As filed with the Securities and Exchange Commission on October 10, 2000
Registration No. 333-47324
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
------------------------
Amendment No. 1
to
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
New National Grid Limited
(to be renamed New National Grid plc)
(Exact Name of Registrant as Specified in its Charter)
------------------------
England and Wales 4911 NONE
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
------------------------
15 Marylebone Road
London NW1 5JD
United Kingdom
011 44 20 7312 5600
(Address and telephone number of Registrant's
principal executive offices)
------------------------
National Grid USA
25 Research Drive
Westborough, MA 01582
(508) 389-2000
(Name, address and telephone number
of agent for service)
------------------------
copies to:
<TABLE>
<S> <C> <C>
Daniel A. Braverman Steven H. Davis Janet T. Geldzahler
Cleary, Gottlieb, Steen & Hamilton LeBoeuf, Lamb, Greene & MacRae L.L.P. Sullivan & Cromwell
55 Basinghall Street 125 West 55th Street 1701 Pennsylvania Avenue N.W.
London EC2V 5EH New York, NY 10019 Washington, D.C. 20006-5805
011 44 20 7614 2200 (212) 424 8000 (202) 956 7500
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after the effective date of this Registration Statement
and all other conditions to the merger described in this Registration Statement
have been satisfied or waived.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
------------------------
Calculation of Registration Fee
<TABLE>
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<S> <C> <C> <C> <C>
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price per aggregate offering registration
securities to be registered registered (1) unit (2) price (2) fee (2)
--------------------------------------------------------------------------------------------------------------
Ordinary shares of 10p each(30) 312,239,950 $8.08 $666,045,282* $398,317.85
shares
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------------------
(1) The number of shares to be registered is based upon an estimate of the
maximum number of ordinary shares that may be issued to holders of
common stock of Niagara Mohawk Holdings, Inc. pursuant to the merger
agreement.
(2) Pursuant to Rules 457(f)(1) and (3) and 457(c) under the Securities
Act, the registration fee was calculated on the basis of the average of
the high and low sale prices for shares of Niagara Mohawk Holdings,
Inc. common stock on the New York Stock Exchange on September 27, 2000.
(3) Upon the re-registration of New National Grid Limited as a public
limited company prior to the effective date of this Registration
Statement, each ordinary share, current par value (pound)1.00 each,
will be converted into 10 ordinary shares, par value 10p each.
* Previously paid.
</TABLE>
------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
The information in this proxy statement/prospectus is not complete and may be
changed. New National Grid plc may not issue its ordinary shares (in the form of
American Depositary Shares) in the merger until the registration statement
containing this proxy statement/prospectus is declared effective by the
Securities and Exchange Commission. This proxy statement/prospectus is not an
offer to sell these securities and it is not a solicitation of an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 10, 2000
NIAGARA MOHAWK HOLDINGS, INC. NEW NATIONAL GRID PLC
Proxy Statement Prospectus for up to 312,239,950
ordinary shares
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
The boards of directors of Niagara Mohawk Holdings, Inc., National Grid
Group plc and New National Grid plc have agreed on a merger in which Niagara
Mohawk would become a wholly owned subsidiary of New National Grid, a newly
formed company which will become National Grid Group's holding company prior to
the completion of the merger.
In the merger you will receive in exchange for each share of Niagara
Mohawk common stock that you own consideration of $19.00 per share, if the
dollar value of the average closing price of five National Grid Group ordinary
shares during a specified period shortly before completion is between $32.50 and
$51.00. In the event that the dollar value of the average closing price of five
National Grid Group ordinary shares during the specified period is greater than
$51.00, the per share consideration you will receive will increase by two-thirds
of the percentage of the increase in value over $51.00. In the event that the
dollar value of the average closing price of five National Grid Group ordinary
shares during the specified period is less than $32.50, the per share
consideration you will receive will decrease by two-thirds of the percentage of
the decrease in value below $32.50. You will be able to elect to receive your
consideration in cash, shares of New National Grid in the form of American
Depositary Shares or as a combination of both, subject to the aggregate cash
consideration paid to all Niagara Mohawk shareholders being $1.015 billion. If
cash elections received from all Niagara Mohawk shareholders exceed $1.015
billion, National Grid Group has the option, but not the obligation, to increase
the cash component of the consideration.
The shareholders of Niagara Mohawk must adopt the merger agreement at
their meeting for the merger to occur. The date, time and place of the Niagara
Mohawk special meeting is as follows: January , 2001 at 10:00 a.m. local time,
at . The merger is also subject to the approval of National Grid Group's
shareholders.
The Niagara Mohawk board of directors has, by a unanimous vote of
directors present, adopted and approved the merger agreement and the
transactions contemplated by the merger agreement, including the merger, and has
concluded that the terms of the merger are in your best interests. The Niagara
Mohawk board of directors recommends you to vote "FOR" adoption of the merger
agreement.
Niagara Mohawk's common stock is traded on the New York Stock Exchange
under the symbol "NMK." National Grid Group's ordinary shares are, and New
National Grid's ordinary shares will be, traded on the London Stock Exchange plc
under the symbol "NGG." National Grid Group's ADSs are, and New National Grid's
ADSs will be, traded on the New York Stock Exchange under the symbol "NGG."
Please see the section entitled "Risk Factors" beginning on page 10 for
a discussion of potential risks involved in the merger.
This proxy statement/prospectus provides you with detailed information
about the proposed merger. We urge you to read this entire document carefully
before voting.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved these securities or determined if this proxy
statement/prospectus is accurate or adequate. Any representation to the contrary
is a criminal offense.
--------------------------------------------------------------------------------
This proxy statement/prospectus is dated , 2000 and is first being
mailed to Niagara Mohawk shareholders on or about that date.
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This proxy statement/prospectus incorporates important business and financial
information about each of Niagara Mohawk and National Grid Group that is not
included in or delivered with this proxy statement/prospectus. This information
is available without charge to you upon your written or oral request to (1)
Niagara Mohawk Holdings, Inc., 300 Erie Boulevard West, Syracuse, New York
13202, Attention: Leon T. Mazur, Director, Investor Relations, Telephone number:
(315) 428-5876 or (2) National Grid Group plc, 15 Marylebone Road, London NW1
5JD, United Kingdom, Attention: David Forward, Telephone number: 011 44 207 312
5860 or National Grid USA, 25 Research Drive, Westborough, Massachusetts 01582,
Attention: Corporate Communications, Telephone number: (508) 389- 2591. In order
to obtain timely delivery of this information, you should request this
information no later than , 2001. See "Where You Can Find More Information"
beginning on page 21.
TABLE OF CONTENTS
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..............................i
CURRENCIES AND EXCHANGE RATES.................................................ii
QUESTIONS AND ANSWERS ABOUT THE MERGER.........................................1
SUMMARY........................................................................4
RISK FACTORS..................................................................10
SELECTED HISTORICAL FINANCIAL INFORMATION OF NATIONAL GRID GROUP..............11
SELECTED HISTORICAL FINANCIAL INFORMATION OF NIAGARA MOHAWK...................12
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.........14
COMPARATIVE PER SHARE DATA....................................................16
COMPARATIVE MARKET PRICE AND DIVIDEND DATA....................................18
WHERE YOU CAN FIND MORE INFORMATION...........................................21
NIAGARA MOHAWK SPECIAL MEETING, VOTING AND PROXIES............................23
THE MERGER....................................................................25
THE MERGER AGREEMENT..........................................................46
SCHEME OF ARRANGEMENT.........................................................64
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION..................65
DESCRIPTION OF ORDINARY SHARES................................................83
DESCRIPTION OF AMERICAN DEPOSITARY SHARES.....................................90
COMPARISON OF RIGHTS OF NIAGARA MOHAWK SHAREHOLDERS AND NEW NATIONAL
GRID SHAREHOLDERS........................................................96
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE......................109
OTHER MATTERS................................................................109
UK CIRCULAR..................................................................109
LEGAL MATTERS................................................................109
EXPERTS......................................................................109
<PAGE>
CURRENCIES AND EXCHANGE RATES
National Grid Group publishes its consolidated financial statements in
pounds sterling. References in this proxy statement/prospectus to "US dollars",
"US$", "$" or "(cent)" are to United States currency and references to "pounds
sterling", "(pound)", "pounds", "pence" or "p" are to United Kingdom currency
(there are 100 pence to each pound). Solely for your convenience, this document
contains translations of certain pound sterling amounts into dollars at a rate
of (pound)1.00 = US$1.60, being the 4.00 p.m. London Closing rate as quoted in
the Financial Times on March 31, 2000, unless otherwise specified. No
representation is made that the pound sterling amounts have been, could have
been or could be converted into US dollars at the rate indicated or at any other
rates.
The following table sets forth, for each period indicated, the high and
low noon buying rates in New York City for cable transfers, as certified for
customs purposes by the Federal Reserve Bank of New York (the "Noon Buying
Rate"), for one pound sterling expressed in US dollars, the average Noon Buying
Rate during the period, and the Noon Buying Rate at the end of the period:
Three
months
ended Fiscal Year ended March 31,
June 30, -----------------------------------------------
2000 2000 1999 1998 1997 1996
-------- ------ ------ ------ ------ ------
High....................$1.59 $1.68 $1.72 $1.70 $1.71 $1.62
Low......................1.47 1.55 1.60 1.58 1.49 1.50
Average..................1.52 1.61 1.65 1.65 1.60 1.56
Period End...............1.51 1.59 1.61 1.68 1.64 1.53
On September 29, 2000, the Noon Buying Rate was (pound)1.00 = $1.47.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What is National Grid Group?
A: National Grid Group is a holding company based in the United Kingdom.
National Grid Group, through its principal subsidiary, The National Grid
Company plc ("NGC"), owns and operates the high voltage transmission
system in England and Wales. National Grid Group, through another
subsidiary, National Grid USA, also has substantial transmission and
distribution operations in the United States following its acquisitions of
New England Electric System and Eastern Utilities Associates in early
2000.
Q: Why are the companies proposing to merge? How will I benefit?
A: The combination of Niagara Mohawk and National Grid Group will more than
double the size of National Grid Group's US operations and will create the
ninth largest electric utility in the United States with an electric
customer base of approximately 3.3 million. The combined group will own
and operate the most extensive transmission network (by miles) and be the
second largest distribution business (by power delivered) in the New
England/New York market. Building on National Grid Group's experience
operating a transmission system in the competitive UK environment and
integration skills demonstrated in the acquisition in recent months of New
England Electric System and Eastern Utilities Associates, the combined
group will focus on reducing costs, increasing the efficiency of Niagara
Mohawk's core transmission and distribution operations and working with
regulators to structure long term rate plans that benefit customers and
shareholders.
At the time the merger was announced, the merger consideration represented
a 37% premium over the market price of Niagara Mohawk common stock on the
last trading day on the New York Stock Exchange before announcement and a
36% premium to the three-month average closing price of Niagara Mohawk's
common stock. You particularly should note that the extent of any premium
at the time of the completion of the merger will depend on the market
prices of Niagara Mohawk's common stock and National Grid Group's ordinary
shares, which fluctuate on a daily basis.
Q: What is New National Grid?
A: National Grid Group will propose to its shareholders that New National
Grid, a newly formed company, become its holding company. A scheme of
arrangement is the process under which New National Grid will be put in
place as the holding company for National Grid Group. The scheme of
arrangement will be implemented prior to completion of the merger.
Adoption of the holding company structure is subject to the approval of
National Grid Group's shareholders and the sanction of the High Court in
London, England. Consent must also be obtained from the Secretary of State
for Trade and Industry in the United Kingdom as holder of the special
share in National Grid Group. Following the merger, Niagara Mohawk will
become a wholly owned subsidiary of New National Grid.
Q: What happens if National Grid Group does not adopt the holding company
structure?
A: It is a condition to the completion of the merger that the holding company
structure be implemented. However, the merger agreement provides that if
National Grid Group determines that a structure that does not involve
establishing a holding company through a scheme of arrangement would be
preferable, or that the approval of the scheme of arrangement is
uncertain, National Grid Group and Niagara Mohawk will negotiate in good
faith to restructure the transaction, provided that the restructuring
preserves the economic and tax benefits of the transaction for both
parties.
Q: What is an ADS?
A: An ADS, which stands for "American depositary share," is a security
created to allow you to hold and trade more easily your ownership interest
in New National Grid in the United States. New National Grid's ADSs will
be quoted and traded in US dollars. Likewise, dividends on the ordinary
shares underlying New National Grid's ADSs will be paid in US dollars.
Each ADS you will receive will represent ownership of five ordinary shares
of New National Grid.
If you want to convert your ADSs into the underlying ordinary shares, this
can be done at any time. Conversion can occur by contacting your broker or
the financial institution which acts as depositary for the ADSs. A fee is
charged by the depositary, initially $5.00 (or less) for every 100 ADSs
you surrender, together with any transaction expenses, taxes or other
governmental charges for any conversion.
Q: What do I need to do now?
A: After you have carefully read this proxy statement/prospectus, please
indicate on your proxy card how you want to vote and mail your signed and
dated form in the enclosed postage-prepaid return envelope marked "Proxy"
as soon as possible, or vote by telephone or on the Internet, so that your
shares may be represented and voted at the Niagara Mohawk special meeting.
Q: When will I elect to receive cash or ADSs?
A: You cannot make your election at this time. A form of election and
complete instructions for properly making an election to receive cash,
ADSs or a combination of cash and ADSs will be mailed to you at a later
date not more than 90 days nor less than 30 days before the anticipated
day of the closing of the merger, which is currently expected to be in
late 2001.
Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker
regarding how to instruct your broker to vote your shares. If you do not
provide these instructions, your shares will not be voted on the merger,
which will have the same effect as voting against the merger.
Q: Can I change my vote after having submitted a vote?
A: Yes. There are three ways in which you may revoke your proxy and change
your vote. First, you may send a written notice to Niagara Mohawk stating
that you would like to revoke your proxy. Second, you may complete and
submit a new proxy card (or vote by telephone or on the Internet). Third,
you may attend the Niagara Mohawk special meeting and vote in person.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed we will send you written instructions
explaining how to exchange your Niagara Mohawk common stock certificates.
Q: Will I receive the specific amounts of cash and shares that I elect?
A: You can elect to receive your consideration either in cash or ADSs, or a
combination of both, subject to the aggregate cash consideration elected
being $1.015 billion. If cash elections received from all Niagara Mohawk
shareholders exceed $1.015 billion, National Grid Group has the option,
but is not obligated, to increase the cash element of the consideration.
If elections for one form of consideration exceed the amount of such form
of consideration to be issued in the merger, all shareholders electing the
oversubscribed form of consideration will receive, on a pro rata basis,
some of the undersubscribed form of consideration.
Q: Who can help answer questions?
A: If you have more questions about the merger, you should contact our
Information Agent:
D.F. King & Co.
77 Water Street
New York, New York 10005
Telephone number:
<PAGE>
SUMMARY
This summary highlights the information most significant to shareholders,
but does not contain all of the information that is important to you. To
understand the merger fully and for a complete description of the legal terms of
the merger, you should read carefully this entire document and the documents we
have referred you to. See "Where You Can Find More Information." The merger
agreement is attached as Annex A to this document. We encourage you to read the
merger agreement. It is the legal document that governs the merger.
The Companies
National Grid Group plc
15 Marylebone Road
London NW1 5JD
United Kingdom
011-44-20-7312-5600
National Grid Group was incorporated in England and Wales on April 1,
1989. Through its wholly owned subsidiary, NGC, National Grid Group's principal
business in the UK is the transmission of electricity in England and Wales.
National Grid Group derives the vast majority of its UK turnover (which is the
US equivalent of operating revenues), and profit from charges for services
provided by the transmission business. NGC owns and operates a transmission
system consisting of approximately 4,500 miles of overhead lines and
approximately 400 miles of underground cable together with substations at some
220 sites. In the fiscal year ended March 31, 2000, the turnover of the
transmission business was (pound)1,208.2 million.
NGC also owns and operates interconnectors which enable electricity to be
transferred between England and Wales on the one hand, and Scotland and France
on the other. In addition, NGC is responsible for the procurement of ancillary
services which enable satisfactory voltage and frequency to be maintained on the
transmission system.
National Grid USA is a wholly owned subsidiary of National Grid Group.
National Grid USA owns companies which deliver electricity to approximately 1.7
million customers in Massachusetts, Rhode Island and New Hampshire. These
electricity delivery companies own and operate approximately 31,000 miles of
transmission and distribution lines in New England.
National Grid Group is a registered holding company under the United
States Public Utility Holding Company Act of 1935.
New National Grid plc
15 Marylebone Road
London NW1 5JD
United Kingdom
011-44-20-7312-5600
New National Grid was incorporated in England and Wales on July 11, 2000.
New National Grid does not currently conduct any business activities. Following
the approval and implementation of the scheme of arrangement, New National Grid
will be the holding company for National Grid Group. New National Grid's
ordinary shares will be listed on the London Stock Exchange and its ADSs will be
listed on the New York Stock Exchange. Following the merger, New National Grid
will also be the holding company for Niagara Mohawk. Upon completion of the
scheme of arrangement, New National Grid will be a registered holding company
under the United States Public Utility Holding Company Act of 1935.
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
(315) 474-1511
In March 1999, Niagara Mohawk Power Corporation ("NMPC") was reorganized
into a holding company structure, under which Niagara Mohawk became its holding
company. As a result, Niagara Mohawk has two subsidiaries, (1) NMPC, which is
primarily a regulated electric and gas utility, and (2) Opinac North America,
Inc. ("Opinac"), which is mainly involved in unregulated activities in the
energy business. NMPC was organized in 1937 under the laws of New York State and
is engaged principally in the regulated energy delivery business in New York
State. NMPC provides electric service to more than 1,500,000 electric customers
in upstate New York and sells, distributes, and transports natural gas to more
than 540,000 gas customers in areas of central, northern and western New York
State. NMPC comprises 98% of Niagara Mohawk's total assets and 94% of Niagara
Mohawk's total revenues. Opinac and its subsidiaries consist of an energy
marketing company and have investments in energy related and services
businesses, a development stage telecommunications company (Telergy, Inc.) and a
research and development company that has developed and intends to commercialize
new fuel cell and battery technology (EVonyx, Inc.).
The Merger
The merger will occur only if National Grid Group shareholders approve
the merger, Niagara Mohawk shareholders adopt the merger agreement and all other
requirements in the merger agreement are satisfied or waived. In the merger,
Grid Delaware, Inc., a wholly owned subsidiary of New National Grid, will merge
into Niagara Mohawk. As a result, Niagara Mohawk and National Grid Group will
become wholly owned subsidiaries of New National Grid.
What You Will Receive in the Merger (see page 25)
In exchange for each share of Niagara Mohawk common stock, Niagara Mohawk
shareholders will receive in the merger consideration of $19.00 per share, if
the dollar value of the average closing price of five National Grid Group's
ordinary shares on the London Stock Exchange for 20 trading days selected at
random in the period of 40 consecutive trading days ending on the tenth trading
day prior to the election deadline is between $32.50 and $51.00. In the event
that the dollar value of the average closing price of five National Grid Group
ordinary shares on the London Stock Exchange during that period is greater than
$51.00, the per share consideration received by Niagara Mohawk shareholders will
increase by two-thirds of the percentage of the increase in value over $51.00.
In the event that the dollar value of the average closing price of five National
Grid Group ordinary shares on the London Stock Exchange during that period is
less than $32.50, the per share consideration received by Niagara Mohawk
shareholders will decrease by two-thirds of the percentage of the decrease in
value below $32.50. Niagara Mohawk shareholders will be able to elect to receive
their consideration in cash, ADSs or as a combination of both, subject to the
aggregate cash consideration paid being $1.015 billion. If cash elections
received from Niagara Mohawk shareholders exceed $1.015 billion, National Grid
Group has the option, but not the obligation, to increase the cash component of
the consideration. If elections for one form of consideration exceed the amount
of such form of consideration to be issued in the merger, all shareholders
electing the oversubscribed form of consideration will receive, on a pro rata
basis, some of the undersubscribed form of consideration.
The Niagara Mohawk Special Meeting (see page 23)
The Niagara Mohawk special meeting will be held at on January , 2001, at
10:00 a.m., local time. At the Niagara Mohawk special meeting, holders of record
of shares of Niagara Mohawk's common stock will be asked to adopt the merger
agreement.
The Record Date for Voting (see page 23)
The close of business on December , 2000 has been fixed as the record
date for determining if you are entitled to vote at the Niagara Mohawk special
meeting. As of the record date, there were shares of Niagara Mohawk's common
stock outstanding.
Required Vote; Voting and Revocation of Proxies (see page 23)
The approval by the holders of a majority of the shares of Niagara
Mohawk's common stock outstanding on the record date is required to adopt the
merger agreement. Each share outstanding on the record date is entitled to one
vote. Shares represented by properly signed proxies (or voted by telephone or on
the Internet) received in time for the Niagara Mohawk special meeting will be
voted in the manner specified on the proxies. Properly signed proxies with no
instructions will be voted "FOR" adoption of the merger agreement. A proxy may
be revoked before it is voted by delivering a written statement of revocation to
the Niagara Mohawk corporate secretary, submitting a later dated properly signed
proxy (or voting later by telephone or on the Internet) or attending the Niagara
Mohawk special meeting and voting in person.
National Grid Group Extraordinary General Meeting in respect of the Merger
National Grid Group will convene an extraordinary general meeting in
early 2001. At the meeting, a resolution will be proposed to approve the merger.
To be passed, the resolution will require the approval of a majority of the
votes cast in person or on a poll at the meeting.
National Grid Group Court Meeting and Extraordinary General Meeting in respect
of the Scheme
A court meeting will be convened pursuant to an order of the High Court
in London, England to enable National Grid Group shareholders to consider and
approve the scheme of arrangement, which is the process under which New National
Grid will be put in place as the holding company of National Grid Group.
National Grid Group will also convene an extraordinary general meeting to enable
its shareholders to consider and pass special resolutions to approve and
implement the scheme of arrangement. National Grid Group anticipates that the
court meeting and extraordinary general meeting will be held by the Fall of
2001.
New National Grid will change its name to National Grid plc when the
scheme of arrangement becomes effective.
How to Elect to Receive ADSs or Cash in Exchange for Your Niagara Mohawk Shares
(see page 46)
Holders of shares of Niagara Mohawk's common stock issued and outstanding
immediately prior to the election deadline will be entitled to choose one of the
options listed below: (i) to receive cash consideration for each share; (ii) to
receive ADS consideration for each share; (iii) to exchange some of their shares
for cash and some for ADSs; or (iv) to indicate no preference as to the type of
consideration.
Niagara Mohawk shares as to which no election as to the type of
consideration has been made will be deemed to have elected cash or ADSs as
determined by National Grid Group.
A form of election (as described in this document) and complete
instructions for properly making an election to receive cash, ADSs or a
combination of cash and ADSs will be mailed to Niagara Mohawk shareholders under
separate cover not more than 90 days nor less than 30 days before the
anticipated day of the closing of the merger, which is currently expected to be
in late 2001.
Recommendations of the Niagara Mohawk Board of Directors Concerning the Merger
(see page 27)
The Niagara Mohawk board of directors has, by a unanimous vote of
directors present, adopted and approved the merger agreement and the
transactions contemplated by the merger agreement, including the merger, and has
concluded that the terms of the merger are in your best interests. The Niagara
Mohawk board of directors recommends you to vote "FOR" adoption of the merger
agreement.
Opinion of Niagara Mohawk Financial Advisor (see page 28)
Donaldson, Lufkin & Jenrette Securities Corporation, or DLJ, has acted as
financial advisor to Niagara Mohawk in connection with the merger and has
delivered to the Niagara Mohawk board of directors a written opinion, dated
September 4, 2000, to the effect that, as of the date of the opinion, based on
the matters stated in the opinion, and subject to the assumptions, limitations
and qualifications set forth in its opinion, the consideration to be received
by the shareholders of Niagara Mohawk pursuant to the merger agreement was fair
to the shareholders from a financial point of view.
Interests of Niagara Mohawk's Officers and Directors (see page 37)
In considering the Niagara Mohawk board of directors' recommendation that
you vote in favor of the merger, you should be aware that certain Niagara Mohawk
directors and officers have interests that provide them with interests in the
merger that are different from the interests of Niagara Mohawk shareholders. In
addition, directors and officers of Niagara Mohawk own shares and will be
entitled to receive the merger consideration for their shares. See the
discussion under "The Merger--Interests of Niagara Mohawk's Officers and
Directors" on page 37. As of the record date, directors and executive officers
of Niagara Mohawk and their affiliates owned less than 1% of the shares of
Niagara Mohawk's common stock outstanding.
Conditions to the Completion of the Merger (see page 55).
We will only complete the merger if the conditions described in the
merger agreement are satisfied or waived. These conditions include, among other
things:
o the adoption of the merger agreement by Niagara Mohawk's
shareholders and the approval of the merger by National Grid Group's
shareholders;
o the approval of the scheme of arrangement by National Grid Group's
shareholders and the sanction by the High Court of Justice, London,
England, of the scheme of arrangement on terms contemplated by the
merger agreement;
o the absence of any law or order restricting or prohibiting
completion of the scheme of arrangement, the merger or related
transactions;
o the agreement by the UK Listing Authority to admit to its Official
List the ordinary shares represented by the ADSs and the approval
for listing on the New York Stock Exchange of the ADSs;
o the completion of the sale by Niagara Mohawk of its nuclear
facilities or agreement by the parties with respect to an
alternative arrangement and the receipt of all necessary approvals
for that arrangement;
o the receipt of all necessary governmental approvals;
o the material accuracy of the representations and warranties and
material performance of the covenants contained in the merger
agreement; and
o the delivery of written tax opinions from PricewaterhouseCoopers LLP
and Bryan Cave LLP.
Termination of the Merger Agreement (see page 57)
We can jointly agree to terminate the merger agreement at any time before
completing the merger. Subject to certain conditions, either National Grid Group
or Niagara Mohawk may also terminate the merger agreement if:
o we do not complete the merger by December 31, 2001, subject to an
extension until March 31, 2002 if the merger is delayed solely
because the required regulatory approvals (including approvals
relating to sale or other arrangement for Niagara Mohawk's nuclear
facilities) have not yet been obtained but Niagara Mohawk has
entered into a binding definitive agreement for the sale of its
nuclear facilities or the parties have agreed to consider an
alternative arrangement with respect to these facilities; the
termination date may be further extended to August 31, 2002 if the
merger is delayed solely because the required nuclear approvals have
not yet been obtained and the agreement for sale of the nuclear
facilities or other arrangement remains in effect;
o the shareholders of National Grid Group do not approve the merger or
the shareholders of Niagara Mohawk do not adopt the merger agreement
at their respective meetings;
o legal restraints or prohibitions prevent the completion of the
merger;
o the other party commits a material breach of any of the
representations, warranties or covenants it made or obligations it
has under the merger agreement and the breaching party has not
remedied the breach within 20 business days of written notice from
the party seeking termination;
o the other party's board of directors withdraws or modifies in any
manner adverse to the terminating party its approval of the merger
agreement, the merger, the scheme of arrangement or its
recommendation to its shareholders; or
o Niagara Mohawk's board of directors, based upon the written opinion
of outside counsel, determines in good faith that, among other
things, its fiduciary obligations make it necessary to accept a
third-party acquisition proposal, and Niagara Mohawk and its legal
and financial advisors have given National Grid Group a reasonable
opportunity to adjust the terms of the merger agreement so that the
parties can proceed with the merger and have negotiated in good
faith with National Grid Group with respect to any such adjustments;
and concurrently with the termination, Niagara Mohawk pays certain
termination fees required by the merger agreement.
A termination fee of $150 million and expense reimbursements of up to $10
million may be payable if the merger agreement is terminated because a party's
board of directors withdraws or modifies its recommendation to its shareholders
that they adopt or approve the merger agreement, or Niagara Mohawk accepts an
alternative acquisition proposal under certain circumstances. See pages 58 to 60
for further discussion.
Absence of Dissenters' Rights (see page 24)
Under New York law, holders of shares of common stock of Niagara Mohawk
are not entitled to exercise dissenters' rights with respect to the merger.
New York Stock Exchange and London Stock Exchange Listing (see page 55)
New National Grid will apply to list the ADSs to be issued in the merger
on the New York Stock Exchange. The approval of the ADSs for listing on the New
York Stock Exchange is a condition to the completion of the merger. It is also a
condition to the completion of the merger that the UK Listing Authority admit
both the ordinary shares represented by the ADSs and the ordinary shares to be
issued under the scheme of arrangement for listing on the Official List of the
UK Listing Authority.
Regulatory Matters (see page 59)
Before the merger and the scheme of arrangement are completed, we must
obtain a number of regulatory approvals. At the federal level in the United
States, these approvals include approval of the Securities and Exchange
Commission, the Federal Energy Regulatory Commission, and the Federal
Communications Commission. Additionally, the merger must receive antitrust
clearance from the Department of Justice and the Federal Trade Commission. At
the state level in the United States, the required approvals include the New
York Public Service Commission for the merger and the Vermont Service Board for
the scheme of arrangement. Additionally, either or both of the Connecticut
Department of Public Utility Control and the New Hampshire Public Utilities
Commission may take jurisdiction over the transactions under certain
circumstances. The scheme of arrangement will require the consent of the UK
Secretary of State for Trade and Industry. Upon completion of the scheme of
arrangement, New National Grid will register and be subject to regulation as a
holding company under the Public Utility Holding Company Act of 1935.
Material Tax Consequences (see page 40)
All Niagara Mohawk shareholders should read carefully the discussion
under "The Merger--Material Tax Consequences" beginning on page 40 and are urged
to consult their own tax advisors as to specific consequences to them of the
merger under federal, state, local or any other applicable tax laws.
Comparison of Rights of Niagara Mohawk Shareholders and National Grid
Shareholders (see page 95)
In the merger, holders of Niagara Mohawk's common stock (other than
holders who will receive only cash for their Niagara Mohawk common stock) will
receive ADSs representing ordinary shares of New National Grid. There are many
differences between the rights of a shareholder in Niagara Mohawk, a New York
corporation, and the rights of a shareholder in New National Grid, an English
corporation. We urge you to review the discussion under "Comparison of Rights of
Niagara Mohawk Shareholders and New National Grid Shareholders" beginning on
page 95 for a summary of these differences.
<PAGE>
RISK FACTORS
National Grid Group's business is subject to risks relating to the UK regulatory
environment.
National Grid Group's business is subject to regulation in the United
Kingdom, a general description of which is set forth in National Grid Group's
Annual Report on Form 20-F which is incorporated in this document by reference.
It is expected that regulation will continue to have a material bearing on the
profitability and investment capability of National Grid Group. National Grid
Group's regulated monopoly business is electricity transmission in England and
Wales and represented 91% of European operating profit for the year ended March
31, 2000. The regulatory price control relating to the transmission business for
the five year period commencing April 1, 2001 is currently being reviewed by
regulatory authorities in the United Kingdom. National Grid Group is unable to
judge accurately the outcome of this review which may materially affect profits.
National Grid Group expects that the result of this review will be known by
November 2000.
You may receive less than $19.00 worth of New National Grid ADSs and/or cash for
each share of Niagara Mohawk common stock you own.
Under the merger agreement, the consideration you will receive for your
Niagara Mohawk shares depends on the dollar value of the average closing price
of National Grid Group's ordinary shares during a specified period shortly
before closing. If the dollar value of the average closing price of five
National Grid Group's ordinary shares on the London Stock Exchange during that
period is between $32.50 and $51.00, you will receive $19.00 worth of
consideration for each Niagara Mohawk share. However, volatility and price
fluctuations in the stock market as a whole or changes in National Grid Group's
results of operations may adversely affect the value of its shares. As a result,
the dollar value of the average closing price of National Grid Group's ordinary
shares may be significantly different during the applicable time period from its
value today. If the dollar value of the average closing price of five National
Grid Group ordinary shares during the applicable time period is below $32.50,
the consideration you will receive for each Niagara Mohawk share you own will be
decreased by two-thirds of the percentage of the decrease in value below $32.50.
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF NATIONAL GRID GROUP
The following table sets forth selected financial information of
National Grid Group for each of the five years ended March 31, 2000, which has
been extracted or derived from the audited consolidated accounts of National
Grid Group. This selected financial information should be read in conjunction
with the audited consolidated accounts of National Grid Group included in
National Grid Group's annual report on Form 20-F for the year ended March 31,
2000 incorporated by reference in this proxy statement/prospectus.
<TABLE>
Year ended March 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(restated) (restated) (restated) (restated)
(pound)m (pound)m (pound)m (pound)m (pound)m
Amounts in accordance with UK GAAP
Group profit and loss account -----------------------------------------------------------------------
Group turnover - Continuing operations 1,578.5 1,514.2 1,519.3 1,369.5 1,381.8
- Acquisition 36.2 - - - -
- Discontinued operations - - 90.1 88.0 105.2
-----------------------------------------------------------------------
1,614.7 1,514.2 1,609.4 1,457.5 1,487.0
Operating costs (1,042.6) (937.5) (1,074.9) (801.1) (810.1)
-------------------------------------------------------------------------------------------------------------------------
Operating profit/
(loss) - Continuing operations 569.4 576.7 562.9 710.6 724.3
- Acquisition 2.7 - - - -
- Discontinued operations - - (28.4) (54.2) (47.4)
-----------------------------------------------------------------------
Operating profit of Group undertakings
Share of joint ventures' and associate's 572.1 576.7 534.5 656.4 676.9
operating (loss)/profit (33.5) 0.7 1.3 - -
-------------------------------------------------------------------------------------------------------------------------
Total operating profit 538.6 577.4 535.8 656.4 676.9
Exceptional items 1,027.3 839.2 107.1 - (24.6)
Net interest (64.9) (118.5) (61.7) (59.1) (26.4)
-------------------------------------------------------------------------------------------------------------------------
Profit before taxation 1,501.0 1,298.1 581.2 597.3 625.9
-----------------------------------------------------------------------
Taxation - Excluding exceptional items (123.1) (120.3) (133.5) (176.2) (194.2)
- Exceptional items (229.5) (162.8) - - -
-----------------------------------------------------------------------
(352.6) (283.1) (133.5) (176.2) (194.2)
-------------------------------------------------------------------------------------------------------------------------
Profit after taxation 1,148.4 1,015.0 447.7 421.1 431.7
-----------------------------------------------------------------------
Dividends - Ordinary (205.5) (192.0) (189.2) (190.7) (175.0)
- Other - - (768.6) - (1,560.8)
-----------------------------------------------------------------------
(205.5) (192.0) (957.8) (190.7) (1,735.8)
-------------------------------------------------------------------------------------------------------------------------
Retained profit/(loss) 942.9 823.0 (510.1) 230.4 (1,304.1)
-------------------------------------------------------------------------------------------------------------------------
Summary Group balance sheet
Fixed assets 6,302.0 3,347.6 3,233.3 3,165.5 2,989.3
Current assets 2,464.8 1,746.3 384.0 368.2 385.8
-------------------------------------------------------------------------------------------------------------------------
Total assets 8,766.8 5,093.9 3,617.3 3,533.7 3,375.1
Current liabilities (1,861.1) (1,414.9) (1,097.2) (963.4) (811.0)
Long-term creditors and provisions (3,961.6) (1,726.5) (1,395.7) (952.0) (1,281.7)
-------------------------------------------------------------------------------------------------------------------------
Net assets employed 2,944.1 1,952.5 1,124.4 1,618.3 1,282.4
-------------------------------------------------------------------------------------------------------------------------
Amounts in accordance with US GAAP
Net income 1,009.8 1,002.8 458.9
Total assets 9,105.7 5,189.7 3,677.5
Long-term liabilities 4,872.8 2,420.1 2,035.8
Shareholders' funds 2,345.7 1,464.1 619.5
-------------------------------------------------------------------------------------------------------------------------
(i) The UK GAAP figures for 1996 to 1999 have been restated for the change in
accounting policy relating to the capitalization of interest.
(ii) The UK GAAP figures for 1996 have not been adjusted to reflect the adoption
of Financial Reporting Standard 12, "Provisions, Contingent Liabilities and
Contingent Assets", during the year ended March 31, 1999.
</TABLE>
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF NIAGARA MOHAWK
The following table sets forth selected financial information of
Niagara Mohawk for 1999 and of NMPC for each of the five years during the period
ended December 31, 1999, which has been extracted or derived from the audited
consolidated financial statements of Niagara Mohawk and NMPC and from the
unaudited accounts of Niagara Mohawk for the six months ended June 30, 2000
(Niagara Mohawk became the new holding company of NMPC in 1999). This selected
historical financial information should be read in conjunction with, and is
qualified in its entirety by reference to, such consolidated financial
statements and their accompanying notes included in the annual report on Form
10-K of Niagara Mohawk and NMPC for the year ended December 31, 1999 and the
unaudited interim accounts of Niagara Mohawk for the six months ended June 30,
2000 filed on Form 10-Q, both of which are incorporated into this proxy
statement/prospectus by reference. See "Where You Can Find More Information."
<TABLE>
Niagara
Niagara Mohawk Mohawk Niagara Mohawk Power Corporation
------------------------ --------- --------------------------------------------------------------
Period ended June 30, Period ended December 31,
------------------------ --------- --------------------------------------------------------------
2000 1999 1999** 1999** 1998 1997 1996* 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations: (000's)
Operating Revenues $2,240,079 $2,033,455 $4,084,186 $3,827,340 $3,826,373 $3,966,404 $3,990,653 $3,917,338
Net income (loss) (5,244) 14,785 (35,088) (2,061) (120,825) 183,335 110,390 248,036
------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Common Stock Data:
Book value per share at
period end $16.91 $16.78 *** $16.92 $18.89 $17.91 $17.42
Market price at period end 13 15/16 13 15/16 *** 16 1/8 10 1/2 9 7/8 91/2
Ratio of market price to
book value at period end 82.4% 83.1% *** 95.3% 54.5%
55.6% 55.1%
Basic and diluted
earnings (loss) per
average common share $(0.03) $0.08 $(0.19) *** $(0.95) $1.01
$0.50 $1.44
Rate of return on common
equity (0.19)% (1.1)% *** 2.8% 8.4%
(5.3)% 5.5%
Dividends paid per
common - - *** - - - $1.12
share
Capitalization: (000's)
Common Equity $2,779,166 $2,976,089 $2,785,171 $3,170,142 $2,727,527 $2,585,572 $2,513,952
Non-redeemable
preferred stock 440,000 440,000 440,000 440,000 440,000 440,000 440,000
Mandatorily redeemable
preferred stock 59,570 61,370 61,370 68,990 76,610 86,730 96,850
Long-term debt 5,006,891 5,042,588 5,042,588 6,417,225 3,417,381 3,477,879 3,582,414
Total 8,285,627 8,520,047 8,329,129 10,096,357 6,661,518 6,590,181 6,633,216
Long-term debt maturing
within one year 562,038 613,740 613,740 312,240 67,095 48,084 65,064
------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total $8,847,665 $9,133,787 $8,942,869 $10,408,597 $6,728,613 $6,638,265 $6,698,280
------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ----------
Other Balance Sheet
Data: (000's)
Total Assets $12,648,052 $12,670,435 $12,445,608 $13,861,187 $9,584,141 $9,427,635 $9,477,869
Financial Ratios:
EBITDA****(000's) $1,259,500 $1,262,500 $990,500 $961,500 $957,500 $929,100
----------
* Amounts include extraordinary item for the discontinuance of regulatory
accounting principles.
** Amounts include extraordinary item for the early extinguishment of debt.
See Note 4 to the Niagara Mohawk consolidated financial statements, which
are incorporated herein by reference.
*** Niagara Mohawk owns all of NMPC's shares of common stock.
**** A measure of cash flow which is calculated as: earnings before interest
charges, interest income, income taxes, depreciation and amortization,
amortization of nuclear fuel, allowance for funds used during construction,
MRA regulatory asset amortization and extraordinary items.
</TABLE>
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
National Grid Group, National Grid USA and Niagara Mohawk (the
"Combined Group") have prepared the following Selected Unaudited Pro Forma
Condensed Combined Financial Information to provide an indication of what the
results of operations and financial position of the Combined Group might have
looked like had the merger occurred on an earlier date. This information is
provided for illustrative purposes only and does not show what the results of
operations or financial position of the Combined Group would have been if the
merger had actually occurred on the dates indicated. This information also does
not indicate what the Combined Group's future operating results or consolidated
financial position will be. See "Unaudited Pro Forma Condensed Combined
Financial Information" for a more detailed explanation of this analysis.
Basis of preparation
Niagara Mohawk's financial statements will continue to be prepared in
accordance with US GAAP. The Selected Unaudited Pro Forma Condensed Combined
Financial Information has been prepared in accordance with UK GAAP which differs
in some significant respects from US GAAP. In the pro forma financial
information, Niagara Mohawk's financial position and results of operations have
been adjusted to UK GAAP and translated into pounds sterling, as described in
the Notes to the Unaudited Pro Forma Condensed Combined Financial Information
contained under "Unaudited Pro Forma Condensed Combined Financial Information".
National Grid Group intends to account for the merger using the
acquisition method of accounting under UK GAAP and the merger qualifies for the
purchase method of accounting under US GAAP. The pro forma financial information
has been prepared on that basis.
Selected Unaudited Pro Forma Condensed Combined Income Statement Information
The Selected Unaudited Pro Forma Condensed Combined Income Statement
Information assumes that the merger took place on April 1, 1999, the first day
of National Grid Group's financial year ended March 31, 2000, and reflects
continuing operations only. The Selected Unaudited Pro Forma Condensed Combined
Income Statement Information for the year ended March 31, 2000 is derived from
the audited historical consolidated profit and loss account of National Grid
Group for the year then ended and the audited historical consolidated income
statements of National Grid USA and Niagara Mohawk for the year ended December
31, 1999, after giving effect to the pro forma adjustments described in the
Notes to the Unaudited Pro Forma Condensed Combined Financial Information under
"Unaudited Pro Forma Condensed Combined Financial Information."
Selected Unaudited Pro Forma Condensed Combined Balance Sheet Information
The Selected Unaudited Pro Forma Condensed Combined Balance Sheet
Information assumes that the merger took place on March 31, 2000. The Summary
Unaudited Pro Forma Condensed Combined Balance Sheet Information as at March 31,
2000 is derived from the audited historical consolidated balance sheet of
National Grid Group as at March 31, 2000 and the audited historical consolidated
balance sheet of Niagara Mohawk as at December 31, 1999, and has been prepared
to reflect the acquisition of Niagara Mohawk after giving effect to the pro
forma adjustments described in the Notes to the Unaudited Pro Forma Condensed
Combined Financial Information under "Unaudited Pro Forma Condensed Combined
Financial Information."
Selected Unaudited Pro Forma Condensed Combined Income Statement Information
Combined Group Pro forma
year ended March 31, 2000
-------------------------
(pound)m
UK GAAP
Turnover 5,445.6
Total operating profit 1,061.8
Profit for the year 1,095.6
Basic earnings per National Grid Group ordinary share 64.6p
Basic earnings per National Grid Group ordinary share
(adjusted)(1) 18.9p
US GAAP
Profit for the year 923.8
Earnings per National Grid Group ordinary share 54.5p
Earnings per National Grid Group ADS 272.3p
Selected Unaudited Pro Forma Condensed Combined Balance Sheet Information
Combined Group Pro forma
at March 31, 2000
------------------------
(pound)m
UK GAAP
Fixed assets 9,848.9
Current assets 6,713.6
--------
Total assets 16,562.5
Current liabilities (2,600.9)
Long term creditors and provisions (9,455.1)
Net assets 4,506.5
========
US GAAP
Total assets 17,518.7
Long term liabilities (10,983.6)
Shareholders' funds 3,598.6
========
(1) As permitted under UK GAAP, an adjusted earnings per share has also been
presented (which excludes the exceptional item ((pound)1,027.3 million less tax
of (pound)229.5 million) and goodwill amortization ((pound)21.5 million)), in
order to provide an additional measure of underlying performance. In accordance
with US GAAP, earnings per share has been presented without adjustment for the
exceptional item or goodwill amortization.
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain per share data of the Combined
Group, National Grid Group, and Niagara Mohawk on both historical and pro forma
combined bases and on an equivalent pro forma basis for Niagara Mohawk. The
historical data as of June 30, 2000 and for the six-month period then ended, the
Niagara Mohawk pro forma equivalent per share data and the Combined Group pro
forma amounts for all periods presented below are unaudited. The pro forma
equivalent per share data for Niagara Mohawk has been determined based on the
ADS portion of the merger consideration (assuming all shares of Niagara Mohawk
receive equal proration of cash and ADSs) of 0.28 National Grid Group ADSs,
representing 1.396 National Grid Group ordinary shares (based upon an assumed
per share merger consideration equal to $19.00 and assuming a price per National
Grid Group ordinary share of (pound)5.60, the closing price on September 4,
2000, and an exchange rate of $1.62 to (pound)1.00, the Noon Buying Rate on
December 31, 1999) for each share of Niagara Mohawk common stock.
This table should be read in conjunction with the historical financial
statements and pro forma financial information, and the related notes thereto,
incorporated by reference in this proxy statement/prospectus or appearing
elsewhere herein. See "Where You Can Find More Information" and "Unaudited Pro
Forma Condensed Combined Financial Information." Unaudited pro forma condensed
combined data and Niagara Mohawk equivalent pro forma per share data reflect the
combined results, in respect of continuing operations only, for the Combined
Group, after giving effect to the merger (including the issuance of the merger
consideration), as if it had occurred on March 31, 2000, in the case of book
value data, and on April 1, 1999, in the case of earnings and dividend data.
The pro forma data does not reflect potential cost savings or potential
synergistic benefits and enhancements anticipated by National Grid Group's
management as a result of the merger. See "Unaudited Pro Forma Condensed
Combined Financial Information". The unaudited pro forma financial data is
presented for informational purposes only, and are not necessarily indicative of
the operating results or financial position that would have occurred had the
merger presented in the Unaudited Pro Forma Condensed Combined Financial
Information been completed on the dates indicated, nor is it indicative of
future operating results or financial position. Pro forma dividend per share
amounts represent the aggregate of the actual historical dividends paid by
National Grid Group and Niagara Mohawk divided by the estimated pro forma number
of outstanding ordinary shares following the merger. The pro forma dividend per
share amounts are not necessarily indicative of the actual dividends that will
be paid following the merger.
In the following table, as permitted under UK GAAP, a pro forma
earnings per share has also been presented which excludes the impact of the
exceptional item ((pound)797.8 million net for the year ended March 31, 2000)
and goodwill amortization ((pound)21.5 million for the year ended March 31,
2000), to provide an additional measure of underlying performance. In accordance
with US GAAP, earnings per share has been presented based on US GAAP earnings of
the Combined Group, without adjustment for the impact of the exceptional item
((pound)795.7 million net for the year ended March 31, 2000) or goodwill
amortization ((pound)62.9 million net for the year ended March 31, 2000). The
inclusion of these amounts in the determination of earnings for the purposes of
computation of earnings per share in accordance with US GAAP increased or
(decreased) earnings per share is as follows:
year ended March 31, 2000
------------------------------------------
Combined Group National Grid Group
Pro forma Historical
---------------- -------------------
p $ p
- - -
Per ordinary share
exceptional item 46.9 0.76 54.0
goodwill amortization (3.7) (0.06) (0.5)
<PAGE>
Comparative per share data
<TABLE>
Niagara
Mohawk Niagara National Grid Niagara
Combined Group Pro forma Mohawk Group Mohawk
Pro forma Equivalent Historical Historical Historical
-------------- ---------- ---------- ------------- ----------
year ended year ended year ended year ended six months
March 31, Dec 31, Dec 31, March 31, ended June 30,
2000 1999 1999 2000 2000
---- ---- ---- ---- ----
p $ $ $ p $
<S> <C> <C> <C> <C> <C> <C>
Amounts under UK GAAP
Earnings per ordinary share
Basic 64.6 1.05 1.47 (0.20) 78.0 0.03
Diluted 61.4 0.99 1.38 (0.20) 73.4 0.03
Earnings per ordinary share (adjusted)
Basic 18.9 0.31 0.43 (0.20) 24.3 0.03
Diluted 18.7 0.30 0.42 (0.20) 23.8 0.03
Dividends per ordinary share 12.03 0.19 - - 13.94 -
Book value per ordinary share 243.6 3.95 5.51 22.42 195.9 22.99
Amounts under US GAAP
Earnings per ordinary share
Basic 54.5 0.88 1.23 (0.06)(i) 68.6 (0.02)
Diluted 52.0 0.84 1.17 (0.06)(i) 64.7 (0.02)
Earnings per ADS
Basic 272.3 4.41 6.16 342.8
Diluted 260.0 4.21 5.86 323.4
Book value per share 210.7 3.41 4.76 16.78 158.0 16.91
(i) Under US GAAP, the Niagara Mohawk basic and diluted earnings per share figures are shown before the
effect of the extraordinary item.
</TABLE>
<PAGE>
COMPARATIVE MARKET PRICE AND DIVIDEND DATA
Market Price Data
National Grid Group's ADSs are listed for trading on the New York Stock
Exchange, and New National Grid ADSs will be listed for trading on the New York
Stock Exchange, under the symbol "NGG." National Grid Group's ordinary shares
are listed on the Official List of the UK Listing Authority and traded on the
London Stock Exchange, and New National Grid ordinary shares will be listed on
the Official List of the UK Listing Authority and traded on the London Stock
Exchange, under the symbol "NGG." Niagara Mohawk's common stock is listed for
trading on the New York Stock Exchange under the symbol "NMK."
The table below sets forth for the calendar quarters indicated, (1) the
highest and lowest closing middle-market quotations for National Grid Group
ordinary shares, as derived from the Daily Official List of the London Stock
Exchange, and the ADS equivalent of these prices, or where available the actual
ADS high and low closing sale price on the New York Stock Exchange, and (2) the
range of high and low closing sale prices for Niagara Mohawk's common stock on
the New York Stock Exchange.
<TABLE>
National Grid Niagara Mohawk
National Grid Group National Grid Group Group common
ordinary shares ADS equivalent(1) ADS actual(2) stock(4)
------------------- ------------------- ---------------- ----------------
High Low High Low High Low High Low
p p $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
First quarter................ 217.00 202.00 17.43 16.88 - - 11.13 8.38
Second quarter............... 233.50 206.50 18.92 17.02 - - 9.00 8.13
Third quarter................ 286.50 233.00 23.09 19.31 - - 10.06 8.31
Fourth quarter............... 302.00 277.00 25.38 23.07 - - 10.50 9.19
1998
First quarter (3)............ 353.00 268.00 29.59 21.85 - - 13.50 10.25
Second quarter............... 404.00 359.00 33.73 29.29 - - 14.94 11.19
Third quarter................ 462.50 403.00 39.19 33.78 - - 16.13 15.00
Fourth quarter............... 505.50 375.75 42.14 31.93 - - 16.38 14.06
1999
First quarter................ 552.75 416.00 45.51 33.78 - - 16.44 13.38
Second quarter .............. 468.00 416.50 37.56 33.23 - - 16.06 13.25
Third quarter................ 451.00 388.50 35.23 31.29 - - 16.06 14.81
Fourth quarter (to
October 7, 1999).......... 464.25 419.50 38.42 34.71 - - 15.75 15.19
Fourth quarter (from
October 8, 1999)........... 514.50 423.75 - - 41.00 36.00 16.19 13.44
2000
First quarter................ 597.00 422.00 - - 48.13 34.25 13.88 11.00
Second quarter............... 557.00 479.50 - - 43.75 37.50 14.75 13.38
Third quarter (through
September 27, 2000)........ 585.00 517.50 - - 43.25 37.75 15.81 12.56
---------------------------
(1) To obtain the ADS equivalent prices, the reported high and low prices for
National Grid Group ordinary shares expressed in pence per National Grid
Group ordinary share have been translated into US dollars per ADS (each
representing five ordinary shares) by multiplying the pence per ordinary
share by five and converting that amount in dollars at the Noon Buying
Rate (divided by 100 and rounded to the second decimal place) on the
dates of such respective high and low prices.
(2) National Grid Group ADSs were listed on the New York Stock Exchange on
October 7, 1999 and actual ADS prices are given from that date.
(3) In February 1998, National Grid Group completed a 17 for 20 share
consolidation as part of a capital restructuring.
(4) Niagara Mohawk common stock has been traded on the New York Stock
Exchange since March 19, 1999. Prior to that date, the market prices
refer to NMPC's common stock.
</TABLE>
<PAGE>
Share and Equivalent Per ADS Data
The information presented in the table below shows, as of the dates
indicated, closing prices for National Grid Group ordinary shares, National Grid
Group's ADSs and Niagara Mohawk common stock, as well as the ADS equivalent
value of each share of Niagara Mohawk's common stock.
<TABLE>
National Niagara
National Grid Grid Group Mohawk Niagara Mohawk
Group Closing Closing Closing ADS
Share Price ADS Price Share Price Equivalent Value (3)
-------------- ---------- ----------- --------------------
<S> <C> <C> <C> <C>
Last trading day before (pound)5.60 $41.75 $13.875 $19.00
announcement (1)
December , 2000 (2)
------------
(1) September 1, 2000, the last trading day on the New York Stock Exchange
prior to the public announcement of the merger, for National Grid Group
ADSs and Niagara Mohawk common stock and September 4, 2000, the last
trading day on the London Stock Exchange prior to the public
announcement of the merger, for National Grid Group ordinary shares.
(2) The most recent date for which it was practicable to obtain market
price data before the printing of this proxy statement/prospectus.
(3) On September 4, 2000, the US dollar value of five National Grid
Group ordinary shares would have been $40.88 based on the Noon Buying
Rate on September 1, 2000 (the last day prior to September 4, 2000 on
which the Noon Buying Rate was calculated). On December , 2000, the
US dollar value of five National Grid Group ordinary shares would
have been $ based on the Noon Buying Rate on that date.
</TABLE>
Niagara Mohawk shareholders are urged to obtain current market
quotations for the National Grid Group ADSs, National Grid Group ordinary shares
and Niagara Mohawk common stock. No assurance can be given as to the market
price of National Grid Group ADSs, National Grid Group ordinary shares or
Niagara Mohawk common stock at the time of the merger.
On the Niagara Mohawk record date, there were approximately holders
of record of Niagara Mohawk common stock.
Dividend Data
National Grid Group. The table below shows the amounts of cash
dividends in respect of National Grid Group ordinary shares and ADSs for each of
the five most recent fiscal years, excluding dividends paid as part of the
capital reconstruction which occurred during the fiscal year ended March 31,
1998.
Year ended March 31,
--------------------------------------------------
2000 1999 1998 1997 1996(1)
Pence per share (p) p p p p p
----- ----- ----- ----- -----
Interim 5.59 5.25 4.83 4.45 4.11
Final 8.35 7.82 7.24 6.68 6.16
----- ----- ----- ----- -----
Total ordinary dividends 13.94 13.07 12.07 11.13 10.27
Special dividend - - 44.70 - -
----- ----- ----- ----- -----
13.94 13.07 56.77 11.13 10.27
===== ===== ===== ===== =====
US dollar per ADS(2) $ $ $ $ $
Interim 0.46 0.43 0.39 0.36 0.31
Final 0.63 0.63 0.62 0.54 0.48
Total ordinary dividends 1.09 1.06 1.01 0.90 0.79
Special dividend - - 3.64 - -
----- ----- ----- ----- -----
Total dividends 1.09 1.06 4.65 0.90 0.79
===== ===== ===== ===== =====
---------------------------
(1) In addition to the cash dividends paid which are shown in the above
table, cash and demerger dividends totaling (pound)1,110.8 million and
(pound)450.0 million respectively were paid as part of the capital
reconstruction which occurred during the year ended March 31, 1996.
(2) Translated into US dollars per ADS (each ADS representing five ordinary
shares) at the Noon Buying Rate on the dates the dividends were paid.
As dividends paid by New National Grid will be in pounds sterling,
exchange rate fluctuations will affect the US dollar amounts received by holders
of ADSs on conversion by The Bank of New York, the Depositary, of such cash
dividends. See "Currencies and Exchange Rate," "The Merger--Material Tax
Consequences," "Description of Ordinary Shares--Dividends and Other
Distributions" and "Description of American Depositary Shares--Share Dividends
and Other Distributions."
Niagara Mohawk. Niagara Mohawk has never paid a dividend on its common
stock. Prior to the formation of the holding company, NMPC has not paid a
dividend on its common stock since December 31, 1995.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Niagara Mohawk and National Grid Group are, and upon completion of the
scheme of arrangement New National Grid will be, subject to the informational
requirements of the Securities Exchange Act of 1934.
Niagara Mohawk files annual, quarterly and special reports, proxy
statements and other information with the SEC. National Grid Group files annual
reports and other information with the SEC. You may read and copy any reports,
statements or other information filed by Niagara Mohawk or National Grid Group
at the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Niagara Mohawk's SEC filings are also available
to the public at the web site maintained by the SEC at http://www.sec.gov.
National Grid Group ADSs and Niagara Mohawk common stock are listed on the New
York Stock Exchange, and consequently, the periodic reports and other
information filed by National Grid Group and periodic reports and other
information filed by Niagara Mohawk with the SEC can be inspected at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. The
primary market for National Grid Group ordinary shares is the London Stock
Exchange.
New National Grid has filed with the SEC a registration statement on
Form F-4 to register the ordinary shares to be issued by it to holders of
Niagara Mohawk common stock in the merger. This proxy statement/prospectus is a
part of the registration statement and constitutes a prospectus of New National
Grid, as well as being a proxy statement of Niagara Mohawk.
As allowed by SEC rules, this proxy statement/prospectus does not
contain all the information you can find in the registration statement or the
exhibits to the registration statement. Statements contained or incorporated by
reference in this proxy statement/prospectus as to the contents of any contract
or other document filed as an exhibit to the registration statement or otherwise
filed with the SEC are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document so filed, each such
statement being qualified in all respects by the reference.
The SEC allows us to "incorporate by reference" information into this
proxy statement/prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
proxy statement/prospectus, except for any information superseded by information
contained in this proxy statement/prospectus. This proxy statement/prospectus
incorporates by reference the documents set forth below that we have previously
filed with the SEC. These documents contain important information about our
companies and their financial condition.
Niagara Mohawk SEC Filings
(File No. 0-25595 and 1-2987) Period
---------------------------------- ------
Annual Report on Form 10-K Fiscal year ended December 31, 1999
Quarterly Reports on Form 10-Q Fiscal quarters ended March 31, 2000
and June 30, 2000
Current Reports on Form 8-K Filed May 1, 2000, June 2, 2000,
July 31, 2000 and September 13, 2000
Proxy Statement Year 2000 Annual Meeting
National Grid Group SEC Filings
(File No. 1-4315) Period
---------------------------------- ------
Annual Report on Form 20-F Fiscal year ended March 31, 2000
Reports of Foreign Private Issuer on Filed on April 4, 2000, May 3, 2000,
Form 6-K May 23, 2000, June 2, 2000, July 7,
2000, July 11, 2000, August 2, 2000,
September 1, 2000, September 5, 2000,
September 28, 2000, and September 29,
2000
<PAGE>
Niagara Mohawk also incorporates by reference into this proxy
statement/prospectus additional documents that may be filed with the SEC from
the date of this proxy statement/prospectus to the date of the Niagara Mohawk
shareholders' meeting. These include periodic reports, such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements. New National Grid also incorporates by reference into
this proxy statement/prospectus additional documents that may be filed with the
SEC from the date of this proxy statement/prospectus to the date of the
consummation of the transaction. These include periodic reports, such as Annual
Reports on Form 20-F and Reports of Foreign Private Issuer on Form 6-K filed
with the SEC.
Any statement contained in an incorporated document shall be deemed to
be modified or superseded for purposes of this proxy statement/prospectus to the
extent that a statement contained in this proxy statement/prospectus or in any
other subsequently filed incorporated document modifies or supersedes such
statement. Any statement that is modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this proxy
statement/prospectus.
Each of Niagara Mohawk and National Grid Group hereby undertakes to
provide without charge to each person, including any beneficial owner, to whom a
copy of this proxy statement/prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the incorporated documents,
other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference therein. Requests should be directed to (1) Niagara
Mohawk Holdings, Inc., 300 Erie Boulevard West, Syracuse, New York 13202,
Attention: Leon T. Mazur, Director, Investor Relations, (315) 428-5876 or (2)
National Grid Group plc, 15 Marylebone Road, London NW1 5JD, United Kingdom,
Attention: David Forward, Telephone number: 011 44 207 312 5860 or National Grid
USA, 25 Research Drive, Westborough, Massachusetts 01582, Attention: Corporate
Communications, Telephone number: (508) 389-2591. In order to ensure timely
delivery of any such documents in advance of the Niagara Mohawk special meeting,
any request should be made by , 2001.
--------------------
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote on the transactions. We
have not authorized anyone to provide you with information that is different
from what is contained in this proxy statement/prospectus. This proxy
statement/prospectus is dated , 2000. You should not assume that the information
contained in the proxy statement/prospectus is accurate as of any date other
than that date, and neither the mailing of this proxy statement/prospectus to
shareholders nor the issuance of ADSs in the merger shall create any implication
to the contrary.
--------------------
Forward-Looking Statements
This proxy statement/prospectus contains certain statements that are
neither reported financial results nor other historical information. These
statements are forward-looking statements within the meaning of the safe-harbor
provisions of the US federal securities laws. Because these forward-looking
statements are subject to risks and uncertainties, actual future results may
differ materially from those expressed in or implied by the statements. Many of
these risks and uncertainties relate to factors that are beyond the companies'
ability to control or estimate precisely, such as the ability to obtain expected
synergies from the merger, delays in obtaining or adverse conditions contained
in regulatory approvals, competition and industry restructuring, changes in
economic conditions, changes in energy market prices, changes in historical
weather patterns, changes in laws, regulations or regulatory policies,
developments in legal or public policy doctrines, technological developments,
the availability of new acquisition opportunities, the timing and success of
future acquisition opportunities and other risk factors detailed in National
Grid Group's and Niagara Mohawk's reports filed with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this document.
The companies do not undertake any obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after the
date of these materials.
<PAGE>
NIAGARA MOHAWK SPECIAL MEETING, VOTING AND PROXIES
Date, Time and Place; Purpose
The special meeting of Niagara Mohawk shareholders will be held at
10:00 a.m. local time, on January , 2001 at . At the special meeting,
Niagara Mohawk shareholders of record will be asked to consider and vote upon a
proposal to adopt the merger agreement.
Record Date
The close of business on December , 2000 has been fixed as the record
date for the determination of Niagara Mohawk shareholders entitled to notice of,
and to vote at, the special meeting. Only Niagara Mohawk shareholders of record
at the close of business on the record date are entitled to notice of and to
vote at the special meeting and at any adjournment thereof. As of the record
date, there were outstanding shares of Niagara Mohawk common stock held by
approximately Niagara Mohawk shareholders of record. Any person who owns
shares in the name of a bank, broker or other holder of record must obtain a
proxy from the holder of record to be able to vote at the meeting. As of the
record date, directors and executive officers of Niagara Mohawk and their
affiliates owned less than 1% of the shares outstanding.
Special Meeting Attendance
Attendance will be limited to shareholders of record, beneficial owners
of shares entitled to vote at the meeting having evidence of ownership, the
authorized representative of an absent shareholder, and invited guests of the
management.
Any person who owns shares in the name of a bank, broker or other
holder of record must show proof of ownership. Proof of ownership may be in the
form of a letter or a recent statement from the bank or broker showing ownership
of Niagara Mohawk or NMPC common stock.
Any person claiming to be an authorized representative of a shareholder
must, upon request, produce written evidence of the authorization.
In order to assure a fair and orderly meeting and to accommodate as
many shareholders as possible who may wish to speak at the meeting, management
will permit only shareholders or their authorized representatives to address the
meeting. Management will also require that any signs, banners, placards and
similar materials be left outside the meeting room.
Voting and Revocation of Proxies
Shares represented by properly signed proxies received in time for the
special meeting will be voted at the special meeting in the manner specified on
the proxies. Proxies that are properly signed but do not contain instructions
will be voted "FOR" adoption of the merger agreement. A Niagara Mohawk
shareholder may revoke a proxy at any time before it is voted by (i) delivering,
prior to the special meeting, to the Corporate Secretary of Niagara Mohawk, 300
Erie Boulevard West, Syracuse, New York 13202, a written statement of revocation
having a later date or time than the proxy; (ii) submitting a properly signed
proxy bearing a later date or time (or voting later by telephone or on the
Internet) than the previous proxy; or (iii) attending the special meeting and
voting in person. Attendance at the special meeting will not by itself
constitute revocation of a proxy.
Niagara Mohawk shareholders may vote by mail, telephone or on-line via
the Internet. The telephone and Internet procedures authenticate shareholders by
use of a control number and permit confirmation that the vote has been properly
recorded. Niagara Mohawk shareholders do not need to return their proxy cards if
they vote by telephone or via the Internet.
BY MAIL: Please mark your vote, sign, date and promptly return your
proxy card in the enclosed postage-paid envelope.
<PAGE>
BY TELEPHONE: Please call the toll-free telephone number on your proxy
card (800- ). Once connected, you will be prompted to record
and confirm your vote. Telephone voting is available 24 hours
a day, through January , 2001, 5:00 p.m. (EDT).
VIA INTERNET: You may vote on-line by using the following Internet
address: Specific instructions will be available allowing you
to record and confirm your vote. Internet voting is available
24 hours a day, through January , 2001, 5:00 p.m. (EDT).
Whole and fractional shares held in participants' accounts in the
Niagara Mohawk employee savings plan will be voted by such plans' trustees in
accordance with participants' voting directions. Any shares for which voting
directions are not received will be voted in the same proportion as shares as
to which instructions are received.
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY. IF THE
MERGER IS COMPLETED, NIAGARA MOHAWK SHAREHOLDERS WILL BE GIVEN INSTRUCTIONS FOR
EXCHANGING THEIR SHARES FOR CASH OR NEW NATIONAL GRID ADSs AT THAT TIME.
Niagara Mohawk will bear the costs of the special meeting and of
soliciting proxies therefor. Niagara Mohawk and National Grid Group will share
equally the amount of the filing fees and the other expenses incurred in
connection with the cost of filing, printing and distributing this proxy
statement/prospectus. D.F. King & Co. will assist in the solicitation of
proxies by Niagara Mohawk for a base fee of $ plus reasonable out-of-pocket
expenses.
Additionally, officers and other Niagara Mohawk employees may solicit
proxies by telephone, telegram, fax, other electronic means or in person. Upon
request, Niagara Mohawk will reimburse banks, brokers, nominees and related
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to beneficial owners of shares.
Required Vote; Quorum
New York law requires adoption of the merger agreement by not less than
a majority of all of the votes entitled to be cast at the special meeting by
Niagara Mohawk shareholders. Each share of Niagara Mohawk common stock
outstanding on the record date is entitled to one vote. There are no other
voting securities of Niagara Mohawk outstanding. Brokers and nominees are
precluded from exercising their voting discretion on the adoption of the merger
agreement, and, for this reason, absent specific instructions from the
beneficial owner of the shares, are not permitted to vote such shares. Shares
that are not voted because brokers did not receive instructions are referred to
as "broker non-votes." Holders of a majority of the shares outstanding on the
record date must be present in person or by proxy at the special meeting to
constitute a quorum. Abstentions and broker non-votes are counted as present or
represented for purposes of determining a quorum for the special meeting.
Because the affirmative vote of Niagara Mohawk shareholders holding not less
than a majority of the outstanding shares on the record date is required for
approval of the merger agreement, an abstention, unreturned proxy or broker
non-vote will have the effect of a vote against adoption of the merger
agreement.
The Niagara Mohawk Board recommends that Niagara Mohawk shareholders
vote "FOR" adoption of the merger agreement.
Absence of Dissenters' Rights
Under New York law, Niagara Mohawk shareholders are not entitled to
exercise dissenters' rights with respect to the merger.
Availability of Independent Accountants
Representatives of PricewaterhouseCoopers LLP, independent accountants
of Niagara Mohawk, will be present at the special meeting, will have the
opportunity to make a statement should they desire to do so and are expected to
be available to respond to appropriate questions.
<PAGE>
THE MERGER
This section of the proxy statement/prospectus, as well as the next
section entitled "The Merger Agreement," describe certain aspects of the
proposed merger. These sections highlight key information about the merger, the
scheme of arrangement and the merger agreement but they may not include all the
information that a shareholder would like to know. The merger agreement is
attached as Annex A to this proxy statement/prospectus. We urge shareholders to
read the merger agreement in its entirety.
Overview
The merger agreement contemplates a scheme of arrangement and a merger
which taken together will result in the creation of New National Grid, a new
holding company for National Grid Group, and the acquisition by New National
Grid of Niagara Mohawk. The scheme involves cancelling and exchanging National
Grid Group's existing shares for shares of New National Grid, with National Grid
Group becoming a wholly owned subsidiary of New National Grid. The merger
contemplates that Grid Delaware, Inc., a wholly owned subsidiary of New National
Grid, will merge into Niagara Mohawk with Niagara Mohawk surviving as a wholly
owned subsidiary of New National Grid. It is intended that the scheme of
arrangement and merger taken together will qualify as a tax free transaction
within the meaning of Section 351 of the Internal Revenue Code of 1986, as
amended. The scheme of arrangement will be implemented prior to the merger. The
merger agreement also provides that in the event that National Grid Group
determines another structure would be preferable, the parties agree to negotiate
in good faith to restructure the transaction (including a transaction that does
not require completion of the scheme of arrangement in the event National Grid
Group determines it is not likely to be approved); provided that any
restructuring must preserve the economic and tax benefits of the transaction for
both parties. In this document, we refer to the time when the merger is
completed as the "Merger Effective Time" and to the time when the scheme of
arrangement is completed as the "Scheme Effective Time".
At the Merger Effective Time, each share of common stock of Grid
Delaware, Inc. issued and outstanding prior to the merger will be converted into
one share of common stock of Niagara Mohawk. Each share of Niagara Mohawk common
stock will be converted into the right to receive the merger consideration in
the form of cash, ADSs or a combination of cash and ADSs.
The per share merger consideration will be $19.00 if the Average Price
is between $32.50 and $51.00. In the event that the Average Price is greater
than $51.00, the per share consideration received by Niagara Mohawk shareholders
will increase by two-thirds of the percentage of the increase in value over
$51.00. In the event that the Average Price is less than $32.50, the per share
consideration received by Niagara Mohawk shareholders will decrease by
two-thirds of the percentage of the decrease in value below $32.50. Niagara
Mohawk shareholders can elect to receive their consideration in cash, ADSs or as
a combination of both, subject to the aggregate cash consideration paid being
$1.015 billion. If cash elections received from Niagara Mohawk shareholders
exceed $1.015 billion, National Grid Group has the option, but not the
obligation, to increase the cash component of the consideration. If elections
for one form of consideration exceed the amount of such form of consideration to
be issued in the merger, all shareholders electing the oversubscribed form of
consideration will receive, on a pro rata basis, some of the undersubscribed
form of consideration.
"Average Price" means the average of the closing prices of National
Grid Group ordinary shares, as derived from the Daily Official List of the
London Stock Exchange (converted to a US dollar value using the exchange rate
for each date for which the closing price is to be determined as reported in The
Financial Times) for 20 trading days selected at random (using mutually agreed
upon procedures) in the period of 40 consecutive London Stock Exchange trading
days ending on the close of business on the tenth London Stock Exchange trading
day prior to the election deadline, multiplied by five.
An overview of the scheme of arrangement is provided under "Scheme of
Arrangement."
<PAGE>
Background of the Merger
Since Niagara Mohawk entered into its Master Restructuring Agreement in
1998, under which it bought out most of its above-market government-mandated
power purchase agreements, and thereby stabilized its financial condition, the
board of directors and management of Niagara Mohawk have periodically reviewed
Niagara Mohawk's strategic alternatives, including internal growth, growth by
acquisition, the sale of Niagara Mohawk and a combination with another company
in which Niagara Mohawk shareholders would continue to participate.
Consideration was given not only to electric and gas utilities, but also to the
oil and gas and telecommunications industries. During this period, Niagara
Mohawk engaged in preliminary discussions with a number of parties about
potential transactions, but, except as set forth below, no specific proposals
were made and these discussions did not evolve beyond a preliminary stage.
Since 1998, National Grid Group has been pursuing a growth strategy in
the electric transmission and distribution market in the United States, with a
particular focus on the Northeast region where many states have been engaged in
a deregulation process pursuant to which, among other things, the ownership and
operation of generation facilities are being separated from that of transmission
and distribution facilities. Consistent with this strategy, in March 2000,
National Grid Group completed the acquisition of New England Electric System
(currently known as National Grid USA), whose subsidiaries operate electric
transmission and distribution systems in three New England states, followed in
April 2000 by National Grid USA's acquisition of Eastern Utility Associates,
whose subsidiaries also operate transmission and distribution systems in three
New England states. Both New England Electric System and Eastern Utilities
Associates had divested the vast majority of their generation assets prior to
being acquired by National Grid Group and are seeking to sell the remainder of
their generation assets. Since the announcement of the New England Electric
System and Eastern Utilities Associates acquisitions, National Grid Group has
continued to investigate the possibility of further strategic transactions with
US electric utility companies, such as Niagara Mohawk, that have or are in the
process of divesting their generation assets in order to expand its transmission
and distribution operations in the United States but, except as set forth below,
no specific proposals were made and these discussions did not evolve beyond a
preliminary stage.
In November 1999, William E. Davis, Chairman of the Board and Chief
Executive Officer of Niagara Mohawk, was called by Richard P. Sergel, President
and Chief Executive Officer of New England Electric System, whose company was
then in the process of merging with National Grid Group. Mr. Sergel suggested
that in light of the favorable experience he felt that the merger presented to
New England Electric System, Niagara Mohawk might be interested in pursuing
talks with National Grid Group. In order to facilitate these preliminary
discussions, Niagara Mohawk and National Grid Group entered into a
Confidentiality Agreement on December 13, 1999. Messrs. Davis and Sergel met in
New York City on December 14, 1999, with a small number of executive officers
from New England Electric System, National Grid Group, and Niagara Mohawk and
their respective financial advisors, but immediately following that meeting it
was decided to delay any further substantive discussions pending the completion
of the New England Electric System/National Grid Group merger. In April,
following completion of the New England Electric System/National Grid Group
merger, the parties resumed discussions, with due diligence being performed on
both sides for a period of months.
Following a meeting on August 15, 2000 in New Jersey with Mr. Sergel
and David Jones, Group Chief Executive Officer of National Grid Group, Mr. Davis
felt that the terms of a potential transaction had advanced sufficiently so that
a presentation about National Grid Group and the possible terms of a transaction
could be made to the Niagara Mohawk board of directors at its regularly
scheduled late August off-site meeting. Following that meeting, negotiations
continued, including, without limitation, on the per share price, the mix of
cash and securities, the conditions to the merger and other terms of the merger
agreement. On August 30, 2000, a telephonic board meeting was held to update the
Niagara Mohawk board of directors on the status of the negotiations.
On the afternoon of August 31, 2000, the National Grid Group board of
directors met to consider the proposed transaction. At this meeting, the
National Grid Group board of directors discussed the structure of the proposed
transaction and the terms of the merger, including financial terms. As part of
this meeting, the National Grid Group board of directors received advice from
its financial advisors regarding the financial terms of the merger and other
matters relevant to their consideration of the proposed transaction. Following
these deliberations, the National Grid Group board of directors unanimously
approved the proposed transaction and terms of the merger agreement and
established a committee, consisting of any two directors, one of whom had to be
David Jones, Stephen Box, Group Director, Finance, of National Grid Group or
Richard P. Sergel (the "National Grid Special Committee"), to finalize the
outstanding terms of the merger agreement and to authorize the execution and
delivery of the merger agreement.
By September 3, 2000, all remaining issues had been negotiated and on
September 4, 2000, the Niagara Mohawk board of directors and the National Grid
Special Committee comprising David Jones and Stephen Box adopted and approved
the merger agreement, which was then executed by the parties.
Recommendation of the Niagara Mohawk Board of Directors
At a meeting on September 4, 2000, the Niagara Mohawk board of
directors, by unanimous vote of those present, determined that the merger is
fair to and in the best interests of Niagara Mohawk's shareholders, adopted the
merger agreement, and recommended that Niagara Mohawk shareholders vote in favor
of adoption of the merger agreement. ACCORDINGLY, NIAGARA MOHAWK'S BOARD OF
DIRECTORS RECOMMENDS THAT NIAGARA MOHAWK SHAREHOLDERS VOTE "FOR" ADOPTION OF THE
MERGER AGREEMENT.
In reaching this recommendation, the Niagara Mohawk board of directors
took into account numerous factors, including but not limited to, the following:
1. The familiarity of the Niagara Mohawk board of directors with the
financial condition, results of operations, business and prospects
of Niagara Mohawk, as reflected in Niagara Mohawk's historical and
projected financial information, the current economic and
regulatory environment and the nature of the electric utility
industry.
2. The fact that the consideration offered of $19.00 per share (which
assumes that the aggregate dollar value of five National Grid
Group's ordinary shares is between $32.50 and $51.00 during the
applicable time period prior to the election deadline), constitutes
a premium of 37% over the market price of Niagara Mohawk's common
stock on the last trading day on the New York Stock Exchange prior
to the announcement of the merger and a premium of 36% over the
average closing price during the twelve months prior to the
announcement of the merger.
3. The opinion of Niagara Mohawk's financial advisor, DLJ, as to the
fairness of the consideration to be received by Niagara Mohawk
shareholders in the merger.
4. The fact that Niagara Mohawk's prospects, together with the present
relatively low trading value of its shares and its highly leveraged
financial condition, makes it unlikely for there to be substantial
growth for Niagara Mohawk, either internally generated or by
acquisition, in the near future.
5. The fact that the receipt of ADSs is tax-free to Niagara Mohawk
shareholders.
6. The opportunity afforded to Niagara Mohawk shareholders, through
the receipt of ADSs, to become equity participants in National Grid
Group, which
o as a result of the merger, will be the ninth largest electric
utility in the United States, with a US business equal in size
to the UK business;
o in an era of growing consolidation in the transmission and
distribution business, will be the largest transmission
business (by miles) and the second largest distribution
business (by power delivered) in the New England/New York
market;
o has ten years of experience in operating a transmission system
in a deregulated market;
o has a proven track record in accomplishing savings following
acquisitions; and
o has successfully parlayed its transmission and distribution
skills into the telecommunications arena.
7. The Board's belief that the merger offered better short and long
term value for the Niagara Mohawk shareholders than any of the
available alternatives, including the possibility of remaining
independent and the possibility of a merger with another company.
8. The fact that under the terms of the merger agreement, as described
under "The Merger Agreement--Termination," the board retains its
ability, if required by its fiduciary duties, to withdraw its
recommendation as to the merger and/or terminate the merger
agreement, upon payment of a termination fee.
9. The fact that, under the terms of the merger agreement, Niagara
Mohawk shareholders will share in the effect of increases or
decreases in the price of five National Grid Group's ordinary
shares above $51.00 and below $32.50.
In view of the wide variety of factors considered by the Niagara Mohawk
board of directors in connection with its evaluation of the merger and the
complexity of such matters, the Niagara Mohawk board did not consider it
practical to, nor did it attempt to, quantify, rank or otherwise assign relative
weights to the specific factors it considered in reaching its decision. The
Niagara Mohawk board conducted a discussion of the factors described above,
including asking questions of Niagara Mohawk's management and Niagara Mohawk's
legal and financial advisors, and reached a general consensus that the merger
was fair to and in the best interests of Niagara Mohawk and its shareholders. In
considering the factors described above, individual members of the Niagara
Mohawk board may have given different weight to different factors. The Niagara
Mohawk board relied on the experience and expertise of its financial advisor for
quantitative analysis of the financial terms of the merger.
Opinion of Financial Advisor to Niagara Mohawk
DLJ, in its role as financial advisor, was asked to render an opinion
to Niagara Mohawk's board of directors as to the fairness, from a financial
point of view, to the holders of Niagara Mohawk common stock of the
consideration to be received by such holders in the merger. On September 4,
2000, DLJ delivered to Niagara Mohawk's board of directors its written opinion,
dated September 4, 2000, to the effect that, as of that date, based on and
subject to the assumptions, limitations and qualifications set forth in its
written opinion, the consideration to be received by the holders of Niagara
Mohawk common stock in the merger was fair to such holders from a financial
point of view. The full text of DLJ's opinion is attached as Appendix B to this
proxy statement/prospectus.
DLJ expressed no opinion as to the prices at which Niagara Mohawk
common stock, National Grid Group's ordinary shares or National Grid Group's
ADSs, New National Grid ordinary shares or New National Grid ADSs would actually
trade at any time. DLJ's opinion did not constitute a recommendation to any
Niagara Mohawk shareholder as to how such shareholder should vote on the merger.
Niagara Mohawk and National Grid Group determined the consideration to
be received by the holders of Niagara Mohawk common stock in arm's length
negotiations between Niagara Mohawk and National Grid Group, in which DLJ
advised Niagara Mohawk.
Niagara Mohawk selected DLJ as its financial advisor because DLJ is an
internationally recognized investment banking firm that has substantial
experience providing strategic advisory services. DLJ has acted as Niagara
Mohawk's financial advisor for a number of years, including in connection with
its Master Restructuring Agreement. DLJ was not retained as an advisor or agent
to the shareholders of Niagara Mohawk or any other person. As part of its
investment banking business, DLJ is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. Niagara
Mohawk did not impose any restrictions or limitations upon DLJ with respect to
the investigations made or the procedures followed by DLJ in rendering its
opinion.
In arriving at its opinion, DLJ:
o reviewed the draft dated September 2, 2000 of the merger agreement
and the exhibits thereto and assumed the final form of the merger
agreement would not vary in any respect material to DLJ's analysis;
o reviewed financial and other information that was publicly
available or furnished to DLJ by Niagara Mohawk and National Grid
Group, including information provided during discussions with their
respective management teams. Included in the information provided
during discussions with management were certain financial
projections of Niagara Mohawk for the period beginning January 1,
2000 and ending December 31, 2007 prepared by the management of
Niagara Mohawk and certain financial projections of National Grid
Group for the period beginning April 1, 2000 and ending March 31,
2006 prepared by the management of National Grid Group;
o compared certain financial and securities data of Niagara Mohawk
with various other companies whose securities are traded in public
markets;
o reviewed the historical stock prices and trading volumes of Niagara
Mohawk common stock;
o reviewed prices and premiums paid in certain other business
combinations; and
o conducted other financial studies, analyses and investigations as
DLJ deemed appropriate for purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by Niagara Mohawk, National Grid
Group, or their respective representatives, or that DLJ otherwise reviewed. With
respect to the financial projections supplied to DLJ, DLJ relied on
representations that the projections were reasonably prepared on the basis
reflecting the best currently available estimates and judgments of the
management of Niagara Mohawk and National Grid Group as to the future operating
and financial performance of Niagara Mohawk and National Grid Group,
respectively. DLJ did not assume responsibility for making any independent
evaluation of the assets or liabilities, or for making any independent
verification of the information DLJ reviewed. DLJ relied as to certain legal
matters on advice of counsel to Niagara Mohawk.
DLJ necessarily based its opinion on economic, market, financial and
other conditions as they existed on, and on the information made available to
DLJ as of, the date of its opinion. DLJ states in its opinion that, although
subsequent developments may affect the conclusions reached in its opinion, DLJ
does not have any obligation to update, revise or reaffirm its opinion.
Summary of Financial Analyses Performed by DLJ
The following is a summary of the financial analyses DLJ presented to
Niagara Mohawk's board of directors on September 4, 2000 in connection with the
preparation of DLJ's opinion. No company or transaction used in the analyses
described below is directly comparable to Niagara Mohawk, National Grid Group or
the contemplated transaction. In addition, mathematical analysis such as
determining the mean or median is not in itself a meaningful method of using
selected company or transaction data. The analyses DLJ performed are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by these analyses. The
information summarized in the tables that follow should be read in conjunction
with the accompanying text.
Analysis of Niagara Mohawk
Common Stock Trading History. DLJ examined the historical closing
prices of Niagara Mohawk common stock from August 31, 1999 to September 1, 2000.
During this time period, Niagara Mohawk common stock reached a high of $16.19
per share and a low of $11.00 per share. On September 1, 2000, the price was
$13.88.
Discounted Cash Flow Analysis. DLJ performed a discounted cash flow, or
DCF, analysis of the projected cash flows of Niagara Mohawk for the fiscal years
ending December 31, 2000 through December 31, 2007, using projections and
assumptions provided by the management of Niagara Mohawk. The DCF value for
Niagara Mohawk was estimated using discount rates ranging from 7.0% to 8.0%,
based on estimates related to the weighted average cost of capital of Niagara
Mohawk, and terminal multiples of estimated EBITDA for Niagara Mohawk's fiscal
year ending December 31, 2007 ranging from 6.5x to 7.5x. The DCF analysis also
took into account Niagara Mohawk's net operating loss or NOL position and the
value associated with such NOLs. Based on this analysis, DLJ estimated a value
per share of Niagara Mohawk common stock ranging from $10.16 to $15.61, compared
to the proposed consideration to be received in the merger of $19.00 per share
(subject to the adjustment mechanism described in the merger agreement).
Sum-of-the-Parts Analysis. DLJ also performed a valuation analysis
based on the sum of the value of each of the segments of Niagara Mohawk, namely
the regulated businesses and the unregulated businesses. The regulated
businesses include electric and gas transmission and distribution, and nuclear
generation. The unregulated businesses include Opinac (which has investments in
Telergy and Evonyx) and Canadian Niagara Power. Based on this analysis, DLJ
estimated the value per share of Niagara Mohawk common stock ranging from $11.71
to $18.13, compared to the proposed consideration to be received in the merger
of $19.00 per share (subject to the adjustment mechanism described in the merger
agreement).
Regulated Businesses. For the regulated electric and gas businesses,
DLJ performed a DCF analysis of the projected cash flows for the fiscal years
ending December 31, 2000 through December 31, 2007, using projections and
assumptions provided by the management of Niagara Mohawk. The DCF valuation for
the regulated businesses included the cash flows associated with certain
regulatory assets, which were booked on Niagara Mohawk's balance sheet as
intangible assets, and which provide cash benefits to Niagara Mohawk in the form
of tariffs that offset prior costs incurred by Niagara Mohawk. The DCF value for
the regulated businesses was estimated using discount rates ranging from 7.0% to
8.0%, based on estimates related to the weighted average cost of capital of
Niagara Mohawk's regulated businesses, and terminal multiples of estimated
EBITDA for Niagara Mohawk's fiscal year ending December 31, 2007 ranging from
6.5x to 7.5x. Based on this analysis, DLJ estimated the value of the regulated
businesses to range between $6,765 million and $7,658 million.
Unregulated Businesses. For the unregulated businesses, DLJ used an
analysis of comparable company trading multiples to value Niagara Mohawk's 18%
stake in Telergy, and used book values to estimate the value of Evonyx and
Canadian Niagara Power. Based on these analyses, DLJ estimated the value of the
unregulated businesses to range between $363 million and $462 million.
In valuing Niagara Mohawk's 18% stake in Telergy, DLJ analyzed trading
multiples of selected publicly traded US broadband companies that DLJ believed
were reasonably comparable to Telergy. These companies consisted of:
o 360networks Incorporated
o Broadwing Incorporated
o NorthEast Optic Network Incorporated
o Williams Communications Group
In examining these comparable companies, DLJ calculated the enterprise
value of each company as a multiple of its respective: (i) LTM Route Miles, (ii)
Route Miles for the fiscal year 2000, (iii) Route Miles for the fiscal year 2001
and (iv) LTM Net property, plant and equipment, or PP&E.
ENTERPRISE VALUE
--------------------------------------------------
Route Miles
--------------------------------
LTM 2000 2001 LTM Net PP&E
--- ---- ---- ------------
Average $876,594 $638,311 $501,964 12.7x
Median $783,161 $557,762 $397,794 7.3x
Based on an analysis of this data and Telergy's actual and projected
results, DLJ estimated the value of Niagara Mohawk's 18% stake in Telergy to
range between $226 million and $325 million.
<PAGE>
Comparable Publicly Traded Company Analysis. DLJ analyzed the market
values and trading multiples of selected publicly traded US utility companies
that DLJ believed were reasonably comparable to Niagara Mohawk on the basis
notably of their business activity and geographic presence. These comparable
companies consisted of:
o Conectiv, Inc.
o Consolidated Edison, Inc.
o Constellation Energy Group, Inc.
o Energy East Corporation
o KeySpan Corporation
o PECO Energy Company
o Potomac Electric Power Company
o PPL Corporation
o Public Service Enterprise Group, Inc.
In examining these comparable companies, DLJ calculated the enterprise
value of each company as a multiple of its respective: (i) LTM EBITDA and (ii)
LTM EBIT. The enterprise value of a company is equal to the value of its
fully-diluted common equity plus debt, minority interests, and the liquidation
value of outstanding preferred stock, if any, minus cash, marketable securities,
and minority investments in other entities. LTM means the last twelve-month
period for which financial data for Niagara Mohawk has been reported. EBITDA
means earnings before interest expense, taxes, depreciation and amortization,
and excluding earnings in equity affiliates. EBIT means earnings before interest
expense and taxes, and excluding earnings in equity affiliates. DLJ also
calculated the price per share of each company as a multiple of its respective
(i) LTM earnings per share or EPS and (ii) projected calendar year 2000 earnings
per share. All historical data was derived from publicly available sources and
all projected data was obtained from First Call Research estimates where
available. DLJ's analysis of the comparable companies yielded the following
multiple ranges:
ENTERPRISE
VALUE/LTM PRICE/EPS
--------------------- -------------------
EBITDA EBIT LTM 2000
------ ---- --- ----
High 8.4x 12.3x 20.1x 15.7x
Low 5.0x 8.2x 8.8x 9.4x
Average 7.0x 10.1x 12.8x 12.2x
Median 7.3x 10.1x 12.8x 11.9x
Based on an analysis of this data and such other matters as DLJ
considered appropriate, DLJ estimated a value per share of Niagara Mohawk common
stock ranging from $16.00 to $18.00, compared to the proposed consideration to
be received in the merger of $19.00 per share (subject to the adjustment
mechanism described in the merger agreement).
Precedent Merger and Acquisition Transaction Analysis. DLJ reviewed
selected acquisitions involving companies in the utility industry that DLJ
believed are reasonably comparable to the merger. These transactions consisted
of:
o First Energy Corporation/GPU, Inc. (pending as of September 4, 2000)
o FPL Group, Inc./Entergy Corporation (pending as of September 4,
2000)
o AES Corporation/IPALCO Enterprises, Inc. (pending as of September 4,
2000)
o PowerGen plc/LG&E Energy Corporation (pending as of September 4,
2000)
o Consolidated Edison, Inc./Northeast Utilities System (pending as of
September 4, 2000)
o PECO Energy Company/Unicom Corporation (pending as of September 4,
2000)
o Carolina Power & Light Company/Florida Progress Corporation (pending
as of September 4, 2000)
o Energy East Corporation/CMP Group, Inc.
o Indiana Energy, Inc./SIGCORP, Inc. (closed 03/31/00)
o Investor Group/MidAmerican Energy Company (closed 03/14/00)
o National Grid Group plc/Eastern Utilities Associates (closed
04/19/00)
o National Grid Group plc/New England Electric System (closed
03/22/00)
o BEC Energy/Commonwealth Energy System (closed 08/24/99)
o ScottishPower plc/PacifiCorp (closed 12/01/99)
o AES Corporation/CILCORP, Inc. (closed 10/18/99)
In examining these acquisitions, DLJ calculated the enterprise value of
the acquired company implied by each of these transactions as a multiple of (i)
LTM EBITDA and (ii) LTM EBIT. DLJ also calculated the equity value of the
acquired company implied by each of these transactions as a multiple of LTM Net
Income. DLJ's analysis of these comparable acquisitions yielded the following
multiple ranges:
ENTERPRISE EQUITY
VALUE/LTM VALUE/LTM
--------------------- -------------
EBITDA EBIT NET INCOME
------ ---- ----------
High 9.8x 19.0x 38.8x
Low 4.2x 5.4x 12.1x
Average 7.4x 12.4x 19.0x
Median 7.3x 11.6x 17.1x
Based on an analysis of this data and Niagara Mohawk's actual operating
results, DLJ estimated a value per share of Niagara Mohawk common stock ranging
from $18.00 to $23.00, compared to the proposed consideration to be received in
the merger of $19.00 per share (subject to the adjustment mechanism described in
the merger agreement).
Premiums Paid Analysis. DLJ determined the premium over the common
stock trading prices for one day, one week and one month prior to the
announcement date in selected merger and acquisition transactions of US
utilities that DLJ believed are reasonably comparable to the merger. The group
of transactions considered was similar to the group used for the "Precedent
Merger and Acquisition Transaction Analysis." DLJ calculated the premiums for
these transactions based on publicly available data. The median premiums for the
selected transactions over the common stock trading prices for one day, one week
and one month prior to the announcement date were 21.6%, 26.9% and 28.5%,
respectively. The average premiums for the selected transactions over the common
stock trading prices for one day, one week and one month prior to the
announcement date were 25.9%, 29.1% and 29.8%, respectively. Applying the above
premiums to the closing price of Niagara Mohawk common stock on comparable days,
DLJ estimated a value per share of Niagara Mohawk common stock ranging from
$17.00 to $18.50, compared to the proposed consideration to be received in the
merger of $19.00 per share (subject to the adjustment mechanism described in the
merger agreement).
Analysis of National Grid Group
Common Stock Trading History. DLJ examined the historical closing
prices of National Grid Group's ordinary shares from August 31, 1999 to
September 1, 2000. During this time period, National Grid Group's ordinary
shares reached a high of (pound)5.97 per share and a low of (pound)4.08 per
share. On September 1, the price was (pound)5.73.
Research Analyst Views. DLJ reviewed research analysts reports, dated
between February and July 2000, from six large financial institutions that
published a target price for ordinary shares of National Grid Group. The target
prices were in a range of (pound)6.50 to (pound)7.50. The ADS equivalent target
prices were in a range of $48.75 to $56.25. The ADS equivalent price is the
product of (i) the price of National Grid Group's ordinary shares (as quoted in
London in (pound)); (ii) an exchange rate of (pound)1.00 = $1.50; and (iii) five
(representing five ordinary shares per National Grid Group ADS).
Sum-of-the-Parts Analysis. DLJ performed a Sum-of-the-Parts Analysis on
the four significant businesses of National Grid Group: UK Electric, National
Grid USA, Energis and Intelig. Based on this analysis, DLJ estimated a value per
share of National Grid Group's ordinary shares ranging from (pound)6.64 to
(pound)8.41.
UK Electric. To determine the value of the UK Electric segment of the
National Grid Group business, including its international electric joint
ventures in Argentina, Zambia and Australia ("UK Electric"), DLJ performed a
comparable publicly traded company analysis and a DCF analysis. Based on these
analyses, DLJ estimated the value of UK Electric to range between (pound)4,374
million and (pound)5,203 million (or $6,561 million and $7,804 million at an
exchange rate of (pound)1.00 = $1.50).
Comparable Publicly Traded Company Analysis. DLJ analyzed the market
values and trading multiples of selected publicly traded electric utility
companies in the United Kingdom that DLJ believed were reasonably comparable to
UK Electric. These comparable companies consisted of:
o British Energy plc
o National Power plc
o PowerGen plc
o Scottish and Southern Energy plc
o ScottishPower plc
o Viridian Group plc
In examining these comparable companies, DLJ calculated the enterprise
value of each company as a multiple of its respective: (i) LTM EBITDA and (ii)
LTM EBIT. Data was derived from publicly available sources. DLJ's analysis of
the comparable companies yielded the following multiple ranges:
ENTERPRISE EQUITY
VALUE/LTM VALUE/LTM
-------------------- -----------
EBITDA EBIT Net Income
------ ---- -----------
High 10.3x 15.2x 13.8x
Low 3.2x 5.1x 8.5x
Median 6.8x 9.3x 12.3x
Based on an analysis of this data and UK Electric's actual results, DLJ
estimated the value of the UK Electric segment to range between (pound)4,718
million and (pound)5,767 million (or $7,077 million and $8,650 million at an
exchange rate of (pound)1.00 = $1.50).
DCF Analysis. DLJ also performed a DCF analysis of the projected cash
flows of UK Electric for the fiscal years ending December 31, 2000 through
December 31, 2005, using projections and assumptions provided by the management
of National Grid Group. The DCF valuation for UK Electric was estimated using
discount rates ranging from 6.0% to 7.0%, based on estimates related to the
weighted average costs of capital of UK Electric, and terminal multiples of
estimated EBITDA ranging from 6.3x to 7.3x on December 31, 2005. Based on this
analysis, DLJ estimated the value of UK Electric, excluding the international
electric joint ventures, to range between (pound)3,844 million and (pound)4,539
million (or $5,766 million and $6,808 million at an exchange rate of (pound)1.00
= $1.50).
National Grid USA. To determine the value of the National Grid USA
segment of National Grid Group DLJ performed a comparable publicly traded
company analysis, a DCF analysis and also considered the purchase price of these
assets. DLJ also estimated the value of NEES Communications, Inc. and the
present value of certain operational and tax synergies resulting from National
Grid Group's integration of the businesses of National Grid USA. Based on these
analyses, DLJ estimated the value of National Grid USA to range between $5,057
million and $6,433 million.
Analysis of Purchase Price of National Grid USA by National Grid Group.
DLJ estimates that the purchase price paid by National Grid Group to acquire the
businesses making up National Grid USA was $4,786 million.
Comparable Publicly Traded Company Analysis. DLJ analyzed the market
values and trading multiples of selected publicly traded electric utility
companies in the United States that DLJ believed were reasonably comparable to
National Grid USA on the basis notably of their business activity and geographic
presence. These comparable companies consisted of:
o Conectiv, Inc.
o Consolidated Edison, Inc.
o Constellation Energy Group, Inc.
o Energy East Corporation
o KeySpan Corporation
o PECO Energy Company
o Potomac Electric Power Company
o PPL Corporation
o Public Service Enterprise Group, Inc.
In examining these comparable companies, DLJ calculated the enterprise
value of each company as a multiple of its respective: (i) LTM sales, (ii) LTM
EBITDA and (iii) LTM EBIT. All historical data was derived from publicly
available sources. DLJ's analysis of the comparable companies yielded the
following multiple ranges:
ENTERPRISE VALUE/LTM
----------------------------------
Sales EBITDA EBIT
----- ------ ----
High 2.6x 8.4x 12.3x
Low 1.1x 5.0x 8.2x
Average 2.0x 7.0x 10.1x
Median 2.1x 7.3x 10.1x
Based on an analysis of this data and National Grid USA's actual
results, DLJ estimated the value of National Grid USA to range between $4,791
million and $5,856 million.
DCF Analysis. DLJ performed a DCF analysis of the projected cash flows
of National Grid USA for the fiscal years ending December 31, 2000 through
December 31, 2005, using projections and assumptions provided by the management
of National Grid Group. The DCF valuation for National Grid USA was estimated
using discount rates ranging from 7.0% to 8.0%, based on estimates related to
the weighted average costs of capital of National Grid USA, and terminal
multiples of estimated EBITDA ranging from 6.8x to 7.8x on December 31, 2005.
Based on this analysis, DLJ estimated the value of National Grid USA to range
between $5,296 million and $6,085 million.
The above DCF analysis did not include cash flows and corresponding
values for NEES Communications, Inc. and certain operational and tax synergies
resulting from National Grid Group's acquisition of the businesses of National
Grid USA. DLJ estimated that the valuation of NEES Communications, Inc. was $100
million, based on the value of NEES Communications, Inc.'s telecommunications
contracts. DLJ estimated that the present value of the operational and tax
synergies resulting from National Grid Group's acquisition of the businesses of
National Grid USA was in range from $0 to $758 million, based on sensitivities
to cost savings assumptions provided by National Grid Group management.
Energis. National Grid Group had an interest of 36.3% in Energis as of
September 4, 2000. DLJ estimated the value of Energis based on Energis' stock
price and public valuation, research analysts' price targets, and a comparable
publicly traded company analysis. Based on these analyses, DLJ estimated the
value of Energis to range between (pound)9,470 million and (pound)11,237
million, implying a value for National Grid Group's 36.3% interest in Energis to
range between (pound)3,438 million and (pound)4,079 million (or $5,157 million
and $6,119 million at an exchange rate of (pound)1.00 = $1.50).
Public Valuation. The equity valuation of Energis was (pound)10,257
million as of September 1, 2000, based on Energis' closing share price of
(pound)6.60 on that date.
Research Analyst Views. DLJ reviewed research analyst reports from six
large financial institutions, dated between May and July 2000, that valued the
current price per share and published a target price for shares of Energis. The
target prices were in a range of (pound)6.60 to (pound)9.00.
Comparable Publicly Traded Company Analysis. DLJ performed a comparable
publicly traded company analysis of Energis, by analyzing the market values and
trading multiples of selected publicly traded European alternative network
companies that DLJ believed were reasonably comparable to Energis. These
comparable companies consisted of:
o Carrier 1 International S.A.
o Colt Telecom Group Plc
o Fibernet Group Plc
o Netia SA
o Thus Plc
o Versatel Telecom International
DLJ calculated the enterprise value of each company as a multiple of
its respective: (i) projected calendar year 2000, 2001 and 2002 sales and (ii)
net PP&E and gross PP&E. All historical data was derived from publicly available
sources and all projected data was obtained from Wall Street research reports.
DLJ's analysis of the comparable companies yielded the following multiple
ranges:
ENTERPRISE VALUE
--------------------------------------------------------------
2000 Sales 2001 Sales 2002 Sales Net PP&E Gross PP&E
---------- ---------- ---------- -------- ----------
High 26.9x 16.8x 13.3x 22.3x 19.2x
Low 3.8x 2.9x 2.8x 2.5x 2.3x
Median 12.9x 6.5x 5.4x 9.3x 8.3x
Based on an analysis of this data and Energis' actual and projected
results, DLJ estimated the equity value of Energis to range between
(pound)10,110 million and (pound)12,485 million (or $15,165 million and $18,727
million at an exchange rate of (pound)1.00=$1.50).
Intelig. National Grid Group owns 50% of Intelig. DLJ estimated the
value of Intelig based on a DCF analysis, an analysis of comparable publicly
traded companies, and a net asset valuation analysis. Based on these analyses,
DLJ estimated the enterprise value of Intelig to range between $1,675 million
and $2,159 million, implying a value for National Grid Group's 50% stake in
Intelig to range between $665 million and $907 million.
DCF Analysis. DLJ performed a DCF analysis of the projected cash flows
of Intelig for the fiscal years ending December 31, 2000 through December 31,
2008, using projections and assumptions provided by the management of National
Grid Group. The DCF valuation for Intelig was estimated using discount rates
ranging from 14.5% to 16.5%, based on estimates related to the weighted average
costs of capital of Intelig, and terminal multiples of estimated EBITDA ranging
from 7.0x to 8.0x on December 31, 2008. Based on the DCF analysis, DLJ estimated
the value of Intelig to range between $1,372 million and $2,012 million.
Comparable Publicly Traded Company Analysis. DLJ also performed a
comparable publicly traded company analysis of Intelig, analyzing the market
values and trading multiples of selected publicly traded Latin American telecom
companies that DLJ believed were reasonably comparable to Intelig. These
comparable companies consisted of:
o Telefonas de Mexico SA de CV (Telmex)
o Compania de Telecommunicaciones de Chile S.A. (Telefonica CTC Chile)
o Telefonica de Argentina S.A.
o Embratel Participacoes S.A.
o Telecommunicacoes de San Paulo S.A. (Telesp)
o Telenorte Leste Participacoes S.A. (Telmar)
o Brazil Telecom Participacoes S.A.
DLJ calculated the enterprise value of each company as a multiple of
its respective projected calendar year 2000 and 2001 sales. All historical data
was derived from publicly available sources and all projected data was obtained
from Wall Street research reports where available. DLJ's analysis of the
comparable companies yielded the following multiple ranges:
ENTERPRISE VALUE/
--------------------------------
2000 Sales 2001 Sales
---------- ----------
High 3.8x 3.6x
Low 2.4x 1.9x
Average 2.8x 2.5x
Based on an analysis of this data and Intelig's projected results, DLJ
estimated the value of Intelig to range between $2, 253 million and $2,753
million.
Net Asset Value Analysis. DLJ reviewed the net asset value multiples of
selected European companies, which were included in the comparable publicly
traded company analysis for Energis. The multiples observed were in a range of
2.5x to 22.3x, with a median of 9.3x. DLJ estimated 6.7x to 8.1x as a
representative range of multiples for Intelig, implying a value for Intelig to
range between $1,400 million and $1,711 million.
The summary set forth above does not purport to be a complete
description of the analyses performed by DLJ but describes, in summary form, the
material elements of the presentation that DLJ made to Niagara Mohawk's board of
directors on September 4, 2000 in connection with the preparation of DLJ's
fairness opinion. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. DLJ conducted each of the analyses in order to provide a different
perspective on the transaction and to add to the total mix of information
available. DLJ did not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support an opinion as to
fairness from a financial point of view. Rather, in reaching its conclusion, DLJ
considered the results of the analyses in light of each other and ultimately
reached its opinion based on the results of all analyses taken as a whole. DLJ
did not place any particular reliance or weight on any individual analysis, but
instead concluded that its analyses, taken as a whole, supported its
determination. Accordingly, notwithstanding the separate factors summarized
above, DLJ has indicated to Niagara Mohawk that it believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses and factors,
could create an incomplete view of the evaluation process underlying its
opinion. The analyses DLJ performed are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by these analyses.
Engagement Letter
Pursuant to the terms of an engagement agreement dated January 24,
2000, Niagara Mohawk has agreed to pay a fee that is customary in transactions
of this nature a substantial portion of which is contingent upon the completion
of the merger. In addition, Niagara Mohawk agreed to reimburse DLJ, upon DLJ's
request from time to time, for all out-of-pocket expenses (including the
reasonable fees and expenses of counsel) DLJ incurred in connection with its
engagement thereunder and to indemnify DLJ and certain related persons against
certain liabilities in connection with its engagement, including liabilities
under US federal securities laws. DLJ and Niagara Mohawk negotiated the terms of
the fee arrangement.
Other Relationships
In the ordinary course of business, DLJ and its affiliates may own or
actively trade the securities of Niagara Mohawk and National Grid Group for
their own accounts and for the accounts of their customers and, accordingly, may
at any time hold a long or short position in Niagara Mohawk or National Grid
Group securities.
DLJ has represented Niagara Mohawk in many advisory or underwriting
transactions, including: (i) lead-managing the issue of $200 million of 87/8%
Senior Notes due 2007; (ii) advising on the sale of various of Niagara Mohawk's
fossil and hydro generating assets for approximately $900 million; (iii)
advising on the restructuring and termination of various of Niagara Mohawk's
power purchase agreements with certain of its independent power producers for
approximately $3.6 billion in cash and 42.9 million shares of Niagara Mohawk
common stock; and (iv) lead-managing the issue of $3.45 billion of Senior Notes
of various maturities and $316 million of Niagara Mohawk common stock.
Interests of Niagara Mohawk's Officers and Directors
General. Some members of Niagara Mohawk's senior management and the
Niagara Mohawk board of directors may be deemed to have interests in the merger
that are in addition to and/or potentially different from the interests of
shareholders of Niagara Mohawk generally. The Niagara Mohawk board of directors
was aware of these interests and considered them, among other matters, in
approving the merger agreement and the transaction contemplated by the merger
agreement. In considering the recommendation of the Niagara Mohawk board of
directors in respect of the merger agreement and the transactions contemplated
by the merger agreement, the Niagara Mohawk shareholders should be aware that
these interests may present actual or potential conflicts of interest with
respect to the merger.
National Grid Group Board; Arrangements for Mr. Davis; National Grid
USA Board. The merger agreement provides that William E. Davis, Chairman and
Chief Executive Officer of Niagara Mohawk, will be appointed as Chairman of
National Grid USA for two years after the merger and as an executive director on
the New National Grid board of directors. In consideration for Mr. Davis'
agreement to serve as Chairman of National Grid USA for two years and not to
compete with National Grid Group or its subsidiaries for two years thereafter,
National Grid USA and Mr. Davis have agreed that Mr. Davis will receive, about
the time of the merger, the amount that would have been payable had he been
terminated under his employment agreement and then will receive for two years,
his present annual salary and have the right to participate in bonus
opportunities equivalent to those he had at Niagara Mohawk and the opportunity
to receive raises. One additional outside director on the current Niagara Mohawk
board of directors, to be selected by National Grid Group, will also be
appointed to the New National Grid board. The parties have also agreed that
three senior executives of Niagara Mohawk, including Mr. Davis, will be
appointed to the National Grid USA Board.
New York Advisory Board Appointments. Promptly following the merger, an
advisory board will be established for two years, to advise Niagara Mohawk with
respect to matters relating to general business as well as opportunities and
activities in New York State and to maintain and develop customer relationships
in New York State. The board will consist of up to 12 outside directors of the
Niagara Mohawk board who are not appointed to the New National Grid board.
Director and Officer Indemnification and Insurance. New National Grid
has agreed that it will indemnify all officers, directors and employees of
Niagara Mohawk from all losses (including litigation expenses and fees) arising
out of actions or omissions occurring at or prior to the merger (whenever
asserted) that are, in whole or in part, based on or arising out of the fact
that such person is or was a director, officer or employee of Niagara Mohawk or
based on or arising out of or pertaining to the transactions contemplated by the
merger agreement. New National Grid also has agreed that it will maintain in
effect for no less than six years following the merger all rights of
indemnification in favor of the employees, agents, officers and directors of
Niagara Mohawk contained in the certificate of incorporation and bylaws of
Niagara Mohawk and its subsidiaries before the merger. New National Grid also
has agreed that, until the sixth anniversary of the merger, it will cause to be
maintained in effect the policies of directors' and officers' liability
insurance maintained by Niagara Mohawk and its subsidiaries as of the date of
the merger agreement, or will procure equally favorable directors' and officers'
liability coverage, with respect to claims arising from facts or events that
occurred on or before the merger. See "The Merger Agreement-Indemnification."
Senior Officer Employment Agreements. Niagara Mohawk and NMPC have
employment agreements with 9 of their senior officers, in addition to Mr. Davis
whose arrangements with National Grid USA are described above. In the event of a
change in control (as defined in the employment agreement and which includes
shareholder adoption of the merger agreement), the agreement will remain in
effect for a period of at least 36 months after the completion of the merger
unless a notice not to extend the term of the agreement was given at least 18
months prior to the change in control. If, following a change in control, the
executive's employment is terminated by Niagara Mohawk without cause or by the
executive for good reason within 36 months after the completion of the merger,
the executive will be entitled to a lump sum severance benefit equal to four
times the executive's base salary. The executive will also be entitled to
employee benefit plan coverage for medical, prescription drug, dental and
hospitalization benefits and life insurance for the remainder of the executive's
life with all related premiums paid by Niagara Mohawk and coverage under other
employee benefit plans will continue for four years. If the executive's
employment is terminated by the Company without cause or by the executive for
good reason before completion of the merger, only two times the executive's base
salary will be paid until the merger is completed (or two years plus two years'
bonus in the event of a termination by Niagara Mohawk without cause) with an
additional amount, so that the aggregate amount paid is four years salary, being
paid when the merger is completed. In the event that the payments to the
executive upon termination of employment following a change in control would
subject the executive to the excise tax on excess parachute payments under the
Internal Revenue Code, Niagara Mohawk will reimburse the executive for such
excise tax (and the income tax and excise tax on such reimbursement). In the
event of a dispute over an executive's rights under the executive's agreement
following a change in control of Niagara Mohawk, Niagara Mohawk will pay the
executive's reasonable legal fees with respect to the dispute unless the
executive's claims are found to be frivolous.
Each senior officer employment agreement also provides that the
executive's benefits under the Supplemental Executive Retirement Plan (SERP)
will be based on the executive's salary, annual incentive awards and awards
under the 1995 Stock Incentive Plan, as applicable. Further, if the executive's
employment is terminated by Niagara Mohawk without cause at any time, or by the
executive for good reason after a change in control, the agreements provide that
the executive will be deemed fully vested under the SERP without reduction for
early commencement.
As used in the senior officer employment agreements, "good reason"
generally means a materially adverse change in duties, reduction in salary or
benefits or relocation by more than 50 miles, all as determined by the executive
in good faith.
As used in the senior officer employment agreements, termination for
"cause" generally arises upon willful failure to perform duties, commitment of a
felony, gross neglect or willful misconduct resulting in material economic loss
to Niagara Mohawk or breach of certain confidentiality and non-compete
provisions. Following a change in control, "cause" must be determined by a vote
of three-fourths of the Niagara Mohawk board of directors after a meeting at
which the executive and his or her legal counsel are entitled to be heard.
Officer Change in Control Agreements. Niagara Mohawk and NMPC also have
change in control agreements with 19 of their other officers, which provide that
if, within two years following a change in control which would occur upon the
completion of the merger, an officer terminates his or her employment for good
reason or Niagara Mohawk terminates the officer's employment without cause, the
officer will be entitled to a lump sum severance benefit equal to two times the
officer's base salary plus two years of benefits. In addition, a subsidiary of
Opinac has change in control agreements with nine officers. Five officers have
agreements which provide that if, within two years following a change in
control, an officer terminates his or her employment for good reason or Niagara
Mohawk terminates the officer's employment without cause, the officer will be
entitled to severance payments equal to two times the officer's base salary plus
a payment in lieu of benefits for a period of two years and four other officers
have agreements which provide under such circumstances that those officers will
be entitled to severance payments equal to one and one-half times the officer's
base salary plus a payment in lieu of benefits for a period of eighteen months.
Effect of Change in Control on Compensation and Benefits. Completion of
the merger will constitute a "change in control" of Niagara Mohawk for the
following Niagara Mohawk compensation and benefit plans in which the executive
officers of Niagara Mohawk participate: the Niagara Mohawk Long-Term Incentive
Plan (LTIP), the Officers Annual Incentive Compensation Plan (OAICP), the CEO
Special Award Plan, the Supplemental Executive Retirement Plan (SERP), and the
Officers Deferred Compensation Plan. As a result:
o all stock units granted under the LTIP will be deemed vested and
will entitle the holder to a cash payment equal to the merger
consideration within 30 days following the change in control;
o stock appreciation rights granted under the LTIP will become
exercisable for the balance of the exercise period (using the ADS
consideration in the merger as the means of determining
appreciation);
o if the employment of a participant who held outstanding awards on
the date of shareholder adoption of the merger agreement is
terminated after shareholder adoption and prior to the completion of
the merger, either by the participant for good reason or by Niagara
Mohawk without cause, the participant will receive a cash payment
within 5 business days of the completion of the merger for any
awards which were forfeited on such termination of employment;
o stock appreciation rights and stock units under the CEO Special
Award Plan will be treated similarly to the appreciation rights and
the units under the LTIP and cash awards under the plan will be paid
within 30 days of the change in control;
o contingent stock units awarded under the OAICP will be deemed vested
and will entitle holders to a cash payment within 30 days following
the change in control;
o under the SERP, certain benefits vest upon a change in control, and
senior officers with employment agreements as described above are
entitled to vesting and full benefits without reduction for early
retirement in addition to the benefits described above under "Senior
Officer Employment Agreements;" and
o participants in the Officers Deferred Compensation Plan are entitled
to payments, at their election, either in a lump sum or in
installments, in the event of their deemed termination of employment
due to the occurrence of certain events within 24 months following a
change in control.
Payments to Directors. Non-employee directors of Niagara Mohawk have
received annual grants of deferred stock units ("DSUs") equal in value to
$15,000 ($17,000 for committee chairs) based on the market price of Niagara
Mohawk shares at the time of each grant under the Outside Director Deferred
Stock Unit Plan. Under the plan, when a director ceases to be an outside
director, the director is entitled to receive the cash value of the DSUs
credited to his or her account based on market prices at the time of the
payment. Under the terms of the plan, in connection with the merger, each
outside director will receive an amount in cash equal to the per share merger
consideration with respect to each DSU credited to his or her account
immediately following the completion of the merger, unless the director elects
to receive payment in a lump sum in the year following completion or in
installments over 5 years beginning in the year following completion.
Ongoing Employee Compensation and Benefits. The merger agreement
provides that New National Grid shall maintain compensation, benefits and
coverage with respect to current employees and retirees of Niagara Mohawk or its
subsidiaries, other than those covered by a collective bargaining agreement who
continue employment with New National Grid or its subsidiaries, for two years
after the merger that are no less favorable in the aggregate than those provided
to those employees and retirees immediately prior to the merger. Therefore, in
addition to any benefits previously described, current executive officers of
Niagara Mohawk or its subsidiaries will continue to receive compensation
incentives and employee benefits that are at least as favorable as those
currently provided.
Stock Options. At the time of the merger, the 211,375 stock options
outstanding under Niagara Mohawk's 1992 Stock Option Plan will be cancelled and
each of the options which has an exercise price less than the merger
consideration, currently 101,625 options, will entitle the holder to receive an
amount in cash equal to the per share merger consideration minus the exercise
price of the option.
Stock Ownership. All of the directors and executive officers of Niagara
Mohawk own shares for which they will receive the same consideration in the
merger as other shareholders. The directors and executive officers own less than
1% of the outstanding shares.
Accounting Treatment
The merger will be accounted for under the purchase method of
accounting, in accordance with generally accepted accounting principles. Under
the purchase method of accounting, the purchase price of Niagara Mohawk,
including direct costs of the acquisition, will be allocated to the assets
acquired and liabilities assumed based upon their estimated fair values, with
the excess purchase consideration allocated to goodwill.
The Unaudited Pro Forma Condensed Combined Financial Statements
appearing elsewhere in this proxy statement/prospectus are based upon certain
assumptions, as described in the pro forma statements, and are included for
informational purposes only. Any difference between the purchase price,
representing fair value, and the fair value of the identified assets acquired
will be recorded as goodwill. If the merger is completed, National Grid Group's
financial statements will reflect effects of transaction adjustments only from
the Merger Effective Time. The actual amounts of assets, liabilities, and
acquisition adjustment may differ significantly from the amounts reflected in
the Unaudited Pro Forma Condensed Combined Financial Statements.
For purposes of preparing National Grid Group's consolidated financial
statements under UK GAAP, National Grid Group will convert Niagara Mohawk's
financial statements from US GAAP to UK GAAP and establish a new accounting
basis for Niagara Mohawk's assets and liability based upon the fair market
values thereof and the purchase price for Niagara Mohawk. Therefore, the
purchase accounting adjustments made in connection with the development of the
Unaudited Pro Forma Condensed Combined Financial Information appearing elsewhere
in this proxy statement/prospectus are preliminary and have been made solely for
purposes of developing the Unaudited Pro Forma Condensed Combined Financial
Information to comply with the disclosure requirements of the SEC. Although the
final allocation will differ, the Unaudited Pro Forma Condensed Combined
Financial Information reflects National Grid Group's best estimate based upon
currently available information.
Listing of ordinary shares and ADSs
It is a condition to the completion of the merger that the UK Listing
Authority has agreed to admit to the Official List of the UK Listing Authority,
subject to allotment, both the New National Grid ordinary shares represented by
New National Grid ADSs issuable in the merger and the New National Grid ordinary
shares to be issued under the scheme of arrangement. In addition, the New
National Grid ADSs to be issued in the merger must be approved for listing on
the New York Stock Exchange at or prior to the Merger Effective Time.
Federal Securities Law Consequences
All ADSs received by Niagara Mohawk shareholders in the merger will be
freely transferable, except that ADSs received by persons who are deemed to be
"affiliates" (as that term is defined under the Securities Act) of Niagara
Mohawk prior to the merger may be resold by them only in transactions permitted
by the resale provisions of Rule 145 under the Securities Act or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of Niagara Mohawk generally include individuals or entities that control, are
controlled by, or are under common control with, Niagara Mohawk and may include
certain officers and directors of Niagara Mohawk as well as principal
shareholders of Niagara Mohawk. The merger agreement requires Niagara Mohawk to
use commercially reasonable efforts to cause each of its affiliates to execute a
written agreement providing that the affiliate will not offer or sell or
otherwise dispose of any ADSs issued to the affiliate in or pursuant to the
merger in violation of the Securities Act or the rules and regulations
promulgated by the SEC thereunder.
This proxy statement/prospectus does not cover resales of ADSs received
by any person who may be deemed to be an affiliate of Niagara Mohawk.
Material Tax Consequences
The following summary discusses: (1) the material US federal income tax
consequences to Niagara Mohawk shareholders who exchange their Niagara Mohawk
common stock for (a) New National Grid ADSs; (b) cash; or (c) a combination of
New National Grid ADSs and cash; (2) the material US federal income and UK tax
consequences to US Holders (as defined below) of the ownership and disposition
of New National Grid ADSs; and (3) New York State Real Estate Transfer tax
consequences to Niagara Mohawk shareholders. This discussion is based upon the
United States Internal Revenue Code of 1986, as amended and in effect (the
"Code"), Treasury regulations, administrative rulings and judicial decisions
currently in effect. All of the foregoing are subject to change, possibly with
retroactive effect, and any such change could affect the continuing validity of
the following discussion.
For purposes of this discussion, "US Holder(s)" means a beneficial
owner(s) of New National Grid ADSs who is:
o a citizen or resident of the US,
o a corporation, or other entity taxable as a corporation, or a
partnership created or organized under the laws of the US or any of
its political subdivisions, or
o an estate or trust that is subject to US federal income tax on its
income regardless of its source.
This discussion does not describe all aspects of US taxation or UK
taxation that may be relevant to US Holders in light of their particular
circumstances. The discussion assumes that shareholders hold their Niagara
Mohawk common stock and will hold New National Grid ADSs as capital assets
within the meaning of Section 1221 of the Code. The discussion does not apply to
shareholders subject to special treatment under US federal income tax laws, such
as insurance companies, tax-exempt organizations, financial institutions,
brokers, dealers, persons that hold Niagara Mohawk common stock as part of a
straddle, hedge or conversion transaction or persons who acquired Niagara Mohawk
common stock through the exercise of employee stock options or otherwise as
compensation. Except as provided below, the discussion does not consider the
potential effects of any state, local or foreign tax laws.
None of National Grid Group, New National Grid or Niagara Mohawk has
requested a ruling from the US Internal Revenue Service with respect to any of
the US federal income tax consequences of the merger. As a result, there can be
no assurance that the Internal Revenue Service will agree with any of the
conclusions described below.
Holders of Niagara Mohawk common stock should consult their own tax
advisors regarding the specific tax consequences to them of the merger,
including the applicability and effect of federal, state, local and foreign
income and other tax laws in their particular circumstances.
US Tax Consequences of the Merger
In the opinions of PricewaterhouseCoopers LLP, special tax advisors to
National Grid Group and New National Grid, and Bryan Cave LLP, special tax
counsel to Niagara Mohawk, for US federal income tax purposes:
o the merger, together with the scheme of arrangement, will be treated
for US federal income tax purposes as a transaction described in
Section 351 of the Code, and no gain or loss will be recognized as a
result thereof by National Grid Group, New National Grid or Niagara
Mohawk;
o no gain or loss will be recognized by Niagara Mohawk shareholders
who receive solely New National Grid ADSs in exchange for their
Niagara Mohawk common stock pursuant to the merger, except with
respect to any cash received instead of a fractional share;
o capital gain or loss will be recognized by Niagara Mohawk
shareholders who receive solely cash in exchange for their Niagara
Mohawk common stock pursuant to the merger, in an amount equal to
the difference between the amount of cash received and their
adjusted tax basis in their Niagara Mohawk common stock;
o to the extent that a Niagara Mohawk shareholder receives in exchange
for his Niagara Mohawk common stock a combination of New National
Grid ADSs and cash pursuant to the merger, the receipt of the ADSs
will not result in the recognition of gain or loss; however,
depending on a Niagara Mohawk shareholder's tax basis in his Niagara
Mohawk common stock, the receipt of the cash may result in the
recognition of gain (in an amount not exceeding the amount of cash
received);
o a US Holder of Niagara Mohawk common stock who receives cash instead
of a fractional New National Grid ADS should be treated as having
received the fractional share in the merger and then having
exchanged the fractional share for cash in a redemption by New
National Grid; the US Holder will generally recognize a gain or
loss equal to the difference between the amount of cash received and
that US Holder's adjusted tax basis in the New National Grid ADS
that is allocable to the fractional share;
o the aggregate tax basis of the New National Grid ADSs received by a
US Holder will be the same as the aggregate tax basis of the Niagara
Mohawk common stock surrendered in exchange therefor in the merger
increased by the gain recognized, if any, and reduced by any cash
received pursuant to the merger; and
o the holding period for the New National Grid ADSs received by a US
Holder will include the holding period of the Niagara Mohawk common
stock surrendered in exchange therefor in the merger.
The tax opinions are subject to qualifications and are based on
currently applicable law, certain factual representations made by National Grid
Group, New National Grid and Niagara Mohawk and certain assumptions. The
material assumptions are that (i) the merger and the scheme of arrangement will
be completed as contemplated by the registration statement and in accordance
with the provisions set forth in the merger agreement, (ii) any statements
concerning the merger set forth in the merger agreement or the registration
statement are true, correct and complete, and (iii) any representations made by
National Grid Group, New National Grid or Niagara Mohawk concerning the merger
are true, correct and complete. Moreover, the tax opinions are in no way binding
on the Internal Revenue Service or any courts. Any change in currently
applicable law, which may or may not be retroactive, or failure of any of such
factual representations or assumptions to be true, correct and complete in all
material respects, could affect the continuing validity of the tax opinions.
New York State Transfer Taxes
It is expected that, as a result of the merger, the New York State Real
Estate Transfer Tax ("Transfer Tax") will be imposed on Niagara Mohawk
shareholders. New National Grid has agreed to pay such Transfer Tax directly to
New York State taxing authorities on behalf of the shareholders. For US federal
income tax purposes, any such payments made on behalf of a shareholder may
result in the deemed receipt of additional consideration by such shareholder in
proportion to the number of shares of Niagara Mohawk common stock owned by such
shareholder. In such event, such shareholder would be deemed to have paid such
Transfer Tax on his own behalf.
Backup Withholding
Certain non-corporate Niagara Mohawk shareholders may be subject to
backup withholding at a 31% rate on payments received in connection with the
merger (including cash paid instead of fractional shares of New National Grid
ADSs). Backup withholding will not apply, however, to a Niagara Mohawk
shareholder who (i) furnishes a correct taxpayer identification number and
certifies as to not being subject to backup withholding on the substitute Form
W-9 or successor form which will be included in the letter of transmittal to be
delivered to Niagara Mohawk shareholders prior to the completion of the merger,
(ii) provides a certification of foreign status on Form W-8 or successor form or
(iii) is otherwise exempt from backup withholding.
If you do not provide a correct taxpayer identification number, you may
be subject to penalties imposed by the Internal Revenue Service. Any amount paid
as backup withholding will be creditable against your US federal income tax
liability, and a US Holder may obtain a refund of any excess amounts withheld
under the backup withholding rules by filing an appropriate claim for refund
with the Internal Revenue Service. You should consult with your own tax advisors
as to your qualification for exemption from backup withholding and the procedure
for obtaining the exemption.
You may present backup withholding by completing a substitute Form W-9
or substitute Form W-8 or successor forms, as applicable, and submitting it to
the paying agent when you submit your Niagara Mohawk common stock certificates.
Reporting Requirements
The former holders of Niagara Mohawk common stock will be required to
attach to their income tax returns for the taxable year in which the completion
of the merger occurs, and maintain a permanent record of, a complete statement
of all the facts relating to the exchange of shares in connection with the
merger. The facts to be disclosed by a former holder include the former holder's
basis in the Niagara Mohawk common stock, transferred to New National Grid and
the number of New National Grid ADSs received in the merger.
US Tax Consequences of the Ownership of ADSs
Dividends paid to a US Holder by New National Grid with respect to the
ADSs will be taxable as ordinary income to the US Holder for US federal income
tax purposes to the extent paid out of New National Grid's current or
accumulated earnings and profits, as determined for US federal income tax
purposes, based on the US dollar value of the dividend on the date the dividend
is actually or constructively received by the Depositary, calculated by
reference to the exchange rate on the relevant date.
A US Holder, generally, is entitled to a UK tax credit of one ninth of
the amount of the cash dividend that is offset by the UK withholding tax. Under
the present US-UK income tax treaty, US Holders will include as ordinary income
the amount of any dividend paid by New National Grid out of its current or
accumulated earnings and profits, as determined for US federal income tax
purposes (the "base dividend"), plus, if an election is made on US IRS Form 8833
(Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)), the
amount of any UK tax credit (the "dividend gross-up"). For example, if New
National Grid paid a dividend of $90 for US federal income tax purposes, a US
Holder making the election referred to above would recognize ordinary income of
$100, comprised of $90 of the base dividend plus $10 of the dividend gross-up
(reflecting the $10 UK tax credit.) The income is recognized when the dividend
is actually or constructively received by the Depositary. The dividend will not
be eligible for the dividends-received deduction generally allowed to US
corporations in respect of dividends received from other US corporations.
Distributions in excess of New National Grid's current and accumulated earnings
and profits, as determined for US federal income tax purposes, will be treated
as a return of capital to the extent of the US Holder's basis in the ADSs, and
thereafter as capital gain.
Subject to some specific limitations and requirements, a US Holder will
be entitled, generally, to credit the UK withholding tax against the US Holder's
US federal income tax liability. To obtain a foreign tax credit, US Holders must
make an election on US IRS Form 8833 (Treaty-Based Return Position Disclosure
Under Section 6114 or 7701(b)), which must be filed with their US federal income
tax return for the relevant year. Claiming a US foreign tax credit with respect
to the UK withholding tax may result in a lower effective US federal income tax
rate on dividends paid by New National Grid for certain US Holders. US Holders
who do not elect to claim a foreign tax credit may instead claim a deduction for
any UK withholding tax. Eligible US Holders who rely on the US-UK income tax
treaty should consider disclosing this reliance on their US federal income tax
return. US Holders who fail to disclose reliance on a treaty where disclosure is
required are subject to penalties under US federal income tax law. The rules
relating to the computation of foreign taxes are complex and US Holders should
consult their own tax advisors to determine whether and to what extent a credit
would be available and whether any filings or other actions may be required to
substantiate their foreign tax credit claim.
Taxation of Capital Gains
In general, for US federal income tax purposes, US Holders of ADSs will
be treated as the owners of the underlying ordinary shares that are represented
by the ADSs and deposits and withdrawals of ordinary shares by US Holders in
exchange for ADSs will not be treated as a sale or other disposition for US
federal income tax purposes. In the event a US Holder exchanges his ADSs for
ordinary shares of New National Grid, the US Holder's tax basis and holding
period for the ordinary shares will be the same as the tax basis and holding
period of the ADSs exchanged therefor.
Upon a sale or other disposition of ADSs, a US Holder will recognize a
gain or loss for US federal income tax purposes in an amount equal to the
difference between the US dollar value of the amount realized and the US
Holder's tax basis (determined in US dollars) in the ADSs. Generally, the gain
or loss will be a long-term capital gain or loss if the US Holder's holding
period for the ADSs exceeds one year, and any gain or loss generally will be US
source income.
UK Tax Consequences to US Holders of the Ownership of ADSs
For the purposes of the US-UK income tax treaty, US Holders of ADSs
will be treated as owners of the ordinary shares underlying the ADSs.
Taxation of Dividends
The US-UK income tax treaty contains provisions that are intended to
extend the benefits of the UK integrated tax system to US Holders eligible for
treaty benefits ("eligible US Holders"). As discussed above in "US Tax
Consequences of the Ownership of ADSs," the treaty provides that eligible US
Holders, generally, are entitled to a UK tax credit that is offset by the UK
withholding tax.
Taxation of Capital Gains
A US Holder who is not a resident or ordinarily resident for tax
purposes in the UK, generally, will not be liable for UK tax on capital gains
realized on the disposal of her ADSs. This general rule does not apply if, at
the time of the disposal, the US Holder carries on a trade, profession or
vocation in the UK through a branch or agency and the ADSs are or have been
used, held or acquired for the purposes of such trade, profession or vocation,
or for the purposes of such branch or agency. An individual US Holder who has,
on or after March 17, 1998, ceased to be resident or ordinarily resident for tax
purposes in the UK for a period of less than five tax years and who disposes of
ADSs during that period may be liable for UK tax on capital gains realized,
subject to any available exemption or relief.
Stamp Duty and Stamp Duty Reserve Tax
UK stamp duty is charged in respect of certain documents and UK stamp
duty reserve tax ("SDRT") is imposed in respect of certain transactions in
securities.
Transfers of the ordinary shares will generally be subject to UK stamp
duty at the rate of 50p for every (pound)100, or part thereof, of the
consideration given for the transfer (with rounding up to the nearest multiple
of (pound)5). An agreement to transfer ordinary shares or any interest in the
ordinary shares for money or money's worth will normally give rise to a charge
of SDRT at the rate of 0.5% of the consideration given. If an agreement to
transfer ordinary shares is completed by a duly stamped transfer within six
years, then the charge to SDRT will be cancelled or, where the SDRT charge has
been paid, the SDRT will be repaid, provided that a claim for repayment is made.
Transfers of shares through the electronic transfer system known as
"CREST" are generally subject to SDRT rather than stamp duty. A charge to stamp
duty or SDRT respectively at the rates of (pound)1.50 for every (pound)100, or
part thereof, or 1.5% of the value of the consideration or, in some
circumstances, the value of the ordinary shares concerned, may arise on a
transfer of the ordinary shares to the Depositary or to certain persons
providing a clearance service or their nominees or agents and will generally be
payable by the Depositary or person providing the clearance service. Any tax or
duty payable by the Depositary on deposit of ordinary shares will be charged by
the Depositary to the party to whom ADSs are delivered against the deposits.
However, any SDRT or stamp duty arising on the issue of the ADSs constituting
merger consideration will be paid by New National Grid.
No liability for stamp duty should arise on any transfer of an ADS or
beneficial ownership of such ADS, provided that the ADS and any instrument of
transfer or written agreement to transfer is executed outside the UK, and
remains at all times outside the UK. In any other case, a charge to ad valorem
stamp duty may arise.
SDRT will not be payable on any agreement to transfer the American
Depositary Receipts ("ADRs") evidencing ADSs or beneficial ownership of the
ADRs. A transfer of the underlying ordinary shares from the Depositary to the
holder of an ADS upon cancellation of the ADS generally will be subject to a
fixed UK stamp duty of (pound)5 per instrument of transfer.
<PAGE>
THE MERGER AGREEMENT
The description of the merger agreement set forth below highlights
certain important terms of the merger agreement, a copy of which is attached to
this proxy statement/prospectus as Annex A. This description does not purport to
be complete and it may not include all the information that interests or is
relevant to you. We urge you to read the merger agreement carefully and in its
entirety.
Merger Effective Time
The merger will become effective upon the later of the filing of a
certificate of merger relating to the merger by the Department of State of the
State of New York and the filing of a certificate of merger relating to the
merger with the Secretary of State of the State of Delaware or upon a later date
agreed upon by the parties and specified in the certificates of merger; provided
that the Merger Effective Time shall occur as soon as reasonably practical but
no later than seven days after the Scheme Effective Time.
Effects of the Merger
At the Merger Effective Time, Grid Delaware, Inc. will be merged with
and into Niagara Mohawk and Niagara Mohawk will continue its corporate existence
with the same certificate of incorporation and bylaws as in effect immediately
prior to the Merger Effective Time. The additional effects of the merger will be
as set forth in the applicable provisions of New York and Delaware law.
At the Merger Effective Time, each share of common stock of Grid
Delaware, Inc. issued and outstanding prior to the merger will be converted into
one share of common stock of Niagara Mohawk. Each share of Niagara Mohawk common
stock will be converted into the right to receive the merger consideration in
the form of cash, ADSs or a combination of cash and ADSs.
No fractional ordinary shares or scrip representing fractional ADSs
will be issued in the merger. Shareholders will receive a cash payment in place
of fractional shares.
As a result of the merger, the common stock of Niagara Mohawk will no
longer be publicly traded. Following the merger, persons who were shareholders
of Niagara Mohawk immediately prior to the merger will no longer have an
opportunity to continue to hold an interest in Niagara Mohawk as a separate
business entity.
Trading in the common stock of Niagara Mohawk on the New York Stock
Exchange will cease immediately following the Merger Effective Time. At such
time, the common stock will be delisted from the New York Stock Exchange.
Registration of the common stock under the Securities Exchange Act of 1934, as
amended, will also be terminated, as will the ongoing disclosure requirements
thereunder with respect to the common stock.
Election
Holders of shares of Niagara Mohawk common stock (other than shares
held by Niagara Mohawk, National Grid Group, New National Grid or their wholly
owned subsidiaries, which will be cancelled in the merger) issued and
outstanding immediately prior to the election deadline will be entitled to
choose one of the consideration options, listed below on their form of election:
o to receive cash consideration for each share;
o to receive ADS consideration for each share; or
o to exchange some of their shares for cash and some for ADSs.
Niagara Mohawk shares as to which no election as to the type of
consideration has been made will be deemed to have elected cash or ADSs as
determined by National Grid Group.
A form of election (as described herein) and complete instructions for
properly making an election to receive cash, ADSs or a combination of cash and
ADSs will be mailed to shareholders under separate cover not more than 90 days
nor less than 30 days before the anticipated day of the completion of the
merger, which is currently expected to be in late 2001.
Limits on Cash and ADS Consideration
Under the merger agreement, the total amount of cash consideration to
be paid in the merger will be $1.015 billion with the balance to be paid in ADS
consideration. National Grid Group has a right to increase the cash election
number to follow the elections of Niagara Mohawk's shareholders more closely.
Allocation
If the number of shares of Niagara Mohawk common stock for which cash
is elected would result in an amount of cash payable to Niagara Mohawk
shareholders exceeding $1.015 billion, then:
o those shares with respect to which ADS elections or no elections
were made will be exchanged for ADSs; and
o the cash will be prorated among the other shares of Niagara Mohawk
common stock.
If the number of shares of Niagara Mohawk common stock for which ADSs
are elected does not result in at least $1.015 billion of cash being elected
then:
o all shares for which a cash election or no elections were made will
be exchanged for cash; and
o the remaining cash will be prorated among the shares for which an
ADS election was made.
In all instances, cash will be paid in place of fractional ADSs.
As a result of the above-described proration, the amount of cash and
ADSs received by shareholders may differ from their actual elections. If one
form of consideration is oversubscribed by the Niagara Mohawk shareholders, a
shareholder may receive all or part of his consideration in the undersubscribed
form of consideration.
Exchange of Stock Certificates
Exchange Agent. National Grid Group, New National Grid or Grid
Delaware, Inc. as the case may be, will deposit with The Bank of New York acting
as the Depositary cash equal to the sum of the total cash payable in exchange
for outstanding Niagara Mohawk common stock and the number of ordinary shares
represented by the ADSs to be issued in the merger.
Exchange Procedures. At least 30 and no more than 90 days before the
anticipated day of the completion of the merger, the Depositary will mail a form
of election to each record shareholder (as of a record date to be determined by
Niagara Mohawk, New National Grid and National Grid Group) of Niagara Mohawk
common stock. The Depositary will use its best efforts to make a form of
election available to all persons who become shareholders of Niagara Mohawk
after the record date. To be effective, a form of election must be:
o properly completed and signed by the shareholder of record;
o accompanied by the certificates for the Niagara Mohawk common stock
for which the election is being made (duly endorsed in blank or
otherwise acceptable for transfer on the books of Niagara Mohawk, or
by an appropriate guarantee of delivery); and
o delivered to the exchange agent before 5:00 p.m. on the fifth
business day immediately preceding the day of the completion of the
merger.
Holders may revoke their elections by sending written notice to the
Depositary before the deadline for submitting elections. Elections will be
automatically revoked if the Depositary receives written notice from New
National Grid, National Grid Group and Niagara Mohawk that the merger has been
abandoned. Upon any such revocation, the certificates (or delivery guarantees)
covered by the election shall be promptly returned. New National Grid or
National Grid Group, as the case may be (and, at their option, the Depositary),
will have the discretion to determine whether forms of election have been
properly completed, signed and submitted or revoked, and to disregard defects in
the forms of election.
Promptly after the Merger Effective Time, the Depositary will mail the
following materials to each shareholder of record of Niagara Mohawk whose shares
were converted into the right to receive consideration in the merger and who did
not return a properly completed form of election:
o a letter of transmittal for use in submitting such shares to the
Depositary for exchange; and
o instructions explaining what the shareholder must do to effect the
surrender of Niagara Mohawk certificates in exchange for
consideration to be issued in the merger.
If the shareholder has not already submitted all of his certificates accompanied
by a form of election, such shareholder should complete and sign the letter of
transmittal and return it to the Depositary together with such certificates in
accordance with the instructions. Shareholders who hold shares through a nominee
(for example if their shares of common stock are held by a broker as nominee)
will not need to request that certificates be issued. Those shareholders will
need to make their elections in the same time period and will receive separate
instructions at that time.
Lost, Stolen or Destroyed Certificates. If certificates for any Niagara
Mohawk common stock have been lost, stolen or destroyed, the shareholder must
submit an affidavit to that effect to the Depositary. New National Grid or the
surviving corporation in the merger may also require the shareholder to deliver
a bond to the Depositary in an amount reasonably required to indemnify the
Depositary against claims with respect to lost certificates.
Transfer of Ownership. The Depositary will issue payment for shares of
Niagara Mohawk common stock to a person other than the person in whose name the
Niagara Mohawk certificate surrendered in exchange therefor was registered only
if the surrendered certificate is properly endorsed and otherwise in proper form
for transfer. The person requesting the payment must also pay any required
transfer or other taxes or establish to the satisfaction of New National Grid,
National Grid Group and Niagara Mohawk that no tax is payable.
Payments Following Surrender. Until they have surrendered their
certificates, holders of certificates who elect or are allocated to receive ADSs
will not receive:
o dividends and other distributions with respect to ADSs they are
entitled to pursuant to the merger and that are declared or made
with a record date after the Merger Effective Time; or
o cash payment in place of fractional ADSs.
At the time of surrender, Niagara Mohawk shareholders will receive
certificates representing whole ADSs issued in exchange for Niagara Mohawk
shares, the cash payable in place of fractional ADSs to which the shareholder is
entitled under the merger agreement and the amount of dividends or other
distributions paid with respect to whole ADSs if such distributions had a record
date after the Merger Effective Time. These shareholders will also be paid on
the appropriate payment date the amount of dividends or other distributions with
a record date after the Merger Effective Time but prior to surrender, and a
payment date subsequent to surrender. Shareholders who elect to receive cash in
exchange for Niagara Mohawk shares will be paid the appropriate amounts without
interest.
Shareholders should not forward certificates to the Depositary, New
National Grid, National Grid Group or Niagara Mohawk until they have received a
form of election. Shareholders should not return certificates with the enclosed
proxy. A form of election and complete instructions for properly making an
election to receive cash, ADSs or a combination of cash and ADSs will be mailed
to shareholders under separate cover not more than 90 days nor less than 30 days
before the anticipated day of the completion of the merger, which is currently
anticipated to be in late 2001.
Representations and Warranties
In the merger agreement, each of Niagara Mohawk, National Grid Group,
New National Grid and Grid Delaware, Inc. makes representations and warranties
about itself and its business in favor of the other parties. These
representations and warranties relate to such matters as:
o the organization of the parties and their subsidiaries and similar
corporate matters;
o the parties' capital structures;
o the authorization, execution, delivery, performance and
enforceability of the merger agreement and related matters;
o the absence of breach or conflict and compliance with applicable
laws, regulations, organizational documents, agreements and other
existing obligations;
o the regulatory approvals, licenses and permits of National Grid
Group and its subsidiaries and Niagara Mohawk and its subsidiaries;
o the reports and financial statements filed by National Grid Group
and its subsidiaries and Niagara Mohawk and its subsidiaries with
the SEC, the Federal Energy Regulatory Commission, the Nuclear
Regulatory Commission, the Federal Communications Commission, the
Department of Energy or appropriate state public utilities
commissions, and accuracy of the information contained therein;
o the absence of material adverse changes and the non-occurrence of
certain events with respect to National Grid Group and its
subsidiaries and Niagara Mohawk and its subsidiaries;
o the legal proceedings with respect to National Grid Group and its
subsidiaries and Niagara Mohawk and its subsidiaries;
o the accuracy of information supplied by each of Niagara Mohawk,
National Grid Group, New National Grid and Grid Delaware, Inc. for
use in the registration statement, of which this proxy
statement/prospectus forms a part, filed by New National Grid in
connection with the issuance of ADSs in the merger;
o the accuracy of information supplied by each of them for use in
filings with the UK Listing Authority in connection with the merger
or the scheme of arrangement, including the circular to be issued to
shareholders of National Grid Group, the listing particulars
relating to New National Grid ordinary shares and the document,
including explanatory statement, to be sent to shareholders of
National Grid Group in connection with the scheme of arrangement;
o tax matters;
o with respect to Niagara Mohawk, retirement and other employee
benefit plans and matters relating to the Employee Retirement Income
Security Act of 1974, as amended;
o environmental compliance and liability with respect to National Grid
Group and its subsidiaries and Niagara Mohawk and its subsidiaries;
o with respect to Niagara Mohawk, regulation as a utility;
o the National Grid Group and Niagara Mohawk shareholder votes
required in connection with the merger and the scheme of
arrangement;
o with respect to Niagara Mohawk, the opinion of DLJ;
o beneficial ownership by either Niagara Mohawk, National Grid Group
or New National Grid of common stock, ordinary shares or ADSs issued
by the other parties, as applicable;
o brokers' and finders' fees incurred in connection with the merger
and the scheme of arrangement;
o with respect to Niagara Mohawk, non-applicability of certain
takeover provisions to the merger;
o insurance;
o with respect to Niagara Mohawk, assets necessary to conduct
business;
o with respect to Niagara Mohawk, labor and employee relations;
o with respect to Niagara Mohawk, intellectual property;
o with respect to Niagara Mohawk, credit and commodity derivatives
exposure; and
o with respect to Niagara Mohawk, compliance by it with laws
applicable to Niagara Mohawk's nuclear facilities.
Conduct of Business Before the Merger Effective Time
Under the merger agreement, Niagara Mohawk has agreed, as to itself and
its subsidiaries, that, during the period from the date of the merger agreement
until the Merger Effective Time, except as otherwise permitted in the merger
agreement or as described in the disclosure schedule provided by Niagara Mohawk
to National Grid Group, or by written consent of the parties, Niagara Mohawk
(and each of its subsidiaries) will, among other things:
o carry on its business in the usual, regular and ordinary course in
substantially the same manner as conducted in the past;
o consult with National Grid Group before initiating any changes in
rates or services or accounting or entering into agreements with
respect to such changes and deliver to National Grid Group for
comment copies of filings and agreements related to rate matters at
least four days before their filing or execution;
o confer, provide copies of filings and cooperate with National Grid
Group, notify and forewarn National Grid Group of any material
changes and changes that are reasonably likely to result in a
material adverse effect on Niagara Mohawk and its subsidiaries or
its ability to complete the merger;
o use all commercially reasonable efforts to obtain third-party
consents required in the merger and related transactions;
o maintain insurance coverage with financially responsible insurance
companies consistent with insurance maintained by Niagara Mohawk in
the ordinary course of business in accordance with past practice;
o inform National Grid Group and New National Grid of any events that
are reasonably likely to result in a tax change relating to the sale
of Niagara Mohawk's nuclear facilities and to consult with them
before making any of those changes;
and will not:
o (1) declare or pay any dividends on or make other distributions in
respect of any of its capital stock, other than dividends paid by a
subsidiary of Niagara Mohawk to Niagara Mohawk or to another
subsidiary of Niagara Mohawk, regularly scheduled dividends and
distributions required by the terms of preferred stock or similar
securities that are not convertible into common stock, (2) split,
combine or reclassify any of its capital stock or issue other
securities in substitution for its capital stock or (3) make any
redemptions, repurchases or other acquisitions of its capital
shares, other than redemptions or repurchases of stock for the
purpose of funding employee stock ownership and dividend
reinvestment plans and redemptions, purchases or acquisitions
required by the terms of any non-convertible preferred securities of
Niagara Mohawk subsidiaries;
o issue or sell capital stock or options, other than issuances of
options or awards under Niagara Mohawk stock plans in connection
with the hiring of new employees or upon exercise of existing
options, or intercompany issuances of capital stock;
o amend its charter or by-laws, except as contemplated by the merger
agreement;
o engage in material acquisitions or alterations of its corporate
structure or ownership, except in the ordinary course of business
consistent with past practice;
o sell, lease, encumber or otherwise dispose of its assets;
o make any additional investments in, loans or contributions to any
joint venture or partnership, or undertake any guarantees or other
obligations with respect to any joint venture or partnership;
o take any action that could reasonably be expected to jeopardize the
tax exempt qualification of some of Niagara Mohawk's bond issues;
o make or rescind any material tax election or grant any power of
attorney with respect to tax matters, make a request for a tax
ruling or enter into a closing agreement, settle or compromise any
material tax claim, action, proceeding, investigation, audit or
controversy relating to taxes, or make a material change in its
methods of reporting income or deductions for federal income tax
purposes;
o make any capital expenditure in excess of 110% of the amount
budgeted for each fiscal year, other than in circumstances described
in the merger agreement;
o incur or guarantee indebtedness or enter into a keep-well agreement
with respect to indebtedness other than (1) short-term indebtedness
in the ordinary course of business consistent with past practice in
amounts agreed upon by the parties, except as reasonably deemed
necessary after consulting with National Grid Group following a
catastrophic event, (2) long-term indebtedness in connection with
the refinancing of existing indebtedness at stated maturity or at a
lower cost of funds, or (3) guarantees or keep-well agreements in
favor of wholly owned subsidiaries in connection with their
business;
o enter into, amend or increase the amount or accelerate the payment
or vesting or termination of benefits or payments under any employee
benefit or compensation plan, or other contract, agreement,
commitment, arrangement, plan, trust, fund or policy or other
arrangement benefiting officers, employees or directors, except for
increases in the ordinary course of business consistent in process
and amounts with past practice or that are otherwise required
pursuant to the current terms of Niagara Mohawk benefit plans which,
taken together for any group, will not result in a material increase
in benefits or compensation expense or material changes in the
amount which will fail to be deductible for federal income tax
purposes or in acceleration or increase of parachute payments;
o adopt, establish, enter into or implement any new employee plan,
benefit or compensation program or policy, any new employment,
severance or retention agreement, or other new contract, agreement
or arrangement providing for any form of benefits or other
compensation to any former, present or future director, officer or
employee, except as required by the existing collective bargaining
agreement, by employee benefit plans that are agreed to in writing
by the parties or as is otherwise required under the current terms
of Niagara Mohawk's employee benefit plans, or as may be necessary
to implement the terms of existing severance policies; (NMPC may
also negotiate successor collective bargaining agreements);
o engage in any activity which would cause a change in its status
under the United States Public Utility Holding Company Act of 1935;
o make any changes in its accounting methods other than as required by
law, rule, regulation or US generally accepted accounting
principles, or agreed to by the parties;
o enter into any material agreements with affiliates on terms
materially less favorable than those that could be obtained in
arm's-length bargaining;
o modify, amend, terminate, renew or fail to renew any material
contract or waive, release or assign material rights or claims or
agree to provisions that would impede the ability of Niagara Mohawk
to complete the merger or with respect to which the merger will
trigger default or termination provisions;
o discharge any material liabilities other than in the ordinary course
of business consistent with past practice;
o take any action that would be reasonably likely to adversely affect
the status of the merger and the scheme of arrangement taken
together as a transaction described in Section 351 of the Code or
cause the merger to be subject to Section 367(a)(1) of the Code;
o terminate, amend, modify or waive any standstill agreement or
standstill provisions of other agreements to which it is a party and
fail to take all appropriate steps to enforce the provisions of any
such agreement; or
o take any action that would, or is reasonably likely to, result in a
material breach of any provision of the merger agreement or a
failure of any representation or warranty of such party to be true
and correct.
Under the merger agreement, National Grid Group has agreed, as to
itself and its subsidiaries, that, during the period from the date of the merger
agreement until the Merger Effective Time, except as otherwise permitted in the
merger agreement or by written consent of the parties, National Grid Group (and
each of its subsidiaries) will, among other things:
o carry on its business in the usual, regular and ordinary course in
substantially the same manner as conducted in the past;
o confer with and provide copies of filings to Niagara Mohawk, notify
and forewarn Niagara Mohawk of any material changes and changes that
are reasonably likely to result in a material adverse effect on
National Grid Group and its subsidiaries or materially impair its
ability to complete the merger or the scheme of arrangement; and
o use all commercially reasonable efforts to obtain third-party
consents required in the merger and related transactions;
and will not:
o enter into or agree to mergers, consolidations or acquisitions of
assets or stock of other entities that could reasonably be expected
to materially delay the completion of the merger;
o take any action that would be reasonably likely to adversely affect
the status of the merger and the scheme of arrangement taken
together as a transaction described in Section 351 of the Code or
cause the merger to be subject to Section 367(a)(1) of the Code;
o take any action including amending its charter, by-laws, regulations
or similar organic documents, except as provided in the merger
agreement, engage in any activity that would result in a change of
its status under the United States Public Utility Holding Company
Act of 1935; or make any changes in its accounting methods other
than as required by law, rule, regulation or generally accepted
accounting principles, that would reasonably be expected to prevent
or materially impede, interfere with or delay the merger or the
scheme of arrangement; or
o willfully take any action that would, or is reasonably likely to,
result in a material breach of any provision of the merger agreement
or a failure of any representation or warranty of National Grid
Group to be true and correct.
Under the merger agreement, New National Grid has agreed that both New
National Grid and Grid Delaware, Inc. will perform their obligations and will
not engage in any business or activity, or enter into any agreement or
arrangement that is inconsistent with the merger agreement or the scheme of
arrangement.
In addition, Niagara Mohawk and National Grid Group have agreed that if
they determine that the Niagara Mohawk nuclear facilities are likely to be sold
but not on a timely basis in order to satisfy the conditions of the merger
agreement, they would consider alternatives to the sale of these facilities
before the completion of the merger and related transactions. Alternatives may
include alternative governance, operational and ownership arrangements
acceptable to National Grid Group that are consistent with the requirements of
the Atomic Energy Act and applicable Nuclear Regulatory Commission rules and
regulations.
No Solicitation of Transactions
Under the merger agreement, Niagara Mohawk has agreed that neither it
nor any of its subsidiaries or representatives will initiate or encourage any
inquiry or proposal about other mergers, sales of substantial assets, sales of
10% or more of its capital stock or other business combinations, or negotiate,
discuss, approve or recommend any such alternative acquisition proposal. The
merger agreement requires Niagara Mohawk to terminate any existing discussions
or negotiations with any third party about such mergers, sales or similar
transactions.
Prior to the time the Niagara Mohawk shareholders adopt the merger
agreement and approve related transactions, Niagara Mohawk's board of directors
is not prevented from considering, approving and recommending an unsolicited
alternative acquisition proposal from a third party or providing information to
the offeror, if the board of directors:
o determines in good faith, based on the written opinion of outside
counsel that the board's fiduciary duties under applicable law with
respect to the alternative acquisition proposal require it to do so
in order to act consistently with the fiduciary duties of its
members;
o concludes in good faith (based on the written advice of its
financial advisors) that the person or group making the alternative
acquisition proposal has adequate sources of financing to consummate
it and that such proposal is materially more favorable to Niagara
Mohawk shareholders from a financial point of view than the merger;
and
o engages in discussions or negotiations regarding the alternative
acquisition proposal and provides information to the offeror of the
proposal pursuant to a confidentiality agreement no more favorable
to the offeror than the confidentiality agreement between National
Grid Group and Niagara Mohawk.
Niagara Mohawk must promptly notify National Grid Group of the receipt
of any alternative acquisition proposal, the material terms and conditions of
any such proposal, the identity of the person making the proposal, and the
status and details of any such request or proposal. If Niagara Mohawk decides to
accept the acquisition proposal, it must give National Grid Group five business
days' written notice of its intent to accept. In addition, Niagara Mohawk and
its financial and legal advisors must give National Grid Group a reasonable
opportunity to adjust the terms of the merger agreement so that the parties can
proceed with the merger and negotiate in good faith with National Grid Group
with respect to any such adjustments. Concurrently with the termination of the
merger agreement, Niagara Mohawk must also pay required termination fees (see
"--Termination").
Indemnification
For a period of six years following the Merger Effective Time, with
respect to persons who were or become employees, officers or directors of
Niagara Mohawk or its subsidiaries before the Merger Effective Time or, if
applicable, the Scheme Effective Time, with respect to persons who were or
become employees, officers or directors of National Grid Group before the Scheme
Effective Time:
o New National Grid shall, at New National Grid's election, either
maintain the current directors' and officers' liability insurance
policies of National Grid Group or Niagara Mohawk, obtain new
policies on terms no less favorable than the terms of the current
insurance coverage, or provide tail coverage for persons currently
covered by such policies on terms no less favorable than the terms
of the current insurance coverage.
o To the fullest extent permitted by law, the indemnification
provisions in the charters, by-laws and similar governing documents
of National Grid Group or Niagara Mohawk and its subsidiaries, will
survive the merger and remain in effect with respect to activities
of the officers, directors, employees and agents of the companies
prior to the Merger Effective Time or the Scheme Effective Time, as
applicable.
In addition, to the extent such persons are not otherwise indemnified,
New National Grid has agreed to the fullest extent permitted under applicable
law and its governing documents, to indemnify, defend and hold harmless each
present and former director, officer and employee of Niagara Mohawk or National
Grid Group, as applicable (or any of its subsidiaries) against (i) all losses,
expenses, claims, damages or liabilities or amounts paid in settlements arising
out of actions or omissions occurring at or prior to the Merger Effective Time,
with respect to Niagara Mohawk, and at or prior to the Scheme Effective Time,
with respect to National Grid Group, that arise in whole or in part out of the
fact that such person was a director, officer or employee of Niagara Mohawk or
National Grid Group, as applicable (or any of its subsidiaries); and (ii) any
losses to the extent they are based on or relate to the transactions
contemplated by the merger agreement. Subject to certain conditions, the
surviving corporation will pay for counsel for the indemnified parties and shall
cooperate in the indemnified party's defense, but it will not be liable for any
settlement effected without its written consent.
Corporate Governance Matters
National Grid Board. New National Grid agreed to take all actions
necessary to appoint all members serving on the National Grid Group board of
directors immediately prior to the Merger Effective Time, the current Chief
Executive Officer of Niagara Mohawk and one additional outside director of the
board of directors of Niagara Mohawk, as determined by National Grid Group, to
serve on the New National Grid board of directors following the Merger Effective
Time.
Advisory Board. Promptly following the Merger Effective Time, New
National Grid agreed to cause the surviving entity in the merger to establish an
advisory board which will be maintained for at least two years. The advisory
board will be comprised of up to 12 persons who were, immediately prior to the
Merger Effective Time, serving as non-executive members of Niagara Mohawk's
board of directors, who are not appointed to serve on the New National Grid
board of directors and who are willing to serve in such capacity on the advisory
board. The function of the advisory board will be to advise the surviving
entity's board of directors with respect to general business as well as
opportunities and activities in the State of New York and to maintain and
develop customer relationships in the State of New York. The board will meet at
least three times a year.
National Grid USA Board. For a period of two years after the Merger
Effective Time, the current Chief Executive Officer of Niagara Mohawk shall
serve as Chairman of the board of directors of National Grid USA and two other
current executive officers of Niagara Mohawk as determined by National Grid
Group will serve on the board of directors of National Grid USA.
Workforce and Employee Benefit Matters
New National Grid will honor or will cause the appropriate subsidiary
to honor all collective bargaining agreements in effect at the Merger Effective
Time until their expiration and assume all rights and obligations under those
agreements.
Subject to compliance with applicable laws and obligations under
applicable collective bargaining agreements, for a period of two years following
the Merger Effective Time:
o reductions in workforce, if any, in respect of US employees of New
National Grid and its subsidiaries will be made on a fair and
equitable basis, as determined by New National Grid, and any US
employees whose employment is terminated or job is eliminated during
such period will have a right to participate on a fair and equitable
basis in the job opportunity and placement programs offered by New
National Grid or any of its subsidiaries for which these US
employees are eligible; and
o workforce reductions, if any, carried out by the surviving entity
will be done in accordance with all applicable collective bargaining
agreements, and all laws governing the employment relationship and
its termination, including the Worker Adjustment and Retraining
Notification Act and regulations thereunder, and any similar state
or local law.
Under the merger agreement, employee benefit plans will be treated in
the following manner:
o New National Grid or its subsidiaries will provide for two years
after the day of the completion of the merger, compensation,
benefits and coverage to current employees and retirees of Niagara
Mohawk or its subsidiaries, other than those covered by a collective
bargaining agreement, who continue employment with New National Grid
or its subsidiaries, that are no less favorable in the aggregate
than those provided to such employees and retirees immediately prior
to the merger;
o New National Grid and the surviving entity and its other
subsidiaries will honor all obligations to current and former
officers of Niagara Mohawk or its subsidiaries, and to their
beneficiaries, under employment agreements and benefit plans, and
assume all other obligations under employment, severance, consulting
and retention agreements or arrangements and benefit plans;
o the compensation, benefits and coverage provided to employees who
are covered by a collective bargaining agreement will continue to be
provided under the terms of that agreement;
o with some exceptions and modifications, New National Grid or its
subsidiaries will provide severance benefits that are equivalent to
those provided to employees of Niagara Mohawk and its subsidiaries
(other than with respect to employees covered by a collective
bargaining agreement) on the date of the merger agreement to such
employees who continue employment with New National Grid or its
subsidiaries, if their employment is terminated within 24 months
after the merger;
o employees and retirees of Niagara Mohawk or its subsidiaries, other
than employees covered by a collective bargaining agreement, who
continue employment with New National Grid or its subsidiaries will
receive full credit for all service with Niagara Mohawk or its
subsidiaries, to the same extent as their service was credited by
Niagara Mohawk or its subsidiaries, for purposes of eligibility,
vesting, accrual of benefits and determination of the level of
benefits in any benefit plan or arrangement of New National Grid or
its subsidiaries (exceptions apply if their credit would provide
duplication of benefits or if New National Grid or its subsidiaries
establish certain non-replacement plans or arrangements after the
merger);
o New National Grid or its subsidiaries generally will, with respect
to any welfare benefit plan of New National Grid or its subsidiaries
in which continuing employees other than those covered by a
collective bargaining agreement may be eligible to participate after
the completion of the merger, (1) waive for such employees all
limitations as to preexisting conditions, exclusions and waiting
periods, other than limitations or waiting periods that are already
in effect and (2) provide those employees with credit for any
co-payments and deductibles paid prior to the completion of the
merger in satisfying applicable credit or out-of-pocket
requirements;
o except as may be limited by any applicable law or collective
bargaining agreement, New National Grid and its subsidiaries may
elect to merge or replace Niagara Mohawk's benefit plans,
agreements, or arrangements into or with those of New National Grid
or its subsidiaries; and
o Niagara Mohawk has agreed to use its reasonable efforts to take all
necessary actions to have each stock option outstanding pursuant to
Niagara Mohawk's 1992 Stock Option Plan, whether or not then
exercisable, cancelled and exchanged for an amount in cash from
Niagara Mohawk equal to the result of multiplying (1) the number of
shares of Niagara Mohawk common stock previously subject to the
option by (2) the excess of the merger consideration over the per
share exercise price of the option.
Conditions to Completion of the Merger
Conditions to Each Party's Obligations to Effect the Merger. Unless
waived in writing, the obligations of the parties to complete the merger are
subject to satisfaction of the following conditions:
o the shareholders of Niagara Mohawk have adopted the merger agreement
and the shareholders of National Grid Group have approved the
merger;
o no court of competent jurisdiction or other governmental authority
has enacted, promulgated, enforced or entered any law or order
(whether temporary, preliminary or permanent) that has the effect of
making illegal or otherwise restricting or prohibiting completion of
the scheme of arrangement, the merger or related transactions;
o the proxy/registration statement has been declared effective and the
SEC has not taken or threatened any prohibitory action;
o the UK Listing Authority has agreed to admit to its Official List
the ordinary shares represented by the ADSs to be issued in the
merger and the ordinary shares to be issued pursuant to the scheme
of arrangement and such agreement has not been withdrawn, and the
ADSs to be issued in the merger have been approved for listing, upon
official notice of issuance, on the New York Stock Exchange;
o the sale by Niagara Mohawk of its nuclear facilities has closed and
conforming license amendments have been issued by the Nuclear
Regulatory Commission to reflect the change in ownership, or
National Grid Group and Niagara Mohawk have agreed to an alternative
to the sale, with respect to which all required approvals (which
will include approvals by the US Nuclear Regulatory Commission, the
New York Public Service Commission and other regulatory bodies) and
any necessary conforming license amendments have been received;
o the parties have obtained the required statutory approvals from
agencies, including a confirmation from the New York Public Service
Commission that PowerChoice will remain in effect in accordance with
its terms in all material respects following completion of the
merger (see "The Merger--Regulatory Matters" below) which have
become final orders as required in the merger agreement; and
o the applicable waiting periods under the Hart Scott Rodino ("HSR")
Act have expired or have been terminated.
Conditions to the Obligations of New National Grid and National Grid
Group. The obligations of New National Grid and National Grid Group are also
subject to satisfaction of the following conditions:
o Niagara Mohawk has performed, in all material respects, those
agreements and covenants in the merger agreement required to be
performed by Niagara Mohawk at or prior to the Merger Effective
Time;
o the representations and warranties of Niagara Mohawk contained in
the merger agreement are true and correct as of the date of the
merger agreement and, subject to certain exceptions, as of the day
of the closing of the merger, unless any failure of the
representations and warranties to be true and correct could not
individually or in the aggregate be reasonably expected to result in
a material adverse effect on the business of Niagara Mohawk;
o New National Grid and National Grid Group have received a
certificate from the chief financial officer of Niagara Mohawk
stating that the above conditions have been satisfied;
o Niagara Mohawk has obtained certain consents as required in the
merger agreement;
o Niagara Mohawk has obtained certain agreements executed by its
"affiliates" (as the term is defined under the Securities Act) as
provided in the merger agreement;
o New National Grid and National Grid Group have received a
satisfactory written opinion from PricewaterhouseCoopers opining,
among other things, that the merger, together with the scheme of
arrangement, will constitute a transaction described in Section 351
of the Code; and no gain or loss will be recognized by New National
Grid or National Grid Group as a result thereof;
o New National Grid and National Grid Group have received all
necessary licenses, permits and other governmental approvals
necessary to be transferred or issued to New National Grid and
National Grid Group in order for it to continue business operations
of Niagara Mohawk and its subsidiaries; and
o the High Court of Justice in London, England, has sanctioned the
scheme of arrangement on terms contemplated by the merger agreement,
and the scheme of arrangement has been approved by National Grid
Group shareholders.
Conditions to Obligations of Niagara Mohawk. The obligations of Niagara
Mohawk are also subject to satisfaction of the following conditions:
o National Grid Group and New National Grid have performed, in all
material respects, those agreements and covenants in the merger
agreement required to be performed by National Grid Group and New
National Grid at or prior to the Merger Effective Time;
o the representations and warranties of National Grid Group, New
National Grid and Grid Delaware, Inc. contained in the merger
agreement are true and correct as of the date of the merger
agreement and, subject to certain exceptions, as of the day of the
completion of the merger, unless any failure of the representations
and warranties to be true and correct could not individually or in
the aggregate be reasonably expected to result in a material adverse
effect on the business of National Grid Group;
o Niagara Mohawk has received a certificate from the chief financial
officer of National Grid Group and New National Grid stating that
the above conditions have been satisfied;
o National Grid Group and New National Grid have obtained certain
consents as required in the merger agreement unless the failure to
obtain such consents could not reasonably be expected to have a
material adverse effect on National Grid Group or Niagara Mohawk;
o Niagara Mohawk has received a satisfactory written opinion from
Bryan Cave LLP opining, among other things, that the merger,
together with the scheme of arrangement, will constitute a
transaction described in Section 351 of the Code, and no gain or
loss will be recognized by Niagara Mohawk pursuant to the merger,
and no gain or loss will be recognized by Niagara Mohawk
shareholders who receive solely ADSs pursuant to the merger; and
o Niagara Mohawk has received an opinion from CMS Cameron McKenna,
substantially to the effect that the New National Grid ordinary
shares represented by the ADSs to be issued in the merger will be
validly issued and fully paid.
Termination
Conditions to Termination. National Grid Group, New National Grid and
Niagara Mohawk have the right to terminate the merger agreement prior to the day
of the completion of the merger, whether before or after the shareholders have
approved the transaction, by mutual written consent of the boards of directors.
Both National Grid Group and Niagara Mohawk also have the right to terminate the
merger agreement under the following circumstances:
o if any state or federal law, order, rule or regulation prohibits the
merger (such determination must be supported by an opinion of
outside counsel) or if any court or government authority issues a
nonappealable final order or other permanent action restraining,
enjoining or otherwise prohibiting the merger;
o upon written notice to the other parties, if the merger has not been
completed by December 31, 2001, so long as the delay has not been
caused by a failure of the party seeking termination to fulfill its
obligations under the merger agreement. If all closing conditions
are satisfied or able to be satisfied on December 31, 2001, other
than receipt of the required statutory approvals and/or the sale or
other arrangement relating to Niagara Mohawk's nuclear facilities,
to the extent conditions with respect to Niagara Mohawk's nuclear
facilities remain open, Niagara Mohawk has either entered into a
definitive agreement for the sale of its nuclear facilities or
satisfactory alternative arrangements with respect to these
facilities have been reached by the parties, the relevant date for
termination will be extended to March 31, 2002. If all closing
conditions other than receipt of approvals for the sale of Niagara
Mohawk's nuclear facilities are satisfied or able to be satisfied on
March 31, 2002 and the definitive agreement or other arrangement for
the sale of these facilities remains in effect, the date for
termination will be extended to August 31, 2002;
o upon written notice to the other party, if the shareholders of such
party do not approve the merger agreement at their duly held
shareholder meeting;
o by Niagara Mohawk, prior to its shareholders' adoption of the merger
agreement and approval of related transactions, if Niagara Mohawk
receives a third-party proposal about another merger, sale of
substantial assets, sale of 10% or more of Niagara Mohawk's or any
of its material subsidiaries capital stock or other business
combination, in response to which Niagara Mohawk's board of
directors determines, based on the written opinion of outside
counsel, that the board's fiduciary duties under applicable law
require it to accept such proposal in order to act consistently with
the fiduciary duties of its members, and concludes in good faith
(based on written advice of its financial advisors) that the person
or group making the alternative proposal has adequate sources of
financing to consummate it and that such proposal is materially more
favorable to Niagara Mohawk shareholders than the merger; provided
that before Niagara Mohawk may terminate the merger agreement:
(1) Niagara Mohawk must give National Grid Group five business
days' written notice of its intent to accept the alternative
acquisition proposal (notice must also specify its material
terms and identify the person making the proposal);
(2) Niagara Mohawk and its financial and legal advisors must give
National Grid Group a reasonable opportunity during this five
business days' period to make any adjustments in the terms of
the merger agreement that would allow Niagara Mohawk to proceed
with the merger, and must negotiate in good faith with National
Grid Group towards adjusting the merger agreement so as to
enable the merger to proceed; and
(3) Niagara Mohawk must pay to National Grid Group the termination
fee of $150 million plus National Grid Group's out-of-pocket
expenses due up to $10 million if it enters into a transaction
with the offeror of the alternative acquisition proposal; or
o upon written notice to the other party if:
(1) the other party has materially breached a covenant,
representation or warranty, and the breach remains uncured 20
days after written notice was given;
(2) the other party's board of directors withdraws or modifies, in
a manner adverse to the terminating party, its approval or
recommendation to its shareholders regarding approval of the
merger agreement, the merger or the scheme of arrangement (if
it remains part of the transaction structure); or
(3) New National Grid fails to deliver the consideration to be paid
in connection with the merger to the Depositary, while all
other conditions to New National Grid's obligations have been
either satisfied or waived.
Effect of Termination. If the merger agreement is terminated, there
will be no liability on the part of National Grid Group, Niagara Mohawk or any
of their affiliates, directors, officers or shareholders, except as otherwise
provided in the merger agreement and as described below under "--Termination
Fees." Nothing, however, will relieve any party from liability for a breach of
the merger agreement.
Termination Fees.
o If a party terminates the merger agreement because the other party's
board of directors withdraws or modifies its recommendation to its
shareholders before their approval the other party will be obligated
to pay a termination fee of $150 million and also pay in cash to the
terminating party all documented out-of-pocket expenses and fees
incurred by the terminating party, up to $10 million.
o If a party terminates the merger agreement because the other party
willfully materially breaches a representation, warranty, covenant
or agreement under the merger agreement, the non-breaching
terminating party may recover appropriate amounts at law or in
equity available to that party.
o If Niagara Mohawk terminates the merger agreement because its board
of directors determines that their fiduciary duties make it
necessary to accept an alternative acquisition proposal (as
described above), Niagara Mohawk will pay in cash to National Grid
Group a termination fee equal to $150 million in addition to any
amounts that have already been paid to National Grid Group in
respect of out-of-pocket expenses and fees up to $10 million.
o Additionally, in certain other circumstances Niagara Mohawk may be
required to pay to National Grid Group a termination fee of $150
million (plus any amounts to be paid to National Grid Group in
respect of out-of-pocket expenses and fees up to $10 million).
Specifically, the termination fee will be payable if the merger
agreement is terminated while an alternative acquisition proposal is
outstanding, on the basis of a material breach by Niagara Mohawk of
any representation, warranty, covenant or agreement under the merger
agreement, a failure to seek or obtain the requisite shareholder
approval, or a failure to complete the merger by December 31, 2001
(or the applicable later dates in the circumstances described above)
and if Niagara Mohawk enters into a transaction with the offeror of
the alternative acquisition proposal within two years after
termination of the merger agreement (or within one year if the
termination was solely the result of failure to complete the sale of
Niagara Mohawk's nuclear facilities).
Amendment and Waiver
Amendment. The parties to the merger agreement may amend the agreement
by action taken by their boards of directors at any time before Niagara Mohawk
shareholders and National Grid Group shareholders have approved the merger
agreement at their meetings and before the Merger Effective Time. After the
shareholders of either party have approved the merger agreement, however, an
amendment may be made only to the extent permitted by applicable law.
Waiver. At any time prior to the Merger Effective Time, the parties
may:
o extend the time for performance of acts or obligations of the other
parties;
o waive inaccuracies in the representations and warranties of the
other parties; and
o waive compliance with agreements or conditions contained in the
merger agreement, to the extent permitted by applicable law.
Regulatory Matters
Before the merger and the scheme of arrangement are completed, we must
obtain a number of regulatory approvals. National Grid Group, New National Grid
and the Niagara Mohawk are not aware of any material governmental consents,
approvals or clearances that are required prior to the parties' consummation of
the merger or the scheme of arrangement, other than those described below. It is
presently contemplated that if any additional governmental consents, approvals
or clearances are required, they will be sought.
It is a condition to the completion of the merger that final orders
approving the merger and the scheme of arrangement, if appropriate, be obtained
from the various federal, state and foreign regulators described below. Under
the merger agreement, each party has agreed to use its best efforts to obtain
all governmental authorizations necessary or advisable to complete or effect the
transactions contemplated by the merger agreement. Various parties may seek
intervention in these proceedings to oppose the merger or to have conditions
imposed upon the receipt of necessary approvals. While there can be no assurance
that the consents, approvals and clearances described below or any additional
consents, approvals or clearances will be obtained on satisfactory terms, the
directors of New National Grid, National Grid Group and Niagara Mohawk believe
that the necessary approvals can be obtained by late 2001.
HSR Act
The merger is subject to the requirements of the HSR Act and the rules
and regulations thereunder, which provide that certain acquisition transactions
may not be completed until certain information has been furnished to the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the Federal Trade Commission (the "FTC") and until certain waiting periods have
been terminated or have expired. The expiration or earlier termination of the
HSR Act waiting period would not preclude the Antitrust Division or the FTC from
challenging the merger on antitrust grounds. If the merger is not completed
within 12 months after the expiration or earlier termination of the initial HSR
Act waiting period, New National Grid, National Grid Group and Niagara Mohawk
would be required to submit new information to the Antitrust Division and the
FTC, and a new HSR Act waiting period would have to expire or be earlier
terminated before the merger could be completed. New National Grid, National
Grid Group and Niagara Mohawk intend to file their premerger notifications in
the first half of 2001.
Federal Power Act
Section 203 of the Federal Power Act (the "FPA") provides that no
public utility may sell or otherwise dispose of its facilities subject to the
jurisdiction of the Federal Energy Regulatory Commission or, directly or
indirectly, merge or consolidate such facilities with those of any other person
or acquire any security of any other public utility without first having
obtained authorization from the Federal Energy Regulatory Commission. Because
this transaction involves a change in ownership and control of Niagara Mohawk's
public utility subsidiary, the prior approval of the Federal Energy Regulatory
Commission under FPA Section 203 is required in order to complete the merger. In
addition, because the scheme of arrangement technically involves a change of
control over National Grid Group's existing public utility subsidiaries to New
National Grid, the scheme of arrangement also requires approval of the Federal
Energy Regulatory Commission as a merger transaction under Section 203 of the
FPA.
Under Section 203 of the FPA, the Federal Energy Regulatory Commission
is directed to approve a merger if it finds such merger "consistent with the
public interest." In reviewing a merger, the Federal Energy Regulatory
Commission generally evaluates: (1) whether the merger will adversely affect
competition; (2) whether the merger will adversely affect rates; and (3) whether
the merger will impair the effectiveness of regulation. New National Grid,
National Grid Group and Niagara Mohawk believe the proposed merger and scheme of
arrangement satisfies these standards.
An application will be filed with the Federal Energy Regulatory
Commission requesting approval of the merger and the scheme of arrangement under
Section 203 of the FPA at the appropriate time.
Securities and Exchange Commission Approval Pursuant to the United States Public
Utility Holding Company Act of 1935
Section 9(a)(2) of the United States Public Utility Holding Company Act
of 1935 provides that it is unlawful, without the prior approval of the SEC, for
any person to acquire any security of any public utility company if that person
already owns 5% or more of the voting securities of another public utility
company, or will by virtue of that transaction come to own 5% or more of the
voting securities of two or more public utility companies. As a result of the
merger and the scheme of arrangement, New National Grid will be deemed to
acquire directly or indirectly all of the common shares of National Grid Group,
a registered public utility holding company that owns several public utility
company subsidiaries as well as the common shares of Niagara Mohawk and its
public utility subsidiary. Accordingly, New National Grid and National Grid
Group are required to obtain prior SEC approval under Section 9(a)(2) of the
United States Public Utility Holding Company Act of 1935 to complete the scheme
of arrangement and the merger. An application for approval of the merger and the
scheme of arrangement will be filed by New National Grid and National Grid Group
at the appropriate time.
Under the applicable standards of the United States Public Utility
Holding Company Act of 1935, the SEC is directed to approve a proposed
acquisition unless it finds that (1) the acquisition would tend towards
detrimental interlocking relations or a detrimental concentration of control,
(2) the consideration to be paid in connection with the acquisition is not
reasonable, (3) the acquisition would unduly complicate the capital structure of
the applicant's holding company system or would be detrimental to the proper
functioning of the applicant's holding company system, or (4) the acquisition
would violate applicable state law. In order to approve a proposed acquisition,
the SEC also must find that the acquisition would tend towards the development
of an integrated public utility system and would otherwise conform to the United
States Public Utility Holding Company Act of 1935's integration and corporate
simplification standards.
National Grid Group is currently a public utility holding company
registered under Section 5 of the United States Public Utility Holding Company
Act of 1935, and will continue to be a registered public utility holding company
subject to regulation as such upon completion of the merger and the scheme of
arrangement. If the scheme of arrangement is effected, New National Grid will
also register as a public utility holding company under Section 5 of the United
States Public Utility Holding Company Act of 1935 and become subject to
regulation thereunder as National Grid Group is currently. Niagara Mohawk is
currently a holding company exempt from all provisions of the United States
Public Utility Holding Company Act of 1935, including the registration
provisions, except Section 9(a)(2) (which is discussed above) because it and its
utility subsidiary are organized and doing business predominantly in a single
state, New York. Following the completion of the merger, Niagara Mohawk and its
subsidiaries will become subsidiaries of a registered holding company and will
be subject to regulation under the United States Public Utility Holding Company
Act of 1935.
Federal Communications Commission
The Federal Communications Commission must approve the transfer of
control of telecommunications permits or licenses. The Communications Act of
1934 prohibits the transfer, assignment or disposal in any manner of any
construction permit or station license, or any rights thereunder, to any person
without authorization from the Federal Communications Commission. In addition, a
carrier must obtain permission before acquisition or operation of new lines and
may not construct or extend a line, or transmit via such lines, without prior
Federal Communications Commission approval. Under the Communications Act, the
Federal Communications Commission will approve a transfer of control if it
serves the public convenience, interest and necessity. We will seek the
necessary approval from the Federal Communications Commission for the transfer
of control of licenses held by Niagara Mohawk and to amend licenses and tariffs
as appropriate.
State Regulatory Approvals
New York Public Service Commission
Under Section 70 of the New York State Public Service Law, the New York
Public Service Commission ("NYPSC") must approve the transfer of an electric
company's franchise, works or systems to another corporation. The NYPSC has
previously asserted jurisdiction over mergers of holding companies of public
utility corporations, even where there was no direct transfer of the franchise,
works or system of the New York utility, based upon the indirect change of
control. In reviewing proposed mergers, the NYPSC must determine whether the
transaction is in the public interest. Factors which may be considered include
ratepayer benefits, service quality and reliability, market power issues,
environmental impacts, affiliate transactions and the financial integrity of the
resulting corporation. We intend to seek necessary approval of the transaction
by the NYPSC under Section 70 or other applicable statutes at the appropriate
time.
New Hampshire Public Utility Commission
The New Hampshire Public Utility Commission ("NHPUC") must approve the
direct or indirect acquisition of more than 10% of the stock or bonds of a
public utility or public utility holding company doing business in the state
under Section 374:33 of the New Hampshire Revised Statutes Annotated ("RSA").
The scheme of arrangement may require approval of the NHPUC under RSA 374:33
because of the indirect transfer of control of Granite State Electric Company, a
subsidiary of National Grid USA, to New National Grid. Under RSA 369:8, approval
is not required for a merger of a parent company of a public utility where the
public utility certifies that the transaction will not have an adverse effect on
the rates, terms, service or operations of the New Hampshire public utility and
the NHPUC does not challenge the certification. If the NHPUC does challenge the
utility's certification of no adverse effect within 30 days of the filing, the
utility may amend its initial certification. If after reviewing the amended
certification, the NHPUC still challenges the certification, the utility must
review the proposed merger under RSA 374:33. The transaction may be approved
under RSA 374:33 where the NHPUC determines that there will be no net harm to
New Hampshire customers. If the NHPUC takes no action within 60 days after the
public utility's filing of certification of no adverse effect, then the
transaction is considered approved as filed. We intend to seek a waiver of any
necessary approvals from the NHPUC based upon a certification that the
transaction will not have an adverse effect within the state.
Vermont Public Service Board
Under Section 107 of Title 30 of the Vermont Statutes Annotated, the
Vermont Public Service Board ("VPSB") must approve the direct or indirect
acquisition of a controlling interest in a company subject to the jurisdiction
of the VPSB, or in a company which has the controlling interest in the
jurisdictional company. Because New England Power Company ("NEP"), a subsidiary
of National Grid USA, operates facilities in Vermont, and is subject to the
VPSB's jurisdiction, the scheme of arrangement will require VPSB approval for
the indirect change of control of NEP. The VSPB may approve the acquisition
based upon a finding that the transaction will promote the public good and has
discretionary authority to waive formal hearings. We will file for all necessary
approvals from the VPSB at the appropriate time.
Connecticut Department of Public Utility Control
The Connecticut Department of Public Utility Control ("CDPUC") must
approve the direct or indirect merger or consolidation of a Connecticut public
service company under Section 16-43 of the Connecticut General Statutes ("CGS").
Because NEP is a public service company under Connecticut law by virtue of its
ownership of the Millstone Unit III nuclear facility, the transaction may
require approval by the CDPUC in the event the pending sale of NEP's interest in
Millstone Unit III has not closed.
UK Governmental Approval
The UK Secretary of State for Trade and Industry holds a special share
in National Grid Group. National Grid Group cannot undertake certain
transactions, including the scheme of arrangement, without his prior written
consent. National Grid Group will seek consent to implement the scheme of
arrangement from the Secretary of State for Trade and Industry.
<PAGE>
SCHEME OF ARRANGEMENT
The board of directors of National Grid Group intends to recommend to
National Grid Group shareholders a proposal to introduce a new holding company
for National Grid Group. The holding company structure will be effected through
a scheme of arrangement which must be sanctioned by the High Court in London,
England and approved by National Grid Group's shareholders. Under the scheme of
arrangement, New National Grid will issue one share in New National Grid in
exchange for each outstanding National Grid Group share. As a result, New
National Grid will become the holding company for National Grid Group. National
Grid Group expects that the special share in National Grid Group will be
cancelled and that New National Grid will issue a special share to the holder of
the National Grid Group special share.
In addition, ordinary shares of New National Grid will be listed for
trading on the London Stock Exchange, New National Grid ADSs will be listed for
trading on The New York Stock Exchange and New National Grid will be subject to
the registration and information requirements of the US securities laws.
The rights attaching to New National Grid ordinary shares will be
substantially the same as those currently attaching to National Grid Group
ordinary shares. Thus, after the scheme of arrangement is implemented (but
before completion of the merger), holders of New National Grid Group ordinary
shares will have their interest in National Grid Group replaced by an equivalent
proportionate interest in New National Grid and, subject to the effect of
exercise of options to subscribe for National Grid Group shares granted under
National Grid Group share schemes, their proportionate interests in the profits,
net assets and dividends in the National Grid Group will not be affected.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
Introductory note
The following Unaudited Pro Forma Condensed Combined Financial
Information gives pro forma effect to the acquisition of National Grid USA
(formerly New England Electric System) and the proposed acquisition of Niagara
Mohawk, after giving effect to the pro forma adjustments described in the
accompanying notes. The Unaudited Pro Forma Condensed Combined Financial
Information does not include the results, assets and liabilities of Eastern
Utilities Associates (EUA), which was acquired by National Grid Group on April
19, 2000 for a cash consideration of $643 million. The EUA acquisition has not
been included on the grounds that this acquisition does not constitute a
significant transaction.
The Unaudited Pro Forma Condensed Combined Financial Information has
been prepared from, and should be read in conjunction with, the respective
historical consolidated accounts and notes thereto of National Grid Group,
National Grid USA and Niagara Mohawk, which are incorporated by reference in
this proxy statement/prospectus.
The Unaudited Pro Forma Condensed Financial Information is provided for
illustrative purposes only and does not purport to represent what the actual
results of operations or the financial position of the Combined Group,
comprising National Grid Group, National Grid USA and Niagara Mohawk, would have
been had the acquisitions of National Grid USA and Niagara Mohawk occurred on
the dates assumed, nor is it necessarily indicative of the Combined Group's
future operating results or combined financial position. No account has been
taken within the Unaudited Pro Forma Condensed Combined Financial Information of
any synergies (including cost savings) or any severance and restructuring costs,
which have or are expected to occur following the acquisition of National Grid
USA and the proposed acquisition of Niagara Mohawk.
Following the acquisition of National Grid USA on March 22, 2000 for a
cash consideration of (pound)2,070.8 million (see note 7 (a) to the Unaudited
Pro Forma Condensed Combined Financial Information), National Grid Group applied
the acquisition method of accounting under UK GAAP and similarly intends to
account for the proposed acquisition of Niagara Mohawk using this method. In
addition, both acquisitions qualify for the purchase method of accounting under
US GAAP and the Unaudited Pro Forma Condensed Combined Financial Information has
been prepared on this basis. For the purposes of the acquisition method of
accounting under UK GAAP and the purchase method of accounting under US GAAP,
National Grid Group is treated as the acquiring entity and National Grid USA and
Niagara Mohawk are treated as the entities being acquired.
As described in note 3 to the Unaudited Pro Forma Condensed Combined
Financial Information, adjustments have been made to the historical consolidated
accounts of National Grid USA and Niagara Mohawk to reflect reclassifications to
conform with National Grid Group's presentation under UK GAAP.
The historical accounts of National Grid USA and Niagara Mohawk have
been prepared in accordance with US GAAP. For the purpose of presenting the
Unaudited Pro Forma Condensed Combined Financial Information, financial
information relating to National Grid USA and Niagara Mohawk has been adjusted
to conform with National Grid Group's accounting policies under UK GAAP as
described in note 6 to the Unaudited Pro Forma Condensed Combined Financial
Information.
The historical accounts of National Grid USA and Niagara Mohawk are
presented in US dollars. For the purposes of presenting the Unaudited Pro Forma
Condensed Combined Financial Information the adjusted income statements of
National Grid USA and Niagara Mohawk in respect of the year ended December 31,
1999 have been translated into pounds sterling at the average Noon Buying Rate
for the year ended December 31, 1999, and the adjusted balance sheet of Niagara
Mohawk at December 31, 1999 has been translated into pounds sterling at the Noon
Buying Rate on December 31, 1999 (see note 3 to the Unaudited Pro Forma
Condensed Combined Financial Information).
The pro forma acquisition accounting adjustments reflected in the
accompanying Unaudited Pro Forma Condensed Combined Financial Information, and
described in note 7 to the Unaudited Pro Forma Condensed Combined Financial
Information, reflect estimates made by National Grid Group's management and
assumptions that it believes to be reasonable. Actual amounts will differ from
those reflected in the Unaudited Pro Forma Condensed Combined Financial
Information.
In exchange for each share of Niagara Mohawk common stock, Niagara
Mohawk shareholders will receive consideration of $19.00 per Niagara Mohawk
common share, if the Average Price is between $32.50 and $51.00. In the event
that the Average Price is greater than $51.00, the per share consideration
received by Niagara Mohawk shareholders will increase by two-thirds of the
percentage of the increase in value over $51.00. In the event that the Average
Price is less than $32.50, the per share consideration received by Niagara
Mohawk shareholders will decrease by two-thirds of the percentage of the
decrease in value below $32.50. Niagara Mohawk shareholders can elect to receive
their consideration either in cash or ADSs, or a combination of both, subject to
the aggregate cash consideration paid being $1.015 billion. If cash elections
received from Niagara Mohawk shareholders exceed $1.015 billion, National Grid
Group has the option to increase the cash component of the consideration. See
note 7(b) to the Unaudited Pro Forma Condensed Combined Financial Information
for details of the purchase consideration assumed for the purpose of calculating
the acquisition adjustments.
The Unaudited Pro Forma Condensed Combined Financial Information has
been prepared in accordance with UK GAAP which differs in certain significant
respects from US GAAP. Note 8 to the Unaudited Pro Forma Condensed Combined
Financial Information provides a description of the significant differences
between UK and US GAAP, as they relate to National Grid Group. A reconciliation
of the pro forma net income and pro forma shareholders' funds to US GAAP is
included in note 9 to the Unaudited Pro Forma Condensed Combined Financial
Information.
<PAGE>
Unaudited Pro Forma Condensed Combined Income Statement
for the year ended March 31, 2000
The following Unaudited Pro Forma Condensed Combined Income Statement
for the year ended March 31, 2000 is derived from the audited historical
consolidated profit and loss account of National Grid Group for the year then
ended and the audited historical statements of consolidated income of National
Grid USA and Niagara Mohawk for the year ended December 31, 1999, after giving
effect to the pro forma adjustments described in notes 1 to 7 to the Unaudited
Pro Forma Condensed Combined Financial Information. Such adjustments have been
determined as if the acquisition of National Grid USA and Niagara Mohawk took
place on April 1, 1999, the first day of National Grid Group's financial year
ended March 31, 2000. The Unaudited Pro Forma Condensed Combined Financial
Information has been prepared from, and should be read in conjunction with and
supplemental to, the respective historical consolidated accounts and notes
thereto of National Grid Group, National Grid USA and Niagara Mohawk, which are
incorporated by reference in this proxy statement/prospectus.
<PAGE>
Unaudited Pro Forma Condensed Combined Income Statement
for the year ended March 31, 2000 (continued)
<TABLE>
Acquisition adjustments
National Grid Niagara Mohawk
Group National year ended
year ended Grid USA December 31, National Grid Niagara
March 31, 2000 partial year 1999 USA Mohawk Combined Group
UK GAAP UK GAAP UK GAAP UK GAAP UK GAAP Pro forma
(Note 1) (Note 2) (Note 2) (Note 7(a)) (Note 7(b)) UK GAAP
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Group turnover 1,614.7 1,309.8 2,521.1 - - 5,445.6
Operating costs (1,042.6) (1,095.6) (2,207.7) (42.4) 27.7 (4,360.6)
----------- ----------- ----------- ----------- ----------- -----------
Operating profit 572.1 214.2 313.4 (42.4) 27.7 1,085.0
Share of joint ventures' and
associate's operating
(loss)/profit (33.5) 6.2 4.1 - - (23.2)
----------- ----------- ----------- ----------- ----------- -----------
Total operating profit
- Before goodwill amortization 546.5 219.3 317.5 - - 1,083.3
- Goodwill amortization (7.9) 1.1 - (42.4)(i) 27.7(i) (21.5)
538.6 220.4 317.5 (42.4) 27.7 1,061.8
Exceptional item (Note 4(a)) 1,027.3 - - - - 1,027.3
Net interest (64.9) (45.6) (311.6) (135.4)(ii) (50.2)(ii) (607.7)
----------- ----------- ----------- ----------- ----------- -----------
Profit on ordinary activities
before taxation 1,501.0 174.8 5.9 (177.8) (22.5) 1,481.4
Taxation
- Excluding exceptional item (123.1) (60.5) (5.6) 40.6(ii) 15.1(ii) (133.5)
- Exceptional item (Note 4(a)) (229.5) - - - - (229.5)
(352.6) (60.5) (5.6) 40.6 15.1 (363.0)
----------- ----------- ----------- ----------- ----------- -----------
Profit on ordinary activities
after taxation 1,148.4 114.3 0.3 (137.2) (7.4) 1,118.4
Minority interests - - (22.8) - - (22.8)
----------- ----------- ----------- ----------- ----------- -----------
Profit for the year 1,148.4 114.3 (22.5) (137.2) (7.4) 1,095.6
=========== =========== =========== =========== =========== ===========
Basic earnings/(loss) per
ordinary/common share 78.0p 192.6p (12.1)p 64.6p
- Goodwill amortization 0.5p (1.9)p - 1.3p
- Exceptional item (54.2p) - - (47.0)p
Basic earnings/(loss) per
ordinary/ common share
excluding exceptional item ----------- ----------- ----------- -----------
and goodwill amortization 24.3p 190.7p (12.1)p 18.9p
=========== =========== =========== ===========
Diluted earnings/(loss) per
ordinary/common share 73.4p 192.1p (12.1)p 61.4p
- Goodwill amortization 0.5p (1.8)p - 1.2p
- Exceptional item (50.1)p - - (43.9)p
Diluted earnings/(loss) per
ordinary/common share
excluding exceptional item ----------- ----------- ----------- -----------
and goodwill amortization 23.8p 190.3p (12.1)p 18.7p
=========== =========== =========== ===========
Weighted average number of
shares in issue (millions of
shares)
- Basic 1,472.9 59.4 186.7 223.7(i) 1,696.6
- Diluted 1,593.3 59.5 186.7 223.7(i) 1,817.0
</TABLE>
<PAGE>
Unaudited Pro Forma Condensed Combined Balance Sheet
at March 31, 2000
The following Unaudited Pro Forma Condensed Combined Balance Sheet at
March 31, 2000 is derived from the audited historical consolidated balance sheet
of National Grid Group at March 31, 2000 and the audited historical consolidated
balance sheet of Niagara Mohawk at December 31, 1999, and has been prepared to
reflect the acquisition of Niagara Mohawk after giving effect to the pro forma
adjustments described in notes 1 to 7 to the Unaudited Pro Forma Condensed
Combined Financial Information. The Unaudited Pro Forma Condensed Combined
Financial Information has been prepared from, and should be read in conjunction
with and supplemental to, the respective historical consolidated accounts and
notes thereto of National Grid Group and Niagara Mohawk, which are incorporated
by reference in this proxy statement/prospectus.
<PAGE>
Unaudited Pro Forma Condensed Combined Balance Sheet
at March 31, 2000 (continued)
<TABLE>
National Grid Niagara Mohawk Acquisition Combined Group
Group at March at December 31, 1999 adjustments Pro forma
31, 2000
UK GAAP US GAAP Adjustments UK GAAP UK GAAP UK GAAP
(Note 1) (Note 3) (Note 5) (Note 7(b))
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed assets
Intangible assets - positive 844.7 - - - - 844.7
goodwill
Intangible assets - negative - - - - (553.5)(i) (553.5)
goodwill
Tangible assets 4,938.3 3,643.6 218.0(vi ) 3,861.6 - 8,799.9
Investments
Joint ventures
- Share of gross assets ------------ --------- ---------- ---------- ----------- -----------
- Share of gross liabilities 828.6 13.4 - 13.4 - 842.0
Investments in joint ventures (622.7) (7.7) - (7.7) - (630.4)
Investment in associate ------------ --------- ---------- ---------- ----------- -----------
Other investments 205.9 5.7 - 5.7 - 211.6
205.8 - - - - 205.8
107.3 233.1 - 233.1 - 340.4
------------ --------- ---------- ---------- ----------- -----------
519.0 238.8 - 238.8 - 757.8
------------ --------- ---------- ---------- ----------- -----------
6,302.0 3,882.4 218.0 4,100.4 (553.5) 9,848.9
------------ --------- ---------- ---------- ----------- -----------
Current assets
Stocks 29.3 85.8 - 85.8 - 115.1
Debtors (amounts falling due
within one year) 490.1 554.5 17.7(vii) 572.2 - 1,062.3
Debtors (amounts falling due
after one year) 798.3 3,129.9 351.3(viii) 3,481.2 - 4,279.5
Assets held for exchange 16.6 - - - - 16.6
Business held for resale 118.9 - - - - 118.9
Investments - 51.5 - 51.5 - 51.5
Cash and deposits 1,011.6 58.1 - 58.1 - 1,069.7
------------ --------- ---------- ---------- ----------- -----------
2,464.8 3,879.8 369.0 4,248.8 - 6,713.6
Creditors (amounts falling due
within one year)
Borrowings (669.0) (378.8) - (378.8) - (1,047.8)
Other creditors (1,192.1) (361.0) - (361.0) - (1,553.1)
------------ --------- ---------- ---------- ----------- -----------
(1,861.1) (739.8) - (739.8) - (2,600.9)
------------ --------- ---------- ---------- ----------- -----------
Net current assets 603.7 3,140.0 369.0 3,509.0 - 4,112.7
------------ --------- ---------- ---------- ----------- -----------
Total assets less current 6,905.7 7,022.4 587.0 7,609.4 (553.5) 13,961.6
liabilities
Creditors (amounts falling due
after more than one year)
Convertible bonds (469.0) - - - - (469.0)
Other borrowings (2,537.2) (3,067.4) - (3,067.4) (648.1)(ii) (6,252.7)
Other creditors (494.0) (346.4) - (346.4) - (840.4)
------------ --------- ---------- ---------- ----------- -----------
(3,500.2) (3,413.8) - (3,413.8) (648.1) (7,562.1)
Provisions for liabilities and
charges (461.4) (1,461.9) 30.3(ix) (1,431.6) - (1,893.0)
------------ --------- ---------- ---------- ----------- -----------
Net assets employed 2,944.1 2,146.7 617.3 2,764.0 (1,201.6) 4,506.5
============ ========= ========== ========== =========== ===========
Capital and reserves
Called up share capital 174.7 1.2 - 1.2 25.1(i)(iii) 201.0
Share premium account 274.7 1,572.0 - 1,572.0 (345.4)(i)(iii) 1,501.3
Treasury stock - (97.0) - (97.0) 97.0(iii) -
Profit and loss account 2,459.6 377.2 617.3(x) 994.5 (994.5)(iii) 2,459.6
Accumulated other comprehensive
income - (16.2) - (16.2) 16.2(iii) -
Shareholders' funds 2,909.0 1,837.2 617.3 2,454.5 (1,201.6) 4,161.9
------------ --------- ---------- ---------- ----------- -----------
Minority interests 35.1 309.5 - 309.5 - 344.6
------------ --------- ---------- ---------- ----------- -----------
2,944.1 2,146.7 617.3 2,764.0 (1,201.6) 4,506.5
============ ========= ========== ========== =========== ===========
</TABLE>
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information
Note 1: Financial information relating to National Grid Group
The financial information relating to National Grid Group in respect of
the year ended March 31, 2000 includes the results of National Grid USA from
March 22, 2000 (the date of acquisition) to March 31, 2000 and the assets and
liabilities relating to National Grid USA as at March 31, 2000.
Note 2: Financial information relating to National Grid USA and Niagara Mohawk
<TABLE>
---------------------------------------------------- ------------------------------------------
National Grid USA Niagara Mohawk
period
March 22,
2000 to
March 31, partial year
year ended December 31, 1999 2000 UK GAAP year ended December 31, 1999
US GAAP Adjustments UK GAAP (Note 4(b)) US GAAP Adjustments UK GAAP
(Notes 3 and 4(b)) (Note 5) (Note 4(b)) 4(c)) (Note 3 and 4(c)) (Note 5) (Note 4(c))
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C> <C> <C> <C> <C> <C>
Group turnover 1,346.0 - 36.2 1,309.8 2,521.1 - 2,521.1
Operating costs (1,129.0) -(i) (33.4) (1,095.6) (2,206.9) (0.8)(i) (2,207.7)
--------- --------- --------- --------- ---------- ------- ---------
Operating profit 217.0 - 2.8 214.2 314.2 (0.8) 313.4
Share of joint ventures' 1.8 4.6(ii) 0.2 6.2 2.0 2.1(ii) 4.1
profit
Total operating profit
--------- --------- --------- --------- ---------- ------- ---------
-Before goodwill amortization 218.8 4.6 4.1 219.3 316.2 1.3 317.5
-Goodwill amortization - - (1.1) 1.1 - - -
--------- --------- --------- --------- ---------- ------- ---------
218.8 4.6 3.0 220.4 316.2 1.3 317.5
Net interest (40.9) (4.0)(iii) 0.7 (45.6) (311.2) (0.4)(iii) (311.6)
Profit on ordinary
activities before taxation 177.9 0.6 3.7 174.8 5.0 0.9 5.9
Taxation (68.8) 7.1(iv) (1.2) (60.5) (3.9) (1.7)(iv) (5.6)
--------- --------- --------- --------- ---------- ------- ---------
Profit on ordinary
activities after taxation 109.1 7.7 2.5 114.3 1.1 (0.8) 0.3
Minority interests - (0.2)(v) (0.2) - (22.8) - (22.8)
--------- --------- --------- --------- ---------- ------- ---------
Profit (loss) for the period 109.1 7.5 2.3 114.3 (21.7) (0.8) (22.5)
========= ========= ========= ========= ========== ======= =========
</TABLE>
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information (continued)
Note 3: Reclassifications and translation of financial information relating to
National Grid USA and Niagara Mohawk
National Grid USA and Niagara Mohawk present their accounts in
accordance with US GAAP and in US dollars.
Reclassifications have been made to the National Grid USA and Niagara
Mohawk historical financial information to conform to National Grid Group's
presentation under UK GAAP.
The results of National Grid USA and Niagara Mohawk have been
translated into pounds sterling at the average Noon Buying Rate of $1.62 to
(pound)1.00 for the year ended December 31, 1999. The historical balance sheet
of Niagara Mohawk has been translated into pounds sterling at the Noon Buying
Rate on December 31, 1999 of $1.62 to (pound)1.00. The use of these exchange
rates in the Unaudited Pro Forma Condensed Combined Financial Information should
not be construed to signify that the US dollar amounts actually represent such
pounds sterling amounts or could be converted into pounds sterling at the rate
indicated or at any other rate, at any time.
Note 4: Results for the period
(a) National Grid Group
The exceptional item of (pound)1,027.3 million relates to the partial
disposal of National Grid Group's shareholding in Energis plc, an associated
undertaking. This comprised a pre-tax profit of (pound)895.2 million
((pound)665.7 million after tax) on the sale of 28.9 million shares in Energis
plc, and a pre- and post-tax profit of (pound)132.1 million resulting from
reductions in National Grid Group's interest in Energis plc, primarily as a
consequence of the placing by Energis plc of 14.8 million of its shares.
(b) National Grid USA
The financial information relating to National Grid Group in respect of
the year ended March 31, 2000 includes the results of National Grid USA from
March 22, 2000 (the date of acquisition) to March 31, 2000. In order to reflect
the results of National Grid USA in the Unaudited Pro Forma Condensed Combined
Income Statement for a full 12 month period, National Grid USA's results for the
period March 22, 2000 to March 31, 2000 have been excluded and their results for
the year ended December 31, 1999 have been substituted.
(c) Niagara Mohawk
Niagara Mohawk's historical results of operations for the year ended
December 31, 1999, as reflected in the Unaudited Pro Forma Condensed Combined
Income Statement, were negatively impacted by Niagara Mohawk's early redemption
of certain debt securities which resulted in an after-tax charge to earnings of
(pound)14.7 million. Additionally, Niagara Mohawk's earnings for the year ended
December 31, 1999 were reduced by (pound)14.7 million (after-tax) because of
costs associated with a new customer service system, and (pound)13.0 million
(after-tax) for higher bad debt expense stemming from implementation issues
involving the new system.
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information (continued)
Note 5: UK GAAP adjustments by caption heading
The UK GAAP adjustments, which are described in Note 6 can be
summarized by caption heading as follows:
<TABLE>
year ended December 31, 1999
Note 6 National Grid USA Niagara Mohawk
(pound)m (pound)m
<S> <C> <C> <C>
(i) Operating costs
Pension costs (b) 1.2 2.5
Allowance for equity funds used during construction (e) (1.2) (3.3)
----- -----
- (0.8)
===== =====
(ii) Share of joint ventures' profit (f) 4.6 2.1
Equity accounting ===== =====
(iii) Net interest
Equity accounting (f) (4.0) (0.4)
(iv) Taxation
Equity accounting (f) (0.4) (1.7)
Deferred taxation (a) 7.5 -
----- -----
7.1 (1.7)
===== =====
(v) Minority interests
Equity accounting (f) (0.2) -
===== =====
(vi) Tangible assets
Decommissioning liabilities (d) 218.0
(vii) Debtors (amounts falling due within one year)
Regulatory assets
- decommissioning liabilities (d) 26.7
- provisions for liabilities and charges (c) (9.0)
-----
17.7
=====
(viii) Debtors (amounts falling due after more than one year)
Regulatory assets
- decommissioning liabilities (d) 513.3
- provisions for liabilities and charges (c) (162.0)
-----
351.3
=====
(ix) Provisions for liabilities and charges
Decommissioning liabilities (d) (758.0)
Regulatory assets (c) 171.0
Deferred taxation (a) 617.3
-----
30.3
=====
(x) Profit and loss account reserve
Deferred taxation (a) 617.3
=====
</TABLE>
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information (continued)
Note 6: UK GAAP adjustments to historical National Grid USA and Niagara Mohawk's
financial information
National Grid USA and Niagara Mohawk prepare their accounts in
accordance with US GAAP. For the purposes of preparing the Unaudited Pro Forma
Condensed Combined Financial Information, the accounts of National Grid USA and
Niagara Mohawk have been restated to conform with National Grid Group's
accounting policies under UK GAAP by giving effect to the adjustments described
below.
(a) Deferred taxation
Under UK GAAP, provision is made for deferred taxation to the extent
that a liability or an asset will crystallize in the foreseeable future. US GAAP
requires full provisioning for deferred taxation liabilities and permits
deferred taxation assets to be recognized if their realization is considered
more likely than not.
(b) Pension costs
Under UK GAAP, pension costs are accounted for and disclosures are
provided in accordance with UK Statement of Standard Accounting Practice 24.
Under US GAAP, pension costs are determined in accordance with the requirements
of US Statements of Financial Accounting Standards (SFAS) 87 and 88 and pension
disclosures are presented in accordance with SFAS 132. Differences between UK
GAAP and US GAAP figures arise from the requirement to use different actuarial
methods and assumptions and a different method of amortizing certain surpluses
and deficits.
(c) Regulatory assets
SFAS 71 "Accounting for the Effect of Certain Types of Regulation"
establishes US GAAP for utilities whose regulators have the power to approve and
/ or regulate rates that may be charged to customers. Provided that through the
regulatory process, the utility is substantially assured of recovering its
allowable costs by the collection of revenue from its customers, such costs not
yet recovered are deferred as regulatory assets. Due to the different regulatory
environment, no equivalent accounting standard applies in the UK.
Under UK GAAP, regulatory assets established in accordance with SFAS 71
are recognized where they comprise rights or other access to future economic
benefits which arise as a result of past transactions or events which have
created an obligation to transfer economic benefit to a third party. Measurement
of the past transaction or event and hence of the regulatory asset is determined
in accordance with UK GAAP. Where the application of UK GAAP results in the non
or partial recognition of an obligation compared with US GAAP, any related
regulatory asset is either not or partially recognized. In certain
circumstances, regulatory assets may be reported net of related regulatory
liabilities, including provisions for liabilities and charges.
(d) Decommissioning liabilities
Under US GAAP, estimated decommissioning liabilities are recognized
over the expected life of the assets and included within accumulated provisions
for depreciation and amortization. Under UK GAAP, estimated decommissioning
liabilities are provided in full and included in provisions for liabilities and
charges, and recognized as a tangible fixed asset or a regulatory asset.
(e) Allowance for equity funds used during the course of construction
Under US GAAP, the estimated cost of equity funds used to finance the
construction of tangible fixed assets is capitalized or recorded as a regulatory
asset and recognized in other income as an allowance for equity funds used
during the course of construction. Under UK GAAP, this treatment is not
permitted.
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information (continued)
Note 6: UK GAAP adjustments to historical National Grid USA and Niagara Mohawk's
financial information (continued)
(f) Equity accounting
UK GAAP requires the investors' share of operating profit or loss,
interest and taxation relating to associates and joint ventures to be accounted
for and disclosed separately from those of group undertakings. Under US GAAP,
the investors' share of the after tax profits and losses of joint ventures and
associates are included within the income statement as a single line item. UK
GAAP requires the investors' share of gross assets and gross liabilities of
joint ventures to be shown on the face of the balance sheet. Under US GAAP, the
net investment in joint ventures is shown as a single line item.
Note 7: Acquisition adjustments to the Unaudited Pro Forma Condensed Combined
Financial Information.
The acquisition adjustments to the Unaudited Pro Forma Condensed
Combined Financial Information reflect those adjustments detailed below.
(a) National Grid USA
(i) Purchase consideration and goodwill
On March 22, 2000, National Grid Group acquired the entire issued
capital of National Grid USA for a cash consideration of (pound)2,070.8 million
including acquisition costs of (pound)21.4 million. The acquisition has been
accounted for by using the acquisition method of accounting. Because the
acquisition occurred late in the year ended March 31, 2000, the fair values of
net assets acquired of (pound)1,223.2 million and goodwill of (pound)847.6
million arising on acquisition are provisional and may be subject to revision
during the financial year ending March 31, 2001. The amortization of this
goodwill over 20 years gives rise to a charge of (pound)42.4 million in the
unaudited Pro Forma Condensed Combined Income Statement.
(ii) Net interest, taxation and non-recurring charges
Pro forma net interest and taxation adjustments:
(pound)m
Interest charge relating to cash consideration (139.0)
Non-recurring charges 3.6
-----------
Net interest adjustment (135.4)
===========
Taxation credit on net interest adjustment 40.6
===========
The pro forma interest adjustment of (pound)139.0 million relates to
the period April 1, 1999 to March 21, 2000, and has been calculated on the net
cash outflow of (pound)2,070.8 million at an annual interest rate of 6.90%,
being an estimate of the cost to National Grid Group of financing the net cash
outflow, based on the interest foregone on cash deposits and the interest
payable on incremental borrowings.
Non recurring charges of (pound)3.6 million that relate directly to the
acquisition of National Grid USA, have been excluded from the Unaudited Pro
Forma Condensed Combined Income Statement.
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information (continued)
Note 7: Acquisition adjustments to the Unaudited Pro Forma Condensed Combined
Financial Information. (continued)
(a) National Grid USA (continued)
(ii) Net interest, taxation and non-recurring charges (continued)
The pro forma taxation adjustment of (pound)40.6 million has been
calculated at the standard UK corporation tax rate of 30%.
A 1/8% movement in the variable interest rate used above would affect
profit after taxation by (pound)0.6 million.
(b) Niagara Mohawk
(i) Purchase consideration and goodwill
At the time of the acquisition of Niagara Mohawk, National Grid Group
will establish a new accounting basis for Niagara Mohawk's assets and
liabilities based upon the fair market values thereof and the purchase price for
Niagara Mohawk, including the direct costs of acquisition.
A preliminary allocation of the purchase price has been reflected in
the Unaudited Pro Forma Condensed Combined Financial Information to the extent
that the excess of the historical net asset position of Niagara Mohawk over the
purchase price has been allocated to goodwill. A final allocation of the
purchase price is dependent upon certain valuations and other studies which have
not progressed to a stage where there is sufficient information to make such an
allocation in the Unaudited Pro Forma Condensed Combined Financial Information.
National Grid Group will not complete the valuations and studies of other
significant assets, liabilities and the operations of Niagara Mohawk until after
the completion of the acquisition. It is also expected that adjustments will be
made to certain assets and liabilities in order to comply with UK and US rules
of purchase accounting.
National Grid Group believes that the portion of the existing carrying
value of Niagara Mohawk's net assets in excess of the purchase price comprises
primarily negative goodwill, which will be amortized, under both US and UK GAAP,
over 20 years.
Under the terms of the Merger Agreement with Niagara Mohawk, Niagara
Mohawk shareholders will receive consideration of $19.00 per Niagara Mohawk
common share, subject to the Average Price being between $32.50 and $51.00. In
the event that the Average Price is greater than $51.00, the per share
consideration received by Niagara Mohawk shareholders will increase by
two-thirds of the percentage of the increase in value over $51.00. In the event
that the Average Price is less than $32.50, the per share consideration received
by Niagara Mohawk shareholders will decrease by two-thirds of the percentage of
the decrease in value below $32.50. Niagara Mohawk shareholders can elect to
receive their consideration either in cash or ADSs, or a combination of both,
subject to the aggregate cash consideration paid being $1.015 billion. If cash
elections received from Niagara Mohawk shareholders exceed $1.015 billion,
National Grid Group has the option, but not the obligation, to increase the cash
component of the consideration.
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information (continued)
Note 7: Acquisition adjustments to the Unaudited Pro Forma Condensed Combined
Financial Information. (continued)
(b) Niagara Mohawk (continued)
(i) Purchase consideration and goodwill (continued)
For the purposes of the acquisition adjustments included within the
Unaudited Pro Forma Condensed Combined Financial Information, the number of
Niagara Mohawk common shares to be purchased has been taken as the number of
common shares in issue on September 21, 2000 of 187,364,863 less treasury stock
of 27,125,045. The total purchase consideration, based on an exchange rate of
$1.62 to (pound)1.00, is estimated at (pound)1,901.0 million, including an
estimate of acquisition expenses of (pound)21.6 million. Based on the price of a
National Grid Group ordinary share of 560p (the closing price on September 4,
2000) and an exchange rate of $1.62 to (pound)1.00 and assuming National Grid
Group does not exercise its right to increase the cash proportion, it is assumed
that the total purchase consideration, excluding acquisition expenses, will
comprise the issue by National Grid Group of 223.7 million ordinary shares and a
cash payment of $1.015 billion ((pound)626.5 million). The assumed value of the
share consideration included within the Unaudited Pro Forma Condensed Combined
Balance Sheet is (pound)1,252.9 million, comprising called up share capital of
(pound)26.3 million and share premium of (pound)1,226.6 million respectively.
In the event that the Average Price is $32.50 or $51.00 during the
applicable time period before closing, the merger agreement would require the
issue by National Grid Group of approximately 312 million or approximately 199
million shares respectively. The issue of 312 million ordinary shares would
increase the reported Combined Group pro forma weighted average number of shares
in issue by approximately 5%. The issue of 199 million ordinary shares would
decrease the reported Combined Group pro forma weighted average number of shares
in issue by approximately 1%.
Negative goodwill arising on the acquisition, representing the
difference between the estimated purchase consideration and the historical value
of the separately identifiable net assets attributable to shareholders of
(pound)2,454.5 million as shown by the Unaudited Pro Forma Condensed Combined
Balance Sheet is estimated at (pound)553.5 million. The amortization of this
negative goodwill over 20 years gives rise to a credit of (pound)27.7 million in
the Unaudited Pro Forma Condensed Combined Income Statement.
(ii) Net interest, taxation and non-recurring charges
It has been assumed for the purposes of this pro forma condensed
combined financial information that the estimated cash consideration, including
acquisition expenses, relating to the proposed acquisition of Niagara Mohawk of
(pound)648.1 million is to be financed by long term borrowings.
Pro forma net interest and taxation adjustments:
(pound)m
Interest charge relating to cash consideration, including
acquisition expenses (50.2)
===========
Taxation credit 15.1
===========
The pro forma interest charge of (pound)50.2 million relating to the
cash consideration has been calculated on the net cash outflow of (pound)648.1
million at an interest rate of 7.75 %, being an estimate of the cost to National
Grid Group of financing the net cash outflow, based on the interest payable on
incremental borrowings.
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information (continued)
Note 7: Acquisition adjustments to the Unaudited Pro Forma Condensed Combined
Financial Information. (continued)
(b) Niagara Mohawk (continued)
The pro forma net taxation adjustment of (pound)15.1 million has been
calculated at the standard UK corporation tax rate of 30%.
A 1/8% movement in the variable interest rate used above would affect
profit after taxation by (pound)0.5 million.
It is estimated that (pound)8.9 million of non-recurring charges will
be incurred by National Grid Group in respect of financing the acquisition of
Niagara Mohawk. These charges have not been reflected in the Unaudited Pro Forma
Condensed Combined Income Statement.
(iii) Capital and reserves
The capital and reserves attributable to the shareholders of Niagara
Mohawk are eliminated on consolidation as they relate to the position at
acquisition.
Note 8: Significant differences between UK GAAP and US GAAP
The Unaudited Pro Forma Condensed Combined Financial Information has
been prepared in accordance with UK GAAP, which differs in certain significant
respects from US GAAP.
The main differences between UK and US GAAP that are relevant to the
Combined Group's Unaudited Pro Forma Condensed Combined Financial Information
relate to :
Allowance for equity funds used during the course of construction
Under US GAAP, the estimated cost of equity funds used to finance the
construction of tangible fixed assets is capitalized or recorded as a regulatory
asset and recognized in other income as an allowance for equity funds used
during the course of construction. Under UK GAAP, this treatment is not
permitted.
Deferred taxation
Under UK GAAP, provision is made for deferred taxation to the extent
that a liability or an asset will crystallize in the foreseeable future. US GAAP
requires full provisioning for deferred taxation liabilities and permits
deferred taxation assets to be recognized if their realization is considered
more likely than not.
Pensions
Under UK GAAP, pension costs are accounted for and disclosures are
provided in accordance with UK Statement of Standard Accounting Practice 24.
Under US GAAP, pension costs are determined in accordance with the requirements
of US Statements of Financial Accounting Standards (SFAS) 87 and 88 and pension
disclosures are presented in accordance with SFAS 132. Differences between UK
GAAP and US GAAP figures arise from the requirement to use different actuarial
methods and assumptions and a different method of amortizing certain surpluses
and deficits.
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information (continued)
Note 8: Significant differences between UK GAAP and US GAAP
Shares held by employee share trusts
Under UK GAAP, shares in National Grid Group that are held by employee
share trusts are recorded as fixed asset investments at cost less amounts
written off. Under US GAAP, those shares not fully vested are regarded as
treasury stock and recorded as a deduction from shareholders' equity.
Share option schemes
As permitted under UK GAAP, no cost is accrued for share options
awarded under the Sharesave Scheme where the exercise price of the options is
below the market value at the date of grant. In respect of the grant of options
under the Executive Scheme, no cost is accrued under UK GAAP as the exercise
price is equivalent to the market value at the date of grant. As permitted by
SFAS 123, "Accounting for Stock-Based Compensation", National Grid Group has
accounted for compensatory share option schemes under Accounting Principles
Board statement (APB) 25 "Accounting for Stock Issued to Employees". Under the
requirements of APB 25, the compensation costs relating to the Sharesave and
Executive Schemes are amortized over the period from the date of grant of
options to the date those options are first exercisable. SFAS 123 prescribes a
fair value method of recognizing share option compensation costs, the
application of which would have no material effect on National Grid Group's
reported net income or earnings per ordinary share.
Ordinary dividends
Under UK GAAP, final ordinary dividends are provided for in the year in
respect of which they are proposed by the board of directors for approval by the
shareholders. Under US GAAP, dividends are not provided until declared.
Tangible fixed assets
During the financial year ended March 31, 1990, an impairment provision
was recorded in respect of certain tangible fixed assets. Part of this
impairment provision was subsequently released and shareholders' equity
credited. Under US GAAP this partial release would not be permitted.
Interest rate and currency swaps
Under UK GAAP, interest rate and currency swaps used to hedge a
portfolio of borrowings are hedge accounted for and are not recorded at market
value. Any related foreign currency borrowings are translated at the hedged
rate. Under US GAAP, interest rate and currency swaps which are not related to
specific borrowings or to a specific group of similar borrowings are generally
not eligible for hedge accounting. In addition, interest rate swaps that convert
fixed rate liabilities into variable rate liabilities generally do not qualify
for hedge accounting under US GAAP. As a result, interest rate and currency
swaps that do not meet the US GAAP criteria for hedging are required to be
recorded at market value with the resultant unrealized gains and losses
recognized in income together with any exchange differences arising on the
translation of any related foreign currency borrowings at the exchange rate
ruling on the balance sheet date.
Extraordinary item
Under US GAAP, the loss from the extinguishment of debt, net of income
taxes, is classified as an extraordinary item, which is not included in pro
forma information. Under UK GAAP, this item would not be classified as an
extraordinary item, and has been included within net interest and taxation.
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information (continued)
Note 8: Significant differences between UK GAAP and US GAAP (continued)
Equity Plus Income Convertible Securities ("EPICs")
Under UK GAAP, EPICs at March 31, 2000 are carried in the balance sheet
at the gross proceeds of the issue and the related issue costs were written off
when incurred. Under US GAAP, the issue costs are deferred and written off over
the period to the expected date of redemption of the EPICs on May 3, 2003.
US GAAP requires the carrying value of the EPICs to be adjusted to the
settlement amount of the debt, which is linked to the Energis plc share price,
as described in Note 18 to the accounts, which are included within "Item
19--Financial statements and exhibits" of the Annual Report of National Grid
Group on Form 20-F for the year ended March 31, 2000, which is incorporated by
reference in this proxy statement/prospectus.
Severance costs
Under UK GAAP, severance costs are provided for in the accounts if it
is determined that a constructive or legal obligation has arisen from a
restructuring program where it is probable that it will result in the outflow of
economic benefits and the costs involved can be estimated with reasonable
accuracy. Under US GAAP, in respect of the existing severance program, severance
costs are recognized when the employees accept the severance offer. In addition,
where the number of employees leaving results in a significant reduction in the
accrual of pension benefits for employees' future service (a curtailment under
US GAAP), the effects are reflected as part of the cost of such termination
benefits. Accordingly, timing differences between UK GAAP and US GAAP arise on
the recognition of such costs.
Share of associate's adjustments to conform with US GAAP
National Grid Group's share of the associate's results and net assets,
which also impact on the exceptional profit relating to Energis plc and assets
held for exchange, have been adjusted to conform with US GAAP.
Goodwill - effect of US GAAP adjustments
Under US GAAP, the fair value of net assets acquired is calculated in
accordance with US GAAP principles which differ in certain respects from UK GAAP
principles. As a result, the US GAAP net assets of National Grid USA and Niagara
Mohawk are less than the net assets as determined under UK GAAP and the related
goodwill under US GAAP is higher than the goodwill calculated under UK GAAP
principles. These adjustments reflect the higher level of goodwill as calculated
under US GAAP and the related increase in annual goodwill amortization.
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information (continued)
Note 9: Reconciliation of Combined Group under UK GAAP to US GAAP
The following statements summarize the material adjustments which
reconcile the Combined Group unaudited pro forma net income and shareholders'
funds under UK GAAP to the amounts that would have been reported had US GAAP
been applied.
<TABLE>
Combined Group
Pro forma
year ended
March 31, 2000
(pound)m
--------
<S> <C>
UK GAAP
Profit for the year, excluding exceptional items 297.8
Exceptional items after taxation 797.8
---------
Net income for the year under UK GAAP 1,095.6
---------
Adjustments to conform with US GAAP
Deferred taxation adjustments (8.9)
Pension costs 2.0
Share option schemes (5.4)
Tangible fixed assets - depreciation on reversal of partial
release of impairment provision 3.4
Interest rate and currency swaps 27.9
Issue costs associated with EPICs (1.8)
Carrying value of EPICs liability (115.0)
Severance costs (11.3)
Share of associate's adjustments to conform with US GAAP (40.5)
Allowance for equity funds used during construction 4.5
Extraordinary item - loss from the extinguishment of debt,
net of income taxes 14.7
Goodwill - effect of US GAAP adjustments (41.4)
---------
Total US GAAP adjustments (171.8)
---------
Net income for the year under US GAAP 923.8
=========
Combined Group
Pro forma at
March 31, 2000
(pound)m
Shareholders' funds under UK GAAP 4,161.9
---------
Adjustments to conform with US GAAP
Deferred taxation (1,534.0)
Pension costs 162.8
Shares held by employee share trusts (16.3)
Ordinary dividends 123.0
Tangible fixed assets - depreciation on reversal of partial
release of impairment provision (45.0)
Interest rate and currency swaps 1.0
Issue costs associated with EPICs 5.5
Carrying value of EPICs liability (115.0)
Severance liabilities 5.5
Share of associate's adjustments to conform with US GAAP 21.3
Goodwill - effect of US GAAP adjustments 827.9
---------
Total US GAAP adjustments (563.3)
---------
Shareholders' funds under US GAAP 3,598.6
=========
</TABLE>
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information (continued)
Note 10: Earnings per ordinary/common share and ADS on a US GAAP basis
<TABLE>
Combined Niagara National Grid National Grid
Group Mohawk USA Group
Pro forma Historical Historical Historical
(Note (a)) (Note (a))
(pound)m $m $m (pound)m
<S> <C> <C> <C> <C>
Net income/(loss) under US GAAP for the
year ended March 31, 2000 923.8 (35.1) 176.7 1,009.8
Earnings/(loss) per ordinary/common
share
Basic 54.5p $(0.19) $2.98 68.6p
Diluted 52.0p $(0.19) $2.97 64.7p
Earnings per ADS
Basic 272.3p 342.8p
Diluted 260.0p 323.4p
Number Number Number Number
(million) (million) (million) (million)
--------- --------- --------- ---------
Weighted average number of shares in
issue
Basic 1,696.6 186.7 59.4 1,472.9
Diluted 1,817.0 186.7 59.5 1,593.3
Note (a) National Grid USA and Niagara Mohawk historical comparative data
is given for the year ended December 31, 1999.
</TABLE>
The inclusion of the exceptional item (as defined under UK GAAP) and goodwill
amortization has resulted in US GAAP earnings per share and ADS being increased
or (decreased) by the following amounts:
<TABLE>
Combined National Grid
Group Group
Pro forma Historical
--------- -------------
<S> <C> <C>
Per ordinary share
Basic
Exceptional item 46.9p 54.0p
Goodwill amortization (3.7)p (0.5)p
Diluted
Exceptional item 43.8p 49.9p
Goodwill amortization (3.5)p (0.5)p
Per ADS
Basic
Exceptional item 234.5p 270.1p
Goodwill amortization (18.5)p (2.7)p
Diluted
Exceptional item 219.0p 249.7p
Goodwill amortization (17.3)p (2.5)p
<PAGE>
DESCRIPTION OF ORDINARY SHARES
What follows is a summary of the material terms of New National Grid's
proposed share capital as well as information about the material provisions of
New National Grid's proposed articles of association and applicable English law.
New National Grid will become a publicly traded company when the scheme of
arrangement becomes effective. At that time and subject to the condition that
the scheme of arrangement becomes effective, New National Grid will adopt new
articles of association appropriate for a publicly traded company. The following
description assumes that New National Grid has adopted its new articles of
association, that the existing special share in National Grid Group will be
cancelled and that an equivalent special share in New National Grid, having the
same rights as National Grid Group's special share, will be issued to the UK
Secretary of State for Trade and Industry. This summary is not necessarily
complete and you should also refer to New National Grid's proposed articles of
association, the form of which has been filed as an exhibit to this registration
statement.
New National Grid's authorized share capital will be 2,125,000,000
ordinary shares of 10p each and one special rights non-voting redeemable
preference share of (pound)1.
The Special Share
Any one of Her Majesty's Secretaries of State, another Minister of the
Crown, the Solicitor for the affairs of HM Treasury or any other person acting
on behalf of the Crown may hold the special share. The registered holder of the
special share may, after consulting New National Grid and subject to the
provisions of the Companies Act 1985, require New National Grid to redeem the
special share at par at any time.
The holder of the special share has the right to receive notice of, and
to attend and speak at, any general meeting or any separate meeting of the
holders of any class of shares, but the special share confers no right to vote
nor any other rights at any shareholders' meeting. The special share confers no
right to participate in New National Grid's capital or profits except that, on a
distribution of capital in a winding-up, the holder of the special share is
entitled to repayment of (pound)1 in priority to other shareholders.
Each of the following actions is effective only with the written
consent of the holder of the special share:
(a) the amendment, removal or alteration of the effect of (including
the ratification of any breach of) specified provisions of the
articles of association, including the article relating to the
special share, the article on general limitations on shareholdings,
the article on shareholding restrictions on Pool members or license
holders and the article relating to the disclosure of interests in
shares under Section 212 of the Companies Act 1985 (each as
described under "--General Limitations on Shareholdings" and
"--Shareholding Restrictions on Pool Members or License Holders"
below) except to the extent that any amendment, removal or
alteration of the article relating to the disclosure of interests
in shares is required to comply with the listing rules of the UK
listing Authority;
(b) the creation or issue of any shares in New National Grid carrying
voting rights other than (1) shares carrying voting rights in all
circumstances at general meetings and (2) shares which do not
constitute equity share capital (as defined in the Companies Act
1985) and which, when aggregated with all other similar shares,
carry the right to cast less than 15% of the votes capable of being
cast on a poll on any resolution at any general meeting;
(c) the variation of any rights (save for dividend rights and rights to
repayment of capital) attached to any shares in New National Grid;
(d) the disposal by New National Grid of any shares in NGC to any
person which is not a wholly owned subsidiary;
(e) any scheme or arrangement which, if put into effect, would relieve
NGC or any of New National Grid's affiliates of, or otherwise
modify, the obligations required to be imposed on them by New
National Grid by virtue of the provisions described under
"--Obligations Relating to the Transmission License Holder" below;
(f) the voluntary winding-up of New National Grid, a special resolution
to the effect that New National Grid should be wound up by the
court, the presentation by New National Grid or by the board of
directors of a petition for the winding-up of New National Grid by
the court, or any proposal for any of the foregoing;
(g) the presentation by New National Grid or by the board of directors
of a petition applying for an administration order or a proposal by
the board of directors for a voluntary arrangement, in each case
pursuant to the Insolvency Act 1986; or
(h) the establishment of a holding company for New National Grid.
Ordinary Shares
Voting Rights
Subject to any specific rights or restrictions attached to any shares
and to any other provisions of the articles, at any general meeting on a show of
hands every shareholder who is present in person will have one vote and on a
poll every shareholder will have one vote for every share which he holds. On a
poll, shareholders may cast votes either personally or by proxy and a proxy need
not be a shareholder.
In the case of joint holders of a share, the vote of the senior who
tenders a vote, whether in person or by proxy, will be accepted to the exclusion
of the votes of the other joint holders and seniority will be determined by the
order in which the names of the holders appear in the register of shareholders.
Unless the board of directors otherwise determines, no shareholder, or
person to whom any of that shareholder's holding is transferred other than by a
transfer approved under the articles of association (see below), can vote at any
general meeting either in person or by proxy in respect of any share in New
National Grid held by him (1) if all monies presently payable by him in respect
of that share have not been paid or (2) if he or any other person appearing to
be interested in the share has been given a notice under section 212 of the
Companies Act 1985 (See--"Disclosure of Interests" on page 87) and has failed to
provide the information required by the notice within 14 days from the date of
service of the notice (or in the case of shares representing less than 0.25% of
their class, within 28 days of service of the notice) or (3) in the
circumstances referred to under "--General Limitations on Shareholdings" and
"--Shareholding Restrictions on Pool Members or License Holders" below.
Dividends and Other Distributions
New National Grid may not pay any dividend otherwise than out of
profits available for distribution under the Companies Act 1985 and the other
applicable provisions of English law. In addition, as a public company, New
National Grid may make a distribution only if and to the extent that, at the
time of the distribution, the amount of the net assets is not less than the
aggregate of its called-up share capital and undistributable reserves (as
defined in the Companies Act 1985). Subject to the foregoing, New National Grid
may, by ordinary resolution, declare dividends in accordance with the respective
rights of the shareholders but not exceeding the amount recommended by the board
of directors. The board of directors may pay interim dividends or at intervals
settled by it any dividend payable at a fixed date, if the board of directors
considers that New National Grid's financial position justifies the payment.
Except insofar as the rights attaching to any share otherwise provide,
all dividends will be apportioned and paid proportionately to the amounts paid
up (otherwise than in advance of calls) on the shares.
A general meeting declaring a dividend may, upon the recommendation of
the board of directors, direct that a dividend may be satisfied wholly or partly
by the distribution of assets and may be declared or paid in any currency. The
board of directors may, if authorized by a shareholders' ordinary resolution,
offer the holders of ordinary shares the right to elect to receive new ordinary
shares credited as fully paid, instead of cash for all or part of the dividend
specified by that ordinary resolution.
New National Grid may stop sending checks or warrants through the post
for any dividend or other monies payable in respect of a share if in respect of
at least two consecutive dividends the checks or warrants have been returned
undelivered or remained uncashed (or, following one such occasion, reasonable
enquiries have failed to establish any new address of the holder). New National
Grid must resume sending checks or warrants if the shareholder or person
entitled by transmission claims the arrears of dividend.
Any dividend unclaimed for twelve years from the date when it became
due for payment will, unless the board of directors otherwise resolves, be
forfeited and revert to New National Grid.
In a winding-up, a liquidator may, with the sanction of a special
resolution of New National Grid and any other sanction required by applicable
provisions of English law, (a) divide among the shareholders the whole or any
part of New National Grid's assets (whether the assets are of the same kind or
not) and may for this purpose value any assets and determine how the division
should be carried out as between different shareholders or different classes of
shareholders, or (b) vest the whole or any part of the assets in trustees of
those trusts for the benefit of contributories as the liquidator, determines but
in neither case will a shareholder be compelled to accept any assets upon which
there is a liability.
Unless the board of directors determines otherwise, no shareholder
holding at least 0.25% of any class of New National Grid's shares will be
entitled to receive payment of any dividend or other distribution if he or any
person appearing to be interested in those shares has been given a notice under
section 212 of the Companies Act 1985 and has failed to give New National Grid
the information required by the notice within 14 days from the date of service
of notice.
Variation of Rights
Subject to applicable provisions of English law and the rights attached
to any specific class of shares, the rights attached to any class of shares of
New National Grid may be varied with the written consent of the holders of
three-fourths in nominal value of the issued shares of that class, or with the
sanction of an extraordinary resolution passed at a separate meeting of the
holders of the shares of that class. The applicable provisions of English law
and the articles of association relating to general meetings will generally
apply to any such separate meeting except that:
(i) the necessary quorum will be a person or persons holding or
representing by proxy not less than one-third in nominal amount
of the issued shares of that class or, at any adjourned meeting
of holders of shares of that class at which that quorum is not
present, will be any holder who is present in person or by proxy
whatever the number of shares held by him;
(ii) any holder of shares of that class present in person or by proxy
may demand a poll; and
(iii) every holder of shares of that class will, on a poll, have one
vote in respect of every share of that class held by him.
Calls on Shares
Subject to the terms of issue, the board of directors may from time to
time make calls upon shareholders in respect of any unpaid nominal amount or
premium on their shares. Each shareholder must (subject to receiving at least 14
clear days' notice specifying when and where payment is to be made) pay to New
National Grid the amount called on his shares. A call may be made payable by
installments. A call may, at any time before New National Grid receives any sum
due under the call, be revoked in whole or in part and payment of a call may be
postponed in whole or in part, as the board of directors may determine. A person
upon whom a call is made shall remain liable for all calls made upon him
notwithstanding the subsequent transfer of the shares in respect of which the
call was made.
If a call on a share remains unpaid after the date due, New National
Grid may cause the relevant shareholder to forfeit his share on 14 days' notice.
A resolution of the board of directors is required to effect such a forfeiture.
If shares are forfeited, they become New National Grid's property and
New National Grid may sell them until cancelled in accordance with the applicable
provisions of English law.
A person whose shares have been forfeited will cease to be a
shareholder in respect of the forfeited shares and must surrender to New
National Grid for cancellation the certificate for the forfeited shares but will
remain liable to New National Grid for all moneys which at the date of
forfeiture were presently payable by the forfeiting shareholder to New National
Grid in respect of those shares.
Transfer of Shares
A shareholder may transfer all or any of his shares by an instrument of
transfer in any usual form or in any other form which the board of directors may
approve. A transfer must be executed by or on behalf of the transferor and
(unless the share is fully paid) by or on behalf of the transferee. The
transferor will be deemed to remain the holder of the share until the name of
the transferee is entered in the register of shareholders.
The board of directors may refuse to register the transfer of a share
which is not fully paid without giving any reason for so doing, provided that
where shares are admitted to the Official List of the UK Listing Authority, it
may not exercise its discretion in such a way as to prevent dealings in shares
of that class from taking place on an open and proper basis.
The board of directors may also refuse to register the transfer of a
share: (i) if it is not lodged, duly stamped (if necessary), at New National
Grid's registered office or at another place determined by the board of
directors and accompanied by the certificate for the shares to which it relates
(where a certificate has been issued in respect of the shares) and/or such other
evidence as the board of directors may reasonably require to show the right of
the transferor to make the transfer; (ii) if it is not in respect of one class
of share only; (iii) if it is not in favor of four or less transferees; or (iv)
if it is in favor of a minor, bankrupt or person of mental ill health.
If the board of directors refuses to register a transfer it will,
within two months after the date on which the transfer was lodged, send to the
transferee a notice of refusal. The registration of transfers may be suspended
at any time and for any period (not exceeding 30 days in any calendar year)
determined by the board of directors.
No fee will be charged for the registration of any instrument of
transfer or other document relating to or affecting the title to any share.
Unless the board of directors otherwise determines, no shareholder
holding shares representing 0.25% or more of any class of New National Grid's
shares who has failed to comply with a notice served under section 212 of the
Companies Act 1985 will be entitled to transfer any of those shares other than
by accepting a takeover offer, in consequence of a sale of shares on a
recognized investment exchange or an investment exchange on which shares in New
National Grid are normally traded, or in consequence of a sale of a
shareholder's entire beneficial interest to a person who is unconnected with the
shareholder and with any other person appearing to be interested in the shares.
The board of directors must also decline to register a transfer which
is made in the circumstances referred to under "General Limitations on
Shareholdings" and "--Shareholding Restrictions on Pool Members or License
Holders" below.
Alteration of Capital
New National Grid may by ordinary resolution increase, consolidate and
divide and sub-divide its share capital. Subject to applicable provisions of
English law, New National Grid may by special resolution reduce its share
capital, any capital redemption reserve and any share premium account or other
undistributable reserve in any manner. Subject to applicable provisions of
English law and to any rights conferred on the holder of any class of shares,
New National Grid may purchase all or any of its shares of any class (including
any redeemable shares).
General Limitations on Shareholdings
The articles of association contain provisions which limit interests in
voting shares. These provisions are described briefly below:
(a) If any person has, or appears to the board of directors to have,
an interest in shares which carry 15% or more of the total votes
attaching to the relevant share capital (as defined in the
Companies Act 1985) of New National Grid and capable of being
cast on a poll or is deemed so to have such an interest, the
board of directors must take the following actions. The board
must give notice to all persons who appear to the board of
directors to have interests in the shares concerned and, if
different, to the registered holders of those shares. The notice
will require that the interest concerned be reduced to less than
15% by selling shares within 21 days of the notice (or a longer
period that the board of directors considers reasonable). No
transfer of the shares to which the interest relates may then be
registered except for the purpose of reducing the interest to
less than 15% or until the notice has been withdrawn.
(b) If a person receiving a notice described in paragraph (a) does
not comply with it, the board of directors will, so far as it is
able, sell the shares on appropriate terms, as it determines. The
proceeds of that sale will be received by New National Grid and
paid (without interest and after deduction of any expenses of
sale) to the former registered holder.
(c) A registered holder receiving a notice described in paragraph (a)
is not entitled, until he has complied with the notice, to attend
or vote at any general meeting of New National Grid or meeting of
the holders of voting shares or of any class of shares. Likewise,
the holder will not be able to exercise any other right conferred
by membership in relation to that meeting, and those rights will
vest in the chairman of that meeting who may exercise them or
refrain from doing so at his discretion.
(d) Any resolution or determination of, or decision or exercise of
any discretion or power by, the board of directors or any
director or the chairman of any meeting under the relevant
Article will be final and conclusive. Any disposal or transfer
made by or on behalf of or on the authority of the board of
directors or any director pursuant to the relevant article will
be conclusive and binding on all persons concerned and will not
be open to challenge. The board of directors is not required to
give any reasons for any decision, determination or declaration
taken or made in accordance with the relevant article.
There are limited exceptions to these restrictions relating principally
to holdings of a trustee or fiduciary nature and market clearing arrangements.
These restrictions do not apply to the Depositary acting in its capacity as
such.
Shareholding Restrictions on Pool Members or License Holders
The articles of association contain additional restrictions which are
intended to prevent members of the "Pool", which is the trading mechanism
through which the great majority of electricity is currently sold and purchased
in bulk in England and Wales, a holder of a license under the Electricity Act
1989, or in either case, any affiliate thereof or any group of companies of
which a regional electricity company (a "REC") is a member, from having an
interest in shares which carry 1% or more of the total votes attaching to the
relevant share capital of New National Grid and capable of being cast on a poll.
The board of directors has the same rights as those set out under
"--General Limitations on Shareholdings" above to require the sale or to sell
sufficient numbers of shares to bring the relevant interest within the permitted
limit where these provisions are breached.
Obligations Relating to the Transmission License Holder
The articles of association provide that New National Grid must provide
that, without the consent in writing of the holder of the special share:
(a) the transmission license (as subsequently amended) which was
granted by the then Secretary of State for Energy may not be held
by any person which is not New National Grid or a wholly owned
subsidiary of New National Grid;
(b) New National Grid and its wholly owned subsidiaries may not cease
to carry on, or dispose of or relinquish operational control over
any asset required to carry on, the transmission business or the
interconnectors business (as defined in the transmission license
in place at December 11, 1995) except if that cessation, disposal
or relinquishment is required by law or is permitted pursuant to
or by virtue of the terms of the transmission license;
(c) neither New National Grid nor any affiliate of New National Grid
is permitted to carry on in the UK any activity which requires a
generation or supply license or which is exempted from such
requirement under or by virtue of the Electricity Act 1989, save
where that activity is expressly permitted under the terms of the
transmission license in place at December 11, 1995 and that
neither New National Grid nor any affiliate of New National Grid
is permitted to engage outside the UK in the generation of
electricity to be imported into the UK;
(d) no employee or director of any Pool member or the holder of a
license under the Electricity Act 1989 or, in either case, any
affiliate thereof other than New National Grid or any wholly
owned subsidiary of New National Grid is permitted to be a
director of New National Grid or the transmission license holder;
and
(e) the transmission license holder is not permitted to carry on
activities other than:
(i) those required or contemplated on the part of the
transmission license holder (in its capacity as the holder
of the transmission license) by the transmission license or
the Electricity Act 1989 or related to those requirements;
or
(ii) those carried on by NGC at or prior to December 11, 1995.
The restrictions set out in this paragraph (e) would not prevent the acquisition
of any share capital by the transmission license holder in any company (subject
to sub-paragraph (c)).
Disclosure of Interests
(a) A shareholder may lose the right to vote his shares if he or any
other person appearing to be interested in those shares fails to
comply within a prescribed period of time with a request by New
National Grid under the Companies Act 1985 to give the required
information with respect to past or present ownership or interests
in those shares. In the case of holders of more than 0.25% in
nominal amount of the share capital of New National Grid (or any
class of the share capital), in addition to disenfranchisement, the
sanctions that may be applied by New National Grid include
withholding of the right to receive payment of dividends and other
monies payable on shares, and restrictions on transfers of, the
relevant shares.
(b) Section 198 of the Companies Act 1985 provides that a person
(including a company and other legal entities) that acquires an
interest of 3% or more in any class of shares constituting an
English public company's "relevant share capital" (i.e., New
National Grid issued share capital carrying the right to vote in
all circumstances at a general meeting of New National Grid) is
required to notify the company of its interest within two business
days following the day on which the obligation arises. After the 3%
level is exceeded, similar notifications must be made in respect of
increases or decreases of 1% or more.
For purposes of the notification obligation, the interest of a person
in shares means any kind of interest in shares including interests in any shares
(a) in which a spouse, or child or stepchild under the age of 18 is interested,
(b) in which a corporate body is interested and either (i) that corporate body
or its directors generally act in accordance with that person's directions or
instructions or (ii) that person controls one-third or more of the voting power
of that corporate body or (c) in which another party is interested and the
person and that other party are parties to a "concert party" agreement within
the meaning of the Companies Act 1985. A concert party agreement is one which
provides for one or more parties to acquire interests in shares of a particular
company and imposes obligations or restrictions on any one of the parties as to
the use, retention or disposal of such interests acquired under such agreement,
and any interest in the company's shares is in fact acquired by any of the
parties under the agreement. Some of the interests (e.g., those held by certain
investment fund managers) may be disregarded for the purposes of calculating the
3% threshold, but the obligations of disclosure will still apply where those
interests exceed 10% or more of any class of the company's relevant share
capital and to increases or decreases of 1% or more thereafter.
In addition, Section 212 of the Companies Act 1985 provides that a
public company may send a written notice to a person whom the company knows or
has reasonable cause to believe to be, or to have been at any time during the
three years immediately preceding the date on which the notice is issued,
interested in shares constituting the company's "relevant share capital." The
notice will require that person to state whether he has an interest in the
shares, and in case that person holds or had held an interest in those shares,
to give additional information relating to that interest and any other interest
in the shares of which that person is aware.
Where a company serves notice under the provisions described above on a
person who is or was interested in shares of the company and that person fails
to give the company any information required by the notice within the time
specified in the notice, the company may apply to an English court for an order
directing that the shares in question be subject to restrictions prohibiting,
among other things, any transfer of those shares, the taking up of rights in
respect of those shares and, other than in liquidation, payments in respect of
those shares.
A person who fails to fulfill the obligations imposed by Sections 198
and 212 of the Companies Act 1985 described above is subject to criminal
penalties.
<PAGE>
DESCRIPTION OF AMERICAN DEPOSITARY SHARES
American Depositary Shares
The Bank of New York will issue American Depositary Receipts ("ADRs")
evidencing the ADSs. Each ADS will represent an ownership interest in five
ordinary shares of New National Grid. The ordinary shares (or the right to
receive ordinary shares) will be deposited by New National Grid with the London,
England office of the agent of the Depositary, currently located at One Canada
Square, London E14 5AL (the "Custodian"). Each ADS will also represent
securities, cash or other property deposited with The Bank of New York but not
distributed to ADS holders. The Bank of New York's Corporate Trust Office is
located at 101 Barclay Street, New York, NY 10286. The Bank of New York's
principal executive office is located at One Wall Street, New York, New York
10286.
You may hold ADSs either directly or indirectly through your broker or
other financial institution. If you hold ADSs directly, you are an ADS holder.
This description assumes you hold your ADSs directly. If you hold the ADSs
indirectly, you must rely on the procedures of your broker or other financial
institution to assert the rights of ADS holders described in this section. You
should consult with your broker or financial institution to find out what those
procedures are.
Because The Bank of New York will actually hold the ordinary shares,
you must rely on it to exercise your rights as a shareholder of New National
Grid. The obligations of The Bank of New York will be set out in a Deposit
Agreement to be entered into among New National Grid, The Bank of New York and
you, as an ADS holder. The Deposit Agreement and the ADSs are generally governed
by New York law.
The following is a summary of the Deposit Agreement. Because it is a
summary, it does not contain all the information that may be important to you.
For more complete information, you should read the entire Agreement and the ADR.
Copies of these are available for inspection at the office of the Custodian and
the New York office of the Depositary at the address indicated above.
Share Dividends and Other Distributions
The Bank of New York has agreed to pay to you the cash dividends or
other distributions it or the custodian receives on ordinary shares or other
deposited securities after deducting its fees and expenses. You will receive
these distributions in proportion to the number of ordinary shares your ADSs
represent.
Cash. The Bank of New York will convert any cash dividend or other cash
distribution New National Grid pays on the shares into US dollars, if it can do
so on a reasonable basis and can transfer the US dollars to the United States.
If that is not possible or if any approval from the UK government is needed and
cannot be obtained, the Deposit Agreement allows The Bank of New York to
distribute the pounds sterling only to those ADS holders to whom it is possible
to do so. It will hold the pounds sterling it cannot convert for the account of
the ADS holders who have not been paid. It will not invest the pounds sterling
and it will not be liable for any interest.
Before making a distribution, any UK withholding taxes that must be
paid will be deducted. The Bank of New York will distribute only whole US
dollars and cents and will round fractional cents to the nearest whole cent. If
the exchange rates fluctuate during a time when The Bank of New York cannot
convert the foreign currency, you may lose some or all of the value of the
distribution.
Shares. The Bank of New York may distribute new ADSs representing any
shares New National Grid may distribute as a dividend or free distribution, if
New National Grid furnishes it with satisfactory evidence that it is legal to do
so. The Bank of New York will only distribute whole ADSs. It will sell shares
which would require it to use a fractional ADS and distribute the net proceeds
in the same way as it does with cash. If The Bank of New York does not
distribute additional ADSs, each ADS will also represent the new shares.
Rights to receive additional shares. If New National Grid offers
holders of its ordinary shares any rights to subscribe for additional shares or
any other rights, The Bank of New York may make these rights available to you.
New National Grid must first instruct The Bank of New York to do so and furnish
it with satisfactory evidence that it is legal to do so. If New National Grid
does not furnish this evidence and/or give these instructions, and The Bank of
New York decides it is practical to sell the rights, The Bank of New York will
sell the rights and distribute the proceeds, in the same way as it does with
cash. The Bank of New York may allow rights that are not distributed or sold to
lapse. In that case, you will receive no value for them.
If The Bank of New York makes rights available to you, upon instruction
from you, it will exercise the rights and purchase the shares on your behalf.
The Bank of New York will then deposit the shares and issue ADSs to you. It will
only exercise rights if you pay it the exercise price and any other charges the
rights require you to pay.
US securities laws may restrict the sale, deposit, cancellation and
transfer of the ADSs issued after exercise of rights. For example, you may not
be able to trade the ADSs freely in the United States. In this case, The Bank of
New York may issue the ADSs under a separate restricted deposit agreement which
will contain the same provisions as the agreement, except for the changes needed
to put the restrictions in place.
Other Distributions. The Bank of New York will send to you anything
else New National Grid distributes on deposited securities by any means it
thinks is legal, fair and practical. If it cannot make the distribution in that
way, The Bank of New York has a choice. It may decide to sell what New National
Grid distributed and distribute the net proceeds in the same way as it does with
cash or it may decide to hold what New National Grid distributed, in which case
the ADSs will also represent the newly distributed property.
The Bank of New York is not responsible if it decides that it is
unlawful or impractical to make a distribution available to any ADS holders. New
National Grid has no obligation to register ADSs, shares, rights or other
securities under the Securities Act. New National Grid also has no obligation to
take any other action to permit the distribution of ADSs, shares, rights or
anything else to ADS holders. This means that you may not receive the
distribution New National Grid makes on its shares or any value for them if it
is illegal or impractical for New National Grid to make them available to you.
Deposit, Withdrawal and Cancellation
The Bank of New York will issue ADRs if you or your broker deposit
shares or evidence of rights to receive shares with the Custodian. Upon payment
of its fees and expenses and of any taxes or charges, such as stamp taxes or
stock transfer taxes or fees, The Bank of New York will register the appropriate
number of ADRs in the names you request and will deliver the ADRs at its office
to the persons you request.
You may turn in the ADRs evidencing your ADSs at The Bank of New York's
Corporate Trust Office. Upon payment of its fees and expenses and of any taxes
or charges, such as stamp taxes or stock transfer taxes or fees, The Bank of New
York will deliver (1) the underlying shares to an account designated by you and
(2) any other deposited securities represented by the ADS at the office of the
Custodian or, at your request, risk and expense, The Bank of New York will
deliver the deposited securities at its office.
Voting Rights
You may instruct The Bank of New York to vote the ordinary shares
represented by your ADSs but only if New National Grid asks The Bank of New York
to ask for your instructions. Otherwise, you will not be able to exercise your
right to vote unless you withdraw the shares. However, you may not know about
the meeting enough in advance to withdraw the shares.
If New National Grid asks for your instructions, The Bank of New York
will notify you of the upcoming vote and arrange to deliver New National Grid's
voting materials to you. The materials will (1) describe the matters to be voted
on and (2) explain how you, on a certain date, may instruct The Bank of New York
to vote the shares or other deposited securities underlying your ADSs as you
direct. For instructions to be valid, The Bank of New York must receive them on
or before the date specified. The Bank of New York will try, as far as
practical, subject to English law and the provisions of New National Grid's
articles of association, to vote or to have its agents vote the shares or other
deposited securities as you instruct. The Bank of New York will only vote or
attempt to vote as you instruct. However, if The Bank of New York does not
receive your voting instructions, it will give a proxy to vote your shares to a
designated representative of New National Grid.
New National Grid cannot assure you that you will receive the voting
materials in time to ensure that you can instruct The Bank of New York to vote
your shares. In addition, The Bank of New York and its agents are not
responsible for failing to carry out voting instructions or for the manner of
carrying out voting instructions. This means that you may not be able to
exercise your right to vote and there may be nothing you can do if your shares
are not voted as you requested.
Although the Depositary will endeavor, insofar as practicable, to
deliver the voting materials described in the preceding paragraph reasonably in
advance of the date by which you must instruct The Bank of New York to vote the
ordinary shares or other deposited securities, you may not receive the voting
materials sufficiently prior to that date in order to ensure that the Depositary
will vote the ordinary shares or other deposited securities.
Under English company law, only holders of record are permitted to
attend a general meeting and vote by a show of hands. The Depositary (or the
Custodian), as holder of record of the shares represented by the ADSs, would
attend the meeting. In order to participate in a show of hands vote, you must
withdraw ordinary shares in order to attend the meeting in person.
Reports and other communications
The Depositary will make available for inspection by registered holders
at its Corporate Trust Office any reports and communications, including any
proxy soliciting material, received from New National Grid, which are both (1)
received by the Depositary as the holder of the deposited securities and (2)
made generally available to the holders of such deposited securities by New
National Grid. The Depositary will also, upon written request, send to the
registered holders copies of such reports when furnished by New National Grid
pursuant to the Deposit Agreement.
Fees and Expenses
For: ADS holders must pay:
------------------------------------------------------------ -----------------------------------------
<S> <C> <C>
o Each issuance of an ADS, including as a result of a US$5.00 (or less) per 100 ADSs
distribution of shares or rights or other property (or portion thereof)
o Each cancellation of an ADS, including if the Deposit US$5.00 (or less) per 100 ADSs
Agreement terminates (or portion thereof)
o Any cash distribution made pursuant to the Deposit US$0.02 (or less) per ADS
Agreement (or portion thereof)
o Transfer and registration of ordinary shares on New Registration or transfer fees
National Grid's share register from registered holder
name to the name of The Bank of New York or its agent
when such holder deposits or withdraws shares
o Conversion of foreign currencies, including pounds Expenses of The Bank of New York
sterling to US dollars
o Cable, telex and facsimile transmission expenses, if Expenses of The Bank of New York
expressly provided in the Deposit Agreement
o As necessary Certain taxes and governmental charges
which The Bank of New York or the
Custodian has to pay on any ADS or
ordinary share underlying an ADS, for
example, share transfer taxes, stamp
duty reserve tax or withholding taxes
</TABLE>
Payment of Taxes
You will be responsible for any taxes or other governmental charges payable
on your ADSs or on the deposited securities represented by your ADSs. The Bank
of New York may refuse to transfer your ADSs or allow you to withdraw the
deposited securities represented by your ADSs until such taxes or other charges
are paid. It may apply payments owed to you or sell deposited securities
represented by your ADSs to pay any taxes owed and you will remain liable for
any deficiency. If it sells deposited securities, it will, if appropriate,
reduce the number of ADSs to reflect the sale and pay to you any proceeds, or
send to you any property remaining after it has paid the taxes.
Reclassifications, Recapitalizations and Mergers
--------------------------------------------------------------------------------
If New National Grid: Then:
--------------------------------------------------------------------------------
Changes the nominal or par value of The cash, shares or other
its shares securities received by The Bank of
New York will become deposited
Reclassifies, splits up or consolidates securities. Each ADS will
any of the deposited securities automatically represent its equal
share of the new deposited
securities.
Distributes securities on the shares The Bank of New York may, and will
that are not distributed to you if New National Grid asks it to,
distribute some or all of the cash,
Recapitalizes, reorganizes, merges, shares or other securities it
liquidates, sells all or received. It may also issue new
substantially all of its assets, or ADSs or ask you to surrender your
takes any similar action outstanding ADSs in exchange for
new ADSs, identifying the new
deposited securities.
--------------------------------------------------------------------------------
Disclosure of interests
Notwithstanding any other provision of the Deposit Agreement, New
National Grid's articles of association and applicable English law, each
registered holder and beneficial owner will agree to be bound by and subject to
applicable provisions of the Companies Act 1985 and New National Grid's articles
of association to the same extent as if such ADSs evidenced by such ADRs were
ordinary shares. In particular, the obligation of a holder of ordinary shares
(or other persons with an interest in those ordinary shares) to disclose certain
information to New National Grid under certain circumstances, as described under
"Description of Ordinary Shares--Disclosure of Interests" also is applicable to
a holder of ADSs (and other persons with an interest in them). The consequences
to a registered holder or beneficial owner of ADSs (or other interested person)
for failing to comply with the disclosure requirements are the same as those for
a holder of ordinary shares (or other interested person) described under
"Description of Ordinary Shares--Disclosure of Interests."
The Depositary will use reasonable efforts to forward to any registered
holders at the request and at the expense of New National Grid, any request by
New National Grid for information and to comply with any instructions of New
National Grid, to the extent reasonably practicable, given in connection with
the foregoing. If New National Grid requests information from the Depositary or
the Custodian, as the registered holders of ordinary shares, pursuant to the
articles of association of New National Grid or the Companies Act 1985, the
obligations of the Depositary or the Custodian will be limited to disclosing to
New National Grid the information relating to the ordinary shares in question
that they have recorded pursuant to the terms of the Deposit Agreement.
Amendment and Termination
New National Grid may agree with The Bank of New York to amend the
Deposit Agreement and the ADRs without your consent for any reason. If the
amendment adds or increases fees or charges, except for taxes and other
governmental charges or registration fees, cable, telex or facsimile
transmission costs, delivery costs or other such expenses, or prejudices an
important right of ADS holders, it will only become effective 30 days after The
Bank of New York notifies you of the amendment. At the time an amendment becomes
effective, you are considered by continuing to hold your ADS, to agree to the
amendment and to be bound by the ADSs and the Deposit Agreement is amended.
The Bank of New York will terminate the Deposit Agreement if New
National Grid asks it to do so. The Bank of New York may also terminate the
Deposit Agreement if The Bank of New York has told New National Grid that it
would like to resign and New National Grid has not appointed a new depositary
bank within 90 days. In both cases, The Bank of New York must notify you at
least 30 days before termination.
After termination, The Bank of New York and its agents will be required
to do only the following under the Deposit Agreement: (1) advise you that the
Deposit Agreement is terminated, and (2) collect distributions on the deposited
securities and deliver shares and other deposited securities upon cancellation
of ADSs. After the expiration of one year from the date of termination, The Bank
of New York will, if practical, sell any remaining deposited securities by
public or private sale. After the expiration of one year from the date of
termination, The Bank of New York will hold the proceeds of the sale, as well as
any other cash it is holding under the Deposit Agreement for the pro rata
benefit of the ADS holders that have not surrendered their ADSs. It will not
invest the money and will have no liability for interest. The Bank of New York's
only obligations will be to account for the proceeds of the sale and other cash.
After termination, New National Grid's only obligations will be with respect to
indemnification and to pay certain amounts to The Bank of New York.
Limitations on Obligations and Liability to ADS Holders
The Deposit Agreement expressly limits New National Grid's obligations
and the obligations of The Bank of New York, and it limits New National Grid's
liability and the liability of The Bank of New York. New National Grid and The
Bank of New York:
o are only obligated to take the actions specifically set forth in
the Deposit Agreement without negligence or bad faith;
o are not liable if either of them is prevented or delayed by law or
circumstances beyond their control from performing their
obligations under the Deposit Agreement;
o are not liable if either of them exercises discretion permitted
under the Deposit Agreement;
o have no obligation to become involved in a lawsuit or other
proceeding related to the ADSs or the Deposit Agreement on your
behalf or on behalf of any other party; and
o may rely upon any documents they believe in good faith to be
genuine and to have been signed or presented by the proper party.
In the Deposit Agreement, New National Grid and The Bank of New York
agree to indemnify each other under certain circumstances.
Requirements for Depositary Actions
Before The Bank of New York will issue or register a transfer of an
ADS, make a distribution on an ADS, or make a withdrawal of shares, The Bank of
New York may require:
o payment of stock transfer or other taxes or other governmental
charges and transfer or registration fees charged by third parties
for the transfer of any shares or other deposited securities;
o production of satisfactory proof of the identity and genuineness of
any signature or other information it deems necessary; and
o compliance with regulations it may establish, from time to time,
consistent with the Deposit Agreement, including presentation of
transfer documents.
The Bank of New York may refuse to deliver, transfer, or register
transfers of ADSs generally when the books of The Bank of New York or New
National Grid are closed, or at any time if The Bank of New York or New National
Grid thinks it advisable to do so.
You have the right to cancel your ADSs and withdraw the underlying
shares at any time except:
o when temporary delays arise because: (1) The Bank of New York or
New National Grid has closed its transfer books; (2) the transfer
of shares is blocked to permit voting at a shareholders' meeting;
or (3) New National Grid is paying a dividend on the ordinary
shares;
o when you or other ADS holders seeking to withdraw shares owe money
to pay fees, taxes and similar charges; or
o when it is necessary to prohibit withdrawals in order to comply
with any laws or governmental regulations that apply to ADSs or to
the withdrawal of shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of
the Deposit Agreement.
Pre-Release of ADSs
In certain circumstances, subject to the provisions of the Deposit
Agreement, The Bank of New York may issue ADSs before deposit of the underlying
shares. This is called a pre-release of the ADS. The Bank of New York may also
deliver shares upon cancellation of pre-released ADSs (even if the ADSs are
cancelled before the pre-release transaction has been closed out). A pre-release
is closed out as soon as the underlying shares are delivered to The Bank of New
York. The Bank of New York may receive ADSs instead of shares to close out a
pre-release. The Bank of New York may pre-release ADSs only under the following
conditions: (1) before or at the time of the pre-release, the person to whom the
pre-release is being made must represent to The Bank of New York in writing that
it or its customer owns the shares or ADSs to be deposited; (2) the pre-release
must be fully collateralized with cash or other collateral that The Bank of New
York considers appropriate; and (3) The Bank of New York must be able to close
out the pre-release on not more than five business days' notice. In addition,
The Bank of New York will limit the number of ADSs that may be outstanding at
any time as a result of pre-release to 30% of the ordinary shares deposited,
although The Bank of New York may disregard the limit from time to time, if it
thinks it is appropriate to do so.
COMPARISON OF RIGHTS OF NIAGARA MOHAWK SHAREHOLDERS
AND NEW NATIONAL GRID SHAREHOLDERS
As a result of the merger, holders of Niagara Mohawk common stock
(other than holders, if any, who will receive cash for all of their shares) will
receive ADSs, each of which represents five ordinary shares. New National Grid
is a public limited company incorporated under the laws of England and Wales.
Niagara Mohawk is a corporation organized under the laws of the State of New
York. The following is a summary of material differences between the rights of
Niagara Mohawk shareholders and the rights of New National Grid shareholders
arising from the differences between the corporate laws of the State of New York
and England and Wales, the governing instruments of the two companies, and as a
result of UK Listing Authority requirements.
Prior to the implementation of the scheme of arrangement and subject to
the condition that the scheme of arrangement becomes effective, New National
Grid will adopt new articles of association appropriate for a publicly traded
company. See "Description of Ordinary Shares." The following description assumes
that the scheme of arrangement and the merger have been completed and that New
National Grid has adopted its new articles of association.
Rights attaching to ordinary shares underlying the ADSs are exercisable
only by the Depositary, as the registered holder of those shares. Rights as
between the Depositary and holders of the ADSs are set out in the Deposit
Agreement. For further details, including details of future proposals in
relation to ADSs, see "Description of American Depositary Shares" above.
Limitations on Enforceability of Civil Liabilities Under US Federal Securities
Laws
New National Grid is and will continue to be an English company. Most
of New National Grid's officers and some of the experts named in this proxy
statement/prospectus are residents of the UK and not the United States. In
addition, following the merger, a majority of New National Grid's officers and
directors will be residents of the UK and not the United States. A large portion
of the assets of New National Grid are located outside of the United States,
although New National Grid will indirectly have very substantial assets in the
United States. As a result, it may be difficult for investors to effect service
within the United States upon persons located outside the United States or to
enforce in US courts or outside the United States judgements obtained against
persons in United States courts, or to enforce in United States courts
judgements obtained against those persons in courts in jurisdictions outside the
United States, in each case, in any action, including actions predicated upon
the civil liability provisions of US securities laws. New National Grid believes
that there may be doubt as to the enforceability against persons in the UK,
whether in original actions or in actions for the enforcement of judgements of
US courts, of civil liabilities predicated solely upon the laws of the United
States, including its federal securities laws. Unlike directors and officers of
Niagara Mohawk presently, directors and officers of New National Grid, a foreign
private issuer under the Securities Exchange Act of 1934, will not be subject to
rules under the Securities Exchange Act that under certain circumstances would
require directors and officers to forfeit to New National Grid any "short swing"
profits realized from purchases and sales, as determined under the Securities
Exchange Act and the rules thereunder, of New National Grid equity securities.
Proxy Statements and Reports
Under Section 14(a) of the Securities Exchange Act and the rules
enacted pursuant to Section 14(a) (the "Proxy Rules"), Niagara Mohawk is
required to comply with notice and disclosure requirements relating to the
solicitation of proxies in respect of shareholder meetings. As a foreign private
issuer, New National Grid will not be subject to the Proxy Rules. However, New
National Grid will be subject to notice and disclosure requirements under the
Financial Services Act 1986, the Companies Act 1985 and the Listing Rules of the
UK Listing Authority. As a foreign private issuer with securities listed on the
New York Stock Exchange and registered under Section 12 of the Securities
Exchange Act, New National Grid will also be required under the Securities
Exchange Act to publicly file with the SEC and the New York Stock Exchange, as
the case may be, annual reports and other information.
Niagara Mohawk Voting Rights; Generally
The capital stock of Niagara Mohawk consists of the shares of common
stock and one class of preferred stock, none of which preferred stock is
outstanding. The holders of shares of common stock are entitled to one vote for
each share held on matters presented to shareholders generally.
The holders of common stock shares do not have cumulative voting
rights, which means that the holders of more than 50% of all outstanding shares
can elect 100% of the directors if they choose to do so, and, in such event, the
holders of the remaining less than 50% of the shares will not be able to elect
any person or persons to the Niagara Mohawk board of directors. Nominees who
receive the most votes by shareholders are elected directors. A quorum consists
of a majority of the shares entitled to vote, unless otherwise required by law.
See "--Special Meeting of Shareholders" below for a discussion of who may call
meetings of shareholders of Niagara Mohawk.
New National Grid Voting Rights; Generally
Under English law, the voting rights of shareholders are governed by a
company's articles of association, subject to the statutory rights of
shareholders, including the right to demand a poll (a vote by the number of
shares held) at a general meeting. Each shareholder present in person and
entitled to vote at a general meeting has one vote on a show of hands and, on a
poll, one vote for every share held by him. New National Grid's articles of
association provide that a poll may be demanded by:
o the Chairman of the meeting; or
o by at least five shareholders present in person or by proxy and
having the right to vote at the meeting; or
o by any shareholder or shareholders representing at least 10% of the
voting rights of all shareholders having the right to vote at the
meeting or by any shareholder or shareholders holding shares
conferring a right to vote at the meeting on which the aggregate
sum paid up on the shares is equal to not less than 10% of the
total sum paid up upon all the shares conferring the right to vote.
Cumulative voting is essentially unknown under English law. Under
English law, two shareholders present in person constitute a quorum for purposes
of a general meeting, unless the company's articles of association specify
otherwise. New National Grid's articles of association specify that two
shareholders present in person or by proxy and entitled to vote constitute a
quorum. See "Description of Ordinary Shares--Voting Rights" and "Description of
American Depositary Shares--Voting Rights" above.
Under New National Grid's articles of association, if a person, other
than specified permitted persons, including the Depositary, has or appears to
New National Grid's board of directors to have an interest, except those of a
nominee or custodian trustee, in ordinary shares which carry the right to cast
15% or more of the total votes attaching to the entire share capital of New
National Grid, that person is not entitled to attend or vote at any general
meeting of shareholders of New National Grid or to exercise any other right
conferred by ownership of the ordinary shares in relation to any shareholders'
meeting, and the right to attend, to speak and to demand and vote on a poll
which would have attached to the ordinary shares will vest in the chairman of
the meeting, who will have complete discretion to vote the ordinary shares.
Those rights will not reattach to the ordinary shares until New National Grid's
board of directors is satisfied that the person has disposed of a sufficient
amount of ordinary shares. See "Description of Ordinary Shares--General
Limitations on Shareholdings" above.
New National Grid Special Share
The UK Government (through the Secretary of State for Trade and
Industry) holds a special rights non-voting redeemable preference share which is
redeemable at par ((pound)1) only at the option of the Secretary of State for
Trade and Industry. New National Grid may not redeem the special share unless
requested to do so by the Secretary of State for Trade and Industry. The special
share, which may only be held by the UK government, does not carry any rights to
vote at general meetings of New National Grid but does entitle the holder to
receive notice of, attend and speak at general meetings. The articles of
association of New National Grid specify matters, in particular the alteration
of specified provisions of the articles of association including the provision
relating to limitations which prevent a person from owning or having an interest
in 15% or more of New National Grid voting shares, which require the written
consent of the holder of the special share. The Secretary of State for Trade and
Industry as holder of the special share does not have a right to appoint or
nominate directors to New National Grid's board of directors.
Shareholder Action by Written Consent
Under the Niagara Mohawk certificate of incorporation, shareholders
must act at a duly called annual or special meeting and may not act by written
consent.
Under English law, a company's articles of association may provide that
a resolution in writing executed by or on behalf of each shareholder who would
have been entitled to vote upon it if it had been proposed at a general meeting
at which he was present will be as valid and effective as if it had been passed
at a general meeting properly convened and held. That written resolution
requires the unanimous consent of all shareholders entitled to attend and vote.
New National Grid's articles of association do not contain such a provision.
Shareholder Proposals and Shareholder Nominations of Directors
Niagara Mohawk shareholders wishing to present proposals for action at
an annual or other meeting of shareholders must do so in accordance with the
Niagara Mohawk bylaws. A shareholder must give timely notice of the proposed
business to the Corporate Secretary of Niagara Mohawk. To be timely for an
annual meeting, a shareholder's notice must be in writing, delivered to or
mailed and received at the principal executive offices of Niagara Mohawk not
less than 90 days nor more than 120 days before the first anniversary of the
prior year's annual meeting, with an exception provided for annual meetings held
more than 30 days off the prior year's date. For a special meeting at which
directors are elected, notice of a proposed nominee must be given no later than
the tenth day after the date of the special meeting and the identity of the
nominees have been announced.
For each matter the shareholder proposes to bring before the meeting,
the notice to the Corporate Secretary must include:
o the text of the proposal to be presented and a brief statement of
the reasons why the proposing shareholder favors the proposal;
o the name and address of the proposing shareholder;
o the class and number of Niagara Mohawk shares which are
beneficially owned by the proposing shareholder; and
o any material interest of the shareholder in the proposal (other
than as a shareholder).
The person presiding at the shareholders' meeting shall determine
whether the notice has been duly given and shall direct that proposals not be
considered if the notice has not been given.
Niagara Mohawk shareholders wishing to directly nominate candidates for
election to the Niagara Mohawk board of directors must do so in accordance with
the Niagara Mohawk bylaws by giving timely notice in writing to the Corporate
Secretary. The notice must set forth:
o as to each person whom the shareholders proposes to nominate,
(1) all information relating to the person that is required by
paragraphs (a), (e) and (f) of Item 401 of Regulation S-K
adopted by the SEC (or the corresponding provisions of any
subsequent regulations adopted by the SEC, applicable to
Niagara Mohawk);
(2) the signed consent of the person to be named in the proxy
statement to serve as a director if elected; and
o as to the shareholder giving the notice,
(1) the name and address of the shareholder; and
(2) the class and number of Niagara Mohawk shares which are
beneficially owned by the shareholder.
The person presiding at the shareholders' meeting shall determine if
such notice has been duly given and shall direct that nominees not be considered
if such notice has not been given.
Under English law, shareholders may requisition a resolution, including
a resolution to appoint a director see "Vacancies on the Board of Directors"
below, to be voted on at a general meeting if:
o the requisition is made by the holders of shares which represent
not less than one-twentieth of the voting rights of all
shareholders having at the date of the requisition a right to vote
at the meeting to which the requisition relates; or
o the requisition is made by not less than 100 shareholders holding
shares on which there has been paid up an average sum, per
shareholder, of not less then (pound)100.
The requisition must be deposited at the company's registered office
not less than six weeks before the general meeting to which it relates. At a
general meeting, a resolution to appoint two or more directors by a single
resolution may not be proposed unless a resolution approving that it may be
proposed is passed by the general meeting with no dissenting votes.
New National Grid's articles of association provide that a person,
other than a retiring director or a person recommended by the board, is only
eligible for election to New National Grid's board of directors by shareholders
at a general meeting if a shareholder who is qualified to attend and vote at
that meeting directly nominates that other person by written notice to New
National Grid signed by the shareholder and by the nominee, and giving details
in relation to the proposed director.
Sources and Payment of Dividends
New York law provides that, subject to any restrictions contained in
the certificate of incorporation, a New York corporation may pay dividends or
make other distributions to its shareholders except when the corporation is
insolvent or would thereby be made insolvent, provided, however, that dividends
may be declared or paid and other distributions may be paid out of surplus only,
so that the net assets of the corporation remaining after the declaration,
payment or distribution shall at least equal the amount of its stated capital.
Under English law, a company may pay dividends only out of its
distributable profits and not out of share capital, which includes share
premiums. Amounts credited to the share premium account, representing the excess
of the consideration for the issue of shares over the aggregate par value of the
shares, may not be paid out as cash dividends but may be used, among other
things, to pay up unissued shares which may then be distributed to shareholders
in proportion to their holdings. In addition, a public company, such as New
National Grid, may make a distribution at any time only if, at that time, the
amount of its net assets is not less than the aggregate of its issued and paid
up share capital and undistributable reserves. National Grid Group has
historically paid two dividends per year. New National Grid's board of directors
has the power under New National Grid's articles of association to declare and
pay interim dividends. Subject to any preferential rights attached to any class
of shares, the ordinary shares are entitled to all dividends paid by New
National Grid. See "Description of Ordinary Shares--Dividends and Other
Distributions" above.
Rights of Purchase and Redemption
Under New York law, the repurchase, redemption and conversion or
exchange into cash, other property, indebtedness or stock by a New York
corporation are subject to the same limitations as to insolvency and use of
surplus as are applicable to the payment of dividends. See "--Sources and
Payment of Dividends." In addition, under New York law, shares of stock may only
be redeemed, converted or exchanged for the applicable redemption, conversion or
exchange price stated in the certificate of incorporation.
Under English law and its articles of association, New National Grid
may issue redeemable shares. An English company may purchase its own shares,
including any redeemable shares, if so authorized by its articles of association
and provided that the purchase has been previously approved by an ordinary
resolution of its shareholders, in the case of an on-market purchase, which
approval may be general or specific, or a special resolution, in the case of an
off-market purchase. The shares may be redeemed or repurchased only if fully
paid and, in the case of public companies such as New National Grid, only,
subject as provided below, out of distributable profits or the proceeds of a new
issue of shares issued for the purpose of the repurchase or redemption. New
National Grid's articles of association do permit the purchase of its own
shares. As with many other companies listed on the Official List of the UK
Listing Authority, New National Grid will seek an annual authority to approve
on-market purchases subject to specified limitations. When a company purchases
its own shares wholly out of profits, an amount equal to the nominal amount of
the shares purchased and subsequently cancelled must be transferred to the
capital redemption reserve, which is generally treated as paid-up share capital.
In addition, any amount payable by the company on purchase of its shares in
excess of the par value may be paid out of the proceeds of a fresh issue of
shares up to an amount equal to whichever is the lesser of the aggregate of the
original premiums received by the company on the issue of those shares or the
amount of the company's share premium account as at the time of the repurchase
including any sum transferred to that account in respect of premiums on the new
issue. The UK Listing Authority usually requires that on-market purchases of 15%
or more of a company's equity share capital pursuant to a general shareholder
authority must be made by way of either a tender or partial offer to all
shareholders, and in the case of a tender offer, at a stated maximum or fixed
price. Purchases pursuant to a general shareholder authority below the 15%
threshold may be made through the market in the ordinary way provided that the
price may not usually be more than 5% above the average of the market value of
the company's shares for the five business days before the purchase date.
Special Meeting of Shareholders
The Niagara Mohawk certificate of incorporation provides that special
meetings of shareholders may be called by the Chairman of the Board, the
President or the Niagara Mohawk board of directors. The business permitted to be
conducted at any special meeting of shareholders is limited to the business
specified in the notice of the meeting given pursuant to the bylaws.
Under English law, an extraordinary general meeting of shareholders may
be called by the board of directors or, notwithstanding any provision to the
contrary in a company's articles of association, by a requisition of
shareholders holding not less than one-tenth of the paid-up capital of the
company carrying voting rights at general meetings. An ordinary resolution
requires 14 clear days' notice. An extraordinary resolution (as defined below)
also requires 14 clear days' notice. A special resolution requires 21 clear
days' notice. Extraordinary resolutions are relatively unusual and are confined
to matters out of the ordinary course of business such as a proposal to wind up
the affairs of the company. Special resolutions generally involve proposals to
change the name of the company, to alter its capital structure, to change or
amend the rights of shareholders, to permit the company to issue new shares for
cash without applying the shareholders' pre-emptive rights, to amend the
company's objects (purpose) clause in its memorandum of association, to amend
the company's articles of association or to carry out certain other matters
where either the company's articles of association or the Companies Act 1985
prescribe that a special resolution is required. All other proposals relating to
the ordinary course of the company's business, such as the election of
directors, would be the subject of an ordinary resolution. An annual general
meeting requires 21 clear days' notice, although best practice under certain UK
corporate governance guidelines would be to give at least 20 working days'
notice.
Dissenters' Rights
Under New York law, with certain exceptions, a shareholder is entitled
to dissent from, and obtain payment of the fair value of the shareholder's
shares in the event of a merger, consolidation, share exchange or sale, lease,
exchange or other disposition of all or substantially all of the assets of the
corporation which requires shareholder approval (other than a transaction wholly
for cash to be followed by a dissolution of the corporation). Under New York
law, however, dissenters' rights do not apply to the holders of shares of any
class or series if the shares of the class or series were listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. on the record date for the meeting of shareholders at which the corporate
action giving rise to dissenters' rights is to be approved. Niagara Mohawk
common stock is listed on the New York Stock Exchange and, therefore, Niagara
Mohawk common shareholders have no dissenters' rights of appraisal with respect
to the merger.
English law does not generally provide for dissenters' rights. However,
see "--Amendments of Governing Instruments," "--Shareholders' Voting Rights on
Certain Transactions" and "--Shareholders' Suits" below.
Pre-emptive Rights
The Niagara Mohawk certificate of incorporation expressly eliminates
pre-emptive rights in accordance with New York law.
Under English law, the issue for cash of equity securities or rights to
subscribe for or convert into equity securities must be offered in the first
instance to the existing equity shareholders in proportion to the respective
nominal values of their holdings, unless a special resolution has been passed in
a general meeting of shareholders disapplying (whether generally or
specifically) this requirement. As is the custom of many companies listed on the
Official List of the UK Listing Authority, New National Grid intends to obtain
authority from its shareholders to allot up to a specified amount of share
capital for cash otherwise than pro rata to its existing shareholders.
Amendment of Governing Instruments
Under New York law, amendments or changes to the certificate of
incorporation may be authorized by vote of the board, followed by a vote of a
majority of all outstanding shares entitled to vote thereon. New York law
requires, among other things, a class vote by the holders of a class of shares
if the certificate of incorporation would be amended to exclude or limit their
right to vote, reduce the par value, change the authorized shares into a
different number of shares, fix, change or abolish the designation or any of the
relative rights, preferences and limitations of the shares, or authorize any
shares with rights superior to those of the class. New York law provides that
directors of a New York corporation may make amendments to the certificate of
incorporation without shareholder approval in certain limited circumstances.
Niagara Mohawk's certificate of incorporation generally may be amended
by a majority vote of the outstanding shares, except that a vote of two-thirds
of the shares entitled to vote thereon is required to amend the provisions in
the certificate of incorporation (and comparable provisions in the bylaws)
relating to the adoption and amendment of bylaws by the board of directors,
pre-emptive rights, the calling of special meetings, the classification,
election and removal of directors and shareholder action only at meetings.
Under English law, the shareholders have the authority to alter,
delete, substitute or add to the objects clause in a company's memorandum of
association and all provisions of its articles of association by a special
resolution subject, in the case of alterations to the objects clause in the
memorandum of association, to the right of dissenting shareholders to apply to
the court to cancel the alterations. Under English law, the board of directors
is not authorized to change the memorandum of association or the articles of
association. Amendments affecting the rights of the holders of any class of
shares may, depending on the rights attached to the class and the nature of the
amendments, also require approval of the classes affected in separate class
meetings.
Preferred Stock and Preference Stock
Niagara Mohawk's certificate of incorporation provides that serial
preferred stock may be issued in one or more series and that the board of
directors is expressly authorized prior to issuance to establish and designate
each series and fix the rights, preferences and limitations of each series, as
to the following matters:
o the distinctive serial designation;
o the number of shares;
o the dividend rate or rates (or method of determining such rate or
rates) and the dates dividends are payable;
o whether dividends are cumulative and, if so, the date or dates from
which dividends shall be cumulative;
o the amount to be paid upon voluntary or involuntary liquidation,
dissolution or winding up of Niagara Mohawk;
o provisions, if any, for the redemption or acquisition of shares; o
sinking fund provisions, if any;
o the rights of conversion, if any, and the terms and conditions of
any conversion;
o voting rights, if any; and
o any other rights, preferences or limitation not inconsistent with
applicable law.
Subject to English law and without prejudice to any rights attached to
any existing shares or class of shares, New National Grid may issue shares,
including preferred shares, with the rights or restrictions that its
shareholders may by ordinary resolution determine or, if its shareholders do not
so determine, the directors determine. See "Description of Ordinary
Shares--Variation of Rights and Alteration of Capital" above.
Debt Limitations
Niagara Mohawk's certificate of incorporation does not provide for any
limitation on indebtedness of Niagara Mohawk.
With specified exceptions, New National Grid's articles of association
provide that the borrowings of New National Grid should not exceed a sum equal
to four times New National Grid's adjusted capital and reserves (as defined in
New National Grid's articles of association), unless approved by an ordinary
resolution of the shareholders.
Shareholders' Voting Rights on Certain Transactions
Under New York law, the vote of a majority of the outstanding shares of
capital stock entitled to vote thereon generally is necessary to approve a
merger, consolidation, share exchange or a sale of all or substantially all of
the assets of a corporation incorporated after February 2, 1998. Niagara Mohawk
was incorporated on April 2, 1998. After adoption by the board of directors, a
merger agreement must be submitted to the shareholders of a New York corporation
for adoption.
Under the rules of the New York Stock Exchange, certain acquisitions
involving substantial security holders or the issuance of additional shares of
common stock of a listed company aggregating 20% or more of the outstanding
shares of common stock require the approval of the holders of a majority of the
shares voting thereon.
The New York Business Combination Law generally prohibits a New York
corporation, such as Niagara Mohawk, from engaging in certain "business
combinations" with an "interested shareholder" for a period of five years from
the date the person becomes an interested shareholder unless before the person
became an interested shareholder, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the shareholder becoming an interested shareholder. Thereafter, the business
combination (1) must be approved by the affirmative vote of at least a majority
of the outstanding voting stock not owned by the interested shareholder or (2)
certain "fair price" criteria must be met and certain "self dealing"
transactions must not have occurred in the interim.
"Interested shareholder" is defined as any person that is the
beneficial owner, directly or indirectly, of 20% or more of the outstanding
voting stock of the corporation, or an affiliate or associate of the corporation
who within the past five years was a beneficial owner of 20% or more of the
outstanding voting stock of the corporation.
Although a New York corporation may elect, under its certificate of
incorporation or bylaws, not to be governed by these provisions, Niagara Mohawk
has not done so.
English law provides for schemes of arrangement, which are arrangements
or compromises between a company and its shareholders or creditors or any class
of its shareholders, or any class of its creditors, and are used for certain
types of reconstructions, amalgamations, capital reorganizations or takeovers.
They require the approval at a meeting of the company convened by an order of
the court of a majority in number of the shareholders or creditors or class of
shareholders or creditors representing not less than 75% in value of the capital
or debt held by the shareholders or creditors or class present and voting,
either in person or by proxy, and the sanction of the court. Once the scheme
becomes effective, all shareholders and creditors (or, if it applies to a class,
the shareholders or creditors of the relevant class) are bound by the terms of
the scheme.
Under the rules of the UK Listing Authority, shareholder approval is
usually required for an acquisition or disposal by a listed company, if the
gross assets of the company or the business to be acquired or disposed of
represent 25% or more of the gross assets of the company or if various other
size ratios prescribed by the Listing Rules of the UK Listing Authority are
satisfied, and is also required in some circumstances relating to the giving by
the listed company of indemnities and similar arrangements. Where the size of
the acquisition or disposal falls below that level, information may nevertheless
be required to be published. Shareholder approval may also be required for an
acquisition or disposal of assets between a listed company and related parties
including:
(1) directors of the company or its subsidiaries;
(2) holders of 10% or more of the nominal value of any class of the
company's or any holding company's or subsidiary's shares having
the right to vote in all circumstances at general meetings of the
relevant company; or
(3) any associate of persons described in (1) or (2) above.
See also "--Certain Provisions Relating to Share Acquisitions" below.
English law also provides that where a takeover offer is made for the
shares of a company incorporated in the UK and, within four months of the date
of the offer the offeror has, by virtue of acceptances of the offer, acquired or
contracted to acquire not less than nine-tenths in value of the shares of any
class to which the offer relates, the offeror may, within two months of reaching
the nine-tenths level, by notice require shareholders who do not accept the
offer to transfer their shares on the terms of the offer. A dissenting
shareholder may apply to the court within six weeks of the date on which the
notice was given objecting to the transfer or its proposed terms. The court is
unlikely, absent unfair treatment, fraud or oppression, to exercise its
discretion to order that the acquisition shall not take effect, but it may
specify the terms of the transfer as it finds appropriate. A minority
shareholder is also entitled in these circumstances to require the offeror to
acquire his shares on the terms of the offer.
Mergers are sometimes effected through the use of a voluntary
liquidation of a company pursuant to the Insolvency Act 1986, which provides for
the transfer of the whole or part of the assets of that company to another
company in return for shares in the transferee company. To effect the transfer,
a resolution passed by 75% of shareholders conferring authority on the
liquidator is required. Any shareholder who does not vote in favor of the
resolution may express his dissent by writing to the liquidator within seven
days after the passing of the resolution, requiring the liquidator either to
abstain from carrying the resolution into effect or to purchase the
shareholder's interest at a price to be determined by agreement or by
arbitration. The liquidator may apply to the court if it disputes the
shareholder's contention and the court may make such an order on the application
as it thinks just.
Rights of Inspection
New York law allows any shareholder of record of a New York
corporation, upon five days' written notice to the corporation, to have the
right, during usual business hours, to examine, in person or by agent, the
corporation's minutes of shareholder meetings and record of shareholders and to
make extracts therefrom for any purpose reasonably related to that person's
interest as a shareholder. Inspection rights may be denied unless an affidavit
is provided by the shareholder that the inspection is not desired for a purpose
other than the business of the corporation and that the shareholder has not
offered or sold a list of shareholders in the past five years.
Except when closed in accordance with English law, the register of
names of shareholders of an English company may be inspected during business
hours by its shareholders, without charge, and by other persons upon payment of
a fee, and copies may be obtained on payment of a fee. The shareholders of an
English public company may, without charge, also inspect the minutes of meetings
of the shareholders during business hours and obtain copies upon payment of a
fee. The published annual accounts of a public company are required to be laid
before the shareholders in a general meeting and a shareholder is entitled to a
copy of the accounts. The shareholders of New National Grid have no rights to
inspect its accounting records or minutes of meetings of its directors. Some
registers required to be kept by a company are open to public inspection and
service contracts of directors of a company which have more than 12 months
unexpired or require more than 12 months' notice to terminate must be available
for inspection during normal business hours.
Standard of Conduct for Directors
New York law provides that directors of a New York corporation shall
perform their duties in good faith and with that degree of care which an
ordinarily prudent person in a like position would exercise under similar
circumstances. Decisions made on that basis are protected by the so-called
"business judgment rule." In performing their duties, directors are entitled to
rely on information, opinions, reports or statements prepared or presented by
certain officers or employees of the corporation whom the director reasonably
believes to be reliable and competent in the matters presented, by legal
counsel, public accountants or other persons as to matters which the director
believes to be within the person's professional or expert competence, or by any
committee of the board of directors if the director believes the committee
merits confidence.
Under English law, a director of a company is under a number of duties
to that company, including a duty to act in the company's bona fide best
interests; a duty not to put himself in a position where there is an actual or
potential conflict between his duty to his company and his duties to any other
person or his personal interests; and a duty to act for a proper purpose and to
exercise his powers only in accordance with the articles of association of the
company. In addition, directors are under a duty to exercise reasonable skill
and care in the performance of their duties. Various duties, including
disclosure obligations, are also imposed upon directors of a company by statute
and by the Listing Rules of the UK Listing Authority. Where applicable,
executive directors will also have duties under their service contracts.
Classification of the Board of Directors
Under New York law, the certificate of incorporation of a New York
corporation may provide for the classification of the board of directors to
stagger the terms of directors. The term "classified board" generally means the
specification of selected board seats for a term of more than one year but not
more than four years, with different classes of board seats coming up for
election each year. The Niagara Mohawk certificate of incorporation and bylaws
provide for a classified board of directors consisting of three classes of
directors, each class elected for a term of three years. The Niagara Mohawk
certificate of incorporation also provides that amending, altering, changing or
repealing the director classification provisions of the Niagara Mohawk
certification of incorporation and bylaws requires the affirmative vote of
holders of at least two-thirds of the shares entitled to vote on the election of
directors (or, with respect to the bylaws only, two-thirds of the entire board
of directors).
English law permits a company to provide for the classification of the
board of directors with respect to the time for which directors severally hold
office. New National Grid's articles of association provide that there shall not
be less than two directors and no maximum number of directors. All directors are
subject to the general company law requirements concerning the removal of
directors. At each annual general meeting one-third of the directors shall
retire from office by rotation. The directors concerned may be re-appointed or
deemed to be re-appointed under the articles of association. The directors to
retire are selected on the basis of time in office since their last election but
if any director has at the start of the annual general meeting been in office
for more than three years since his last appointment or re-appointment, he must
retire. Any director appointed by the directors since the last annual general
meeting is required to retire at the next following annual general meeting and
then is eligible for election, but is not taken into account in determining
which directors are to retire by rotation at the meeting.
Removal of Directors
The Niagara Mohawk certificate of incorporation and bylaws provide
that directors (other than directors elected by holders of preferred stock) may
be removed only for cause.
Under English law, shareholders have the right to remove a director
without cause by ordinary resolution of which special notice (28 clear days'
notice) has been given to the company. New National Grid's articles of
association provide that a director may be removed from office by notice in
writing served upon him signed by all his co-directors.
Vacancies on the Board of Directors
Under New York law, the board of directors of a corporation may fill
any vacancy on the board of directors, including vacancies resulting from an
increase in the number of directors, other than a vacancy resulting from the
removal of directors without cause, which vacancy may only be filled by the
shareholders, unless the certificate of incorporation provides otherwise. Under
the Niagara Mohawk certificate of incorporation and bylaws, in case of a vacancy
among the directors (other than due to a removal without cause), the remaining
directors, by an affirmative vote of a majority of the directors then in office,
although less than a quorum, may fill the vacancy.
Under English law, shareholders of a public company may, by ordinary
resolution, appoint a person who is willing to be a director either to fill a
vacancy or, subject to any maximum provided in the company's articles of
association, as an additional director. The board of directors also has the
power to appoint a director to fill a vacancy or as an additional director,
subject to the conditions that may be set out in the company's articles of
association, provided that the appointment will only last until the next
following annual general meeting of the company, at which the director concerned
may be re-elected.
Liabilities of Directors and Officers
Under the Niagara Mohawk certificate of incorporation, no director of
Niagara Mohawk shall be personally liable to Niagara Mohawk or its shareholders
for any breach of duty as a director, except to the extent that exemption from
liability is not permitted under New York law. New York law does not permit the
limitation of liability if a director is adjudicated to have acted in bad faith,
engaged in intentional misconduct or a knowing violation of law, personally
gained in fact a financial profit or other advantage to which he was not legally
entitled or violated the restrictions on dividends and repurchases and
redemptions described above under "--Sources and Payments of Dividends" and
"--Rights of Purchase and Redemption."
English law does not permit a company to exempt any director or other
officer of the company or any person employed by the company as auditor from any
liability which by virtue of any rule of law would otherwise attach to him in
respect of any negligence, default, breach of duty or trust of which he may be
guilty in relation to the company. See "--Indemnification of Directors and
Officers" below.
Indemnification of Directors and Officers
New York law permits a New York corporation to indemnify directors and
officers made, or threatened to be made, party to a proceeding because the
individual holds or held that capacity, against liabilities and expenses
incurred in such proceeding if the individual acted in good faith, for a purpose
such individual reasonably believed to be in the corporation's best interests.
In the case of any criminal proceeding, the individual must have had no
reasonable cause to believe the individual's conduct was unlawful. New York law
provides that statutory indemnification is not exclusive of rights to
indemnification which may be provided in a corporation's certificate of
incorporation or bylaws or, when authorized by the certificate of incorporation
or bylaws, through resolutions of its shareholders or board of directors or by
agreement.
The Niagara Mohawk bylaws provide that Niagara Mohawk must indemnify to
the fullest extent not prohibited by law any person who is made, or threatened
to be made, a party to an action, claim or proceeding of any kind, including a
derivative proceeding, by reason of the fact such person is or was a director or
officer of Niagara Mohawk, or serves or served, at the request of Niagara
Mohawk, in that or another capacity for another entity. Niagara Mohawk will
advance expenses in any proceeding to the fullest extent not prohibited by law.
English law does not permit a company to indemnify a director or an
officer of the company or any person employed by the company as auditor against
any liability which by virtue of any rule of law would otherwise attach to him
in respect of negligence, default, breach of duty or breach of trust in relation
to the company, except as liability incurred by the director, officer or auditor
in defending any legal proceedings in which judgement is given in his favor or
in which he is acquitted or in certain instances where, although he is liable, a
court finds that the director, officer or auditor acted honestly and reasonably
and that having regard to all the circumstances he ought fairly to be excused
and relief is granted by the court. English law enables companies to purchase
and maintain insurance for directors, officers and auditors against any
liability which would otherwise attach to them in respect of any negligence,
default, breach of duty or breach of trust in relation to the company. New
National Grid intends to arrange for and maintain directors' and officers'
insurance.
Additional Provisions of New York Law and English Law
New York law specifically authorizes directors of a New York
corporation, in taking action, including action which may involve a change in
control, to consider both the long-term and short-term interests of the
corporation and the effects on the corporation's prospects for potential growth,
development, productivity and profitability, the corporation's current and
retired employees, the corporation's creditors and customers and the ability of
the corporation to provide, as a going concern, goods, services, employment
opportunities and employment benefits and otherwise to contribute to the
communities in which it does business.
English law specifically authorizes directors of a company to have
regard in the performance of their functions to the interests of the company's
employees in general.
Shareholders' Suits
Under New York law, a shareholder of a New York corporation may
institute a lawsuit against one or more directors, either on his own behalf or
derivatively on behalf of the corporation. A shareholder's derivative complaint
must include details of any demand made on the board of directors, or the
reasons why a demand was not made. No discontinuance, compromise or settlement
of the proceeding may occur without court approval.
In addition to having the right to institute a lawsuit on behalf of and
in the name of the company in certain limited circumstances, English law permits
a shareholder whose name is on the register of shareholders of the company,
including US persons, to petition the court for an order when the company's
affairs are being or have been conducted in a manner unfairly prejudicial to the
interests of the shareholders generally or some part of the shareholders,
including at least that shareholder, or when any actual or proposed act or
omission of the company is or would be so prejudicial. A court, when granting
relief by making an order in respect of the matters complained of, has wide
discretion, including authorizing civil proceedings to be brought in the name of
the company by a shareholder on terms as the court may direct and providing for
the purchase of the shares of any shareholders by other shareholders or by the
company. To become a shareholder and enforce those rights under English law,
holders of ADRs will be required to convert at least one of the ADRs into
ordinary shares in accordance with the terms of the Deposit Agreement. Except in
these limited respects, English law does not permit class action lawsuits by
shareholders on behalf of the company or on behalf of other shareholders.
Certain Provisions Relating to Share Acquisitions
In the case of a company listed on the Official List of the UK Listing
Authority, shareholder approval must be obtained for certain acquisitions or
disposals of assets involving directors or substantial shareholders or their
associates. See "--Shareholders' Voting Rights on Certain Transactions." In
addition, takeovers of public companies are regulated by the City Code,
non-statutory rules not enforceable at law but administered by the Takeover
Panel, a body comprising representatives of certain City of London financial and
professional institutions which oversees the conduct of such takeovers. One of
the provisions of the City Code provides that, unless shareholders otherwise
approve by ordinary resolution:
o when any person acquires, whether by a series of transactions over
a period of time or not, shares which, taken together with shares
held or acquired by persons acting in concert with him, carry 30%
or more of the voting rights of a public company; or
o when any person, together with persons acting in concert with him,
holds not less than 30% but not more than 50% of the voting rights
and that person, or any person acting in concert with him, acquires
additional shares carrying voting rights, that person must
generally make an offer for all of the equity shares of the
company, whether voting or non-voting, and any class of voting
non-equity shares of the company held by the person or any person
acting in concert with him, for cash, or accompanied by a cash
alternative, at not less than the highest price paid for the
relevant shares during the 12 months preceding the date of the
offer.
Disclosure of Interests
Acquirors of Niagara Mohawk shares are subject to disclosure
requirements under Section 13(d)(1) of the Securities Exchange Act and Rule
13d-1 thereunder, which provide that any person who becomes the beneficial owner
of more than five % of the issued and outstanding Niagara Mohawk shares must,
within ten days after such acquisition, file a Schedule 13D with the SEC
disclosing certain specified information, and send a copy of the Schedule 13D to
Niagara Mohawk and to the securities exchanges on which the security is traded.
After the merger, acquirors of ADSs will be required to comply with,
among other things, the provisions of Section 13(d) of the Securities Exchange
Act and Rule 13d-1 thereunder with respect to their attributed ownership of the
underlying ordinary shares.
See "Description of Ordinary Shares--Disclosure of Interests" for a
description of the provisions of English law and New National Grid's articles of
association concerning disclosure of interests in New National Grid's ordinary
shares.
Certain UK Listing Authority Listing Requirements
In addition to the provisions of New National Grid's articles of
association and the Companies Act 1985, New National Grid is subject to the
Listing Rules of the UK Listing Authority made under Section 142 of the
Financial Services Act 1986 and in particular to the continuing obligations
under those rules. Among other things, these require a listed company to notify
the UK Listing Authority of any major new developments in its sphere of activity
which are not public knowledge and which may, by virtue of the effect of those
developments on its assets and liabilities or financial position or on the
general course of its business, lead to a substantial movement in the price of
its listed securities. The company must usually ensure equality of treatment for
all holders of listed securities who are in the same position and, when its
securities are listed on more than one stock exchange, must usually ensure that
equivalent information is made available to the market on each exchange on which
its securities are listed. In addition, the Listing Rules impose obligations on
listed companies to send the following information to shareholders:
o details relating to certain acquisitions, disposals, takeovers,
mergers and offers either made by or in respect of the company, and
o an explanatory circular, whenever a general meeting of the
shareholders is convened.
In addition to the above requirements, a company is required to notify
the UK Listing Authority of certain matters including notifications received by
the company of persons holding an interest in 3% or more of any class of the
company's relevant share capital, any changes to the company's board of
directors, any purchase or redemption by the company of its own equity
securities, any interest of a director, including changes, in the shares or the
debentures of his company and changes in the capital structure of the company.
Unaudited half yearly reports of results for the first six months of any fiscal
year and an unaudited preliminary announcement of results for each full fiscal
year must also be published.
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Niagara
Mohawk's executive officers and directors, and persons who own more than 10% of
the Niagara Mohawk common stock outstanding, to file reports of ownership with
the SEC and the New York Stock Exchange. Based solely on reports and other
information submitted by executive officers and directors, Niagara Mohawk
believes that during the year ended December 31, 1999, each of its executive
officers, directors and persons who own more than 10% of the Niagara Mohawk
common stock outstanding filed all reports required by Section 16(a).
OTHER MATTERS
Deadline for Shareholder Proposals
Shareholders who want to have a proposal included in Niagara Mohawk's
proxy statement and proxy card for the 2001 Annual Meeting of Shareholders must
notify the Secretary of Niagara Mohawk. The proposal must be received on or
before Friday, December 1, 2000 and should be addressed to:
Office of the Secretary
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
A shareholder must be a registered or beneficial owner of at least one
% of Niagara Mohawk's outstanding common stock or stock with a market value of
$2,000 and the shareholder must continue to own such stock through the date on
which the meeting is held.
Shareholders who wish to present a proposal at the 2001 Annual Meeting must
notify the Secretary of Niagara Mohawk in writing not less than 90 days nor more
than 120 days before the annual meeting.
UK CIRCULAR
National Grid Group is convening an Extraordinary General Meeting to
approve the merger, and will be distributing to its shareholders a circular
relating to the merger. The contents of the circular do not form part of, nor
are they incorporated into, this joint proxy statement/prospectus.
LEGAL MATTERS
The legality of the ordinary shares to be issued under the merger
agreement is being passed upon for New National Grid by CMS Cameron McKenna,
English counsel for New National Grid. Certain tax matters in connection with
the merger are being passed upon for New National Grid by PricewaterhouseCoopers
LLP and for Niagara Mohawk by Bryan Cave LLP.
EXPERTS
The consolidated financial statements of Niagara Mohawk Holdings, Inc.
and Niagara Mohawk Power Corporation as of December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 incorporated in
this proxy statement/prospectus by reference from Niagara Mohawk's Annual Report
on Form 10-K for the year ended December 31, 1999 have been so incorporated in
reliance upon the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of National Grid Group as of
March 31, 2000 and 1999 and for each of the three years in the period ended
March 31, 2000 incorporated by reference in this proxy statement/prospectus from
National Grid Group's Annual Report on Form 20-F for the year ended March 31,
2000 have been so incorporated in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of National Grid USA as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 incorporated in this proxy statement/prospectus by reference
from National Grid Group's Report of Foreign Issuer on Form 6-K dated September
29, 2000 have been so incorporated in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The proposed articles of association of New National Grid plc will provide as
follows:
Subject to the Statutes, the company may indemnify any Director or other officer
against any liability. Subject to those provisions, but without prejudice to any
indemnity to which the person concerned may otherwise be entitled, every
Director or other officer of the company and the auditors shall be indemnified
out of the assets of the company against any liability incurred by him as a
Director, other officer of the company or as auditor in defending any
proceedings (whether civil or criminal) in which judgment is given in his favor
or he is acquitted or which are otherwise disposed of without any finding or
admission of any material breach of duty or breach of trust on his part or in
connection with any application under the Statutes in which relief is granted to
him by the court.
Section 310 of the Companies Act 1985 provides as follows:
310. Provisions exempting officers and auditors from liability
(1) This section applies to any provision, whether contained in a company's
articles of association or in any contract with the company or otherwise, for
exempting any officer of the company or any person (whether an officer or not)
employed by the company as auditor from, or indemnifying him against, any
liability which by virtue of any rule of law would otherwise attach to him in
respect of any negligence, default, breach of duty or breach of trust of which
he may be guilty in relation to the company.
(2) Except as provided by the following subsection, any such provision is void.
(3) This section does not prevent a company:
(a) from purchasing and maintaining for any such officer or auditor insurance
against any such liability; or
(b) from indemnifying any such officer or auditor against any liability incurred
by him
(i) in defending any proceedings (whether civil or criminal) in which judgment
is given in his favor or he is acquitted, or
(ii) in connection with any application under Section 144(3) or (4) (acquisition
of shares by innocent nominee) or Section 727 (general power to grant relief in
case of honest and reasonable conduct) in which relief is granted to him by the
court.
Section 727 of the Companies Act 1985 provides as follows:
727. Power of court to grant relief in certain circumstances:
(1) If in any proceedings for negligence, default, breach of duty or breach of
trust against an officer of a company or a person employed by a company as
auditor (whether he is or is not an officer of the company) it appears to the
court hearing the case that that officer or person is or may be liable in
respect of the negligence, default, breach of duty or breach of trust, but that
he has acted honestly and reasonably, and that having regard to all the
circumstances of the case (including those connected with his appointment) he
ought fairly to be excused for the negligence, default, breach of duty or breach
of trust, that court may relieve him, either wholly or partly, from his
liability on such terms as the court thinks fit.
(2) If any such officer or person as above mentioned has reason to apprehend
that any claim will or might be made against him in respect of any negligence,
default, breach of duty or breach of trust, he may apply to the court for
relief; and the court on the application has the same power to relieve him as
under this section it would have had if it had been a court before which
proceedings against that person for negligence, default, breach of duty or
breach of trust had been brought.
(3) Where a case to which subsection (1) applies is being tried by a judge with
a jury, the judge, after hearing the evidence, may, if he is satisfied that the
defendant or defender ought in pursuance of that subsection to be relieved
either in whole or in part from the liability sought to be enforced against him,
withdraw the case in whole or in part from the jury and forthwith direct
judgment to be entered for the defendant or defender on such terms as to costs
or otherwise as the judge may think proper.
New National Grid intends to obtain an insurance policy which will provide for
the indemnification of its directors and officers in the event they are found
liable for "Wrongful Acts" on the same terms as National Grid Group. A "Wrongful
Act" is defined in National Grid Group's insurance policy as any actual or
alleged error, act, omission, misstatement, misleading statement, neglect or
breach of duty or negligent act by, or any other matter claimed against, the
directors and officers whilst acting in various specified capacities including
as directors or officers of New National Grid.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference.
Exhibit No: Description
2 (a) Agreement and Plan of Merger and Scheme of Arrangement, dated
as of September 4, 2000, by and among National Grid Group plc,
Niagara Mohawk Holdings, Inc., New National Grid Limited and
Grid Delaware, Inc. (included as Annex A to the proxy
statement/prospectus which is part of this registration
statement).
3 (i) Form of Memorandum and Articles of Association of New National
Grid plc.*
4 See Exhibit 3 (i) for provisions of the Form of Memorandum and
Articles of Association of New National Grid plc defining
rights of holders of New National Grid plc ordinary shares.*
5 Opinion of CMS Cameron McKenna regarding validity of securities
being registered.*
8 (a) Opinion of PricewaterhouseCoopers LLP regarding United States
tax consequences.*
8 (b) Opinion of Bryan Cave LLP regarding United States tax
consequences of the merger.*
21 Subsidiaries.*
23 (a) Consent of CMS Cameron McKenna (included in the opinion filed
as Exhibit 5 to this registration statement and incorporated
herein by reference).*
23 (b) Consent of PricewaterhouseCoopers LLP (included in the opinion
filed as Exhibit 8 (a) to this registration statement and
incorporated herein by reference).*
23 (c) Consent of Bryan Cave LLP (included in the opinion filed as
Exhibit 8 (b) to this registration statement and incorporated
herein by reference).*
23 (d) Consent of PricewaterhouseCoopers.+
23 (e) Consent of PricewaterhouseCoopers LLP.+
23 (f) Consent of PricewaterhouseCoopers LLP.+
24 Powers of Attorney (included in the signature page of this
registration statement).+
99 (a) Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
(included as Annex B to the proxy statement/prospectus which is
part of this registration statement).
99 (b) Consent of Donaldson, Lufkin & Jenrette Securities
Corporation.+
99 (c) Form of Niagara Mohawk Holdings, Inc., proxy card.+
* To be filed by amendment.
+ Previously filed.
(b) Financial Statement Schedules
Schedules are omitted because they are either not required, are not
applicable or because equivalent information has been included in the financial
statements, the notes thereto or elsewhere herein.
(c) Reports, Opinions and Appraisals
Omitted. The opinion of the financial advisor to Niagara Mohawk is
included as Annex B to the proxy statement/prospectus which is part of this
registration statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(b) (i) The undersigned registrant hereby undertakes as follows:
that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is
part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the
applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable
form.
(ii) The undersigned registrant hereby undertakes that every
prospectus: (A) that is filed pursuant to paragraph (b)(i)
immediately preceding or (B) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be
used until such amendment is effective, and that, for
purposes of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the undersigned registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against policy as expressed in
the Securities Act of 1933 and is, therefore, unenforceable. In the
event that such a claim for indemnification against such
liabilities other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or
proceeding is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act
of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that are incorporated by reference in the
Prospectus/Proxy Statement pursuant to Item 4, 10(b), 11 or 13 of
this form, within one business day of receipt of such requests, to
send the incorporated documents by first class mail or other equal
prompt means and to arrange or provide for a facility in the US
for the purpose of responding to such requests. This includes
information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the requests.
(e) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning the
transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement
when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on October 10, 2000.
New National Grid Limited
(to be renamed New National Grid plc)
(Registrant)
By: /s/ Richard P. Sergel
----------------------------------
Name: Richard P. Sergel
Title: Member of the Board
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the following
capacities on October 10, 2000:
Signature Title
--------- -----
David Jones* Member of the Board
Stephen Box* Member of the Board
Richard P. Sergel Member of the Board
* Signed pursuant to power of attorney
