOR
NOTE TRUSTEE AND SENIOR NOTE TRUSTEE IN THEIR CAPACITY AS SECURED
CREDITORS, AS MORTGAGEE.
(xiv) TO THE EXTENT MARCONI COMMUNICATIONS S.P.A. RETAINS OWNERSHIP OF
THE PROPERTY, PRELIMINARY MORTGAGE OVER THE REAL PROPERTY LOCATED
IN ROME DATED ON OR BEFORE THE ISSUE DATE BETWEEN MARCONI
COMMUNICATIONS S.P.A., AS GRANTOR, AND THE SECURITY TRUSTEE, JUNIOR
NOTE TRUSTEE AND SENIOR NOTE TRUSTEE IN THEIR CAPACITY AS SECURED
CREDITORS, AS MORTGAGEE.
(j) Mexican Security Document
SHARE PLEDGE AGREEMENT RELATING TO SHARES IN EACH OF MARCONI
COMMUNICATIONS, S.A. DE C.V., MARCONI COMMUNICATIONS DE MEXICO, S.A. DE
C.V., MARCONI COMMUNICATIONS EXPORTEL, S.A. DE C.V. AND ADMINISTRATIVA
MARCONI COMMUNICATIONS, S.A. DE C.V. DATED ON OR BEFORE THE ISSUE DATE
BETWEEN EACH OF MARCONI COMMUNICATIONS, INC., MARCONI COMMUNICATIONS, S.A.
DE C.V. AND MARCONI NETWORKS WORLDWIDE, INC., AS PLEDGORS, AND THE SECURITY
TRUSTEE, AS PLEDGEE.
(k) Swiss Security Document
SHARE PLEDGE AGREEMENT RELATING TO SHARES IN MARCONI COMMUNICATIONS GMBH
DATED ON OR BEFORE THE ISSUE DATE BETWEEN MARCONI COMMUNICATIONS B.V., AS
PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
(l) US Security Documents
The companies referred to below are Delaware corporations unless otherwise
indicated.
(i) SHARE PLEDGE AGREEMENT RELATING TO SHARES IN MARCONI
COMMUNICATIONS, INC. DATED ON OR BEFORE THE ISSUE DATE BETWEEN FS
HOLDINGS CORP., AS PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
(ii) SHARE PLEDGE AGREEMENT RELATING TO SHARES IN MARCONI
COMMUNICATIONS TECHNOLOGY, INC. MARCONI COMMUNICATIONS FEDERAL,
INC., MARCONI ACQUISITION CORP., MARCONI COMMUNICATIONS C.A., INC.,
GNOME INC., NEMESYS HOLDING COMPANY, ALANTEC INTERNATIONAL, INC.
(CALIFORNIA), CUSTOM TELECOM CONTRACTORS, INC. (MISSOURI), MARCONI
NETWORKS WORLDWIDE, INC. AND MARCONI INTELLECTUAL PROPERTY
(RINGFENCE) INC. DATED ON OR BEFORE THE ISSUE DATE BETWEEN MARCONI
COMMUNICATIONS, INC., AS PLEDGOR, AND THE SECURITY TRUSTEE, AS
PLEDGEE.
(iii) SHARE PLEDGE AGREEMENT RELATING TO SHARES IN MARCONI ONLINE
SYSTEMS, INC., DATED ON OR BEFORE THE ISSUE DATE BETWEEN MARCONI
COMMUNICATIONS HOLDINGS, INC., AS PLEDGOR, AND THE SECURITY
TRUSTEE, AS PLEDGEE.
(iv) SHARE PLEDGE AGREEMENT RELATING TO SHARES IN MARCONI
COMMUNICATIONS HOLDINGS, INC., DATED ON OR BEFORE THE ISSUE DATE
BETWEEN MARCONI COMMUNICATIONS NORTH AMERICA INC., AS PLEDGOR, AND
THE SECURITY TRUSTEE, AS PLEDGEE.
(v) SHARE PLEDGE AGREEMENT RELATING TO SHARES IN MARCONI HCIS INC.,
MARCONI SYSTEMS INC., MARCONI CAPITAL INC., MARCONI ELECTRONIC
SYSTEMS HOLDINGS INC., GREENSBORO ASSOCIATES
903
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APPENDIX 19: MATERIAL CONTRACTS
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INC., REFAC MARKETING SERVICES, INC. (PENNSYLVANIA), LMF HOLDINGS
INCORPORATED, MARCONI COMMUNICATIONS RADIO SYSTEMS, INC., NI
HOLDINGS INCORPORATED, MARCONI COMMUNICATIONS NORTH AMERICA INC.,
MARCONI INTELLECTUAL PROPERTY (US) INC. DATED ON OR BEFORE THE
ISSUE DATE BETWEEN MARCONI INC., AS PLEDGOR, AND THE SECURITY
TRUSTEE, AS PLEDGEE.
(vi) SHARE PLEDGE AGREEMENT RELATING TO SHARES IN FS HOLDINGS CORP.
DATED ON OR BEFORE THE ISSUE DATE BETWEEN FS FINANCE CORP., AS
PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
(vii) SHARE PLEDGE AGREEMENT RELATING TO SHARES IN MARCONI SOFTWARE
INTERNATIONAL, INC., DATED ON OR BEFORE THE ISSUE DATE BETWEEN
CORP, AS PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
(viii) SHARE PLEDGE AGREEMENT RELATING TO SHARES IN METAPATH SOFTWARE
INTERNATIONAL (US), INC. DATED ON OR BEFORE THE ISSUE DATE
BETWEEN METAPATH SOFTWARE INTERNATIONAL, INC., AS PLEDGOR, AND
THE SECURITY TRUSTEE, AS PLEDGEE.
(ix) SHARE PLEDGE AGREEMENT RELATING TO SHARES IN METAPATH SOFTWARE
INTERNATIONAL, INC. DATED ON OR BEFORE THE ISSUE DATE BETWEEN
MARCONI SOFTWARE INTERNATIONAL, INC., AS PLEDGOR, AND THE
SECURITY TRUSTEE, AS PLEDGEE.
(x) SHARE PLEDGE AGREEMENT RELATING TO SHARES IN FS FINANCE CORP.
DATED ON OR BEFORE THE ISSUE DATE BETWEEN MARCONI COMMUNICATIONS
NORTH AMERICA INC., AS PLEDGOR, AND THE SECURITY TRUSTEE, AS
PLEDGEE.
(xi) SHARE PLEDGE AGREEMENT RELATING TO SHARES IN FS HOLDINGS CORP.
DATED ON OR BEFORE THE ISSUE DATE BETWEEN BRUTON STREET OVERSEAS
INVESTMENT LIMITED, AS PLEDGOR, AND THE SECURITY TRUSTEE, AS
PLEDGEE.
(xii) SHARE PLEDGE AGREEMENT RELATING TO SHARES IN MARCONI INC. DATED
ON OR BEFORE THE ISSUE DATE BETWEEN BRUTON STREET PARTNERSHIP, AS
PLEDGOR, AND THE SECURITY TRUSTEE, AS PLEDGEE.
(xiii) PLEDGE AGREEMENT RELATING TO THE INTERESTS IN BRUTON STREET
PARTNERSHIP DATED ON OR BEFORE THE ISSUE DATE BETWEEN MARCONI
(DGP1) LIMITED AND MARCONI (DGP2) LIMITED, AS PLEDGORS, AND THE
SECURITY TRUSTEE, AS PLEDGEE.
(xiv) DEPOSIT ACCOUNT CONTROL AGREEMENT DATED ON OR BEFORE THE ISSUE
DATE BETWEEN MARCONI COMMUNICATIONS, INC., AS PLEDGOR, THE
SECURITY TRUSTEE, AS PLEDGEE AND J.P. MORGAN CHASE & CO., AS
DEPOSITARY.
Under this agreement, Marconi Communications, Inc. grants
exclusive control of specified accounts to the Security Trustee.
The depository will accept instructions on the account from the
pledgor until the secured party delivers notice that it is
exercising exclusive control. The secured party will not deliver
such notice until the occurrence of certain events. The
agreement does not cover accounts specially and exclusively used
for payroll, payroll taxes and other employee wage and benefit
payments.
(xv) DEPOSIT ACCOUNT CONTROL AGREEMENT DATED ON OR BEFORE THE ISSUE
DATE BETWEEN MARCONI COMMUNICATIONS TECHNOLOGY, INC., AS PLEDGOR,
THE SECURITY TRUSTEE, AS PLEDGEE AND J.P. MORGAN CHASE & CO., AS
DEPOSITARY.
Under this agreement, Marconi Communications Technology, Inc.
grants exclusive control of specified accounts to the Security
Trustee. The depository will accept instructions on the account
from the pledgor until the secured party delivers notice that it
is exercising exclusive control. The secured party will not
deliver such notice until the occurrence of certain events. The
agreement does not cover accounts specially and exclusively used
for payroll, payroll taxes and other employee wage and benefit
payments.
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(xvi) DEPOSIT ACCOUNT CONTROL AGREEMENT DATED ON OR BEFORE THE ISSUE
DATE BETWEEN MARCONI COMMUNICATIONS FEDERAL, INC., AS PLEDGOR,
THE SECURITY TRUSTEE, AS PLEDGEE AND J.P. MORGAN CHASE & CO., AS
DEPOSITARY.
Under this agreement, Marconi Communications Federal, Inc.
grants exclusive control of specified accounts to the Security
Trustee. The depository will accept instructions on the account
from the pledgor until the secured party delivers notice that it
is exercising exclusive control. The secured party will not
deliver such notice until the occurrence of certain events. The
agreement does not cover accounts specially and exclusively used
for payroll, payroll taxes and other employee wage and benefit
payments.
(xvii) DEPOSIT ACCOUNT CONTROL AGREEMENT DATED ON OR BEFORE THE ISSUE
DATE BETWEEN FS HOLDINGS CORP., AS PLEDGOR, THE SECURITY TRUSTEE,
AS PLEDGEE AND J.P. MORGAN CHASE & CO., AS DEPOSITARY.
Under this agreement, FS Holdings Corp. grants exclusive control
of specified accounts to the Security Trustee. The depository
will accept instructions on the account from the pledgor until
the secured party delivers notice that it is exercising
exclusive control. The secured party will not deliver such
notice until the occurrence of certain events. The agreement
does not cover accounts specially and exclusively used for
payroll, payroll taxes and other employee wage and benefit
payments.
(xviii) DEPOSIT ACCOUNT CONTROL AGREEMENT DATED ON OR BEFORE THE ISSUE
DATE BETWEEN FS FINANCE CORP., AS PLEDGOR, THE SECURITY TRUSTEE,
AS PLEDGEE AND J.P. MORGAN CHASE & CO., AS DEPOSITARY.
Under this agreement, FS Finance Corp. grants exclusive control
of specified accounts to the Security Trustee. The depository
will accept instructions on the account from the pledgor until
the secured party delivers notice that it is exercising
exclusive control. The secured party will not deliver such
notice until the occurrence of certain events. The agreement
does not cover accounts specially and exclusively used for
payroll, payroll taxes and other employee wage and benefit
payments.
(xix) DEPOSIT ACCOUNT CONTROL AGREEMENT DATED ON OR BEFORE THE ISSUE
DATE BETWEEN MARCONI COMMUNICATIONS NORTH AMERICA INC., AS
PLEDGOR, THE SECURITY TRUSTEE, AS PLEDGEE AND J.P. MORGAN CHASE &
CO., AS DEPOSITARY.
Under this agreement, Marconi Communications North America Inc.
grants exclusive control of specified accounts to the Security
Trustee. The depository will accept instructions on the account
from the pledgor until the secured party delivers notice that it
is exercising exclusive control. The secured party will not
deliver such notice until the occurrence of certain events. The
agreement does not cover accounts specially and exclusively used
for payroll, payroll taxes and other employee wage and benefit
payments.
(xx) EPOSIT ACCOUNT CONTROL AGREEMENT DATED ON OR BEFORE THE ISSUE
DATE BETWEEN MARCONI SOFTWARE INTERNATIONAL, INC., AS PLEDGOR,
THE SECURITY TRUSTEE, AS PLEDGEE AND J.P. MORGAN CHASE & CO., AS
DEPOSITARY.
Under this agreement, Marconi Software International, Inc.
grants exclusive control of specified accounts to the Security
Trustee. The depository will accept instructions on the account
from the pledgor until the secured party delivers notice that it
is exercising exclusive control. The secured party will not
deliver such notice until the occurrence of certain events. The
agreement does not cover accounts specially and exclusively used
for payroll, payroll taxes and other employee wage and benefit
payments.
(xxi) DEPOSIT ACCOUNT CONTROL AGREEMENT DATED ON OR BEFORE THE ISSUE
DATE BETWEEN METAPATH SOFTWARE INTERNATIONAL (U.S.), INC., AS
PLEDGOR, THE SECURITY TRUSTEE, AS PLEDGEE AND WELLS FARGO, AS
DEPOSITARY.
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Under this agreement, Metapath Software International (U.S.)
Inc. grants exclusive control of specified accounts to the
Security Trustee. The depository will accept instructions on the
account from the pledgor until the secured party delivers notice
that it is exercising exclusive control. The secured party will
not deliver such notice until the occurrence of certain events.
The agreement does not cover accounts specially and exclusively
used for payroll, payroll taxes and other employee wage and
benefit payments.
(xxii) DEPOSIT ACCOUNT CONTROL AGREEMENT DATED ON OR BEFORE THE ISSUE
DATE BETWEEN MARCONI INC., AS PLEDGOR, THE SECURITY TRUSTEE, AS
PLEDGEE AND J.P. MORGAN CHASE & CO., AS DEPOSITARY.
Under this agreement, Marconi Inc. grants exclusive control of
specified accounts to the Security Trustee. The depository will
accept instructions on the account from the pledgor until the
secured party delivers notice that it is exercising exclusive
control. The secured party will not deliver such notice until
the occurrence of certain events. The agreement does not cover
accounts specially and exclusively used for payroll, payroll
taxes and other employee wage and benefit payments.
(xxiii) SECURITY AGREEMENT DATED ON OR BEFORE THE ISSUE DATE BETWEEN
MARCONI INTELLECTUAL PROPERTY (US) INC., AS PLEDGOR, AND THE
SECURITY TRUSTEE, AS SECURED PARTY.
Under this agreement, an interest in and assignment over all
personal property and fixtures of every kind and nature (subject
to certain limitations) is created.
(xxiv) SECURITY AGREEMENT DATED ON OR BEFORE THE ISSUE DATE BETWEEN
MARCONI INTELLECTUAL PROPERTY (RINGFENCE) INC., AS PLEDGOR, AND
THE SECURITY TRUSTEE, AS SECURED PARTY.
Under this agreement, an interest in and assignment over all
personal property and fixtures of every kind and nature (subject
to certain limitations) is created.
(xxv) SECURITY AGREEMENT DATED ON OR BEFORE THE ISSUE DATE BETWEEN
MARCONI COMMUNICATIONS, INC., MARCONI NETWORKS WORLDWIDE, INC.,
MARCONI COMMUNICATIONS TECHNOLOGY, INC., MARCONI COMMUNICATIONS
FEDERAL, INC., MARCONI ACQUISITION CORP., BRUTON STREET
PARTNERSHIP, AS PLEDGORS, AND THE SECURITY TRUSTEE, AS SECURED
PARTY.
Under this agreement, an interest in and assignment over all
personal property and fixtures of every kind and nature (subject
to certain limitations) is created.
(xxvi) SECURITY AGREEMENT DATED ON OR ABOUT THE ISSUE DATE BETWEEN EACH
OF FS HOLDINGS CORP., MARCONI INC., MARCONI COMMUNICATIONS
HOLDINGS, INC., MARCONI COMMUNICATIONS NORTH AMERICA INC., FS
FINANCE CORP., MARCONI SOFTWARE INTERNATIONAL, INC., METAPATH
SOFTWARE INTERNATIONAL (U.S.) INC., METAPATH SOFTWARE
INTERNATIONAL, INC. AS PLEDGORS, AND THE SECURITY TRUSTEE, AS
SECURED PARTY.
Under this agreement, an interest in and assignment over all
personal property and fixtures of every kind and nature (subject
to certain limitations) is created.
(xxvii) SECOND-RANKING MORTGAGE DATED ON OR BEFORE THE ISSUE DATE OVER
PROPERTY LOCATED AT 1000 MARCONI DRIVE, WARRENDALE, PENNSYLVANIA
15086, OWNED BY MARCONI COMMUNICATIONS, INC. TO BE GOVERNED BY
THE LAW OF THE COMMONWEALTH OF PENNSYLVANIA.
(xxviii) TO THE EXTENT PERMITTED BY LAW, MORTGAGE OVER PROPERTY LOCATED AT
104 WILEY ROAD, LAGRANGE, GEORGIA 30240 DATED ON OR BEFORE THE
ISSUE DATE, OWNED BY MARCONI COMMUNICATIONS, INC., TO BE GOVERNED
BY THE LAW OF THE STATE OF GEORGIA.
(xxix) MORTGAGE OVER PROPERTY LOCATED AT 956 NORTH BROADWAY EXTENDED,
GREENVILLE, MISSISSIPPI 38702 DATED ON OR BEFORE THE ISSUE DATE,
OWNED BY MARCONI COMMUNICATIONS, INC., TO BE GOVERNED BY THE LAW
OF THE STATE OF MISSISSIPPI.
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(xxx) MORTGAGE OVER PROPERTY LOCATED AT EVERGOOD, 325 WELCOME CENTER
BLVD, WELCOME, NORTH CAROLINA 27374 DATED ON OR BEFORE THE ISSUE
DATE, OWNED BY MARCONI COMMUNICATIONS, INC., TO BE GOVERNED BY
THE LAW OF THE STATE OF NORTH CAROLINA.
(xxxi) TO THE EXTENT PERMITTED BY LAW OR CONTRACT, MORTGAGE OVER
PROPERTY LOCATED AT 4350 WEAVER PARKWAY, WARRENVILLE, ILLINOIS
60555 DATED ON OR BEFORE THE ISSUE DATE LEASED BY MARCONI
COMMUNICATIONS, INC., TO BE GOVERNED BY THE LAW OF THE STATE OF
ILLINOIS.
(xxxii) MORTGAGE OVER PROPERTY LOCATED AT 8605 FREEPORT PARKWAY, IRVING,
TEXAS DATED ON OR BEFORE THE ISSUE DATE OWNED BY MARCONI
COMMUNICATIONS, INC., TO BE GOVERNED BY THE LAW OF THE STATE OF
TEXAS.
(xxxiii) MORTGAGE OVER PROPERTY LOCATED AT TAYLOR WOODS PARKWAY, NORTH
RIDGEVILLE, OHIO 44039 DATED ON OR BEFORE THE ISSUE DATE LEASED
BY MARCONI COMMUNICATIONS, INC., TO BE GOVERNED BY THE LAW OF THE
STATE OF OHIO.
5.5 INTERCREDITOR ARRANGEMENTS
SECURITY TRUST AND INTERCREDITOR DEED DATED ON OR BEFORE THE ISSUE DATE
BETWEEN CORP, THE GUARANTORS, THE SECURITY TRUSTEE, LAW DEBENTURE TRUST
COMPANY OF NEW YORK AS NEW SENIOR NOTE TRUSTEE, JPMORGAN CHASE BANK AS NEW
JUNIOR NOTE TRUSTEE, HSBC BANK PLC AS NEW BONDING FACILITY AGENT, THE BANK
OF NEW YORK AS ADR DEPOSITARY, PRINCIPAL PAYING AGENT AND REGISTRAR AND
THE INTRA-GROUP CREDITORS AND INTRA-GROUP BORROWERS NAMED THEREIN.
The Security Trust and Intercreditor Deed will bind each of the Secured
Creditors and each of the Obligors, including the Issuer and the
Guarantors of the Notes. The Notes are subject to the Security Trust and
Intercreditor Deed pursuant to which the exercise by each Note Trustee of
its rights under the Security Documents on behalf of the Noteholders and
of the rights of the Noteholders under the relevant Notes may in certain
circumstances be directed by, or subject to the prior consent of, other
parties to the Security Trust and Intercreditor Deed. Noteholders are
bound by, and deemed to have notice of, all the provisions of the Security
Trust and Intercreditor Deed.
The purpose of the Security Trust and Intercreditor Deed is to regulate,
inter alia: (a) the ranking of claims of the Secured Creditors; (b) the
exercise, acceleration and enforcement of rights by the Secured Creditors;
(c) the rights of Secured Creditors to instruct the Security Trustee; (d)
the rights of the Senior Note Trustee to issue a Standstill Notice; (e)
the rights of the Secured Creditors during a Standstill Period and the
effects of the Standstill Period; (f) the giving of consents and waivers
and the making of modifications to the Relevant Documents; and (g) the
rights of the Secured Creditors and the priorities following a Payment
Stop Event.
The Security Trust and Intercreditor Deed provides for the ranking in
priority of payment of the claims of the Secured Creditors and for the
subordination of intercompany claims by the Issuer and those of its
Subsidiaries that are parties to the Security Trust and Intercreditor
Deed. A more complete description of the Security Trust and Intercreditor
Deed is set out in Appendix 10.
5.6 ESCROW ARRANGEMENTS
ESCROW AGREEMENT TO BE DATED ON OR BEFORE THE ISSUE DATE BETWEEN, INTER
ALIA, CORP AND THE SECURITY TRUSTEE.*
This Escrow Agreement governs the relationship between Corp, the Security
Trustee and the Escrow Bank (as defined therein) regarding the payment of
proceeds into and the release of proceeds from the Mandatory Redemption
Account and the Existing Performance Bond Escrow Account, each as defined
in and more fully set out in Appendix 8.
5.7 MEMORANDUM OF UNDERSTANDING DATED 25 MARCH 2003 BETWEEN CORP, PLC AND THE
UNITED STATES PENSION BENEFIT GUARANTY CORPORATION ("PBGC")*
Corp and plc have entered into a legally binding memorandum of
understanding with the PBGC under which the PBGC has agreed (i) that it
will not take any action in connection with the Restructuring to
907
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 19: MATERIAL CONTRACTS
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involuntarily terminate either of the two tax-qualified defined benefit
pension plans sponsored by Greensboro Associates, Inc., an indirect wholly
owned subsidiary of Corp (the "US PENSION PLANS") and (ii) that it will
withdraw any contingent claims filed by the PBGC under the plc Scheme as
of the Effective Date of the Corp Scheme. Under the memorandum of
understanding with the PBGC, (i) Corp or the contributing employers to the
US Pension Plans will make annual contributions to the US Pension Plans in
an amount equal to each US Pension Plan's respective minimum funding
requirements under the applicable United States statutes, including ERISA,
and the Code, or, if greater, the respective US Pension Plans' normal
cost, plus an additional US$9 million per annum payable in quarterly
instalments of US$2.25 million commencing as of 30 June 2003, but only to
the extent deductible, (ii) Corp will provide a guarantee to the PBGC of
the obligations of its subsidiaries in the United States with respect to
(x) such subsidiaries' respective obligations to make contributions to the
US Pension Plans as provided in clause (i) of this sentence and, (y) any
liability owing to the US Pension Plans or the PBGC if either or both of
the US Pension Plans should terminate while such guarantee is in effect.
To the extent that any required annual contributions in excess of annual
normal cost would result in a credit balance under either of the US
Pension Plans which could otherwise be used to satisfy minimum funding
requirements, the memorandum of understanding with the PBGC significantly
limits such usage.
The memorandum of understanding with the PBGC provides that if Corp
intends to sell any of its business units in the United States to a
third-party purchaser whose debt immediately following the consummation of
such transaction is not then rated investment grade, no proposed transfer
of assets and liabilities of the US Pension Plans to a pension plan of the
third-party purchaser may be made without the consent of the PBGC. To the
extent that any sale of a business unit will not include the transfer of
the assets and liabilities of the applicable US Pension Plan to a pension
plan of the purchaser of such business unit, Corp will cause a portion of
the proceeds of such business unit sale equal to the net shortfall, if
any, under the applicable US Pension Plan which is attributable to such
business unit to be contributed to the applicable US Pension Plan upon
completion of such business unit sale, with the amount to be contributed
based on the then applicable PBGC safe harbor assumptions used for plan
termination purposes (subject to any applicable limitations under ERISA or
the Code with respect to deductibility of such contributions or
otherwise). The memorandum of understanding with the PBGC also requires
that one of the US Pension Plans be fully funded or transferred to a
purchaser of a business unit upon the occurrence of certain business unit
sales.
The memorandum of understanding with the PBGC further provides that Corp
will consent to jurisdiction in United States federal district courts and
will agree as a contractual matter to be jointly and severally liable with
its US subsidiaries which are participating employers in the US Pension
Plans with respect to its obligations under the PBGC memorandum of
understanding.
As part of its obligations under the memorandum of understanding with the
PBGC, Corp will provide, or cause its US subsidiaries to provide, certain
specific information relevant to the US Pension Plans to the PBGC on a
regular basis during the term of such memorandum of understanding.
Corp's obligations under this memorandum of understanding with the PBGC
with respect to any US Pension Plan will cease on the earliest to occur of
(i) the date that a US Pension Plan is terminated in a standard
termination under ERISA, or (ii) on the first date after the fifth
anniversary of the Effective Date of the Corp Scheme when either (x) such
US Pension Plan has been fully funded on a termination basis for two
consecutive years ending on or after the expiration of such five-year
period or (y) Corp's debt is rated investment grade. If Corp is acquired
at any time while the memorandum of understanding with the PBGC remains in
effect and the acquiror's debt is rated investment grade immediately
following such sale, the PBGC will agree to review the acquisition of Corp
in good faith to determine whether the need for its memorandum of
understanding with Corp and plc still exists and whether such memorandum
of understanding may then be terminated.
6. LETTERS OF CURRENT INTENTION TO SUPPORT THE RESTRUCTURING
Although not contracts, set out below are brief descriptions of the
letters of current intention to support the Restructuring which are
referred to in part I, Section 2, Part D.1.
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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6.1 LETTERS OF CURRENT INTENTION FROM JPMORGAN CHASE BANK DATED 11 DECEMBER
2002 AND FROM EACH OF HSBC AND THE ROYAL BANK OF SCOTLAND PLC (DATED 13
DECEMBER 2002), TO CORP AND PLC.*
Under these letters, the relevant Co-ordination Committee members confirmed
their current intention (as at the date of the relevant letter) to support
the Restructuring of Corp and plc on the terms and in the manner
contemplated by the Heads of Terms. In doing so, each stated their current
intentions to consider the Schemes and exercise all votes that they are
entitled to in respect of the Bank Facility or any bilateral facility
provided by or guaranteed by Corp and/or plc other than claims relating to
the Bonds issued by Corp in favour of the Schemes and the Restructuring.
Each reserves the right to change its intentions in the future, or if: (a)
the Restructuring is not implemented on the basis of the Heads of Terms; an
enforcement event has occurred at any time under the interim security (as
described in part I, Section 2, Part D.1); (b) Corp or plc disclaims in
writing or publicly expresses an intention not to pursue the Restructuring;
a demand for re-payment of the Bank Facility is made or there is a default
under the Bonds; or (c) a public disclosure or announcement is made for the
possible acquisition of all or substantially all of: (i) the business,
operations and/or assets of Corp; or (ii) the financial indebtedness of plc
and/or Corp owed to the Bank Creditors (as defined in part I, Section 2,
Part D.1) and to persons with an interest in the Bonds.
6.2 LETTERS OF CURRENT INTENTION DATED ON OR AROUND 13 DECEMBER 2002 FROM
EACH OF THE MEMBERS OF THE INFORMAL COMMITTEE OF BONDHOLDERS (AS AT THAT
DATE) TO CORP AND PLC.*
Under these letters, each of the four members of the Informal Committee of
Bondholders confirmed its current intention (as at the date of the letters)
to support the Restructuring of Corp and plc on the terms and in the manner
contemplated by the Heads of Terms. In doing so, whenever any vote is
required of such Bondholders in relation to the Schemes, such Bondholders
stated their current intention to exercise all votes that they are entitled
to in their capacity as Bondholders in favour of the Schemes and the
Restructuring and not to act alone or in concert with others, or advise,
assist or encourage any person to act in a manner which frustrates the
Restructuring. Each such Bondholder reserves the right to change its
intention in the future, or if: (a) the Restructuring is not implemented on
the basis contemplated in the Heads of Terms; (b) an enforcement event has
occurred at any time under the interim security (as described in part I,
Section 2, Part D.1); (c) Corp or plc disclaims in writing or publicly
expresses an intention not to pursue the Restructuring; a demand for
re-payment of the Bank Facility is made or there is an event of default
under the Bonds; (d) a public disclosure or announcement is made for the
possible acquisition of all or substantially all of: (i) the business,
operations and/or assets of Corp; or (ii) the financial indebtedness of
Corp and/or plc owed to the Bank Creditors (as defined in part I, Section
2, Part D.1) and to persons with an interest in the Bonds; or (e) Corp or
Highrose Limited violates, breaches or repudiates any provision of the
undertakings given by them in favour of the members of the Informal
Committee of Bondholders on 13 September 2002 (and amended on 13 December
2002 and 28 March 2003) in connection with the interim security.
909
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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APPENDIX 20
LITIGATION
Except as set out below in paragraphs 1 to 24 below, no member of the Group is
or has been engaged in nor, so far as the Group is aware, has pending or
threatened by or against it, any legal or arbitration proceedings which may
have, or have had during the 12 months preceding the date of this document, a
significant effect on the Group's financial position. Where a liquidated sum is
claimed, a de minimis figure of L5 million has been applied in determining which
claims may have a significant effect. The figures given are the full amounts
claimed by the claimants in each case, which may be much greater than the
amounts the claimants realistically believe they can recover. Corp, plc and the
other Group Companies intend to defend claims vigorously. Claims against Corp
and plc may be compromised by the Corp Scheme and plc Scheme, respectively, but
claims against subsidiaries of Corp are not subject to the Schemes.
CLAIMS AGAINST THE CORP GROUP
1. Corp, FORE Systems Inc. ("FORE Systems") and 13 persons who were then
directors and/or senior executives of FORE Systems are defendants in a
consolidated class action lawsuit filed in the United States District
Court for the Western District of Pennsylvania on behalf of the public
shareholders of FORE Systems (other than defendants and their respective
affiliates). The action alleges that Corp violated federal securities law
in relation to Corp's tender offer for FORE Systems' shares, FORE
Systems' grant of share options to certain of the individual defendants
and the treatment afforded the individual defendants' share options in
that tender offer and in the merger agreement between Corp and FORE
Systems. Millionerrors Investment Club is the first named plaintiff. The
complaint seeks unspecified damages, counsel and expert fees, other costs
of the claim and other unspecified relief, although the plaintiff's
lawyers have indicated that the claim is worth $450 million. On 21 August
2002 the District Court granted summary judgement in favour of the
defendants on all claims. On 23 September 2002, the plaintiffs filed a
notice of appeal. The appeal is expected to take approximately one year.
Potential liabilities in respect of the claim against Corp will be
compromised pursuant to the Corp Scheme.
2. FORE Systems, together with six of its former directors and officers, are
defendants in a consolidated class action lawsuit filed in the United
States District Court for the Western District of Pennsylvania on behalf
of a class of persons (other than defendants and their respective
affiliates) who purchased FORE Systems securities during the period 19
July 1996 to 1 April 1997, inclusive. Robert K. Bell is the first named
plaintiff. The plaintiffs allege that, during this period, FORE Systems
misrepresented material facts relating to its results of operations,
competitive position and future prospects and concealed its alleged
deterioration, declining growth and inability to compete successfully
until the 1 April 1997 preliminary release of FORE Systems' projected
results of operations for the year ended 31 March 1997. The plaintiffs
also allege that FORE Systems' financial statements for the quarters
ended 30 June, 30 September and 31 December 1996 improperly recognised
revenues on sales to certain customers. These alleged misrepresentations
are said to constitute violations of the anti-fraud provisions of section
10(b) of the U.S. Securities Exchange Act of 1934 and, as to the
individual defendants, of section 20(a) of the U.S. Securities Exchange
Act of 1934. The plaintiffs' consolidated complaint seeks unspecified
damages, counsel and expert fees and other costs of suit and other
unspecified relief. The defendants have denied all allegations of
wrongdoing. Discovery has concluded, and both plaintiffs and defendants
have filed their respective pre-trial statements. The plaintiffs' damages
expert had initially estimated damages at $792 million, then $865 million
and then $724 million. By order dated 2 August 2002, the court granted
the defendants' motion in limine to exclude testimony from the
plaintiffs' damages expert. At the same time the court denied a motion to
exclude testimony from the plaintiffs' liability expert and discussed a
proofs of claim procedure which if liability were found, would follow a
liability trial. The court also certified the damages issue for an
interlocutory appeal to the Court of Appeals. The plaintiffs did not
appeal the court's decision. The court will now take up other issues
raised
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 20: LITIGATION
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in the Group's motions. Potential liabilities in respect of this claim
are not subject to the Schemes as the claim is not against Corp or plc.
3. FORE Systems is a defendant in a lawsuit filed by Bell Communications
Research, Inc. (formerly known as Bellcore, now named Telcordia
Technologies Inc. ("Telcordia")) on 14 October 1998 in the United States
District Court for the District of Delaware. Telcordia, a patent holder,
alleges that FORE Systems has infringed and continues to infringe four
patents owned by Telcordia, and seeks unspecified damages for past
infringement and an injunction against future infringement. FORE Systems
has denied infringement and asserted the affirmative defences of
invalidity, unenforceability, laches, equitable estoppel, implied
license, misuse and unclean hands. In addition, FORE Systems has
counterclaimed for a declaratory judgment on non-infringement,
invalidity, unenforceability, laches, equitable estoppel, implied
license, misuse and unclean hands and asserted affirmative claims seeking
damages for reformation of contract based on fraud, breach of the
covenant of good faith and fair dealing, negligent misrepresentation and
common law unfair business practices and competition. Discovery in this
case has closed. The court conducted a claim construction hearing in late
August 2000 and subsequently entered an order construing the claims of
the patents in suit. Telcordia, taking the position that it could not,
given the court's patent claim construction, prevail on its claims of
infringement at trial, moved the court to enter an order finding that
FORE Systems had not infringed the patents in suit so that the case would
be procedurally postured for appeal. FORE Systems subsequently moved the
court to require that Telcordia identify which of the patent claim
elements construed by the court it contends were in error and which
preclude Telcordia from proving infringement. That motion has been fully
briefed and is pending before the court. On 21 September 2001 the court
entered a final judgement of non-infringement. Telcordia filed notice of
appeal in October 2001 and filed their opening brief on 18 March 2002.
FORE Systems' opening response was filed on 28 May 2002. Telcordia's
reply was filed on 23 July 2002. Potential liabilities in respect of this
claim are not subject to the Schemes as the claim is not against Corp or
plc.
4. FORE Systems is a defendant in a second lawsuit filed by Telcordia, a
patent holder, on 8 June 1999 in the United States District Court for the
District of Delaware. Telcordia's second lawsuit for an unspecified
amount of damages alleges that FORE Systems has infringed two additional
Telcordia patents. FORE Systems has denied infringement and asserted the
affirmative defences of invalidity, unenforceability, laches, equitable
estoppel, implied license, misuse and unclean hands. In addition, FORE
Systems has counterclaimed for a declaratory judgment on the issues of
non-infringement, invalidity and unenforceability and has alleged that
Telcordia infringed one of FORE Systems' patents. Discovery in this case
has closed. Telcordia has filed summary judgment motions which are
pending before the court. The case was scheduled for trial in November
2000. However, all proceedings have been stayed pending the outcome of
the proceedings in the first lawsuit described in paragraph 3 above.
Potential liabilities in respect of this claim are not subject to the
Schemes as this claim is not against Corp or plc.
5. Systems Management Specialists, Inc. ("SMS") is a defendant in an
arbitration brought by Esprit de Corp ("Esprit") in April 2002. This
action relates to two outsourcing agreements entered into by Esprit and
SMS in 1995 and 1999; Esprit alleges that SMS breached its obligations
under the agreement and is seeking at least $8 million. The arbitration
between SMS and Esprit has commenced and will be conducted in Los
Angeles, California, USA. Initially, the parties had agreed to conduct
the arbitration hearing during a two week period in May 2003, with
discovery and briefing to take place before that time. However, this may
be delayed. plc was originally a party to the arbitration demand under a
legal theory alleging that SMS and plc are alter egos of one another.
Esprit has since released plc from its original arbitration demand, but
has named plc in a federal court proceeding. In response plc moved to
stay the federal court proceeding until after the arbitration between SMS
and Esprit has concluded. The court granted plc's motion to stay, and
therefore Esprit will be permitted to proceed with its claims against plc
only after the arbitration between SMS and Esprit is completed, and only
to the extent Esprit prevails on any of its claims in its arbitration
against SMS. Potential liabilities in respect of the claim against plc
will be compromised pursuant to the plc Scheme.
6. Corp and Marconi Commerce Systems Inc. ("MCSI") are defendants in two
actions brought by a former employee, Larry Anthony Gillus ("Gillus").
The complaints are that Gillus suffered racial discrimination
911
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 20: LITIGATION
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and subsequent retaliatory action whilst employed by Gilbarco
(subsequently known as Marconi Commerce Systems Inc., which has now been
sold to subsidiaries of Danaher Corporation plc). A second claim has been
brought against plc and Marconi Commerce Systems Inc. for retaliation and
intentional infliction of emotional distress alleged to have occurred
after he bought the original action. Counsel for both parties have agreed
that if plc is the correct defendant and not Corp, this change can be
made. Gillus' counsel has stated that he is seeking a total of $19
million in respect of both claims. The claims have been selected for a
mediated settlement conference. Potential liabilities in respect of the
claims against Corp and plc will be compromised pursuant to the Schemes
being implemented in accordance with their terms.
7. Corp, plc, Marconi Inc. and Marconi Data Systems Inc. are defendants in
an action brought by a former employee, Thomas Edeus ("Edeus"). The
complaint asserts three causes of action; firstly that Edeus was
unlawfully deprived of benefits to which he was entitled under Marconi
Data Systems Inc's United States severance plan; secondly for failure to
provide Edeus with a summary plan description relating to the severance
plan; and thirdly for age discrimination in employment. The plaintiff has
purported to have made out claims in various specified amounts totalling
over $901,000, some of which may be in the alternative, and also
unspecified punitive damages, liquidated damages and front and back pay,
making the impact of this claim on the Group difficult to assess. An
answer and affirmative defences have been filed on behalf of all
defendants. Potential liabilities in respect of the claims against Corp
and plc will be compromised pursuant to the Schemes.
8. On 4 October 2000, Alcatel SA and Alcatel CIT, both French companies
("Alcatel"), filed a claim against plc, Marconi Communications Limited
and Marconi Communications SpA alleging infringement of two patents held
by Alcatel group companies. Alcatel and Marconi entered into a mutual
patent cross licence agreement effective 1 April 2002 in respect of both
companies' patent portfolios which calls for a series of payments by plc.
The amount of these payments has no significant effect on the financial
position or profitability of the Group. This settled all claims brought
by Alcatel. The cross licence applies to patents and patent applications
of plc and Alcatel filed prior to 1 April 2002. The cross licence expires
on 31 March 2009. Potential liabilities in respect of this claim are
excluded from the Schemes.
9. Stringfellow and Plessey Precision Metals are defendants in an action
brought in the Superior Court of California in May 1998. A toxic tort
claim was filed by several thousand residents of Riverside County who
live adjacent to the Stringfellow Acid Pits Waste Disposal Site. There
are currently several hundred plaintiffs. The claim is still in its early
stages and, therefore, no estimate of Plessey's potential liability is
currently available. Plessey was a minor generator of hazardous materials
on the site compared to others involved, however. A Case Management Order
was entered into in early 2001 and the case is still in the early
discovery stage. The defendants are seeking dismissal on grounds of
statutes of limitation. Potential liabilities in respect of this claim
are not subject to the Schemes as the claim is not against Corp or plc.
10. Inglis Limited and The English Electric Company Limited ("English
Electric") are defendants in an action brought by Manitoba Hydro. In the
early 1960s, Manitoba Hydro contracted with Inglis Limited to design and
manufacture (amongst other equipment) three turbines for the hydro
electric plant at Grand Rapids in the United States. Inglis Limited
worked closely with English Electric, who prepared certain aspects of the
turbine design. One of the turbines exploded in March 1992. Manitoba
Hydro is suing Inglis Limited for negligence and breach of contract in
the design and manufacture of the turbines, and English Electric for
negligence in relation to the design. In June 1998 Manitoba Hydro were
granted leave to commence their action against English Electric and
Inglis Limited and the proceedings are progressing, the documentary
disclosure phase having been largely completed and examination for
discovery of witnesses being partly undertaken. Manitoba Hydro has
pleaded (in broad terms) around 35 million Canadian dollars
(approximately L14 million). This sum is exclusive of interest which
could approximately double that figure as the explosion took place 10
years ago. This amount assumes 100 per cent. liability on the part of
English Electric, which is denied. Potential liabilities in respect of
the claim are not subject to the Schemes as the claim is not against Corp
or plc.
11. Datang Telecom Technology Co. Ltd, Optical Communication Branch
("Datang") has indicated that it may bring a claim against Chengdu
Marconi Communications Ltd. On 24 August 2000 Chengdu Marconi
Communications Ltd entered into an Original Equipment Manufacture
agreement with Datang. Datang
912
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 20: LITIGATION
--------------------------------------------------------------------------------
has approximately US$5.2 million on account payable to Chengdu Marconi
Communications Ltd but has not paid as it claims that it has been unable
to sell US$7 to 9 million of products purchased from Chengdu Marconi
Communications Ltd due to their quality. Datang has indicated that it
will not pay the outstanding sums and may bring court proceedings against
Chengdu Marconi Communications Ltd in China. The value of such a claim
might be in the region of US$7 to 9 million, the value of the products
that Datang claims it has been unable to sell, but could potentially be
for US$18 million, the value of the entire contract. Potential
liabilities in respect of this claim are not subject to the Schemes as
the claim is not against Corp or plc.
12. On 26 March 2002 Railtrack Telecom Services Ltd ("RTSL") (now known as RT
Group Telecom Services Limited), a joint venture partner, served a claim
against Corp in respect of its failure to pay in February 2002 an amount
of L20 million plus daily interest in an amount of L3,287 in respect of
the purported exercise by RTSL of a contractual option to put 1,324,054
ordinary shares in Easynet Group plc on to Corp. Corp had, prior to
receipt of the claim, indicated its intention to claim or counterclaim
against RTSL in respect of its acts, omissions, misrepresentations and
breaches of its obligations to Corp arising out of or in respect of
certain agreements and transactions relating to ipsaris Limited and
Ultramast Limited (a joint venture company in which RTSL and Corp each
held 50 per cent. of the shares). Corp then raised its counterclaims as a
complete defence and advised RTSL that the amount of Corp's claims
against RTSL was greater than the claim that RTSL had brought against
Corp. RTSL applied for a summary judgment hearing, which took place on 15
July 2002, on the grounds that Corp's claims had no real prospect of
success. The court did not grant summary judgment in favour of RTSL,
recognising that Corp might have a valid counterclaim which could be set
off against amounts due under the option. However, the court did order
that Corp pay the disputed L20 million plus interest into court,
reflecting the court's concerns about whether the counterclaim by Corp
would ultimately succeed, and also the fact that RTSL was entitled to put
the Easynet Group plc shares on Corp, and that it would be unfair for
Corp to acquire the shares without making any payment. Corp paid the
required sum into court. A settlement of all outstanding litigation was
reached with RTSL, subject to court approval of a capital reduction in
Ultramast Limited. The court approved the capital reduction on 21
February 2003.
13. Marconi Communications Ltd ("MCL") has settled claims which were brought
by Alstom Transport Ltd ("Alstom"), a sub-contractor, in an arbitration
brought under International Chamber of Commerce rules in respect of a
sub-contract that Alstom entered into with MCL on 26 May 1995 for the
supply of certain communications equipment and systems for installation
on the Northern Line of London's underground system. Alstom requested the
arbitration on 25 May 2001. MCL submitted a full defence. Certain
preliminary matters were heard and an initial hearing into the substance
of the claim took place. In a related action, Alstom Transport Ltd and
three other Alstom subsidiaries issued proceedings in the English courts
in September 2001 in relation to alleged misrepresentations or breach of
warranties made by MCL as to the costs of operating the communications
equipment and systems to be installed pursuant to this sub-contract.
Settlement has been reached in relation to both these claims. MCL will
provide further products and services to Alstom pursuant to a revised
supply contract and a new maintenance contract was entered into as of 6
January 2003. Marconi's obligations pursuant to these new contracts are
guaranteed by Marconi Communications Holdings Limited and are the subject
of collateralised performance bonds to a value of L2.5 million and L1
million respectively for the supply and maintenance contracts. The
arbitration has also been discontinued. Potential liabilities in respect
of these claims are not subject to the Schemes as the claims are not
against Corp or plc.
14. Corp was the defendant in an action brought by DrKW Finance Ltd ("DrKW")
which has now been settled. The claim was for L12,289,860.15 plus
interest due or scheduled to become due under a payment plan agreement
between Oracle Corporation UK Ltd ("Oracle") and Corp. Oracle assigned
the relevant agreement, a software licensing agreement, to DrKW. On 11
October 2002 DrKW obtained summary judgment for the full amount claimed
plus interest. On the same day Corp agreed a settlement of the claim with
DrKW and DrKW agreed not to enforce the judgment. Corp has complied with
its settlement obligations and has no further liability in respect of
this claim and therefore it is not subject to the Schemes.
913
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 20: LITIGATION
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15. There is an outstanding tax dispute between the Indian tax authorities
and Corp, English Electric and Associated Electrical Industries Limited
("AEI"). In 1989/90, as part of the reorganisation of the group's
European operations, Corp, English Electric and AEI transferred their
shareholdings in The General Electric Company of India Limited ("GEC
India"), The English Electric Company of India Limited ("EE India") and
GEC Power Engineering Services of India Limited ("GEP India") to a Dutch
company, GEC Alsthom NV ("Alsthom"). The Indian tax authorities claim
that this transfer gives rise to an Indian capital gains tax charge for
each of Corp, English Electric and AEI (although this is one of the
issues in dispute). An advance Indian capital gains tax payment had to be
made before the Indian authorities would issue a no-objection
certificate, which was required before the transfer could proceed. This
advance payment was based on the value of GEC India, EE India and GEP
India at the date of the no-objection certificate. The Indian tax
authorities have, however, assessed Corp, English Electric and AEI to tax
on the basis of the value of GEC India, EE India and GEP India at the
date of the actual transfer, which could give rise to a tax liability of
up to L11 million (of which L3 million relates to Corp). Corp, English
Electric and AEI are disputing this liability and the basis of valuation
in the Indian courts and in pursuance of interim orders of the Indian
court have deposited L2.686 million with the Indian tax authorities.
Potential liabilities in respect of this claim are excluded from the
Schemes.
CLAIMS BROUGHT BY THE CORP GROUP
The following represent the largest outstanding claims made on behalf of the
Corp Group:
16. Marconi Communications, Inc. ("MCI") is the claimant in two actions
against Vidar SMS Co., Ltd. ("Vidar"), a company with its principal place
of business in Taiwan. In May 2000, MCI brought an International Chamber
of Commerce arbitration proceeding against Vidar in connection with
Vidar's breaches of an Engineering Services Agreement between Vidar and a
Marconi-acquired company, RELTEC Corporation. In August 2002, the
arbitration tribunal awarded MCI $25,879,544 under its breach of warranty
claims, $5,604,270.12 for prejudgment interest, and $156,702.56 for
costs, for a total award of $31,640,516.68. As set out below in paragraph
17 below, Vidar may claim that it has no assets to satisfy this judgment.
Corp and plc have no liability in respect of this claim and therefore it
is not subject to the Schemes.
17. A second action was brought by MCI against Vidar in May 2000 in the
United States Court for the Northern District of Texas for fraud,
negligent misrepresentation, Texas common law indemnity and California
equitable indemnity, all relating to Vidar's wrongful acts in connection
with various business relationships between the parties. On 30 October
2002, the U.S. District Court entered default judgment against Vidar on
all claims and assessed MCI's actual damages at $72,402,065 plus
prejudgment interest on this amount at the rate of 10 per cent. per
annum. Vidar filed a petition for reorganisation in the Taipei (Taiwan)
District Court in 2001 and may claim that it has no assets to satisfy the
judgments referred to above. However, the Taipei District Court dismissed
Vidar's petition on 28 January 2002 based on its lack of viability for
reorganisation and the Taiwan High Court dismissed Vidar's appeal of the
lower court's ruling on 25 March 2002 based on the same reason. Corp and
plc have no liability in respect of this claim and therefore it is not
subject to the Schemes.
CLAIMS AGAINST THE PLC GROUP
18. plc and four of its current or former officers are defendants in a
consolidated class action lawsuit pending in the United States District
Court for the Western District of Pennsylvania on behalf of a putative
class of all persons (other than defendants and their respective
affiliates) who purchased American Depositary Receipts or common stock of
plc between 10 April 2001 and 5 July 2001, inclusive. The named plaintiff
in respect of the common stock of plc is Tri-Star Farms Ltd and the named
plaintiff in respect of the ADRs is City of Miami Fire Fighters' and
Police Officers' Retirement Trust Fund. Plaintiffs in these actions
allege that, during this period, plc and the individual defendants
falsely reassured investors that plc's revenues would rise during the
year and that its geographic and business mix left it relatively immune
to the economic downturn affecting its competitors. The plaintiffs
further allege that on 4 July 2001 defendants belatedly disclosed that
tougher trading conditions in the quarter ended 30 June 2001
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 20: LITIGATION
--------------------------------------------------------------------------------
indicated that plc's sales and operating profits for its fiscal year
ended 31 March 2002 would fall significantly from the levels achieved in
fiscal 2001. Defendants' alleged misrepresentations are said to violate
the anti-fraud provisions of Section 10(b) of the US Securities Exchange
Act of 1934 and, as to the individual defendants, Section 20(a) of the US
Securities Exchange Act of 1934. The plaintiffs seek class certification,
an award of unspecified damages, counsel and expert fees and other costs
of suit and other unspecified relief. All defendants filed a motion to
dismiss the lawsuit. In ruling upon the defendants' motion to dismiss,
the Court entered an order dismissing claims brought on behalf of
ordinary shareholders outside the US; the deadline for seeking an
interlocutory appeal of this order has passed. The claims brought on
behalf of ADR holders and US-resident ordinary shareholders will proceed
to discovery and a class certification hearing. Potential liabilities in
respect of the claim against plc will be compromised pursuant to the plc
Scheme but may have the benefit (in whole or in part) of insurance (see
part I, Section 2, Part C.7).
19. In April 2002, 11 former employees of Ten Square Inc. brought a claim
against directors of that company for fraud in reducing their
compensation package before liquidating the company and restarting it
under a different name. The claim is for $2,160,050.91, plus $1 million
in punitive damages for all plaintiffs (it is unclear if this is for each
of the plaintiffs or in total). The plaintiffs allege that plc was a
director of Ten Square Inc., though in fact plc only had a right to
appoint a director, a right plc has not recently exercised. Marconi
Ventures was also named as a plaintiff on 9 September 2002. The
plaintiffs did not serve proceedings upon plc and on 24 October 2002 an
order for the dismissal of the claim against plc was entered. However,
plc was named in the second amended complaint which was filed on 24
December 2002. plc is aware of the action, but has not been served and is
not yet a party to it. Potential liabilities in respect of the claim
against plc will be compromised pursuant to the plc Scheme.
20. plc have been named in the federal court proceeding brought by Esprit de
Corp described at paragraph 5 above. Potential liabilities in respect of
the claim against plc will be compromised pursuant to the plc Scheme.
21. In November 2000 Larry Anthony Gillus, the former employee of Gilbarco
Inc mentioned at paragraph 6 above in the claims against the Corp Group
brought a claim against plc and Marconi Commerce Systems Inc for
retaliation and intentional infliction of emotional distress alleged to
have occurred after he brought the original action. The damages claimed
are again in excess of L100,000 in punitive damages and in excess of
L100,000 in compensatory damages. A claim for breach of contract has also
been added. plc denies that there is any connection between it and the
subject matter of the claim as it is only an indirect parent of Marconi
Commerce Systems Inc., against whom the plaintiff is also claiming.
Counsel for both parties have agreed that if Corp is the correct
defendant and not plc, this change can be made. The plaintiff's lawyers
have indicated that he is seeking a total of $19 million in respect of
this claim and the claim against Corp set out at paragraph 6 above.
Potential liabilities in respect of the claims against Corp and plc will
be compromised pursuant to the Schemes.
22. plc are also defendants in action brought by Thomas Edeus, a former
employee of Marconi against Corp, plc, Marconi Inc. and Marconi Data
Systems Inc., details of which are set out at paragraph 7 above in the
claims against the Corp Group. Potential liabilities in respect of the
claims against Corp and plc will be compromised pursuant to the Schemes.
23. In April 2002 Salomon Brothers International Limited ("SBIL") issued
proceedings in the English High Court against plc claiming L15,874,960
plus interest under a guarantee given by plc in respect of the trustee
for Marconi's employee trust. The trustee, Bedell Cristin Trustee
Limited, entered into an ISDA Master Agreement on 15 December 1999 and
SBIL allege that an event of default occurred under this on 26 March 2002
when plc as guarantor allegedly became insolvent. The sum of L376,914.16
payable to Bedell Cristin Trustee Limited by SBIL under an ISDA Credit
Support Annex has not been paid by SBIL. SBIL contend that this sum will
be set off against the amount they are claiming. A case management
conference was scheduled for October 2002. However, both parties agreed
that this should be postponed. SBIL have agreed to discontinue this claim
if the Schemes become effective. Potential liabilities in respect of the
claim will be compromised pursuant to the Schemes.
24. plc was a party to the claim brought by Alcatel SA and Alcatel CIT
described at paragraph 8 above. Potential liabilities in respect of this
claim are excluded from the Schemes.
915
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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APPENDIX 21
SUMMARY OF THE PROPOSED PERMANENT INJUNCTION ORDERS UNDER
SECTION 304 OF THE UNITED STATES BANKRUPTCY CODE
Subject to the Court sanctioning the Schemes, the chairman and alternative
chairman of the Creditors' Meetings (the "Petitioners") for Corp and plc, intend
to proceed with their applications for permanent injunctive relief by orders
(the "Orders") from the US Bankruptcy Court for the Southern District of New
York (the "Bankruptcy Court") in the respective cases relating to Corp and plc
under section 304 of title 11 of the United States Code (the "Bankruptcy Code").
If the plc Scheme is not approved or sanctioned but the Corp Scheme is approved
and sanctioned by the Court, an application for permanent injunction relief will
be made in respect of Corp only.
The relief that the Petitioners will seek will be substantially as follows:
a. the Petitioners, and from the Effective Date of the relevant Scheme,
the Supervisors, will be recognised as the foreign representatives
of Corp and plc in the United States;
b. the proceedings related to the Schemes will be recognised as foreign
proceedings;
c. the Schemes (including any amendments or modifications thereof) will
be given full force and effect in the United States and be binding
on and enforceable in accordance with their terms against all of the
Scheme Creditors, all Scheme Claims against Corp and plc will be
discharged in accordance with the terms of the Schemes; and all
Scheme Creditors shall be prohibited from taking any action
inconsistent with the Schemes;
d. as of the Effective Date of the relevant Scheme, except as provided
in the respective Scheme all Scheme Creditors will be permanently
enjoined and restrained from:
(i) taking or continuing any act to obtain possession of, or
exercise control over, either Corp or plc or any of their
respective property or any property that is involved in the
foreign proceeding or any proceeds thereof including, without
limitation, any leasehold interests (collectively, the
"Related Property"), and taking or continuing any act to
create, perfect or enforce a lien or other security, interest,
set-off or other claim against either Corp or plc or any
Related Property, and transferring, relinquishing or disposing
of any Related Property;
(ii) commencing or continuing any action or other proceeding
(including, without limitation, arbitration or any judicial,
quasi-judicial, administrative or regulatory action,
proceeding or process whatsoever), including by way of
counterclaim (any of which, an "Action"), against either Corp
or plc or any Related Property and seeking discovery of any
nature against either Corp or plc;
(iii) enforcing any judicial, quasi-judicial, administrative or
regulatory judgement, assessment or order or arbitration award
and commencing or continuing any act or any Action to create,
perfect or enforce any lien or other security interest,
set-off or other claim against either Corp or plc or any
Related Property;
(iv) invoking, enforcing or relying on the benefit of any statute,
rule or requirement of federal, state or local law or
regulation requiring either Corp or plc, the Petitioners or
the respective Supervisors, to establish or post security in
the form of a bond, letter of credit or otherwise as a
condition of prosecuting, defending or appealing any Action;
provided, however, that nothing in the Orders shall in any
respect affect any security in existence at the Effective Date
or the replacement for such security;
(v) declaring or considering the filing of the section 304
proceedings or the respective Schemes a default or event of
default under any agreement, contract or arrangement;
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 21: SUMMARY OF THE PROPOSED PERMANENT INJUNCTION ORDERS UNDER SECTION
304 OF THE UNITED STATES BANKRUPTCY CODE
--------------------------------------------------------------------------------
e. as of the Effective Date of each of the Schemes, all Scheme
Creditors shall be required:
(i) to turn over to, and account to the respective Supervisors
for, any property of either Corp or plc or proceeds thereof,
of which they have possession, custody or control that relate
to any Scheme Claims;
(ii) to deliver any books, papers or records of either Corp or
plc, of which they have possession, custody or control, to the
respective Supervisors, and all Scheme Creditors having any
books, papers or records that the Supervisors may reasonably
require in relation to their duties, or related to any matter
that may affect the administration of either Scheme, shall
preserve them and submit them to the respective Supervisors or
their designees, for examination at all reasonable times; and
(iii) to notify, in accordance with the terms of the relevant
Scheme, the respective Supervisors, to the extent they have a
Scheme Claim of any nature or source against Corp, plc or any
Related Property, are a party to any Action in which either
Corp or plc is or was named as a party or as a result of which
a liability of either Corp or plc may be established, and to
put the New York office of Allen & Overy on the master service
list of any such Action and to take such other steps as may be
necessary to ensure that it receives (i) copies of any and all
documents sent by the parties to such Action or issued by the
court, administrator, arbitrator, regulator or similar
official having jurisdiction over such Action and (ii) any and
all correspondence or other documents circulated to parties
named in the master service list;
f. as of the Effective Date of each of the Schemes, subject to the
terms and provisions of the relevant Scheme, all Scheme Creditors
shall be deemed to have released from all liability, and shall be
permanently enjoined and restrained from commencing or continuing
any Action against, the Supervisors, except where such liability
arises as a result of their own negligence, wilful default, breach
of duty, breach of trust, fraud, bad faith or dishonesty;
g. as of the Effective Date of each of the Schemes, subject to the
terms and provisions of the relevant Scheme, the Scheme Companies,
the Supervisors and all Scheme Creditors shall be deemed to have
released from all liability, and shall be permanently enjoined and
restrained from commencing or continuing any Action against, any
member of the Creditors Committee (or their respective Nominated
Representatives or Alternates (as defined in the Schemes)) for any
loss or damage, unless such loss or damage is attributable to its or
his own wilful default, wilful breach of duty, fraud or dishonesty;
h. as of the Effective Date of each of the Schemes, subject to the
terms and provisions of the relevant Scheme, all Scheme Creditors,
the Scheme Companies, the Supervisors, the Escrow Trustee, the
Distribution Agent, the Registrars, and Bondholder Communications
(the "Releasing Parties") shall be deemed to have waived each and
every claim that they may have in relation to any Scheme Claim, or
otherwise in connection with the Scheme, against the Informal
Committee of Bondholders and the Co-ordination Committee, and their
respective present and former members, and their legal and financial
advisers (collectively, the "Released Parties");
i. as of the Effective Date of each of the Schemes, subject to the
terms and provisions of the relevant Scheme, all Releasing Parties
shall be deemed to have released the Released Parties from each and
every liability that they may have to a Releasing Party in relation
to any Scheme Claim or otherwise in connection with the Scheme;
j. all Releasing Parties are to be permanently enjoined and restrained
from commencing or continuing any Action against the Released
Parties in respect of any claim or cause of action, in law or in
equity, arising out of or relating to any action taken or omitted to
be taken as of the Effective Date of the relevant Scheme by any of
the Released Parties in connection with the section 304 cases or in
preparing, disseminating, applying for or implementing the Schemes
or the Orders of the Court;
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 21: SUMMARY OF THE PROPOSED PERMANENT INJUNCTION ORDERS UNDER SECTION
304 OF THE UNITED STATES BANKRUPTCY CODE
--------------------------------------------------------------------------------
k. all Releasing Parties are to be permanently enjoined and restrained
from commencing or continuing any Action against the Released
Parties, with respect to any claim or cause of action, in law or
equity, which may arise out of the construction or interpretation of
the Schemes or out of any action taken or omitted to be taken by any
of the Supervisors, the Petitioners, the Prospective Supervisors,
the Creditors Committee, the Scheme Company, the Escrow Trustee, the
Distribution Agent, the Registrars, Bondholder Communications and
the Released Parties in connection with the administration of the
Schemes;
l. the Court shall have exclusive jurisdiction to hear and determine
any suit, action, claim or proceeding, and to settle any dispute,
that may arise out of the construction or interpretation of the
Schemes, or out of any action taken or omitted to be taken by any of
the Supervisors, the Petitioners, the Prospective Supervisors, the
Creditors Committee, Corp, plc or the Released Parties in connection
with the administration of the Schemes including, without
limitation, any course of action not released or waived by
subclauses (f) and (g) above;
m. the Bankruptcy Court shall retain jurisdiction with respect to the
enforcement, amendment or modification of the Orders or any request
for additional relief in the section 304 cases and all adversary
proceedings in connection therewith properly commenced and within
the jurisdiction of the Bankruptcy Court;
n. no action taken by the Petitioners, the Prospective Supervisors, the
Supervisors, Corp, plc, their respective successors, agents,
representatives, or their counsel, in preparing, disseminating, or
applying for, implementing or otherwise acting in furtherance of the
Schemes, the section 304 cases or any adversary proceeding in
connection therewith shall be deemed to constitute a waiver of the
immunity afforded to the Petitioners, the Prospective Supervisors,
the Supervisors, Corp, plc, and their respective successors, agents
or representatives pursuant to Section 306 of the Bankruptcy Code;
and
o. Each Order issued by the Bankruptcy Court is to be served:
i. by United States Mail, first class, postage prepaid, upon
known Scheme Creditors, the Releasing Parties and any parties
who have requested notice of the application and parties who
have requested notice of the application on or before the
date set by the Bankruptcy Court; and
ii. by publication of notice of entry of the Orders in The
Financial Times and The Wall Street Journal on or before the
date set by the Bankruptcy Court.
provided that a copy of the Schemes shall be posted on a website, to be
identified in writing to Known Scheme Creditors.
918
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 22
CO-ORDINATION COMMITTEE AND INFORMAL COMMITTEE OF BONDHOLDERS
Listed below are the members of the Co-ordination Committee with the period
during which they were members set out opposite their names.
Period as a member of
Party Co-ordination Committee
----- -----------------------
Barclays Bank PLC 22 October 2001 to present
HSBC Bank plc, London Branch 22 October 2001 to present
JPMorgan Chase Bank 22 October 2001 to present
The Royal Bank of Scotland plc 22 October 2001 to present
Commerzbank Aktiengesellschaft, London Branch 22 October 2001 to present
Intesa BCI S.p.A 22 October 2001 to 5 March 2003
Listed below are the members of the Informal Committee of Bondholders, with the
period during which they were members set out opposite their names.
Period as member of Informal
Party Committee of Bondholders
----- ----------------------------
Cargill Financial Markets PLC 10 April 2002 to present
Appaloosa Management LP(1) 10 April 2002 to present
AIG Global Investment Corp(2) 10 April 2002 to present
Teachers Insurance and Annuity Association of America 10 April 2002 to present
Metropolitan Life Insurance Company 10 April 2002 to 25 November 2002
---------------
Note
(1) Appaloosa Management LP is a member of the Informal Committee of Bondholders
as an investment manager for and on behalf of Appaloosa Investment Limited
Partnership I and other funds
(2) AIG Global Investment Corp is a member of the Informal Committee of
Bondholders as an investment adviser, for and on behalf of, The Variable
Annuity Life Insurance Company, American General Life and Accident Insurance
Company and other advisory clients and accounts.
919
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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APPENDIX 23
CONTACT DETAILS, MATERIAL INTERESTS AND CURRICULA VITAE
OF THE SUPERVISORS
It is proposed that Philip Wallace and Richard Heis of KPMG should be appointed
as the Supervisors. Their function will be to supervise the implementation of
the Schemes in accordance with their terms, including, primarily, adjudicating
whether claims should be Admitted as Scheme Claims and directing the Escrow
Trustee and the Distribution Agent to make distributions to Admitted Scheme
Creditors. The Supervisors' functions and powers in the relevant part of the
Corp Scheme and plc Scheme respectively are set out in the relevant Scheme. The
Corp Scheme is set out in part II and the plc Scheme is set out in part III.
CONTACT DETAILS
KPMG LLP
For the attention of Philip Wallace and Richard Heis
8 Salisbury Square
London EC4Y 8BB
England, UK
Telephone: 020 7694 3007
Fax: 020 7694 3011
E-mail: marconischeme@kpmg.co.uk
RESPONSIBILITY OF THE SCHEME SUPERVISORS
Save as expressly set out in the relevant Scheme or the Escrow and Distribution
Agreement, the Supervisors shall act as agents of Corp or plc (as appropriate),
without personal liability, in respect of their functions in connection with the
Schemes. The Supervisors, in their capacity as such, incur no liability to any
Scheme Creditor, in accordance with the terms of the relevant Scheme:
(a) in respect of any decrease in the value of the Scheme Consideration
to which a Scheme Creditor is entitled during the period between
that Scheme Creditor Submitting its Claim Form and that Scheme
Creditor receiving its Scheme Consideration;
(b) in respect of terminating the Waiting Period in accordance with the
terms of the Scheme;
(c) arising from the structure or establishment of the Scheme; or
(d) arising from the exercise of any power or discretion vested in them,
except where such liability arises as a result of their own
negligence, wilful default, breach of duty, breach of trust, fraud
or dishonesty (or that of any partner in the same firm as the
Supervisors or employed by that firm).
MATERIAL INTERESTS
Except in respect of the Prospective Supervisors' and the Supervisors'
remuneration and expenses, (which shall be met by Corp in respect of the Corp
Scheme and are not payable out of the assets of the Corp Scheme and from the
fund set aside to meet Ongoing Costs in respect of the plc Scheme), neither
Philip Wallace nor Richard Heis, nor their firm, KPMG is a creditor of either of
the Scheme Companies.
CURRICULA VITAE
Philip Wallace has been a partner in KPMG since 1986 and is in the Corporate
Recovery group specialising in complex restructurings and insolvencies,
including cross-border work and sovereign debt rescheduling. One of the areas of
his expertise is telecommunications. He is a member of the Council of The
Institute of Chartered Accountants in England and Wales, where he chairs the
Insolvency Practitioners Committee, a member of the Council of the Association
Business Recovery Professionals, where he is also a member of the General
Technical Committee, and a founder member of the Insolvency Practices Council.
Some of the insolvencies and
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 23: CONTACT DETAILS, MATERIAL INTERESTS AND CURRICULA VITAE OF THE
SUPERVISORS
--------------------------------------------------------------------------------
restructurings using schemes under s.425 of the Act in which he has been
involved include Barings Bank, Global Crossing, ICO and Osiris Insurance.
Richard Heis has been a partner in KPMG's Corporate Recovery group since 1997,
specialising in complex restructurings and insolvencies, with experience in all
forms of insolvency and restructuring work, including schemes of arrangement. He
has also lectured widely on derivatives and complex financial products. Recent
schemes under s425 of the Act on which he has worked include Barings Bank and
Flag Telecom. He has also dealt with a large number of other complex
insolvencies including Winchester Commodities, Japan Leasing and The New
Millennium Experience Company Limited.
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IV. APPENDICES TO THE EXPLANATORY STATEMENT
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APPENDIX 24
SUMMARY OF TERMS OF APPOINTMENT AND SCOPE OF
THE ENGAGEMENT OF THE PROSPECTIVE SUPERVISORS AND THE SUPERVISORS
Philip Wallace and Richard Heis (both partners of KPMG) have agreed to be
appointed as the Prospective Supervisors and as the Supervisors of both the Corp
Scheme and the plc Scheme on the terms and conditions set out in the respective
Schemes.
The terms and conditions of this appointment will be those contained in KPMG's
general terms of business, subject to the following modifications:
Clause 4: This clause (which relates to confidential information)
shall be deemed to have been amended so that neither the
Prospective Supervisors nor the Supervisors will identify
Corp or plc by name nor disclose any information from which
Corp or plc's identity could reasonably be inferred, until
such time as the information is in the public domain or Corp
or plc (as appropriate) agree that the Prospective
Supervisors or Supervisors may do so in writing.
Clause 32: The Prospective Supervisors and Supervisors' liability to
Corp and plc in connection with this engagement for direct
losses shall each be limited, on the basis set out in the
General Terms of Business, to a maximum aggregate of L15
million.
Clause 37: In the event of a material breach of the Prospective
Supervisors or Supervisors' payment terms, the Prospective
Supervisors or Supervisors (as the case may be) may
terminate the engagement immediately at their discretion.
Clause 44: This clause (which relates to "regulated activities" under
the Financial Services and Markets Act 2000) will not apply
to Corp or plc as the Prospective Supervisors or
Supervisors' work will not include "regulated activities"
under the Financial Services and Markets Act 2000.
Where and to the extent that any provision of the Supervisors' Engagement Letter
(as defined in the Corp or plc Scheme as applicable) or the general terms of
business conflicts with a provision of the Corp and/or plc Scheme, the
provisions of the relevant Scheme shall prevail. However, in respect of the
liability of the Supervisors to Corp and plc (but not, for the avoidance of
doubt, between the Supervisors and the Scheme Creditors), howsoever arising, the
terms of the Supervisors' Engagement Letter and the general terms of business
shall prevail over any conflicting provisions of the relevant Scheme.
A. The detailed scope of the work the Prospective Supervisors will perform
in respect of each of the proposed Schemes is as follows:
1.1 In order that a distribution can be made to as many creditors as possible
in accordance with the proposed terms of the Schemes on the Effective
Date, it will be necessary for Scheme Claims Forms to be received by the
Prospective Supervisors before the relevant Scheme is sanctioned. The
work necessary to agree these claims (where it is possible and
practicable so to do) will also have to be completed before the Court
hearing to sanction the relevant Scheme by the Prospective Supervisors.
1.2 The Prospective Supervisors will receive Claim Forms from potential
Scheme Creditors and maintain a list of Scheme Claims received. To the
extent that Reserve Claims are received, details of such claims will be
promptly communicated to the relevant Scheme Company.
1.3 Following receipt of a Claim Form, the Prospective Supervisors will use
reasonable endeavours to determine promptly whether and if so, the extent
to which, a Scheme Claim will be Admitted and, if so, to promptly Admit
that Scheme Claim.
1.4 Following receipt of a Claim Form the Prospective Supervisors will
establish (to the extent practicable in the time) the amount, if any, of
the Scheme Claim and Admit the Scheme Claims at this quantum following
the principles used in a liquidation under the Insolvency Act 1986, as
more fully described in
922
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 24: SUMMARY OF TERMS OF APPOINTMENT AND SCOPE OF THE ENGAGEMENT OF THE
PROSPECTIVE SUPERVISORS AND THE SUPERVISORS
--------------------------------------------------------------------------------
the relevant Scheme. In this regard the Prospective Supervisors will
consult with the relevant Scheme Company and request and receive
assistance in establishing the appropriate level of claim.
1.5 Should further information be required to determine the quantum, if any,
of a Scheme Claim to be Admitted, the Prospective Supervisors will
request this from the Scheme Creditor.
1.6 The Prospective Supervisors will inform the Scheme Creditor whether its
Scheme Claim has been Admitted and the Prospective Supervisors will, in
the case of a Scheme Claim which is rejected in whole or in part provide
the Scheme Creditor with written reasons for the rejection. Such a
notification can only be informal unless and until the Prospective
Supervisors are formally appointed as Supervisors.
1.7 In relation to Bondholders, the Prospective Supervisors will only be
required to agree the claims of the respective Trustees. The Prospective
Supervisors will not be required to provide details beyond this, which
will be dealt with directly between the Escrow Agent, the Distribution
Agent and Bondholder Communications Group. The Supervisors will, however,
maintain records of Scheme Creditors based on information contained in
Claim Forms and supplied to them by Bondholder Communications for the
purposes of future meetings of Scheme Creditors.
1.8 The Prospective Supervisors will provide a helpline which creditors may
contact with their queries about completing Forms of Proxy or Claim Forms
in relation to the Scheme.
1.9 The Prospective Supervisors will acknowledge receipt of Forms of Proxy
and Claim Forms. For the avoidance of doubt, the Prospective Supervisors
will not acknowledge Account Holder Letters or notifications by
Bondholders that they will be attending the Scheme Meeting.
1.10 The Prospective Supervisors will provide confirmations to the relevant
Scheme Company, in the agreed form and on the relevant dates, relating to
the levels of provisions and reserves to be included in the Schemes
unless the Prospective Supervisors have reason not to give the
confirmations.
1.11 The Prospective Supervisors will compile a list of creditors to be
Admitted on the Effective Date of the Scheme which will be produced to
Court at the hearing to sanction the Schemes should the Schemes be
approved at the Scheme Meeting.
B. The detailed scope of the work the Supervisors will perform is as
follows:
1. CORP
1.1 CLAIM AGREEMENT
(a) As mentioned above, in order that a distribution can be made to as
many Scheme Creditors as possible in accordance with Corp Scheme on
the Effective Date of the Corp Scheme it will be necessary for Claim
Forms to be received by the Prospective Supervisors before the
Scheme is sanctioned. The work necessary to agree claims (where it
is possible and practicable to do so) will be completed before the
Court hearing to sanction the Corp Scheme by the Prospective
Supervisors as mentioned above.
(b) After the Effective Date the Supervisors will receive Claim Forms
from potential Scheme Creditors and maintain a list of Scheme Claims
received. To the extent Reserve Claims are received, details will be
promptly communicated to Corp.
(c) Following receipt of a Claim Form the Supervisors will use
reasonable endeavours to determine promptly whether and if so, the
extent to which, a Scheme Claim will be Admitted and, if so, to
promptly Admit that Scheme Claim.
(d) Following receipt of a Claim Form the Supervisors will establish the
amount, if any, of the Scheme Claim and Admit the Scheme Claim at
this quantum following the principles used in a liquidation under
the Insolvency Act 1986 (UK), as more fully described in the Corp
Scheme. In this, the Supervisors will consult with Corp and request
and receive assistance in establishing the amount of the Scheme
Claim.
923
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 24: SUMMARY OF TERMS OF APPOINTMENT AND SCOPE OF THE ENGAGEMENT OF THE
PROSPECTIVE SUPERVISORS AND THE SUPERVISORS
--------------------------------------------------------------------------------
(e) Should further information be required to determine the quantum, if
any, of a Scheme Claim to be Admitted, the Supervisors will request
this from the Scheme Creditor.
(f) The Supervisors will inform the Scheme Creditor whether its Scheme
Claim has been Admitted and the Supervisors will, in the case of a
Scheme Claim which is rejected (in whole or in part), provide the
Scheme Creditor with written reasons for the rejection.
(g) Where Allowed Proceedings or adjudication are commenced or continued
the Supervisors shall defend them or assist Corp in defending them
as appropriate. The costs of this are a matter for the Supervisor to
determine and, once so determined, shall be met in full by Corp
immediately on request, including any amounts required for
protection against adverse costs orders. If Corp does not pay any
such amounts the Supervisors shall, in accordance with the terms of
the Scheme, have the right to raise sums from the Scheme
Consideration.
(h) When necessary, the Supervisors will terminate the Scheme in
accordance with its terms.
1.2 DISTRIBUTIONS
(a) For each distribution, subject to (b) below the Supervisors will
prepare a schedule of Admitted Scheme Claims and the Scheme
Consideration which they are to receive, including the currency
elections and ADR elections and reflecting the effect of modelled
recirculation of Scheme Consideration where appropriate (each a
"SCHEDULE"), and provide this to the Escrow Trustee and the
Distribution Agent for payment to be made. The Supervisors will not
be responsible for the actions of the Escrow Trustee and/or the
Distribution Agent. The Supervisors will not make payments
themselves.
(b) In relation to Bondholders or Beneficial Owners, the Supervisors
will only be required to provide details of the distribution to the
respective Trustees. The Supervisors will not be required to provide
details beyond this, which will be dealt with directly between The
Bank of New York and Bondholder Communications.
(c) Where an Admitted Scheme Claim has been listed in the Schedule
compiled by the Prospective Supervisors and presented to the Court
at the hearing to sanction the scheme, that Scheme Claim will be
Admitted on the Effective Date, the Supervisors will provide a
Schedule to the Escrow Trustee and the Distribution Agent relating
to the First Initial Distribution. The Supervisors will produce a
Schedule in relation to each further Scheme Claim as soon as
practicable after it is Admitted.
(d) Following the First Initial Distribution, the Supervisors will
continue to adjudicate on and Admit or reject Scheme Claims. At any
time when the Supervisors, in their sole discretion, consider that a
distribution is appropriate considering the expense, the Supervisors
will calculate a Further Distribution in respect of all Admitted
Claims and provide a Schedule to the Escrow Trustee and the
Distribution Agent.
(e) The Supervisors will maintain provisions against Scheme Claims made
but not Admitted and a Reserve Claims Segment in the Scheme until
the termination or expiry of the Waiting Period. Should the Reserve
Claims Segment prove not to be required in the relevant Scheme, the
Supervisors may make Further Distributions as described in (d)
above.
(f) The Supervisors will do such other things as may be necessary to
give effect to the actions above and to carry out their obligations
under the Scheme.
2. PLC
2.1 CLAIM AGREEMENT
(a) In order that a distribution can be made to as many Scheme Creditors
in accordance with the plc Scheme on the Effective Date of the plc
Scheme it will be necessary for Claim Forms to be received by the
Prospective Supervisors before the Scheme is sanctioned. The work
necessary to
924
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 24: SUMMARY OF TERMS OF APPOINTMENT AND SCOPE OF THE ENGAGEMENT OF THE
PROSPECTIVE SUPERVISORS AND THE SUPERVISORS
--------------------------------------------------------------------------------
agree claims (where it is possible and practicable to do so) will be
completed before the Court hearing to sanction the plc Scheme by the
Prospective Supervisors pursuant to the terms of their separate
Engagement letter.
(b) The Supervisors will receive Claim Forms from potential Scheme
Creditors and maintain a list of Scheme Claims received. To the
extent Reserve Claims are received, details will be promptly
communicated to plc.
(c) Following receipt of a Claim Form the Supervisors will use
reasonable endeavours to determine promptly whether and if so, the
extent to which, a Scheme Claim will be Admitted and, if so, to
promptly Admit that Scheme Claim.
(d) Following receipt of a Claim Form the Supervisors will establish the
quantum, if any, of the Scheme Claim and Admit the Scheme Claim at
this amount following the principles used in a liquidation under the
Insolvency Act 1986 (UK), as more fully described in the Explanatory
Statement and/or the Schemes. In this the Supervisors will consult
with Corp and plc and request assistance in establishing the amount
of the Scheme Claim. Corp and plc will provide assistance to enable
the Claim Forms to be properly considered.
(e) Should further information be required to determine the quantum, if
any, of a Scheme Claim to be Admitted, the Supervisors will request
this from the Scheme Creditor.
(f) The Supervisors will inform the Scheme Creditor whether its Scheme
Claim has been Admitted and the Supervisors will, in the case of a
Scheme Claim which is rejected (in whole or in part), provide the
Scheme Creditor with written reasons for the rejection.
(g) Where Allowed Proceedings are commenced or continued the Supervisors
shall defend them or assist plc in defending them as appropriate.
The costs of this shall be met from the cash reserved for this as
detailed in the plc Scheme. The Supervisors will have control over
the plc funds for this purpose.
(h) Where necessary, the Supervisors will terminate the plc Scheme in
accordance with its terms.
2.2 DISTRIBUTIONS
(a) For each distribution, subject to (b) below the Supervisors will
prepare a schedule of Admitted Scheme Claims and Scheme
Consideration which they are to receive, including the currency
elections and the ADR elections and reflecting the effect of
modelled recirculation of Scheme Consideration where appropriate
(each a "SCHEDULE"), and provide this to the Escrow Trustee and/or
the Distribution Agent for payment to be made. The Supervisors will
not be responsible for the actions of the Escrow Trustee and/or the
Distribution Agent. The Supervisors will not make payments
themselves.
(b) In relation to Bondholders, the Supervisors will only be required to
provide details of the distribution to the respective Trustees. The
Supervisors will not be required to provide details beyond this,
which will be dealt with directly between The Bank of New York and
Bondholder Communications.
(c) Where a Scheme Claim has been listed in the Schedule compiled by the
Prospective Supervisors and presented to the Court at the hearing to
sanction the Scheme, that Scheme Claim will be Admitted on the
Effective Date. On the Effective Date, the Supervisors will provide
a Schedule to the Escrow Trustee and the Distribution Agent relating
to the Initial Distribution.
(d) Following the First Initial Distribution, the Supervisors will
continue to adjudicate on and admit or reject Scheme Claims. At any
time when the Supervisors, in their sole discretion, consider that a
distribution is appropriate considering the expense, the Supervisors
will calculate a Further Distribution in respect of all Admitted
Claims and provide a Schedule to the Escrow Trustee and the
Distribution Agent.
925
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 24: SUMMARY OF TERMS OF APPOINTMENT AND SCOPE OF THE ENGAGEMENT OF THE
PROSPECTIVE SUPERVISORS AND THE SUPERVISORS
--------------------------------------------------------------------------------
(e) The Supervisors will Admit Scheme Claims which are covered by
insurance (in whole or part), consult and negotiate with the
relevant insurers as appropriate, and if necessary pursue any claims
against insurers in accordance with the terms of the Scheme.
(f) After the termination of the Waiting Period the Supervisors will
consider the amount of cash held by plc with the Creditors'
Committee operating pursuant to the terms of the plc Scheme and, if
the Supervisors consider it appropriate, they will augment any
distributions with cash held by plc which in the reasonable opinion
of the Supervisors is not required for the payment of Ongoing Costs.
(g) The Supervisors will review the level of Ongoing Costs. If the
Supervisors consider if appropriate they will reduce or cancel any
letter of credit provided to them for the purposes of the plc
Scheme.
(h) The Supervisors will maintain provisions against Scheme Claims made
but not Admitted and a Reserve Claims Segment in each Scheme. Should
the Reserve Claims Segment prove not to be required in the relevant
Scheme, the Supervisors may make Further Distributions as described
in (c) above.
(i) The Supervisors will discuss with Corp and plc any claims made which
might be Excluded Claims. Corp and plc will provide assistance in
determining these claims and resolving any disputes. Following
determination of the claims they will arrange their payment from the
Expenses Fund (as defined in the plc Scheme).
(j) The Supervisors will do such other things as may be necessary to
give effect to the actions above and to carry out their obligations
under the plc Scheme.
926
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 25
FORM OF CONFIRMATION RESOLUTION AND FORM OF SCHEME COMPANY CONFIRMATION
[MARCONI CORPORATION PLC]/[MARCONI PLC]* (THE COMPANY)
MINUTES OF A MEETING OF THE DIRECTORS OF THE COMPANY
HELD AT REGENTS PLACE, 338 EUSTON ROAD, LONDON NW1 3BT
ON --, 2003 AT --.M.
--------------------------------------------------------------------------------
Present: -- (Chairman)
In attendance: --
--------------------------------------------------------------------------------
1. QUORUM
The Chairman noted that each of the directors of the Company was present
and accordingly the meeting was quorate, and that the meeting had been duly
convened.
2. PURPOSE OF THE MEETING
It was reported that the meeting had been convened in accordance with the
confirmation procedure set out in an explanatory statement made in support
of the proposed scheme of arrangement by the Company (the SCHEME) under
section 425 of the Companies Act 1985. The purpose of the meeting was:
(a) to consider and, if thought fit, confirm that the Board remains
satisfied as to the adequacy of:
(i) the scheme consideration being set aside to form the Reserve
Claims Segment (the RESERVE); and
(ii) the scheme consideration being set aside for Known Claims which
are currently unliquidated or disputed (the PROVISIONS),
to ensure that all Scheme Creditors in respect of Reserve Claims and
unliquidated or disputed Known Claims will receive the same level of
distribution as those Scheme Creditors who participate in the First
Initial Distribution (the FID CREDITORS) in accordance with the terms
of the Scheme; [and]
[(b) to consider and, if thought fit, confirm the continued validity of
the working capital statement in part I, Section 2, Part D.21 of the
Explanatory Statement (WORKING CAPITAL STATEMENT) that the working
capital resources of the Corp Group for the period referred to in
such statement would be sufficient having regard, inter alia, to the
need to make due payment in the ordinary course during such period to
creditors of the Company as at the Effective Date as defined in the
Scheme who are not Scheme Creditors; and](1)
[(b)][(c)] to consider and, if thought fit, authorise the issue to the proposed
supervisors of the Scheme of a letter in the prescribed form
confirming that the Company remains satisfied that the Reserve and
the Provisions are sufficient to ensure that all Scheme Creditors in
respect of Reserve Claims and unliquidated or disputed Known Claims
will receive the same level of distribution as FID Creditors in
accordance with the terms of the Scheme [and that the Company remains
of the opinion that, having regard to the facilities which will be
available to the Corp Group following the Effective Date, the working
capital available to the Corp Group will be sufficient for the Corp
Group's present requirements as from the Effective Date, that is from
the Effective Date until 12 months following the date of the
Explanatory Statement](1) (the SCHEME COMPANY CONFIRMATION).
---------------
(1) Only include for Corp Board minutes.
927
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 25: FORM OF CONFIRMATION RESOLUTION AND FORM OF SCHEME COMPANY
CONFIRMATION
--------------------------------------------------------------------------------
3. APPROVAL
3.1 Having had the opportunity to consider the amount of the Reserve provided
for in the Scheme, having had regard to the results of the extensive due
diligence process conducted, the process of writing to known creditors and
the advertising process, and having taken all reasonable care to
investigate the matter, and to the best of his/their knowledge and belief
on the basis of up-to-date information each director individually, and the
Board collectively, confirmed that all appropriate enquiries had been made
to establish the level of likely Reserve Claims and unliquidated or
disputed Known Claims and that accordingly they remain satisfied that the
amount of the Reserve and the Provisions provided for in the Scheme
remained sufficient to ensure that all Scheme Creditors in respect of
Reserve Claims and unliquidated or disputed Known Claims will receive the
same level of distribution as FID Creditors in accordance with the Scheme.
[3.2 Having taken all reasonable care to investigate the position and make
enquiry of appropriate advisers, it was concluded that the results of these
investigations were consistent with the Working Capital Statement, and
accordingly that in the opinion of the Company, having regard to the
facilities which will be available to the Corp Group following the
Effective Date, the working capital available to the Corp Group will be
sufficient for the Corp Group's present requirements as from the Effective
Date, that is from the Effective Date until 12 months following the date of
the Explanatory Statement.](1)
[3.2][3.3]After due and careful consideration IT WAS UNANIMOUSLY RESOLVED THAT:
(a) the Company remained satisfied that the amount of the Reserve and the
provisions provided for in the Scheme were sufficient in order that
all Scheme Creditors in respect of Reserve Claims and unliquidated or
disputed Known Claims will receive the same level of distribution as
FID Creditors in accordance with the terms of the Scheme;
[(b) the Company remained of the opinion that having regard to the
facilities which will be available to the Corp Group following the
Effective Date, the working capital available to the Corp Group will
be sufficient for the Corp Group's present requirements as from the
Effective Date, that is from the Effective Date until 12 months
following the date of the Explanatory Statement;](1)
[(b)][(c)] the Scheme Company Confirmation be approved; and
[(c)][(d)] any two directors (or any one director and the company secretary)
be authorised to execute and deliver the Scheme Company
Confirmation to the Prospective Supervisors.
4. MEETING CLOSED
There being no further business the Chairman declared the meeting closed.
---------------
(1) Only include for Corp Board minutes.
928
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 25: FORM OF CONFIRMATION RESOLUTION AND FORM OF SCHEME COMPANY
CONFIRMATION
--------------------------------------------------------------------------------
[ON HEADED NOTEPAPER OF [MARCONI CORPORATION PLC] [MARCONI PLC]]*
To: [Philip Wallace and Richard Heis in their capacity as the Prospective
Supervisors of [Marconi Corporation plc][Marconi plc]]
Dear Sirs,
MARCONI [CORPORATION]* PLC (THE COMPANY) -- ADEQUACY OF PROVISIONING AND
RESERVES
The Company is writing to you in connection with its proposed scheme of
arrangement (the SCHEME) under section 425 of the Companies Act 1985 in
accordance with the confirmation procedure set out in Part C.5 of the
explanatory statement accompanying the Scheme (the EXPLANATORY STATEMENT).
Unless otherwise stated in this letter, terms defined in the Explanatory
Statement shall have the same meaning when used in this letter.
Following a unanimous resolution of the board, the Company hereby confirms that,
as at the date of this letter, it remains satisfied that the amount of Scheme
Consideration set aside to form the Reserve Claims Segment and that the
provisions made in respect of unliquidated or disputed Known Claims under the
Scheme will be sufficient in order that all Scheme Creditors with Reserve Claims
or unliquidated or disputed Known Claims will receive the same level of
distribution as those Scheme Creditors who participate in the First Initial
Distribution in accordance with the terms of the Scheme.
[In addition, whilst we acknowledge that you have not been advising on the
sufficiency of the working capital and you express no view thereon, the Company
remains of the opinion that having regard to the facilities which will be
available to the Corp Group following the Effective Date, the working capital
available to the Corp Group will be sufficient for the Corp Group's present
requirements as from the Effective Date, that is from the Effective Date until
12 months following the date of the Explanatory Statement. Accordingly, the
Company is of the view that there will be sufficient working capital to meet the
costs of implementing the Scheme and accordingly it will not be necessary to
look to the Scheme Consideration to fund those costs.](1)
This letter has been prepared for your sole benefit and is being provided to you
on the basis that it may not be relied upon by any other person. The Company
does not accept liability to any other person. For the avoidance of doubt (and
save, as regards the liability of any individual director, for fraud by that
individual), the directors of the Company accept no personal liability to any
person under or in connection with this letter.
This letter is governed by English law.
Yours faithfully,
------------------------------------
MARCONI [CORPORATION]* PLC
* delete as appropriate
(1) Only include for Corp letter
929
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 26
FORM OF LETTER OF CONFIRMATION TO BE GIVEN BY THE PROSPECTIVE SUPERVISORS
[ON HEADED NOTEPAPER OF KPMG]
To: [Marconi [Corporation]* plc]
Dear Sirs,
MARCONI [CORPORATION]* PLC (THE COMPANY) -- ADEQUACY OF PROVISIONING AND
RESERVES
We are writing to you in connection with the proposed scheme of arrangement of
the Company (the SCHEME) under section 425 of the Companies Act 1985 in
accordance with the confirmation procedure set out in Part C.5 of the
explanatory statement accompanying the Scheme (the EXPLANATORY STATEMENT).
Unless otherwise stated in this letter, terms defined in the Explanatory
Statement shall have the same meaning when used in this letter.
We confirm receipt of the Company's letter dated [ ] confirming, inter alia,
that it remains satisfied that the amount of the Scheme Consideration set aside
to form the Reserve Claims Segment under the Scheme and that the provisions made
in respect of unliquidated or disputed Known Claims will be sufficient in order
that all Scheme Creditors with Reserve Claims or unliquidated or disputed Known
Claims will receive the same level of distribution as those Scheme Creditors who
participate in the First Initial distribution (the FID CREDITORS) in accordance
with the terms of the Scheme.
Having reviewed the amount of Scheme Consideration to be set aside to form the
Reserve Claims Segment under the Scheme and the provisions made in respect of
unliquidated or disputed Known Claims, and based on the inquiries we have made
and the information we have seen we hereby confirm that we have no reason to
disagree with the Company's view that the provisions for unliquidated or
disputed Known Claims and the level of reserves set by the Company are
sufficient in order that all Scheme Creditors with Reserve Claims and
unliquidated or disputed Known Claims will receive the same level of
distribution as FID Creditors in accordance with the terms of the Scheme.
[Whilst we have not been advising on the issue of working capital and express no
view thereon we note your reference to the sufficiency of the working capital
and your confirmation that you are of the view that it will not be necessary to
fund the cost of implementing the Scheme from the Scheme Consideration.](1)
This letter has been prepared for the Company's sole benefit and is being
provided to you on the basis that it may not be relied upon by any other person.
We do not accept liability to any person other than the Company.
This letter is governed by English law.
Yours faithfully,
------------------------------------
[DETAILS OF SUPERVISORS]
* delete as appropriate
(1) Only include for Corp letter
930
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 27
INSTRUCTIONS TO SCHEME CREDITORS
Persons whose only Scheme Claim arises through an interest in Bonds should not
read this Appendix 27 and should instead read Appendix 28
PLEASE TAKE THE ACTION REQUESTED OF YOU IN THESE INSTRUCTIONS URGENTLY. THERE IS
ONLY A LIMITED TIME PERIOD WITHIN WHICH THE FORMS OF PROXY MUST BE RETURNED,
DULY EXECUTED AND COMPLETED BY ALL RELEVANT PERSONS AS DIRECTED IN THESE
INSTRUCTIONS, IN ORDER TO VOTE AT THE RELEVANT SCHEME MEETING(S). IN ADDITION,
IF YOU HAVE A KNOWN CLAIM IN ORDER TO BE ELIGIBLE TO PARTICIPATE IN THE FIRST
INITIAL DISTRIBUTION OF SCHEME CONSIDERATION WHICH IS TO BE MADE ON THE
EFFECTIVE DATE OF THE RELEVANT SCHEME YOU MUST RETURN YOUR CLAIM FORM, DULY
EXECUTED AND COMPLETED BY ALL RELEVANT PERSONS AS DIRECTED IN THESE INSTRUCTIONS
BY 5.00 P.M. (LONDON TIME) ON THE FIRST CLAIM DATE (BEING 17 APRIL 2003). IF YOU
RETURN YOUR DULY EXECUTED AND COMPLETED CLAIM FORM AFTER THE FIRST CLAIM DATE
(BEING 17 APRIL 2003), YOU WILL ONLY BE ELIGIBLE TO PARTICIPATE TO RECEIVE AN
INITIAL DISTRIBUTION OF SCHEME CONSIDERATION AS SOON AS PRACTICABLE AFTER YOUR
SCHEME CLAIM IS ADMITTED.
If you have any questions relating to these instructions, please contact the
KPMG HELPLINE by telephoning + 44 (0)20 7694 3007 as set out on the fourth page
of this document.
General
1. You are a Scheme Creditor if you held a Scheme Claim in respect of Corp
or plc or both at the Record Date (5.00 p.m. London time on 27 March
2003). For example, these include banks, landlords, certain trade
creditors and those with the benefit of a guarantee or warranty from Corp
or plc.
2. In addition to being a Scheme Creditor, you may also be a person with an
interest in Bonds. If so, please also refer to Appendix 28 and also take
the appropriate action described there.
3. The Law Debenture Trust Corporation p.l.c., as trustee for the Eurobonds,
and The Bank of New York, as trustee for the Yankee Bonds, are entitled
to, and will, each complete a Claim Form in respect of the Corp Scheme
and the plc Scheme respectively. Separate arrangements have been made for
the Definitive Holder of the Bonds to vote at, or to give instructions as
to how their votes should be cast in relation to, the relevant Scheme
Meetings (see Appendix 28).
This document
4. You have received this document (and its accompanying Form(s) of Proxy
(coloured yellow for Corp Scheme Creditors and coloured green for plc
Scheme Creditors) and Claim Form(s) (coloured blue for Corp Scheme
Creditors and coloured pink for plc Scheme Creditors)) from Corp or plc
as appropriate.
Completing and Submitting your Claim Form
5. The Claim Form should be completed and signed in accordance with the
guidance notes set out in it.
6. The Claim Form is printed on carbon copy paper, meaning that by writing
on the top sheet of each page a duplicate copy will be completed
automatically. You should tear off and retain the bottom sheet of each
page (the copy) of the Claim Form and submit the top sheet of each page
(the original) to KPMG LLP at 8 Salisbury Square, London, EC4Y 8BB
England, UK, for the attention of Philip Wallace and Richard Heis. If you
are submitting your completed Claim Form on a date approaching 17 April
2003, you are advised to use a courier or similar delivery service and
not the ordinary post. If you are submitting your Claim Form by first
class post sent from within the UK, you are recommended to allow at least
three Business Days for delivery. KPMG will acknowledge, by first class
post, receipt of all Claim Forms.
7. Claim Forms may be withdrawn or amended after submission by written
notice to KPMG at 8 Salisbury Square, London, EC4Y 8BB, England, UK, for
the attention of Philip Wallace and Richard Heis at any time prior to the
issue by the Supervisors of instructions to the Escrow Trustee and the
Distribution Agent to distribute Scheme Consideration in respect of the
Scheme Claim set out in the Claim Form.
931
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 27: INSTRUCTIONS TO SCHEME CREDITORS
--------------------------------------------------------------------------------
Effect of Claim Form
8. Your duly completed Claim Form constitutes your claim to Scheme
Consideration in the relevant Scheme. If you have a Known Claim, in order
to be assured of participating in the First Initial Distribution of
Scheme Consideration in respect of that Known Claim on the Effective Date
your duly completed Claim Form must be received by KPMG by 5.00 p.m.
(London time) on the First Claim Date (being 17 April 2003), and your
Known Claim must be listed in the First Initial Distribution Notice which
will ensure that it is Admitted on the Effective Date. FOR THIS REASON
YOU ARE URGED TO RETURN YOUR CLAIM FORM AS SOON AS POSSIBLE. Any
amendment made to your Claim Form should be initialled next to the
amendment by the person(s) signing the Claim Form. Claim Forms received
before 5.00 p.m. (London time) on First Claim Date (being 17 April 2003),
which are not listed (in whole or in part) in the First Initial
Distribution Notice will not, to the extent to which such a Scheme Claim
has not been so listed in the First Initial Distribution Notice, entitle
participation in the First Initial Distribution. Any Scheme Claims not
listed in the First Initial Distribution Notice will, if Admitted,
receive an Initial Distribution as soon as practicable after they are
Admitted. KPMG will return any Claim Forms which are not duly completed
with a brief explanation of why they are not duly completed by first
class post or, where a fax number has been provided, by fax.
Voting at Scheme Meetings
9. In order to vote at the relevant Scheme Meeting(s), you should complete
and sign the relevant Form of Proxy as described in paragraph 10 and
submit it to KPMG on behalf of Corp or plc, as appropriate in accordance
with paragraph 11 below. There are two separate Scheme Meetings and an
appropriately coloured form of proxy must be lodged in respect of each
Scheme Meeting relevant to you (Corp Scheme Creditors coloured yellow,
and plc Scheme Creditors coloured green). Lodging a Form of Proxy in
advance of the relevant Scheme Meeting does not prevent a Scheme Creditor
from revoking such proxy and delivering a new Form of Proxy on the date
of the Scheme Meeting or revoking such proxy and attending the Scheme
Meeting in person.
Completing your Form of Proxy
10. The relevant Form of Proxy should be completed in accordance with the
guidance notes printed on it. In summary, you may elect either to:
a. attend and vote at the relevant Scheme Meeting in person or appoint
someone else as your proxy (other than the chairman of the Scheme
Meeting) to attend and vote at the relevant Scheme Meeting in
person on your behalf; or
b. instruct the chairman of the relevant Scheme Meeting as your proxy
to cast your vote in accordance with your wishes.
You are recommended to appoint a proxy (either the chairman or someone
else of your choice who would be willing to attend the relevant Scheme
Meeting) in any event, even if you intend to attend and vote in person,
in case you are unable to do so for some reason. If you do appoint a
proxy and you then decide to attend and vote at the relevant Scheme
Meeting in person, you will be entitled to do so.
11. The Forms of Proxy are printed on carbon copy paper, meaning that by
writing on the top sheet of each page a duplicate copy will be completed
automatically. You should tear off and retain the bottom sheet of each
page (the copy) and submit the top sheet of each page (the original) to
KPMG at 8 Salisbury Square, London, EC4Y 8BB England, UK, for the
attention of Philip Wallace and Richard Heis.
Lodging your Form of Proxy
12. YOUR DULY COMPLETED FORM OF PROXY SHOULD BE SENT AS SOON AS POSSIBLE TO
KPMG AT 8 SALISBURY SQUARE, LONDON, EC4Y 8BB, ENGLAND, UK, FOR THE
ATTENTION OF PHILIP WALLACE AND RICHARD HEIS. The recommended latest time
for delivering the duly completed Form of Proxy to KPMG is 5.00 p.m.
(London time) on 17 April 2003. The latest time and date by which KPMG
should receive Forms of
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Proxy is 12 noon (London time) on 24 April 2003. KPMG will acknowledge
receipt of all Forms of Proxy received before 5.00 p.m. (London time) on
24 April 2003 by first class post or by e-mail where an e-mail address is
given. If you are submitting your completed Form of Proxy on a date
approaching the above dates you are advised to use a courier or similar
delivery service and not the ordinary post. If you are submitting your
Form of Proxy by first class post sent from within the UK, you are
recommended to allow at least three Business Days for delivery.
Alternatively, Forms of Proxy may be handed in at the registration desk
for the Scheme Meeting and this should be done no later than one hour
before the scheduled time of the relevant Scheme Meeting. Otherwise the
Form of Proxy may be handed to the chairman of the relevant Scheme
Meeting.
Attending the Scheme Meetings
13. The Scheme Meetings will take place at the Institute of Civil Engineers,
1 Great George Street, London SW1 on 25 April 2003 at 10.00 a.m. (the
Corp Scheme Meeting) and 10.15 a.m. (or as soon as possible thereafter
following the conclusion or adjournment of the Corp Scheme Meeting) (the
plc Scheme Meeting). You or the proxy attending the Scheme Meeting(s) on
your behalf should produce your retained copy (bottom sheets) of the Form
of Proxy, which KPMG acting as meeting adviser can then match against the
original (top sheets) of your Form of Proxy. If you appoint the chairman
of the relevant Scheme Meeting as your proxy, there is no need to take
the Form of Proxy to the relevant Scheme Meeting.
14. Where your retained copy of the Form of Proxy is not produced, admittance
to the Scheme Meeting will be permitted to you or your proxy on the
production of proof of personal identity (for example, passport or other
picture identification) and, where an individual is attending on behalf
of a body corporate, evidence of authorisation to represent that body
corporate (for example a valid power of attorney and/or board minutes)
provided that the identity and authorisation, as appropriate, for that
Scheme Creditor or proxy conforms with the details on the original Form
of Proxy which has been received by KPMG in respect of such Scheme
Creditor. However, Scheme Creditors are advised that admittance to Scheme
Meetings in this way and delivery of Forms of Proxy to the registration
desk on the date of the Scheme Meetings will be subject to time consuming
verification at the door of the relevant Scheme Meeting. Accordingly,
Scheme Creditors are recommended to submit Forms of Proxy so as to reach
KPMG by 12 noon on 17 April 2003 and to bring the retained copy (bottom
sheet) of the Form of Proxy to the relevant Scheme Meeting.
15. For the purposes of voting at the Scheme Meetings, to determine whether
the Scheme Creditors approve the relevant Scheme by a majority in number
representing 75 per cent. in value of those present and voting either in
person or by proxy at that meeting the claim of a Scheme Creditor will be
valued by the chairman of the relevant Scheme Meeting assisted by KPMG
who will be appointed as meeting advisers to confirm, inter alia, that
the statutory requisites in regard to, among other things, numerosity are
adhered to. Despite the assistance of KPMG as meeting advisers the
chairman of the relevant Scheme Meeting will be acting in his discretion
and on information also available to him from Corp or plc as appropriate.
This valuation is for voting purposes only and will not be binding for
the purposes of admission of a Scheme Creditor's claim or calculating a
Scheme Creditor's entitlement to Scheme Consideration under the relevant
Scheme(s), which will be determined by the Prospective Supervisors and/or
Supervisors based on the details provided in the Scheme Creditor's Claim
Form.
16. The chairman of the relevant Scheme Meeting will have absolute discretion
to admit claims, in whole or in part, for voting purposes at that Scheme
Meeting only. In exercising that discretion the chairman will follow the
principles set out below:
a. if a claim is unascertained, contingent or disputed (in part) but
the chairman is able to place a minimum value on that claim, the
chairman will admit the claim for voting purposes for that minimum
value;
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b. if a claim is disputed in its entirety, whether it is a liquidated
or unliquidated claim, that claim will not be admitted for voting
purposes.
Where the chairman rejects a claim in whole or in part he will notify the
creditor of his decision in writing prior to the relevant Scheme Meeting
where practicable, or otherwise at the Scheme Meeting, of his decision to
reject that claim (in whole or in part). The chairman will report to the
Court, at the hearing to sanction the relevant Scheme (which is
anticipated will take place on 12 and 13 May 2003) his decision to reject
claims (if any) with details of those claims and the reasons for
rejection.
17. For the purposes of voting at the Scheme Meetings and determining whether
or not the statutory majorities of creditors voting at those meetings are
achieved claims will be converted, if appropriate, into sterling. The
rate of exchange used for this purpose will be the Voting Rate.
Proposal for membership of the Creditors' Committee
18. If you are willing to act as a member of the Creditors' Committee you may
propose yourself to act as a member of the Creditors' Committee by
ticking Box 4 on the Claim Form. On the Effective Date, the Supervisors
will, to the extent possible, appoint up to seven members of the
Creditors' Committee selected from those Scheme Creditors (including
Definitive Holders) who have proposed themselves to act, representing a
proper balance of interests of Scheme Creditors as a whole. If fewer than
three Scheme Creditors (including Definitive Holders) propose themselves
to act as a member of the Creditors' Committee, then on and from the
Effective Date the Creditors' Committee will consist of as many members
as have proposed themselves to act. In accordance with the terms of the
Scheme those members, if any, will endeavour to fill the vacancy or
vacancies to ensure that the Creditors' Committee has a minimum of three
members within 28 days of the Effective Date. If those members do not
succeed in appointing the necessary number of further members of the
Creditors' Committee, resulting in a Creditors' Committee consisting of
less than three members by 28 days after the Effective Date, the
Supervisors will thereafter use reasonable endeavours to appoint the
necessary number of further members within the following 14 days as
interim committee members to serve on the Creditors' Committee until the
necessary number of further permanent members are appointed.
Further copies
19. If you require further copies of this document (or its accompanying
Form(s) of Proxy and/or Claim Form(s)), these can be obtained from KPMG
by contacting the KPMG HELPLINE on +44 (0)20 7694 3007.
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APPENDIX 28
INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
If you have any questions relating to these instructions, please contact Donna
Martini of Bondholder Communications Group ("BONDHOLDER COMMUNICATIONS") on +44
(0) 207 236 0779 or +1 212 422 0790 or by email at dmartini@bondcom.com.
INTRODUCTION
1. The following Bonds issued by Corp and guaranteed by plc are Eurobonds:
E500,000,000 5.625 per cent. Bonds due 2005
E1,000,000,000 6.375 per cent. Bonds due 2010.
2. The following Bonds issued by Corp and guaranteed by plc are Yankee
Bonds:
US$900,000,000 7 3/4 per cent. Bonds due 2010
US$900,000,000 8 3/8 per cent. Bonds due 2030.
3. The term "SCHEME CREDITOR" is used in this Appendix in a number of
different contexts and, in each context, has a different meaning in so
far as the Bonds are concerned. In relation to the Bonds:
a. in the context of Submitting Scheme Claims (and therefore
completing Claim Forms) under both Schemes, the term, "SCHEME
CREDITOR" means only the Eurobond Trustee and the Yankee Bond
Trustee; and
b. in the context of voting at Scheme Meetings and the right to attend
Creditors' Meetings and to be nominated to the Creditors' Committee
under both Schemes, the term "SCHEME CREDITOR" means only the
Definitive Holders.
In the context of entitlement to receive Scheme Consideration under both
Schemes, the term "SCHEME CREDITOR" is only used to mean those persons
who have Submitted a Scheme Claim which has been Admitted. Each Trustee
is expected to Submit a Scheme Claim and each such Scheme Claim is
expected to be Admitted. However, as each Trustee will, in the Escrow and
Distribution Agreement, direct that any Scheme Consideration to which it
becomes entitled should be distributed to Designated Recipients, in this
context reference is generally made to Scheme Consideration being
distributed to Scheme Creditors (other than the Trustees) and to
Designated Recipients.
4. Persons with interests in Bonds may be Account Holders, Intermediaries,
Bondholders, Definitive Holders and/or Designated Recipients.
a. You are an Account Holder if you are recorded directly in the books
of Euroclear or Clearstream, Luxembourg (in the case of the
Eurobonds) or Euroclear, Clearstream, Luxembourg or DTC (in the
case of the Yankee Bonds) as holding an interest in the Eurobonds
or the Yankee Bonds, as the case may be, in an account with the
relevant clearing system.
b. You are an Intermediary if you hold an interest in Eurobonds or
Yankee Bonds on behalf of another person or persons and you do not
hold that interest as an Account Holder.
c. You are a Bondholder if you have the ultimate economic interest in
the relevant Bonds.
d. You are a Definitive Holder if you are the registered holder of a
Yankee Bond in definitive form or the bearer by attornment of an
individual global Eurobond in bearer form. A summary of the
attornment process relating to the Eurobonds is set out in
paragraph 22 and this will assist you in determining whether or not
you are a bearer by attornment of an individual global Eurobond. A
Definitive Holder may or may not be the same person as the
Bondholder in respect of any Bond.
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e. You are a Designated Recipient if you are named in an Account
Holder Letter as the recipient of any part of the Scheme
Consideration. A Designated Recipient may or may not be the same
person as a Bondholder in respect of any Bond.
5. Ancrane is the Bondholder in respect of E324,603,000 principal amount of
Eurobonds and US$261,100,000 principal amount of Yankee Bonds. Ancrane
will undertake, in the Escrow and Distribution Agreement, to procure that
no Account Holder Letter is delivered on its behalf so that no votes may
be cast by it or on its behalf at either Scheme Meeting and will, through
the same Agreement, name plc as its Designated Recipient of Scheme
Consideration to facilitate Distributions of Scheme Consideration under
the Schemes.
EUROBONDS
You should read this section (paragraphs 6 to 26) if you have an interest in
Eurobonds. You need not read this section if you only have an interest in Yankee
Bonds.
SCHEME CREDITORS
6. The Corp Scheme Creditors for the Eurobonds are:
a. The Eurobond Trustee, The Law Debenture Trust Corporation p.l.c.,
in accordance with the promise to pay made to it in the Trust
Deeds;
b. For so long as any of the Eurobonds are represented by a permanent
global bearer Eurobond, the common depositary for Euroclear and
Clearstream, Luxembourg, as the bearer of the relevant global
Eurobond;
c. For so long as the Eurobonds are in individual global form and held
with Euroclear and Clearstream, Luxembourg, the Definitive Holders
(as the bearers by attornment of the individual global Eurobonds)
and, to the extent there are no Definitive Holders, the depositary
for Euroclear and Clearstream, Luxembourg as the bearer of an
individual global Eurobond; and
d. If any Eurobond in definitive form is held outside Euroclear and
Clearstream, Luxembourg, the bearer of that definitive Eurobond
(but see below).
Once an Account Holder Letter has been delivered the relevant accounts
within Euroclear and Clearstream, Luxembourg in which the Eurobonds the
subject of that Account Holder Letter are held will be blocked. As a
result, it will not be possible to withdraw Eurobonds in definitive form
from those accounts. If any Eurobonds are withdrawn from an unblocked
account and, under the terms of the Eurobonds, this is only permitted on
at least 60 days' notice if there has been an event of default or certain
other limited events have occurred, it will not be possible to complete
an Account Holder Letter in respect of those Eurobonds and they will need
to be re-deposited into Euroclear or Clearstream, Luxembourg before an
Account Holder Letter can be filed (and thus an entitlement to receive
Scheme Consideration can arise) in respect of them.
7. The plc Scheme Creditors for the Eurobonds are:
a. The Eurobond Trustee as recipient of the guarantee given by plc in
the Trust Deed; and
b. The Definitive Holders following execution of the Bondholder
Confirmation Letter.
CLAIMS IN RESPECT OF THE EUROBONDS
8. As indicated above, the Eurobond Trustee is a Scheme Creditor in respect
of both the Corp and the plc Schemes. As a result, and also reflecting
the fact that individual global Eurobonds are not expected to be issued
until after the First Claim Date (which is shortly before the Scheme
Meetings), one Claim Form under each Scheme in respect of all the
Eurobonds will be completed and filed by the Eurobond Trustee on or
before 5.00 p.m. (London time) on the First Claim Date on behalf of all
Bondholders in respect of the Eurobonds and no other claim by a Scheme
Creditor in respect of the Eurobonds will be admitted. As
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claimant, the Eurobond Trustee will, in the Escrow and Distribution
Agreement, direct that Scheme Consideration in respect of the Eurobonds
should be paid to Designated Recipients.
9. ACCORDINGLY, NO PERSON WITH AN INTEREST IN THE EUROBONDS MAY BE OR IS
REQUIRED TO COMPLETE ANY CLAIM FORM IN RESPECT OF EITHER SCHEME. HOWEVER,
UNDER BOTH SCHEMES NO SCHEME CONSIDERATION (OTHER THAN CASH PAID IN
RESPECT OF THE EUROBONDS) WILL BE DISTRIBUTED UNLESS: (I) CUSTODY
INSTRUCTIONS (AS DEFINED IN PARAGRAPH 13 BELOW) WITH RESPECT TO THAT
ACCOUNT HOLDER LETTER HAVE BEEN DULY SUBMITTED AND (II) A DESIGNATED
RECIPIENT HAS BEEN DULY IDENTIFIED IN AN ACCOUNT HOLDER LETTER (IN OR
SUBSTANTIALLY IN THE FORM SET OUT AS THE ANNEX TO THIS APPENDIX 28) WHICH
HAS BEEN DULY COMPLETED BY AN ACCOUNT HOLDER. These instructions contain
important guidance and information which should be carefully considered
by Account Holders when completing their Account Holder Letters and by
Bondholders and Intermediaries when giving instructions to their Account
Holders to complete such letters.
REQUIREMENT FOR AN ACCOUNT HOLDER LETTER
10. The Initial Distribution of Scheme Consideration under each Scheme
comprises cash, New Shares and New Notes. To the extent that an Initial
Distribution of the Scheme Consideration comprises cash, it will be
distributed through Euroclear and Clearstream, Luxembourg in the manner
described in paragraph 11 below. To the extent that an Initial
Distribution of Scheme Consideration comprises New Shares or New Notes,
it will be distributed to Designated Recipients in the manner identified
in the relevant Account Holder Letter. In order to receive that part of
the Initial Distribution of Scheme Consideration which comprises New
Shares and New Notes, each Account Holder with Eurobonds credited to its
account at Euroclear or Clearstream, Luxembourg must obtain whatever
information or instructions it may require to enable it to deliver a duly
completed Account Holder Letter on behalf of the Bondholder in respect of
those Eurobonds in the manner described in paragraph 12 below. Each
Account Holder Letter delivered will apply to both Schemes so that each
Account Holder will only be required to complete one Account Holder
Letter for each Bondholder that it represents.
11. The First Initial Distribution of Scheme Consideration is expected to be
made under each Scheme on the Effective Date of that Scheme. Cash forming
part of the First Initial Distribution under each Scheme will be credited
to the respective Account Holders with Euroclear and Clearstream,
Luxembourg which have Eurobonds credited to their accounts at the date of
distribution. It is the responsibility of the Account Holders to direct
payment of these funds to the appropriate recipient and none of the
Escrow Trustee, the Distribution Agent, the Eurobond Trustee, Bondholder
Communications or any other person shall have any responsibility for
payments by Account Holders which will be dealt with in accordance with
each Account Holder's existing arrangements with Bondholders and
Intermediaries.
12. New Shares and New Notes forming part of the Initial Distribution under
each Scheme and the cash, New Shares and New Notes forming Further
Distributions will be distributed to Designated Recipients in accordance
with the instructions set out in the Account Holder Letter that each
Account Holder must deliver to Bondholder Communications. It will be the
responsibility of Account Holders to obtain from the Intermediaries
and/or Bondholders on whose behalf they are acting, in accordance with
the procedures established between them, whatever information or
instructions they may require to identify in an Account Holder Letter a
Designated Recipient to receive such Scheme Consideration and to give the
confirmations required by the Account Holder Letter. To assist this
process, Bondholders (through any Intermediaries, if appropriate) are
strongly encouraged to contact the Account Holder through which they hold
their Eurobonds to enable that Account Holder to complete an Account
Holder Letter and deliver such Account Holder Letter to Bondholder
Communications prior to 5.00 p.m. (New York City time) on 17 April 2003.
13. By no later than 5.00 p.m. (local time in the place of the clearing
system) on the Business Day immediately prior to the day on which the
Account Holder Letter is delivered to Bondholder Communications, the
Account Holder will be required to "block" with the relevant clearing
system the Eurobonds the subject of that Account Holder Letter by giving
instructions ("CUSTODY INSTRUCTIONS") to that effect to the relevant
clearing system. The procedures for doing this are described in
paragraphs 46 to
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49 below. Any Account Holder Letter and Custody Instructions delivered
will be irrevocable unless and until the relevant Scheme is not approved
or does not become effective. Each Custody Instruction will, in addition
to blocking the relevant Eurobonds, constitute an instruction to each of
Euroclear and Clearstream, Luxembourg to debit the relevant Account
Holder's account with the relevant Bonds and credit them to a separate
non-fungible transit account within the relevant clearing system. This is
necessary to enable a Definitive Holder to be eligible to vote at the
Scheme Meetings.
14. By delivering the Account Holder Letter to Bondholder Communications the
Account Holder confirms to Corp, plc, Bondholder Communications, the
Escrow Trustee, the Distribution Agent and the Supervisors that Custody
Instructions in respect of the Eurobonds which are the subject of the
Account Holder Letter have been issued to the relevant clearing system
with effect from or before 5.00 p.m. (local time in the place of the
clearing system) on the Business Day immediately prior to the date on
which the Account Holder Letter was delivered to Bondholder
Communications in accordance with the normal procedures of such clearing
system and after taking into account the deadlines imposed by such
clearing system, instructs the relevant clearing system to transmit to
Bondholder Communications the information contained within the Custody
Instructions, and gives the other confirmations required by the Account
Holder Letter.
15. RECOMMENDED DEADLINE: Account Holder Letters should be delivered to
Bondholder Communications (if possible, on-line through
www.bondcom.com/marconi) by no later than 5.00 p.m. (New York City time)
on 17 April 2003. Account Holder Letters delivered after 5.00 p.m. (New
York City time) on 17 April 2003 will entitle the Designated Recipients
identified in them to receipt of the New Shares and New Notes comprised
in the Initial Distribution on the later of (1) as soon as is practicable
following the date that the Account Holder Letter is delivered and (2)
the date of the First Initial Distribution. An Account Holder Letter will
be deemed delivered when actually received by Bondholder Communications,
provided that if Bondholder Communications subsequently identifies any
error in the Account Holder Letter or determines that an Account Holder
Letter is incomplete, such Account Holder Letter will not be deemed
delivered until all such errors have been rectified or the Account Holder
Letter has been completed to the satisfaction of Bondholder
Communications. Bondholder Communications will confirm receipt of duly
completed Account Holder Letters to Account Holders who submit them.
Pending receipt of such confirmation, Account Holders should contact
Donna Martini of Bondholder Communications by telephone or email using
the contact details given at the start of this Appendix to confirm that
their Account Holder Letters have been completed to the satisfaction of
Bondholder Communications.
INFORMATION TO BE PROVIDED IN THE ACCOUNT HOLDER LETTER
16. Account Holders must ensure (through any Intermediaries, if appropriate)
that the Bondholders in respect of the Eurobonds credited to their
accounts at Euroclear or Clearstream, Luxembourg have provided them with
the following information necessary to complete the Account Holder
Letter:
a. confirmation that the confirmations to be given by the Account
Holder can be given by it on behalf of the Bondholder or its
Designated Recipient (see paragraph 17 below);
b. details of the account with Euroclear or Clearstream, Luxembourg to
which any cash payments to be made under either Scheme to the
relevant Bondholder or its Designated Recipient can be made (see
paragraph 18 below);
c. details of the account with DTC, Euroclear or Clearstream,
Luxembourg to which New Notes to be distributed under either Scheme
can be credited and in the case of the New Senior Notes distributed
under each Scheme, whether such New Senior Notes are to be
denominated in Euro or US dollars (see paragraph 19 below);
d. details as to whether the New Shares to be distributed under either
Scheme should be represented by ADRs and details as to how such New
Shares or ADRs will be held (see paragraph 20 below); and
e. certain voting instructions as described in paragraphs 21 through
26 below.
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17. Bondholders should read part I, Section 2, Parts D.16 and D.17 of the
Scheme Document carefully. These parts describe restrictions on the
distribution of securities pursuant to the Schemes under the laws of
certain states of the United States and France, Italy and Malaysia (each
a "RESTRICTED JURISDICTION"). Bondholders will be required to confirm to
their Account Holders (through any Intermediaries, if appropriate) that
they are not located in any Restricted Jurisdiction. If they are located
in a Restricted Jurisdiction, Bondholders may be required to give certain
additional confirmations in order to establish their eligibility to
receive the New Shares and/or New Notes under applicable laws as
described in part I, Section 2, Parts D.16 and D.17 of the Scheme
Document. Where a required confirmation cannot be given, this should be
indicated in the Account Holder Letter. In these circumstances, the
Distribution Agent will sell any securities comprised in the relevant
distribution of Scheme Consideration and transfer the net proceeds (after
deduction of all applicable costs) to the relevant Designated Recipient
(except that, where the relevant securities are not at that time listed
on a securities exchange, such Designated Recipient will receive a sum in
cash in sterling which is substantially equivalent in value to any such
unlisted securities) by way of an individual payment of cash (as
described in the final sentence of paragraph 18 below).
18. Cash comprised in the First Initial Distribution of Scheme Consideration
under each Scheme will be credited to the respective Account Holders with
Euroclear and Clearstream as described in paragraph 11 above. It is
currently anticipated that cash comprised in any Further Distribution of
Scheme Consideration under each Scheme will be distributed in the same
manner. If, however, any individual Designated Recipient becomes entitled
to a cash payment, it will be necessary to make individual payments
through the clearing systems and therefore account details with the
relevant clearing system should be provided.
19. The New Senior Notes to be distributed under each Scheme will be
denominated in Euro and/or US dollars based on elections made in Claim
Forms and Account Holders Letters. No New Senior Notes denominated in US
dollars will be issued unless, based on information contained in all
Claim Forms and all Account Holder Letters received prior to 17 April
2003, elections have been made which would, if both Schemes become
effective, result in an aggregate of at least the US dollar equivalent
(calculated at the Currency Rate) of Euro 250,000,000 (less the Relevant
Deduction) of New Senior Notes denominated in US dollars being required
to be distributed in the First Initial Distribution under both Schemes.
New Senior Notes denominated in Euro will only be issued if, based on all
Claim Forms and all Account Holder Letters received by 17 April 2003,
elections have been made which would, if both Schemes become effective,
result in an aggregate of at least Euro 250,000,000 (less the Relevant
Deduction) of New Senior Notes denominated in Euro being required to be
distributed in the First Initial Distribution under both Schemes.
20. The Account Holder Letter provides two options in respect of the holding
of New Shares. These options are:
a. delivery through a specified CREST account; and
b. delivery (at the risk of the recipient) of a share certificate by
ordinary uninsured mail.
The New Shares to be distributed under each Scheme may be received in the
form of New Shares or ADRs. An affirmative election to receive New Shares
in the form of ADRs will need to be made in the Account Holder Letter if
ADRs are to be delivered to the relevant Designated Recipient. Before
making an election to receive ADRs, Bondholders should review the
"Description of the American Depositary Receipts" in Appendix 16 to the
Scheme Document, as well as the information with respect to the issuance,
listing and secondary market trading of the ADRs in part I, Section 2,
Parts C.2 and D.15 of the Scheme Document. In particular, persons who are
considering making an election to receive ADRs should note that, although
Corp will apply to list such ADRs on NASDAQ, this NASDAQ listing is
currently not expected to become effective until the third calendar
quarter of 2003.
VOTING BY DEFINITIVE HOLDERS
21. As can be seen from paragraphs 6 and 7 above, Account Holders,
Intermediaries and Bondholders are not themselves Scheme Creditors and
thus are not entitled to attend or vote at Scheme Meetings. They will not
become Scheme Creditors under either Scheme unless they become Definitive
Holders. The terms of
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the existing permanent global Eurobonds do not permit their exchange for
Eurobonds in definitive bearer form unless and until an event of default
under the conditions of the Eurobonds or certain other limited events
have occurred. At the request of certain creditors, Corp has agreed to
exchange the permanent global Eurobonds for individual global Eurobonds
with a view to ensuring that persons with interests in Eurobonds can
become Definitive Holders and can attend and vote at the Scheme Meetings.
In light of this request, and in order to ensure parity of treatment with
the Definitive Holders of the Yankee Bonds who will be entitled to attend
and vote at the Scheme Meetings, Corp has requested the Eurobond Trustee
to agree that the terms of the permanent global Eurobonds should be
amended to permit the issuance of individual global Eurobonds at the
discretion of Corp. At the request of certain creditors of plc, plc has
agreed to extend the benefit of its guarantee of the Eurobonds to the
Definitive Holders of Eurobonds with a view to ensuring that they can
attend and vote at the plc Scheme Meetings in respect of such Bonds.
22. Pursuant to the Agreement referred to in paragraph 21, it is envisaged
that each permanent global Eurobond will be exchanged for a number of
individual global Eurobonds. A single individual global Eurobond will be
issued in respect of each holding of Eurobonds identified in an Account
Holder Letter and a further single individual global Eurobond for each
series will be issued in respect of the remaining holding of Eurobonds
not identified in any Account Holder Letter. Each individual global
Eurobond will have the same rights as the permanent global Eurobond
including the right to elect for security-printed definitive Eurobonds to
be issued in certain limited circumstances. In order to make a Definitive
Holder of a Eurobond a Scheme Creditor for the purposes of voting at the
Corp Scheme Meeting, the benefit of the promise to pay by Corp in favour
of the bearer of each individual global Eurobond must be extended to the
Definitive Holder. As the Definitive Holder will not in fact be the
bearer of the individual global Eurobond, this will be achieved by
attornment. Accordingly, the actual bearers of the individual global
Eurobonds will agree that such Bonds are held by them for the relevant
Account Holders in Euroclear and Clearstream, Luxembourg and each Account
Holder will agree that those of the individual global Eurobonds so
attorned to him which are attributable to a particular Definitive Holder
are held by him on behalf of that Definitive Holder. No attornment of any
Eurobonds will be made where a Definitive Holder has not been identified
in respect of those Eurobonds and, in these circumstances, the Bondholder
in respect of those Eurobonds will not be entitled to attend and vote at
the relevant Scheme Meetings.
23. It will, however, not be possible to issue an individual global Eurobond
until the principal amount of Bonds to be represented by that individual
global Eurobond has been identified in an Account Holder Letter delivered
to Bondholder Communications. As a result, Corp has determined to issue
the individual global Eurobonds only after 17 April 2003 (being the
deadline for delivery of Account Holder Letters in order to qualify for
the First Initial Distribution of Scheme Consideration under each
Scheme). The Account Holder Letter will also be used to enable the
Definitive Holder to vote at Scheme Meetings in the manner described
below. A Definitive Holder may elect:
a. to attend and vote at the Scheme Meetings in person (the procedures
in this respect are described in paragraph 24); or
b. to appoint a proxy (other than the chairman of the relevant
meeting) to attend and vote at the Scheme Meetings on its behalf
(the procedures in this respect are described in paragraph 25); or
c. not to attend any Scheme Meetings but to appoint the chairman of
the relevant Scheme Meeting as its proxy to vote on its behalf (the
procedures in this respect are described in paragraph 26).
24. A Definitive Holder who wishes to attend and vote in person at a Scheme
Meeting should ensure that this is recorded in the Account Holder Letter
delivered on his behalf and that the voting intention section of the
Account Holder Letter is completed, although this does not bind him to
vote in any particular way at the Scheme Meeting. In order to attend a
Scheme Meeting, the Definitive Holder should produce a confirmed copy of
the Account Holder Letter in which he is named as the Definitive Holder
which should be sent to him by Bondholder Communications. Where this copy
can be matched against one of the copies provided by Bondholder
Communications to KPMG, the Definitive Holder will be admitted to the
relevant Scheme Meeting without further proof of identity. Where a
confirmed copy of the Account Holder Letter cannot be produced by the
Definitive Holder, admittance to the Scheme Meetings will be
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permitted only on the production of proof of personal identity (for
example, passport or other picture identification) and, where an
individual is attending on behalf of a body corporate and is not the
authorised employee named in the Account Holder Letter, evidence of
authorisation to represent that body corporate (for example, a valid
power of attorney and/or board minutes), provided that identity and
authorisation, as appropriate, for that Definitive Holder conforms with
the details in the relevant copy of the Account Holder Letter submitted
by Bondholder Communications to KPMG. However, Definitive Holders are
advised that admittance in this way will be subject to time consuming
verification at the door of the relevant Scheme Meeting and, accordingly,
each Definitive Holder is recommended to bring with him the copy of the
Account Holder Letter which was delivered in respect of his Eurobonds.
25. A Definitive Holder who wishes to authorise Bondholder Communications to
appoint a proxy (other than the chairman of the relevant meeting) to
attend and vote at a Scheme Meeting on his behalf should ensure that the
identity of the relevant proxy and the manner in which the proxy should
vote are recorded in the Account Holder Letter in which he is named as
the Definitive Holder by giving appropriate instructions to the Account
Holder. The Account Holder Letter so completed will constitute authority
to Bondholder Communications to complete and execute a form of proxy in
the name of and on behalf of the Definitive Holder. In order to attend a
Scheme Meeting the person appointed as proxy should produce a copy of the
form of proxy in which he is named as proxy which will be sent to him by
Bondholder Communications. Where this copy can be matched against one of
the copies provided by Bondholder Communications to KPMG, the person
appointed as proxy will be admitted to the relevant Scheme Meeting upon
proof of personal identity (for example, passport or other picture
identification). Where a copy of the form of proxy cannot be produced by
the person appointed as proxy, admittance to the Scheme Meetings will be
permitted only on the production of proof of personal identity (for
example, passport or other picture identification), provided that
identity conforms with the details in the relevant copy of the form of
proxy submitted by Bondholder Communications to KPMG. However, Definitive
Holders are advised that admittance in this way will be subject to time
consuming verification at the door of the relevant Scheme Meeting and,
accordingly, each Definitive Holder is recommended to ensure that his
proxy brings with him the copy of the form of proxy which was sent to him
by Bondholder Communications. Requesting that a form of proxy be
completed by Bondholder Communications on behalf of a Definitive Holder
does not prevent that Definitive Holder from attending and voting at the
relevant meeting on production of a confirmed copy of the Account Holder
Letter in which he is named as the Definitive Holder.
26. A Definitive Holder who does not wish to attend the Scheme Meetings but
who wishes to authorise Bondholder Communications to appoint the chairman
of the relevant Scheme Meeting as his proxy to vote on his behalf at a
Scheme Meeting should ensure that this and the manner in which the
chairman should vote are recorded in the Account Holder Letter in which
he is named as the Definitive Holder by giving appropriate instructions
to the Account Holder. The Account Holder Letter so completed will
constitute authority to Bondholder Communications to complete and execute
a form of proxy in the name of and on behalf of the Definitive Holder
appointing the chairman of the relevant Scheme Meeting as proxy to vote
on that Definitive Holder's behalf. Requesting that a form of proxy be
completed by Bondholder Communications on behalf of a Definitive Holder
does not prevent that Definitive Holder from attending and voting at the
relevant meeting on production of a confirmed copy of the Account Holder
Letter in which he is named as the Definitive Holder.
YANKEE BONDS
You should read this section (paragraphs 27 through 45) if you have an interest
in Yankee Bonds. You need not read this section if you only have an interest in
Eurobonds.
SCHEME CREDITORS
27. The Corp Scheme Creditors for the Yankee Bonds are:
a. For so long as any of the Yankee Bonds are represented by a global
bearer Yankee Bond, The Bank of New York as Book-Entry Depositary
and as Yankee Bond Trustee; and
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b. For so long as any of the Yankee Bonds are in definitive registered
form, the Definitive Holders (as the registered owners of the
definitive Yankee Bonds).
28. The plc Scheme Creditors for the Yankee Bonds are:
a. The Yankee Bond Trustee as a recipient of the guarantee given by
plc in the Indenture; and
b. The Definitive Holders following execution of the Bondholder
Confirmation Letter.
CLAIMS IN RESPECT OF THE YANKEE BONDS
29. The Bank of New York is the trustee in respect of the Yankee Bonds. Each
Scheme provides that, in accordance with section 5.04 of the Indenture,
The Bank of New York will file one Claim Form under each Scheme in
respect of all the Yankee Bonds on or before 5:00 p.m. (London time) on
the First Claim Date on behalf of all Bondholders in respect of the
Yankee Bonds and that no other claim by a Scheme Creditor in respect of
the Yankee Bonds will be admitted. As claimant, the Yankee Bond Trustee
will, in the Escrow and Distribution Agreement, direct that Scheme
Consideration in respect of the Yankee Bonds should be paid to Designated
Recipients.
30. ACCORDINGLY, NO PERSON WITH AN INTEREST IN THE YANKEE BONDS MAY OR IS
REQUIRED TO COMPLETE ANY CLAIM FORM IN RESPECT OF EITHER SCHEME. HOWEVER,
UNDER BOTH SCHEMES NO SCHEME CONSIDERATION WILL BE DISTRIBUTED UNLESS:
(I) CUSTODY INSTRUCTIONS (AS DESCRIBED IN PARAGRAPH 33 BELOW) WITH
RESPECT TO THAT ACCOUNT HOLDER LETTER HAVE BEEN DULY SUBMITTED AND (II) A
DESIGNATED RECIPIENT HAS BEEN DULY IDENTIFIED IN AN ACCOUNT HOLDER LETTER
(IN OR SUBSTANTIALLY IN THE FORM SET OUT AS THE ANNEX TO THIS APPENDIX
28) WHICH HAS BEEN DULY COMPLETED BY AN ACCOUNT HOLDER. These
instructions contain important guidance and information which should be
carefully considered by Account Holders when completing their Account
Holder Letters and by Bondholders and Intermediaries when giving
instructions to their Account Holders to complete such letters.
REQUIREMENT FOR AN ACCOUNT HOLDER LETTER
31. The Initial Distribution of Scheme Consideration under each Scheme
comprises cash, New Shares and New Notes which will be distributed to
Designated Recipients in the manner described in the relevant Account
Holder Letter. In order to receive Scheme Consideration, each Account
Holder with Yankee Bonds credited to its account at any of DTC, Euroclear
or Clearstream, Luxembourg must obtain whatever information or
instructions it may require to enable it to deliver a duly completed
Account Holder Letter on behalf of the Bondholder in respect of those
Yankee Bonds in the manner described in paragraph 32 below. Each Account
Holder Letter delivered will apply to both Schemes so that each Account
Holder will only be required to complete one Account Holder Letter for
each Bondholder that it represents.
32. The First Initial Distribution of Scheme Consideration to Designated
Recipients is expected to be made under each Scheme on the Effective Date
of that Scheme. Cash, New Shares and New Notes forming part of any
Distribution will be distributed to Designated Recipients in accordance
with the instructions set out in the Account Holder Letter that each
Account Holder must deliver to Bondholder Communications. It will be the
responsibility of Account Holders to obtain from the Intermediaries
and/or Bondholders on whose behalf they are acting, in accordance with
the procedures established between them, whatever information or
instructions they may require to identify in an Account Holder Letter a
Designated Recipient to receive Scheme Consideration and to give the
confirmations required by the Account Holder Letter. To assist this
process, Bondholders (through any Intermediaries, if appropriate) are
strongly encouraged to contact the Account Holder through which they hold
their Yankee Bonds to enable that Account Holder to complete an Account
Holder Letter and deliver such Account Holder Letter to Bondholder
Communications prior to 5.00 p.m. (New York City time) on 17 April 2003.
33. By no later than 5.00 p.m. (local time in the place of the clearing
system) on the Business Day immediately prior to the day on which the
Account Holder Letter is delivered to Bondholder Communications, the
Account Holder will be required to "block" with the relevant clearing
system the Yankee Bonds the subject of that Account Holder Letter by
giving instructions ("CUSTODY
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INSTRUCTIONS") to that effect to the relevant clearing system. The
procedures for doing this are described in paragraphs 46 to 51 below. Any
Account Holder Letter and Custody Instructions delivered will be
irrevocable unless and until the relevant Scheme is not approved or does
not become effective.
34. By delivering the Account Holder Letter to Bondholder Communications the
Account Holder confirms to Corp, plc, Bondholder Communications, the
Escrow Trustee, the Distribution Agent and the Supervisors that Custody
Instructions in respect of the Yankee Bonds which are the subject of the
Account Holder Letter have been issued to the relevant clearing system
with effect from or before 5.00 p.m. (local time in the place of the
clearing system) on the Business Day immediately prior to the date on
which the Account Holder Letter was delivered to Bondholder
Communications in accordance with the normal procedures of such clearing
system and after taking into account the deadlines imposed by such
clearing system, instructs the relevant clearing system to transmit to
Bondholder Communications the information contained within the Custody
Instructions, and gives the other confirmations required by the Account
Holder Letter.
35. RECOMMENDED DEADLINE: Account Holder Letters should be delivered to
Bondholder Communications (if possible, on-line through
www.bondcom.com/marconi) by no later than 5.00 p.m. (New York City time)
on 17 April 2003. Account Holder Letters delivered after 5:00 p.m. (New
York City time) on 17 April 2003 will entitle the Designated Recipients
identified in them to receipt of the Initial Distribution on the later of
(1) as soon as is practicable following the date that the Account Holder
Letter is delivered and (2) the date of the First Initial Distribution.
An Account Holder Letter will be deemed delivered when actually received
by Bondholder Communications, provided that if Bondholder Communications
subsequently identifies any error in the Account Holder Letter or
determines that an Account Holder Letter is incomplete, such Account
Holder Letter will not be deemed delivered until all such errors have
been rectified or the Account Holder Letter has been completed to the
satisfaction of Bondholder Communications. Bondholder Communications will
confirm receipt of duly completed Account Holder Letters to Account
Holders who submit them. Pending receipt of such confirmation, Account
Holders should contact Donna Martini of Bondholder Communications, by
telephone or email using the contact details given at the start of this
Appendix to confirm that their Account Holder letters have been completed
to the satisfaction of Bondholder Communications.
INFORMATION TO BE PROVIDED IN THE ACCOUNT HOLDER LETTER
36. Account Holders must ensure (through any Intermediaries, if appropriate)
that the Bondholders in respect of the Yankee Bonds credited to their
account at DTC, Euroclear or Clearstream, Luxembourg have provided them
with the following information necessary to complete the Account Holder
Letter:
a. confirmation that the confirmations to be given by the Account
Holder can be given by it on behalf of the Bondholder or its
Designated Recipient (see paragraph 37 below);
b. details of the account with DTC, Euroclear or Clearstream,
Luxembourg to which any cash payments under either Scheme to be
made to the Designated Recipient can be made (see paragraph 38
below);
c. details of the account with DTC, Euroclear or Clearstream,
Luxembourg to which New Notes to be distributed under either Scheme
can be credited and, in the case of the New Senior Notes
distributed under each Scheme, whether such New Senior Notes are to
be denominated in Euro or US dollars (see paragraph 39 below);
d. details as to whether the New Shares to be distributed under
either Scheme should be delivered in the form of ADRs and details
as to how such New Shares or ADRs should be delivered (see
paragraph 40 below); and
e. certain voting instructions as described in paragraphs 41 through
45 below.
37. Bondholders should read part I, Section 2, Parts D.16 and D.17 of the
Scheme Document carefully. These parts describe restrictions on the
distribution of securities pursuant to the Schemes under the securities
laws of certain states of the United States and of France, Italy and
Malaysia (each a "RESTRICTED
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JURISDICTION"). Bondholders will be required to confirm to their Account
Holders (through any Intermediaries, if appropriate) that they are not
located in a Restricted Jurisdiction. If they are located in a Restricted
Jurisdiction, Bondholders may be required to give certain additional
confirmations in order to establish their eligibility to receive the New
Shares and/or New Notes under the applicable law, as described in part I,
Section 2, Parts D.16 and D.17 of the Scheme Document. Where a required
confirmation cannot be given, this should be indicated in the Account
Holder Letter. In these circumstances, the Distribution Agent will sell
any securities comprised in the relevant distribution of Scheme
Consideration and transfer the net proceeds (after deduction of all
applicable costs) to the relevant Designated Recipient (except that,
where the relevant securities are not at that time listed on a securities
exchange, such Designated Recipient will receive a sum in cash which is
substantially equivalent in value to any such unlisted securities).
38. Because DTC will only clear payments in US dollars, the cash forming part
of the Scheme Consideration under each Scheme (which will be paid in
sterling) and any other cash comprised in the Scheme Consideration under
each Scheme which is not denominated in US dollars cannot be paid to
Bondholders in respect of Yankee Bonds through DTC. Accordingly, each
Account Holder Letter must set out details of the DTC, Euroclear or
Clearstream, Luxembourg account of the Designated Recipient to which
payment of cash can be made. Where a DTC account is specified, the costs
of converting the sterling or other currency into US dollars (which will
be effected by the Distribution Agent at its standard quoted exchange
rate) will be for the account of the Designated Recipient and will be
deducted from the US dollar amount paid to him.
39. The New Senior Notes to be distributed under each Scheme will be
denominated in Euro and/or US dollars based on elections made in Claim
Forms and Account Holder Letters. No New Senior Notes denominated in US
dollars will be issued unless, based on information contained in all
Claim Forms and all Account Holder Letters received prior to 17 April
2003, elections have been made which would, if both Schemes become
effective, result in an aggregate of at least the US dollar equivalent
(calculated at the Currency Rate) of Euro 250,000,000 (less the Relevant
Deduction) of New Senior Notes denominated in US dollars being required
to be distributed in the First Initial Distribution under both Schemes.
New Senior Notes denominated in Euro will only be issued if, based on all
Claim Forms and all Account Holder Letters received by 17 April 2003,
elections have been made which would, if both Schemes become effective,
result in an aggregate of at least Euro 250,000,000 (less the Relevant
Deduction) of New Senior Notes denominated in Euro being required to be
distributed in the First Initial Distribution under both Schemes.
40. The Account Holder Letter provides two options in respect of the holding
of New Shares. These options are:
a. delivery through a specified CREST account; and
b. delivery (at the risk of the recipient) of a share certificate by
ordinary uninsured mail.
The New Shares to be distributed under each Scheme may be received in the
form of New Shares or ADRs. An affirmative election to receive New Shares
in the form of ADRs will need to be made in the Account Holder Letter if
a Designated Recipient is to receive ADRs. Before making an election to
receive ADRs, Bondholders should review the "Description of the American
Depositary Receipts" in Appendix 16 to the Scheme Document, as well as
the information with respect to the issuance, listing and secondary
market trading of the ADRs in part I, Section 2, Parts C.2 and D.15 of
the Scheme Document. In particular, persons who are considering making an
election to receive ADRs should note that, although Corp will apply to
list such ADRs on NASDAQ, this NASDAQ listing is currently not expected
to become effective until the third calendar quarter of 2003.
VOTING BY DEFINITIVE HOLDERS
41. As can be seen from paragraphs 27 and 28 above, Account Holders,
Intermediaries and Bondholders are not themselves Scheme Creditors and
thus are not entitled to attend or vote at Scheme Meetings. They will not
become Scheme Creditors under either Scheme unless they become Definitive
Holders. The
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Indenture permits the exchange of the global Yankee Bonds in whole or in
part for definitive registered Yankee Bonds at Corp's discretion. At the
request of certain creditors, Corp has agreed to exchange the global
Yankee Bonds for definitive Yankee Bonds with a view to ensuring that
persons with interests in Yankee Bonds can become Definitive Holders of
the Yankee Bonds and can attend and vote at the Scheme Meetings. At the
request of certain creditors of plc, plc has agreed to extend the benefit
of its guarantee of the Yankee Bonds to the Definitive Holders of Yankee
Bonds with a view to ensuring that they can attend and vote at the plc
Scheme Meetings in respect of such Bonds.
42. It will, however, not be possible to issue a definitive registered Yankee
Bond to a Definitive Holder unless and until an Account Holder Letter
identifying the name of that Definitive Holder has been delivered to
Bondholder Communications. As a result, Corp has determined to issue
definitive registered Yankee Bonds only after 17 April 2003 (being the
deadline for delivery of Account Holder Letters in order to qualify for
the First Initial Distribution of Scheme Consideration under each
Scheme). The Account Holder Letter will also be used for the purpose of
voting at Scheme Meetings in the manner described below. A Definitive
Holder may elect:
a. to attend and vote at the Scheme Meetings in person (the procedures
in this respect are described in paragraph 43); or
b. to appoint a proxy (other than the chairman of the relevant
meeting) to attend and vote at the Scheme Meetings on its behalf
(the procedures in this respect are described in paragraph 44); or
c. not to attend any Scheme Meetings but to appoint the chairman of
the relevant Scheme Meeting as its proxy to vote on its behalf (the
procedures in this respect are described in paragraph 45).
43. A Definitive Holder who wishes to attend and vote in person at a Scheme
Meeting should ensure that this is recorded in the Account Holder Letter
delivered on his behalf and that the voting intention section of the
Account Holder Letter is completed, although this does not bind him to
vote in any particular way at the Scheme Meeting. In order to attend a
Scheme Meeting, the Definitive Holder should produce a confirmed copy of
the Account Holder Letter in which he is named as the Definitive Holder
which should be sent to him by Bondholder Communications. Where this copy
can be matched against one of the copies provided by Bondholder
Communications to KPMG, the Definitive Holder will be admitted to the
relevant Scheme Meeting without further proof of identity. Where a
confirmed copy of the Account Holder Letter cannot be produced by the
Definitive Holder, admittance to the Scheme Meetings will be permitted
only on the production of proof of personal identity (for example,
passport or other picture identification) and, where an individual is
attending on behalf of a body corporate and is not the authorised
employee named in an Account Holder Letter, evidence of authorisation to
represent that body corporate (for example, a valid power of attorney
and/or board minutes), provided that identity and authorisation, as
appropriate, for that Definitive Holder conforms with the details in the
relevant copy of the Account Holder Letter submitted by Bondholder
Communications to KPMG or, if no such copy has been so submitted, with
the details contained in the register of Yankee Bond holders held by the
Yankee Bond Trustee. However, Definitive Holders are advised that
admittance in this way will be subject to time consuming verification at
the door of the relevant Scheme Meeting and, accordingly, each Definitive
Holder is recommended to bring with him the copy of the Account Holder
Letter which was delivered in respect of his Yankee Bonds.
44. A Definitive Holder who wishes to authorise Bondholder Communications to
appoint a proxy (other than the chairman of the relevant meeting) to
attend and vote at a Scheme Meeting on his behalf should ensure that the
identity of the relevant proxy and the manner in which the proxy should
vote are recorded in the Account Holder Letter in which he is named as
the Definitive Holder by giving appropriate instructions to the Account
Holder. The Account Holder Letter so completed will constitute authority
to Bondholder Communications to complete and execute a form of proxy in
the name of and on behalf of the Definitive Holder. In order to attend a
Scheme Meeting the person appointed as proxy should produce a copy of the
form of proxy in which he is named as proxy which will be sent to him by
Bondholder Communications. Where this copy can be matched against one of
the copies provided by Bondholder Communications to KPMG, the person
appointed as proxy will be admitted to the relevant Scheme Meeting upon
proof of
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personal identity (for example, passport or other picture
identification). Where a copy of the form of proxy cannot be produced by
the person appointed as proxy, admittance to the Scheme Meetings will be
permitted only on the production of proof of personal identity (for
example, passport or other picture identification), provided that
identity conforms with the details in the relevant copy of the form of
proxy submitted by Bondholder Communications to KPMG. However, Definitive
Holders are advised that admittance in this way will be subject to time
consuming verification at the door of the relevant Scheme Meeting and,
accordingly, each Definitive Holder is recommended to ensure that his
proxy brings with him the copy of the form of proxy which was sent to him
by Bondholder Communications. Requesting that a form of proxy be
completed by Bondholder Communications on behalf of a Definitive Holder
does not prevent that Definitive Holder from attending and voting at the
relevant meeting on production of a confirmed copy of the Account Holder
Letter in which he is named as the Definitive Holder.
45. A Definitive Holder who does not wish to attend the Scheme Meetings but
who wishes to authorise Bondholder Communications to appoint the chairman
of the relevant Scheme Meeting as his proxy to vote on his behalf at a
Scheme Meeting should ensure that this and the manner in which the
chairman should vote are recorded in the Account Holder Letter in which
he is named as the Definitive Holder by giving appropriate instructions
to the Account Holder. The Account Holder Letter so completed will
constitute authority to Bondholder Communications to complete and execute
a form of proxy in the name of and on behalf of the Definitive Holder
appointing the chairman of the relevant Scheme Meeting as proxy to vote
on that Definitive Holder's behalf. Requesting that a form of proxy be
completed by Bondholder Communications on behalf of a Definitive Holder
does not prevent that Definitive Holder from attending and voting at the
relevant meeting on production of a confirmed copy of the Account Holder
Letter in which he is named as the Definitive Holder.
ALL BONDS
You should read this section (paragraphs 46 to 58) whether you have an interest
in Eurobonds, Yankee Bonds or both Eurobonds and Yankee Bonds.
PROCEDURE FOR BLOCKING BONDS HELD IN A CLEARING SYSTEM
46. All of the Eurobonds are held through Euroclear and Clearstream,
Luxembourg. Certain of the Yankee Bonds are held by Account Holders in
accounts with Euroclear and Clearstream, Luxembourg. Account Holders who
hold Eurobonds and Yankee Bonds in an account with Euroclear or
Clearstream, Luxembourg should follow the procedures for blocking their
Bonds set out in paragraphs 47 to 49 below. Account Holders who are DTC
Participants (other than those Account Holders who are DTC Participants
with respect to Yankee Bonds held through Euroclear and Clearstream,
Luxembourg) should follow the procedures for blocking their Yankee Bonds
set out in paragraphs 50 and 51 below.
WHERE BONDS ARE HELD THROUGH EUROCLEAR OR CLEARSTREAM, LUXEMBOURG
47. Account Holders should ensure that Euroclear and/or Clearstream,
Luxembourg (as the case may be) has received irrevocable instructions
(with which it has complied) to block all Bonds which are the subject of
an Account Holder Letter in the securities account to which they are
credited with effect from or before 5.00 p.m. (local time in the place of
the clearing system) on the Business Day immediately prior to the day on
which the Account Holder Letter is delivered to Bondholder Communications
so that no transfers may be effected in relation to such Bonds at any
time on or after such date. Bondholders procuring the submission of
Account Holder Letters should instruct their Account Holders to confirm
(and Account Holders should ensure) that the Account Holder Letter cross
references the relevant Custody Instruction reference number.
48. Bonds held in Euroclear or Clearstream, Luxembourg should be blocked in
accordance with the procedures of the relevant clearing system and the
deadlines required by that clearing system. Each Custody Instruction
given in respect of Eurobonds (but not Yankee Bonds) will, in addition to
blocking the relevant Eurobonds, constitute an instruction to each of
Euroclear and Clearstream, Luxembourg to debit the relevant Account
Holder's account with the relevant Bonds and credit them to a separate
non-
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fungible transit account within the relevant clearing system. This is
necessary to enable a Definitive Holder in respect of Eurobonds to be
eligible to vote at the Scheme Meetings.
49. Bondholder Communications will request Euroclear and/or Clearstream,
Luxembourg (as the case may be) to confirm to its satisfaction that any
Bonds have been blocked with effect from or before the date of receipt of
the Account Holder Letter. In the event that the relevant clearing system
fails to do so, Bondholder Communications may reject the Account Holder
Letter. In order to give the requested confirmation, Euroclear and/or
Clearstream, Luxembourg (as the case may be) will need to have received
its Custody Instructions no later than 5.00 p.m. (local time in the place
of the clearing system) on the Business Day prior to the date on which
the Account Holder Letter is submitted to Bondholder Communications.
WHERE BONDS ARE HELD THROUGH DTC
50. An Account Holder which is a DTC Participant (other than those Account
Holders who are DTC Participants with respect to Yankee Bonds held
through Euroclear and Clearstream, Luxembourg) must, prior to 5.00 p.m.
(New York City time) on the Business Day immediately prior to the date on
which it delivers an Account Holder Letter, deliver Custody Instructions
to DTC through ATOP for which the transaction will be eligible, and
follow the procedure for book-entry transfer set forth below. A
Bondholder who holds his Yankee Bonds through an Account Holder who is
such a DTC Participant must contact that Account Holder (through any
Intermediaries, if appropriate) to ensure that an Account Holder Letter
is delivered in respect of his Yankee Bonds and Custody Instructions are
given through ATOP. Utilisation of ATOP will ensure that the Yankee Bonds
the subject of the Account Holder Letter are blocked for any future
transfer. All such Bondholders procuring the submission of Account Holder
Letters should instruct their Account Holders to confirm (and Account
Holders should ensure) that the Account Holder Letter cross references
the relevant VOI number allocated by DTC through its ATOP procedure.
51. Bondholder Communications must receive ATOP instructions through DTC to
confirm to its satisfaction that any Yankee Bonds have been blocked with
effect from or before the date of receipt of the Account Holder Letter.
In the event that such ATOP instructions are not received, Bondholder
Communications may reject the Account Holder Letter. In order to give the
requested confirmation, an Account Holder who is a DTC participant will
need to have input its Custody Instructions through ATOP no later than
5.00 p.m. (New York City time) on the Business Day prior to the date on
which the Account Holder Letter is submitted to Bondholder
Communications.
GENERAL
52. For the purposes of voting at Scheme Meetings, to determine whether the
relevant class of Scheme Creditors approve the relevant Scheme by a
majority in number representing 75 per cent. in value of those present
and voting either in person or by proxy at the meeting, the claim of each
Definitive Holder will be valued by the chairman of the relevant Scheme
Meeting assisted by KPMG who will be appointed as meeting advisers to
confirm that the statutory requisites in regard to numerosity are adhered
to. Despite the assistance of KPMG as meeting advisers, the chairman of
the relevant Scheme Meeting will be acting in his discretion and on
information also available to him from Corp or plc, as appropriate. This
valuation is for voting purposes only and will not be binding for the
purposes of admission of The Law Debenture Trust Corporation p.l.c.'s or
The Bank of New York's claim or calculating either of their respective
entitlements to Scheme Consideration under the relevant Schemes. These
will be determined by the Supervisors based on the details provided in
the Claim Form submitted by The Law Debenture Trust Corporation p.l.c.
and The Bank of New York, respectively, and in accordance with the terms
of the Schemes.
53. Each of the Eurobond Trustee and The Bank of New York is a Scheme
Creditor and therefore is entitled to exercise a vote at the Scheme
Meetings. If either the Eurobond Trustee or The Bank of New York were to
vote this could lead to two votes being cast in respect of the same
Scheme Claim if any Definitive Holders in respect of Eurobonds or, as the
case may be, Yankee Bonds were also to vote. Each of the Eurobond Trustee
and The Bank of New York will therefore abstain from voting at the Scheme
Meetings
947
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
because Definitive Holders will have the opportunity to vote directly,
double counting issues will thereby be avoided and, in any event, neither
the Eurobond Trustee nor The Bank of New York will have received any
instructions as to the manner in which its votes should be cast.
54. For the purposes of voting at the Scheme Meetings and determining whether
or not the statutory majorities of creditors voting at those meetings are
achieved, claims will be converted into sterling. The rate of exchange
used for this purpose will be the Voting Rate.
55. Bondholder Communications will use all reasonable endeavours to assist
Account Holders to complete their Account Holder Letters properly, should
it receive any Account Holder Letters which are not duly completed.
However, failure to deliver a duly completed Account Holder Letter in the
manner and within the deadlines referred to above will prejudice timely
delivery of Scheme Consideration and may result in any appointment of a
Definitive Holder being ineffective. Except to the extent set out in the
Escrow and Distribution Agreement and each Scheme, none of Bondholder
Communications, the Eurobond Trustee, the Yankee Bond Trustee, the Escrow
Trustee, the Distribution Agent, the Supervisors, Corp, plc or any other
person will be responsible for any losses or liabilities incurred by a
Designated Recipient or a Definitive Holder as a result of any
determination by Bondholder Communications that an Account Holder Letter
contains an error or is incomplete, even if this is subsequently shown
not to have been the case.
56. Bondholder Communications will use all reasonable endeavours to complete
and despatch to Definitive Holders, Account Holders, proxies and KPMG (i)
copies of the forms of proxy completed by it based on the information
contained in Account Holder Letters received by it and (ii) confirmed
copies of the Account Holder Letters received by it, as appropriate. In
completing each form of proxy, Bondholder Communications will act in
reliance upon the relevant Account Holder's confirmation that it has
received authority from the relevant Definitive Holder to authorise
Bondholder Communications to complete such form of proxy. Bondholder
Communications will not be responsible for any losses or liabilities
incurred by a Definitive Holder for any failure to deliver copies of a
form of proxy or any inaccuracy in any form of proxy resulting from
information contained in the relevant Account Holder Letter.
57. Where securities are sold as a result of appropriate confirmations not
being made in an Account Holder Letter or where cash is converted into US
dollars for distribution to a DTC cash account, such sale or distribution
shall be undertaken on behalf of the person absolutely entitled to the
relevant asset and none of Bondholder Communications, the Escrow Trustee,
the Distribution Agent, the Supervisors, Corp, plc or any other person
shall be responsible for any loss arising from the terms or timing of
such sale or conversion or the failure to procure any purchaser for any
securities in accordance with the terms of the Escrow and Distribution
Agreement.
MEMBERSHIP OF THE CREDITORS' COMMITTEE
58. If the appropriate box has been ticked in the Account Holder Letter,
Definitive Holders may be proposed to act as a member of the Creditors'
Committee. Each Account Holder with Bonds credited to its account at a
relevant clearing system must obtain whatever information or instructions
it may require from the Bondholder in respect of those Bonds (through any
Intermediaries, if appropriate) before it confirms that the Definitive
Holder should be proposed to act as such. Bondholders should confirm with
their Definitive Holders (if applicable) that they wish to be proposed to
act as a member of the Creditors' Committee prior to instructing their
Account Holder (through any Intermediaries, if appropriate) in this
regard.
59. On the Effective Date, the Supervisors will, to the extent possible,
appoint up to seven members of the Creditors' Committee selected from
those Definitive Holders and other Scheme Creditors who are proposed to
act representing a proper balance of the interests of Scheme Creditors as
a whole. If fewer than three Definitive Holders and other Scheme
Creditors are proposed to act as a member of the Creditors' Committee,
then on and from the Effective Date the Creditors' Committee will consist
of as many members as have been proposed to act. In accordance with the
terms of each Scheme, those members, if any, will endeavour to fill the
vacancy or vacancies to ensure that the Creditors' Committee has a
minimum of three members within 28 days of the Effective Date. If those
members do not succeed
948
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
in appointing the necessary number of further members of the Creditors'
Committee resulting in a Creditors' Committee consisting of less than
three members by 28 days after the Effective Date, the Supervisors will
thereafter use reasonable endeavours to appoint the necessary number of
further members within the following 14 days as interim committee members
to serve on the Creditors' Committee until the necessary number of
further permanent members are appointed.
949
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
ANNEX TO APPENDIX 28
FORM OF ACCOUNT HOLDER LETTER
ACCOUNT HOLDER LETTER
FOR USE BY ACCOUNT HOLDERS OF DTC, EUROCLEAR AND CLEARSTREAM, LUXEMBOURG IN
RESPECT OF
E500,000,000 E1,000,000,000
5.625 PER CENT. BONDS DUE 2005 6.375 PER CENT. BONDS DUE 2010
ISIN: XS109451194 ISIN: XS109450972
(together, the "EUROBONDS")
U.S.$ 900,000,000 U.S.$ 900,000,000
7 3/4 PER CENT. BONDS DUE 2010 8 3/8 PER CENT. BONDS DUE 2030
ISIN: US566306AC07 ISIN: US566306AD89
CUSIP 566306AC0 CUSIP 566306AD8
AND AND
US566306AA41 US566306AB24
CUSIP 566306AA4 CUSIP 566306AB2
(together, the "YANKEE BONDS" and, together with the Eurobonds, the "BONDS")
issued by
MARCONI CORPORATION PLC ("CORP")
and guaranteed by
MARCONI PLC ("PLC")
in relation to
THEIR RESPECTIVE SCHEMES OF ARRANGEMENT UNDER SECTION 425 OF THE COMPANIES ACT
1985
(TOGETHER, THE "SCHEMES")
The Schemes will, if implemented, materially affect the creditors of Corp and
plc, including the holders of the Bonds.
Persons who are direct participants in DTC or account holders with Euroclear or
Clearstream, Luxembourg (together "ACCOUNT HOLDERS") should use this letter to
register details of their holdings of Bonds and to make certain elections with
respect to the voting and the delivery of any Scheme Consideration.
DEADLINES FOR RECEIPT OF BLOCKING INSTRUCTIONS
AND ACCOUNT HOLDER LETTER
This Account Holder Letter must either be filed on line (at
www.bondcom.com/marconi) where copies of the Scheme Documents can also be
viewed) or delivered to Bondholder Communications Group by post or personal
delivery to one of the addresses set out below or by facsimile (Fax No: +1 212
422 0790 or +44 207 236 0779, attention Donna Martini) by NO LATER THAN 5.00
P.M. (NEW YORK CITY TIME) ON 17 APRIL 2003. The Bonds identified in this Account
Holder Letter must be blocked on or before 5.00 p.m. (local time in the place of
the clearing system) on the Business Day prior to the date on which this Account
Holder Letter is delivered to Bondholder Communications. Account Holder Letters
delivered after 5.00 p.m. (New York City time) on 17 April 2003 will NOT entitle
the Bondholders identified in them to participate in the First Initial
Distribution of Scheme Consideration.
A DIFFERENT ACCOUNT HOLDER LETTER MUST BE COMPLETED IN RESPECT OF EACH SEPARATE
BENEFICIAL HOLDING OF BONDS.
Capitalised terms used in this Account Holder Letter but not defined in it have
the same meaning as given to them in the Scheme Document. You are strongly
advised to read the Scheme Document and, in particular, Appendix 28, before you
complete this Account Holder Letter. Appendix 28 contains detailed information
on the various options contained in the Account Holder Letter.
This Account Holder Letter will be governed by, and shall be construed in
accordance with, English law.
FOR ASSISTANCE CONTACT:
In London In New York
BONDHOLDER COMMUNICATIONS GROUP BONDHOLDER COMMUNICATIONS GROUP
Attention: Donna Martini Attention: Donna Martini
Prince Rupert House 30 Broad Street -- 46th Floor
64 Queen Street -- 3rd Floor New York, N.Y. 10004
London EC4R 1AD U.S.A.
United Kingdom Fax: +1-212-422-0790
Fax: +44-0207-236-0779 Tel: +1-212-809-2663
Tel: +44-0207-236-0788 E-mail: dmartini@bondcom.com
E-mail: dmartini@bondcom.com
950
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
SECTION 1: DEFINITIVE HOLDER DETAILS
Please identify the person who is to be the Definitive Holder of the Bonds. It
is expected that this will normally be the Bondholder (i.e. the person with the
ultimate economic interest in the Bonds). Where this Account Holder Letter is
delivered in respect of Yankee Bonds, this is the name which will be registered
in the register of holders of definitive Yankee Bonds as the registered owner of
the definitive Yankee Bonds identified in this Account Holder Letter. Where this
Account Holder Letter is delivered in respect of Eurobonds, this is the person
who will be the bearer by attornment of the Eurobonds identified in this Account
Holder Letter. Only the Definitive Holder is entitled to attend and vote in
person or by proxy at the Scheme Meetings and further meetings of Scheme
Creditors.
Full Name of Definitive Holder ----------------------------------------------------------
(It is expected that this will normally be the person with
the ultimate economic interest in the Bonds)
Account Number with Account Holder of
Bondholder (or his Intermediary)
nominating Definitive Holder ----------------------------------------------------------
Authorised Employee Name* ----------------------------------------------------------
Department* ----------------------------------------------------------
Title* ----------------------------------------------------------
Telephone no. of Definitive Holder or ----------------------------------------------------------
Authorised Employee (with country code)
Facsimile no. of Definitive Holder or ----------------------------------------------------------
Authorised Employee (with country code)
E-mail address of Definitive Holder
or Authorised Employee ----------------------------------------------------------
Address of Definitive Holder ----------------------------------------------------------
----------------------------------------------------------
City ----------------------------------------------------------
State or Province ----------------------------------------------------------
Postal Code ----------------------------------------------------------
Country ----------------------------------------------------------
951
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
[ ] Please tick this box if the Definitive Holder or its Authorised Employee is
to be proposed as a member of the Creditors' Committee.
---------------
* To be included if the Definitive Holder is a corporation or an institution. If
such a Definitive Holder wishes to attend the Scheme Meetings it is
recommended that the authorised employee named in this form be appointed as
its proxy.
If the Bondholder employs a Fund Manager or other Intermediary, please identify
them here.
Fund Manager or Authorised
Intermediary ----------------------------------------------------------
Authorised Employee ----------------------------------------------------------
Department ----------------------------------------------------------
Title ----------------------------------------------------------
----------------------------------------------------------
Telephone no. of Authorised Employee (with country code)
----------------------------------------------------------
Facsimile no. of Authorised Employee (with country code)
E-mail address of Authorised Employee ----------------------------------------------------------
Address ----------------------------------------------------------
----------------------------------------------------------
City ----------------------------------------------------------
State or Province ----------------------------------------------------------
Postal Code ----------------------------------------------------------
Country ----------------------------------------------------------
952
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
SECTION 2: HOLDING DETAILS
A. DETAILS OF THE BONDS TO WHICH THIS ACCOUNT HOLDER LETTER RELATES
The Account Holder holds the following Bonds to which this Account Holder Letter
relates, which have been "blocked" through a clearing system custody
instruction, the number in relation to which is identified below.
-----------------------------------------------------------------------------------------------------------------------
ISIN/CUSIP Amount Blocked at Clearing System* Clearing System Custody Instruction
Clearing System Account Number Reference or VOI
Number**
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
* The Eurobonds (with ISINs XS109451194 and XS109450972) may only be held
through Euroclear or Clearstream, Luxembourg whereas the Yankee Bonds (with
ISINs US566306AC07, US566306AA41, US566306AD89 and US566306AB24) may be held
through any of DTC, Euroclear or Clearstream, Luxembourg.
** Corresponding to your blocking instruction.
If the details of more than six positions in respect of this Account Holder
Letter need to be inserted, use the continuation sheet relating to this Section
2.A set out as Schedule 1 to this Account Holder Letter. If you have used the
continuation sheet, please tick the following box to confirm that this is the
case.
[ ] Further positions are listed on the continuation sheet.
B. EUROCLEAR AND CLEARSTREAM, LUXEMBOURG AUTHORISATION
If any of the Bonds listed in Section 2.A above are held through Euroclear
and/or Clearstream, Luxembourg, to assist us in reconciliation with other
instructions, please indicate whether or not you authorise Euroclear and/or
Clearstream, Luxembourg to provide us with information regarding your holdings
in the Bonds (whether included in this Account Holder Letter, previously blocked
or currently unblocked). Please tick one of the following two options:
[ ] I authorise the release of the above mentioned information.
[ ] I DO NOT authorise the release of the above mentioned information.
953
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
SECTION 3: VOTING
A. ATTENDANCE AT THE SCHEME MEETINGS
The Definitive Holder wishes:
[ ] to attend and vote at the Scheme Meetings in person
(please now only complete paragraph B)
[ ] to appoint a proxy (other than the chairman of the relevant Scheme
Meeting) to attend and vote on his behalf at the Scheme Meetings
(please now only complete paragraph C)
[ ] to appoint the chairman of the relevant Scheme Meeting as his proxy
to attend and vote on his behalf at the Scheme Meetings
(please now only complete paragraph C)
(You may only tick one of the above boxes)
B. INDICATION OF VOTING INTENTION
The Definitive Holder intends to vote at the Scheme Meetings as follows.
The Definitive Holder understands that this expression of intention is not
binding and that it may vote as it sees fit at the Scheme Meetings.
---------------------------------------------------------------------------------------------
CORP SCHEME PLC SCHEME
---------------------------------------------------------------------------------------------
FOR AGAINST FOR AGAINST
---------------------------------------------------------------------------------------------
[ ] [ ] [ ] [ ]
---------------------------------------------------------------------------------------------
C. APPOINTMENT OF PROXY
The Definitive Holder wishes to appoint (and Bondholder Communications is
hereby authorised to appoint on its behalf):
(You may only tick one of these boxes)
[ ] THE CHAIRMAN OF THE MEETING(1)
[ ] THE FOLLOWING INDIVIDUAL(2)
--------------------------------------------------------------------------------
(Name)
--------------------------------------------------------------------------------
(Address)
(1) If the chairman is to be appointed as proxy, only a "FOR" or "AGAINST" box
below should be ticked for the appointment to be valid. If the "AT
DISCRETION" box below is ticked, the chairman cannot be appointed as proxy
and thus no proxy will be prepared for the Definitive Holder.
(2) The person to be appointed as proxy need not be a Scheme Creditor of Corp or
plc as appropriate but must attend the Scheme Meeting in person to represent
the Definitive Holder. Where the Definitive Holder is an institution and
wishes its proxy to attend the Scheme Meeting, it is recommended that the
authorised employee named in section 1 of this Account Holder Letter is
appointed as the proxy.
954
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
as its proxy and wishes its proxy to vote:
[ ] FOR the Corp Scheme [ ] FOR the plc Scheme
[ ] AGAINST the Corp Scheme [ ] AGAINST the plc Scheme
[ ] AT DISCRETION (Corp Scheme) [ ] AT DISCRETION (plc Scheme)
(You may only tick one of these boxes for the Corp Scheme and one of these boxes
for the plc Sheme)
NB: If the chairman of the relevant Scheme Meeting is to be appointed as proxy,
either the "FOR" or the "AGAINST" box must be ticked. If the "AT DISCRETION" box
is ticked, the chairman cannot be appointed as proxy and thus no proxy will be
prepared for the Definitive Holder. IN ADDITION, IF NO BOX IS TICKED, NO PROXY
WILL BE PREPARED FOR THE DEFINITIVE HOLDER.
955
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
SECTION 4: CONSIDERATION DELIVERY DETAILS
If the Scheme Claims to be submitted by the Trustees are Admitted, the relevant
Designated Recipients will be entitled to receive cash, New Notes and New
Shares. Please specify your delivery preferences.
NEW SHARES
A. ELECTION TO RECEIVE NEW SHARES OR ADRS.
Indicate whether you elect to receive the [ ] ADRs
New Shares forming part of the Initial IF SELECTED, PLEASE PROCEED TO SECTION
Distribution of Scheme Consideration and 4.B BELOW
any Further Distribution of Scheme
Consideration in the form of New Shares [ ] New Shares
or ADRs. You may only tick one of the IF SELECTED, PLEASE PROCEED TO SECTION
following boxes. 4.E BELOW
B. DELIVERY ELECTION FOR ADRS.
Please deliver the ADRs forming part of [ ] In certificated form
the Initial Distribution of Scheme IF SELECTED, PLEASE PROCEED TO SECTION
Consideration and any ADRs distributed as 4.C BELOW
part of any Further Distribution of
Scheme Consideration in the following [ ] To the clearing system account that
manner. You may only tick one of the I will specify
following boxes. IF SELECTED, PLEASE PROCEED TO SECTION
4.D BELOW
956
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
C. ELECTION TO RECEIVE ADRS IN CERTIFICATED FORM.
Please deliver ADRs in physical (certificated) form registered in the name
and to the address specified below. ADR certificates will be delivered by
ordinary uninsured post at the risk of the addressee.
Designated Recipient's Registered Name -------------------------------------------
Additional Designated Recipient's Registered -------------------------------------------
Name (optional)
-------------------------------------------
Telephone no. of Designated Recipient (with country code)
-------------------------------------------
Facsimile no. of Designated Recipient (with country code)
E-mail address of Designated Recipient -------------------------------------------
Address of Designated Recipient -------------------------------------------
City -------------------------------------------
State or Province -------------------------------------------
Postal Code -------------------------------------------
Country -------------------------------------------
Tax identification or social security number of
Designated Recipient -------------------------------------------
ONCE COMPLETE, PLEASE PROCEED TO SECTION 4.H BELOW.
957
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
D. ELECTION TO RECEIVE ADRS THROUGH A CLEARING SYSTEM ACCOUNT.
Please credit ADRs to the following Euroclear, DTC or Clearstream,
Luxembourg account:
Clearing System -------------------------------------------
Full name of Clearing System Account Holder -------------------------------------------
Clearing System Account Holder's Account Number -------------------------------------------
Name of Designated Recipient's Account to be
credited at Account Holder: -------------------------------------------
Account Number of Designated Recipient's
Account to be credited at Account Holder: -------------------------------------------
Contact Name for Clearing System Account Holder -------------------------------------------
-------------------------------------------
Telephone no. of Contact (with country code)
-------------------------------------------
Facsimile no. of Contact (with country code)
E-mail address of Contact -------------------------------------------
ONCE COMPLETE, PLEASE PROCEED TO SECTION 4.H BELOW.
E. DELIVERY ELECTION FOR NEW SHARES.
Please deliver the New Shares forming [ ] In certificated form
part of the Initial Distribution of IF SELECTED, PLEASE PROCEED TO SECTION
Scheme Consideration and any New Shares 4.F BELOW
distributed as part of any Further
Distribution of Scheme Consideration in [ ] To the CREST account that I will
the following manner. You may only tick specify
one of the following boxes IF SELECTED, PLEASE PROCEED TO SECTION
4.G BELOW
958
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
F. ELECTION TO RECEIVE NEW SHARES IN CERTIFICATED FORM.
Please deliver New Shares in physical (certificated) form registered in the
name and to the address specified below. Share certificates will be
delivered by ordinary uninsured post at the risk of the addressee.
Designated Recipient's
Registered Name ------------------------------------------------------------
Additional Designated
Recipient's Registered ------------------------------------------------------------
Name (optional)
Address of Designated
Recipient ------------------------------------------------------------
------------------------------------------------------------
City ------------------------------------------------------------
State or Province ------------------------------------------------------------
Postal Code ------------------------------------------------------------
Country ------------------------------------------------------------
Telephone no. of ------------------------------------------------------------
Designated Recipient (with country code)
Facsimile no. of ------------------------------------------------------------
Designated Recipient (with country code)
E-mail address of
Designated Recipient ------------------------------------------------------------
ONCE COMPLETE, PLEASE PROCEED TO SECTION 4.H BELOW.
959
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
G. ELECTION TO RECEIVE NEW SHARES IN A CREST ACCOUNT.
Please credit New Shares to the following CREST account.
Full Name of CREST Holder --------------------------------------------------
CREST Participant Account --------------------------------------------------
Designated Recipient's CREST Member
Account --------------------------------------------------
Contact Name for CREST Holder --------------------------------------------------
--------------------------------------------------
Telephone no. of Contact (with country code)
--------------------------------------------------
Facsimile no. of Contact (with country code)
E-mail address of Contact --------------------------------------------------
Optional Message to CREST Participant --------------------------------------------------
(up to 200 characters only)
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
ONCE COMPLETE, PLEASE PROCEED TO SECTION 4.H BELOW.
960
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
CASH AND NEW NOTES
H. CURRENCY ELECTION FOR NEW SENIOR NOTES.
I wish to receive New Senior Notes denominated in:
[ ] Euro (E);
[ ] US dollars (US$)
(You may only tick one of these boxes)
New Senior Notes denominated in US dollars will only be issued if,
following all elections received by 17 April 2003, elections have been made
which would, if both Schemes become effective, result in an aggregate of at
least the US dollar equivalent (calculated at the Currency Rate) of Euro
250,000,000 (less the Relevant Deduction) of New Senior Notes denominated
in US dollars being required to be distributed in the First Initial
Distribution under both Schemes. New Senior Notes denominated in Euro will
only be issued if, following all elections received by 17 April 2003,
elections have been made which would, if both Schemes become effective,
result in an aggregate of at least Euro 250,000,000 (less the Relevant
Deduction) of New Senior Notes denominated in Euro being required to be
distributed in the First Initial Distribution under both Schemes.
If you fail to make an election above, you will be deemed to have made an
election to receive Euro-denominated New Senior Notes.
ONCE COMPLETE, PLEASE PROCEED TO SECTION 4.I BELOW.
961
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
I. DISTRIBUTIONS OF CASH AND NEW NOTES.
Cash payments (other than cash payments made generally in respect of the
Eurobonds) and New Notes will be credited to the clearing system account
specified below.
Please credit any cash payments (other than cash payments made generally in
respect of the Eurobonds) and New Notes to the following Euroclear, DTC* or
Clearstream, Luxembourg account:
Clearing System -------------------------------------------
Full Name of Clearing System Account Holder -------------------------------------------
Clearing System Account Number -------------------------------------------
Name of Designated Recipient's Account to be
credited at Account Holder: -------------------------------------------
Account Number of Designated Recipient's
Account to be credited at Account Holder: -------------------------------------------
Contact Name for Clearing System Account Holder -------------------------------------------
-------------------------------------------
Telephone no. of Contact (with country code)
-------------------------------------------
Facsimile no. of Contact (with country code)
E-mail address of Contact -------------------------------------------
---------------
* If DTC is selected, any cash which is not denominated in US dollars
will be converted into US dollars and only the net amount (after all
costs of conversion) will be paid into that account. Payments on New
Notes in a currency other than US dollars (including payments of
principal, interest, premium (if any) and additional amounts (if any))
will be converted into US dollars and only the net amount (after all
costs of conversion) will be paid into that account, subject to the
ability of holders of the New Notes to elect to receive payments in
other currencies as described in Appendix 8 to the Scheme Document.
Subject as provided in the Escrow and Distribution Agreement, the New
Notes will be distributed to Designated Recipients by the Distribution
Agent on the date of the First Initial Distribution. In order to deliver
New Notes, the Distribution Agent will enter "Free Delivery" instructions
into either DTC, Euroclear or Clearstream, Luxembourg according to the New
Notes which Designated Recipients are entitled to receive and according to
where they have chosen to take delivery of the New Notes. In order to
ensure that Designated Recipients receive their entitlement it will be
your responsibility to ensure that you have entered appropriate "Receive
Free" instructions that will match the "Deliver Free" instruction entered
by the Distribution Agent. Details of the "Deliver Free" instructions that
will be originated by the Distribution Agent are shown below:
962
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
If a Designated Recipient has chosen to receive New Notes denominated in
US dollars into DTC, the Distribution Agent will originate the following
"Deliver Free" instruction into DTC:
1) CUSIP = [see below]+
2) Security Description = Marconi Corp [8% Senior Secured Notes 2008]*
[Fixed Rate Junior Secured Notes 2008]**
3) Number of Units = [to be determined]
4) Settlement Date = Effective Date [expected to be 19 May 2003]
5) Trade Date = [Five Business Days Before the Effective Date]
6) Location = DTC
7) Account number = 901/490320
8) Additional Information = CBO
If a Designated Recipient has chosen to receive New Notes denominated in
euro into DTC then the Distribution Agent will originate the following
"Deliver Free" instruction into DTC:
1) CUSIP = [see below]+
2) Security Description = Marconi Corp [8% Senior Secured Notes 2008]*
[Fixed Rate Junior Secured Notes 2008]**
3) Number of Units = [to be determined]
4) Settlement Date = Effective Date [expected to be 19 May 2003]
5) Trade Date = [Five Business Days Before the Effective Date]
6) Location = DTC
7) Account number = 901/490320
8) Additional Information = CBO
If a Designated Recipient has chosen to receive New Notes denominated in
US dollars into either Euroclear or Clearstream, Luxembourg then the
Distribution Agent will originate the following "Deliver Free" instruction
into Euroclear or Clearstream, Luxembourg (as the case may be):
1) ISIN Code = [see below]++
2) Security Description = Marconi Corp [8% Senior Secured Notes 2008]*
[Fixed Rate Junior Secured Notes 2008]**
3) Number of Units = [to be determined]
4) Settlement Date = Effective Date [expected to be 19 May 2003]
5) Trade Date = [Five Business Days Before the Effective Date]
6) Location = Euroclear
7) Account number = 97816
If a Designated Recipient has chosen to receive New Notes denominated in
euro into either Euroclear or Clearstream, Luxembourg then the
Distribution Agent will originate the following "Deliver Free" instruction
into Euroclear or Clearstream, Luxembourg (as the case may be):
1) ISIN Code = [see below]++
2) Security Description = Marconi Corp [8% Senior Secured Notes 2008]*
[Fixed Rate Junior Secured Notes 2008]**
3) Number of Units = [to be determined]
4) Settlement Date = Effective Date [expected to be 19 May 2003]
5) Trade Date = [Five Business Days Before the Effective Date]
6) Location = Euroclear
7) Account number = 97816
---------------
* For New Senior Notes
963
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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** For New Junior Notes
+ The CUSIP for the New Senior Notes denominated in euro is G58129AB6, for the
New Senior Notes denominated in US dollars is G58129AA8 and for the Junior
Notes is G58129A02
++ The ISIN for the New Senior Notes denominated in euro is XS0166109503, for
the New Senior Notes denominated in US dollars is XS0166109412 and for the
Junior Notes is XS0166109768.
964
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
SECTION 5: CONFIRMATIONS
THE ACCOUNT HOLDER NAMED BELOW FOR ITSELF AND, IN THE CASE OF PARAGRAPHS D AND E
BELOW, ON BEHALF OF THE BONDHOLDER AND THE DESIGNATED RECIPIENTS (IF DIFFERENT)
NAMED IN SECTION 4 OF THIS ACCOUNT HOLDER LETTER HEREBY CONFIRMS TO CORP, PLC,
THE SUPERVISORS, BONDHOLDER COMMUNICATIONS, THE ESCROW TRUSTEE AND THE
DISTRIBUTION AGENT (SELECT "YES" OR "NO" AS APPROPRIATE FOR EACH ITEM):
A. that all authority conferred or agreed to be conferred pursuant to this
Account Holder Letter and every obligation of the Account Holder under
this Account Holder Letter shall be binding upon the successors, assigns,
heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the Account Holder and shall not be affected by, and
shall survive, the death or incapacity of the Account Holder and that all
of the information in this Account Holder Letter is complete and accurate;
[ ] Yes
[ ] No
B. that by the deadline required by the Account Holder's clearing system,
the Account Holder has irrevocably:
(i) instructed Clearstream, Luxembourg and/or Euroclear, as the case may
be, to block; and/or
(ii) has submitted ATOP instructions to DTC for,
the Bonds identified in Section 2.A of this Account Holder Letter (the
serial number of which appear in Section 6 of this Account Holder Letter)
with effect on and from one or more business days before the date on which
this Account Holder Letter is submitted to Bondholder Communications and
that a reference number for each such blocking instruction appears in this
Account Holder Letter. The Account Holder understands that the effect of
any such blocking instruction given in respect of Eurobonds will be that
Euroclear or Clearstream, Luxembourg, as the case may be, will debit the
relevant Account Holder's account with the relevant Bonds and credit them
to a separate non-fungible transit account within the relevant clearing
system.
[ ] Yes
[ ] No
C. that in relation to the Bonds identified in Section 2.A of this Account
Holder Letter (the serial number of which appear in Section 6 of this
Account Holder Letter), the Account Holder:
(a) holds its interest in those Bonds on behalf of the Definitive Holder
identified in this Account Holder Letter; and
(b) has authority:
(i) to identify the person who is to be the Definitive Holder and
to give on his behalf the instructions given in Section 3;
(ii) to identify the persons who are to be the Designated
Recipients and to give on their behalf the instructions given
in Section 4; and
(iii) to give the confirmations set out in paragraphs D and E below
on behalf of the Bondholder and each Designated Recipient.
[ ] Yes
[ ] No
D. that in connection with the legal and regulatory restrictions described
in the Scheme Document:
(i) FRANCE -- each of the Bondholder and each Designated Recipient is
located outside France or is located in France but is a "qualified
investor" as defined in Article L.411.-2 of the French Monetary and
Financial Code and as described in part I, Section 2, Part D.17 of
the Scheme Document (see Schedule 2 to this Account Holder Letter);
and
965
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
(ii) MALAYSIA -- each of the Bondholder and each Designated Recipient
is located outside Malaysia as described in part I, Section 2, part
D.17 of the Scheme Document (see Schedule 2 to this Account Holder
Letter);
[ ] Yes
[ ] No
E1. US STATES (CORP SCHEME) -- the Bondholder is located outside the US
states of Arizona, California and Ohio, or is located in one of these
states but is a person described in part I, Section 2, Part D.16 of the
Scheme Document as eligible to receive securities pursuant to the Corp
Scheme under an applicable state law exemption (see Schedule 2 to this
Account Holder Letter);
[ ] Yes
[ ] No
E2. US STATES (PLC SCHEME) -- the Bondholder is located outside the US states
of Arizona, California, Colorado, Connecticut, Illinois, Ohio and
Vermont, or is located in one of these states but is a person described
in part I, Section 2, Part D.16 of the Scheme Document as eligible to
receive securities pursuant to the plc Scheme under an applicable state
law exemption (see Schedule 2 to this Account Holder Letter).
[ ] Yes
[ ] No
F1. ITALY -- that the Bondholder is located outside Italy as described in
part I, Section 2, Part D.17 of the Scheme Document (see Schedule 2 to
this Account Holder Letter);
[ ] Yes
[ ] No
F2. ITALY (only complete this section if the answer to F1 is no) -- that the
Bondholder is located in Italy, but is a "professional investor" as
defined in the Consolidated Financial Act Article 30, paragraph II and in
CONSOB Regulation 11522/1998 Article 31, paragraph II (see Schedule 2 to
this Account Holder Letter).
[ ] Yes
[ ] No
AN ACCOUNT HOLDER WHO IS UNABLE TO CONFIRM "YES" IN RESPECT OF PARAGRAPHS A TO C
ABOVE SHOULD CONTACT BONDHOLDER COMMUNICATIONS (TELEPHONE +1 212 809 2663 OR +44
207 236 0788, ATTENTION DONNA MARTINI, OR E-MAIL DMARTINI@BONDCOM.COM) FOR
ASSISTANCE.
IF THE ANSWER TO PARAGRAPH D ABOVE IS "NO" AND THE RELEVANT SECURITIES ARE AT
THE TIME LISTED ON A SECURITIES EXCHANGE, THE RELEVANT SECURITIES WHICH WOULD
OTHERWISE HAVE BEEN DISTRIBUTED WILL BE SOLD AND THE NET PROCEEDS OF SALE (AFTER
DEDUCTION OF ALL APPLICABLE EXPENSES AND CURRENCY CONVERSION COSTS) WILL BE
CREDITED TO THE CLEARING SYSTEM ACCOUNT IDENTIFIED IN SECTION 4.I OF THIS
ACCOUNT HOLDER LETTER.
IF THE ANSWER TO PARAGRAPH E1 IS "NO" THEN THE RELEVANT SECURITIES WHICH WOULD
OTHERWISE HAVE BEEN DISTRIBUTED PURSUANT TO THE CORP SCHEME WILL BE SOLD AND THE
NET PROCEEDS OF SALE (AFTER DEDUCTION OF ALL APPLICABLE EXPENSES AND CURRENCY
CONVERSION COSTS) WILL BE CREDITED TO THE CLEARING SYSTEM ACCOUNT IDENTIFIED IN
SECTION 4.I OF THIS ACCOUNT HOLDER LETTER.
IF THE ANSWER TO PARAGRAPH E2 IS "NO" THEN THE RELEVANT SECURITIES WHICH WOULD
OTHERWISE HAVE BEEN DISTRIBUTED PURSUANT TO THE PLC SCHEME WILL BE SOLD AND THE
NET PROCEEDS OF SALE (AFTER DEDUCTION OF ALL APPLICABLE EXPENSES AND CURRENCY
CONVERSION COSTS) WILL BE CREDITED TO THE CLEARING SYSTEM ACCOUNT IDENTIFIED IN
SECTION 4.I OF THIS ACCOUNT HOLDER LETTER.
IF THE ANSWER TO PARAGRAPH F1 IS "NO" AND THE RELEVANT SECURITIES ARE AT THE
TIME LISTED ON A SECURITIES EXCHANGE, THE RELEVANT SECURITIES WHICH WOULD
OTHERWISE HAVE BEEN DISTRIBUTED PURSUANT TO THE CORP SCHEME WILL BE SOLD AND THE
NET PROCEEDS OF SALE (AFTER DEDUCTION OF ALL APPLICABLE EXPENSES AND CURRENCY
CONVERSION COSTS) WILL BE CREDITED TO THE CLEARING SYSTEM ACCOUNT IDENTIFIED IN
SECTION 4.I OF THIS ACCOUNT HOLDER LETTER UNLESS CORP DETERMINES THAT THE
EXEMPTION APPLICABLE WITH RESPECT TO DISTRIBUTIONS OF
966
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
SECURITIES TO LIMITED NUMBERS OF PERSONS IS AVAILABLE, AS DESCRIBED IN PART I,
SECTION 2, PART D.17 OF THE SCHEME DOCUMENT.
IF THE ANSWER TO BOTH PARAGRAPHS F1 AND F2 IS "NO" AND THE RELEVANT SECURITIES
ARE AT THE TIME LISTED ON A SECURITIES EXCHANGE, THE RELEVANT SECURITIES WHICH
WOULD OTHERWISE HAVE BEEN DISTRIBUTED PURSUANT TO THE PLC SCHEME WILL BE SOLD
AND THE NET PROCEEDS OF SALE (AFTER DEDUCTION OF ALL APPLICABLE EXPENSES AND
CURRENCY CONVERSION COSTS) WILL BE CREDITED TO THE CLEARING SYSTEM ACCOUNT
IDENTIFIED IN SECTION 4.I OF THIS ACCOUNT HOLDER LETTER UNLESS PLC DETERMINES
THAT THE EXEMPTION APPLICABLE WITH RESPECT TO DISTRIBUTIONS OF SECURITIES TO
LIMITED NUMBERS OF PERSONS IS AVAILABLE, AS DESCRIBED IN PART I, SECTION 2, PART
D.17 OF THE SCHEME DOCUMENT.
IF IN THE CIRCUMSTANCES DESCRIBED IN ANY OF THE PRECEDING PARAGRAPHS SECURITIES
TO BE SOLD ARE AT THE TIME NOT LISTED ON A SECURITIES EXCHANGE THEN A SUM IN
CASH WHICH IS SUBSTANTIALLY EQUIVALENT IN VALUE TO SUCH UNLISTED SECURITIES AND
DETERMINED IN ACCORDANCE WITH THE TERMS OF THE RELEVANT SCHEME WILL BE CREDITED
TO THE CLEARING SYSTEM ACCOUNT IDENTIFIED IN SECTION 4.I OF THIS ACCOUNT HOLDER
LETTER.
ACCOUNT HOLDERS WHO ARE UNABLE TO CONFIRM "YES" TO PARAGRAPHS D, E1, E2, F1 OR
F2 ABOVE SHOULD NOT DELAY IN SUBMITTING THIS ACCOUNT HOLDER LETTER TO BONDHOLDER
COMMUNICATIONS AND SHOULD, IN ANY CASE, SUBMIT IT ON OR BEFORE THE SCHEME
MEETINGS TO ENSURE THAT THE BONDHOLDER'S VOTING INSTRUCTIONS CAN BE COUNTED. IF
AN ACCOUNT HOLDER WHO WOULD OTHERWISE BE UNABLE TO COMPLETE THIS ACCOUNT HOLDER
LETTER BEFORE 5.00 P.M. (NEW YORK CITY TIME) ON 17 APRIL 2003 WISHES TO ENSURE
THAT ITS DEFINITIVE HOLDER'S VOTING INSTRUCTIONS CAN BE ACTED ON IN TIME FOR THE
SCHEME MEETINGS, IT MAY SUBMIT THIS ACCOUNT HOLDER LETTER WITH ONLY SECTIONS 1
THROUGH 3 COMPLETED. IT MAY SUBSEQUENTLY COMPLETE THE REMAINDER OF THIS ACCOUNT
HOLDER LETTER ALTHOUGH IT SHOULD NOTE THAT THE DESIGNATED RECIPIENTS NAMED IN
SECTION 4 OF THIS ACCOUNT HOLDER LETTER WILL NOT RECEIVE THE FIRST INITIAL
DISTRIBUTION OF SCHEME CONSIDERATION. IN ANY SUCH CASE, THE ACCOUNT HOLDER
SHOULD CONTACT BONDHOLDER COMMUNICATIONS AS SOON AS POSSIBLE.
967
IV. APPENDICES TO THE EXPLANATORY STATEMENT
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--------------------------------------------------------------------------------
SECTION 6: EXECUTION BY ACCOUNT HOLDER
Full Name of Euroclear or Clearstream Account Holder
or DTC Participant ---------------------------------------------
Account Number of Account Holder or Participant at
Clearing System ---------------------------------------------
---------------------------------------------
Authorised Employee of Account Holder (print name)
Department ---------------------------------------------
Title ---------------------------------------------
Telephone no. of Authorised Employee ---------------------------------------------
Facsimile no. of Authorised Employee ---------------------------------------------
E-mail of Authorised Employee ---------------------------------------------
Address ---------------------------------------------
---------------------------------------------
City, State or Province ---------------------------------------------
Postal Code ---------------------------------------------
Country ---------------------------------------------
---------------------------------------------
Authorised Employee Signature* (sign)
Date ---------------------------------------------
*Not required if this form is filed on-line.
Before returning this document, please make certain that you have provided all
information requested. ACCEPTANCE OF THIS ACCOUNT HOLDER LETTER BY BONDHOLDER
COMMUNICATIONS IS SUBJECT TO RECEIPT BY BONDHOLDER COMMUNICATIONS BY NO LATER
THAN 5.00 P.M. (LOCAL TIME IN THE PLACE OF THE RELEVANT CLEARING SYSTEM) ON THE
BUSINESS DAY BEFORE THE DATE ON WHICH THIS ACCOUNT HOLDER LETTER IS SUBMITTED TO
BONDHOLDER COMMUNICATIONS OF (I) CUSTODY INSTRUCTIONS DELIVERED BY EUROCLEAR OR
CLEARSTREAM, LUXEMBOURG, AS THE CASE MAY BE, IN RESPECT OF ANY BONDS IDENTIFIED
IN SECTION 2.A OF THIS ACCOUNT HOLDER LETTER AS BEING HELD IN ONE OF THOSE
CLEARING SYSTEMS AND (II) AN ATOP INSTRUCTION DELIVERED BY DTC IN RESPECT OF ANY
BONDS IDENTIFIED IN SECTION 2.A OF THIS ACCOUNT HOLDER LETTER AS BEING HELD IN
DTC. INFORMATION IN THIS ACCOUNT HOLDER LETTER MUST BE CONSISTENT WITH SUCH
CUSTODY INSTRUCTIONS AND ATOP INSTRUCTION.
968
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
THIS PAGE TO BE COMPLETED BY BONDHOLDER COMMUNICATIONS
The Account Holder Letter is confirmed.
BONDHOLDER COMMUNICATIONS GROUP
By:................................................... Date: Time:
Confirmation No.:
The serial number applicable to the Bonds identified in Section 2 of this
Account Holder Letter is as follows:
--------------------------------------------------------------------------------------------
ISIN Amount Serial Number
--------------------------------------------------------------------------------------------
XS109451194
--------------------------------------------------------------------------------------------
XS109450972
--------------------------------------------------------------------------------------------
US566306AC07
--------------------------------------------------------------------------------------------
US566306AA41
--------------------------------------------------------------------------------------------
US566306AD89
--------------------------------------------------------------------------------------------
US566306AB24
--------------------------------------------------------------------------------------------
Note:
(1) To obtain these serial numbers in respect of a form which is being filed by
post, personal delivery or facsimile, Account Holders should submit this
Account Holder Letter to Bondholder Communications with their Custody
Instruction or VOI Number. If this Account Holder Letter is being filed on
line, these serial numbers will be generated automatically.
969
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
SCHEDULE 1
HOLDING DETAILS CONTINUATION SHEET
-----------------------------------------------------------------------------------------------------------------------
ISIN Amount Blocked at Clearing System* Clearing System Custody Instruction
Clearing System Account Number Reference or VOI
Number**
-----------------------------------------------------------------------------------------------------------------------
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* The Eurobonds (with ISINs XS109451194 and XS109450972) may only be held
through Euroclear or Clearstream, Luxembourg whereas the Yankee Bonds (with
ISINs US566306AC07, US566306AA41, US566306AD89 and US566306AB24) may be held
through any of DTC, Euroclear or Clearstream, Luxembourg.
** Corresponding to your blocking instruction.
970
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
SCHEDULE 2
EXCERPTS FROM PARTS D.16 AND D.17 OF SECTION 2 OF PART 1 OF THE SCHEME DOCUMENT
For purposes of the confirmations in Section 5:
- a person will be deemed to be located in France if this Scheme Document, or
notice that this Scheme Document is available, (i) is sent to him at an
address (including the registered address for a company and the branch
address for a branch) in the Republic of France, or (ii) is made available
to him by electronic means and such person (if a natural person) is a French
national or (if a legal person) has its registered address in the Republic
of France;
- a person will be deemed to be located in Italy if such person (i) is a
natural person and is resident or domiciled within the geographical
territory of Italy or (ii) is a legal person and has its registered office
(sede legale) within the geographical territory of Italy or (iii) is a legal
person having any other office or conducting any business or other
activities within the geographical territory of Italy as a result of which
it is or is required to be registered in Italy;
- a person will be deemed to be located in Malaysia if such person (i) is a
natural person and is resident in Malaysia, or (ii) is a legal person and
has its principal place of business in Malaysia, or (iii) is deemed to be
resident in Malaysia for tax purposes pursuant to the Malaysian Income Tax
Act 1967 or any other Malaysian tax legislation; and
- a Bondholder will be deemed to be located in a US state if such Bondholder
(or, in the case of a legal entity, the person acting on behalf of such
Bondholder) is physically present within that state at the time that (i)
such person receives the Scheme Document, or any portion thereof or any
information with respect thereto which results in an Account Holder Letter
being submitted on behalf of such person, or (ii) such person transmits
instructions with respect to submission of an Account Holder Letter.
The categories of Bondholders located in the states of Arizona, California,
Colorado, Connecticut, Illinois, Ohio and Vermont to or to the order of whom New
Shares, ADRs and New Notes will be distributed through the Schemes are as
follows:
Arizona -- any bank, savings institution, trust company, insurance company,
investment company as defined in the US Investment Company Act of 1940, a
pension or profit sharing trust or other financial institution or institutional
buyer, or a dealer, whether the person is acting for itself or in a fiduciary
capacity.
California -- any broker-dealer, bank, savings and loan association, trust
company, insurance company, investment company registered under the US
Investment Company Act of 1940, or pension or profit-sharing trust (other than a
pension or profit-sharing trust of the issuer, a self-employed individual
retirement plan or an individual retirement account); any organisation described
in Section 501(c)(3) of the US Internal Revenue Code, as amended to 29 December
1981, which has total assets (including endowment, annuity and life income
funds) of not less than US$5,000,000 according to its most recent audited
financial statement; any corporation which has a net worth on a consolidated
basis of not less than US$14,000,000; any wholly-owned subsidiary of any of the
foregoing institutional investors; or the US federal government, any agency or
instrumentality of the US federal government, any corporation wholly-owned by
the US federal government, any state, any city, city and county, or county, or
any agency or instrumentality of a state, city, city and county, or county, or
any state university or state college and any retirement system for the benefit
of employees of any of the foregoing.
Colorado -- with respect to the Corp Scheme, any Bondholder and, with respect to
either Scheme, any broker-dealer, or a financial or institutional investor,
whether the purchaser is acting for itself or in some fiduciary capacity. A
financial or institutional investor includes: (a) a depositary institution,
which is defined as: (i) a person that is organised or chartered, or is doing
business or holds an authorisation certificate, under the laws of a state or of
the United States which authorises the person to receive deposits, including
deposits in savings, share, certificate, or other deposit accounts, and that is
supervised and examined for the protection of depositors by an official or
agency of a state or the United States, or (ii) a trust company or other
institution that is authorised by
971
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 28: INSTRUCTIONS TO PERSONS WITH INTERESTS IN BONDS
--------------------------------------------------------------------------------
federal or state law to exercise fiduciary powers of the type a national bank is
permitted to exercise under the authority of the comptroller of the currency and
is supervised and examined by an official or agency of a state or the United
States; (b) an insurance company; (c) a separate account of an insurance
company; (d) an investment company registered under the US Investment Company
Act of 1940; (e) a business development company as defined in the US Investment
Company Act of 1940; (f) any private business development company as defined in
the US Investment Advisers Act of 1940; (g) an employee pension, profit-sharing
or benefit plan if the plan has total assets in excess of US$5,000,000 or its
investment decisions are made by a named fiduciary, as defined in ERISA, that is
a broker-dealer registered under the Exchange Act, an investment adviser
registered or exempt from registration under the US Investment Advisers Act of
1940, a depositary institution, or an insurance company; (h) an entity, but not
an individual, a substantial part of whose business activities consist of
investing, purchasing, selling, or trading in securities of more than one issuer
and not of its own issue and that has total assets in excess of US$5,000,000 as
of the end of its latest fiscal year; (i) a small business investment company
licensed by the US federal small business administration under the US Small
Business Investment Act of 1958; and (j) any other institutional buyer.
Connecticut -- with respect to the Corp Scheme, any Bondholder and, with respect
to either Scheme, any state bank and trust company, national banking
association, savings bank, savings and loan association, federal savings and
loan association, credit union, federal credit union, trust company, insurance
company, investment company as defined in the US Investment Company Act of 1940,
pension or profit-sharing trust, or other financial institution or institutional
buyer, or to a broker-dealer; whether the purchaser is acting for itself or in
some fiduciary capacity.
Illinois -- with respect to the Corp Scheme, any Bondholder and, with respect to
either Scheme, any corporation, bank, savings bank, savings institution, savings
and loan association, trust company, insurance company, building and loan
association, or dealer; a pension fund or pension trust, employees'
profit-sharing trust, other financial institution (including any manager of
investment accounts on behalf of other than natural persons, who, with
affiliates, exercises sole investment discretion with respect to such accounts
and provided such accounts exceed ten in number and have a fair market value of
not less than US$10,000,000 at the end of the calendar month preceding the month
during which the securities are sold) or institutional investor (including
investment companies, universities and other organisations whose primary purpose
is to invest its own assets or those held in trust by it for others, trust
accounts and individual or group retirement accounts in which a bank, trust
company, insurance company or savings and loan institution acts in a fiduciary
capacity, and foundations and endowment funds exempt from taxation under the
Code, a principal business function of which is to invest funds to produce
income in order to carry out the purpose of the foundation or fund), or any
government or political subdivision or instrumentality thereof, whether the
purchaser is acting for itself or in some fiduciary capacity; any partnership or
other association engaged as a substantial part of its business or operations in
purchasing or holding securities; any trust in respect of which a bank or trust
company is trustee or co-trustee; any entity in which at least 90 per cent. of
the equity is owned by: (i) persons described in this paragraph, (ii) any
partnership or other association or trader buying or selling fractional
undivided interests in oil, gas or other mineral rights, in frequent operations,
for its or his own account rather than for the account of customers, to such
extent it or he may be said to be engaged in such activities as a trade or
business, (iii) any natural person who has, or is reasonably believed by the
person offering the securities to have (a) a net worth or joint net worth with
the person's spouse, at the time of the offer, sale or issuance of the
securities, in excess of US$1,000,000, or (b) an income or joint income with
that person's spouse of US$200,000 in each of the two most recent fiscal years
and reasonably expects such an income in the current year, (iv) any person, not
a natural person, 90 per cent. of the equity interest thereof is owned by
persons described in (a) or (b) immediately above, or (v) any person who is, or
is reasonably believed by the person offering the securities to be, a director,
executive officer, or general partner of the issuer of the securities or any
director, executive officer or general partner of a general partner of that
issuer (executive officer shall mean the president, any vice president in charge
of a principal business unit, division or function such as sales, administration
or finance, or any other officer or other person who performs a policy-making
function for the issuer); any employee benefit plan within the meaning of Title
I of ERISA if (i) the investment decision is made by a plan fiduciary as defined
in Section 3(21) of ERISA and such plan fiduciary is either a bank, insurance
company, registered investment adviser or an investment adviser registered under
the US Investment Advisers Act of 1940, or (ii) the plan has total assets in
excess of US$5,000,000, or (iii) in the case of a self-directed plan,
972
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--------------------------------------------------------------------------------
investment decisions are made solely by persons that are described herein; any
plan established and maintained by, and for the benefit of the employees of, any
state or political subdivision or agency or instrumentality thereof if such plan
has total assets in excess of US$5,000,000; or any organisation described in
Section 501(c)(3) of the Code, any Massachusetts or similar business trust, or
any partnership, if such organisation, trust, or partnership has total assets in
excess of US$5,000,000.
Ohio -- any dealer, corporation, bank (which includes a trust company, savings
and loan association, savings bank, or credit union that is incorporated or
organised under the laws of the United States or of any state thereof, or of
Canada or any province thereof, and subject to regulation or supervision by such
country, state or province), insurance company, pension fund or trust,
employees' profit-sharing fund or trust, any association engaged, as a
substantial part of its business or operations, in purchasing or holding
securities, any trust in respect of which a bank is trustee or co-trustee, or
any Qualified Institutional Buyer as defined in Rule 144A under the Securities
Act.
Vermont -- with respect to the Corp Scheme, any Bondholder and, with respect to
either Scheme, any financial or institutional investor, which means: (a) a
depositary institution, which includes: (i) a person that is organised,
chartered, or holding an authorisation certificate under the laws of a state or
of the United States which authorises the person to receive deposits, including
a savings, share, certificate, or deposit account, and which is supervised and
examined for the protection of depositors by an official or agency of a state or
the United States, or (ii) a trust company or other institution that is
authorised by a federal or state law to exercise fiduciary powers of the type a
national bank is permitted to exercise under the authority of the comptroller of
the currency and is supervised and examined by an official or agency of a state
or the United States; (b) an insurance company; (c) a separate account of an
insurance company; (d) an investment company as defined in the US Investment
Company Act of 1940; (e) an employee pension, profit-sharing or benefit plan if
the plan has total assets in excess of US$5,000,000 or its investment decisions
are made by a named fiduciary, as defined in ERISA, that is either a
broker-dealer registered under the Exchange Act, an investment adviser
registered or exempt from registration under the Investment Advisers Act of
1940, a depositary institution or an insurance company; (f) any other financial
or institutional buyer which qualifies as an accredited investor under the
provisions of Regulation D as promulgated by the SEC under the Securities Act,
as such provisions may be amended from time to time hereafter; (g) a
broker-dealer; and (h) such other institutional buyers as the commissioner may
add by rule or order; whether the purchaser is acting for itself or others in a
fiduciary capacity.
973
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 29
FORM OF PROXY FOR SCHEME CREDITORS
NO. [1783/1782] OF 2003
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF [MARCONI CORPORATION PLC ("Corp")/MARCONI PLC ("plc")]
-and -
IN THE MATTER OF THE COMPANIES ACT 1985
SCHEME OF ARRANGEMENT
Record Date: 5:00 p.m. London time on 27 March 2003
FORM OF PROXY
for use at the meeting of Scheme Creditors
to be held at the offices of The Institute of Civil Engineers,
1 Great George Street, London SW1
at [10.00/10.15] a.m. London time [or as soon as possible thereafter following
the conclusion or adjournment of the Corp Scheme Meeting] on 25 April 2003
regarding the Scheme of Arrangement under section 425 of the Companies Act 1985
in respect of
[Corp/plc]
Before completing and executing this Form of Proxy, you should read the
instructions below. If you have any questions relating to the completion of this
Form of Proxy, or if you require further copies of this Form of Proxy, the
Scheme Document or the Claim Form, please contact KPMG by telephone on + 44(0)20
7694 3007 (you will be able to leave a message outside business hours) or in
writing addressed to KPMG LLP at 8 Salisbury Square, London, EC4Y 8BB, England,
marked for the attention of Philip Wallace and Richard Heis.
Capitalised terms used in this Form of Proxy but not defined in it have the same
meaning given to them in the Scheme Document. You are strongly advised to read
the Scheme Document and, in particular, Appendix 27, before you complete this
Form of Proxy. Appendix 27 contains information on the various options contained
in the Form of Proxy. This Form of Proxy is governed by, and shall be construed
in accordance with, English law.
YOU ARE ENCOURAGED TO RETURN THIS FORM OF PROXY HAVING COMPLETED THE APPROPRIATE
SECTIONS AS SOON AS POSSIBLE.
INSTRUCTIONS FOR COMPLETING AND LODGING THIS FORM OF PROXY:
STEP A
1. Fill in the required details of your Scheme Claim(s) in the box provided
in Section A, using the continuation sheet provided if necessary. Please
detail individual claims being made in respect of separate contracts or
causes of action separately. Complete your details in block capitals.
974
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 29: FORM OF PROXY FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
STEP B
2. Complete Section B by choosing either to appoint a proxy or to attend and
vote at the Scheme Meeting in person. If you wish to appoint a proxy,
tick the box in Section B(i). If you wish to appoint the chairman of the
Scheme Meeting as your proxy, tick the relevant box. Alternatively, if
you wish to appoint any person other than the chairman of the Scheme
Meeting as your proxy, tick the relevant box and insert in block capitals
the name and address of the person appointed in the space provided. If
you wish to attend and vote at the Scheme Meeting in person tick the box
in Section B(ii), ignore STEP C below and go directly to STEP D below.
STEP C
3. If you have completed Section B(i) indicate, by signing in the
appropriate box in Section C, how you wish your proxy to vote at the
Scheme Meeting. If you sign in the box marked "AT DISCRETION", the proxy
will vote at his or her discretion, unless you have appointed the
chairman of the Scheme Meeting as your proxy, in which case the proxy is
not validly given and the chairman will not be permitted to cast a vote
on your behalf. If you appoint a proxy and do not sign in any of the
boxes in Section C, the Form of Proxy will be invalid and KPMG will
notify you by first class post or e-mail, where an e-mail address is
given, as soon as reasonably practicable. If you will attend and vote in
person at the meeting and have therefore completed Section B(ii), you are
not required to sign any box at Section C and should go to STEP D below.
STEP D
4. If you have already submitted a Form of Proxy to KPMG and this Form of
Proxy revokes the earlier Form of Proxy tick the box in Section D.
STEP E
5. You are encouraged to complete and lodge your Form of Proxy with KPMG as
soon as possible at the address or fax number detailed in Section E by
5.00 p.m. (London time) on 17 April 2003. Faxed Forms of Proxy are
acceptable if faxed to +44 (0)20 7694 3011. Faxes should be marked for
the attention of Philip Wallace and Richard Heis. The latest time and
date by which KPMG should receive Forms of Proxy is 12 noon (London time)
on 24 April 2003. In addition, duly completed and executed Forms of Proxy
will be accepted by the registration desk up to one hour prior to the
time at which the Scheme Meeting is scheduled to commence on the day at
any time prior to that Scheme Meeting or by the chairman at the Scheme
Meeting.
6. Any alteration made in this Form of Proxy must be initialled by the
person(s) who signs it.
7. The completion and return of the Form of Proxy will not preclude you from
attending the Scheme Meeting and voting in person if you so wish.
8. Any person signing a Form of Proxy as an authorised signatory of a Scheme
Creditor warrants to the chairman of the Scheme Meeting that he has
authority to sign this Form of Proxy on the Scheme Creditor's behalf.
KPMG will acknowledge receipt of any Form of Proxy received before 12
noon (London time) on 24 April 2003 by first class post or, where an
e-mail address is given, by e-mail.
975
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 29: FORM OF PROXY FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
SECTION A (SEE NOTE 1 OF THE INSTRUCTIONS ABOVE)
As at the Record Date, I/we (the undersigned)
Name of Scheme Creditor(s)
(Block Capitals):
Name of authorised signatory of Scheme
Creditor(s)
(if applicable)
(Block Capitals):
Address of Scheme Creditor(s)
(Block Capitals):
Date:
Telephone number (including country and area
code) of Scheme Creditor(s):
E-mail address of Scheme Creditor(s):
Fax Number (including country and area code)
of Scheme Creditor(s):
has/have the following Scheme Claim(s), stating currency:
---------------------------------------------------------------------------------------------------------
AMOUNT OF INTEREST
AMOUNT OF PRINCIPAL ON SCHEME CLAIM TO
OF SCHEME CLAIM AT AND INCLUDING THE
THE RECORD DATE RECORD DATE
SUMMARY OF SCHEME CLAIM(S) (27 MARCH 2003) (27 MARCH 2003)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
THESE DETAILS WILL BE USED BY THE CHAIRMAN OF THE SCHEME MEETING TO DETERMINE
THE VALUE OF YOUR CLAIM FOR THE PURPOSE OF VOTING AT THE SCHEME MEETING ONLY.
FOR THE PURPOSES OF VOTING AT THE SCHEME MEETING AND DETERMINING WHETHER OR NOT
THE STATUTORY MAJORITIES (BEING A MAJORITY IN NUMBER REPRESENTING THREE-FOURTHS
IN VALUE OF THE CREDITORS PRESENT AND VOTING EITHER IN PERSON OR BY PROXY AT THE
SCHEME MEETING) ARE ACHIEVED, CLAIMS WILL BE CONVERTED INTO STERLING. THE RATE
OF EXCHANGE USED FOR THIS PURPOSE WILL BE THE VOTING RATE.
976
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 29: FORM OF PROXY FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
SECTION B (SEE NOTE 2 OF THE INSTRUCTIONS ABOVE)
(I) APPOINTMENT OF PROXY
[ ]I/WE, THE UNDERSIGNED, HEREBY APPOINT:
(tick box if appropriate)
[ ] THE CHAIRMAN OF THE MEETING(1); OR
(tick box if appropriate)
[ ] THE FOLLOWING INDIVIDUAL(2)
(tick box if appropriate)
--------------------------------------------------------------------------------
(Name)
--------------------------------------------------------------------------------
(Address)
(1) If this proxy is given to the chairman, you must sign in either the "FOR" or
"AGAINST" box in SECTION C below for the appointment to be valid. If this
proxy is given to the chairman and you sign the "AT DISCRETION" box, this
proxy will not validly appoint the chairman as your proxy.
(2) The person to whom this proxy is given need not be a Scheme Creditor of
[Corp/plc] but must attend the Scheme Meeting in person to represent you.
as my/our proxy to act for me/us at the Scheme Meeting to be held on 25 April
2003 commencing at [10.00 a.m./10.15 a.m. or as soon as possible thereafter
following the conclusion or adjournment of the Corp Scheme Meeting] (or soon
thereafter) at the offices of The Institute of Civil Engineers, 1 Great George
Street, London SW1 for the purpose of considering and, if thought fit,
approving, with or without modification, the proposed [Corp/plc] Scheme and, at
such meeting or any adjournment thereof, for and in the name of the undersigned,
or
(II) NOTICE OF ATTENDANCE
[ ]I/WE WILL ATTEND AND VOTE IN PERSON AT THE SCHEME MEETING: (tick box if
appropriate)
SECTION C (SEE NOTE 3 OF THE INSTRUCTIONS ABOVE)
TO VOTE IN RESPECT OF THE [CORP/PLC] SCHEME (EITHER WITH OR WITHOUT
MODIFICATION, AS I/WE OR MY/OUR PROXY MAY APPROVE), AS INDICATED BELOW:
------------------------------------------------------------------------------------------------
FOR THE [CORP/PLC] SCHEME AGAINST THE [CORP/PLC] AT DISCRETION
SCHEME
--------------------------- ---------------------------- ----------------------------
Signature Signature Signature
------------------------------------------------------------------------------------------------
NB: If you are appointing the chairman of the Scheme Meeting as your proxy under SECTION
B(i) above, in order for your proxy to be appointed validly you must sign in either the
"FOR" or "AGAINST" box. If you are appointing the chairman of the Scheme Meeting as your
proxy and you sign in the box marked "AT DISCRETION", this Form of Proxy will not validly
appoint the chairman as your proxy. IF YOU DO NOT SIGN ANY BOX, YOUR PROXY WILL NOT BE
VALIDLY APPOINTED AND WILL NOT BE PERMITTED TO CAST A VOTE ON YOUR BEHALF.
------------------------------------------------------------------------------------------------
SECTION D (SEE NOTE 4 OF THE INSTRUCTIONS ABOVE)
[ ]THIS FORM OF PROXY REVOKES A FORM OF PROXY I/WE HAVE PREVIOUSLY SUBMITTED:
(tick box if appropriate)
977
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 29: FORM OF PROXY FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
SECTION E: (SEE NOTES 5 TO 8 OF THE INSTRUCTIONS ABOVE)
RETURN ALL PAGES OF THIS FORM TO:
For the attention of Philip Wallace and Richard Heis
KPMG LLP
8 Salisbury Square
London EC4Y 8BB
England, UK
Fax: +44 (0)207 694 3011
978
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 29: FORM OF PROXY FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
NO. [1783/1782] OF 2003
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF [MARCONI CORPORATION PLC/MARCONI PLC]
-and -
IN THE MATTER OF THE COMPANIES ACT 1985
SCHEME OF ARRANGEMENT
FORM OF PROXY
CONTINUATION SHEET
979
IV. APPENDICES TO THE EXPLANATORY STATEMENT
--------------------------------------------------------------------------------
APPENDIX 30
FORM OF CLAIM FORM FOR SCHEME CREDITORS
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IT IS BEING
SENT TO PERSONS BELIEVED TO BE SCHEME CREDITORS, BEING CERTAIN CREDITORS OF
[CORP/PLC]. IF YOU HAVE ASSIGNED, SOLD OR OTHERWISE TRANSFERRED, OR ASSIGN, SELL
OR OTHERWISE TRANSFER, YOUR INTERESTS AS A SCHEME CREDITOR BEFORE THE RECORD
DATE YOU MUST FORWARD THIS CLAIM FORM TOGETHER WITH THE ACCOMPANYING SCHEME
DOCUMENT TO THE PERSON OR PERSONS TO WHOM YOU HAVE ASSIGNED, SOLD OR OTHERWISE
TRANSFERRED, OR ASSIGN, SELL OR OTHERWISE TRANSFER, YOUR INTERESTS AS A SCHEME
CREDITOR OR TO THE STOCKHOLDER, BANK OR OTHER AGENT THROUGH WHOM THE SALE OR
TRANSFER WAS EFFECTED, FOR ONWARD TRANSMISSION TO THAT PERSON.
FURTHER COPIES OF THIS DOCUMENT CAN BE OBTAINED FROM KPMG BY TELEPHONING THE
HELPLINE ON +44 (0)20 7694 3007.
BEFORE COMPLETING AND EXECUTING THIS CLAIM FORM YOU SHOULD READ THE NOTES SET
OUT IN THIS CLAIM FORM. If you do not complete this Claim Form in full and sign
it in accordance with the instructions in the notes, you may not be eligible to
receive Scheme Consideration in respect of your claim as a Scheme Creditor.
YOUR DULY COMPLETED CLAIM FORM CONSTITUTES YOUR CLAIM TO SCHEME CONSIDERATION IN
THE SCHEME. IN ORDER TO BE ENTITLED TO PARTICIPATE IN THE FIRST INITIAL
DISTRIBUTION OF SCHEME CONSIDERATION YOUR DULY COMPLETED CLAIM FORM MUST BE
SUBMITTED BY 5 P.M. (LONDON TIME) ON 17 APRIL 2003 TO KPMG, ADMITTED BY THE
SUPERVISORS (WHO ARE ANTICIPATED TO BE PHILIP WALLACE AND RICHARD HEIS, BOTH
PARTNERS IN KPMG), AND LISTED IN THE FIRST INITIAL DISTRIBUTION NOTICE. CLAIM
FORMS RECEIVED BY 5 P.M. (LONDON TIME) ON 17 APRIL 2003 BUT WHICH HAVE NOT BEEN
DULY COMPLETED, OR SCHEME CLAIMS WHICH ARE NOT OTHERWISE ADMITTED AND LISTED IN
THE FIRST INITIAL DISTRIBUTION NOTICE, WILL NOT ENTITLE YOU TO PARTICIPATE IN
THE FIRST INITIAL DISTRIBUTION. CLAIM FORMS SHOULD BE RETURNED TO THE
SUPERVISORS, KPMG LLP, 8 SALISBURY SQUARE, LONDON EC4Y 8BB, ENGLAND, UK
(ATTENTION PHILIP WALLACE AND RICHARD HEIS).
IF YOU HAVE ANY QUESTIONS RELATING TO THE COMPLETION OF THIS CLAIM FORM, OR IF
YOU REQUIRE A FURTHER COPY OF THIS FORM OR THE SCHEME DOCUMENT, PLEASE CONTACT
THE HELPLINE BY TELEPHONING KPMG ON +44 (0)20 7694 3007 DURING NORMAL WORKING
HOURS.
--------------------------------------------------------------------------------
[MARCONI CORPORATION PLC / MARCONI PLC]
SCHEME OF ARRANGEMENT UNDER SECTION 425 OF THE COMPANIES ACT 1985
--------------------------------------------------------------------------------
CLAIM FORM
Capitalised terms used in this Claim Form but not defined in it have the same
meaning given to them in the Scheme Document. You are strongly advised to read
the Scheme Document and, in particular, Appendix 27, before you complete this
Claim Form. Appendix 27 contains information on the various options contained in
the Claim Form. This Claim Form is governed by, and shall be construed in
accordance with, English law.
THIS CLAIM FORM IS FOR USE ONLY IN RESPECT OF INTERESTS AS SCHEME CREDITORS OF
[CORP/PLC] WHICH WERE HELD BY YOU AT (AND AT ALL TIMES AFTER) THE RECORD DATE
(5.00 P.M. (LONDON TIME) ON 27 MARCH 2003).
Serial Number:
980
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
NOTES FOR COMPLETION OF THIS CLAIM FORM
PLEASE FOLLOW THESE NOTES CAREFULLY WHEN COMPLETING THIS CLAIM FORM
ALL BOXES MUST BE COMPLETED AS DESCRIBED IN THESE NOTES
1 FULL NAME(S) AND ADDRESS(ES) OF CLAIMANT(S) (BOX 1)
1. This Claim Form must be completed by or on behalf of a Scheme Creditor,
being a person or persons with a Scheme Claim. Insert in Box 1 the full
name of that person or persons together with their full address(es).
Examples of Scheme Creditors are:
(a) Syndicate Banks;
(b) The Law Debenture Trust Corporation p.l.c.;
(c) The Bank of New York;
(d) trade creditors except those with Excluded Claims;
(e) a trustee who is holding an interest as a Scheme Creditor as part
of the assets of his trust; or
(f) an executor or personal representative where the estate of the
deceased contains an interest as a Scheme Creditor which was held
for the deceased's own account.
2. In the case of a joint claim, insert the full name and address of the
first joint claimant in Section (A) and the full name and address of each
other joint claimant in Section (B).
2 NOMINAL AMOUNT OF CLAIM (BOX 2)
Insert in Section (A) of Box 2 the amount of your claim as at and including the
Record Date (27 March 2003) against [Corp/plc], state the currency in which the
claim arises and state the principal amount of the claim and any interest
claimed separately. Interest is claimable up to and including 27 March 2003.
Insert in Section (B) of Box 2 a brief description of how your claim arises. For
example, if your interest arises under a contract please provide details of the
subject matter of the contract and details of the parties to, and date of, that
contract.
IF YOU ARE EITHER THE LAW DEBENTURE TRUST CORPORATION P.L.C. OR THE BANK OF NEW
YORK COMPLETING THIS FORM IN YOUR CAPACITY AS TRUSTEE FOR THE EUROBOND HOLDERS
OR THE YANKEE BOND HOLDERS, RESPECTIVELY, YOU SHOULD NOT COMPLETE ANY OF
SECTIONS (C), (D), (E), (F) OR (G).
3. Insert in Section (C)(i) of Box 2 the bank account details of a bank in
the United Kingdom to which any cash in sterling forming part of the
Scheme Consideration should be credited. If you would prefer to receive
such payment by cheque, please leave the account details section blank
and complete the cheque payee and address details in Section (C)(ii)
instead. Cheques will be sent by ordinary uninsured mail at the risk of
the recipient. YOU MUST SUPPLY EITHER BANK ACCOUNT OR CHEQUE PAYMENT
DETAILS IN ORDER TO BE ELIGIBLE FOR PAYMENT OF ANY CASH IN STERLING
FORMING PART OF THE SCHEME CONSIDERATION.
4. Insert in Section (D) of Box 2 the account details of the relevant
clearing system to which you wish any New Notes forming part of the
Scheme Consideration and any cash paid other than in sterling to be
credited. Cash payable other than in sterling will arise if New Notes are
to be sold as a result of confirmations given in Box 5 or where interest
has been paid on New Notes before they are distributed. The clearing
system details should be your own details if you are an account holder
within DTC, Euroclear or Clearstream, Luxembourg or the details of an
account holder within DTC, Euroclear or Clearstream, Luxembourg who is
prepared to act as your custodian if you are not. If you do not have a
custodian, Morgan Stanley has agreed to consider acting as custodian for
you, on its standard terms and conditions, subject to its standard due
diligence process (which will require the provision and/or execution of
certain documents by you). If you would like Morgan Stanley to act as
your custodian on this basis, you should contact Morgan Stanley on +44
(0)20 7677 7166 to ascertain the documents that it requires
981
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
you to provide and/or execute, and sign the appropriate confirmation in
Section (D) of Box 2. YOU MUST EITHER SPECIFY APPROPRIATE ACCOUNT DETAILS
OR CONFIRM MORGAN STANLEY'S ACCEPTANCE TO ACT AS YOUR CUSTODIAN IN ORDER
TO BE ELIGIBLE TO RECEIVE ANY NEW NOTES FORMING PART OF THE SCHEME
CONSIDERATION.
5. The New Senior Notes forming part of the Scheme Consideration will be
denominated in Euro and/or US dollars based on elections made in Claim
Forms (and Account Holder Letters to be submitted by Account Holders on
behalf of Bondholders). You may indicate in Section (E) of Box 2 whether
you would like to receive, if they are available, New Senior Notes
denominated in either Euro or US dollars. You should note, however, that
no New Senior Notes denominated in US dollars will be issued unless,
based on information contained in all Claim Forms and all Account Holder
Letters received prior to 17 April 2003, elections have been made which
would, if both Schemes become effective, result in an aggregate of at
least the US dollar equivalent (calculated at the Currency Rate) of Euro
250 million (less the Relevant Deduction) of New Senior Notes denominated
in dollars being required to be distributed in the First Initial
Distribution under both Schemes. New Senior Notes denominated in Euro
will only be issued if, based on all Claim Forms and all Account Holders
received by 17 April 2003, elections have been made which would, if both
Schemes become effective, result in an aggregate of at least Euro 250
million (less the Relevant Deduction) of New Senior Notes denominated in
Euro being required to be distributed in the First Initial Distribution
under both Schemes. If, in Section (E) of Box 2, you fail to make any
indication, you will be deemed to have made an election to receive
Euro-denominated New Senior Notes.
6. Please tick either (i) or (ii) in Section (F) of Box 2 to show how you
wish to receive any equity securities (other than American Depositary
Receipts -- see below) forming part of the Scheme Consideration. You may
elect, by ticking the relevant box, for equity securities to be EITHER:
(i) delivered in physical (certificated) form; OR (ii) credited to a
CREST account. If you tick box (ii) you should enter in the space
provided the details of the CREST account to which you wish any equity
securities (other than American Depositary Receipts -- see below) forming
part of the Scheme Consideration to be credited. These should be your own
details if you have a CREST account or the details of a CREST account
holder who is prepared to act as your custodian if you do not. YOU MUST
COMPLETE SECTION (F) IN ORDER TO BE ELIGIBLE TO RECEIVE ANY EQUITY
SECURITIES FORMING PART OF THE SCHEME CONSIDERATION.
7. Equity securities forming part of the Scheme Consideration may be
received in the form of New Shares or American Depositary Receipts
("ADRs"). In order to receive all or a portion of such securities in the
form of ADRs, you must make an affirmative election in Section (G) of Box
2. If you do not elect in Section (G) of Box 2 to receive equity
securities in the form of ADRs, you will be deemed to have elected NOT to
receive them in the form of ADRs. Before making an election to receive
equity securities in the form of ADRs, you should review the "Description
of the American Depositary Receipts" in Appendix 16 to the Scheme
Document, as well as the information with respect to the issuance,
listing and secondary market trading of the ADRs in part I, Section 2,
Parts C.2 and D.15 of the Scheme Document. In particular, in considering
whether to make an election to receive ADRs you should note that,
although Corp will apply to list such ADRs on NASDAQ, this NASDAQ listing
is currently not expected to become effective until the third calendar
quarter of 2003.
If you wish to elect to receive equity securities in the form of ADRs,
insert in Section (G) of Box 2 an authorised signature or signatures
confirming the ADR election statement contained therein.
3 CONFIRMATIONS (BOX 3)
You should read part I, Section 2, Parts D.16 and D.17 of the Scheme Document
carefully. These parts describe restrictions on the distribution of securities
pursuant to the Schemes under the securities laws of certain states of the
United States and of France, Italy and Malaysia (each a "Restricted
Jurisdiction"). In completing Box 3 of this Claim Form, you will be required to
confirm that you are not located in any Restricted Jurisdiction, or that you are
otherwise eligible to receive New Shares and/or New Notes under applicable law,
as described in part I, Section 2, Parts D.16 and D.17 of the Scheme Document.
Where this confirmation cannot be given, Corp or plc, as the case may be, will
direct the Distribution Agent to sell any securities comprised in the relevant
distribution
982
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
of Scheme Consideration and transfer the net proceeds (after deduction of all
applicable costs) to you (except that, where the relevant securities are not at
that time listed on a securities exchange, you will receive a sum in cash which
is substantially equivalent in value to such securities).
4 CREDITORS' COMMITTEE (BOX 4)
Please tick the box if you are willing to act as a member of the Creditors'
Committee. In the case of a joint claim, only one of you may act as a member of
the Creditors' Committee. Please complete the name of the person who is willing
to act as a member of the Creditors' Committee.
5 DATE OF EXECUTION (BOX 5)
Insert in Box 5 the date on which this Claim Form is executed. This date must be
the date on which the person who signs the Claim Form in Box 6 does so. Where
more than one person signs the Claim Form in Box 6, the date of execution is the
date on which the last person to sign the Claim Form actually does so.
6 EXECUTION (BOX 6)
BOX 6 MUST BE SIGNED BY EACH PERSON WHO IS NAMED AS A SCHEME CREDITOR IN BOX 1
AS EXPLAINED BELOW.
AS DESCRIBED IN THE NOTES BELOW, IN MOST CASES EVIDENCE OF THE AUTHORITY OF
SIGNATORY(IES) TO EXECUTE THIS CLAIM FORM NEEDS TO BE SUBMITTED WITH THE CLAIM
FORM.
Individuals:
Where a Scheme Creditor is an individual or individuals, that person or those
persons must sign and complete Section (A) of Box 6.
If the person signing in Section (A) of Box 6 as an individual is a Scheme
Creditor whose claim is not solely for his own account (for example if he holds
that interest as a trustee, executor or personal representative or a partner in
a partnership), evidence of his authority to sign the Claim Form must be
submitted as described in the notes below under the heading "Evidence to be
submitted with Claim Form".
Companies incorporated in Great Britain:
Where a Scheme Creditor is a company incorporated in Great Britain, then Section
(B) of Box 6 must be signed. The persons signing on behalf of the company must
specify their position in that company, and must submit the evidence of their
authority to sign as described in the notes below under the heading "Evidence to
be submitted with Claim Form".
Partnerships established in England and Wales (and other partnerships or other
entities, wherever established, which do not have a separate legal personality):
Where a Scheme Creditor is a partnership established in England and Wales (or
another partnership or other entity, wherever established, which does not have a
separate legal personality from its partners or members), the partnership (or
other such entity) should sign through one of its partners (or other
representatives). If the signing partner (or other such representative) is a
company or other entity, Section (C) of Box 6 should be completed in the
appropriate manner described in the notes below.
The person(s) signing on behalf of the partnership (or other entity) must submit
evidence of their authority to sign as described in the notes below under the
heading "Evidence to be submitted with Claim Form".
Companies not incorporated in Great Britain (and partnerships or other entities,
wherever established, which have a separate legal personality):
Where a Scheme Creditor is a company which is not incorporated in Great Britain
(or a partnership or other entity, wherever established, which has a separate
legal personality from its partners or members), then Section (D) of Box 6 must
be signed and completed on behalf of that company, partnership or other entity
by a person or persons duly authorised by that company, partnership or other
entity in accordance with the law of the territory in which that company,
partnership or other entity is incorporated or established. The territory of
983
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
incorporation or establishment must be inserted in the space provided. The
person(s) signing on behalf of the company, partnership or other entity must
submit evidence of their authority to sign as described in the notes below under
the heading "Evidence to be submitted with Claim Form".
POWERS OF ATTORNEY:
This note applies if a Scheme Creditor has appointed someone else to execute the
Claim Form on his, her or its behalf under a power of attorney.
If the attorney so appointed is an individual, he must: (i) sign and complete
Section (A) of Box 6 as an individual; and (ii) when he prints his name in
Section (A) of Box 6, also complete the line with the words "as attorney for X",
X being the name of the Scheme Creditor who has granted the power of attorney.
If the attorney so appointed is a company or a partnership or other entity then:
(i) one of Sections (B), (C) or (D), as appropriate, of Box 6 must be completed
and signed in the manner described above; and (ii) when the name of the company
(or other entity) is inserted in Section (B), (C) or (D) the words "as attorney
for X" must be inserted, X being the name of the Scheme Creditor who has granted
the power of attorney.
In all cases, the attorney must submit evidence of his or its authority to sign
as described in the notes below as described in the notes below under the
heading "Evidence to be submitted with Claim Form".
EVIDENCE TO BE SUBMITTED WITH CLAIM FORM:
IN ALL CASES, other than where an individual who signs the Claim Form is
claiming as a Scheme Creditor solely for his own account, evidence of the
authority of the signatory(ies) to execute the Claim Form on behalf of the
Scheme Creditor must be submitted with the Claim Form.
Where the Scheme Creditor (or the person signing the Claim Form on behalf of the
Scheme Creditor) is a company, partnership or other entity, this evidence must
consist of:
(1) copies of, or extracts from, that company, partnership or entity's
constitutional documents (such as articles of association or
partnership agreement) indicating which officers or bodies of the
company, partnership or entity are authorised to execute documents,
or have the capacity to delegate authority to execute documents, on
behalf of that company, partnership or entity; and
(2) copies of, or extracts from, minutes or resolutions of the
appropriate officers or bodies of the company, partnership or
entity, evidencing that such authority has been delegated to the
person(s) completing and signing the Claim Form on behalf of that
company, partnership or entity.
For other individuals (such as personal representatives or executors) this
evidence should show that the relevant individual is authorised to sign the
Claim Form.
Where a Scheme Creditor has appointed an attorney, a copy of the power of
attorney must be submitted with the Claim Form, together with any other evidence
of authority (such as copies of constitutional documents and/or minutes)
required to be submitted as described in the notes above under this heading. The
power of attorney must authorise the attorney to execute this Claim Form. If the
power of attorney has been granted under English law, that power of attorney
must be executed as a deed.
CORRECTIONS AND AMENDMENTS:
IF, IN COMPLETING THIS CLAIM FORM, ANY CORRECTIONS OR AMENDMENTS HAVE BEEN MADE,
HOWEVER MINOR, EACH PERSON WHO SIGNS IN BOX 6 MUST ALSO SIGN HIS OR HER INITIALS
NEXT TO EACH CORRECTION OR AMENDMENT. AMENDMENTS MAY NOT BE MADE TO THE WORDING
IN BOX 3. THIS WILL INVALIDATE THE CLAIM FORM.
WHEN YOU HAVE DULY COMPLETED AND EXECUTED THIS CLAIM FORM, TEAR OFF AND RETAIN
THE BOTTOM SHEET OF EACH PAGE OF THE CLAIM FORM (THE COPY) AND SEND THE TOP
SHEET OF EACH PAGE OF THE CLAIM FORM (THE ORIGINAL) TO KPMG LLP, 8 SALISBURY
SQUARE, LONDON EC4Y 8BB, ENGLAND, UK (FOR THE ATTENTION OF PHILIP WALLACE AND
RICHARD HEIS). YOU ARE ENCOURAGED TO RETURN YOUR DULY COMPLETED AND EXECUTED
CLAIM FORM IMMEDIATELY. IN ORDER FOR YOU TO BE CONSIDERED FOR RECEIVING THE
FIRST INITIAL DISTRIBUTION OF SCHEME CONSIDERATION (WHICH WILL BE MADE ON THE
EFFECTIVE DATE), YOUR CLAIM FORM MUST BE DULY COMPLETED AND
984
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
SUBMITTED AT THE LATEST BY 5:00 P.M. (LONDON TIME) ON 17 APRIL 2003 AND MUST BE
ADMITTED BY THE SUPERVISORS ON THE EFFECTIVE DATE WHICH IS ANTICIPATED TO BE 17
APRIL 2003. CLAIM FORMS RECEIVED AFTER 5:00 P.M. (LONDON TIME) ON 17 APRIL 2003
AND CLAIM FORMS RECEIVED BEFORE THAT DATE BUT WHICH DETAIL SCHEME CLAIMS THAT
HAVE NOT BEEN ADMITTED IN WHOLE OR IN PART ON THE EFFECTIVE DATE WILL NOT
ENTITLE YOU TO PARTICIPATE IN THE FIRST INITIAL DISTRIBUTION. ANY SCHEME CLAIMS
ADMITTED WHICH ARE NOT LISTED IN THE FIRST INITIAL DISTRIBUTION NOTICE WILL
RECEIVE AN INITIAL DISTRIBUTION AS SOON AS REASONABLY PRACTICABLE.
IF YOU HAVE ANY DIFFICULTY IN COMPLETING THIS CLAIM FORM, OR THERE IS
INSUFFICIENT SPACE IN ANY SECTION FOR YOU TO INSERT IN FULL THE REQUIRED DETAILS
OR FOR ALL JOINT CLAIMANTS TO EXECUTE, OR YOU REQUIRE A FURTHER CLAIM FORM OR
SCHEME DOCUMENT, PLEASE CONTACT THE KPMG HELPLINE BY TELEPHONING
+44 (0)20 7694 3007 DURING NORMAL WORKING HOURS.
985
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
PLEASE READ THE ACCOMPANYING NOTES CAREFULLY BEFORE COMPLETING THIS CLAIM FORM.
PLEASE COMPLETE THE FORM IN PEN USING BLOCK CAPITALS.
1 FULL NAME(S) AND ADDRESS(ES) OF SCHEME CREDITOR(S) (BOX 1)
I/We*, being the person or persons named below, make the declarations set
out below in Boxes 2, 3 and 4:
(A) SOLE SCHEME CREDITOR (OR FIRST JOINT CLAIMANT):
Name (in full)
--------------------------------------------------------------------------------
Address
--------------------------------------------------------------------------------
Country
--------------------------------------------- Postcode
--------------------------------------------
Please enter here a daytime telephone number and contact name (if
appropriate) where you can be contacted in the event of any question
arising from the completion of this Claim Form:
Telephone number (including country and area code)
------------------------------------------------------
Contact name
--------------------------------------------------------------------------------
(B) OTHER JOINT SCHEME CREDITORS (IF ANY):
Name and address (in full)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone number (including country and area code)
------------------------------------------------------
Contact name
--------------------------------------------------------------------------------
Name and address (in full)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone number (including country and area code)
------------------------------------------------------
Contact name
--------------------------------------------------------------------------------
Name and address (in full)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone number (including country and area code)
------------------------------------------------------
Contact name
--------------------------------------------------------------------------------
* Delete as appropriate
986
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
2 NOMINAL AMOUNT OF CLAIM (BOX 2)
(A) I am/We are* a Scheme Creditor. The amount of my/our* claim as a Scheme
Creditor is:
----------------------------------------------------------------------- (nominal
amount, stating currency).
------------------------------------------------------------ (interest up to and
including 27 March 2003)
(B) Description of claim or claims
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------
(C)
EITHER (i) Bank Account Details
My/our* account details with a bank in the United Kingdom for the payment of
any cash in sterling forming part of the Scheme Consideration are as follows:
Bank name:
----------------------------------------------------------------------------
Branch address:
----------------------------------------------------------------------------
---------------------------------------------------------------- Postcode:
------------------------------------------
Sort code:
----------------------------------------------------------------------------
Account name:
----------------------------------------------------------------------------
Account number:
----------------------------------------------------------------------------
OR (ii) If you would prefer any cash in sterling forming part of the Scheme
Consideration to be paid by cheque and sent to you by ordinary mail at your
own risk, please complete the following:
Payee:
----------------------------------------------------------------------------
Address to which cheque to be sent:
-------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Country:
-------------------------------------------------- Postcode:
------------------------------------------------
(D) Clearing System Account Details
Any New Notes forming part of the Scheme Consideration should be credited to
my/our/my custodian's/our custodian's* clearing system securities account,
details of which are set out below:
Clearing system -------------------------------------------------------
Full name of clearing system account holder -------------------------------------------------------
Clearing system account number -------------------------------------------------------
Name of account to be credited at account
holder: -------------------------------------------------------
Account number to be credited at account
holder: -------------------------------------------------------
If you do not have an account with any of the above clearing systems or a
custodian who is prepared to act on your behalf, Morgan Stanley has agreed
to consider acting as custodian for you, on its standard terms and
conditions, subject to its standard due diligence process (which will
require the provision and/or execution of certain documents by you). If you
would like Morgan Stanley to act as your custodian on this basis, please
contact Morgan Stanley on +44 (0)20 7677 7166 to ascertain the documents
that it requires you to provide and/or execute, and sign the confirmation
below:
I/We* confirm that I/we* would like Morgan Stanley to act as my/our*
custodian on the basis of its standard terms and conditions.
Signature(s):
----------------------------------------------------------------------------
* Delete as appropriate
987
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
(E) Currency Election for New Senior Notes (BOX 2 CONT.)
In respect of any New Senior Notes that I/we* receive as part of the Scheme
Consideration, I/we* wish these to be denominated in:
[ ] Euro (E)
[ ] US Dollars (US$)
(You may only tick one box)
Please note that no New Senior Notes denominated in US dollars will be
issued unless, following all elections received prior to 17 April 2003,
elections have been made which would, if both Schemes become effective,
result in an aggregate of at least the US dollar equivalent (calculated at
the Currency Rate) of Euro 250 million (less the Relevant Deduction) of New
Senior Notes being required to be distributed in the First Initial
Distribution under both Schemes. New Senior Notes denominated in Euro will
only be issued if, following all elections received by 17 April 2003,
elections have been made which would, if both Schemes become effective,
result in an aggregate of at least Euro 250 million (less the Relevant
Deduction) of New Senior Notes being required to be distributed in the
First Initial Distribution under both Schemes. If you fail to make an
election above, you will be deemed to have made an election to receive
Euro-denominated New Senior Notes.
(F) New Shares
New Shares forming part of the Scheme Consideration (unless I/we* have
elected to receive ADRs pursuant to (G) below should be:
(NB please tick only ONE of the boxes in (i) or (ii))
(i) [ ] delivered, by uninsured post at the risk of the addressee, in
physical (certificated) form registered in the name and to the
address specified in Section (A) of Box 1; or
(ii) [ ] credited to my/our/my custodian's/our custodian's* CREST account
details of which are set out below:
Full name of CREST holder ---------------------------------------------
CREST participant account ---------------------------------------------
CREST member account ---------------------------------------------
(G) ADR Election
I/We* confirm that I/we* would like to receive all the New Shares forming
part of the Scheme Consideration to which I am/we are* entitled in the form
of ADRs. I/We* have read the "Description of the American Depositary
Receipts" in the Scheme Document and I/we* understand that the ADRs will be
subject to the terms of the Deposit Agreement referred to therein. Please:
(NB please tick only ONE of the boxes in (i) or (ii))
(i) [ ] Deliver, by uninsured post at the risk of the addressee, ADRs in
physical (certificated) form registered in the name and to the
address specified in Section (A) of Box (1) (such person's tax
identification or social security number
is ________________________); or
----------------------------------------------------------------------
(ii) [ ] Credit ADRs to the clearing system account set out below:
988
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
Clearing system ---------------------------------------------
Full name of clearing system account holder ---------------------------------------------
Clearing system account number ---------------------------------------------
Name of account to be credited at account
holder: ---------------------------------------------
Account number to be credited at account
holder: ---------------------------------------------
Signature(s)*:
---------------------------------------------------------------------------
* Delete as appropriate
989
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
3 CONFIRMATIONS (BOX 3)
Each Scheme Creditor named in Box 1 represents and agrees as follows:
(1) it has full power and authority and has taken all action necessary to
execute or authorise execution of this Claim Form.
(2) this Claim Form has been duly executed by the Scheme Creditor and
constitutes its legal, valid and binding obligation and that all
authority conferred or agreed to be conferred pursuant to this Claim
Form and every obligation of the Scheme Creditor under this Claim
Form shall be binding upon the successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and legal representatives of
the Scheme Creditor and shall not be affected by, and shall survive,
the death or incapacity of the Scheme Creditor and that all of the
information in this Claim Form is complete and accurate.
(3) that in connection with the legal and regulatory restrictions
described in the Scheme Document:
(i) FRANCE -- it and each other person to whom New Notes, New
Shares or ADRs are to be transferred in accordance with this
Claim Form is located outside France or is in France but is a
"qualified investor" as defined in Article L.411.-2 of the
French Monetary and Financial Code and as described in part I,
Section 2, Part D.17 of the Scheme Document; and
(ii) MALAYSIA -- it and each other person to whom New Notes, New
Shares or ADRs are to be transferred in accordance with this
Claim Form is located outside Malaysia as described in part I,
Section 2, part D.17 of the Scheme Document; and
(iii) US STATES -- it is located outside the US states of Arizona,
California, Colorado, Connecticut, Illinois, Ohio and Vermont,
or is located in one of these states but is a person described
in part I, Section 2, Part D.16 of the Scheme Document as
eligible to receive the securities under an applicable state
law exemption;
[ ] Yes
[ ] No
(4) ITALY -- it is located outside Italy as described in part I, Section
2, Part D.17 of the Scheme Document;
[ ] Yes
[ ] No
(5) ITALY (only complete this section if the answer to (4) is no) -- it
is located in Italy, but each such person is a "professional
investor" as defined in the Consolidated Financial Act Article 30,
paragraph II and in CONSOB Regulation 11522/1998 Article 31,
paragraph II.
[ ] Yes
[ ] No
IF THE ANSWER TO PARAGRAPH (3) ABOVE IS "NO", AND IF THE RELEVANT SECURITIES ARE
AT THE TIME LISTED ON A SECURITIES EXCHANGE, THE RELEVANT SECURITIES WHICH WOULD
OTHERWISE HAVE BEEN DISTRIBUTED WILL BE SOLD AND THE NET PROCEEDS OF SALE (AFTER
DEDUCTION OF ALL APPLICABLE EXPENSES AND CURRENCY CONVERSION COSTS) WILL BE
CREDITED TO THE CLEARING SYSTEM ACCOUNT IDENTIFIED IN SECTION (D) OF BOX 2.
990
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
(BOX 3 CONT.)
IF THE ANSWER TO PARAGRAPH (4) IS "NO", AND IF THE RELEVANT SECURITIES ARE AT
THE TIME LISTED ON A SECURITIES EXCHANGE, THEN THE RELEVANT SECURITIES WHICH
WOULD OTHERWISE HAVE BEEN DISTRIBUTED PURSUANT TO THE SCHEMES WILL BE SOLD AND
THE NET PROCEEDS OF SALE (AFTER DEDUCTION OF ALL APPLICABLE EXPENSES AND
CURRENCY CONVERSION COSTS) WILL BE CREDITED TO THE CLEARING SYSTEM ACCOUNT
IDENTIFIED IN SECTION (D) OF BOX 2 OF THIS CLAIM FORM UNLESS THE RESPONSE TO
PARAGRAPH (5) IS "YES" OR CORP DETERMINES THAT THE EXEMPTION APPLICABLE WITH
RESPECT TO DISTRIBUTIONS OF SECURITIES TO LIMITED NUMBERS OF PERSONS IS
AVAILABLE, AS DESCRIBED IN PART I, SECTION 2, PART D.17 OF THE SCHEME DOCUMENT.
IF THE ANSWER TO BOTH PARAGRAPHS (4) AND (5) IS "NO", AND IF THE RELEVANT
SECURITIES ARE AT THE TIME LISTED ON A SECURITIES EXCHANGE, THEN THE RELEVANT
SECURITIES WHICH WOULD OTHERWISE HAVE BEEN DISTRIBUTED PURSUANT TO THE SCHEMES
WILL BE SOLD AND THE NET PROCEEDS OF SALE (AFTER DEDUCTION OF ALL APPLICABLE
EXPENSES AND CURRENCY CONVERSION COSTS) WILL BE CREDITED TO THE CLEARING SYSTEM
ACCOUNT IDENTIFIED IN SECTION (D) OF BOX 2 OF THIS CLAIM FORM UNLESS PLC
DETERMINES THAT THE EXEMPTION APPLICABLE WITH RESPECT TO DISTRIBUTIONS OF
SECURITIES TO LIMITED NUMBERS OF PERSONS IS AVAILABLE, AS DESCRIBED IN PART I,
SECTION 2, PART D.17 OF THE SCHEME DOCUMENT.
IF IN THE CIRCUMSTANCES DESCRIBED IN ANY OF THE THREE PRECEDING PARAGRAPHS
SECURITIES TO BE SOLD ARE AT THE TIME NOT LISTED ON A SECURITIES EXCHANGE THEN A
SUM IN CASH WHICH IS SUBSTANTIALLY EQUIVALENT IN VALUE TO SUCH UNLISTED
SECURITIES AND DETERMINED IN ACCORDANCE WITH THE TERMS OF THE RELEVANT SCHEME
WILL BE CREDITED TO THE CLEARING SYSTEM ACCOUNT IDENTIFIED IN SECTION (D) OF BOX
2 OF THIS CLAIM FORM.
4 CREDITORS' COMMITTEE (BOX 4)
I/We would be willing to act as a member of the Creditors' Committee
If this Claim Form relates to a joint claim please state the name of the
joint claimant willing to act:
-----------------------------------------------------------------
5 DATE OF EXECUTION (BOX 5)
This Claim Form has been executed on
----------------------------------- 2003
991
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
6 EXECUTION (BOX 6)
A EXECUTION BY INDIVIDUALS
SIGNED BY:
1.
------------------------------------------
-----------------------------------------------
Name in full (please print) Signature
2.
------------------------------------------
-----------------------------------------------
Name in full (please print) Signature
3.
------------------------------------------
-----------------------------------------------
Name in full (please print) Signature
4.
------------------------------------------
-----------------------------------------------
Name in full (please print) Signature
992
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
B EXECUTION BY A COMPANY INCORPORATED IN GREAT BRITAIN (BOX 6)
Executed by the entity named below:
---------------------------------------------------------------------------
Name of Company (please print)
acting by the person (or persons) named below each of whom is duly
authorised on behalf of the company named above:
Director/Authorised
Signatory
--------------------------- ---------------------------
Name in full (please print) Signature
Director/Authorised
Signatory
--------------------------- ---------------------------
Name in full (please print) Signature
(if two signatories are required) (if two signatories are required)
(BOX 6)
C EXECUTION BY PARTNERSHIPS ESTABLISHED IN ENGLAND AND WALES (AND OTHER
PARTNERSHIPS OR OTHER ENTITIES, WHEREVER ESTABLISHED, WHICH DO NOT HAVE
SEPARATE LEGAL PERSONALITY)
Executed on behalf of the partnership or other entity named below:
---------------------------------------------------------------------------
Name of partnership or other entity
by the person or persons named below, who is or are duly authorised
signatories of the partnership or entity named above under the laws of the
territory in which the partnership or entity is established:
------------------------------------------ ------------------------------------------
Name in full (please print) Signature
------------------------------------------ ------------------------------------------
Name in full (please print) Signature
(if two signatories are required) (if two signatories are required)
Territory of establishment
---------------------------------------------------------------------
You are free to amend the wording in this Section (C) so as to allow you to
make the confirmations given by you in paragraphs (1) and (2) of Box 3.
993
IV. APPENDICES TO THE EXPLANATORY STATEMENT
APPENDIX 30: FORM OF CLAIM FORM FOR SCHEME CREDITORS
--------------------------------------------------------------------------------
(BOX 6)
D EXECUTION BY A COMPANY NOT INCORPORATED IN GREAT BRITAIN (OR A
PARTNERSHIP OR OTHER ENTITY HAVING ITS OWN LEGAL PERSONALITY)
Executed by the company, partnership or other entity named below:
---------------------------------------------------------------------------
Name of company, partnership or other entity
acting by the person or persons named below, who is or are duly authorised
signatories of the company, partnership or entity named above under the laws
of the territory in which the company, partnership or entity is incorporated
or established:
------------------------------------------ ------------------------------------------
Name in full (please print) Signature
------------------------------------------ ------------------------------------------
Name in full (please print) Signature
(if two signatories are required) (if two signatories are required)
Territory of incorporation or establishment
---------------------------------------------------------------------
994
V. DEFINITIONS AND GLOSSARY
--------------------------------------------------------------------------------
DEFINITIONS
Throughout this document the following expressions shall, other than in the
Schemes in part II and III of this document and the Schedules to them, the
Escrow and Distribution Agreement set out in Appendix 7, the summary of terms of
New Senior Notes and New Junior Notes set out in Appendix 8, the security and
intercreditor arrangements set out in Appendix 10 and the conditions of the
Warrants set out in Appendix 12, have the meanings set out below, and derivative
terms shall be construed accordingly, unless the context otherwise requires:
"1930 ACT" means the Third Parties (Rights Against Insurers) Act 1930;
"2005 EUROBONDS" means E500,000,000 5.625 per cent. Bonds due 2005 issued
by Corp and guaranteed by plc;
"2010 EUROBONDS" means E1,000,000,000 6.375 per cent. Bonds due 2010
issued by Corp and guaranteed by plc;
"2010 YANKEE BONDS" means US$900,000,000 7 3/4% Bonds due 2010 issued by
Corp and guaranteed by plc;
"2030 YANKEE BONDS" means US$900,000,000 8 3/8% bonds due 2030 issued by
Corp and guaranteed by plc;
"ACCOUNT HOLDER" means a person who is recorded in the books or other
records of Euroclear or Clearstream, Luxembourg as holding an interest in
Eurobonds or in the books of DTC, Euroclear or Clearstream, Luxembourg as
holding an interest in Yankee Bonds, as the case may be, in each case in
an account with the relevant system;
"ACCOUNT HOLDER LETTER" means a letter substantially in the form set out
as the annex to Appendix 28;
"ACT" means the Companies Act 1985;
"ACTION" when used in connection with Appendix 21 has the meaning given to
it thereunder.
"ADDITIONAL NOTES" has the meaning given to it in Appendix 17;
"ADMITTED" means:
(1) when used in relation to a Scheme Claim, the amount of any relevant
claim that has been admitted by the Supervisors of the Corp Scheme
or the plc Scheme, as appropriate, under the relevant Scheme so as
to qualify for distributions of the relevant Scheme Consideration;
and
(2) when used of a Scheme Creditor, that Scheme Creditor in respect of
the amount of its Scheme Claim which has been admitted by the
Supervisors as described in (1) above;
"ADMITTED IN FULL" in connection with a Disputed Claim for the purpose of
determining the currency or currencies in which New Senior Notes will be
denominated only means Admitted in the amount set out against that
Disputed Claim in the second column of schedule 3 in each Scheme;
"ADMISSIBLE INTEREST" means an amount in respect of any interest to which
a Scheme Creditor is entitled to be paid by Corp or plc (as the case may
be) or which has accrued but is not yet payable by such Scheme Company to
a Scheme Creditor, whether by reason of contract, judgment against such
Scheme Company, decree or otherwise, in respect of the period up to and
including, the Record Date;
"ADR" means an American depositary receipt evidencing American depositary
shares, each representing 10 New Shares issued pursuant to the Deposit
Agreement;
"ADR DEPOSITARY" means The Bank of New York as depositary under the
Deposit Agreement;
"AFFILIATE" means in relation to a company a company in which it has any
direct or indirect interest as a shareholder of at least 25 per cent.;
"AIP" has the meaning given to it in Appendix 17;
995
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
"ALLOWED PROCEEDINGS" has the meaning given to it in the Corp Scheme or
the plc Scheme as appropriate;
"ANCRANE" means Ancrane, formerly Ancrane Limited and now re-registered as
an unlimited company incorporated in England and Wales with registered
number 4308188, a wholly owned subsidiary of plc;
"APAC" means Asia-Pacific;
"APT" means Albany Partnership Limited, a company registered in England
and Wales with registered number 3049168;
"ARTICLES" means the new articles of association of Corp to be adopted
forthwith and conditionally on the allotment of the New Shares;
"BAE" means BAE SYSTEMS plc (formerly known as British Aerospace Public
Limited Company);
"BAE MERGER AGREEMENTS" means the documents entered into between plc and
BAE, or entered into between Corp and BAE and subsequently novated from
Corp to plc, in respect of the merger of the Group's defence business with
BAE;
"BANK CREDITORS" has the meaning given to it in part I, Section 2, Part
D.1;
"BANK FACILITY" means the E6,000,000,000 syndicated credit facility dated
25 March 1998 between The General Electric Company, p.l.c. (now Corp),
HSBC Investment Bank plc (now HSBC Bank plc) (as agent), Marine Midland
Bank (as US Swingline Agent) and the financial institutions named therein
(as banks) as amended from time to time;
"THE BANK OF NEW YORK" means The Bank of New York, a New York banking
corporation having an office at 101 Barclay Street, New York, New York
10286, USA.;
"BANKRUPTCY COURT" means the US Bankruptcy Court;
"BANKRUPTCY CODE" means the US Bankruptcy Code;
"BARCLAYS" means Barclays Bank PLC;
"BBRS BUSINESS" means the Group's North American broadband routing and
switching business;
"BOARD" means either or both of the Corp Board and the plc Board;
"BONDHOLDER" means a person with the ultimate economic interest in any of
the Bonds;
"BONDHOLDER COMMUNICATIONS" means Bondholder Communications Group, a New
York corporation, having an office at 30 Broad Street, 46th Floor, New
York, NY 10004, U.S.A.;
"BONDHOLDER CONFIRMATION LETTER" means the bondholder confirmation letter
entered in by way of a deed on 27 March 2003 in favour of the Trustees,
the Bondholders and the Definitive Holders;
"BONDS" means all or any of the Eurobonds and/or the Yankee Bonds;
"BOOK-ENTRY DEPOSITARY" means The Bank of New York in its capacity as
book-entry depositary in relation to the Yankee Bonds;
"BRITISH SEALED BEAMS LIMITED" means British Sealed Beams Limited
(registered number 628256), a related Company to Corp and plc;
"BT" means British Telecommunications plc and its subsidiaries;
"BCTL" means Bedell Cristin Trustee Limited;
"BUSINESS DAY" means any day on which banks are open for general business
in both London and New York;
"BUSINESS PLAN" means a plan dated 10 April 2002 prepared by the Corp
Directors and plc Directors setting out the Group's proposed business
strategy, as amended and sensitised from time to time;
996
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
"CALA" means Central and Latin America;
"CAPITAL" means the Group's operations which include its holdings in
Easynet Group Plc, Bookham Technology plc, the Italian-based Mobile
Communications business and a number of minor activities, investments and
assets;
"CAPITAL REDUCTION" means the proposed reduction of capital represented by
the Non-Voting Deferred Shares and Corp's entire share premium account
following the Corp Scheme becoming effective, pursuant to section 135 of
the Act;
"CERCLA" means the United States Comprehensive, Environmental, Response,
Compensation and Liability Act;
"CHAIRMAN" means either or both of the chairman of Corp and the chairman
of plc;
"CHANGE OF CONTROL" has the meaning given to it in Appendix 8;
"CITIBANK" means Citibank, N.A.;
"CLAIM FORM" means each or any of the claim forms to be completed by or on
behalf of a Scheme Creditor (or its duly authorised agent(s)) detailing
its Scheme Claim(s) substantially in the form set out in Appendix 30 with
such amendments necessary to reflect the identity of the appropriate
Scheme Company;
"CLEARSTREAM, LUXEMBOURG" means Clearstream Banking, societe anonyme;
"CODE" means the US Internal Revenue Code of 1986, as amended;
"COMBINED CODE" means the principles of good governance and code of best
practice appended to the Listing Rules;
"CONFIRMATION RESOLUTION" means the unanimous resolution of the Board of
the relevant Scheme Company in the agreed form as set out in Appendix 25;
"CONSIDERATION" means Corp Scheme Consideration or plc Scheme
Consideration or both as appropriate;
"CONSOB" means the Commissione Nazionale per la Societa e la Borsa, the
public authority responsible for regulating the Italian securities market;
"CO-ORDINATION COMMITTEE" means the institutions appointed to act as the
co-ordination committee for the Syndicate Banks in connection with the
Restructuring proposals, the present members being Barclays Bank PLC, HSBC
Bank plc, London Branch, JP Morgan Chase Bank, The Royal Bank of Scotland
plc and Commerzbank Aktiengesellschaft, London Branch and of which Intesa
BCI S.p.A was a member from 22 October 2001 to 5 March 2003, as detailed
in Appendix 22;
"CORE" means the Group's operations which include Optical Networks, BBRS,
European Access and North American Access, OPP, Other Network Equipment
businesses and associated IC&M and VAS;
"CORP" means Marconi Corporation plc;
"CORP BOARD" means the board of directors of Corp from time to time;
"CORP DIRECTORS" means the members of the Corp Board;
"CORP GROUP" means Corp and its Subsidiaries;
"CORP INSURANCE POLICY" means any contract of liability insurance insuring
Corp in respect of a liability of Corp which is at the Record Date valid
and enforceable;
"CORP SCHEME" means the proposed scheme of arrangement between Corp and
the Corp Scheme Creditors under section 425 of the Act, set out in part II
with or subject to any modification, addition or condition approved or
imposed by the Court;
"CORP SCHEME CONSIDERATION" means the Scheme Consideration as defined in
the Corp Scheme;
997
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
"CORP SCHEME CREDITORS" means a creditor of Corp in respect of its Scheme
Claim;
"CORP SHARES" means ordinary shares of 5 pence each in the capital of
Corp;
"CORP SPV" has the meaning given to it in the Corp Scheme contained in
part II of the Scheme Document;
"COURT" means the High Court of England and Wales unless specifically
stated otherwise;
"CREDITORS' COMMITTEE" means the committees of Scheme Creditors and
representatives of the Bondholders established and operated pursuant to
the terms of the Corp Scheme or plc Scheme, as appropriate;
"CREDITORS' MEETING" means a meeting of Scheme Creditors called pursuant
to the terms of the relevant Scheme;
"CREST" means the system for the paperless settlement of trades in listed
securities of which CRESTCo Limited is the operator;
"CURRENCY RATE" means the mid-point rate of exchange for the conversion of
one currency to another currency as published in the Financial Times (or
if the Financial Times is not published, in the International Herald
Tribune or another internationally recognised newspaper) on the last
Business Day before the day the Corp Scheme Meeting (being in the case of
adjournment the last meeting pursuant to such adjournment(s)) is held;
"CURRENT TREATY" means the Convention Between the Government of the United
States of America and the Government of the United Kingdom of Great
Britain and Northern Ireland for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital
Gains signed on 31 December 1975 and entered into force on 25 April 1981;
"CPDI REGULATIONS" has the meaning given to it in Appendix 17;
"CUSTODY INSTRUCTIONS" has the meaning given to it in paragraph 13 of
Appendix 28;
"DEFINITIVE HOLDER" means the registered holder of a Yankee Bond in
definitive form and the bearer (whether pursuant to an attornment or
otherwise) of a Eurobond in individual global form other than a Eurobond
in individual global form in respect of which no Account Holder Letter has
been delivered;
"DEPOSIT AGREEMENT" has the meaning given to it in Appendix 16;
"DESIGNATED RECIPIENT" means the person specified in the valid Account
Holder Letter (or, in the case of Ancrane, in the Escrow and Distribution
Agreement) relating to a particular principal amount of Bonds as being the
recipient of any part of the Scheme Consideration in respect of those
Bonds and includes, in the case of any cash distributed as part of any
distribution made in respect of Eurobonds, the person who receives such
cash through Euroclear or Clearstream, Luxembourg;
"DIRECTORS" means either one of or both of the Corp Directors and the plc
Directors as the context may require;
"DISPUTED CLAIMS" means the Known Claims in Schedule 3 to each Scheme to
which note 6 to the relevant Schedule applies;
"DISTRIBUTION AGENT" means The Bank of New York as distribution agent
pursuant to the Escrow and Distribution Agreement and any successor from
time to time;
"DISTRIBUTION NOTICE" has the meaning given to it in the Corp Scheme;
"DTC" means The Depository Trust Company of New York;
"EBITDA" means earnings before interest, taxes, depreciation and
amortization;
"ECOFIN" means the European Council of Economics and Finance Ministers;
998
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
"EFFECTIVE DATE" means in relation to either of the Schemes, the date on
which an office copy of the order of Court sanctioning that the relevant
Scheme shall have been delivered to the Registrar of Companies for
registration;
"EMEA" means Europe, Middle East and Africa;
"EMPLOYEE PLAN" has the meaning given to it in part I, Section 2, Part
D.10;
"ERISA" means the US Employment Retirement Income Security Act of 1974, as
amended;
"ESCROW AND DISTRIBUTION AGREEMENT" means the agreement in the form set
out as Appendix 7 entered into on 27 March 2003 between, among others,
Corp, plc, the Escrow Trustee, the Distribution Agent and the Supervisors;
"ESCROW TRUSTEE" means Corp SPV as escrow trustee pursuant to the Escrow
and Distribution Agreement and any successor from time to time;
"ESOPS" has the meaning given to it in part I, Section 2, Part D.2;
"ESOP COLLATERAL LOAN" has the meaning given to it in part I, Section 2,
Part D.2;
"ESOP DERIVATIVE BANKS" means Barclays, Salomon Brothers International
Limited and UBS AG;
"ESOP DERIVATIVE TRANSACTIONS" has the meaning given to it in part I,
Section 2, Part D.2;
"ESOP ESCROW AGREEMENT" means the ESOP escrow agreement between plc, Corp,
HSBC Bank plc and Barclays Bank PLC dated 13 December 2002;
"ESOP SETTLEMENT AGREEMENT" has the meaning given to it in part I, Section
2, Part D.2;
"ESOP TERM SHEET" has the meaning given to it in part I, Section 2, Part
D.2;
"EU" means European Union;
"EURO ISSUES" mean the 2005 Eurobonds and the 2010 Eurobonds;
"EUROBOND TRUSTEE" means The Law Debenture Trust Corporation p.l.c. acting
in its capacity as trustee of the Eurobonds;
"EUROBONDS" means all or any of the bonds comprising the Euro Issues;
"EUROCLEAR" means Euroclear Bank S.A./N.V. as operator of the Euroclear
System;
"EXCLUDED CLAIMS" means:
(1) in respect of Corp, the claims of the nature described in Part I of
Appendix 9; and
(2) in respect of plc, the claims of the nature described in Part III of
Appendix 9;
"EXCLUDED CREDITOR" means any creditor with an Excluded Claim;
"EXISTING PERFORMANCE BONDS" has the meaning given to it in part I,
Section 2, Part D.4;
"EXISTING PERFORMANCE BOND ESCROW ACCOUNT" has the meaning given to it in
Appendix 8;
"EXPLANATORY STATEMENT" means the explanatory statement pursuant to
Section 426 of the Act as set out in part I and the Appendices set out in
part IV;
"FINAL DISTRIBUTION DATE" has the meaning given to it in the Corp Scheme
or the plc Scheme, as the case may be;
"FINMECCANICA GUARANTEE" means the guarantee given by plc in favour of
Finmeccanica SpA guaranteeing the obligations of MBSL under the sale and
purchase agreement relating to the disposal by it of Mobile to
Finmeccanica SpA;
"FINMECCANICA GUARANTEE DEED OF NOVATION" has the meaning given to in
Appendix 18;
"FIRST CLAIM DATE" means 17 April 2003;
999
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
"FIRST INITIAL DISTRIBUTION" has the meaning given to it in the Corp
Scheme or the plc Scheme as appropriate;
"FIRST INITIAL DISTRIBUTION NOTICE" has the meaning given to it in the
Corp Scheme or the plc Scheme, as the case may be;
"FORE SYSTEMS" means Fore Systems Inc.;
"FORM OF PROXY" means the form of proxy for Scheme Creditors substantially
in the form set out in Appendix 29 with such amendments necessary to
reflect the identity of the appropriate Scheme Company and class of Scheme
Creditors attending the Scheme Meeting to which the proxy relates;
"FSMA" means the Financial Services and Markets Act 2000;
"FUNDING LETTERS" means the series of letter agreements that were or may
have been entered into by plc and certain Group Companies from December
1999 onwards with respect to the burden of the costs of their employees'
participation in the ESOP;
"FURBS" means funded unapproved retirement benefit schemes;
"FURTHER DISTRIBUTION" means a distribution of Scheme Consideration
pursuant to the terms of the relevant Scheme which is not an Initial
Distribution;
"FURTHER DISTRIBUTION RIGHT" has the meaning given to it in paragraph b.
under the heading "Claims in the Corp Scheme" in Part A of Appendix 17;
"GDA" means General Domestic Appliances Holdings Ltd;
"GEC" means The General Electric Company, p.l.c. (now Corp);
"GROUP" means all the Group Companies or, as the context requires, the
Corp Group;
"GROUP COMPANY" means plc or any company which is a Subsidiary, whether
directly or indirectly of plc or, as the context requires, of Corp;
"GROUP LICENCE AGREEMENT" means Corp Group licence agreement of
Intellectual Property to be entered into by Corp Group companies, as more
particularly described in part I, Section 2, Part A.5;
"GUARANTEE" has the meaning given to it in Appendix 10;
"GUARANTOR" has the meaning given to it in Appendix 10;
"HEADS OF TERMS" means the indicative non-binding heads of terms for the
proposed financial restructuring of Corp and plc dated 28 August 2002, as
amended or supplemented by an addendum thereto dated 13 December 2002;
"HSBC" means HSBC Bank plc;
"ICTA 1988" means the Income and Corporation Taxes Act 1988;
"IMPORTANT TRANSACTIONS" means Intellectual Property transactions
requiring SPV approval;
"INDENTURE" means the indenture dated as of 19 September 2000 between
Corp, plc and the Yankee Bond Trustee establishing the Yankee Bonds;
"INFORMAL COMMITTEE OF BONDHOLDERS" means the informal ad hoc committee of
certain parties with interests in Bonds which has participated in the
negotiation of the Restructuring as detailed in Appendix 22;
"INITIAL DISTRIBUTION" has the meaning given to it in the Corp Scheme or
the plc Scheme as appropriate;
"INSURED SCHEME CLAIM" has the meaning given to it in part I, Section 2,
Part C.7;
"INSURED SCHEME CREDITOR" means a creditor of plc in respect of an Insured
Scheme Claim;
1000
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
"INTELLECTUAL PROPERTY" means all industrial and intellectual property
rights whether registered or not including pending applications for
registration of such rights and the right to apply for registration of
such rights including but not limited to patents, utility models, design
patents, registered designs, design rights, trade and service marks,
copyright (including copyright and equivalent rights in computer
software), rights in inventions, technical information, rights in
know-how, database rights, processes, models, formulae and experiments and
all rights of equivalent or similar effect to any of those which may
subsist anywhere in the world;
"INTERMEDIARY" means a person who holds an interest in Eurobonds or Yankee
Bonds on behalf of another person or persons but which interest is not
held as an Account Holder;
"IRS" means the US Internal Revenue Service;
"ISDA" means International Swaps and Derivatives Association;
"ISSUER" means Corp;
"ISSUE DATE" means the date on which the New Notes are first originally
issued;
"ITALIAN IMPLIED GUARANTEE" means the Guarantee implied under Article 2362
of the Italian Civil Code which may arise as a result of Corp's sole
shareholding in Marconi Holdings SpA (formerly Marconi Finanziaria SpA)
for the period from March 2000 to 29 October 2001;
"KNOWN CLAIMS" means the claims including interest thereon admissible
pursuant to the terms of the relevant Scheme listed in Schedule 3 to the
Corp Scheme or Schedule 3 to the plc Scheme, as appropriate;
"KNOWN CLAIMS SEGMENT" means in respect of the Corp Scheme or plc Scheme
as appropriate the Scheme Consideration for the relevant Scheme minus the
Reserve Claims Segment in that Scheme;
"KNOWN CREDITORS" means the Scheme Creditors in respect of their Known
Claims;
"KPMG" means KPMG LLP, a UK limited liability partnership;
"LAZARD" means Lazard Brothers & Co., Limited;
"LEMELSON AGREEMENT" means the agreement between plc and Lemelson Medical,
Education and Research Foundation, Limited Partnership, dated 1 December
1999, under which Lemelson Medical, Education and Research Foundation,
Limited Partnership granted to plc for itself and the benefit of its
subsidiaries a non-exclusive licence for certain licensed patents relating
principally to bar-coding;
"LIABILITY" means any liability or obligation of a person whether it is
present, future, prospective or contingent, whether or not it is fixed or
undetermined, whether or not it involves the payment of money or
performance of an act or obligation and whether it arises at common law,
in equity or by statute, in England and Wales or in any other
jurisdiction, or in any other manner whatsoever, but such expression does
not include any liability which is barred by statute or otherwise
unenforceable under English law or arises under a contract which is void
or, being voidable, has been duly avoided;
"LIBERTY" means Liberty Funding, L.L.C.;
"LIBOR" means the relevant rate of interest for sterling deposits in the
London Interbank Market;
"LISTING" means admission to the Official List and to trading on the
London Stock Exchange's market for listed securities;
"LISTING RULES" means the rules and regulations made by the UKLA under
Part VI of the FSMA, as amended from time to time;
"LOCKBOX ACCOUNTS" means the accounts of Highrose Limited held at Halifax
plc, Cooperatieve Centrale Raiffeisen-Borerenleenbank B.A. and Bayerische
Hypo-und Vereinsbank AG, London Branch;
"LONDON STOCK EXCHANGE" means the London Stock Exchange plc;
"MANAGEMENT PLAN" has the meaning given to it in part I, Section 2, Part
D.10;
1001
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
"MANDATORY REDEMPTION ESCROW ACCOUNT" has the meaning given to it in
Appendix 8;
"MARCONI" means all the Group Companies or, as the context requires, Corp
Group;
"MARCONI APPLIED TECHNOLOGIES GROUP" means Marconi Applied Technologies
Ltd, Marconi Applied Technologies Inc. and Marconi Applied Technologies
S.A.;
"MARCONI CAPITAL" means Marconi Capital Inc.;
"MARCONI COMMUNICATIONS" means Marconi Communications Limited, Marconi
Communications SpA, Marconi Communications, Inc., Marconi Communications
GmbH and Marconi Communications SUD SpA;
"MARCONI LAUNCH SHARE PLAN" has the meaning given to it in part I, Section
2, Part D.10;
"MARCONI OPTICAL COMPONENTS" means Marconi Optical Components Limited;
"MARCONI PLAN" means the Marconi USA Employees' Retirement Plan;
"MBSL" means Marconi (Bruton Street) Limited;
"MCI" means Marconi Communications Inc;
"MEMORANDUM" means the amended memorandum of association of Corp altered
conditionally on the allotment of the New Shares;
"MES" means the Marconi Electronic Systems business;
"MET" means the Marconi Employee Trust;
"MHSPA" means Marconi Holdings Spa;
"MOBILE" means Marconi Mobile Holdings S.p.A.;
"MOBILE ESCROW ACCOUNT" means the escrow account established by the Mobile
Escrow Agreement dated 2 August 2002 (as amended) namely the Slaughter and
May Client Account with National Westminster Bank plc, 15 Bishopsgate,
London EC2, account no. 00541168;
"MOBILE OPCOS" means certain Subsidiaries of Mobile which entered into or
may have entered into Funding Letters;
"MOBILE ESCROW AGREEMENT" means the escrow agreement between Corp, plc,
Marconi Bruton Street Limited, HSBC Bank plc, the ESOP Derivative Banks,
Bedell Cristin Trustees Limited and Slaughter and May dated 2 August 2002;
"MORGAN STANLEY" means Morgan Stanley & Co. Limited;
"MSI" means Metapath Software International, Inc.;
"NASDAQ" means the national market as operated by Nasdaq Stock Market,
Inc.;
"NET PROCEEDS" has the meaning given to it in Appendix 8;
"NEW JUNIOR NOTES" has the meaning given to "Junior Notes" in Appendix 8;
"NEW JUNIOR NOTES TRUSTEE" means JPMorgan Chase Bank;
"NEW NOTES" means the New Senior Notes and New Junior Notes collectively,
or any of them if the context so requires;
"NEW PLC GROUP" means plc and its Subsidiaries immediately following the
Restructuring;
"NEW SENIOR NOTES" has the meaning given to "Senior Notes" in Appendix 8;
"NEW SENIOR NOTES TRUSTEE" means Law Debenture Trust Company of New York;
1002
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
"NEW SHARES" means the new shares to be issued by Corp pursuant to the
Corp Scheme, or, except as the context requires otherwise, the equivalent
amount of new shares in the form of ADRs;
"NORTH AMERICAN ACCESS BUSINESS" means that portion of the network
equipment business of the Group comprising the North American access
systems business, which develops, manufactures, markets and sells
last-mile copper and fibre digital network equipment for the connection of
business and consumer end-users to communications networks (including a
service provider's switch or local exchange or an internet service
provider), but excluding the OPP Business and the BBRS Business;
"NON-EXECUTIVE DIRECTOR" means a non-executive director of Corp and/or
plc;
"NONRECOGNITION EXCHANGE" means the gain or loss not generally recognised
by a US Holder on the exchange of a Scheme Claim for New Shares, New
Senior Notes, New Junior Notes, and/or ADRs;
"NON-RINGFENCED ENTITIES" means those members of the Group that are not
Ringfenced Entities;
"NON-US HOLDER" is beneficial holder of a Scheme Claim, New Shares, New
Senior Notes, New Junior Notes, or ADRs that is not a US Holder;
"NON-VOTING DEFERRED SHARES" means the existing Corp shares held by plc
and Marconi Nominees Limited as and when converted into and redesignated
as non-voting deferred shares of 5 pence each forthwith and conditionally
upon the allotment of the New Shares;
"NOTE TRUSTEES" means the New Senior Note Trustee, and the New Junior Note
Trustee collectively or either of them as the context so requires;
"NOTEHOLDERS" means holders of the New Notes;
"NOTIONAL RESERVE CLAIM" means, in respect of the Corp Scheme, a notional
claim of L125,000,000 and, in respect of the plc Scheme, a notional claim
of L250,000,000;
"OFFICIAL LIST" means the official list maintained by the UKLA for the
purposes of Part VI of the FSMA;
"OID REGULATIONS" has the meaning given to it in Appendix 17;
"ONGOING COSTS" means:
(1) all expenses of the Supervisors of the plc Scheme and/or plc under
or in respect of the Scheme including without limitation:
(a) the Supervisors' remuneration and out-of-pocket expenses;
(b) all litigation costs including without limitation (i) adverse
costs awards or liabilities and (ii) all costs in connection
with Allowed Proceedings or Prohibited Proceedings; and
(c) expenses in connection with meetings of plc Scheme Creditors
and meetings of the Creditors' Committee under the plc Scheme;
(2) all expenses to which members of the Creditors' Committee are (or
any other person is) entitled under the plc Scheme;
(3) continuing plc expenses including costs and expenses relating to
filings with the Registrar of Companies and the holding of annual
and other general meetings;
(4) expenses in connection with a dissolution, striking off or members'
voluntary liquidation of plc after the termination of the plc
Scheme; and
(5) claims excluded from the plc Scheme of the nature described in Part
III of Appendix 9.
"OPCOS" has the meaning given to it in part I, Section 2, Part D.2;
"OPP BUSINESS" means that portion of the network equipment access systems
business of the Ringfenced Entities that comprises outside plant and power
products that power, connect, protect or enclose parts of a
telecommunications network;
1003
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
"ORDINARY COURSE OF BUSINESS" means the ordinary day-to-day business
activities carried on by Corp, conducted with a degree of regularity, or a
one-off transaction concluded in the nature of trade with a view to a
profit and being such as might reasonably be expected to occur without
requiring the specific authority of the board of Directors;
"ORIGINAL ISSUE DISCOUNT/OID" has the meaning given to it in Appendix 17;
"ORIGINAL NOTES" has the meaning given to it in Appendix 17;
"PARTICIPANTS" has the meaning given to it in part I, Section 2, part
D.10;
"PARTIES" means the contracting parties to the Research and Development
Cost Sharing Agreement;
"PATENTS" means all patent registrations and pending patent applications;
"PBGC" means the United States Pension Benefit Guaranty Corporation;
"PENSION PROMISES OR ARRANGEMENTS" means any promise or arrangement to
provide pensions, allowances, lump sums or other like benefits on
retirement, death, termination of employment (whether voluntary or not),
or during periods of sickness or disablement, which are for the benefit of
any officer or former officer or employee or former employee of the Corp
Group or plc Group (as applicable) or for the benefit of persons dependent
on any such persons, including any guarantees and indemnities given by
Corp or plc (as applicable) to trustees or administrators of arrangements
providing such benefits and statutory liabilities owing to any government
authority (including the Pension Benefit Guaranty Corporation) in respect
of any such promises or arrangements on termination thereof or otherwise;
"PERFORMANCE BONDING FACILITY" means the L50 million committed
multicurrency revolving bonding facility made available under the
Performance Bonding Facility Agreement;
"PERFORMANCE BONDING FACILITY AGREEMENT" means the L50 million committed
multicurrency revolving bonding facility agreement dated 27 March 2003
between Marconi Bonding Limited (as applicant), Corp, HSBC Bank plc (as
agent and security trustee), the original issuing banks named therein, the
original banks named therein and the original indemnifying Subsidiaries
named therein and as more fully described in part I, Section 2, Part D.4;
"PERFORMANCE BONDS" means bonds, guarantees, letters of credit,
indemnities or similar instruments;
"PETITIONERS" means the chairman and alternative chairman of the
Creditors' Meetings for Corp and plc;
"PFIC" has the meaning given to it in Appendix 17;
"PILON" means payment in lieu of notice;
"PLANS START DATE" has the meaning given to it in part I, Section 2, Part
D.10;
"PLC" means Marconi plc;
"PLC BOARD" means the board of directors of plc from time to time;
"PLC DIRECTORS" means the members of the plc Board;
"PLC GROUP" means plc and its Subsidiaries;
"PLC INSURANCE POLICY" means any contract of liability insurance insuring
plc in respect of a liability of plc which is a Scheme Claim and which as
at the Record Date is valid and enforceable;
"PLC SCHEME" means the proposed scheme of arrangement between plc and the
plc Scheme Creditors under section 425 of the Act set out in part III with
or subject to any modification, addition or condition approved or imposed
by the Court;
"PLC SHAREHOLDER" means a registered holder at the close of dealings, in
such shares on the last day of dealings in such Shares on the London Stock
Exchange of plc Shares and includes, where the context so requires,
persons having a beneficial interest in such shares;
1004
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
"PLC SHAREHOLDER STOCK" means the 5,000,000 New Shares to be issued
pursuant to the Corp Scheme for the benefit of plc Shareholders;
"PLC SHAREHOLDERS RECORD TIME" means the close of dealings in the plc
Shares on the last day of dealings in the plc Shares on the London Stock
Exchange;
"PLC SHARES" means ordinary shares of 5 pence each in the capital of plc;
"PRE-DISPOSAL LIABILITIES" means any liability of Corp to a third party in
respect of a former Affiliate of Corp which has been the subject of a
disposal and arising as a result of:
(1) any financial or other guarantee, indemnity, counter indemnity or
similar arrangement given by Corp in respect of the obligations or
otherwise of that former Affiliate; or
(2) any claim being made under a performance bond, bank guarantee or
similar instrument in respect of that former affiliate.
"PREFERENTIAL CLAIM" means any claim against the relevant Scheme Company
which would have been preferential under section 386 of the Insolvency Act
1986 if that Scheme Company were to have gone into liquidation on, in the
case of Corp, the Record Date or, in the case of plc, the Effective Date
and on the basis that the Record Date or the Effective Date, as the case
may be, is the "relevant date" for the purposes of section 387 of the
Insolvency Act 1986;
"PROHIBITED PROCEEDINGS" has the meaning given to it in the Corp Scheme or
the plc Scheme as appropriate;
"PROJECTED PAYMENTS" means the projected amounts of payments (which shall
not include qualified stated interest, if any) on the New Junior Notes;
"PROSPECTIVE FIRST INITIAL DISTRIBUTION NOTICE" means for the relevant
Scheme, the notice compiled by the Prospective Supervisors and presented
to the Court at the hearing to sanction the Scheme detailing those Scheme
Claims which will be Admitted on the Effective Date;
"PROSPECTIVE SUPERVISORS" means Philip Wallace and Richard Heis being the
persons anticipated will be appointed as Supervisors of the Schemes;
"PROSPECTUS" means the prospectus of today's date issued by Corp in
relation to the introduction to the Official List of the New Shares, the
New Notes and the Warrants;
"QEF ELECTION" has the meaning given to it in Appendix 17;
"RDCSA" means the Research and Development Cost Sharing Agreement;
"R&D" means research and development;
"R&E PLAN" has the meaning given to it in part I, Section 2, Part D.10;
"RECORD DATE" means 5.00 p.m. London time on 27 March 2003;
"REGISTRARS" means Computershare Investor Services PLC, or such other
person as Corp may appoint as its registrars for the purposes of the Corp
Scheme;
"REGISTRAR OF COMPANIES" means the registrar or other officer performing
under the Act the duty of registration of companies in England and Wales
and including a deputy registrar;
"RELATED PROPERTY" when used in connection with Appendix 21 has the
meaning given to it thereunder;
"RELEASED PARTIES" when used in connection with Appendix 21 has the
meaning given to it thereunder;
"RELEASE DATE" means the date the interim security described in part I,
Section 2, Part D.1 is released;
"RELEVANT DEDUCTION" means the euro equivalent (calculated at the Currency
Rate) of the aggregate amount of New Senior Notes which would be allocated
in respect of Disputed Claims under each Scheme
1005
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
and to the Notional Reserve Claim under each Scheme, assuming that those
claims had been admitted in full;
"RELTEC CORPORATION" means RT Group Telecom Services Limited;
"RELTEC PLAN" means the RELTEC Corporation Retirement Plan, which is a
tax-qualified funded defined benefit plan;
"RESEARCH AND DEVELOPMENT COST SHARING AGREEMENT" means the research and
development cost sharing agreement effectively entered into by Marconi
Communications GmbH, Marconi Communications, Inc., Marconi Communications
Limited and Marconi Communications SpA;
"RESERVE CLAIMS" has the meaning given to it in part I, Section 2, Part
C.7;
"RESERVE CLAIMS SEGMENT" means the Scheme Consideration reserved to meet
Scheme Claims other than Known Claims of Corp or plc as appropriate and as
more particularly defined in respect of the Corp Scheme in the Corp Scheme
and in respect of the plc Scheme in the plc Scheme;
"RESERVE CREDITOR" means a Scheme Creditor in respect of its Reserve
Claim;
"RESTRICTED CASH" has the meaning given to it in part I, Section 2, Part
D.4;
"RESTRICTED JURISDICTIONS" means France, Italy, Malaysia and the US States
of Arizona, California, Colorado, Connecticut, Illinois, Ohio and Vermont;
"RESTRUCTURING" means the proposed financial restructuring of the Scheme
Companies (or, if the plc Scheme is not implemented, Corp) pursuant to the
Schemes;
"RESTRUCTURING PARTIES AND ADVISERS" means
(1) all advisers to the relevant Scheme Company;
(2) the Prospective Supervisors and their advisers;
(3) the Escrow Trustee and its advisers;
(4) the Distribution Agent and its advisers;
(5) the Eurobond Trustee and its advisers;
(6) the Yankee Bond Trustee and its advisers;
(7) the Co-ordination Committee and its advisers;
(8) the Informal Committee of Bondholders and their advisers;
(9) Bondholder Communications;
(10) the Sponsors and their advisers;
(11) the ESOP Derivative Banks and their advisers;
(12) the trustee of the New Senior Notes and its advisers;
(13) the trustee of the New Junior Notes and its advisers; and
(14) the Security Trustee in respect of the New Notes;
"RINGFENCED ENTITY" means Marconi Communications, Inc. and its
Subsidiaries which contain the North American Access Business, the BBRS
Business and the OPP Business;
"RINGFENCED IPR CO" means Marconi Intellectual Property (Ringfence) Inc.,
a company registered in Delaware, the United States that will own the
Patents owned at the date hereof by the US IP Opcos relating to the North
American Access Business, the BBRS Business and the OPP Business;
"SBIL" means Salomon Brothers International Limited;
1006
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
"SCHEME" means either or both of the Corp Scheme and the plc Scheme as
appropriate;
"SCHEME CLAIM" has the meaning given to it in the Corp Scheme or the plc
Scheme, as appropriate;
"SCHEME COMPANY" means either or both of plc and Corp as appropriate;
"SCHEME COMPANY CONFIRMATION" means the letter of confirmation to be
issued by each Scheme Company in the agreed form as set out in Appendix
25;
"SCHEME CONSIDERATION" means the Corp Scheme Consideration or the plc
Scheme Consideration as appropriate;
"SCHEME CREDITOR" has the meaning given to it in the Corp Scheme or in the
plc Scheme, as appropriate;
"SCHEME DOCUMENT" means this document including all Appendices, schedules
and annexures to it;
"SCHEME IMPLEMENTATION DEED" means the deed made between Corp, plc,
Ancrane, E-A Continental Limited, Marconi Nominees Limited and others
dated 27 March 2003;
"SCHEME MEETING" means a meeting of a class of Scheme Creditors convened
pursuant to an order of the Court;
"SCHEME RATE" means the mid point rate of exchange five Business Days
before the Effective Date for the conversion of the relevant currency to
sterling as published in the Financial Times on the following Business
Day;
"SDRT" means stamp duty reserve tax;
"SEC" means the US Securities and Exchange Commission;
"SECURED BONDHOLDERS" has the meaning given to it in part I, Section 2,
Part D.1;
"SECURITIES ACT" means the United States Securities Act of 1933, as
amended;
"SECURITY" has the meaning given to it in Appendix 10;
"SECURITY TRUST AND INTERCREDITOR DEED" has the meaning given to it in
Appendix 10;
"SECURITY TRUSTEE" means The Law Debenture Trust Corporation p.l.c;
"SERP" means the RELTEC Supplemental Executive Retirement Plan;
"SETTLEMENT AMOUNT" has the meaning given to it in part I, Section 2, Part
A.2/D.2;
"SPVs" mean the special purpose vehicles which have been incorporated for
the purpose of owning Patents, being the UK IPR Co, the US IPR Co and the
Ringfenced IPR Co;
"STATUTES" as used in Appendix 14 means the Act and every other statute,
statutory instrument, regulation or order for the time being in force
concerning companies registered under the Act;
"SPONSORS" means Morgan Stanley and Lazard;
"STATEMENT AND WAIVER AGREEMENT" has the meaning given to it in part I,
Section 2, Part D.6;
"SUBMITTED" means when used of a Scheme Claim, that it has been duly
submitted to KPMG or the Supervisors (as applicable) in accordance with
the terms of the relevant Scheme;
"SUBSEQUENTLY SOLD OPCO ESCROW AGREEMENT" means an escrow agreement
established in connection with an operating subsidiary of plc whose
employees were entitled to participate in certain employee share option
plans and which was sold after 28 August 2002;
"SUBSEQUENTLY SOLD OPCOS" has the meaning given to it in part I, Section
2, Part D.2;
"SUBSIDIARY" has the meaning set forth in section 736 of the Act;
1007
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
"SUPERVISORS' CONFIRMATION" means the letter of confirmation to be issued
by the Supervisors in the agreed form as set out in Appendix 25;
"SUPERVISORS" means the persons holding office as the supervisor(s) of the
Corp Scheme or plc Scheme or both, as appropriate, from time to time;
"SYNDICATE BANKS" means the Banks that are participants in the Bank
Facility from time to time;
"TAX CREDIT AMOUNT" has the meaning given to it in Appendix 17;
"TERMINATION NOTICE" has the meaning given to it in the Corp Scheme;
"TRADING OBLIGATIONS" means obligations of a commercial character incurred
in the Ordinary Course of Business any of which arise from the supply of
goods or services in exchange for payment in money or money's worth;
"TRAPPED CASH" has the meaning given to it in part I, Section 2, Part D.4;
"TRI-STAR CLAIM" means the claims made in the consolidated class action
lawsuit pending in the United States District Court for the Western
District of Pennsylvania as more fully described in paragraph 18 of
Appendix 20;
"TRUST DEED" means either of the two trust deeds each dated 30 March 2000
between Corp, plc and the Eurobond Trustee and constituting the Eurobonds
and "TRUST DEEDS" means both of them;
"TRUSTEE" means the Eurobond Trustee or the Yankee Bond Trustee, as
applicable (together, the "TRUSTEES");
"UK GAAP" means generally accepted accounting principles in the UK;
"UK IP OPCOS" means all Corp Group companies in the UK having legal or
beneficial title to Patents;
"UK IPR CO" means Marconi UK Intellectual Property Limited, a company
registered in England that will own the Patents owned at the date hereof
by UK IP Opcos;
"UK WITHHOLDING TAX" has the meaning given to it in Appendix 17;
"UBS" means UBS AG;
"UKLA" means the Financial Services Authority in its capacity as the
competent authority for the purposes of Part VI of the FSMA, including,
where the context so permits, any committee, employee, officer or servant
to whom any function of the UK Listing Authority may for the time being be
delegated;
"UK PLAN" means the GEC 1972 Pension Plan;
"ULTRAMAST" means Ultramast Limited;
"UNITED KINGDOM" or "UK" means the United Kingdom of Great Britain and
Northern Ireland;
"UNITED STATES" or "US" means the United States of America, its
territories and possessions, any state of the United States of America and
the District of Columbia;
"US ASSETS" means the proceeds of assets of US businesses within the
Group, US IPR and shares in Group Companies which are US holding
companies;
"US BUSINESSES" means BBRS, OPP and North American Access Businesses;
"US GAAP" means generally accepted accounting principles in the US;
"US IPR CO" means Marconi Intellectual Property (US) Inc., a company
registered in Delaware, the United States that will own the Patents owned
at the date hereof by US IP Opcos that do not relate to the North American
Access Business, the BBRS Business, or the OPP Business;
"UNRESTRICTED JURISDICTIONS" means the United Kingdom, the Bahamas, the
British Virgin Islands, Canada (provinces of Alberta, British Columbia,
Ontario and Quebec), the Cayman Islands, Guernsey,
1008
V. DEFINITIONS AND GLOSSARY
DEFINITIONS
--------------------------------------------------------------------------------
Jersey, the Netherlands Antilles and the United States (with respect to
federal securities laws and, with the exceptions described in part I,
Section 2, Part C.9, with respect to state securities laws;
"US IP OPCOS" means Marconi Communications Optical Networks Limited and
all Corp Group companies in the US having legal or beneficial title to
Patents;
"US SPVS" means US IPR Co and Ringfenced IPR Co;
"UURBS" means unfunded unapproved pensions;
"VAS" means Value Added Services;
"VAT" means Value Added Tax;
"VOTING RATE" means the mid point rate of exchange on the Business Day
before the Record Date for the conversion of the relevant currency to
sterling as published in the Financial Times on the Record Date;
"WAITING PERIOD" has the meaning given to it in part I, Section 2, Part
C.7;
"WARRANTS" means warrants to subscribe for Corp ordinary shares to be
issued to or for the benefit of plc Shareholders on the terms and
conditions set out in Appendix 12;
"WIDER CORP GROUP" means Corp and its Affiliates;
"WORKING CAPITAL FACILITY" means the US$22.5 million limited recourse
revolving credit facility made available under the Working Capital
Facility Agreement;
"WORKING CAPITAL FACILITY AGREEMENT" means the US$22.5 million limited
recourse revolving credit facility agreement between Marconi
Communications, Inc. as borrower and Liberty Funding, L.L.C. as lender
dated 26 March 2003 and as more fully described in part 1, Section 2, Part
D.4;
"YANKEE BOND TRUSTEE" means The Bank of New York acting in its capacity as
trustee for the Yankee Bonds;
"YANKEE BONDS" means all or any of the bonds comprising the Yankee Issues;
and
"YANKEE ISSUES" means the 2010 Yankee Bonds and the 2030 Yankee Bonds both
issued by Corp and both guaranteed by plc.
1009
V. DEFINITIONS AND GLOSSARY
--------------------------------------------------------------------------------
GLOSSARY
The following explanations are not intended as technical definitions but to
assist the reader to understand certain terms as used in this document. The
terms marked * are the Group's product names or trade names.
access the part of a telecommunications network between
the subscriber or customer and the service
provider's "local exchange" or "central office".
*Access Hub a family of access products designed to deliver
multimedia broadband services over existing copper
pairs. The Access Hub can also be configured to
provide aggregation within the local network, for
example to backhand mobile telephone traffic.
access equipment Access Equipment connects the end user to a service
provider's switch or local exchange across what has
been traditionally known as the "last rule" or
"local loop". Alternatively, it may connect the end
users to their Internet Service Provider.
ADSL Asymmetric Digital Subscriber Line is a technology
for exchanging digital data with customers over
their existing telephone lines. It is part of the
DSL or xDSL family of technologies and has the
characteristics of high data rates to the home or
customer (up to 6 megabits per second) and slower
data rates from the customer to the network or
service provider (up to 640 kilobits per second).
*ASX-4000 ATM switch router manufactured by the Group.
ATM Asynchronous Transfer Mode is a switching
technology that organises digitised voice and other
data into 53 byte packets (called "cells") and
transmits them over a communications network.
Individual cells are processed asynchronously
relative to other cells, and are queued before
being multiplexed over a network to an address
contained in the first 5 bytes of the cell.
bandwidth The data transmission capacity of a transmission
medium (eg optical fibre) or communications
product. The bandwidth is usually measured in bits
per second, or thousands of bits per second (kilo
bites per second); millions of bits per second
(megabits per second); billion bits per second
(gigabits per second); million bits per second
(terabits per second).
BBRS Broadband Routing and Switching, a division of the
Group.
carrier-class of a quality suitable for use by a company that
provides public communications services, either
within a local area or between local areas.
CATV Community Antenna Television or Cable Television.
class 5 Softswitch a software application that provides the equivalent
of class 5 (local) telephone exchange
functionality. It provides call control and support
for residential and business users and supports
connections to access networks and the existing
public switched telephone network. It can be used
in conjunction with different access technologies
to provide complete solutions for network operators
and service providers.
CLEC Competitive Local Exchange Carrier (US terminology)
sometimes referred to as a "second operator" in
other countries.
Cross Connection a mapping between two channels or paths at a
network device.
DC Direct Current.
1010
V. DEFINITIONS AND GLOSSARY
GLOSSARY
--------------------------------------------------------------------------------
Deep Fibre a term used by Marconi to describe access systems
that bring optical fibres to within 150 feet of the
subscriber thus allowing high data transmission
rates.
*DISC*S Digital Intelligent Subscriber Carrier System. The
Group's access platform for the North American
market.
DLC Data Link Control is the second lowest layer in the
OSI reference Model. Every network interface card
(NIC) has a DLC address or DLC identifier (DLCI)
that uniquely identifies the node on the network.
*DMP Distributed Multiservice Platform.
DSL Digital Subscriber Line is a technology for sending
digital data to customers over their existing
telephone lines. There are a number of DSL
variations known as xDSL, including ADSL.
DSLAM Digital Subscriber Line Access Multiplexer is
equipment located at a phone company's central
location that links many customer DSL connections
to a single high-speed ATM line.
When the phone company receives a DSL signal, an
ADSL modem with a POTS splitter detects voice calls
and data. Voice calls are sent to the PSTN, and
data are sent to the DSLAM, where it passes through
the ATM to the Internet, then back through the
DSLAM and ADSL modem before returning to the
customer's PC.
DWDM Dense Wavelength Division Multiplexing is
technology that allows a single optical fibre to
simultaneously carry many signals, each of which
has a distinct optical wavelength closely spaced
from its neighbouring channel.
Fibre optics Fibre optics are thin filaments of glass through
which light beams are transmitted over long
distances and which carry enormous amounts of data
at a High Data Speed.
Fibre optic splice
enclosures A casing that provides for the organisation and
protection of joints made between fibre optic
cable.
Fibre to the curb refers to fibre optics which transmit data very
close to the curb of customer residences and
businesses with twisted-pair copper being used from
the curb into the residences and businesses
themselves.
FITL Fibre In The Loop, the extension of a fibre network
to subscribers.
Frame Relay is a fast packet-switching protocol based on a LAP
(Link Access Protocol) that performs routing and
transfer with less overhead processing than X.25.
Gbps Gigabits per second or 1,000 megabits per second
(1,000 Mbps).
GHz The gigahertz. A unit of frequency equal to one
thousand million hertz. The term gigahertz is used
as an indicator of the frequency of ultra-high-
frequency (UHF) and microwave signals and also, in
some computers, to express microprocessor clock
speed.
GMPLS generalized multiprotocol label switching.
High Speed Data is data capable of being transmitted in a
high-speed manner.
IADs Integrated Access Devices connect user devices such
as PATSX and LAN onto a common ATM uplink into a
public network.
1011
V. DEFINITIONS AND GLOSSARY
GLOSSARY
--------------------------------------------------------------------------------
IC&M Installation, Commissioning and Maintenance.
IETF Internet Engineering Task Force. A large, open,
international community of network designers,
operators, vendors and researchers whose purpose is
to co-ordinate the operations, management and
evolution of the Internet to resolve short and
mid-range protocol and architectural issues.
ILEC Incumbent Local Exchange Carrier (US terminology)
is the local phone company, usually one of the
regional Bell operating companies or an independent
telephone company.
IP Internet Protocol is a method or protocol by which
digital data is sent from one computer to another
over the Internet. Data is sent in packets that
contain the sender's unique Internet address and
the receiver's unique Internet address. Individual
packets traverse the network until they reach the
destination address, but there is no guarantee of
arrival or sequence of arrival. Another protocol,
TCP, sorts the received data into correct order.
ISDN Integrated Services Digital Network is an
internationally agreed standard covering digital
voice and data service between national networks
and their connection to a home or business.
ISPs Internet Service Provider -- also called internet
access providers -- is a company that provides
access to the Internet. In addition to serving
individuals, ISPs also serve large companies,
providing a direct connection from the company's
networks to the Internet. ISPs themselves are
connected to one another through Network Access
Points (NAPs).
Mbps megabits per second or 1,000 kilobits per second.
MPLS MultiProtocol Label Switching, an IETF initiative
that integrates Layer 2 information about network
links bandwidth, latency, utilization into Layer 3
(IP) within a particular autonomous system, or ISP,
in order to simplify and improve IP packet
exchange. MPLS gives network operators a great deal
of flexibility to direct and route traffic around
link failures, congestion, and bottlenecks.
Multi-casting functionality is the ability to broadcast messages to a select
group of computers or other devices when considered
as part of a network.
Multiplexer a system/device which combines two or more data
streams into a single transmission channel. The
main types are Time Division Multiplexing (TDM)
where each stream has an allocated time slot, and
Frequency Division Multiplexing (FDM) where each
stream has an allocated channel frequency. In
optical communications it is usual to refer to
Wavelength Division Multiplexing (DWM) rather than
FDM.
Next Generation Digital
Loop Carriers are the next version network transmission equipment
used to provide a pair gain function where the
electronic cost of the Digital Loop Carrier
equipment is more than offset by additional copper
distribution lines. They consist of two parts -- a
central office and remote terminal.
OEMs Original Equipment Manufacturers, which is a
misleading term for a company that has a special
relationship with computer and/or
telecommunications equipment producers. OEMs buy
equipment in bulk and customize them for particular
applications. They then sell the customized
computer under their own name. The term is really a
misnomer
1012
V. DEFINITIONS AND GLOSSARY
GLOSSARY
--------------------------------------------------------------------------------
because OEMs are not the original manufacturers --
they are the customizers.
*ONU Optical Network Units, enable premises to be served
directly by fibre or by twisted-pair copper.
Alternatively fibre can be extended to a
neighbourhood node such as a remote exchange
building or roadside cabinet, with onward
connection by twisted-pair.
Optical Networks systems which use optical fibre as a medium to
transport traffic around the network; further
described in part I, Section 2.
OSI Open Systems Interconnection, a standard that
defines communications protocols in terms of a
layered model ranging from the physical connection
(the lowest layer) up to the end user application
at the highest layer. The functionality of each
layer is carried over the lower layers.
OSS Operational Support System. The systems that
support operational functions such as inventory,
service and network configuration, performance
monitoring, billing, planning and repair functions.
The OSS provides monitoring/coordinating and/or
controlling telecommunications functions and
support for communications networks.
PABX Private Automatic Branch Exchange is an automatic
telephone switching deployed generally within a
business.
Packet-oriented protocols a packet is an arbitrary collection of data grouped
and transmitted with its user identification over a
shared facility. A protocol is a specific set of
rules, procedures or conventions relating to format
and timing of data transmission between two
devices, typically including such things as
framing, error handling, transparency and line
control.
Packet Switching a term used to describe the process of routing
packets of data to a destination address contained
within each packet. The scheme is an efficient way
to handle transmission on a "connectionless"
network such as the Internet because many packets
from different users can share common data paths as
they transverse the network.
PC personal computer.
PCB printed circuit board.
Photonics the combination of electronic (electron) and
optical (photon) technologies. It is generally
associated with optical fibre systems in
communications networks.
*PLx photonic line system.
*PMA is a reconfigurable photonic add/drop multiplexer
system that provides fully reconfigurable features
and functions for regional and core metropolitan
network segments, allowing network operators to
reconfigure network capacity in response to changes
in traffic demand.
*PMM is a range of photonic solutions designed
specifically for metropolitan area networks. It
comprises a common platform with three basic
configurations: Point-to-Point, Standard Ring and
Extended Ring. These configurations allow for
better cost effectiveness by increasing wavelength
utilisation with flexible sub-wavelength service
aggregation.
POTS Plain Ordinary Telephone Service, refers to basic
telephone calls.
PSTN Public Switched Telephone Network.
1013
V. DEFINITIONS AND GLOSSARY
GLOSSARY
--------------------------------------------------------------------------------
PtMP point to multi point.
SDH Synchronous Digital Hierarchy is a standard
technology for synchronous data transmission
primarily over optical fibre networks. SDH is based
on European standards. SDH is very similar to SONET
which is the North American and Japanese standard
for synchronous data transmission. SDH defines base
data of 155 Megabits per second and a set of
multiples of that rate.
*ServiceOn Access the Group's network management system for access
products.
*Skyband MDMS Skyband Marconi Digital Multipoint System. A
broadband wireless access system designed to
deliver toll quality voice, high speed data,
multimedia and leased line services to business and
multi-dwelling residential customers. MDMS is
highly reliable and delivers exceptional bandwidth
for spectrum used.
*Skyband MDRS Skyband Marconi Digital Radio System. A
point-to-point wireless system for access, feeder
and back-haul applications. Skyband operates over a
broad frequency spectrum to match the varying
national regulations.
*SoftSwitch a carrier class, next generation voice over IP
(VoIP) solution enabling the convergence of voice
and data services onto a single packet network.
Soliton-based using solitons or "stable pulses" that travel
without changing their shape or dispersing and
robustly resist perturbations in the physical
medium that supports them. Due to the fact solitons
do not break up, spread or lose strength they are
ideal for fibre optic communications networks.
SONET Synchronous Optical Network. SONET is the North
American and Japanese standard for synchronous
transmission on an optical network. It is very
similar to the European SDH standard. SONET defines
a base data rate of 51.84. Megabits per second and
a set of multiples of that rate.
Strategic Communications The Strategic Communications business designs,
manufactures and supplies communications and
information systems, primarily for defence and
security applications, including ground, naval,
avionic, communications/command and control
systems.
switch a network device that selects a path or circuit for
sending data or a signal to its next destination.
Older technology developed for voice transmission
used circuit switching to dedicate a path for the
duration of a call. A modern switch in a digital
network often incorporates the function of a
"router" to determine specifically where each
packet of data should be sent.
Synchronous signals that are sourced from the same timing
reference and hence are identical in frequency.
*System X the Group's family of telephone exchanges which
provides the majority of BT's PTSN and ISDN
services. There are over 20 million telephone lines
connected to System X in the UK.
TCP Transmission Control Protocol sorts received data
into correct order.
TETRA Terrestrial Trunked Radio is a European standard
for a high integrity radio system developed largely
for use by the emergency services in Europe and
elsewhere.
1014
V. DEFINITIONS AND GLOSSARY
GLOSSARY
--------------------------------------------------------------------------------
T1 a specification for a transmission line. The
specification details the input and output
characteristics and the bandwidth. T1 lines run at
1.544 Mbps and provide for 24 data channels.
Tier 1 a term used to describe a major network operator
(carrier) that has direct connections to other Tier
1 operators in order to exchange traffic. Secondary
or Tier 2 operators exchange traffic via the Tier 1
operators.
Toll-grade public network quality.
Turnkey projects involve turnkey systems which are where an entire
telecommunications telephone system with hardware
and software is assembled and installed by a vendor
and sold as a total package.
UMTS Universal Mobile Telephone Service is a third
generation (3G) mobile technology that will deliver
broadband transmission information at speeds up to
2 Mbit/s. Besides voice and data, UMTS will deliver
audio and video to wireless devices anywhere in the
world through fixed, wireless and satellite
systems.
*UPLx ultra-long haul photonic line system.
VOIP voice over internet protocol -- a means to
transport voice, video and data over a packet WAN
IP network. This does not mean using the public
Internet. Data is broken into packets and may be
transported using different routes to be assembled
into their correct order at the receiving end. MPLS
is a means of carrying data whether it is ATM or
IP.
VPN (Virtual Private Network) a private voice
communication network built on public switching and
transport facilities rather than dedicated line
facilities such as T1.
xDSL xDSL refers to the different variations of Digital
Subscriber Line (DSL) technology including ADSL
defined above.
2G Second-generation protocols in mobile telephony use
digital encoding and include GSM, D-AMPS (TDMA) and
CDMA. These protocols support high bit rate voice
and limited data communications and offer auxiliary
services such as data, fax and SMS. Different
levels of encryption can be offered through 2G.
2.5G These protocols extend 2G systems in mobile
telephony to provide additional features such as
packet-switched connection and enhanced data rates.
3G Third-generation protocols in mobile telephony
support high data rates, measured in Mbits/second,
intended for applications other than voice. This
protocol will support broadband and
bandwidth-hungry applications such as full-motion
video, videoconferencing and full Internet access.
1015
VI. NOTICES
--------------------------------------------------------------------------------
A. NOTICE OF CORP SCHEME MEETING
NO. 1783 OF 2003
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF MARCONI CORPORATION PLC
- AND -
IN THE MATTER OF THE COMPANIES ACT 1985
NOTICE IS HEREBY GIVEN that by an order dated 24 March 2003 made in the above
matter the court has directed a meeting of the Corp Scheme Creditors (as such
term is defined in the Scheme of Arrangement hereinafter referred to) to be
convened for the purpose of considering and, if thought fit, approving (with or
without modification) a Scheme of Arrangement proposed to be made between
Marconi Corporation plc ("CORP") and its Scheme Creditors (as defined in that
Scheme of Arrangement) and that such meeting will be held at the Institute of
Civil Engineers, 1 Great George Street, London SW1 on 25 April 2003 at 10.00
a.m. at which place and time all those creditors are requested to attend.
A copy of that Scheme of Arrangement and a copy of the statement required to be
furnished pursuant to Section 426 of the above-mentioned Act (the "EXPLANATORY
STATEMENT") are incorporated in the document of which this notice forms part.
THOSE CREDITORS MAY VOTE IN PERSON AT THE MEETING REFERRED TO ABOVE OR THEY MAY
APPOINT ANOTHER PERSON, WHETHER A CORP SCHEME CREDITOR (AS DEFINED IN THE SCHEME
OF ARRANGEMENT) OR NOT, AS THEIR PROXY TO ATTEND AND VOTE IN THEIR STEAD.
A form to enable Corp Scheme Creditors to vote in person or by proxy at the
meeting (a "FORM OF PROXY") is enclosed herewith, coloured yellow.
It is requested that Forms of Proxy be completed, signed and submitted in
accordance with the procedures described in the Explanatory Statement, so as to
be received by KPMG at 8 Salisbury Square, London EC4Y 8BB, England, UK, for the
attention of Philip Wallace, by 12 noon (London time) on 24 April 2003 (although
it is recommended that they be received by 5.00 p.m. (London time) on 17 April
2003) but if forms are not so submitted they may, if properly completed and
signed, be handed in at the registration desk no later than one hour prior to
the time at which the meeting is scheduled to commence, or thereafter may be
handed to the Chairman at the meeting.
By the order the court has appointed John Devaney, Chairman of Corp or, failing
him, Michael Parton, Chief Executive Officer of Corp to act as Chairman of the
meeting referred to above and has directed the Chairman to report the result of
such meeting to the court.
The Scheme of Arrangement will be subject to the subsequent approval of the
court.
DATED 31 March 2003
Allen & Overy
One New Change
London
EC4M 9QQ
Solicitors for Marconi Corporation plc
1016
VI. NOTICES
--------------------------------------------------------------------------------
B. NOTICE OF PLC SCHEME MEETING
NO. 1782 OF 2003
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF MARCONI PLC
- AND -
IN THE MATTER OF THE COMPANIES ACT 1985
NOTICE IS HEREBY GIVEN that by an order dated 24 March 2003 made in the above
matter the court has directed a meeting of the plc Scheme Creditors (as such
term is defined in the Scheme of Arrangement hereinafter referred to) to be
convened for the purpose of considering and, if thought fit, approving (with or
without modification) a Scheme of Arrangement proposed to be made between plc
("PLC") and its Scheme Creditors (as defined in that Scheme of Arrangement) and
that such meeting will be held at the Institute of Civil Engineers, 1 Great
George Street, London SW1 on 25 April 2003 at 10.15 a.m., or if later the
conclusion or adjournment of the meeting of creditors convened to be held at
10.00 a.m. on that day for the purposes of the Corp Scheme (as defined in the
Scheme of Arrangement) at which place and time all those creditors are requested
to attend.
A copy of that Scheme of Arrangement and a copy of the statement required to be
furnished pursuant to Section 426 of the above-mentioned Act (the "EXPLANATORY
STATEMENT") are incorporated in the document of which this notice forms part.
THOSE CREDITORS MAY VOTE IN PERSON AT THE MEETING REFERRED TO ABOVE OR THEY MAY
APPOINT ANOTHER PERSON, WHETHER A PLC SCHEME CREDITOR (AS DEFINED IN THE SCHEME
OF ARRANGEMENT) OR NOT, AS THEIR PROXY TO ATTEND AND VOTE IN THEIR STEAD.
A form to enable plc Scheme Creditors to vote in person or by proxy at the
meeting (a "FORM OF PROXY") is enclosed herewith, coloured green.
It is requested that Forms of Proxy be completed, signed and submitted in
accordance with the procedures described in the Explanatory Statement, so as to
be received by KPMG at 8 Salisbury Square, London EC4Y 8BB, England, UK, for the
attention of Philip Wallace, by 12 noon (London time) on 24 April 2003 (although
it is recommended that they be received by 5.00 p.m. (London time) on 17 April
2003) but if forms are not so submitted they may, if properly completed and
signed, be handed in at the registration desk no later than one hour prior to
the time at which the meeting is scheduled to commence, or thereafter may be
handed to the Chairman at the meeting.
By the order the court has appointed John Devaney, Chairman of plc or, failing
him, Michael Parton, Chief Executive Officer of plc to act as Chairman of the
meeting referred to above and has directed the Chairman to report the result of
such meeting to the court.
The Scheme of Arrangement will be subject to the subsequent approval of the
court.
DATED 31 March 2003
Allen & Overy
One New Change
London
EC4M 9QQ
Solicitors for Marconi plc
1017