SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the Month of March 18 2003
Commission file number: 0-30924
MARCONI PLC
(Exact name of Registrant as specified in its Charter)
4th Floor
Regents Place
338 Euston Road
London
NW1 3BT
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover 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
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In order to utilize the "Safe Harbor" provisions of the United States Private
Securities Litigation Reform Act of 1995 (the "Reform Act"), Marconi plc ( the
"Company") is providing the following cautionary statement. Except for
historical information contained herein, statements contained in this Report on
Form 6-K may constitute "forward-looking statements" within the meaning of the
Reform Act. The words "believe", "anticipate", "expect", "intend", "estimate",
"plan", "assume", "positioned", "will", "may", "risk" and other similar
expressions which are predictions of or indicate future events and future trends
which do not relate to historical matters identify forward-looking statements.
Reliance should not be placed on such statements because they involve known and
unknown risks, uncertainties and other factors which are in some cases beyond
the control of the Company, together with its subsidiaries (the "Group"), and
may cause the actual results, performance or achievements of the Group to differ
materially from anticipated future results, performance or achievements
expressed or implied by such forward-looking statements (and from past results,
performance or achievement). Certain factors that may cause such differences
include but are not limited to the following: (1) any major disruption in
production at our key facilities; (2) changes in the environmental, tax and
other laws and regulations, which, among other things, could cause us to incur
substantial additional capital expenditures and operation and maintenance costs;
and (3) adverse changes in the markets for our products, including as a result
of increased competition in the highly competitive international markets for
such products. These and other risks, uncertainties and factors are discussed in
the Company's Registration Statement on Form F-1 and other filings with the
Securities and Exchange Commission, including this Form 6-K. Shareholders and
prospective investors are cautioned not to place undue reliance on these
forward-looking statements which speak only as to the Company's judgment as of
the date hereof. Any such forward-looking statements are not intended to give
any assurance as to future results. The Company undertakes no obligation to
publicly update or revise any of these forward-looking statements, whether to
reflect new information or future events or circumstances or otherwise.
Marconi plc
FINANCIAL RESTRUCTURING:
FILING OF PROPOSED SCHEMES OF ARRANGEMENT FOR MARCONI PLC AND MARCONI
CORPORATION PLC AND CHANGES TO DEAL STRUCTURE
- Documentation filed with the High Court of England and Wales (the "Court")
yesterday initiating the final steps in the implementation of the previously
announced Restructuring
- Increase in cash distribution to GBP340 million (in addition to the GBP95
million of interest which has already been paid)
- Capital structure simplified to combine Junior Notes and Limited Recourse
Notes. Face value of the Junior Notes increased to approximately USD488
million (approx GBP304 million). Limited Recourse Notes will no longer be
issued
- Finalisation of conditional agreement to pay GBP35 million in full and
final settlement of potential claims under ESOP derivative arrangements with
Barclays Bank PLC, Salomon Brothers International Limited and UBS AG
- Scheme documentation expected to be posted to creditors by 31 March 2003
and Restructuring targeted to be completed by 31 May 2003
John Devaney, Chairman of Marconi, said: "We are entering the final stage of the
financial restructuring that will strengthen our balance sheet. Our third
quarter figures, also published today, show that we have also made very good
progress with our operational restructuring. Whilst our markets remain
challenging these twin achievements allow us to look forward with greater
confidence than at any time since our markets began their rapid decline nearly
two years ago."
Mike Parton, Chief Executive of Marconi, commented: "The progress we have made
is a welcome boost in confidence for our customers, suppliers and employees.
Furthermore, the operational restructuring achieved to date will put the Group
in a better position to benefit from market recovery. Management is committed to
bringing Marconi back to full health, which is likely to take time to achieve.
We are very clear about our objectives for the business and increasingly
confident about the Group's future."
Contacts
Name: David Beck / Joe Kelly Heather Green
Title: Public Relations Investor Relations
Phone: +44 (0) 207 306 1771 +44 (0) 207 306 1735
+44 (0) 207 306 1490
joe.kelly@Marconi.com heather.green@Marconi.com
London - 18 March 2003 - Marconi (MONI) today announces that it has filed with
the Court proposals in relation to Schemes of Arrangement under section 425 of
the Companies Act 1985 between Corp and its scheme creditors (the "Corp Scheme")
and between plc and its scheme creditors (the "plc Scheme" and together with the
Corp Scheme, the "Schemes"). This filing is an important step in Marconi's
financial restructuring. Following an initial hearing, the Court will fix the
dates for scheme meetings at which Scheme Creditors may vote on the proposals
outlined in the scheme documentation.
Certain pre-completion steps require consent from the requisite majorities of
Marconi's Syndicate Banks and the members of the Informal Ad Hoc Committee of
Bondholders. These consents will allow the documentation to be despatched by plc
and Corp to Scheme Creditors following the initial Court hearing. An edited copy
of the proposed draft explanatory statement (the "Draft Explanatory Statement")
that was submitted to the Court will be posted on Marconi's website at
www.marconi.com later today.
Summary of Key Changes to the Notes
In the context of the conditional ESOP settlement described below, Marconi has
proposed further modifications to the structure of the Junior and Limited
Recourse Notes as set out in the non-binding indicative Heads of Terms dated 28
August 2002 and subsequently modified by an addendum dated 13 December 2002. As
a result of these changes, Corp will increase the face value of the Junior Notes
and it will no longer issue Limited Recourse Notes to creditors as part of the
scheme consideration. These changes, set out in the Draft Explanatory Statement,
are the result of discussions between plc, Corp and members of the relevant
creditor groups regarding the future capital structure of the Group.
The changes will result in Corp issuing two series of notes as part of the
scheme consideration as opposed to three, with the Junior Notes having a larger
aggregate principal amount than previously proposed. This will simplify the post
Restructuring capital structure of the Group and potentially improve the
tradeability of the Junior and Senior Notes in the public market.
The key features of the Junior Notes are as follows:
- The Junior Notes will have an aggregate principal amount of approximately
USD488 million (approximately GBP304 million), which is comprised of the sum
of USD300 million plus the US dollar equivalent of approximately GBP117
million (previously GBP250 million) and will be denominated in US dollars
(previously euro).
- US Asset disposals first applied (subject to the terms of the Working
Capital Facility, as described below) to pay down the Junior Notes
(previously only after repayment of the Limited Recourse Notes)
- The Junior Notes will continue to be mandatorily redeemable from the
release of certain restricted cash balances (cash collateral against
performance bonds) and proceeds from certain asset disposals
- Interest remains unchanged at either a 12 per cent. PIK coupon or a 10 per
cent. cash coupon payable quarterly, but this will now accrue from 1 May
2003
In addition to the proposed changes to the Junior Notes, Corp also proposes that
the interest on the Senior Notes will accrue from 1 May 2003.
An updated description of the New Notes following these modifications is
contained in Annex A of this document.
The Restructuring
The Restructuring will be effected through schemes of arrangement under the
Companies Act 1985 of all creditors of Corp (except for certain categories of
excluded creditors) (the "Corp Scheme Creditors") and plc (except for certain
categories of excluded creditors, including creditors in respect of unclaimed
dividends on shares and claims which are the subject of the ESOP settlement)
(the "plc Scheme Creditors" and, together with Corp Scheme Creditors, "Scheme
Creditors"). A summary of actual and contingent claims against Corp and plc is
included in Annex B.
Alongside the Corp Scheme, it is proposed to make changes to Corp's capital
structure by way of a capital reduction, involving the cancellation of its
current called up share capital and its share premium 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.
Implementation of the Schemes will result in Corp becoming the new holding
company of the Marconi Group (which will not include plc or any of plc's direct
subsidiaries, other than Corp). plc will distribute all of its assets (net of a
reserve in respect of its ongoing costs) over time to its creditors in
accordance with the plc Scheme and is expected subsequently to be liquidated or
dissolved. The plc Scheme is conditional upon the Corp Scheme becoming
effective. However, the Corp Scheme is not conditional upon the plc Scheme
becoming effective.
Marconi Corporation Scheme
If the Corp Scheme becomes effective, all Corp Scheme Creditors will be bound by
its terms. Corp Scheme Creditors will receive a distribution, pro rata to their
admitted claims of:
- GBP340 million cash;
- the euro equivalent of GBP450 million in aggregate principal amount
of senior secured notes due April 2008 to be issued by Corp denominated in
euro and/or US dollars, subject to elections by Scheme Creditors, with
interest payable quarterly in cash at a rate of 8 per cent. per annum
accruing from 1 May 2003 (the "Senior Notes");
- the sum of USD300 million plus the US dollar equivalent of
approximately GBP117 million in aggregate principal amount of 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 junior secured notes) at a
rate of 12 per cent. per annum accruing from 1 May 2003 (the "Junior Notes"
and, together with the Senior Notes, the "New Notes"); and
- 995,000,000 ordinary shares representing 99.5 per cent. of the issued
ordinary share capital of Corp immediately following implementation of the
Restructuring (the "New Shares").
The cash element of the distribution will be increased by the net proceeds of
any asset disposals, other than GBP82 million of specified asset disposal
proceeds, received before 1 May 2003, and the aggregate principal amount of the
Junior Notes will be decreased by 10/11ths of the US dollar equivalent of the
amount by which the cash element is so increased. To date the Group has received
approximately GBP55 million of disposal proceeds from specified assets. Any
further disposal proceeds received on or after 1 May 2003 will be dealt with in
accordance with the terms of the New Notes.
As a result of the Corp Scheme, plc Shareholders will receive in aggregate
(proportionate to their existing holdings in plc but subject to a minimum of one
share per plc Shareholder), with no price payable, up to 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 GBP1.5 billion.
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 ("Listing") on the Effective Date of the Corp Scheme. Corp
will apply 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. 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.
Following the Restructuring, Corp will begin to report on an annual and
quarterly basis, filing 10-K, 10-Q and 8-K reports with the SEC, with the first
filing being made on form 10-Q for the quarter ending 30 September, 2003. Corp
will also file a report submitted on form 6-K within 60 days of the quarter
ending 30 June, 2003 and will file its 20-F within 90 days of the end of the
current financial year (31 March 2003). These latter reports will include
financial statements in accordance with or reconciled to US GAAP. Corp will hold
quarterly investor conference calls following the release of such reports.
plc Scheme
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 in respect of Bonds held by Ancrane Limited ("Ancrane"), a subsidiary of
plc, and monies owed by Corp to Ancrane. plc's entitlement to this scheme
consideration will arise from a repayment of capital in specie by Ancrane to plc
of substantially all its assets. The plc Scheme provides that plc will reserve
the sum of GBP7 million from the cash element of Corp scheme consideration it
receives via Ancrane which, together with plc's cash of approximately GBP2.3
million, interest on the aggregate of these two cash amounts and GBP2 million
available to be drawn under a letter of credit to be provided in favour of the
plc Scheme Supervisors under the Performance Bonding Facility will be available
to meet plc's ongoing costs. 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.
ESOP Settlement
Agreement in principle to a settlement of certain ESOP related disputes with
Barclays Bank PLC, Salomon Brothers International Limited and UBS AG was
announced on 7 February 2003. The terms of that settlement have now been
finalised. Corp will pay a total of GBP35 million together with costs in full
and final settlement of all potential ESOP related claims those banks have
against the Marconi Group. The ESOP settlement is conditional upon the Corp
Scheme becoming effective.
Payment to the ESOP Derivative Providers will be made from the previously
disclosed cash retention of up to GBP170 million which was to be set aside by
Corp as part of the Restructuring pending resolution of potential liabilities of
Group companies in relation to the Group's ESOP hedging arrangements. The
difference of GBP135 million forms part of the proposed increase in the Corp
cash distribution to a total of GBP340 million.
Corp Corporate Governance Post 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 the four
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.
Corp believes 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 three months of
ceasing to have such a majority, appointing additional independent Non-Executive
Directors or reducing the size of the Board.
Employee Incentive Plans Post Restructuring
Conditional upon the Corp Scheme becoming effective (the "Plans Start Date")
Corp will adopt a share option plan for up to 60 of the Group's senior
executives known as the Corp Senior Management Share Option Plan (the
"Management Plan") and a broadly based employee share option plan for a wider
group of senior staff known as the Corp Employee Share Option Plan (the
"Employee Plan"). Both plans will be administered by the remuneration committee.
A full description of the Management Plan and the Employee Plan is contained in
Annex D.
The number of unissued shares that may be committed to be issued under the
Management Plan is limited to 9 per cent. of the issued share capital of Corp
immediately following the Plans' Start Date. The initial options will be granted
in five tranches, each of which will be subject to specific performance
conditions. A summary of these performance conditions is set out in Annex D. If
any performance condition 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. The total amount payable on exercise of an
option, whether in whole or in part will be GBP1 per exercise, irrespective of
the number of shares in respect of which an option is exercised.
The Management Plan is being introduced contemporaneously with senior executives
entering into new service contracts on the basis that the plan will deliver
significant rewards in the event that the Group is successful, but that in order
to participate, executives must accept reduced rights in respect of other
incentive arrangements and in respect of payments upon termination. In detail:-
- The final payment due under a retention bonus plan implemented in May
2002 is to be waived;
- No participant in the Management Plan will be eligible to participate
in any cash bonus plan or other share based plan;
- No participant will receive a salary increase (other than in the event
of promotion) for at least a year after the Restructuring;
- Bonus payments earned by certain executives in the first two quarters
of the financial year under a performance related incentive plan are to
be waived;
- An allowance in respect of bonus (included in payments in lieu of
notice under current service contracts) will no longer form part of
payments in lieu of notice, thus reducing their potential value;
- At his own instigation, the Chief Executive's contract will not
provide for any compensation for loss of office in the event of his
departure due to underperformance.
The number of share options which it is proposed to be granted to certain
directors of Corp is set out in further detail in Annex D.
Participation in the Employee Plan is open to those employees of Corp or any of
its subsidiaries selected by Corp's remuneration committee. Employees who
participate in the Management Plan cannot participate in the Employee Plan.
Options granted under the Employee Plan will have an exercise price equal to the
prevailing market value of a Corp share on the date of grant. The exercise price
for the initial grant of options will 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 also be granted in five tranches, each of which will be
subject to the same performance conditions as the Management Plan.
The number of unissued shares that may be committed to be issued under the
Employee Plan is limited to 5 per cent. of the issued share capital of Corp
immediately following the Plans Start Date. This 5 per cent. limit will only be
available for use on the following basis: (i) up to 3 per cent. in the first 12
months following the Listing of the New Shares; (ii) up to 1 per cent. in the
second 12 months following Listing of the New Shares; and (iii) up to 1 per
cent. in the third 12 months following the Listing of the New Shares. Any unused
part of this limit may be utilised in subsequent years during the life of the
Employee Plan.
Comparison of Restructuring to the Alternatives
Scheme Creditors of Corp and/or plc will need to decide whether to vote in
favour of the Schemes. 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. Corp and plc believe that, given the
Group's financial position, the proposed Restructuring is in the best interests
of all stakeholders, including the Scheme Creditors and plc Shareholders.
The Draft Explanatory Statement contains an insolvency analysis which 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 is to assist Scheme Creditors in determining whether to accept the
proposals set out in the Draft Explanatory Statement.
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.
The insolvency analysis (and the assumptions, caveats and limitations on which
such analysis is based) is contained in Annex E. Please note that all figures,
numbers and percentages that appear in Annex E are subject to change and will
only be finalised as at the record dates for the Schemes.
New Working Capital Facilities
In order to support the Group's performance bonding requirements following the
Restructuring, Corp and its wholly-owned subsidiary, Marconi Bonding Limited,
are expected to enter into a GBP50 million committed performance bonding
facility (the "Performance Bonding Facility") provided by banks including HSBC
Bank plc and JP Morgan Chase Bank. 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 up to a further 12
months but without the participating banks having any obligation to agree such
extension. The obligations of each obligor under the Performance Bonding
Facility will be irrevocably and unconditionally guaranteed by Corp ahead of the
New Notes. Marconi Bonding Limited will be required to deposit an amount equal
to 50 per cent. of the maximum face value of each issued performance bond in a
secured account. Additional amounts of up to a further GBP25 million will be
required to be deposited in the secured accounts out of the release of cash
collateral held against certain existing performance bonds.
Marconi Communications, Inc. ("Comms Inc.") is expected to enter into a USD22.5
million limited recourse revolving facility (the "Working Capital Facility").
The Working Capital Facility will be subject to a fixed interest rate of 15 per
cent. per annum and will mature on 30 September 2004. 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. Recourse under the Working Capital
Facility will be limited to a first mortgage lien on a parcel of real property
owned by Comms Inc. located in Warrendale, Pennsylvania, USA.
The Performance Bonding Facility and the Working Capital Facility are each
conditional on the Corp Scheme becoming effective.
Status of the Group's Existing Financial Indebtedness
When the Heads of Terms were announced on 29 August 2002, plc indicated that the
Restructuring was scheduled to be completed by 31 January 2003, which was
subsequently extended to 15 March 2003. As a result of the complexity of the
Restructuring the Effective Date of the Schemes is now targeted to be no later
than 31 May 2003. The change to the timing of the Restructuring will introduce
risks associated with certain financial debt and interest payments falling due
in March 2003. In particular, the Bank Facility is due for repayment on 25 March
2003, 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. Accrued but unpaid interest of plc and
Corp at the record date of the Schemes will form part of the Scheme Claims.
Interim Security
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'')) and the holders
of the Bonds from time to time (apart from plc's wholly owned subsidiary
Ancrane) and the Trustees (together, ''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 2002and were amended on 13
December 2002.
Without this interim security, the Syndicate Banks and the Informal Ad Hoc
Committee of Bondholders would not have been prepared to continue to support the
Restructuring, and insolvency proceedings would have been the only practicable
alternative.
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. 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 Ad Hoc 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 Corp Scheme 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 in the scheme document
remains valid, and the prospective Corp Scheme 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.
Process to Completion
Completion of the Restructuring will be conditional upon, amongst other things,
securing the necessary support of the Syndicate Banks, Bondholders and other
Scheme Creditors whose claims will be compromised in the Scheme meetings of plc
and Corp to be held as part of the Court approved Restructuring.
As previously noted in the 29 August 2002 announcement, it is expected that the
FSA will grant a waiver of paragraph 9.22 of the Listing Rules which would
otherwise require the consent of plc shareholders to the issue of the New Shares
(the "Waiver"). It is expected that the Co-ordination Committee of the Syndicate
Banks will confirm to the FSA that the majority banks' willingness to support
the Restructuring is dependent on there not being a need for a plc shareholder
vote as part of the approvals for the Restructuring and that in their view if
their support was withdrawn Marconi would be forced into some form of insolvency
proceeding. Accordingly, if the waiver is granted, the Schemes will not be
conditional on the approval of plc shareholders. Marconi has approached the FSA
for a waiver from the requirement to seek shareholder approval for the
Restructuring. The FSA has set out the conditions that it would require to be
met before it would grant such a waiver. Marconi is confident that it can meet
such conditions.
Marconi has for some time been in severe financial difficulty and the Board
believes that the Restructuring is in the best interests of plc, plc
shareholders as a whole and Corp stakeholders. The Board further believes that a
consensual restructuring is the only viable alternative to an administration.
plc and Corp expect to receive the required consents to certain pre-completion
steps from the requisite majorities of their Syndicate Banks and the members of
the Informal Ad Hoc Committee of Bondholders and expect the Court to fix the
dates for the Scheme meetings to enable the Schemes and Draft Explanatory
Statementto be posted to creditors by 31 March 2003. Following the required
Court processes and creditor approval, it is expected that the Restructuring
will be completed by 31 May 2003.
Conference Call Details
Management will host a conference call and audiocast for analysts and investors
on Tuesday 18 March, 2003 at 4 pm UK time (11 am EST) to discuss details of its
financial restructuring and the Group's Q3 results announced in a separate press
release this morning. The call can be accessed on Marconi's web-site or by
dialling +44 (0) 20 8996 3900 from Europe or 800 241 5872 (toll-free) or +1 617
847 8701 from the US and quoting "Marconi".
An instant replay will be available for fourteen days by dialling +44 (0) 1296
618700, pass code 563002 from Europe or 888 286 8010, passcode 48156936 from US.
Materials to accompany the call will be available on Marconi's website
www.marconi.com.
Notes:
(1) Defined phrases which are not specifically defined in this press release
shall have the same meaning as the definitions contained in the Draft
Explanatory Statement.
(2) The following exchange rates have been used throughout this announcement,
USD/GBP 1.6063, EUR/GBP 1.4757 and USD/EUR 1.0885. Actual exchange rates used
may materially differ from the rates used in this press release.
ENDS/...
About Marconi plc
Marconi plc is a global telecommunications equipment and solutions company
headquartered in London. The company's core business is the provision of
innovative and reliable optical networks, broadband routing and switching and
broadband access technologies and services. The company's customer base includes
many of the world's largest telecommunications operators. The company is listed
on the London Stock Exchange under the symbol MONI. Additional information about
Marconi can be found at www.marconi.com.
Copyright (c) 2003 Marconi plc. All rights reserved. All brands or product names
are trademarks of their respective holders.
Cautionary statement regarding forward-looking statements
In order to utilize the "Safe Harbor" provision of the U.S. Private Securities
Litigation Reform Act of 1995, Marconi plc and Marconi Corporation plc ("the
Companies") are providing the following cautionary statement. 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 risks and uncertainties and
can be affected by other factors which are beyond the control of plc, Corp and
their subsidiaries, 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 or achievement). Although not exhaustive, the
following factors could cause such differences: any major disruption in
production at our key facilities; changes in the environmental, tax and other
laws and regulations, which, among other things, could cause us to incur
substantial additional capital expenditures and operation and maintenance costs;
and adverse changes in the markets for our products, including as a result of
increased competition in the highly competitive international markets for such
products. These factors and other factors that could effect these
forward-looking statements are described in plc's and Corp's Form 20-F report
and Form 6-K reports filed with the U.S. Securities and Exchange Commission. The
Companies disclaim any obligation to publicly update or revise these
forward-looking statements, whether to reflect new information or future events
or circumstances or otherwise.
ANNEX A
SUMMARY TERMS OF THE NEW NOTES
SENIOR NOTES
Principal Amount Euro equivalent (calculated at the Currency Rate, being the rate one
business day before the Court convened meeting of Scheme Creditors)
of GBP450 million in aggregate principal amount of 8.00% Senior
Notes due 2008.
Currency Each note recipient will be given the opportunity to elect for all,
but not part of its Senior Notes to be denominated in euros or US
dollars. No Senior Notes denominated in US dollars will be issued
unless at least the US dollar equivalent (calculated at the Currency
Rate) of euro 250 million (less the Relevant Deduction) of Senior
Notes denominated in US dollars would be required to be issued in
the First Initial Distribution. No Senior Notes denominated in euros
will be issued unless at least euro 250 million (less the Relevant
Deduction) of Senior Notes denominated in euro would be required to
be issued in the First Initial Distribution.
Interest The 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 Senior Notes, Corp shall
pay, in addition to accrued interest on the outstanding principal
amount of the 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 Senior Notes.
Maturity The Senior Notes will mature on 30 April 2008.
Optional Redemption All of the outstanding Senior Notes and Junior 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 par 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 Senior Notes and Junior Notes,
as applicable, plus, in each case, accrued and unpaid interest.
Mandatory Redemption The Senior Notes are subject to mandatory early redemption in
certain circumstances. The Senior Notes must be redeemed prior to
their stated maturity in whole or in part using the cash proceeds
from the Mandatory Redemption Escrow Account, which is an escrow
account to be established for redemption of the Senior Notes and
Junior Notes into which Corp will be required to deposit, from time
to time
- releases to, or upon the order or instructions of, Corp or its
subsidiaries of certain cash collateral security for performance
bonding; and
- all net proceeds of asset sales received on or after 1 May
2003, other than (i) up to GBP82 million of net proceeds from
disposals of certain specified exempt assets and (ii) when there
are no Junior Notes outstanding, proceeds reinvested in the
non-US core business within 90 days
As the balance in the Mandatory Redemption Account reaches certain
levels, Corp will apply amounts in the Mandatory Redemption Escrow
Account to redeem first the Junior Notes and then the Senior Notes,
in each case at a redemption price in cash of 110 per cent. of par
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
Senior Notes and Junior 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 par, 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 Senior Notes and
Junior Notes, as applicable, plus, in each case, accrued and unpaid
interest.
Covenants The Senior Notes will be issued under an indenture that will contain
certain restrictive covenants. The restrictive covenants will
include, among other things:
- restrictions on indebtedness, guarantees, sale and leaseback
transactions and issuances 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 (the Group's US assets - OPP, BBRS and North
American Access));
- 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
assets.
Each of the covenants will be subject to exceptions and
qualifications.
In addition, under the Senior Note Indenture 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 calculated with
respect to the consolidated Group but excluding the Ringfenced
Entities while the Junior Notes are outstanding.
The indentures provide for customary grace periods and remedies.
When the Senior Notes and the Junior Notes are simultaneously
outstanding, however, the indentures 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 Corp and its Subsidiaries may purchase New Notes after the second
scheduled Senior Note Interest Payment Date or Junior Note Interest
Payment Date, as the case may be only if (a) no Default or Event of
Default under the Senior Note Indenture (in the case of the Senior
Notes) or the Junior Note Indenture (in the case of the 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.
Guarantees and Security Corp's obligations under the Senior Notes and Junior Notes will be
guaranteed by most of Corp's operating 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 from 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 Senior Notes and Junior Notes and the guarantees thereof as well
as the Performance Bonding Facility.
Payment Priorities Corp, the Guarantors and the trustees for the Senior Notes and
Junior Notes, among others, will enter into a Security Trust and
Intercreditor Deed that will establish the relative priorities among
the Senior Notes, 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 Senior Notes,
all proceeds from enforcement of the security granted by Corp and
the Guarantors to secure their respective obligations under the
Senior Notes and Junior 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 under the Performance Bonding Facility
(up to a maximum of GBP25 million);
- third, to repayment of the Senior Notes; and
- fourth, to repayment of the Junior Notes.
Payment and Security Enforcement Blocks Under the terms of the Security Trust and Intercreditor Deed, no
payments may be made on the Junior Notes (other than payments of
interest in kind) and no redemptions of the Junior Notes from
amounts contained in the Mandatory Redemption Escrow Account may be
made (subject to certain limited exceptions) (i) upon the occurrence
of a Default under the 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 (such period, a "Standstill
Period") (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 Senior Notes consent; or (D) the payment in full of
all obligations under the Senior Notes and the Senior Note
Indenture, or (ii) upon the occurrence of a payment Default or
acceleration of the Senior Notes following an Event of Default under
the Senior Notes or the Senior Note Indenture until the earlier of
(A) the date on which the payment Default has been remedied or
waived and, if the 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 Senior Notes consent;
or (C) the payment in full of all obligations under the Senior Notes
and the Senior Note Indenture. The Security Trust and Intercreditor
Deed further provides that during a Standstill Period, the holders
of the Junior Notes may not accelerate the Junior Notes unless the
Senior Notes have been accelerated. In addition, under the terms of
the Security Trust and Intercreditor Deed, the holders of the Junior
Notes may not take enforcement action against any security securing
the Junior Notes without the consent of the holders of the Senior
Notes, unless all liabilities arising under the Senior Notes have
been discharged in full.
The Security Trust and Intercreditor Deed further provides that if a
payment default occurs under the Performance Bond Facility, the
banks 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 other
enforcement action for 180 days unless the Senior Notes have been
accelerated.
JUNIOR NOTES
Principal Amount The sum of USD300 million and the US dollar equivalent (calculated
at the Currency Rate) of GBP117.27 million (subject to possible
reduction of 10/11 of the US dollar equivalent of the cash proceeds
of certain asset disposals received before 1 May 2003).
Currency The Junior Notes will be denominated in US dollars.
Interest The Junior Notes will bear interest from their issue date at a per
annum rate of 10 per cent. payable quarterly on each 31 January, 30
April, 31 July and 31 October, commencing 31 July 2003 in cash or,
at Corp's option, at a per annum rate of 12 per cent. payable
quarterly in kind (by issuing additional Junior Notes to the holders
of Junior Notes). On the first interest payment date for the Junior
Notes, Corp shall pay, in addition to accrued interest on the
outstanding principal amount of the 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 Junior
Notes.
Maturity The Junior Notes will mature on 31 October 2008.
Optional Redemption All of the outstanding Senior Notes and Junior 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 par 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 Senior Notes and Junior Notes,
as applicable, plus, in each case, accrued and unpaid interest.
Mandatory Redemption The Junior Notes are subject to mandatory early redemption in
certain circumstances. The Junior Notes and Senior 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 Junior
Notes and Senior Notes into which Corp will be required to deposit,
from time to time
- releases to, or upon the order or instructions of, Corp or its
subsidiaries of certain cash collateral security for performance
bonding; and
- all net proceeds of asset sales received on or after 1 May
2003 , other than up to GBP82 million of net proceeds from
disposals of certain specified exempt assets
As the balance in the Mandatory Redemption Account reaches certain
levels, Corp will apply amounts in the Mandatory Redemption Escrow
Account to redeem first the Junior Notes and then, the Senior Notes,
in each case at a redemption price in cash of 110 per cent. of par
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
Junior Notes and Senior 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 par, 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 Senior Notes and
Junior Notes, as applicable, plus, in each case, accrued and unpaid
interest.
Covenants The Junior Notes will be issued under an indenture that will contain
certain restrictive covenants. The restrictive covenants will
include, among other things:
- restrictions on indebtedness, guarantees, sale and leaseback
transactions and issuances 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 assets
Each of the covenants will be subject to exceptions and
qualifications.
The indentures provide for customary grace periods and remedies.
When the Senior Notes and the Junior Notes are simultaneously
outstanding, however, the indentures 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 Corp and its Subsidiaries may purchase New Notes after the second
scheduled Senior Note Interest Payment Date or Junior Note Interest
Payment Date, as the case may be only if (a) no Default or Event of
Default under the Senior Note Indenture (in the case of the Senior
Notes) or the Junior Note Indenture (in the case of the 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.
Guarantees and Security Corp's obligations under the Junior Notes and Senior Notes will be
guaranteed by most of Corp's operating 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 from 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 Junior Notes and Senior Notes and the guarantees thereof as well
as the Performance Bonding Facility.
Payment Priorities Corp, the Guarantors and the trustees for the Junior Notes and
Senior Notes, among others, will enter into a Security Trust and
Intercreditor Deed that will establish the relative priorities among
the Senior Notes, 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 Senior Notes,
all proceeds from enforcement of the security granted by Corp and
the Guarantors to secure their respective obligations under the
Junior Notes and Senior 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 under the Performance Bonding Facility;
- third, to (up to a maximum of GBP25 million) repayment of the
Senior Notes; and
- fourth, to repayment of the Junior Notes.
Payment and Security Enforcement Blocks Under the terms of the Security Trust and Intercreditor Deed, no
payments may be made on the Junior Notes (other than payments of
interest in kind) and no redemptions of the Junior Notes from
amounts contained in the Mandatory Redemption Escrow Account may be
made (subject to certain limited exceptions) (i) upon the occurrence
of a Default under the 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 (such period, a "Standstill
Period") (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 Senior Notes consent; or (D) the payment in full of
all obligations under the Senior Notes and the Senior Note
Indenture, or (ii) upon the occurrence of a payment Default or
acceleration of the Senior Notes following an Event of Default under
the Senior Notes or the Senior Note Indenture until the earlier of
(A) the date on which the payment Default has been remedied or
waived and, if the 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 Senior Notes consent;
or (C) the payment in full of all obligations under the Senior Notes
and the Senior Note Indenture. The Security Trust and Intercreditor
Deed further provides that during a Standstill Period, the holders
of the Junior Notes may not accelerate the Junior Notes unless the
Senior Notes have been accelerated. In addition, under the terms of
the Security Trust and Intercreditor Deed, the holders of the Junior
Notes may not take enforcement action against any security securing
the Junior Notes without the consent of the holders of the Senior
Notes, unless all liabilities arising under the Senior Notes have
been discharged in full
The Security Trust and Intercreditor Deed further provides that if a
payment default occurs under the Performance Bond Facility, the
banks 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 other
enforcement action for 180 days unless the Senior Notes have been
accelerated.
ANNEX B
SUMMARY OF KEY ACTUAL CLAIMS AND CONTINGENT CLAIMS
Since the announcement of 16 December 2002, Marconi plc has continued the
process of identifying and quantifying actual and contingent claims against both
Marconi plc and Marconi Corporation. KPMG has continued to assist the companies
in considering the level of claims that might be made under each of the schemes.
As part of this process, Marconi plc and Marconi Corporation have placed
advertisements in certain national and international newspapers inviting all
persons having a claim against either company, whether actual or contingent, to
submit details of their claims to KPMG, 8 Salisbury Square, London EC4Y 8BB.
Marconi plc and Marconi Corporation have also written to certain known creditors
and performed further internal due diligence in order to estimate the level of
claims that might be made under the Schemes. This process is now almost
complete.
Marconi Corporation
There are three main categories of actual or contingent Scheme Creditor claims
against Marconi Corporation:
(i) Syndicated Bank Debt and External Bond Debt representing approximately
GBP3.9 billion of indebtedness;
(ii) Internal Bond Debt and inter-company claims against Marconi
Corporation which are in aggregate approximately GBP0.8 billion; and
(iii) Additional anticipated sundry third party claims and other financial
creditors, which are likely to include sundry loans, guarantees, class
actions and other lawsuits and derivative positions which in
aggregate are approximately GBP0.4 billion.
In total potential Corp Scheme Claims are currently estimated to be GBP5.1
billion (excluding a general reserve). The estimated level of potential Scheme
Claims will continue to be adjusted for foreign exchange movements, accrued
interest and any changes in the value of the Known Creditor Claims prior to the
record date.
A general reserve will be established to provide for the settlement of unknown
claims. If this hold back is not required to settle unknown claims, it will be
distributed to Scheme Creditors with Admitted Scheme Claims on a pro rata basis.
Such distribution, if any, is only likely after a suitable waiting period.
Potential Scheme Claims Against Marconi Corporation plc
(GBP millions)
Syndicated bank facility 2,079
Yankee and Euro bonds (externally held) 1,810
Other financial creditors 103
Ancrane Limited (internally held bond debt and inter-company claims) 772
Sundry third party creditors 364
General reserve 125
--------
Currently estimated to be 5,253
A general reserve (described above) representing a provision for claims of
GBP125 million will be set aside for any creditors who have not been identified
as at the record date. If the general reserve is not considered by the Board of
Corp and the prospective supervisors to be sufficient to meet distributions due
to be made to all Corp Scheme Creditors, the Corp Scheme will be withdrawn.
Marconi plc
Claims against Marconi plc include the value of guarantees given in respect of
Marconi Corporation's External and Internal Bond Debt and Syndicate Bank Debt
and sundry third party claims including class actions, other lawsuits and
derivative positions. A general reserve will be established to provide for the
settlement of unknown claims. If this hold back is not required to settle
unknown claims, it will be distributed to Scheme Creditors with Admitted Scheme
Claims on a pro rata basis. Such distribution, if any, is only likely after a
suitable waiting period.
In total, potential Scheme Claims are currently estimated to be GBP4.7 billion
(excluding a general reserve). The estimated level of potential Scheme Claims
will continue to be adjusted for foreign exchange movements, accrued interests
and any changes in the value of the Known Creditor Claims prior to the record
date.
Potential Scheme Claims Against Marconi plc
(GBP millions)
Syndicated bank facility 2,079
Yankee and Euro bonds (externally held) 1,810
Ancrane Limited (internally held bond debt) 394
Marconi Group inter-company claims 162
Sundry third party creditors 234
General reserve 250
--------
Currently estimated to be 4,929
A general reserve (described above) representing a provision for claims of
GBP250 million will be set aside for any creditors who have not been identified
as at the record date. If the general reserve is not considered by the Board of
plc and the prospective supervisors to be sufficient to meet distributions due
to be made to all plc Scheme Creditors, the plc Scheme will be withdrawn.
At the time of the Restructuring, Marconi plc's main assets will include its
interests in a wholly-owned subsidiary, Ancrane Limited. Ancrane Limited is a
creditor of Marconi Corporation and will, under the Marconi Corporation Scheme,
receive a pro rata share of the Scheme Consideration. In consideration for the
release of their claims, creditors participating in the plc Scheme will receive
a pro rata distribution of the assets of Marconi plc which will include (net of
a reserve in respect of plc's Ongoing Costs) the Scheme Consideration received
through Ancrane Limited.
Marconi plc has inter-company liabilities owing to Corp. Corp will therefore be
entitled to receive a pro rata distribution of the assets of plc which, as
described above, will include a proportion of the Scheme Consideration. Any
Scheme Consideration that flows to Corp in this manner will be made available to
the Corp Scheme Creditors. Account will be taken of such an amount as if it were
payable to Marconi Corporation in determining the distribution to be made under
the Corp Scheme.
ANNEX C
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, plc and Corp entered
into non-disclosure agreements with certain of the bondholders which required
plc and Corp to publish the Information on a specified date and which restricted
such bondholders from dealing in plc and Corp securities until the publication
of the Information. In order to facilitate this announcement, plc and Corp
agreed to publish such Information at the conclusion of these discussions.
The Information contained in this Annex C 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 Marconi 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 plc nor Corp gives any assurance that the
assumptions that underpin the Information are correct or that the projections
and estimates contained in this Annex 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
plc nor Corp will be publishing any updates in relation to any part of the
Information.
plc and Corp 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
Marconi's or its strategic suppliers' key facilities; changes in tax,
environmental and other laws and regulations, which, among other things, could
cause Marconi to incur substantial additional capital expenditures and operation
and maintenance costs; and adverse changes in the markets for Marconi's
products. These factors and other factors that could affect these
forward-looking statements are described in plc and Corp's Form 20-F report and
Form 6-K reports filed with the US Securities and Exchange Commission. plc and
Corp disclaim any obligation to publicly update or revise these forward-looking
statements, whether to reflect new information or future events or circumstances
or otherwise.
Illustrative Fiscal 2005 Analysis
Marconi'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 GBP2
billion in the first quarter to approximately GBP1.8 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 current financial year compared to
the level recorded in the third quarter (GBP456 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 (GBP1.8 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 GBP450 million during the next financial year and
thereby reduce its estimated breakeven level of sales to below GBP1.7 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
Marconi should position the Group well to benefit from any increase in demand,
both financially and operationally.
(GBP millions)
Year-ended 31 March '05
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
As stated above, Marconi expects 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 GBP724 million to GBP602
million primarily as a result of the removal of the ESOP escrow.
The estimated cash balances as at 31 May 2003, assuming the Corp Scheme becomes
effective on that date, are as follows:
(GBP millions)
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 Senior Notes of GBP36
million per annum and assumes that interest payable on the Junior Notes is paid
in kind. Gross cash outflows are shown net of proceeds (GBP27 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 GBP112 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
GBP30 million of cash will be in transit and therefore not available for
distribution.
Note 4: Working Capital Retained for Core Business
GBP197 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 USD22.5 million
(approximately GBP14 million).
Note 5: Cash Collateralisation of Performance Bonds
During the period prior to the Restructuring, certain new performance bonding
agreements entered into by Marconi 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 GBP167 million of cash retained
with respect to performance bonds includes GBP42 million to be held in escrow to
fund potential calls for collateral under these bonds. A further maximum of
GBP25 million of cash released from performance bonds may be required under the
new Performance Bonding Facility prior to being used to mandatorily redeem the
Junior Notes.
ANNEX D
EMPLOYEE INCENTIVE PLANS POST RESTRUCTURING
Conditionally on the later of the First Initial Distribution under the Corp
Scheme being initiated and the Effective Date (the "Plans Start Date"), Corp
will adopt a share option plan for top executives 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.
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.
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.
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.
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 GBP1 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 limits on the issue of new Corp Shares
The number of unissued shares that may be committed to be issued 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.
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 Group's existing Retention and Emergence Plan
(the "R&E Plan") 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 and 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.)
Tranche Condition Participants who released Other Participants
R&E
Plan Rights*
1. Repayment of 30 per cent. of the 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 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 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 20 30
capitalisation of GBP1 billion and
repayment of 100 per cent. of the
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 (within 51 months of the (within 51 months of the
capitalisation of GBP1.5 billion and Plans Start Date) Plans Start Date)
repayment of 100 per cent. of the
Junior Notes within 63 months after 30 30
the Plans Start Date. No vesting
before 39 months after the Plans (between 51 months and 63 (between 51 months and 63
Start Date months of the Plans Start months of the Plans Start
Date) 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 the Junior Notes are refinanced (rather than repaid), the conditions set out
above will apply to the aggregate debt, relating to what were the 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.
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 (but no more
than all) 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 using the value of the consideration paid by the
acquirer
and the number of Corp Shares in issue immediately following the Plans
Start Date)
remainder of Corp Shares the X _________________________________________
subject of outstanding options
GBP1.5 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 GBP1.5 billion figure will be
reduced by GBP25m 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 Companies Act 1985, 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 shares in an acquiring company.
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. No price is payable on
vesting. Awards will not vest during a close / 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. No option can be
granted under the Management Plan more than five years after the Plans Start
Date.
The following options are expected to be granted to the Directors under the
Management Plan:
Name of Director Number of Corp Shares to be
under option
John Devaney 3,000,000
Michael John Parton 17,500,000
Michael Donovan 10,000,000
The above shares will vest in five tranches based on performance related
criteria as described overleaf.
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
Inland Revenue approved options (''Approved Options'') and non-Inland Revenue
approved options (''Unapproved Options'') may be granted under the Employee
Plan.
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). The initial grant of options under the Employee Plan will
not take place until 30 business days after Listing of the New Shares. The
exercise price for such initial grant shall be the average middle market
quotation of a Corp Share for the five business days immediately prior to the
date of grant.
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).
Overall limit on the issue of new Corp Shares
The number of unissued shares that may be committed to be issued under the
Employee Plan is limited to 5 per cent. of the issued share capital of Corp
immediately following the Plans Start Date. 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.
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
Tranche Condition Percentage of shares
subject to option that
vest (per cent.)
1. Repayment of 30 per cent. of the Junior Notes within 24 months 10
after the Plans Start Date. No vesting before 12 months after
the Plans Start Date.
2. Repayment of 50 per cent. of the Junior Notes within 27 months 10
after the Plans Start Date. No vesting before 15 months after
the Plans Start Date.
3. Repayment of 100 per cent. of the Junior Notes within 30 20
months after the Plans Start Date. No vesting before 18 months
after the Plans Start Date.
4. Corp achieving a market capitalisation of GBP1 billion and 30
repayment of 100 per cent. of the 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 of GBP1.5 billion and (within 51 months of the
repayment of 100 per cent. of the Junior Notes within 63 Plans Start Date)
months after the Plans Start Date. No vesting before 39 months
after the Plans Start Date 30
(between 51 months and 63
months of the Plans Start
Date)
20
If the Junior Notes are refinanced (rather than repaid) the conditions set out
above will apply to the aggregate debt, relating to what were the 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.
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 (but no more
than all) 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 using the value of the consideration paid by the
acquirer
and the number of Corp Shares in issue immediately following the Plans
Start Date)
remainder of Corp Shares the X _________________________________________
subject of outstanding options
GBP1.5 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 GBP1.5 billion figure will be
reduced by GBP25m 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 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 shares in an acquiring company.
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 United States legislation.
General
Participation in the Management Plan is not pensionable. No options can be
granted under the Employee Plan more than five years after the Plans Start Date.
Approved Options will be granted subject to the relevant provisions of ICTA 1988
(or any replacement legislation).
ANNEX E
INSOLVENCY ANALYSIS
IMPORTANT NOTE: All figures, numbers and percentages that appear in this Annex
are subject to change and will only be finalised as at the record date of the
Schemes
1.1 Purpose of the insolvency analysis
The purpose of this Annex is to assist Scheme Creditors of either Corp
and/or plc in determining whether to accept the proposals set out in the
Draft 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 GBP1,000,000 of Admitted Scheme Claim, an Initial
Distribution of cash, New Notes and New Shares of approximately the
amounts set out in Table 1 below:
Table 1 - Illustrative First Initial Distribution
for each GBP1,000,000 of Admitted Scheme Claim
Corp plc Corp and plc
GBP equivalent in Estimated GBP equivalent in Estimated Illustrative
aggregate % recovery aggregate % recovery aggregate
principal principal estimated %
amount/ amount/ recovery for
number of New number of New Admitted Scheme
Shares Shares Creditors of both
Corp and plc
Cash GBP65,017.00 (6.50%) GBP9,528.00 (0.95%) (7.45%)
Senior Notes GBP86,115.00 (8.61%) GBP14,665.00 (1.47%) (10.08%)
(at par)
Junior Notes GBP58,182.00 (5.82%) GBP9,908.00 (0.99%) (6.81%)
(at par)
Number of New 190,411 See Table 2 32,426 See Table 2 See Table 2
Shares
Note: These amounts and percentages are subject to change and only will
be finalised as at the record date of the Schemes.
For the purpose of the above calculation, Known Claims that are
denominated in a currency other than sterling and the 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 GBP82 million of
excluded asset disposal proceeds, received before 1 May 2003. The
aggregate principal amount of the Junior Notes will be decreased by 10/
11ths of the US dollar equivalent of the amount by which the cash
element is increased.
New Notes
The 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 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 Junior
Notes to the holders of 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, 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 Senior Notes
and 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:
(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 Part D.4);
and
(b) all net proceeds of non-exempt asset sales received on
or after 1 May 2003, other than up to GBP82 million of net
proceeds from disposals of certain specified assets.
Corp will apply amounts in the Mandatory Redemption Escrow Account to
redeem first the Junior Notes and then, under certain circumstances, the
Senior Notes, in each case at a redemption price in cash of 110 per
cent. of par 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., 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 Senior Notes
and 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.
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.
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 Draft 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
GBP1,000,000 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 GBP1,000,000 of Admitted Scheme Claim based on a
range of notional equity values
Corp Plc Corp and plc
Illustrative equity Illustrative aggregate
values ascribed to the 32,426 New Shares estimated % recovery for
New Shares 190,411 New Shares Admitted Scheme Creditors
(see Table 1) (see Table 1) of both Corp and plc
GBP100m 1.9% 0.3% 2.2%
GBP200m 3.8% 0.6% 4.4%
GBP300m 5.7% 1.0% 6.7%
GBP400m 7.7% 1.3% 9.0%
GBP500m 9.6% 1.6% 11.2%
Note: These amounts, numbers of new shares and percentages are subject to change
and only will be finalised as at the record date of the Schemes.
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 Annex 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.
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;
(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 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 Annex 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 Annex.
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 the 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.
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 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 GBP100 million to GBP500 million in relation to Corp and
GBP50 million to GBP100 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 Annex, 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.
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.
* These percentages are subject to change and only will be finalised on
the record date of the Schemes.
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 GBP200 million to GBP250 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
(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 Annex, 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.
* These percentages are subject to change and only will be finalised as
at the record date of the Schemes.
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 Bondholders (other than plc's wholly owned subsidiary
Ancrane) as well as to Barclays Bank Plc ("Barclays") (as the only
participating ESOP Derivative Bank who committed to support the
Restructuring).
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.
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.
* These percentages are subject to change and only will be finalised as
at the record date of the Schemes.
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.
1. ENDS/...
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: ____M Skelly____
Name: M Skelly
Title: Secretary
Date: 18 March 2003