COLT Telecom Group plc - Banco Best

COLT Telecom Group plc 

(Incorporated in England and Wales under the Companies Act 1985 

with registered number 3232904) 

€320,000,000 7 5/8% SENIOR NOTES DUE 2009 

COLT Telecom Group plc (the "Company") has issued (the "Note Offering") 

€320,000,000 principal amount of its 7 5 / 8 % Senior Notes due 2009 (the "Notes"). 

This document constitutes listing particulars ("Listing Particulars") published in 

accordance with the listing rules made by London Stock Exchange Limited (the 

"London Stock Exchange") under Section 142 of the Financial Services Act 1986 for 

the purpose of giving information with regard to the Company and its subsidiaries (the 

"Group") and the Notes. A copy of this document has been delivered to the Registrar 

of Companies in England and Wales for registration in accordance with Section 149 of 

that Act. These Listing Particulars do not constitute an offer of securities for sale. 

The Company accepts responsibility for the information contained in these Listing 

Particulars. To the best of the knowledge and belief of the Company (which has taken 

all reasonable care to ensure that such is the case), the information contained in this 

document is in accordance with the facts and does not omit anything likely to affect 

the import of such information. 

The Company has obtained all necessary consents, approvals and authorisations in 

England in connection with the issue and performance of the Notes. The issue of the 

Notes was authorised by a resolution of the Company's Board of Directors passed on 

13 December 1999. 

Application has been made to the London Stock Exchange Limited (the "London Stock 

Exchange") for the Notes to be admitted to the Official List. It is expected that 

admission of the Notes to the Official List will become effective, and dealings will 

commence, on or around 14 February 2000 at 8.00 a.m. 

Morgan Stanley & Co. International Limited, which is regulated by the Securities and 

Futures Authority Limited, is advising COLT Telecom Group plc and no one else in 

relation to the Note Offering and will not be responsible to anyone other than COLT 

Telecom Group plc for providing the protections afforded to customers of Morgan 

Stanley & Co. International Limited nor for providing advice in relation to the Note 

Offering. 

SEE "RISK FACTORS" BEGINNING ON PAGE 15 OF PART 1 OF THIS 

DOCUMENT FOR INFORMATION THAT SHOULD BE CONSIDERED BY 

PROSPECTIVE INVESTORS. 

9 February 2000

CONTENTS 

This document consists of two sections (Part 1 and Part 2) which together comprise the 

listing particulars for the Notes. Part 1 of the document contains the text of an 

Offering Memorandum dated 9 December 1999 (without Appendices B and D thereto) 

produced in connection with the Note Offering and Part 2 of the document contains 

certain additional information. 

DEFINITIONS 

All terms and expressions used in this document shall have the meanings and 

definitions given in Part 1 of this document. 

THE STOCK OFFERING 

On 16 December 1999, the Company completed an offering of 14,625,000 new 

Ordinary Shares at a price of £27.35 per Ordinary Share (the "Stock Offering") which 

were placed with institutional investors. 

THE CONVERTIBLE NOTE OFFERING 

On 16 December 1999, the Company completed an offering of €368,000,000 2% 

Senior Notes due December 2006 (the "Convertible Notes" and, together with the Note 

Offering and the Stock Offering, the "Offerings"). 

SUMMARY FINANCIAL INFORMATION 

The summary financial information on pages 12 to 14 of Part 1 of this document is 

derived from the financial information in Appendices A and C of Part 1 of this 

document and should be read in conjunction therewith, including the notes to such 

financial information, and with the remainder of this document. 

The unaudited pro forma financial information on pages 13 and 25 of Part 1 of this 

document is included for illustrative purposes only and is intended to show how the 

Note Offering and the Offerings might have affected the financial information 

presented in this document had the Note Offering and the Offerings been undertaken 

at the commencement of the financial period being reported on or, in the case of a pro 

forma balance sheet, at the date reported. Because of the nature of this information, it 

may not give a true picture of the results or financial position of the Group. 

UK-2

PART 1 

This part contains the text of an Offering Memorandum dated 9 December 1999 

produced in connection with the Note Offering (without Appendices B and D thereto). 

UK-3

OFFERING MEMORANDUM STRICTLY CONFIDENTIAL 

COLT 

€320,000,000 


7 5/8% SENIOR NOTES DUE 2009 

Interest payable on 15 June and 15 December 

COLT Telecom Group plc is offering € 3 2 0 , 0 0 0 , 0 0 0 principal amount of its 7 5/8% Senior Notes due 2 0 0 9 . 

COLT is also offering € 3 6 8 , 0 0 0 , 0 0 0 principal amount of its 2 % Senior Convertible Notes due December 2 0 0 6 , 

including the over-allotment option which has been exercised, and 1 4 , 6 2 5 , 0 0 0 of its ordinary shares, pursuant to a 

separate offering memorandum. 

COLT may redeem any of the notes beginning on 1 5 December 2 0 0 4 . The initial redemption price is 1 0 3 . 8 1 2 5 % of 

their principal amount plus accrued interest. In addition, before 1 5 December 2 0 0 2 , COLT may give notice to 

redeem up to 3 5 % of the notes at a redemption price of 1 0 7 . 6 2 5 0 % of their principal amount plus accrued a n d 

unpaid interest using proceeds from certain types of offerings of its ordinary shares. 

The notes will rank equally with all our other senior notes and all other unsubordinated unsecured indebtedness. 

For a more detailed description of the notes, see "Description of the Notes" beginning on page 2 9 . 

COLT will apply to list these notes on the London Stock Exchange. 

The closing of each of the offerings is not conditioned upon the closing of the other offerings. 

Investing i n these notes involves risks. See "Risk F a c t o r s " beginning on p a g e 15. 

PRICE 100% AND ACCRUED INTEREST, I F ANY 

The notes have not been reģistered under the Securities Act of 1933, as amended, and are beinģ 

offered and sold only (a) outside the United States in compliance with Reģulation S under the 

Securities Act, and (b) to qualified institutional buyers in reliance on Rule 144A under the 

Securities Act. For a description of the restrictions on resale or transfer of the securities, see 

"Transfer Restrictions", beģinninģ on paģe 79. 

Morģan Stanley & Co. International Limited expects to deliver the notes to purchasers on 


Sole Book-Running Manaģer 

MORGAN STANLEY DEAN WITTER 

Lehman Brothers Dresdner Kleinwort Benson TD Securities 

9 December 1999

Presentation of Financial Information 5 

General Information 5 

Summary 6 

Risk Factors 15 

Use of Proceeds 24 

Capitalisation 25 

Recent Developments 27 

Description of the Notes 29 

Taxation 68 

Private Placement 76 

TABLE OF CONTENTS 

Page Page 

Transfer Restrictions 79 

Legal Matters 81 

Independent Chartered Accountants 82 

Appendix A — Press Release for the 

Unaudited Results of the Three and Nine 

Months Ended 30 September 1999 A-1 

Appendix B — Annual Report on 

Form 20-F for the Fiscal Year Ended Not 

31 December 1998 Included 

Appendix C — Audited Financial 

Statements C-1 

Not 

Appendix D — Additional Disclosure Included 

The Appendices included herein contain certain important information about COLT Telecom Group 

plc, its financial conditions and its results of operations. These Appendices are incorporated into, and 

constitute an important part of, this offering memorandum. In this offering memorandum, "COLT," "we," 

"us," and "our" refer to COLT Telecom Group plc. 

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN 

TRANSACTIONS THAT STABILISE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE 

ORDINARY SHARES AND THE NOTES. SPECIFICALLY, THE PLACEMENT AGENTS MAY 

OVERALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR, AND PURCHASE, 

NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PRIVATE 

PLACEMENT." 

The indenture pursuant to which the notes will be issued will require COLT, and COLT intends, to 

distribute to the holders of the notes annual reports containing consolidated financial statements of COLT 

audited by its independent chartered accountants and quarterly reports containing unaudited consolidated 

financial data for the first three quarters of each financial year. 

This confidential offering memorandum does not constitute an offer to sell, or a solicitation of an offer 

to buy, any of the securities by any person in any jurisdiction in which it is unlawful for such person to make 

an offering or solicitation. Neither the delivery of this offering memorandum nor any sale made hereunder 

shall under any circumstances imply that there has been no change in the affairs of COLT or that the 

information set forth herein is correct as of any date subsequent to the date hereof. 

COLT, having made all reasonable enquiries, confirms that this offering memorandum (including the 

information in the Appendices hereto), contains all information with respect to COLT and the notes which is 

material in the context of the issue and offering of the notes, that such information is true and accurate in 

every material respect and is not misleading in any material respect and that this offering memorandum does 

not omit to state any material fact necessary to make such information not misleading. The opinions, 

assumptions and intentions expressed in this offering memorandum with regard to COLT are honestly held, 

have been reached after considering all relevant circumstances and are based on reasonable assumptions. 

COLT accepts responsibility for the information contained in this offering memorandum accordingly. 

No person has been authorised in connection with any offering made hereby to give any information or to 

make any representation other than as contained in this offering memorandum and, if given or made, such 

2

information or representation must not be relied upon as having been authorised. Neither the delivery of this 

offering memorandum nor any sale made hereunder shall, under any circumstances, create any implication 

that there has been no change in the affairs of COLT since the date hereof or that the information contained 

herein is correct as of any time subsequent to its date. 

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN 

EXAMINATION OF COLT AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS 

AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY 

FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. 

FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY 

OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE 

CONTRARY IS A CRIMINAL OFFENSE. 

NEITHER COLT, NOR ANY PLACEMENT AGENT, HAS TAKEN ANY ACTION THAT 

WOULD PERMIT A PUBLIC OFFERING OF THE NOTES, OR POSSESSION OR DISTRIBUTION 

OF AN OFFERING MEMORANDUM, IN ANY JURISDICTION WHERE ACTION FOR THAT 

PURPOSE IS REQUIRED. PERSONS INTO WHOSE POSSESSION THIS OFFERING 

MEMORANDUM COMES ARE ADVISED BY US AND THE PLACEMENT AGENTS TO INFORM 

THEMSELVES ABOUT, AND TO OBSERVE ANY RESTRICTIONS AS TO, THE OFFERING OF 

THE NOTES, AND THE DISTRIBUTION OF THIS OFFERING MEMORANDUM. 

THIS DOCUMENT MAY ONLY BE DISTRIBUTED IN THE UNITED KINGDOM TO 

PERSONS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT 1986 

(INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996 OR TO A PERSON TO 

WHOM SUCH DOCUMENT MAY OTHERWISE LAWFULLY BE ISSUED OR PASSED ON. 

THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND 

RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER 

THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO 

REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT 

THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN 

INDEFINITE PERIOD OF TIME. FOR A DESCRIPTION OF THE RESTRICTIONS ON OFFERS, 

SALES OR OTHER TRANSFERS OF THE NOTES, SEE "TRANSFER RESTRICTIONS." 

NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE BY THE 

PLACEMENT AGENTS AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION 

SET FORTH HEREIN, AND NOTHING CONTAINED IN THIS OFFERING MEMORANDUM IS, 

OR SHALL BE RELIED UPON AS, A PROMISE OR REPRESENTATION, WHETHER AS TO THE 

PAST OR THE FUTURE. THE PLACEMENT AGENTS HAVE NOT INDEPENDENTLY VERIFIED 

ANY OF SUCH INFORMATION ÁND ASSUME NO RESPONSIBILITY FOR ITS ACCURACY OR 

COMPLETENESS. 

SEE "RISK FACTORS," IMMEDIATELY FOLLOWING THE SUMMARY HEREIN, FOR A 

DESCRIPTION OF CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE SECURITIES 

OFFERED HEREBY. NONE OF COLT, THE PLACEMENT AGENTS OR ANY OF THEIR 

RESPECTIVE REPRESENTATIVES IS MAKING ANY REPRESENTATION TO ANY OFFEREE OR 

PURCHASER OF THE SECURITIES OFFERED HEREBY REGARDING THE LEGALITY OF AN 

INVESTMENT BY SUCH OFFEREE OR PURCHASER UNDER APPROPRIATE INVESTMENT 

OR SIMILAR LAWS. EACH INVESTOR SHOULD CONSULT WITH HIS OWN ADVISORS AS TO 

LEGAL, TAX, BUSINESS, FINANCIAL AND RELATED ASPECTS OF A PURCHASE OF ANY OF 

THE SECURITIES. 

THIS OFFERING MEMORANDUM INCLUDES "FORWARD-LOOKING STATEMENTS" 

WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF 

3

THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS REGARDING 

COLT'S EXPECTED FINANCIAL POSITION, BUSINESS AND FINANCING PLANS, INCLUDING 

FUTURE EVENTS AND PERFORMANCE AND UNDERLYING ASSUMPTIONS ARE FORWARD- 

LOOKING STATEMENTS. ALTHOUGH COLT BELIEVES THAT THE EXPECTATIONS 

REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE 

NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. 

IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY 

FROM SUCH EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS 

OFFERING MEMORANDUM, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH 

THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS OFFERING MEMORANDUM 

AND UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD- 

LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY, ITS SUBSIDIARIES OR 

PERSONS ACTING ON T H E I R BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY 

THE CAUTIONARY STATEMENTS. 

NOTICE TO NEW HAMPSHIRE RESIDENTS 

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A 

LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED 

STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS 

EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW 

HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE STATE OF 

NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE 

AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION 

OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE 

SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY 

UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL 

TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO 

BE MADE TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY 

REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH 

4

PRESENTATION OF FINANCIAL INFORMATION 

We prepare our financial statements in British pounds sterling. In this offering memorandum, references 

to "U.S. dollars" or "$" are to the currency of the United States, references to "British pounds sterling," 

"pounds," "£," "pence" or "p" are to the currency of the United Kingdom, references to "deutschmarks" or 

"DM" are to the currency of the Federal Republic of Germany, and references to "euros" or "€" are to the 

common currency of the eleven members of the European Union. Solely for your convenience, in this offering 

memorandum we have translated, where indicated, British pound sterling amounts into U.S. dollars. We also 

translate euro and deutschmark amounts into British pounds sterling. These translations are not 

representations that the British pound sterling amounts actually represent such U.S. dollar amounts, or that 

the euro or deutschmark amounts actually represent such British pound sterling amounts or that such amounts 

could be converted at the rate indicated. All translations in this offering memorandum are based on the noon 

buying rate in the City of New York for cable transfers in British pounds sterling or euros as certified for 

customs purposes by the Federal Reserve Bank of New York for the dates specified. Unless otherwise 

indicated, we have translated British pounds sterling into U.S. dollars at an exchange rate of $1.6457 per 

£1.00, the noon buying rate on 30 September 1999. On 9 December 1999, the noon buying rate was $1.6230 

per £1.00. 

GENERAL INFORMATION 

Our company and our wholly-owned subsidiaries, COLT Telecom Europe Ltd. and COLT Telecom Ltd., 

were incorporated as English companies in 1996 and, through a series of transactions, acquired the operating 

companies that had conducted our business since 1992. Our financial information presented in this offering 

memorandum includes the financial information of COLT and our subsidiaries. Where appropriate, this 

financial information also includes our operating companies. The presentation of our financial information is 

described in greater detail in our audited financial statements and the related notes included as Appendix C to 

this offering memorandum. 

We prepare our financial information in accordance with accounting principles generally accepted in the 

United Kingdom (U.K. GAAP), which differ in certain respects from accounting principles generally 

accepted in the United States (U.S. GAAP). The principal differences between U.K. GAAP and U.S. GAAP 

are summarised in Note 27 to our audited financial statements included as Appendix C to this offering 

memorandum. 

The "COLT' tradename and logo are registered trademarks in Austria, Benelux, the Czech Republic, 

Hungary, Italy, Monaco, Russia, Spain, Switzerland and the United Kingdom, the "COLT' logo is a 

registered trademark in Germany, and the designation "COLT Telecommunications France" is a registered 

trademark in France. Our applications for registration of the "COLT" tradename and logo are pending in 

Denmark, the European Union, Finland, Ireland, Poland and the United States. Our application for 

registration of the "COLT" tradename, our logo and colour registrations are pending in Norway and our 

colour registration is pending in the United States. In addition, our application for our colour logo and our 

trademark applications for COLTEuroCell, COLTEuroFrame, COLTEuroFrameplus, COLTEuroLan and 

COLTEuroLink are pending in the European Union. 

Enforceability of Certain Civil Judgments 

We are incorporated under the laws of England and Wales, and most of our directors and executive 

officers and certain of the experts named in this offering memorandum are residents of the United Kingdom or 

other countries outside the United States. Substantially all of our assets and the assets of such persons are 

located outside the United States. As a result, it may not be possible for investors to effect service of process 

within the United States upon us or upon such persons, or to enforce against us or against such persons in 

courts inside or. outside the United States, judgments of courts inside the United States based upon the civil 

liability provisions of United States securities laws or to enforce, in an original action brought outside the 

United States, rights based on such provisions. 

5

SUMMARY 

You should read the following summary together with the more detailed information regarding our 

company, the securities we are selling in this offering and our financial statements and the notes to our 

financial statements included as Appendices to this offering memorandum. 

The Company 

We provide a broad range of competitive telecommunications services in Europe, where, at 30 September 

1999, we operated approximately 1,710 route kilometres (1,062 route miles) of local digital fibre optic 

networks. Our customers are primarily large business and government end-users and telecommunications 

carriers, and at 30 September 1999, we were providing service to customers in 3,271 buildings in 18 cities. 

Based in London, we currently operate in London, Frankfurt, Paris, Munich, Hamburg, Berlin, Zurich, 

Amsterdam, Brussels, Madrid, Dusseldorf, Milan, Stuttgart, Barcelona, Cologne, Geneva, Lyon and Vienna. 

We continue to believe that the size and growth potential of the European telecommunications market, 

coupled with the continued liberalisation of telecommunications in Europe, offer us considerable opportunities 

to expand into other metropolitan markets in Europe. 

We construct and operate state-of-the-art, competitive local telecommunications networks that employ 

synchronous digital hierarchy (SDH) transmission technology with dual path architectures. Monitoring and 

maintenance of each of these networks is centralised. Our advanced networks, combined with our superior 

customer service, allow us to provide telecommunications intensive customers with uniform, reliable, high 

quality services which are competitive with services provided by dominant local public telephone operators 

(PTOs) and other providers. We focus on high-volume telecommunications users such as large financial, 

media, corporate and government customers as well as telecommunications carriers. Many of our customers 

have operations in more than one of the cities in which we operate or plan to operate. We provide services to 

many of those customers in more than one city. 

We offer a broad range of telecommunications services in each city where we currently operate, including: 

• private wire services, 

• switched telephony services for directly connected customers, 

• local area network (LAN) interconnect services, 

• video transmission services and 

• switched telephony services for indirectly connected customers. 

We also offer internet access and value added services. We intend to offer similar services in each market 

into which we expand, as market and regulatory conditions permit. 

Our strategic objective is to establish our company as the preferred telecommunications services supplier 

to high-volume telecommunications end-users and telecommunications carriers through the development of 

fibre optic networks. Our geographic focus is the metropolitan markets in Europe, emphasising financial and 

business centres. 

In response to increasing customer demand and in anticipation of the significant bandwidth and end-toend 

connectivity requirements of current and future enhanced products and services, we are expanding our 

infrastructure to include national and international facilities linking our local city networks. Our 

5,400 route km inter-city network in northern Europe, which is currently under construction, is planned to be 

in operation during the second half of 2000. We have decided to expand our inter-city network infrastructure 

and we expect to commence the development of the southern European section during the first half of 2000. 

The southern section of the network will interconnect several of our local networks in France, Germany, 

Switzerland and Italy and will be fully integrated with our northern European network. The southern section 

6

of the inter-city network is expected to be operational by late 2000. In addition to the southern European 

network development, we plan to construct network facilities in the UK between London, Birmingham, 

Manchester and Leeds. The UK network is expected to be operational by late 2000. We are exploring the 

possibility of acquiring additional transatlantic capacity. 

We also intend to launch Digital Subscriber Line (DSL) based services. DSL encompasses a range of 

higher speed access techniques. The technology enables the local copper loop to be enhanced into a high speed 

digital connection for carrying data. Our initial focus for the deployment of DSL services will be in the 

German, Dutch, French and UK markets. Using DSL will allow us to extend the range of services we can 

offer to our large corporate customers as well as expand our addressable market for services to smaller and 

medium sized companies. We expect to launch our first DSL services by the end of 2000. Full deployment of 

DSL is subject to regulatory developments. 

We also intend to make significant additional investment in internet-related services. This investment 

could include expanding our internet hosting and housing facilities, developing intranet services providing 

connectivity for corporations on a local, national and international scale and establishing internet points of 

presence (POPs). We believe that there may be opportunities for acquisitions which could increase the speed 

of our growth in this area. 

We also intend to continue to expand our presence in the metropolitan markets in Europe and, by the end 

of 2001, we plan to have completed networks in a total of 30 to 32 cities. In addition to this continued 

expansion, we may widen our geographic coverage in selected markets by establishing points of presence 

(POPs) in additional smaller cities without building networks. 

Prior Financings and Financing Plan 

As part of our reorganisation in 1996, we issued Junior Subordinated Debentures due 15 January 2008, 

which have been converted into ordinary shares of our company. Also in 1996, we concluded our initial public 

offering of ordinary shares and a public offering of units consisting of 12% Senior Discount Notes due 2006 

and warrants to purchase ordinary shares. 

In 1997, we completed public offerings of: 

• ordinary shares, 

• 10 1/8% Senior Notes due 2007, denominated in British pounds sterling, and 

• 8 7/8% Senior Notes due 2007, denominated in deutschmarks. 

In 1998, we completed public offerings of: 

• ordinary shares, 

• 7 5/8% Senior Notes due 2008, denominated in deutschmarks and 

• 2% Senior Convertible Notes due 2005, denominated in deutschmarks. 

In March 1999, we completed private placements of: 

• ordinary shares and 

• 2% Senior Convertible Notes due 2006, denominated in euros. 

We believe the proceeds of the offering described in this offering memorandum and our concurrent 

ordinary share and convertible note offerings and our existing cash resources, together with internally 

generated funds, will adequately finance our planned expansion and our expected operating losses for 

approximately 27 to 33 months. After that time, we will require additional funds. If we enlarge the scope of 

7

our expansion plans, if any of the offerings is not completed, if our plans or assumptions change or prove to be 

inaccurate, or if we make any significant acquisitions, we may require additional funds sooner. Additional 

sources of financing may include equity and debt financings or other arrangements, such as vendor financing. 

Our principal executive offices are located at 15 Marylebone Road, London NW1 5JD, England. Our 

telephone number is + 44 (0) 20 7390 3900. 

8

The Offering 

Unless we state otherwise or the context otherwise requires, we are providing information in this offering 

memorandum based on the assumptions that the holders of our warrants and all three series of Senior 

Convertible Notes (including the convertible notes offered concurrently with this offering) have not exercised 

their conversion or purchase rights. 

Pursuant to concurrent offerings, we are also offering €368,000,000 principal amount of 2% Senior 

Convertible Notes due December 2006, including the over-allotment option which has been exercised, and 

14,625,000 ordinary shares. 

The Offering €320,000,000 principal amount of 7 5/8% Senior Notes due 2009. 

Listing We will apply for the notes offered in this offering memorandum to be 

listed on the London Stock Exchange. 

M a t u r i t y , 15 December 2009. 

Interest Interest will be payable semi-annually on 15 June and 15 December of 

each year, beginning 15 June 2000. The interest rate will be 7.625% per 

year calculated from the original issuance date. 

Optional Redemption At our option, we may redeem the notes in whole or in part, at any time 

on or after 15 December 2004 at redemption prices described in this 

offering memorandum, plus any accrued and unpaid interest, to the date 

of redemption. 

In addition, at any time prior to 15 December 2002, we may, at our 

option, redeem up to 35% of the aggregate principal amount of the notes 

at a redemption price of 107.6250% with the net proceeds of certain 

types of offerings of our ordinary shares at the redemption price 

described in this offering memorandum plus any accrued and unpaid 

interest. We may make such a redemption only if: 

• notes representing at least 65% of the principal amount at maturity of 

the notes initially issued remain outstanding immediately after each 

such redemption and 

• notice of the redemption is mailed within 60 days of each of these 

offerings. See "Description of the Notes — Optional Redemption. 

Additional Amounts; Optional 

Tax Redemption We will make any payments with respect to the notes without 

withholding or deduction for U.K. taxes or taxes of any other jurisdiction 

in which we organised or engaged in business for tax purposes. If tax 

authorities require us to withhold taxes from a payment on the notes, we 

will make an increased payment so that you will receive the same 

amount as the original payment before the deduction. If we are required 

to make such an increased payment, we may, at our option, redeem all of 

the notes at a price equal to 100% of the principal amount plus any 

accrued and unpaid interest. See "Description of the Notes — 

Additional Amounts" and "— Optional Redemption." 

Change of Control Upon a change of control (as defined under "Description of Notes"), we 

will be required to make an offer to purchase the notes at a price of 101% 

of their principal amount, plus any accrued and unpaid interest to the 

date of purchase. We may not have sufficient funds available at the time 

of any change of control to purchase the notes. See "Description of the 

Notes — Repurchase of Notes upon a Change of Control." 

9

Ranking The notes will rank equally in priority of payment with each other and 

with all our other outstanding senior notes, our outstanding convertible 

notes (including our convertible notes we are concurrently offering) and 

all other unsubordinated unsecured indebtedness. The notes will be 

senior in priority of payment to all our subordinated indebtedness. The 

notes will be unsecured. 

Certain Indenture Covenants The terms of the notes will restrict our ability and the ability of some of 

our subsidiaries to: 

• incur additional indebtedness, 

• create liens, 

• engage in sale-leaseback transactions, 

• pay dividends or make distributions in respect of capital stock, 

• enter into transactions with stockholders and affiliates, 

• make investments or certain other restricted payments, 

• sell assets and 

• consolidate with or merge with or into another company. 

However, as described in this offering memorandum, these limitations 

will be subject to a number of important qualifications and exceptions. 

Registration Rights We are obligated to cause the notes or notes offered in exchange for the 

notes to be freely transferable under the U.S. Securities Act of 1933, as 

amended (the "Securities Act") no later than six months after the 

closing of the offering of the notes. If this requirement is not met, then 

the interest on the notes will increase by 0.5% per annum until a 

registered exchange offer has been completed under the Securities Act or 

a shelf registration statement covering resales of the notes has been 

declared effective under the Securities Act. 

Transfer Restrictions The notes have not been registered under the Securities Act and, 

accordingly, they are subject to certain restrictions on transfer. See 

"Transfer Restrictions." 

Form of Notes The notes will be represented by three or more global notes in bearer 

form without interest coupons which will be held by The Bank of 

New York, Cayman, as book-entry depositary. Interests and transfers of 

interests in the global notes that are sold in offshore transactions 

pursuant to Regulation S under the Securities Act will be shown on and 

effected only through book-entry records maintained by Morgan 

Guaranty Trust Company of New York, Brussels Office, as operator of 

the Euroclear System ("Euroclear") and Cedelbank, for participants in 

the Euroclear and Cedelbank securities clearing systems. Interests and 

transfers of interests in the global notes that are sold in reliance on 

Rule 144A under the Securities Act will be shown on and effected only 

through (i) book-entry records maintained by The Depository Trust 

Company ("DTC") for participants in the DTC securities clearing 

system or (ii) through book-entry records maintained by Euroclear and 

Cedelbank for participants in the Euroclear and Cedelbank securities 

clearing systems, depending on the election made by the holder. 

Only financial institutions that have accounts with Euroclear, Cedelbank 

or DTC, or persons who own interests through financial institutions with 

Euroclear, Cedelbank or DTC accounts, may own these book-entry form 

interests in the notes. 

10

Except in the limited circumstances described under "Description of the 

Notes," owners of interests in the global notes are not entitled to receive 

notes in physical form or to have notes registered in their names and are 

not considered the owners or holders of the notes under the indenture. 

Use of Proceeds We expect our aggregate net proceeds from the offering to be 

approximately £195.5 million ($321.7 million), based on a conversion 

rate of euros into British pounds sterling of €1.5973 per £1.00 based on 

the noon buying rates on 9 December 1999. 

Our net proceeds from the offering and our concurrent stock and 

convertible note offerings will be used to finance: 

• the launch of DSL based services initially in Germany, The 

Netherlands, France and the United Kingdom; 

• the further expansion of our web hosting facilities; 

• the expansion of our inter-city network infrastructure to southern 

Europe and within the UK and 

• the completion of networks in a total of 30 to 32 cities. 

Settlement We expect that delivery of the notes will be made against payment on or 

about 16 December 1999. 

Investors should note that settling secondary market trades effected on 

and after 9 December 1999 (the date of pricing) may be delayed because 

of these settlement dates. 

Conditions of Issue The closings of the offering and our concurrent ordinary share and 

convertible note offerings are not conditioned upon each other. 

Risk Factors 

You should read the section entitled "Risk Factors," beginning on page 15, which discusses risks that you 

should consider when buying the notes. 

11

SUMMARY FINANCIAL DATA 

The following table presents our selected financial and other data at 31 December 1996, 1997 and 1998 

and for each of the years in the three-year period ended 31 December 1998 and at and for the nine months 

ended 30 September 1998 and 1999. The selected financial data at and for the years ended 31 December 1996 

and 1997 has been derived from our audited financial statements and related notes included as Appendix C 

hereto and has been audited by Coopers & Lybrand, Chartered Accountants, London, England. The selected 

financial data at and for the year ended 31 December 1998 has been derived from our audited financial 

statements and related notes included as Appendix C hereto and has been audited by 

PricewaterhouseCoopers, Chartered Accountants, London, England. The selected financial data at and for the 

nine months ended 30 September 1998 and 1999 has been derived from our unaudited interim financial 

statements at and for the nine months ended 30 September 1999 included in Appendix A hereto. 

The audited financial statements have been prepared in accordance with U.K. GAAP which differs in 

certain respects from U.S. GAAP. The principal differences between U.K. GAAP and U.S. GAAP are 

summarised in Note 27 to our audited financial statements included as Appendix C hereto and in Note 6 to 

our unaudited financial statements included in Appendix A hereto. In our opinion, the unaudited financial 

statements have been prepared on the same basis as the audited financial statements and include all 

adjustments, which consist only of normal recurring adjustments, necessary to present fairly the information 

therein. 

You should read the following summary financial data in conjunction with "Use of Proceeds," 

"Appendix A — Press Release for the Unaudited Results of the Three and Nine Months ended 30 September 

1999" and our financial statements and related notes included as Appendices to this offering memorandum. 

Year ended 31 December Nine months ended 30 September 

1996 1997 1998 1998(1) 1998 1999 1999(1) 

(in thousands, except per share data and operating statistics) 

(unaudited) 

Statement of Operations Data: 

Turnover 

Switched £ 27,030 £ 62,158 £ 162,232 $ 266,985 £ 110,091 £ 196,623 $ 323,582 

Non-switched 7,791 18,731 51,880 85,379 32,046 85,161 140,150 

Other 158 581 940 1,547 652 1,851 3,046 

Total 

Cost of sales 

34,979 81,470 215,052 353,911 142,789 283,635 466,778 

Interconnect and network (24,396) (55,965) (148,329) (244,105) (99,854) (193,831) (318,988) 

Network depreciation (5,044) (10,509) (24,022) (39,533) (16,178) (34,842) (57,339) 

Gross profit 5,539 14,996 42,701 70,273 26,757 54,962 90,451 

Operating expenses 

Selling, general and administrative (13,762) (33,729) (71,767) (118,107) (47,341) (92,215) (151,759) 

Other depreciation and amortisation (808) (1,923) (5,064) (8,334) (3,217) (9,889) (16,274) 

Operating loss (9,031) (20,656) (34,130) (56,168) (23,801) (47,142) (77,582) 

Other income (expense) 

Interest receivable 531 7,832 21,747 35,789 13,138 24,087 39,640 

Interest payable and similar charges (2,717) (20,446) (43,574) (71,709) (28,490) (48,373) (79,607) 

(Provision against) gain on disposed fixed 

asset investment 8 — — — — — — 

Exchange gain — 721 355 584 1,578 (292) (481) 

Loss on ordinary activities before taxation (11,209) (32,549) (55,602) (91,504) (37,575) (71,720) (118,030) 

Income tax benefit (provision) — — — — — — — 

Loss (U.K. GAAP) (11,209) (32,549) (55,602) (91,504) (37,575) (71,720) (118,030) 

Loss per ordinary share (U.K. GAAP) (3) £ (0.03) £ (0.07) £ (0.10) $ (0.17) £ (0.07) £ (0.11) £(0.19) 

Weighted average shares outstanding (000) 

(U.K. GAAP) (3) 326,420 451,026 542,706 542,706 530,246 625,916 625,916 

Loss (U.S. GAAP) (17,024) (31,105) (55,688) (91,646) (37,220) (70,956) (116,772) 

12

Year ended 31 December Nine months ended 30 September 

1996 1997 1998 1998(1) 1 9 9 8 1 9 9 9 1999(1) 

(in thousands, except per share data and operating statistics) 

(unaudited) 

Loss per ordinary share 

(U.S. GAAP)(3) 

Weighted average shares outstanding (000) 

£ (0.07) £ (0.08) £ (0.11) $ (0.18) £ (0.08) £ (0.11) $ (0.19) 

(U.S. GAAP) (3) 246,420 371,026 499,528 499,528 472,517 625,916 625,916 

Other Data: 

Net cash inflow/(outflow) from operating 

activities 653 (14,708) 7,106 11,694 1,041 (4,598) (7,567) 

Net cash outflow from capital expenditure 

and financial investment (38,732) (95,104) (211,163) 347,511 (151,015) (261,425) (430,227) 

Net cash inflow from financing activities 202,425 215,763 641,842 1,056,279 638,988 509,641 838,716 

EBITDA(4) (3,171) (8,224) (5,044) (8,301) (4,406) (2,411) (3,969) 

Capital expenditures 38,633 112,824 219,087 360,551 176,209 319,822 526,331 

Ratio of earnings to fixed charges(5) — — — — — — — 

Route kilometres(6) 198 506 1,200 1,200 1,064 1,710 1,710 

Route miles(6) 123 314 745 745 661 1,062 1,062 

Buildings connected (6) 673 1,189 2,191 2,191 1,908 3,271 3,271 

At 30 September 1999(1) (unaudited) 

Actual 

Pro forma 

for the note 

offering (2) (7) 

(in thousands) 

Pro forma 

for all of the 

offerings (2) (8) 

Balance Sheet Data: 

Cash and investments in liquid resources £905,717 $1,490,539 £1,101,247 $1,812,323 £1,710,314 $2,814,664 

Working capital 812,086 1,336,451 1,007,616 1,658,235 1,616,683 2,660,576 

Total fixed assets, net 634,880 1,044,821 634,880 1,044,821 634,880 1,044,821 

Total assets 

Amounts falling due after more than one year 

1,667,385 2,744,015 1,862,915 3,065,799 2,471,982 4,068,140 

(including convertible debt) 830,992 1,367,564 1,026,522 1,689,348 1,247,645 2,053,250 

Total liabilities 1,051,411 1,730,307 1,246,941 2,052,091 1,468,064 2,415,993 

Equity shareholders'funds 615,974 1,013,708 615,974 1,013,708 1,003,918 1,652,147 

(1) For your convenience, we have translated British pound sterling amounts to U.S. dollars at the noon 

buying rate on 30 September 1999 of $1.6457 per £1.00. On 9 December 1999, the noon buying rate was 

$1.6230 per £1.00. 

(2) We have translated the net proceeds of the note offering and the concurrent convertible note offering to 

British pounds sterling using a conversion rate of €1.5973 to £1.00 based on the noon buying rates on 


(3) We calculated loss per ordinary share (U.K. GAAP), and weighted average shares outstanding (U.K. 

GAAP) on the basis that the number of ordinary shares in issue included the ordinary shares that would 

have resulted from the conversion of COLT's then-outstanding convertible preference shares. We 

calculated loss per ordinary share (U.S. GAAP), and weighted average shares outstanding 

(U.S. GAAP) for the periods prior to conversion on the basis of the number of ordinary shares in issue 

which did not include the ordinary shares that would have resulted from the conversion of COLT's thenoutstanding 

convertible preference shares. 

(4) EBITDA consists of earnings (loss) before net interest expense, income taxes, depreciation, amortisation 

and foreign exchange gains or losses. EBITDA is a measure commonly used in the telecommunications 

industry and is presented to enhance the understanding of our operating results. EBITDA is not a 

measurement of financial performance under generally accepted accounting principles and may not be 

comparable to other similarly titled measures of other companies. EBITDA should not be considered as 

an alternative to operating or net income (as determined in accordance with generally accepted 

accounting principles) as an indicator of our performance or as an alternative to cash flows from operating 

13

activities (as determined in accordance with generally accepted accounting principles) as a measure of 

liquidity. See our profit and loss accounts, cash flow statements and related notes, included as appendices 

to this offering memorandum. 

(5) We computed the ratio of earnings to fixed charges dividing pretax income (loss) from operations before 

fixed charges (other than capitalised interest) by fixed charges. Fixed charges are defined as interest, 

whether expensed or capitalised, amortisation of debt expense and discount or premium relating to 

indebtedness, whether expensed or capitalised, and such portion of rental expense that represents the 

interest factor. On a pro forma basis, earnings would have been insufficient to cover fixed charges by 

£111.1 million ($182.8 million) and £97.3 million ($160.2 million) for the year ended 31 December 1998 

and the nine months ended 30 September 1999, respectively. This is after giving effect to interest 

expense, on a pro forma basis for the period prior to issue, on COLT's 1998 securities offerings, the prior 

1999 offerings of ordinary shares and senior convertible notes, this offering and the concurrent offerings of 

ordinary shares and convertible notes as if they had occurred at the beginning of the year ended 

31 December 1998. No adjustment has been made to reflect any pro forma income effect. 

(6) At end of period. 

(7) As adjusted to give effect to the note offering, as if it had occurred on 30 September 1999. 

(8) As adjusted to give effect to the note offering, and the concurrent ordinary share and convertible note 

offerings, including full exercise of the over-allotment option, as if they had occurred on 30 September 

1999. 

14

RISK FACTORS 

You should carefully consider the risks described below before making an investment decision. The risks 

we have described below are not the only risks we face. Additional risks not presently known to us or that we 

currently deem immaterial may also impair our business operations. 

Our business, financial condition or results of operation could be materially adversely affected by any of 

these risks. The trading price of our notes could decline due to any of these risks, and you may lose all or part 

of your investment. 

This offering memorandum also contains forward-looking statements that involve risks and uncertainties. 

Our actual results could differ materially from those anticipated in these forward-looking statements as a 

result of many factors, including the risks we describe below and elsewhere in this offering memorandum. 

We Are a Holding Company and Depend Heavily on Cash Flows from Our Subsidiaries 

Generally. We are a holding company for our subsidiaries and have no material business operations, 

sources of income or assets other than the stock of our subsidiaries. All our obligations under the notes that we 

are offering will be our own, not our subsidiaries'. Because we conduct our operations through subsidiaries, our 

cash flow and our ability to meet our obligations under the notes, including payment of principal, premium, if 

any, and interest, depends upon the cash flow of our subsidiaries and their dividends, fees, loans and other 

payments to us. Our subsidiaries will have no obligations to make any payments under the notes or to make 

funds available to us so that we can make these payments. 

Restrictions on Distributions. Some of our subsidiaries may be governed by local laws regarding how 

much they may pay in dividends or in what situations they may pay dividends. For example, these laws may 

prohibit dividend payments when net assets would fall below subscribed share capital, when the subsidiary 

lacks available profits or when the subsidiary fails to meet certain capital and reserve requirements. In 

addition, some of our financing arrangements also limit the situations where our subsidiaries may pay us 

dividends or make loans or other distributions. In particular, the agreement relating to our £100 million 

revolving bank facility limits our subsidiaries' ability to make loans or other distributions to us. 

Subordination to our Subsidiaries' Creditors. Our subsidiaries will not guarantee our payment 

obligations under the notes. Thus, our right to receive the assets of any subsidiary upon its liquidation or 

reorganisation is subordinated to the claims of the subsidiary's creditors, except where we are a creditor of the 

subsidiary. If we were a creditor of a subsidiary, our right to be paid back would be subordinated to any 

indebtedness of the subsidiary that was either. 

• secured by a security interest in that subsidiary's assets or 

• senior to that subsidiary's indebtedness to us. 

Our Secured Debt Will Have Priority Over the Notes That We Are Offering 

Our Secured Debt. Neither the indenture containing the terms of the notes we are offering, nor any of 

the indentures containing the terms of our other debt, places a limit on the amount of indebtedness that we 

may incur in financing the acquisition of network assets, equipment and inventory or for capital expenditures 

and working capital for the telecommunications business. In addition, each indenture permits us to incur up to 

£100 million of any other indebtedness. We are generally permitted to secure this indebtedness. Our 

obligations under the bank facility (if it is used) will be secured by all the stock of our subsidiaries and by a 

fixed and floating charge over the assets of the U.K. operating company and the COLT Telecom Group plc 

holding company. Our subsidiaries have guaranteed our obligations under the bank facility. 

The Notes are Unsecured. The notes that we are offering will be unsecured. If we default on these notes 

or enter bankruptcy, liquidation or reorganisation, then all of our assets that secure our debts will be used to 

satisfy the obligations under that secured debt before we could make any payment on the notes. Therefore, 

there may only be limited assets available to make payments on the notes in the event of an acceleration of the 

notes. If there is not enough collateral to satisfy the obligations of the secured debt, then the remaining 

15

amounts on the secured debt would share equally with all unsubordinated unsecured indebtedness of our 

company, which includes our other senior notes. 

We Have a History of Operating Losses and Expect These Losses to Continue 

We have incurred operating losses and negative cash flows while installing, developing and expanding our 

telecommunications network and building our customer base. For the year ended 31 December 1998 and the 

nine months ended 30 September 1999, these operating losses totalled £34.1 million ($56.2 million) and 

£47.1 million ($77.6 million), respectively. 

In addition, our operations had negative EBITDA of £3.2 million ($5.3 million) in 1996, £8.2 million 

($13.5 million) in 1997, and £5.0 million ($8.3 million) in 1998 and £2.4 million ($4.0 million) for the nine 

months ended 30 September 1999. EBITDA consists of earnings (loss) before net interest expense, income 

taxes, depreciation, amortisation and foreign exchange gains or losses. EBITDA is a non-GAAP measure. 

We expect that these operating losses and negative cash flows will increase as we expand our networks 

and enter new markets. We also expect that each of our new local networks could have negative cash flows for 

at least three years after becoming operational. We cannot guarantee that our operations will become 

profitable or that we will have positive cash flows in the future. If we cannot sustain profitability or positive 

cash flows, we probably will not be able to meet our capital requirements or make our required debt payments. 

We Have High Capital Requirements 

We depend on additional capital to finance our growth and our operating losses. The extent of our future 

capital requirements will depend on many factors, including: 

• the success of our business, 

• the rate at which we expand our networks, 

• the development of new networks, 

• the types of services we offer, 

• staffing levels, 

• acquisitions and 

• the growth of our customer base. 

Our capital requirements also depend on factors beyond our control, such as 

• competition, 

• government regulations and 

• capital costs. 

We believe that the proceeds of the offering described in this offering memorandum, including the 

concurrent ordinary share and convertible note offerings and our existing cash resources, together with 

internally generated funds, will adequately finance our planned expansion and our expected operating losses for 

approximately 27 to 33 months. After that time, however, we will require additional funds. Also, we may 

require additional funds sooner, if: 

• we enlarge the scope of our expansion plans, 

• any of the offerings is not completed, 

• our plans or assumptions change or prove to be inaccurate or 

• we make any significant acquisitions. 

16

Additional sources of financing may include equity and debt financings or other arrangements, such as 

vendor financing. We cannot be sure that we will be able to obtain additional financing on acceptable terms 

when it is required. In addition, so long as FMR Corp. and related parties own at least 50% of our ordinary 

shares, we need FMR Corp.'s consent to sell any additional equity securities. If we are unable to obtain this 

consent, we may be unable to raise additional equity capital. FMR Corp. has given its consent to this offering 

and the concurrent offering of ordinary shares and convertible notes. 

If we are unable to obtain any necessary financing, we may have to postpone or abandon some or all of 

our expansion plans. This may impair our ability to make payments on our debt. 

We Have a Substantial Level of Debt and Expect to Incur Significant Additional Debt in the Future 

We Have a Substantial Level of Debt. On 30 September 1999, our total indebtedness was approximately 

£831.0 million ($1,367.6 million), and our capital and reserves were £616.0 million ($1,013.7 million). The 

accretion of original issue discount on our 12% Senior Discount Notes will cause our indebtedness to increase. 

Because of the accretion of original issue discount on our 12% Senior Discount Notes, by 15 December 2001, 

our indebtedness will increase by £48.1 million ($79.2 million). The 2% Senior Convertible Notes due 2005 

accrete to an aggregate principal amount of £226.5 million ($372.7 million) at 6 August 2005. The 2% Senior 

Convertible Notes due 2006 accrete to an aggregate principal amount of £217.8 million ($358.4 million) at 

29 March 2006. The convertible notes we are offering pursuant to a separate offering memorandum, including 

notes issued in respect of the related over-allotment option, accrete to an aggregate principal amount of 

£291.8 million ($480.2 million) at 16 December 2006. At 30 September 1999, on a pro forma basis (after 

giving effect to this offering and the concurrent offering of convertible notes, including the convertible notes 

issued in respect of the related over-allotment option, as if the offerings had occurred on that date), our total 

indebtedness would have been £1,247.6 million ($2,053.2 million). For the year ended 31 December 1998 and 

the nine months ended 30 September 1999, on a pro forma basis (after giving effect to our 1998 securities 

offerings, the prior 1999 offerings of ordinary shares and senior convertible notes, this offering and the 

concurrent ordinary share and convertible note offering as if they had occurred at the beginning of the periods 

presented, but without giving effect to any pro forma income from the proceeds of the prior debt offerings and 

this offering), our earnings were insufficient to cover our fixed charges by £111.1 million ($ 182.8 million) and 

£97.3 million ($160.2 million), respectively. 

We Expect to Incur Significant Additional Debt. We expect to incur significant additional indebtedness 

in the future. Our level of indebtedness could affect us in materially adverse ways, such as: 

• we may not be able to obtain additional financing for our capital expenditures, acquisitions, working 

capital or other general requirements, 

• we may have to use a large portion of the cash flow, if any, from our operations to pay interest and 

principal on our debt obligations, 

• we may be vulnerable to economic downturns, which could weaken our ability to compete effectively 

and could reduce our flexibility in responding to changing economic conditions and 

• we may be unable to take advantage of new business opportunities. 

We May Not Be Able to Make Our Debt Payments in the Future. Our ability to meet our debt 

obligations will depend on whether we can successfully implement our strategy, as well as on financial, 

competitive, legal and technical factors, including some factors that are beyond our control. If we are unable to 

generate sufficient cash flow from operations to meet principal and interest payments on our debt, we may 

have to refinance all or part of our indebtedness. We anticipate that cash flows from our operations may be 

insufficient to repay in full at maturity the notes and all of our outstanding senior and junior ranking notes, and 

that the notes and our other outstanding notes may need to be refinanced. If that happens, our ability to 

refinance the notes will depend on, among other things: 

• our financial condition at the time, 

• restrictions in agreements governing our debt and 

17

• other factors, including market conditions. 

We cannot ensure that any such refinancing would be possible on terms that we could accept or that we 

could obtain additional financing. If refinancing were not possible or if additional financing were not available, 

we may have to sell our assets under circumstances that might not yield the highest prices, or default on our 

debt obligations, including the notes and our other outstanding notes, which would permit you and holders of 

the other outstanding notes to accelerate their maturity dates. 

Our Debt Covenants Limit Our Financing Activity 

Our existing indentures (except for the indentures for the already outstanding two series of senior 

convertible notes and the concurrently offered convertible notes), our indenture relating to the notes in this 

offering and the bank facility agreement contain restrictive covenants that affect, and in some cases 

significantly limit or prohibit, among other things, our and our subsidiaries' ability to: 

• incur indebtedness, 

• make prepayments of certain indebtedness, 

• pay dividends, make investments, 

• engage in transactions with stockholders and affiliates, 

• issue capital stock, 

• create liens, 

• sell assets and 

• engage in mergers and consolidations. 

However, these limitations are subject to a number of important qualifications and exceptions. In 

particular, we and our subsidiaries are permitted to incur unlimited additional debt to finance the acquisition 

of network assets, equipment and inventory, although other debt we incur is subject to restrictions. If we fail to 

comply with the restrictive covenants in these existing indentures or the bank facility agreement, our 

obligations to repay our outstanding notes, these notes, the convertible notes we are concurrently offering and 

amounts owing under the bank facility, may be accelerated. 

The indenture for the convertible notes that we are offering concurrently will not contain, and the 

indentures for the already outstanding two series of senior convertible notes do not contain, restrictive 

covenants other than a limitation on liens and a limitation on sale-leaseback transactions. The indenture for 

the convertible notes that we are offering concurrently and for the notes in this offering will contain a change 

of control provision substantially similar to that set forth in our existing indentures and a cross-acceleration 

provision to other indebtedness (including our outstanding senior notes) having an outstanding principal 

amount of £10 million or more. 

In addition to the restrictive covenants described in the paragraphs above, the bank facility agreement 

requires us and our subsidiaries to maintain financial ratios. Our failure to maintain these ratios would be an 

event of default under the bank facility agreement, even if we could still meet our debt service obligations. An 

event of default under the bank facility agreement would allow the lenders under the bank facility to accelerate 

the maturity of any outstanding borrowings. In such an event, a significant part of our other indebtedness, 

including our outstanding notes, may become due and payable. Acceleration would be an event of default 

under our existing indentures and the indenture for the notes unless the default was rescinded within 30 days 

or unless all of our indebtedness under the bank facility agreement was discharged within 30 days. If 

acceleration occurred, we may not be able to make required payments on any of our outstanding notes, and our 

warrants and ordinary shares would have little or no value. 

The amount available under the bank facility at any time is based upon our subsidiaries' performance. 

Before any amounts are available under the bank facility, we are required to satisfy conditions precedent, 

18

including the granting of certain liens in favour of the banks. See "— Our Secured Debt Will Have Priority 

Over the Notes That We Are Offering." 

Our Development and Expansion Presents Additional Risks 

Generally. To be successful, we must continue to expand into new markets and further develop our 

networks. Whether we can do this depends on our ability to: 

• enter new markets, 

• design fibre network routes, 

• install facilities, 

• acquire rights-of-way and building access, 

• obtain required governmental approvals and 

• implement interconnection with incumbent local public telephone operators, 

all in a timely manner, at reasonable costs and on terms and conditions acceptable to us. Our strategy could 

suffer as a result of operating and technical problems, regulatory uncertainties, possible delays in the full 

implementation of the European Union directives regarding telecommunications liberalisation, competition 

and the availability of capital. 

Development Risks. In certain markets we plan to enter, we may encounter technical difficulties as we 

try to build a network that will comply with different technical standards in different locations. In addition, we 

may need to engage in time-consuming negotiations for construction permits and interconnection agreements 

that may place us at a disadvantage compared to our competitors who have already built out their networks. 

We cannot guarantee that we will develop any new networks or, if developed, that they will be completed on 

schedule, at a commercially reasonable cost or within our specifications. In addition, we cannot assure you that 

any new networks will become profitable or generate positive cash flows. We expect each local network to have 

negative cash flow for at least three years after it becomes operational. See "— We Have a History of 

Operating Losses and Expect These Losses to Continue," "— We Face Uncertain and Changing Regulatory 

Restrictions" and "— Our Industry is Highly Competitive." 

Expansion and Acquisition Risks. In addition, our expansion may involve acquisitions which, if made, 

could divert our resources and management time and would require integration with our operations. We 

cannot assure you that we could make any desired acquisition in a timely manner on terms and conditions 

acceptable to us or that it could be successfully integrated into our operations. We continue to examine 

opportunities to expand into other related telecommunications services. As we expand into new categories of 

telecommunications services, we will face additional risks including technological compatibility risks, legal and 

regulatory risks and possible adverse reaction by some of our current customers. 

Our failure to successfully implement our expansion strategy would have a material adverse effect on our 

business, results of operations and financial condition. 

We Must Effectively Manage Our Rapid Growth and Expansion 

We have grown rapidly in the last few years, and we expect this growth to continue. Our growth is likely 

to place a significant strain on our administrative, operational and financial resources and systems as we 

expand the scope of our services. To continue to manage our growth successfully, we will have to further 

enhance our operational, management, financial and information systems and controls and to expand, train 

and manage our employee base. In addition, as we increase our service offerings and expand our targeted 

markets, we will have to cope with the additional demands on our customer support, sales, marketing and 

administrative resources. 

We cannot ensure that we will be able to manage our growth effectively. If we are unable to manage our 

expansion or cope with unforeseen difficulties, we could lose customers, suffer damage to our reputation and 

19

incur significant expenses. This could have a material adverse effect on our business, financial condition and 

operating results. 

We Face Uncertain and Changing Regulatory Restrictions 

The telecommunications industry is highly regulated in all the countries where we provide services. We 

need licences or similar permits to carry on our business in each of these countries. Our ability to establish new 

networks depends on getting appropriate licences, which in some cases will require adopting and implementing 

a new regulatory regime. Our ability to continue to provide services depends on our licences remaining in 

force. In some cases these licences have expiry dates. We have had favourable experience obtaining and 

maintaining licences in the past. However, we cannot ensure that we will be able to obtain, maintain or renew 

licences for our services, or that these licences will be issued or renewed on terms or with fees that are 

commercially viable. If we were to lose our licences, if we have substantial limitations imposed upon our 

licence terms, or if there are any changes in the regulatory environment, it could have a material adverse effect 

on our company. 

Our Industry Is Highly Competitive 

The telecommunications industry is highly competitive. Competition in the industry is based upon: 

• price, 

• customer service, 

• network quality, 

• special high-end services and 

• customer relationships. 

We compete with national telephone companies that for many years have provided local and long-distance 

services to their customers. Their substantially greater resources, closer ties to governmental authorities and 

longer operating histories give them a competitive advantage over younger companies like ours. We believe 

that with our prices and the quality of our services, we can compete effectively with other operators. However, 

we expect that we will encounter greater competition as we expand our network, and we may be unable to 

expand our market share as competitive pressures increase. 

Our principal competition in each market is the dominant national PTO. We also face competition from 

other operators in each market, some of which, such as MCI WorldCom, Inc., operate internationally. 

Our Operating Results Vary from Quarter to Quarter 

Our operating results could vary significantly from quarter to quarter. This is because we expect to have 

limited revenues and significant expenses as we expand and develop our networks and services. In addition, our 

revenues currently depend on a relatively small number of customers and contracts under which revenues may 

vary significantly from quarter to quarter. 

There Is a Risk of Cancellation or Non-Renewal of Government Approvals and Rights-of-Way 

Much of our business development, expansion and operation depends on our ability to obtain licences and 

permits from central and local government authorities and acceptable agreements for public and private 

rights-of-way. We cannot ensure that we will be able to maintain our existing approvals and rights-of-way or 

that we will be able to obtain the approvals and rights-of-way required to enter new markets as needed. If our 

existing approvals or rights-of-way were cancelled or not renewed, or if we were unable to obtain the approvals 

or rights-of-way to expand in accordance with our plans, then these events could have a material adverse effect 

on our business, results of operations and financial condition. 

20

We Are Dependent Upon Certain Customers 

Our three largest customers individually accounted for approximately 5%, 4% and 3% of our 1998 

revenues, and our ten largest end-user customers and five largest carrier customers collectively accounted for 

24% of our 1998 revenues. Our three largest customers individually accounted for approximately 5%, 3% and 

3% of our revenues for the nine months ended 30 September 1999 and our ten largest end-user customers and 

five largest carrier customers collectively accounted for 19% of our revenues for that period. Our largest 

customers generally use more than one service provider, and they may decide to move some or all of their 

business to other providers. We cannot ensure that we will retain these or other large customers. A decrease in 

the business from our key customers could have a material adverse effect on our business, financial condition 

and operating results. 

Changing Technology Creates Risk for Us 

The telecommunications industry is subject to rapid and significant changes in technology. We believe 

that, for the foreseeable future, these changes will neither materially affect the continued use of our fibre optic 

networks nor materially hinder our ability to acquire necessary technologies. However, we cannot predict the 

effect of technological changes on our business, such as changes relating to emerging wireline and wireless 

transmission technologies. Those technological changes, and their effects on our business, could have a 

material adverse effect on our financial conditions and results of operations. 

Our Success Depends on Hiring Qualified Employees and Retaining Key Personnel 

We compete with other telecommunications operators for highly qualified sales, marketing, 

administrative, operating and technical personnel. Our success depends on our ability to attract, hire and retain 

enough qualified personnel, and we cannot ensure that we will be able to do so. In addition, a small number of 

management and operating personnel manage our business. The loss of certain of these individuals could have 

a material adverse impact on our business. 

Currency Fluctuations Affect Our Results 

Our international operations expose us to fluctuations in foreign currencies, and as we expand into new 

markets, we will be increasingly exposed to such fluctuations. Our revenues, costs, assets and liabilities are, for 

the most part, denominated in foreign currencies, but our financial condition and results of operations are 

reported in British pounds sterling. As a result, fluctuations in the value of these local currencies will affect our 

financial and operational results. 

Some of our outstanding notes also expose us to exchange rate fluctuations because payments of principal 

and interest will be made in U.S. dollars, British pounds sterling, deutschmarks and euros, but a substantial 

part of our future cash flow used to service these payments will be denominated in euros and other local 

currencies. Our bank facility agreement requires us to maintain financial hedging instruments to offset any 

exchange rate risk with respect to some of our notes during the life of the bank facility. We may be required to 

maintain similar financial hedging instruments to offset any exchange rate risk with respect to some of our 

other outstanding notes. We do not currently intend to use other financial hedging instruments to offset 

exchange rate risk. 

There Are Potential Conflicts of Interest Related to Our Control 

When this offering and the concurrent offering of ordinary shares and convertible notes are completed, 

FMR Corp. and related entities will own approximately 53% of the outstanding ordinary shares (assuming that 

FMR Corp. and related entities do not purchase ordinary shares in the stock offering, although they are not 

restricted from doing so). In addition, we have granted to COLT Inc. an option to subscribe for a Special 

Voting Rights Redeemable Share which gives it the right to cast a majority of votes at our general meetings of 

shareholders if any person acquires 30% or more of our issued voting shares. As a result, FMR Corp. and its 

related entities will be in a position to control our company through their ability to determine the outcome of 

our shareholder votes. For example, they will be able to affect the election and dismissal of the members of our 

21

Board of Directors, amendment of our Articles of Association and other actions requiring the vote or consent 

of our shareholders under English law and our Articles of Association. 

In addition, the terms of the relationship agreement among our company, FMR Corp., COLT Inc., 

Fidelity Investors Limited Partnership and Fidelity International Limited restrict us from issuing any ordinary 

shares or other equity securities (including securities convertible into ordinary shares), subject to certain 

exceptions, without the prior written consent of FMR Corp. COLT Inc. will also, by virtue of its ownership of 

the Special Voting Rights Redeemable Share, be able to prevent another party from acquiring control of our 

company. The concentration of stock ownership could have the effect of delaying or preventing a change of 

control of our company or the removal of existing management and may discourage attempts to do so. Our 

bank facility agreement provides that an event of default will occur under certain circumstances, if we cease to 

be controlled directly or indirectly by FMR Corp. and its related entities. We have agreed to grant to FMR 

Corp. and its related entities and certain of their transferees rights during the period ending December 2004 to 

demand registration of ordinary shares which they own for resale under the Securities Act. Although FMR 

Corp. and related entities have agreed to consult with us and consider our requests before disposing of ordinary 

shares if such disposition would give rise to an event of default, our consent is not required for any dispositions. 

Our Systems May Not Be Ready for the Year 2000 

Generally. The Year 2000 problem is the result of computer programs being written using two digits 

rather than four digits to define the applicable year. Date-sensitive software may recognize a date using "00" 

as the year 1900 rather than the year 2000. This could result in system failures or miscalculations causing 

disruptions of operations, including a temporary inability to process transactions, send invoices or engage in 

similar normal business activities. 

Our Review. We have reviewed our computer and operational systems to identify and determine the 

extent to which our systems and the systems of our customers and vendors will be vulnerable to potential 

errors and failures as a result of the Year 2000 problem. We are upgrading our systems in an effort to prevent 

major failures that could result from the transition from the Year 1999 to the Year 2000. We expect that we 

will be fully Year 2000 compliant by the end of 1999. However, we cannot ensure that we will not experience 

serious, unanticipated negative consequences, including material costs caused by undetected errors or defects 

in the technology used in our internal systems. The occurrence of any of the foregoing could have a material 

adverse effect on our business, operating results and financial condition. 

Possible Risks. We currently believe that the greatest risk of disruption in our business comes from 

potential failures by other telecommunications operators. If we or our key business partners are not fully Year 

2000 compliant by 1 January 2000, then we could experience temporary network outages, delays in the 

delivery of services, delays in the receipt of supplies or invoices and collection errors. Our business and results 

of operations could be materially adversely affected by a temporary inability to conduct our business in the 

ordinary course for a period of time after 1 January 2000. 

Contingency Plans. We have considered a number of contingency plans in the event that we are not 

fully Year 2000 compliant by 1 January 2000. We believe that our Year 2000 readiness program, including the 

contingency plans we are developing in the event of a disruption, should reduce the adverse effect any such 

disruption may have. However, if we are required to implement any of these contingency plans, it could have a 

material adverse effect on our financial condition and results of operations. 

Costs. We estimate that the total cost of addressing these Year 2000 issues will be approximately 

£4.0 to £5.0 million of which we have already spent approximately £3.5 million at 30 September 1999. Actual 

costs, however, may vary from our estimates because of the complexity of the issues and the possibility that 

other companies' systems may not be ready. 

There Is Currently No Public Market for the Notes 

There is currently no trading market for the notes that we are offering. Although the placement agents 

have advised us that they plan to make a market in the notes, they do not have to do so, and they may 

22

discontinue this market-making at any time. If an active public market does not develop, the market price and 

liquidity of the notes may be adversely affected. We will apply for the notes to be admitted to the Official List 

of the London Stock Exchange, but the liquidity of the market achieved through this listing may be limited. 

There Will Be No Public Market in the United States for the Notes 

The notes that we are offering are being sold pursuant to certain exemptions from registration under the 

Securities Act and will not be publicly offered. Therefore, there will be no public market in the United States 

for the notes. 

There Is a Limit to the Payments That Can Be Made in Case of a Liquidation 

If we go into liquidation in England after the issuance of these notes, the claim of a noteholder for 

amounts owing under the notes may be limited to the issue price of the notes. Any cash interest accruing 

under the notes for any period after we go into liquidation would not be recoverable by noteholders in a 

liquidation. However, U.K. insolvency law provides for any surplus remaining after payment of all other debts 

provided in a liquidation to be available for paying interest accrued on debts in respect of any period after the 

start of the liquidation. 

23

USE OF PROCEEDS 

Our net proceeds from the note offering will be approximately £195.5 million. 

We expect the net proceeds from the concurrent ordinary share offering will be approximately 

£387.9 million, and our net proceeds from the concurrent convertible note offering, including notes issued in 

respect of the over-allotment option, will be approximately £221.1 million. 

These estimates of net proceeds from the note offering and the concurrent ordinary share and concurrent 

convertible note offerings assume a conversion rate of €1.5973 per £1.00 based on the noon buying rates on 


Our "net proceeds" are the amounts we will receive from the sale of securities after deducting estimated 

placement agent discounts and other offering expenses that we will pay. 

We plan to use the net proceeds from these offerings to finance: 

• the launch of DSL based services initially in Germany, The Netherlands, France and the United 

Kingdom; 

• the further expansion of our web hosting facilities; 

• the expansion of our inter-city network infrastructure to southern Europe and within the UK and 

• the completion of networks in a total of 30 to 32 cities. 

We believe that there may be opportunities to accomplish some of our planned expansion by acquisitions. 

We may use some of the net proceeds from these offerings to fund these acquisitions. 

Pending our use of the net proceeds from the offerings, we may invest the net proceeds in short-term (not 

exceeding three years), interest-bearing, investment-grade securities that are expected to mature before we 

expect to use the net proceeds. We may invest a portion of the net proceeds in an institutional cash fund 

managed by Fidelity International Limited, which is a shareholder in our company and is related to FMR 

Corp. through certain common ownership. A majority of our independent directors must approve any , 

investment in such a fund. 

24

CAPITALISATION 

The following table presents the cash and investments in liquid resources, short-term debt and 

capitalisation of COLT at 30 September 1999, as adjusted to give effect to the note offering, and the note 

offering together with the concurrent offerings of ordinary shares and convertible notes. You should read this 

table in conjunction with financial information at and for the nine months ended 30 September 1999 included 

in Appendix A hereto. 

At 30 September 1999 (unaudited) (1) 

Pro Forma for 

the note Pro Forma for all of 

A c t u a l o f f e r i n g ( 2 ) ( 3 ) t h e offerings(2) (3) 

(in thousands) 

Cash and investments in liquid resources £ 905,717 $1,490,539 £1,101,247 $1,812,323 £1,710,314 $2,814,664 

Short-term debt — — — — — — 

Creditors — amounts falling due in more than one year 

(including convertible debt): 

These Notes — — 195,530 321,784 195,530 321,784 

Convertible Notes — — — — 221,123 363,902 

2% Senior Convertible Notes due 2006 188,883 310,845 188,883 310,845 188,883 310,845 

7 5/8% Senior Notes 194,025 319,307 194,025 319,307 194,025 319,307 

2% Senior Convertible Notes due 2005 200,422 329,834 200,422 329,834 200,422 329,834 

8 2/8% and 10 1/8% Senior Notes 97,261 160,062 97,261 160,062 97,261 160,062 

12% Senior Discount Notes 142,657 234,772 142,657 234,772 142,657 234,772 

Junior Subordinated Debentures 7,744 12,744 7,744 12,744 7,744 12,744 

Total 830,992 1,367,564 1,026,522 1,689,348 1,247,645 2,053,250 

Capital and Reserves: 

Ordinary shares, nominal value 2.5p; 895,999,996 shares 

authorised and 640,164,744 shares issued and outstanding 

actual; 895,999,996 authorised and 654,789,744 shares 

issued and outstanding on a pro forma basis(4) 16,004 26,338 16,004 26,338 16,370 26,940 

Share premium, merger and other reserves 793,531 1,305,913 793,531 1,305,913 1,181,109 1,943,750 

Profit and loss account (193,561) (318,543) (193,561) (318,543) (193,561) (318,543) 

Total equity shareholders' funds 615,974 1,013,708 615,974 1,013,708 1,003,918 1,652,147 

Total capitalisation 1,446,966 2,381,272 1,624,496 2,703,056 2,251,563 3,705,397 

(1) For your convenience, we have translated British pounds sterling amounts to U.S. dollars at the noon 

buying rate on 30 September 1999 of $1.6457 per £1.00. On 9 December 1999, the noon buying rate was 

$1.6230 per £1.00. 

(2) We have translated the net proceeds of the note offering and the concurrent convertible note offering to 

British pounds sterling using a conversion rate of €1.5973 per £1.00 based on the noon buying rates on 


(3) As adjusted to give effect to the note offering and the concurrent offerings of ordinary shares and 

convertible notes, including full exercise of the over-allotment option, as if it had occurred on 

30 September 1999. 

(4) Excludes: 

• 35,816,393 and 144,000 ordinary shares issuable upon exercise of then-outstanding share options at 

exercise prices ranging from £0.6875 to £12.744 and market prices on the dates of vesting, 

respectively, 

• 7,862,694 ordinary shares issuable upon the conversion of the then-outstanding Junior Subordinated 

Debentures. All of the outstanding Junior Subordinated Debentures at 30 September 1999 have 

subsequently been converted to ordinary shares. 

• 5,658,900 ordinary shares issuable upon exercise of the then-outstanding warrants, 

25

• 35,646,824 ordinary shares issuable upon conversion of the already outstanding two series of senior 

convertible notes and 

• 6,479,380 ordinary shares issuable upon conversion of the convertible notes, including convertible 

notes issued in respect of the over-allotment option. 

26

General 

RECENT DEVELOPMENTS 

Our strategic objective is to establish our company as the preferred telecommunications services supplier 

to high volume telecommunications end users and telecommunications carriers through the development of 

fibre optic networks. Our geographic focus is the metropolitan markets in Europe, emphasising financial and 

business centres. 

The principal elements of our business strategy include the following: 

• focusing on metropolitan markets in Europe to take advantage of the considerable opportunities 

resulting from the size and growth potential of the European telecommunications market coupled 

with continued telecommunications liberalisation; 

• focusing on large financial, media, corporate and government end-users and telecommunications 

carriers and providing high quality, reliable telecommunications services and superior customer 

service; 

• delivering the highest quality, reliable telecommunications products and superior customer service as 

a single source provider of voice, data and video services; 

• entering markets early where opportunities exist in order to establish competitive advantages over 

other potential suppliers and 

• creating local companies staffed with local employees to establish a strong local presence. 

In response to increasing customer demand and in anticipation of the significant bandwidth and end-toend 

connectivity requirements of current and future enhanced products and services, we are expanding our 

infrastructure to include national and international facilities linking our local city networks. Our 5,400 route 

km inter-city network in northern Europe, which is currently under construction, is planned to be in operation 

during the second half of 2000. We have decided to expand our inter-city network infrastructure and expect to 

commence the development of the southern European section during the first half of 2000. The southern 

section of the network will interconnect several of our local networks in France, Germany, Switzerland and 

Italy and will be fully integrated with the northern European network. The southern section of the inter-city 

network is expected to be operational by late 2000. In addition to the southern European network 

development, we plan to construct network facilities in the UK between London, Birmingham, Manchester 

and Leeds. The UK network is expected to be operational by late 2000. We are exploring the possibility of 

acquiring additional transatlantic capacity. 

We also intend to launch Digital Subscriber Line (DSL) based services. DSL encompasses a range of 

higher speed access techniques. The technology enables the local copper loop to be enhanced into a high speed 

digital connection for carrying data. Our initial focus for the deployment of DSL services will be in the 

German, Dutch, French and UK markets. Using DSL will allow us to extend the range of services we can 

offer to our large corporate customers as well as expanding our addressable market for services to smaller and 

medium sized companies. We expect to launch our first DSL services by the end of 2000. Full deployment of 

DSL is subject to regulatory developments. 

We currently offer a range of internet services across Europe and will shortly have four web hosting 

facilities operational in Amsterdam, Frankfurt, London and Paris. During the second quarter of 2000, we plan 

to launch service in Madrid and Milan. We also plan to add a further four to six new hosting facilities, 

including facilities in Zurich, Vienna and Stockholm, during the second half of 2000 with further expansion in 

2001. 

We also intend to make significant additional investment in internet-related services. This investment 

could include expanding our internet hosting and housing facilities, developing intranet services providing 

connectivity for corporations on a local, national and international scale and establishing internet points of 

presence (POPs). We believe that there may be opportunities for acquisitions which could increase the speed 

of our growth in this area. 

27

We also intend to continue to expand our presence in the metropolitan markets in Europe and plan by the 

end of 2001 to have completed networks in a total of 30 to 32 cities. In addition to this continued expansion, 

we may widen our geographic coverage in selected markets by establishing points of presence (POPs) in 

additional smaller cities without building networks. 

Recent Results 

On 9 November 1999, we announced our unaudited results for the three and nine months ended 

30 September 1999. The announcement is reproduced at the end of this offering memorandum. See 

"Appendix A — Press Release of the Unaudited Results for the Three and Nine Months Ended 30 September 

1999." 

28

DESCRIPTION OF THE NOTES 

The notes are to be issued under an indenture, to be dated as of the closing date between us and The Bank 

of New York, New York, as trustee. You can obtain a copy of the form of indenture, of the registration rights 

agreement and of the deposit agreement related to these notes by asking us for them. 

The following description is a summary of the material provisions of the indenture. You can find the 

definition of certain terms used in this description under the caption "— Certain Definitions." As a summary, 

it does not restate the indenture in its entirety. We urge you to read the indenture because it, and not this 

description, defines your rights as holders of these notes. 

General 

The notes will: 

• be unsecured unsubordinated obligations of COLT; 

• be limited to €320 million aggregate principal amount of notes; and 

• mature on 15 December 2009. 

None of the offerings we are making at this time is conditioned upon the closing of any of the other 

offerings. 

Methods of calculating and paying interest on the notes 

Each note will bear interest at a rate per annum shown on the front cover of this offering memorandum 

from the date of issuance, or from the most recent date to which interest has been paid or provided for. 

Interest on the notes will be payable semi-annually to holders, in the case of global notes, on the applicable 

interest payment date, and, in the case of definitive registered securities, to holders at the close of business on 

1 June or 1 December immediately preceding the interest payment date, in each case on 15 June and 

15 December of each year, commencing on 15 June, 2000. 

London Stock Exchange 

COLT will apply to list the notes on the London Stock Exchange. It is expected that the listing of the 

notes on the London Stock Exchange will be obtained after the issue of the notes. 

Paying Agent 

COLT will maintain a paying agent for the notes in the Borough of Manhattan, The City of New York, 

London, England and in a major financial centre outside the United Kingdom, at all times that payments are 

to be made in respect of the notes. 

Form of Notes 

Global Notes 

The notes will be represented by global notes in bearer form without coupons. The notes sold outside the 

United States to non-U.S. investors will be represented by a Regulation S global note in bearer form held 

through Euroclear and Cedelbank, representing the book-entry interests in that note. Interests in notes sold to 

U.S. investors will be represented by two Rule 144A global notes in bearer form held through DTC and 

Euroclear and Cedelbank. The global notes will be issued in denominations equal to the outstanding principal 

amount at maturity of the notes represented by them. 

The global notes will be deposited with the book-entry depositary under a deposit agreement, to be dated 

as of the closing date among us, the book-entry depositary and the owners from time to time of beneficial 

interests in it. See "— Description of Book-Entry System; Payment; Transfers." 

29

Definitive Registered Securities 

Under the deposit agreement, owners of book-entry interests will receive definitive notes in registered 

form: 

• if DTC or Euroclear and Cedelbank, as the case may be, notifies the book-entry depositary that it is 

unwilling or unable to continue to act as depository or ceases to be a clearing agency registered under 

the Exchange Act, as amended, and the book-entry depositary does not appoint a successor depository 

at our request within 120 days; 

• if an event of default under the indenture occurs, and a request from the owner of a book-entry 

interest is delivered in writing to DTC or Euroclear and Cedelbank, as the case may be; 

• at any time if we, in our sole discretion, determine that the global notes (in whole but not in part) 

should be exchanged for definitive registered securities, in which case owners of beneficial interests in 

the global notes will receive definitive registered securities; or 

• if the book-entry depositary is at any time unwilling or unable to continue as book-entry depositary 

and we do not appoint a successor book-entry depositary within 120 days. 

Definitive securities in bearer form will not be issued under any circumstances. Any definitive registered 

securities will be issued in registered form in denominations of €1,000 principal amount at maturity and 

integral multiples thereof. Any definitive registered securities will be registered in the name or names that the 

book-entry depositary instructs the trustee, based on the instructions of DTC or Euroclear and Cedelbank, as 

the case may be. It is expected that such instructions will be based upon directions received by DTC or 

Euroclear and Cedelbank, as the case may be, from participants in DTC or Euroclear and Cedelbank, as the 

case may be, reflecting the ownership of beneficial interests. 

To the extent permitted by law, we, the trustee and any paying agent can treat the person in whose name 

a definitive registered security is registered as the absolute owner of it. 

While the DTC global note is outstanding, holders of definitive registered securities may exchange their 

definitive registered securities for beneficial interests in the global notes by surrendering their definitive 

registered securities to the book-entry depositary. In such a case, the book-entry depositary will request the 

trustee to make the appropriate adjustments to the global notes underlying the book-entry interests to reflect 

any issue or surrender of definitive registered securities. The indenture provides for the maintenance by a 

registrar of a security register reflecting ownership of any definitive registered securities. It also contains other 

provisions customary for a registered debt security. Payment of principal and interest on each definitive 

registered security will be made to the holder indicated on the register at the close of business on the record 

date at its address shown on the register on the record date. 

Any person receiving definitive registered securities (other than at its own request) will not be obligated 

to pay or otherwise bear the cost of any tax or governmental charge or any cost or expense of the book-entry 

depositary relating to insurance, postage, transportation or any similar charge. Such a charge will be solely our 

responsibility. 

Principal of, premium, if any, and interest on any definitive registered securities will be payable at the 

corporate trust office or agency of the trustee in The City of New York, London, England and in a major 

financial centre in Western Europe outside the United Kingdom maintained for such purposes and at any 

other offices that may be designated from time to time. In addition, interest on definitive registered securities 

may be paid by cheque mailed to the person whose name appears on the security register as entitled to the 

interest. No service charge will be made for any registration of transfer or exchange of any definitive registered 

securities. 

U.K. Tax Considerations 

HOLDERS SHOULD BE AWARE THAT, UNDER CURRENT U.K. LAW, UPON THE 

ISSUANCE OF DEFINITIVE REGISTERED SECURITIES TO A HOLDER, THAT HOLDER WILL 

30

BECOME SUBJECT TO U.K. INCOME TAX (CURRENTLY 20%) TO BE WITHHELD, ON ANY 

PAYMENTS OF INTEREST ON THE DEFINITIVE REGISTERED SECURITIES. SEE 

"TAXATION — U.K. TAX CONSIDERATIONS." 

A U.S. HOLDER OF DEFINITIVE REGISTERED SECURITIES WILL, TO THE EXTENT 

DESCRIBED BELOW UNDER "— ADDITIONAL AMOUNTS," BE ENTITLED TO RECEIVE 

ADDITIONAL AMOUNTS WITH RESPECT TO SUCH DEFINITIVE REGISTERED 

SECURITIES. ADDITIONAL AMOUNTS WILL NOT BE PAYABLE IF: 

• SUCH DEFINITIVE REGISTERED SECURITIES WERE ISSUED AT THE REQUEST OF 

A HOLDER (INCLUDING FOLLOWING AN EVENT OF DEFAULT); AND 

• AT THE TIME OF THE PAYMENT IN QUESTION DEFINITIVE REGISTERED 

SECURITIES HAVE NOT BEEN ISSUED IN EXCHANGE FOR THE ENTIRE 

PRINCIPAL AMOUNT AT MATURITY OF THE NOTES OF THE SAME CLASS. 

HOWEVER, A U.S. HOLDER OF DEFINITIVE REGISTERED SECURITIES MAY BE 

ENTITLED TO RECEIVE A REFUND OF WITHHELD AMOUNTS FROM THE U.K. INLAND 

REVENUE IN CERTAIN CIRCUMSTANCES. SEE "TAXATION — U.K. TAX 

CONSIDERATIONS — PAYMENT ON THE NOTES." 

Optional Redemption 

Prior to 15 December, 2002 

At any time prior to 15 December, 2002, we may on any one or more occasions redeem up to 35% of the 

aggregate principal amount of notes at a redemption price of 107.625% of the principal amount, plus accrued 

and unpaid interest, if any, to the redemption date with the net proceeds received by us from a public offering 

of our ordinary shares or other equivalent equity security in the United Kingdom or in an offering registered 

with the SEC; provided, that: 

• at least 65% of the aggregate principal amount of notes initially issued remains outstanding 

immediately after the occurrence of such redemption; and 

• that notice of each such redemption is mailed within 60 days of each such public equity offering. 

On or after 15 December, 2004 

At any time on or after 15 December, 2004 and prior to maturity, we may redeem all or a part of the 

notes at our option upon not less than 30 nor more than 60 days' prior notice at the following redemption 

prices (expressed as percentages of principal amount at maturity) plus accrued and unpaid interest, if any, to 

the redemption date, if redeemed during the 12-month period commencing 15 December of the years set forth 

below. Our redemption is subject to the right of holders of record on the relevant regular record date that is 

prior to the redemption date to receive interest due on an interest payment date. 

Year Redemption Price 

2004 103.8125% 

2005 102.5417% 

2006 101.2708% 

2007 and thereafter 100.0000% 

Selection 

If less than all of the notes are to be redeemed at any time, the trustee will select the notes (or portions of 

notes) for redemption as follows: 

(1) in compliance with the requirements of the London Stock Exchange and/or the principal 

U.S. national securities exchange, if any, on which the notes are listed or, 

31

(2) if the notes are not listed on the London Stock Exchange and/or a U.S. national securities 

exchange, on a pro rata basis, by lot or by such other method as the trustee in its sole discretion 

shall deem to be fair and appropriate; provided that no note of €1,000 in principal amount at 

maturity or less shall be redeemed in part. 

If any note is to be redeemed in part only, the notice of redemption relating to such note shall state the 

portion of the principal amount at maturity thereof to be redeemed. A new note in principal amount equal to 

the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the 

original note. 

Optional Tax Redemption 

In addition, we may, at our option, redeem the notes in whole, but not in part, at 100% of their principal 

amount at maturity, plus accrued interest, if any, to the redemption date, in the event we have become or 

would become obligated to pay, on the next date on which any amount would be payable with respect to the 

notes, any additional amounts as a result of a change in laws (including any regulations promulgated 

thereunder), or change in any official position regarding the application or interpretation of such laws or 

regulations, and this change is announced or becomes effective on or after the closing date. 

Registration Rights 

We have agreed with the placement agent, for the benefit of the holders, that we will use our best efforts, 

at our cost, to file and cause to become effective a registration statement with respect to a registered offer to 

exchange the notes for an issue of our unsubordinated notes with terms identical to the notes. However, the 

exchange notes will not bear legends restricting transfer or provide for an increase in the interest rate. The sole 

remedy available to the holders in the event of a failure to file or have declared effective a registration 

statement for exchange notes will be an increase in the interest rate described below. 

Upon such registration statement being declared effective, we will offer the exchange notes in return for 

surrender of the notes. That offer will remain open for not less than 20 business days after the date notice of 

the exchange offer is mailed to holders of record of the notes. For each note surrendered to us under the 

exchange offer, the holder will receive an exchange note of equal principal amount. 

Interest on each exchange note shall accrue from the last interest payment date on which interest was 

paid on the notes so surrendered or, if no interest has been paid on such notes, from the closing date. In the 

event that applicable interpretations of the staff of the SEC do not permit us to effect the exchange offer, or 

under certain other circumstances, we have agreed, at our cost, to use our best efforts to cause a shelf 

registration statement with respect to resales of the notes to become effective and to keep such shelf 

registration statement effective until the expiration of the time period referred to in Rule 144(k) under the 

Securities Act after the closing date, or such shorter period that will terminate when all notes covered by the 

shelf registration statement have been sold pursuant to the shelf registration statement, subject to certain 

conditions. The sole remedy available to holders in the event of a failure of the shelf registration statement to 

become effective will be an increase in the interest rate described below. 

The SEC has recently proposed that its interpretations relating to exchange offers be repealed if the SEC 

adopts certain proposed changes under the Securities Act, and has indicated that it may repeal these 

interpretations in any event. If those interpretations are repealed before the exchange offer for the notes is 

completed so that the exchange offer would no longer be permissible, then holders of the notes will not be able 

to receive exchange notes pursuant to an exchange offer. Rather, the notes may only be registered in 

connection with resales by the holders. 

In the event of such a shelf registration, we will provide to each holder copies of the prospectus, notify 

each holder when the shelf registration statement for the notes has become effective and take certain other 

actions as are required to permit resales of the notes. A holder that sells its notes pursuant to the shelf 

registration statement generally will be required to be named as a selling security holder in the related 

prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions 

32

under the Securities Act in connection with such sales and will be bound by the provisions of the registration 

rights agreement that are applicable to such a holder (including certain indemnification obligations). 

In the event that the exchange offer is not consummated and a shelf registration statement for resales of 

notes is not declared effective on or prior to the date that is six months after the closing date, the annual 

interest rate per annum borne by the notes will be increased by 0.5% until the exchange offer is consummated 

or a shelf registration statement is declared effective. 

If we effect the exchange offer, we will be entitled to close the exchange offer 20 business days after the 

commencement thereof; provided that we have accepted all notes theretofore validly surrendered in 

accordance with the terms of the exchange offer. Notes not tendered in the exchange offer shall continue to 

bear interest at the rate set forth on the cover page of this offering memorandum and remain subject to all of 

the terms and conditions specified in the Indenture and to the transfer restrictions described in "Transfer 

Restrictions." 

This summary of certain provisions of the registration rights agreement does not purport to be complete 

and is subject to, and is qualified in its entirety by reference to, all the provisions of the registration rights 

agreement, a copy of which is available from us upon request. 

Ranking 

The notes will: 

• be unsubordinated and unsecured indebtedness of COLT; 

• rank equally in right of payment with each other and with all of our outstanding senior notes, 

including the concurrently offered convertible notes, and with all of our other unsubordinated 

unsecured indebtedness; and 

• be senior in right of payment to all our subordinated indebtedness. 

After giving pro forma effect to this offering, as at 30 September 1999, we would have had 

£1053.5 million ($1733.7 million) of outstanding indebtedness and trade payables and after giving pro forma 

effect to both this offering, and our concurrent offering of convertible notes at 30 September 1999, we would 

have had £1274.6 million ($2097.6 million) of outstanding indebtedness and trade payables. We are permitted 

to incur additional indebtedness to finance the acquisition of network assets, equipment and inventory and for 

capital expenditures and working capital for the telecommunications business and up to £100 million of other 

indebtedness and we are permitted to secure any such indebtedness. The notes will be unsecured. 

In addition, we are a holding company and conduct substantially all of our business through subsidiaries. 

The notes will be effectively subordinated to all existing and future liabilities (including trade payables) of our 

subsidiaries. As of 30 September 1999, our subsidiaries had £208.9 million ($343.8 million) of liabilities 

(including trade payables but excluding intercompany liabilities) with no indebtedness. We will be dependent 

upon access to the earnings, if any, or assets of our subsidiaries to make payments on the notes. The terms of 

certain indebtedness of our subsidiaries materially limit the ability of the subsidiaries to pay dividends, make 

loans or other distributions to us. Our ability to access the earnings of our subsidiaries may also be limited by 

law. See "Risk Factors — We are a Holding Company and Depend Heavily on Cash Flows from Our 

Subsidiaries;" "— Our Secured Debt Will Have Priority Over the Notes That We are Offering" and "— We 

Have a Substantial Level of Debt and Expect to Incur Significant Additional Debt in the Future." 

Covenants 

The indenture will contain the following covenants: 

Limitation on Indebtedness 

(A) COLT will not, and will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness 

(other than the notes and Indebtedness existing on the closing date); provided that COLT may Incur 

33

Indebtedness if, after giving effect to the Incurrence of such Indebtedness and the receipt and application of 

the proceeds thereof, the Consolidated Leverage Ratio would be less than or equal to 5.0 to 1. 

Notwithstanding the foregoing, COLT, and (except as specified below) any Restricted Subsidiary, may 

incur each and all of the following: 

(1) Indebtedness in an aggregate principal amount outstanding or available at any time not to exceed 

£100 million, less any amount of such Indebtedness permanently repaid as provided under the 

covenant described below under the caption "— Limitation on Asset Sales;" 

(2) Indebtedness: 

(a) to COLT evidenced by an unsubordinated promissory note or 

(b) to any of its Restricted Subsidiaries; provided that any event which results in any such 

Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of 

such Indebtedness (other than to COLT or another Restricted Subsidiary) shall be deemed, 

in each case, to constitute an Incurrence of such Indebtedness not permitted by this 

clause (2); 

(3) Indebtedness issued in exchange for, or the net proceeds of which are used to refinance or refund, 

then outstanding Indebtedness, other than Indebtedness Incurred under clause (1), (2), (4), (9) 

or (11) of this paragraph, and any refinancings thereof in an amount not to exceed the amount so 

refinanced or refunded (plus premiums, accrued interest, fees and expenses); provided that 

Indebtedness, the proceeds of which are used to refinance or refund the notes or Indebtedness that 

is equal in right of payment with, or subordinated in right of payment to, the notes, shall only be 

permitted under this clause (3) if 

(a) in a case where the notes are refinanced in part or the Indebtedness to be refinanced is equal 

in right of payment with the notes, such new Indebtedness, by its terms or by the terms of any 

agreement or instrument pursuant to which such new Indebtedness is outstanding, is 

expressly made equal in right of payment with, or subordinated in right of payment to, the 

remaining notes; 

(b) in a case where the Indebtedness to be refinanced is subordinated in right of payment to the 

notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument 

pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made 

subordinate in right of payment to the notes at least to the extent that the Indebtedness to be 

refinanced is subordinated to the notes; and 

(c) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, 

does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or 

refunded, and the Average Life of such new Indebtedness is at least equal to the remaining 

Average Life of the Indebtedness to be refinanced or refunded; and provided further that in 

no event may Indebtedness of COLT be refinanced by means of any Indebtedness of any 

Restricted Subsidiary of COLT pursuant to this clause (3); 

(4) Indebtedness 

(a) in respect of performance, surety or appeal bonds provided in the ordinary course of business; 

(b) under Currency Agreements and Interest Rate Agreements; provided that such agreements 

(i) are designed solely to protect COLT or its Subsidiaries against fluctuations in foreign 

currency exchange rates or interest rates and 

(ii) do not increase the Indebtedness of the obligor outstanding at any time other than as 

a result of fluctuations in foreign currency exchange rates or interest rates or by reason 

of fees, indemnities and compensation payable thereunder and 

(c) . arising from agreements providing for indemnification, adjustment of purchase price or 

similar obligations, or from Guarantees or letters of credit, surety bonds or performance 

bonds securing any obligations of COLT or any of its Restricted Subsidiaries pursuant to 

34

such agreements, in each case Incurred in connection with the disposition of any business, 

assets or Restricted Subsidiary of COLT (other than Guarantees of Indebtedness Incurred 

by any person acquiring all or any portion of such business, assets or Restricted Subsidiary of 

COLT for the purpose of financing such acquisition), in a principal amount not to exceed the 

gross proceeds actually received by COLT or any Restricted Subsidiary in connection with 

such disposition; 

(5) Indebtedness of COLT, to the extent the net proceeds thereof are promptly: 

(a) used to purchase notes tendered in an Offer to Purchase made as a result of a Change in 

Control or 

(b) deposited to defease the notes as described below under "— Defeasance;" 

(6) Guarantees of the notes and Guarantees of Indebtedness of COLT by any Restricted Subsidiary 

provided the Guarantee of such Indebtedness is permitted by and made in accordance with the 

covenant described below under the caption "— Limitation on Issuance of Guarantees by 

Restricted Subsidiaries;" 

(7) Indebtedness Incurred to finance the cost (including the cost of design, development, acquisition, 

construction, installation, improvement, transportation or integration) of network assets, 

equipment, inventory or other tangible assets used or useful in the Telecommunications Business 

acquired by COLT or a Restricted Subsidiary (including acquisitions by way of real property, 

leasehold improvements, Capitalised Leases and acquisitions of the Capital Stock of a person that 

becomes a Restricted Subsidiary to the extent of the fair market value of the network assets, 

equipment, inventory or other tangible assets acquired) after the closing date or to finance or 

support working capital or capital expenditures for the Telecommunications Business; 

(8) Indebtedness of COLT not to exceed, at any one time outstanding, two times the Net Cash 

Proceeds received by COLT after the closing date from the issuance and sale of its Capital Stock 

(other than Redeemable Stock) to a person that is not a Subsidiary of COLT, to the extent such 

Net Cash Proceeds have not been used pursuant to the covenant described in 

clause (A) (4) (c) (ii) of the first paragraph under the caption "— Limitation on Restricted 

Payments" to make a Restricted Payment or pursuant to the covenant described in clause (6) of 

the second paragraph under the caption "— Limitation on Restricted Payments" to make 

Investment; provided that such Indebtedness does not mature prior to the Stated Maturity of the 

notes and has an Average Life longer than the notes; 

(9) Strategic Subordinated Indebtedness; 

(10) Acquired Indebtedness; and 

(11) Indebtedness (in addition to Indebtedness permitted under the covenants described in clauses (1) 

through (10) above) in an aggregate principal amount outstanding at any time not to exceed 

£17.0 million, less any amount of such Indebtedness permanently repaid as provided under the 

covenants described below under the caption "— Limitation on Asset Sales." 

(B) Notwithstanding any other provision of the covenant described in this "Limitation on Indebtedness" 

section, the maximum amount of Indebtedness that COLT or a Restricted Subsidiary may Incur pursuant to 

the covenant described in this "Limitation on Indebtedness" section shall not be deemed to be exceeded due 

solely to the result of fluctuations in the exchange rates of currencies. 

(C) For purposes of determining any particular amount of Indebtedness under the covenant described in 

this "Limitation on Indebtedness" section, 

(1) Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise 

included in the determination of such particular amount shall not be included and 

35

(2) any Liens granted pursuant to the equal and rateable provisions referred to in the covenant 

described below under the caption "— Limitation on Liens" shall not be treated as Indebtedness. 

For purposes of determining compliance with the covenant described under this "Limitation on 

Indebtedness" section, in the event that an item of Indebtedness meets the criteria of more than one of the 

types of Indebtedness described in the above clauses, COLT, in its sole discretion, shall classify such item of 

Indebtedness and only be required to include the amount and type of such Indebtedness in one of such 

clauses. 

Limitation on Restricted Payments 

(A) COLT will not, and will not permit any Restricted Subsidiary to, directly or indirectly, 

(1) declare or pay any dividend or make any distribution on or with respect to its Capital Stock other 

than 

(a) dividends or distributions payable solely in shares of its Capital Stock (other than 

Redeemable Stock) or in options, warrants or other rights to acquire shares of such Capital 

Stock; and 

(b) pro rata dividends or distributions on Common Stock of Restricted Subsidiaries held by 

minority stockholders, provided that such dividends do not in aggregate exceed the minority 

stockholders' pro rata share of such Restricted Subsidiaries' net income from the first day of 

the fiscal quarter beginning immediately following the closing date) held by persons other 

than COLT or any of its Restricted Subsidiaries; 

(2) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of 

(a) COLT or an Unrestricted Subsidiary (including options, warrants or other rights to acquire 

such shares of Capital Stock) held by any person; or 

(b) a Restricted Subsidiary (including options, warrants or other rights to acquire such shares of 

Capital Stock) held by any Affiliate of COLT (other than a Wholly Owned Restricted 

Subsidiary) or any holder (or any Affiliate of such holder) of 5% or more of the Capital 

Stock of COLT; 

(3) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, 

defeasance, or other acquisition or retirement for value, of Indebtedness of COLT that is 

subordinated in right of payment to the notes; or 

(4) make any Investment, other than a Permitted Investment, in any person (such payments or any 

other actions described in clauses (1) through (4) being collectively "Restricted Payments") if, at 

the time of, and after giving effect to, the proposed Restricted Payment; 

(a) a Default or Event of Default shall have occurred and be continuing, 

(b) COLT could not Incur at least £1.00 of Indebtedness under the covenant described in the 

first paragraph under "— Limitation on Indebtedness;" or 

(c) the aggregate amount of all Restricted Payments (the amount, if other than in cash, to be 

determined in good faith by the Board of Directors, whose determination shall be conclusive 

and evidenced by a Board Resolution) made after the closing date shall exceed the sum of 

(i) 50% of the aggregate amount of the Adjusted Consolidated Net Income (or, if the 

Adjusted Consolidated Net Income is a loss, minus 100% of the amount of such loss) 

(determined by excluding income resulting from transfers of assets by COLT or 

a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative basis 

during the period (taken as one accounting period) beginning on the first day of the 

fiscal quarter immediately following the closing date and ending on the last day of the 

last fiscal quarter preceding the Transaction Date for which reports have been filed 

36

pursuant to the covenant described under the caption "— Commission Reports and 

Reports to Holders;" 

(ii) the aggregate Net Cash Proceeds received by COLT after the closing date from the 

issuance and sale permitted by the indenture to a person who is not a Subsidiary of 

COLT of 

• its Capital Stock (other than Redeemable Stock), 

• any options, warrants or other rights to acquire Capital Stock of COLT (in each 

case, exclusive of any Redeemable Stock or any options, warrants or other rights 

that are redeemable at the option of the holder, or are required to be redeemed, 

prior to the Stated Maturity of the notes) and 

• Indebtedness of COLT (including COLT's convertible notes, regardless 

of whether the closing thereof is before or after the closing date) that has been 

exchanged for or converted into Capital Stock of COLT (other than Redeemable 

Stock), in each case except to the extent such Net Cash Proceeds are used to 

Incur Indebtedness pursuant to the covenant described in clause (8) of the 

second paragraph under the caption "— Limitation on Indebtedness," plus 

(iii) an amount equal to the net reduction in Investments (other than reductions in 

Permitted Investments and reductions in Investments made pursuant to the provision 

described in clause (6) of part (B) of this "Limitation on Restricted Payments" 

section) in any person resulting from payments of interest on Indebtedness, dividends, 

repayments of loans or advances, or other transfers of assets, in each case to COLT or 

any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such 

Investment (except, in each case, to the extent any such payment or proceeds is 

included in the calculation of Adjusted Consolidated Net Income), or from 

redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each 

case as provided in the definition of "Investments"), not to exceed, in each case, the 

amount of Investments previously made by COLT or any Restricted Subsidiary in such 

person or Unrestricted Subsidiary. 

(B) The covenant described in part (A) of this "Limitation on Restricted Payments" section shall not be 

violated by reason of: 

(1) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of 

declaration, such payment would comply with the covenant described in part (A) above; 

(2) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness 

that is subordinated in right of payment to the notes including premium, if any, and accrued and 

unpaid interest, with the proceeds of, or in exchange for, Indebtedness Incurred under the covenant 

described in clause (3) of the second paragraph of part (A) under the caption "— Limitation on 

Indebtedness;" 

(3) the repurchase, redemption or other acquisition of Capital Stock of COLT or an Unrestricted 

Subsidiary (or options, warrants or other rights to acquire such Capital Stock) in exchange for, or 

out of the proceeds of a substantially concurrent offering of, shares of Capital Stock (other than 

Redeemable Stock) of COLT (or options, warrants or other rights to acquire such Capital Stock); 

(4) the making of any principal payment or the repurchase, redemption, retirement, defeasance or 

other acquisition for value of Indebtedness of COLT which is subordinated in right of payment to 

the notes in exchange for, or out of the proceeds of, a substantially concurrent offering of, shares of 

the Capital Stock of COLT (other than Redeemable Stock); 

(5) payments or distributions to dissenting stockholders pursuant to applicable law in connection with a 

consolidation, merger or transfer of assets that complies with the provisions of the indenture 

37

applicable to mergers, consolidations and transfers of all or substantially all of the property and 

assets of COLT; 

(6) Investments in any person the primary business of which is related, ancillary or complementary to 

the business of COLT and its Restricted Subsidiaries on the date of such Investments; provided 

that the aggregate amount of Investments made pursuant to this clause (6) does not exceed the 

sum of 

(a) £35.0 million plus: 

(b) the amount of Net Cash Proceeds received by COLT after the closing date of the 1996 debt 

offering from the sale of its Capital Stock (other than Redeemable Stock) or convertible 

notes (but only in proportion to the percentage of convertible notes that has been converted 

into Common Stock at the date of determination) to a person who is not a Subsidiary of 

COLT, except to the extent such Net Cash Proceeds are used to Incur Indebtedness 

pursuant to clause (7) of the second paragraph of part (A) of the covenant described under 

the caption "— Limitation on Indebtedness" or to make Restricted Payments pursuant to 

clause (4) (c) (ii) of part (A) of the covenant described in this "Limitation on Restricted 

Payments" section, plus 

(c) the net reduction in Investments made pursuant to this clause (6) resulting from 

distributions on or repayments of such Investments or from the Net Cash Proceeds from the 

sale of any such Investment (except in each case to the extent any such payment or proceeds 

is included in the calculation of Adjusted Consolidated Net Income) or from such person 

becoming a Restricted Subsidiary (valued in each case as provided in the definition of 

"Investments"); provided that the net reduction in any Investment shall not exceed the 

amount of such Investment; or 

(7) repurchases of junior notes upon the occurrence of a Change of Control provided that no such 

repurchases shall be made prior to COLT's repurchase of such notes as are required to be 

repurchased pursuant to covenant described under the caption "— Repurchase of Notes Upon 

Change of Control;" provided that, except in the case of clauses (1), (3) and (4), no Default or 

Event of Default shall have occurred and be continuing, or occur as a consequence of the actions or 

payments set forth therein. 

(C) Each Restricted Payment permitted pursuant to covenant described in the preceding part (B) (other 

than the Restricted Payment referred to in clause (2) thereof and an exchange of Capital Stock for Capital 

Stock or Indebtedness referred to in clause (3) or (4) thereof), and the Net Cash Proceeds from any issuance 

of Capital Stock referred to in clauses (3), (4) and (6), shall be included in calculating whether the 

conditions of the third item in clause (4) (c) (ii) of part (A) of the covenant described in this "Limitation on 

Restricted Payments" section have been met with respect to any subsequent Restricted Payments. 

In the event the proceeds of an issuance of Capital Stock of COLT are used for the redemption, 

repurchase or other acquisition of the notes, or Indebtedness that is equal in right of payment with the notes, 

then the Net Cash Proceeds of such issuance shall be included in the third item in clause (4) (c) (ii) of 

part (A) of this "Limitation on Restricted Payments" section only to the extent such proceeds are not used for 

such redemption, repurchase or other acquisition of Indebtedness. 

Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries 

(A) COLT will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or suffer 

to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any 

Restricted Subsidiary to 

(1) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of 

such Restricted Subsidiary owned by COLT or any other Restricted Subsidiary, 

(2) pay any Indebtedness owed to COLT or any other Restricted Subsidiary; 

38

(3) make loans or advances to COLT or any other Restricted Subsidiary; or 

(4) transfer any of its property or assets to COLT or any other Restricted Subsidiary. 

(B) The covenant described in part (A) of this "Limitation on Dividend and Other Payment Restrictions 

Affecting Subsidiaries" section shall not restrict any encumbrances or restrictions: 

(1) existing on the closing date in the indenture, COLT's bank facility agreement or any other 

agreements in effect on the closing date, and any extensions, refinancings, renewals or replacements 

of such agreements; provided that the encumbrances and restrictions in any such extensions, 

refinancings, renewals or replacements are no less favourable in any material respect to the Holders 

than those encumbrances or restrictions that are then in effect and that are being extended, 

refinanced, renewed or replaced; 

(2) existing under or by reason of applicable law; 

(3) existingwith respect to any person or the property or assets of such person acquired by COLT or 

any Restricted Subsidiary and existing at the time of such acquisition and not incurred in 

contemplation thereof, which encumbrances or restrictions are not applicable to any person or the 

property or assets of any person other than such person or the property or assets of such person so 

acquired; 

(4) in the case of clause (4) of part (A) of the covenant described in this "Limitation on Dividend and 

Other Payment Restrictions Affecting Restricted Subsidiaries" section, 

(a) that restrict in a customary manner the subletting, assignment or transfer of any property or 

asset that is a lease, license, conveyance or contract or similar property or asset, 

(b) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or 

Lien on, any property or assets of COLT or any Restricted Subsidiary not otherwise 

prohibited by the indenture; or 

(c) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and 

that do not, individually or in the aggregate, detract from the value of property or assets of 

COLT or any Restricted Subsidiary in any manner material to COLT or any Restricted 

Subsidiary; 

(5) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been 

entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property 

and assets of, such Restricted Subsidiary, or 

(6) contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness 

was issued if 

(a) the encumbrance or restriction applies only in the event of a payment default or a default 

with respect to a financial covenant contained in such Indebtedness or agreement, 

(b) the encumbrance or restriction is not materially more disadvantageous to the holders of the 

notes than is customary in comparable financings (as determined by COLT) and 

(c) COLT determines that any such encumbrance or restriction will not materially affect 

COLT's ability to make principal or interest payments on the notes. 

Nothing contained in the covenant described in this "Limitation on Dividend and Other Payment 

Restrictions Affecting Restricted Subsidiaries" section shall prevent COLT or any Restricted Subsidiary from: 

(i) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in the 

covenant described under the caption "— Limitation on Liens;" or 

(ii) restricting the sale or other disposition of property or assets of COLT or any of its Restricted 

Subsidiaries that secure Indebtedness of COLT or any of its Restricted Subsidiaries. 

39

Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries 

COLT will not sell, and will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell, 

any shares of Capital Stock of a Restricted Subsidiary (including options, warrants or other rights to purchase 

shares of such Capital Stock) except: 

(1) to COLT or a Wholly Owned Restricted Subsidiary, 

(2) issuances of director's qualifying shares or sales to foreign nationals of shares of Capital Stock of 

foreign Restricted Subsidiaries, to the extent required by applicable law, 

(3) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no 

longer constitute a Restricted Subsidiary and any Investment in such person remaining after giving 

effect to such issuance or sale would have been permitted to be made under the covenant described 

under the "Limitation on Restricted Payments" section if made on the date of such issuance or 

sale; or 

(4) issuances or sales of Common Stock of a Restricted Subsidiary not described in clauses (1), (2) 

or (3) of this sentence, provided COLT or such Restricted Subsidiary applies the Net Cash 

Proceeds, if any, of any such sale in accordance with clauses (B) (1) (a) or (b) of the covenant 

described below under the caption "— Limitation on Asset Sales." 

Limitation on Issuances of Guarantees by Restricted Subsidiaries 

(A) COLT will not permit any Restricted Subsidiary, directly or indirectly, to Guarantee any 

Indebtedness of COLT which is equal in right of payment with or subordinated in right of payment to the 

notes ("Guaranteed Indebtedness"), unless: 

(1) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the 

indenture providing for a Guarantee (a "Subsidiary Guarantee") of payment of the notes by such 

Restricted Subsidiary, and 

(2) such Restricted Subsidiary waives and will not in any manner whatsoever claim or take the benefit 

or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against 

COLT or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary 

under its Subsidiary Guarantee; 

provided that this part A shall not be applicable to: 

(a) any Guarantee of any Restricted Subsidiary that existed at the time such person became 

a Restricted Subsidiary and was not Incurred in connection with, or in contemplation of, such 

person becoming a Restricted Subsidiary; or 

(b) any Guarantee of any Restricted Subsidiary of Indebtedness Incurred: 

(i) under a revolving credit or working capital facility pursuant to clause (1) of the second 

paragraph of part (A) under "— Limitation on Indebtedness;" or 

(ii) pursuant to clause (7) of the second paragraph of part (A) under "— Limitation on 

Indebtedness." 

(B) If any Guaranteed Indebtedness is: 

(1) equal in right of payment with the notes, then the Guarantee of such Guaranteed Indebtedness 

shall be equal in right of payment with, or subordinated to, the Subsidiary Guarantee; or 

(2) subordinated to the notes, 

then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at 

least to the extent that the Guaranteed Indebtedness is subordinated to the notes. 

(C) Notwithstanding the foregoing parts (A) or (B), any Subsidiary Guarantee by a Restricted 

Subsidiary shall provide by its terms that it shall be automatically and unconditionally released and discharged 

upon: 

40

(1) any sale, exchange or transfer, to any person not an Affiliate of COLT, of all of COLT's and each 

Restricted Subsidiary's Capital Stock in, or all or substantially all the assets of, such Restricted 

Subsidiary (which sale, exchange or transfer is not prohibited by the indenture); or 

(2) the release or discharge of the Guarantee which resulted in the creation of such Subsidiary 

Guarantee, except a discharge or release by or as a result of payment under such Guarantee. 

Limitation on Transactions with Stockholders and Affiliates 

(A) COLT will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, 

renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of 

property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of 5% or 

more of any class of Capital Stock of COLT or with any Affiliate of COLT or any Restricted Subsidiary, 

except upon fair and reasonable terms no less favourable in any material respect to COLT or such Restricted 

Subsidiary than could be obtained, at the time of such transaction or, if such transaction is pursuant to a 

written agreement, at the time of the execution of the agreement providing therefor, in a comparable arm'slength 

transaction with a person that is not such a holder or an Affiliate. 

(B) The foregoing limitation does not limit, and shall not apply to: 

(1) transactions: 

(a) approved by a majority of the disinterested members of the Board of Directors; or 

(b) for which COLT or a Restricted Subsidiary delivers to the trustee a written opinion of 

a nationally recognised investment banking firm stating that the transaction is fair to COLT 

or such Restricted Subsidiary from a financial point of view; 

(2) any transaction solely between COLT and any of its Restricted Subsidiaries or solely between 

Restricted Subsidiaries; 

(3) the payment of reasonable and customary regular fees to directors of COLT who are not employees 

of COLT; 

(4) any payments or other transactions pursuant to any tax-sharing agreement between COLT and any 

other person with which COLT files a consolidated tax return or with which COLT is part of 

a consolidated group for tax purposes; or 

(5) any Restricted Payments not prohibited by the covenant described under the caption 

"— Limitation on Restricted Payments." 

Notwithstanding the foregoing, any transaction covered by the first paragraph of this "Limitation on 

Transactions with Stockholders and Affiliates" section and not covered by clauses (2) through (5) of this 

part (B), the aggregate amount of which exceeds £1.0 million in value, must be approved or determined to be 

fair in the manner provided for in clause (B) (1) (a) or (b) above. 

Limitation on Liens 

(A) COLT will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to 

exist any Lien on any of its assets or properties of any character, or any shares of Capital Stock or 

Indebtedness of any Restricted Subsidiary, without making effective provision for all of the notes and all other 

amounts due under the indenture to be directly secured equally and ratably with (or, if the obligation or 

liability to be secured by such Lien is subordinated in right of payment to the notes, prior to) the obligation or 

liability secured by such Lien. 

41

(B) The foregoing limitation does not apply to: 

(1) Liens existing on the closing date; 

(2) Liens granted after the closing date on any assets or Capital Stock of COLT or its Restricted 

Subsidiaries created in favour of the holders; 

(3) Liens with respect to the assets of a Restricted Subsidiary granted by such Restricted Subsidiary to 

COLT or a Wholly Owned Restricted Subsidiary to secure Indebtedness owing to COLT or such 

other Restricted Subsidiary; 

(4) Liens securing Indebtedness which is Incurred to refinance secured Indebtedness which is 

permitted to be Incurred under clause (3) of the second paragraph of "— Limitation on 

Indebtedness"; provided that such Liens do not extend to or cover any property or assets of COLT 

or any Restricted Subsidiary other than the property or assets securing the Indebtedness being 

refinanced; 

(5) Liens securing Indebtedness Incurred under covenant described in clause (1) or (7) of the second 

paragraph of "— Limitation on Indebtedness;" or 

(6) Permitted Liens. 

Limitation on Sale-Leaseback Transactions 

(A) COLT will not, and will not permit any Restricted Subsidiary to, enter into any sale-leaseback 

transaction involving any of its assets or properties whether now owned or hereafter acquired, whereby COLT 

or a Restricted Subsidiary sells or transfers such assets or properties and then or thereafter leases such assets 

or properties or any part thereof or any other assets or properties which COLT or such Restricted Subsidiary, 

as the case may be, intends to use for substantially the same purpose or purposes as the assets or properties 

sold or transferred. 

(B) The foregoing restriction does not apply to any sale-leaseback transaction if; 

(1) the lease is for a period, including renewal rights, of not in excess of three years; 

(2) the lease secures or relates to industrial revenue or pollution control bonds; 

(3) the transaction is solely between COLT and any Wholly Owned Restricted Subsidiary or solely 

between Wholly Owned Restricted Subsidiaries; or 

(4) COLT or such Restricted Subsidiary, within twelve months after the sale or transfer of any assets 

or properties is completed, applies an amount not less than the net proceeds received from such sale 

in accordance with clauses (B) (1) (a) or (b) of the first paragraph of the covenant described below 

under the caption "— Limitation on Asset Sales." 

Limitation on Asset Sales 

(A) COLT will not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale, unless 

(1) the consideration received by COLT or such Restricted Subsidiary is at least equal to the fair 

market value of the assets sold or disposed of; and 

(2) at least 85% of the consideration received consists of cash or Temporary Cash Investments. 

(B) In the event and to the extent that the Net Cash Proceeds received by COLT or any of its Restricted 

Subsidiaries from one or more Asset Sales occurring on or after the closing date in any period of 

12 consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the date 

closest to the commencement of such 12-month period for which a consolidated balance sheet of COLT and 

its Subsidiaries have been filed pursuant to the covenant described under the "Commission Reports and 

Reports to Holders" section), then COLT shall or shall cause the relevant Restricted Subsidiary to 

42

(1) within twelve months after the date Net Cash Proceeds so received exceed 10% of Adjusted 

Consolidated Net Tangible Assets: 

(a) apply an amount equal to such excess Net Cash Proceeds to permanently repay 

unsubordinated Indebtedness of COLT or any Restricted Subsidiary providing a Subsidiary 

Guarantee pursuant to the covenant described above in "— Limitation on Issuances of 

Guarantees by Restricted Subsidiaries" or Indebtedness of any other Restricted Subsidiary, 

in each case owing to a person other than COLT or any of its Subsidiaries, or 

(b) invest an equal amount, or the amount not so applied pursuant to clause (a) (or enter into a 

definitive agreement committing to so invest within twelve months after the date of such 

agreement), in capital assets of a nature or type or that are used in a business (or in a 

company having capital assets of a nature or type, or engaged in a business) similar or related 

to the nature or type of the property and assets of, or the business of, COLT and its 

Restricted Subsidiaries existing on the date of such investment (as determined in good faith 

by the Board of Directors, whose determination shall be conclusive and evidenced by a Board 

Resolution); and 

(2) apply (no later than the end of the twelve-month period referred to in clause (1) of this sentence) 

such excess Net Cash Proceeds (to the extent not applied pursuant to clause (1) of this sentence) 

as provided in the covenant described in part (C) of this "Limitation on Asset Sales" section. 

The amount of such excess Net Cash Proceeds required to be applied (or to be committed to be applied) 

during such twelve-month period as set forth in clause (1) of the preceding sentence and not applied as so 

required by the end of such period shall constitute "Excess Proceeds." 

(C) If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not therefore 

subject to an Offer to Purchase pursuant to the covenant described in this "Limitation on Asset Sales" section 

totals at least £10.0 million, COLT must commence, not later than the fifteenth Business Day of such month, 

and consummate an Offer to Purchase from the holders on a pro rata basis an aggregate príncipal amount of 

notes on the relevant Payment Date equal to the Excess Proceeds on such date, at a purchase price equal to 

100% of the principal amount of the notes on the relevant Payment Date, plus, in each case, accrued interest 

(if any) to the Payment Date. 

Commission Reports and Reports to Holders 

COLT shall file with the Commission the annual, quarterly and other reports and other information 

required by Section 13(a) or 15(d) of the Exchange Act, regardless of whether such sections of the Exchange 

Act are applicable to COLT, and shall mail or cause to be mailed copies of such reports to holders and the 

trustee within 15 days after the date it would have been required to file such reports with the Commission had 

it been subject to such sections; provided, however, that the copies of such reports mailed to holders may omit 

exhibits, which COLT will supply to any holder at such holder's request. 

Repurchase of Notes upon a Change of Control 

COLT shall commence, within 30 days of the occurrence of a Change of Control, and consummate an 

Offer to Purchase for all notes then outstanding, at a purchase price equal to 101% of the principal amount 

thereof, plus accrued and unpaid interest (if any) to the Payment Date. 

COLT may not have sufficient funds available at the time of any Change of Control to make any debt 

payment (including repurchases of notes) (as well as any debt payment covenant that may be contained in 

other securities of COLT which might be outstanding at the time). The covenant described above, requiring 

COLT to make an offer to repurchase the notes, will, unless consents are obtained, require COLT to repay all 

indebtedness then outstanding which by its terms would prohibit such note repurchase, either prior to or 

concurrently with such note repurchase. 

43

Events of Default 

The following events will be defined as "Events of Default" in the indenture: 

(A) defaults in the payment of principal of (or premium, if any, on) any note when the same becomes 

due and payable at maturity, upon acceleration, redemption or otherwise; 

(B) defaults in the payment of interest on any note when the same becomes due and payable, and such 

default continues for a period of 30 days; 

(C) defaults in the performance or breach of the provisions of the indenture applicable to mergers, 

consolidations and transfers of all or substantially all of the assets of COLT or the failure to make 

or consummate an Offer to Purchase in accordance with the covenants described under the 

"Limitation on Asset Sales" or "Repurchase of Notes upon a Change of Control" sections; 

(D) defaults in the performance of, or breaches of, any covenant or agreement of COLT in the 

indenture or under the notes (other than a default specified in clause (A), (B) or (C) above) and 

such default or breach continues for a period of 30 consecutive days after written notice by the 

trustee or the holders of 25% or more in aggregate principal amount at maturity of the notes; 

(E) there occurs with respect to any issue or issues of Indebtedness of COLT or any Significant 

Subsidiary having an outstanding principal amount of £10.0 million or more in the aggregate for all 

such issues of all such persons, whether such Indebtedness now exists or shall hereafter be created, 

(1) an event of default that has caused the holder thereof to declare such Indebtedness to be due 

and payable prior to its Stated Maturity and such Indebtedness has not been discharged in 

full or such acceleration has not been rescinded or annulled within 30 days of such 

acceleration; and/or 

(2) the failure to make a principal payment at the final (but not any interim) fixed maturity and 

such defaulted payment shall not have been made, waived or extended within 30 days of such 

payment default; 

(F) any final judgment or order (not covered by insurance) for the payment of money in excess of 

£10.0 million in the aggregate for all such final judgments or orders against all such persons 

(treating any deductibles, self-insurance or retention as not so covered) shall be rendered against 

COLT or any Significant Subsidiary and shall not be paid or discharged, and there shall be any 

period of 30 consecutive days following entry of the final judgment or order that causes the 

aggregate amount for all such final judgments or orders outstanding and not paid or discharged 

against all such persons to exceed £10.0 million during which a stay of enforcement of such final 

judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or 

(G) certain events of bankruptcy, insolvency, reorganisation or administration affecting COLT or any 

Significant Subsidiary. 

If an Event of Default (other than an Event of Default specified in clause (G) above that occurs with 

respect to COLT) occurs and is continuing under the indenture, the trustee or the holders of at least 25% in 

aggregate principal amount at maturity of the notes then outstanding, by written notice to COLT (and to the 

trustee if such notice is given by the holders), may, and the trustee at the request of such holders shall, declare 

the principal amount of, premium, if any, and accrued interest on the notes to be immediately due and 

payable. 

Upon a declaration of acceleration, such principal amount of, premium, if any, and accrued interest shall 

be immediately due and payable. In the event of a declaration of acceleration because an Event of Default set 

forth in clause (E) above has occurred and is continuing, such declaration of acceleration shall be 

automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to 

clause (E) shall be remedied or cured by COLT or the relevant Significant Subsidiary or waived by the 

holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. 

44

If an Event of Default specified in clause (G) above occurs with respect to COLT, the principal amount 

of, premium, if any, and accrued interest on the notes then outstanding shall ipso facto become and be 

immediately due and payable without any declaration or other act on the part of the trustee or any Holder. 

The holders of at least a majority in principal amount at maturity of the outstanding notes, by written 

notice to COLT and to the trustee, may waive all past defaults and rescind and annul a declaration of 

acceleration and its consequences if: 

(A) all existing Events of Default, other than the nonpayment of the principal amount of, premium, if 

any, and interest on the notes that have become due solely by such declaration of acceleration, have 

been cured or waived; and 

(B) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. 

For information as to the waiver of defaults, see "— Modification and Waiver." 

The holders of at least a majority in aggregate principal amount of the outstanding notes may direct the 

time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any 

trust or power conferred on the trustee. However, the trustee may refuse to follow any direction that: 

(1) conflicts with law or the indenture; 

(2) may involve the trustee in personal liability, or 

(3) the trustee determines in good faith may be unduly prejudicial to the rights of holders of notes not 

joining in the giving of such direction. 

The trustee may take any other action it deems proper that is not inconsistent with any such direction 

received from holders of notes. 

A holder may not pursue any remedy with respect to the indenture or the notes unless: 

(A) the holder gives the trustee written notice of a continuing Event of Default; 

(B) the holders of at least 25% in aggregate principal amount at maturity of outstanding notes make a 

written request to the trustee to pursue the remedy; 

(C) such holder or holders offer the trustee an indemnity satisfactory to the trustee against any costs, 

liability or expense; 

(D) the trustee does not comply with the request within 60 days after receipt of request and the offer of 

an indemnity; and 

(E) during such 60-day period, the holders of a majority in aggregate principal amount at maturity of 

the outstanding notes do not give the trustee a direction that is inconsistent with the request. 

However, such limitations do not apply to the right of any holder of a note to receive payment of the 

principal of, premium, if any, or interest on, such note or to bring suit for the enforcement of any such 

payment, on or after the due date expressed in the notes, which right shall not be impaired or affected without 

the consent of the holder. 

The indenture will require certain officers of COLT to certify, on or before a date not more than 90 days 

after the end of each fiscal year, that a review has been conducted of the activities of COLT and its Restricted 

Subsidiaries and COLT's and its Restricted Subsidiaries' performance under the indenture and that COLT 

has fulfilled all obligations thereunder, or, if there has been a default in the fulfilment of any such obligation, 

specifying each such default and the nature and status thereof. COLT will also be obligated to notify the 

trustee of any default or defaults in the performance of any covenants or agreements under the indenture. 

45

Consolidation, Merger and Sale of Assets 

COLT shall not consolidate with, merge with or into, or sell, convey, transfer, lease or otherwise dispose 

of all or substantially all of its property and assets (as an entirety or substantially an entirety in one transaction 

or a series of related transactions) to, any person or permit any person to merge with or into COLT unless: 

(A) COLT shall be the continuing person, or the person (if other than COLT) formed by such 

consolidation or into which COLT is merged or that acquired or leased such property and assets of 

COLT shall be a corporation organised and validly existing under the laws of any EU Country or 

the United States of America, and shall expressly assume, by a supplemental indenture, executed 

and delivered to the trustee, all of the obligations of COLT on all of the notes and under the 

indenture; 

(B) immediately after giving effect to such transaction, no Default or Event of Default shall have 

occurred and be continuing; 

(C) immediately after giving effect to such transaction on a pro forma basis COLT, or any person 

becoming the successor obligor of the notes, as the case may be, would have a Consolidated 

Leverage Ratio less than or equal to the Consolidated Leverage Ratio of COLT immediately prior 

to such transaction; and 

(D) COLT delivers to the trustee an Officers' Certificate (attaching the arithmetic computations to 

demonstrate compliance with clause (iii)) and opinion of counsel, in each case stating that such 

consolidation, merger or transfer and such supplemental indenture comply with this provision, that 

all conditions precedent provided for herein relating to such transaction have been complied with 

and, in the event that the continuing person is organised under the laws of an EU Country other 

than England and Wales or Scotland, that the indenture and the notes constitute legal, valid and 

binding obligations of the continuing person, enforceable in accordance with their terms; provided, 

however, that clause (C) above does not apply if, in the good faith determination of the Board of 

Directors of COLT, whose determination shall be evidenced by a Board Resolution, the principal 

purpose of such transaction is to change the state of incorporation of COLT; and provided further 

that any such transaction shall not have as one of its purposes the evasion of the foregoing 

limitations. 

Defeasance 

Defeasance and Discharge. The indenture will provide that COLT will be deemed to have paid and will 

be discharged from any and all obligations in respect of the notes on the first day following six months after the 

deposit referred to below, and the provisions of the indenture will no longer be in effect with respect to the 

notes (except for, among other matters, certain obligations to register the transfer or exchange of the notes, to 

replace stolen, lost or mutilated notes, to maintain paying agencies and to hold monies for payment in trust) if, 

among other things, 

(A) COLT has deposited with the trustee, in trust, money and/or government obligations that through 

the payment of interest and principal in respect thereof in accordance with their terms will provide 

money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the 

notes on the Stated Maturity of such payments in accordance with the terms of the indenture and 

the notes; 

(B) COLT has delivered to the trustee 

(1) either. 

(a) an opinion of counsel to the effect that holders will not recognise income, gain or loss 

for U.S. federal income tax purposes as a result of COLT's exercise of its option 

described under this "Defeasance" section and will be subject to U.S. federal income 

tax on the same amount and in the same manner and at the same times as would have 

been the case if such deposit, defeasance and discharge had not occurred, which 

46

opinion of counsel must be based upon (and accompanied by a copy of) a ruling of the 

Internal Revenue Service to the same effect unless there has been a change in 

applicable federal income tax law after the closing date such that a ruling is no longer 

required; or 

(b) a ruling directed to the trustee received from the Internal Revenue Service to the same 

effect as the aforementioned opinion of counsel; 

(2) an opinion of counsel or a ruling from the U.K. Inland Revenue to the effect that holders will 

not recognise income, gain or loss for United Kingdom income tax or other tax purposes as 

a result of such deposit and defeasance and will be subject to United Kingdom income tax 

and other tax on the same amounts, in the same manner and at the same times as would have 

been the case had such deposit and defeasance not occurred (and for purposes of such 

opinion, such United Kingdom counsel shall assume that holders of the notes include 

Holders who are not resident in the United Kingdom); and 

(3) an opinion of counsel to the effect that the creation of the defeasance trust does not violate 

the Investment Company Act of 1940 and after the passage of six months and one day 

following the deposit, the trust fund will not be subject to the effect of Section 239 of the 

Insolvency Act 1986; 

(C) immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event 

that after the giving of notice or lapse of time or both would become an Event of Default shall have 

occurred and be continuing on the date of such deposit or during the period ending on the first day 

following six months after the date of such deposit, and such deposit shall not result in a breach or 

violation of, or constitute a default under, any other agreement or instrument to which COLT or 

any of its Subsidiaries is a party or by which COLT or any of its Subsidiaries is bound; and 

(D) if at such time the notes are listed on a national securities exchange, COLT has delivered to the 

trustee an opinion of counsel to the effect that the notes will not be delisted as a result of such 

deposit, defeasance and discharge. 

Defeasance of Certain Covenants and Certain Events of Default. The indenture further will provide that 

(A) the provisions of the indenture will no longer be in effect with respect to clause (C) under 

"— Consolidation, Merger and Sale of Assets;" and 

(B) all the covenants described herein under "— Covenants," clause (D) under "— Events of Default" 

with respect to such covenants and clause (C) under "— Consolidation, Merger and Sale of 

Assets," and clauses (E) and (F) under "— Events of Default" shall be deemed not to be Events 

of Default, upon, among other things, 

(1) the deposit with the trustee, in trust, of money and/or government obligations that through 

the payment of interest and principal in respect thereof in accordance with their terms will 

provide money in an amount sufficient to pay the principal of, premium, if any, and accrued 

interest on the notes on the Stated Maturity of such payments in accordance with the terms 

of the indenture and the notes, 

(2) the satisfaction of the provisions described in clauses (B) (3), (C) and (D) of the preceding 

paragraph; and 

(3) the delivery by COLT to the trustee of an opinion of counsel to the effect that, among other 

things, the holders will not recognise income, gain or loss for United States federal income 

tax purposes or United Kingdom income tax purposes as a result of such deposit and 

defeasance of certain covenants and Events of Default and will be subject to U.S. federal 

. income tax and United Kingdom income tax on the same amount and in the same manner 

and at the same times as would have been the case if such deposit and defeasance had not 

occurred. 

47

Defeasance and Certain Other Events of Default. In the event COLT exercises its option to omit 

compliance with certain covenants and provisions of the indenture with respect to the notes as described in the 

immediately preceding paragraph and the notes are declared due and payable because of the occurrence of an 

Event of Default that remains applicable, the amount of money and/or government obligations on deposit with 

the trustee will be sufficient to pay amounts due on the notes at the time of their Stated Maturity but may not 

be sufficient to pay amounts due on the notes at the time of the acceleration resulting from such Event of 

Default. However, COLT will remain liable for such payments. 

Modification and Waiver 

COLT and the trustee may make modifications and amendments of the indenture with the consent of the 

Holders of not less than a majority in aggregate principal amount at maturity of the outstanding notes; 

provided, however, that no such modification or amendment may, without the consent of each holder affected 

thereby, 

(A) change the Stated Maturity of the principal of, or any instalment of interest on, any note; 

(B) reduce the principal amount of, or premium, if any, or interest on, any note; 

(C) change the place or currency of payment of principal of, or premium, if any, or interest on, any note; 

(D) impair the right to institute suit for the enforcement of any payment on or after the Stated Maturity 

(or, in the case of a redemption, on or after the Redemption Date) of any note; 

(E) reduce the above-stated percentage of outstanding notes the consent of whose holders is necessary 

to modify or amend the indenture; 

(F) waive a default in the payment of principal of, premium, if any, or interest on the notes; 

(G) modify the provisions described under "Additional Amounts" in any manner adverse to the holders; 

or 

(H) reduce the percentage or aggregate principal amount at maturity of outstanding notes the consent 

of whose holders is necessary for waiver of compliance with certain provisions of the indenture or 

for waiver of certain defaults. 

Additional Amounts 

(A) All payments made by COLT under or with respect to the notes will be made free and clear of and 

without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment, 

or other governmental charge (including penalties, interest and other liabilities related thereto) (collectively, 

"Taxes") imposed or levied by or on behalf of any government or political subdivision or territory or 

possession of any government or authority or agency therein or thereof having the power to tax (each, a 

"Taxing Authority") within the United Kingdom or within any other jurisdiction in which COLT is organised 

or engaged in business for tax purposes, unless COLT is required to withhold or deduct Taxes by law or by the 

interpretation or administration thereof. 

If COLT is required to withhold or deduct any amount for or on account of Taxes imposed by a Taxing 

Authority within the United Kingdom or within any other jurisdiction in which COLT is organised or engaged 

in business for tax purposes, from any payment made under or with respect to the notes, COLT will pay such 

additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each 

holder (including Additional Amounts) after such withholding or deduction will not be less than the amount 

the holder and beneficial owner would have received if such Taxes had not been withheld or deducted; 

provided that no Additional Amounts will be payable with respect to a payment made to a holder (an 

"Excluded Holder") with respect to any Tax which would not have been imposed, payable or due: 

48

(1) but for the fact that the holder of a note in bearer form has presented the relevant note for payment 

in the United Kingdom when there is a paying agent in a major financial centre in Western Europe 

outside the United Kingdom. 

(2) but for the existence of any present or former connection between the holder (or the beneficial 

owner of, or person ultimately entitled to obtain an interest in, such notes) and the United 

Kingdom or other jurisdiction in which COLT is organised or engaged in business for tax purposes 

other than the holding of the notes; 

(3) but for the failure to comply upon written notice by COLT delivered 60 days prior to any payment 

date with a request by COLT to satisfy any certification, identification or other reporting 

requirements whether imposed by statute, treaty, regulation or administrative practice concerning 

nationality, residence or connection with the United Kingdom or other jurisdiction in which COLT 

is organised or engaged in business for tax purposes; provided that COLT shall pay any Additional 

Amounts not paid on any payment date as a result of the operation of this clause (3) upon the 

satisfaction of the relevant certification, identification or other reporting requirements within 

30 days after such payment date; provided that COLT shall not, as a result of such satisfaction 

occurring after the payment date, have already irrevocably paid to the relevant taxing authority the 

withheld or deducted amount in respect of which such Additional Amounts would have been 

payable; 

(4) if the presentation of definitive registered securities for payment had occurred within 30 days after 

the date such payment was due and payable or was provided for, whichever is later, 

(5) but for the fact that the notes are held in definitive registered form and such definitive registered 

securities have been issued at the request of the holder or any previous holder of such notes (unless 

all notes have been exchanged for definitive registered securities); or 

(6) if the beneficial owner of, or person ultimately entitled to obtain an interest in, such notes had been 

the holder and would not be entitled to the payment of Additional Amounts (excluding the impact 

of the book-entry procedures described under "— Description of Book-Entry System"). 

(B) In addition, Additional Amounts will not be payable: 

(1) with respect to any Tax which is payable otherwise than by withholding from payments of, or in 

respect of principal of, or any interest on, the notes; or 

(2) with respect to any definitive registered securities issued at the request of a holder (including 

following an Event of Default) if, at the time of the payment in question, definitive registered 

securities have not been issued in exchange for the entire principal amount at maturity of the notes. 

(C) COLT will also; 

(1) make such withholding or deduction; and 

(2) remit the full amount deducted or withheld to the relevant authority in accordance with applicable 

law. 

COLT will make reasonable efforts to obtain certified copies of tax receipts evidencing the payment of 

any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes. COLT will furnish to 

the holders, within 60 days after the date the payment of any Taxes so deducted or withheld is due pursuant to 

applicable law, either certified copies of tax receipts evidencing such payment by COLT or, if such receipts are 

not obtainable, other evidence of such payments by COLT. 

(D) At least 30 days prior to each date on which any payment under or with respect to the notes is due 

and payable, if COLT will be obligated to pay Additional Amounts with respect to such payment, COLT will 

deliver to the trustee an Officers' Certificate stating the fact that such Additional Amounts will be payable and 

the amounts so payable and will set forth such other information necessary to enable the trustee to pay such 

Additional Amounts to the holders on the payment date. 

49

Whenever this offering memorandum or the indenture mentions, in any context, the payment of amounts 

based upon the principal of premium, if any, interest or of any other amount payable under or with respect to 

any of the notes, this includes payment of any Additional Amounts that may be applicable. 

(E) In the event that COLT has become or would become obligated to pay on the next date on which 

any amount would be payable under or with respect to the notes any Additional Amounts as a result of certain 

changes affecting withholding tax laws, COLT may redeem all, but not less than all, the notes at any time at 

100% of their principal amount, together with accrued interest, if any, to the redemption date. See 

"— Optional Redemption." 

Governing Law and Consent to Jurisdiction and Service 

The notes and the indenture will be governed by the laws of the State of New York. COLT will appoint 

The Prentice-Hall Corporation System, Inc., 375 Hudson Street, New York, New York 10014-3660, as its 

agent for service of process in any legal proceeding with respect to the indenture or the notes and for actions 

brought under United States federal or state securities laws, in any federal or state court located in The City of 

New York. COLT will also agree to submit to the jurisdiction of those courts. 

Description of Book-Entry System; Payment; Transfers 

The Global Notes 

The book-entry depositary will hold one Rule 144A global note for the benefit of DTC and its participants 

and one Rule 144A global note as well as the Regulation S global note for the benefit of Euroclear and 

Cedelbank and their participants, as hereinafter described. 

Upon receipt of the global notes, the book-entry depositary will issue: 

(A) in the case of the Regulation S global note and the Rule 144A global note held through Euroclear 

and Cedelbank, a certificated depositary interest representing a 100% interest in the underlying 

Regulation S global note and in the underlying Rule 144A global note held through Euroclear and 

Cedelbank to The Bank of New York, London, as common depositary for Euroclear and 

Cedelbank, registered in the name of the common depositary's nominee, on behalf of Euroclear and 

Cedelbank; and 

(B) in the case of the Rule 144A global note held through DTC, a certificateless depositary interest 

representing a 100% interest in the underlying Rule 144A global note to DTC by recording such 

interest in the book-entry depositary's books and records in the name of Cede & Co., as nominee of 

DTC. 

Upon such issuances, Euroclear, Cedelbank and DTC, as the case may be, will credit, on their book-entry 

registration and transfer system, their participants' accounts with the respective book-entry interests owned by 

such participants in the certificated depositary interest or the certificateless depositary interests, as the case 

may be. On the closing date, the accounts to be credited will be designated by the placement agents. 

Ownership of book-entry interests in the certificateless depositary interest, representing interest in a 

portion of the Rule 144A global note held through DTC, will be shown on, and all transfers thereof will be 

effected only through, records maintained in book-entry form by DTC and its participants. Ownership of 

book-entry interests in the certificated depositary interests, representing interests in the Regulation S global 

note and a portion of the Rule 144A global note held through Euroclear and Cedelbank, will be shown on, and 

all transfers thereof will be effected only through, records maintained in book-entry form by Euroclear and 

Cedelbank (with respect to their participants' interests) and their participants (with respect to indirect 

participants' interests). 

Such beneficial interests in the global notes are referred to in this Offering Memorandum as "book-entry 

interests." Ownership of the book-entry interests in the global notes will be limited to participants in DTC, 

Euroclear and Cedelbank. Procedures with respect to the ownership of book-entry interests are set forth 

below. The laws of some countries and some states in the United States may require that certain purchasers of 

50

securities take physical delivery of these securities in definitive form. These limits and laws may impair a 

potential purchaser's ability to own, transfer or pledge the book-entry interests. 

All interests in each of the global notes will be subject to the procedures and requirements of DTC, or of 

Euroclear or Cedelbank, as the case may be. 

Under the terms of the deposit agreement, each of the global notes may be transferred only to a successor 

of the book-entry depositary. So long as the book-entry depositary, or its nominee, is the holder of the global 

notes, the book-entry depositary or its nominee will be considered the sole holder of the global notes for all 

purposes under the indenture. Except as set forth above under "— Form of Notes," participants or indirect 

participants will not be entitled to have notes or book-entry interests registered in their names, will not receive 

or be entitled to receive physical delivery of notes or book-entry interests in definitive bearer or registered form 

and will not be considered the owners or holders thereof under the indenture. Accordingly, each person owning 

a book-entry interest must rely on the procedures of the book-entry depositary and DTC, Euroclear or 

Cedelbank, as the case may be, and, if such person is not a participant in DTC, Euroclear or Cedelbank, on 

the procedures of the participant in DTC, or in Euroclear or Cedelbank, as the case may be, through which 

such person owns its interest, to exercise any rights and remedies of a noteholder under the indenture. See 

"— Action by Owners of Book-Entry Interests in the Global Notes" below. If any definitive notes are issued 

to participants or indirect participants, they will be issued in registered form, as described under "— Form of 

Notes." Unless and until book-entry interests are exchanged for definitive registered notes, the certificateless 

depositary interests owned by DTC or the certificated depositary interests held by the common depositary, as 

the case may be, may not be transferred except as a whole (i) in the case of Rule 144A global note held 

through DTC, by DTC to a nominee of DTC or by a nominee of DTC to DTC, or another nominee of DTC, 

or by DTC or any such nominee to a successor of DTC, and (ii) in the case of the Regulation S global note or 

a Rule 144A global note held through Euroclear or Cedelbank, by Euroclear or Cedelbank to the common 

depositary or by the common depositary to Euroclear or Cedelbank, or another nominee of Euroclear and 

Cedelbank or by Euroclear and Cedelbank or any such nominee to a successor of Euroclear or Cedelbank, as 

the case may be, or a nominee of such successor. 

Payments on the Global Notes 

COLT will make payments of any amounts owing in respect of the global notes through one or more 

paying agents appointed under the indenture (which initially will included the trustee) to the book-entry 

depositary, as the holder of the global notes. Payments to or to the order of the holder of the global notes will 

discharge COLT's payment obligations under the notes represented thereby. Upon receipt of any funds from 

the paying agent, the book-entry depositary will pay the amount so received in respect of a Rule 144A global 

note held through DTC in U.S. dollars to DTC, which will distribute this payment to its participants. Upon 

receipt of any funds from the paying agent, the book-entry depositary will pay the amount so received in 

respect of the Regulation S global note and the Rule 144A global note held through Euroclear and Cedelbank 

in euros to Euroclear or Cedelbank,' which will distribute such payment to their participants. All such 

payments to be made in euros will be made by transfer to a euro account (or any other account to which euros 

may be credited or transferred) specified by the payee with a bank, or by cheque drawn on a bank, in a city in 

which banks have access to the Trans-European Automated Real-Time Gross Settlement Express Transfer 

System. 

In addition to acting in its capacity as paying agent, the paying agent may act as a foreign exchange dealer 

for purposes of converting euros to U.S. dollars for distribution through DTC, as described in the paragraph 

above. When acting a foreign exchange dealer, the paying agent will derive profits from such activities in 

addition to the fees earned by it for its services as paying agent. Subject to applicable U.S. laws and 

regulations, the paying agent will make each such conversion on terms, conditions, and charges not 

inconsistent with the terms of the notes as the paying agent may from time to time establish in accordance 

with its regular foreign exchange practices. 

COLT will make payments of all such amounts without deduction or withholding for or on account of any 

present or future Taxes of whatever nature except as may be required by law, and if any law or regulation of 

51

the United Kingdom or of any other jurisdiction in which COLT is engaged in business for tax purposes 

requires such a deduction or withholding then, to the extent described under "— Additional Amounts" above, 

COLT has agreed to pay, pursuant to the indenture and the deposit agreement, as applicable, such Additional 

Amounts as may be necessary in order that the net amounts any holder of any global notes or owner of 

book-entry interests receives after such deduction or withholding will equal the net amounts that such holder 

or owner would have otherwise received in respect of such global note or book-entry interests, as the case may 

be, absent such withholding or deduction. DTC, Euroclear or Cedelbank, upon receipt of any such payment, 

will immediately credit participants' accounts with payments in amounts proportionate to their respective 

ownership of book-entry interests, as shown on its records. COLT expects that payments by participants to 

owners of book-entry interests held through such participants will be governed by standing customer 

instructions and customary practices, as is now the case with the securities held for the account of customers 

in bearer form or registered in "street name" and will be responsibility of such participants. 

Holders of beneficial interests in the Rule 144A global note held through DTC may elect to receive 

payment of principal and interest in euros by causing DTC through the relevant DTC participant to notify the 

paying agent by the time specified below of: 

(i) such holder's election to receive all or portion of such payment in euros; and 

(ii) wire transfer instructions to a euro account. 

Such election in respect of any payment must be made by the holder at the time and in the manner 

required by the DTC procedures applicable from time to time and shall, in accordance with such procedures, 

be irrevocable and shall relate to such payment. 

The paying agent must receive DTC notifications of such election, wire transfer instructions and the 

amount payable in euros prior to 5:00 p.m. New York time on the fifth business day following the relevant 

record date in the case of interest, and prior to 5:00 p.m. New York time on the tenth day prior to the payment 

date for the payment of principal. The paying agent will make any payments in euros by wire transfer of sameday 

funds to the appropriate account designated by DTC. For this purpose, a "business day" shall mean any 

day other than a Saturday or Sunday or a day on which banking institutions in New York City are authorized 

or required by law or executive order to close. 

Because the provisions of the indenture treat the holder of any global note thereunder as the owner of the 

notes represented thereby for the purpose of receiving amounts owing in respect of these notes, COLT has no 

responsibility or liability for the payment of amounts owing to DTC, Euroclear or Cedelbank or to owners of 

book-entry interests in respect of their respective interests in the global note. Payments by participants in 

DTC, Euroclear and Cedelbank to owners of book-entry interests held through such participants will be their 

responsibility, as is now the case with securities held for the accounts of customers registered in "street name." 

None of COLT, the trustee, the book-entry depositary or any of their agents will have any responsibility 

or liability for any aspect of the records relating to or payments made on account of book-entry interests, or for 

maintaining, supervising or reviewing any records relating to such book-entry interests. COLT may reclaim 

any money held by the paying agent for the payment of principal, premium, if any, or interest that remains 

unclaimed for two years after payment to the noteholders is required. 

Redemption 

In the event that COLT redeems any global note (or any portion thereof), the book-entry depositary will 

redeem, from the amount it receives in respect of the redemption of such global note, an equal amount of 

book-entry interests in such global note. The redemption price payable in connection with the redemption of 

such book-entry interests will be equal to the amount received by the book-entry depositary in connection with 

the redemption of such global note (or the applicable portion of it). COLT understands that under existing 

practices of DTC, Euroclear and Cedelbank, if fewer than all of the notes are to be redeemed at any time, 

DTC, Euroclear or Cedelbank, as the case my be, will credit its participants' accounts on a proportionate basis 

(with adjustments to prevent fractions) or by lot or on such other basis as DTC, Euroclear or Cedelbank 

52

deems fair and appropriate; provided that no beneficial interests of less than €1,000 principal amount may be 

redeemed in part. 

Transfers 

DTC will record all transfers of book-entry interests in the Rule 144A global note held through DTC in 

accordance with the book-entry system it maintains pursuant to customary procedures established by DTC 

and its participants. Euroclear and Cedelbank will record all transfers of book-entry interests in the Regulation 

S global note and the Rule 144A global note held through Euroclear and Cedelbank in accordance with the 

book-entry system maintained by them, pursuant to customary procedures established by Euroclear and 

Cedelbank and their participants. Investors may, under certain circumstances, obtain definitive registered 

securities as set forth under "— Form of Notes" above. While any of the global notes is outstanding, holders 

of definitive registered securities may exchange these definitive registered securities for book-entry interests in 

the Rule 144A global notes or the Regulation S global note, as the case may be, by surrendering their 

definitive registered securities to the book-entry depositary. The amount of the book-entry interests will be 

increased or decreased to reflect such transfers or exchanges. The book-entry depositary will request the 

trustee to make the appropriate adjustments to the Rule 144A global notes or the Regulation S global note, as 

the case may be, to reflect any such transfers or exchanges. 

Owners of beneficial interests in any global note will not be entitled to have notes registered in their 

names, and will not receive or be entitled to receive physical delivery of definitive certificates representing 

individual notes, except as set forth in this offering memorandum or in the indenture. 

COLT has appointed The Bank of New York as registrar for the notes and as paying agent in respect of 

the notes represented by any of the global notes. COLT will ensure that at all times that payments are required 

on the notes, there will always be a registrar and a paying agent to perform the functions assigned to any of 

them in the indenture, including a paying agent in a major financial centre in Western Europe outside the 

United Kingdom. 

Action by Owners of Book-Entry Interests in the Global Notes 

As soon as practicable after receipt by the book-entry depositary of notice of any solicitation of consents 

or requests for a waiver or other action by the holders of notes, of any Offer to Purchase, the book-entry 

depositary will mail or otherwise send to DTC, Euroclear and Cedelbank a notice containing: 

(A) such information as is contained in such notice received by the book-entry depositary, 

(B) a statement that at the close of business on a specified record date DTC, Euroclear and Cedelbank 

will be entitled to instruct the book-entry depositary as to the consent, waiver or other action, if any, 

pertaining to such notes and 

(C) a statement as to the manner in which such instructions may be given. 

In addition, the book-entry depositary will forward to DTC, Euroclear and Cedelbank, or, based upon 

instructions received from DTC, Euroclear and Cedelbank, as applicable, to owners of book-entry interests all 

materials pertaining to any such solicitation, request, offer or other action. 

Upon the written request of DTC, Euroclear or Cedelbank, as applicable, the book-entry depositary will 

take such action regarding the requested consent, waiver, offer or other action in respect of such notes in 

accordance with any instructions set forth in such request. DTC or the common depositary, as the case maybe, 

may grant proxies or otherwise authorize DTC participants or Euroclear or Cedelbank (or persons owning 

such book-entry interests through DTC, Euroclear or Cedelbank) to provide such instructions to the bookentry 

depositary so that it may exercise any rights of a holder or take any other actions which a holder is 

entitled to take under the indenture. The book-entry depositary will not exercise any discretion in the granting 

of consents or waivers or the taking of any other action relating to the indenture. 

53

Reports 

The book-entry depositary has agreed to immediately send to DTC, Euroclear and Cedelbank a copy of 

any notices, reports and other communications received relating to COLT, the notes or the book-entry 

interests. 

Resignation of Book-Entry Depositary 

The book-entry depositary may at any time resign as book-entry depositary by written notice to COLT, 

the trustee, DTC, Euroclear and Cedelbank, such resignation to become effective upon the appointment of a 

successor book-entry depositary, in which case the resigning book-entry depositary will deliver the global note 

to that successor. If no such successor has been so appointed by COLT within 120 days, the book-entry 

depositary may request COLT to issue definitive registered securities as described above. 

Charges of Book-Entry Depositary 

COLT has agreed to indemnify the book-entry depositary, against certain liabilities incurred by it and pay 

the charges of the book-entry depositary. 

Amendment and Termination of the Deposit Agreement 

COLT and the book-entry depositary may amend the depositary agreement without notice to or consent 

of DTC or any owner of beneficial interests: 

(A) to cure any ambiguity, defect or inconsistency, provided that such amendment or supplement does 

not adversely affect the rights of DTC or any holder of beneficial interests; 

(B) to evidence the succession of another person to COLT (when a similar amendment with respect to 

the indenture is being executed) and the assumption by any such successor of the covenants; 

(C) to evidence or provide for a successor book-entry depositary: 

(D) to make any amendment, change or supplement that does not adversely affect DTC or any owner of 

beneficial interests; 

(E) to add to COLT's or the book-entry depositary's covenants; or 

(F) to comply with the United States federal securities laws. 

No amendment that adversely affects DTC may be made to the deposit agreement without the consent of 

DTC. The deposit agreement will terminate upon the issuance of definitive registered securities in exchange 

for beneficial interests constituting the entire principal amount at maturity of the notes. The deposit agreement 

may be terminated upon the resignation of the book-entry depositary if no successor has been appointed within 

120 days. See "— Resignation of Book-Entry Depositary." 

Information Concerning DTC, Euroclear, Cedelbank and DBC 

We understand as follows with respect to DTC, Euroclear and Cedelbank: 

DTC. DTC is 

(A) a limited purpose trust company organised under the New York Banking Law; 

(B) a "banking organisation" under New York Banking Law; 

(C) a member of the Federal Reserve System; 

(D) a "clearing corporation" within the meaning of the New York Uniform Commercial Code; and 

(E) a "clearing agency" registered under Section 17A of the Securities Exchange Act of 1934, as 

amended. 

54

DTC was created to hold securities for its participants and to facilitate the clearance and settlement of 

transactions among its participants. It does this through electronic book-entry changes in the accounts of 

securities participants, eliminating the need for physical movement of securities certificates. DTC participants 

include securities brokers and dealers, banks, trust companies, clearing corporations and certain other 

organisations. DTC is owned by a number of its direct participants and by the New York Stock Exchange, 

Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Others, 

such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship 

with a direct participant also have access to the DTC system and are known as indirect participants. 

Because DTC can only act on behalf of participants, who in turn act on behalf of indirect participants and 

certain banks, the ability of an owner of a beneficial interest to pledge such interest to persons or entities that 

do not participate in the DTC system or otherwise take actions in respect of such interest, may be limited by 

the lack of a definitive certificate for that interest The laws of some states require that certain persons take 

physical delivery of securities in definitive form. Consequently, the ability to transfer beneficial interests to 

such persons may be limited. In addition, owners of beneficial interests through the DTC system will receive 

distributions attributable to the Rule 144A global note only through DTC participants. 

Euroclear and Cedelbank. Like DTC, Euroclear and Cedelbank hold securities for participating 

organisations. They also facilitate the clearance and settlement of securities transactions between their 

respective participants through electronic book-entry changes in accounts of such participants. Euroclear and 

Cedelbank provide various services to their participants, including the safekeeping, administration, clearance, 

settlement, lending and borrowing of internationally traded securities. Euroclear and Cedelbank interface with 

domestic securities markets. Euroclear and Cedelbank participants are financial institutions such as 

underwriters, securities brokers and dealers, banks, trust companies and certain other organisations. Indirect 

access to Euroclear or Cedelbank is also available to others such as banks, brokers, dealers and trust 

companies that clear through or maintain a custodian relationship with a Euroclear or Cedelbank participant, 

either directly or indirectly. 

No Personal Liability of Incorporators, Stockholders, Officers, Directors or Employees 

The indenture provides that no recourse for the payment of the principal of, premium, if any, or interest 

on any of the notes or for any claim based thereon or otherwise in respect thereof, and no recourse under or 

upon any obligation, covenant or agreement of COLT in the indenture, or in any of the notes or because of the 

creation of any Indebtedness represented thereby, shall be had against any incorporator, stockholder, officer, 

director, employee or controlling person of COLT or of any successor person thereof. Each holder, by 

accepting the notes, waives and releases all such liability. 

Concerning the Trustee 

The indenture provides that, except during the continuance of an Event of Default. Default, the trustee 

will not be liable, except for the performance of such duties as are specifically set forth in such indenture. If an 

Event of Default has occurred and is continuing, the trustee will use the same degree of care and skill in its 

exercise as a prudent person would exercise under the circumstances in the conduct of such person's own 

affairs. 

The indenture and provisions of the Trust Indenture Act incorporated by reference therein contain 

limitations on the rights of the trustee, should it become our creditor, to obtain payment of claims in certain 

cases or to realise on certain property received by it in respect of any such claims, as security or otherwise. The 

trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting 

interest, it must eliminate such conflict or resign. 

Certain Definitions 

Set forth below is a summary of certain of the defined terms used in the covenants and other provisions of 

the indenture. Reference is made to the indenture for the definition of any other capitalised term used herein 

for which no definition is provided. 

55

"Acquired Indebtedness" means Indebtedness of a person existing at the time that person becomes a 

Restricted Subsidiary or assumed in connection with an Asset Acquisition by COLT or a Restricted 

Subsidiary and not Incurred in connection with, or in anticipation of, such person becoming a Restricted 

Subsidiary or such Asset Acquisition. 

"Adjusted Consolidated Net Income" means, for any period, the aggregate net income (or loss) of 

COLT and its Restricted Subsidiaries for such period determined in conformity with GAAP; provided that the 

following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): 

(1) the net income of any person (other than net income attributable to a Restricted Subsidiary) in 

which any person (other than COLT or any of its Restricted Subsidiaries) has a joint interest and 

the net income of any Unrestricted Subsidiary, except to the extent of the amount of dividends or 

other distributions actually paid to COLT or any of its Restricted Subsidiaries by such other person 

or such Unrestricted Subsidiary during such period; 

(2) solely for the purposes of calculating the amount of Restricted Payments that may be made 

pursuant to the covenant described in clause (c) of part (A) under the caption "— Limitation on 

Restricted Payments" (and in such case, except to the extent includable pursuant to clause (1) 

above), the net income (or loss) of any person accrued prior to the date it becomes a Restricted 

Subsidiary or is merged into or consolidated with COLT or any of its Restricted Subsidiaries or all 

or substantially all of the property and assets of such person are acquired by COLT or any of its 

Restricted Subsidiaries; 

(3) except in the case of any restriction or encumbrance permitted under the covenant described in 

part (B), clause (2) under the caption "— Limitation on Dividends and Other Payment 

Restrictions Affecting Restricted Subsidiaries", the net income of any Restricted Subsidiary to the 

extent that the declaration or payment of dividends or similar distributions by such Restricted 

Subsidiary of such net income is not at the time permitted by the operation of the terms of its 

charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental 

regulation applicable to such Restricted Subsidiary; 

(4) any gains or losses (on an after-tax basis) attributable to Asset Sales; 

(5) except for purposes of calculating the amount of Restricted Payments that may be made pursuant 

to part (A), clause (4) (c) under the caption "— Limitation on Restricted Payments", any amount 

paid or accrued as dividends on Preferred Stock of COLT or any Restricted Subsidiary owned by 

persons other than COLT and any of its Restricted Subsidiaries; and 

(6) all extraordinary gains and extraordinary losses. 

"Adjusted Consolidated Net Tangible Assets" means the total amount of assets of COLT and its 

Restricted Subsidiaries (less applicable depreciation, amortization and other valuation reserves), except to the 

extent resulting from write-ups of capital assets (excluding write-ups in connection with accounting for 

acquisitions in conformity with GAAP), after deducting therefrom (i) all current liabilities of COLT and its 

Restricted Substitutes (excluding intercompany items) and (ii) all goodwill, trade names, trademarks, 

patents, unamortized debt discount and expense and other like intangibles, all as set forth on the most recent 

quarterly or annual consolidated balance sheet of COLT and its Restricted Subsidiaries, prepared in 

conformity with GAAP and filed with the Commission pursuant to the covenant described under the caption 

"— Commission Reports and Reports to Holders." 

"Affiliate" means, as applied to any person. any other person directly or indirectly controlling, controlled 

by, or under direct or indirect common control with, such person. For purposes of this definition, "control" 

(including, with correlative meanings, the terms "controlling," "controlled by" and "under common control 

with"), as applied to any person, means the possession, directly or indirectly, of the power to direct or cause 

the direction of the management and policies of such person, whether through the ownership of voting 

securities, by contract or otherwise. 

56

"Asset Acquisition" means (i) an investment by COLT or any of its Restricted Subsidiaries in any other 

person pursuant to which such person shall become a Restricted Subsidiary or shall be merged into or 

consolidated with COLT or any of its Restricted Subsidiaries; provided that such person's primary business is 

related, ancillary or complementary to, the businesses of COLT and its Restricted Subsidiaries on the date of 

such investment or (ii) an acquisition by COLT or any of its Restricted Subsidiaries of the property and assets 

of any person other than COLT or any of its Restricted Subsidiaries that constitute substantially all of a 

division or line of business of such Person; provided that the property and assets acquired are related, ancillary 

or complementary to the businesses of COLT and its Restricted Subsidiaries on the date of such acquisition. 

"Asset Disposition" means the sale or other disposition by COLT or any of its Restricted Subsidiaries 

(other than to COLT or another Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of 

any Restricted Subsidiary or (ii) all or substantially all of the assets that constitute a division or line of 

business of COLT or any of its. Restricted Subsidiaries. 

"Asset Sale" means any sale, transfer or other disposition (including by way of merger, consolidation or 

sale-leaseback transaction) in one transaction or a series of related transactions by COLT or any of its 

Restricted Subsidiaries to any person other than COLT or any of its Restricted Subsidiaries of: 

(1) all or any of the Capital Stock of any Restricted Subsidiary; 

(2) all or substantially all of the property and assets of an operating unit or business of COLT or any of 

its Restricted Subsidiaries; or 

(3) any other property and assets (other than the Capital Stock or other Investment in an Unrestricted 

Subsidiary) of COLT or any of its Restricted Subsidiaries outside the ordinary course of business 

of COLT or such Restricted Subsidiary and, 

in each case, that is not governed by the provisions of the indenture applicable to mergers, consolidations and 

sales of all or substantially all of the assets of COLT; provided that "Asset Sale" shall not include: 

(1) sales or other dispositions of inventory, receivables and other current assets; 

(2) sales or other dispositions of assets with a fair market value (as certified in an Officers' Certificate) 

not in excess of £1 million; or 

(3) sales or other dispositions of assets to the extent the consideration received has a fair market value 

at least equal to the fair market value of the assets sold or disposed of, provided that the 

consideration received would satisfy the covenant described in part (A), clause (b) of 

"— Limitation on Asset Sales." 

"Average Life" means, at any date of determination with respect to any debt security, the quotient 

obtained by dividing: 

(1) the sum of the products of;- 

by 

(A) the number of years from such date of determination to the dates of each successive 

scheduled principal payment of such debt security; and 

(B) the amount of such principal payment 

(2) the sum of all such principal payments. 

"Capitalised Lease" means, as applied to any person, any lease of any property (whether real, personal or 

mixed) of which the discounted present value of the rental obligations of such person as lessee, in conformity 

with GAAP, is required to be capitalised on the balance sheet of such person. 

"Capitalised Lease Obligations" means the discounted present value of the rental obligations under 

a Capitalised Lease. 

"Change of Control" means such time as 

57

(1) a "person" or "group" (within the meaning of Sections 13(d) and 14(d) (2) of the Exchange Act) 

becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of 

more than 35% of the total voting power of the Voting Stock of COLT on a fully diluted basis and 

such ownership is greater than the amount of voting power of the Voting Stock of COLT, on a fully 

diluted basis, held by the Existing Stockholders and their Affiliates on such date; or 

(2) individuals who on the closing date constitute the Board of Directors (together with any new 

directors whose election by the Board of Directors or whose nomination by the Board of Directors 

for election by COLT's stockholders was approved by a vote of at least two-thirds of the members 

of the Board of Directors then in office who either were members of the Board of Directors on the 

closing date or whose election or nomination for election was previously so approved) cease for any 

reason to constitute a majority of the members of the Board of Directors then in office. 

"Common Stock" means, with respect to any person, any and all shares, interests, participations or other 

equivalents (however designated, whether voting or non-voting) of such person's equity, other than Preferred 

Stock of such person, whether now outstanding or issued after the closing date, including without limitation, 

all series and classes of such common stock. 

"Consolidated EBITDA" means, for any period, the sum of the amounts for such period of: 

(1) Adjusted Consolidated Net Income; 

(2) Consolidated Interest Expense to the extent such amount was deducted in calculating Adjusted 

Consolidated Net Income; 

(3) income taxes, to the extent such amount was deducted in calculating Adjusted Consolidated Net 

Income (other than income taxes (either positive or negative) attributable to extraordinary and 

non-recurring gains or losses or sales of assets); 

(4) depreciation expense, to the extent such amount was deducted in calculating Adjusted 

Consolidated Net Income; 

(5) amortisation expense, to the extent such amount was deducted in calculating Adjusted 

Consolidated Net Income; and 

(6) all other non-cash items reducing Adjusted Consolidated Net Income (other than items that will 

require cash payments and for which an accrual or reserve is, or is required by GAAP to be, made), 

less all non-cash items increasing Adjusted Consolidated Net Income, all as determined on 

a consolidated basis for COLT and its Restricted Subsidiaries in conformity with GAAP; 

provided that, if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated 

EBITDA shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount 

equal to: 

(A) the amount of the Adjusted Consolidated Net Income attributable to such Restricted 

Subsidiary; multiplied by 

(B) the quotient of: 

(i) the number of shares of outstanding Common Stock of such Restricted Subsidiary not 

owned on the last day of such period by COLT or any of its Restricted Subsidiaries 

divided by; 

(ii) the total number of shares of outstanding Common Stock of such Restricted Subsidiary 

on the last day of such period. 

"Consolidated Interest Expense" means, for any period, the aggregate amount of interest in respect of 

indebtedness (including, without limitation, amortisation of original issue discount on any indebtedness and 

the interest portion of any deferred payment obligation, calculated in accordance with the effective interest 

method of accounting; all commissions, discounts and other fees and charges owed with respect to letters of 

58

credit and bankers' acceptance financing; the net costs associated with interest rate agreements; and 

Indebtedness that is Guaranteed or secured by COLT or any of its Restricted Subsidiaries) and all but the 

principal component of rentals in respect of Capitalised Lease Obligations paid, accrued or scheduled to be 

paid or to be accrued by COLT and its Restricted Subsidiaries during such period; excluding, however: 

(1) any amount of such interest of any Restricted Subsidiary if the net income of such Restricted 

Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income pursuant to 

clause (3) of the definition thereof (but only in the same proportion as the net income of such 

Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income 

pursuant to clause (3) of the definition thereof) and 

(2) any premiums, fees and expenses (and any amortisation thereof) payable in connection with the 

Offerings, all as determined on a consolidated basis (without taking into account Unrestricted 

Subsidiaries) in conformity with GAAP. 

"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of 

(1) the aggregate amount of Indebtedness of COLT and its Restricted Subsidiaries on a consolidated 

basis outstanding on such Transaction Date to 

(2) the aggregate amount of Consolidated EBITDA for the then most recent four fiscal quarters for 

which financial statements of COLT have been filed with the Commission pursuant to the 

"Commission Reports and Reports to Holders" covenant described below (such four fiscal quarter 

period being the "Four Quarter Period"); provided that; 

(A) pro forma effect shall be given to 

(i) any Indebtedness Incurred from the beginning of the Four Quarter Period through the 

Transaction Date (the "Reference Period"), to the extent such Indebtedness is 

outstanding on the Transaction Date; and 

(ii) any Indebtedness that was outstanding during such Reference Period but that is not 

outstanding or is to be repaid on the Transaction Date; 

(B) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions (including giving 

pro forma effect to the application of proceeds of any Asset Disposition) that occur during 

such Reference Period, as if they had occurred and such proceeds had been applied on the 

first day of such Reference Period; and 

(C) pro forma effect shall be given to asset dispositions and asset acquisitions (including giving 

pro forma effect to the application of proceeds of any asset disposition) that have been made 

by any Person that has become a Restricted Subsidiary or has been merged with or into 

COLT or any Restricted Subsidiary during such Reference Period and that would have 

constituted Asset Dispositions or Asset Acquisitions had such transactions occurred when 

such Person was a Restricted Subsidiary as if such asset dispositions or asset acquisitions 

were Asset Dispositions or Asset Acquisitions that occurred on the first day of such 

Reference Period; provided that to the extent that clause (B) or (C) of this sentence requires 

that pro forma effect be given to an Asset Acquisition or Asset Disposition, such pro forma 

calculation shall be based upon the four full fiscal quarters immediately preceding the 

Transaction Date of the Person, or division or line of business of the Person, that is acquired 

or disposed for which financial information is available; and 

(D) the aggregate amount of Indebtedness outstanding as of the end of the Reference Period will 

be deemed to include the total amount of funds outstanding and/or available on the 

Transaction Date under any revolving credit or similar facilities of COLT or its Restricted 

Subsidiaries. 

"Consolidated Net Worth" means, at any date of determination, stockholders' equity as set forth on the 

most recently available quarterly or annual consolidated balance sheet of COLT and its Restricted 

59

Subsidiaries (which shall be as of a date not more than 90 days prior to the date of such computation and 

which shall not take into account Unrestricted Subsidiaries), less any amounts attributable to Redeemable 

Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and 

the principal amount of any promissory notes receivable from the sale of the Capital Stock of COLT or any of 

its Restricted Subsidiaries, each item to be determined in conformity with GAAP (excluding the effects of 

foreign currency exchange adjustments). 

"Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar 

agreement or arrangement. 

"Default" means any event that is, or after notice or passage of time or both would be, an Event of 

Default. 

"EU Country" means any of the following countries: Austria; Belgium; Denmark; France; Finland; 

Germany, Greece; Ireland; Italy; Luxembourg; The Netherlands; Portugal; Spain; Sweden; and the United 

Kingdom. 

"Existing Stockholders" means FMR Corp., Fidelity Investors Limited Partnership, Fidelity 

International Limited and FIL Bank and Trust Company Limited. 

"Fair market value" means the price that would be paid in an arm's-length transaction between an 

informed and willing seller under no compulsion to sell and an informed and willing buyer under no 

compulsion to buy, as determined in good faith by the Board of Directors, whose determination shall be 

conclusive if evidenced by a Board Resolution. 

"GAAP" means generally accepted accounting principles in the United Kingdom as in effect as of the 

closing date. 

"Guarantee" means any obligation, contingent or otherwise, of any person directly or indirectly 

guaranteeing any Indebtedness of any other person and, without limiting the generality of the foregoing, any 

obligation, direct or indirect, contingent or otherwise, of such person (i) to purchase or pay (or advance or 

supply funds for the purchase or payment of) such Indebtedness of such other person (whether arising by 

virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or 

services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for 

purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect 

such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not 

include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used 

as a verb has a corresponding meaning. 

"holder" means, 

(1) in respect of a global note, the person then in possession of the global note, which on the closing 

date will be the book-entry depositary; and 

(2) in respect of any definitive registered security, the registered holder of any note. 

"Incur" means, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise 

become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, 

such Indebtedness, including an Incurrence of Indebtedness by reason of a person becoming a Restricted 

Subsidiary; provided that neither the accrual of interest nor the accretion of original issue discount shall be 

considered an Incurrence of Indebtedness. 

"Indebtedness" means, with respect to any person at any date of determination (without duplication), 

(1) all indebtedness of such person for borrowed money; 

(2) all obligations of such person evidenced by bonds, debentures, notes or other similar instruments; 

(3) all obligations of such person in respect of letters of credit or other similar instruments (including 

reimbursement obligations with respect thereto); 

60

(4) all obligations of such person to pay the deferred and unpaid purchase price of property or services, 

which purchase price is due more than six months after the date of placing such property in service 

or taking delivery and title thereto or the completion of such services, except Trade Payables; 

(5) all Capitalised Lease Obligations of such person; 

(6) all Indebtedness of other persons secured by a Lien on any asset of such person, whether or not 

such Indebtedness is assumed by such person; provided that the amount of such Indebtedness shall 

be the lesser of: 

(A) the fair market value of such asset at such date of determination; and 

(B) the amount of such Indebtedness; 

(7) all Indebtedness of other persons Guaranteed by such person to the extent such Indebtedness is 

Guaranteed by such person; and 

(8) to the extent not otherwise included in this definition, obligations under Currency Agreements and 

Interest Rate Agreements. 

The amount of Indebtedness of any person at any date shall be the outstanding balance at such date (or 

in the case of a revolving credit or other similar facility, the total amount of funds outstanding and/or available 

on the date of determination) of all unconditional obligations as described above and, with respect to 

contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the 

obligation, provided; 

(A) that the amount outstanding at any time of any Indebtedness issued with original issue 

discount is the face amount of such Indebtedness less the remaining unamortized portion of 

the original issue discount of such Indebtedness at such time as determined in conformity 

with GAAP, and 

(B) that Indebtedness shall not include any liability for federal, state, local or other taxes. 

"Interest Rate Agreement" means any interest rate protection agreement, interest rate future agreement, 

interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar 

agreement, interest rate hedge agreement, option or future contract or other similar agreement or 

arrangement. 

"Investment" in any person means any direct or indirect advance, loan or other extension of credit 

(including, without limitation. by way of Guarantee or similar arrangement; but excluding advances to 

customers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts 

receivable on the balance sheet of COLT its Restricted Subsidiaries) or capital contribution to (by means of 

any transfer of cash or other property to others or any payment for property or services for the account or use 

of others), or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar 

instruments issued by, such person and shall include: 

(1) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary; and 

(2) the fair market value of the Capital Stock (or any other Investment), held by COLT or any of its 

Restricted Subsidiaries, of (or in) any person that has ceased to be a Restricted Subsidiary, 

including, without limitation, by reason of any transaction permitted by the covenant described in 

clause (3) under the caption "— Limitation on the Issuance and Sale of Capital Stock of 

Restricted Subsidiaries." 

For purposes of the definition of "Unrestricted Subsidiary" and the covenant described under the caption 

"— Limitation on Restricted Payments," 

(1) "Investment" shall include the fair market value of the assets (net of liabilities (other than 

liabilities to COLT or its Subsidiaries)) of any Restricted Subsidiary of COLT at the time that 

such Restricted Subsidiary is designated an Unrestricted Subsidiary; 

61

(2) the fair market value of the assets (net of liabilities (other than liabilities to COLT or its 

Subsidiaries)) of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is 

designated a Restricted Subsidiary shall be considered a reduction in outstanding Investments; and 

(3) any property transferred to or from any person shall be valued at its fair market value at the time of 

such transfer. 

"Lien" means any mortgage, pledge. security interest, encumbrance, lien or charge of any kind 

(including, without limitation, any conditional sale or other title retention agreement or lease in the nature 

thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any 

security interest). 

"Net Cash Proceeds" means, 

(1) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash 

equivalents, including payments in respect of deferred payment obligations (to the extent 

corresponding to the principal, but not interest, component thereof) when received in the form of 

cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to 

COLT or any Restricted Subsidiary) and proceeds from the conversion of other property received 

when converted to cash or cash equivalents, net of: 

(A) brokerage commissions and other fees and expenses (including fees and expenses of counsel 

and investment bankers) related to such Asset Sale; 

(B) provisions for all taxes (whether or not such taxes will actually be paid or are payable) as 

a result of such Asset Sale without regard to the consolidated results of operations of COLT 

and its Restricted Subsidiaries, taken as a whole; 

(C) payments made to repay Indebtedness or any other obligation outstanding at the time of such 

Asset Sale that either: 

(i) is secured by a Lien on the property or assets sold; or 

(ii) is required to be paid as a result of such sale; and 

(D) appropriate amounts to be provided by COLT or any of its Restricted Subsidiary as a reserve 

against any liabilities associated with such Asset Sale, including, without limitation, pension 

and other post-employment benefit liabilities, liabilities related to environmental matters and 

liabilities under any indemnification obligations associated with such Asset Sale, all as 

determined in conformity with GAAP; and 

(2) with respect to any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the 

form of cash or cash equivalents, including payments in respect of deferred payment obligations (to 

the extent corresponding to the principal, but not interest, component thereof) when received in the 

form of cash or cash equivalents (except to the extent such obligations are financed or sold with 

recourse to COLT or any of its Restricted Subsidiary) and proceeds from the conversion of other 

property received when converted to cash or cash equivalents, net of attorney's fees, accountants' 

fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant 

and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as 

a result thereof. 

"Offer to Purchase" means an offer by COLT to purchase notes from the holders of record of notes 

commenced by mailing a notice to the trustee and each holder (and, in the event the Rule 144A global note is 

not held by the book-entry depositary, by advertisement) stating: 

(1) the covenant pursuant to which the offer is being made and that all notes validly tendered will be 

accepted for payment on a pro rata basis; 

(2) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days 

nor later than 60 days from the date such notice is mailed) (the "Payment Date"); 

62

(3) that any note not tendered will continue to accrue interest (or original issue discount) pursuant to 

its terms; 

(4) that, unless COLT defaults in the payment of the purchase price, any note accepted for payment 

pursuant to the Offer to Purchase shall cease to accrue interest (or original issue discount) on and 

after the Payment Date; 

(5) that holders electing to have a note purchased pursuant to the Offer to Purchase will be required to 

surrender the note, together with the form entitled "Option of the Holder to Elect Purchase" on the 

reverse side of the note completed, to the paying agent at the address specified in the notice prior to 

the close of business on the Business Day immediately preceding the Payment Date; 

(6) that holders will be entitled to withdraw their election if the paying agent receives, not later than 

the close of business on the third Business Day immediately preceding the Payment Date, 

a facsimile transmission or letter setting forth the name of such holder, the principal amount at 

maturity of notes delivered for purchase and a statement that such holder is withdrawing his 

election to have such notes purchased; and 

(7) that holders whose notes are being purchased only in part will be issued new notes equal in principal 

amount to the unpurchased portion of the notes surrendered; provided that each note purchased 

and each new note issued shall be in a principal amount at maturity of € 1,000 or integral multiples 

thereof. 

On the Payment Date, we shall 

(1) accept for payment on a pro rata basis notes or portions thereof tendered pursuant to an Offer 

to Purchase; 

(2) deposit with the paying agent money sufficient to pay the purchase price of all notes or portions 

thereof so accepted; and 

(3) deliver, or cause to be delivered, to the trustee all notes or portions thereof so accepted together 

with an Officers' Certificate specifying the notes or portions thereof accepted for payment by us. 

The paying agent is required to promptly mail to the holders of notes so accepted payment in an amount 

equal to the purchase price, and the trustee is required to promptly authenticate and mail to such Holders 

a new note equal in principal amount at maturity to any unpurchased portion of the note surrendered; provided 

that each note purchased and each new note issued shall be in a principal amount at maturity of € 1,000 or 

integral multiples thereof. COLT will publicly announce the results of an Offer to Purchase as soon as 

practicable after the Payment Date. The trustee shall act as the paying agent for an Offer to Purchase. COLT 

will comply with Rule 14c-1 under the Exchange Act and any other securities laws and regulations thereunder 

to the extent such laws and regulation's are applicable, in the event that we are required to repurchase notes 

pursuant to an Offer to Purchase. 

"Permitted Investment" means: 

(1) an Investment in COLT or a Restricted Subsidiary or a person which will, upon the making of such 

Investment, become a Restricted Subsidiary or be merged or consolidated with or into or transfer or 

convey all or substantially all its assets to, COLT or a Restricted Subsidiary; provided that such 

person's primary business is related, ancillary or complementary to the businesses of COLT and its 

Restricted Subsidiaries on the date of such Investment; 

(2) a Temporary Cash Investment; 

(3) commission, payroll, travel and similar advances to cover matters that are expected at the time of 

such advances ultimately to be treated as expenses in accordance with GAAP; and 

(4) stock, obligations or securities received in satisfaction of judgments. 

63

"Permitted Liens" means: 

(1) Liens for taxes, assessments, governmental charges or claims that are being contested in good faith 

by appropriate legal proceeding promptly instituted and diligently conducted and for which a 

reserve or other appropriate provisions, if any, as shall be required in conformity with GAAP shall 

have been made; 

(2) statutory and common law Liens of landlords and carriers, warehousemen, mechanics, suppliers, 

materialmen, repairmen or other similar Liens arising in the ordinary course of business and with 

respect to amounts not yet delinquent or being contested in good faith by appropriate legal 

proceedings promptly instituted and diligently conducted and for which a reserve or other 

appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; 

(3) Liens incurred or deposits made in the ordinary course of business in connection with workers' 

compensation, unemployment insurance and other types of social security; 

(4) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or 

regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, 

performance and return-of-money bonds and other obligations of a similar nature incurred in the 

ordinary course of business (exclusive of obligations for the payment of borrowed money); 

(5) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, 

title defects or other irregularities that do not materially interfere with the ordinary course of 

business of COLT or any of its Restricted Subsidiaries; 

(6) Liens (including extensions and renewals thereof) upon real or personal property acquired after the 

Closing Date; provided that: 

(A) such Lien is created solely for the purpose of securing Indebtedness Incurred, in accordance 

with the covenant described under the caption "— Limitation on Indebtedness," 

(i) to finance the cost (including the cost of design, development, construction, 

acquisition, installation or integration) of the item of property or assets subject thereto 

and such Lien is created prior to, at the time of or within six months after the later of 

the acquisition, the completion of construction or the commencement of full operation 

of such property; or 

(ii) to refinance any Indebtedness previously so secured; 

(B) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such 

cost; and 

(C) any such Lien shall not extend to or cover any property or assets other than such item of 

property or assets and any improvements on such item and any proceeds thereof; 

(7) leases or subleases granted to others that do not materially interfere with the ordinary course of 

business of COLT and its Restricted Subsidiaries, taken as a whole; 

(8) Liens encumbering property or assets under construction arising from progress or partial payments 

by a customer of COLT or its Restricted Subsidiaries relating to such property or assets; 

(9) any interest or title of a lessor in the property subject to any Capitalised Lease or operating lease; 

(10) Liens arising from filing Uniform Commercial Code financing statements regarding leases; 

(11) Liens on property of, or on shares of Capital Stock or Indebtedness of, any person existing at the 

time such person becomes, or becomes a part of, any Restricted Subsidiary; provided that such 

Liens do not extend to or cover any property or assets of COLT or any Restricted Subsidiary other 

than" the property or assets acquired and any proceeds thereof; 

(12) Liens in favour of COLT or any Restricted Subsidiary, 

64

(13) Liens arising from the rendering of a final judgment or order against COLT or any Restricted 

Subsidiary of COLT that does not give rise to an Event of Default; 

(14) Liens securing reimbursement obligations with respect to letters of credit that encumber 

documents and other property relating to such letters of credit and the products and proceeds 

thereof; 

(15) Liens in favour of customs and revenue authorities arising as a matter of law to secure payment of 

customs duties in connection with the importation of goods; 

(16) Liens encumbering customary initial deposits and margin deposits, and other Liens that are either 

within the general parameters customary in the industry and incurred in the ordinary course of 

business, in each case securing Indebtedness under Interest Rate Agreements and Currency 

Agreements and forward contracts, options, future contracts, futures options or similar agreements 

or arrangements designed solely to protect COLT or any of its Restricted Subsidiaries from 

fluctuations in interest rates, currencies or the price of commodities; 

(17) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the 

sale of goods entered into by COLT or any of its Restricted Subsidiaries in the ordinary course of 

business in accordance with the past practices of COLT and its Restricted Subsidiaries prior to the 

closing date; and 

(18) Liens on or sales of receivables, including related intangible assets and proceeds thereof. 

"Preferred Stock" means, with respect to any person any and all shares, interests, participations or other 

equivalents (however designated, whether voting or non-voting) of such person's preferred or preference 

equity, whether now outstanding or issued after the closing date, including, without limitation, all series and 

classes of such preferred stock or preference stock. 

"Public Equity Offering" means an underwritten primary public offering of Common Stock of COLT 

either pursuant to an effective registration statement under the Securities Act or within the United Kingdom. 

"Redeemable Stock" means any class or series of Capital Stock of any person that by its terms or 

otherwise is 

(1) required to be redeemed prior to the Stated Maturity of the notes, 

(2) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to 

the Stated Maturity of the notes or 

(3) convertible into or exchangeable for Capital Stock referred to in clause (1) or (2) above or 

Indebtedness having a scheduled maturity prior to the Stated Maturity of the notes; 

provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof giving 

holders thereof the right to require such person to repurchase or redeem such Capital Stock upon the 

occurrence of an "asset sale" or "change of control" occurring prior to the Stated Maturity of the notes shall 

not constitute Redeemable Stock if the "asset sale" or "change of control" provisions applicable to such 

Capital Stock are no more favourable in any material respect to the holders of such Capital Stock than the 

provisions of the covenants described below under the captions "— Limitation on Asset Sales" and 

"— Repurchase of Notes Upon a Change of Control" and such Capital Stock specifically provides that such 

Person will not repurchase or redeem any such stock pursuant to such provision prior to COLT's repurchase of 

such notes as are required to be repurchased pursuant to the covenants described under the captions 

"— Limitation on Asset Sales" and "— Repurchase of Notes Upon a Change of Control." 

"Restricted Subsidiary" means any Subsidiary of COLT other than an Unrestricted Subsidiary. 

"Significant Subsidiary" means, at any date of determination, any Restricted Subsidiary that, together 

with its Subsidiaries, 

65

(1) for the most recent fiscal year of COLT, accounted for more than 10% of the consolidated revenues 

of COLT and its Restricted Subsidiaries; or 

(2) as of the end of such fiscal year, was the owner of more than 10% of the consolidated assets of 

COLT and its Restricted Subsidiaries, all as set forth on the most recently available consolidated 

financial statements of COLT for such fiscal year. 

"Specified Date" means any redemption date, any Payment Date for an Offer to Purchase pursuant to the 

covenants described under the captions "— Limitation on Asset Sales" or "— Repurchase of Notes upon 

a Change of Control" or any date on which the notes are due and payable after an Event of Default. 

"Stated Maturity" means: 

(1) with respect to any debt security, the date specified in such debt security as the fixed date on which 

the final instalment of principal of such debt security is due and payable; and 

(2) with respect to any scheduled instalment of principal of or interest on any debt security, the date 

specified in such debt security as the fixed date on which such instalment is due and payable. 

"Strategic Subordinated Indebtedness" means Indebtedness of COLT Incurred to finance the acquisition 

of a person engaged in the telecommunications business that by its terms, or by the terms of any agreement or 

instrument pursuant to which such Indebtedness is Incurred is: 

(1) expressly made subordinate in right of payment to the notes; and 

(2) provides that no payment of principal, premium or interest on, or any other payment with respect 

to, such Indebtedness may be made prior to the payment in full of all of COLT's obligations under 

the notes; provided that such Indebtedness may provide for and be repaid at any time from the 

proceeds of the sale of Capital Stock (other than Redeemable Stock) of COLT after the 

Incurrence of such Indebtedness. 

"Subsidiary" means, with respect to any person, any corporation, association or other business entity of 

which more than 50% of the voting power of the outstanding Voting Stock is owned, directly or indirectly, by 

such person and one or more other Subsidiaries of such person. 

"Telecommunications Business" means the development, ownership or operation of one or more 

telephone, telecommunications or information systems or the provision of telephony, telecommunications or 

information services and any related, ancillary or complementary business. 

"Temporary Cash Investment" is defined to mean: 

(1) any evidence of Indebtedness with a maturity of three years or less issued or directly and fully 

guaranteed or insured by the United Kingdom or the United States of America or any agency or 

instrumentality thereof (provided that the full faith and credit of the United Kingdom or the 

United States of America, as the case may be, is pledged in support thereof or such Indebtedness 

constitutes a general obligation of such country or is issued or fully guaranteed or insured by the 

Lords Commissioners of Her Majesty's Treasury) and comparable investments in France and 

Germany; 

(2) deposits, certificates of deposit or acceptances with a maturity of three years or less of any 

institution which is authorised under the Banking Act 1987 (United Kingdom) or is a European 

authorised institution authorised under the Banking Coordination (Second Council Directive) 

Regulations 1992 or financial institution that is a member of the Federal Reserve System, in each 

case having combined capital and surplus and undivided profits (or any similar capital concept) of 

not less than £50.0 million (or if non-sterling denominated, the equivalent thereof) and comparable 

investments in France and Germany; 

(3) commercial paper with a maturity of three years or less issued by a corporation (other than an 

Affiliate of COLT) organised under the laws of the United Kingdom or any part thereof or the 

66

United States or any state thereof or the District of Columbia and rated at least "A-l" by 

Standard & Poor's Ratings Service or "P-l" by Moody's Investors Service; and 

(4) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations 

issued or unconditionally guaranteed by the government or the Lords Commissioners of Her 

Majesty's Treasury of the United Kingdom or the United States Government (in the case of any 

United States Government Obligations), in each case maturing within one year from the date of 

acquisition. 

For the avoidance of doubt, an Investment in an investment fund which invests substantially all of its 

assets in Investments described above in this definition or which is itself rated at least "AAA" or "A-l" by 

Standard & Poor's Ratings Service or "Aaa" or "P-l" by Moody's Investors Service constitutes a Temporary 

Cash Investment. 

"Trade Payables" means, with respect to any person, any accounts payable or any other indebtedness or 

monetary obligation to trade creditors created, assumed or Guaranteed by such person or any of its 

Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services. 

"Transaction Date" means, with respect to the Incurrence of any Indebtedness by COLT or any of its 

Restricted Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to any Restricted 

Payment, the date such Restricted Payment is to be made. 

"Unrestricted Subsidiary" means: 

(1) any Subsidiary of COLT that at the time of determination shall be designated an Unrestricted 

Subsidiary by the Board of Directors in the manner provided below, and 

(2) any Subsidiary of an Unrestricted Subsidiary. 

The Board of Directors may designate any Restricted Subsidiary (including any newly acquired or newly 

formed Subsidiary of COLT) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock 

of, or owns or holds any Lien on any property of, COLT or any Restricted Subsidiary, provided that either. 

(1) the Subsidiary to be so designated has total assets of $1,000 or less; or 

(2) if such Subsidiary has assets greater than $1,000, that such designation would be permitted 

under the covenant described under the caption "Limitation on Restricted Payments." 

The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; 

provided that: 

(1) no Default or Event of Default shall have occurred and be continuing at the time of or after giving 

effect to such designation; and 

(2) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately after such 

designation would, if Incurred at such time, have been permitted to be Incurred for all purposes of 

the indenture. Any such designation by the Board of Directors shall be evidenced to the trustee by 

promptly filing with the trustee a copy of the board resolution giving effect to such designation and 

an officers' certificate certifying that such designation complied with the foregoing provisions. 

"Voting Stock" means with respect to any person, Capital Stock of any class or kind ordinarily having the 

power to vote for the election of directors, managers or other voting members of the governing body of such 

person. 

"Wholly Owned" means, with respect to any Subsidiary of any person, the ownership of all of the 

outstanding Capital Stock of such Subsidiary (other than any director's qualifying shares or Investments by 

foreign nationals mandated by applicable law) by such person or one or more Wholly Owned Subsidiaries of 

such person. 

67

General 

TAXATION 

The following is a summary of the material United Kingdom tax consequences and material United 

States federal income tax consequences to U.S. Holders (as defined below) of acquiring, owning, and 

disposing of the notes. For purposes of this summary, references to the notes includes book-entry interests in 

the DTC global note. 

For purposes of this summary, a U.S. Holder is 

(a) a citizen or resident of the United States, including an alien individual who is a lawful permanent 

resident of the United States or meets the substantial presence residency test under the U.S. federal 

income tax laws, 

(b) a corporation, partnership or other entity treated as a corporation or partnership for U.S. federal 

income tax purposes, that is created or organized under the laws of the United States, any state 

thereof or the District of Columbia, 

(c) an estate the income of which is subject to U.S. federal income taxation regardless of its source, 

(d) a trust if a court within the United States is able to exercise primary supervision over the 

administration of the trust and one or more United States persons have the authority to control all 

substantial decisions of the trust, or electing trusts in existence on August 20, 1996 to the extent 

provided in Treasury Regulations, or 

(e) any person otherwise subject to U.S. federal income tax on a net income basis in respect of the 

notes, 

in each case except as overridden by the provisions of an applicable tax treaty. The summary applies only 

to U.S. Holders who will hold notes as capital assets. The summary is based 

(a) upon current U.K. law and U.S. law and the practices of the United Kingdom Inland Revenue and 

the U.S. Internal Revenue Service ("IRS") and is subject to subsequent changes to those laws and 

practices, which changes could be made on a retroactive basis, 

(b) upon the United Kingdom-United States Tax Convention relating to income taxes as currently in 

effect (the "Treaty"), 

(c) upon the United Kingdom-United States Tax Convention relating to estate and gift taxes as 

currently in effect (the "Estate Tax Treaty"), and 

(d) in part upon representations of the depositary and assumes that each obligation provided for in or 

otherwise contemplated by the deposit agreement and any related agreement will be performed in 

accordance with their respective terms. 

In addition, the discussion of U.S. federal income tax consequences set forth below does not address all of 

the tax consequences to certain categories of U.S. Holders who may be subject to special U.S. federal income 

tax rules (such as U.S. expatriates, individual retirement accounts and other tax-deferred accounts, banks, 

insurance companies, regulated investment companies, tax-exempt organizations, financial institutions, 

persons who acquire notes in connection with their employment or other performance of services, persons 

subject to the alternative minimum tax, securities brokers-dealers or U.S. Holders who hold notes as part of a 

straddle, hedge or conversion transaction, and U.S. Holders who directly or indirectly or through certain 

related persons own 10% or more by vote or value of COLT's stock, including through ownership of 

outstanding ADSs) and U.S. Holders whose functional currency for U.S. federal tax purposes is not the 

U.S. dollar. In addition, the following summary of certain United Kingdom tax considerations does not 

address the tax consequences to a U.S. Holder 

(a) that is resident (or, in the case of an individual, ordinarily resident) in the United Kingdom for 

U.K. tax purposes, 

68

(b) whose holding of notes is effectively connected with a permanent establishment in the United 

Kingdom through which such U.S. Holder carries on business activities or, in the case of an 

individual who performs independent personal services, with a fixed base situated therein, or 

(c) that is a corporation which, alone or together with one or more associated corporations, controls, 

directly or indirectly, 10% or more of COLT. 

The following summary does not address the tax consequences to a U.S. Holder of notes under state, 

local or other (e.g., non-U.S. federal, non-U.K.) tax laws, and the summary should not be read as extending 

by implication to matters not specifically addressed herein. Prospective purchasers should consult their own 

tax advisors as to the consequences under such laws of the acquisition, ownership and disposition of notes. 

U.K. Tax Considerations 

Interest and Payments 

For U.K. tax purposes, provided the notes are in bearer form and continue to be quoted on the London 

Stock Exchange, or some other stock exchange recognised by the U.K. Inland Revenue, payments of interest 

may be made without withholding or deduction for or on account of U.K. income tax where: 

(i) the payment of interest is made by a paying agent outside the U.K.; or 

(ii) the payment is made by or through a person who is in the U.K. but: 

(a) the person who is the beneficial owner of the notes and is beneficially entitled to the interest is 

not resident in the U.K. or, 

(b) the notes are held in a "recognised clearing system" (Euroclear, DTC and Cedelbank have 

each been designated as a "recognised clearing system" for this purpose). 

In the case of each of the exceptions in (a) and (b) above, the U.K. Inland Revenue has introduced 

regulations requiring the person in the U.K. who is entrusted with the payment of the interest to receive a 

declaration in the prescribed form that the relevant requirements have been satisfied in order for the relevant 

exceptions to be available. 

A collecting agent in the U.K. who, in the course of a trade or profession, 

(i) acts as a custodian of the notes and receives interest on them or has them paid at its direction or 

with its consent to another person; or 

(ii) collects or secures payment of interest on the notes for another person (other than merely arranging 

to clear a cheque); 

must normally deduct U.K. income tax at the lower rate (currently 20%), unless: 

(a) the notes are held in a recognised clearing system and the collecting agent pays or accounts 

for the interest directly or indirectly to the recognised clearing system; or 

(b) the person beneficially entitled to the notes and who is entitled to the interest is not resident 

in the U.K. 

In the case of exceptions in (a) and (b) above, the U.K. Inland Revenue has introduced regulations 

requiring the receipt of a declaration in the prescribed form that the relevant requirements have been satisfied 

for the relevant exception to be available. There are also exceptions for certain types of holders (e.g., pension 

funds, charities and non-resident trusts). 

In other cases interest will be paid after deduction of U.K. income tax at the lower rate (currently 20%). 

A U.S. holder which is entitled to the benefit of the U.S./U.K. Double Tax Treaty will normally be eligible to 

recover in full any U.K. tax withheld from payments of interest to which such holder is beneficially entitled by 

making a claim under the U.S./U.K. Double Tax Treaty on the appropriate form. Alternatively, a claim may 

be made by a U.S. holder in advance of a payment of interest. If the claim is accepted by the U.K. Inland 

69

Revenue, it will authorise subsequent payments to that U.S. holder to be made without deduction of 

U.K. withholding tax. Claims for repayment must be made within five years from the 31st of January next 

following the U.K. year of assessment to which the interest relates and must be accompanied by the original 

statement provided by COLT when the interest payment was made showing the amount of U.K. income tax 

deducted. Because a claim is not considered until the U.K. Inland Revenue receives the appropriate form from 

the IRS, forms should be sent to the IRS, in the case of an advance claim, well before the relevant interest 

payment date or, in the case of a claim for repayment of the tax, well before the end of the appropriate 

limitation period. 

Holders in other jurisdictions also may be entitled to a refund of all or part of any tax withheld or to make 

a claim for interest on the notes to be paid without, or subject to a reduced rate of, deduction or withholding 

under the provisions of an applicable double tax treaty. Refund of all or part of any tax withheld may also be 

available, depending on the individual circumstances, to a holder of notes who is resident in the U.K. or who 

carries on a trade, profession or vocation in the U.K. through a branch or agency to which the notes are 

attributable, or who is a Commonwealth citizen or otherwise entitled to a U.K. personal allowance. 

Interest on the notes received without deduction or withholding on account of U.K. tax will not generally 

be chargeable to U.K. tax in the hands of a holder who is not resident for tax purposes in the U.K., unless the 

holder has a "U.K. representative" within the meaning of Section 126 and Schedule 23 of the Finance Act of 

1995 in relation to the interest Certain categories of agent (such as some brokers and investment managers) 

do not count as "U.K. representatives" for these purposes. If the holder is chargeable to tax under the above 

rules, exemption from or reduction in the tax payable on the interest might be available in appropriate 

circumstances under the provisions of an appropriate double tax treaty. 

A U.K. resident company or a non-U.K. resident company which carries on a trade, profession or 

vocation in the U.K. through a branch or agency to which the notes are attributable will be subject to 

corporation tax in respect of income (and not in any circumstances as capital gains) on an accruals or a markto-market 

basis on all profits and losses of whatever nature (calculated to include currency exchange rate 

differences calculated by ascertaining the difference between the sterling equivalent at the date of acquisition 

of the consideration given for the notes and the sterling equivalent at the date of disposal of the proceeds 

received on disposal of those notes, and where the notes are held at the end of the accounting period of the 

holder in which the notes were acquired, taking into account also the sterling equivalent on the final day of 

that accounting period of the consideration given for the notes, and where the notes are held at the end of 

subsequent accounting periods, taking into account the sterling equivalent on the final day of each such 

accounting period of the consideration given for the notes) arising from disposals or redemptions of the notes, 

or arising from holding the notes. 

Capital Gains 

The disposal (including redemption) of a note by a holder who is not a U.K. resident, does not carry on a 

trade, profession or vocation in the U.K. through a branch or agency to which the note is attributable, and does 

not have a "U.K. representative" within the meaning of Section 126 and Schedule 23 to, the Finance Act 1995 

will not generally be chargeable to U.K. tax in respect of capital gains. 

The disposal (including redemption) of a note by a holder (other than a company) which is resident or 

ordinarily resident for tax purposes in the U.K. or who carries on a trade, profession or vocation in the U.K. 

through a branch or agency to which the note is attributable may give rise to a chargeable gain or allowable 

loss for the purposes of U.K. tax on capital gains (calculated to include currency exchange rate differences 

calculated by ascertaining the difference between the sterling equivalent at the date of acquisition of the 

consideration given for the notes and the sterling equivalent at the date of disposal of the proceeds received on 

disposal of the notes), depending on individual circumstances and subject to any taper relief which may be 

due. 

For U.K. companies and non-U.K. companies who carry on a trade, profession or vocation in the U.K. 

through a branch or agency to which the notes are attributable, the notes will constitute "qualifying corporate 

bonds" for the purposes of U.K. tax on capital gains and no chargeable gain will arise on the disposal or 

70

edemption of the notes; these companies will be subject to corporation tax on an accrual or mark-to-market 

basis on all profits and losses (including foreign exchange differences) arising from disposals or redemption of 

the notes, as described in the final paragraph of "— Interest and Payments" above. 

Stamp Duty and Stamp Duty Reserve Tax 

No stamp duty or stamp duty reserve tax is payable on the issue or transfer of a note or on its redemption. 

Inheritance Tax 

An individual who is domiciled in the United States for the purposes of the Estate Tax Treaty and who is 

not a national of the United Kingdom for the purposes of the Estate Tax Treaty will generally not be subject to 

United Kingdom inheritance tax in respect of the notes on the individual's death or on a gift of the notes 

during the individual's lifetime provided that any applicable U.S. federal gift or estate tax liability is paid, 

unless the notes are part of the business property of a permanent establishment of an enterprise of the 

individual in the United Kingdom or pertain to a fixed base in the United Kingdom of the individual used for 

the performance of independent personal services. Where the notes have been placed in trust by a settlor who, 

at time of settlement, was a U.S. Holder, the notes will generally not be subject to United Kingdom 

inheritance tax unless the settlor, at the time of the settlement, was not domiciled in the United States and 

was a United Kingdom national. In the exceptional case where the notes are subject both to United Kingdom 

inheritance tax and to U.S. federal gift or estate tax, the Estate Tax Treaty generally provides for the tax paid 

in the United Kingdom to be credited against federal tax paid in the United States or for federal tax paid in 

the United States to be credited against tax payable in the United Kingdom based on priority rules set out in 

the Estate Tax Treaty. 

The summary set out above, which is intended as a general guide only and which is based on current 

legislation and Inland Revenue practice, summarises advice received by the Board of Directors as to the 

taxation position of holders of the notes as an investment. Any person who is in doubt as to his tax position 

should consult an appropriate professional adviser without delay. In addition, the comments set out above may 

not be applicable to certain categories of investor, for example those such as dealers in securities, insurance 

companies or other financial institutions who may be subject to special tax rules. 

Proposed EU Withholding Directive 

In May 1998, the European Commission presented to the Council of Ministers of the European Union a 

proposal to oblige Member States to adopt either a "withholding tax system" or an "information reporting 

system" in relation to interest, discounts and premiums. It is unclear whether this proposal will be adopted, or 

if it is adopted, whether it will be adopted in its current form. The "withholding tax system" would require a 

paying agent established in a Member State to withhold tax at a minimum rate of 20 per cent from any 

interest, discount or premium paid to an individual resident in another Member State unless such individual 

presents a certificate obtained from the tax authorities of the Member State in which he is a resident 

confirming that those authorities are aware of the payment due to that individual. The "information reporting 

system" would require a Member State to supply, to the other Member States, details of any payment of 

interest, discount or premium made by paying agents within its jurisdiction to an individual resident in another 

Member State. For those purposes the term "paying agent" is widely defined and includes an agent who 

collects interest, discounts or premiums on behalf of an individual beneficially entitled thereto. 

U.S. Federal Income Taxation of Notes 

The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as 

amended, the applicable Treasury Regulations promulgated and proposed thereunder, including Treasury 

Regulations relating to original issue discount, judicial authority and current administrative rulings and 

practices, all of which are subject to change (possibly with retroactive effect) or different interpretations. 

Interest. A U.S. Holder using the accrual method of accounting for U.S. federal income tax purposes 

generally will be required to include interest in income as such interest accrues on the notes, while a cash basis 

71

U.S. Holder generally will be required to include interest in income when interest payments are received. 

Purchase price for a note that is allocable to prior accrued interest may be treated as offsetting a portion of the 

interest income from the next scheduled stated interest payment on the note. 

It is expected that the notes initially will be sold to investors at an amount equal to their stated principal 

amount (or at a de minimis discount from the notes' stated principal amount). As a result, based upon 

applicable Treasury Regulations, the notes are not treated as having been issued with original issue discount. 

If a U.S. Holder receives a payment of additional interest by failure of COLT to effect an exchange offer 

for the notes or to register the notes for resale by the holder or a payment of an Additional Amount, and if the 

chances of another payment like that occurring in the future remain remote, then the U.S. Holder should 

report the payment as ordinary interest income in the manner discussed above, and the tax consequences of 

the notes should otherwise remain unchanged. In contrast, if one or more such payments cease to remain 

remote in the future, then the notes would be treated as having been retired and reissued with original issue 

discount, and the tax consequences of the note would then be governed by the special original issue discount 

rules for contingent payment debt instruments. COLT urges U.S. Holders to consult their tax advisors on the 

consequences to them if these events, which it believes to be remote, should occur. 

The amount required to be included in income by a cash basis U.S. Holder upon receipt of a payment on 

a note will be the U.S. dollar value of the amount paid (determined on the basis of the "spot rate" on the date 

such payment is received) regardless of whether the payment is in fact converted into U.S. dollars. No 

exchange gain or loss will be recognized with respect to the receipt of such payment, but as explained below 

there may be exchange gain or loss when the payment is converted into U.S. dollars. 

Except in the case of a Spot Rate Convention Election (as defined below), a U.S. Holder of a note who is 

required to accrue interest income on such note prior to receipt will be required to include in income for each 

taxable year the U.S. dollar value of the interest that has accrued during such year, determined by translating 

such interest at the average rate of exchange for the period (or partial period if the period spans two taxable 

years) during which such interest has accrued. The average rate of exchange for an interest accrual period is 

the simple average of the exchange rates for each business day of such period (or such other average that is 

reasonably derived and consistently applied by the U.S. Holder). Upon receipt of an interest payment in 

foreign currency, such U.S. Holder will recognize ordinary gain or loss in an amount equal to the difference 

between the U.S. dollar value of the foreign currency received (determined on the basis of the "spot rate" on 

the date such payment is received) and the U.S. dollar value of the interest income that such U.S. Holder has 

previously included in income with respect to such payment. Any such gain or loss generally will not be treated 

as interest income or expense, except to the extent provided by administrative pronouncements of the IRS. 

A U.S. Holder may elect (a "Spot Rate Convention Election") to translate accrued interest into 

U.S. dollars at the "spot rate" on the last day of an accrual period for the interest, or, in the case of an accrual 

period that spans two taxable years and is thus treated as two partial periods, at the "spot rates" on the last day 

of the taxable year and on the last day of the accrual period. Additionally, if a payment of interest is received 

within five business days of the last day of the accrual period, an electing U.S. Holder may instead translate 

such accrued interest into U.S. dollars at the "spot rate" on the day of receipt. A U.S. Holder that makes the 

Spot Rate Convention Election must apply it consistently to all debt instruments from year to year and cannot 

change the election without the consent of the IRS. 

Euros received as interest on the notes will have a tax basis equal to their U.S. dollar value at the time the 

interest payment is received. Gain or loss, if any, realized by a U.S. Holder on a sale or other disposition of 

that foreign currency will be ordinary income or loss, but generally will not be treated as interest income or 

expense except to the extent provided by administrative pronouncements of the IRS. 

For purposes of this discussion, the "spot rate" generally means a rate that reflects a fair market rate of 

exchange available to the public for currency under a "spot contract" in a free market and involving 

representative amounts. A "spot contract" is a contract to buy or sell a currency on or before two business days 

following the date of the execution of the contract. If such a spot rate cannot be demonstrated, the IRS has 

the authority to determine the spot rate. 

72

Interest on the notes will be treated as foreign source income for U.S. federal income tax purposes, which 

may be relevant in calculating a U.S. Holder's foreign tax credit limitation for U.S. federal income tax 

purposes. The limitation on foreign taxes eligible for the United States foreign tax credit is calculated 

separately with respect to specific classes of income. For this purpose, the interest on the notes should 

generally constitute "passive income" or, in the case of certain U.S. Holders, "financial services income." 

' Market Discount. If a U.S. Holder purchases a note for an amount that is less than its stated principal 

amount, including a U.S. Holder who purchases the note subsequent to original issue, the amount of the 

difference, subject to a de minimis exception, will be "market discount" "Market discount" is defined as the 

excess, if any, of (i) the note's stated principal amount over (ii) the tax basis of the note in the hands of the 

U.S. Holder immediately after its acquisition. 

The market discount rules generally provide that if such purchaser thereafter disposes of the note 

(including by nontaxable means such as a gift), the lesser of the gain recognized (or appreciation, in the case 

of a nontaxable disposition such as a gift) or the portion of the market discount that accrued while the note 

was held by such purchaser will be treated as ordinary income at the time of the disposition. Unless the 

U.S. Holder elects otherwise, the accrued market discount generally would be the amount calculated by 

multiplying the market discount by a fraction, the numerator of which is the number of days the note has been 

held by the U.S. Holder and the denominator of which is the number of days after the U.S. Holder's 

acquisition of the note up to and including its maturity date. The market discount rules also provide that unless 

such U.S. Holder elects to include market discount in income on a current basis, then such U.S. Holder may 

be required to defer a portion of any interest expense that would otherwise be deductible on any indebtedness 

incurred or continued to purchase or carry the note until such U.S. Holder disposes of the note in a taxable 

transaction, or, if sooner, there is net interest income in a subsequent year with respect to the note and the 

U.S. Holder elects to deduct the deferred interest to the extent of such net interest income. 

The notes provide that they may be redeemed, in whole or in part, before maturity. If some or all of the 

notes are redeemed, each U.S. Holder of a note acquired at a market discount would be required to treat the 

principal payment as ordinary income to the extent of any accrued market discount of such note. 

A U.S. Holder of a note acquired at a market discount may elect to include the market discount in 

income as the discount thereof accrues, either on a straight line basis or, if elected, on a constant interest basis. 

The current inclusion election, once made, applies to all market discount obligations acquired by such U.S. 

Holder on or after the first day of the first taxable year to which the election applies, and may not be revoked 

without the consent of the IRS. If a U.S. Holder elects to include market discount in income currently, the 

foregoing rules with respect to the recognition of ordinary income on a sale or certain other dispositions of such 

note and the deferral of interest deductions on indebtedness related to such note would not apply. 

With respect to the notes, market discount is calculated in Euros, the currency in which the notes are 

denominated. In the case of a U.S. Holder who does not elect current inclusion, accrued market discount is 

translated into U.S. dollars at the spot rate on the date of payment or disposition. No part of such accrued 

market discount is treated as exchange gain or loss. In the case of a U.S. Holder who elects current inclusion, 

the amount currently includible in income for a taxable year is the U.S. dollar value of the market discount 

that has accrued during such year, determined by translating such market discount at the average rate of 

exchange for the period or periods (including, if applicable, the two partial periods in the case of a period that 

straddles a U.S. Holder's taxable year) during which it accrued. Such an electing U.S. Holder will recognize 

exchange gain or loss with respect to accrued market discount under the same rules as apply to accrued 

interest on a note received by a U.S. Holder on the accrual basis, as described above under "— Interest." 

Amortizable Bond Premium. If a U.S. Holder purchases a note for an amount greater than its stated 

principal amount, including a U.S. Holder who purchases the note subsequent to original issue, such U.S. 

Holder will be considered to have purchased the note with "amortizable bond premium" equal in amount to 

such excess. Such U.S. Holder may elect to amortize such premium using a constant yield method 

determined by reference to such U.S. Holder's basis in the note over the remaining term of the note and offset 

interest otherwise required to be included in gross income in respect of such note during any taxable year by 

the amortized amount of such excess for the taxable year. A U.S. Holder who elects to amortize bond 

73

premium must reduce its tax basis in the related note by the amount of the aggregate deductions allowable for 

amortizable bond premium. An election to amortize bond premium would apply to amortizable bond premium 

on all taxable bonds held at or acquired after the beginning of the U.S. Holder's taxable year for which the 

election is made, and may be revoked only with the consent of the IRS. 

With respect to the notes, amortizable bond premium is calculated in euros, the currency in which the 

notes are denominated. The amortization deduction calculated reduces the interest income received so that 

the net amount of interest less the amortization deduction in the applicable foreign currency is the amount 

translated into U.S. dollars and reported in the U.S. Holder's gross income. See "— Interest," above. The 

amount by which the amortization deduction, as translated into U.S. dollars, reduces the U.S. Holder's 

interest income is also the amount by which it reduces the U.S. Holder's basis in his note. The U.S. Holder 

will recognize ordinary gain or loss in an amount equal to the difference between the U.S. dollar value of the 

amortization deduction at the time of the deduction and the U.S. dollar value of that portion of the bond 

premium upon acquisition of the note. Any such gain or loss generally will not be treated as interest income or 

expense, except to the extent provided by administrative pronouncements of the IRS. • 

Disposition. In general, a U.S. Holder will recognize gain or loss upon the sale, exchange, redemption or 

other taxable disposition of a senior note measured by the difference between (i) the amount of cash and the 

fair market value of property received (or the U.S. dollar value at the spot rate on the date of the sale, 

exchange, redemption or other taxable disposition of the amount realized in foreign currency), except to the 

extent such amount is attributable to accrued interest (which will be taxed as interest in the manner described 

above), and (ii) the U.S. Holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in a note 

will generally be equal to the purchase price paid by such U.S. Holder for such note (except for amounts 

offsetting prior accrued interest), increased by the accrual of market discount, if any, which the U.S. Holder 

elects to include in income on a current basis and decreased by any accrual of amortizable bond premium if 

the U.S. Holder elects to deduct it on a current basis. In the case of a note purchased with foreign currency, 

the U.S. Holder's adjusted tax basis will be determined by translating the purchase price at the spot rate on 

the date of purchase and including in the manner described above increases resulting from any market 

discount previously included in income by such U.S. Holder and decreases resulting from any bond premium 

amortized over the term of the note. 

Except with respect to (i) gains or losses attributable to changes in exchange rates (as described in the 

next paragraph) and (ii) gain attributable to any market discount (as described above), gain or loss so 

recognized upon the sale, exchange, redemption or other taxable disposition of a note will generally be capital 

gain or loss and will be long-term capital gain or loss if such U.S. Holder's holding period in a note was more 

than one year on the date of the sale or disposition of such note. Net long-term capital gains of individuals will 

generally be subject to U.S. federal income tax at a maximum rate of 20%. Any such gain realized by a U.S. 

Holder generally will be treated as U.S. source income for U.S. foreign tax credit purposes. U.S. Holders 

should consult their own tax advisors regarding the source of loss recognized on the sale, exchange, 

redemption or other taxable disposition of any such note. 

Gain or loss recognized by a U.S. Holder on the sale, exchange, redemption or other taxable disposition 

of a note that is attributable to changes in exchange rates will be treated as ordinary income or loss and 

generally will not be treated as interest income or expense except to the extent provided by administrative 

pronouncements of the IRS. Gain or loss attributable to changes in exchange rates is recognized on the sale, 

exchange, redemption or other taxable disposition of a note only to the extent of the total gain or loss 

recognized on such sale, exchange, redemption or other taxable disposition. 

A U.S. Holder's tax basis in foreign currency purchased by the U.S. Holder generally will be the 

U.S. dollar value thereof at the spot rate on the date such foreign currency is purchased. A U.S. Holder's tax 

basis in foreign currency received on the sale, exchange, redemption or other taxable disposition of a note will 

be the U.S. dollar value thereof at the spot rate at the time such foreign currency is received. The amount of 

gain or loss recognized by a U.S. Holder on a sale, exchange or other disposition of foreign currency will be 

equal to the difference between (i) the number of U.S. dollars, the U.S. dollar value at the spot rate of the 

foreign currency, or the fair market value in U.S. dollars of the property received by the U.S. Holder in the 

74

sale, exchange or other disposition, and (ii) the U.S. Holder's tax basis in the foreign currency. Accordingly, a 

U.S. Holder that purchases a note with foreign currency will recognize gain or loss in an amount equal to the 

difference, if any, between such U.S. Holder's tax basis in the foreign currency and the U.S. dollar value at the 

spot rate of the foreign currency on the date of purchase of the note. Similarly, a U.S. Holder that receives the 

proceeds of the disposition of a note in foreign currency will recognize gain or loss upon the disposition of that 

foreign currency equal to the difference, if any, between the U.S. Holder's tax basis in the foreign currency and 

the U.S. dollar value of that foreign currency at the spot rate upon the date of disposition of the foreign 

currency. Generally, any such gain or loss will be ordinary income or loss and will not be treated as interest 

income or expense, except to the extent provided by administrative pronouncements of the IRS. 

Backup Withholding and Information Reporting 

A U.S. Holder of a note may be subject, under certain circumstances, to. information reporting and/or 

backup withholding at a 31% rate with respect to cash payments in respect of interest or the gross proceeds 

from dispositions. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct 

taxpayer identification number or certificate of foreign status and makes any other required certification, or 

who is otherwise exempt from backup withholding. Persons required to establish their exempt status generally 

must provide such certification on an IRS Form W-9 (Request for Taxpayer Identification Number and 

Certification) in the case of U.S. persons and on an IRS Form W-8 (Certificate of Foreign Status) in the case 

of non-U.S. persons. Recently promulgated Treasury Regulations, effective for certain payments made after 

December 31, 2000, generally expand the circumstances under which information reporting and backup 

withholding may apply unless the U.S. Holder provides the information described above. 

Any amount withheld from a payment to a U.S. Holder under the backup withholding rules is allowable 

as a credit (and may entitle such U.S. Holder to a refund) against such U.S. Holder's federal income tax 

liability, provided that the required information is furnished to the IRS. Certain persons, including 

corporations and financial institutions, are exempt from backup withholding with respect to cash payments in 

respect of interest or the gross proceeds from dispositions of notes. Holders of notes should consult their tax 

advisors as to their qualification for exemption from backup withholding and the procedure for obtaining such 

exemption. 

75

PRIVATE PLACEMENT 

Under the terms of, and subject to the conditions in, the placement agreement for the notes dated the 

date of this offering memorandum, the placement agents named below have separately from one another 

agreed to purchase, and COLT has agreed to sell to them, the principal amounts of the notes set forth by their 

names below: 

Principal Amount 

Placement Agents for the Notes of Notes (€) 

Morgan Stanley & Co. International Limited 208,000,000 

Lehman Brothers International (Europe) 48,000,000 

Dresdner Bank AG London Branch 40,000,000 

TD Securities (USA) Inc 24,000,000 

Total 320,000,000 

The placement agreement provides that the obligations of each placement agent to pay for and accept 

delivery of, or procure subscribers for notes are subject to the approval of certain legal matters by their lawyers 

and to certain other conditions. The placement agents for the notes are obligated to take and pay for all of the 

notes if any of the notes are taken. 

The placement agents have advised COLT that they intend to resell the notes initially at the price set 

forth on the cover page hereof to "qualified institutional buyers" (as defined in Rule 144A under the 

Securities Act) (QIBs) in the United States in reliance on Rule 144A under the Securities Act. In connection 

with sales of the notes outside the United States, each placement agent has agreed that it will not offer, sell or 

deliver the notes to, or for the account or benefit of, U.S. persons (i) as part of its distribution at any time or 

(ii) otherwise prior to 40 days after the closing of the note offering, and it will send to any dealer to whom it 

sells notes during such period a confirmation or other notice setting forth the restrictions on offers and sales of 

the notes within the United States, or to or for the account or benefit of U.S. persons. 

The placement agents have each separately represented that it has not offered or sold, and has agreed not 

to offer or sell, any notes, directly or indirectly, in any province or territory of Canada or to, or for the benefit 

of, any resident of any province or territory of Canada in contravention of the securities laws thereof and has 

represented that any offer or sale of ordinary shares or notes in Canada will be made only pursuant to an 

exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer 

is made. Each placement agent has further agreed to send to any dealer who purchases from it any notes a 

notice stating in substance that, by purchasing such notes, such dealer represents and agrees that it has not 

offered or sold, and will not offer or sell, directly or indirectly, any of such notes in any province or territory of 

Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the 

securities laws thereof, and that any offer of notes in Canada will only be made pursuant to an exemption from 

the requirement to file a prospectus in the province or territory of Canada in which such offer is made, and that 

such dealer will deliver to any other dealer to whom it sells any of notes a notice containing substantially the 

same statement as is contained in this sentence. 

Each placement agent has represented and agreed, as the case may be, that: 

• it has not offered or sold and will not offer or sell any notes to any person in the United Kingdom prior 

to admission of the notes (as the case may be) to listing in accordance with Part IV of the Financial 

Services Act 1986 (the "Financial Services Act"), except to persons whose ordinary activities involve 

them in acquiring, holding, managing or disposing of investments (as principal or agent) for the 

purposes of their businesses or otherwise in circumstances which have not and will not result in an 

offer to the public in the United Kingdom within the meaning of the Public Offers of Securities 

Regulations 1995 (the "Regulations") or the Financial Services Act, 

76

• it has complied and will comply with all applicable provisions of the Financial Services Act and the 

Regulations with respect to anything done by it in relation to the notes in, from or otherwise involving 

the United Kingdom and 

• it has only issued or passed on and will only issue or pass on in the United Kingdom any document 

received by it in connection with the issue of the notes, other than any document which consists of, or 

is a part of, listing particulars, supplementary listing particulars or any other document required or 

permitted to be published by listing rules under Part IV of the Financial Services Act, to a person who 

is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment 

Advertisements) (Exemptions) Order 1996, or is a person to whom such document may otherwise 

lawfully be issued or passed on. 

Each placement agent has acknowledged that the notes have not been and will not be registered under the 

Securities and Exchange Law of Japan, and has represented that it has not offered or sold, and will not offer or 

sell, directly or indirectly, any notes in Japan or for the account of any resident thereof except pursuant to an 

exemption from the registration requirements of the Securities and Exchange Law of Japan and otherwise in 

compliance with applicable provisions of Japanese law. 

Under the terms of the agreement among managers, which the placement agents have each separately 

entered into, sales may be made between the relevant placement agents for any number of notes to be 

purchased pursuant to the placement agreements as may be mutually agreed. The purchase price of any notes 

so sold shall be the price to public set forth on the cover page of this offering memorandum in euros, less an 

amount not greater than the per note amount of the concession to dealers. 

In order to facilitate the offering of the ordinary shares and notes, the placement agents may engage in 

transactions that stabilise, maintain or otherwise affect the price of the notes, as the case may be. Specifically, 

the placement agents may over-allot in connection with the offering, creating a short position in the ordinary 

shares or notes for their own account. In addition, to cover over-allotments or to stabilise the price of the notes, 

the placement agents may bid for, and purchase, notes in the open market. Finally, the placement syndicate 

may reclaim selling concessions allowed to a placement agent or a dealer for distributing notes in the offering, 

if the syndicate repurchases previously distributed notes in transactions to cover syndicate short positions, in 

stabilisation transactions or otherwise. Any of these activities may stabilise or maintain the market price of the 

ordinary shares or notes above independent market levels. The placement agents are not required to engage in 

these activities, and may end any of these activities at any time. 

Each of COLT, its executive officers and directors, Fidelity Investors Limited Partnership, Fidelity 

International Limited and COLT Inc. have agreed that without the prior written consent of Morgan Stanley & 

Co. International Limited on behalf of the placement agents, they will not, for 90 days after the date of this 

offering memorandum: 

• offer, allot, issue, pledge, sell, contract to sell, sell any option or contract to purchase or subscribe, 

purchase any option or contract to sell, allot or issue, grant any option, right or warrant to purchase or 

subscribe, or otherwise transfer or dispose of, directly or indirectly, any ordinary shares or any 

securities convertible into or exercisable or exchangeable for ordinary shares or 

• enter into any swap or other arrangement that transfers to another, in whole or in part, any of the 

economic consequences of ownership of such ordinary shares. 

The above limitations apply whether a transaction is to be settled by delivery of ordinary shares or other 

securities, in cash or otherwise. The above limitations do not apply to: 

• the ordinary shares offered in the stock offering (and, in the case of COLT, the notes offered in the 

note offering), 

• any ordinary shares sold, allotted or issued upon the exercise of an option or warrant or the conversion 

of a security outstanding on the date of this offering memorandum of which the placement agents 

have been advised in writing, 

77

• the issuance by COLT of any options to purchase ordinary shares pursuant to COLT's Group Share 

Plan or Savings-Related Share Option Scheme or issuance of ordinary shares pursuant to COLT's 

Free Share Scheme, 

• the issuance of options to purchase ordinary shares to non-executive directors who agree in writing to 

the limitations set forth in the immediately preceding paragraph, 

• in the case of certain shareholders, the gift to charitable foundations of ordinary shares or securities 

convertible into ordinary shares with a market value of up to $100 million, 

• the purchase or sale of ordinary shares or securities convertible into ordinary shares if both the 

purchaser and seller agree in writing as of the date of this offering memorandum to the limitations set 

forth in the immediately preceding paragraph, as of the date of this offering memorandum, 

• the issuance of new options to new directors or 

• the issue of up to 700,000 ordinary shares with consideration for acquisitions. 

Application will be made to list the notes offered in this offering memorandum on the London Stock 

Exchange. 

The placement agents have advised COLT that they presently intend to make a market in the notes, as 

permitted by applicable laws and regulations. The placement agents are not obligated, however, to make a 

market in the notes and any such market making may be discontinued at any time without notice, at the sole 

discretion of the placement agents. Accordingly, no assurance can be given as to the liquidity of, or trading 

markets for, the notes. See "Risk Factors — There is Currently No Public Market for the Notes" and 

"— There Will Be No Public Market in the United States for the Notes or the Ordinary Shares." . 

It is expected that delivery of the notes will be made against payment therefor on or about the dates 

specified in the last paragraph of the cover page. Under Rule 15c6-l adopted by the Commission under the 

Exchange Act, trades in the secondary market generally are required to settle in three business days, unless the 

parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade notes on the 

date of pricing or the succeeding business days will be required to specify alternate settlement arrangements to 

prevent a failed settlement because of the initial settlement procedures. 

COLT and the placement agents have agreed to indemnify each other against certain liabilities, including 

liabilities under the Securities Act. The placement agents have agreed to reimburse certain of COLT's 

expenses in connection with the offerings and certain other corporate expenses, including those connected with 

the bank facility agreement. 

Certain of the placement agents and their affiliates perform various investment banking and commercial 

banking services from time to time for COLT and its affiliates. Affiliates of Kleinwort Benson Securities 

Limited are lenders to COLT under the bank facility agreement. 

78

TRANSFER RESTRICTIONS 

The notes have not been registered under the Securities Act. The notes may not be offered or sold within 

the United States or to, or for the account or benefit of, U.S. persons, except (i) in compliance with the 

registration requirements of the Securities Act and all other applicable securities laws, or (ii) pursuant to an 

exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any 

other applicable securities laws. Accordingly, the notes are being offered and sold only to (i) "Qualified 

Institutional Buyers" (QIBs) in compliance with Rule 144A under the Securities Act and (ii) outside the 

United States to persons other than U.S. persons ("foreign purchasers," which term shall include dealers or 

other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners 

(other than an estate or trust)), in reliance upon Regulation S under the Securities Act. 

If you purchase and accept notes, you will be deemed to have acknowledged, represented to and agreed 

with us and the placement agent that: 

(1) You understand and acknowledge that the notes have not been registered under the Securities Act 

or any other applicable securities law, are being offered for resale in transactions not requiring 

registration under the Securities Act or any other securities laws, including sales pursuant to 

Rule 144A and may not be offered, sold or otherwise transferred except in compliance with the 

registration requirements of the Securities Act or any other applicable securities law, pursuant to an 

exemption therefrom or in a transaction not subject thereto and in each case in compliance with the 

conditions for transfer set forth in paragraph (4) below. 

(2) You are not our "affiliate" (as defined in Rule 144 under the Securities Act) or acting on our 

behalf and you are either: 

(a) a QIB within the meaning of Rule 144A and are aware that any sale of notes to you will be 

made in reliance on Rule 144A, and that such acquisition will be for your own account or for 

the account of another QIB; or 

(b) an institution that, at the time the buy order for the notes was originated, was outside the 

United States and was not a U.S. person (and was not purchasing for the account or benefit 

of a U.S. person) within the meaning of Regulation S. 

(3) You acknowledge that neither we nor the placement agent nor any person representing us or the 

placement agent has made any representation to you with respect to us or the offering or sale of any 

notes, other than the information contained in this offering memorandum, and that this offering 

memorandum has been delivered to you and you are relying on this offering memorandum to make 

your investment decision with respect to the notes. Accordingly, you acknowledge that no 

representation or warranty is made by the placement agent as to the accuracy or completeness of 

such materials. You have had access to such financial and other information concerning us and the 

notes as you deemed necessary in connection with your decision to purchase any of the notes, 

including an opportunity to ask questions of and request information from us and the Placement 

Agent. 

(4) You are purchasing the notes for your own account, or for one or more investor accounts for which 

you are acting as a fiduciary or agent, in each case for investment, and not with a view to, or for 

offer or sale in connection with, any distribution thereof in violation of the Securities Act, subject to 

any requirement of law that the disposition of your property or the property of such investor account 

or accounts be at all times within your or their control and subject to your or their ability to resell 

such notes pursuant to Rule 144A, Regulation S or any exemption from registration available under 

the Securities Act. You agree on your own behalf and on behalf of any investor account for which 

you are purchasing the notes, and each subsequent holder of the notes by its acceptance thereof will 

agree, to offer, sell or otherwise transfer such notes prior to the date which is two years after the 

later of the date of the original issue and the last date on which we or any of our affiliates were the 

owner of such notes (or any predecessor thereto) (the "Resale Restriction Termination Date") 

only pursuant to the representations, restrictions and agreements described in the legend following 

79

this paragraph. These restrictions on resale will not apply subsequent to the Resale Restriction 

Termination Date. You and any future purchaser acknowledge that we and the Trustee reserve the 

right prior to any offer, sale or other transfer prior to the Resale Restriction Termination Date of 

the notes pursuant to clause (2) (v) below to require the delivery of an opinion of counsel, 

certifications and/or other information satisfactory to the trustee and us. You and any future 

purchaser acknowledge that each note will contain a legend substantially to the following effect: 

"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, 

AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, 

SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR 

FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT 

SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE 

HOLDER: 

(1) REPRESENTS THAT (i) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS 

DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (ii) IT IS 

NOT A U.S. PERSON AND HAS ACQUIRED THIS NOTE IN AN OFFSHORE 

TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES 

ACT. 

(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER 

RULE 144 (k) UNDER THE SECURITIES ACT, RESELL OR OTHERWISE TRANSFER 

THIS NOTE EXCEPT (i) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (ii) TO 

A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING 

FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION 

MEETING THE REQUIREMENTS OF RULE 144A (iii) OUTSIDE THE UNITED 

STATES IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF 

RULE 904 UNDER THE SECURITIES ACT, (iv) IN A TRANSACTION MEETING THE 

REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (v) IN 

ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION 

REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF 

COUNSEL ACCEPTABLE TO THE COMPANY) OR (vi) PURSUANT TO AN 

EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE 

WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED 

STATES OR ANY OTHER APPLICABLE JURISDICTION, AND 

(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN 

INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE 

EFFECT OF THIS LEGEND. 

AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED 

STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF 

REGULATION S. THE INDENTURE CONTAINS A PROVISION REQUIRING THE 

TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN 

VIOLATION OF THE FOREGOING." 

(5) You agree that you will deliver to each person to whom you transfer any of the notes notice of any 

restrictions on transfers of such notes. 

(6) If you are a foreign purchaser outside the United States, you 

(a). understand that the notes will be represented by the Regulation S Global Notes and that 

transfers thereof are restricted as described under "Description of Notes — Description of 

Book-Entry System; Payment; Transfers," and 

80

(b) represent and agree that you will not, as part of the initial distribution of the notes, sell short 

or otherwise sell, transfer or dispose of the economic risk of the notes into the United States 

or to a U.S. person. 

(7) If you are a QIB, you understand that the notes offered in reliance on Rule 144A will be 

represented by the Rule 144A global notes. Before any interest in a Rule 144A global note may be 

offered, sold, pledged or otherwise transferred to a person who is not a QIB, the transferee will be 

required to provide the trustee with a written certification (the form of which certification can be 

obtained from the trustee) as to compliance with the transfer restriction referred to above. 

(8) You acknowledge that we, the placement agent and others will rely upon the truth and accuracy of 

the foregoing acknowledgements, representations, warranties and agreements and you agree that, if 

any of the acknowledgements, representations, warranties and agreements deemed to have been 

made by your purchase of the notes are no longer accurate, you will promptly notify us and the 

placement agent If you are acquiring any notes as a fiduciary or agent for one or more investor 

accounts, you represent that you have sole investment discretion with respect to each such investor 

account and that you have full power to make the foregoing acknowledgements, representations and 

agreements on behalf of each such investor account. 

LEGAL MATTERS 

The validity of the notes will be passed upon by Sullivan & Worcester LLP, our U.S. lawyers and by 

Slaughter and May, our English lawyers. Certain legal matters will also be passed upon for the placement 

agents by Shearman Sterling, U.S. lawyers for the placement agents and, by Linklaters, English solicitors for 

the placement agents. Sullivan & Worcester LLP and Shearman & Sterling may rely, without independent 

verification, upon the opinions of Slaughter and May and Linklaters, respectively, with respect to all matters of 

English law. 

81

INDEPENDENT CHARTERED ACCOUNTANTS 

The consolidated balance sheet of COLT at 31 December 1997 and the profit and loss accounts, cash 

flows, statements of total recognised gains and losses and reconciliations of changes in equity shareholders' 

funds for each of the two years in the period ended 31 December 1997, included in Appendix C to this offering 

memorandum have been audited by Coopers & Lybrand, independent Chartered Accountants, as stated in 

their report in Appendix C to this offering memorandum. 

The consolidated balance sheet of COLT at 31 December 1998 and the consolidated profit and loss 

account, cash flows, statement of total recognised gains and losses and reconciliation of changes in equity 

shareholders' funds for the year then ended, included in Appendix C to this offering memorandum have been 

audited by PricewaterhouseCoopers, independent Chartered Accountants, as stated in their report in 

Appendix C to this offering memorandum. 

82

9 November 1999 

COLT TELECOM GROUP PLC ANNOUNCES RESULTS 

FOR THE THREE AND NINE MONTHS ENDED 30 SEPTEMBER 1999 

Commenting on the results, COLT Telecom Group plc Chairman Jim Curvey said: 

APPENDIX A 

"COLT continued to achieve strong growth across all markets and I am particularly pleased to announce 

that the Group was EBITDA positive for the quarter. 

"Turnover for the quarter of £104.5 million increased by 71% over the third quarter last year and by 11% 

over the second quarter of 1999. Gross profit for the quarter of £21.1 million increased by 82% over the third 

quarter last year and by 17% over the second quarter of 1999. Turnover and gross profit for the nine months 

were £283.6 million and £55.0 million, respectively, increases of 99% and 105% over the first nine months of 

1998. 

"The success of our pan-European expansion is reflected in our revenue mix with 55% of turnover being 

generated in continental European markets compared with 39% in the same quarter last year. We now have 

over 3,200 buildings directly connected to our networks and for the first time we carried over 2 billion switched 

minutes in a single quarter, with over 1 billion minutes in the UK and over 500 million in Germany. We 

installed 625,000 private wire VGEs during the quarter bringing the total at quarter end to nearly 3 million. 

"We are seeing an acceleration in the rate of growth in demand for higher bandwidth data services, 

including internet services. This is reflected in the growth of private wire sales. It took 5 years to sell our first 

million private wire VGEs, less than 9 months to sell the second million, and after only 4 months we are 

approaching our third million." 

Paul Chisholm, COLT's President and Chief Executive Officer added: 

"Excellent progress is being made on all fronts. Not only is COLT EBITDA positive overall but our 

operations in Zurich have been exceptionally strong, achieving positive EBITDA after only 16 months in 

operation, well ahead of expectations. Zurich joins the other COLT positive EBITDA cities of London, 

Frankfurt and Paris. In aggregate, our 7 city-markets in Germany were also EBITDA positive for the quarter. 

"We continue to improve the quality of our revenue mix with end-user and internet customers accounting 

for more than 66% of switched turnover in the quarter compared with 59% in the third quarter last year. 

Private wire services now account for 34% of turnover compared with only 26% in the same quarter in 1998. 

"We continue to expand our presence across Europe. COLT is providing service in 18 cities in 9 countries 

with new networks in Rotterdam and Marseilles under development and planned to be operational at year-end. 

During 2000 we plan to launch service in a further 4 to 6 new markets including Hannover, Rome, Turin and 

Stockholm. Over 50% of the duct construction of the 2,600 km German segment of our pan-European intercity 

network has been completed. 

"As well as expanding and enhancing our network infrastructure we continue to develop and roll-out new 

services. COLTInternet was launched in Italy, Spain and Switzerland during the quarter and is now available 

in 8 countries. We are positioning COLT to be a leader in the high growth web hosting market with work 

underway to expand our current web hosting capability by developing over 150,000 square feet of dedicated 

hosting facilities in Amsterdam, Paris, Frankfurt, London, Madrid and Milan. 

"COLT's success has been built on excellent customer service, innovation and competitive prices. This 

continues to be recognised by our customers across Europe. Most recently, in France, COLT was ranked 

number one over a wide range of key customer satisfaction indicators by CIGREF, the French corporate 

telecommunications users association." 

A-l

THIRD QUARTER HIGHLIGHTS 

• Turnover up 71% to £104.5 million 

• Gross profit up 82% to £21.1 million 

• COLT EBITDA positive 

• Germany and Zurich EBITDA positive for quarter, Zurich EBITDA positive in record 16 months 

• 55% of turnover generated in continental European markets 

• 34% of revenues from non-switched services reflecting demand for high bandwidth data and internet 

• Capital investment of £85 million 

• 2 billion switched minutes carried during quarter 

• 3 million private wire VGEs installed 

• Over 50% of German inter-city duct construction completed 

• COLTInternet launched in Italy, Spain and Switzerland — now available in 8 countries 

• Expanded web hosting facilities under development in Amsterdam, Brussels, Frankfurt, London, Madrid 

and Milan 

• Customer service award in France 

Operating Statistics 

(for period or at end of period) 

Growth Growth 

Year on Year Qtr on Qtr 

98Q3 99Q2 99Q3 98Q3 - 99Q3 99Q2 - 99Q3 

Route kilometres 1,064 1,569 1,710 61% 9% 

Buildings connected 1,908 2,837 3,271 71% 15% 

Direct customer accounts 1,913 2,995 3,624 89% 21% 

Switched minutes (millions) 955 1,660 2,028 112% 22% 

Private Wire VGEs (000) 1,216 2,294 2,919 140% 27% 

Note: Route kilometres do not include intercity network under construction or the regional network in 

northwest Netherlands. 

REVIEW OF OPERATIONS 

United Kingdom 

Turnover for the quarter increased by 26% to £46.6 million and for the nine months by 39% to 

£134.0 million compared to 1998. Growth in turnover from non-switched services was particularly strong 

reflecting COLT's position as a major provider of high bandwidth services in the London market. 

A further 128 directly connected customer accounts and 69 buildings were added during the quarter 

bringing the totals at 30 September to 1,574 and 1,249 respectively. Minutes carried during the quarter 

increased by 66% to 1.2 billion compared to 698 million in the third quarter of 1998. Private wire voice grade 

equivalents at the end of the quarter amounted to 1.4 million, an increase of 66% over the position at the end 

of the third quarter in 1998. Network route kilometres increased to 233 at the end of the quarter. 

COLT continues to build its customer base in the UK and expand its business with existing customers. 

New contract wins included Cussons, the soap manufacturer and JCB Landpower Ltd and JCB 

Transmissions, divisions of JCB the construction and materials handling equipment manufacturer. 

A-2

Demand for COLTS range of corporate internet services remained buoyant with 34 new customers 

added during the quarter bringing the total to 176. An important contract win for internet access and web 

hosting was Globalvision, owners of the Londontown.com brand in partnership with the London Tourist 

Board. 

Germany 

Turnover for the quarter increased by 108% to £33.4 million and for the nine months by 153% to 

£87.7 million compared to 1998. COLT's German operations in aggregate were EBITDA positive for the 

quarter. 

Growth in turnover reflected strong demand across all service categories and the expansion of the number 

of operational networks from five at the end of the third quarter 1998 to seven at the end of the third quarter 

1999. COLT's eighth German network, Hannover, is planned to be in service during 2000. A total of 49 

network route kilometres were installed during the quarter bringing the total to 689 kilometres compared with 

441 kilometres at the end of the third quarter in 1998, an increase of 56%. In Frankfurt the network has been 

extended to serve businesses in the vicinity of Frankfurt Airport. 

A further 190 buildings were connected during the quarter bringing the total at quarter end to 

1,280 compared with 627 at the end of the third quarter in 1998, an increase of 104%. Directly connected 

customer accounts increased by 118% to 1,254 at the end of the quarter with 203 new customer accounts 

added during the quarter. 

The 500 million switched minutes per quarter threshold was crossed with 531 million minutes carried 

during the quarter compared with 202 million in the third quarter of 1998, an increase of 163%. Private wire 

voice grade equivalents increased by 250% to 1.1 million at the end of the quarter compared with 301,000 at 

the end of the third quarter in 1998. 

Major customer contract wins included the Tengelmann Group, one of the biggest supermarket chains in 

Germany, the Stuttgart based insurance company, WGV and Lufthansa Business Services, the IT subsidiary 

of Lufthansa. 

Internet services continue to grow and expand. COLT more than doubled its internet services customer 

base in Germany compared to the position at 30 June 1999 and as at 30 September 1999 had 118 internet 

customers and 82 orders pending. 

France 

Turnover for the quarter of £12.6 million increased 97% over the third quarter of 1998 and for the nine 

months was nearly 3.5 times higher at £33.5 million. Approximately 9 route kilometres were added during the 

quarter bringing the total to 252. A further 85 buildings were connected bringing the total at the end of the 

quarter to 376, an increase of 163% compared to 30 September 1998. Directly connected customer accounts 

increased by a factor of approximately 3 times to 492 accounts compared to last year. 

Switched minutes carried during the quarter totalled 232 million, a more than three-fold increase over the 

third quarter 1998. Private wire VGEs of 177,000 at the end of the quarter increased nearly four times over the 

position at 30 September 1998. 

This was the first full quarter when COLT's second network in France, Lyon, was in service and the third 

French network, Marseilles is currently under development. 

Major new customer wins included the town council of Boulogne Billancourt, the largest town in the 

Greater Paris region. As in other markets, demand for COLT's internet services was strong with a further 108 

customers added during the quarter bringing the total to 602. New internet access customers included 

Barclays Bank, Prisma Presse and Integra. New hosting customers included Compaq France, L'Express (the 

leading news magazine) and La Fnaim, one of France's largest property companies. 

A-3

COLT's reputation for service excellence was recognised by CIGREF (Club Informatique des Grandes 

Entreprises Francaises) the main French telecommunications corporate users association. A detailed survey 

undertaken by CIGREF over a 6 month period and involving 93 of the 100 largest companies in France each 

spending over £25 million per year on telecommunications services ranked COLT number one across France 

over a wide range of key customer satisfaction and quality of service indicators. 

Rest of Europe 

Turnover in Austria, Belgium, Italy, The Netherlands, Spain and Switzerland for the quarter was 

£11.9 million, an increase of 22% over the second quarter of 1999. Turnover for the nine months was 

£28.4 million. Zurich was EBITDA positive for the quarter after only 16 months in operation. 

In aggregate there were 536 route kilometres of network in operation, 366 buildings connected, 

304 directly connected customer accounts and 300,000 private wire VGEs installed at the end of the third 

quarter compared with 462 route kilometres, 276 buildings connected, 188 directly connected customer 

accounts and 213,000 private wire VGEs at the end of the second quarter 1999. Switched minutes carried 

totalled 108 million during the quarter compared with 79 million during the second quarter of 1999. 

COLT's second network in The Netherlands, Rotterdam, is on schedule to be in service by the end of 

1999, and plans are in place to develop COLT's first network in Sweden, in Stockholm, during 2000. Further 

expansion is also planned for Italy with planning well advanced to launch service in Rome and Turin during 

2000. 

Major customer contract wins included the Wiener Borse (Stock exchange) and KPMG in Austria: 

Oracle, the World Bank and the Association of Belgian Banks in Belgium: as well as Citibank and Reuters in 

Milan. 

A-4

OPERATING STATISTICS 

Growth Growth 

98Q3 99Q2 99Q3 98Q3-99Q3 99Q2-99Q3 

Route Kilometres (City Networks) 

(at end of period) 

UK 187 224 233 25% 4% 

Germany 441 640 689 56% 8% 

France 164 243 252 54% 4% 

Other 272 462 536 97% 16% 

1,064 1,569 1,710 61% 9% 

Buildings Connected 


UK 1,047 1,180 1,249 19% 6% 

G e r m a n y : 627 1,090 1,280 104% 17% 

France 143 291 376 163% 29% 

Other 91 276 366 302% 33% 

1,908 2,837 3,271 71% 15% 

Customer Accounts (direct) 


UK 1,167 1,446 1,574 35% 9% 

Germany 574 1,051 1,254 118% 19% 

France 120 310 492 310% 59% 

Other 52 188 304 485% 62% 

1,913 2,995 3,624 89% 21% 

Switched Minutes (MM) 

(for quarter) 

UK 698 938 1,157 66% 23% 

Germany 202 442 531 163% 20% 

France 53 201 232 338% 15% 

Other 2 79 108 — 37% 

955 1,660 2,028 112% 22% 

Private Wire VGEs (000) 


UK 835 1,190 1,390 66% 17% 

Germany 301 781 1,052 250% 35% 

France 36 110 177 392% 61% 

Other 44 213 300 — 41% 

1,216 2,294 2,919 140% 27% 

Headcount 


UK 491 659 738 50% 12% 

Germany 377 627 723 92% 15% 

France 190 270 302 59% 12% 

Other 186 376 447 140% 19% 

1,244 1,932 2,210 78% 14% 

Note: Route kilometres do not include intercity network under construction or the regional network in 

northwest Netherlands. 

A-5

FINANCIAL REVIEW 

Turnover 

Turnover increased from £61.1 million and £142.8 million for the three and nine months ended 

30 September 1998 to £104.5 million and £283.6 million for the three and nine months ended 30 September 

1999, increases of £43.4 million and £140.8 million or 71% and 99%, respectively. The increases in turnover 

were driven by continued demand for COLT's services from existing and new customers, new service 

introductions and the significant expansion of COLT's addressable market. For the three and nine months 

ended 30 September 1999, 55% and 53% of turnover was generated outside the UK compared with 39% and 

32% during comparable periods in 1998. 

Turnover from switched services increased from £45.4 million and £110.1 million for the three and nine 

months ended 30 September 1998 to £69.0 million and £196.6 million for the three and nine months ended 

30 September 1999. Growth in switched revenue reflects an increase in the number of markets in which 

COLT provided switched services and growth in switched minutes from 955 million and 2,303 million in the 

three and nine month periods in 1998 to 2,028 million and 5,248 million in the comparable 1999 periods. For 

the three and nine month periods ended 30 September 1999 compared to 1998, average switched revenue per 

minute declined by 28% and 22% respectively as a result of price reductions and changes in mix. Carrier 

revenues represented 34% and 39% of total switched revenue for the three and nine months ended 

30 September 1999 compared with 42% and 44% for the comparable periods in 1998. 

Turnover from non-switched and other services increased from £15.6 million and £32.7 million for the 

three and nine months ended 30 September 1998 to £35.5 million and £87.0 million for three and nine months 

ended 30 September 1999. Growth in non-switched and other revenue reflects the introduction of services in 

new markets as well as strong growth in existing markets and the continued growth in demand for higher 

bandwidth services. Private wire voice grade equivalents grew by 140% from 30 September 1998 to 

30 September 1999. Turnover from non-switched and other services represented 34% and 31% of total 

turnover for the three and nine months ended 30 September 1999, respectively compared with 26% and 23% 

for the equivalent periods in 1998. 

Cost of Sales 

Cost of sales increased from £49.5 million and £116.0 million in the three and nine months ended 


1999, increases of £33.9 million and £112.7 million or 69% and 97%, respectively. 

Interconnection and network costs increased from £42.3 million and £99.8 million for the three and nine 

months ended 30 September 1998 to £70.6 million and £193.8 million for the three and nine months ended 

30 September 1999. The increases were primarily attributable to interconnection payments associated with the 

112% and 128% increases in switched minutes in the three and nine month periods, respectively, as well as 

additional network operating costs related to growth achieved in the 8 markets in service at 30 September 

1998 and the 10 new markets brought into service over the 12 months to 30 September 1999. 

Network depreciation increased from £7.2 million and £16.2 million for the three and nine months ended 

30 September 1998 to £12.8 million and £34.8 million for the equivalent periods in 1999. The increases were 

attributable to further investment in fixed assets to support the growth in demand for services and new service 

developments in existing markets and expansion into new markets. 

Operating Expenses 

Operating expenses increased from £21.4 million and £50.6 million for the three and nine months ended 


1999, increases of £16.4 million and £51.5 million or 77% and 102%, respectively. 

Selling, general and administrative expenses increased from £19.7 million and £47.3 million for the three 

and nine months ended 30 September 1998 to £33.4 million and £92.2 million for the equivalent periods in 

A-6

1999. The increases were primarily due to increased personnel, office space, marketing and information 

technology expenses associated with the rapid expansion of COLT's customer base, new services development 

and entry into new markets. 

Other depreciation and amortisation increased from £1.6 million and £3.2 million for the three and nine 

months ended 30 September 1998 to £4.4 million and £9.9 million for the equivalent periods in 1999. The 

increases were due mainly to depreciation on increased investment in information technology, customer 

service, support systems and office equipment in existing and new markets and amortisation of goodwill 

associated with the ImagiNet acquisition for the period since completion on 15 July 1998. 

Interest receivable, interest payable and similar charges 

Interest receivable increased from £6.5 million and £13.1 million for the three and nine months ended 

30 September 1998 to £7.8 million and £24.1 million for the three and nine months ended 30 September 1999 

due to increased average balances of cash and investments in liquid resources. 

Interest payable and similar charges increased from £12.7 million and £28.5 million for the three and nine 

months ended 30 September 1998 to £16.9 million and £48.4 million for the equivalent periods in 1999. The 

increases were due mainly to interest payable on senior notes issued in July 1998, senior convertible notes 

issued in August 1998 and March 1999 and additional accretion on senior discount notes issued in December 

1996. Interest payable attributable to accretion on the junior subordinated convertible debentures for the three 

and nine months ended 30 September 1999 decreased compared to the equivalent periods in 1998 due to the 

exercise of conversion rights relating to £29.3 million and £11.6 million accreted amounts of the junior 

subordinated convertible debentures on 3 November 1998 and 9 April 1999, respectively. 

Interest payable and similar charges for the three and nine months ended 30 September 1999 included: 

£5.3 million and £13.9 million of interest and accretion on convertible debt, respectively; interest and accretion 

of £11.4 million and £34.0 million on non-convertible debt, respectively and £0.2 million and £0.5 million of 

interest and bank commitment fees. Interest payable and similar charges for the three months ended 

30 September 1999 comprised £8.4 million and £8.5 million of interest and accretion, respectively. 

Exchange gain (loss) 

For the three months ended 30 September 1999 COLT had exchange gains of £3.9 million and for the 

nine months ended 30 September 1999 COLT had exchange losses of £0.3 million. In the three and nine 

months ended 30 September 1998 COLT had exchange gains of £0.6 million and £1.6 million, respectively. 

These gains and losses were due primarily to movements in the British pound sterling relative to the U.S. 

dollar on cash, investments in liquid resources and debt balances denominated in U.S. dollars. 

Tax on loss on ordinary activities 

For the three and nine months ended 30 September 1998 and 1999, COLT generated tax losses on 

ordinary activities and therefore did not incur a tax obligation. 

Financial needs and resources 

The costs associated with the initial installation and expansion of COLT's networks, including 

development, installation and initial operating expenses, have been and in new markets are expected to be, 

significant and will result in an increasing negative cash flow. Negative cash flow is expected to continue in 

each of COLT's markets until an adequate customer base and related revenue stream have been established. 

COLT believes that its operating losses and negative cash flow will increase with the continued expansion of 

its networks. 

For the three and nine months ended 30 September 1998 net cash inflows from operations were 

£4.9 million and £1.0 million, respectively, compared with net cash outflows for the equivalent periods in 1999 

of £21.2 million and £4.6 million, respectively. Net cash outflows from returns on investments, servicing of 

finance, capital expenditure, financial investment and acquisitions and disposals increased from £92.9 million 

A-7

and £154.2 million in the three and nine months ended 30 September 1998 to £93.0 million and £275.6 million 

for the three and nine months ended 30 September 1999, respectively. Purchases of tangible fixed assets for 

three and nine months ended 30 September 1998 include the purchase of TNW assets in Amsterdam for 

approximately £41.0 million. The increase in net cash outflow for the nine months ended 30 September 1999 

over the same period in 1998 was primarily as a result of purchases of fixed assets which increased from 

£151.0 million to £261.4 million. 

During the nine months ended 30 September 1999, proceeds of £509.6 million were raised from 

concurrent placements of ordinary shares and senior convertible notes and exercises of options and warrants. 

Balances of cash and investments in liquid resources at 30 September 1999 totalled £905.7 million compared 

with £1,026.7 million at 30 June 1999. 

COLT has entered into a series of British pound sterling forward contracts to purchase U.S. dollars as 

required by the bank facility agreement. 

Year 2000 

In 1996 COLT commenced the planning process for the management of the business risk associated with 

the "Year 2000" issue. In 1997 COLT commenced the implementation of its Year 2000 programme which 

consisted of 4 phases: 

1. Prepare inventory of relevant suppliers and contact all suppliers requesting their compliance status. 

2. Receive supplier statements and pursue outstanding responses. Identify necessary internal 

compliance work. 

3. Confirm supplier compliance and ensure internal work complete. 

4. Complete COLT testing of all elements of service. 

While allowing for the fact that COLT is an expanding company and its Year 2000 programme as a 

consequence is an ongoing activity, all above phases were completed by 30 September 1999. However, as new 

equipment or systems have been defined, they have been subject to additional Year 2000 assessment, and 

COLT continues to monitor Year 2000 statements from its key suppliers. 

A change freeze process has now been implemented, which restricts the type of changes that may be 

made through Q4 and into January 2000. The process also defines the level of sign-off required to make any 

change during given periods plus associated testing and documentation requirements. 

Contingency and Containment (C&C) planning was completed at the end of Q2, with testing completed 

at the end of Q3. The 9th of September passed without related incident and a number of COLT countries used 

the date as a 'dry-run' for C&C plans. As a result of the testing and 'dry-runs', a small number of minor 

amendments are being made to the C&C plans, which should serve to further reduce any risks. 

COLT remains in contact with other carriers who provide interconnects to obtain continued assurance 

about their Year 2000 readiness. The total cost related to Year 2000 activities, including internal costs, is 

estimated to be in the range of £4.5 to £5.0 million, of which £3.5 million has been incurred to date. 

A-8

PROFIT AND LOSS ACCOUNT 

Three months ended 30 September Nine months ended 30 September 

1998 1999 1999 1998 1999 1999 

£'000 £'000 $'000 £'000 £'000 $'000 

Turnover 

Switched 45,439 69,016 113,580 110,091 196,623 323,582 

Non-switched 15,354 34,795 57,262 32,046 85,161 140,150 

Other 274 731 1,203 652 1,851 3,046 

61,067 104,542 172,045 142,789 283,635 466,778 

Cost of sales 

Interconnect and 

network (42,299) (70,587) (116,165) (99,854) (193,831) (318,988) 

Network depreciation (7,174) (12,843) (21,136) (16,178) (34,842) (57,339) 

(49,473) (83,430) (137,301) (116,032) (228,673) (376,327) 

Gross profit 11,594 21,112 34,744 26,757 54,962 90,451 


Selling, general and 

administrative (19,737) (33,394) (54,956) (47,341) (92,215) (151,759) 

Other depreciation and 

amortisation (1,624) (4,413) (7,263) (3,217) (9,889) (16,274) 

(21,361) (37,807) (62,219) (50,558) (102,104) (168,033) 

Operating loss (9,767) (16,695) (27,475) (23,801) (47,142) (77,582) 


Interest receivable 6,459 7,799 12,835 13,138 24,087 39,640 

Interest payable and 

similar charges (12,729) (16,880) (27,779) (28,490) (48,373) (79,607) 

Exchange gain (loss) 612 3,854 6,342 1,578 (292) (481) 

(5,658) (5,227) (8,602) (13,774) (24,578) (40,448) 

Loss on ordinary activities 

before taxation (15,425) (21,922) (36,077) (37,575) (71,720) (118,030) 

Taxation — — — — — - — 

Loss for period (15,425) (21,922) (36,077) (37,575) (71,720) (118,030) 

Basic and diluted loss per 

share £ (0.03) £ (0.03) $ (0.06) £ (0.07) £ (0.11) $ (0.19) 

There is no difference between the loss on ordinary activities before taxation and the retained loss for the 

periods stated above, and their historical cost equivalents. 

All of the Group's activities are continuing. 

Basic and diluted loss per share for the periods ending 30 September 1998 has been restated to reflect the 

4-for-1 split of the Company's ordinary shares effective 2 September 1998. 

The basis on which this information have been prepared is described in Note 1 to these financial 

statements. 

A-9

BALANCE SHEET 

At 31 December At 30 September At 30 September 

1998 1999 1999 

£'000 £'000 $'000 

Fixed assets 

Intangible fixed assets (net) 16,481 17,021 28,010 

Tangible fixed assets (cost) 414,552 708,460 1,165,913 

Accumulated depreciation (49,544) (90,601) (149,102) 

Tangible fixed assets (net) 365,008 617,859 1,016,811 

Total fixed assets 381,489 634,880 1,044,821 

Current assets 

Inventories for future sale — 13,063 21,498 

Trade debtors 53,632 76,712 126,245 

Prepaid expenses and other debtors 14,359 37,013 60,912 

Investments in liquid resources 711,671 887,024 1,459,776 

Cash at bank and in hand 15,279 18,693 30,763 

Total current assets 794,941 1,032,505 1,699,194 

Total assets 1,176,430 1,667,385 2,744,015 

Capital and reserves 

Called up share capital 14,837 16,004 26,338 

Share premium 454,660 775,124 1,275,621 

Merger reserve 11,347 13,110 21,575 

Shares to be issued 3,885 5,297 8,717 

Profit and loss account (97,661) (193,561) (318,543) 

Equity shareholders' funds 387,068 615,974 1,013,708 

Creditors 

Amounts falling due within one year 117,840 220,419 362,743 


Convertible debt 231,828 397,049 653,424 

Non-convertible debt 439,694 433,943 714,140 

Total amounts falling due after more than 

one year 671,522 830,992 1,367,564 

Total creditors 789,362 1,051,411 1,730,307 

Total liabilities, capital and reserves 1,176,430 1,667,385 2,744,015 

A-10

CASH FLOW STATEMENT 


1998 1999 1999 1998 1999 1999 

£'000 £'000 $'000 £'000 £ '0 0 0 $'000 

Net cash inflow (outflow) from 

operating activities 4,896 (21,165) (34,831) 1,041 (4,598) (7,567) 

Returns on investments and 

servicing of finance 

Interest received 6,629 4,266 7,021 13,329 16,028 26,377 

Interest paid, finance costs and 

similar charges (11,225) (11,919) (19,615) (16,312) (30,250) (49,782) 


returns on investments and 

servicing of finance (4,596) (7,653) (12,594) (2,983) (14,222) (23,405) 

Capital expenditure and financial 

investment 

Purchase of tangible fixed 

assets (88,144) (85,395) (140,535) (151,015) (261,425) (430,227) 

Net cash outflow from capital 

expenditure and financial 

investment (88,144) (85,395) (140,535) (151,015) (261,425) (430,227) 

Acquisitions and disposals (205) — — (205) — — 

Management of liquid resources (586,118) 92,426 152,105 (480,837) (225,160) (370,546) 

Financing 

Issue of ordinary shares 229,276 3,866 6,362 230,324 310,047 510,244 

Issue of senior convertible notes 204,332 — — 204,332 199,594 328,472 

Issue of senior notes 204,332 — — 204,332 — — 

Net cash inflow from financing 637,940 3,866 6,362 638,988 509,641 838,716 

Increase (decrease) in cash (36,227) (17,921) (29,493) 4,989 4,236 6,971 

A-11

NOTES TO FINANCIAL STATEMENTS 

1. Basis of presentation and principal accounting policies 

COLT Telecom Group plc ("COLT" or the "Company"), together with its subsidiaries, is referred to as 

the Group. Consolidated financial statements have been presented for the Company for the three and nine 

months ended 30 September 1998 and 1999 and at 31 December 1998 and 30 September 1999. 

The financial statements for the three and nine months ended 30 September 1998 and 1999 and at 30 

September 1999 are unaudited and do not constitute statutory accounts within the meaning of Section 240 of 

the Companies Act 1985. In the opinion of management, the financial statements for these periods reflect all 

the adjustments necessary to present fairly the financial position, results of operations and cash flows for the 

periods in conformity with generally accepted accounting principles. All adjustments were of a normal 

recurring nature. The Balance Sheet at 31 December 1998 has been extracted from the Group's audited 

financial statements for that period and does not constitute the Group's statutory accounts for that period. 

The Company completed a 4-for-1 split of its ordinary shares effective 2 September 1998. All ordinary 

share, convertible preference share and basic and diluted loss per share amounts for prior periods have been 

restated to reflect the share split. 

In March 1999, the Company completed the sale of 26,550,000 ordinary shares raising proceeds of 

£300.0 million before expenses of £10.5 million. Concurrent with the placement of ordinary shares, the 

Company issued Euro295 million principal amount of 2% senior convertible notes due 2006 raising proceeds of 

£199.6 million before expenses of £5.1 million. On 1 April 1999, the underwriters of the Company's equity 

placement exercised their option to sell an additional 1,280,000 ordinary shares raising proceeds of 

£14.5 million before expenses of £0.5 million. 

In April 1999, £11,580,054 aggregate accreted amount of junior subordinated convertible debentures 

were converted to 12,500,366 ordinary shares. The conversion of the junior subordinated convertible 

debentures represents a major non-cash transaction. 

In April 1999, the Company commenced construction of a multi-duct intercity network in Germany. 

The Company intends to sell a number of ducts within the network to other telecommunications operators; 

construction charges associated with these ducts are recorded as "Inventories for future sale". The Company 

has also entered into a cost sharing agreement with another telecommunications operator in respect of the 

remaining ducts. Construction charges attributable to the other telecommunications operator are set against 

advance payments received and recorded within "Creditors — Amounts falling due within one year". 

Construction charges attributable to the Company are recorded as "Tangible fixed assets". 

In July 1998, the Company completed the sale of DM600 million principal amount of 7.625% senior 

notes due 2008 for total cash consideration of £204.3 million before expenses of £5.9 million. Concurrent with 

the senior note offering, the Company issued DM600 million principal amount of 2% senior convertible notes 

due 2005 raising proceeds of £204.3 million before expenses of £5.2 million and 33,120,000 ordinary shares 

raising proceeds of £238.1 million before expenses of £9.3 million. The senior convertible note and ordinary 

share offerings were completed in August 1998. 

On 1 July 1998, the Company completed the acquisition of the fibre optic network and associated assets 

of Telecom Noord West N. V., a wholly owned subsidiary of Energie Noord West N. V., for cash consideration 

of NLG 141 million. 

On 15 July 1998, the Company completed the acquisition of ImagiNet, an internet service provider 

(ISP) in Paris. The consideration was in the form of 2.1 million French francs and the issue of 

1,871,500 ordinary shares, of which 1,395,292 ordinary shares were issued at completion and 119,052 were 

issued on 2 August 1999. The balance of 357,156 ordinary shares will be issued, subject to certain conditions 

being met, during 1999 and 2000. 

Certain British pound sterling amounts in the financial statements have been translated into U.S. dollars 

at 30 September 1999 and for the periods then ended at the rate of $1.6457 to the British pound sterling, 

A-12

NOTES TO FINANCIAL STATEMENTS — (Continued) 

which was the noon buying rate in the City of New York for cable transfers in British pounds sterling as 

certified for customs purposes by the Federal Reserve Bank of New York on such date. Such translations 

should not be construed as representations that the British pound sterling amounts have been or could be 

converted into U.S. dollars at that or any other rate. 

Included in interest paid, finance costs and similar charges on the cash flow statement are costs of 

£11,107,000 associated with the issue of the 1998 senior notes and senior convertible notes. Previously for the 

three and nine months ended September 1998 these costs were deducted from the proceeds of the issue of the 

notes. 

2. Segmental information 

For the three months ended 30 September 1998 and 30 September 1999, turnover by country of origin 

was as follows: 

Three months ended 30 September 1998 Three months ended 30 September 1999 

United Rest of United Rest of 

Kingdom Germany France Europe Total Kingdom Germany France Europe Total 

£ '0 0 0 £'000 £'000 £ '0 0 0 £'000 £'000 £'000 £'000 £'000 £'000 

Switched 29,154 11,744 4,448 93 45,439 32,487 21,314 8,019 7,196 69,016 

Non-switched 7,982 4,188 1,908 1,276 15,354 14,127 11,639 4,532 4,497 34,795 

Other — 146 — 128 274 — 478 — 253 731 

Total 37,136 16,078 6,356 1,497 61,067 46,614 33,431 12,551 11,946 104,542 

For the nine months ended 30 September 1998 and 30 September 1999, turnover by country of origin was 

as follows: 

Nine months ended 30 September 1998 Nine months ended 30 September 1999 

United Rest of United Rest of 

Kingdom Germany France Europe Total Kingdom Germany France Europe Total 

£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 

Switched 76,848 25,877 7,273 93 110,091 97,156 59,701 22,553 17,213 196,623 

Non-switched 19,774 8,511 2,446 1,315 32,046 36,820 26,961 10,917 10,463 85,161 

Other 9 357 — 286 652 20 1,076 10 745 1,851 

Total 96,631 34,745 9,719 1,694 142,789 133,996 87,738 33,480 28,421 283,635 

3. Loss per share 


1998 1998 1999 1998 1999 1999 

£'000 £'000 $'000 £'000 £'000 $'000 

Loss for period (15,425) (21,922) (36,077) (37,575) (71,720) (118,030) 

Weighted average ordinary shares 

issued ('000) 533,740 638,787 638,787 472,517 625,916 625,916 

Weighted average ordinary shares 

issuable upon conversion of 

preference shares ('000) 14,784 — — 57,729 — —• 

Ordinary shares used in calculation 

of basic and diluted loss per share 

('000) : 548,524 638,787 638,787 530,246 625,916 625,916 

Basic and diluted loss per share £ (0.03) £ (0.03) $ (0.06) £ (0.07) £ (0.11) $ (0.19) 

A-13


The Company completed a 4-for-1 split of its ordinary shares effective 2 September 1998. Ordinary share, 

convertible preference share and basic and diluted loss per share amounts for prior periods have been restated 

accordingly. 

4. Net cash inflow (outflow) from operating activities 


1998 1999 1999 1998 1999 19998 

£'000 £'000 $'000 £'000 £'000 $ '0 0 0 

Operating loss (9,767) (16,695) (27,475) (23,801) (47,142) (77,582) 

Depreciation and amortization of 

fixed assets 8,798 17,256 28,399 19,395 44,731 73,613 

Exchange differences (7) 215 354 26 140 230 

Decrease (increase) in inventories — (3,364) (5,536) — (13,204) (21,729) 

Decrease (increase) in debtors (14,068) (14,348) (23,613) (33,489) (41,789) (68,772) 

Decrease (increase) in creditors 19,940 (4,229) (6,960) 38,910 52,666 86,673 


operating activities 4,896 (21,165) (34,831) 1,041 (4,598) (7,567) 

In April 1999, the Company commenced construction of a multi-duct intercity network in Germany. The 

Company intends to sell a number of ducts within the network to other telecommunications operators; 

construction charges associated with these ducts are recorded as "Inventories for future sale". The Company 

has also entered into a cost sharing agreement with another telecommunications operator in respect of the 

remaining ducts. Construction charges attributable to the other telecommunications operator are set against 

advance payments received and recorded within "Creditors — Amounts falling due within one year". 

Construction charges attributable to the Company are recorded as "Tangible fixed assets". 

5. Changes in cash and investments in liquid resources 


1998 1999 1999 1998 1999 1999 

£'000 £'000 $'000 £'000 £'000 $'000 

Beginning of period 198,882 1,026,737 1,689,701 268,113 726,950 1,196,342 

Net increase (decrease) in investments 

in liquid resources before exchange 

differences 586,118 (92,426) (152,105) 480,837 225,160 370,546 

Effects of exchange differences in 

investments in liquid resources 14,077 (10,520) (17,313) 12,506 (49,807) (81,967) 

Net increase (decrease) in cash before 

exchange differences (36,227) (17,921) (29,493) 4,989 4,236 6,971 

Effects of exchange differences in cash 895 (153) (251) (2,700) (822) (1,353) 

End of period 763,745 905,717 1,490,539 763,745 905,717 1,490,539 

A-14


6. Summary of differences between U.K. Generally Accepted Accounting Principles and U.S. Generally 

Accepted Accounting Principles (GAAP) 

a. Effects of conforming to U.S. GAAP — impact on net loss 


1998 1999 1999 1998 1999 1999 

£'000 £'000 $'000 £'000 £'000 $'000 

Loss for period: 

Loss for period for Company (15,425) (21,922) (36,077) (37,575) (71,720) (118,030) 

Adjustments: 

Payments by COLT Inc./FMR 

Corp. (i) — (1,013) (1,667) (532) (1,237) (2,035) 

Amortisation of intangibles (ii) (35) (46) (76) (106) (139) (229) 

Capitalised interest, net of 

depreciation (iii) 613 1,997 3,286 1,469 3,658 6,020 

Deferred compensation (iv) (v) (573) (461) (758) (573) (1,869) (3,076) 

Amortisation of intangibles (iv) 97 157 258 97 351 578 

Loss for period under U.S GAAP (15,323) (21,288) (35,034) (37,220) (70,956) (116,772) 

Ordinary shares used in 

calculation of basic and diluted 

loss per share ('000) (vi) 533,740 638,787 638,787 472,517 625,916 625,916 

Basic and diluted loss per 

share (vi) £(0.03) £(0.03) $ (0.05) £(0.08) £(0.11) $ (0.19) 

(i) On 27 December 1996, COLT Inc. sold 7,200,000 ordinary shares it owned in COLT to 

James P. Hynes and Paul W. Chisholm for total consideration of $1,867,500. Related to this transaction, 

COLT Inc. made payments to James P. Hynes and Paul W. Chisholm in March 1998 totalling approximately 

£532,000 and a payment to James P. Hynes in January 1999 totalling approximately £224,000. Under 

U.K. GAAP, the payments are disclosed as transactions between COLT Inc. and the directors while under 

U.S. GAAP, the payments are reflected as an expense and a capital contribution by COLT Inc. 

Pursuant to a contract with the Company, certain FMR Corp. employees provide consulting and other 

services to the Company at agreed rates. FMR Corp. may also provide additional compensation and benefits to 

these employees related to services to the Company. Such amounts for the three and nine month periods 

ended 30 September 1999 totalled £1,013,000. 

(ii) Following an acquisition by the Group, £1,354,000 of intangible assets were written off to reserves 

under U.K. GAAP. Under U.S. GAAP, such amount is capitalised and amortised on a straight line basis over 

eight years. 

(iii) Adjustment to reflect interest amounts capitalised under U.S. GAAP, less depreciation for the 

period. 

(iv) On 15 July 1998 the Company completed the acquisition of ImagiNet. A total of 1,395,292 ordinary 

shares were issued at completion. An additional 119,052 ordinary shares were issued on 2 August 1999 and a 

further 357,156 ordinary shares will be issued during 1999 and 2000 subject to certain conditions being met. 

Under U.K. GAAP, the deferred shares have been treated as additional purchase consideration and 

attributable goodwill is being amortised. Under U.S. GAAP, these deferred shares are treated as 

compensation expense and reflected in the profit and loss account over the length of the deferral period. The 

charges for the three and nine months ended 30 September 1999 were £330,000 and £1,476,000 respectively. 

Goodwill adjustment reflects a reduction in the associated amortisation charge under U.S. GAAP. 

A-15


(v) The Company operates a Free Share scheme as a method of compensating certain employees. Under 

both U.K. and U.S. GAAP, the difference between the market value of the shares on the date of grant and the 

price paid for the shares is charged to the profit and loss account over the period over which the shares are 

earned. 

The Company also operates an Inland Revenue approved SAYE scheme. Under this scheme, options 

may be granted at a discount of up to 20%. In contrast to U.K. GAAP, under U.S. GAAP, the discount is 

recognised as a compensation expense and the accounting treatment is similar to the Free Share scheme. 

Charges for the three and nine months ended 30 September 1999 under the SAYE scheme were £131,000 and 

£393,000, respectively. Under U.S. GAAP for both the Free Share and SAYE schemes the total expected 

compensation cost is recorded within equity shareholders' funds as unearned compensation and additional paid 

in share capital, with the unearned compensation being charged to the profit and loss account in the manner 

described above. 

(vi) Ordinary shares issuable upon conversion of convertible preference shares are not included in the 

calculation of basic and diluted loss per share under U.S. GAAP. The Company completed a 4-for-l split of 

its ordinary shares effective 2 September 1998. Ordinary share and basic and diluted loss per share amounts 

for prior periods have been restated to reflect the share split. 

b. Effects of conforming to U.S. GAAP — impact on net equity 

At 30 September 1999 

£'000 $'000 

Equity shareholders' funds for the Company 615,974 1,013,708 

U.S. GAAP adjustments: 

U.S. GAAP adjustment to loss for period (1,237) (2,035) 

U.S. GAAP addition to contributed capital 1,237 2,035 

U.S. GAAP adjustment for deferred purchase consideration under 

U.K. GAAP (7,062) (11,622) 

U.S. GAAP adjustment for deferred compensation (3,286) (5,408) 

Unearned compensation (2,050) (3,374) 

Additional paid in share capital 2,714 4,467 

Amortisation of intangibles 545 897 

Intangible assets, net of amortisation 754 1,241 

Capitalised interest, net of depreciation 7,330 12,063 

Approximate equity shareholders' funds under U.S. GAAP 614,919 1,011,972 

c. Effects of conforming to U.S. GAAP — cask flow statement 

The Group's unaudited financial statements present the cash flow statement prepared in accordance with 

U.K. Accounting Standard FRS 1 (revised), "Cash Flow Statements" which presents substantially the same 

information as that required under U.S. Statement of Financial Accounting Standard No. 95 ("FAS 95"). 

FAS 95 requires presentation of the cash flows from operating, investing and financing activities. Under 

U.S. GAAP cash flows from operating activities and returns on investments and servicing of finance would be 

included in operating activities; and cash flows from capital expenditure and financial investment and 

acquisitions and disposals would be included in investing activities. Under U.K. GAAP liquid resources are 

considered cash equivalents which under U.S. GAAP are included in the "Increase (decrease) in cash and 

cash equivalents". 

A-16


d. Effects of conforming to U.S. GAAP — stock options 

At 30 September 1999 the Company had certain options outstanding under its option plans. As permitted 

by SFAS No. 123, "Accounting for Stock-Based Compensation", the Company elected not to adopt the 

recognition provisions of the standard and to continue to apply the provisions of Accounting Principles Board 

Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its stock options and awards. 

Had compensation expense for stock options and awards been determined in accordance with SFAS No. 123, 

the Company's loss for the three and nine-month periods ended 30 September 1999 would have been 

£23.7 million ($39.0 million) and £77.5 million ($127.5 million), respectively. 

Forward Looking Statements 

This report contains "forward looking statements" including statements concerning plans, future events or 

performance and underlying assumptions and other statements which are other than statements of historical 

fact. The Company wishes to caution readers that any such forward looking statements are not guarantees of 

future performance and certain important factors could in the future affect the Company's actual results and 

could cause the Company's actual results for future periods to differ materially from those expressed in any 

forward looking statement made by or on behalf of the Company. These include, among others, the following: 

(i) any adverse change in the laws, regulations and policies governing the ownership of telecommunications 

licences, (ii) the ability of the Company to expand and develop its networks in new markets, (iii) the 

Company's ability to manage its growth and (iv) the nature of the competition that the Company will 

encounter and (v) unforeseen operational or technical problems. The Company undertakes no obligation to 

release publicly the results of any revision to these forward looking statements that may be made to reflect 

errors or circumstances that occur after the date hereof. 

Enquiries 


John Doherty, Director Investor Relations Tel: + 44 171 390 3681 

A-17

Audited Financial Statements 

AUDITED FINANCIAL STATEMENTS 

INDEX 

APPENDIX C 

Report of Independent Accountants C-2 

Report of Independent Accountants C-3 

Combined Profit and Loss Account for the year ended 31 December 1996 and Consolidated Profit 

and Loss Accounts for the two years ended 31 December 1998 C-4 

Consolidated Balance Sheets at 31 December 1997 and 1998 C-5 

Combined Cash Flow Statement for the year ended 31 December 1996 and Consolidated Cash Flow 

Statements for the two years ended 31 December 1998 C-6 

Combined Statement of Total Recognised Gains and Losses for the year ended 31 December 1996 

and Consolidated Statements of Total Recognised Gains and Losses for the two years ended 

31 December 1998 C-7 

Combined Reconciliation of Changes in Equity Shareholders' Funds for the year ended 31 December 

1996 and Consolidated Reconciliations of Changes in Equity Shareholders' Funds for the two years 

ended 31 December 1998 C-7 

Notes to Financial Statements C-8 

C-1 

Page

Coopers 

&Lybrand 

To the Board of Directors and Shareholders 


business assurance 

business recovery and insolvency 

corporate finance 

management consulting 

tax and human resource advice 

REPORT OF INDEPENDENT ACCOUNTANTS 

1 Embankment Place 

London WC2N 6NN 

We have audited the consolidated balance sheet of COLT Telecom Group plc and the related 

consolidated profit and loss account, statement of total recognised gains and losses, cash flow statement, 

reconciliation of changes in shareholders' funds and notes thereto, appearing on pages [C-4 to C-34] of the 

COLT Telecom Group plc 1998 Annual Report to Shareholders, at December 31, 1997 and for the year then 

ended, all expressed in pounds sterling. We have also audited the combined profit and loss account, statement 

of total recognised gains and losses, cash flow statement, reconciliation of changes in shareholders' funds and 

notes thereto, appearing on pages [C-4 to C-34] of the COLT Telecom Group plc 1998 Annual Report to 

Shareholders, for the year ended December 31, 1996, all expressed in pounds sterling. These financial 

statements are the responsibility of the company's management. Our responsibility is to express an opinion on 

these financial statements based on our audits. 

We conducted our audits in accordance with United Kingdom generally accepted auditing standards 

which do not differ in any material respect from auditing standards generally accepted in the United States. 

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 

financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence 

supporting the amounts and disclosures in the financial information. An audit also includes assessing the 

accounting principles used and significant estimates made by management, as well as evaluating the overall 

financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 

In our opinion, the financial statements referred to above, present fairly, in all material respects, the 

financial position of COLT Telecom Group plc at December 31, 1997, and the results of its operations and its 

cash flows for the years ended December 31, 1997 and 1996, in conformity with generally accepted accounting 

principles in the United Kingdom 

Accounting principles generally accepted in the United Kingdom differ in certain significant respects 

from accounting principles generally accepted in the United States. Note 27 to the financial statements 

summarises those items which differ for each of the two years in the period ended December 31, 1997. 

Coopers & Lybrand 

Chartered Accountants and Registered Auditors 

London, England 

June 24, 1998 

C-2

PRICEWATERHOUSECOOPERS 

To the Board of Directors and Shareholders 


REPORT OF INDEPENDENT ACCOUNTANTS 

PricewaterhouseCoopers 

1 Embankment Place 

London WC2N 6NN 

In our opinion, the consolidated balance sheet and the related consolidated profit and loss account, 

statement of total recognised gains and losses, cash flow statement, reconciliation of changes in shareholders' 

funds and notes thereto, appearing on pages [C-4 to C-34] of the COLT Telecom Group plc 1998 Annual 

Report to Shareholders, present fairly, in all material respects, the financial position of COLT Telecom Group 

plc and its subsidiaries at December 31, 1998 and the results of its operations and its cash flows for the year 

then ended, in conformity with accounting principles generally accepted in the United Kingdom. These 

financial statements are the responsibility of the company's management; our responsibility is to express an 

opinion on these financial statements based on our audit. We conducted our audit of these statements in 

accordance with auditing standards generally accepted in the United Kingdom, which do not differ in any 

material respect from auditing standards generally accepted in the United States. Those standards require that 

we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 

of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and 

disclosures in the financial statements, assessing the accounting principles used and significant estimates made 

by management, and evaluating the overall financial statement presentation. We believe that our audit 

provides a reasonable basis for the opinion expressed above. 

Accounting principles generally accepted in the United Kingdom vary in certain significant respects from 

accounting principles generally accepted in the. United States. The application of the latter would have 

affected the determination of consolidated net loss expressed in pounds sterling for the year ended 

December 31, 1998 and the determination of consolidated shareholders' funds and consolidated financial 

position also expressed in pounds sterling at December 31, 1998 to the extent summarised in Note 27 to the 

consolidated financial statements. 

PricewaterhouseCoopers 

Chartered Accountants and Registered Auditors 

March 30, 1999 

C-3

PROFIT AND LOSS ACCOUNT 

Combined 

Year ended Consolidated 

31 December Year ended 31 December 

1996 1997 1 9 9 8 1998 

Notes £'000 £'000 £'000 $'000 

Turnover 2 

Switched 27,030 62,158 162,232 269,75??? 

Non-switched 7,791 18,731 51,880 86,26??? 

Other 158 581 940 1,56??? 

34,979 81,470 215,052 3 5 7 , 5 8 ? ? ? 

Cost of sales 

Interconnect and network (24,396) (55,965) (148,329) (246,641 

Network depreciation (5,044) (10,509) (24,022) (39,944 

(29,440) (66,474) (172,351) (286,585 

Gross profit 5,539 14,996 42,701 71,003 


Selling, general and administrative (13,762) (33,729) (71,767) (119,334 

Other depreciation and amortisation (808) (1,923) (5,064) (8,420 

(14,570) (35,652) (76,831) (127,754 

Operating loss (9,031) (20,656) (34,130) (56,751 


Interest receivable 531 7,832 21,747 36,161 

Interest payable and similar charges 6 (2,717) (20,446) (43,574) (72,455 

Gain on disposal of fixed asset investment 11 8 — — — 

Exchange gain - - 721 355 590 

(2,178) (11,893) (21,472) (35,704 

Loss on ordinary activities before taxation 3 (11,209) (32,549) (55,602) (92,455 

Taxation 7 — — — — 

Loss for period 13 (11,209) (32,549) (55,602) (92,455 

Basic and diluted loss per share 8 £(0.03) £(0.07) £(0.10) $(0.17 

There is no difference between the loss on ordinary activities before taxation and the retained loss for the periods stated above, and their historical cost equivalents. 

COLT Telecom Group plc began operations on 27 September 1996. All of the Group's activities are continuing. Post acquisition results of subsidiaries acquired are no 

separately disclosed as they are not material to the results of the Group. Combined financial information for the year ended 31 December 1996 has been included to 

provide shareholders with additional information concerning the Group's interests. The basis on which this information has been prepared is described in note 1 to thes 

financial statements. 

The accompanying notes are an integral part of the financial statements 

C-4

BALANCE SHEET 

Consolidated 

At 31 December 

1997 1998 1998 

Notes £'000 £'000 $'000 

Fixed assets 

Intangible fixed assets 9 — 16,481 27,405 

Tangible fixed assets 10 162,134 365,008 606,935 

Total fixed assets 162,134 381,489 634,340 


Trade debtors 12 20,026 53,632 89,179 

Prepaid expenses and other debtors 12 7,913 14,359 23,876 

Investments in liquid resources . 17 257,290 711,671 1,183,367 

Cash at bank and in hand 17 10,823 15,279 25,406 

Total current assets 296,052 794,941 1,321,828 

Total assets 458,186 1,176,430 1,956,168 

Capital and reserves 13 


Share premium 193,997 454,660 756,009 

Merger reserve - - 11,347 18,868 

Shares to be issued - - 3,885 6,460 

Profit and loss account (49,184) (97,661) (162,391) 

Equity shareholders' funds 157,818 387,068 643,617 

Creditors 

Amounts falling due within one year 14 47,532 117,840 195,944 

Amounts falling due after more than one year 15 



Total amounts falling due after more than one year 252,836 671,522 1,116,607 

Total creditors 300,368 789,362 1,312,551 

Total liabilities, capital and reserves 458,186 1,176,430 1,956,168 

Approved by the Board of Directors on 30 March 1999 and signed on its behalf by: 

James P Hynes. Chairman of the Board of Directors 

Paul W Chisholm. President. Chief Executive Officer and Director 


C-5

CASH FLOW STATEMENT 

Combined 



1996 1997 1998 1998 

Notes £'000 £'000 £'000 $'000 

Net cash inflow (outflow) from operating activities 16 653 (14,708) 7,106 11,816 

Returns on investments and servicing of finance 

Interest received 531 7,594 20,968 34,866 

Interest paid, finance costs and similar charges 17 (5,450) (3,624) (21,447) (35,662 

Net cash inflow (outflow) from returns on investments and servicing of finance (4,919) 3,970 (479) (796) 

Capital expenditure and financial investment 

Purchase of tangible fixed assets (38,740) (93,211) (211,163) (351,122) 

Decrease in investment 8 — — — 

Security deposit — (1,893) — — 

Net cash outflow from capital expenditure and financial investment (38,732) (95,104) (211,163) (351,122) 

Acquisitions and disposals 18 - - (543) (205) (341) 

Management of liquid resources 17 (158,691) (98,191) (430,027) (715,049) 

Financing 19 

Contributed capital 11,497 — — - - 

Funding received from COLT Inc. 25,033 — — — 

Repayment of funding received from COLT Inc. (39,893) (2,122) — — 

Issue of ordinary shares 82,271 117,224 233,178 387,729 

Issue of junior subordinated convertible debentures 17,016 — — — 

Issue of senior convertible notes - - - - 204,332 339,763 

Issue of units consisting of senior discount notes and warrants 106,501 — — — 

Issue of senior notes - - 100,661 204,332 339,763 

Net cash inflow from financing 202,425 215,763 641,842 1,067,255 

Increase in cash 17 736 11,187 7,074 11,763 


C-6

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 

Combined 



1996 1997 1998 1998 

£'000 £'000 £'000 $'000 

Loss for period (11,209) (32,549) (55,602) (92,455) 

Currency translation differences on foreign currency net investments (1,602) (5,990) 7,099 11,804 

Total recognised losses (12,811) (38,539) (48,503) (80,651) 

RECONCILIATION OF CHANGES IN EQUITY SHAREHOLDERS' FUNDS 

Combined 



1996 1997 1998 1998 

£'000 £'000 £'000 $'000 

Loss for period (11,209) (32,549) (55,602) (92,455) 

Increase in contributed capital 51,576 — — — 

Elimination of pre-acquisition shareholders' funds (50,708) - - - - — 

Issue of share capital in reorganisation 53,030 — — — 

Goodwill arising on acquisition (38,401) (1,130) (224) (372) 

Issue of share capital 67,284 117,224 244,560 406,654 

Issue of warrants 3,303 — — — 

Conversion of junior subordinated convertible debentures — — 29,282 48,690 

Shares to be issued - - — 3,885 6,460 

Charges related to the Free Share Scheme (see note 13) — — 250 416 

Exchange differences (1,080) (5,990) 7,099 11,804 

Net changes in equity shareholders'funds 73,795 77,555 229,250 381,197 

Opening equits shareholders' funds 6,468 80,263 157,818 262,420 

Closing equity shareholders' funds 80,263 157,818 387,068 643,617 


C-7

1 . BASIS OF PRESENTATION AND PRINCIPAL ACCOUNTING POLICIES 

COLT Telecom Group plc ("COLT" or the "Company") entered into a series of transactions in September 1996. whereby the Company acquired the entire share capital 

of COLT Telecommunications. City of London Telecommunications Limited, COLT Telecom GmbH and COLT Telecommunications France SAS (the "Operatin 

Companies"). These transactions have been accounted for as an acquisition under generally accepted accounting principles in the United Kingdom. The Company 

together with its subsidiaries, including the Operating Companies, is referred to as the Group. 

Consolidated financial statements have been presented for the Group for the year ended 31 December 1997 and at 31 December 1997 and for the year ende 

31 December 1998 and at 31 December 1998. In addition, as the Operating Companies were under common control and management both before and after Septembe 

1996. financial information has been presented for the year ended 31 December 1996 as a combination of financial information of the Group and where appropriate th 

Operating Companies. 

As permitted by paragraph 3 (3) of Schedule 4 of the Companies Act 1985. the directors have adapted the prescribed profit and loss format in a manner appropriate to th 

nature of the Group's business. 

The Company completed a 4-for-l split of its ordinary shares effective 2 September 1998. All ordinary share, convertible preference share and other relevant disclosure 

for prior periods have been restated to reflect the share split. 

Certain pound sterling amounts in the financial statements have been translated into U.S. dollars at 31 December 1998 and for the year then ended at the rate of $1,662: 

in the pound sterling, which was the noon buying rate in the City of New York for cable transfers in pounds sterling as certified for customs purposes by the Federa 

Reserve Bank of New York on such date. Such translations should not be construed as representations that the pound sterling amounts have been or could be converted into 

U S dollar at that or any other rate. 

Accounting policies 

The principal accounting policies, which have been applied consistently for all periods, are set out below. 

Basis of accounting 

The financial statements have been prepared on the basis described above and in accordance with applicable Accounting Standards in the United Kingdom, under th 

historical cost convention. 

Turnover 

Turnover represents amounts earned for services provided to customers (net of value added tax). Contracted income invoiced in advance for fixed periods is taken ??? 

income in the month of actual service provision. Installation revenue is recognised in the month in which the installation takes place. 

Cost of sales 

Cost of sales includes payments made to other carriers, depreciation of network infrastructure and equipment and direct network costs. 

Operating leases 

Costs in respect of operating leases are charged on a straight-line basis over the lease term. 

Goodwill 

In accordance with Financial Reporting Standard No. 10 ("FRSIO"). "Goodwill and Intangible Assets", goodwill arising on all acquisitions since 1 January 1998 i 

capitalised in the year in which it arises and is eliminated by amortisation through the profit and loss account on a straight line basis over its useful economic life. 

Goodwill arising on the acquisition of ImagiNet will be amortised over 10 years (see note 9). 

Goodwill arising on all acquisitions prior to 1 January 1998 remains written off against reserves. This goodwill has been written off as a matter of accounting policy an 

would be taken to the profit and loss account on a subsequent disposal of the related business. 

C-8

Tangible fixed assets 

Tangible fixed assets are recorded at historical cost. Network infrastructure and equipment comprises network assets purchased, at cost, together with capitalised direct 

labour and salary costs attributable to the cost of construction of the network. 

Depreciation is calculated to write off the cost, less estimated residual values of tangible fixed assets, on a straight-line basis over their expected economic lives as follows: 

Network infrastructure and equipment 5% - 20% per annum 

Office computers, equipment, fixtures and fittings and vehicles 10% - 33% per annum 

Depreciation of network infrastructure and equipment commences from the date it becomes operational. No depreciation is provided for assets under construction. 

Licences 

Annual amounts payable for telecommunications licences have been expensed as incurred. 

Deferred taxation 

Provision is made for deferred taxation, using the liability method, on all material timing differences to the extent that it is probable that a liability or asset will materialise. 

Pension scheme 

The Group operates a number of defined contribution pension schemes through its subsidiaries. Pension costs are charged to the profit and loss account on an accruals 

basis in the period in which contributions are payable to the scheme. 

Foreign currencies and derivative financial instruments 

Transactions denominated in foreign currencies are translated at the rate prevailing at the time of the transaction. Monetary assets and liabilities are translated at the period 

end rate Exchange difterences arising from the retranslation of the opening net assets of subsidiaries denominated in foreign currencies, and any related loans, together 

with the differences between profit and loss accounts translated at average rates and rates ruling at the period end are taken directly to reserves. 

Translation differences on intra-group currency loans and foreign currency borrowings to the extent that they are used to finance or hedge group equity investments in 

foreign enterprises are taken directly to reserves together with the exchange differences on the carrying value of the related investments. 

Forward exchange contracts are deemed hedges only where they relate to actual foreign currency assets and liabilities or commitments which have been identified and 

where they involve the same, or similar, currency as the hedged transaction and reduce me risk to the Group's operations arising from foreign currency exchange 

movements.Gains and losses on forward exchange contracts deemed as hedges are deferred and included in the value of the related foreign currency transaction. 

No other derivative financial instruments, are used by the Group. 

All other exchange differences are taken to the profit and loss account. 

Liquid resources 

Liquid resources include surplus cash invested in marketable government securities or placed on short term deposit. 

C-9

2 . SEGMENTAL INFORMATION 

The Company has adopted SFAS No 131 "Disclosure about Segments of an Enterprise and Related Information" which establishes standards for the reporting ??? 

operating segments in financial statements. 

Factors used to identify reporting segments 

The Group operates in a single business segment, telecommunications, and in geographical areas as shown below. Telecommunications services are provided in a numb 

of European cities, each controlled and managed by local management teams. Local management teams are managed on a country or regional basis. As services betwe??? 

cities and countries increase as a proportion of total telecommunications services, the Company may implement additional or revised management organisations. 

Products and services within each reportable segment. 

Turnover is attributed to a single business segment and. within geographical areas, is classified as switched, non-switched and other as shown below. 

Measurement of segment performance 

Accounting policies adopted by each segment and for each geographical area are described in note 1. Group management evaluates performance based upon profit or lo??? 

on ordinary activities before taxation. 

Segmental analysis for the year ended 31 December 1998, is as follows: 

United 

Kingdom Germany France 

Rest of 

Europe 

Corporate 

and other 

Total 

£'000 £'000 £'000 £'000 £'000 £'000 $'000 

Turnover 

Switched 105,275 42,507 12,670 1,780 — 162,232 269,75??? 

Non-switched 29,150 14,172 5,285 3,273 — 51,880 86,26??? 

Other 9 516 — 415 - - 940 1,56 

134,434 57,195 17,955 5,468 — 215,052 357,58??? 

Depreciation and amortisation (15,105) (7,834) (3,196) (2,951) — (29,086) (48,36??? 

Interest (payable) receivable (6,731) (6,594) (2,629) (3,567) (2,306) (21,827) (36,29- 

Loss on ordinary activities before taxation (7,788) (11,239) (10,515) (16,325) (9,735) (55,602) (92,45??? 

Expenditure on fixed assets 51,167 58,242 16,146 88,311 5,221 219,087 364,29??? 

Tangible fixed assets 123,938 116,353 27,049 92,320 5,348 365,008 606,93??? 

Total assets 158,576 136,766 55,521 105,206 720,361 1,176,430 1,956,16??? 

Net operating assets 105,475 114,017 42,831 89,139 35,606 387,068 643,61??? 

C-10

Segmental analysis for the year ended 31 December 1997, is as follows: 

United 


Rest of 

Europe 

Corporate 

and other 

Total 

£'000 £'000 £'000 £'000 £'000 £'000 $'000 

Turnover 

Switched 58,893 3,012 253 — — 62,158 103,356 

Non-switched 14,161 4,504 66 — — 18,731 31,146 

Other 189 279 — 113 — 581 966 

73,243 7,795 319 113 — 81,470 135,468 

Depreciation and amortisation (9,187) (2,735) (494) (16) - - (12,432) (20,672) 

Interest (payable) receivable (2,525) (2,182) (734) (12) (7,161) (12,614) (20,975) 

Loss on ordinary activities before taxation (4,993) (10,434) (6,098) (661) (10,363) (32,549) (54,122) 

Expenditure on fixed assets 45,656 52,468 11,629 2,944 127 112,824 187,604 

Tangible fixed assets 88,066 59,634 11,338 2,969 127 162,134 269,596 

Total assets 111,954 68,620 14,067 4,489 259,056 458,186 761,872 

Net operating assets 83,268 58,911 9,222 3,933 2,484 157,818 262,420 

Segmental analysis for the year ended 31 December 1996. is as follows: 

United 


Rest of 

Europe 

Corporate 

and other 

Total 

£'000 £'000 £'000 £'000 £'000 £'000 $'000 

Turnover 

Switched 27,009 21 — — - - 27,030 44,945 

Non-switched 6,944 797 - - - - - 7,791 12,955 

Other 133 25 - - — — 158 263 

34,136 843 - - - - - - 34,979 58,163 

Depreciation and amortisation (4,959) (889) (4) - - - - (5,852) (9,731) 

Interest (payable) receivable 213 (16) - - - - (2,383) (2,186) (3,635) 

Loss on ordinary activities before taxation (1,747) (4,550) (585) - - (4,327) (11,209) (18,638) 

Expenditure on fixed assets 25,276 12,972 385 - - - - 38,633 64,239 

Tangible fixed assets 51,188 12,262 385 - - - - 63,835 106,145 

Total assets 66,326 13,951 1,103 — 155,586 236,966 394,027 

Net operating assets 48,304 7,972 584 — 23,403 80,263 133,461 

Turnover by destination is not materially different from turnover by origin. Inter-segment revenue was not material for all years. 

C-11

3 . LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION 

Loss on ordinary activities before taxation is stated after charging: Combined 



1996 1997 1998 1998 

£'000 £'000 £'000 $'000 

Employee costs 7,180 17,285 40,915 68,033 

Depreciation of tangible fixed assets 5,852 12,432 28,234 46,94??? 

Amortisation of goodwill — — 852 1,41??? 

Operating lease rentals - property 638 2,363 5,514 9,16??? 

Remuneration of auditors 

Audit services ( Company £45,000 ( 1997: £20,000, 1996: £20,000)) 61 164 306 50??? 

Non audit services 47 114 108 180 

In addition to the above, the auditors received £171,000 (1997: £141,000.1996: £229,000) for services in connection with the equity and debt offerings described in note 

13 and 15. These costs have been deducted from the proceeds of the offerings. A further £869,000 (1997: £104,250. 1996: nil) was paid in respect of systems developmen 

work which has been included in the cost of fixed assets. 

Non-audit fees of £1,148,000 for PricewaterhouseCoopers include £784,000 paid to Coopers & Lybrand prior to the date of appointment of PricewaterhouseCoopers a 

auditors. Non-audit fees in 1997 comprise solely amounts paid to the previous auditors Coopers & Lybrand. 

Earnings before interest, taxes, depreciation, exchange differences and amortisation ("EBITDA") 

Combined 



1996 1997 1998 1998 

£'000 £'000 £'000 $'000 

Loss for period (11,209) (32,549) (55,602) (92,455 

Plus: 

Network depreciation 5,044 10,509 24,022 39,944 

Other depreciation and amortisation 808 1,923 5,064 8,420 

Interest payable 2,717 20,446 43,574 72,455 

Less: 

Interest receivable (531) (7,832) (21,747) (36,161 

Exchange gain - - (721) (355) (590 

EBITDA (3,171) (8,224) (5,044) (8,387 

4. DIRECTORS' EMOLUMENTS 

Aggregate emoluments for directors of COLT for their period of directorship: 

Consolidated 

Year ended 31 December 

1997 1998 1998 

£'000 £'000 $'000 

Salaries and fees 433 553 920 

Long term incentive plan payments 26 154 256 

Other benefits 59 83 138 

Aggregate emoluments 518 790 1,314 

Pension contributions 38 30 50 

556 820 1,364 

Gain on exercise of options — 6,734 11,197 

C-12

5 . EMPLOYEE INFORMATION 

The average monthly number of persons employed by the Group during the period was: 

Year ended 31 December 

1996 1997 1998 

By category: 

Engineering and operations 103 253 578 

Sales and marketing 58 101 258 

Administration 40 96 236 

201 450 1,072 

Combined 



1996 1997 1998 1998 

£'000 £'000 £'000 $'000 

Employee costs (for the above persons): 

Wages and salaries 10,055 22,297 44,593 74,149 

Social security costs 972 3,271 8,628 14,347 

Other pension costs 440 791 1,671 2,778 

11,467 26,359 54,892 91,274 

Less: employee costs capitalised within network infrastructure and equipment (4,287) (9,074) (13,977) (23,241) 

7,180 17,285 40,915 68,033 

Capitalised employee costs are directly attributable to the design and construction of the Group's networks and are included in additions to network infrastructure 

and equipment. 

Long-Term Incentive Plan ("Incentive Plan") 

COLT Inc. established, effective 1 December 1995. an Incentive Plan providing for the issuance to key employees of the Group of incentive deferred compensation in 

the form of interests in the appreciation in the value of the Company over a specified base amount ("Incentive Units"). The Incentive Plan was not assumed by COLT 

in the Group's reorganisation prior to its initial public offering, and remains the obligation of COLT Inc. There will be no additional Incentive Units awarded under the 

Incentive Plan. 

COLT Inc.'s obligations to employees holding Incentive Units have been satisfied by the creation of an irrevocable trust for the benefit of such holders, and the funding 

by COLT Inc. of the trust with ordinary shares of COLT. As each holder becomes entitled to a payment, the trust sells ordinary shares and transfers an approximately 

equivalent amount of cash to such holder in retirement of such holder's units. To the extent that the Company continues to be responsible for employer taxes related 

to Incentive Plan employees payments, expenses for the years ended 31 December 1996. 1997 and 1998 amounted to approximately £298,000. £309,000 and 

£1,492,000 respectively 

6. INTEREST PAYABLE AND SIMILAR CHARGES 

Combined 



1996 1997 1998 1998 

£'000 £'000 £'000 $'000 

Interest payable on amounts due to COLT Inc. (133) 

Accretion on junior subordinated convertible debentures (1,232) (5,092) (5,170) (8,597) 

interest and similar charges on senior convertible notes — — (4,346) (7,227) 

Accretion on senior discount notes (468) (14,068) (15,824) (26,312) 

Interest and similar charges on senior notes — (974) (17,733) (29,486) 

Charges payable in respect of bank facility (884) (281) (386) (642) 

Other interest payable and similar charges — (31) (115) (191) 

C-13 

(2,717) (20,446) (43,574) (72,455)

7. TAXATION 

There is no tax charge arising in the years ended 31 December 1996. 1997 and 1998 as the Company had no taxable profits. 

Net tax losses carried forward amounted to: Consolidated 


1997 1998 1998 

£'000 £'000 $'000 

U.K. (23,823) (9,580) (15,930 

Germany (10,126) (27,420) (45,594 

France (945) (2,830) (4,706 

Other — (5,725) (9,520 

These amounts are not time limited, but must be utilised in the country in which they arose. The losses carried forward remain subject to legislative provisions and to 

agreements with the various tax authorities in jurisdictions where the Group operates. 

No deferred tax asset has been recognised in the financial statements. The unprovided potential deferred tax asset is as follows: 

Consolidated 


1997 1998 1998 

£'000 £'000 $'000 

Excess of capital allowances over depreciation 7,316 3,320 5,521 

Short term timing differences (308) (534) (888 

Total potential deterred tax liability (asset) 7,008 2,786 4,633 

Less losses available for offset (12,336) (18,254) (30,353 

Potential deferred tax asset after offset of losses (5,328) (15,468) (25,720 

There is a further potential deferred tax asset of £8,010,000 (1997: £4,808,000) which relates to timing differences on the accretion of the senior discount notes. 

C-14

8. LOSS PER SHARE 

The Company has adopted the provisions of Financial Reporting Standard, No. 14, ("FRS 14"), "Earnings Per Share". Basic loss per share is based upon the loss after tax 

for each period and the aggregate of (i) the weighted average ordinary shares issued for the period and (ii) the weighted average ordinary shares issuable upon conversion 

of outstanding convertible preference shares issued as part of the reorganisation (see note 13). All potential ordinary shares issuable have an anti-dilutive effect on basic 

loss per share for each financial year presented and therefore in accordance with FRS 14 these potential shares have been excluded in the calculation of diluted loss per 

share. 

Combined 



1996 1997 1998 1998 

£'000 £'000 £'000 $'000 

Loss for the period (11,209) (32,549) (55,602) (92,455) 

Weighted average ordinary shares issued ('000) 246,420 371,026 499,528 499,528 

Weighted average ordinary shares issuable upon conversion of convertible preference shares ('000) 80,000 80,000 43,178 43,178 

Ordinary shares used in calculation of basic loss per share ('000) 326,420 451,026 542,706 542,706 

Basic and diluted loss per share £(0.03) £(0.07) £(0.10) $(0.17) 

On 2 September 1998. the Company completed a 4-for-1 split of its ordinary shares of 10p each. Basic and diluted loss per share for prior periods have been restated 

accordingly. 

9. INTANGIBLE FIXED ASSETS 

Total Total 

£'000 $'000 

Cost 

At 1 January 1998 _ _ _ _ 

Additions 16,520 27,469 

Exchange differences 828 1,377 

At 31 December 1998 17,348 28,846 

Accumulated amortisation 

At 1 January 1998 

For the year 852 1,417 

Exchange differences 15 24 

At 31 December 1998 867 1,441 

Net book value 

At 31 December 1997 

At 31 December 1998 16,481 27,405 

Intangible fixed assets comprise purchased goodwill only, which arose on the acquisition of ImagiNet and is being amortised on a straight line basis over 10 years. 

The goodwill is attibutable to the market position and business development of ImagiNet at the date of acquisition and the amortisation period is the period during which 

the directors estimate the value of the underlying business will exceed the value of the underlying assets. 

C-15

10. TANGIBLE FIXED ASSETS 

Computers, 

Network equipment, 

infrastructure fixtures 

and & fittings 

equipment and vehicles Total Tota??? 

£'000 £'000 £'000 $'000 

Cost 

At 1 January 1996 34,637 1,208 35,845 59,60 

Additions 34,446 4,187 38,633 64,23??? 

Exchange differences (1,481) (182) (1,663) (2,76??? 

At 31 December 1996 67,602 5,213 72,815 121,07??? 

Acquisitions — 859 859 1,42??? 

Additions 106,134 6,690 112,824 187,60??? 

Disposals — (749) (749) (1,24??? 

Exchange differences (2,705) (127) (2,832) (4,71??? 

At 31 December 1997 171,031 11,886 182,917 304,15??? 

Acquisitions 360 213 573 95??? 

Additions 200,408 18,679 219,087 364,29??? 

Disposals (225) (286) (511) (85??? 

Exchange differences 11,824 662 12,486 20,76??? 

At 31 December 1998 383,398 31,154 414,552 689,31??? 

Accumulated depreciation 

At 1 January 1996 2,885 339 3,224 5,36??? 

For the year 5,072 780 5,852 9,73??? 

Exchange differences (84) (12) (96) (16??? 

At 31 December 1996 7,873 1,107 8,980 14,93??? 

For the year 10,509 1,923 12,432 20,67??? 

Disposal _ _ (430) (430) (715 

Exchange differences (142) (57) (199) (331 

At 31 December 1997 18,240 2,543 20,783 34,55??? 

For the year 24,022 4,212 28,234 46,94??? 

Disposals (235) (26) (261) (43??? 

Exchange differences 677 111 788 1,31??? 

At 31 December 1998 42,704 6,840 49,544 82,38??? 

Net book value 

At 31 December 1996 59,729 4,106 63,835 106,14??? 

At 31 December 1997 152,791 9,343 162,134 269,59??? 

At 31 December 1998 340,694 24,314 365,008 606,93??? 

Included in network infrastructure and equipment are assets under construction of £3,493,000. £12,338,000 and £20,783,000 at 31 December 1996, 1997 an 

1998 respectively. 

C-16

1 1 . SUBSIDIARY UNDERTAKINGS 

The Company is the holding company of the Group. The Company has the following principal subsidiary undertakings, each of which is a private company registered in 

its country of incorporation and all of which are included in the consolidated Group accounts. All subsidiaries operate in their country of incorporation. 

Name Date/country of Principal activities Issued capital Registered office 

incorporation (fully paid) 

COLT Telecom Limited (1) 18 October 1996 Holding company 58,140,367 ordinary Bishopsgate Court, 4 Norton Folgate 

England and Wales shares of £1 each London, El 6DQ 

COLT Telecom Europe Limited (1) 28 June 1996 Holding company 2,590,069 ordinary Bishopsgate Court, 4 Norton Folgate 

England and Wales shares of £1 each London. El 6DQ 

COLT Telecommunications (2)(4) 15 December 1989 Telecoms service 59,518,474 ordinary Bishopsgate Court. 4 Norton Folgate 

England and Wales provider shares of £1 each London El 6DQ 

City of London Telecommunications 16 August 1985 Holder of certain 399,000,082 'A' ordinary Bishopsgate Court. 4 Norton Folgate 

Limited (3) England and Wales rights shares of 2p each. 5 'B ' London El 6DQ 

ordinary shares of 2p each 

and 5,000,000 preference 

shares of £1 each 

COLT Telecom GmbH (5) 17 March 1995 Telecoms service DM5,377,300 Eschersheimer. Landstrasse 10, 

Germany provider StammKapital 60322 Frankfurt. Germany 

COLT Télécommunications France SAS (9) 23 October 1995 Telecoms service 1,179,000 shares of 25 Rue de Chazelles. 75017 

France provider FFr 100 each Paris. France 

COLT Telecom U.S. Corp. (1) 19 November 1996 Intragroup service 100 shares of $1 each 82 Devonshire Street. Boston. 

USA provider Massachusetts. 02109 

COLT Telecom España SA (1) 2 January 1997 Telecoms service 200,000 shares of C/Telemaco 5 

Spain provider Pta 1,000 each 28027 Madrid. Spain 

COLT Telecom AG (7) 30 July 1997 Telecoms service 160,000 shares of Murtschenstrasse 27, 

Switzerland provider SFr 100 each 8048 Zurich, Switzerland 

COLTTelecomSA(6) 16 September 1997 Telecoms service 1,000 shares of Rue du Planeur 10 

Belgium provider BFr 2,500 each 1130 Brussels. Belgium 

COLTTelecom SpA (6) 4 November 1997 Telecoms service 11,000,000 shares of Via Felice Casati 20. 

Italy provider Lire 1,000 each 20124 Milan. Italy 

CallShop etc. Limited (3) 16 October 1995 Telecoms service 2,000 ordinary Bishopsgate Court.4 Norton Folgate 

England and Wales provider shares of £1 each London. El 6DQ 

COLT Netherlands Holding Limited (1) 17 April 1998 Holding company 15,000 ordinary 15 Marylebone Road 

England and Wales shares of £1 each London. NW1 5JD 

COLTTelecom BV (8) 28 May 1998 Telecoms service 1,000 shares of Van der. Madeweg 12-14 

The Netherlands provider NLG 100 each 1099 BT. Amsterdam 

COLTTelecom Holding GmbH (1) 9 October 1998 Holding company DM5,000,000 Gervinusstrase 18-22 

Germany StammKapital 60322. Frankfurt. Germany 

COLTTelecom Austria GmbH (1) 28 September 1998 Telecoms service ATS 2,000,000 Kartner Ring 12 

Austria provider StammKapital 1010 Vienna. Austria 

Planet SA (10) 18 May 1995 Holding company 4,500 shares of 21 Rue de la Fontaine 

France FFR 100 each au roi, 75011 Paris 

ImagiNet SA (11) 14 April 1995 Internet service 4,046 shares of 21 Rue de la Fontaine 

France provider FFR 100 each au roi. 75011 Paris 

Notes: 

(1) 100% owned by the Company. 

(2) 96.5% owned by COLTTelecom Limited and 3.5% owned by COLTTelecom Europe Limited. 

(3) 100% owned by COLT Telecommunications. 

(4) A company incorporated with unlimited liability. 

(5) 100% owned by COLT Telecom Holding GmbH. 

(6) 96.5% owned by the Company and 3.5% owned by COLTTelecom Europe Limited. 

(7) 74.5% owned by the Company and 25.5% owned by COLT Telecom Holding GmbH. 

(8) 100% owned by COLT Netherlands Holding Limited. 

(9) 100% owned by COLT Telecom Europe Limited. 

(10) l00% owned by COLT Telecommunications France SAS. 

(11) 100% owned by PlanetS A. 

Fixed Asset Investment 

The Group had an investment in Centro Intemacionale de Comunicaciones ("CIC Spain"), a provider of paging services principally in Madrid. Spain. 

The Group accounted for CIC Spain as a trade investment. On 29 January 1996 the Group sold its 98% interest in CIC Spain to AMCI, Inc. for consideration of £115,000. 

C-17

1 2 . DEBTORS - AMOUNTS FALLING DUE WITHIN ONE YEAR 

Trade debtors: 

Consolidated 


1997 1998 1998 

£'000 £'000 $'000 

Trade debtors 23,317 58,838 97,836 

Provision against doubtful accounts (3,291) (5,206) (8,657 

Prepaid expenses and other debtors: 

20,026 53,632 89,179 

Consolidated 


1997 1998 1998 

£'000 £'000 $'000 

Other debtors 3,836 4,763 7,920 

Prepayments and accrued income 1,028 4,145 6,892 

VAT recoverable 3,049 5,451 9,064 

C-18 

7,913 14,359 23,876

1 3 . CAPITAL AND RESERVES 

CAPITAL 

Ordinary shares of 2 5 p each Convertible preference 

shares of 25p each 

No'000 £'000 No'000 £'000 

Authorised share capital 896,000 22,400 80,000 2,000 

Called up share capital: 

At 1 January 1996 

Issued in reorganisation 1,920 48 — — 

Issued in reorganisation 238,080 5,952 80,000 2,000 

Issued December 1996 106,800 2,670 — — 

At 31 December 1996 346,800 8,670 80,000 2,000 

Issued in 1997 93,417 2,335 — — 

At 31 December 1997 440,217 11,005 80,000 2,000 

Issued in 1998 37,375 935 — — 

Shares issued upon acquisition (see note 18) 1,395 35 — — 

Exercise of warrants (see note 15) 1,067 27 — — 

Conversion of junior subordinated convertible debentures 33,407 835 — — 

Conversion of preference shares 80,000 2,000 (80,000) (2,000) 

At 31 December 1998 593,461 14,837 — — 

At 31 December 1998 ($'000) 24,671 — 

At 31 December 1998 the authorised share capital of COLT was 896,000,000 (1997: 680,000,000) ordinary shares of 2.5p each. 

On 22 September 1996. 1,920,000 ordinary shares were issued at a premium of 7.50 pence each to COLT Inc., FILand Fidelity Investors Limited Partnership ("Fidelity 

Partners"). On 27 September 1996. 92,060,000 ordinary shares and 30,900,000 convertible preference shares were issued at a premium of 7.55 pence per share to Fidelity 

Partners and 20,060,000 ordinary shares and 6,900,000 convertible preference shares were issued at a premium of 7.55 pence per share to FIL. At the same date 125,960,000 

ordinary shares and 42,200,000 convertible preference shares were issued to COLT Inc. each at a premium of 20.12 pence. Subsequent to these 

transactions. Fidelity Partners and FIL made payments to COLT Inc. the effect of which was to equalise the effective premium attributable to the shares issued to each of 

COLT Inc. Fidelity Partners and FIL. 

In December 1996. the Company completed an initial public offering of its shares on both the London Stock Exchange and the NASDAQ National Market. 

The Company issued 106,800,000 ordinary shares for cash consideration of £73,425,000 (issue price £0.6875 per share) before expenses of £6,141,000. In January 1997, 

the underwriters of the Company's initial public offering exercised their option to purchase an additional 16,020,000 ordinary shares of the Company for cash 

consideration of £ 11,015,000 before expenses of £743,000. 

In December 1997. the Company completed the sale of 77,280,000 ordinary shares of 2.5 pence each raising proceeds of £113,022,000 (issue price £1.4625 per share) 

before expenses of £6,183,000. 

In August 1998. the Company completed the sale of 33,120,000 ordinary shares of 2.5 pence each raising proceeds of £238,050,000 (issue price£7.1875 per share) before 

expenses of £9,345,000. 

Convertible preference shares 

At 31 December 1996 and 1997, the Company had authorised and in issue 80,000,000 convertible preference shares of 2.5 pence each. On each of 29 June 1998 and 

4 August 1998. 40,000,000 convertible preference shares were converted to 40,000,000 ordinary shares of 2.5 pence each. 

Warrants 

In December 1996. the Company issued US$314,000,000 aggregate principal amount at maturity of senior discount notes in the form of 314,000 units, each unit consisting 

of one 12% senior discount note and one warrant to purchase 31.2 ordinary shares from the Company at an exercise price of £0.7563 per share. The warrants may be 

exercised at any time prior to the close of business on 31 December 2006. Warrants that are not exercised by such date will expire. The warrants are exercisable to purchase 

an aggregate of 9,796,800 ordinary shares of which warrants to purchase 1,067,000 ordinary shares have been exercised at 31 December 1998. 

The Company has authorised and has reserved for issuance such number of ordinary shares as will be issuable upon the exercise of all outstanding warrants. 

C-19

COLT Telecom Group Share Plan ("Option Plan") 

The Option Plan was adopted on 7 November 1996. for the issuance to key employees of the Group of incentive compensation related to the public market performanc??? 

of the Company's ordinary shares. The Option Plan is divided into two parts: the "Approved Part" approved by the U.K. Inland Revenue for the purposes of the Incom??? 

and Corporation Taxes Act 1988. and the "Unapproved Part" which is not so approved. Options may be granted by the Compensation Committee to directors an??? 

employees of the Group under either part of the Option Plan. Individuals who provide services to COLT may also be permitted to participate in the Unapproved Part. 

Options granted under the Approved Part will not normally be exercisable until the third anniversary of the date of grant. Options granted under the Unapproved Part may 

become exercisable earlier than the third anniversary. Options may be exercised early on death (or in certain other limited circumstances). Unless the Compensation 

Committee agrees otherwise options lapse when an optionholder ceases to be an employee. The Compensation Committee, in its discretion, may determine in connection 

with each grant of options, the terms of vesting and whether or not vesting will be accelerated upon a change of control event. Options are not transferable. 

Option Plan awards are based on an employee's level of responsibility, performance and term of service. Options will be granted at an option price which is not less that 

the market value of the ordinary shares on the date of grant and will normally only be granted within six weeks of the announcement of COLT's results for any period 

A total of 50,400,000 ordinary shares may be issued upon exercise of options under the Option Plan. 

At 31 December 1998. options outstanding under the Option Plan, together with their exercise prices and dates, were as follows: 

Date of Exercise Dates of Date of 

Number of ordinary shares under option 

grant price vesting expiration Granted Exercised Lapsed Outstanding 

Dec 96 £0.688 Dec 97 to Dec 01 Dec 06 25,824,000 3,093,120 2,398,400 20,332,480 

Jan 97 £0.779 Jan 98 to Jan 02 Jan 07 396,000 — 100,000 296,000 

Apr 97 £0.706 Apr 98 to Apr 02 Apr 07 1,280,000 217,600 48,000 1,014,400 

Aug 97 £0.956 Aug98toAug02 Aug 07 2,488,000 171,125 216,000 2,100,875 

Nos 97 £1.285 Nov 98 to Nov 02 Nov 07 3,196,000 498,662 136,000 2,561,338 

Dec 97 £1.700 Dec 98 to Dec 02 Dec 07 4,204,000 390,800 48,000 3,765,200 

Feb98 £2.738 Feb 99 to Feb 03 Feb 08 140,000 — — 140,000 

Feb98 £2.743 Feb 99 to Feb 03 Feb 08 900,000 — — 900,000 

May 98 £4.756 May 99 to May 03 May 08 830,000 - - — 830,000 

Aug 98 £6.600 Aug 99 to Aug 03 Aug 08 2,906,000 - - — 2,906,000 

Nov 98 £7.494 Nov 99 to Nov 03 Nov 08 1,408,075 — — 1,408,075 

Dec 98 £7.877 Dec 99 to Dec 03 Dec 08 100,000 - - — 100,000 

43,672,075 4,371,307 2,946,400 36,354,368 

In addition to options granted under the Option Plan, options to subscribe for 160,000 ordinary shares were granted to certain directors of the Company, 32,000 of which 

vested on each of 17 December 1996. 1997 and 1998 and an additional 32,000 of which will vest on 17 December in each of 1999 and 2000. The exercise price for the 

options which vested in 1996. 1997 and 1998 were £0.6875. £1.65875 and £8.50 per share, respectively, and subsequent options will be exercisable at the market price o??? 

the Company's ordinary shares on the date of vesting. 

COLT Savings-Related Share Option Scheme ("SAYE Scheme") 

The SAYE Scheme was adopted on 17 June 1997. allowing for eligible employees to apply for an option to acquire ordinary shares under a three or five year savings 

contract. The aggregate monthly contribution payable by an employee under the savings contract may not exceed an amount established by the U.K. Inland Revenue for 

the purposes of the Income and Corporation Taxes Act 1988. currently £250 or the local currency equivalent. The option exercise price per ordinary share may not be less 

than the higher of (a) 80% of the average of the middle market quotations of an ordinary share for either three consecutive dealing days in the period of 30 days prior to 

the dale of grant or the dealing day prior to the date on which the exercise price is set and (b) the nominal value of an ordinary share on the date of grant. 

In normal circumstances, an option may only be exercised while the participant remains employed within the Group and then only during the six months starting at the dat??? 

on which the savings contract matures. At the expiry of that period, the option will lapse. Earlier exercise is permitted in certain circumstances where the participants 

employment terminates or in the event of change of control, reorganisation or amalgamation of the Company. 

In December 1997. 2,289,000 options were granted under the SAYE Scheme with an exercise price of £1.19 per ordinary share. Each such option vests on 1 March 2001 

and each optionholder entered into a three year savings contract. 

In December 1998. 593,000 options were granted under the SAYE Scheme with an exercise price of £6.01 per ordinary share. Each such option vests or 

1 March 2002 and each optionholder entered into a three year savings contract. 

COLT Free Share Scheme ("Free Share Scheme") 

The Free Share Scheme was adopted on 17 June 1997, allowing for eligible individuals who started employment with the Group before 1 September 1998 and remain a??? 

employee of the Group for two years from the date of grant to receive 400 ordinary shares in the Company. Eligible individuals who started employment after 1 September 

1998 and remain an employee of the Group for two years from the date of grant will receive 100 ordinary shares in the Company. At 31 December 1998, the maximum 

number of ordinary shares reserved for issue under the scheme was 440,000. New employees are eligible to participate in the Free Share Scheme once they have been 

employed for approximately three months. Individuals who received options under the Option Plan or cash incentive awards at the time of the Company's initial public 

offering or thereafter will not be awarded shares under the Free Share Scheme. No payment is required from the employee. 

The ordinary shares to be delivered to employees under the Free Share Scheme will either be new ordinary shares issued by the Company at nominal value or will be 

acquired in the public market. The funds to subscribe for or purchase such shares are expected to be provided by the Company. Awards of shares may vest early in certain 

limited circumstances, including death or in the event of change of control, reorganisation or amalgamation of the Company. 

C-20

RESERVES 

Contributed Share Merger Shares to Goodwill Profit 

capital (net) premium reserve be issued reserve and loss 

£'000 £'000 £'000 £'000 £'000 £'000 

At 1 January 1996 6,468 

Contributed Capital 51,576 

Loss for pre-acquisition period (7,336) 

Elimination of pre-acquisition shareholders' funds (50,708) 

Premium on shares issued in reorgansiation 11,191 

Acquisition of Operating Companies 33,839 

Goodwill arising on consolidation (i) (38,401) 

Goodwill written off against merger reserve (i) (33,839) 33,839 

Premium on shares issued 64,614 

Premium on warrants issued 3,303 

Retained loss for statutory period (3,873) 

Exchange differences (1,080) 

At 31 December 1996 (as previously reported) — 79,108 — — (4,562) (4,953) 

Prior period adjustment (ii) 4,562 (4,562) 

As restated — 79,108 — — — (9,515) 

Goodwill arising on acquisition (iii) (1,130) 

Premium on shares issued 114,889 

Loss for period (32,549) 

Exchange differences (including £198,000 gain on 

net foreign currency borrowings) (5,990) 

At 31 December 1997 — 193,997 — — (1,130) (48,054) 

Prior period adjustment (iii) 1,130 (1,130) 

As restated — 193,997 — - - — (49,184) 

Adjustments to goodwill arising on acquisition (iii) (224) 

Premium on shares issued (see note 18) 260,663 11,347 

Shares to be issued (see note 18) 3,885 

Charges related to the Free Share Scheme (iv) 250 

Loss for period (55,602) 

Exchange differences (including £1,899,000 loss on 

net foreign currency borrowings) 7,099 

At 31 December 1998 - - 454,660 11,347 3,885 -- (97,661) 

At 31 December 1998($'000) - - 756,009 18,868 6,460 — (162,391) 

(I) Goodwill of £38,401,000 which arose on the acquisition of the Operating Companies by COLT on 27 September 1996 has been written off to reserves. The fair value 

of consideration paid by COLT to COLT Inc. in exchange for the investment in the Operating Companies was £89,248,000 which comprised cash of £32,208,000, 

junior subordinated convertible debentures of £18,997,000 and 125,960,000 ordinary shares of 2.5 pence each and 42,200,000 convertible 

preference shares of 2.5 pence each, issued at a combined premium of £33,839,000. On 26 September 1996 COLT had acquired newly issued shares in the Operating 

Companies for cash of £5,145,000. In exchange for the aggregate consideration. COLT received assets and liabilities in the Operating Companies with a combined 

net hook value of £55,992,000. Goodwill of £33,839,000 was written off against the merger reserve in 1996. 

(II) The profit and loss reserve at 1 January 1997 and 1 January 1998 has been restated to eliminate the balance on the goodwill reserve at 31 December 1997 and 

31 December 1996 in accordance with the provisions of FRS10. Cumulative goodwill relating to acquisitions made prior to 1 January 1998, which has been 

eliminated against reserves amounted to £39,755,000 (1997: £39,531,000 1996: £38,401,000). 

(III) The Group acquired the entire share capital of CallShop etc. Limited in October 1997. In 1998 the directors completed their review of the fair value of certain assets 

and liabilities, which resulted in an increase in goodwill of £224,000. 

(IV) The Company operates a Free Share Scheme as a method of remunerating certain employees. The difference between the market price of the shares and any price 

paid is charged to the profit and loss account over the period over which the shares are earned, with the credit taken directly to the profit and loss reserve. 

C-21

1 4 . CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR 

Consolidated 


1997 1998 1998 

£'000 £ '0 0 0 $'000 

Trade creditors 17,091 43,367 72,111 

Amounts due to FIML 2,276 9,396 15,624 

Other taxation and social security 770 4,898 8,143 

Other creditors 2,289 4,618 7,679 

Accruals and deferred income 16,637 49,458 82,239 

Network infrastructure 8,469 6,103 10,148 

1 5 . CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 

47,532 117,840 195,944 

Consolidated 


1997 1998 1998 

£'000 £'000 $'000 

Repayable in five years or more 

Junior subordinated convertible debentures 42,337 18,225 30,305 

Senior convertible notes — 213,603 355,179 

Senior discount notes 113,416 127,844 212,579 

Senior notes 97,083 311,850 518,544 

Junior subordinated convertible debentures 

252,836 671,522 1,116,607 

In September 1996. COLT issued £153,285,000 aggregate principal amount at maturity of junior subordinated convertible debentures due 15 January 2008 to COLT Inc. 

Fidelity Partners and FIL at an aggregate price of £36,013,000. The junior subordinated convertible debentures are subordinated to certain other indebtedness of the 

Company 

Each junior subordinated convertible debenture is convertible at any time subject to the satisfaction of certain conditions precedent, at the option of the holder, in whole 

or in part into ordinary shares of COLT. In November 1998. £29,282,000 aggregate accreted amount of the debentures were converted to 33,407,000 ordinary shares 

The conversion of the junior subordinated convertible debentures represents a major non-cash transaction. At 31 December 1998. 20,363,000 ordinary shares were 

reserved for issuance upon conversion of the outstanding junior subordinated convertible debentures. 

The junior subordinated convertible debentures do not bear interest other than on default. In accordance with FRS4, the discount on issue accrues at an annual rate of 

13.233% per annum compounded semi-annually until maturity. At 31 December 1998. the unamortised discount on the outstanding junior subordinated convertible 

debentures was £39,825,000. 

Senior convertible notes 

In August 1998. COLT issued deutschmark denominated senior convertible notes in the initial principal amount of DM600,000,000. A total of £204,332,000 was raise??? 

before issuance costs of £5,232,000. These costs have been deducted from the principal amount of the senior convertible notes and are charged to the profit and loss 

account over three years. The notes bear interest at the rate of 2% of the initial principal amount per annum, payable in cash annually beginning 6 August 1999. 

The senior convertible notes mature on 6 August 2005 and any outstanding notes will then be redeemed at a price of 117.907% of the initial principal amount The notes are also 

redeemable at the option of the Company, in whole or in part, at any time on or after 6 August 2001 at an accreted principal amount plus any accrued interest. The accreted principal 

amount is that amount determined so as to provide a gross yield at redemption (including any accrued interest and any cash interest previously paid) of 4.25%. 

The senior convertible notes are convertible at any time at the option of the holder, unless previously redeemed, repurchased or cancelled, into ordinary shares at a 

conversion price of £9.3438 per ordinary share with a fixed exchange rate of DM2.9392 per £1.00. An aggregate of 21,847,000 ordinary shares are reserved for issuance 

upon conversion of the senior convertible notes. The notes rank pari passu in right of payment with all other unsubordinated unsecured indebtedness of the Company and 

are senior in right of payment to all subordinated indebtedness of the Company. 

C-22

Senior discount notes 

In December 1996, COLT issued US$314,000,000 aggregate principal amount at maturity of senior discount notes due 15 December 2006. The senior discount notes were 

issued in the form of 314,000 units, each unit consisting of one 12% senior discount note and one warrant to purchase 31.2 ordinary shares. The units had an initial accreted 

amount at the date of issue of US$175,446,000 allocated US$169,769,000 to the senior discount notes and US$5,677,000 to the warrants. Issuance costs of £4,432,000 

have been deducted from the initial accreted amount of the senior discount notes and are charged to the profit and loss account over the accretion period. The senior 

discount notes will accrue from the initial accreted amount, after deducting expenses, of US$162,476,000 to US$314,000,000 on 15 December 2001 at an effective rate 

of 13.636% per annum compounded semi-annually. Beginning 15 June 2002, interest on the senior discount notes will be paid semi-annually in cash at a rate of 12% per 

annum. At 31 December 1998, the unamortised discount on issue including unamortised issuance cost was £60,994,000. 

The senior discount notes rank pari passu in right of payment with all other unsubordinated unsecured indebtedness of the Company and are senior in right of payment to 

all subordinated indebtedness of the Company. The notes are redeemable at the option of the Company, in whole or in part, at any time on or after 15 December 2001, at 106% 

of their principal amount at maturity, plus accrued interest, declining to 100% of their principal amount at maturity, plus accrued interest, on or after 15 December 2003. 

Senior notes 

In November 1997. COLT issued sterling and deutschmark denominated senior notes ("1997 Senior Notes") with aggregate principal amounts at maturity of £50,000,000 

and DM150,000,000, respectively. A total of £100,661,000 was raised before issuance costs of £3,300,000. These costs have been deducted from the principal amount of 

the 1997 Senior Notes and are charged to the profit and loss account over five years. The sterling notes bear interest at the rate of 10.125% per annum and the deutschmark 

notes bear interest at 8.875% per annum, both payable semi-annually beginning 31 May 1998. The 1997 Senior Notes mature on 30 November 2007. 

The 1997 Senior Notes rank pari passu in right of payment with all other unsubordinated unsecured indebtedness of the Company and are senior in right of payment to all 

subordinated indebtedness of the Company. The notes are redeemable at the option of the Company, in whole or in part, at any time on or after 30 November 2002, initially 

at 105.0625% of their principal amount at maturity, plus accrued interest, in the case of the sterling notes and 104.4375% of their principal amount at maturity, plus accrued 

interest, in the case of the deutchmark notes, declining in each case to 100% of their principal amount at maturity, plus accrued interest, on or after 

30 November 2004. 

In July 1998. COLT issued deutschmark denominated senior notes ("1998 Senior Notes") with aggregate principal amount at maturity of DM600,000,000. A total of 

£204,332,000 was raised before issuance costs of £5,875,000. These costs have been deducted from the principal amount of the 1998 Senior Notes and are charged to the 

profit and loss account over five years. The 1998 Senior Notes bear interest at the rate of 7.625% per annum, payable semi-annually beginning 31 January 1999. 

The 1998 Senior Notes mature on 28 July 2008. 

The 1998 Senior Notes rank pari passu in right of payment with all other unsubordinated unsecured indebtedness of the Company and are senior in right of payment to all 

subordinated indebtedness of the Company. The notes are redeemable at the option of the Company, in whole or in part, at any time on or after 31 July 2003, initially at 

103.8125% of their principal amount at maturity, plus accrued interest declining to 100% of their principal amount at maturity, plus accrued interest on or after 31 July 2005. 

Bank facility 

The Company entered into in November 1996 and subsequently restated and amended in December 1998 a secured multi-currency revolving credit facility of up to 

£75,000,000. Amounts available under the bank facility may be used to finance the Company's capital expenditure and working capital requirements in connection with 

the construction, expansion and operation of its telecommunications networks in Europe and for certain acquisitions. The bank facility is or will be secured by the 

Company's operating subsidiaries. The Company has secured or agreed to secure the bank facility by a pledge of all of the share capital of COLT's subsidiaries and a fixed 

and floating charge over the assets of the Company and the U.K. operating subsidiary. No amounts have been drawn under the bank facility at the date of these financial 

statements. 

Fair value of financial instruments 

The fair values of the Company's financial instruments noted above, are disclosed in note 22. 

C-23

16. RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW (OUTFLOW) FROM OPERATING ACTIVITIES 

Combined 



1996 1997 1998 1998 

£'000 £'000 £'000 $'000 

Operating loss (9,031) (20,656) (34,130) (56,751) 

Depreciation of tangible fixed assets 5,852 12,432 28,234 46,947 

Amortisation of goodwill — — 852 1,417 

Exchange differences (204) (167) 21 35 

Increase in debtors (11,007) (10,103) (36,649) (60,940) 

Increase in creditors 15,043 3,786 48,778 81,108 

Net cash inflow (outflow) from operating activities 653 (14,708) 7,106 11,816 

17. ANALYSIS OF NET DEBT 

Accretion and 

At 31 amortisation of Converted 

December Exchange finance costs to ordinary At 31 December 

1997 Cash flow gain (Loss) on notes shares 1998 1998 

£'000 £'000 £'000 £'000 £'000 £'000 $'000 

Investments in liquid resources 257,290 430,027 24,354 — — 711,671 1,183,367 

Cash at bank and in hand 10,823 7,074 (2,618) — — 15,279 25,406 

Junior subordinated convertible debentures (42,337) — — (5,170) 29,282 (18,225) (30,305 

Senior convertible notes - - (199,100) (11,861) (2,642) — (213,603) (355,179) 

Senior discount notes (113,416) — 1,396 (15,824) - - (127,844) (212,579) 

Senior notes (97,083) (198,457) (15,043) (1,267) — (311,850) (518,544) 

Total net debt 15,277 39,544 (3,772) (24,903) 29,282 55,428 92,166 

Cash inflows and outflows from/to liquid resources for the year were £200,708,000 and £630,735,000 respectively. In the table above, cash inflows from raising debt ar??? 

stated net of issue costs. 

Analysed in the Balance Sheet: 


Cash at bank and in hand 10,823 15,279 25,406 

Creditors amounts falling due after more than one year (252,836) (671,522) (1,116,607 

Total net debt 15,277 55,428 92,166 

Finance costs 

Included in the Cash Flow Statement within "Interest paid, finance costs and similar charges" are costs of £11,107,000 associated with the issue of the 1998 Senior Notes 

and the senior convertible notes. The amounts for 1996 and 1997 have been restated to include costs of £4,432,000 associated with the issue of the senior discount notes 

and, £3,300,000 associated with the issue of the 1997 Senior Notes respectively. Previously for 1996 and 1997, these costs were deducted from the proceeds of the issu??? 

of the notes. 

C-24

18. ACQUISITIONS 

On 15 July 1998 the company acquired the entire share capital of Planet SA and its subsidiary ImagiNet SA (together 'ImagiNet'). The purchase has been accounted for 

as an acquisition. 

The operating assets and liabilities acquired were as follows: 

Book value and fair value 

£000 $000 

Fixed assets 574 954 

Working capital (1,622) (2,697) 

Cash 89 148 

(959) (1,595) 

Purchase consideration 

Shares issued 11,382 18,925 

Shares to be issued 3,885 6,460 

Cash 294 489 

Total consideration 15,561 25,874 

Goodwill (16,520) (27,469) 

(959) (1,595) 

The purchase price was 120,000,000 French francs, with the consideration in the form of 2,100,000 French francs and the issue of 1,871,500 ordinary shares, of which 

1,395,292 were issued upon completion. The balance of 476,208 ordinary shares will be issued subject to certain conditions being met. The calculation of the number 

of shares in the consideration was arrived at by calculating the average share price of the Company and the average French franc/sterling exchange rate over a 15 day 

period ending 9 July 1998. The share price for the purpose of accounting for the acquisition was £8,1575. the market price on the date of acquisition. 

The Company has taken merger relief under the provisions of section 131 of the Companies Act 1985, hence all premium on the issue of shares has been taken to the 

merger reserve (see note 13). 

The book value of assets and liabilities has been taken from the management accounts of ImagiNet at 15 July 1998 at actual exchange rates at that date. The directors 

believe that there is no material difference between the book values and the fair values of assets and liabilities acquired on 15 July 1998. 

The payment of the deferred contingent consideration, in the form of shares, is subject to the achievement of certain conditions expected to be met during 1999 and 2000. 

These shares have been recorded at £8,1575, the market price of the shares on the date of acquisition. This valuation of deferred consideration will be adjusted to the 

market price of the shares issued on the date the conditions are met. with corresponding adjustments to goodwill. 

In its last financial year to 31 December 1997. ImagiNet made a loss after tax and minority interests of £390,000. For the period to acquisition. ImagiNet made a loss after 

tax and minority interest of £264,000. These results were unaudited. 

The effects of this acquisition on the amounts reported under each of the standard headings in the cash flow statement are not material and accordingly have not been 

separately disclosed. The issue of shares for ImagiNet represents a major non-cash transaction during the period. 

C-25

1 9 . ANALYSIS OF CHANCES IN FINANCING 

Amount due to Capital Share capital Debentures 

COLT Inc. contribution and premium and notes 

£'000 £'000 £'000 £'000 

At 1 January 1996 25,272 16,343 

Net cash flows from financing 25,033 11,497 

Capitalisation of amounts due to COLT Inc. (40,592) 40,592 

Exchange differences (183) (513) 

At 27 September 1996 on combined basis 9,530 67,919 

Elimination of investment in Operating Companies — (67,919) - - — 

Issue of shares/debt for cash in reorganisation — — 15,257 17,016 

Issue of shares/debt for non-cash consideration in reorganisation — — 38,043 18,997 

Share issue costs in reorganisation — — (270) — 

Issue of shares/debt for cash by the Company - - - - 67,284 102,069 

Value attributed to warrants - - — 3,303 (3,303) 

Goodwill written off against merger reserve — — (33,839) — 

Accretion on debt — — — 1,700 

Repayment of amount due to COLT Inc. (7,685) — — — 

Exchange differences — - - — (3,823) 

At 31 December 1996 1,845 — 89,778 132,656 

Repayment of amount due to COLT Inc. (2,122) — — — 

Issue of shares/debt for cash by the Company — — 117,224 97,361 

Final settlement of balance with COLT Inc. 282 - - — — 

Exchange differences (5) — - - 3,589 


At 31 December 1997 — — 207,002 252,836 

Issue ot shares/debt for cash by the Company — — 233,178 397,557 

Shares issued to acquire ImagiNet — — 35 — 

Conversion of junior subordinated convertible debentures - - - - 29,282 (29,282) 

Exchange differences - - - - — 25,508 


At 31 December 1998 - - - - 469,497 671,522 

At 31 December 1998 ($'000) — - - 780,680 1,116,607 

The proceeds from the issue of ordinary shares are stated net of issue costs of £9,345,000 for the year ended 31 December 1998. For the years ended 31 December 1996 

and 1997. the issue costs netted off the gross proceeds of issuing ordinary shares were £6,141,000 and £6,926,000 respectively. 

2 0 . CAPITAL COMMITMENTS 

Consolidated 


1997 1998 1998 

£'000 £'000 $'000 

Future capital expenditure contracted but not provided for 15,703 50,387 83,784 

C-26

2 1 . FINANCIAL COMMITMENTS 

The group has annual commitments under non-cancellable operating leases as follows: 

Consolidated 


1997 1998 1998 

£'000 £'000 $'000 

Land and buildings 

Expiring within one year — 3,505 5,828 

Expiring between two and five years 15 14,146 23,522 

Expiring in over five years 3,347 20,093 33,411 

Other 

Expiring within one year — 227 377 

Expiring between two and five years — 900 1,497 

Year 2000 

Future expenditure contracted but not provided (includes £102,000 related to subsidiary undertakings). — 796 1,324 

Forward currency contracts 

COLT has entered into a series of pound sterling forward contracts to purchase U.S. dollars as required by the bank facility agreement. The sterling value of these 

commitments is £59,631,000 (1997: £101,767,000). 

22. FINANCIAL INSTRUMENTS 

Fair value of non-derivative financial instruments 

The following table shows the carrying amounts and the fair values of the Group's non-derivative financial instruments at 31 December 1997 and 1998. The carrying 

amounts are included in the Group balance sheet under indicated headings. The fair values of the financial instruments are the amount at which the instruments could be 

exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. 

Carrying amount Fair value 

1997 1998 1998 1997 1998 1998 

£'000 £'000 $'000 £'000 £'000 $'000 

Assets 

Investments in liquid resources (i) 257,290 711,671 1,183,367 257,290 711,671 1,183,367 

Cash at bank and in hand (i) 10,823 15,279 25,406 10,823 15,279 25,406 

Liabilities 

Sterling junior subordinated convertible debentures (ii) 42,337 18,225 30,305 82,806 182,554 303,551 

DM senior convertible notes (iii) -- 213,603 355,279 - - 223,925 372,342 

US Dollar senior discount notes (iii) 113,416 127,844 212,579 148,140 156,736 260,621 

DM senior notes (iii) 48,868 263,272 437,769 51,852 258,660 430,100 

Sterling senior notes (iii) 48,215 48,578 80,775 50,272 50,328 83,685 

(1) The carrying amount of cash at bank and in hand and the investments in liquid resources approximated to their fair values due to the short maturity of the instruments 

held. 

(ii) The Company's junior subordinated convertible debentures are not traded. In November 1998, £29,282,000 aggregate accreted amount of the debentures were 

converted to 33,407,000 ordinary shares. At 31 December 1998. 20,363,000 ordinary shares are reserved for issuance upon conversion of the outstanding junior 

subordinated convertible debentures. The fair value of the junior subordinated convertible debentures is assumed to be the value of the underlying ordinary shares at 

the balance sheet date. 

(iii) The fair values of the Company's senior convertible, senior discount and senior notes have been estimated on the basis of market prices. 

Fair value of derivative financial instruments 

At 31 December 1998 there was an unrealised loss of £2,452,000 on the fair value of foreign currency forward exchange contracts (1997: unrealised loss £5,230,000). The 

contracts have an average maturity of 4 years 6 months. The fair value of these contracts has been estimated on the basis of market rates. 

C-27

23. PENSION ARRANGEMENTS 

The Group operates a number of defined contribution pension schemes in its subsidiaries. The largest, which is in the UK, is administered by Fidelity Pension 

Management Limited, a subsidiary of Fidelity Investment Management Limited ("FIML"), a wholly owned subsidiary of FIL. 

Pension costs are charged to the profit and loss account on an accruals basis in the period in which contributions are payable to the scheme. The pension cost for 199 

amounted to approximately £1,671,000 (1997: £791,000, 1996: £440,000). 

24. TRANSACTIONS WITH RELATED ENTITIES 

The Group has entered into agreements whereby some payroll processing and other administrative services are performed by FIML. The Group also participates in FIML' 

defined contribution retirement plan (the 'Retirement Plan') which is open to all UK employees over 24 years of age. The fees for the above services for the year ended 3 

December 1998 were approximately £115,000 (1997: £64,000, 1996: £48,000). 

The Group has certain agreements with Fidelity Capital Associates Inc. ("FCA"). a wholly owned subsidiary of FMR Corp., which allow under certain circumstances, fo 

the Group to obtain consulting services from, or provide consulting services to. FCA. Compensation under the agreements will be at prevailing market rates set each year 

Details of the Incentive Plan are discussed in note 5. 

25. POST BALANCE SHEET EVENTS 

In March 1999. the Company completed the sale of 26,550,000 ordinary shares of 2.5 pence each raising proceeds of £300,015,000 (issue price £11.30 per share) befon 

expenses of £ 10,515,000. 

In a concurrent offering, the Company also issued euro denominated senior convertible notes in the initial principal amount of €295,000,000. A total of £199,594,000 wa 

raised before issuance costs of £5,094,000. These costs have been deducted from the principal amount of the senior convertible notes and will be charged to the profit an??? 

loss account over three years. The notes bear interest at the rate of 2% of the initial principal amount per annum, payable in cash annually beginning 6 August 1999. Th??? 

senior convertible notes mature on 29 March 2006 and any outstanding notes will then be redeemed at a price of 117.907% of the initial principal amount. The notes an 

also redeemable at the option of the Company, in whole or in part, at any time on or after 29 March 2002 at an accreted principal amount plus any accrued interest. Th??? 

accreted principal amount is that amount determined so as to provide a gross yield at redemption (including any accrued interest and any cash interest previously paid) o??? 

4.25???. The senior convertible notes are convertible at any time, unless previously redeemed, repurchased or cancelled, into ordinary shares at a conversion price ??? 

£14.4640 per ordinary share with a fixed exchange rate of €1.4780 per £1.00. An aggregate of 13,799,000 ordinary shares are reserved for issuance upon conversion o??? 

the senior convertible notes. The notes rank pari passu in right of payment with all other unsubordinated unsecured indebtedness of the Company and are senior in righ 

of payment to all subordinated indebtedness of the Company. 

The authorised share capital of the Company was increased on 25 March 1999 from £22,400,000 to £23,647,500 by the creation of an additional 49,900,000 ordinary shares 

C-28

2 6 . COMPANY BALANCE SHEET 

Notes At 31 December 

1997 1998 1998 

£'000 £'000 $'000 

Fixed assets 

Tangible fixed assets b 127 5,348 8,893 

Investments c 131,358 157,527 261,935 

Total fixed assets 131,485 162,875 270,828 


Trade debtors — — — 

Prepaid expenses and other debtors d 88,277 298,668 496,625 


Cash at bank and in hand 414 7 12 

Total current assets 345,981 1,010,346 1,680,004 

Total assets 477,466 1,173,221 1,950,832 



Share premium and merger reserve e 227,836 499,846 831,144 

Shares to be issued — 3,885 6,460 

Profit and loss account f (19,948) (30,103) (50,055) 

Equity shareholders' funds 220,893 488,465 812,220 

Creditors 

Amounts falling due within one year g 3,737 13,234 22,005 

Amounts falling due after more than one year h 



Total amounts falling due after more than one year 252,836 671,522 1,116,607 

Total creditors 256,573 684,756 1,138,612 

Total liabilities, capital and reserves 477,466 1,173,221 1,950,832 

Notes 

a) Profit and Loss account 

As permitted by Section 230 of the Companies Act of 1985. the parent company's profit and loss account has not been included in these financial statements. 

The parent company's loss for the period was £10,405,000 (1997: £10,466,000). 

b) Fixed Assets 

Tangible fixed assets relate to systems under development which will be transferred to the Group's operating subsidiaries on completion. Depreciation is not charged on 

assets under construction. 

C-29

c) Investments 

Movements in investments in the year comprise additions of £29,741,000 (1997: £36,233,000), exchange differences of (£3,572,000) (1997: (£2,304,000)). 

See note 11 for additional subsidiary information 

d) Prepaid expenses and other debtors 


1997 1998 1998 

£'000 £'000 $'000 

Amounts owed by subsidiary undertakings 87,052 295,334 491,081 

Other debtors 1,029 2,837 4,717 

Prepayments 196 497 827 

e) Share premium and merger reserve 

88,277 298,668 496,625 

£'000 $'000 

At 1 January 1997 112,947 187,809 

Premium on shares issued 114,889 191,037 

At 31 December 1997 227,836 378,846 

Premium on shares issued 272,010 452,298 

At 31 December 1998 499,846 831,144 

f) Profit and loss account £'000 $'000 

At 1 January 1997 (2,788) (4,636 

Retained loss for the period (10,466) (17,403 

Exchange differences (6,694) (11,131 

At 31 December 1997 (19,948) (33,170 

Retained loss for the period (10,405) (17,301 

Charges related to the Free Share Scheme (see note 13) 250 416 

Exchange differences — — 

At 31 December 1998 (30,103) (50,055 

Included within reserves is an exchange loss on borrowings, net deposits of £898,000 (1997: exchange gain £198,000). Excess exchange losses on borrowings, ne 

deposits of £ 1,001,000 (1997: nil) have been included in the Company's loss for the period. 

g) Creditors-amounts falling due within one year 


1997 1998 1998 

£'000 £'000 $'000 

Accrued expenses 3,737 13,234 22,005 

h) Creditors-amounts falling due after more than one year 

3,737 13,234 22,005 


1997 1998 1998 

£'000 £'000 $'000 

Repayable in five years or more 

Junior subordinated convertible debentures 42,337 18,225 30,305 

Senior convertible notes - - 213,603 355,179 

Senior discount notes 113,416 127,844 212,579 

Senior notes 97,083 311,850 518,544 

C-30 

252,836 671,522 1,116,607

2 7 . SUMMARY OF DIFFERENCES BETWEEN U.K. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND U.S. GENERALLY 

ACCEPTED ACCOUNTING PRINCIPLES ("GAAP"). 

The consolidated financial statements have been prepared in accordance with U.K. GAAP and on the basis of presentation as set out in note 1, which differs in certain 

respects from U.S. GAAP. The main differences between U.K. GAAP and U.S. GAAP which affect the Group's consolidated net losses and net equity are set out below. 

a. Effects of conforming to U.S. GAAP - impact on net loss 

Combined 



1996 1997 1998 1998 

£'000 £'000 £'000 $'000 

Loss for period under U.K. GAAP (11,209) (32,549) (55,602) (92,455) 


Payment by COLT Inc. (i) (5,904) — (810) (1,347) 

Amortisation of intangibles (ii) - - (35) (149) (248) 

Capitalised interest, net of depreciation (iii) 97 1,479 2,096 3,485 

Deferred compensation (iv) (v) — - - (1,417) (2,356) 

Amortisation of intangibles (iv) — — 194 323 

Other (8) — — — 

Loss for period under U.S. GAAP (17,024) (31,105) (55,688) (92,598) 

Ordinary shares used in calculation of basic loss per share ('000) (vi) 246,420 371,026 499,528 499,528 

Basic and diluted loss per share (vi) £(0.07) £(0.08) £(0.11) $(0.19) 

(i) On 27 December 1996. COLT Inc. sold 7,200,000, ordinary shares it owned in COLT to James P. Hynes and Paul W. Chisholm for total consideration 

of $1 ,867,500. Related to this transaction, in 1998, COLT Inc. made payments to James P. Hynes and Paul W. Chisholm totalling approximately £810,000 (1997: nil, 

1996: £404,000). Under U.K. GAAP, the payments are recorded as transactions between COLT Inc. and the directors while under U.S. GAAP, the.payments are 

reflected as an expense and a capital contribution by COLT Inc. 

(ii) Following an acquisition by the Group. £ 1,354,000 of intangible assets were written off to reserves under U.K. GAAP. Under U.S. GAAP, such amount is capitalised 

and amortised on a straight line basis over eight years. 

(iii) Adjustment to reflect interest amounts capitalised under U.S. GAAP, less depreciation for the period. 

(iv) On 15 July 1998 the Company completed the acquisition of ImagiNet. A total of 1,395,292 ordinary shares were issued at completion. An additional 476,208 

ordinary shares will be issued during 1999 and 2000 subject to certain financial and other conditions being met. Under U.K. GAAP, deferred shares have been treated 

as additional purchase consideration and attributable goodwill has been amortised. Under U.S. GAAP, these deferred shares are treated as compensation expense and 

reflected in the profit and loss account over the length of the deferral period. Goodwill adjustment reflects a reduction in the associated amortisation charge under 

U.S. GAAP. The charge for the year ended 31 December 1998 was £1,146,000. 

(v) The Company operates a Free Share Scheme as a method of compensating certain employees. Under both U.K. and U.S. GAAP, the difference between the market 

value of the shares on the date of grant and the price paid for the shares is charged to the profit and loss account over the period over which the shares are earned. 

The Company also operates an Inland Revenue approved SAYE Scheme. Under this scheme, options may be granted at a discount of up to 20%. In contrast to U.K. 

GAAP, under U.S. GAAP, the discount is recognised as a compensation expense and the accounting treatment is similar to the Free Share Scheme. The charge for the 

year ended 31 December 1998 under the SAYE Scheme was £271,000. 

Under U.S. GAAP for both the Free Share and SAYE Schemes the total expected compensation cost is recorded within equity shareholders' funds as unearned 

compensation and additional paid in share capital, with the unearned compensation being charged to the profit and loss account in the manner described above. 

(vi) Ordinary shares issuable upon conversion of convertible preference shares are not included in the calculation of basic loss per share under U.S. GAAP. 

The Company completed a 4-for-l split of its ordinary shares effective 2 September 1998. Ordinary share and basic and diluted loss per share amounts for prior 

periods have been restated to reflect the share split. All potential ordinary shares issuable have an anti-dilutive effect on basic loss per share for each financial year 

presented and therefore these potential shares have been excluded in the calculation of diluted loss per share. 

C-31

. Effects of conforming to U.S.GAAP - impact on net equity 

Consolidated 


1997 1998 1998 

£'000 £'000 $'000 

157,818 387,068 643,617 

Equity shareholders' funds 


U.S. GAAP adjustment to loss for period - - (810) (1,347) 

U.S. GAAP addition to contributed capital - - 810 1,347 

U.S. GAAP adjustment for deferred purchase consideration under U.K. GAAP — (3,885) (6,460) 

U.S. GAAP adjustment for deferred compensation — (1,417) (2,356) 

Unearned compensation — (1,698) (2,823) 

Additional paid in share capital — 1,969 3,274 

Amortisation of intangibles — 194 323 

Intangible assets, net of amortisation 1,095 1,171 1,947 

Capitalised interest, net of depreciation 1,576 3,672 6,105 

Approximate equity shareholders' funds under U.S. GAAP 160,489 387,074 643,627 

c. Income taxes 

Under U.K GAAP, deferred income taxes are accounted for to the extent that it is considered probable that a liability or asset will materialise in the foreseeable future. 

Under U.S. GAAP, deterred taxes are accounted for on all temporary differences between book income and tax income and a valuation allowance is established to reduce 

de???erred tax assets to the amount which are likely to be realised in future tax returns. The deferred tax asset can be reconciled to the U.S. GAAP net deferred tax asset as 

follows 

Consolidated 


1997 1998 1998 

£'000 £'000 $'000 

Deterred tax asset in financial statements — — — 

Tax effects of timing differences: 

Tax losses. 

United Kingdom operations 7,385 2,874 4,779 

Germany operations 4,557 12,339 20,517 

France operations 394 1,037 1,725 

Other operations - - 2,004 3,332 

Capital allowances and other timing differences (7,008) (2,786) (4,633) 

Gross deferred tax assets under U.S. GAAP 5,328 15,468 25,720 

De???red tax valuation allowance (5,328) (15,468) (25,720) 

Net deferred tax assets under U.S. GAAP — — — 

No de???erred tax asset has been recorded and there is no U.S. GAAP tax provision. There is a further potential deferred tax asset of £8,010,000 (1997: £4,808,000) which 

relates to timing differences on the accretion of the senior discount notes. 

C-32

d. Consolidated cash flow statement 

The Group's consolidated financial statements present cash flow statements prepared using the principles of U.K. Accounting Standard FRS 1 (Revised). "Cash Flow 

Statements". The statement prepared under FRS 1 (Revised) presents substantially the same information as that required under U.S. Statement of Financial Accounting 

Standard No. 95 ("FAS 95"). Under FRS 1 (Revised) cash flows are presented for (i) operating activities; (ii) returns on investments and servicing of finance; (iii) taxation; 

(iv) capital expenditure and financial investment; (v) acquisitions and disposals; (vi) equity dividends paid; (vii) management of liquid resources; and (viii) financing. 

Cash equivalents under U.S. GAAP are considered liquid resources under U.K. GAAP. FAS 95 requires presentation of cash flows from operating, investing and financing 

activities. The following statements summarise the statement of cash flows for the Group as if they had been presented in accordance with U.S. GAAP. 

Combined 



1996 1997 1998 1998 

£'000 £'000 £'000 $'000 

Net cash inflow (outflow) from operating activities (4,266) (10,738) 6,627 11,020 

Net cash used in investing activities (38,732) (95,647) (211,368) (351,463) 

Net cash provided by financing activities 202,425 215,763 641,842 1,067,255 

Effects of exchange differences (3,820) 795 21,736 36,143 

Net increase in cash and cash equivalents 155,607 110,173 458,837 762,955 

Cash and cash equivalents under U.S. GAAP at beginning of period 2,333 157,940 268,113 445,818 

Cash and cash equivalents under U.S. GAAP at end of period 157,940 268,113 726,950 1,208,773 

Differences in presentation of cash and cash equivalents under U.S. GAAP at end of period — — — — 

C ash and cash equivalents at end of period 157,940 268,113 726,950 1,208,773 

Included in the Cash Flow Statements within "Net cash inflow (outflow) from operating activities" are costs of £11,107,000 associated with the issue of the 1998 Senior 

N o t e s and the senior convertible notes. The amounts for 1996 and 1997 have been restated to include costs of £4,432,000 associated with the issue of the 1996 senior 

discount notes and £3,300,000 associated with the issue of the 1997 Senior Notes respectively. Previously for 1996 and 1997, these costs were deducted from the proceeds 

of the issue of the notes. 

e. Equity shareholders' funds 

The significant components of equity shareholders' funds under U.S. GAAP are as follows: 

Convertible Preference Shares Ordinary Shares 

Total 

Pre-reorganisation Paid in Retained Shareholders' 

Operating Par Shares Par Shares Capital Earnings Funds 

Companies £'000 No'000 £'000 No'000 £'000 £'000 £'000 

At 1 January 1996 15,608 - - -- - - - - 735 (9,867) 6,476 

Loss for period (17,024) (17,024) 

Treasury shares repurchased (56,200) (56,200) 

Stock issuance 40,592 2,000 80,000 8,670 346,800 91,544 142,806 

Capital contribution 5,904 5,904 

Exchange differences (1,602) (1,602) 

At 31 December 1996 - - 2,000 80,000 8,670 346,800 98,183 (28,493) 80,360 


Stock issuance 2,335 93,417 114,889 117,224 

Exchange differences (5,990) (5,990) 

At 31 December 1997 - - 2,000 80,000 11,005 440,217 213,072 (65,588) 160,489 


Stock issuance 1,832 73,244 272,010 273,842 

Conversion of preference shares (2,000) (80,000) 2,000 80,000 

Additional paid in capital 2,220 2,220 

??? nearned compensation (1,698) (1,698) 

Capital contribution 810 810 

Exchange differences 7,099 7,099 

At 31 December 1998 - - - - - - 14,837 593,461 488,112 (115,875) 387,074 

At 31 December 1998 ($'000) - - - - 24,671 811,633 (192,677) 643,627 

C-33

f. Other disclosures 

Use of Estimates 

The preparation of consolidated financial statements in conformity with V.S. GAAP requires management to make estimates and assumptions that affect the reported 

amounts of assets and liabilities and the disclosure of contingent assets and liabilities at 31 December 1997 and 1998 as well as the reported amounts of revenues and 

expenses during the three years ended 31 December 1998. Actual results may differ from the estimates included in the consolidated financial statements. 

Concentration of credit risk 

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable and cash and cash equivalents. 

Management believes the concentration of credit risk associated with accounts receivable is minimal due to the dispersion over many customers and different industries 

and the risk associated with the Group's cash is mitigated by the fact that these amounts are placed in what it believes to be high quality financial institutions. The Group 

has not experienced any losses to date on its deposited cash. 

EBITDA 

EBITDA consists of earnings (loss) before net interest expense, income taxes, depreciation, amortisation and foreign exchange gains or losses. EBITDA is a measure 

commonly used in the telecommunications industry and is presented to enhance the understanding of the Company's operating results. EBITDA is not a measurement of 

financial performance under generally accepted accounting principles and may not be comparable to other similarly titled measures of other companies. EBITDA should 

not be considered as an alternative to operating or net income (as determined in accordance with generally accepted accounting principles), as an indicator of the 

Company's performance, as an alternative to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) or as a 

measure of liquidity. 

Year 2000 

Costs incurred in rendering existing software year 2000 compliant is written off to the profit and loss account as incurred except to the extent that the expenditure 

represents an enhancement of an asset beyond that originally assessed. 

Accounting for derivative instruments and hedging activities 

In June 1998, the Financial Accounting Standards Board issued SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities". This statement 

establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be 

recorded in the balance sheet as either an asset or liability measured at its fair value. This statement requires that changes in the derivative's fair value be recognised 

currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related 

results on the hedged item in the profit and loss account and requires a company to formally document, designate and assess the effectiveness of transactions that receive 

hedge accounting. This statement is effective for financial years beginning after 15 June 1999, but may be implemented at the beginning of any financial quarter after 

issuance. The Company is evaluating the impact that the adoption of SFAS No.133 will have on its financial statements. 

g. Stock option plans 

At 3l December 1998. the Company had certain options outstanding under its Option Plan. As permitted by SFAS No. 123. "Accounting for Stock-Based 

Compensation???, the Company elected not to adopt the recognition provisions of the standard and to continue to apply the provisions of Accounting Principles Board 

Opinion No. 25. "Accounting for Stock Issued to Employees," in accounting for its stock options and awards. Had compensation expense for stock options and awards 

been determined in accordance with SFAS No.123, the Group's loss for period and basic loss per share would have been as follows: 

Combined 



1996 1997 1998 1998 

£'000 £'000 £'000 $'000 

Loss for period 

As reported (17,024) (31,105) (55,688) (92,598) 

As adjusted (17,110) (33,031) (59,717) (99,298) 

Basic loss per share 

As reported £(0.07) £(0.08) £(0.11) £(0.19) 

As adjusted £(0.07) £(0.09) £(0.12) £(0.20) 

Solely for the purposes of providing the disclosures required by SFAS No. 123, the fair value of each grant was estimated on the date of grant using the Black-Scholes 

option pricing model, with the following assumptions: volatility 40%, risk free interest rate 4.5% expected lives of options 6 years and dividend yield 0%. 

C-34

COLT 

BOWNE Printed in London U41447

1. THE COMPANY 

PART 2 

ADDITIONAL INFORMATION 

The Company was incorporated and registered in England and Wales on 2 August 

1996 under the Companies Act 1985 as a public company limited by shares with the 

name TIMEDCITY PUBLIC LIMITED COMPANY and with registered number 3232904. 

On 27 September 1996, the Company's name was changed to COLT Telecom Group 

public limited company. The Company is a holding company and has its registered 

office at 15 Marylebone Road, London NW1 5JD. 

On 23 September 1996, the Company was issued with a certificate pursuant to Section 

117 of the Companies Act 1985 entitling it to do business and to borrow. 

2. SHARE CAPITAL 

As at 9 February 2000, the authorised share capital of the Company is £23,647,500 

consisting of 945,899,996 Ordinary Shares of 2 1/2 pence nominal value each (of which 

677,445,218 have been issued and are fully paid) and 1 Special Voting Rights 

Redeemable Share of 10 pence nominal value (which has not been issued). The 

Company has an authorised but unissued ordinary share capital of 268,454,778 

Ordinary Shares which, after deducting 85,000,968 Ordinary Shares reserved for issue 

under the Company's employee, director and consultant share and option schemes, on 

exercise of the Company's warrants to purchase Ordinary Shares and on conversion of 

the Company's 2% Senior Convertible Notes due 2005 denominated in deutschmarks 

(the "1998 Senior Convertible Notes"), 2% Senior Convertible Notes due 2006 

denominated in euros (the "1999 Senior Convertible Notes") and the Convertible 

Notes, would represent approximately 27.08% of the Company's Ordinary Shares then 

in issue. 

3. SUBSIDIARY UNDERTAKINGS 

The Company is the holding company of the Group. 

The Company has the following principal subsidiary undertakings, each of which is a 

private company registered in its country of incorporation. The results of each such 

subsidiary undertaking are included in the audited financial information contained in 

Appendix C to Part 1 of this document and have been included in the unaudited 

financial statements of the Group at and for the three and nine month periods ending 

30 September 1999 contained in Appendix A to Part 1 of this document. All 

subsidiaries operate in their country of incorporation. 

UK-4

N a m e D a t e / c o u n t r y Principal Issued capital Registered office 

of activities (fully paid) 

incorporation 

COLT Telecom 18 October Holding 58,140,367 15 Marylebone Road, 

Limited (1) 1996 company Ordinary Shares of London N W 1 5 J D 

England and £1 each 

Wales 

COLT Telecom 28 June Holding 2,590,069 15 Marylebone Road, 

Europe Limited (1) 1996 company Ordinary Shares of London NW1 5JD 

England and £1 each 

Wales 

COLT Telecom 6 December, Holding 2 Ordinary Shares 15 Marylebone Road, 

Holdings Limited (1) 1999 company of £1 each London N W 1 5 J D 

England and 

Wales 

COLT 15 December Telecoms 59,518,474 Bishopsgate Court, 

Telecommunications 1989 service Ordinary Shares of 4 Norton Folgate, 

(2)(4) England and provider £1 each London El 6DQ 

Wales 

City of London 16 August, Holder of 399,000,082 "A" Bishopsgate Court, 

Telecommunications 1985 certain Ordinary Shares of 4 Norton Folgate, 

Limited (3) England and rights 2p each, 5 "B" London E1 6DQ 

Wales Ordinary Shares of 

2p each and 

5,000,000 

Preference Shares 

of £1 each 

COLT Telecom 17 March Telecoms DM5,377,300 Eschersheimer 

GmbH (6) 1995 service StammKapital Landstrasse 10, 60322 

Germany provider Frankfurt, Germany 

COLT 23 October Telecoms 5,260,039 shares 25 Rue de Chazelles, 

Telecommunications 1995 service of 100 French 75017 Paris, France 

France SAS (11) France provider Francs each 

COLT Telecom U.S. 1 9 N o v e m b e r Intragroup 100 shares of $1 One Post Office 

Corp. (1) 1996 service each Square, Boston, 

Massachusetts, provider Massachusetts, USA 

USA 

COLT Internet U.S. 27 September Internet 100 shares of One Post Office 

Corp. (1) 1999 service $0.01 each Square, Boston, 

Delaware provider Massachusetts, USA 

USA 

COLT Telecom 2 January Telecoms 200,000 shares of C/Telemaco 5, 28027 

Espana SA (1) 1997 service 1,000 pesetas each Madrid, Spain 

Spain provider 

COLT Telecom AG 30 July Telecoms 160,000 shares of Murtschenstrasse 27, 

(10) 1997 service Swiss Francs 100 8048 Zurich, 

Switzerland provider each Switzerland 

UK-5

N a m e D a t e / c o u n t r y Principal Issued capital Registered office 

of activities (fully paid) 

incorporation 

COLT Telecom SA 16 September Telecoms 1,000 shares of Rue du Planeur 10, 

(6) 1997 service 2,500 Belgian 1130 Bruxelles, 

Belgium provider Francs each Belgium 

COLT LCL 1 September Telecoms 2,500 class "A" Rue de la Presse 1 1 , 

PowerPhone NV (5) 1987 service shares and 2,902 1000 Bruxelles, 

Belgium provider class "B" shares Belgium 

COLT Telecom SpA 4 November Telecoms 11,000,000 shares Via Felice Casati 20, 

(11) 1997 service of Lir. 1,000 each 20124 Milano, Italy 

Italy provider 

CallShop etc Limited 16 October Telecoms 2,000 ordinary Bishopsgate Court, 

(3) 1995 service shares of £1 each 4 Norton Folgate, 

England and provider London El 6DQ 

Wales 

COLT Netherlands 17 April Holding 15,000 ordinary 15 Marylebone Road, 

Holdings Limited (1) 1998 company shares of £1 each London NW1 5JD 

England and 

Wales 

COLT Telecom BV 28 May Telecoms 1,000 shares of Van der Madeweg 12- 

(7) 1998 service NLG 100 each 14, 1099 BT 

The Netherlands provider Amsterdam, The 

Netherlands 

COLT Telecom 9 October Holding D M 5 0 , 0 0 0 Gervinusstrasse 18- 

Holding GmbH (1) 1998 company StommKapital 22, 60322 Frankfurt, 

Germany Germany 

COLT Telecom 28 September Telecoms ATS 2,000,000 Kartner Ring 12, 1010 

Austria GmbH (1) 1998 service StommKapital Vienna, Austria 

Austria provider 

Planet SAS (8) 18 May Holding 4,500 shares of FF 21 Rue de la Fontaine 

1995 company 100 each au roi, 75011 Paris, 

France France 

ImagiNet SAS (9) 14 April Internet 4,046 shares of FF 21 Rue de la Fontaine 

1995 service 100 each au roi, 75011 Paris, 

France provider France 

AB Grunstenen (1) 11 October Telecoms 100,000 shares of Box 227B, 10317, 

1997 service SEK 1000 each Stockholm, 

Sweden provider Sweden 

Notes: 

(1) 100% owned by the Company. 

(2) 96.5% owned by COLT Telecom Limited and 3.5% owned by COLT Telecom Europe Limited. 

(3) 100% owned by COLT Telecommunications. 

UK-6

(4) A company incorporated with unlimited liability. 

(5) 5 1 % owned by COLT Telecom SA. 

(6) 96.5% owned by COLT Telecom Holding GmbH and 3.5% owned by COLT Telecom Europe 

Limited. 

(7) 100% owned by COLT Netherlands Holding Limited. 

(8) 100% owned by COLT Telecommunications France SAS. 

(9) 100% owned by Planet SA. 

(10) 74.5% owned by the Company and 25.5% by COLT Telecom Holding GmbH. 

(11) 96.5% owned by the Company and 3.5% owned by COLT Telecom Europe Limited. 

4. DIRECTORS 

The Directors of the Company are: 

James Charles Curvey Non-executive Chairman 

Paul William Chisholm President and Chief Executive Officer; 

executive Director 

Barry Richard James Bateman Non-executive Director 

Catherine Lina Marthe Biner Bradley Non-executive Director 

Timothy Thayer Hilton Non-executive Director 

Helmert Frans van den Hoven (KBE) Non-executive Director 

Robert Hawley (CBE) Non-executive Director 

Werner Edward Klatten Non-executive Director 

All of 15 Marylebone Road, London NW1 5JD. 

Mr. Curvey is President, Chief Operating Officer and a Director of FMR Corp. 

Mr. Curvey joined Fidelity Investments in June 1982 as Vice President, Human 

Resources, became Senior Vice President for Administration in January 1983 and 

President of Fidelity Capital in December 1986. 

Mr Bateman has served as the President of Fidelity International Limited since 1 9 9 1 . 

From 1989 to 1991, Mr Bateman was Managing Director of Fidelity Investment 

Management Ltd and from 1986 to 1989 he served as Managing Director of Fidelity 

Investment Services Ltd. 

UK-7

Mr Hilton is President of Fidelity Ventures, the venture capital arm of Fidelity 

Investments, and a member of Fidelity's Operating Committee. He joined Fidelity in 

1996 as Senior Vice President of Fidelity Capital and was appointed President of 

Fidelity Capital in 1997 and President of Fidelity Ventures in 1999. 

5. FINANCIAL INFORMATION 

(A) The financial information concerning the Group contained in Appendices A and 

C to Part 1 of this document does not constitute statutory accounts within the 

meaning of Section 240 of the Companies Act 1985. Statutory accounts of the 

UK companies included in the Group in respect of the financial years ended 31 

December 1995, 1996, 1997 and 1998 have been delivered to the Registrar of 

Companies. In respect of each of the statutory accounts for the financial years 

ended 31 December 1995, 1996 and 1997, the Company's auditors for those 

years, Coopers & Lybrand (Chartered Accountants and Registered Auditors) of 

1 Embankment Place, London WC2N 6NN, have given reports which were 

unqualified and did not contain a statement under Section 237(2) or (3) of that 

Act. In respect of the statutory accounts for the financial year ended 31 

December 1998, the Company's auditors for that year, PricewaterhouseCoopers 

(Chartered Accountants and Registered Auditors) of 1 Embankment Place, 

London WC2 6NN, have given a report which was unqualified and did not 

contain a statement under Section 237(2) or (3) of that Act. 

(B) The financial information contained in Appendix C to Part 1 of this document at 

3 1 D e c e m b e r 1997 and 1998 and for the years ended 31 December 1996, 1997 

and 1998 has been extracted without material adjustment from the Company's 

audited financial statements for the year ended 31 December 1998. 

(C) The unaudited financial information contained in Appendix A to Part 1 of this 

document at and for the three and nine month periods ended 30 September 

1999 has been extracted without material adjustment from the Company's 

unaudited financial statements for the three and nine month periods ended 30 

September 1999. 

(D) Creditors 

Set out below is an analysis of the Group creditors - amounts falling due within 

one year at 30 September 1999: 

UK-8

Trade payables 29,961,100 

Other creditors and accruals 193,458,000 

Creditors - amounts falling due within one year 220,419,000 

The liabilities of the Company's subsidiaries at 30 September 1999 totalled 

£208,871,000. 

(E) Indebtedness 

Set out below is an analysis of the Group's indebtedness at 31 January 2000: 

Non-Convertible Debt 

12% Senior Discount Notes due 2006 (151,604,618) 

10 1/8% Senior Notes due 2007 (48,971,265) 




Convertible Debt 

2% Senior Convertible Notes due 2005 (135,311,214) 

2% Senior Convertible Notes due 2006 (177,943,426) 

2% Senior Convertible Notes due December 2006 (214,186,471) 

£ 

£ 

(1,142,921,135) 

In addition to the indebtedness of the Group shown above, the Company and its 

subsidiaries had bank guarantees outstanding of £1,128,384 at the close of 

business on 31 January, 2000. Save as aforesaid and apart from any 

indebtedness between or among the Company and its subsidiaries, neither the 

Company nor any other member of the Group had outstanding at the close of 

business on 31 January 2000 any loan capital (whether outstanding or created 

but unissued), term loans, mortgages, charges or other borrowings, including 

bank overdrafts, liabilities under acceptances (other than normal trade bills), 

acceptance credits, hire purchase commitments, obligations under finance 

leases, guarantees or other material contingent liabilities. 

Amounts in other currencies have been translated into British pounds sterling at 

the appropriate rate of exchange ruling at the close of business on 31 January, 

2000. 

UK-9

There has been no material change in the indebtedness, guarantees and 

material contingent liabilities of the Company since 31 January 2000. 

(F) Set out below is the consolidated balance sheet of the companies comprised in 

the Group as at 31 December 1996 which has been extracted without material 

adjustment from the Company's audited financial statements for the year ended 

31 December 1997: 

£'000 

Fixed assets 

Tangible assets 63,835 

63,835 


Trade debtors 13,164 

Prepaid expenses and other debtors 2,027 

Investment in liquid resources 154,888 

Cash at bank and in hand 3,052 

173,131 

Total assets 236,966 


Called up share capital 10,670 

Share premium 79,108 

Goodwill reserve (4,562) 

Profit and loss account (4,953) 

Equity shareholders' funds 80,263 

Creditors 

Amounts falling due within one year 24,047 


(including convertible debt) 132,656 

156,703 

Total liabilities, capital and reserves 236,966 

UK-10

6. MATERIAL CONTRACTS 

In addition to the contracts referred to in paragraph 8 of Part 2 of the prospectus 

produced in connection with the 1998 Senior Convertible Notes and in paragraph 9 of 

Part 2 to the listing particulars produced in connection with the 1999 Senior 

Convertible Notes (all of which are available for inspection in accordance with 

paragraph 13 of this Part 2), the following contracts (not being contracts entered into 

in the ordinary course of business) have been entered into by members of the Group 

within the two years immediately preceding the date of this document and are, or may 

be considered to be, material: 

(A) the Placement Agreement dated 9 December 1999 in respect of the Note 

Offering details of which are given in "Private Placement" on pages 76 to 

78 of Part 1 of this document; 

(B) a Placement Agreement dated 9 December 1999 in respect of the 

Convertible Note Offering; 

(C) a Placement Agreement dated 9 December 1999 in respect of the Stock 

Offering; 

(D) an Indenture dated 16 December 1999 between the Company and The 

Bank of New York in respect of the Notes; 

(E) a Deposit Agreement dated 16 December 1999 between the Company 

and The Bank of New York in respect of the Notes; 

(F) an Indenture dated 16 December 1999 between the Company and The 

Bank of New York in respect of the Convertible Notes; 

(G) a Deposit Agreement dated 16 December 1999 between the Company 

and The Bank of New York in respect of the Convertible Notes; 

(H) an Indenture dated 29 March 1999 between the Company and The Bank 

of New York in respect of the 1999 Senior Convertible Notes; and 

(I) a Deposit Agreement dated 29 March 1999 between the Company and 

The Bank of New York in respect of the 1999 Senior Convertible Notes. 

7. LITIGATION 

There are no, nor have there been any, legal or arbitration proceedings, and so far as 

the Directors are aware no such proceedings are pending or threatened by or against 

any member of the Group which may have, or have had within the previous 12 

months, a significant effect on the Group's financial position. 

UK-11

8. SIGNIFICANT CHANGE AND MATERIAL ADVERSE CHANGE 

There has been no significant change (other than those changes described in this 

document which are a result of the Offerings) in the financial or trading position of the 

Group since 30 September 1999, the date to which the last unaudited financial 

statements of the Group were prepared. There has been no material adverse change in 

the financial position or prospects of the Group since 31 December 1998, the date of 

the Group's last published annual accounts. 

9. UK TAXATION 

The following, which is intended as a general guide only and which is based on current 

legislation and Inland Revenue practice, summarises advice received by the Directors 

as to the UK taxation position of holders of the Notes as an investment. U.S. Holders 

(as defined on page 68 of Part 1 of this document) should read the section entitled 

"Taxation" on pages 68 to 75 of Part 1 of this document. Any person who is in doubt 

as to his tax position or who may be subject to tax in any jurisdiction other than the UK 

or the United States should consult an appropriate professional adviser without delay. 

In addition, the comments set out below may not be applicable to certain categories of 

investor, for example those such as dealers in securities, insurance companies or other 

financial institutions who may be subject to special tax rules. 

Interest and Payments and Withholding Tax 

For UK tax purposes, provided the Notes are in bearer form and continue to be quoted 

on the London Stock Exchange, or some other stock exchange recognised by the UK 

Inland Revenue, payments of interest may be made without withholding or deduction 

for or on account of UK income tax where: 

(i) the payment of interest is made by a paying agent outside the UK; or 

(ii) the payment is made by or through a person who is in the UK but: 

(a) the person who is the beneficial owner of the Notes and is 

beneficially entitled to the interest is not resident in the UK; or 

(b) the notes are held in a "recognised clearing system" (Euroclear, 

DTC and Cedelbank have each been designated as a "Recognised 

clearing system" for this purpose). 

In the case of each of the exceptions in (a) and (b) above, the UK Inland Revenue has 

introduced regulations requiring the person in the UK who is entrusted with the 

payment of the interest to receive a declaration in the prescribed form that the relevant 

requirements have been satisfied in order for the relevant exceptions to be available. 

A collecting agent in the UK who, in the course of a trade or profession, 

UK-12

(i) acts as a custodian of the Notes and receives interest on them or has 

them paid at its direction or with its consent to another person; or 

(ii) collects or secures payment of interest on the Notes for another person 

(other than merely arranging to clear a cheque); 

must normally deduct UK income tax at the lower rate (currently 20%), unless: 

(a) the Notes are held in a recognised clearing system and the 

collecting agent pays or accounts for the interest directly or 

indirectly to the recognised clearing system; or 

(b) the person beneficially entitled to the Notes and who is entitled 

to the interest is not resident in the UK. 

In the case of exceptions in (a) and (b) above, the UK Inland Revenue has introduced 

regulations requiring the receipt of a declaration in the prescribed form that the 

relevant requirements have been satisfied for the relevant exception to be available. 

There are also exceptions for certain types of holders (e.g. pension funds, charities and 

non-resident trusts). 

In other cases interest will generally be paid after deduction of UK income tax at the 

lower rate (currently 20%). Overseas holders may be entitled to a refund of all or part 

of any tax withheld or to make a claim for interest on the Notes to be paid without, or 

subject to a reduced rate of, deduction or withholding under the provisions of an 

applicable double tax treaty. Refund of all or part of any tax withheld may also be 

available, depending on the individual circumstances, to a holder of Notes who is 

resident in the UK or who carries on a trade, profession or vocation in the UK through 

a branch or agency to which the Notes are attributable, or who is a Commonwealth 

Citizen or otherwise entitled to a UK personal allowance. 

Interest on the Notes received without deduction or withholding on account of UK tax 

will not generally be chargeable to UK tax in the hands of a holder who is not resident 

for tax purposes in the UK, unless the holder has a "UK representative" within the 

meaning of Section 126 and Schedule 23 of the Finance Act of 1995 in relation to the 

interest. Certain categories of agent (such as some brokers and investment managers) 

do not count as "UK representatives" for these purposes. If the holder is chargeable to 

tax under the above rules, exemption from or reduction in the tax payable on the 

interest might be available in appropriate circumstances under the provisions of an 

appropriate double tax treaty. 

A UK resident company or a non-UK resident company which carries on a trade, 

profession or vocation in the UK through a branch or agency to which the Notes are 

attributable will be subject to corporation tax in respect of income on an accruals or a 

mark-to-market basis on all profits and losses of whatever nature (calculated to include 

currency exchange rate differences calculated by ascertaining the difference between 

the sterling equivalent at the date of acquisition of the consideration given for the 

Notes and the sterling equivalent at the date of disposal of the proceeds received on 

UK-13

disposal of those Notes, and where the Notes are held at the end of the accounting 

period of the holder in which the Notes were acquired, taking into account also the 

-sterling equivalent on the final day that the accounting period of the consideration 

given for the Notes, and where the Notes are held at the end of subsequent accounting 

periods, taking into account the sterling equivalent on the final day of each such 

accounting period of the consideration given for the Notes) arising from disposals or 

redemptions of the Notes, or arising from holding the Notes. 

Capital Gains 

The disposal (including redemption) of a Note by a holder who is not a UK resident, 

does not carry on a trade, profession or vocation in the UK through a branch or agency 

to which the note is attributable, and does not have a "UK representative" within the 

meaning of Section 126 and Schedule 23 to, the Finance Act 1995 will not generally 

be chargeable to UK tax in respect of capital gains. 

The disposal (including redemption) of a Note by a holder (other than a company) 

which is resident or ordinarily resident for tax purposes in the UK or who carries on a 

trade, profession or vocation in the UK through a branch or agency to which the Note 

is attributable may give rise to a chargeable gain or allowable loss for the purposes of 

UK tax on capital gains (calculated to include currency exchange rate differences 

calculated by ascertaining the difference between the sterling equivalent at the date of 

acquisition of the consideration given for the Notes and the sterling equivalent at the 

ate of disposal of the proceeds received on disposal of the Notes), depending on 

individual circumstances and subject to any taper relief which may be due. 

For companies resident in the UK and non-resident companies who carry on a trade, 

profession or vocation in the UK through a branch or agency to which the Notes are 

attributable, the Notes will constitute "qualifying corporate bonds" for the purposes of 

UK tax on capital gains and no chargeable gain will arise on the disposal or 

redemption of the Notes; these companies will be subject to corporation tax on an 

accrual or mark-to-market basis on all profits and losses (including foreign exchange 

differences) arising on the disposal or redemption of the Notes in accordance with the 

description given in the preceding section entitled "Interest and Premium and 

Withholding Tax". 

Stamp Duty a n d Stamp Duty Reserve Tax 

No UK stamp duty or stamp duty reserve tax is payable on the issue or transfer of a 

Note or on its redemption. 

Inheritance Tax 

Notes are assets situated in the United Kingdom for the purposes of inheritance tax. A 

gift of such assets or the death of the holder of such assets may (subject to certain 

exemptions and reliefs) give rise to a liability to inheritance tax, even if the holder is 

neither domiciled in the United Kingdom nor deemed to be domiciled there. For these 

purposes, a transfer of assets at less than market value may be treated as a gift. Special 

UK-14

ules apply to trusts which own assets situated in the United Kingdom and to gifts 

where the donor retains an interest or reserves a benefit. 

Proposed EU Withholding Directive 

In May 1998, the European Commission presented to the Council of the European 

Union a proposal to oblige Member States to adopt either a "withholding tax system" 

or an "information reporting system" in relation to interest, discounts and premiums. 

It is unclear whether this proposal will be adopted, or if it is adopted, whether it will 

be adopted in its current form. The "withholding tax system" would require a paying 

agent established in a Member State to withhold tax at a minimum rate of 20% from 

any interest, discount or premium paid to an individual resident in another Member 

State unless such an individual presents a certificate obtained from the tax authorities 

in which he is a resident confirming that those authorities are aware of the payment 

due to that individual. The "information reporting system" would require a Member 

State to supply, to the other Member States, details of any payment of interest, 

discount or premium made by paying agents within its jurisdiction to an individual 

resident in another Member State. For those purposes the term "paying agent" is 

widely defined and includes an agent who collects interest, discounts or premiums on 

behalf of an individual beneficially entitled thereto. 

10. CURRENT TRADING 

On 9 November 1999, the Company published a statement of its unaudited results for 

the three and nine month periods ended 30 September 1999. The full text of the 

results statement has been set out in Appendix A to Part 1 of this document. 

1 1 . COMPETITION AND REGULATORY ENVIRONMENT 

Competition 

The telecommunications industry is highly competitive. Competition in the 

telecommunications industry is based upon price, customer service, network quality, 

value-added services and customer relationships. COLT competes or will compete in 

each local market in which it operates with other telecommunications operators in 

those markets. Competition is principally from the dominant PTOs, which generally 

offer both local and long-distance services and benefit from their history as incumbent 

providers. The substantially greater resources of these dominant PTOs and their control 

over local connectivity give them competitive advantages over other operators such as 

the Company. In addition to these PTOs COLT faces competition from other 

telecommunications operators, such as WorldCom and second national carriers in 

various countries. As the Company enters new geographic markets and liberalisation 

of its existing markets continues, the Company will encounter increased competition. 

Although the Company believes its services are, and in the future will be, competitive 

in terms of price and quality with the service offerings of its current and future 

competitors, there can be no assurance that the Company will be able to compete 

effectively. 

UK-15

Regulatory Environment 

The implementation of a number of EU Directives has created a free and open market 

for telecommunications across the EU. Implementation of these Directives is now 

substantially complete in the markets in which COLT operates or has plans to operate. 

COLT has obtained licences to establish and operate public telecommunications 

networks and to provide a full range of services, including public switched voice 

telephony in all of the markets in which it operates or plans to operate. 

The telecommunications regulatory regimes in these markets have certain common 

features. COLT has rights to interconnect with the dominant PTO (and other 

operators) and has negotiated interconnect agreements in each country (subject in 

Germany and Austria to some open issues on which the national regulator will provide 

a ruling but, in each case, the existing interconnection will remain in place until the 

new agreements are finalised). COLT is also obliged to negotiate with other operators 

wishing to interconnect with its network. 

COLT's licences generally confer on it rights of way necessary for the construction of 

network infrastructure although these rights of way may be subject to additional 

administrative approvals being obtained and may be subject to payment of fees. In 

general COLT has not encountered significant difficulties as a result of these 

requirements (except in Milan, where there were delays in obtaining the required 

concession from the city authorities). 

In general, COLT is not subject to regulatory constraints on the prices it charges to its 

customers although the dominant PTO is subject to price controls under each national 

regulatory regime. In addition, the telecommunications licences granted to COLT are 

generally subject to termination on change of control of COLT, and in some cases, for 

instance, the UK, in the event of a substantial change of ownership not amounting to a 

change of control. However, in most countries, licences can be transferred with the 

consent of the regulatory authority. 

12. GENERAL 

(A) The Notes will be issued initially as global securities in bearer form. No 

temporary documents of title will be issued. 

(B) The Company's Paying Agent, Registrar and Trustee for the Note Offering is 

The Bank of New York of 46 Berkeley Street, London W1X 6AA. A paying 

agent will be maintained in the United Kingdom until such time as the Notes 

are finally redeemed. 

(C) The Placement Agents for the Notes are Morgan Stanley & Co. International 

Limited of 25 Cabot Square, Canary Wharf, London E14 4QA, Lehman Brothers 

International (Europe) of One Broadgate, London EC2M 7HA, Dresdner Bank 

AG London Branch of 20 Fenchurch Street, London EC3 P3DB and TD 

Securities (USA) Inc. of 31 West 52nd Street, NY NY, 10019. 

UK-16

(D) Coopers & Lybrand have given and not withdrawn their consent to the inclusion 

in Appendix C to Part 1 of this document of their report on page C-2 in the form 

and context in which it appears and have authorised the contents of their report 

for the purposes of Section 152(1) (e) of the Financial Services Act 1986. 

(E) PricewaterhouseCoopers have given and not withdrawn their consent to the 

inclusion in Appendix C to Part 1 of this document of their report on page C-3 

in the form and context in which it appears and have authorised the contents of 

their report for the purposes of Section 152(1) (e) of the .Financial Services Act 

1986. 

(F) Sullivan and Worcester LLP have given and not withdrawn their consent to the 

inclusion in Part 1 of this document of their name and the statement of their 

opinion as to United States federal income tax consequences and have 

authorised its inclusion in the form and context in which it appears for the 

purposes of Section 152(1) (e) of the Financial Services Act 1986. 

13. DOCUMENTS AVAILABLE FOR INSPECTION 

Copies of the following documents may be inspected at the offices of Slaughter and 

May, 35 Basinghall Street, London EC2V 5DB, during usual business hours on any 

week day (Saturdays and public holidays excepted) until 24 February 2000: 

(A) the Memorandum and Articles of Association of the Company; 

(B) the material contracts referred to in "Material Contracts" in paragraph 9 of Part 

2 of this document; 

(C) the reports of Coopers & Lybrand and PricewaterhouseCoopers referred to in 

paragraphs 15(D) and (E) respectively of Part 2 of this document; 

(D) the combined audited accounts of the companies comprised in the Group for 

the financial year ended 31 December 1996 (insofar as such companies were 

incorporated during that year) and the consolidated audited accounts of the 

Company at 31 December 1996; 

(E) the consolidated audited accounts of the Company and its subsidiary 

undertakings for the financial years ended 31 December 1997 and 1998; and 

(F) unaudited financial information in respect of the Company and its subsidiary 

undertakings at and for the three and nine month periods ended 30 September 

1999. 

CB0036706S5_23.doc 

UK-17

COLT Telecom Group plc - Banco Best

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?