<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1996.
REGISTRATION NO. 333-09033
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SOUTHERN INVESTMENTS UK PLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ENGLAND AND WALES 4911 NONE
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(I.R.S. EMPLOYER
(STATE OR OTHER IDENTIFICATION NO.)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
800 PARK AVENUE
AZTEC WEST
ALMONDSBURY
BRISTOL BS12 4SE, ENGLAND
44-1454-201-101
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES,
INCLUDING ZIP CODE)
JAMES A. WARD
900 ASHWOOD PARKWAY
SUITE 500
ATLANTA, GEORGIA 30338-4780
(770) 379-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
PLEASE SEND COPIES OF ALL CORRESPONDENCE TO:
JOHN T. W. MERCER, ESQUIRE JOHN A. MILLARD, ESQUIRE
TROUTMAN SANDERS LLP SHEARMAN & STERLING
600 PEACHTREE STREET, N.E., SUITE 599 LEXINGTON AVENUE
5200 NEW YORK, NEW YORK 10022
ATLANTA, GEORGIA 30308 (212) 848-4000
(404) 885-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Notes due
2006................... $235,000,000 100% $235,000,000 $81,035
</TABLE>
===============================================================================
(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(a).
(2) Previously paid.
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated , 1996
$235,000,000
SOUTHERN INVESTMENTS UK PLC
% SENIOR NOTES DUE 2006
------------
Southern Investments UK plc, a public limited company incorporated under the
laws of England and Wales (the "Company"), is offering (the "Offering")
US$235,000,000 aggregate principal amount of its % Senior Notes due 2006 (the
"Senior Notes"). Interest on the Senior Notes will be payable semiannually on
and of each year, commencing , 1996. The Senior Notes will
mature on , 2006 at their principal amount unless previously redeemed.
The Senior Notes will be redeemable prior to maturity only as described
below. The Senior Notes will be redeemable, in whole but not in part, at the
principal amount thereof, plus any accrued and unpaid interest, in the event of
certain tax law changes and other events requiring the payment of Additional
Amounts (as defined herein). The Senior Notes may also be redeemed in whole or
in part at the option of the Company at any time, at a redemption price equal
to the greater of (i) 100% of the principal amount of the Senior Notes being
redeemed or (ii) the sum of the present values of the remaining scheduled
payments of principal of and interest on the Senior Notes being redeemed
discounted to the date of redemption on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Treasury Yield (as defined
herein) plus basis points; plus, for (i) or (ii) above, whichever is
applicable, accrued interest on the Senior Notes to the date of redemption. The
Senior Notes will not be subject to any sinking fund. See "Description of the
Senior Notes."
The Senior Notes will be direct, unsecured and unsubordinated obligations of
the Company ranking pari passu with all other unsecured and unsubordinated
obligations of the Company (other than those obligations preferred by operation
of law). The Senior Notes will effectively rank junior to any secured
indebtedness of the Company to the extent of the assets securing such
indebtedness and to any indebtedness of the Company's subsidiaries to the
extent of the assets of such subsidiaries. Substantially all of the Company's
consolidated assets other than the stock of its only Significant Subsidiary (as
defined herein) are currently held by the Company's subsidiaries. At June 30,
1996, the Company had unsecured and unsubordinated debt obligations in the
amount of (Pounds)205.3 million (US$319.1 million) which will rank pari passu
with the Senior Notes. This amount does not include approximately (Pounds)147
million (US$228 million) of debt of the Company which will be refinanced with
the proceeds of this Offering. See "Use of Proceeds." At June 30, 1996, the
Company had no secured debt. Also at June 30, 1996, SWEB had indebtedness of
approximately (Pounds)285 million (US$443 million) outstanding to parties other
than the Company. The Indenture for the Senior Notes contains no restrictions
on the amount of additional indebtedness which may be incurred by the Company
or its subsidiaries; however, the Indenture contains certain restrictions on
the ability of the Company and its Significant Subsidiaries to incur secured
indebtedness. See "Description of the Senior Notes--Covenants--Limitation on
Liens."
The Senior Notes will be represented by a global Senior Note (the "Global
Note") in bearer form and deposited with Bankers Trust Company, as depositary
(the "Book-Entry Depositary"), which will hold the Senior Notes for the benefit
of The Depository Trust Company ("DTC") and its participants, including
Euroclear (as defined herein) and Cedel Bank (as defined herein). The Book-
Entry Depositary will issue to DTC one or more certificateless depositary
interests (the "Book-Entry Interest") which together will represent a 100%
interest in the underlying Global Note. DTC will operate a system of dealing in
the Book-Entry Interest in book-entry form. Interests in the Book-Entry
Interest will be shown on, and transfers thereof will be effected only through,
records maintained by DTC and its participants. Except in
limited circumstances, registered definitive Senior Notes will not be issued in
exchange for interests in the Global Note. Interests in the Book-Entry Interest
will clear and settle in DTC's Same-Day Funds Settlement System. Interests in
the Book-Entry Interest will be issued only in denominations of US$1,000 and
integral multiples thereof. See "Description of the Senior Notes--Description
of the Book-Entry System."
Application has been made to list the Senior Notes on the Luxembourg Stock
Exchange.
------------
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE SENIOR NOTES.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2) Company(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per % Senior Note........................ % % %
- --------------------------------------------------------------------------------
Total..................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
------------
The Senior Notes offered hereby are being offered by the Underwriters named
herein, subject to prior sale, to withdrawal, cancellation or modification of
the offer without notice, to delivery and acceptance by the Underwriters and to
certain further conditions. It is expected that delivery of the Senior Notes
will be made through the facilities of DTC on or about , 1996.
------------
LEHMAN BROTHERS
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
, 1996
<PAGE>
[MAP DEPICTING DISTRIBUTION NETWORK.]
2
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is a public limited company incorporated under the laws of
England and Wales. Several of the directors and executive officers of the
Company (and certain experts named in this Prospectus) are citizens or
residents of the United Kingdom (the "UK"). All or a substantial portion of
the assets of such persons and substantially all the assets of the Company are
located outside the United States of America (the "US"). As a result, it may
not be possible for investors to effect service of process within the US upon
such persons or the Company or to enforce against them judgments of US courts
predicated upon civil liabilities under US federal securities laws. There is
doubt as to the enforceability in England and Wales, in original actions or in
actions for enforcement of judgments of US courts, of civil liabilities
predicated upon US federal securities laws.
The Indenture and the Senior Notes will be governed by, and construed in
accordance with, the laws of the State of New York. The Company has submitted
to the non-exclusive jurisdiction of the Supreme Court of New York, New York
County and the United States District Court for the Southern District of New
York and any appellate court from either thereof for any suit, legal action or
proceeding against the Company or its properties, assets or revenues with
respect to its obligations, liabilities or any other matter arising out of or
in connection with the Indenture or the Senior Notes. See "Description of the
Notes--Governing Law; Submission to Jurisdiction."
----------------
The Company accepts responsibility for the information contained in this
document. To the best of the knowledge and belief of the Company (which has
taken all reasonable care to ensure that such is the case) the information
contained in this document is in accordance with the facts and does not omit
anything likely to affect the import of such information.
----------------
The Company publishes its consolidated financial statements in pounds
sterling. In this Prospectus, references to "pounds sterling," "(Pounds),"
"pence" or "p" are to UK currency and references to "US dollars," "US$" or "$"
are to US currency. For the convenience of the reader, this Prospectus
contains translations of certain pounds sterling amounts into US dollars at
specified rates, or, if not so specified, the noon buying rate in New York
City for cable transfers in pounds sterling as certified for customs purposes
by the Federal Reserve Bank of New York (the "Noon Buying Rate") on June 28,
1996 of $1.5529 = (Pounds)1.00. No representation is made that the pounds
sterling amounts have been, could have been or could be converted into US
dollars at the rates indicated or at any other rates. See "Exchange Rates" for
historical information regarding Noon Buying Rates.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed financial and other information contained
elsewhere in this Prospectus. References herein to the "Predecessor Company"
mean SWEB prior to its acquisition by the Company. All references to a "fiscal"
year mean a year ended March 31 and all references to a "calendar" year mean a
year ended December 31. References to Pro Forma Fiscal Year 1996 mean the
unaudited pro forma financial information of the Company presented for fiscal
year 1996 as if the acquisition of SWEB by the Company had occurred as of April
1, 1995.
THE COMPANY
The Company is a wholly-owned subsidiary of Southern Investments UK Holdings
Limited ("Holdings"), of which 75% is owned indirectly by The Southern Company
("Southern", together with its subsidiaries, the "Southern Company system") and
25% is owned indirectly by PP&L Resources, Inc. ("PP&L Resources"). The Company
was incorporated as a public limited company under the laws of England and
Wales on June 23, 1995, as a vehicle for the acquisition of South Western
Electricity plc ("SWEB"), one of the 12 regional electricity companies ("RECs")
in England and Wales licensed to distribute, supply and, to a limited extent,
generate electricity. In September 1995, the Company gained effective control
of SWEB, having acquired approximately 84% of its shares. The Company
subsequently replaced SWEB's board of directors and certain senior managers
with officers and employees of companies from within the Southern Company
system. In November 1995, the Company acquired the remaining shares of SWEB.
The Company's sole investment and only significant asset is the entire share
capital of SWEB, which is headquartered in Bristol, England. At June 30, 1996,
the Company had consolidated assets of (Pounds)1.659 billion ($2.576 billion).
See "The Company."
SWEB's two main business lines are the distribution of electricity and the
supply of electricity to approximately 1.3 million customers primarily in its
franchise area in southwest England (the "Franchise Area"). This area covers
approximately 5,560 square miles and has a resident population of approximately
2.8 million. The distribution business and the supply business are distinct
business segments and produced operating income of (Pounds)112 million ($174
million) and (Pounds)15 million ($23 million), respectively, in Pro Forma
Fiscal Year 1996, representing substantially all of the Company's consolidated
operating income in that pro forma fiscal year. See "Business--SWEB's Main
Businesses."
SWEB is the only distributor of electricity in its Franchise Area, and
management believes that economic, environmental and regulatory factors are
likely to prevent competitors from entering this business in SWEB's Franchise
Area. SWEB has an exclusive right to supply electricity to customers in its
Franchise Area with demand of not more than 100kW, which is scheduled to
continue until at least March 31, 1998. The supply business to consumers with
demand above 100kW, both inside and outside SWEB's Franchise Area, is open to
competition, and SWEB is able to competitively bid or negotiate to supply
electricity to such customers. See "The Electric Utility Industry in Great
Britain."
The operations of SWEB are regulated under its Public Electricity Supply
license ("PES license") pursuant to which the distribution business, and the
supply business to consumers with demand of not more than 100kW, are subject to
a price cap regulatory framework that provides economic incentives to SWEB to
increase the number of units of electricity distributed and supplied and to
operate in a more cost-efficient manner.
SWEB also has ancillary business activities that support the main businesses,
including power generation and gas supply. See "Business--SWEB's Other Business
Activities."
4
<PAGE>
THE OFFERING
Issuer........................ Southern Investments UK plc.
Securities Offered............ $235,000,000 aggregate principal amount of
% Senior Notes due 2006.
Maturity Date................. , 2006.
Interest...................... The Senior Notes will bear interest from
the date of original issuance at the rate
of % per annum payable semiannually in
arrears.
Interest Payment Dates........ and , commencing , 1996.
Ranking.......................
The Senior Notes are direct, unsecured and
unsubordinated obligations of the Company
ranking pari passu with all other unsecured
and unsubordinated obligations of the
Company (other than those obligations
preferred by operation of law). The Senior
Notes will effectively rank junior to any
secured indebtedness of the Company to the
extent of the assets securing such
indebtedness and to any indebtedness of the
Company's subsidiaries to the extent of the
assets of such subsidiaries. Substantially
all of the Company's consolidated assets
other than the stock of SWEB, the Company's
only Significant Subsidiary (as defined
herein), are currently held by the
Company's subsidiaries. At June 30, 1996,
the Company had unsecured and
unsubordinated debt obligations in the
amount of (Pounds)205.3 million ($319.1
million) which will rank pari passu with
the Senior Notes. This amount does not
include approximately (Pounds)147 million
($228 million) of debt of the Company which
will be refinanced with the proceeds of
this Offering. See "Use of Proceeds." At
June 30, 1996, the Company had no secured
debt. Also at June 30, 1996, SWEB had
indebtedness of approximately (Pounds)285
million ($443 million) outstanding to
parties other than the Company. The
Indenture for the Senior Notes contains no
restrictions on the amount of additional
indebtedness which may be incurred by the
Company or its subsidiaries; however, the
Indenture contains certain restrictions on
the ability of the Company and its
Significant Subsidiaries to incur secured
indebtedness. See "Description of the
Senior Notes--Covenants."
Ratings....................... The Senior Notes have been assigned ratings
of by Standard & Poor's Ratings
Services ("S&P"), by Duff & Phelps
Credit Rating Company ("DCR") and by
Moody's Investors Service, Inc.
("Moody's"). These ratings have been
obtained with the understanding that S&P,
DCR and Moody's will continue to monitor
the credit rating of the Company and will
make future adjustments to the extent
warranted. A rating reflects only
5
<PAGE>
the views of S&P, DCR or Moody's, as the
case may be, and is not a recommendation to
buy, sell or hold the Senior Notes. There
is no assurance that any such rating will
be retained for any given period of time or
that it will not be revised downward or
withdrawn entirely by S&P, DCR or Moody's,
as the case may be, if, in their respective
judgments, circumstances so warrant.
Optional Redemption........... The Senior Notes will be redeemable in
whole or in part at the option of the
Company at any time, at a redemption price
equal to the greater of (i) 100% of the
principal amount of the Senior Notes being
redeemed or (ii) the sum of the present
values of the remaining scheduled payments
of the principal of and interest on the
Senior Notes being redeemed discounted to
the date of redemption on a semi-annual
basis (assuming a 360-day year consisting
of twelve 30-day months) at the Treasury
Yield (as defined herein) plus basis
points; plus, for (i) or (ii) above,
whichever is applicable, accrued interest
on the Senior Notes being redeemed to the
date of redemption. See "Description of the
Senior Notes--Optional Redemption."
Optional Tax Redemption....... In the event of changes in the tax laws of
the UK after the date hereof and certain
other events that would obligate the
Company to pay Additional Amounts, the
Senior Notes may be redeemed at the option
of the Company, in whole but not in part,
at the principal amount thereof, plus
accrued and unpaid interest. See
"Description of the Senior Notes--Optional
Tax Redemption."
Principal Covenants........... The Indenture under which the Senior Notes
are to be issued will not contain any
limitation on the Company's or its
subsidiaries' right to incur indebtedness.
The Indenture will, however, contain
certain covenants, including covenants
applicable to the Company and its
Significant Subsidiaries with respect to
(i) limitations on liens, (ii) limitations
on sale and lease-back transactions and
(iii) limitations regarding consolidation,
merger, conveyance, sale or lease
transactions. See "Description of the
Senior Notes--Covenants--Limitation on
Liens," "--Limitation on Sale and Lease-
Back Transactions" and "--Consolidation,
Merger, Conveyance, Sale or Lease."
Events of Default............. For a discussion of certain events that
will permit acceleration of the principal
of the Senior Notes (together with all
interest accrued and unpaid thereon), see
"Description of the Senior Notes--Events of
Default."
Withholding Tax............... Payments in respect of the Global Note will
be made free and clear of any present or
future UK withholding and other deductions
existing in the UK, except as set forth
under "Description of the Senior Notes--
Additional
6
<PAGE>
Amounts." Subject to certain exceptions,
the Company will pay such additional
amounts (the "Additional Amounts") as will
result in receipt by the holder of the
Global Note of such amounts as would have
been received by it had no such withholding
or deduction been required. See
"Description of the Senior Notes--
Additional Amounts."
Use of Proceeds............... The Company intends to use the net proceeds
of the Offering principally to refinance a
portion of its existing debt. See "Use of
Proceeds" and "Capitalization."
Form and Denomination......... The Senior Notes will be issued only in the
form of one global bearer note and
deposited with the Book-Entry Depositary
which will hold the Senior Notes for the
benefit of DTC and its participants. The
Book-Entry Depositary will issue the Book-
Entry Interest to DTC which will operate a
system of dealing in the Book-Entry
Interest. Ownership of interests in the
Book-Entry Interest will be limited to
persons who have accounts with DTC
("Participants") or persons who may hold
interests through such participants
("Indirect Participants"). Interests in the
Book-Entry Interest will be shown on, and
transfers thereof will be effected only
through, records maintained by DTC and its
Participants, including Morgan Guaranty
Trust Company of New York, Brussels office,
as operator of the Euroclear System
("Euroclear"), and Cedel Bank, societe
anonyme ("Cedel Bank").
Except as set forth under "Description of
the Senior Notes," Participants and
Indirect Participants will not be entitled
to receive physical delivery of definitive
Senior Notes in registered form
("Definitive Registered Notes") or to have
Senior Notes issued and registered in their
names and will not be considered the owners
or holders of the Senior Notes under the
Indenture pursuant to which the Senior
Notes are issued. See "Risk Factors--
Considerations Related to Book-Entry
Interest."
Interests in the Book-Entry Interest and
the Definitive Registered Notes, if any,
will be issued in minimum denominations of
US$1,000 and integral multiples of US$1,000
in excess thereof.
Governing Law................. The Indenture and the Senior Notes will be
governed by, and construed in accordance
with, the laws of the State of New York.
Trustee, Registrar and Book-
Entry Depositary.............
Bankers Trust Company.
Paying Agents................. Bankers Trust Company and Bankers Trust
Luxembourg S.A.
7
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary consolidated financial data for the
Company (the "Successor Company" or the "Company") and the Predecessor Company.
For a description of the financial statements and records from which the
following financial data have been derived, see "Selected Financial Data." This
information should be read in conjunction with "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto of the Successor
Company and the Predecessor Company included elsewhere in this Prospectus.
The unaudited pro forma condensed consolidated income statement and other
data presented below for fiscal year 1996 reflect the acquisition by the
Company of SWEB as if it had occurred as of April 1, 1995. Such unaudited pro
forma condensed consolidated income statement and other data have been prepared
by the Successor Company based upon assumptions deemed proper by it and reflect
a preliminary allocation of the purchase price paid for the Predecessor
Company. The unaudited pro forma condensed consolidated income statement and
other data presented herein are shown for illustrative purposes only and are
not necessarily indicative of the future results of operations of the Successor
Company or of the results of operations of the Successor Company that would
have actually occurred had the transaction been in effect for the period
presented. The Successor Company's consolidated financial statements reflect
the operations of the Successor Company from September 18, 1995, the date on
which the Company acquired effective control of SWEB.
PREDECESSOR COMPANY
UK GAAP(1)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------
1992 1993 1994 1995
------------ ------------ ------------ ------------
(POUNDS STERLING IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Turnover............... (Pounds) 847 (Pounds) 892 (Pounds) 900 (Pounds) 875
Operating costs........ (759) (790) (791) (755)
------------ ------------ ------------ ------------
Operating profit....... 88 102 109 120
Exceptional item(2).... -- -- -- (20)
Other income........... 10 11 15 17
Interest, net.......... (15) (12) (7) (5)
Tax on profit.......... (21) (23) (24) (26)
------------ ------------ ------------ ------------
Profit for financial
period(3)............. (Pounds) 62 (Pounds) 78 (Pounds) 93 (Pounds) 86
============ ============ ============ ============
Dividends declared per
share................. (Pounds)0.17 (Pounds)0.20 (Pounds)0.24 (Pounds)0.27
============ ============ ============ ============
<CAPTION>
MARCH 31,
------------------------------------------------------
1992 1993 1994 1995
------------ ------------ ------------ ------------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Fixed assets........... (Pounds) 490 (Pounds) 544 (Pounds) 579 (Pounds) 615
Current assets......... 212 213 301 254
Creditors: Amounts
falling due within one
year.................. (179) (176) (205) (243)
------------ ------------ ------------ ------------
Total assets less cur-
rent liabilities...... 523 581 675 626
Creditors: Amounts
falling due in more
than one year (85) (87) (92) (95)
Total shareholders'
funds................. 425 479 543 494
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------
1992 1993 1994 1995
------------ ------------ ------------ ------------
(POUNDS STERLING IN MILLIONS, EXCEPT RATIO)
<S> <C> <C> <C> <C>
OTHER CONSOLIDATED DATA:
EBIT(4)................ (Pounds) 99 (Pounds) 115 (Pounds) 126 (Pounds) 142
EBITDA(5).............. 123 141 154 173
Cash flow from opera-
tions(6).............. 128 140 245 124
Ratio of earnings to
fixed charges(7)...... 6 8 12 13
</TABLE>
8
<PAGE>
PREDECESSOR COMPANY
US GAAP(1)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MARCH 31, APRIL 1, 1995 THREE MONTHS
-------------------------- TO SEPTEMBER 17, ENDED
1994 1995 1995(8) JUNE 30, 1995
------------ ------------ ---------------- -------------
(POUNDS STERLING IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Operating revenues..... (Pounds) 808 (Pounds) 776 (Pounds) 299 (Pounds) 167
Operating income....... 122 139 40 26
Interest, net.......... (7) (4) (3) (2)
Other, net............. 16 16 1 1
Provision for income
taxes................. (43) (50) (13) (9)
------------ ------------ ------------ ------------
Income from continuing
operations............ 88 101 25 16
Discontinued opera-
tions................. -- (7) (1) --
------------ ------------ ------------ ------------
Net income............. (Pounds) 88 (Pounds) 94 (Pounds) 24 (Pounds) 16
============ ============ ============ ============
Dividends declared per
share ................ (Pounds)0.21 (Pounds)0.25 (Pounds)0.65 --
============ ============ ============ ============
<CAPTION>
MARCH 31,
1995
------------
(POUNDS
STERLING
IN MILLIONS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Property, plant and
equipment, net........ (Pounds) 541
Total assets........... 869
Total stockholder's eq-
uity.................. 374
Long-term debt......... 95
Short-term debt........ 24
<CAPTION>
PERIOD FROM
YEAR ENDED MARCH 31, APRIL 1, 1995 THREE MONTHS
-------------------------- TO SEPTEMBER 17, ENDED
1994 1995 1995(8) JUNE 30, 1995
------------ ------------ ---------------- -------------
(POUNDS STERLING IN MILLIONS, EXCEPT RATIO)
<S> <C> <C> <C> <C>
OTHER CONSOLIDATED DATA:
EBIT(4)................ (Pounds) 142 (Pounds) 162 (Pounds) 43 (Pounds) 28
EBITDA(5).............. 170 193 58 36
Cash flow from opera-
tions(6).............. 236 100 69 21
Ratio of earnings to
fixed charges(7)...... 13 15 9 9
</TABLE>
9
<PAGE>
SUCCESSOR COMPANY
US GAAP
<TABLE>
<CAPTION>
PRO FORMA FISCAL
PERIOD FROM YEAR ENDED THREE MONTHS
INCEPTION (JUNE 23, 1995) MARCH 31, 1996 ENDED
TO MARCH 31, 1996(8) (UNAUDITED)(9) JUNE 30, 1996
-------------------------------------------------- -------------------------
(Pounds) $(10) (Pounds) $(10) (Pounds) $(10)
---------------- ------------------------ ------ -------------- ---------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Operating revenues..... (Pounds) 481 $ 747 (Pounds) 780 $1,211 (Pounds) 181 $ 281
Operating income....... 86 133 121 188 27 42
Interest, net.......... (21) (32) (57) (88) (13) (20)
Gain on sale of invest-
ments................. 14 22 -- -- -- --
Other, net............. 2 3 11 17 3 4
Provision for income
taxes................. (28) (43) (26) (40) (6) (9)
---------------- --------- ------------- ------ -------------- -------
Income from continuing
operations............ 53 83 (Pounds) 49 $ 77 11 17
============= ======
Extraordinary gain on
early extinguishment
of debt............... 6 9 -- --
Discontinued opera-
tions................. -- -- -- --
---------------- --------- -------------- -------
Net income............. (Pounds) 59 $ 92 (Pounds) 11 $ 17
================ ========= ============== =======
Dividends declared per
share................. (Pounds) 3.82 $ 5.93 (Pounds) 4.67 $ 7.25 (Pounds) 0.02 $ 0.03
================ ========= ============= ====== ============== =======
<CAPTION>
MARCH 31, 1996 JUNE 30, 1996
----------------------------- -------------------------
(Pounds) $(10) (Pounds) $(10)
---------------- ----------- -------------- ---------
(AMOUNTS IN MILLIONS) (AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Property, plant and
equipment, net........ (Pounds) 1,207 $ 1,874 (Pounds) 1,212 $ 1,882
Total assets........... 1,686 2,618 1,659 2,576
Total stockholder's eq-
uity.................. 368 571 366 568
Short-term debt........ 650 1,009 637 989
<CAPTION>
PRO FORMA FISCAL
PERIOD FROM YEAR ENDED THREE MONTHS
INCEPTION (JUNE 23, 1995) MARCH 31, 1996 ENDED
TO MARCH 31, 1996(8) (UNAUDITED)(9) JUNE 30, 1996
-------------------------------------------------- -------------------------
(Pounds) $(10) (Pounds) $(10) (Pounds) $(10)
---------------- ------------------------ ------ -------------- ---------
(AMOUNTS IN MILLIONS, EXCEPT RATIO)
<S> <C> <C> <C> <C> <C> <C>
OTHER CONSOLIDATED DATA:
EBIT(4)................ (Pounds) 109 $ 169 (Pounds) 141 $ 219 (Pounds) 30 $ 47
EBITDA(5).............. 131 203 183 284 40 62
Cash flow from opera-
tions(13)............. 25 39 94 146 30 47
Ratio of earnings to
fixed charges(7)...... 4 2 2
</TABLE>
10
<PAGE>
BUSINESS SEGMENTS
PREDECESSOR COMPANY
UK GAAP(1)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------
1992 1993 1994 1995
----------- ----------- ----------- -----------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C> <C>
TURNOVER:
Electricity distribu-
tion.................. (Pounds)230 (Pounds)235 (Pounds)250 (Pounds)274
Electricity supply..... 763 787 772 725
Retailing(2)........... 53 72 79 82
Other.................. 21 59 78 84
Less: Intra-busi-
ness(11).............. (220) (261) (279) (290)
----------- ----------- ----------- -----------
Total............... (Pounds)847 (Pounds)892 (Pounds)900 (Pounds)875
OPERATING PROFIT (LOSS):
Electricity distribu-
tion.................. (Pounds) 90 (Pounds) 85 (Pounds) 77 (Pounds) 96
Electricity supply..... 4 16 25 15
Retailing(2)........... (1) (2) 1 1
Other.................. (5) 4 6 9
Less: Intra-busi-
ness(11).............. -- -- -- (1)
----------- ----------- ----------- -----------
Total............... (Pounds) 88 (Pounds)103 (Pounds)109 (Pounds)120
<CAPTION>
MARCH 31,
--------------------------------------------------
1992 1993 1994 1995
----------- ----------- ----------- -----------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS:
Electricity distribu-
tion.................. (Pounds)449 (Pounds)454 (Pounds)472 (Pounds)504
Electricity supply..... 139 134 91 89
Retailing(2)........... 32 38 56 64
Other.................. 82 131 261 212
----------- ----------- ----------- -----------
Total............... (Pounds)702 (Pounds)757 (Pounds)880 (Pounds)869
</TABLE>
11
<PAGE>
BUSINESS SEGMENTS
PREDECESSOR COMPANY
US GAAP(1)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
------------------------- APRIL 1, 1995 TO
1994 1995 SEPTEMBER 17, 1995
----------- ------------ ------------------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C>
OPERATING REVENUE:
Electricity distribution...... (Pounds)250 (Pounds)274 (Pounds) 105
Electricity supply............ 772 725 276
Other......................... 54 57 23
Less: Intra-business(11)...... (268) (280) (105)
----------- ----------- ------------
Total...................... (Pounds)808 (Pounds)776 (Pounds) 299
OPERATING INCOME (LOSS):
Electricity distribution...... (Pounds) 84 (Pounds)112 (Pounds) 42
Electricity supply............ 27 18 2
Other......................... 11 10 (4)
Less: Intra-business(11)...... -- (1) --
----------- ----------- ------------
Total...................... (Pounds)122 (Pounds)139 (Pounds) 40
<CAPTION>
MARCH 31,
1995
------------
(POUNDS
STERLING
IN MILLIONS)
<S> <C> <C> <C>
ASSETS:
Electricity distribution...... (Pounds)531
Electricity supply............ 93
Other......................... 245
-----------
Total...................... (Pounds)869
</TABLE>
12
<PAGE>
BUSINESS SEGMENTS
SUCCESSOR COMPANY
US GAAP(1)
<TABLE>
<CAPTION>
PRO FORMA
PERIOD FROM FISCAL YEAR ENDED
INCEPTION (JUNE 23, 1995) MARCH 31, 1996 THREE MONTHS ENDED
TO MARCH 31, 1996(8) (UNAUDITED)(9) JUNE 30, 1996
------------------------------------------------ -------------------------
(Pounds) $(10) (Pounds) $(10) (Pounds) $(10)
---------------- ---------------------- ------ -------------- ---------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Electricity distribu-
tion.................. (Pounds) 147 $ 228 (Pounds)252 $ 391 (Pounds) 53 $ 82
Electricity supply..... 450 699 726 1,127 170 264
Other.................. 33 51 54 84 13 20
Less: Intra-busi-
ness(11).............. (149) (231) (252) (391) (55) (85)
---------------- --------- ----------- ------ -------------- -------
Total............... (Pounds) 481 $ 747 (Pounds)780 $1,211 (Pounds) 181 $ 281
OPERATING INCOME (LOSS):
Electricity distribu-
tion.................. (Pounds) 72 $ 111 (Pounds)112 $ 174 (Pounds) 23 $ 36
Electricity supply..... 13 20 15 23 6 9
Other.................. 1 2 (6) (9) (2) (3)
Less: Intra-busi-
ness(11).............. -- -- -- -- -- --
---------------- --------- ----------- ------ -------------- -------
Total............... (Pounds) 86 $ 133 (Pounds)121 $ 188 (Pounds) 27 $ 42
<CAPTION>
MARCH 31, 1996 JUNE 30, 1996
----------------------------- -------------------------
(Pounds) $(10) (Pounds) $(10)
---------------- ----------- -------------- ---------
(AMOUNTS IN MILLIONS) (AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS(12):
Electricity distribu-
tion.................. (Pounds) 1,422 $ 2,209 (Pounds) 1,446 $ 2,245
Electricity supply..... 102 158 96 149
Other.................. 162 251 117 182
---------------- --------- -------------- -------
Total............... (Pounds) 1,686 $ 2,618 (Pounds) 1,659 $ 2,576
</TABLE>
- --------
(1) The financial data for the Predecessor Company shown on pages (i) 8 and 11
and (ii) 9 and 12 were derived from financial statements for the
Predecessor Company prepared, respectively, in accordance with UK GAAP and
US GAAP. The principal differences between US GAAP and UK GAAP as applied
to the Predecessor Company relate to the treatment of discontinued
operations, pension costs and deferred taxes.
(2) A provision for the disposition of the electrical appliance retailing
business resulted in an exceptional item for the fiscal year ended March
31, 1995. The actual disposition of this business segment occurred in June
1995.
(3) Excluding the exceptional item, profit for fiscal year 1995 would have
been (Pounds)98 million.
(4) EBIT equals income from continuing operations before the sum of interest
expense and income taxes. This information is provided for informational
purposes only and such measure should not be construed as an alternative
to operating income (as determined in accordance with GAAP) as an
indicator of operating performance, or as an alternative to cash flows
from operating activities (as determined in accordance with GAAP) as a
measure of liquidity.
(5) EBITDA equals income from continuing operations before the sum of interest
expense, income taxes, depreciation and amortization. This information is
provided for informational purposes only and such measure should not be
construed as an alternative to operating income (as determined in
accordance with GAAP) as an indicator of operating performance, or as an
alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity.
(6) Cash flow from operations increased in fiscal year 1994 as a result of
customers who paid bills in advance in order to avoid paying value added
taxes which were introduced by the British government.
(7) The ratio of earnings to fixed charges is computed as the sum of pretax
income from continuing operations and fixed charges divided by fixed
charges. Fixed charges consist of interest expensed.
(8) On September 18, 1995, the Successor Company obtained effective control of
the Predecessor Company pursuant to the Successor Company's offer to
acquire the Predecessor Company.
(9) Pro Forma Fiscal Year 1996 financial information gives effect to the
acquisition of the Predecessor Company by the Successor Company as if it
had occurred on April 1, 1995. See pages F-39 and F-40 included in this
Prospectus.
(10) Solely for the convenience of the reader, pounds sterling amounts have
been translated into US dollars at the Noon Buying Rate on June 28, 1996
of $1.5529 = (Pounds)1.00.
(11) Intra-business eliminations consist primarily of intercompany transactions
between the distribution business and the supply business and intra-
business transactions between ancillary support businesses. Pursuant to
the UK regulatory framework, SWEB's distribution of electricity to its
supply customers within its own Franchise Area is billed to SWEB's supply
business, which in turn incorporates the distribution charge into the bill
sent to the final end user.
(12) Includes goodwill, net of amortization, and prepaid pension costs of
(Pounds)173 million ($269 million) and (Pounds)95 million ($148 million),
respectively at March 31, 1996.
(13) Cash flow from operations for the period from inception (June 23, 1995) to
March 31, 1996 includes the settlement of accounts payable balances of
(Pounds)39 million ($60 million).
13
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Senior Notes offered by this Prospectus.
FACTORS RELATING TO THE ELECTRIC UTILITY BUSINESS IN GREAT BRITAIN
PRICE REGULATION OF DISTRIBUTION
The distribution business of SWEB is regulated under its PES license
pursuant to which revenue of the distribution business is controlled by the
Distribution Price Control Formula (as defined herein). The Distribution Price
Control Formula determines the maximum average price per unit of electricity
(expressed in kilowatt hours, a "unit") that a REC may charge. The elements
used in the Distribution Price Control Formula are established for a five-year
period and are subject to review by the Director General of Electricity Supply
(the "Regulator") at the end of each five-year period and at other times in
the discretion of the Regulator. At each review, the Regulator can adjust the
value of certain elements in the Distribution Price Control Formula. In July
1994, a review resulted in a 14% price reduction, before allowing for
inflation, effective April 1, 1995. In July 1995, a further review of
distribution prices was concluded by the Regulator for fiscal years 1997 to
2000. As a result of this further review, SWEB's distribution prices were
reduced by a further 11%, before allowing for inflation, effective April 1,
1996. There can be no assurance that any review by the Regulator will not
adversely affect the Company. See "The Electric Utility Industry in Great
Britain--The Structure of the Electricity Industry in Great Britain--
Distribution of Electricity."
COMPETITION IN SUPPLY
Each PES license holder currently has an exclusive right, subject to price
cap regulation, to supply customers in its franchise area with a maximum
demand of not more than 100kW ("Franchise Supply Customers"). However, the
supply business is being progressively opened to competition. The market for
customers with a maximum demand above 1MW has been open to competition for
suppliers of electricity since privatization while, for customers with a
maximum demand above 100kW ("Non-Franchise Supply Customers"), the market
became competitive in April 1994. The final stage of this process is expected
to occur on March 31, 1998, when the exclusive right to supply Franchise
Supply Customers is scheduled to end. There can be no assurance that
competition among suppliers of electricity will not adversely affect the
Company. See"Business--SWEB's Main Businesses--Supply Business."
POOL PURCHASE PRICE VOLATILITY
SWEB's supply business to Non-Franchise Supply Customers generally involves
entering into fixed price contracts to supply electricity to its customers.
SWEB obtains the electricity to satisfy its obligations under such contracts
primarily by purchases from the wholesale trading market for electricity in
England and Wales (the "Pool"). See "The Electric Utility Industry in Great
Britain." Because the price of electricity purchased from the Pool can be
volatile, to the extent that SWEB purchases electricity from the Pool, SWEB is
exposed to risk arising from differences between the fixed price at which it
sells and the fluctuating prices at which it purchases electricity unless it
can effectively hedge such exposure. SWEB's ability to manage such risk at
acceptable levels will depend, in part, on the specifics of the supply
contracts that SWEB enters into, SWEB's ability to implement and manage an
appropriate hedging strategy and the development of an adequate market for
hedging instruments. No assurance can be given that this risk will be
effectively mitigated. See "Business--SWEB's Main Business--Supply Business."
OTHER FACTORS
CHANGE IN GOVERNMENT POLICY
The Conservative Party has held power in the UK since 1979 and currently has
a one-seat majority over all other parties. The next general election in the
UK must be held no later than May 1997, and may be called at approximately
three weeks' notice at any time before then. Certain senior members of the
Labour Party, which is the main opposition party, have recently made
statements regarding policies which a Labour government would intend to
introduce, including a windfall tax on excess profits of privatized utilities
and referring the whole electricity industry to the competition authorities.
There can be no assurance that the policies of the UK government, by whichever
party it is controlled, would not adversely affect the Company.
14
<PAGE>
CURRENCY RISKS; HEDGING TRANSACTIONS
The Company expects to obtain a significant portion of its financing from
the sale of the Senior Notes which will be denominated in US dollars. The
Company's revenues will be generated primarily in pounds sterling while the
Company's interest and principal payment obligations with respect to the
Senior Notes will be payable in US dollars. As a result, any change in the
currency exchange rate that reduces the amount in pounds sterling obtained
upon conversion of the US dollar-based net proceeds of the Senior Notes or
that increases the effective principal and interest payment obligations
represented by the Senior Notes upon conversion of pounds sterling-based
revenues into US dollars may, if not appropriately hedged, have a material
adverse effect on the Company or on its ability to make payments on the Senior
Notes. See "Exchange Rates" for certain information concerning the Noon Buying
Rate for pounds sterling expressed in US dollars. Although the Company expects
to enter into certain transactions to hedge risks associated with exchange
rate fluctuations, there can be no assurance that the Company will engage in
such transactions or that any such transaction will be successful in reducing
such risks.
LACK OF ESTABLISHED MARKET FOR THE SENIOR NOTES
Although the Underwriters have informed the Company that they currently
intend to make a market in the Senior Notes, they are not obligated to do so,
and any such market-making may be discontinued at any time without notice.
There can be no assurance as to the development or liquidity of any market for
the Senior Notes. If an active public market does not develop, the market
price and liquidity of the Senior Notes may be adversely affected.
CONSIDERATIONS RELATED TO BOOK-ENTRY INTEREST
Unless and until Definitive Registered Notes are issued in exchange for
interests in the Book-Entry Interest, owners of interests in the Book-Entry
Interest will not be considered the owners or holders of Senior Notes under
the Indenture. The Book-Entry Depositary, or its nominee, will be the sole
holder (the "Holder") of the Senior Notes in the form of a single global
Senior Note in bearer form. Accordingly, each person owning an interest in the
Book-Entry Interest must rely on the procedures of the Book-Entry Depositary
and DTC and, if such person is not a Participant in DTC, on the procedures of
the Participant (including Euroclear and Cedel Bank) through which such person
owns its interest to exercise any rights and obligations of a Holder under the
Indenture.
Payments of principal, interest and other amounts owing on or in respect of
the Global Note will be made to the Book-Entry Depositary, which will in turn
distribute payments to Cede & Co. (as nominee of DTC), and thereafter payments
will be made to DTC Participants (and to persons who own an interest in the
Book-Entry Interest through DTC Participants). None of the Company, the
Trustee, the Book-Entry Depositary, any paying agent or any registrar will
have any responsibility or liability for any aspect of the records relating
to, or payments made on account of, the Book-Entry Interest or interests
therein or for maintaining, supervising or reviewing any records relating to
such Book-Entry Interest or interests therein.
Unlike Holders of the Senior Notes themselves, owners of interests in the
Book-Entry Interest will not have the direct right under the Indenture to act
upon solicitations by the Company of consents or requests by the Company for
waivers or other actions from Holders of the Senior Notes. Instead, owners of
interests in the Book-Entry Interest will be permitted to act only to the
extent they have received appropriate proxies to do so from DTC and, if
applicable, DTC Participants. There can be no assurance that procedures
implemented for the granting of such proxies will be sufficient to enable
owners of interests in the Book-Entry Interest to vote on any requested
actions on a timely basis. Similarly, upon the occurrence of an Event of
Default (as defined), unless and until Definitive Registered Notes are issued,
owners of interests in the Book-Entry Interest will be restricted to acting
through DTC, its Participants and the Book-Entry Depositary. There can be no
assurance that the procedures to be implemented by DTC, its Participants and
the Book-Entry Depositary under such circumstances will be adequate to ensure
the timely exercise of remedies under the Indenture. See "Description of the
Senior Notes--Description of the Book-Entry System."
15
<PAGE>
THE COMPANY
The Company is a wholly-owned subsidiary of Holdings, of which 75% is owned
indirectly by Southern and 25% is owned indirectly by PP&L Resources. The
Company was incorporated as a public limited company under the laws of England
and Wales on June 23, 1995, as a vehicle for the acquisition of SWEB, one of
the 12 RECs in England and Wales licensed to distribute, supply and, to a
limited extent, generate electricity. In September 1995, the Company gained
effective control of SWEB, having acquired approximately 84% of its shares.
The Company subsequently replaced SWEB's board of directors and certain senior
managers with officers and employees of companies from within the Southern
Company system. In November 1995, the Company acquired the remaining shares of
SWEB. The Company's sole investment and only significant asset is the entire
share capital of SWEB, which is headquartered in Bristol, England. At June 30,
1996, the Company had consolidated assets of (Pounds)1.659 billion ($2.576
billion). The following organizational chart illustrates the ownership
structure of the Company and SWEB in summary form.
LOGO
SWEB's two main business lines are the distribution of electricity and the
supply of electricity to approximately 1.3 million customers in its Franchise
Area. The distribution business and the supply business are distinct business
segments and produced operating income of (Pounds)112 million ($174 million)
and (Pounds)15 million ($23 million), respectively, in Pro Forma Fiscal Year
1996, representing substantially all of the Company's consolidated operating
income in that pro forma fiscal year.
The Company's registered office and principal executive offices are located
at 800 Park Avenue, Aztec West, Almondsbury, Bristol BS12 4SE, England, and
its telephone number is 44-1454-201-101.
FRANCHISE AREA
SWEB operates primarily in its Franchise Area which covers approximately
5,560 square miles extending from Bristol and Bath in the northeast, 188 miles
southwest along the peninsula to Land's End and 28 miles beyond to the Isles
of Scilly. SWEB's Franchise Area has a resident population of approximately
2.8 million. The map on the inside front cover of this Prospectus outlines
SWEB's Franchise Area.
16
<PAGE>
REGULATION
The revenues and operations of SWEB are regulated by the Regulator through
SWEB's PES license. Under that license, SWEB provides electricity distribution
services to virtually all consumers in its Franchise Area (whether supplied by
SWEB's independent supply business or by other suppliers) and must offer
electricity supply services to all consumers in its Franchise Area. Franchise
Supply Customers within the Franchise Area (primarily residential/domestic and
small commercial consumers) can only be supplied by SWEB. Non-Franchise Supply
Customers within the Franchise Area (primarily large commercial and
agricultural and industrial consumers) may choose to be supplied by SWEB or
another supplier. Similarly, SWEB may supply electricity to Non-Franchise
Supply Customers outside SWEB's Franchise Area.
Under the terms of SWEB's PES license, the distribution business and the
supply business to Franchise Supply Customers are subject to a price cap
regulatory framework that provides economic incentives to SWEB to increase the
number of units of electricity distributed and supplied and to operate in a
cost-efficient manner. The price cap framework, however, does not apply to
Non-Franchise Supply Customers, and SWEB is able to competitively bid or
negotiate to supply electricity to such customers. SWEB's PES license also
limits the scope of SWEB's business activities and its ability, among other
things, to transfer assets and make loans. See "The Electric Utility Industry
in Great Britain--The Structure of the Electricity Industry in Great Britain--
Distribution of Electricity" and "--Electricity Supply."
DISTRIBUTION BUSINESS
SWEB's distribution business is the ownership, management and operation of
the electricity distribution network within SWEB's Franchise Area. The primary
activity of the distribution business is the receipt of electricity from the
national grid transmission system and its distribution to end users of
electricity that are connected to SWEB's power lines. Virtually all
electricity supplied (whether by SWEB's independent supply business or by
other suppliers) to consumers in SWEB's Franchise Area is transported through
its distribution network, thus providing SWEB with distribution volume that is
stable from year to year.
SWEB's distribution business has grown in both its customer base and in the
number of units distributed, primarily reflecting economic growth in the South
West of England. The South West, of which the Franchise Area forms the greater
part, has benefited from economic growth (as measured by gross domestic
product, "GDP") which exceeded the UK average from 1991 through 1995 and has
also benefited from an average unemployment rate during calendar year 1995 of
approximately 6.9%, which was below the UK average of 8.2%, according to a
recent study by Cambridge Econometrics. At March 31, 1996, SWEB had
experienced a 5-year compound annual growth rate of 0.8% in customers and a 5-
year compound annual growth rate of 1.6% in units distributed.
Since its acquisition by the Company, SWEB has introduced several
initiatives that focus on its distribution business. A number of areas for
cost savings and performance improvement have been identified which, together
with service innovations, are expected to improve the current level of
customer satisfaction and SWEB's financial performance. In this regard, a
total of 704 staff reductions (mainly in the distribution business and
representing 21% of staff at the time of the acquisition by the Company of
SWEB) are planned, of which 460 occurred prior to June 30, 1996. In addition,
new work practices developed in consultation with SWEB's unions have
contributed to cost savings. See "Business--SWEB's Main Businesses--
Distribution Business--Strategy."
SUPPLY BUSINESS
SWEB's supply business is selling electricity to end users, purchasing such
electricity, primarily from the Pool, and arranging for its distribution to
those end users. SWEB's supply business is comprised predominantly of
supplying Franchise Supply Customers. In fiscal year 1996, these customers
accounted for approximately 82% of all units of electricity supplied by SWEB.
SWEB's exclusive right to supply these customers is scheduled to
17
<PAGE>
continue, subject to price regulation, until March 31, 1998, at which time
competition to supply Franchise Supply Customers is scheduled to commence.
Since its acquisition by the Company, SWEB has completed a review of the
supply market, established new goals for its supply business and adopted new
strategies for achieving those goals. The key goals established are the
retention of its current Franchise Supply Customers as supply customers after
March 31, 1998 and the increase of SWEB's share of electricity supplied to
Non-Franchise Supply Customers both inside and outside SWEB's Franchise Area.
As a result of this strategy, SWEB expects to supply a larger portion of units
to Non-Franchise Supply Customers than in fiscal year 1996.
SWEB's strategy for retaining its Franchise Supply Customers is to build
customer loyalty and offer competitive prices. SWEB seeks to build customer
loyalty by providing superior service, including reliable distribution
service. To provide responsive service for billing and other matters, SWEB has
installed a state-of-the-art call center to handle customers' needs and is
completing work on a new billing system to provide customers with important
information in a user-friendly format.
Most of SWEB's Non-Franchise Supply Customers, who are primarily large
commercial and industrial companies, are located in SWEB's Franchise Area.
They are typically supplied through individual contracts for a duration of one
to two years based on competitively bid or negotiated prices.
SWEB's strategy for increasing market share among Non-Franchise Supply
Customers is to provide more competitive pricing, the superior service
described above and customized service that will be supported through an
expanded staff of key customer account managers utilizing new integrated
information systems.
OTHER BUSINESS ACTIVITIES
SWEB also has ancillary business activities that support the main
electricity businesses, including power generation and gas supply. See
"Business--SWEB's Other Business Activities."
PARENT COMPANIES
Southern owns several companies that together constitute one of the largest
investor-owned electric utility systems in the United States in terms of total
sales, electricity revenues and installed capacity. The Southern Company
system provides energy to approximately 4.8 million customers in Alabama,
Georgia, the panhandle of Florida, southeastern Mississippi and southwestern
England through its five southeastern United States utility operating
subsidiaries, which are Alabama Power Company, Georgia Power Company, Gulf
Power Company, Mississippi Power Company and Savannah Electric and Power
Company, and in England through SWEB. The Southern Company system currently
has ownership interests in over 70 power plants with more than 300 generating
units and with total electric generating capacity of over 32,000 MW. Southern
Electric International, Inc. ("Southern Electric"), a wholly owned subsidiary
of Southern, focuses on management of, and investment opportunities related
to, international and domestic power generation, the independent US domestic
power market and international electricity businesses. Within the Southern
Company system, Southern Electric has management oversight responsibility for
Holdings, the Company and SWEB, as well as certain other investments by the
Southern Company system in electricity businesses in the United States,
Argentina, Chile, the Bahamas and Trinidad and Tobago. SWEB is the third
largest operating company in the Southern Company system in terms of revenue,
assets and number of customers. The acquisition of SWEB is consistent with
Southern's stated objective of growing businesses outside of its core US
regulated utilities to contribute to the consolidated earnings growth of
Southern.
In late 1994, PP&L Resources established the Power Markets Development
Company ("PMDC") as its non-regulated, international power business. In
addition to its indirect minority ownership interest in SWEB, PMDC owns
interests in operating companies in Portugal, Bolivia and Argentina and is
currently developing power projects in Peru, Spain and India. The investment
by PP&L Resources in Holdings is significantly greater than that in any of
these other companies.
18
<PAGE>
USE OF PROCEEDS
The net proceeds from the Offering are estimated to be approximately US$228
million ((Pounds)147 million) after deduction of underwriting commissions and
discounts and expenses payable by the Company.
The Company intends to use such net proceeds to refinance a portion of an
existing $505 million ((Pounds)325 million) term loan. The existing term loan
matures on February 5, 1997 and bears interest at the London inter-bank
offered rate for pounds sterling plus 20 basis points. Morgan Guaranty Trust
Company of New York ("Morgan Guaranty"), an affiliate of J.P. Morgan
Securities Inc., one of the Underwriters ("JP Morgan") is a lender and agent
under the Company's term loan, and as such lender will receive a portion of
the proceeds of the Offering in excess of 10% of such proceeds in repayment of
a portion of such term loan. See "Underwriting."
CAPITALIZATION
The following table sets forth, at June 30, 1996 (i) the actual consolidated
capitalization of the Successor Company, and (ii) the consolidated
capitalization adjusted to reflect the issuance of the Senior Notes and the
application of the net proceeds thereof, as described under "Use of Proceeds."
This table should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto of the
Successor Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------------------------
ACTUAL AS ADJUSTED
------------------------ ------------------------------
(Pounds) $(1) % (Pounds) $(1) %
------------- ------ --- ------------- ------ ---
(AMOUNTS IN MILLIONS, EXCEPT %)
<S> <C> <C> <C> <C> <C> <C>
Capitalization:
Short-term debt........ (Pounds) 637 $ 989 64% (Pounds) 490(2) $ 761(2) 49%
Senior Notes offered
hereby................ -- -- -- 151 235 15
Total stockholder's eq-
uity.................. 366 568 36 366 568 36
------------- ------ --- ------------- ------ ---
Total capitalization... (Pounds)1,003 $1,557 100% (Pounds)1,007 $1,564 100%
============= ====== === ============= ====== ===
</TABLE>
- --------
(1) Solely for convenience of the reader, UK pounds sterling amounts have been
translated into US dollars at the Noon Buying Rate on June 28, 1996 of
$1.5529 = (Pounds)1.00.
(2) Calculated by assuming that the net proceeds of the Offering will be $228
million ((Pounds) 147 million).
EXCHANGE RATES
The following table sets out, for the periods indicated, certain information
concerning the exchange rates between UK pounds sterling and US dollars based
on the Noon Buying Rates.
<TABLE>
<CAPTION>
PERIOD
FISCAL YEAR END AVERAGE(1) HIGH LOW
----------- ------ ---------- ---- ----
($ PER (Pounds)1.00)
<S> <C> <C> <C> <C>
1992........................................... 1.51 1.77 2.00 1.51
1993........................................... 1.48 1.50 1.59 1.42
1994........................................... 1.57 1.53 1.64 1.46
1995........................................... 1.55 1.58 1.64 1.53
1996........................................... 1.53 1.53 1.56 1.50
1997, through June 30.......................... 1.55 1.54 1.55 1.51
</TABLE>
- --------
(1) The average of the Noon Buying Rates in effect on the last business day of
each month during the relevant period.
19
<PAGE>
SELECTED FINANCIAL DATA
The income statement and balance sheet data of the Predecessor Company for
each of the four fiscal years ended 1995 and for the period from April 1 to
September 17, 1995, and of the Company (the "Successor Company" or the
"Company") for the period from September 18, 1995 to March 31, 1996 have been
derived from the audited consoldiated financial statements of the Predecessor
Company and the Successor Company, respectively. The unaudited consolidated
income statement data for the three months ended June 30, 1995 and 1996, have
been derived from the unaudited consolidated financial statements of the
Predecessor and Successor Company, respectively. The unaudited consolidated
balance sheet data as of June 30, 1996 have been derived from the financial
statements of the Successor Company. In the opinion of the management of the
Company, all adjustments (consisting of only normal recurring adjustments)
considered necessary for fair presentation of the condensed unaudited
consolidated financial statements have been included, and the accompanying
condensed consolidated financial statements present fairly the financial
position and the results of operations for the interim periods presented. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto of the
Predecessor Company and the Successor Company included elsewhere in this
Prospectus.
The unaudited pro forma condensed consolidated income statement and other
data presented below for fiscal year 1996 reflect the acquisition by the
Company of SWEB as if it had occurred as of April 1, 1995. Such unaudited pro
forma condensed consolidated income statement and other data have been
prepared by the Successor Company based upon assumptions deemed proper by it
and reflect a preliminary allocation of the purchase price paid for the
Predecessor Company. The unaudited pro forma condensed consolidated income
statement and other data presented herein are shown for illustrative purposes
only and are not necessarily indicative of the future results of operations of
the Successor Company or of the results of operations of the Successor Company
that would have actually occurred had the transaction been in effect for the
period presented. The Successor Company's consolidated financial statements
reflect the operations of the Successor Company from September 18, 1995, the
date on which the Company acquired effective control of SWEB.
PREDECESSOR COMPANY
UK GAAP(1)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------
1992 1993 1994 1995
------------ ------------ ------------ ------------
(POUNDS STERLING IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Turnover............... (Pounds) 847 (Pounds) 892 (Pounds) 900 (Pounds) 875
Operating costs........ (759) (790) (791) (755)
------------ ------------ ------------ ------------
Operating profit....... 88 102 109 120
Exceptional item(2).... -- -- -- (20)
Other income........... 10 11 15 17
Interest, net.......... (15) (12) (7) (5)
Tax on profit.......... (21) (23) (24) (26)
------------ ------------ ------------ ------------
Profit for financial
period(3)............. (Pounds) 62 (Pounds) 78 (Pounds) 93 (Pounds) 86
============ ============ ============ ============
Dividends declared per
share................. (Pounds)0.17 (Pounds)0.20 (Pounds)0.24 (Pounds)0.27
============ ============ ============ ============
<CAPTION>
MARCH 31,
------------------------------------------------------
1992 1993 1994 1995
------------ ------------ ------------ ------------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Fixed assets........... (Pounds) 490 (Pounds) 544 (Pounds) 579 (Pounds) 615
Current assets......... 212 213 301 254
Creditors: Amounts
falling due within one
year.................. (179) (176) (205) (243)
------------ ------------ ------------ ------------
Total assets less cur-
rent liabilities...... 523 581 675 626
Creditors: Amounts
falling due in more
than one year (85) (87) (92) (95)
Total shareholders'
funds................. 425 479 543 494
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------
1992 1993 1994 1995
------------ ------------ ------------ ------------
(POUNDS STERLING IN MILLIONS, EXCEPT RATIO)
<S> <C> <C> <C> <C>
OTHER CONSOLIDATED DATA:
EBIT(4)................ (Pounds) 99 (Pounds) 115 (Pounds) 126 (Pounds) 142
EBITDA(5).............. 123 141 154 173
Cash flow from opera-
tions(6).............. 128 140 245 124
Ratio of earnings to
fixed charges(7)...... 6 8 12 13
</TABLE>
20
<PAGE>
PREDECESSOR COMPANY
US GAAP(1)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MARCH 31, APRIL 1, 1995 THREE MONTHS
-------------------------- TO SEPTEMBER 17, ENDED
1994 1995 1995(8) JUNE 30, 1995
------------ ------------ ---------------- -------------
(POUNDS STERLING IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Operating revenues..... (Pounds) 808 (Pounds) 776 (Pounds) 299 (Pounds) 167
Operating income....... 122 139 40 26
Interest, net.......... (7) (4) (3) (2)
Other, net............. 16 16 1 1
Provision for income
taxes................. (43) (50) (13) (9)
------------ ------------ ------------ ------------
Income from continuing
operations............ 88 101 25 16
Discontinued opera-
tions................. -- (7) (1) --
------------ ------------ ------------ ------------
Net income............. (Pounds) 88 (Pounds) 94 (Pounds) 24 (Pounds) 16
============ ============ ============ ============
Dividends declared per
share ................ (Pounds)0.21 (Pounds)0.25 (Pounds)0.65 --
============ ============ ============ ============
<CAPTION>
MARCH 31,
1995
------------
(POUNDS
STERLING
IN MILLIONS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Property, plant and
equipment, net........ (Pounds) 541
Total assets........... 869
Total stockholder's eq-
uity.................. 374
Long-term debt......... 95
Short-term debt........ 24
<CAPTION>
PERIOD FROM
YEAR ENDED MARCH 31, APRIL 1, 1995 THREE MONTHS
-------------------------- TO SEPTEMBER 17, ENDED
1994 1995 1995(8) JUNE 30, 1995
------------ ------------ ---------------- -------------
(POUNDS STERLING IN MILLIONS, EXCEPT RATIO)
<S> <C> <C> <C> <C>
OTHER CONSOLIDATED DATA:
EBIT(4)................ (Pounds) 142 (Pounds) 162 (Pounds) 43 (Pounds) 28
EBITDA(5).............. 170 193 58 36
Cash flow from opera-
tions(6).............. 236 100 69 21
Ratio of earnings to
fixed charges(7)...... 13 15 9 9
</TABLE>
21
<PAGE>
SUCCESSOR COMPANY
US GAAP
<TABLE>
<CAPTION>
PRO FORMA
PERIOD FROM FISCAL YEAR ENDED THREE MONTHS
INCEPTION (JUNE 23, 1995) MARCH 31, 1996 ENDED
TO MARCH 31, 1996(8) (UNAUDITED)(9) JUNE 30, 1996
-------------------------------------------------- -------------------------
(Pounds) $(10) (Pounds) $(10) (Pounds) $(10)
---------------- ------------------------ ------ -------------- ---------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Operating revenues..... (Pounds) 481 $ 747 (Pounds) 780 $1,211 (Pounds) 181 $ 281
Operating income....... 86 133 121 188 27 42
Interest, net.......... (21) (32) (57) (88) (13) (20)
Gain on sale of invest-
ments................. 14 22 -- -- -- --
Other, net............. 2 3 11 17 3 4
Provision for income
taxes................. (28) (43) (26) (40) (6) (9)
---------------- --------- ------------- ------ -------------- -------
Income from continuing
operations............ 53 83 (Pounds) 49 $ 77 11 17
============= ======
Extraordinary gain on
early extinguishment
of debt............... 6 9 -- --
Discontinued opera-
tions................. -- -- -- --
---------------- --------- -------------- -------
Net income............. (Pounds) 59 $ 92 (Pounds) 11 $ 17
================ ========= ============== =======
Dividends declared per
share................. (Pounds) 3.82 $ 5.93 (Pounds) 4.67 $ 7.25 (Pounds) 0.02 $ 0.03
================ ========= ============= ====== ============== =======
<CAPTION>
MARCH 31, 1996 JUNE 30, 1996
----------------------------- -------------------------
(Pounds) $(10) (Pounds) $(10)
---------------- ----------- -------------- ---------
(AMOUNTS IN MILLIONS) (AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Property, plant and
equipment, net........ (Pounds) 1,207 $ 1,874 (Pounds) 1,212 $ 1,882
Total assets........... 1,686 2,618 1,659 2,576
Total stockholder's eq-
uity.................. 368 571 366 568
Short-term debt........ 650 1,009 637 989
<CAPTION>
PRO FORMA
PERIOD FROM FISCAL YEAR ENDED THREE MONTHS
INCEPTION (JUNE 23, 1995) MARCH 31, 1996 ENDED
TO MARCH 31, 1996(8) (UNAUDITED)(9) JUNE 30, 1996
-------------------------------------------------- -------------------------
(Pounds) $(10) (Pounds) $(10) (Pounds) $(10)
---------------- ------------------------ ------ -------------- ---------
(AMOUNTS IN MILLIONS, EXCEPT RATIO)
<S> <C> <C> <C> <C> <C> <C>
OTHER CONSOLIDATED DATA:
EBIT(4)................ (Pounds) 109 $ 169 (Pounds) 141 $ 219 (Pounds) 30 $ 47
EBITDA(5).............. 131 203 183 284 40 62
Cash flow from opera-
tions(13)............. 25 39 94 146 30 47
Ratio of earnings to
fixed charges(7)...... 4 2 2
</TABLE>
22
<PAGE>
BUSINESS SEGMENTS
PREDECESSOR COMPANY
UK GAAP(1)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------
1992 1993 1994 1995
----------- ----------- ----------- -----------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C> <C>
TURNOVER:
Electricity distribu-
tion.................. (Pounds)230 (Pounds)235 (Pounds)250 (Pounds)274
Electricity supply..... 763 787 772 725
Retailing(2)........... 53 72 79 82
Other.................. 21 59 78 84
Less: Intra-busi-
ness(11).............. (220) (261) (279) (290)
----------- ----------- ----------- -----------
Total............... (Pounds)847 (Pounds)892 (Pounds)900 (Pounds)875
OPERATING PROFIT (LOSS):
Electricity distribu-
tion.................. (Pounds) 90 (Pounds) 85 (Pounds) 77 (Pounds) 96
Electricity supply..... 4 16 25 15
Retailing(2)........... (1) (2) 1 1
Other.................. (5) 4 6 9
Less: Intra-busi-
ness(11).............. -- -- -- (1)
----------- ----------- ----------- -----------
Total............... (Pounds) 88 (Pounds)103 (Pounds)109 (Pounds)120
<CAPTION>
MARCH 31,
--------------------------------------------------
1992 1993 1994 1995
----------- ----------- ----------- -----------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS:
Electricity distribu-
tion.................. (Pounds)449 (Pounds)454 (Pounds)472 (Pounds)504
Electricity supply..... 139 134 91 89
Retailing(2)........... 32 38 56 64
Other.................. 82 131 261 212
----------- ----------- ----------- -----------
Total............... (Pounds)702 (Pounds)757 (Pounds)880 (Pounds)869
</TABLE>
23
<PAGE>
BUSINESS SEGMENTS
PREDECESSOR COMPANY
US GAAP(1)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
------------------------- APRIL 1, 1995 TO
1994 1995 SEPTEMBER 17, 1995
----------- ------------ ------------------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C>
OPERATING REVENUE:
Electricity distribution...... (Pounds)250 (Pounds)274 (Pounds) 105
Electricity supply............ 772 725 276
Other......................... 54 57 23
Less: Intra-business(11)...... (268) (280) (105)
----------- ----------- ------------
Total...................... (Pounds)808 (Pounds)776 (Pounds) 299
OPERATING INCOME (LOSS):
Electricity distribution...... (Pounds) 84 (Pounds)112 (Pounds) 42
Electricity supply............ 27 18 2
Other......................... 11 10 (4)
Less: Intra-business(11)...... -- (1) --
----------- ----------- ------------
Total...................... (Pounds)122 (Pounds)139 (Pounds) 40
<CAPTION>
MARCH 31,
1995
------------
(POUNDS
STERLING
IN MILLIONS)
<S> <C> <C> <C>
ASSETS:
Electricity distribution...... (Pounds)531
Electricity supply............ 93
Other......................... 245
-----------
Total...................... (Pounds)869
</TABLE>
24
<PAGE>
BUSINESS SEGMENTS
SUCCESSOR COMPANY
US GAAP
<TABLE>
<CAPTION>
PERIOD FROM PRO FORMA
INCEPTION FISCAL YEAR ENDED THREE MONTHS
(JUNE 23, 1995) TO MARCH 31, 1996 ENDED
MARCH 31, 1996(8) (UNAUDITED)(9) JUNE 30, 1996
-------------------------------------------- -------------------------
(Pounds) $(10) (Pounds) $(10) (Pounds) $(10)
-------------- -------------------- ------ -------------- ---------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Electricity distribu-
tion.................. (Pounds) 147 $ 228 (Pounds)252 $ 391 (Pounds) 53 $ 82
Electricity supply..... 450 699 726 1,127 170 264
Other.................. 33 51 54 84 13 20
Less: Intra-busi-
ness(11).............. (149) (231) (252) (391) (55) (85)
-------------- ------- ----------- ------ -------------- -------
Total............... (Pounds) 481 $ 747 (Pounds)780 $1,211 (Pounds) 181 $ 281
OPERATING INCOME (LOSS):
Electricity distribu-
tion.................. (Pounds) 72 $ 111 (Pounds)112 $ 174 (Pounds) 23 $ 36
Electricity supply..... 13 20 15 23 6 9
Other.................. 1 2 (6) (9) (2) (3)
Less: Intra-busi-
ness(11).............. -- -- -- -- -- --
-------------- ------- ----------- ------ -------------- -------
Total............... (Pounds) 86 $ 133 (Pounds)121 $ 188 (Pounds) 27 $ 42
<CAPTION>
MARCH 31, 1996 JUNE 30, 1996
------------------------- -------------------------
(Pounds) $(10) (Pounds) $(10)
-------------- --------- -------------- ---------
(AMOUNTS IN MILLIONS) (AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS(12):
Electricity distribu-
tion.................. (Pounds) 1,422 $ 2,209 (Pounds) 1,446 $ 2,245
Electricity supply..... 102 158 96 149
Other.................. 162 251 117 182
-------------- ------- -------------- -------
Total............... (Pounds) 1,686 $ 2,618 (Pounds) 1,659 $ 2,576
</TABLE>
- --------
(1) The financial data for the Predecessor Company shown on pages (i) 20 and
23 and (ii) 21 and 24 were derived from financial statements for the
Predecessor Company prepared, respectively, in accordance with UK GAAP
and US GAAP. The principal differences between US GAAP and UK GAAP as
applied to the Predecessor Company relate to the treatment of
discontinued operations, pension costs and deferred taxes.
(2) A provision for the disposition of the electrical appliance retailing
business resulted in an exceptional item for the fiscal year ended March
31, 1995. The actual disposition of this business segment occurred in
June 1995.
(3) Excluding the exceptional item, profit for fiscal year 1995 would have
been (Pounds)98 million.
(4) EBIT equals income from continuing operations before the sum of interest
expense and income taxes. This information is provided for informational
purposes only and such measure should not be construed as an alternative
to operating income (as determined in accordance with GAAP) as an
indicator of operating performance, or as an alternative to cash flows
from operating activities (as determined in accordance with GAAP) as a
measure of liquidity.
(5) EBITDA equals income from continuing operations before the sum of
interest expense, income taxes, depreciation and amortization. This
information is provided for informational purposes only and such measure
should not be construed as an alternative to operating income (as
determined in accordance with GAAP) as an indicator of operating
performance, or as an alternative to cash flows from operating activities
(as determined in accordance with GAAP) as a measure of liquidity.
(6) Cash flow from operations increased in fiscal year 1994 as a result of
customers who paid bills in advance in order to avoid paying value added
taxes which were introduced by the British government.
(7) The ratio of earnings to fixed charges is computed as the sum of pretax
income from continuing operations and fixed charges divided by fixed
charges. Fixed charges consist of interest expensed.
(8) On September 18, 1995, the Successor Company obtained effective control
of the Predecessor Company pursuant to the Successor Company's offer to
acquire the Predecessor Company.
(9) Pro Forma Fiscal Year 1996 financial information gives effect to the
acquisition of the Predecessor Company by the Successor Company as if it
had occurred on April 1, 1995. See pages F-39 and F-40 included in this
Prospectus.
(10) Solely for the convenience of the reader, pounds sterling amounts have
been translated into US dollars at the Noon Buying Rate on June 28, 1996
of $1.5529 = (Pounds)1.00.
(11) Intra-business eliminations consist primarily of intercompany
transactions between the distribution business and the supply business
and intra-business transactions between ancillary support businesses.
Pursuant to the UK regulatory framework, SWEB's distribution of
electricity to its supply customers within its own Franchise Area is
billed to SWEB's supply business, which in turn incorporates the
distribution charge into the bill sent to the final end user.
(12) Includes goodwill, net of amortization, and prepaid pension costs of
(Pounds)173 million ($269 million) and (Pounds)95 million ($148 million),
respectively at March 31, 1996.
(13) Cash flow from operations for the period from inception (June 23, 1995)
to March 31, 1996 includes the settlement of accounts payable balances of
(Pounds)39 million ($60 million).
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and the notes thereto of Southern Investments UK plc (the
"Successor Company" or the "Company") and of South Western Electricity plc
(the "Predecessor Company" or "SWEB") and "Selected Financial Data" included
elsewhere in this Prospectus. The consolidated financial statements of the
Successor Company and the consolidated financial statements of the Predecessor
Company discussed in this Section are presented in accordance with US GAAP.
INTRODUCTION
BACKGROUND
The Company was incorporated as a public limited company under the laws of
England and Wales in June 1995, as a vehicle for the acquisition of SWEB. In
September 1995, the Company gained effective control of SWEB, having acquired
approximately 84% of its shares. The Company subsequently replaced SWEB's
board of directors and certain senior managers with officers and employees of
companies from within the Southern Company system. In November 1995, the
Company acquired the remaining shares of SWEB. Total consideration for the
acquisition was (Pounds)1.063 billion ($1.651 billion) excluding a special
dividend of (Pounds)52 million ($81 million) paid by SWEB to its former
shareholders (other than those whose shares the Company had purchased in the
open market). Such dividend, when considered in aggregate with the final
dividend of (Pounds)23 million ($35 million) paid in October 1995 in respect
of fiscal year 1995, yields the (Pounds)75 million ($116 million) payment of
preacquisition dividends disclosed in the financial statements located
elsewhere in this prospectus.
ACCOUNTING FOR THE ACQUISITION
The recorded assets and liabilities of SWEB immediately prior to the time
the Company gained effective control of SWEB were (Pounds)855 million and
(Pounds)515 million, respectively. As a result of the purchase method of
accounting, the amount of SWEB's assets recorded on the books of the Company
was increased by (Pounds)910 million to their fair value of (Pounds)1.765
billion ($2.741 billion), and the amount of SWEB's liabilities recorded on the
books of the Company was increased by (Pounds)362 million to their fair value
of (Pounds)877 million ($1.362 billion). The increase in liabilities included
the establishment of reserves totaling (Pounds)44 million related principally
to staff reductions and the disposition of ancillary businesses. The resulting
difference between the purchase price of (Pounds)1.063 billion and the
difference between the fair value of the assets acquired and the fair value of
the liabilities assumed as well as the reserves established resulted in
goodwill of (Pounds)175 million.
The unaudited pro forma information presented for fiscal year 1996 ("Pro
Forma Fiscal Year 1996") consists of the historical results of operations of
the Predecessor Company prior to the acquisition and the results of operations
of the Successor Company subsequent to the acquisition, both of which have
been adjusted for the effects of the acquisition as though it had taken place
on April 1, 1995. The effects of the acquisition that are reflected in Pro
Forma Fiscal Year 1996 include: (i) depreciation expense based on property,
plant and equipment valued according to the purchase method of accounting as
if the acquisition had occurred on April 1, 1995, (ii) amortization of
goodwill valued according to the purchase method of accounting as if the
acquisition had occurred on April 1, 1995, (iii) fair valuation of existing
liabilities and the related interest expense as if the acquisition had
occurred on April 1, 1995, (iv) debt issued to finance the acquisition and the
related interest expense as if the acquisition had occurred on April 1, 1995
and (v) recognition of pension fund surplus and the reduction of pension
expense in the accounts of the Company. The information for Pro Forma Fiscal
Year 1996 is presented for illustrative purposes only and does not purport to
represent the actual results that would have occurred if the acquisition had
taken place on April 1, 1995.
SIGNIFICANT EVENTS
During fiscal year 1996, the sale by SWEB of its shares in The National Grid
Group plc ("NGG") and related actions produced a nonrecurring pre-tax gain of
(Pounds)14 million over the fair value established at the time of the
Company's acquisition of effective control of SWEB and resulted in net pre-tax
cash flow of (Pounds)241 million. In October 1995, the 12 RECs and Her
Majesty's Government (owning one special share) agreed to seek a listing
26
<PAGE>
for the NGG shares on the London Stock Exchange. The listing took place in
December 1995. Following that, SWEB progressively sold its approximately 6.3%
ownership interest in NGG for total proceeds of (Pounds)213 million, including
(Pounds)12 million in respect of shares sold by SWEB to the Company. The
listing was conditional upon the prior demerger of NGG's pumped storage
electricity generation business ("PSB") in order for NGG to sell that
business. PSB was sold in December 1995. SWEB had received (Pounds)36 million
of its share of the total proceeds from that sale by the end of fiscal year
1996. SWEB's estimated total share of the proceeds from the sale is (Pounds)39
million. As part of the agreement among the shareholders of NGG, each of the
RECs agreed to provide a discount to each of their respective Franchise Supply
Customers which, together with the associated reduction in the Fossil Fuel
Levy (as defined in "The Electric Utility Industry in Great Britain"),
produced a credit on each Franchise Supply Customer's bill of just over
(Pounds)50. The cost to SWEB of providing the discount amounted to (Pounds)57
million which was credited to customers in the last quarter of fiscal year
1996. In order to compensate the RECs for the cost of the customer discount
and other costs associated with the listing and sale, NGG paid a special
dividend shortly before the listing. SWEB's share of the special dividend
after taxation amounted to (Pounds)61 million. Between September 18, 1995 and
March 31, 1996, SWEB paid to the Company and the Company paid to Holdings a
dividend of (Pounds)191 million which was made possible because of the
proceeds from the sale of SWEB's interest in NGG.
SWEB has progressively withdrawn from its involvement in non-core
businesses. Neither the contribution to SWEB's or the Company's operating
income from the disposed businesses nor the effect of the dispositions on
SWEB's or the Company's net income was material after taking into account the
reserves established in connection with the acquisition. SWEB sold its
appliance retailing business in June 1995; its appliance servicing business in
February 1996; its creditor and warranty insurance business and electrical
installation and contracting business in March 1996; and its interest in a
cable television and telecommunications company in July 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1996
The condensed financial information included herein compares the results of
the Successor Company for the three months ended June 30, 1996 with those of
the Predecessor Company for the three months ended June 30, 1995.
Earnings
Operating income increased by (Pounds)1 million (4%) from (Pounds)26 million
in the three months ended June 30, 1995 to (Pounds)27 million in the three
months ended June 30, 1996. This increase was primarily due to an (Pounds)8
million increase in operating income from the supply business which was
partially offset by a (Pounds)4 million decrease in operating income from the
distribution business, resulting primarily from the price reduction mandated
by the Regulator, and a (Pounds)3 million decrease in operating income from
ancilliary businesses.
Net income decreased by (Pounds)5 million (31%) from (Pounds)16 million in
the three months ended June 30, 1995 to (Pounds)11 million in the three months
ended June 30, 1996. This decrease was primarily attributable to increased
after-tax interest expense of (Pounds)7 million resulting from debt issued to
finance the acquisition, partially offset by an after-tax increase in other
income of (Pounds)1 million.
Revenues
Operating revenues increased by (Pounds)14 million (8%) from (Pounds)167
million in the three months ended June 30, 1995 to (Pounds)181 million in the
three months June 30, 1996 as follows:
<TABLE>
<CAPTION>
OPERATING REVENUES
INCREASE (DECREASE) FROM THE THREE MONTHS
ENDED JUNE 30, 1995 TO THE
THREE MONTHS ENDED JUNE 30, 1996
-----------------------------------------
((Pounds) MILLIONS, EXCEPT %)
<S> <C>
Electricity distribution........... (5)
Electricity supply ................ 16
Less: Intra-business(1)............ (3)
---
Total operating revenues........... 14
===
Percentage change.................. 8%
</TABLE>
- --------
(1) The decrease in intra-business revenues has the effect of increasing total
operating revenues due to the elimination of intra-business revenues in
consolidation.
27
<PAGE>
Two factors determine the amount of revenues produced by the main
electricity distribution business: the unit price of the electricity
distributed (which is controlled by the Distribution Price Control Formula)
and the number of electricity units distributed. Following the Regulator's
distribution price review in 1994, the Regulator reduced SWEB's allowable
expected distribution revenues, effective beginning fiscal year 1996, by 14%,
before an allowed increase for inflation. Subsequently, the Regulator
announced a further distribution price reduction which has had and will
continue to have the effect of reducing SWEB's allowable expected distribution
revenues, effective beginning fiscal year 1997, by a further 11%, before an
allowed increase for inflation. See "The Electric Utility Industry in Great
Britain." In the three months ended June 30, 1996, application of the
Distribution Price Control Formula resulted in a reduction in SWEB's
distribution revenues as compared to the three months ended June 30, 1995. The
number of units distributed depends on the demands of SWEB's customers for
electricity. That demand varies based, in part, upon weather conditions and
economic activity. Revenues from the distribution business decreased by
(Pounds)5 million (8%) from (Pounds)58 million for the three months ended June
30, 1995 to (Pounds)53 million for the three months ended June 30, 1996 as a
result of the following factors:
<TABLE>
<CAPTION>
OPERATING REVENUES FROM
ELECTRICITY DISTRIBUTION
INCREASE (DECREASE) FROM
THE THREE MONTHS ENDED
JUNE 30, 1995
TO THE THREE MONTHS ENDED
JUNE 30, 1996
-------------------------
((Pounds) MILLIONS,
EXCEPT %)
<S> <C>
Application of Distribution Price Control Formu-
la.............................................. (7)
Sales growth..................................... 3
Other revenue attributable to distribution busi-
ness............................................ (1)
---
Total distribution revenues.................... (5)
===
Percentage change.............................. (8)%
===
</TABLE>
Two factors determine the amount of revenues produced by the supply
business: the unit price of the electricity supplied (which, in the case of
Franchise Supply Customers, is controlled by the Supply Price Control Formula)
and the number of electricity units supplied. Until April 1998, SWEB is
expected to have the exclusive right to supply all Franchise Supply Customers
in its Franchise Area.
Franchise Supply Customers are generally residential/domestic and small
commercial customers. The volume of unit sales of electricity for Franchise
Supply Customers is influenced largely by the number of customers in the
Franchise Area, weather conditions and prevailing economic conditions. Unit
sales to Non-Franchise Supply Customers are determined primarily by the
success of the supply business in entering into contracts to supply customers
with electricity.
Revenues from the supply business increased by (Pounds)16 million (10%) from
(Pounds)154 million for the three months ended June 30, 1995 to (Pounds)170
million for the three months ended June 30, 1996. In the three months ended
June 30, 1996, the number of electricity units supplied increased by 22% but
total revenues produced by the supply business increased by only 10%, because
a majority of the increase in total units supplied was to Non-Franchise Supply
Customers, who are the larger energy users charged at generally lower average
unit prices than those charged to Franchise Supply Customers. Within the
franchise market, the number of electricity units supplied increased by 2% but
this was offset by a reduction in allowable income as set by the Supply Price
Control Formula.
Cost of Sales
Cost of sales increased by (Pounds)15 million (14%) from (Pounds)107 million
in the three months ended June 30, 1995 to (Pounds)122 million in the three
months ended June 30, 1996. This increase was principally the result of an
increase in the supply business cost of sales of (Pounds)15 million reflecting
an increase in purchases of electricity to supply the increase in unit sales
as discussed above.
28
<PAGE>
Operating Expenses
Operating expenses decreased by (Pounds)2 million (6%) from (Pounds)34
million in the three months ended June 30, 1995 to (Pounds)32 million in the
three months ended June 30, 1996. This decrease was primarily due to a
(Pounds)1 million decrease in maintenance costs and a (Pounds)3 million
decrease in selling, general and administrative costs, which were partially
offset by a (Pounds)2 million increase in depreciation and amortization
resulting from the application of the purchase method of accounting.
The decrease in selling, general and administrative costs resulted in part
from a decrease in certain classes of computer software development costs
which were expensed during the three months ended June 30, 1995 but were
capitalized in the three months ended June 30, 1996, having satisfied the
criteria for capitalization under the Company's accounting policy (see Note 1
to the Consolidated Financial Statements of the Successor Company). The
decrease in selling, general and administrative costs was also due to a
decrease in labor costs resulting from a reduction in personnel. The decrease
in selling, general and administrative costs was partially offset by an
increase in pension costs.
Other Income
Other income increased by (Pounds)2 million from (Pounds)1 million in the
three months ended June 30, 1995 to (Pounds)3 million in the three months
ended June 30, 1996. This increase was primarily attributable to additional
proceeds of (Pounds)1.3 million from the sale by NGG, of which SWEB owned
6.3%, of NGG's pumped storage electricity generation business. See "--
Significant Events."
Interest Expense
Interest expense increased by (Pounds)10 million from (Pounds)3 million in
the three months ended June 30, 1995 to (Pounds)13 million in the three months
ended June 30, 1996, principally as a result of the financing costs associated
with the increased amount of debt issued for the acquisition. The weighted
average balance of debt outstanding during the three months ended June 30,
1996 was (Pounds)632 million at a weighted average interest rate of 7.3%
compared to (Pounds)93 million at 11.6% during the three months ended June 30,
1995.
Income Taxes
Income taxes decreased by (Pounds)3 million (33%) from (Pounds)9 million in
the three months ended June 30, 1995 to (Pounds)6 million in the three months
ended June 30, 1996. This decrease was primarily attributable to a decrease in
pre-tax income.
FISCAL YEAR 1995 COMPARED WITH PRO FORMA FISCAL YEAR 1996
Earnings
Operating income decreased by (Pounds)18 million (13%) from (Pounds)139
million in fiscal year 1995 to (Pounds)121 million in Pro Forma Fiscal Year
1996. This decrease was due to a (Pounds)24 million increase in cost of sales,
partially offset by a (Pounds)4 million increase in operating revenues and a
(Pounds)2 million decrease in operating expenses.
Net income decreased by (Pounds)45 million (48%) from (Pounds)94 million in
fiscal year 1995 to (Pounds)49 million in Pro Forma Fiscal Year 1996. In
addition to the factors discussed in the previous paragraph which reduced
operating income, the decrease in net income was primarily due to increased
after-tax interest expense of (Pounds)37 million principally due to debt
issued for the acquisition.
29
<PAGE>
Revenues
Operating revenues increased by (Pounds)4 million (1%) from (Pounds)776
million in fiscal year 1995 to (Pounds)780 million in Pro Forma Fiscal Year
1996 as follows:
<TABLE>
<CAPTION>
OPERATING REVENUES
INCREASE (DECREASE)
FROM FISCAL FISCAL YEAR 1995
TO PRO FORMA FISCAL YEAR 1996
-----------------------------
((Pounds) MILLIONS, EXCEPT %)
<S> <C>
Electricity distribution....................... (22)
Electricity supply............................. 1
Other activities............................... (3)
Less: Intra-business(1)........................ (28)
---
Total operating revenues..................... 4
===
Percentage change............................ 1%
===
</TABLE>
- --------
(1) The decrease in intra-business revenues has the effect of increasing total
operating revenues due to the elimination of intra-business revenues in
consolidation.
Following the Regulator's distribution price review in 1994, the Regulator
reduced SWEB's allowable expected distribution revenues, effective beginning
fiscal year 1996, by 14%, before an allowed increase for inflation.
Subsequently, the Regulator announced a further distribution price reduction
which has had and will continue to have the effect of reducing SWEB's
allowable expected distribution revenues, effective beginning fiscal year
1997, by a further 11%, before an allowed increase for inflation. See "The
Electric Utility Industry in Great Britain." Revenues from the distribution
business decreased by (Pounds)22 million (8%) from (Pounds)274 million in
fiscal year 1995 to (Pounds)252 million in Pro Forma Fiscal Year 1996 as a
result of the following factors:
<TABLE>
<CAPTION>
OPERATING REVENUES FROM
ELECTRICITY DISTRIBUTION
INCREASE (DECREASE) FROM
FISCAL YEAR 1995
TO PRO FORMA FISCAL YEAR 1996
-----------------------------
((Pounds) MILLIONS, EXCEPT %)
<S> <C>
Application of Distribution Price Control
Formula...................................... (20)
Sales growth................................. 9
Other revenue attributed to distribution
business(1)................................. (11)
---
Total distribution revenues................ (22)
===
Percentage change.......................... (8)%
===
</TABLE>
- --------
(1) Represents non-recurring revenues received in fiscal year 1995 for
installing the telecommunications fiberoptic infrastructure.
Revenues from the supply business increased by (Pounds)1 million from
(Pounds)725 million in fiscal year 1995 to (Pounds)726 million in Pro Forma
Fiscal Year 1996. This increase reflects an increase of (Pounds)11 million in
revenues from the franchise supply market which offset a (Pounds)10 million
reduction in revenues from the non-franchise supply market which was primarily
due to lower unit sales. This increase was the result of an overall increase
in unit sales to supply customers and application of the Supply Price Control
Formula which resulted in an upward inflation adjustment that exceeded the
downward regulatory factor adjustment.
Intra-business revenues decreased by (Pounds)28 million (10%) from
(Pounds)280 million in fiscal year 1995 to (Pounds)252 million in Pro Forma
Fiscal Year 1996 primarily as the result of the decrease in revenues from the
distribution business described above.
Cost of Sales
Cost of sales increased by (Pounds)24 million (5%) from (Pounds)480 million
in fiscal year 1995 to (Pounds)504 million in Pro Forma Fiscal Year 1996. This
increase is principally the result of an increase in the supply business
energy purchase costs of (Pounds)20 million.
30
<PAGE>
Operating Expenses
Operating expenses decreased by (Pounds)2 million (1%) from (Pounds)157
million in fiscal year 1995 to (Pounds)155 million in Pro Forma Fiscal Year
1996. This decrease was principally due to a reduction in severance costs of
(Pounds)6 million as a result of providing for severance costs under the
purchase method of accounting at the acquisition date and a net decrease in
certain classes of computer software development costs which were expensed
during fiscal year 1995 but were capitalized in Pro Forma Fiscal Year 1996,
having satisfied the criteria for capitalization under the Company's
accounting policy (see Note 1 to the Consolidated Financial Statements of the
Successor Company), partially offset by an increase in net pension costs and
an increase in depreciation and amortization expense.
Interest Expense
Interest expense increased by (Pounds)55 million from (Pounds)11 million in
fiscal year 1995 to (Pounds)66 million in Pro Forma Fiscal Year 1996
principally as a result of the financing costs associated with the increased
amount of debt issued for the acquisition. Interest expense for Pro Forma
Fiscal Year 1996 reflects interest expense recorded in connection with the
acquisition as if the acquisition had occurred on April 1, 1995 and had been
100% financed with short-term borrowings at an interest rate of 6% per year.
However, in fiscal year 1996, the Company retired an aggregate of (Pounds)96
million of debt and converted (Pounds)500 million of debt to equity, and such
retirement and conversion were not reflected in the financial statements for
Pro Forma Fiscal Year 1996. The weighted average balance of debt outstanding
during the Pro Forma Fiscal Year 1996 was (Pounds)876 million ($1,360 million)
at a weighted average interest rate of 7.5% compared to (Pounds)93 million at
11.9% during fiscal year 1995.
Income Taxes
Income taxes decreased by (Pounds)24 million from (Pounds)50 million in
fiscal year 1995 to (Pounds)26 million in Pro Forma Fiscal Year 1996. This
decrease is primarily attributable to a decrease in pre-tax income.
FISCAL YEAR 1994 COMPARED WITH FISCAL YEAR 1995
Earnings
Operating income increased by (Pounds)17 million (14%) from (Pounds)122
million in fiscal year 1994 to (Pounds)139 million in fiscal year 1995,
primarily due to a (Pounds)28 million increase in operating income from the
distribution business which was partially offset by a (Pounds)9 million
decrease in operating income from the supply business.
Net income increased by (Pounds)6 million (7%) from (Pounds)88 million in
fiscal year 1994 to (Pounds)94 million in fiscal year 1995. The increase was
primarily due to an increase of (Pounds)11 million in after-tax operating
income, an increase of (Pounds)2 million in after-tax interest income and an
increase of (Pounds)1 million in after-tax gain from discontinued operations,
partly offset by a one-time, after-tax loss of (Pounds)8 million on the sale
of the retail appliance business.
Revenues
Operating revenues decreased by (Pounds)32 million (4%) from (Pounds)808
million in fiscal year 1994 to (Pounds)776 million in fiscal year 1995 as
follows:
<TABLE>
<CAPTION>
OPERATING REVENUES
INCREASE (DECREASE)
FROM FISCAL YEAR 1994
TO FISCAL YEAR 1995
---------------------
((Pounds) MILLIONS,
EXCEPT %)
<S> <C>
Electricity distribution............................... 24
Electricity supply..................................... (47)
Other activities....................................... 3
Less: Intra-business(1)................................ 12
---
Total operating revenues............................. (32)
===
Percentage change.................................... (4)%
===
</TABLE>
- --------
(1) The increase in intra-business revenues has the effect of decreasing total
operating revenues due to the elimination of intra-business revenues in
consolidation.
31
<PAGE>
Revenues from the distribution business increased by (Pounds)24 million
(10%) from (Pounds)250 million in fiscal year 1994 to (Pounds)274 million in
fiscal year 1995 as a result of the following factors:
<TABLE>
<CAPTION>
OPERATING REVENUES FROM
ELECTRICITY DISTRIBUTION
INCREASE FROM
FISCAL YEAR 1994
TO FISCAL YEAR 1995
------------------------
((Pounds) MILLIONS,
EXCEPT %)
<S> <C>
Application of Distribution Price Control
Formula........................................... 8
Sales growth...................................... 2
Other revenue attributed to distribution busi-
ness(1).......................................... 14
---
Total operating revenue......................... 24
===
Percentage change............................... 10%
===
</TABLE>
- --------
(1) Represents primarily non-recurring revenues received in fiscal year 1995
for installing the telecommunications fiberoptic infrastructure.
Revenues from the supply business decreased by (Pounds)47 million (6%) from
(Pounds)772 million in fiscal year 1994 to (Pounds)725 million in fiscal year
1995 almost entirely as a result of lower unit sales in the non-franchise
supply market. The impact of the first supply price review was to reduce
revenues from Franchise Supply Customers by approximately (Pounds)3 million,
although additional revenues of (Pounds)14 million were achieved in the
franchise supply market as a result of extinguishing the under-recovery from
fiscal year 1994.
Cost of Sales
Cost of sales decreased by (Pounds)31 million (6%) from (Pounds)511 million
in fiscal year 1994 to (Pounds)480 million in fiscal year 1995. This decrease
was principally the result of a decrease in the amount of energy purchased due
to a reduction in unit sales to Non-Franchise Supply Customers.
Operating Expenses
Operating expenses decreased by (Pounds)18 million (10%) from (Pounds)175
million in fiscal year 1994 to (Pounds)157 million in fiscal year 1995
resulting primarily from a (Pounds)10 million reduction in severance costs and
a (Pounds)10 million reduction in pension costs, partially offset by an
increase of (Pounds)2 million in other expenses.
Income Taxes
Income taxes increased by (Pounds)7 million from (Pounds)43 million in
fiscal year 1994 to (Pounds)50 million in fiscal year 1995 reflecting an
increase in pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of funds during Pro Forma Fiscal Year 1996 were
(Pounds)94 million ($146 million) cash from operations, (Pounds)270 million
($419 million) of proceeds from the disposal of the Company's investment in
NGG, (Pounds)500 million ($776 million) of equity contributions from Southern,
and (Pounds)1,247 million ($1,936 million) of proceeds from the issuance of
short-term debt. During Pro Forma Fiscal Year 1996, the Company invested cash
of (Pounds)1,023 million ($1,589 million) in its acquisition of SWEB, and
(Pounds)59 million ($92 million) in capital expenditures. In addition, the
Company repaid (Pounds)696 million ($1,080 million) of its short-term debt,
paid (Pounds)75 million ($116 million) in dividends related to activities of
SWEB prior to the acquisition, and paid (Pounds)191 million ($297 million) of
dividends related to activities subsequent to the acquisition.
The principal sources of funds of the Predecessor Company during fiscal year
1995 were (Pounds)100 million ($155 million) cash from operations and
(Pounds)24 million ($37 million) of net additional short-term borrowings.
During fiscal year 1995, the Predecessor Company invested (Pounds)68 million
($106 million) in capital expenditures, paid dividends of (Pounds)30 million
($47 million), and repurchased common stock totaling (Pounds)103 million ($160
million).
32
<PAGE>
The principal sources of funds of the Predecessor Company during fiscal year
1994 were (Pounds)236 million ($366 million) cash from operations. During
fiscal year 1994, the Predecessor Company invested (Pounds)61 million ($95
million) in capital expenditures, purchased (Pounds)15 million ($23 million)
of investments, paid dividends of (Pounds)26 million ($40 million) and reduced
its short-term borrowings by (Pounds)37 million ($57 million).
At March 31, 1996, the Company had negative working capital of (Pounds)649
million ($1,008 million), compared to positive working capital of the
Predecessor Company of (Pounds)14 million ($22 million) at March 31, 1995. The
working capital deficit at March 31, 1996 is primarily the result of the
initial financing structure of the acquisition of SWEB.
To meet short-term cash needs and contingencies, the Company had
approximately (Pounds)20 million of cash and cash equivalents, on a
consolidated basis, at the end of fiscal year 1996.
The Company's sole investment and only significant asset is the entire share
capital of SWEB. The Company is therefore dependent upon dividends from SWEB
for its cash flow. The Company's primary need for liquidity is to pay interest
on its debt, and the Company expects to receive sufficient amounts of
dividends from SWEB to make such payments. SWEB can make distributions of
dividends to the Company under English law to the extent that it has
distributable reserves, subject to the retention of sufficient financial
resources to conduct its supply and distribution businesses as required by its
PES license. The Company believes that sufficient distributable reserves will
exist at SWEB to allow for any and all cash flow generated at SWEB through
operations to be distributed to the Company through dividends to the Company.
SWEB's need for liquidity is to pay interest on its debt and to fund its costs
of operations and capital expenditure programs.
The Company, on a consolidated basis, has four primary sources of liquidity
available to it. SWEB's internal source of funds is cash from operations,
which totalled (Pounds)74 million in Pro Forma Fiscal Year 1996. SWEB has a
(Pounds)275 million, three-year revolving credit facility provided by a
banking consortium. SWEB also has five bilateral committed loan facilities
totaling (Pounds)120 million and several uncommitted loan facilities totalling
(Pounds)105 million provided by banking institutions. At the end of fiscal
year 1996, a total of (Pounds)292 million had been drawn from these
facilities.
Demand for electricity in Great Britain, in general, and in SWEB's Franchise
Area, in particular, is seasonal, with demand being higher in the winter
months and lower in the summer months. SWEB bills its Franchise Supply
Customers on a staggered quarterly basis while it is generally required to pay
related expenses (principally the cost of purchased electricity) on 28-day
terms. However, approximately 40% of the Franchise Supply Customers settle
their accounts using regular payment plans which either allow prepayment or
spreading of the cost of their annual bill evenly throughout the year. A
majority of SWEB's contracts for supply of electricity to Non-Franchise Supply
Customers require SWEB's customers to pay a fixed price per unit, while the
cost of supply to SWEB from the Pool, if not covered by hedging mechanisms,
varies throughout the year, generally being higher in winter months and lower
in summer months. SWEB balances the effect of these timing and cyclical
influences on its working capital needs with drawings under its available
credit facilities.
The distribution business charges licensed suppliers monthly for the
provision of its distribution services. The majority of the distribution
revenue is received from SWEB's supply business. In the case of second-tier
suppliers to Non-Franchise Supply Customers in SWEB's Franchise Area,
distribution charges are billed directly to the suppliers on a monthly basis.
SWEB's capital expenditures are primarily related to the distribution
business and include expenditures for load-related, non-load-related and non-
operational capital assets. Load-related capital expenditures are largely
required by new business growth. Customer contributions are normally received
where capital expenditures are made to extend or upgrade service to customers
(except to the extent that such capital expenditures are made to enhance
SWEB's distribution network generally). Non-load-related capital expenditures
include asset replacement which is expected to continue until at least the
next decade. Other non-load-related expenditures include system upgrade work
that provides for load growth and has the additional benefit of improving
network security and
33
<PAGE>
reliability. Non-operational capital expenditures are for assets such as
generation, fixtures and equipment. For the fiscal years 1994, 1995 and 1996,
capital expenditures, net of customer contributions, were (Pounds)61 million,
(Pounds)68 million and (Pounds)60 million, respectively. SWEB expects total
capital expenditures, net of customer contributions, to be approximately
(Pounds)75 million in fiscal year 1997. The increase from prior years is due
primarily to increased capitalization of significant expenditures on new
information technology systems related principally to a new customer
information system. The Company expects the level of information technology
expenditure to return to the previous lower levels when the new billing system
is implemented. The Company expects the levels of load-related and non-load-
related capital expenditures to remain stable relative to current levels for
several years. Since its inception, SWEB has generated sufficient funds from
operations to meet its capital expenditure requirements and is expected to do
so in the future.
The Company currently has a (Pounds)325 million term loan outstanding that
is scheduled to mature in February 1997. The Company does not intend to create
reserves to repay the loan at maturity. Thus, it is anticipated that the
outstanding principal of the loan will be repaid from the proceeds of
refinancings. The net proceeds of the Offering will be used to partially repay
the term loan. The Company anticipates additional capital markets borrowings,
the proceeds of which will be used to repay the remainder of the term loan and
which the Company expects will have the effect of extending the maturities of
the Company's debt. At the end of fiscal year 1996, the Company also had
outstanding approximately (Pounds)27 million of loan notes issued as part of
the Company's acquisition of SWEB. Holders of the loan notes have the right to
require the Company to redeem the loan notes on semi-annual interest payment
dates. The Company intends to meet those redemption obligations with cash on
hand.
To assure the stability of future interest charges, the Company has entered
into a series of interest rate swap transactions with total notional amounts
of (Pounds)450 million. These transactions have maturities of between 5 and 10
years. The Company expects to effectively reverse the swap agreements at the
time of issuance of additional fixed rate debt.
The Company does not have any foreign currency hedging contracts in place;
however, it does intend to swap the US dollar liabilities associated with the
Offering back to pounds sterling to effectively hedge the currency risk
associated with the interest on and principal of the Senior Notes.
Management believes that cash flow from operations, together with its
existing sources of credit, the proceeds of this Offering and other future
refinancings, will provide sufficient financial resources to meet the
Company's capital needs and expenditure requirements for at least the next
twelve months. Management further believes that cash flow from operations,
together with its existing sources of credit and the proceeds from future
refinancings, will provide sufficient financial resources to meet the
Company's projected capital needs and other expenditure requirements for the
foreseeable future. However, there can be no assurance that future
refinancings will be available to the Company or that they will be on terms
favorable to the Company.
The financial statements included elsewhere in this Prospectus have not been
prepared in accordance with the policies of Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation"
("SFAS No. 71"). This pronouncement, under which most US electric utilities
report financial statements, applies to entities which are subject to cost-
based rate regulation. By contrast, SWEB is not subject to rate regulation,
but rather is subject to price cap regulation and therefore the provisions of
SFAS No. 71 do not apply. Financial statements presented in accordance with
SFAS No. 71 contain deferred items which have not yet been included in rates
charged to customers in compliance with the respective regulatory authorities,
but which would have been included in the income statement of enterprises in
general under US GAAP. The accompanying financial statements of the Company do
not contain such deferrals.
34
<PAGE>
BUSINESS
GENERAL
The Company is a wholly-owned subsidiary of Holdings, of which 75% is owned
indirectly by Southern and 25% is owned indirectly by PP&L Resources. The
Company was incorporated as a public limited company under the laws of England
and Wales in June 1995 as a vehicle for the acquisition of SWEB, one of the 12
RECs in England and Wales licensed to distribute, supply and, to a limited
extent, generate electricity. In September 1995, the Company gained effective
control of SWEB, having acquired approximately 84% of its shares. The Company
subsequently replaced SWEB's board of directors and certain senior managers
with officers and employees of companies from within the Southern Company
system. In November 1995, the Company acquired the remaining shares of SWEB.
The Company's sole investment and only significant asset is the entire share
capital of SWEB, which is headquartered in Bristol, England. At June 30, 1996
the Company had consolidated assets of (Pounds)1.659 billion ($2.576 billion).
SWEB's two main business lines are the distribution of electricity and
supply of electricity to approximately 1.3 million customers in its Franchise
Area in southwest England. The distribution business and the supply business
are distinct business segments and produced operating income of (Pounds)112
million ($174 million) and (Pounds)15 million ($23 million), respectively, in
Pro Forma Fiscal Year 1996, representing substantially all of the Company's
consolidated operating income in that pro forma fiscal year.
SWEB's Franchise Area covers approximately 5,560 square miles extending from
Bristol and Bath in the northeast, 188 miles southwest along the peninsula to
Land's End and 28 miles beyond to the Isles of Scilly, and has a resident
population of approximately 2.8 million. The South West of England, of which
the Franchise Area forms the greater part, has benefitted from economic growth
(as measured by GDP) which exceeded the UK average from 1991 through 1995 and
has also benefited from an average unemployment rate during calendar year 1995
of approximately 6.9% which was below the UK average of 8.2% according to a
recent study by Cambridge Econometrics. The largest cities and towns in SWEB's
Franchise Area are Bath, Bristol, Exeter, Plymouth and Taunton. Business
activity is generally concentrated in the population centers around Bristol,
Bath and Plymouth. The Bristol and Bath area is served by the M4 and M5
motorways, a strong rail network, the rail link between Bristol and London and
a commercial port at Avonmouth.
The Company and SWEB have undertaken to make SWEB a more focused and
competitive company concentrating on the main electricity businesses of
distribution and supply. Several businesses not related to distribution and
supply have been sold, and the remaining ancillary businesses have been
redirected to focus on support for the main electricity businesses.
The key goals which the Company and SWEB are pursuing include cost savings
and improved customer service. The objective of cost savings is to increase
profitability. Cost savings have been realized through programs of staff
reduction and working with the unions on a program of job redesign leading to
changes in work practices. The objective of improved customer service is to
prepare for the increasingly competitive aspects of the supply business by
building customer loyalty through improvements in system performance and
responsiveness to customers' needs, and to meet and exceed the performance
criteria established by the Regulator. Improvements in customer service are
being pursued in part through improvements in system performance, as measured
primarily by reductions in customer minutes lost and overall number of
outages.
OVERVIEW OF THE ELECTRIC UTILITY INDUSTRY IN GREAT BRITAIN
In 1990, the electric utility industry in Great Britain was privatized, and
SWEB was created along with the other 11 RECs. In connection with the
privatization, distribution assets in England and Wales, previously owned
indirectly by Her Majesty's Government, were allocated among the RECs,
licensing requirements were established for the RECs and price controls were
implemented in the areas of distribution and supply. In England and Wales,
generation assets (other than nuclear facilities) were allocated to two
generating companies, and the
35
<PAGE>
high voltage transmission assets were allocated to The National Grid Company
plc ("NGC," which is wholly owned by NGG). See "The Electric Utility Industry
in Great Britain."
The high voltage transmission system in England and Wales, which is
generally referred to as the "national grid," carries the generated
electricity in bulk from the power stations to the regional and local
distribution systems. This transmission system is owned and operated by NGC.
Distributors transfer electricity over their networks, generally at lower
voltage than the national grid, from supply points on the national grid to
final consumers. The distribution systems in England and Wales are owned by
the 12 RECs. Virtually all customers in England and Wales are connected to the
distribution system of the RECs and have no choice as to the distribution
system from which they receive their electricity. Distribution prices charged
by the RECs are regulated by the Distribution Price Control Formula.
Suppliers sell electricity to end users. Each REC is required to have a PES
license which authorizes it to supply electricity to any customers within its
franchise area. Electricity customers fall into two categories, Franchise
Supply Customers and Non-Franchise Supply Customers. Prices for supply of
electricity to Franchise Supply Customers are regulated by the Supply Price
Control Formula. Such price control is currently scheduled to expire on March
31, 1998, at which time the franchise supply market is expected to be open to
any competitors who have obtained the necessary license, which is generally
referred to as a "second tier license." Non-Franchise Supply Customers may
already be supplied by anyone who has obtained a second tier license. Such
second tier suppliers, including SWEB, compete for business nationally and at
prices determined by competitive bids or negotiation.
At the time of privatization, the Pool was established for bulk trading of
electricity in England and Wales between generators and suppliers. The Pool
reflects two principal characteristics of the physical generation and supply
of electricity from a particular generator to a particular supplier. First, it
is not possible to trace electricity from a particular generator to a
particular supplier. Second, it is not practicable to store electricity in
significant quantities, creating the need for a constant matching of supply
and demand. Subject to certain exceptions, all electricity generated in
England and Wales must be sold and purchased through the Pool. All licensed
generators and suppliers must become signatories to a pooling and settlement
agreement, which governs the constitution and operation of the Pool and the
calculation of payments due to and from generators and suppliers (the "Pooling
and Settlement Agreement"). The Pool also provides centralized settlement of
accounts and clearing. Prices for electricity are set by the Pool daily for
each half hour of the following day based on the bids of the generators and a
complex set of calculations matching supply and demand and taking account of
system stability, security and other costs. See "The Electric Utility Industry
in Great Britain--The Structure of the Electricity Industry in Great Britain--
The Pool."
SWEB'S MAIN BUSINESSES
DISTRIBUTION BUSINESS
SWEB's distribution business is the ownership, management and operation of
the electricity distribution network within SWEB's Franchise Area. The primary
activity of the distribution business is the receipt of electricity from the
national grid transmission system and its distribution to end users of
electricity that are connected to SWEB's power lines. Virtually all
electricity supplied (whether by SWEB's independent supply business or by
other suppliers) to consumers in SWEB's Franchise Area is transported through
its distribution network, thus providing SWEB with distribution volume that is
stable from year to year. As a holder of a PES license, SWEB is subject to a
price cap regulatory framework that provides economic incentives to increase
the number of units of electricity distributed and to operate in a more cost-
efficient manner. See "The Electric Utility Industry in Great Britain."
SWEB's distribution business has grown in both its customer base and in the
number of units distributed, primarily reflecting economic growth in the South
West of England. At March 31, 1996 SWEB had experienced
36
<PAGE>
a 5-year compound annual growth rate of 0.8% in customers and a 5-year
compound annual growth rate of 1.6% in units distributed.
Strategy
Since being acquired by the Company, SWEB has reviewed and refined its
distribution strategy and has established key goals of cost savings and
improved customer service.
Staff reductions play a key role in cost savings. SWEB has implemented a
plan of voluntary and other staff reductions to reduce the number of employees
by 704 (mainly in the distribution business and representing 21% of staff at
the time of the acquisition of SWEB by the Company), of which 460 reductions
occurred prior to June 30, 1996. Part of these reductions are made possible
due to new work practices which SWEB has developed with the cooperation of
SWEB's unions. Team restructuring in the engineering department of SWEB has
commenced, and the establishment of multi-skilled independent teams has been
achieved. In addition, management restructuring has produced a flatter
organizational structure by reducing management levels from seven to three.
Improvements in customer service in the distribution business, if achieved,
are part of SWEB's strategy to retain Franchise Supply Customers in its
Franchise Area after March 31, 1998 and are expected to enable SWEB to meet or
exceed the performance criteria established by the Regulator who is
responsible for setting the performance standards of the RECs. SWEB believes
that achieving these goals is important both for building customer loyalty for
the benefit of the supply business by maintaining and improving customer
satisfaction and for maintaining good relations with the Regulator.
Improvements in customer service are being pursued, in part, through
improvements in system performance, measured primarily in terms of customer
minutes lost and overall number of outages. To that end, several initiatives
are being pursued including:
. eliminating the backlog of tree-trimming near distribution lines;
. implementing a program of network improvements that will create more dual
routing;
. reordering the priorities of SWEB's capital expenditure program to focus
on improving system reliability; and
. introducing a single-number telephone call center supported by new
computerized information systems which allows employees at the call
center (including advisory engineers) to initiate engineering work orders
to satisfy customer needs for repairs or maintenance of the distribution
network.
Customers
Most of SWEB's distribution customers are Franchise Supply Customers. This
customer group consists predominantly of residential and small commercial
consumers which provides SWEB a stable customer base. SWEB's fastest growing
category of distribution customers, in terms of units distributed and
revenues, is large commercial and small industrial customers. Commercial
activity of SWEB's customers is mostly service based and includes financial
services, electronics and technology-related businesses. SWEB also distributes
electricity to industrial concerns in its Franchise Area. The principal
activities of SWEB's largest distribution customers include china clay
extraction, ship repair, fertilizer production, aerospace, defense
engineering, cement and paper manufacturing and water supply. SWEB's 20
largest distribution customers in its Franchise Area accounted for 9.8% of
total electricity distributed by SWEB in fiscal year 1996 in terms of units
distributed, with no single customer exceeding 2.3% of total electricity
distributed. The following table sets out details of SWEB's distribution
customers, units distributed and distribution revenues.
37
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION BUSINESS
------------------------------------------------------------------------------
DISTRIBUTION CUSTOMERS ELECTRICITY UNITS DISTRIBUTED REVENUES(5)
---------------------------- ---------------------------------- -----------
5 YEAR VOLUME % OF 5-YEAR
NUMBER(1) % OF TOTAL CAGR(2) (TWH)(3) TOTAL CAGR(4) % OF TOTAL
--------- ---------- ------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
not more than 100kW..... 1,298,795 99.79 0.81% 8.2 62 0.19% 81
above 100kW to 1MW...... 2,300 0.19 4.50 2.1 16 5.11 11
above 1MW............... 230 0.02 6.47 2.9 22 1.98 8
--------- ------ ---- ---------- --------- ---------- ---
Total................. 1,301,325 100.00 -- 13.2 100 -- 100
========= ====== ==== ========== ========= ========== ===
</TABLE>
- --------
(1) At December 31, 1995.
(2) Represents the compound annual growth rate ("CAGR") for the period from
July 1, 1990 through December 31, 1995.
(3) In terawatt hours for calendar year 1995.
(4) Represents the CAGR for the period from January 1, 1991 through December
31, 1995.
(5) For calendar year 1995.
Distribution Facilities
Electricity is transported across the national grid transmission system at
400kv or 275kv to eight grid supply points within SWEB's distribution network,
where it is transformed by SWEB to 132kv and enters SWEB's distribution
system. Electricity is also transported to two national grid supply points
located in neighboring RECs' franchise areas, which are connected to SWEB's
distribution system by overhead lines and underground cables. Substantially
all electricity which enters SWEB's system is received at these ten grid
supply points.
At March 31, 1996, SWEB's electricity distribution network (excluding
service connections to consumers) included overhead lines and underground
cables at the operating voltage levels indicated in the table below:
<TABLE>
<CAPTION>
OVERHEAD LINES UNDERGROUND CABLES
OPERATING VOLTAGE: (CIRCUIT MILES) (CIRCUIT MILES)
- ------------------ --------------- ------------------
<S> <C> <C>
132kv........................................ 907 37
33kv......................................... 1,736 607
11kv......................................... 10,676 3,839
6.6kv........................................ 15 77
480 or 415/240v.............................. 4,759 6,896
------ ------
Total...................................... 18,093 11,456
====== ======
</TABLE>
In addition to the circuits referred to above, SWEB's distribution
facilities also include approximately:
<TABLE>
<CAPTION>
AGGREGATE CAPACITY
(MEGA VOLT
TRANSFORMERS: NUMBER AMPERES)
- ------------- ------ ------------------
<S> <C> <C>
132kv/lower voltages................................ 91 5,348
33kv/11kv or 6.6kv.................................. 533 7,255
11kv or 6.6kv/lower voltages (including 36,336 pole
mounted transformers).............................. 47,936 6,504
SUBSTATIONS:
- ------------
132kv/33kv.......................................... 40
33kv/11kv or 6.6kv.................................. 309
11kv or 6.6kv/415v or 240v.......................... 11,790
</TABLE>
Substantially all substations are owned in freehold, and most of the balance
are held on leases which will not expire within 10 years.
38
<PAGE>
Electricity is received by customers at various voltages depending upon
their requirements. At March 31, 1996, SWEB's distribution system was
connected to over 1.3 million customers. In providing service connections to
customers and to street lighting, traffic lights and other installations from
its network, SWEB uses lengths of overhead lines and underground cables in
addition to those referred to above.
Operation and control of SWEB's distribution system is continuously
monitored and coordinated from two control centers located in Bristol and
Exeter. The Exeter control center is responsible for the entire 132kv network.
Responsibility for the 33kv and 11kv networks is divided between the two
control centers. A telecontrol system has been implemented to provide remote
information gathering and to provide remote operation of 132kv and selected
33kv and 11kv switchgear. See also the map on the inside cover page of this
Prospectus.
SUPPLY BUSINESS
SWEB's supply business is selling electricity to end users, purchasing such
electricity, primarily from the Pool, and arranging for its distribution to
those end users. SWEB's supply business is comprised predominantly of
supplying Franchise Supply Customers. In fiscal year 1996, these customers
accounted for approximately 82% of all units of electricity supplied by SWEB.
SWEB's exclusive right to supply these customers is scheduled to continue,
subject to price regulation, until March 31, 1998, at which time competition
to supply Franchise Supply Customers is scheduled to commence. Supply prices
for these customers are regulated, and SWEB's prudent costs of purchasing and
delivering electricity and hedging the purchase price are charged to them.
The market to supply Non-Franchise Supply Customers is fully competitive,
principally with other RECs and the major generators. Non-Franchise Supply
Customers are typically supplied through individual contracts for a duration
of one to two years with competitively bid or negotiated prices.
Strategy
Since its acquisition by the Company, SWEB has completed a review of the
supply market, established new goals for its supply business and adopted new
strategies for achieving those goals. The key goals established are the
retention of its current Franchise Supply Customers as supply customers after
March 31, 1998 and the increase of SWEB's share of electricity supplied to
Non-Franchise Supply Customers both inside and outside SWEB's Franchise Area.
As a result of this strategy, SWEB expects to supply a larger portion of units
to Non-Franchise Supply Customers than in fiscal year 1996.
SWEB's strategy for retaining its Franchise Supply Customers is to build
customer loyalty and to offer competitive prices. SWEB seeks to build customer
loyalty by providing superior service, including reliable distribution
service, responsive service in dealing with billing and other matters and
providing other service enhancements. SWEB is revamping its marketing, sales
and customer service operations under the direction of Executive Directors of
SWEB transferred from other companies within the Southern Company system, who
are experienced in competitive electricity marketing.
Initiatives in relation to the Franchise Supply Customers include:
. a single-number, local rate, telephone service call center (which has
been in place since April 1996);
. a state-of-the-art billing and customer service system which will enable
employees at the call center to act on or resolve customer billing and
account inquiries on line during their calls (which should be operational
in 1998); and
. a restructuring of meter reading operations which should enable almost
all meters to be read quarterly, thereby reducing estimated readings
(which has already begun and is expected to be completed in 1997). (In
Great Britain, most meters are located within structures, and meter
readers are required to obtain access from occupants in order to read
meters. As a result, actual readings were often obtained only on an
annual or biennial basis.)
39
<PAGE>
SWEB's strategy for expanding its market share of electricity sold to Non-
Franchise Supply Customers both inside and outside its Franchise Area is to
offer competitive pricing and, with respect to its Non-Franchise Supply
Customers inside its Franchise Area, to build customer loyalty through the
measures described above and through the measures described in "--Distribution
Business."
Additional initiatives to support growth in market share in the Non-
Franchise Supply Customer market include:
. the expanded use of account managers for Non-Franchise Supply Customers
(which has already begun);
. increasing the number of proposals and bids made to customers and
potential customers (which has already begun);
. development of an integrated contract customer sales, electronic
registration and marketing system with full customer life-cycle
management and tracking facilities (which is scheduled to be completed by
January 1997); and
. further enhancement of a competitive price setting system used to
determine appropriate contract supply prices (which is also scheduled to
be completed by January 1997).
Franchise Supply Market
Under the terms of its PES license, SWEB currently holds the right to supply
approximately 1.3 million Franchise Supply Customers within its Franchise
Area. See "Business--General." During fiscal year 1996, sales to Franchise
Supply Customers represented 82% of total units supplied by SWEB and produced
86% of SWEB's total supply revenue.
The exclusive right to supply Franchise Supply Customers is scheduled to end
on March 31, 1998, at which time all supply customers will have the ability to
choose their electricity supplier. SWEB intends to retain its market share of
these customers by providing superior customer service and competitive
pricing. In fiscal year 1995, SWEB met or exceeded the Regulator's overall
standards of performance in 99.9% of the services measured by the Regulator.
See "--Strategy."
Non-Franchise Supply Market
In addition to competing for Non-Franchise Supply Customers in its Franchise
Area, SWEB holds a second tier license to compete with the RECs and other
suppliers to provide electricity to Non-Franchise Supply Customers outside its
Franchise Area. At the end of fiscal year 1996, SWEB had approximately 1,500
Non-Franchise Supply Customers, consisting primarily of large commercial and
industrial accounts. Revenue from these customers during fiscal year 1996
accounted for only 14% of total supply revenues. SWEB has achieved a
significant increase in the number of Non-Franchise Supply Customers since the
Company acquired SWEB.
SWEB'S OTHER BUSINESS ACTIVITIES
SWEB also has ancillary business activities that support its main
electricity distribution and supply businesses, including electricity
generation and gas supply. SWEB owns generating assets with 24MW of capacity
used to back up the distribution network as well as minority investments in
windfarms and a 7.7% interest in Teesside Power Limited, owner of a 1,875 MW
combined cycle plant. SWEB has a 75% joint venture interest in a supplier of
gas and derives small amounts of revenue from the lease of fibers within the
fiber optic cables carried on its distribution network. SWEB also markets and
develops property no longer used in the main electricity businesses.
40
<PAGE>
RISK MANAGEMENT
Because SWEB's distribution business does not involve the purchase and sale
of electricity, SWEB's risk management efforts are focused on the supply
business which is exposed to Pool price volatility.
Regulations governing the franchise supply market permit the pass-through to
customers of prudent costs which include the cost of arrangements such as
contracts for differences ("CFDs") to hedge against Pool price volatility.
CFDs are contracts predominantly between generators and suppliers which fix
the price of electricity for a contracted quantity of electricity over a
specific time period. Differences between the actual price set by the Pool and
the agreed prices give rise to difference payments between the parties to the
particular CFD. At the present time, SWEB's forecast franchise supply market
demand for fiscal year 1997 is substantially hedged through various types of
agreements including CFDs.
The most common contracts for supply to Non-Franchise Supply Customers are
for a twelve-month term and contain fixed rates. SWEB is exposed to two
principal risks associated with such contracts: load shape risk (the risk
associated with a shift in the customer's usage pattern, including absolute
amounts demanded and timing of amounts demanded) and purchasing price risk
(the cost of purchased electricity relative to the price received from the
supply customer). SWEB employs risk management methods to maximize its return
consistent with an acceptable level of risk. Generally load shape risk
decreases as SWEB's portfolio of supply customers in the non-franchise supply
market increases. SWEB hedges purchasing price risk by employing a variety of
risk management tools, including management of its supply contract portfolio,
hedging contracts and other means which mitigate risk of future Pool price
volatility.
SWEB's ability to manage its purchasing price risk depends, in part, on the
future availability of properly priced risk management mechanisms such as
CFDs. No assurance can be given that an adequate, transparent market for such
products will in fact be available.
UK ENVIRONMENTAL REGULATION
SWEB's businesses are subject to numerous regulatory requirements with
respect to the protection of the environment. The Electricity Act 1989 (the
"Electricity Act") obligates the UK Secretary of State for Trade and Industry
(the "Secretary of State") to take into account the effect of electricity
generation, transmission and supply activities upon the physical environment
in approving applications for the construction of generating facilities and
the location of overhead power lines. The Electricity Act requires SWEB to
have regard to the desirability of preserving natural beauty and the
conservation of natural and man-made features of particular interest, when it
formulates proposals for development in connection with certain of its
activities. The Company mitigates the effects its proposals have on natural
and man-made features and is required to carry out an environmental assessment
when it intends to lay cables, construct overhead lines or carry out any other
development in connection with its licensed activities. SWEB also has produced
an Environmental Policy Statement which sets out the manner in which it
intends to comply with its obligations under the Electricity Act.
The Environmental Protection Act 1990 addresses waste management issues and
imposes certain obligations and duties on companies which handle and dispose
of waste. Some of SWEB's distribution activities produce waste, but SWEB
believes that it is in compliance with the applicable standards in such
regard.
Possible adverse health effects of electromagnetic fields ("EMFs") from
various sources, including transmission and distribution lines, have been the
subject of a number of studies and increasing public discussion. The
scientific research currently is inconclusive as to whether EMFs may cause
adverse health effects. The only UK standards for exposure to power frequency
EMFs are those promulgated by the National Radiological Protection Board and
relate to the levels above which non-reversible physiological effects may be
observed. SWEB fully complies with these standards. However, there is the
possibility that passage of legislation and change of regulatory standards
would require measures to mitigate EMFs, with resulting increases in capital
and operating costs. In addition, the potential exists for public liability
with respect to lawsuits brought by plaintiffs alleging damages caused by
EMFs.
41
<PAGE>
SWEB believes that it has taken and continues to take measures to comply
with the applicable laws and governmental regulations for the protection of
the environment. There are no material legal or administrative proceedings
pending against SWEB or the Company with respect to any environmental matter.
EMPLOYEES
SWEB had 3,178 employees (3,079 full time equivalent) and the Company had no
employees at the end of fiscal year 1996. At June 30, 1996, SWEB had 2,880
employees (2,785 full time equivalent). Of SWEB's employees, 95% are
represented by labor unions. All SWEB employees who are not party to a
personal employment contract are subject to a collective bargaining agreement
called The Electricity Business Agreement. This Agreement may be amended by
agreement between SWEB and the unions and is terminable with 12 months notice
by either side. SWEB is currently holding discussions with the unions to
introduce a separate collective bargaining agreement to include meter reading
staff. SWEB believes that its relations with its employees are favorable.
PROPERTY
The Company through a subsidiary of SWEB owns the freehold of its principal
executive offices in Bristol. SWEB has both network and non-network land and
building.
NETWORK LAND AND BUILDINGS
At March 31, 1996 SWEB had freehold and leasehold interests in approximately
12,000 network properties, comprising principally sub-station sites. The
recorded cost of total network land and buildings at March 31, 1996 was
(Pounds)62 million. SWEB owns, directly or indirectly, the freehold of such
land and buildings.
NON-NETWORK LAND AND BUILDINGS
At March 31, 1996 SWEB had freehold and leasehold interests in non-network
properties comprising chiefly offices, former retail outlets, depots,
warehouses and workshops. The recorded cost of total non-network land and
buildings at March 31, 1996 was (Pounds)40.3 million.
The number of properties in each category is:
<TABLE>
<CAPTION>
FREEHOLD OR
LONG LEASEHOLD LEASEHOLD
-------------- ---------
<S> <C> <C>
Depots.............................................. 24 1
Offices............................................. 8 --
Surplus property(1)................................. 78 25
</TABLE>
- --------
(1) Largely unused retail sites. The number of freeholds is approximated.
For a discussion of other properties and other assets of SWEB, see
"Business--SWEB's Main Businesses--Distribution Facilities."
LEGAL PROCEEDINGS
The Company and SWEB are routinely party to legal proceedings arising in the
ordinary course of business which are not material, either individually or in
the aggregate. The Company is not a party to any material legal proceedings
nor is it currently aware of any threatened material legal proceedings.
42
<PAGE>
THE ELECTRIC UTILITY INDUSTRY IN GREAT BRITAIN
THE STRUCTURE OF THE ELECTRICITY INDUSTRY IN GREAT BRITAIN
The electric utility industry in Great Britain consists of the following
activities:
Generation: the production of electricity at power stations;
Transmission:
the bulk transfer of electricity across a high voltage
transmission system;
Distribution:
the transfer of electricity from the high voltage transmission
system and its delivery, across low voltage distribution systems,
to consumers; and
Supply: the bulk purchase of electricity by suppliers and its sale to
consumers.
INDUSTRY STRUCTURE
Great Britain has two separate but connected markets, each with a different
commercial framework. In England and Wales electricity is produced by
generators, the largest of which are National Power, PowerGen and Nuclear
Electric, a subsidiary of the recently privatized British Energy. Electricity
is transmitted through the national grid transmission system by NGC and
distributed by the twelve RECs in their respective franchise, or authorized,
areas. Most customers are currently supplied with electricity by their local
REC, although there are other suppliers holding second tier supply licenses,
including other generators and RECs, who can compete to supply larger
customers in that REC's authorized area.
In Scotland there are two vertically integrated companies, Scottish Power
and Hydro-Electric, each generating, transmitting, distributing and supplying
electricity within their respective franchise areas as well as competing to
supply electricity elsewhere. Scottish Nuclear, another subsidiary of British
Energy, sells all the electricity it generates to Scottish Power and Hydro-
Electric under the Nuclear Energy Agreement.
The interconnection between the two transmission systems, owned by Scottish
Power and NGC, is capable of transferring electricity between Scotland and
England and Wales. There is also an interconnection with France, owned by NGC
and Electricite de France, through which electricity can be transferred
between the transmission systems of France and England and Wales.
Virtually all electricity generated in England and Wales is sold by
generators and bought by suppliers through the Pool. A generator which is a
Pool member and also a licensed supplier must nevertheless sell all the
electricity it generates into the Pool, and purchase all the electricity which
it supplies from the Pool. Because Pool prices fluctuate, generators and
suppliers may enter into bilateral arrangements, such as CFDs, to provide a
degree of protection against such fluctuations.
There is no equivalent to the Pool in Scotland, but Scottish Power and
Hydro-Electric are obligated by their licenses to offer electricity for sale
to second tier suppliers. They are also required to provide access to their
transmission and distribution systems on a non-discriminatory basis to
competing suppliers and generators.
INDUSTRY BACKGROUND
The industry structure described above was put in place in March 1990. At
the same time, a licensing regime was introduced for the electricity industry
both in England and Wales and in Scotland. The Regulator was first appointed
in 1989.
The RECs, which at that time collectively owned NGG, NGC's holding company,
were privatized in December 1990. National Power and PowerGen were privatized
in March 1991 (with the balance of the UK Government's holding being sold in
March 1995), Scottish Power and Hydro-Electric were privatized in June 1991
and British Energy was privatized in July 1996. NGG was listed on the London
Stock Exchange in
43
<PAGE>
December 1995. Since the summer of 1995, seven of the RECs have been acquired
by other companies. In particular, SWEB was acquired by the Company in
September 1995.
In 1990, the vast majority of generating capacity was owned by three
generators. However, since that time competition in generation has increased
as RECs and other new entrant generators have constructed new plant and as
imports through the interconnections with Scotland and France have grown. In
addition, pursuant to undertakings given to the Regulator, National Power and
PowerGen have disposed of an aggregate of 6,000 MW of plant to Eastern Group
plc (a REC holding company which was recently acquired by Hanson PLC).
Competition in supply has also been progressively introduced both in England
and Wales and in Scotland. The RECs in England and Wales, and Scottish Power
and Hydro-Electric in Scotland, are subject to competition from second tier
suppliers for the supply of electricity to larger customers in their
respective franchise areas. Under the current licensing regime, all
electricity customers in Great Britain, including domestic customers, are
scheduled to be able to choose their electricity supplier from April 1, 1998.
DISTRIBUTION OF ELECTRICITY
Each of the RECs is required to offer terms for connection to its
distribution system to any person, for use of its distribution system to any
authorized electricity operator and for the provision of top-up and stand-by
supplies to any person. In providing use of its distribution system, a REC
must not discriminate between its own supply business and that of any other
authorized electricity operator, or between those of other authorized
electricity operators; nor may its charges differ except where justified by
differences in cost. Similar principles apply to the provision of top-up and
stand-by supplies of electricity, and in the carrying out of connection works.
Disputes over the terms of offers may be determined by the Regulator.
Most revenue of the distribution business is controlled by a formula based
on P+RPI-Xd where Xd is currently 3% (the "Distribution Price Control
Formula"). P reflects the previous maximum average price per unit of
electricity distributed. RPI reflects the percentage change in the Retail
Price Index between the previous year and the current year. The Xd factor is
established by the Regulator following review. This formula determines the
maximum average price per unit of electricity distributed (in pence per
kilowatt hour) which a REC is entitled to charge. This price, when multiplied
by the expected number of units to be distributed, determines the expected
distribution revenues of the REC for the relevant year. The Distribution Price
Control Formula permits RECs to partially retain additional revenues due to
increased distribution of units and allows for a pound-for-pound increase in
operating income for efficient operations and reduction of expenses. The
current Distribution Price Control Formula has been in effect since April 1,
1996 and applies for the four year period ending March 31, 2000.
On August 11, 1994, the Regulator announced the results of a review of the
Distribution Price Control Formula. A one-time reduction in the distribution
charges of all the RECs was made with effect from April 1, 1995 and ranged
from 11% to 17% (the reduction in SWEB's case being 14%), in each case before
allowing for inflation. In addition, the Regulator halved from 100% to 50% the
weight of units in the Distribution Price Control Formula and allocated the
remaining 50% to the number of customers. The stated intention of the
Regulator in introducing this change was "to remove any artificial incentive
on the companies to sell more electricity, while retaining a general incentive
for companies to seek out and meet the needs of their customers." In the light
of information concerning the financial position of the RECs that emerged
during the course of the unsuccessful bid by Trafalgar House plc for Northern
Electric plc (one of the RECs), the Regulator further reduced distribution
charges of all the RECs with effect from April 1, 1996 ranging from 10% to 13%
(the reduction in SWEB's case being 11%), in each case before allowing for
inflation.
The Distribution Price Control Formula is expected to be further reviewed
with effect from April 1, 2000. A REC may seek disapplication of its
Distribution Price Control Formula with effect from that date by request to
the Regulator. If the Regulator wishes to refuse the request, he must refer it
to the Monopolies and Mergers Commission ("MMC").
44
<PAGE>
In setting the distribution charges each year, the holder of a PES license
will have to make a projection of the permitted maximum charge per unit
distributed in that year. The projection will have to take account of
forecasts of units distributed, distribution losses and the actual change in
RPI. Failure to forecast accurately may result in over or under charging; this
is taken into account in the following year through a correction factor in the
price control formula. If a REC has overcharged in the previous year, the
maximum average charge per unit distributed is reduced by an amount to reflect
the excess income received, to which is added interest. In the event of
undercharging, the Distribution Price Control Formula allows the licensee to
recover the shortfall in income plus interest.
If, in any year, the average charge per unit distributed exceeds the
permitted maximum average charge per unit distributed by more than 3%, then,
in the next following year, the REC may not increase distribution charges
unless it has satisfied the Regulator that the average charge per unit in that
next following year is not likely to exceed the permitted maximum average
charge. If, in respect of any two successive years, the sum of the amounts by
which the average charge per unit distributed has exceeded the permitted
maximum average charge per unit distributed in the second of those years is
more than 4% of that permitted maximum average charge, then, in the next
following year, the REC may be required by the Regulator to adjust its charges
so that they fall within the maximum permitted average charge. If, in respect
of two successive years, the licensee undercharges by more than 10% of the
maximum average charge, the Regulator may, by directions to the licensee,
limit the amount by which such undercharging may be recovered.
ELECTRICITY SUPPLY
Subject to minor exceptions, all electricity customers in Great Britain must
be supplied by a licensed supplier. Licensed suppliers purchase electricity
and make use of the transmission and distribution networks to achieve delivery
to customers' premises.
There are two types of licensed suppliers; public electricity (or first
tier) suppliers ("PESs"); and second tier suppliers. PESs are the RECs,
Scottish Power and Hydro-Electric each supplying in its respective franchise
area. Second tier suppliers include National Power, PowerGen, Nuclear
Electric, Scottish Power, Hydro-Electric and other PESs supplying outside
their respective franchise areas. There are also a number of independent
second tier suppliers.
At present, a Franchise Supply Customer can only buy electricity from the
PES authorized to supply the relevant franchise area. Franchise Supply
Customers typically include domestic and small commercial and industrial
customers. Non-Franchise Supply Customers are not limited to buying
electricity from the local PES and can choose to buy from a second tier
supplier. Such customers are typically larger commercial, agricultural and
industrial electricity users. Second tier suppliers compete with one another
and with the local PES to supply customers in this competitive (or "non-
franchise") sector of the market.
Under the current licensing regime, from April 1, 1998 all customers,
including those who are currently Franchise Supply Customers, will be free to
choose their electricity supplier.
The supply of electricity to Franchise Supply Customers is subject to price
control. The maximum average charge per unit supplied (in pence per kilowatt
hour) is controlled by a formula based upon P+RPI-Xs+Y (the "Supply Price
Control Formula") where Xs is currently 2%. As with the Distribution Price
Control Formula, P reflects the previous maximum average price per unit of
electricity supplied (in pence per kilowatt hour). RPI reflects the percentage
change in the Retail Price Index between the previous year and the current
year. The Xs factor is established by the Regulator following review. The Y
term is a pass through of certain costs which are either largely outside the
control of the REC or have been regulated elsewhere. It thus covers the REC's
electricity purchase costs, including both direct Pool purchase costs and
costs of hedging, transmission charges made by NGC, distribution charges made
by its own and other REC distribution businesses and the Fossil Fuel Levy
(described below) or amounts equivalent thereto in respect of the purchase of
non-leviable electricity which are attributable to Franchise Supply Customers.
As with the Distribution Price Control Formula, there is a correction factor
in the Supply Price Control Formula in the event of over or under charging.
45
<PAGE>
If a REC has overcharged in the previous year, the maximum average charge
per unit supplied is reduced by an amount to reflect the excess income
received, to which is added interest. In the event of undercharging, the
Supply Price Control Formula allows the licensee to recover the shortfall in
income plus interest.
If, in any year, the average charge per unit supplied exceeds the permitted
maximum average charge per unit supplied by more than 4%, then, in the next
following year, the REC may not increase supply charges to Franchise Supply
Customers unless it has satisfied the Regulator that the average charge per
unit in that next following year is not likely to exceed the permitted maximum
average charge. If, in respect of any two successive years, the sum of the
amounts by which the average charge per unit supplied has exceeded the
permitted maximum average charge per unit supplied in the second of those
years is more than 5% of that permitted maximum average charge, then, in the
next following year, the REC may be required by the Regulator to adjust its
charges so that they fall within the maximum permitted average charge. If, in
respect of two successive years, the licensee undercharges by more than 10% of
the maximum average charge, the Regulator may, by directions to the licensee,
limit the amount by which such undercharging may be recovered.
The initial value of Xs was set at 0 for all the RECs on March 31, 1990. The
Supply Price Control Formula was reviewed by the Regulator with effect from
April 1, 1994, when the Xs term was set at 2% for all the RECs. This will
apply to the period ending March 31, 1998. On this date, the exclusive right
of the RECs to supply Franchise Supply Customers is scheduled, under the
current licensing structure, to come to an end. However, the Regulator has
indicated that price regulation for supply to Franchise Supply Customers may
be extended for an interim period until an adequate level of competition is
established.
THE POOL
The Pool was established at the time of privatization for bulk trading of
electricity in England and Wales between generators and suppliers. The Pool
reflects two principal characteristics of the physical generation and supply
of electricity from a particular generator to a particular supplier. First, it
is not possible to trace electricity from a particular generator to a
particular supplier. Second, it is not practicable to store electricity in
significant quantities, creating the need for a constant matching of supply
and demand. Subject to certain exceptions, all electricity generated in
England and Wales must be sold and purchased through the Pool. All licensed
generators and suppliers must become signatories to the Pooling and Settlement
Agreement, which governs the constitution and operation of the Pool and the
calculation of payments due to and from generators and suppliers. The Pool
also provides centralized settlement of accounts and clearing. The Pool does
not itself buy or sell electricity.
Prices for electricity are set by the Pool daily for each half hour of the
following day based on the bids of the generators and a complex set of
calculations matching supply and demand and taking account of system
stability, security and other costs. A computerized system (the settlement
system) is used to calculate prices and to process metered, operational and
other data and to carry out the other procedures necessary to calculate the
payments due under the Pool trading arrangements. The settlement system is
administered on a day-to-day basis by NGC Settlements Limited, a subsidiary of
NGC, as settlement system administrator.
FOSSIL FUEL LEVY
All the RECs are subject to an obligation to obtain a specified amount of
generating capacity from non-fossil fuel sources (the "NFFOs"). Because
electricity generated from non-fossil fuel plants is generally more expensive
than electricity from fossil fuel plants, a levy system (the "Fossil Fuel
Levy") has been instituted to reimburse the generators and the RECs for the
extra costs involved. The Regulator sets the amount of the Fossil Fuel Levy
annually. The current Fossil Fuel Levy is 10% of the value of sales of
electricity generated from fossil fuel sources. However, the Regulator
confirmed on July 16, 1996 a reduction to 3.7% for the period November 1, 1996
to March 31, 1997.
46
<PAGE>
REGULATION UNDER THE ELECTRICITY ACT 1989
THE REGULATOR
The principal legislation governing the structure and regulation of the
electricity industry in Great Britain is the Electricity Act. The Electricity
Act established the industry structure described above so as to enable
privatization to take place. The Electricity Act also created the
institutional framework under which the industry is currently regulated,
including the office of the Regulator, who is appointed by the Secretary of
State. The present Regulator, Professor Stephen Littlechild, was appointed for
a five year term commencing September 1, 1989 and has since been reappointed
for a further five year term.
The Regulator's functions under the Electricity Act include granting
licenses to generate, transmit or supply electricity (a function which he
exercises under a general authority from the Secretary of State); proposing
modifications to licenses, and making license modification references to the
MMC; enforcing compliance with license conditions; advising the Secretary of
State in respect of the setting of each NFFO; calculating the Fossil Fuel Levy
rate and collecting the levy; determining certain disputes between electricity
licensees and customers; and setting standards of performance for electricity
licensees.
The Regulator exercises concurrently with the Director General of Fair
Trading certain functions relating to monopoly situations under the Fair
Trading Act 1973 and certain functions relating to courses of conduct which
have, or are intended or likely to have, the effect of restricting, distorting
or preventing competition in the generation, transmission or supply of
electricity under the Competition Act 1980.
The Electricity Act requires the Regulator and the Secretary of State to
exercise their functions in the manner each considers is best calculated: to
secure that all reasonable demands for electricity are satisfied; to secure
that license holders are able to finance their licensed activities; and to
promote competition in the generation and supply of electricity.
Subject to these duties, the Secretary of State and the Regulator are
required to exercise their functions in the manner which each considers is
best calculated: to protect the interests of consumers of electricity supplied
by licensed suppliers in respect of price, continuity of supply, and the
quality of electricity supply services; to promote efficiency and economy on
the part of licensed electricity suppliers and the efficient use of
electricity supplied to consumers; to promote research and development by
persons authorized by license to generate, transmit or supply electricity; to
protect the public from the dangers arising from the generation, transmission
or supply of electricity; and to secure the establishment of machinery for
promoting the health and safety of workers in the electricity industry. The
Secretary of State and the Regulator also have a duty to take into account the
effect on the physical environment of activities connected with the
generation, transmission or supply of electricity.
In performing their duties to protect the interests of consumers in respect
of prices and other terms of supply, the Secretary of State and the Regulator
have a duty to take into account in particular the interests of consumers in
rural areas. In performing their duties to protect the interests of consumers
in respect of the quality of electricity supply services, they have a duty to
take into account in particular the interests of those who are disabled or of
pensionable age.
LICENSES
Generation Licenses
Unless covered by an exemption, all electricity generators operating a power
station in Great Britain are required to have a generation license. There are
currently 41 generation license holders in Great Britain. The conditions
attached to a generation license in England and Wales require the holder,
among other things, to comply with a grid code, be a member of the Pool and
submit relevant generating sets for central dispatch. The conditions attached
to generation licenses in Scotland require the holder, among other things, to
comply with a
47
<PAGE>
grid code. Failure to comply with any of the generation license conditions may
subject the licensee to a variety of sanctions, including enforcement orders
by the Regulator, or license revocation if an enforcement order is not
complied with.
PES Licenses
Each of the RECs, Scottish Power and Hydro-Electric has a PES license for
its franchise area and is required, under the Electricity Act, to supply
electricity upon request to any premises in that area, except in specified
circumstances. Each PES is also required not to discriminate between its own
supply business and other users of its distribution system. PESs are subject
to separate price controls on the amounts they may charge for the supply of
electricity to Franchise Supply Customers and in respect of distribution
charges. The PES licenses also require the licensee to procure electricity at
the best price reasonably obtainable having regard to the sources available.
The Regulator published on August 15, 1996 further information relating to
the RECs' performance in relation to their distribution and supply price
controls. The publication entitled "Yardstick of Electricity Purchase Costs"
includes information about the generation costs which they pass through to
Franchise Supply Customers under the Supply Price Control Formula. The
Regulator also stated that it was his intention to review the supply price
controls applicable to PESs with a view to proposing possible new controls to
take effect on April 1, 1998 when the present franchise supply market will be
opened to competition. He issued a consultation paper on this matter on
September 5, 1996 entitled "The Competitive Electricity Market from 1998:
Price Restraints."
In England and Wales, each PES license limits the extent of the generation
capacity in which the relevant REC may hold an interest without the prior
consent of the Regulator ("own-generation limits"). These own-generation
limits, expressed in megawatts, currently restrict the participation of a REC
in generation to a level of approximately 15% of the total electricity
consumption in that REC's franchise area. In the case of SWEB, the own-
generation limit is fixed at 400 MW.
The Regulator has stated that it would be reasonable to consider a REC's
request to increase its own-generation limit on condition that it accepted
explicit restrictions on the contracts it signed with its supply business, and
that at a minimum the REC would be prohibited from passing additional own-
generation contracts into its franchise supply market. He considers that an
increase in own-generation limits subject to such restrictions could allow a
REC to contribute more fully to the development of competition in generation
without the allegation that it was exploiting its captive market and local
monopoly position. In June 1996, the Regulator stated that he had indicated to
Eastern Group plc, in the context of its acquisition of 6,000 MW of generating
capacity from National Power and PowerGen, that he would be favorably inclined
to relax the own-generation limits subject to the Regulator and Eastern Group
plc agreeing to license modifications as set out in a consultation paper which
he had published in August 1995.
Second Tier Supply Licenses
Other than a PES in its franchise area and subject to certain other
exceptions, a supplier of electricity to premises in Great Britain must
possess a second tier supply license. Subject to the restrictions described in
"Electricity Supply" above, second tier licensees may compete for the supply
of electricity with one another and with the PES for the relevant area. There
are currently 39 second tier supply license holders for England and Wales and
24 for Scotland.
Transmission Licenses
In England and Wales, NGC is the only transmission license holder. The
transmission license imposes on NGC the obligation to operate the merit order
system for the central dispatch of generating sets and gives NGC
responsibility for the economic purchasing of ancillary services from
generators and suppliers. The transmission
48
<PAGE>
license requires NGC to offer terms on a non-discriminatory basis for the
carrying out of works for connection to, and use of, the transmission system
and for use of the interconnections.
Modifications to Licenses
Subject to a power of veto by the Secretary of State, the Regulator may
modify license conditions with the agreement of the license holder. He must
first publish the proposed modifications and consider representations or
objections made. Following the acquisition of SWEB by the Company, SWEB's PES
license was modified, by agreement, to take into account the fact that the PES
license was now held by a subsidiary company. In particular, the license was
modified to provide that, with few exceptions, the only business activities
which SWEB is permitted to undertake directly are its franchise and second
tier supply businesses and its distribution business. The license now also
requires SWEB to ensure that it has sufficient management and financial
resources and facilities to conduct its supply and distribution businesses and
to comply with its statutory and license obligations. The directors of SWEB
are required to give annual certificates to the Regulator to that effect.
Further, the consent of the Regulator is required for SWEB to create security
over its assets, to incur indebtedness or to give guarantees, unless the
transaction is on normal commercial and arm's length terms and for a
"permitted purpose" (which refers to the supply, distribution or generation
business, or any business conducted by SWEB or its affiliates or related
undertakings (subsidiaries) prior to the take-over). The consent of the
Regulator is also required before SWEB may transfer assets or make loans to
affiliates or related undertakings (subsidiaries). However, various matters,
such as payment of dividends out of distributable reserves, repayments of
capital, and payments on normal commercial and arm's length terms for goods,
services or assets supplied, do not require the consent of the Regulator.
These provisions are subject to an overriding provision in the PES license
which prevents any REC from disposing of (which would include creating a
security interest in) distribution assets.
If the Regulator fails to agree modifications with a license holder, he may
refer a matter relating to generation, transmission or supply of electricity
under a license to the MMC. If the MMC finds that the matter referred to it
has, or may be expected to have, specified effects adverse to the public
interest which could be remedied or prevented by a license modification, the
Regulator is required to make modifications that appear to him requisite for
the purpose of remedying or preventing the adverse effects identified by the
MMC. Modifications to license conditions may also be made by the Secretary of
State as a consequence of monopoly, merger or other competition references
under general UK competition law.
Term and Revocation of Licenses
SWEB's PES license shall continue until at least 2025 unless revoked. Under
ordinary circumstances, the license may not be revoked except on 25 year's
prior notice, which notice may not be given until 2000. Otherwise, the
Secretary of State may revoke a PES license by not less than 30 days' notice
in writing to the licensee in certain specified circumstances including any
failure to comply with a final order of the Regulator requiring the license
holder to comply with its license conditions or requirements.
49
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of July 1, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ------------------------------------------------
<S> <C> <C>
Richard J. Pershing..... 49 Director, Chief Executive Officer
C. B. (Mike) Harreld.... 52 Director, Chief Financial and Accounting Officer
Thomas G. Boren......... 47 Director
Alan W. Harrelson....... 48 Director
Gale E. Klappa.......... 45 Director
C. Philip Saunders...... 44 Director
Charles W. Whitney...... 49 Director
Accentacross Limited.... Director
Mighteager Limited...... Director
</TABLE>
RICHARD J. PERSHING has been a Director of the Company since June 1995 and
Chief Executive Officer since July 1996. From February 1994 to the present,
Mr. Pershing has served as Senior Vice President and International Executive
Officer of Southern Electric, a wholly-owned subsidiary of Southern. From June
1992 to February 1994, he served as Vice President of International Business
Development at Southern Electric. From January 1991 to June 1992, he served as
Vice President of Human Resources at Georgia Power Company ("Georgia Power"),
also a subsidiary of Southern.
C.B. (MIKE) HARRELD has been a Director of the Company since September 1995
and Chief Financial and Accounting Officer of the Company since July 1996. He
has also been the Finance Director of SWEB since September 1995. From February
1986 to August 1995, he served as Vice President, Comptroller and Chief
Accounting Officer of Georgia Power. Prior to joining Georgia Power in 1982,
Mr. Harreld spent 13 years with Arthur Andersen in Atlanta and Missouri. He
graduated from the University of Kentucky in 1966 (BS Commerce with Honors)
and from the University of Missouri in 1967 (MA Accounting with Honors).
THOMAS G. BOREN has been a Director of the Company since July 1995 and
President and Chief Executive Officer of Southern Electric since February
1992. From May 1989 to February 1992, Mr. Boren served as Senior Vice
President of Administration at Georgia Power. From 1981 to May 1989, he held
positions with Georgia Power in power supply, finance and accounting. Mr.
Boren holds a B.S. degree in Industrial Management from the Georgia Institute
of Technology and an M.B.A. degree from Georgia State University.
ALAN W. HARRELSON has been a Director of the Company since September 1995.
From January 1994 to September 1995 Mr. Harrelson served as General Manager,
Northern Region Power Delivery of Georgia Power. From June 1991 to December
1993, he served as Network Underground Manager, Power Delivery of Georgia
Power. Mr. Harrelson holds a bachelor's degree in Industrial Engineering from
Georgia Institute of Technology, 1971, and a Juris Doctor--Atlanta Law School,
1981.
GALE E. KLAPPA has been a Director of the Company since September 1995. From
February 1992 to September 1995 he served as Senior Vice President of
Marketing for Georgia Power. From May 1991 to February 1992, Mr. Klappa served
as Vice President of Southern Company Services, Inc. He graduated cum laude
from the University of Wisconsin-Milwaukee in 1972 with a bachelor's degree in
Mass Communications.
C. PHILIP SAUNDERS has been a Director and Commercial Marketing Director of
the Company since September 1995. From February 1994 to September 1995, he
served as Western Region and Power Marketing Director for US business
development at Southern Electric. From May 1992 to February 1994, Mr. Saunders
was Assistant to the Senior Vice President of Marketing at Georgia Power. He
graduated from Auburn University in 1974 with a bachelor's degree in
Electrical Engineering.
50
<PAGE>
CHARLES W. WHITNEY has been a Director of the Company since July 1995. From
November 1995 to the present, Mr. Whitney has served as Vice President of SEI
Holdings, Inc., also a subsidiary of Southern. From June 1994 to November
1995, he served as Vice President of Southern Electric. From January 1991 to
June 1994, he served as Vice President of Georgia Power.
ACCENTACROSS LIMITED ("ACCENTACROSS") has been a Director of the Company
since July 1996. Robert D. Fagan represents Accentacross at meetings of the
Directors of the Company. Robert D. Fagan has represented Accentacross at
meetings of the Directors of the Company since July 1996. From November 1995
to the present, Mr. Fagan has served as President of PMDC. From April 1989 to
November 1994, he served as Vice President and General Manager of Mission
Energy Company ("Mission Energy"). Mr. Fagan is also currently a Director of
PMDC.
MIGHTEAGER LIMITED ("MIGHTEAGER") has been a Director of the Company since
July 1996. Roger L. Peterson represents Mighteager at meetings of the
Directors of the Company. Roger L. Peterson has represented Mighteager at
meetings of the Directors of the Company since July 1996. From January 1995 to
the present, Mr. Peterson has served as Vice President of PMDC. From October
1986 to December 1994, Mr. Peterson served as Vice President of Mission
Energy.
Accentacross and Mighteager were elected by PMDC UK as members of the board
of directors of the Company pursuant to a Shareholders' Agreement dated July
1, 1996 (the "Shareholders' Agreement") among Southern Electric International-
Europe Inc. ("SEI-Europe"), PMDC UK and Holdings. The Shareholders' Agreement
provides that each shareholder of Holdings owning 10 percent or more of the
shares of Holdings has the right to elect one director for every 10 percent
held. This right applies not only to the board of directors of Holdings but
also extends to the board of directors of the Company as a wholly-owned
subsidiary of Holdings. Thus, PMDC UK, as holder of 25 percent of the shares
of Holdings, has the right to elect two directors to the board of the Company.
Accentacross and Mighteager are represented on the board of directors of the
Company by Messrs. Fagan and Peterson, respectively.
DIRECTOR AND OFFICER COMPENSATION
Accentacross and Mighteager (the "PMDC Directors") do not receive
compensation for their services as Directors of the Company. The other
officers and directors listed above (such officers and directors, with the
exception of the PMDC Directors, each a "Southern Company system Officer or
Director," as applicable) have received, and will continue to receive,
compensation in respect of services performed by such persons in their
capacities as Southern Company system Officers or Directors of the Company
from Southern Electric, their primary employer and an affiliate of the
Company. The Company is charged by Southern Electric for the time spent by
those Southern Company system Officers and Directors who do not devote their
full time to the affairs of the Company and for a portion of the overhead
costs associated with each such Southern Company system Officer and Director.
The salaries of all Southern Company system Officers and Directors are paid by
Southern Electric, and Southern Electric is reimbursed by the Company, in
accordance with a services agreement between the Company and Southern
Electric. The Southern Company system Officers and Directors receive no cash
or non-cash compensation as a result of these arrangements beyond that which
they would otherwise receive from Southern Electric for the services performed
by them for Southern Electric.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is charged by Southern Electric for the time spent by those
Southern Company system Officers and Directors who do not devote their full
time to the affairs of the Company and for a portion of the overhead costs
associated with each such Southern Company system Officer and Director. The
salaries of all Southern Company system Officers and Directors are paid by
Southern Electric, and Southern Electric is reimbursed by the Company, in
accordance with a services agreement between the Company and Southern
Electric. The Southern Company system Officers and Directors receive no cash
or non-cash compensation as a result of these arrangements beyond that which
they would otherwise receive from Southern Electric for the services performed
by them for Southern Electric.
51
<PAGE>
SECURITY OWNERSHIP
The authorized share capital of the Company consists of 500,400,587 ordinary
shares of (Pounds)1 each, all of which have been issued fully paid and are
held by Holdings. The following table sets forth, as of July 1, 1996, certain
information regarding beneficial ownership of Holdings' common stock held by
each person known by the Company to own beneficially more than 10% of
Holding's outstanding common stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS CLASS OF SHARES NUMBER OF SHARES PERCENT OF CLASS
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C>
The Southern Company......... A Ordinary 150,000(1) 100%
64 Perimeter Center East
Atlanta, Georgia 30346
PP&L Resources, Inc.......... B Ordinary 50,000(2) 100%
11350 Random Hills Road
Suite 800
Fairfax, Virginia 22030
</TABLE>
- --------
(1) Such shares are owned by SEI-Europe, an indirect wholly-owned subsidiary
of The Southern Company.
(2) Such shares are owned by PMDC UK, an indirect wholly-owned subsidiary of
PP&L Resources, Inc.
The A Ordinary shares and the B Ordinary shares have the same voting rights,
and the only material difference between the A Ordinary shares and the B
Ordinary shares is that the holders of the B Ordinary shares are entitled to a
smaller proportion of dividends paid in respect of earnings during calendar
year ending December 31, 1996 than the holders of the A Ordinary shares.
The following table shows the number of shares of the common stock of
Southern owned by the directors and executive officers of the Company as of
July 1, 1996. It is based on information furnished to the Company by the
directors and executive officers of the Company. The shares owned by all
directors and executive officers as a group constitute less than one percent
of the total number of shares of the respective classes outstanding as of July
1, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES
TITLE OF SECURITY BENEFICIALLY OWNED (1) (2)
--------------------------- --------------------------
<S> <C> <C>
Carson B. Harreld....... The Southern Company common 2,975
Alan W. Harrelson....... The Southern Company common 13,330
Gale E. Klappa.......... The Southern Company common 24,857
C. Philip Saunders...... The Southern Company common 7,879
Charles W. Whitney...... The Southern Company common 7,015
Thomas G. Boren......... The Southern Company common 17,325
Richard J. Pershing..... The Southern Company common 18,791
Directors and Executive
Officers of the Company
as a group (9 persons)
(3).................... The Southern Company common 92,692
</TABLE>
- --------
(1) "Beneficial ownership" means the sole or shared power to vote, or to
direct the voting of, a security and/or investment power with respect to a
security.
(2) The shares shown include shares of common stock which certain directors
and executive officers have the right to acquire beneficial ownership
within 60 days pursuant to The Southern Company Executive Stock Plan as
follows: Mr. Klappa, 8,544 shares; Mr. Boren, 6,737 shares; and all
directors and executive officers of the Company as a group, 15,281 shares.
(3) The two corporate directors, Accentacross Limited and Mighteager Limited,
do not own any equity securities of the Company or any of its parents or
subsidiaries.
52
<PAGE>
DESCRIPTION OF THE SENIOR NOTES
The Senior Notes are to be issued under and governed by an Indenture, as
supplemented by a First Supplemental Indenture, to be dated as of , 1996
(collectively the "Indenture"), among the Company, Bankers Trust Company, as
trustee (the "Trustee") and Bankers Trust Luxembourg S.A. as paying and
transfer agent (the "Paying Agent"), a copy of which is filed as an exhibit to
the Registration Statement. The following summaries of certain provisions of
the Indenture do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Indenture. Copies of the Indenture are available for inspection on a Business
Day during normal business hours at the principal office of the Company, at
the office of the Trustee in the City of New York and at the office of the
Paying Agent in Luxembourg. The Holders are entitled to the benefits of, are
bound by, and are deemed to have notice of, all the provisions of the
Indenture. Wherever particular sections or defined terms of the Indenture are
referred to, such sections or defined terms are incorporated herein by
reference.
GENERAL
The Indenture does not limit the aggregate principal amount of the debt
securities that may be issued thereunder and provides that debt securities may
be issued from time to time in one or more series. The Senior Notes will
mature on , 2006 and will be limited to US$235,000,000 in aggregate
principal amount. Each Senior Note will bear interest at the rate per annum
shown on the cover page of this Prospectus from , 1996 or from the most
recent interest payment date to which interest has been paid or provided for.
Interest on the Senior Notes will be payable semiannually on and
of each year, commencing on , 1996 until the principal amount has been
paid or made available for payment. Interest on the Senior Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
The principal of and interest on the Senior Notes will be payable in U.S.
dollars or in such other coin or currency of the United States of America as
at the time of payment is legal tender for the payment of public and private
debts.
Application has been made to list the Senior Notes on the Luxembourg Stock
Exchange.
The Senior Notes will be direct, unsecured and unsubordinated obligations of
the Company ranking pari passu with all other unsecured and unsubordinated
obligations of the Company (except those obligations preferred by operation of
law). The Senior Notes will effectively rank junior to any secured
indebtedness of the Company to the extent of the assets securing such
indebtedness and to any indebtedness of the Company's subsidiaries to the
extent of the assets of such subsidiaries. Substantially all of the Company's
consolidated assets other than the stock of SWEB are currently held by the
Company's subsidiaries. The Indenture contains no restrictions on the amount
of additional indebtedness which may be incurred by the Company or its
subsidiaries; however, the Indenture contains certain restrictions on the
ability of the Company and its Significant Subsidiaries to incur secured
indebtedness. See "--Covenants--Limitation on Liens." The ability of the
Company to pay principal and interest on the Senior Notes is, to a large
extent, dependent upon the payment to it of distributions, dividends, interest
or other amounts by SWEB. While the Company does not intend to pay principal
of the Senior Notes out of such amounts, but rather intends to refinance such
principal, its ability to do so will also be, to a large extent, dependent
upon the payment to it of such amounts by SWEB. SWEB can make distributions of
dividends to the Company under English law to the extent that it has
distributable reserves, subject to the retention of sufficient financial
resources to conduct its supply and distribution businesses as required by its
PES license.
DESCRIPTION OF THE BOOK-ENTRY SYSTEM
GENERAL
The Senior Notes will be issued only as a Global Note in bearer form and
will be payable only in US dollars. Title to such Global Note will pass by
delivery. The Global Note will be deposited on issue with Bankers Trust
Company, as book-entry depositary (the "Book-Entry Depositary"), which will
hold the Global Note for the benefit of DTC and its Participants pursuant to
the terms of the deposit agreement (the "Deposit Agreement") dated as of
,1996 among the Company, the Book-Entry Depositary and the holders and
beneficial owners from time to time of interests in the Book-Entry Interest
(as defined below). Pursuant to the Deposit Agreement
53
<PAGE>
and a letter of representations from the Company and the Trustee to DTC (the
"Letter of Representations"), the Book-Entry Depositary will issue one or more
certificateless depositary interests (the "Book-Entry Interest"), which
together will represent a 100% interest in the underlying Global Note. Such
Book-Entry Interest will be issued to DTC, which will operate a book-entry
system for interests in the Book-Entry Interest. Unless and until the Global
Note is exchanged in whole for Definitive Registered Notes (as defined below),
the Book-Entry Interest held by DTC may not be transferred except as a whole
by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of
DTC or by DTC or any such nominee to a successor of DTC or a nominee of such
successor.
Ownership of interests in the Book-Entry Interest will be limited to
persons, including depositaries for Euroclear and Cedel Bank, that have
accounts with DTC ("Participants") or persons that hold interests through
Participants ("Indirect Participants"). Upon the issuance by the Book-Entry
Depositary of the Book-Entry Interest to DTC, DTC will credit, on its book-
entry registration and transfer system, the Participants' accounts with the
respective interests owned by such Participants. Ownership of interests in the
Book-Entry Interest will be shown on, and the transfer of such interests in
the Book-Entry Interest will be effected only through, records maintained by
DTC (with respect to interests of Participants) and on the records of
Participants (with respect to interests of Indirect Participants). The laws of
some states may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability of such purchasers to own, transfer or pledge interests in
the Book-Entry Interest.
So long as the Book-Entry Depositary, or its nominee, is the Holder of the
Global Note, the Book-Entry Depositary or such nominee, as the case may be,
will be considered the sole Holder of such Global Note (and the Senior Notes)
for all purposes under the Indenture. Except as set forth below under "--
Definitive Senior Notes," Participants or Indirect Participants will not be
entitled to have Senior Notes registered in their names, will not receive or
be entitled to receive physical delivery of Senior Notes in definitive bearer
or registered form and will not be considered the owners or Holders thereof
under the Indenture or the Deposit Agreement. Accordingly, each person owning
an interest in the Book-Entry Interest must rely on the procedures of the
Book-Entry Depositary and DTC and, if such person is not a Participant in DTC,
on the procedures of the Participant through which such person owns its
interest, to exercise any rights and obligations of a Holder under the
Indenture or the Deposit Agreement. See "--Action by Holders of Senior Notes."
In addition to a Paying Agent in the Borough of Manhattan, The City of New
York, the Company will, so long as the Senior Notes are listed on the
Luxembourg Stock Exchange and the rules of such Exchange so require, maintain
a Paying Agent in Luxembourg.
INFORMATION REGARDING DTC, EUROCLEAR AND CEDEL BANK
DTC
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC holds securities that its Participants deposit with
DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates.
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a
number of its Participants and by the New York Stock Exchange Inc. and the
American Stock Exchange Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. The rules applicable to DTC and its Participants are on file with
the Securities and Exchange Commission (the "Commission").
54
<PAGE>
Euroclear and Cedel Bank
Euroclear and Cedel Bank each hold securities for their account holders and
facilitate the clearance and settlement of securities transactions by
electronic book-entry transfer between their respective account holders,
thereby eliminating the need for physical movements of certificates and any
risk from lack of simultaneous transfers of securities.
Euroclear and Cedel Bank provide various services including safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Euroclear and Cedel Bank also deal with
domestic securities markets in several countries through established
depositary and custodial relationships. Euroclear and Cedel Bank have
established an electronic bridge between their two systems across which their
respective account holders may settle trades with each other.
Account holders in Euroclear and Cedel Bank are world-wide financial
institutions, including underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to Euroclear and
Cedel Bank is available to other institutions that clear through or maintain a
custodial relationship with an account holder of either system.
Account holders' overall contractual relations with Euroclear and Cedel Bank
are governed by the respective rules and operating procedures of Euroclear and
Cedel Bank and any applicable laws. Euroclear and Cedel Bank act under such
rules and operating procedures only on behalf of their respective account
holders and have no record of or relationship with persons holding through
their respective account holders.
The Company understands that under existing industry practices, if either
the Company or the Trustee requests any action of owners of interests in the
Book-Entry Interest or if an owner of an interest in the Book-Entry Interest
desires to give or take any action that a Holder is entitled to give or take
under the Indenture, DTC would authorize the Participants owning the interests
in the Book-Entry Interest to give or take such action, and such Participants
would authorize Indirect Participants to give or take such action or would
otherwise act upon the instructions of such Indirect Participants.
PAYMENTS ON THE SENIOR NOTES
Payments of any amounts in respect of the Global Note will be made through a
Paying Agent to the Book-Entry Depositary, as the Holder thereof. The Book-
Entry Depositary will pay an amount equal to each such payment to DTC, which
will distribute such payments to its Participants.
DTC, upon receipt of any such payment from the Book-Entry Depositary, will
immediately credit Participants' accounts with payments in amounts
proportionate to their respective ownership of interests in the Book-Entry
Interest as shown on the records of DTC. The Company expects that payments by
Participants to owners of interests in the Book-Entry Interest held through
such Participants will be governed by standing customer instructions and
customary practices and will be the responsibility of such Participants.
Neither the Company nor any agent of the Company will have any
responsibility or liability for any aspect relating to payments made or to be
made by the Book-Entry Depositary to DTC in respect of the Senior Notes or the
Book-Entry Interest. None of the Company, the Trustee, the Book-Entry
Depositary or any agent of any of the foregoing will have any responsibility
or liability for any aspect relating to payments made or to be made by DTC on
account of a Participant's or Indirect Participant's ownership of an interest
in the Book-Entry Interest or for maintaining, supervising or reviewing any
records relating to a Participant's or Indirect Participant's interests in the
Book-Entry Interest.
If any Definitive Registered Note has been issued, the interest payable on
such Definitive Registered Note other than at maturity will be paid to the
holder in whose name such Definitive Registered Note is registered at the
close of business on the or (whether or not a Business Day), as the
case may be, immediately preceding the due date for such payment (each a
"Record Date"). The principal of a Definitive Registered Note
55
<PAGE>
will be payable to the person in whose name such Definitive Registered Note is
registered at the close of business on the immediately preceding Record Date
upon surrendering such Definitive Registered Note. Interest payable at
maturity will be payable to the person to whom principal is payable.
If any Definitive Registered Notes have been issued, payments of interest on
such Definitive Registered Notes to be paid other than at maturity will be
made by check to the person entitled thereto at such person's address
appearing on the Security Register. Payments of any interest on the Definitive
Registered Notes may also be made, in the case of a Holder of at least
US$1,000,000 aggregate principal amount of Senior Notes, by wire transfer to a
US Dollar account maintained by the payee with a bank in the United States;
provided that such Holder elects payment by wire transfer by giving written
notice to the Trustee or a Paying Agent to such effect designating such
account no later than 15 days immediately preceding the relevant due date for
payment (or such other date as the Trustee may accept in its discretion).
Any monies paid by the Company to the Trustee or any Paying Agent, or held
by the Company in trust, for the payment of the principal of or any interest
or Additional Amounts on any Senior Notes and remaining unclaimed at the end
of two years after such principal, interest or Additional Amounts become due
and payable will be repaid to the Company, or released from the trust, upon
its written request, and upon such repayment or release all liability of the
Company, the Trustee and such Paying Agent with respect thereto will cease.
If the due date for payment of principal or any interest installment or any
Additional Amount in respect of any Senior Note is not a Business Day, the
Holder thereof will not be entitled to payment of the amount due until the
next succeeding Business Day and will not be entitled to any further interest
or other payment in respect of any such delay.
All payments to the Book-Entry Depositary in respect of the Global Note,
and all payments to the Holders of the Definitive Registered Notes, if issued,
will be made without deduction or withholding for any UK taxes or other
governmental charges, or if any such deduction or withholding is required to
be made under the provisions of any applicable UK law or regulation, except as
described under "--Additional Amounts," such Additional Amounts will be paid
as may be necessary in order that the net amounts received by any Holder of
the Global Note or of any Definitive Registered Note, after such deduction or
withholding, will equal the amounts that such Holder would have otherwise
received in respect of the Global Note or of such Definitive Registered Note
absent such deduction or withholding.
REDEMPTION
In the event the Global Note (or a portion thereof) is redeemed, the Book-
Entry Depositary will deliver all amounts received by it in respect of the
redemption of the Global Note to DTC and (in the case of redemption in full)
surrender the Global Note to the Trustee for cancellation. The redemption
price payable in connection with the redemption of interests in the Book-Entry
Interest will be equal to the amount received by the Book-Entry Depositary in
connection with the redemption of the Global Note (or a portion thereof). For
any redemptions of the Global Note in part, selection of interests in the
Book-Entry Interest to be redeemed will be made by DTC on a pro rata basis (or
on such other basis as DTC deems fair and appropriate); provided that no
interest in the Book-Entry Interest of $1,000 principal amount or less shall
be redeemed in part. Once redeemed in part, a new Global Note in the principal
amount equal to the unredeemed portion thereof will be issued and delivered to
the Book-Entry Depositary.
TRANSFERS
All transfers of interests in the Book-Entry Interest will be recorded in
accordance with the book-entry system maintained by DTC, pursuant to customary
procedures established by DTC and its Participants. See "--General."
56
<PAGE>
ACTION BY HOLDERS OF SENIOR NOTES
The Company understands that under existing industry practices, if it
requests any action of Holders of Senior Notes or if an owner of an interest
in the Book-Entry Interest desires to give or take any action that a Holder is
entitled to give or take under the Indenture or the owner of an interest in
the Book-Entry Interest is entitled to give or take under the Deposit
Agreement, DTC would authorize the Participants owning the relevant interest
in the Book-Entry Interest to give or take such action, and such Participants
would authorize Indirect Participants to give or take such action or would
otherwise act upon the instructions of owners of interests in the Book-Entry
Interest holding through them.
As soon as practicable after receipt by the Book-Entry Depositary of notice
of any solicitation of consents or request for a waiver or other action by the
Holders of Senior Notes, the Book-Entry Depositary will mail to DTC a notice
containing (a) such information as is contained in such notice, (b) a
statement that at the close of business on a specified record date DTC will be
entitled to instruct the Book-Entry Depositary as to the consent, waiver or
other action, if any, pertaining to the Senior Notes and (c) a statement as to
the manner in which such instructions may be given. Upon the written request
of DTC, the Book-Entry Depositary shall endeavor insofar as practicable to
take such action regarding the requested consent, waiver or other action in
respect of the Senior Notes in accordance with any instructions set forth in
such request. DTC is expected to follow the procedures described above with
respect to soliciting instructions from its Participants. The Book-Entry
Depositary will not exercise any discretion in the granting of consents or
waivers or the taking of any other action relating to the Deposit Agreement,
the DTC Agreement or the Indenture.
REPORTS AND NOTICES
So long as the Senior Notes are listed on the Luxembourg Stock Exchange and
the rules of the Luxembourg Stock Exchange so require, notices to Holders of
the Senior Notes will, in addition to being sent to the Book-Entry Depositary,
also be published in a leading newspaper having general circulation in
Luxembourg (which is expected to be the Luxemburger Wort). The Book-Entry
Depositary will immediately send to DTC a copy of any notices, reports and
other communications received by it relating to the Company or the Senior
Notes. In the case of Definitive Registered Notes, all notices regarding the
Senior Notes will, in addition to publication as referred to above (if
applicable), be mailed to Holders by first-class mail at their respective
addresses as they appear on the registration books of the Registrar.
ACTION BY BOOK-ENTRY DEPOSITARY
Upon the occurrence of an Event of Default with respect to the Senior Notes
or in connection with any other right of the Holder of the Global Note under
the Indenture, if requested in writing by DTC, the Book-Entry Depositary will
take such action as shall be requested in such notice, provided that the Book-
Entry Depositary has been offered indemnity satisfactory to it against the
costs, expenses and liabilities that might be incurred by it in compliance
with such request by DTC.
AMENDMENT AND TERMINATION
The Deposit Agreement may be amended by agreement between the Company and
the Book-Entry Depositary, and the consent of DTC shall not be required in
connection with any amendment to the Deposit Agreement (i) to cure any formal
defect, omission, inconsistency or ambiguity in such Deposit Agreement, (ii)
to add to the covenants and agreements of the Company or the Book-Entry
Depositary, (iii) to effect the assignment of the Book-Entry Depositary's
rights and duties to a qualified successor, (iv) to comply with the US
Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act or
the US Investment Company Act of 1940, as amended, or any other applicable
securities laws, (v) to modify the Deposit Agreement in connection with an
amendment to the Indenture that does not require the consent of the Holders of
Senior Notes or (vi) to modify, alter, amend or supplement the Deposit
Agreement in any other respect not inconsistent with such agreement which, in
the opinion of counsel acceptable to the Company, is not materially adverse to
DTC or the beneficial owners of the interests in the Book-Entry Interest. No
amendment which materially adversely
57
<PAGE>
affects any holder or beneficial owner of an interest in the Book-Entry
Interest may be made to the Deposit Agreement without the consent of such
holder or beneficial owner.
If Definitive Registered Notes are issued by the Company in exchange for the
entire Global Note, the Book-Entry Depositary, as Holder of the Global Note,
will surrender the Global Note against receipt of the Definitive Registered
Notes and distribute the Definitive Registered Notes to the persons and in the
amounts as specified by DTC, whereupon the Deposit Agreement will terminate
with respect to the Senior Notes. The Deposit Agreement may also be terminated
upon the resignation of the Book-Entry Depositary if no successor has been
appointed within 120 days as set forth under "--Resignation of Book-Entry
Depositary" below. Any Definitive Registered Notes will be issued, if at all,
in accordance with the provisions described under "--Definitive Senior Notes"
below.
RESIGNATION OF BOOK-ENTRY DEPOSITARY
The Book-Entry Depositary may at any time resign as Book-Entry Depositary.
If a successor depositary meeting the requirements specified in the Deposit
Agreement has agreed to enter into arrangements with the same effect as the
Deposit Agreement, the Book-Entry Depositary shall deliver the Global Note to
that successor. If no such successor has so agreed within 120 days, the terms
of the Deposit Agreement will oblige the Book-Entry Depositary to request the
Company to issue Definitive Registered Notes. On receipt of such Definitive
Registered Notes, the Book-Entry Depositary will surrender the Global Note and
distribute such Definitive Registered Notes in accordance with the directions
of DTC. The Deposit Agreement will then terminate with respect to the Senior
Notes.
OBLIGATION OF BOOK-ENTRY DEPOSITARY
The Book-Entry Depositary will assume no obligation or liability under the
Deposit Agreement or the DTC Agreement other than to act in good faith without
negligence or wilful misconduct in the performance of its duties thereunder.
SETTLEMENT
Initial settlement for the Senior Notes and settlement of any secondary
market trades in the Senior Notes will be made in same-day funds. Interests in
the Book-Entry Interest will settle in DTC's Same-Day Funds Settlement System.
DEFINITIVE SENIOR NOTES
Owners of interests in the Book-Entry Interest will be entitled to receive,
through DTC, definitive Senior Notes in registered form ("Definitive
Registered Notes") in respect of such interest only if an Event of Default has
occurred and is continuing with respect to the Senior Notes and the Holder, in
such circumstance, upon instructions from owners of interests representing a
majority in outstanding principal amount in the Book-Entry Interest shall have
requested in writing that the Global Note be exchanged for one or more
Definitive Registered Notes. If owners of interests in the Book-Entry Interest
make a request pursuant to the preceding sentence, all of the owners of
interests in the Book-Entry Interest will receive Definitive Registered Notes
in respect of their interests. In addition, Definitive Registered Notes shall
be issued if at any time (a) DTC notifies the Company and the Book-Entry
Depositary that it is unwilling to or unable to continue to hold the Book-
Entry Interest or if at any time it ceases to be a "clearing agency"
registered under the Exchange Act and, in either case, a successor is not
appointed by the Company within 120 days (b) the Book-Entry Depositary
notifies the Company that it is unwilling or unable to continue as Book-Entry
Depositary with respect to the Global Note and no successor is appointed by
the Company within 120 days or (c) the Company in its sole discretion
determines that Definitive Registered Notes shall be issued and executes and
delivers to the Trustee an Officer's Certificate providing that the Global
Note shall be so exchanged. Definitive Registered Notes so issued will be
issued in denominations of $1,000 or integral multiples thereof and will be
issued in registered form only, without coupons. Such Definitive Registered
Notes shall be registered in the name or names of such person or person as the
Book-Entry Depositary shall notify the Trustee based on the instructions of
DTC. It is expected that such instructions may be based upon directions
received by DTC from its Participants with respect to ownership of beneficial
interests in the Book-Entry Interest.
58
<PAGE>
PARTICIPANTS AND INDIRECT PARTICIPANTS SHOULD BE AWARE THAT, UNDER CURRENT
UK TAX LAW, UPON THE ISSUANCE TO SUCH PARTICIPANTS AND INDIRECT PARTICIPANTS
OF DEFINITIVE REGISTERED NOTES, SUCH PARTICIPANTS AND INDIRECT PARTICIPANTS,
AS HOLDERS OF DEFINITIVE REGISTERED NOTES, WILL BECOME SUBJECT TO UK INCOME
TAX (CURRENTLY AT THE RATE OF 20%) TO BE WITHHELD ON ANY PAYMENTS OF INTEREST
ON THE SENIOR NOTES AS SET FORTH UNDER "CERTAIN INCOME TAX CONSIDERATIONS--UK
INCOME TAX CONSIDERATIONS." IF SUCH DEFINITIVE REGISTERED NOTES ARE ISSUED
PURSUANT TO THE REQUEST OF A PARTICIPANT OR INDIRECT PARTICIPANT FOLLOWING AN
EVENT OF DEFAULT, THE COMPANY WILL NOT BE OBLIGATED TO PAY ANY ADDITIONAL
AMOUNTS TO PARTICIPANTS AND INDIRECT PARTICIPANTS (AND THEIR TRANSFEREES) THAT
REQUEST OR GIVE INSTRUCTIONS THAT DEFINITIVE REGISTERED NOTES BE ISSUED.
TRANSFER AND EXCHANGE OF DEFINITIVE SENIOR NOTES
In the event that Definitive Registered Notes are in issue, a Holder may
transfer or exchange the Definitive Registered Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents, and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or
exchange any Senior Notes selected for redemption or for a period of 15 days
before a selection of Senior Notes to be redeemed. Upon the issuance of
Definitive Registered Notes, Holders will be able to transfer and exchange
Definitive Registered Notes at the offices of the Paying and Transfer Agents;
provided that all transfers and exchanges must be effected in accordance with
the terms of the Indenture and, among other things, be recorded in the
Register maintained by the Registrar.
COVENANTS
Except as otherwise set forth under "--Defeasance," below, for so long as
any Senior Notes remain outstanding or any amount remains unpaid on any of the
Senior Notes, the Company will comply with the terms of the covenants set
forth below.
PAYMENT OF PRINCIPAL AND INTEREST
The Company will duly and punctually pay the principal of and interest and
Additional Amounts, if any, on the Senior Notes in accordance with the terms
of the Senior Notes and the Indenture.
MAINTENANCE OF OFFICE OR AGENCY
The Company will maintain (i) in the Borough of Manhattan, The City of New
York, an office or agency of a Paying Agent where the Senior Notes may be paid
and notices and demands to or upon the Company in respect of the Senior Notes
and the Indenture may be served and, if Definitive Registered Notes have been
issued, an office or agency of a Transfer Agent where Senior Notes may be
surrendered for registration of transfer and exchange, and (ii) an office or
agency of a Paying Agent where the Senior Notes may be paid in Luxembourg so
long as the Senior Notes are listed on the Luxembourg Stock Exchange and the
rules of such Exchange so require. The Company will give prompt written notice
to the Trustee of the location, and any change in the location, of any such
office or agency. If at any time the Company shall fail to maintain any
required office or agency or shall fail to furnish the Trustee with the
address thereof, all presentations, surrenders, notices and demands may be
served at the office of the Trustee.
FURTHER ASSURANCES
The Company and the Trustee will execute and deliver all such documents,
instruments and agreements and do all such other acts and things as may be
reasonably required to enable the Trustee to exercise and enforce its rights
under the Indenture and under the documents, instruments and agreements
required under the Indenture and to carry out the intent of the Indenture.
59
<PAGE>
COMPLIANCE CERTIFICATES
The Company will deliver to the Trustee within 120 days after the end of each
fiscal year of the Company a certificate from the principal executive,
financial or accounting officer of the Company, stating that in the course of
the performance by each signer of his duties as an officer of the Company he
would normally have knowledge of any default by the Company in the performance
and observance of any of the covenants contained in the Indenture, stating
whether or not he has knowledge of any such default without regard to any
period of grace or requirement of notice and, if so, specifying each such
default of which such signer has knowledge and the nature thereof.
CONSOLIDATION, MERGER, CONVEYANCE, SALE OR LEASE
Nothing contained in the Indenture shall prevent the Company from
consolidating with or merging into another corporation or conveying,
transferring or leasing its properties and assets substantially as an entirety
to any person, provided that (a) the successor entity assumes the Company's
applicable obligations on the Senior Notes and (b) immediately after giving
effect to such transaction no Event of Default, and no event which, after
notice or lapse of time or both, would become an Event of Default, shall have
happened and be continuing.
LIMITATION ON LIENS
Nothing contained in the Indenture in any way restricts or prevents the
Company or any subsidiary of the Company from incurring any indebtedness;
provided that neither the Company nor any Significant Subsidiary (as defined
below) shall issue, assume or guarantee any notes, bonds, debentures or other
similar evidences of indebtedness, in each case for money borrowed ("Debt"),
secured by a mortgage, lien, pledge, security interest or other encumbrance
("Lien") upon any property or assets (other than cash) without effectively
providing that the outstanding Senior Notes (together with, if the Company so
determines, any other indebtedness or obligation then existing or thereafter
created ranking equally with the Senior Notes) shall be secured equally and
ratably with (or prior to) such Debt so long as such Debt shall be so secured;
provided, however, that the term Lien shall not mean any easements, rights-of-
way, restrictions and other similar encumbrances and encumbrances consisting of
zoning restrictions, leases, subleases, licenses, sublicenses, restrictions on
the use of property or defects in the title thereto. The foregoing restriction
or Liens will not, however, apply to:
(a) Liens in existence on the date of original issue of the Senior Notes;
(b) (i) any Lien created or arising over any property which is acquired,
constructed or created by the Company or any of its Significant
Subsidiaries, but only if (A) such Lien secures only principal amounts (not
exceeding the cost of such acquisition, construction or creation) raised
for the purposes of such acquisition, construction or creation, together
with any costs, expenses, interest and fees incurred in relation thereto or
a guarantee given in respect thereof, (B) such Lien is created or arises on
or before 90 days after the completion of such acquisition, construction or
creation and (C) such Lien is confined solely to the property so acquired,
constructed or created; or (ii) any Lien to secure indebtedness for
borrowed money incurred in connection with a specifically identifiable
project where the Lien relates to a property (including, without
limitation, shares or other rights of ownership in the entity(ies) which
own such property or project) involved in such project and acquired by the
Company or a Significant Subsidiary after the date of original issue of the
Senior Notes and the recourse of the creditors in respect of such
indebtedness is limited to any or all of such project and property
(including as aforesaid);
(c) any Lien securing amounts not more than 90 days overdue or otherwise
being contested in good faith;
(d) (i) rights of financial institutions to offset credit balances in
connection with the operation of cash management programs established for
the benefit of the Company and/or a Significant Subsidiary or in
60
<PAGE>
connection with the issuance of letters of credit for the benefit of the
Company and/or a Significant Subsidiary; (ii) any Lien securing
indebtedness of the Company and/or a Significant Subsidiary for borrowed
money incurred in connection with the financing of accounts receivable;
(iii) any Lien incurred or deposits made in the ordinary course of
business, including, but not limited to, (A) any mechanics', materialmen's,
carriers', workmen's, vendors' or other like Liens and (B) any Liens
securing amounts in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) any Lien upon specific
items of inventory or other goods and proceeds of the Company and/or a
Significant Subsidiary securing obligations of the Company and/or a
Significant Subsidiary in respect of bankers' acceptances issued or created
for the account of such person to facilitate the purchase, shipment or
storage of such inventory or other goods; (v) any Lien incurred or deposits
made securing the performance of tenders, bids, leases, trade contracts
(other than for borrowed money), statutory obligations, surety bonds,
appeal bonds, government contracts, performance bonds, return-of-money
bonds and other obligations of like nature incurred in the ordinary course
of business; (iv) any Lien created by the Company or a Significant
Subsidiary under or in connection with or arising out of any pooling and
settlement agreements or pooling and settlement arrangements of the
electricity industry or any transactions or arrangements entered into in
connection with the hedging or management of risks relating to the
electricity industry; (vii) any Lien constituted by a right of set off or
right over a margin call account or any form of cash or cash collateral or
any similar arrangement for obligations incurred in respect of the hedging
or management of risks under transactions involving any currency or
interest rate swap, cap or collar arrangements, forward exchange
transaction, option, warrant, forward rate agreement, futures contract or
other derivative instrument of any kind; (viii) any Lien arising out of
title retention or like provisions in connection with the purchase of goods
and equipment in the ordinary course of business; and (ix) any Lien
securing reimbursement obligations under letters of credit, guaranties and
other forms of credit enhancement given in connection with the purchase of
goods and equipment in the ordinary course of business;
(e) Liens in favor of the Company or a Significant Subsidiary;
(f) (i) Liens on any property or assets acquired from a corporation which
is merged with or into the Company or a Significant Subsidiary, or any
Liens on the property or assets of any corporation or other entity existing
at the time such corporation or other entity becomes a subsidiary of the
Company and, in either such case, is not created in anticipation of any
such transaction (unless such Lien was created to secure or provide for the
payment of any part of the purchase price of such corporation); (ii) any
Lien on any property or assets existing at the time of acquisition thereof
and which is not created in anticipation of such acquisition (unless such
Lien was created to secure or provide for the payment of any part of the
purchase price of such property or assets); and (iii) any Lien created or
outstanding on or over any asset of any company which becomes a Significant
Subsidiary on or after the date of the issuance of the Senior Notes where
such Lien is created prior to the date on which such company becomes a
Significant Subsidiary;
(g) Liens required by any contract or statute in order to permit the
Company or a Significant Subsidiary to perform any contract or subcontract
made by it with or at the request of a governmental entity or any
department, agency or instrumentality thereof, or to secure partial,
progress, advance or any other payments by the Company or a Significant
Subsidiary to such governmental unit pursuant to the provisions of any
contract or statute; (ii) any Lien securing industrial revenue, development
or similar bonds issued by or for the benefit of the Company or a
Significant Subsidiary, provided that such industrial revenue, development
or similar bonds are nonrecourse to the Company and/or such Significant
Subsidiary; and (iii) any Lien securing taxes or assessments or other
applicable governmental charges or levies;
(h) (i) any Lien which arises pursuant to any order of attachment,
distraint or similar legal process arising in connection with court
proceedings and any Lien which secures the reimbursement obligation for any
bond obtained in connection with an appeal taken in any court proceeding,
so long as the execution or other enforcement of such Lien arising pursuant
to such legal process is effectively stayed and the claims secured thereby
are being contested in good faith and, if appropriate, by appropriate legal
proceedings, or any Lien in favor of a plaintiff or defendant in any action
before a court or tribunal as security for costs
61
<PAGE>
and/or expenses; or (ii) any Lien arising by operation of law or by order
of a court or tribunal or any Lien arising by an agreement of similar
effect, including, without limitation, judgment Liens; or
(i) any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any Liens referred to
in the foregoing clauses, for amounts not exceeding the principal amount of
the Debt secured by the Lien so extended, renewed or replaced, provided
that such extension, renewal or replacement Lien is limited to all or a
part of the same property or assets that were covered by the Lien extended,
renewed or replaced (plus improvements on such property).
Notwithstanding the foregoing, the Company and/or a Significant
Subsidiary may create or permit to subsist Liens over any property, shares
and/or stock so long as the aggregate amount of Debt secured by all such
Liens (excluding therefrom the amount of Debt secured by Liens set forth in
clauses (a) through (i), inclusive, above) does not exceed 10% of the
consolidated net tangible assets of the Company and its subsidiaries on a
consolidated basis.
"Significant Subsidiary" means, at any particular time, any subsidiary of
the Company whose gross assets or gross revenues (having regard to the
Company's direct and/or indirect beneficial interest in the shares, or the
like, of that subsidiary) represent at least 25% of the consolidated gross
assets or, as the case may be, consolidated gross revenues of the Company.
Consolidated net tangible assets is defined in the Indenture as the total
of all assets (including revaluations thereof as a result of commercial
appraisals, price level restatement or otherwise) appearing on a
consolidated balance sheet of the Company, net of applicable reserves and
deductions, but excluding goodwill, trade names, trademarks, patents,
unamortized debt discount and all other like intangible assets (which term
shall not be construed to include such revaluations), less the aggregate of
the consolidated current liabilities of the Company appearing on such
balance sheet.
LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS
The Indenture provides that, so long as any of the Senior Notes remain
outstanding, neither the Company nor any Significant Subsidiary shall enter
into any arrangement with any person providing for the leasing by the Company
or a Significant Subsidiary of any assets which have been or are to be sold or
transferred by the Company or such Significant Subsidiary to such person (a
"Sale and Lease-Back Transaction") unless: (i) such transaction involves a
lease for a temporary period not to exceed three years; (ii) such transaction
is between the Company or a Significant Subsidiary and an affiliate of the
Company; (iii) the Company would be entitled to incur indebtedness secured by
a Lien on the assets or property involved in such transaction at least equal
in amount to the attributable debt with respect to such Sale and Lease-Back
Transaction, without equally and ratably securing the Senior Notes, pursuant
to "--Limitation on Liens" above, other than pursuant to the penultimate
paragraph thereof; (iv) such transaction is entered into within 60 days after
the initial acquisition by the Company of the assets or property subject to
such transaction; (v) after giving effect thereto, the aggregate amount of all
attributable debt with respect to all such Sale and Lease-Back Transactions
does not exceed 10% of consolidated net tangible assets of the Company and its
subsidiaries on a consolidated basis; or (vi) the Company or a Significant
Subsidiary within the 12 months preceding the sale or transfer or the 12
months following the sale or transfer, regardless of whether such sale or
transfer may have been made by the Company or such Significant Subsidiary, as
the case may be, applies, in the case of a sale or transfer for cash, an
amount equal to the net proceeds thereof and, in the case of a sale or
transfer otherwise than for cash, an amount equal to the fair value of the
assets so leased at the time of entering into such arrangement (as determined
by the Board of Directors of the Company or such Significant Subsidiary, as
the case may be), (a) to the retirement of indebtedness for money borrowed,
incurred or assumed by the Company or a Significant Subsidiary, as the case
may be, which by its terms matures at, or is extendible or renewable at the
option of the obligor to, a date more than 12 months after the date of
incurring, assuming or guaranteeing such debt or (b) to investment in any
assets of the Company or a Significant Subsidiary, as the case may be.
62
<PAGE>
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of a majority in aggregate in principal amount
of the outstanding Senior Notes, to modify the Indenture or any supplemental
indenture or the rights of the Holders of the Senior Notes; provided that no
such modification shall without the consent of each Holder of Senior Notes (a)
change the stated maturity upon which the principal of or the interest on the
Senior Notes is due and payable, (b) reduce the principal amount thereof or
the rate of interest thereon, (c) change any obligation of the Company to pay
Additional Amounts, (d) change any place of payment or the currency in which
the Senior Notes or the interest thereon is payable, (e) impair the right to
institute suit for the enforcement of any such payment on or after the stated
maturity thereof (or, in the case of redemption, on or after the redemption
date), (f) reduce the percentage in principal amount of the outstanding Senior
Notes, the consent of whose Holders is required for any waiver of compliance
with certain provisions of the Indenture or certain defaults thereunder and
their consequences provided for in the Indenture, (g) reduce the requirements
contained in the Indenture for quorum or voting or (h) modify certain
provisions of the Indenture. The Indenture provides that Senior Notes owned by
the Company or any of its Affiliates shall be deemed not to be outstanding
for, among other purposes, consenting to any such modification.
The Indenture also contains provisions permitting the Company and the
Trustee to amend the Indenture in certain circumstances without the consent of
the Holders of any Senior Notes to cure any ambiguity, to correct or
supplement any provision therein which may be defective or inconsistent with
any other provision therein, to evidence the merger of the Company or the
replacement of the Trustee and to make any other changes that do not
materially adversely affect the rights of any Holders of Senior Notes.
EVENTS OF DEFAULT
An Event of Default with respect to the Senior Notes is defined in the
Indenture as being: (a) default for 30 days in payment of any interest or any
Additional Amounts on the Global Note or the Definitive Registered Notes; (b)
default in payment of principal of the Global Note or the Definitive
Registered Notes at maturity; (c) material default in the performance, or
material breach, of any covenant or obligation of the Company in the Indenture
and continuance of such material default or breach for a period of 60 days
after written notice is given to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in aggregate principal amount
of the Senior Notes; (d) default in the payment of the principal of any bond,
debenture, note or other evidence of indebtedness, in each case for money
borrowed, or in the payment of principal under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed, of the Company or any
Significant Subsidiary which default for payment of principal is in an
aggregate principal amount exceeding US$50,000,000 (or its equivalent in any
other currency or currencies) when such indebtedness becomes due and payable
(whether at maturity, upon redemption or acceleration or otherwise), if such
default shall continue unremedied or unwaived for more than 30 Business Days
and the time for payment of such amount has not been expressly extended; and
(e) the failure of the Company or a Significant Subsidiary generally to pay
its debts as they become due, or the admission in writing of its inability to
pay its debts generally, or the making of a general assignment for the benefit
of its creditors, or the institution of any proceeding by or against the
Company or a Significant Subsidiary (other than any such proceeding brought
against the Company or a Significant Subsidiary that is dismissed within 180
days from the commencement thereof) seeking to adjudicate it bankrupt or
insolvent, or seeking liquidation (other than a solvent liquidation), winding
up, reorganization, arrangement, adjustment, protection, relief or composition
of it or its debts under any law relating to bankruptcy, insolvency,
reorganization, moratorium or relief of debtors, or seeking the entry of an
order for relief or appointment of an administrator, receiver, trustee,
intervenor or other similar official for it or for any substantial part of its
property, or the taking of any action by the Company or a Significant
Subsidiary to authorize any of the actions set forth in this subparagraph (e).
If an Event of Default with respect to the Senior Notes shall occur and be
continuing, either the Trustee or the Holders of at least 25% in aggregate
principal amount of the Senior Notes may declare the principal amount of the
Senior Notes, and any interest accrued thereon, to be due and payable
immediately. At any time after such declaration of acceleration has been made,
but before a judgment or decree for payment of money has been obtained, if all
Events of Default have been cured (other than the non-payment of principal of
the Senior Notes
63
<PAGE>
which has become due solely by reason of such declaration of acceleration)
then such declaration of acceleration shall be automatically annulled and
rescinded.
No Holder of the Senior Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to the Indenture, or for the
appointment of a receiver or trustee, or for any other remedy thereunder,
unless (a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Senior Notes; (b) the Holders
of not less than 25% in principal amount of the Senior Notes shall have made
written request to the Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee; (c) such Holder or Holders have
offered the Trustee indemnity satisfactory to the Trustee against the costs,
expenses and liabilities to be incurred in compliance with such request; (d)
the Trustee, for 60 days after its receipt of such notice, request and offer
of indemnity, has failed to institute any such proceeding; and (e) no
direction inconsistent with such written request has been given to the Trustee
during such 60 day period by the Holders of a majority in principal amount of
the outstanding Senior Notes.
ADDITIONAL AMOUNTS
All payments of principal and interest in respect of the Global Note and the
Definitive Registered Notes shall be made free and clear of, and without
withholding or deduction for or on account of, any present or future taxes,
duties, assessments or governmental charges of whatever nature imposed,
levied, collected, withheld or assessed by or within the UK or by or within
any political subdivision thereof or any authority therein or thereof having
power to tax ("UK Taxes"), unless such withholding or deduction is required by
law. In the event of any such withholding or deduction the Company shall pay
to the relevant Holder of the Global Note or to the relevant Holders of the
Definitive Registered Notes, as the case may be, such additional amounts
("Additional Amounts") as will result in the payment to each such Holder of
the amount that would otherwise have been receivable by such Holder in the
absence of such withholding or deduction, except that no such Additional
Amounts shall be payable:
(a) to, or to a Person on behalf of, a Holder who is liable for such UK
Taxes in respect of the Senior Notes by reason of such Holder having some
connection with the UK (including being a citizen or resident or national
of, or carrying on a business or maintaining a permanent establishment in,
or being physically present in, the UK) other than the mere holding of a
Senior Note or the receipt of principal and interest in respect thereof;
(b) to, or to a Person on behalf of, a Holder who presents a Senior Note
(where presentation is required) for payment more than 30 days after the
Relevant Date (as defined below) except to the extent that such Holder
would have been entitled to such Additional Amounts on presenting such
Senior Note for payment on the last day of such period of 30 days;
(c) to, or to a Person on behalf of, a Holder who presents a Senior Note
(where presentation is required) in the United Kingdom;
(d) to, or to a Person on behalf of, a Holder who would not be liable or
subject to the withholding or deduction by making a declaration of non-
residence or similar claim for exemption to the relevant tax authority; or
(e) to, or to a Person on behalf of, a Holder of a Definitive Registered
Note issued pursuant to the request of owners of interests representing a
majority in outstanding principal amount in the Book-Entry Interest
following and during the continuance of an Event of Default if such Holder
(or any predecessor Holder) was one of such owners requesting that
Definitive Registered Notes be so issued.
Such Additional Amounts will also not be payable where, had the beneficial
owner of the Senior Notes (or any interest therein) been the Holder of the
Senior Notes, he would not have been entitled to payment of Additional Amounts
by reason of any one or more of clauses (a) through (e) above. If the Company
shall determine that Additional Amounts will not be payable because of the
immediately preceding sentence, the Company will inform such Holder promptly
after making such determination setting forth the reason(s) therefor.
64
<PAGE>
"Relevant Date" means whichever is the later of (i) the date on which such
payment first becomes due and (ii) if the full amount payable has not been
received in The City of New York by the Book-Entry Depositary or the Trustee
on or prior to such due date, the date on which, the full amount having been
so received, notice to that effect shall have been given to the Holders in
accordance with the Indenture.
OPTIONAL REDEMPTION
The Senior Notes will be redeemable in whole or in part, at the option of
the Company at any time, at a redemption price equal to the greater of (i)
100% of the principal amount of the Senior Notes being redeemed or (ii) the
sum of the present values of the remaining scheduled payments of principal of
and interest on the Senior Notes being redeemed discounted to the date of
redemption on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at a discount rate equal to the Treasury Yield plus
basis points, plus, for (i) or (ii) above, whichever is applicable,
accrued interest on the Senior Notes to the date of redemption.
"Treasury Yield" means, with respect to any Redemption Date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury
Price for such Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable
to the remaining term of such Senior Notes to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the Senior Notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for US
Government Securities" or (ii) if such release (or any successor release) is
not published or does not contain such prices on such business day, the
Reference Treasury Dealer Quotation for such redemption date.
"Independent Investment Banker" means an independent investment banking
institution of national standing appointed by the Company and reasonably
acceptable to the Trustee.
"Reference Treasury Dealer Quotation" means, with respect to the Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount and quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date).
"Reference Treasury Dealer" means a primary US Government securities dealer
in New York City appointed by the Company and reasonably acceptable to the
Trustee.
Notice of redemption shall be given in accordance with "Reports and Notices"
above not less than 15 days nor more than 30 days prior to the date fixed for
redemption.
If fewer than all the Senior Notes are to be redeemed, selection of Senior
Notes for redemption will be made by the Trustee in any manner the Trustee
deems fair and appropriate and that complies with applicable legal and
securities exchange requirements.
Unless the Company defaults in payment of the redemption price, from and
after the Redemption Date, the Senior Notes or portions thereof called for
redemption will cease to bear interest, and the holders thereof will have no
right in respect to such Senior Notes except the right to receive the
redemption price thereof.
65
<PAGE>
Under the procedures set forth above, the price (the "Redemption Price")
payable upon the optional redemption at any time of a Senior Note is
determined by calculating the present value (the "Present Value") at such time
of each remaining payment of principal of or interest on such Senior Note and
then totaling such Present Values. If the sum of such Present Values is equal
to or less than 100% of the principal amount of such Senior Note, the
Redemption Price of such Senior Note will be 100% of its principal amount
(redemption at par). If the sum of such Present Values is greater than 100% of
the principal amount of such Senior Note, the Redemption Price of such Senior
Note will be such greater amount (redemption at a premium). In no event may a
Senior Note be redeemed optionally at less than 100% of its principal amount.
The Present Value at any time of a payment of principal of or interest on a
Senior Note is calculated by applying to such payment the discount rate (the
"Discount Rate") applicable to such payment. The Discount Rate applicable at
any time to a payment of principal of or interest on a Senior Note equals the
equivalent yield to maturity at such time of a fixed rate United States
treasury security having a maturity comparable to the maturity of such payment
plus basis points, such yield being calculated on the basis of the interest
rate borne by such United States treasury security and the price at such time
of such security. The United States treasury security employed in the
calculation of a Discount Rate (a "Relevant Security") as well as the price
and equivalent yield to maturity of such Relevant Security will be selected or
determined by an investment banker of national standing selected by the
Company which is reasonably acceptable to the Trustee.
Whether the sum of the Present Values of the remaining payments of principal
of and interest on a Senior Note to be redeemed optionally will or will not
exceed 100% of its principal amount and, accordingly, whether such Senior Note
will be redeemed at par or at a premium will depend on the Discount Rate used
to calculate such Present Values. Such Discount Rate, in turn, will depend
upon the equivalent yield to maturity of a Relevant Security which yield will
itself depend on the interest rate borne by, and the price of, the Relevant
Security. While the interest rate borne by the Relevant Security is fixed, the
price of the Relevant Security tends to vary with interest rate levels
prevailing from time to time. In general, if at a particular time the
prevailing level of interest rates for a newly issued United States treasury
security having a maturity comparable to that of a Relevant Security is higher
than the level of interest rates for newly issued United States treasury
securities having a maturity comparable to such Relevant Security prevailing
at the time the Relevant Security was issued, the price of the Relevant
Security will be lower than its issue price. Conversely, if at a particular
time the prevailing level of interest rates for a newly issued United States
treasury security having a maturity comparable to that of a Relevant Security
is lower than the level of interest rates prevailing for newly issued United
States treasury securities having a maturity comparable to the Relevant
Security at the time the Relevant Security was issued, the price of the
Relevant Security will be higher than its issue price.
Because the equivalent yield to maturity on a Relevant Security depends on
the interest rate it bears and its price, an increase or a decrease in the
level of interest rates for newly issued United States treasury securities
with a maturity comparable to that of a Relevant Security above or below the
levels of interest rates for newly issued United States treasury securities
having a maturity comparable to the Relevant Security prevailing at the time
of issue of the Relevant Security will generally result in an increase or a
decrease, respectively, in the Discount Rate used to determine the Present
Value of a payment of principal of or interest on a Senior Note. As noted
above, if the sum of the Present Values of the remaining payments of principal
of and interest on a Senior Note proposed to be redeemed is less than its
principal amount, such Senior Note may only be redeemed at par.
OPTIONAL TAX REDEMPTION
If (a) the Company satisfies the Trustee prior to the giving of a notice as
provided below that it has or will become obliged to pay Additional Amounts as
a result of either (x) any change in, or amendment to, the laws or regulations
of the UK or any political subdivision or any authority or agency thereof or
therein having power to tax or levy duties, or any change in the application
or interpretation of such laws or regulations, which change or amendment
becomes effective on or after the date of this Prospectus or (y) the issuance
of Definitive Registered Notes pursuant to the first sentence or clause (a) or
(b) of the third sentence of "--Definitive Senior Notes" above, and (b) such
obligation cannot be avoided by the Company taking reasonable measures
available to it, the Company may, at its option, on giving not more than 30
nor less than 15 days' notice to the Holders, redeem all, but not some only,
of the Senior Notes, in each case at their principal amount, together with
accrued and
66
<PAGE>
unpaid interest, provided that no such notice of redemption shall be given
earlier than 90 days prior to the earliest date on which the Company would be
obliged to pay such Additional Amounts were a payment in respect of the Senior
Notes then due. Prior to the publication of any notice of redemption pursuant
to this paragraph, the Company shall deliver to the Trustee a certificate
signed by a director of the Company stating that the obligation referred to in
(a) above cannot be avoided by the Company taking reasonable measures
available to it, and the Trustee shall accept such certificate as sufficient
evidence of the satisfaction of the condition precedent set out in (b) above,
in which event it shall be conclusive and binding on the Holders.
In the event the Global Note is redeemed in whole or in part pursuant to
this provision or "Optional Redemption" above, the Book-Entry Depositary will
redeem, from the amount received by it in respect of the redemption of the
Global Note, an equal amount of the Book-Entry Interest issued to DTC. The
redemption price payable in connection with the redemption of Book-Entry
Interest will be equal to the amount received by the Book-Entry Depositary in
connection with the redemption of the Global Note.
DEFEASANCE
The Company, at its option, (a) will be discharged from any and all
obligations in respect of the Senior Notes (except in each case for the
obligations to register the transfer or exchange of Senior Notes, replace
stolen, lost or mutilated Senior Notes, maintain paying agencies and hold
moneys for payment in trust) or (b) need not comply with certain covenants of
the Indenture described under "Limitation on Consolidation, Merger,
Conveyance, Sale or Lease", "Limitation on Liens" and "Limitation on Sale and
Lease-Back Transactions" in each case, if the Company irrevocably deposits
with the Trustee, in trust, (i) money or (ii) in certain cases, (A) U.S.
Government Obligations which through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an
amount, or (B) a combination thereof, in each case sufficient to pay and
discharge the principal and interest on the outstanding Senior Notes on the
dates such payments are due in accordance with the terms of the Senior Notes
(or if the Company has designated a redemption date pursuant to the final
sentence of this paragraph, to and including the redemption date so designated
by the Company), and no Event of Default or event which with notice or lapse
of time would become an Event of Default (including by reason of such deposit)
with respect to the Senior Notes shall have occurred and be continuing on the
date of such deposit. To exercise any such option, the Company is required to
deliver to the Trustee (x) an opinion of counsel (who may be counsel to the
Company) to the effect that the Holders will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit, defeasance
and discharge, which in the case of (a) must be based on a change in law or a
ruling by the U.S. Internal Revenue Service, and (y) an Officers' Certificate
as to compliance with all conditions precedent provided for in the Indenture
relating to the satisfaction and discharge of the Senior Notes. If the Company
shall wish to deposit or cause to be deposited money or U.S. Government
Obligations to pay or discharge the principal of and interest, if any, on the
outstanding Senior Notes to and including the Redemption Date on which all of
the outstanding Senior Notes are to be redeemed, such Redemption Date shall be
irrevocably designated by a Board Resolution delivered to the Trustee on or
prior to the date of deposit of such money or U.S. Government Obligations, and
such Board Resolution shall be accompanied by an irrevocable Company Request
that the Trustee give notice of such redemption in the name and at the expense
of the Company not less than 15 nor more than 30 days prior to such Redemption
Date in accordance with the Indenture.
MODIFICATION OR WAIVER OF CERTAIN COVENANTS
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in the Indenture with respect to the Senior
Notes if before the time for such compliance the Holders of at least a
majority in aggregate principal amount of the outstanding Senior Notes shall,
by Act of such Holders, either modify the covenant or waive such compliance in
such instance or generally waive compliance with such term, provision or
condition, provided that no such modification shall without the consent of
each Holder (a) change the stated maturity upon which the principal of or the
interest on the Senior Notes is due and payable, (b) reduce the principal
amount thereof or the rate of interest thereon, (c) change any obligation of
the Company to pay Additional Amounts, (d) change any place of payment or the
currency in which the Senior Notes or any premium or the interest thereon is
payable, (e) impair the right to institute suit for the enforcement of any
such payment on or after the stated maturity thereof (or, in the case of
redemption, on or after redemption date) or
67
<PAGE>
(f) reduce the percentage in principal amount of the outstanding Senior Notes,
the consent of whose Holders is required for any waiver of compliance with
certain provisions of the Indenture or certain defaults thereunder and their
consequences provided for in the Indenture. The Senior Notes owned by the
Company or any of its Affiliates shall be deemed not to be outstanding for,
among other purposes, consenting to any such modification.
GOVERNING LAW; SUBMISSION TO JURISDICTION
The Indenture and the Senior Notes will be governed by, and construed in
accordance with, the laws of the State of New York.
Any suit, legal action or proceeding against the Company or its properties,
assets or revenues with respect to its obligations, liabililites or any other
matter arising out of or in connection with the Indenture or a Senior Note may
be brought in the Supreme Court of New York, New York County or in the United
States District Court for the Southern District of New York and any appellate
court from either thereof. The Company has submitted to the non-exclusive
jurisdiction of such courts for the purposes of any such proceeding and has
irrevocably waived, to the fullest extent it may effectively do so, any
objection to the laying of venue of any such proceeding in any such court and
the defense of an inconvenient forum.
68
<PAGE>
CERTAIN INCOME TAX CONSIDERATIONS
THIS SUMMARY IS OF A GENERAL NATURE AND IS INCLUDED HEREIN SOLELY FOR
INFORMATIONAL PURPOSES. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED
TO BE, LEGAL OR TAX ADVICE. NO REPRESENTATION WITH RESPECT TO THE CONSEQUENCES
TO ANY PARTICULAR PURCHASER OF THE BOOK-ENTRY INTEREST IS MADE. PROSPECTIVE
PURCHASERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR
PARTICULAR CIRCUMSTANCES AND THE EFFECTS OF STATE, LOCAL OR FOREIGN LAWS,
INCLUDING UK TAX LAWS TO WHICH THEY MAY BE SUBJECT.
UK INCOME TAX CONSIDERATIONS
The comments below are of a general nature based on current UK law and
Inland Revenue practice and represent the opinion of Allen & Overy, special UK
counsel to the Company, so far as such comments relate to matters of law or
legal conclusions. They relate only to the position of persons who are the
absolute beneficial owners of their Senior Notes and related interest and may
not apply to certain classes of persons such as dealers. Any holders of Senior
Notes who are in doubt as to their tax position should consult their
professional advisers.
PAYMENTS ON THE SENIOR NOTES
For UK tax purposes, while the Senior Notes remain represented by the Global
Note in bearer form and continue to be listed on the Luxembourg Stock Exchange
or some other stock exchange recognized by the UK Inland Revenue, payments of
interest (whether on the Global Note to the Book-Entry Depositary or on the
Book-Entry Interest to DTC) may be made without withholding or deduction for
or on account of UK income tax for so long as the Company's paying agent and
the Book-Entry Depositary, if different, are outside the UK.
In other cases, and in particular if Definitive Registered Notes are issued,
interest will be paid after deduction of UK income tax (currently at the lower
rate of 20%). A US holder will normally be eligible to recover in full any UK
tax withheld from payments of interest to which such holder is beneficially
entitled by making a claim under the US/UK Double Tax Treaty on the
appropriate form. Alternatively, a claim may be made by a US holder in advance
of a payment of interest. If the claim is accepted by the Inland Revenue, they
will authorize subsequent payments to that US holder to be made without
withholding of UK income tax. Claims for repayment must be made within six
years of the end of the UK year of assessment (generally April 5 in each year)
to which the interest relates and must be accompanied by the original
statement provided by the Company when the interest payment was made showing
the amount of UK income tax deducted. Because a claim is not considered until
the UK tax authorities receive the appropriate form from the Internal Revenue
Service, forms should be sent to the Internal Revenue Service, in the case of
an advance claim, well before the relevant interest payment date or, in the
case of a claim for the repayment of the tax, well before the end of the
appropriate limitation period.
Holders in other jurisdictions may be entitled to a refund of any UK income
tax deducted or withheld or to make a claim for interest on the Senior Notes
to be paid without, or subject to a reduced rate of, deduction or withholding
under the provisions of an applicable double tax treaty.
Refund of all or part of any UK income tax deducted or withheld may,
depending on individual circumstances, be available to a holder of Senior
Notes who is resident in the UK or who carries on a trade, profession or
vocation in the UK through a branch or agency to which the Senior Notes are
attributable, or who is a Commonwealth citizen or otherwise entitled to a UK
personal allowance.
Holders should be aware that under current UK tax law upon the issuance of
Definitive Registered Notes such holders may become subject to UK withholding
tax on any payments of interest with respect to such Senior Notes. However,
such holders will be entitled to the payment of Additional Amounts in respect
of the tax withheld, except as set forth under "Description of the Senior
Notes--Additional Amounts," and subject to the
right of the Company in certain circumstances to redeem the Senior Notes
early. See "Description of the Senior Notes--Optional Tax Redemption."
69
<PAGE>
Interest on the Senior Notes constitutes UK source income for tax purposes
and, as such, may be subject to UK income tax by direct assessment even where
paid without deduction or withholding.
However, UK tax chargeable on interest from a UK source received by persons
not regarded as resident in the UK for tax purposes will normally be limited
to the tax, if any, deducted at source on payment of such interest. This will
not apply if interest is received by a Holder who is not resident for tax
purposes in the UK if that Holder carries on a trade, profession or vocation
in the UK through a UK branch or agency in connection with which the interest
is received or to which the Senior Notes are attributable. There are
exemptions for interest received by certain categories of agent (such as some
brokers and investment managers).
UK CORPORATION TAXPAYERS
In general Holders which are within the charge to UK corporation tax will be
charged to tax on all returns on and fluctuations in value of the Senior Notes
broadly in accordance with their statutory accounting treatment. Such Holders
will generally be charged to tax in each accounting period by reference to
interest and discount accrued in that period.
Any gains or losses on Senior Notes held by UK resident corporate Holders or
certain other Holders who are within the charge to UK corporation tax, which
are attributable to fluctuations in the value of US dollars relative to, in
most cases sterling, will, subject to reliefs and exclusions contained in the
relevant legislation, be included in the calculation of such Holders' taxable
income on an accruals basis for each accounting period during which the Senior
Notes are held. Any gain or loss arising on a disposal (including redemption)
of such Senior Notes would be outside the scope of UK taxation of chargeable
gains.
OTHER UK TAX PAYERS
Taxation of Chargeable Gains
A disposal of Senior Notes by a Holder who is not within the charge to
corporation tax but who is resident or ordinarily resident in the UK, or
carries on a trade, profession or vocation in the UK through a branch or
agency to which the Senior Notes are attributable, may give rise to a
chargeable gain or allowable loss for the purposes of the UK taxation of
chargeable gains.
Accrued Income Scheme
On a disposal of Senior Notes by a Holder who is not within the charge to
corporation tax, any interest which has accrued since the last interest
payment date may be chargeable to tax as income if that Holder is resident or
ordinarily resident in the UK or carries on a trade in the UK through a branch
or agency to which the Senior Notes are attributable.
Taxation of discount
Based on the Company's understanding of the Inland Revenue's practice in
this area, it is considered that the Senior Notes will not be treated as
constituting "relevant discounted securities" for the purposes of Schedule 13
of the Finance Act 1996. Therefore, individual Holders who are within the
scope of UK income tax as described above should not be liable to UK income
tax on gains made on sales or other disposals (including redemption) of the
Senior Notes.
UK STAMP DUTY AND STAMP DUTY RESERVE TAX
No UK Stamp Duty or Stamp Duty Reserve Tax is payable on the issue or
transfer by delivery of a Senior Note or on its redemption.
US FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material US federal income tax
consequences of the acquisition, ownership and disposition of Senior Notes to
initial purchasers who are US citizens or residents, corporations,
70
<PAGE>
partnerships or other entities created or organized in or under the laws of
the US or any state thereof, or an estate or trust, the income of which is
subject to US federal income taxation regardless of its source, and who are
residents in the US and not resident in the UK for purposes of the current
double taxation convention between the US and the UK ("US Holders") and who
hold their beneficial interests in the Senior Notes as capital assets. The
discussion represents the opinion of Troutman Sanders LLP, counsel to the
Company, so far as it relates to matters of law or legal conclusions and is
based upon the provisions of the US Internal Revenue Code of 1986, as amended
(the "Code"), regulations, rulings and judicial decisions now in effect, all
of which are subject to change, possibly with retroactive effect. The summary
does not discuss all aspects of US federal income taxation that may be
relevant to particular investors in light of their particular investment
circumstances, nor does it discuss any aspects of state, local or foreign tax
laws or any estate or gift tax considerations. The summary does not deal with
non-US persons or with certain classes of US persons subject to special
treatment under the US federal income tax laws (for example, dealers in
securities, banks, life insurance companies or tax-exempt organizations). In
addition, because the tax consequences may differ depending on individual
circumstances, each prospective purchaser of the Senior Notes is strongly
urged to consult his own tax advisor with respect to his particular tax
situation.
PAYMENTS OF INTEREST
Except as set forth below, interest on the Senior Notes generally will be
taxable to a US Holder as ordinary income from US sources at the time it is
received or accrued in accordance with the US Holder's method of accounting
for US federal income tax purposes. In addition, if any Additional Amounts are
paid, such payment will be taxable as ordinary income in accordance with such
US Holder's method of accounting. Thus, a US Holder will be required to report
income in an amount greater than the cash it receives in respect of payments
on its Senior Notes. However, a US Holder, subject to certain limitations, may
be eligible to claim as a credit or deduction for purposes of computing its US
federal income tax liability UK Taxes withheld (if any). For that purpose,
interest income and the Additional Amounts will generally be treated as
foreign source passive income (or, in the case of certain US Holders,
financial services income). The rules relating to foreign tax credits are
extremely complex, and US Holders should consult with their own tax advisors
with regard to the availability of a foreign tax credit and the application of
the foreign tax credit to their particular situation.
SALE OR OTHER TAXABLE DISPOSITION OF THE SENIOR NOTES
A US Holder's tax basis in the Senior Notes will, in general, be the US
Holder's cost therefor. A US Holder will recognize gain or loss on the sale,
exchange, redemption or other taxable disposition of the Senior Notes, equal
to the difference (if any) between the amount realized upon the sale, exchange
or retirement (converted into US dollars if any foreign currency is received)
and the adjusted tax basis of the Senior Notes. Such gain or loss will be
capital gain or loss and will be long-term capital gain or loss if, at the
time of sale, exchange or retirement, the Senior Notes have been held for more
than one year. Under current law, net capital gains are, in certain
circumstances, taxed at lower rates than ordinary income. The deductibility of
capital losses is subject to limitations. If the US dollar is not the
functional currency of the US Holder, such Holder may recognize ordinary gain
or loss due to the currency exchange fluctuation.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under the Code, a US Holder may be subject, under certain circumstances, to
US backup withholding at a 31% rate with respect to payments by the Company or
any of its paying agents of interest or the gross proceeds of dispositions
thereof. This withholding only applies if the US Holder fails to furnish a
correct social security or other taxpayer identification number to the
Company, fails to report interest income in full or fails to certify to the
Company that such US Holder has provided a correct taxpayer identification
number and that such US Holder is not subject to withholding, the Company is
required to withhold a 31% federal backup withholding tax on certain amounts
paid to the US Holder. Special rules may apply with respect to the payment of
the proceeds from the sale of the Senior Notes to or through foreign offices
of certain brokers.
The backup withholding tax is not an additional tax and may be credited
against a US Holder's regular US federal income tax liability or refunded by
the IRS where applicable.
71
<PAGE>
UNDERWRITING
Upon the terms and conditions set forth in the Underwriting Agreement, dated
the date hereof, each Underwriter named below has severally agreed to
purchase, and the Company has agreed to sell to such Underwriters, the
principal amount of the Senior Notes set forth opposite the name of such
Underwriter.
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF THE SENIOR NOTES
---- ------------------------------------
<S> <C>
Lehman Brothers Inc................... US$
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................
J.P. Morgan Securities Inc............
--------------
Total............................. US$235,000,000
==============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Senior Notes
being sold pursuant to the Underwriting Agreement if any of the Senior Notes
being sold pursuant to the Underwriting Agreement are purchased.
The Underwriters have advised the Company that the Underwriters propose to
offer the Senior Notes to the public initially at the public offering price
set forth on the cover page of this Prospectus and to selected dealers at such
price less a concession of not more than % of the principal amount of the
Senior Notes. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of % of the principal amount of the Senior Notes
to certain other dealers. After the initial offering, the offering price and
other selling terms may be changed by the Underwriters.
The Senior Notes represent a new issue of securities. If the Senior Notes
are traded after their initial issuance, they may trade at a discount from
their initial public offering price depending upon prevailing interest rates,
the market for similar securities and other factors. In addition, no assurance
can be given that a holder of Senior Notes will be able to sell such Senior
Notes in the future or that such sale will be at a price equal to or higher
than the initial public offering price of such Senior Notes.
Although the Underwriters have informed the Company that they currently
intend to make a market in the Senior Notes and interests in the Book-Entry
Interest, they are not obligated to do so, and any such market-making may be
discontinued at any time without notice. There can be no assurance as to the
development or liquidity of any market for the Senior Notes or interests in
the Book-Entry Interest. If an active public market does not develop, the
market price and liquidity of the Senior Notes or interests in the Book-Entry
Interest may be adversely affected.
The Company has agreed to indemnify the Underwriters and its controlling
persons against certain liabilities, including liabilities under the
Securities Act.
Under Rule 2710(c)(8) of the Corporate Financing Rules of the National
Association of Securities Dealers, Inc. (the "NASD"), no NASD members can
participate in a public offering of an issuer's securities where more than 10%
of the net offering proceeds, not including underwriting compensation, are
intended to be paid to NASD members participating in the distribution of the
offering or associated or affiliated persons of such members unless the yield
at which a debt issue is to be distributed to the public is established
pursuant to Rule 2720(c)(3) by a qualified independent underwriter ("QIU"). As
disclosed under the caption "Use of Proceeds," Morgan Guaranty, an affiliate
of JP Morgan, is a lender under the Company's term loan and will receive 10%
or more of the net proceeds of this Offering in repayment of a portion of such
term loan. Since JP Morgan is one of the underwriters in this Offering, this
Offering is being conducted pursuant to Rule 2710(c)(8).
72
<PAGE>
Rule 2720(c)(3)(C), however, allows an NASD member to participate in the
distribution of securities of a company where it or its affiliates will
receive more than 10% of the net proceeds without a QIU establishing the yield
of the securities being offered if the offering is of a class of securities
rated Baa or better by Moody's or BBB or better by S&P. The debt securities
being offered hereby are expected to receive at least the ratings mentioned
above and, therefore, there will be no QIU recommending the minimum yield of
the debt securities being offered. See "Summary--The Offering--Ratings."
Each of the Underwriters has severally represented and agreed in the
Underwriting Agreement that (i) it has not offered or sold, and prior to the
date six months after the date of issue of the Senior Notes will not offer or
sell, any Senior Notes to persons in the UK except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted in and will not result in
an offer to the public in the UK within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 (the "FSA") with
respect to anything done by it in relation to the Senior Notes in, from or
otherwise involving the UK; (iii) it has only issued or passed on and will
only issue or pass on in the UK any document received by it in connection with
the issue of the Senior Notes to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on; and (iv) it has not issued or caused to be
issued and will not issue or cause to be issued in the UK any advertisement
inviting persons to subscribe or purchase the Senior Notes or containing
information calculated to lead directly or indirectly to persons subscribing
or purchasing the Senior Notes except to persons (a) who are authorized under
the FSA or (b) whose ordinary business involves the acquisition and disposal
of property of the same kind as the Senior Notes, and has not advised or
procured and will not advise or procure any person (except as aforesaid) in
the UK to subscribe or purchase the Senior Notes.
LEGAL MATTERS
Certain legal matters relating to the Senior Notes will be passed upon for
the Company by Troutman Sanders LLP, Atlanta, Georgia and for the Underwriters
by Shearman & Sterling, New York, New York. Certain legal matters relating to
English law, including taxation, corporate matters and the enforceability of
the Senior Notes and agreements related thereto, will be passed upon for the
Company by Allen & Overy, London, England.
Troutman Sanders, LLP and Shearman & Sterling will rely, without independent
investigation, upon Allen & Overy with respect to matters relating to English
law.
EXPERTS
The consolidated financial statements of Southern Investments UK plc
(Successor Company) as of March 31, 1996 and for the period from inception
(June 23, 1995) to March 31, 1996, and the consolidated financial statements
of South Western Electricity plc (Predecessor Company) for the period from
April 1, 1995 to September 17, 1995, included in this Registration Statement
have been audited by Arthur Andersen, Independent Public Accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The consolidated financial statements of South Western Electricity plc
(Predecessor Company) at March 31, 1995 and for the years ended March 31, 1995
and 1994, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young, Chartered Accountants, independent auditors, as set
forth in their reports
73
<PAGE>
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
At the request of the board of directors of SWEB, Ernst & Young, Chartered
Accountants, tendered their resignation, which was accepted effective
September 18, 1995, as independent auditors of SWEB, the reports of which did
not contain an adverse opinion or a disclaimer of opinion for fiscal years
1995 or 1994. Nor were such reports modified as to uncertainty, audit scope,
or accounting principles. During fiscal years 1995 and 1994, and during the
interim periods of fiscal year 1996 preceding September 18, 1995, there were
no unresolved disagreements with Ernst & Young on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which would have warranted reference to the subject matter of such
disagreement(s) in connection with its reports.
On September 18, 1995, the board of directors of the Company approved the
engagement of Arthur Andersen, Independent Public Accountants, as independent
auditors of SWEB. Arthur Andersen has been the independent auditor of the
Company since its inception (June 23, 1995), and is the independent auditor of
Southern, the ultimate parent of SWEB.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the Senior Notes offered hereby.
This Prospectus omits certain information contained in the Registration
Statement, and reference is made to the Registration Statement and the
exhibits and schedules thereto for further information with respect to the
Company and the Senior Notes offered hereby. Statements contained herein
concerning the provisions of any documents are not necessarily complete, and
in each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement, including exhibits and
schedules filed therewith, may be inspected without charge at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at Room 1228, 75 Park Place, New York, New
York 10007 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials may be obtained from
the Public Reference Section of the Commission, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York and Chicago, Illinois, at prescribed rates.
In addition, the Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission at http://www.sec.gov.
Upon completion of the Offering, the Company will be subject to the
informational reporting requirements of the Exchange Act and, in accordance
therewith, will file reports and other information with the Commission. In
accordance with the Indenture, the Company will also provide such information
to the Trustee and the registered holders of the Senior Notes.
LUXEMBOURG STOCK EXCHANGE AND OTHER INFORMATION
The issue of the Senior Notes was authorized pursuant to a resolution of the
Board of Directors of the Company dated July 26, 1996.
The legal notice relating to the issue of the Senior Notes and the
Memorandum and Articles of Association of the Company will be registered prior
to the listing with the Chief Registrar of the District Court in Luxembourg
(Greffier en Chef du Tribunal d'Arrondissement de et a Luxembourg), where such
documents are available for inspection and where copies thereof can be
obtained upon request.
74
<PAGE>
The financial information in respect of the Company and the Predecessor
Company set forth in "Summary Financial Information," "Selected Financial
Data," "Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" herein does not constitute statutory
accounts under Section 240 of the Companies Act 1985. Statutory accounts for
the fiscal year to which such financial information relates have been, and for
fiscal year 1996 will be, delivered to the Registrar of Companies in England
and Wales. The auditors of the Company and the Predecessor Company have made a
report under Section 235 of the Companies Act 1985 on the statutory accounts
for each such fiscal year which was not qualified within the meaning of
Section 262 of the Companies Act 1985 and did not contain a statement made
under Section 237(2) or 237(5) of that Act.
The Company produces unconsolidated accounts to its accounting reference
date of March 31 of each year. The accounts for its first accounting period to
March 31, 1996 are being prepared in accordance with UK GAAP and in accordance
with the Companies Act 1985, and are expected to be filed at Companies House
in the UK in late October 1996.
Copies of the Indenture, the Deposit Agreement, the DTC Agreement, the
Memorandum and Articles of Association of the Company and the most recent
publicly available annual report of the Company will be available for
inspection, for so long as the Senior Notes are outstanding and are listed on
the Luxembourg Stock Exchange, during usual business hours on any weekday
(except Saturdays and public holidays) at the specified offices of the Paying
Agents and at the office of the listing agent, Banque Generale du Luxembourg
S.A., the address of which is 50, Avenue J.F. Kennedy, L-2951, Luxembourg.
Save as disclosed herein, there has been no significant change in the
financial or trading position of the Company since March 31, 1996, the end of
the last financial period of the Company.
There are no legal or arbitration proceedings (including any such
proceedings which are pending or, to the best of the Company's knowledge and
belief, threatened) involving the Company which may have, or have had during
the period since incorporation, a significant effect on the financial position
of the Company.
There are no convertible bonds, exchangeable bonds or bonds with warrants
outstanding in respect of the Company.
The objects of the Company are set out in clause 4 of its Memorandum of
Association.
The address of the Trustee and principal paying agent in respect of the
Senior Notes is 4 Albany Street, New York, New York 10006. The address of
Bankers Trust Luxembourg, S.A., the paying agent in Luxembourg in respect of
the Senior Notes, is P.O. Box 807, 14 Boulevard, F.D. Roosevelt, Luxembourg.
The address of Arthur Andersen, Independent Public Accountants, who have
audited the accounts of the Company for the period from the date of its
incorporation to March 31, 1996 is Broad Quay House, Broad Quay, Bristol BS1
4DJ, England.
75
<PAGE>
ANNEX
GLOSSARY
Accentacross: Accentacross Limited, a Director of the Company.
Additional Amounts: Amounts that the Company may be required to pay such
that the holder of the Global Note will receive such amounts as would have
been received without withholding or deduction for or on account of any
present or future taxes, duties, assessments of governmental charges of
whatever nature imposed, levied, collected, withheld or assessed by or within
the UK or by or within any political subdivision thereof or any authority
therein or thereof having power to tax, unless such withholding or deduction
is required by law.
Book-Entry Depositary: Bankers Trust Company.
Book-Entry Interest: Certificateless depositary interest to be issued by the
Book-Entry Depositary to DTC.
CAGR: Compound annual growth rate.
Calendar Year: A year ended December 31.
Cedel Bank: Cedel Bank, societe anonyme.
CFDs: Contracts for differences.
Code: The US Internal Revenue Code of 1986, as amended.
Commission: The Securities and Exchange Commission.
Company: Southern Investments UK plc.
Comparable Treasury Issue: In the case of the Senior Notes, the United
States Treasury security selected by an Independent Investment Banker as
having a maturity comparable to the remaining term of such Senior Notes to be
redeemed that would be utilized, at the time of selection and in accordance
with customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of the Senior Notes.
Comparable Treasury Price: With respect to any redemption date, (i) the
average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for US
Government Securities" or (ii) if such release (or any successor release) is
not published or does not contain such prices on such business day, the
Reference Treasury Dealer Quotation for such redemption date.
DCR: Duff & Phelps Credit Rating Company.
Debt: Money borrowed as evidenced by the issuance, assumption or guarantee
of any notes, bonds, debentures or other similar evidences of indebtedness.
Deposit Agreement: The deposit agreement among the Company, the Book-Entry
Depositary and the holders and beneficial owners from time to time of
interests in the Book-Entry Interest.
Definitive Registered Notes: Definitive Senior Notes in registered form.
Distribution Price Control Formula: A formula of P+RPI-Xd where P reflects
the previous maximum average price per unit of electricity distributed, RPI
reflects the percentage change in the Retail Price Index between the previous
year and the current year and the Xd factor is established by the Regulator
following review.
A-1
<PAGE>
DTC: The Depository Trust Company.
DTC Agreement: The agreement between DTC and the Book-Entry Depositary
pursuant to which the Book-Entry Depositary will issue one or more
certificateless depositary interests and pursuant to which the DTC will
operate a book-entry system for interests in the Book-Entry Interest.
Electricity Act: The Electricity Act 1989.
EMFs: Electromagnetic fields.
Euroclear: The Euroclear System.
Exchange Act: The US Securities Exchange Act of 1934, as amended.
Fiscal Year: A year ended March 31.
Fossil Fuel Levy: A levy system instituted to reimburse the generators and
the RECs for the extra costs involved in generating electricity from non-
fossil fuel plants as compared to generating electricity from fossil fuel
plants.
Franchise Area: SWEB's service area as determined by its PES license.
Franchise Supply Customers: Customers with demand of not more than 100kW.
FSA: The Financial Services Act 1986.
Georgia Power: Georgia Power Company, a subsidiary of Southern.
Global Note: The global Senior Note representing the Senior Notes.
Holdings: Southern Investments UK Holdings Limited, the direct parent
company of the Company.
Indenture: The Indenture between the Company and Bankers Trust Company.
Independent Investment Banker: An independent investment banking institution
of national standing appointed by the Company and reasonably acceptable to the
Trustee.
Indirect Participants: Persons that hold interests in the Book-Entry
Interest through persons that have accounts with DTC.
Lien: Debt secured by a mortgage, lien, pledge, security interest or other
encumbrance on any property or assets (other than cash).
Mighteager: Mighteager Limited, a Director of the Company.
Mission Energy: Mission Energy Company.
MMC: The UK Monopolies and Mergers Commission.
Moody's: Moody's Investors Service, Inc.
NFFOs: Obligations of RECs to obtain a specified amount of generating
capacity from non-fossil fuel sources.
NGC: The National Grid Company plc, which is wholly-owned by NGG.
A-2
<PAGE>
NGG: The National Grid Group plc.
Non-Franchise Supply Customers: Customers with demand greater than 100kW.
Own-generation limits: The limit imposed by the PES license on the extent of
generation capacity in which a REC may hold an interest.
Participants: Persons that have accounts with DTC.
PES license: A Public Electricity Supply license.
PESs: The public electricity (or first tier) suppliers.
PMDC: Power Markets Development Company, an indirect shareholder in Holdings
and a subsidiary of PP&L Resources.
PMDC Directors: Accentacross and Mighteager.
Pool: The wholesale trading market for electricity in England and Wales.
Pooling and Settlement Agreement: The agreement which governs the
constitution and operation of the Pool and the calculation of payments to and
from generators and suppliers.
PP&L Resources: PP&L Resources, Inc., the parent of PMDC.
Predecessor Company: South Western Electricity plc prior to its acquisition
by the Company.
Primary Treasury Dealer: A primary US Government securities dealer in New
York City.
Pro Forma Fiscal Year 1996: Unaudited pro forma information for the fiscal
year ended March 31, 1996.
PSB: NGG's pumped storage electricity generation business.
RECs: The 12 regional electricity companies in England and Wales licensed to
distribute, supply and, to a limited extent, generate electricity.
Reference Treasury Dealer: A primary US Government securities dealer in New
York City appointed by the Company and reasonably acceptable to the Trustee.
Reference Treasury Dealer Quotation: With respect to the Reference Treasury
Dealer and any redemption date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue expressed in each
case as a percentage of its principal amount and quoted in writing to the
Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business
day preceding such redemption date.
Regulator: The Director General of Electricity Supply in Great Britain.
Relevant Date: Whichever is the later of (i) the date on which a payment on
the Senior Notes first becomes due and (ii) if the full amount payable has not
been received in The City of New York by the Book-Entry Depositary or the
Trustee on or prior to such due date, the date on which, the full amount
having been so received, notice to that effect shall have been given to the
Holders in accordance with the Indenture.
Sale and Lease-Back: The leasing by the Company or a Significant Subsidiary
of any assets from a person which have been or are to be sold or transferred
by the Company to such person.
Securities Act: The US Securities Act of 1933, as amended.
Secretary of State: The UK Secretary of State for Trade and Industry.
A-3
<PAGE>
Senior Notes: Direct, unsecured and unsubordinated obligations of the
Company ranking pari passu with all other unsecured and unsubordinated
obligations of the Company in the aggregate principal amount of $235,000,000.
SFAS: US GAAP Statement of Financial Accounting Standards.
Significant Subsidiary: Any subsidiary of the Company whose gross assets or
gross revenues (having regard to the Company's direct and/or indirect
beneficial interest in the shares, or the like, of that subsidiary) represent
at least 25% of the consolidated gross assets or gross revenues of the Company
and all of its subsidiaries taken together.
Southern: The Southern Company, the ultimate parent company of the Company.
Southern Company system: Southern and its subsidiaries.
Southern Electric: Southern Electric International, Inc., an affiliate of
the Company and a wholly-owned subsidiary of Southern.
S&P: Standard & Poors.
Successor Company: Southern Investments UK plc and its subsidiaries.
Supply Price Control Formula: P+RPI-Xs+Y where P reflects the maximum
average price per unit of electricity supplied, RPI reflects the percentage
change in the Retail Price Index between the previous year and the current
year, the Xs factor is established by the Regulator following review and the Y
term is a pass through of certain costs.
SWEB: South Western Electricity plc, a subsidiary of the Company.
Treasury Yield: With respect to any redemption date, the rate per annum
equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury
Price for such redemption date.
Trustee: Bankers Trust Company.
UK: The United Kingdom.
UK GAAP: Accounting principles generally accepted in the United Kingdom.
UK Taxes: Any taxes, duties, assessments or any present or future taxes,
duties, assessments or governmental charges of whatever nature imposed,
levied, collected, withheld or assessed by or within the UK or by or within
any political subdivision thereof or any authority therein or thereof having
power to tax.
US: The United States of America.
US GAAP: Accounting principles generally accepted in the United States of
America.
US Holders: US citizens or residents, corporations, partnerships or other
entities created or organized in or under the laws of the US or any state
thereof, or an estate or trust, the income of which is subject to US federal
income taxation regardless of its source, and who are residents in the US and
not resident in the UK for purposes of the current double taxation convention
between the US and the UK and who hold their beneficial interests in the
Senior Notes as capital assets.
A-4
<PAGE>
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES (SUCCESSOR COMPANY)
Report of Independent Public Accountants.................................. F-2
Financial Statements...................................................... F-3
Consolidated Balance Sheet as of March 31, 1996......................... F-3
Consolidated Statement of Income for the Period From Inception (June 23,
1995) to March 31, 1996................................................ F-4
Consolidated Statement of Changes in Stockholder's Equity for the Period
From Inception (June 23, 1995) to March 31, 1996....................... F-5
Consolidated Statement of Cash Flows for the Period From Inception (June
23, 1995) to March 31, 1996............................................ F-6
Notes to the Consolidated Financial Statements............................ F-7
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES (PREDECESSOR COMPANY)
Report of Independent Auditors............................................ F-18
Report of Independent Public Accountants.................................. F-19
Financial Statements
Consolidated Balance Sheet as of March 31, 1995......................... F-20
Consolidated Statements of Income for the Years Ended March 31, 1994 and
1995 and for the Period From April 1, 1995 to September 17, 1995....... F-21
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended March 31, 1994 and March 31, 1995 and for the Period From April
1, 1995 to September 17, 1995.......................................... F-22
Consolidated Statements of Cash Flows for the Years Ended March 31, 1994
and 1995 and the Period From April 1, 1995 to September 17, 1995....... F-23
Notes to the Consolidated Financial Statements............................ F-24
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES (SUCCESSOR COMPANY)
AND SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES (PREDECESSOR COMPANY)
Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of June 30, 1996...... F-34
Unaudited Condensed Consolidated Statements of Income for the Three
Months Ended June 30, 1995 and 1996.................................... F-35
Unaudited Condensed Consolidated Statements of Cash Flows for the Three
Months Ended
June 30, 1995 and 1996................................................. F-36
Notes to the Unaudited Condensed Consolidated Financial Statements........ F-37
Unaudited Pro Forma Consolidated Financial Information.................... F-39
Unaudited Pro Forma Consolidated Statement of Income for the Year Ended
March 31, 1996........................................................... F-40
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Southern Investments UK plc:
We have audited the accompanying consolidated balance sheet of SOUTHERN
INVESTMENTS UK plc AND SUBSIDIARIES (Successor Company) as of March 31, 1996
and the related consolidated statements of income, changes in stockholder's
equity, and cash flows for the period from inception (June 23, 1995) to March
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southern Investments UK
plc and subsidiaries as of March 31, 1996 and the results of their operations
and their cash flows for the period from inception (June 23, 1995) to March
31, 1996 in conformity with accounting principles generally accepted in the
United States.
ARTHUR ANDERSEN
Bristol, England July 25, 1996
F-2
<PAGE>
SOUTHERN INVESTMENTS UK PLC
AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
ASSETS 1996 1996
------ --------- ---------
(Pounds) U.S. $
<S> <C> <C>
PROPERTY, PLANT, AND EQUIPMENT (Note 9).................... 1,227 1,905
Less accumulated depreciation............................. 20 31
----- -----
Property, plant, and equipment, net..................... 1,207 1,874
----- -----
OTHER ASSETS:
Investments (Note 11)..................................... 22 34
Prepaid pension cost (Note 2)............................. 95 148
Goodwill, net of accumulated amortization of (Pounds)2
($3)..................................................... 173 269
----- -----
Total other assets...................................... 290 451
----- -----
CURRENT ASSETS:
Cash and cash equivalents................................. 20 31
Investments (Note 11)..................................... 26 40
Receivables:
Customer accounts, less provision for uncollectibles of
(Pounds)17 ($26)........................................ 95 148
Other.................................................... 20 31
----- -----
Receivables, net.......................................... 115 179
Materials and supplies.................................... 3 4
Prepaid expenses.......................................... 25 39
----- -----
Total current assets.................................... 189 293
----- -----
Total assets............................................ 1,686 2,618
===== =====
<CAPTION>
STOCKHOLDER'S EQUITY AND LIABILITIES
------------------------------------
(Pounds) U.S. $
<S> <C> <C>
STOCKHOLDER'S EQUITY (Note 12):
Share capital, (Pounds)1 par value; 500,400,587 shares
authorized, issued, and outstanding...................... 500 776
Retained earnings/(deficit)............................... (132) (205)
----- -----
Total stockholder's equity.............................. 368 571
----- -----
OTHER NON-CURRENT LIABILITIES
Deferred income taxes (Note 6)............................ 352 547
Provision for loss contracts (Note 4)..................... 62 96
Other..................................................... 66 103
----- -----
Total other non-current liabilities..................... 480 746
----- -----
CURRENT LIABILITIES:
Short-term debt (Note 10)................................. 650 1,009
Accounts payable.......................................... 45 70
Accrued income taxes...................................... 19 29
Unearned revenue.......................................... 10 16
Other..................................................... 114 177
----- -----
Total current liabilities............................... 838 1,301
----- -----
COMMITMENTS AND CONTINGENT MATTERS (Notes 2, 4 and 10)
Total stockholder's equity and liabilities.............. 1,686 2,618
===== =====
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE>
SOUTHERN INVESTMENTS UK PLC
AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION (JUNE 23, 1995) TO MARCH 31, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
(Pounds) U.S. $
-------- ------
<S> <C> <C>
OPERATING REVENUES............................................ 481 747
COST OF SALES................................................. 318 494
--- ---
GROSS MARGIN.................................................. 163 253
--- ---
OPERATING EXPENSES:
Maintenance.................................................. 21 33
Depreciation and amortization................................ 22 34
Selling, general, and administrative......................... 34 53
--- ---
Total operating expenses................................... 77 120
--- ---
Operating income........................................... 86 133
--- ---
OTHER INCOME (EXPENSE):
Interest income.............................................. 7 11
Interest expense............................................. (28) (43)
Gain on sale of investments (Note 11)........................ 14 22
Other, net................................................... 2 3
--- ---
Total other expense........................................ (5) (7)
--- ---
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES......... 81 126
PROVISION FOR INCOME TAXES.................................... 28 43
--- ---
INCOME FROM CONTINUING OPERATIONS............................. 53 83
EXTRAORDINARY GAIN ON EARLY EXTINGUISHMENT OF DEBT, net of in-
come tax effect of (Pounds)3 ($5) (Note 10).................. 6 9
--- ---
NET INCOME.................................................... 59 92
=== ===
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-4
<PAGE>
SOUTHERN INVESTMENTS UK PLC
AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM INCEPTION (JUNE 23, 1995) TO MARCH 31, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
RETAINED
SHARE EARNINGS/
CAPITAL (DEFICIT) TOTAL TOTAL
(Pounds) (Pounds) (Pounds) U.S. $
-------- --------- -------- ------
<S> <C> <C> <C> <C>
BALANCE, June 23, 1995...................... 0 0 0 0
Net income................................. 0 59 59 92
Proceeds from sale of National Grid Hold-
ings reflected as dividends
(Note 12)................................. 0 (191) (191) (297)
Conversion of advances to equity (Note
12)....................................... 315 0 315 489
Equity contribution (Note 12).............. 185 0 185 287
--- ---- ---- ----
BALANCE, March 31, 1996..................... 500 (132) 368 571
=== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-5
<PAGE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JUNE 23, 1995) TO MARCH 31, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
(Pounds) U.S.$
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. 59 92
------ -------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ............................................ 20 31
Amortization of goodwill................................. 2 3
Gain on sales of investments............................. (14) (22)
Gain on early extinguishment of debt..................... (9) (14)
Changes in assets and liabilities:
Receivables, net....................................... 6 9
Accounts payable....................................... (39) (60)
Accrued income taxes................................... 5 8
Other, net................................................. (5) (8)
------ -------
Total adjustments.................................... (34) (53)
------ -------
Net cash provided by operating activities............ 25 39
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Consideration for purchase of SWEB paid to former share-
holders................................................... (1,023) (1,589)
Capital expenditures....................................... (37) (57)
Proceeds received from the disposal of investments......... 270 419
------ -------
Net cash used in investing activities................ (790) (1,227)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from advances from Parent (Note 12)............... 315 489
Capital contribution received (Note 12).................... 185 287
Payments of dividends (Note 12)............................ (191) (297)
Payment of preacquisition dividends........................ (75) (116)
Proceeds from issuance of notes............................ 650 1,009
Proceeds from issuance of bonds............................ 597 927
Repayment of bonds......................................... (696) (1,080)
------ -------
Net cash provided by financing activities............ 785 1,219
------ -------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................... 20 31
CASH AND CASH EQUIVALENTS, beginning of period............... 0 0
------ -------
CASH AND CASH EQUIVALENTS, end of period..................... 20 31
====== =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest..................................... 21 33
====== =======
Cash paid for income taxes................................. 26 40
====== =======
Business acquisitions:
Fair value of assets acquired............................ 1,940 3,013
Less equity contribution to purchase common stock...... (500) (776)
Less bonds issued to purchase common stock............. (523) (813)
Less noncash consideration issued in exchange for com-
mon stock............................................. (40) (62)
------ -------
Liabilities assumed...................................... 877 1,362
====== =======
Non-cash conversion of advances from Parent to equity (Note
12)....................................................... 315 489
====== =======
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-6
<PAGE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The Company is a wholly-owned subsidiary of Southern Investments UK Holdings
Limited ("Holdings"), which is wholly-owned indirectly by The Southern Company
("Southern") (see Note 13). The Company was incorporated as a public limited
company under the laws of England and Wales on June 23, 1995 as a vehicle for
the acquisition of South Western Electricity plc ("SWEB"), one of the 12
regional electricity companies ("RECs") in England and Wales licensed to
distribute, supply, and, to a limited extent, generate electricity. On
September 18, 1995, the Company gained effective control of SWEB, having
acquired approximately 84% of its shares (the "Acquisition"). Accordingly, the
Company has designated September 18, 1995 as the effective date of the
Acquisition (the "Acquisition Date"). Given that SWEB represents substantially
all of the current operations of the Company, SWEB is considered the
Predecessor Company (the "Predecessor Company"). All references in the
financial statements to the Successor Company represent the Company and to the
Predecessor Company represent South Western Electricity plc and its
subsidiaries. See Note 7 for a further discussion of the Acquisition.
SWEB is one of the twelve RECs in England and Wales licensed to distribute,
supply, and, to a limited extent, generate electricity. The RECs were created
as a result of the privatization of the UK electricity industry in 1990 after
the state owned low voltage distribution networks were allocated to the then
existing twelve regional boards. SWEB's main business, the distribution and
supply of electricity to customers in the southwest of England, is regulated
under the terms of SWEB's Public Electricity Supply license by the Office of
Electricity Regulation ("OFFER").
SWEB's operates primarily in its franchise area in southwest England. SWEB's
franchise area covers approximately 5,560 square miles running from Bristol
and Bath in the northeast, 188 miles southwest along the peninsula to Land's
End and 28 miles beyond to the Isles of Scilly, and has a resident population
of approximately 2.8 million.
Basis of Presentation
The financial statements of the Company are presented in conformity with
accounting principles generally accepted in the United States. The
accompanying financial statements have not been prepared in accordance with
the policies of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" ("SFAS No. 71").
This pronouncement, under which most U.S. electric utilities report financial
statements, applies to entities which are subject to cost-based rate
regulation. By contrast, SWEB is not subject to rate regulation, but, rather,
is subject to price cap regulation (Note 3) and therefore the provisions of
SFAS No. 71 do not apply. Financial statements presented in accordance with
SFAS No. 71 contain deferred items which have not yet been included in rates
charged to customers in compliance with the respective regulatory authorities,
but which would have been included in the income statement of enterprises in
general under U.S. GAAP. The accompanying financial statements of the Company
do not contain such deferrals.
The consolidated financial statements include the accounts of the Company
and its wholly owned and majority-owned subsidiaries and have been prepared
from records maintained by SWEB in the United Kingdom. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Investments in companies in which the Company's ownership interests range from
20% to 50% and the Company exercises significant influence over operating and
financial policies are accounted for using the equity method. Other
investments are accounted for using the cost method (Note 11).
F-7
<PAGE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
These financial statements are presented in pounds sterling ((Pounds)) and
in U.S. dollars ($ or U.S. $), solely for the convenience of the reader, at
the exchange rate of (Pounds)1 = U.S. $1.5529, the noon buying rate in New
York City for cable transfers in pounds sterling as certified for customs
purposes by the Federal Reserve Bank of New York on June 28, 1996. No
representation is made that the pounds sterling amounts have been, could have
been, or could be converted into U.S. dollars at that or any other rate of
exchange.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
SWEB records revenue net of value added tax and accrues revenues for
services provided but unbilled at the end of each reporting period. SWEB
purchases power primarily from a market for the bulk trading of electricity
(the "Pool").
The Company has a diversified base of customers. No single customer or
industry comprises 10% or more of revenues.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at fair market value as adjusted
at the acquisition date (Note 7) in accordance with Accounting Principles
Board Opinion ("APB") No. 16, "Accounting for Business Combinations." Items
capitalized subsequent to the Acquisition are recorded at original cost, which
includes materials, labor, appropriate administrative and general costs, and
the estimated cost of funds used during construction. The cost of maintenance,
repairs, and replacement of minor items of property is charged to maintenance
expense.
Depreciation of the recorded cost of depreciable property, plant, and
equipment is provided by using primarily composite straight-line rates (Note
9), which approximate 3.1% per year (2.5% per year for depreciable utility
plant in service).
Information Technology Consultancy and Development Costs
Significant information technology ("IT") consultancy and development costs
are capitalized when they become technologically feasible and are amortized
over their estimated useful economic life from the date of first use. Other IT
consultancy and development costs are charged to income in the period in which
they are incurred. This policy has been adopted effective October 1, 1995 as
the Company has embarked on a significant program of investment and will be
incurring significant development costs which are fundamental to the future
performance of the business and which will benefit the business for a number
of years. The Directors are of the opinion that in relation to the planned
development costs to be incurred in the future, the policy followed by the
Predecessor Company of writing off such costs to the Statement of Income does
not give a fair reflection of the period over which the benefits will accrue.
Prior to this change in accounting policy the Company expensed all IT
consultancy and development costs as incurred. The effect of adopting this
policy has resulted in the capitalization of (Pounds)5.2m of costs in the year
ended March 31, 1996. If the policy had been adopted at September 30, 1995,
the amount that would have been capitalized would have been zero, as no
tangible benefits were believed to have accrued from current development work
at that date and any costs relating to earlier development work had been fully
amortized.
F-8
<PAGE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Goodwill
The Company amortizes costs in excess of fair value of net assets of the
business acquired using the straight-line method over a period of 40 years.
Recoverability (performed on the basis of undiscounted operating cash flow
analysis) is reviewed annually or sooner if events or changes in circumstances
indicate that the carrying amount may exceed fair value, in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Goodwill shown in the accompanying consolidated
financial statements relates to the acquisition of SWEB (Note 7).
Investments
The Company accounts for its current investments in accordance with SFAS No.
115, "Accounting for Investments for Certain Debt and Equity Securities."
These investments represent investments in debt securities, which management
classifies as available-for-sale securities in accordance with SFAS No. 115.
The Company's long-term investments consist of investments accounted for using
the cost method (See Note 11).
Income Taxes
SFAS No. 109, "Accounting for Income Taxes," requires the asset and
liability approach for financial accounting and reporting for deferred income
taxes. The Company uses the liability method of accounting for deferred income
taxes and provides deferred income taxes for all significant income tax
temporary differences.
Unearned Revenue
Unearned revenue primarily represents the liability for payments received
from customers in connection with the assessment of a value added tax ("VAT")
on electricity sales, which was imposed by the UK government effective April
1, 1994 to include electricity sales to residential customers. As part of the
adoption of the tax, customers were allowed to prepay their bills and avoid
the VAT on the element of the future electricity consumption which was
prepaid. Revenues are recognized as electricity is supplied to these
customers.
The Regulator permits the Company to bill for all estimated allowed revenue,
while actual allowed revenue is not known until after the end of the fiscal
year. When billings exceed the actual allowed revenue, revenues are deferred
on the excess amounts. The deferred amount is deducted from revenues and
included in current liabilities. When billings are less than the allowed
revenue, no anticipation of any potential future recovery is made.
Financial Instruments
The Company uses financial instruments primarily to mitigate the risk of
exposure to volatility in electricity prices and fluctuations in interest
rates. Such instruments are accounted for as hedges, and accordingly, gains
and losses are deferred and recognized over the same period as the item hedged
(Note 8).
The Company's carrying amount of financial instruments at March 31, 1996 was
zero (Note 8).
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
which provides guidance on when to assess and how to measure impairment of
long-lived assets, certain identifiable intangibles, and
F-9
<PAGE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
goodwill related to those assets to be held and used, and for long-lived
assets and certain intangibles to be disposed of. The Company adopted SFAS No.
121 on January 1, 1996, with no material effect on its financial position or
results of operations.
2. RETIREMENT BENEFITS
Pension Plans
SWEB has two pension plans, a defined benefit plan and a defined
contribution plan.
Defined Contribution Plan
The defined contribution plan was established in the year ended March 31,
1994. The assets of the defined contribution plan are held and administered by
an independent trustee. Contributions to the plan by SWEB on behalf of its
employees were (Pounds)0.1 million ($0.2 million) for the period from
inception (June 23, 1995) through March 31, 1996.
Defined Benefit Plan
SWEB participates in the Electricity Supply Pension Scheme, which provides
pension and other related defined benefits, based on final pensionable pay, to
substantially all employees throughout the Electricity Supply Industry in the
United Kingdom. Contributions to the plan by SWEB on behalf of its employees
were (Pounds)4.8 million ($7.5 million) for the period from inception (June
23, 1995) through March 31, 1996.
In accordance with SFAS No. 87, as of the date of the Acquisition, the
assignment of the purchase price to individual assets acquired and liabilities
assumed includes the plan assets in excess of the projected benefit
obligation. SWEB uses the "entry age normal method with a frozen initial
liability" actuarial method for funding purposes. Amounts funded to the
pension trust(s) are primarily invested in equity and fixed-income securities.
SFAS No. 87 requires use of the "projected unit credit" actuarial method for
financial reporting purposes.
The following table shows the actuarial results and assumptions for pension
benefits as computed under SFAS No. 87 (in millions):
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1996
--------- ---------
(Pounds) $
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits................................... (488) (758)
Nonvested benefits................................ 0 0
---- ----
Accumulated benefit obligation...................... (488) (758)
Effect of future increases in compensation.......... (37) (57)
---- ----
Projected benefit obligation........................ (525) (815)
Less:
Fair value of plan assets....................... 642 997
Unrecognized net gain........................... (22) (34)
---- ----
Prepaid asset recognized in the consolidated balance
sheets............................................. 95 148
==== ====
</TABLE>
The weighted average rates assumed in the actuarial calculations were as
follows at March 31, 1996:
<TABLE>
<S> <C>
Discount rate....................................................... 8.75%
Annual salary rate increase......................................... 6.00
Long term rate of return on plan assets............................. 9.50
</TABLE>
F-10
<PAGE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the plan's net pension income during the period from
inception (June 23, 1995) to March 31, 1996 are shown below (in millions):
<TABLE>
<CAPTION>
(Pounds) $
-------- ---
<S> <C> <C>
Benefits earned during the period........................... 2 3
Interest cost on projected benefit obligation............... 22 34
Actual return on plan assets................................ (50) (77)
Net amortization and deferral............................... 22 34
--- ---
Net pension income.......................................... (4) (6)
=== ===
</TABLE>
3. REGULATORY MATTERS
OFFER controls the revenues generated by SWEB in its distribution and supply
businesses by applying a price control formula, P + RPI - X (where X is
currently 3% for distribution and 2% for supply), where P is the price level
at the beginning of each new regulatory period, RPI is the change in the
Retail Price Index and X is an adjustment factor determined by OFFER.
In the distribution business, the Distribution Price Control Formula
("DPCR") is usually set for a five-year period, subject to more frequent
adjustments as determined necessary by the Director General of Electricity
Supply (the "Regulator"). At each review, the Regulator can require a one-time
price reduction. An initial review by the Regulator of allowable income in the
distribution business led to a reduction of the price level by 14% for SWEB
starting April 1, 1995, followed by efficiency factors of X = 2% for each year
until March 2000. On July 6, 1995, the Regulator announced the result of a
further distribution price review which was precipitated by certain market
events in the UK electric utility industry. For SWEB, such announcement meant
a further real reduction of 11% in allowable distribution income for the
twelve months from April 1, 1996, followed by an efficiency factor of X = 3%
for each year until March 31, 2000, before an allowed increase for inflation.
In the supply business, which is progressively being opened to competition,
price regulation still applies to the market for customers with a demand of
not more than 100kW. The calculation of the maximum supply charge is based on
a Supply Price Control Formula, similar to the DPCR and is set for a four-year
period. In 1993, OFFER announced the supply franchise market (i.e., with
demand of not more than 100kW) income entitlement for the four-year period
ending March 1998. A relatively small efficiency factor of X = 2% was applied
to SWEB and is being offset by an allowance for both unit and customer growth.
The nonfranchise markets (above 1MW) were opened to full competition during
privatization in 1990; the nonfranchise markets above 100 kW were opened to
full competition starting in April 1994.
4. COMMITMENTS AND CONTINGENT MATTERS
Power Purchase Agreements
SWEB has entered into a contract relating to the purchase of 200 megawatts
of capacity from a 7.69% owned related party, Teesside Power Limited
("Teesside"), for a period of 15 years beginning April 1, 1993. The contract
sets escalating electricity purchase prices at predetermined levels. The
Company has recognized an accrual at the acquisition date for the excess of
these Teesside power purchase costs in each year over an estimate of the
equivalent pool costs in that respective year. These costs have been
discounted at an appropriate rate to today's present value of (Pounds)60
million ($93 million).
F-11
<PAGE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has additional contracts with unaffiliated parties relating to
the purchase of electricity, which expire by March 31, 1998, and contracts
relating to the purchase of gas which expire by September 30, 1998, the terms
of which are immaterial with respect to quantity and price, both annually and
in the aggregate.
Operating Leases
SWEB has commitments under operating leases with various terms and
expiration dates. Expenses associated with these commitments totaled (Pounds)3
million ($5 million) for the period from inception (June 23, 1995) to March
31, 1996. At March 31, 1996, estimated minimum rental commitments for
noncancelable operating leases were as follows:
<TABLE>
<CAPTION>
AMOUNT
----------------
((Pounds)M) ($M)
<S> <C> <C>
Fiscal year:
1997.................................................. 2 3
1998.................................................. 2 3
1999.................................................. 2 3
2000.................................................. 1 2
2001.................................................. 1 2
Thereafter............................................ 10 15
--- ---
Total minimum payments.............................. 18 28
=== ===
</TABLE>
Labor Subject to Collective Bargaining Agreements
Substantially all of SWEB's employees are subject to one of five collective
bargaining agreements. Such agreements are ongoing in nature, and SWEB's
employee participation level is consistent with that of the electric utility
industry in Great Britain.
5. SEGMENT REPORTING
The Company is primarily engaged in two electric industry segments:
distribution, which involves the transmission of electricity across its
network and its transfer and delivery to its customers, and supply, which
involves bulk purchase of electricity from the Pool and arranging for its sale
and transfer to its customers. Intersegment sales primarily represent sales
from distribution to supply for the use of the distribution network.
Information about the Company's operations in these individual segments during
the period from inception (June 23, 1995) through March 31, 1996 and as of
March 31, 1996 is detailed below (in millions):
<TABLE>
<CAPTION>
DISTRIBUTION SUPPLY OTHER ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------- --------------
(Pounds) $ (Pounds) $ (Pounds) $ (Pounds) $ (Pounds) $
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues...... 147 228 450 699 33 51 (149) (231) 481 747
Operating income........ 72 111 13 20 1 2 0 0 86 133
Depreciation and amorti-
zation................. 16 24 1 2 5 8 0 0 22 34
Total assets employed at
period-end............. 1,422 2,209 102 158 162 251 0 0 1,686 2,618
Capital expenditures.... 32 49 1 2 4 6 0 0 37 57
</TABLE>
Included in "Other" above are insignificant operating subsidiaries of SWEB,
as well as corporate activities and assets not allocated to specific segments
(i.e., dividends, taxes, investments, and financing), with the exception of
total assets employed, the values above exclude discontinued operations. The
eliminations above primarily relate to internal sales from the distribution
business to the supply business for use of the network. Such sales are priced
at rates applicable to SWEB and other suppliers operating in the SWEB
franchise area.
F-12
<PAGE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
Details of the income tax provision for the period from inception (June 23,
1995) to March 31, 1996 (including the amount related to the extraordinary
gain in the accompanying consolidated statement of operations) are as follows
(in millions):
<TABLE>
<CAPTION>
(Pounds) $
-------- ---
<S> <C> <C>
Provision for income taxes:
<CAPTION>
Currently payable........................................... 12 18
<S> <C> <C>
Deferred.................................................... 19 30
--- ---
Total provision........................................... 31 48
=== ===
</TABLE>
The tax effects of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
bases, which give rise to deferred tax assets and liabilities, are as follows
(in millions):
<TABLE>
<CAPTION>
MARCH 31,
1996
------------
(Pounds) $
-------- ---
<S> <C> <C>
Deferred tax liabilities:
Property, plant, and equipment basis differences............. 341 530
Pensions..................................................... 32 50
--- ---
Total...................................................... 373 580
--- ---
Deferred tax assets:
Acquisition related accruals................................. 21 33
Other........................................................ 0 0
--- ---
Total...................................................... 21 33
--- ---
<CAPTION>
Net deferred tax liabilities................................... 352 547
0 0
Portion included in current liabilities, net................... -------- ---
Accumulated deferred income taxes in the consolidated balance 352 547
sheets........................................................ ======== ===
</TABLE>
A reconciliation of the UK statutory rate to the effective income tax rate
for the period from inception (June23, 1995) to March 31, 1996 is as follows:
<TABLE>
<CAPTION>
UK statutory rate..................................................... 33%
<S> <C>
Nondeductible amortization of goodwill................................ 1
---
Effective income tax rate............................................. 34%
===
</TABLE>
7. ACQUISITION
The Acquisition of SWEB in the amount of (Pounds)1.063 ($1.651) billion was
accomplished through the purchase of shares via both cash and non-cash
consideration (see accompanying consolidated statement of cash flows) between
July and November 1995. The Company purchased 14% of SWEB through open market
purchases during July and August 1995. On August 25, 1995, the Company
acquired an additional 16% of SWEB through open market purchases. On August
31, 1995, the Company's offer to purchase all shares of SWEB was endorsed by
its Directors. By September 18, 1995, the Company had gained effective control
of approximately 84% of its shares, and, therefore, effective control of SWEB.
The Company acquired the remaining shares by November 27, 1995, the date on
which the notice for compulsory acquisition from non-assenting shareholders
expired. The Company's equity in the earnings of SWEB prior to September 18,
1995 and the minority interest in the earnings
F-13
<PAGE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of SWEB subsequent to the Acquisition Date were each immaterial and,
accordingly, are not separately presented in the accompanying consolidated
statement of income.
The Acquisition was accounted for using the purchase method of accounting in
accordance with APB No. 16, "Accounting for Business Combinations." The
purchase price of SWEB has been allocated to the underlying assets and
liabilities based on estimated fair values at the acquisition date. Management
does not anticipate any material revisions to such estimates. The acquisition
cost exceeded the fair market value of net assets acquired, including
(Pounds)28 million ($43 million) of acquisition related costs, by (Pounds)175
million ($272 million) and is considered goodwill. The operating results of
SWEB have been included in the Company's financial statements from the
effective date of the Acquisition.
The net purchase price of (Pounds)1.063 billion was allocated as follows (in
millions):
<TABLE>
<CAPTION>
(Pounds) $
-------- ------
<S> <C> <C>
Property, plant, and equipment........................... 1,190 1,848
Current assets........................................... 317 492
Investments.............................................. 258 401
Goodwill................................................. 175 272
Current liabilities...................................... (244) (379)
Other liabilities........................................ (633) (983)
------ ------
Purchase price........................................... 1,063 1,651
====== ======
</TABLE>
The Company recognized certain liabilities in connection with the
Acquisition, including a plan to increase the ongoing severance program and
costs to exit its electrical contracting and servicing business lines. A
program of staff reductions is being effected which, when completed by the end
of calendar 1997, is expected to reduce the number of staff in the main
electricity business by 21% compared to that at the date of acquisition by the
Company. The Company recorded this provision related to exiting these
businesses in accordance with EITF Consensus No. 95-3, "Recognition of
Liabilities in Connection With a Purchase Business Combination." During the
period, the Company sold South Western Electricity (Connect) Limited to its
existing management and SWEB Servicing Limited to an unaffiliated party. The
activity in these categories is as follows (in millions):
<TABLE>
<CAPTION>
BUSINESS
SEVERANCE DISPOSALS
------------ ------------
(Pounds) $ (Pounds) $
<S> <C> <C> <C> <C>
Balance at Acquisition ......................... 26 40 11 17
Utilized....................................... (2) (3) (5) (8)
--- --- --- ---
Balance at March 31, 1996....................... 24 37 6 9
=== === === ===
</TABLE>
Liabilities existing at March 31, 1996 in respect of business disposals
represent outstanding contractual commitments to the respective purchasers,
which will be resolved by March, 1999.
The following pro forma information has been prepared assuming that the
Acquisition had occurred at the beginning of the respective periods. This pro
forma information includes adjustments for depreciation expense resulting from
the fair valuation of the assets upon acquisition, amortization of goodwill
resulting from the excess of the fair values of the assets minus liabilities
over the purchase price, incremental interest expense resulting from the fair
valuation of debt obligations upon acquisition, interest expense that would
have been incurred to finance the acquisition as if they were incurred at the
beginning of the period, and the exclusion of the Company's gain on sale of
its investment in NGG and its acquisition bid defense costs. The pro forma
information is presented for informational purposes only and may not be
indicative of the results of operations as they would have been had the
Acquisition occurred at the beginning of the respective periods, nor is the
information necessarily indicative of the results of operations which may
occur in the future.
F-14
<PAGE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31
-----------------------------
1996 1995
-------------- --------------
(Pounds) $ (Pounds) $
<S> <C> <C> <C> <C>
Operating Revenues (in millions) ........... 780 1,211 776 1,205
Net income (in millions).................... 54 84 47 73
</TABLE>
8. FINANCIAL INSTRUMENTS
SWEB utilizes contracts for differences ("CFDs") to mitigate its exposure to
volatility in the prices of electricity purchased through the Pool. Such
contracts allow the Company to effectively convert the majority of its
anticipated Pool purchases from market prices to fixed prices. CFDs are in
place to hedge a portion of electricity purchases on approximately 33,000 GWh
through the year 2008. Accordingly, the gains and losses on such contracts are
deferred and recognized as electricity purchased. It is not possible to
estimate the fair value of these contracts at present as the contract prices
are based on future events, the effects of which currently are not estimable.
Current CFD's have been entered into with UK Power Generators.
Interest rate swaps are used by the Company to hedge its exposure to
fluctuations in interest rates by allowing the Company to effectively convert
its outstanding variable-rate debt into fixed rates. At March 31, 1996,
sterling interest rate swaps expiring February 8, 2006 with notional amounts
totaling (Pounds)250 million ($388 million), resulted in an unrealized gain of
(Pounds)11 million ($17 million).
The fair value of the swaps is estimated using pricing models which provide
the present value of the difference between the contracted swap rates and
market interest rates over the remaining life of the swaps and represent the
amounts the bank would pay to terminate the swaps at March 31, 1996. Should
the Company terminate the swaps, the gain or loss on termination would be
deferred and amortized to interest expense over the period of the related
debt.
The Company is exposed to losses in the event of nonperformance by
counterparties to both its CFDs and interest rate swaps. To manage this credit
risk, the Company selects counterparties based on their credit ratings, limits
its exposure to any one counterparty under defined guidelines, and monitors
the market position of the programs and its relative market position with each
counterparty.
9. PROPERTY, PLANT, AND EQUIPMENT
The Company records book depreciation expense on a straight-line basis,
using the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Distribution network assets....................................... 40
Generation assets................................................. 15
Buildings......................................................... 40
Fixtures and equipment............................................ 3 to 20
Vehicles and mobile plant......................................... 4 to 10
</TABLE>
F-15
<PAGE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property, plant, and equipment consisted of the following (in millions):
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1996
--------- ---------
(Pounds) $
<S> <C> <C>
Generation............................................ 2 3
Distribution.......................................... 1,123 1,743
Non-network land and buildings........................ 41 64
Fixtures and equipment................................ 48 75
Vehicles and mobile plant............................. 13 20
------ -----
1,227 1,905
Accumulated depreciation.............................. (20) (31)
------ -----
Property, plant, and equipment, net................... 1,207 1,874
====== =====
</TABLE>
At March 31, 1996, nonnetwork land and buildings include approximately
(Pounds)2 million ($3 million) of property and equipment held for sale.
Management believes that the carrying amount of these assets approximates
their net realizable value. There is an arrangement in place whereby HM
Government is entitled to a share in the profits realized by the Company on
certain property disposals made up to March 2000. Full provision for such
clawback liabilities is made as soon as the sale is recognized.
10. DEBT
Short-term debt at March 31, 1996 consists of the following (in millions):
<TABLE>
<CAPTION>
(Pounds) $
-------- -----
<S> <C> <C>
Borrowings under term loan facility........................ 325 505
Borrowings under revolving credit facility................. 160 248
Short term notes--banks.................................... 138 214
Loan notes to former shareholders.......................... 27 42
--- -----
650 1,009
=== =====
</TABLE>
The weighted average balance of debt outstanding during the period was
(Pounds)605 million ($940 million) at a weighted average interest rate of
8.7%.
At March 31, 1996, the Company had in place a (Pounds)325 million ($505
million) term loan facility with certain banks. Interest is payable monthly
based on an interest rate of LIBOR plus 0.23%, which was 6.355% at March 31,
1996. Outstanding borrowings are due February 5, 1997.
SWEB has in place a (Pounds)275 million ($427 million) revolving credit
facility with certain banks, under which (Pounds)160 million ($248 million)
had been drawn at March 31, 1996 at an interest rate of 6.46% (LIBOR plus
0.58%). Each revolving advance may have a term of up to six months, and this
facility expires February 6, 1999.
Short-term notes represent borrowings by SWEB from banks which have
maturities of 90 days or less from March 31, 1996. Amounts outstanding include
(Pounds)120 million from committed loan facilities and (Pounds)12 million from
uncommitted loan facilities. Interest rates on outstanding borrowings were
between 6.06% and 6.19% at March 31, 1996.
In lieu of cash payments to former shareholders of SWEB for their shares,
the Company offered loan notes at the time of acquisition; the notes are
redeemable at the option of the note holders between June 30, 1996 and
December 31, 2002. Accordingly, these notes are classified as current
liabilities in the accompanying balance sheet.
F-16
<PAGE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the period, the Company extinguished certain debt due to the UK
government, resulting in an extraordinary gain of (Pounds)6 million ($9
million), net of taxes of (Pounds)3 million ($5 million). Also on October 6,
1995, the Company issued (Pounds)597 million ($927 million) of Secured
Floating Rate Bonds to finance the acquisition of SWEB which were redeemed on
February 8, 1996.
11. SALE OF INVESTMENTS
The Company's long-term investments accounted for under the cost method
consist of its 7.69% ownership of Teesside (Note 4), the fair value of which
is not readily determinable. The Company's short-term investments are
classified as available-for-sale under SFAS No. 115, the fair value of which
approximated cost at March 31, 1996.
On December 11, 1995, the Company and the other eleven RECs which jointly
owned The National Grid Holding plc ("NGH") sold their shares of NGH in a
public offering on the London Stock Exchange. The Company received proceeds
relating to the sale of its shares of (Pounds)201 million ($312 million),
which resulted in a pretax gain of (Pounds)14 million ($22 million).
The offering of NGH was conditional on the prior demerger of NGH's Pumped
Storage Business ("PSB") which was completed in November 1995. The Company's
estimated share of the proceeds from the sale of the PSB on December 21, 1995
was (Pounds)39 million ($61 million). No gain or loss was recognized on this
sale.
12. STOCKHOLDER'S EQUITY
As discussed in Note 7, the Company obtained effective control of SWEB on
September 18, 1995. During October 1995, (Pounds)315 million ($489 million) of
advances from the parent of the Company were converted to share capital, an
equity contribution of (Pounds)185 million ($287 million) was received from
the parent of the Company, and a combination of short-term and long-term debt
financing was obtained to facilitate the payment of the former shareholders.
These transactions are reflected in the accompanying consolidated statements
of changes in stockholder's equity and cash flows.
Dividends in the amount of (Pounds)191 million ($297 million) were declared
and paid by the Company during the period ending March 31, 1996 as proceeds
from the sale of the Company's shares in NGH (Note 11) provided cash in
addition to that provided from operations during the period.
13. SUBSEQUENT EVENT
On July 1, 1996, PP&L Resources, Inc. indirectly purchased a 25% share of
the Company's parent, Southern Investments UK Holdings Limited, for
(Pounds)121.5 million ($189 million).
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
South Western Electricity plc:
We have audited the accompanying consolidated balance sheet of SOUTH WESTERN
ELECTRICITY plc AND SUBSIDIARIES (Predecessor Company) as of March 31, 1995
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the two years in the period then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from those generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of South Western
Electricity plc and subsidiaries as of March 31, 1995 and the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period then ended in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG
Chartered Accountants
Bristol, England
August 27, 1996
F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
South Western Electricity plc:
We have audited the accompanying consolidated statement of income, statement
of changes in stockholders' equity and statement of cash flows for the period
from April 1, 1995 to September 17, 1995 of SOUTH WESTERN ELECTRICITY plc AND
SUBSIDIARIES (Predecessor Company). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash
flows of South Western Electricity plc and subsidiaries for the period from
April 1, 1995 to September 17, 1995 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN
Bristol, England
August 27, 1996
F-19
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31,
1995
---------
(Pounds)
<S> <C>
ASSETS
PROPERTY, PLANT, AND EQUIPMENT (Note 9).............................. 830
Less accumulated depreciation...................................... 289
---
Property, plant, and equipment, net............................ 541
---
OTHER ASSETS:
Investments........................................................ 25
Prepaid pension cost (Note 2)...................................... 52
Other.............................................................. 17
---
Total other assets............................................. 94
---
CURRENT ASSETS:
Cash and cash equivalents.......................................... 27
Investments........................................................ 21
Receivables:
Customer accounts, less provision for uncollectibles of
(Pounds)12...................................................... 113
Other............................................................ 15
---
Receivables, net................................................. 128
Materials and supplies............................................. 18
Prepaid taxes...................................................... 33
Prepaid expenses................................................... 7
---
Total current assets........................................... 234
---
Total assets................................................... 869
===
STOCKHOLDERS' EQUITY AND LIABILITIES
STOCKHOLDERS' EQUITY (Note 11):
Share capital, 50p par value common shares; 200 million shares au-
thorized, 111.1 million issued, and outstanding................... 56
Capital redemption reserve......................................... 6
Retained earnings.................................................. 312
---
Total stockholders' equity..................................... 374
---
Long-term debt (Note 10)............................................. 95
OTHER NON-CURRENT LIABILITIES:
Deferred income taxes (Note 7)..................................... 154
Other.............................................................. 26
---
Total other non-current liabilities............................ 180
---
CURRENT LIABILITIES:
Accounts payable................................................... 50
Electricity purchases payable...................................... 36
Accrued income taxes............................................... 43
Unearned revenue................................................... 34
Regulatory overrecovery............................................ 6
Bank loans......................................................... 24
Other.............................................................. 27
---
Total current liabilities...................................... 220
---
COMMITMENTS AND CONTINGENT MATTERS (Notes 2, 5 and 10)
Total stockholders' equity and liabilities..................... 869
===
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-20
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF INCOME
FOR YEARS ENDED MARCH 31, 1994 AND 1995
AND FOR THE PERIOD FROM APRIL 1, 1995 TO SEPTEMBER 17, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
MARCH 31, APRIL 1, 1995 TO
----------------- SEPTEMBER 17,
1994 1995 1995
-------- -------- ----------------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
OPERATING REVENUES.......................... 808 776 299
COST OF SALES............................... 511 480 186
--- --- ---
GROSS MARGIN................................ 297 296 113
--- --- ---
OPERATING EXPENSES:
Maintenance............................... 42 45 18
Depreciation.............................. 28 31 15
Selling, general, and administrative...... 105 81 40
--- --- ---
Total operating expenses.............. 175 157 73
--- --- ---
Operating income...................... 122 139 40
--- --- ---
OTHER INCOME (EXPENSE):
Interest income........................... 4 7 2
Interest expense.......................... (11) (11) (5)
Investment income......................... 15 14 1
Other, net................................ 1 2 0
--- --- ---
Total other income (expense).......... 9 12 (2)
--- --- ---
INCOME FROM CONTINUING OPERATIONS BEFORE IN-
COME
TAXES...................................... 131 151 38
PROVISION FOR INCOME TAXES.................. 43 50 13
--- --- ---
INCOME FROM CONTINUING OPERATIONS........... 88 101 25
INCOME FROM DISCONTINUED OPERATIONS, net of
income tax effect of (Pounds)0 for all pe-
riods (Note 12)............................ 0 1 (1)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
net of income tax effect of (Pounds)4...... 0 (8) 0
--- --- ---
NET INCOME.................................. 88 94 24
=== === ===
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR YEARS ENDED MARCH 31, 1994 AND 1995
AND FOR THE PERIOD FROM APRIL 1, 1995 TO SEPTEMBER 17, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
NUMBER OF ORDINARY SHARE CAPITAL TOTAL
ORDINARY SHARES OF PREMIUM REDEMPTION RETAINED STOCKHOLDERS'
SHARES 50P EACH ACCOUNT RESERVE EARNINGS EQUITY
--------- --------- -------- ---------- -------- -------------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C> <C>
APRIL 1, 1993........... 123 62 0 0 289 351
Issue of share capi-
tal.................. 0 0 0 0 0 0
Dividends (21p per
share)............... 0 0 0 0 (26) (26)
Net income............ 0 0 0 0 88 88
--- --- --- --- ---- ----
MARCH 31, 1994.......... 123 62 0 0 351 413
Repurchase of own
shares (Note 11)..... (12) (6) 0 6 (103) (103)
Issue of share capi-
tal.................. 0 0 0 0 0 0
Dividends (25p per
share)............... 0 0 0 0 (30) (30)
Net income............ 0 0 0 0 94 94
--- --- --- --- ---- ----
MARCH 31, 1995.......... 111 56 0 6 312 374
Issue of share capi-
tal.................. 1 -- 2 0 0 2
Dividends:
20p per share for
111 million
shares............. 0 0 0 0 (23) (23)
65p per share for 81
million shares..... 0 0 0 0 (52) (52)
Net income............ 0 0 0 0 24 24
--- --- --- --- ---- ----
SEPTEMBER 17, 1995...... 112 56 2 6 261 325
=== === === === ==== ====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED MARCH 31, 1994 AND 1995
AND FOR THE PERIOD FROM APRIL 1, 1995 TO SEPTEMBER 17, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
------------------- APRIL 1, 1995 TO
MARCH 31, MARCH 31, SEPTEMBER 17,
1994 1995 1995
--------- --------- ----------------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. 88 94 24
--- ---- ---
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Depreciation.......................... 28 31 15
Changes in assets and liabilities:
Prepaid pension cost................ (15) (24) (8)
Receivables, net.................... 28 (5) 32
Credit sales, noncurrent............ (1) (6) 16
Materials and supplies.............. (1) (1) 12
Prepaid expenses.................... (8) (2) (3)
Accounts payable.................... 12 1 (7)
Accrued income taxes................ (8) (5) (3)
Unearned revenue.................... 61 (30) (9)
Other liabilities................... 3 24 (9)
Deferred taxes...................... 33 13 4
Other, net.......................... 16 10 5
--- ---- ---
Total adjustments.................. 148 6 45
--- ---- ---
Net cash provided by operating ac-
tivities.......................... 236 100 69
--- ---- ---
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................... (61) (68) (22)
Loans to related parties................ 0 0 (3)
Proceeds from property, plant, and
equipment sales........................ 1 1 5
Purchases of investments................ (53) (66) (28)
Proceeds from sales of investments...... 38 66 26
--- ---- ---
Net cash used in investing activi-
ties.............................. (75) (67) (22)
--- ---- ---
CASH FLOWS FROM FINANCING ACTIVITIES:
Issue of share capital.................. 0 0 2
Common shares purchased................. 0 (103) 0
Payments of dividends................... (26) (30) 0
Change in short term borrowings......... (37) 24 (23)
--- ---- ---
Net cash used in financing activi-
ties.............................. (63) (109) (21)
--- ---- ---
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. 98 (76) 26
CASH AND CASH EQUIVALENTS, beginning of
period.................................. 5 103 27
--- ---- ---
CASH AND CASH EQUIVALENTS, end of peri-
od...................................... 103 27 53
=== ==== ===
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................. 10 11 5
=== ==== ===
Cash paid for income taxes.............. 11 33 6
=== ==== ===
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
South Western Electricity plc ("SWEB") is one of the twelve regional
electricity companies ("RECs") in England and Wales licensed to supply,
distribute, and, to a limited extent, generate electricity. The RECs were
created as a result of the privatization of the UK electricity industry in
1990 after the state owned low voltage distribution networks were allocated to
the then existing twelve regional boards. SWEB's main business, the
distribution and supply of electricity to customers in the southwest of
England, is regulated under the terms of SWEB's Public Electricity Supply
license by the Office of Electricity Regulation ("OFFER").
SWEB operates primarily in its Franchise Area in southwest England. SWEB's
Franchise Area covers approximately 5,560 square miles running from Bristol
and Bath in the northeast, 188 miles southwest along the peninsular to Land's
End and 28 miles beyond to the Isles of Scilly, and has a resident population
of approximately 2.8 million.
Basis of Presentation
The financial statements of the Company are presented in pounds sterling
((Pounds)) and in conformity with accounting principles generally accepted in
the United States. The accompanying financial statements have not been
prepared in accordance with the policies of Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation"
("SFAS No. 71"). This pronouncement, under which most U.S. electric utilities
report financial statements, applies to entities which are subject to cost-
based rate regulation. By contrast, SWEB is not subject to rate regulation,
but, rather, is subject to price cap regulation (Note 4) and therefore the
provisions of SFAS No. 71 do not apply. Financial statements presented in
accordance with SFAS No. 71 contain deferred items which have not yet been
included in rates charged to customers in compliance with the respective
regulatory authorities, but which would have been included in the income
statement of enterprises in general under U.S. GAAP. The accompanying
financial statements of the Company do not contain such deferrals.
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries and have been prepared
from records maintained by SWEB in the United Kingdom. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Investments in companies in which the Company's ownership interests range from
20% to 50% and the Company exercises significant influence over operating and
financial policies are accounted for using the equity method. Other
investments are accounted for using the cost method. Dividends received from
investments accounted for under the cost method were (Pounds)9 million for the
year ended 1994, (Pounds)12 million for the year ended 1995, and nil for the
period from April 1, 1995 to September 17, 1995.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
SWEB records revenue net of value added tax ("VAT") and accrues revenues for
services provided but unbilled at the end of each reporting period. SWEB
purchases power primarily from a market for the bulk trading of electricity
(the "Pool").
F-24
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a diversified base of customers. No single customer or
industry comprises 10% or more of revenues.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at original cost which includes
materials, labor, appropriate administrative and general costs, and the
estimated cost of funds used during construction. The cost of maintenance,
repairs, and replacement of minor items of property is charged to maintenance
expense.
Depreciation of the recorded cost of depreciable property, plant, and
equipment is provided by using composite straight-line rates, except for
distribution network assets which are charged at 3% for 20 years and 2% for
the remaining 20 years (Note 9), which are approximately 4.2% per year (2.8%
per year for depreciable utility plant in service).
Information Technology Consultancy and Development Costs
Information technology consultancy and development costs are expensed when
incurred.
Investments
The Company accounts for its current investments in accordance with
Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting for
Investments for Certain Debt and Equity Securities." These investments
represent investments in debt securities, which management classifies as
available-for-sale securities in accordance with SFAS No. 115, the fair value
of which approximates cost. The Company's long-term investments are accounted
for using the cost-method and consist of its 7.69% ownership of Teesside (Note
5) the fair value of which is not readily determinable.
Income Taxes
SFAS No. 109, "Accounting for Income Taxes," requires the asset and
liability approach for financial accounting and reporting for deferred income
taxes. The Company uses the liability method of accounting for deferred income
taxes and provides deferred income taxes for all significant income tax
temporary differences.
Unearned Revenue
Unearned revenue primarily represents the liability for payments received
from customers in connection with the assessment of a VAT on electricity
sales, which was imposed by the UK government effective April 1, 1994 to
include electricity sales to residential customers. As part of the adoption of
the tax, customers were allowed to prepay their electricity bills and avoid
the VAT on the element of the future electricity consumption which was
prepaid. Revenues are recognized as electricity is supplied to these
customers.
Price regulation permits the Company to bill for all estimated allowed
revenue, while actual allowed revenue is not known until after the end of the
fiscal year. When billings exceed the actual allowed revenue, revenues are
deferred on the excess amounts. The deferred amount is deducted from revenues
and included in current liabilities. When billings are less than the allowed
revenue, no anticipation of any potential future recovery is made.
F-25
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial Instruments
The Company uses financial instruments primarily to mitigate the risk of
exposure to volatility in electricity prices. Such instruments are accounted
for as hedges, and accordingly, gains and losses are deferred and recognized
over the same period as the item hedged (Note 8).
The Company's carrying amount of financial instruments at March 31, 1995 was
zero (Note 8).
2. RETIREMENT BENEFITS
Pension Plans
The Company operates two schemes, one based on defined contributions and a
second based on defined benefits.
Defined Contribution
The defined contribution plan was established in the year ended March 31,
1994. The assets of the defined contribution plan are held and administered by
an independent trustee. Contributions to the defined plan were not material
for any period presented.
Defined Benefit
SWEB participates in the Electricity Supply Pension Scheme, which provides
pension and other related defined benefits, based on final pensionable pay, to
substantially all employees throughout the Electricity Supply Industry in the
United Kingdom. Contributions to the plan by SWEB on behalf of its employees
were (Pounds)9.6 million for the period ended March 31, 1994, (Pounds)9.8
million for March 31, 1995, and (Pounds)3.7 million for the period from April
1, 1995 to September 17, 1995.
SWEB uses the "entry age normal method with a frozen initial liability"
actuarial method for funding purposes. Amounts funded to the pension are
primarily invested in equity and fixed income securities.
It was not feasible to adopt SFAS No. 87 on the effective date of the
standard. Accordingly, the unrecognized net transition asset at the date of
initial application of SFAS No. 87, April 1, 1993, is being amortized over 15
years, beginning April 1, 1989, in accordance with the interpretations of the
staff of the Securities and Exchange Commission. The amount of the
unrecognized net transition asset credited to equity on April 1, 1993 was
(Pounds)12.9 million.
The following table shows the actuarial results and assumptions for pension
benefits in respect of SWEB's share of the scheme, as computed under SFAS No.
87 (in millions):
<TABLE>
<CAPTION>
MARCH 31,
1995
---------
(Pounds)
<S> <C>
Actuarial present value of benefit obligation:
Vested benefits............................................... (443)
Nonvested benefits............................................ 0
----
Accumulated benefit obligation.................................. (443)
Effect of future increase in compensation....................... (33)
----
Projected benefit obligation.................................... (476)
----
Less:
Fair value of plan assets................................... 547
Unrecognized net transition asset........................... (29)
Unrecognized net loss....................................... 10
----
528
----
Prepaid pension asset........................................... 52
====
</TABLE>
F-26
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The weighted average rates assumed in the actuarial calculations as of the
following dates were:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31,
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Discount rate..................................... 8.75% 8.25% 8.75%
Annual salary rate increase....................... 6.0 5.5 6.0
Long-term rate of return on plan assets........... 9.5 9.5 9.5
</TABLE>
The components of the plan's net pension income during the periods are shown
below (in millions):
<TABLE>
<CAPTION>
YEARS ENDED PERIOD FROM
------------------- APRIL 1, 1995 TO
MARCH 31, MARCH 31, SEPTEMBER 17,
1994 1995 1995
--------- --------- ----------------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Benefits earned during the period........ 6 5 3
Interest cost on projected benefit obli-
gation.................................. 37 37 20
Actual return on plan assets............. (89) 0 (69)
Net amortization and deferral............ 40 (56) 42
--- --- ---
Net pension income....................... (6) (14) (4)
=== === ===
</TABLE>
3. EMPLOYEE INCENTIVE PLANS
South Western Electricity plc had established incentive compensation plans
under which it was authorized to grant incentive stock options in its common
shares. There were two plans in operation.
The Sharesave Plan, which qualifies as a noncompensatory plan under APB
Opinion No. 25, was open to all eligible employees at the date of grant on
December 11, 1990 at a price of (Pounds)1.75. The options were exercisable in
1996 or at an earlier date if the employee retired or if the Company was
subject to acquisition (see Note 13). The activity in this plan was:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
---------
<S> <C>
March 31, 1993 outstanding and exercisable..................... 3,958,004
1994 activity:
Exercised.................................................... (192,924)
---------
March 31, 1994 outstanding and exercisable................... 3,765,080
1995 activity:
Exercised.................................................... (279,801)
---------
March 31, 1995 outstanding and exercisable................... 3,485,279
Activity to September 17, 1995:
Exercised.................................................... (81,122)
---------
September 17, 1995 outstanding and exercisable............... 3,404,157
=========
</TABLE>
F-27
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Executive Share Option Plan was open to Executive Directors and Senior
Employees. Options were granted at a price equal to the market value of the
stock at the date of grant and generally became exercisable over three to ten
years following the grant. The activity in this plan was:
<TABLE>
<CAPTION>
AVERAGE
NUMBER OF OPTION
OPTIONS PRICE
--------- --------
(Pounds)
<S> <C> <C>
March 31, 1993 outstanding........................... 1,356,447 2.96
1994 activity:
Granted............................................ 73,202 6.90
Exercised.......................................... (692,902) 2.64
Lapsed............................................. (15,822) 3.16
---------
March 31, 1994 outstanding........................... 720,925
1995 activity:
Granted............................................ 429,295 7.57
Exercised.......................................... (563,388) 3.17
---------
March 31, 1995 and September 17, 1995 outstanding.... 586,832 7.00
=========
</TABLE>
4. REGULATORY MATTERS
OFFER controls the revenues generated by SWEB in its distribution and supply
businesses by applying a price control formula, P + RPI - X, where P is the
price level at the beginning of each new regulatory period, RPI is the change
in the Retail Price Index (inflation) and X is an adjustment factor determined
by OFFER. For the year ended March 31, 1994, X was -2.25% for distribution and
0.0% for supply. For the year ended March 31, 1995, X was -2.25% for
distribution and 2.0% for supply, and for the period April 1, 1995 to
September 17, 1995, X was 3.0% for distribution and 2.0% for supply.
In the distribution business, the Distribution Price Control Formula
("DPCR") is usually set for a five-year period, subject to more frequent
adjustments as determined necessary by the Director General of Electricity
Supply (the "Regulator"). At each review, the Regulator can require a one-time
price reduction. An initial review by the Regulator of allowable income in the
distribution business led to a reduction of the price level by 14% for SWEB
for the twelve months starting April 1, 1995, followed by efficiency factors
of X= 2.0% for each year until March 2000. On July 6, 1995, the Regulator
announced the result of a further distribution price review which was
precipitated by certain market events in the UK electric utility industry. For
SWEB, such announcement meant a further real reduction of 11% in allowable
distribution income for the 12 months starting from April 1, 1996 followed by
an efficiency factor of X= 3.0% for each year until March 31, 2000.
In the supply business, which is progressively being opened to competition,
price regulation still applies to the market for customers with a demand of up
to 100kW. The calculation of the maximum supply charge is based on a Supply
Price Control Formula, similar to the DPCR and is set for a four-year period.
In 1993, OFFER announced the supply franchise market (customers with demand of
not more than 100 kW) income entitlement for the four-year period ending March
1998. A relatively small efficiency factor of X= 2.0% was applied to SWEB and
is being offset by an allowance for both unit and customer growth. The
nonfranchise markets above 1MW were opened to full competition during
privatization in 1990; the nonfranchise markets above 100kW were opened to
full competition starting in April 1994.
5. COMMITMENTS AND CONTINGENT MATTERS
Power Purchase Agreements
SWEB has entered into a contract relating to the purchase of 200 megawatts
of capacity from a 7.69%-owned related party, Teesside Power Limited
("Teesside"), for a period of 15 years beginning April 1, 1993.
F-28
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has additional contracts with unaffiliated parties relating to
the purchase of electricity, which expire by March 31, 1998, and contracts
relating to the purchase of gas which expire by September 30, 1998, the terms
of which are immaterial with respect to quantity and price, both annually and
in the aggregate.
Operating Leases
SWEB has commitments under operating leases with various terms and
expiration dates. Expenses associated with these commitments totaled
(Pounds)5.7 million, (Pounds)6.1 million, and (Pounds)2.6 million, for the
years ended March 31, 1994 and 1995 and for the period from April 1, 1995 to
September 17, 1995, respectively. At March 31, 1995, estimated minimum rental
commitments for noncancelable operating leases were as follows (in millions):
<TABLE>
<CAPTION>
AMOUNT
--------
(Pounds)
<S> <C>
Fiscal year:
1996.......................................................... 5
1997.......................................................... 4
1998.......................................................... 3
1999.......................................................... 3
2000.......................................................... 3
Thereafter.................................................... 34
---
Total minimum payments...................................... 52
===
</TABLE>
Labor Subject to Collective Bargaining Agreements
Substantially all of SWEB's employees are subject to one of five collective
bargaining agreements. Such agreements are ongoing in nature, and SWEB's
employee participation level is consistent with that of the electric utility
industry in the Great Britain.
6. SEGMENT REPORTING
The Company is primarily engaged in two electric industry segments:
distribution, which involves the transmission of electricity across its
network and its transfer and delivery to its customers, and supply, which
involves bulk purchase of electricity from the Pool and arranging for its sale
and transfer to its customers. Intersegment sales primarily represent sales
from distribution to supply for the use of the distribution networks.
Information about the Company's operations in these individual segments during
the years ended March 31, 1994 and 1995, and for the period from April 1, 1995
through September 17, 1995 and as of those respective period ends is detailed
below (in millions):
<TABLE>
<CAPTION>
MARCH 31, 1994
--------------------------------------------------------
DISTRIBUTION SUPPLY OTHER ELIMINATIONS CONSOLIDATED
------------ -------- -------- ------------ ------------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Operating revenues...... 250 772 54 (268) 808
Operating income........ 84 27 11 0 122
Depreciation............ 21 0 7 0 28
Total assets employed at
period end............. 483 92 324 (50) 849
Capital expenditures.... 53 1 10 0 64
</TABLE>
F-29
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1995
--------------------------------------------------------
DISTRIBUTION SUPPLY OTHER ELIMINATIONS CONSOLIDATED
------------ -------- -------- ------------ ------------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Operating revenues...... 274 725 57 (280) 776
Operating income........ 112 18 10 (1) 139
Depreciation............ 24 0 7 0 31
Total assets employed at
period end............. 531 93 294 (49) 869
Capital expenditures.... 54 0 13 0 67
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM APRIL 1, 1995 TO SEPTEMBER 17, 1995
--------------------------------------------------------
DISTRIBUTION SUPPLY OTHER ELIMINATIONS CONSOLIDATED
------------ -------- -------- ------------ ------------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Operating revenues...... 105 276 23 (105) 299
Operating income........ 42 2 (4) 0 40
Depreciation............ 12 0 3 0 15
Total assets employed at
period end............. 537 54 289 (45) 835
Capital expenditures.... 19 0 2 0 21
</TABLE>
Included in "Other" above are insignificant operating subsidiaries of SWEB
(as well as corporate activities), and with the exception of total assets
employed, the values above exclude discontinued operations.
7. INCOME TAXES
Details of the income tax provision for the years ended March 31, 1994 and
1995 and for the period from April 1, 1995 to September 17, 1995 are as
follows (in millions):
<TABLE>
<CAPTION>
YEARS ENDED PERIOD FROM
MARCH 31 APRIL 1, 1995 TO
----------------- SEPTEMBER 17,
1994 1995 1995
-------- -------- ----------------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Provision for income taxes:
Currently payable................... 10 33 10
Deferred............................ 33 13 3
--- --- ---
Total provision................... 43 46 13
=== === ===
</TABLE>
The tax effects of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
bases, which give rise to deferred tax assets and liabilities, are as follows
(in millions):
<TABLE>
<CAPTION>
MARCH 31,
1995
---------
(Pounds)
<S> <C>
Deferred tax liabilities:
Property, plant, and equipment basis differences............ 147
Pensions.................................................... 17
---
Total................................................... 164
Deferred tax assets........................................... 10
---
Accumulated deferred income taxes in the consolidated balance
sheet........................................................ 154
===
</TABLE>
F-30
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reconciliations of the UK statutory rate to the effective income tax rate for
the year ended March 31, 1994, March 31, 1995, and for the period from April 1,
1995 to September 17, 1995, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
MARCH 31 APRIL 1, 1995 TO
------------- SEPTEMBER 17,
1994 1995 1995
----- ----- ----------------
<S> <C> <C> <C>
UK statutory rate........................ 33% 33% 33%
Permanent differences.................... (0) (0) 2
----- -- --
Effective income tax rate................ 33% 33% 35%
===== == ==
</TABLE>
8. FINANCIAL INSTRUMENTS
SWEB utilizes contracts for differences ("CFDs") to mitigate its exposure to
volatility in the prices of electricity purchased through the Pool. Such
contracts allow the Company to effectively convert the majority of its
anticipated Pool purchases from market prices to fixed prices. CFDs are in
place to hedge a portion of electricity purchases on approximately 39,100 GWh
through the year 2008. Accordingly, the gains and losses on such contracts are
deferred and recognized as electricity is purchased. It is not possible to
estimate the fair value of these contracts at present as the contract prices
are based on future events, the effects of which currently are not estimable.
CFDs have been entered into with UK Power Generators.
The Company is exposed to losses in the event of nonperformance by
counterparties to its CFDs. To manage this credit risk, the Company selects
counterparties based on their credit ratings, limits its exposure to any one
counterparty under defined guidelines, and monitors the market position of the
programs and its relative market position with each counterparty.
9. PROPERTY, PLANT, AND EQUIPMENT
The Company records book depreciation expense on a straight-line basis,
except for distribution network assets which are charged at 3% for 20 years and
2% for the remaining 20 years. Assets are depreciated using the following
estimated useful lives:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Distribution network assets...................................... 40
Generation assets................................................ 15 to 40
Buildings........................................................ Up to 60
Fixtures and equipment........................................... 3 to 20
Vehicles and mobile plant........................................ 4 to 10
</TABLE>
Leasehold improvements are depreciated over the shorter of their useful lives
or related lease terms.
Property, plant, and equipment consisted of the following (in millions):
<TABLE>
<CAPTION>
MARCH 31,
1995
---------
(Pounds)
<S> <C>
Generation...................................................... 2
Distribution.................................................... 804
Nonnetwork land and buildings................................... 46
Fixtures and equipment.......................................... 101
Vehicles and mobile plant....................................... 24
Consumers' contributions........................................ (147)
----
830
Accumulated depreciation........................................ (289)
----
Property, plant, and equipment, net............................. 541
====
</TABLE>
F-31
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
There is an arrangement in place, known as "clawback," whereby HM Government
is entitled to a share in the profits realized by the Company on certain
property disposals made up to March 2000. Full provision for such clawback
liabilities is made as soon as the sale is recognized.
10. DEBT
Long-term debt at March 31, 1995 consisted of the following (in millions):
<TABLE>
<CAPTION>
(Pounds)
--------
<S> <C>
HM Government bonds.............................................. 80
Consortium tax creditor.......................................... 10
Long term loan................................................... 5
---
Total.......................................................... 95
===
</TABLE>
On October 22, 1990, the Predecessor Company issued (Pounds)80 million
12.365% bonds to HM Government which were due for repayment at par in 2008.
Based on market rates, the HM Government bonds had a fair value of (Pounds)100
million at March 31, 1995.
Consortium tax creditor represents the benefit of losses surrendered from
consortia in which the Company has invested, which are required to be repaid
at a later date depending on when such consortia have UK taxable income.
The carrying value of the remaining debt instruments approximate fair value.
No interest is payable on debts other than the (Pounds)80 million HM
Government bonds.
11. STOCKHOLDERS' EQUITY
Under the authority of a special resolution passed at the 1994 Annual
General Meeting, the Company purchased 12.3 million of its own shares during
the year ended March 31, 1995, which were subsequently canceled. The total
consideration was (Pounds)103.1 million. The excess of cost over par value
((Pounds)96.9 million) was charged to retained earnings.
176,526 ordinary shares were issued during the year ended March 31, 1995
under South Western Electricity's Sharesave Scheme (Note 3) to employees who
had left the Company. The shares were fully paid up by the former employees at
an exercise price of (Pounds)1.75 per ordinary share. The average market price
of SWEB's shares during the year ended March 31, 1995 was (Pounds)7.14.
One special rights redeemable preference share, held by the Secretary of
State, was redeemed at par on March 30, 1995 in accordance with the Company's
Articles of Association.
The share premium account and the capital redemption reserve are not
distributable.
12. DISCONTINUED OPERATIONS
On June 5, 1995, the Company sold its electrical retailing business for
(Pounds)4.3 million plus payment for materials and supplies, which resulted in
a loss on disposal of (Pounds)8.1 million, net of income tax effect of
(Pounds)4 million.
F-32
<PAGE>
SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A (Pounds)7.9 million charge for write-down of electrical retailing assets is
included in income from discontinued operations. These losses and charges were
included in net income for year ended March 31, 1995. Subsequent revenues in
the period April 1, 1995 to June 5, 1995 were (Pounds)9 million and (Pounds)77
million for the year ended March 31, 1995.
In connection with the acquisition of SWEB, the Company announced its plans
to dispose of the appliance servicing business on December 13, 1995 and its
electrical installation and contracting business on January 25, 1996. The
sales were completed in February 1996 and March 1996, respectively. All of
these losses and charges were provided on acquisition at September 18, 1995.
13. SUBSEQUENT EVENTS
On September 18, 1995, Southern Investments UK plc's ("SIUK") agreed bid for
SWEB was declared wholly unconditional, and as a result, SWEB's parent Company
is SIUK. SIUK is a wholly owned subsidiary of Southern Investments UK Holdings
Limited ("Holdings"), which was itself wholly owned indirectly by The Southern
Company.
On July 1, 1996, PP&L Resources, Inc. indirectly purchased a 25% share of
Holdings for (Pounds)121.5 million ($185 million).
F-33
<PAGE>
SOUTHERN INVESTMENTS UK PLC
(SUCCESSOR COMPANY)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
(Pounds) U.S. $
-------- ------
<S> <C> <C>
ASSETS
PROPERTY, PLANT, AND EQUIPMENT................................. 1,240 1,925
Less accumulated depreciation................................. 28 43
----- -----
Property, plant, and equipment, net....................... 1,212 1,882
----- -----
OTHER ASSETS:
Investments................................................... 22 34
Prepaid pension cost.......................................... 97 151
Goodwill, net of accumulated amortization of (Pounds)4........ 171 265
----- -----
Total other assets........................................ 290 450
----- -----
CURRENT ASSETS:
Cash and cash equivalents..................................... 21 33
Investments................................................... 11 17
Receivables:
Customer accounts, less provision for uncollectibles of
(Pounds)12 and (Pounds)19.................................. 100 155
Other....................................................... 10 16
----- -----
Receivables, net.......................................... 110 171
Materials and supplies........................................ 4 6
Prepaid expenses.............................................. 11 17
----- -----
Total current assets...................................... 157 244
----- -----
Total assets.............................................. 1,659 2,576
===== =====
</TABLE>
<TABLE>
<S> <C> <C>
STOCKHOLDER'S EQUITY AND LIABILITIES
STOCKHOLDER'S EQUITY:
Share capital, (Pounds)1 par value, 500,400,587 shares autho-
rized, issued, and outstanding................................. 500 776
Accumulated deficit............................................. (134) (208)
----- -----
Total stockholder's equity................................. 366 568
----- -----
OTHER NON-CURRENT LIABILITIES:
Deferred income taxes........................................... 377 585
Provision for loss contracts.................................... 67 104
Other........................................................... 62 97
----- -----
Total other non-current liabilities......................... 506 786
----- -----
CURRENT LIABILITIES:
Debt............................................................ 637 989
Accounts payable................................................ 38 59
Accrued income taxes............................................ 20 31
Unearned revenue................................................ 7 11
Other........................................................... 85 132
----- -----
Total current liabilities................................... 787 1,222
----- -----
COMMITMENTS AND CONTINGENT MATTERS (Note 3)
Total stockholder's equity and liabilities.................. 1,659 2,576
===== =====
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-34
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
PREDECESSOR | SUCCESSOR SUCCESSOR
COMPANY | COMPANY COMPANY
1995 | 1996 1996
----------- | --------- ---------
(Pounds) | (Pounds) U.S.$
<S> <C> | <C> <C>
OPERATING REVENUES.............................................................. 167 | 181 281
COST OF SALES................................................................... 107 | 122 189
--- | --- ---
GROSS MARGIN.................................................................... 60 | 59 92
=== | === ===
OPERATING EXPENSES: |
Maintenance.................................................................... 10 | 9 14
Depreciation and amortization.................................................. 8 | 10 16
Selling, general, and administrative........................................... 16 | 13 20
--- | --- ---
Total operating expenses................................................... 34 | 32 50
--- | --- ---
Operating income........................................................... 26 | 27 42
--- | --- ---
OTHER INCOME (EXPENSE): |
Interest income................................................................ 1 | 0 0
Interest expense............................................................... (3) | (13) (20)
Other, net..................................................................... 1 | 3 4
--- | --- ---
Total other expense........................................................ (1) | (10) (16)
=== | === ===
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES........................... 25 | 17 26
PROVISION FOR INCOME TAXES...................................................... (9) | (6) (9)
--- | --- ---
NET INCOME...................................................................... 16 | 11 17
=== === ===
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-35
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
PREDECESSOR | SUCCESSOR SUCCESSOR
COMPANY | COMPANY COMPANY
1995 | 1996 1996
----------- | --------- ---------
(Pounds) | (Pounds) U.S.$
<S> <C> | <C> <C>
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES.................................... 21 | 30 47
--- | --- ---
CASH FLOWS FROM INVESTING ACTIVITIES: |
Capital expenditures............................................................. (9) | (14) (22)
Loans to related parties......................................................... 0 | (3) (5)
Proceeds from property sales..................................................... 17 | 3 5
Purchases of investments, net.................................................... (10) | 10 16
--- | --- ---
Net cash used in investing activities........................................ (2) | (4) (6)
--- | --- ---
CASH FLOWS FROM FINANCING ACTIVITIES: |
Payments of dividends............................................................ 0 | (12) (19)
Change in short term borrowings.................................................. (21) | (13) (20)
--- | --- ---
Net cash used in financing activities........................................ (21) | (25) (39)
--- | --- ---
NET (DECREASE) INCREASE IN CASH AND CASH |
EQUIVALENTS....................................................................... (2) | 1 2
CASH AND CASH EQUIVALENTS, beginning of period..................................... 27 | 20 31
--- | --- ---
CASH AND CASH EQUIVALENTS, end of period........................................... 25 | 21 33
=== | === ===
SUPPLEMENTAL CASH FLOW DISCLOSURES: |
Cash paid for interest....................................................... (3) | (13) (20)
=== | === ===
Cash paid for income taxes................................................... (13) | (12) (19)
=== === ===
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-36
<PAGE>
NOTES TO THE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited
and have been prepared by the management of Southern Investments UK plc (the
"Company") in accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
usually found in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. In the opinion
of the management of the Company, all adjustments (consisting of only normal
recurring adjustments) considered necessary for fair presentation of the
condensed consolidated financial statements have been included, and the
accompanying condensed consolidated financial statements present fairly the
financial position and the results of operations for the interim periods
presented. The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements included elsewhere in
this prospectus.
The financial statements as of June 30, 1996 are presented in pounds
sterling ("(Pounds)") and in U.S. dollars ("$ or U.S. $"), solely for the
convenience of the reader, at the exchange rate of (Pounds)1 = U.S. $1.5529,
the noon buying rate in New York City for cable transfers in pounds sterling
as certified for customs purposes by the Federal Reserve Bank of New York on
June 28, 1996. No representation is made that the pounds sterling amounts have
been, could have been, or could be converted into U.S. dollars at that or any
other rate of exchange.
2. COMPARABILITY OF PERIODS
The condensed financial information included herein shows the results of the
Successor Company for the three months ended June 30, 1996 and those of the
Predecessor Company for the three months ended June 30, 1995. The results for
both periods have been prepared under US GAAP.
As a result of the acquisition, the basis of accounting for the Successor
Company differs from that for the Predecessor Company. The condensed
consolidated financial statements of the Predecessor Company are presented on
a historical cost basis while the consolidated financial statements of the
Successor Company reflect the acquisition under the purchase method of
accounting. Under the purchase method of accounting, fair value was assigned
to the assets and liabilities of SWEB at the date the Company acquired
effective control of SWEB. Goodwill was created to the extent the purchase
price exceeded the difference between the fair value of SWEB's assets and the
fair value of its liabilities.
The recorded assets and liabilities of SWEB immediately prior to the time
the Company gained effective control of SWEB were (Pounds)855 million ($1.328
billion) and (Pounds)515 million ($800 million), respectively. As a result of
the purchase method of accounting, the amount of SWEB's assets recorded on the
books of the Company was increased by (Pounds)910 million ($1.413 billion) to
their fair value of (Pounds)1.765 billion ($2.741 billion), and the amount of
SWEB's liabilities recorded on the books of the Company was increased by
(Pounds)362 million ($562 million) to their fair value of (Pounds)877 million
($1.362 billion). The increase in liabilities included the establishment of
reserves totaling (Pounds)44 million ($68 million) related to staff reductions
and the disposition of ancillary businesses. The resulting difference between
the purchase price of (Pounds)1.063 billion ($1.651 billion) and the
difference between the fair value of the assets acquired and the fair value of
the liabilities assumed as well as the reserves established resulted in
goodwill of (Pounds)175 million ($272 million).
3. COMMITMENTS AND CONTINGENT MATTERS
Power Purchase Agreements
SWEB has entered into a contract relating to the purchase of 200 megawatts
of capacity from a 7.69%-owned related party, Teesside Power Limited
("Teesside"), for a period of 15 years beginning April 1, 1993.
F-37
<PAGE>
NOTES TO THE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The contract with Teesside involves purchases which were above market rates at
the acquisition date. Accordingly, the Company recognized a (Pounds)60 million
($93 million) accrual at the acquisition date for the cost of this contract.
The Company has additional contracts with unaffiliated parties relating to
the purchase of electricity, which expire by March 31, 1998, and contracts
relating to the purchase of gas which expire by September 30, 1998, the terms
of which are immaterial with respect to quantity and price, both annually and
in the aggregate.
Operating Leases
SWEB has commitments under operating leases with various terms and
expiration dates. Expenses associated with these commitments totaled (Pounds)3
million ($5 million) for the period from September 18, 1995 to March 31, 1996.
At March 31, 1996, estimated minimum rental commitments for noncancelable
operating leases were as follows (in millions):
<TABLE>
<CAPTION>
AMOUNT
------------
(Pounds) $
<S> <C> <C>
Fiscal year:
1997...................................................... 2 3
1998...................................................... 2 3
1999...................................................... 2 3
2000...................................................... 1 2
2001...................................................... 1 2
Thereafter................................................ 10 15
--- ---
Total minimum payments.................................. 18 28
=== ===
</TABLE>
Labor Subject to Collective Bargaining Agreements
Substantially all of SWEB's employees are subject to one of five collective
bargaining agreements. Such agreements are ongoing in nature, and SWEB's
employee participation level is consistent with that of the electric utility
industry in Great Britain.
F-38
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated statement of income for the year ended
March 31, 1996 reflects the historical results of Southern Investments UK plc
for the period from inception (June 23, 1995) to March 31, 1996 and of South
Western Electricity plc for the period from April 1, 1995 to September 17,
1995, adjusted to show the results for the year ended March 31, 1996, as if
the purchase business combination had occurred on April 1, 1995. The pro forma
adjustments relate to the allocation of fair values of assets acquired and
liabilities assumed, as well as reflect the Predecessor period in US GAAP.
This information is prepared for illustrative purposes only and, because of
its nature, cannot give a complete picture of the Company's results of
operations had the transactions been consummated on the date assumed and does
not project the Company's financial position or results of operations for any
future date or period. The unaudited pro forma consolidated statement of
income should be read in conjunction with the consolidated financial
statements of Southern Investments UK plc and the related notes thereto.
Unaudited amounts have been prepared based upon the consolidated financial
statements of the Company, which have been prepared in accordance with US
GAAP.
F-39
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED MARCH
31, 1996
The following unaudited pro forma statement of income is based upon the
consolidated statement of income for the period from inception (June 23, 1995)
to March 31, 1996 of the Successor Company and the statement of income of the
Predecessor Company for the period from April 1, 1995 to September 17, 1995,
adjusted to reflect the items described in notes (1) to (5) below as if the
purchase business combination had occurred at the beginning of the period.
<TABLE>
<CAPTION>
IN MILLIONS
------------------------------------------------------------------------------------
SUCCESSOR PERIOD PREDECESSOR PERIOD PRO FORMA FOR
INCEPTION (JUNE 23, 1995) APRIL 1, 1995 TO THE YEAR ENDED
TO MARCH 31, 1996 SEPTEMBER 17, 1995 MARCH 31, 1996
U.S. GAAP U.S. GAAP ADJUSTMENTS U.S. GAAP
------------------------- ------------------ ----------------------- --------------
(Pounds) (Pounds) 1 2 3 4 5 (Pounds) U.S.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues...... 481 299 -- -- -- -- -- 780 1,211
Cost of sales........... 318 186 -- -- -- -- -- 504 783
--- --- --- --- --- --- --- --- -----
Gross margin............ 163 113 -- -- -- -- -- 276 428
--- --- --- --- --- --- --- --- -----
Operating expenses:
Maintenance........... 21 18 -- -- -- -- -- 39 60
Depreciation and amor-
tization............. 22 15 3 2 -- -- -- 42 65
Selling, general, and
administrative....... 34 40 -- -- -- -- -- 74 115
--- --- --- --- --- --- --- --- -----
Total operating
expenses........... 77 73 3 2 -- -- -- 155 240
--- --- --- --- --- --- --- --- -----
Operating income.... 86 40 (3) (2) -- -- -- 121 188
--- --- --- --- --- --- --- --- -----
Other income (expense):
Interest income....... 7 2 -- -- -- -- -- 9 14
Interest expense...... (28) (5) -- -- (1) (32) -- (66) (102)
Gain on sale of in-
vestment............. 14 -- -- -- -- -- (14) -- --
Other, net............ 2 1 -- -- -- -- 8 11 17
--- --- --- --- --- --- --- --- -----
Total other ex-
pense.............. (5) (2) -- -- (1) (32) (6) (46) (71)
--- --- --- --- --- --- --- --- -----
Income from continuing
operations before
income taxes........... 81 38 (3) (2) (1) (32) (6) 75 117
Provision for income
taxes.................. 28 13 (1) (1) -- (11) (2) 26 40
--- --- --- --- --- --- --- --- -----
Income from continuing
operations............. 53 25 (2) (1) (1) (21) (4) 49 77
=== === === === === === === === =====
</TABLE>
- --------
(1) Depreciation expense which would have been recorded based on the valuation
of property, plant, and equipment recorded in connection with the purchase
business combination, as if such combination had occurred on April 1,
1995. It has been provided using composite straight line rates which
approximate 3.1% on an asset value of (Pounds)1,190 million for 170 days,
less depreciation already charged to the Predecessor Company's
consolidated statement of income.
(2) Amortization of goodwill recorded in connection with the purchase business
combination as if the combination had occurred on April 1, 1995.
(3) Reflect the fair value of long-term debt obligations and associated
interest expense recorded in connection with the purchase business
combination as if the combination had occurred on April 1, 1995. The
charge relates to notional interest ((Pounds)2 million) on the discounted
provision in respect of Teesside, partly offset by a reduction in interest
to market rates on the HM debt ((Pounds)1 million).
(4) Reflect the interest expense recorded in connection with the purchase
business combination as if the combination had occurred on April 1, 1995
and had been 100% financed with short-term borrowings at an interest rate
of 6% per year. The impact of a 1/8% change in the assumed interest rate
would change income from continuing operations by (Pounds)0.4 million.
(5) Remove gain on the sale of investment in NGG and costs incurred by the
Predecessor Company relating to bid defense associated with the
Acquisition.
The unaudited pro forma consolidated statement of income information above
does not give effect to the bonds issued in the Offering as the interest rate
on such bonds cannot be estimated by the Company prior to pricing such debt.
Refer to "Use of Proceeds" and "Capitalization" on page 19 of this
Registration Statement for further information regarding the impact of the
Offering on the debt of the Company.
F-40
<PAGE>
===============================================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPEC-
TUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITY OTHER THAN THE SENIOR NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OF-
FERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 14
The Company.............................................................. 16
Use of Proceeds.......................................................... 19
Capitalization........................................................... 19
Exchange Rates........................................................... 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 26
Business................................................................. 35
The Electric Utility Industry in Great Britain........................... 43
Management............................................................... 50
Certain Relationships and Related Transactions........................... 51
Security Ownership....................................................... 52
Description of the Senior Notes.......................................... 53
Certain Income Tax Considerations........................................ 69
Underwriting............................................................. 72
Legal Matters............................................................ 73
Experts.................................................................. 73
Available Information.................................................... 74
Luxembourg Stock Exchange and Other Information.......................... 74
Glossary................................................................. A-1
Index to Financial Statements............................................ F-1
</TABLE>
------------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE SENIOR NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===============================================================================
===============================================================================
$235,000,000
SOUTHERN INVESTMENTS UK PLC
% SENIOR NOTES DUE 2006
------------------
PROSPECTUS
, 1996
------------------
LEHMAN BROTHERS
MERRILL LYNCH & CO.
J.P.MORGAN & CO.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale
and distribution of the securities being registered.
<TABLE>
<CAPTION>
ITEM
----------
<S> <C>
SEC registration fee........................................... $ 81,035
Blue Sky fees and expenses..................................... 3,875
Printing and engraving expenses................................ 120,000
Legal fees and expenses........................................ 713,500
Accountants fees and expenses.................................. 343,750
Trustee and Book-Entry Depositary fees and expenses............ 16,500
Miscellaneous.................................................. 11,340
----------
Total........................................................ $1,290,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under UK law there is a general rule that any provision (whether contained
in a company's articles or in any other arrangement with the company)
exempting an officer of the company from, or indemnifying him against, any
liability for negligence or other breach of duty in relation to the company is
void (this would include liability for fraud or dishonesty). As an exception
to this rule, a company may indemnify an officer against a liability incurred
by him in defending any proceedings in which judgment is given in his favor or
in which he is acquitted. A company may also give an indemnity where, in any
proceedings against a director, the court relieves him from liability for
negligence or breach of duty where he has acted honestly and reasonably and
ought fairly to be excused from liability. An indemnity is permitted where a
director acts within his powers and is not guilty of negligence or other
breach of duty. A company is also permitted to purchase insurance against any
such liability.
Southern has an insurance policy covering the liabilities and expenses of
Southern and its direct and indirect subsidiaries which might arise in
connection with their lawful indemnification of their directors and officers
for certain of their liabilities and expenses and also covering their officers
and directors against certain other liabilities and expenses.
The Bylaws of Southern Electric provide that no present or future director
or officer of Southern Electric shall be liable for any act, omission, step,
or conduct taken or had in good faith, which is required, authorized, or
approved by any order or orders issued pursuant to the Public Utility Holding
Company Act of 1935, the Federal Power Act, or any federal or state statute or
municipal ordinance regulating Southern Electric or its parent by reason of
their being holding or investment companies, public utility companies, public
utility holding companies, or subsidiaries of public utility holding
companies. In the event that the foregoing provisions are found not to
constitute a valid defense on the grounds of not being applicable to the
particular class of plaintiff, each such director and officer is required to
be reimbursed under such Bylaws for, or indemnified against, all expenses and
liabilities incurred by him or imposed on him, in connection with, or arising
out of, any such action, suit, or proceeding based on any act, omission, step,
or conduct taken or had in good faith as in such provisions described.
II-1
<PAGE>
The Bylaws of Southern Electric further provide that each person who is or
was a director of Southern Electric or officer or employee of Southern
Electric holding one or more positions of management through and inclusive of
Project managers and Business Development Managers (but not positions below
the level of such managers) (such positions being hereinafter referred to as
"Management Positions") and who was or is a party or was or is threatened to
be made a party to any threatened, pending or completed claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was serving at the request of Southern
Electric as a director, alternate director, officer, employee, agent or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, shall be indemnified by Southern Electric as
a matter of right against any and all expenses (including attorneys' fees)
actually and reasonably incurred by him and against any and all claims,
judgments, fines, penalties, liabilities and amounts paid in settlement
actually incurred by him in defense of such claim, action, suit or proceeding,
including appeals, to the full extent permitted by applicable law. Expenses
(including attorneys' fees) incurred by a director of Southern Electric or
officer or employee of Southern Electric holding one or more Management
Positions with respect to the defense of any such claim, action, suit or
proceeding may be advanced by Southern Electric prior to the final disposition
of such claim, action, suit or proceeding, as authorized by the board of
directors in the specific case, upon receipt of an undertaking by or on behalf
of such person to repay such amount unless it shall ultimately be determined
that such person is entitled to be indemnified by Southern Electric under such
provisions or otherwise.
The Articles of Association of the Company provide that, without prejudice
to the provisions of Regulation 118 of Table A of the Companies Acts 1985 to
1989 under UK law, the directors shall have power to purchase and maintain
insurance for or for the benefit of any persons who are or were at any time
directors, officers, or employees or auditors of the Company, or of any other
company which is its holding company or parent undertaking or in which the
Company or such holding company or parent undertaking or any of the
predecessors of the Company or of such holding company or parent undertaking
has any interest whether direct or indirect or which is in any way allied to
or associated with the Company, or of any subsidiary undertaking of the
Company or of any such other company, or who are or were at any time trustees
of any pension fund in which any employees of the Company or of any such other
company or subsidiary undertaking are interested, including (without prejudice
to the generality of the foregoing) insurance against any liability incurred
by such persons in respect of any act or omission in the actual or purported
execution and/or discharge of their duties and/or in the exercise or purported
exercise of their powers and/or otherwise in relation to their duties, powers
or offices in relation to the Company or any such other company, subsidiary
undertaking or pension fund. For the purposes of this Regulation "holding
company" "parent undertaking" and "subsidiary undertaking" shall have the same
meanings as in the Companies Acts 1985 to 1989.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Upon its incorporation on June 23, 1995, the Company issued two ordinary
shares at (Pounds)1 each to its two corporate incorporators, both of which
were incorporated in England and Wales. On July 4, 1995 the Company issued
49,998 ordinary shares at an aggregate price of (Pounds)49,998 to Holdings,
formerly Premier American Investments plc, at which time Holdings also
acquired the 2 shares held by the incorporators. On October 6, 1995 the
Company issued to Holdings an additional 500,350,587 ordinary shares at an
aggregate price of (Pounds)500,350,587, one of which is held by a UK resident
individual as nominee for Holdings.
During the period July 13, 1995 to August 24, 1995 the Company issued a
series of bonds underwritten by Swiss Bank Corporation (acting through its
division, SBC Warburg), Chemical Investment Bank Limited, IBJ International
plc, National Westminster Bank plc and The Toronto-Dominion Bank with an
aggregate offering price of (Pounds)627,070,000 and underwriting discounts and
commissions in the amount of (Pounds)6,270,700.
All such issuances and sales were exempt from registration requirements of
the Securities Act, by reason of the fact that such securities were offered
and sold outside the United States to persons who were not citizens of the
United States or in transactions which were exempt from registration pursuant
to Regulation S of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement among the Company and the Underwriters.
3.1 Memorandum of Association of the Company.**
3.2 Articles of Association of the Company.**
4.1 Form of Trust Indenture between the Trustee and the Company.
4.2 Form of First Supplemental Indenture between the Trustee and the Com-
pany.
4.3 Form of Deposit Agreement between the Book-Entry Depositary and the
Company.
5.1 Opinion of Troutman Sanders LLP regarding the legality of the securi-
ties being registered.
5.2 Opinion of Allen & Overy regarding the legality of the securities be-
ing registered.
8.1 Opinion of Troutman Sanders LLP regarding taxation.
8.2 Opinion of Allen & Overy regarding taxation.
10.1 SWEB Public Electricity Supply License dated January 31, 1996.**
10.2 Modifications of License Conditions dated March 31, 1994, March 30,
1994, June 30, 1993, June 15, 1992, and April 22, 1992.**
10.3 Pooling and Settlement Agreement as amended and restated at December
2, 1994 between SWEB, Energy Settlements and Information Services (as
Settlement System Administrator), Energy Pool Funds Administration
Limited (as Pool Funds Administrator), The National Grid Company plc
(as Grid Operator and Ancillary Services Provider), SWEB and Other
Parties.**
10.4 Master Connection and Use of System Agreement dated as of March 30,
1990 among The National Grid Company plc and its users (including
SWEB).**
10.5 Form of Supplemental Agreement between The National Grid Company plc
and SWEB.**
10.6 Master Agreement dated as of October 25, 1995 among The National Grid
Holding plc, The National Grid Company plc, SWEB and the other RECs.**
10.7 Memorandum of Understanding between The National Grid Group plc, SWEB
and each of the RECs, dated November 17, 1995.**
10.8 Form of SWEB Use of Distribution System Agreement.**
10.9 Form of Agreement for the Connection of an Exit Point.**
10.10 Services Agreement dated as of January 1, 1996 between Southern Elec-
tric International, Inc. and the Company.**
10.11 Services Agreement dated as of January 1, 1996 between Southern Elec-
tric International, Inc. and SWEB.**
10.12 Services Agreement dated as of January 1, 1996 between SWEB and South-
ern Investments UK Holdings Limited.**
10.13 Services Agreement dated as of January 1, 1996 between the Company and
SWEB.**
12.1 Statements re: Computation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries of the Company.**
23.1 Consent of Arthur Andersen.
23.2 Consent of Ernst & Young.
23.3 Consent of Arthur Andersen.
23.4 Consent of Troutman Sanders LLP (included in Exhibit 5.1).
23.5 Consent of Allen & Overy (included in Exhibit 5.2).
23.6 Consent of Troutman Sanders LLP (included in Exhibit 8.1).
23.7 Consent of Allen & Overy (included in Exhibit 8.2).
24.1 Resolution and Powers of Attorney.**
25.1 Statement of Eligibility of Trustee.
27.1 Financial Data Schedule.**
99.1 The (Pounds)600 million Revolving Credit and Term Loan Agreement dated
January 12, 1996, among Southern Investments UK plc and South Western
Electricity plc as borrowers, J.P. Morgan Securities Ltd. as arranger
and Morgan Guaranty Trust Company as Agent and the banks named there-
in.**
</TABLE>
- --------
** Previously filed.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules of the Predecessor, and the
Successor Company are filed as part of this Company Registration Statement:
SOUTHWESTERN ELECTRICITY plc
(Predecessor Company)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For Years Ended March 31, 1994 and 1995
And for the Period From April 1, 1995 to September 17, 1995
SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES
(Successor Company)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
And for the Period From Inception (June 23, 1995) to March 31, 1996
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted as to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that 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 and will be governed by the final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act, the information omitted from the form
of prospectus as filed as part of the registration statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus 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.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
SOUTHERN INVESTMENTS UK PLC, A PUBLIC LIMITED COMPANY DULY ORGANIZED AND
EXISTING UNDER THE LAWS OF ENGLAND AND WALES, HAS DULY CAUSED THIS AMENDMENT
TO THE REGISTRATION STATEMENT ON FORM S-1 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN ATLANTA, GEORGIA ON THE 26TH DAY OF
SEPTEMBER 1996.
SOUTHERN INVESTMENTS UK PLC
*
By: _________________________________
RICHARD J. PERSHING
DIRECTOR AND CHIEF EXECUTIVE
OFFICER
/s/ Edwin Adams
*By: ________________________________
EDWIN ADAMS
ATTORNEY-IN-FACT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON
SEPTEMBER 26, 1996 IN THE CAPACITIES INDICATED:
SIGNATURE TITLE
* Chairman and Chief Executive
- ------------------------------------- Officer
RICHARD J. PERSHING
* Chief Financial and
- ------------------------------------- Accounting Officer
C.B. HARRELD
* Director
- -------------------------------------
THOMAS G. BOREN
* Director
- -------------------------------------
ALAN W. HARRELSON
* Director
- -------------------------------------
GALE E. KLAPPA
* Director
- -------------------------------------
C. PHILIP SAUNDERS
* Director
- -------------------------------------
CHARLES W. WHITNEY
II-5
<PAGE>
SIGNATURE TITLE
ACCENTACROSS LIMITED
* Director
By: _________________________________
ROBERT D. FAGAN
MIGHTEAGER LIMITED
* Director
By: _________________________________
ROBERT D. FAGAN
/s/ Edwin Adams
*By: ________________________________
EDWIN ADAMS
ATTORNEY-IN-FACT
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE
To the Board of Directors of Southern Investments UK plc:
We have audited in accordance with generally accepted auditing standards, the
financial statements of SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(Successor Company) included in this registration statement and have issued
our report thereon dated July 25, 1996. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in Item 16(b) is the responsibility of the company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen
Bristol, England
July 25, 1996
S-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
ON SCHEDULE
To: THE BOARD OF DIRECTORS
South Western Electricity plc
We have audited the consolidated financial statements of South Western
Electricity plc (Predecessor Company) as of March 31, 1995 and for the years
ended March 31, 1995 and 1994, and have issued our report thereon dated August
27, 1996. Our audit also included the financial statement schedule listed in
Item 16(b). This schedule is the responsibility of the company's management.
Our responsibility is to express an opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
ERNST & YOUNG
Chartered Accountants
Bristol, England
August 27, 1996
S-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE
To the Board of Directors of South Western Electricity plc:
We have audited in accordance with generally accepted auditing standards, the
financial statements of SOUTH WESTERN ELECTRICITY PLC AND SUBSIDIARIES
(Predecessor Company) included in this registration statement and have issued
our report thereon dated August 27, 1996. Our audit was made for the purpose
of forming an opinion on those statements taken as a whole. The schedule
listed in Item 16(b) is the responsibility of the company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen
Bristol, England
August 27, 1996
S-3
<PAGE>
SOUTHWESTERN ELECTRICITY PLC
(PREDECESSOR COMPANY)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR YEARS ENDED MARCH 31, 1994 AND 1995
AND FOR THE PERIOD FROM APRIL 1, 1995 TO SEPTEMBER 17, 1995
(IN MILLIONS (Pounds))
<TABLE>
<CAPTION>
ADDITIONS
-----------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE AT
BEGINNING OF AND TO OTHER END OF
PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------ -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Provision for Uncollecti-
ble Accounts:
Year Ended March 31,
1994................... 14 6 (7) 13
=== === === === ===
Year Ended March 31,
1995................... 13 7 (8) 12
=== === === === ===
Period from April 1,
1995 to September 17,
1995................... 12 2 (3) 11
=== === === === ===
</TABLE>
SOUTHERN INVESTMENTS UK PLC AND SUBSIDIARIES
(SUCCESSOR COMPANY)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
AND FOR THE PERIOD FROM INCEPTION (JUNE 23, 1995) TO MARCH 31, 1996
(IN MILLIONS (Pounds))
<TABLE>
<CAPTION>
ADDITIONS
-----------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE AT
BEGINNING OF AND TO OTHER END OF
PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------ -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Provision for Uncollectible
Accounts:
Period from Inception
(June 23, 1995) to March
31, 1996................ 15(1) 3 (1) 17
=== === === === ===
</TABLE>
- --------
(1) Includes an additional (Pounds)4 million of provision created resulting
from the application of purchase accounting at the acquisition.
S-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement among the Company and the Under-
writers.
3.1 Memorandum of Association of the Company.**
3.2 Articles of Association of the Company.**
4.1 Form of Trust Indenture between the Trustee and the Company.
4.2 Form of First Supplemental Indenture between the Trustee and
the Company.
4.3 Form of Deposit Agreement between the Book-Entry Depositary and
the Company.
5.1 Opinion of Troutman Sanders LLP regarding the legality of the
securities being registered.
5.2 Opinion of Allen & Overy regarding the legality of the securi-
ties being registered.
8.1 Opinion of Troutman Sanders LLP regarding taxation.
8.2 Opinion of Allen & Overy regarding taxation.
10.1 SWEB Public Electricity Supply License dated January 31,
1996.**
10.2 Modifications of License Conditions dated March 31, 1994, March
30, 1994, June 30, 1993, June 15, 1992, and April 22, 1992.**
10.3 Pooling and Settlement Agreement as amended and restated at De-
cember 2, 1994 between SWEB, Energy Settlements and Information
Services (as Settlement System Administrator), Energy Pool
Funds Administration Limited (as Pool Funds Administrator), The
National Grid Company plc (as Grid Operator and Ancillary Serv-
ices Provider), SWEB and Other Parties.**
10.4 Master Connection and Use of System Agreement dated as of March
30, 1990 among The National Grid Company plc and its users (in-
cluding SWEB).**
10.5 Form of Supplemental Agreement between The National Grid Com-
pany plc and SWEB.**
10.6 Master Agreement dated as of October 25, 1995 among The Na-
tional Grid Holding plc, The National Grid Company plc, SWEB
and the other RECs.**
10.7 Memorandum of Understanding between The National Grid Group
plc, SWEB and each of the RECs, dated November 17, 1995.**
10.8 Form of SWEB Use of Distribution System Agreement.**
10.9 Form of Agreement for the Connection of an Exit Point.**
10.10 Services Agreement dated as of January 1, 1996 between Southern
Electric International, Inc. and the Company.**
10.11 Services Agreement dated as of January 1, 1996 between Southern
Electric International, Inc. and SWEB.**
10.12 Services Agreement dated as of January 1, 1996 between SWEB and
Southern Investments UK Holdings Limited.**
10.13 Services Agreement dated as of January 1, 1996 between the Com-
pany and SWEB.**
12.1 Statements re: Computation of Ratio of Earnings to Fixed
Charges.
21.1 List of Subsidiaries of the Company.**
23.1 Consent of Arthur Andersen.
23.2 Consent of Ernst & Young.
23.3 Consent of Arthur Andersen.
23.4 Consent of Troutman Sanders LLP (included in Exhibit 5.1).
23.5 Consent of Allen & Overy (included in Exhibit 5.2).
23.6 Consent of Troutman Sanders LLP (included in Exhibit 8.1).
23.7 Consent of Allen & Overy (included in Exhibit 8.2).
24.1 Resolution and Powers of Attorney.**
25.1 Statement of Eligibility of Trustee.
27.1 Financial Data Schedule.**
99.1 The (Pounds)600 million Revolving Credit and Term Loan Agree-
ment dated January 12, 1996, among Southern Investments UK plc
and South Western Electricity plc as borrowers, J.P. Morgan Se-
curities Ltd. as arranger and Morgan Guaranty Trust Company as
Agent and the banks named therein.**
</TABLE>
- --------
** Previously filed.
<PAGE>
Exhibit 1.1
SOUTHERN INVESTMENTS UK PLC
UNDERWRITING AGREEMENT
FOR PURCHASE OF ___% SENIOR NOTES DUE 2006 OF THE COMPANY
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
J.P. Morgan Securities Inc.
c/o Lehman Brothers Inc.
as representative of the
several Underwriters named
in Schedule I hereto
3 World Financial Center
200 Vesey Street
New York, New York 10285
Ladies and Gentlemen:
Southern Investments UK plc, a public limited liability
company incorporated under the Companies Act 1985 in England and Wales
(the "Company"), proposes, subject to the terms and conditions stated
herein, to issue and sell to the Underwriters named in Schedule I (the
"Underwriters") $______________ aggregate principal amount of ___%
Senior Notes due 2006 (the "Senior Notes") of the Company. The Senior
Notes will be issued pursuant to the provisions of an Indenture to be
dated as of _______________, 1996 (the "Indenture") between the
Company and Bankers Trust Company, as Trustee (the "Trustee").
1. Registration Statement and Prospectus: The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act
of 1933, as amended, and the rules and regulations of the Commission
thereunder (collectively, the "Act"), a registration statement on Form
S-1 (Registration No. 333-09033) under the Act (the "registration
statement"), including a prospectus subject to completion relating to
the Senior Notes. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial
schedules and exhibits), as amended at the time it becomes effective,
or, if the registration statement became effective prior to the
execution of this Agreement, as supplemented or amended prior to the
execution of this Agreement. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the
registration statement will be filed and must be declared effective
before the offering of the Senior Notes may commence, the term
"Registration Statement" as used in this Agreement means the
registration statement as amended by said post-effective amendment.
The term "Prospectus" as used in this Agreement means (a) the
prospectus in the form included in the Registration Statement, (b) if
<PAGE>
the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Act and such
information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Act, the prospectus in the form
included in the Registration Statement as supplemented by the addition
of the Rule 430A information contained in the prospectus filed with
the Commission pursuant to Rule 424(b), or (c) if the Company relies
on Rule 434 under the Act, the Term Sheet relating to the Senior Notes
that is filed pursuant to Rule 424(b) under the Act together with the
Preliminary Prospectus identified therein that such Term Sheet
supplements. "Term Sheet" means any term sheet that satisfies the
requirements of Rules 434 and 424(b) under the Act. Any reference in
this Agreement to the "date" of a prospectus that includes a Term
Sheet means the date of such Term Sheet. The term "Preliminary
Prospectus" as used in this Agreement means the prospectus subject to
completion in the form included in the registration statement at the
time of the initial public filing of the registration statement with
the Commission, and as such prospectus shall have been amended from
time to time prior to the date of the Prospectus.
2. Purchase and Sale: Upon the basis of the warranties and
representations and on the terms and subject to the conditions herein
set forth, the Company agrees to sell to the respective Underwriters,
severally and not jointly, and the respective Underwriters, severally
and not jointly, agree to purchase from the Company, the respective
principal amounts of Senior Notes set opposite their names in Schedule
I at the purchase price of [ ]% of the principal amount thereof, plus
accrued interest, if any, from __________, 1996.
3. Offering by the Underwriters: The Company has been
advised by you that the Underwriters propose to make a public offering
of their respective portions of the Senior Notes as soon after the
Registration Statement and this Agreement have become effective as in
your judgment is advisable and to offer the Senior Notes upon the
terms set forth in the Prospectus.
4. Payment and Delivery: Payment for the Senior Notes
shall be made to the Company or its order in federal funds or in other
funds which are, as shown by written evidence satisfactory to the
Company, immediately available at the time of purchase, at the office
of [_________________] (or at such other place as may be agreed upon
by you and the Company), upon the delivery of the Senior Notes to you
for the respective accounts of the Underwriters against receipt
therefor signed by you on behalf of yourself and as agent for the
other Underwriters. Such payment and delivery shall be made at 10
a.m. New York Time on ________________ (the "Closing Date") (or at
such other time or on such other day as may be agreed upon by you and
the Company), unless postponed in accordance with the provisions of
Section 9 hereof.
The Senior Notes shall be registered in such name or names
and in such denominations as you may request not later than 10 a.m.
New York Time on at least two business days prior to the Closing Date,
or, if no such request is received, in the names of the respective
Underwriters in denominations selected by the Company. If you shall
request that any of the Senior Notes be registered in a name or names
other than that of the Underwriter agreeing to purchase such Senior
Notes, such Underwriter shall pay any transfer taxes resulting from
such
2
<PAGE>
request. The Company agrees to make the Senior Notes available
for inspection by you at the office of the Trustee at least 24 hours
prior to the Closing Date. In the event that it becomes necessary to
make initial delivery of the Senior Notes in temporary form, such
Senior Notes will be exchangeable at said office of the Trustee, upon
request, for definitive fully registered Senior Notes of authorized
denominations without charge to the holders thereof as soon as is
reasonably practicable.
5. Conditions of Underwriters' Obligations: The several
obligations of the Underwriters hereunder are subject to the accuracy
of the warranties and representations on the part of the Company
herein contained and to the following other conditions:
(a) That the legal opinions provided for in Sections 5(b)(1)
and (2) hereof shall be satisfactory in form and substance to
Shearman & Sterling, counsel to the Underwriters.
(b) That, at the time of purchase, you shall be furnished
the following opinions and letter and copies or signed
counterparts thereof for each of the Underwriters, with such
changes therein as may be agreed upon by the Company and you:
(1) Opinion of Troutman Sanders LLP, of Atlanta,
Georgia, counsel to the Company, substantially in the form
attached hereto as Exhibit 1.
(2) Opinion of Allen & Overy, of London, England,
substantially in the form attached hereto as Exhibit 2.
(3) Opinion of Shearman & Sterling, of New York, New
York, substantially in the form attached hereto as Exhibit
3.
(4) Opinion of Sewerd & Kissel, of New York, New York,
substantially in the form attached hereto as Exhibit 4.
(5) Letters dated the date hereof from Arthur Andersen
LLP and Ernst & Young, substantially in the forms attached
hereto as Exhibit 5 and Exhibit 6, respectively, and a
letter dated as of the Closing Date from Arthur Andersen
LLP, substantially in the form attached hereto as Exhibit 7.
(c) That no amendment or supplement to the registration
statement or prospectus filed subsequent to the time this
agreement becomes effective shall be unsatisfactory in form to
the Underwriters or shall contain information (other than with
respect to an amendment or supplement relating solely to the
activity of any Underwriter or Underwriters) which, in your
reasonable judgment, shall materially impair the marketability of
the Senior Notes.
3
<PAGE>
(d) That, prior to the time of purchase, no stop order with
respect to the effectiveness of the Registration Statement shall
have been issued under the Act by the Commission or proceedings
therefor initiated or threatened.
(e) That, prior to the time of purchase, there shall have
been no material adverse change in the business, properties or
financial condition of the Company from that set forth in or
contemplated by the Prospectus, and that the Company shall, at
the time of purchase, have delivered to you a certificate to such
effect of an executive officer of the Company. For the purposes
of this condition, the sale by the Company of, or its failure to
sell, any issue of other securities shall not be deemed to be
such a change.
(f) That the Company shall have performed such of its
obligations under this Agreement as are to be performed at or
prior to the time of purchase by the terms hereof.
6. Certain Covenants of the Company: In further consideration
of the agreements of the Underwriters herein contained, the Company
covenants as follows:
(a) If the Registration Statement has been declared
effective prior to the execution and delivery of this Agreement,
the Company will file with the Commission (i) if the Company
relies on Rule 434 under the Act, a Term Sheet relating to the
Senior Notes, that identifies the Preliminary Prospectus that it
supplements and contains such information as is required or
permitted by Rules 434, 430A and 424(b) under the Act or (2) if
the Company does not rely on Rule 434 under the Act, a prospectus
in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been
filed, in such registration statement) with such changes or
insertions as are required or by Rule 430A or permitted by Rule
424(b) under the Act. The Company will advise you promptly of
any such filing pursuant to Rule 424(b).
(b) As soon as the Company is advised thereof, to advise
you and confirm the advice in writing of any request made by the
Commission for amendments to the Registration Statement or
Prospectus, or of the issue of a stop order suspending the
effectiveness of the Registration Statement or of the initiation
or threat of any proceedings for that purpose and, if such a stop
order should be issued by the Commission, to make every
reasonable effort to obtain the lifting or removal thereof as
soon as possible.
(c) To deliver to the Underwriters, without charge during
such period of time (not exceeding nine months after this
agreement becomes effective) as the Underwriters are required by
law to deliver a prospectus, as many copies of the Preliminary
Prospectus and the Prospectus (as supplemented or amended if the
Company shall have made any supplements or amendments thereto) as
you may reasonably request; and, in
4
<PAGE>
case any Underwriter is required by law to deliver a prospectus
after the expiration of nine months after the date this agreement
becomes effective, to furnish to such Underwriter, upon your
request, at the expense of such Underwriter, a reasonable
quantity of a supplemental prospectus or of supplements to the
Prospectus complying with Section 10(a)(3) of the Securities Act.
(d) During such period of time after the date this
agreement becomes effective as the Underwriters are required by
law to deliver a prospectus, to file timely all documents
required to be filed with the Commission pursuant to Section 13
or 14 of the Exchange Act.
(e) To furnish to you one manually signed copy of the
Registration Statement as initially filed with the Commission and
all amendments thereto (in each case, exclusive of exhibits), and
to furnish to you sufficient plain copies of said registration
statement and all amendments thereto (exclusive of exhibits) for
distribution of two each, and all said documents incorporated
therein as of the time of purchase (exclusive of exhibits) for
distribution of one each, to the other Underwriters.
(f) For such period of time (not exceeding nine months)
after the date this agreement becomes effective as they are
required by law to deliver a prospectus, if any event shall have
occurred as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements
therein, in light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, forthwith to amend or
supplement the Prospectus by preparing and furnishing, at its own
expense, to the Underwriters and to dealers (whose names and
addresses are furnished to the Company by you) to whom Senior
Notes may have been sold by you on behalf of the Underwriters
and, upon request, to any other dealers making such request,
either amendments to the Prospectus or supplements thereto so
that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading.
(g) To make generally available to the Company's security
holders, as soon as practicable, an earning statement (which need
not be audited) covering a period of at least twelve months
beginning with the first day of the month immediately following
the effective date of the Registration Statement as defined in
Rule 158(c) under the Securities Act, which earning statement
shall satisfy the provisions of Section 11(a) of the Securities
Act.
(h) To cooperate with the Underwriters to qualify the
Senior Notes for offer and sale under the securities or blue sky
laws of such United States jurisdictions as you may reasonably
request and to pay filing fees, reasonable attorneys' fees and
disbursements in connection therewith in an amount not exceeding
$15,000 in the aggregate (including filing fees and disbursements
paid or incurred prior to the date this agreement becomes
effective), provided, however, that the Company shall not be
5
<PAGE>
required to qualify as a foreign corporation or to file a consent
to service of process or to file annual reports or to comply with
any other requirements deemed by the Company to be unduly
burdensome.
(i) To pay expenses, fees and taxes (other than transfer
taxes) in connection with (1) the preparation and filing of the
Registration Statement, Preliminary Prospectus and Prospectus,
(2) the preparation, execution, filing and recording of the
indenture pursuant to which the Senior Notes are to be issued,
(3) the issue and delivery of the Senior Notes to the
Underwriters, and (4) the furnishing of the opinions, letter and
certificates referred to in Section 5 hereof upon the terms and
in the amounts agreed pursuant to separate agreements; provided,
however, that the Underwriters shall be solely responsible to pay
the fees and expenses of counsel to the Underwriters, and the
Company shall not be liable to reimburse the Underwriters for
such fees and expenses.
(j) If the Underwriters shall not take up and pay for the
Senior Notes due to the failure of the Company to comply with any
of the conditions specified in Section 5 hereof, to reimburse the
Underwriters for their reasonable out-of-pocket expenses, in an
amount not exceeding a total of $10,000, incurred in connection
with the financing contemplated by this Agreement.
7. Warranties of and Indemnity by the Company:
(a) The Company warrants and represents to each of the
Underwriters that:
(i) Each Preliminary Prospectus, when filed with the
Commission, conformed in all material respects to the
requirements of the Act and the Rules and Regulations; and,
when the Registration Statement became or becomes effective
and at all times subsequent thereto up to and including the
Closing Date, the Registration Statement and the Prospectus
and, if any, each amendment and each supplement thereto
conformed, or will conform, in all material respects to the
requirements of the Act and the Rules and Regulations and
the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"); and none of the Registration Statement, nor
any amendment thereto, included or will include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading; and none of the
Prospectus or any Preliminary Prospectus (or any supplement
thereto) as of their respective dates included any untrue
statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading; provided,
however, that the Company makes no warranty or
representation to any Underwriter with respect to any
statements or omissions made in reliance upon and in
conformity with information furnished in writing to the
Company by, or through you on behalf
6
<PAGE>
of, any Underwriter for use in the Registration Statement,
any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or to any statements in or
omissions from that part of the Registration Statement that
shall constitute the Statement of Eligibility and
Qualification under the Trust Indenture Act of 1939, as
amended, of the Trustee under the Indenture.
(ii) The consummation of the transactions herein
contemplated and the performance by the Company of the terms
of this agreement will not violate any of the terms,
conditions or provisions of, or constitute a default under,
any indenture or other material contract or agreement to
which the Company is now a party or the charter or by-laws
of the Company or any order of any court or administrative
agency entered in any proceedings to which the Company is
now a party the violation of which would have a material
adverse effect on the Company's ability to pay the principal
or interest on the Senior Notes.
(b) The Company agrees to indemnify and hold harmless each
of the Underwriters and each person, if any, who controls any
such Underwriter within the meaning of Section 15 of the
Securities Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may
become subject under the Securities Act or otherwise, and to
reimburse the Underwriters and such controlling person or
persons, if any, for any legal or other expenses incurred by them
in connection with defending any actions, insofar as such losses,
claims, damages, liabilities or actions arise out of or are based
upon any untrue statement or alleged untrue statement of a
material fact contained in a Preliminary Prospectus (if used
prior to the effective date of the registration statement), or in
the Registration Statement, or in the Prospectus, in the
Prospectus as so amended or supplemented (provided that, if such
Prospectus or such Prospectus as amended or supplemented is used
after the expiration of the period of time specified in Section
6(f) hereof, it shall contain such amendments or supplements as
the Company deems necessary to comply with Section 10(a)(3) of
the Securities Act), or arise out of or are based upon any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon
any such untrue statement or omission or alleged untrue statement
or omission which was made in such Registration Statement or
Prospectus in reliance upon and in conformity with information
furnished in writing to the Company by, or through you on behalf
of, any Underwriter for use therein and except that this
indemnity with respect to a Preliminary Prospectus, and with
respect to the Prospectus if the Company shall have furnished any
amendment or supplement thereto, shall not inure to the benefit
of any Underwriter (or of any person controlling such
Underwriter) on account of any losses, claims, damages,
liabilities or actions arising from the sale of Senior Notes to
any person if a copy of the Prospectus, as the same may then be
amended or supplemented, shall not have been sent or given by or
on behalf of such Underwriter to such person with or prior to the
written confirmation of the sale involved. Each Underwriter
agrees, within ten days after the receipt by it of notice of the
commencement of any action in respect of
7
<PAGE>
which indemnity may be sought by it, or by any person controlling
it, from the Company on account of its agreement contained in
this Section 7(b), to notify the Company in writing of the
commencement thereof, but the omission of such Underwriter so to
notify the Company of any such action shall not release the
Company from any liability which it may have to such Underwriter
or to such controlling person otherwise than on account of the
indemnity agreement contained in this Section 7(b). In case any
such action shall be brought against any Underwriter or any such
person controlling such Underwriter and such Underwriter shall
notify the Company of the commencement thereof, as above
provided, the Company shall be entitled to participate in (and,
to the extent that it shall wish, including the selection of
counsel, to direct) the defense thereof at its own expense. In
case the Company elects to direct such defense and select such
counsel, any Underwriter or controlling person shall have the
right to employ its own counsel, but, in any such case, the fees
and expenses of such counsel shall be at the expense of such
Underwriter or controlling person unless the employment of such
counsel has been authorized in writing by the Company in
connection with defending such action.
The Company's indemnity agreement contained in this Section 7(b),
and its covenants, warranties and representations contained in this
agreement, shall remain in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or controlling
person, and shall survive the delivery of and payment for the Senior
Notes hereunder.
8. Warranties of and Indemnity by Underwriters:
(a) Each Underwriter warrants and represents to the
Company, its directors and such of its officers as shall have
signed the Registration Statement, and to each other Underwriter
that the information furnished in writing to the Company by, or
through you on behalf of, such Underwriter for use in the
Registration Statement, any Preliminary Prospectus or the
Prospectus does not contain an untrue statement of a material
fact and does not omit to state a material fact in connection
with such information required to be stated therein or necessary
to make such information not misleading.
(b) Each Underwriter agrees to indemnify and hold harmless
the Company, its directors and such of its officers as shall have
signed the Registration Statement, and each other Underwriter and
each person, if any, who controls the Company or any such other
Underwriter within the meaning of Section 15 of the Securities
Act, to the same extent and upon the same terms as the indemnity
agreement of the Company set forth in Section 7(b) hereof, but
only with respect to untrue statements or omissions or alleged
untrue statements or omissions made in the Registration
Statement, any Preliminary Prospectus or the Prospectus, or the
Prospectus as amended or supplemented, in reliance upon and in
conformity with information furnished in writing to the Company
by, or through you on behalf of, such Underwriter for use
therein.
The indemnity agreement on the part of each Underwriter contained
in this Section 8(b), and the warranties and representations of such
Underwriter contained in this Agreement, shall
8
<PAGE>
remain in full force and effect regardless of any investigation made
by or on behalf of the Company or other Underwriter or controlling
person, and shall survive the delivery of and payment for the Senior
Notes hereunder.
9. Substitution of Underwriters: If any Underwriter under this
Agreement shall fail or refuse (whether for some reason sufficient to
justify, in accordance with the terms hereof, the termination of its
obligations to purchase or otherwise) to purchase the principal amount
of the Senior Notes which it has agreed to purchase, the Company shall
immediately notify you and you may, within 24 hours of receipt of such
notice, procure some other responsible party or parties satisfactory
to the Company, who may include one or more of the remaining
Underwriters, to purchase or agree to purchase such principal amount
of the Senior Notes on the terms herein set forth; and, if you shall
fail to procure a satisfactory party or parties to purchase or agree
to purchase such principal amount of the Senior Notes on such terms
within such period after the receipt of such notice, then the Company
shall be entitled to an additional period of 24 hours within which to
procure another party or parties to purchase or agree to purchase such
principal amount of the Senior Notes on the terms herein set forth.
In any such case, either you or the Company shall have the right to
postpone the Closing Date for a period not to exceed five full
business days from the date set forth in Section 4 hereof, in order
that the necessary changes in the Registration Statement and
Prospectus and any other documents and arrangements may be effected.
If you shall fail to procure a satisfactory party or parties to
purchase or agree to purchase such principal amount of the Senior
Notes, and if the Company also does not procure another party or
parties to purchase or agree to purchase such principal amount of the
Senior Notes, as above provided, then this agreement shall terminate.
In the event of any such termination, the Company shall not be under
any liability to any Underwriter (except to the extent, if any,
provided in Section 6(j) hereof), nor shall any Underwriter (other
than a Underwriter who shall have failed or refused to purchase Senior
Notes without some reason sufficient to justify, in accordance with
the terms hereof, its termination of its obligations hereunder) be
under any liability to the Company.
10. Termination of Agreement: This Agreement may be terminated
at any time prior to the time of purchase by you with the consent of
Underwriters who have agreed to purchase in the aggregate 50% or more
of the aggregate principal amount of the Senior Notes, if, after this
agreement becomes effective and prior to the time of purchase, (i)
trading in securities on the New York Stock Exchange shall have been
generally suspended, (ii) minimum or maximum ranges for prices shall
have been generally established on the New York Stock Exchange by the
Commission or by the New York Stock Exchange, (iii) a general banking
moratorium shall have been declared by federal or New York State
authorities or (iv) there shall have occurred any outbreak or
escalation of major hostilities in which the United States is
involved, any declaration of war by the United States Congress or any
other substantial national or international calamity or emergency
affecting the United States, in any such case provided for in clauses
(i) through (iv) with the result that, in your reasonable judgment,
the marketability of the Senior Notes shall have been materially
impaired.
If you elect to terminate this Agreement, as provided in this
Section 10, the Company and
9
<PAGE>
each other Underwriter shall be notified promptly by you by telephone,
confirmed in writing. If this agreement shall not be carried out by
any Underwriter for any reason permitted hereunder, or if the sale of
the Senior Notes to the Underwriters as herein contemplated shall not
be carried out because the Company is not able to comply with the
terms hereof, the Company shall not be under any obligation under this
agreement and shall not be liable to any Underwriter or to any member
of any selling group for the loss of anticipated profits from the
transactions contemplated by this agreement (except that the Company
shall remain liable to the extent provided in Section 6(j) hereof) and
the Underwriters (other than a defaulting Underwriter) shall be under
no liability to the Company nor be under any liability under this
agreement to one another.
11. Notices: All notices hereunder shall, unless otherwise
expressly permitted, be in writing and be delivered at or mailed to
the following addresses: if to the Underwriters or to you, to you at
[address], and, if to the Company, to the Company at [address].
12. Parties in Interest: The agreement herein set forth has
been and is made solely for the benefit of the Underwriters and the
Company, its directors and such of its officers as shall have signed
the Registration Statement, and the controlling persons, if any,
referred to in Sections 7 and 8 hereof, and their respective
successors, assigns, executors and administrators, and, subject to the
provisions of Section 9 hereof, no other person shall acquire or have
any right under or by virtue of this agreement.
13. Applicable Law, Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of
New York, without giving effect to the choice of law or conflict of
law principles thereof. Each party hereto consents to the
jurisdiction of each court in which any action is commenced seeking
indemnity pursuant to Section 7 or 8 above and agrees to accept,
either directly or through an agent, service of process of each such
court.
14. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and
all of which together shall be deemed to be one and the same
instrument.
10
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the several Underwriters.
Very truly yours,
SOUTHERN INVESTMENTS UK
PUBLIC LIMITED COMPANY
By______________________________________
Name:_________________________________
Title:________________________________
Confirmed as of the date
first above mentioned
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
J.P. Morgan Securities Inc.
By: LEHMAN BROTHERS INC.
By:________________________________
Name:_____________________________
Title:____________________________
On behalf of themselves and
the other several Underwriters
named in Schedule I hereto.
11
<PAGE>
SCHEDULE I
Underwriters
Principal Amount
of the Senior Notes to
be Purchased
Underwriters ------------
------------
Lehman Brothers Inc...................................
Merrill Lynch, Pierce Fenner & Smith Incorporated.....
J.P. Morgan Securities Inc............................
____________
Total Principal Amount................................
12
<PAGE>
EXHIBIT 4.1
===============================================================================
SOUTHERN INVESTMENTS UK PLC
AND
BANKERS TRUST COMPANY, AS TRUSTEE,
PRINCIPAL PAYING AGENT, REGISTRAR AND TRANSFER AGENT
AND
BANKERS TRUST LUXEMBOURG S.A.,
AS PAYING AND TRANSFER AGENT
INDENTURE
DATED AS OF ______ __, 1996
____________________________
DEBT SECURITIES
===============================================================================
<PAGE>
Reconciliation and tie between Trust Indenture Act of 1939 and
Indenture, dated as of _____________, 1996
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
- ---------------------------- -----------------
<S> <C>
(S) 310(a)(1)................................................609
(a)(2).............................................609
(a)(3).......................................Not Applicable
(a)(4).......................................Not Applicable
(b)................................................608
610
(S) 311(a) 613(a)
(b)................................................613(b)
(b)(2).............................................703(a)(2)
703(b)
(S) 312(a)...................................................701
702(a)
(b)................................................702(b)
(c)................................................702(c)
(S) 313(a)...................................................703(a)
(b)(1).......................................Not Applicable
(b)(2).............................................703(b)
(c)..........................................703(a), 703(b)
(d)................................................703(c)
(S) 314(a)...................................................704
(a)(4).............................................704
(b)..........................................Not Applicable
(c)(1).............................................102
(c)(2).............................................102
(c)(3).......................................Not Applicable
(d)..........................................Not Applicable
(e)................................................102
(S) 315(a)...................................................601(a)
(b)................................................602
703(a)(7)
(c)................................................601(b)
(d)................................................601(c)
(d)(1).............................................601(a)(1)
(d)(2).............................................601(c)(1)
(d)(3).............................................601(c)(3)
(e)................................................514
(S) 316(a)(1)(A).............................................502
512
(a)................................................513
(a)(2)...................................Not Applicable
(b)................................................508
(c)................................................105
(S) 317(a)(1)................................................503
(a)(2).............................................504
(b)................................................100
</TABLE>
<PAGE>
(S) 318(a)...................................................107
_______________
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
ii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS*
____________
PAGE
<S> <C>
RECITALS OF THE COMPANY...........................................................................1
ARTICLE ONE.......................................................................................1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION...........................................1
SECTION 101. Definitions.....................................................................1
Act.....................................................................................2
Additional Amounts......................................................................2
Affiliate...............................................................................2
Authenticating Agent....................................................................2
Bearer Security.........................................................................2
Board of Directors......................................................................2
Board Resolution........................................................................2
Book-Entry Depositary...................................................................2
Book-Entry Interest.....................................................................2
Business Day............................................................................2
Cedel Bank..............................................................................2
Commission..............................................................................2
Company.................................................................................3
Company Request" or "Company Order......................................................3
Consolidated Net Tangible Assets........................................................3
Corporate Trust Office..................................................................3
corporation.............................................................................3
Debt....................................................................................3
Default.................................................................................3
Defaulted Interest......................................................................3
Deposit Agreement.......................................................................3
Director................................................................................3
Discharged..............................................................................3
Dollar" or "$"..........................................................................3
DTC.....................................................................................4
Euroclear Operator......................................................................4
Event of Default........................................................................4
Exchange Act............................................................................4
</TABLE>
___________________________
*NOTE: THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO
BE A PART OF THE INDENTURE.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Global Security.........................................................................4
Holder..................................................................................4
Indenture...............................................................................4
Indirect participant....................................................................4
interest................................................................................4
Interest Payment Date...................................................................4
Letter of Representations...............................................................4
Lien....................................................................................4
Maturity................................................................................4
Officers' Certificate...................................................................4
Opinion of Counsel......................................................................5
Original Issue Discount Security........................................................5
Outstanding.............................................................................5
Participant.............................................................................5
Paying Agent............................................................................5
Permanent Global Security...............................................................6
Person..................................................................................6
Place of Payment........................................................................6
Predecessor Security....................................................................6
Principal Paying Agent..................................................................6
Redemption Date.........................................................................6
Redemption Price........................................................................6
Registered Security.....................................................................6
Regular Record Date.....................................................................6
Relevant Date...........................................................................6
Responsible Officer.....................................................................6
Securities..............................................................................6
Securities Act..........................................................................7
Security Register" and "Security Registrar..............................................7
Significant Subsidiary..................................................................7
Special Record Date.....................................................................7
Stated Maturity.........................................................................7
Subsidiary..............................................................................7
Transfer Agent..........................................................................7
Trustee.................................................................................7
Trust Indenture Act.....................................................................7
United Kingdom..........................................................................7
United Kingdom Taxes....................................................................7
United States...........................................................................7
U.S. Government Obligations.............................................................7
Voting Stock............................................................................8
SECTION 102. Compliance Certificates and Opinions............................................8
SECTION 103. Form of Documents Delivered to Trustee..........................................8
SECTION 104. Acts of Holders.................................................................9
SECTION 105. Notices, Etc., to Trustee and Company..........................................11
SECTION 106. Notice to Holders; Waiver......................................................11
SECTION 107. Conflict with Trust Indenture Act..............................................12
SECTION 108. Effect of Headings and Table of Contents.......................................12
SECTION 109. Successors and Assigns.........................................................13
SECTION 110. Separability Clause............................................................13
SECTION 111. Benefits of Indenture..........................................................13
SECTION 112. Governing Law..................................................................13
SECTION 113. Legal Holidays.................................................................13
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE TWO......................................................................................13
SECURITY FORMS...................................................................................13
SECTION 201. Forms Generally................................................................12
SECTION 202. Form of Face of Security.......................................................14
SECTION 203. Form of Reverse of Security....................................................17
SECTION 204. Form of Trustee's Certificate of Authentication................................23
SECTION 205. Form of Trustee's Certificate of Authentication by an Authenticating Agent.....23
ARTICLE THREE....................................................................................24
THE SECURITIES...................................................................................24
SECTION 301. Amount Unlimited; Issuable in Series...........................................24
SECTION 302. Denominations..................................................................26
SECTION 303. Execution, Authentication, Delivery and Dating.................................26
SECTION 304. Transfer Agent and Paying Agent................................................27
SECTION 305. Temporary Securities...........................................................27
SECTION 306. Registration, Registration of Transfer and Exchange............................28
SECTION 307. Mutilated, Destroyed, Lost and Stolen Securities...............................30
SECTION 308. Payment of Interest; Interest Rights Reserved..................................30
SECTION 309. Persons Deemed Owners..........................................................32
SECTION 310. Cancellation...................................................................32
SECTION 311. Computation of Interest........................................................33
SECTION 312. Global Securities..............................................................33
ARTICLE FOUR.....................................................................................34
SATISFACTION AND DISCHARGE.......................................................................34
SECTION 401. Satisfaction and Discharge of Indenture........................................34
SECTION 402. Application of Trust Money.....................................................35
SECTION 403. Satisfaction, Discharge and Defiance of Securities of any Series...............36
ARTICLE FIVE.....................................................................................37
REMEDIES.........................................................................................37
SECTION 501. Events of Default..............................................................37
SECTION 502. Acceleration of Maturity; Rescission and Annulment.............................38
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee................39
SECTION 504. Trustee May File Proofs of Claim...............................................39
SECTION 505. Trustee May Enforce Claims Without Possession of Securities....................40
SECTION 506. Application of Money Collected.................................................40
SECTION 507. Limitation on Suits............................................................41
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and...............42
SECTION 509. Restoration of Rights and Remedies.............................................42
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 510. Rights and Remedies Cumulative.................................................42
SECTION 511. Delay or Omission Not Waiver...................................................42
SECTION 512. Control by Holders.............................................................42
SECTION 513. Waiver of Past Defaults........................................................43
SECTION 514. Undertaking for Costs..........................................................43
ARTICLE SIX......................................................................................44
THE TRUSTEE......................................................................................44
SECTION 601. Certain Duties and Responsibilities............................................44
SECTION 602. Notice of Defaults.............................................................45
SECTION 603. Certain Rights of Trustee......................................................45
SECTION 604. Not Responsible for Recitals or Issuance of Securities.........................46
SECTION 605. May Hold Securities............................................................46
SECTION 606. Money Held in Trust............................................................46
SECTION 607. Compensation and Reimbursement.................................................46
SECTION 608. Disqualification; Conflicting Interests........................................47
SECTION 609. Corporate Trustee Required; Eligibility........................................47
SECTION 610. Resignation and Removal; Appointment of successor Trustee......................47
SECTION 611. Acceptance of Appointment by Successor.........................................48
SECTION 612. Merger, Conversion, Consolidation or Succession to Business....................49
SECTION 613. Preferential Collecting of Claims Against Company..............................50
SECTION 614. Authenticating Agents..........................................................53
ARTICLE SEVEN....................................................................................54
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY................................................54
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders......................54
SECTION 702. Preservation of Information; Communications to Holders.........................55
SECTION 703. Reports by Trustee.............................................................56
SECTION 704. Reports by Company.............................................................57
ARTICLE EIGHT....................................................................................58
CONSOLIDATION, MERGER, CONVEYANCE, SALE OR LEASE.................................................58
SECTION 801. Company May Consolidate Etc., Only on Certain Terms............................58
SECTION 802. Successor Corporation to be Substituted4.......................................58
ARTICLE NINE.....................................................................................58
SUPPLEMENTAL INDENTURES..........................................................................58
SECTION 901. Supplemental Indentures without Consent of Holders.............................58
SECTION 902. Supplemental Indentures with Consent of Holders................................59
SECTION 903. Execution of Supplemental Indentures...........................................60
SECTION 904. Effect of Supplemental Indentures..............................................61
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
SECTION 905. Conformity with Trust Indenture Act............................................61
SECTION 906. Reference in Securities to Supplemental Indentures.............................61
ARTICLE TEN......................................................................................61
COVENANTS........................................................................................61
SECTION 1001. Payment of Principal, Premium, if any, and Interest...........................61
SECTION 1002. Maintenance of Office or Agency...............................................61
SECTION 1003. Money for Securities Payments to Be Held in Trust.............................62
SECTION 1004. Limitation on Liens...........................................................63
SECTION 1005. Limitation on Sale and Lease-Back Transactions................................65
SECTION 1006. Statement by Officers as to Default...........................................66
SECTION 1007. Modification or Waiver of Certain Covenants...................................66
SECTION 1008. Further Assurances............................................................67
SECTION 1009. Payment of Additional Amounts.................................................67
SECTION 1010. Copies Available to Holders...................................................68
ARTICLE ELEVEN...................................................................................69
REDEMPTION OF SECURITIES.........................................................................69
SECTION 1101. Applicability of Article......................................................69
SECTION 1102. Election to Redeem; Notice to Trustee.........................................69
SECTION 1103. Selection by Trustee of Securities to Be Redeemed.............................69
SECTION 1104. Notice of Redemption..........................................................70
SECTION 1105. Deposit of Redemption Price...................................................70
SECTION 1106. Securities Payable on Redemption Date.........................................70
SECTION 1107. Securities Redeemed in Part...................................................71
SECTION 1108. Optional Redemption in the Event of Change in United Kingdom Tax Treatment....71
ARTICLE TWELVE...................................................................................72
SINKING FUNDS....................................................................................72
SECTION 1201. Applicability of Article......................................................72
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.........................72
SECTION 1203. Redemption of Securities for Sinking Fund.....................................72
ARTICLE THIRTEEN.................................................................................73
MEETINGS OF HOLDERS OF SECURITIES................................................................73
SECTION 1301 Purposes of Meetings:..........................................................73
SECTION 1302 Place of Meetings..............................................................74
SECTION 1303 Voting at Meetings.............................................................74
SECTION 1304 Voting Rights, Conduct and Adjournment.........................................74
SECTION 1305 Revocation of Consent by Holders...............................................75
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
ARTICLE FOURTEEN.................................................................................75
MISCELLANEOUS....................................................................................75
SECTION 1401. Consent to Jurisdiction; Appointment of Agent to Accept Service of Process...75
SECTION 1402 Counterparts..................................................................77
</TABLE>
vi
<PAGE>
INDENTURE, dated as of ________ __, 1996, among SOUTHERN INVESTMENTS
UK plc, a company duly organized and existing under the laws of England and
Wales (the "Company"), having its principal office at 800 Park Avenue, Aztec
West, Almondsbury, Bristol B512 4SE, England and BANKERS TRUST COMPANY, a New
York banking corporation , as trustee (the "Trustee") and BANKERS TRUST
LUXEMBOURG S.A., as Paying and Transfer Agent.
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of certain of its
unsecured debentures, notes or other evidences of indebtedness (herein called
the "Securities"), to be issued in one or more series as provided in this
Indenture.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of series
thereof, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the respective meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United Kingdom and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles", with respect
to any computation required or permitted hereunder shall mean such
accounting principles as are generally accepted in the United Kingdom at
the date of such computation; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
<PAGE>
Certain terms, used principally in Article Six, are defined in that
Article.
"Act," when used with respect to any Holder, has the meaning specified
in Section 104.
"Additional Amounts" has the meaning specified in Section 1009.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling", and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized to authenticate and
deliver Securities on behalf of the Trustee pursuant to Section 614.
"Bearer Security" means any Security that is payable to bearer.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"Book-Entry Depositary" means, with respect to the Securities of any
series issuable or issued in whole or in part in the form of one or more Global
Securities, the Person designated as Book-Entry Depositary by the Company
pursuant to Section 301, and, if so provided pursuant to Section 301 with
respect to the Securities of a series, any successor to such Person. If at any
time there is more than one such Person, "Book-Entry Depositary" shall mean,
with respect to any series of Securities, the qualifying entity which has been
appointed with respect to the Securities of that series.
"Book-Entry Interest" means a certificateless depositary interest to
be issued by the Book-Entry Depositary to DTC.
"Business Day", when used with respect to the Place of Payment of the
Securities of any series, means each day which is not a Saturday, a Sunday or a
day on which banking institutions in any Place of Payment for the Securities of
that series are authorized or obligated by law to remain closed.
"Cedel Bank" means Cedel Bank, societe anonyme, or its successor.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
2
<PAGE>
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any Director of the Company and by any
other Director of the Company or the Treasurer, Secretary, any Assistant
Treasurer or Assistant Secretary or any other officer so authorized and
delivered to the Trustee.
"Consolidated Net Tangible Assets" shall mean the total of all assets
(including revaluations thereof as a result of commercial appraisals, price
level restatement or otherwise) appearing on a consolidated balance sheet of the
Company, net of applicable reserves and deductions, but excluding goodwill,
trade names, trademarks, patents, unamortized debt discount and all other like
intangible assets (which term shall not be construed to include such
revaluations), less the aggregate of the consolidated current liabilities of the
Company appearing on such balance sheet.
"Corporate Trust Office" means the principal office of the Trustee in
The City of New York, at which at any particular time its corporate trust
business shall be administered, which at the date hereof is Four Albany Street,
New York, New York, 10006, Attention: Corporate Trust and Agency Group-Public
Utilities Group.
"corporation" includes corporations, associations, companies and
business trusts.
"Debt" has the meaning specified in Section 1004.
"Default" for purposes of Section 601 of this Indenture is defined to
mean an "Event of Default" as specified in Section 501 hereof, and for purposes
of Section 310(b) of the Trust Indenture Act, "default" shall mean an "Event of
Default" as specified in Section 501 hereof but exclusive of any period of grace
or requirement of notice.
"Defaulted Interest" has the meaning specified in Section 307.
"Deposit Agreement" means the deposit agreement among the Company, the
Book-Entry Depositary and the holders and beneficial owners from time to time of
interests in the Book-Entry Interest.
"Director" means any member of the Board of Directors.
"Discharged" means, with respect to the Securities of any series, the
discharge of the entire indebtedness represented by, and obligations of the
Company under, the Securities of such series and the satisfaction of all the
obligations of the Company under the Indenture relating to the Securities of
such series, except (A) the rights of Holders of the Securities of such series
to receive, from the trust fund described in Section 403 hereof, payment of the
principal of and interest and premium, if any, on the Securities of such series
when such payments are due, (B) the Company's obligations with respect to the
Securities of such series with respect to registration, transfer, exchange and
maintenance of a Place of Payment and (C) the rights, powers, trusts, duties,
protections and immunities of the Trustee under this Indenture.
"Dollar" or "$" means a dollar or other equivalent unit in such coin
or currency of the United States of America as at the time shall be legal tender
for the payment of public and private debt.
3
<PAGE>
"DTC" means The Depository Trust Company or its successors.
"Euroclear Operator" means Morgan Guaranty Trust Company of New York,
Brussels office, or its successor as operator of the Euroclear System.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Global Security" means a Registered or Bearer Security evidencing all
or part of a series of Securities, issued to the Book-Entry Depositary for such
series or its nominee.
"Holder" means, in the case of a Registered Security, the Person in
whose name a Security is registered in the Security Register and, in the case of
a Global Bearer Security, the Book-Entry Depositary therefor.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and shall include the terms of particular series of Securities established as
contemplated by Section 301.
"Indirect Participant" means a Person that holds interests in the
Book-Entry Interest through a Person that has an account with DTC.
"interest", when used with respect to an Original Issue Discount
Security which by its terms bears interest only after Maturity, means interest
payable after Maturity at the rate prescribed in such Original Issue Discount
Security.
"Interest Payment Date", when used with respect to any Security, means
the Stated Maturity of an installment of interest on such Security.
"Letter of Representations" means, with respect to the capped
Securities of any series, the representation from the Company and the Trustee to
DTC with respect to the Securities of that series.
"Lien" means any mortgage, lien, pledge, security interest or other
encumbrance; provided however, that the term "Lien" shall not mean any
-------- -------
easements, rights-of-way, restrictions and other similar encumbrances and
encumbrances consisting of zoning restrictions, leases, subleases, licenses,
sublicenses, restrictions on the use of property or defects in title thereto.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by any Director of
the Company and by any other Director of the Company or the Treasurer,
Secretary, any Assistant Treasurer or Assistant Secretary or any other officer
so authorized and delivered to the Trustee.
4
<PAGE>
"Opinion of Counsel" means a written opinion of counsel, who, unless
otherwise required by the Trust Indenture Act, may be an employee of or regular
counsel for the Company, or may be other counsel reasonably acceptable to the
Trustee.
"Original Issue Discount Security" means any Security which provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money or U.S. Governmental Obligations in the necessary amount
has been theretofore deposited with the Trustee or any Paying Agent (other
than the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the Holders
of such Securities; provided that, if such Securities are to be redeemed,
--------
notice of such redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made; and
(iii) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
- -------- -------
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, (a) the principal
amount of an Original Issue Discount Security that shall be deemed to be
outstanding for such purposes shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon a declaration
of acceleration of the Maturity thereof pursuant to Section 502, and (b)
Securities owned by the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be Outstanding, except that in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Securities which a Responsible
Officer of the Trustee actually knows to be so owned shall be so disregarded.
Securities so owned as described in (b) above which have been pledged in good
faith may be regarded as Outstanding if the pledgee certifies to the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or of such other obligor.
"Participant" means a Person that has an account with DTC.
"Paying Agent" means Bankers Trust Luxembourg S.A. and any other
Person authorized by the Company to pay the principal of (and premium, if any)
or interest on any Securities on behalf of the Company hereunder, including,
without limitation, the Principal Paying Agent.
5
<PAGE>
"Permanent Global Security" means a Global Security that is, at the
time of the initial issuance of the related series of Securities, issued in
permanent form.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Place of Payment", when used with respect to the Securities of any
series, means the place or places where the principal of (and premium, if any)
and interest, if any, on the Securities of that series are payable as specified
in or as contemplated by Section 301.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purpose of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen security.
"Principal Paying Agent" means Bankers Trust Company until a successor
Principal Paying Agent shall have become such pursuant to the applicable
provisions of this Indenture and, thereafter, "Principal Paying Agent" shall
mean such successor Principal Paying Agent.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture, exclusive of accrued and unpaid interest.
"Registered Security" means any Security that is payable to a
registered owner or registered assigns thereof as registered in the Security
Register.
"Regular Record Date" for the interest payable on any Interest Payment
Date on the Securities of any series means the date specified for that purpose
as contemplated by Section 301.
"Relevant Date" for any payment made with respect to the Securities of
any series means whichever is the later of (i) the date on which the relevant
payment first becomes due and (ii) if the full amount payable has not been
received in The City of New York by the Book-Entry Depositary or the Trustee on
or prior to such due date, the date on which, the full amount having been so
received, notice to that effect shall have been given to the Holders in
accordance with this Indenture.
"Responsible Officer", when used with respect to the Trustee, means
any officer within the Corporate Trust Office including any vice president,
managing director, the secretary, assistant vice president, assistant secretary,
or any other officer of the Trustee, customarily performing functions similar to
those performed by any of the above-designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.
6
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Significant Subsidiary" means, at any particular time, any Subsidiary
whose gross assets or gross revenues (having regard to the Company's direct
and/or indirect beneficial interest in the shares, or the like, of that
Subsidiary) represent at least 25% of the consolidated gross assets or, as the
case may be, consolidated gross revenues of the Company.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
Voting Stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries.
"Transfer Agent" means any Person authorized by the Company to
effectuate the exchange or transfer of any Security on behalf of the Company
hereunder.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder, and
if at any time there is more than one such Person, "Trustee" as used with
respect to the Securities of any series shall mean the Trustee with respect to
Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed, except as provided
in Section 905.
"United Kingdom" means the United Kingdom of Great Britain and
Northern Ireland, its territories, its possessions and other areas subject to
its jurisdiction.
"United Kingdom Taxes" has the meaning specified in Section 1009.
"United States" means the United States of America (including the
States and the District of Columbia), its territories, its possessions and other
areas subject to its jurisdiction.
"U.S. Government Obligations" means direct obligations of the United
States for the payment of which its full faith and credit is pledged, or
obligations of a person controlled or supervised by and acting as an agency or
instrumentality of the United States and the payment of which is unconditionally
guaranteed by the United States, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of a
holder of a depository receipt; provided that (except as required by law) such
custodian is not authorized to make any
7
<PAGE>
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
obligation or the specific payment of interest on or principal of the U.S.
Government Obligation evidenced by such depository receipt.
"Voting Stock" of any corporation means stock of the class or classes
having general voting power under ordinary circumstances to elect at least a
majority of the board of directors of a corporation (irrespective of whether or
not at the time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
SECTION 102. Compliance Certificates and Opinions
------------------------------------
Except as otherwise expressly provided by this Indenture, upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer or Director of the Company
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer or Director
knows, or in the exercise of reasonable care should
8
<PAGE>
know, that the certificate or opinion or representations with respect to the
matters upon which his certificate or opinion is based are erroneous. Any such
certificate or opinion of Counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers or Director or Directors of the Company stating that the information
with respect to such factual matters is in the possession of the Company, unless
such counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in Person or by agent duly
appointed in writing, and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section 103.
Without limiting the generality of the foregoing, unless otherwise
established in or pursuant to a Board Resolution or set forth or determined in
an Officers' Certificate, or established in one or more indentures supplemental
hereto, pursuant to Section 301, a Holder, including a Book-Entry Depositary
that is a Holder of a Global Security, may make, give or take, by a proxy, or
proxies, duly appointed in writing, any request, demand, authorization,
direction, notice, consent, waiver or other action provided in this Indenture to
be made, given or taken by Holders, and a Book-Entry Depositary that is a Holder
of a Global Security may provide its proxy or proxies to the beneficial owners
of interests in any such Global Security through such Book-Entry Depositary's
standing instructions and customary practices.
(b) The fact and date of the execution by any Person of any such
instrument, writing or proxy may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument, writing or proxy acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument, writing or proxy, or the authority of the Person executing the
same, may also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership of Registered Securities shall be proved by the
Security Register.
9
<PAGE>
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(e) The principal or face amount and serial numbers of Bearer
Securities of any series held by any Person, and the date of holding the same,
may be proved by the production of such Bearer Securities or by a certificate
executed by the Book-Entry Depositary for such Bearer Securities.
(f) If the Company shall solicit from the Holders of Securities of any
series any request, demand, authorization, direction, notice, consent, waiver or
other Act, the Company may, at its option, by Board Resolution, fix in advance a
record date for purposes of determining the identity of Holders of Securities
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do so.
Any such record date shall be fixed at the Company's discretion. If such a
record date is fixed, such request, demand, authorization, direction, notice,
consent, waiver or other Act may be sought or given before or after the record
date, but only the Holders of Securities of record at the close of business on
such record date shall be deemed to be Holders of Securities for the purpose of
determining whether Holders of the requisite proportion of Securities of such
series Outstanding have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Securities of such series Outstanding shall be computed as of
such record date.
With regard to any record date set pursuant to this subsection, the
Holders of Outstanding Securities of the relevant series on such record date (or
their duly appointed agents), and only such Persons, shall be entitled to take
relevant action, whether or not such Holders remain Holders after such record
date. With regard to any action that may be taken hereunder only by Holders of
a requisite principal amount of Outstanding Securities of any series (or their
duly appointed agents) and for which a record date is set pursuant to this
subsection, the Company may, at its option, set an expiration date after which
no such action purported to be taken by any Holder shall be effective hereunder
unless taken on or prior to such expiration date by Holders of the requisite
principal amount of Outstanding Securities of such series on such record date
(or their duly appointed agents).
On or prior to any expiration date set pursuant to this subsection, the
Company may, on one or more occasions at its option, extend such expiration date
to any later date. Nothing in this subsection shall prevent any Holder (or any
duly appointed agent thereof) from taking, at any time, any action contrary to
or different from, any action previously taken, or purported to have been taken,
hereunder by such Holder, in which event the Company may set a record date in
respect thereof pursuant to this subsection. Notwithstanding the foregoing or
the Trust Indenture Act, the Company shall not set a record date for, and the
provisions of this paragraph shall not apply with respect to, any action to be
taken by Holders pursuant to Section 501, 502 or 512.
Upon receipt by the Trustee of written notice of any default described
in Section 501, any declaration of acceleration, or any rescission and annulment
of any such declaration, pursuant to Section 502 or of any direction in
accordance with Section 512, a record date shall automatically and without any
other action by any Person be set for the purpose of determining the Holders of
outstanding Securities of the series entitled to join in such notice,
declaration, or
10
<PAGE>
rescission and annulment, or direction, as the case may be, which record date
shall be the close of business on the day the Trustee receives such notice,
declaration, rescission and annulment or direction, as the case may be. The
Holders of Outstanding Securities of such series on such record date (or their
duly appointed agent), and only such Persons, shall be entitled to join in such
notice, declaration, rescission and annulment, or direction, as the case may be,
whether or not such Holders remain Holders after such record date;
provided that, unless such notice, declaration, rescission and annulment, or
- --------
direction, as the case may be, shall have become effective by virtue of Holders
of the requisite principal amount of outstanding Securities of such series on
such record date (or their duly appointed agents) having joined therein on or
prior to the 90th day after such record date, such notice of default,
declaration, or rescission and annulment or direction given or made by the
Holders, as the case may be, shall automatically and without any action by any
Person be canceled and of no further effect. Nothing in this paragraph shall
prevent a Holder (or a duly appointed agent thereof) from giving, before or
after the expiration of such 90-day period, a notice of default, a declaration
of acceleration, a rescission and annulment of a declaration of acceleration or
a direction in accordance with Section 512, contrary to or different from, or,
after the expiration of such period, identical to, a previously given notice,
declaration, rescission and annulment, or direction, as the case may be, that
has been canceled pursuant to the proviso to the preceding sentence, in which
event a new record date in respect thereof shall be set pursuant to this
paragraph.
SECTION 105. Notices, Etc., to Trustee and Company
-------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this instrument or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver
-------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, (i) in the case of a Holder of Registered Securities, at his
address as it appears in the Security Register, and (ii) in the case of a Holder
of Global Bearer Securities, at the address provided in or pursuant to the
relevant Deposit Agreement of the relevant Book-Entry Depositary or Depositaries
therefor, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders.
If, by reason of the suspension of regular mail service or by reason
of any other cause, it shall be impracticable to give such notice by mail, then
such notification as shall be
11
<PAGE>
made at the direction of the Company in a manner reasonably calculated, to the
extent practicable under the circumstances, to provide prompt notice shall
constitute a sufficient notification for every purpose hereunder.
Except as otherwise expressly provided herein or otherwise specified
with respect to any Securities pursuant to Section 301, where this Indenture
provides for notice to Holders of Bearer Securities of any event and the rules
of any securities exchange on which such Bearer Securities are listed so
require, such notice shall be sufficiently given to Holders of such Bearer
Securities if published in such newspaper or newspapers as may be specified in
such Securities on a Business Day at least twice, the first such publication to
be not earlier than the earliest date, and not later than the latest date,
prescribed for the giving of such notice. Any such notice by publication shall
be deemed to have been given on the date of the first such publication. In
addition, notice to the Holder of any Global Bearer Security shall be given by
mail in the manner provided above.
If by reason of any cause it shall be impracticable to publish any
notice to Holders of Bearer Securities as provided above, then such notification
to Holders of Bearer Securities as shall be given with the approval of the
Trustee shall constitute sufficient notice to such Holders for every purpose
hereunder. Neither the failure to give notice by publication to Holders of
Bearer Securities as provided above, nor any defect in any notice so published,
shall affect the sufficiency of such notice with respect to other Holders of
Bearer Securities or the sufficiency of any notice to Holders of Registered
Securities given as provided herein.
Any request, demand, authorization, direction, notice, consent, waiver
or Act required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
SECTION 107. Conflict with Trust Indenture Act
---------------------------------
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, the provision or requirement of the Trust Indenture Act shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, such provision
of the Trust Indenture Act shall be deemed to apply to this Indenture as so
modified or excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
12
<PAGE>
SECTION 109. Successors and Assigns
----------------------
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture
---------------------
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 112. Governing Law
-------------
This Indenture and the Securities shall be governed by and construed
in accordance with the laws of the State of New York.
SECTION 113. Legal Holidays
--------------
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the
Securities) payment of interest, if any, or principal (and premium, if any) need
not be made at such Place of Payment on such date, but may be made on the next
succeeding Business Day at such Place of Payment with the same force and effect
as if made on the Interest Payment Date or Redemption Date, or at the Stated
Maturity, and no interest shall accrue for the period from and after such
Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally
---------------
The Securities of each series shall be in substantially the form set
forth in this Article, or in such other form as shall be established by or
pursuant to a Board Resolution or in one or more indentures supplemental hereto,
in each case with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture, a Board
Resolution or one or more indentures supplemental hereto, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
Director or Directors executing such Securities, as evidenced by the Director's
or Directors' execution of the Securities. If the form of Securities of any
series is established by action taken pursuant to a Board Resolution, a copy of
an appropriate record of such action shall be certified by an authorized
Director or officer of the Company and delivered
13
<PAGE>
to the Trustee at or prior to the delivery of the Company Order contemplated by
Section 303 for the authentication and delivery of such securities.
The Trustee's certificates of authentication shall be in substantially
the form set forth in this Article.
The definitive Securities shall be printed, lithographed or engraved
on steel engraved borders or may be produced in any other manner, all as
determined by the Director or Directors executing such Securities, as evidenced
by the Director's or Directors' execution of such Securities.
SECTION 202. Form of Face of Security
------------------------
[If the Security is to be a Global Security, insert - This Security is
a Global Security within the meaning of the Indenture hereinafter referred to
and is [held by] [registered in the name] of a Book-Entry Depositary or a
nominee of a Book-Entry Depositary. This Security is exchangeable for
Securities [held by] [registered in the name of] a person other than the Book-
Entry Depositary or its nominee only in the limited circumstances described in
the Indenture, and no transfer of this Security (other than a transfer of this
Security as a whole by the Book-Entry Depositary to a nominee of the Book-Entry
Depositary or by a nominee of the Book-Entry Depositary to the Book-Entry
Depositary or another nominee of the Book-Entry Depositary) may be [made]
[registered] except in limited circumstances.
Unless this Global Security is presented by an authorized
representative of the Book-Entry Depositary to the issuer or its agent for
[registration of transfer], exchange or payment, and any definitive Security is
issued in the name or names as directed in writing by the Book-Entry Depositary,
ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL in as much as the [bearer] [registered owner] hereof, the
Book-Entry Depositary, has an interest herein.]
SOUTHERN INVESTMENTS UK plc
[Title of the Security]
No. ___________________ $_____________
SOUTHERN INVESTMENTS UK plc, a company duly organized and existing
under the laws of England and Wales (herein called the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to [the bearer upon surrender hereof]
[name of registered owner or its registered assigns], the principal sum of
_____________________________________ Dollars on ________________________, and
to pay interest thereon from ______________________, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually on _______________ and ____________________ in each year,
commencing _____________________, at the rate per annum provided in the title
hereof, until the principal hereof is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to [the bearer on such
Interest Payment Date,] [the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the __________________ or
__________________ (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date.] Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to [the
bearer on such Interest Payment Date] [the Person in whose name this Security
(or one or
14
<PAGE>
more Predecessor Securities) is registered on such Regular Record Date] and may
be paid to [the bearer at the time of payment of such Defaulted Interest] [the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities of this series not less than 10 days prior to
such Special Record Date], or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities of this series may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
[If the Security is not to bear interest prior to Maturity, insert -- The
principal of this Security shall not bear interest except in the case of a
default in payment of principal upon acceleration, upon redemption or at Stated
Maturity and in such case the overdue principal of this Security shall bear
interest at the rate of [yield to maturity] % per annum (to the extent that the
payment of such interest shall be legally enforceable), which shall accrue from
the date of such default in payment to the date payment of such principal has
been made or duly provided for. Interest on any overdue principal shall be
payable on demand. Any such interest on any overdue principal that is not so
paid on demand shall bear interest at the rate of [yield to maturity]% per annum
(to the extent that the payment of such interest shall be legally enforceable),
which shall accrue from the date of such demand for payment to the date payment
of such interest has been made or duly provided for, and such interest shall
also be payable on demand.]
Payment of the principal of (and premium, if any) and interest, if
any, on this Security will be made at the office or agency of the Company
maintained for that purpose in _______________ in such coin or currency of the
United States of America as at the time of payment is legal tender for the
payment of public and private debts; [If this Security is not a Global Security,
insert -- provided, however, that at the option of the Company payment of
-------- -------
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register] [If this
Security is a Global Security, insert applicable manner of payment].
All payments of principal and interest (including payments of discount
and premium, if any) in respect of this Security shall be made free and clear
of, and without withholding or deduction for or on account of, any present or
future taxes, duties, assessments or governmental charges of whatever nature
imposed, levied, collected, withheld or assessed by or within the United Kingdom
or by or within any political subdivision thereof or any authority therein or
thereof having power to tax ("United Kingdom Taxes"), unless such withholding or
deduction is required by law. In the event of any such withholding or deduction
the Company shall pay to the Holder such additional amounts ("Additional
Amounts") as will result in the payment to such Holder of the amount that would
otherwise have been receivable by such Holder in the absence of such withholding
or deduction, except that no such Additional Amounts shall be payable:
(a) to, or to a Person on behalf of, a Holder who is liable for such
United Kingdom Taxes in respect of this Security, by reason of such Holder
having some connection with the United Kingdom (including being a citizen
or resident or national of, or carrying on a business or maintaining a
permanent establishment in, or being physically present in, the United
Kingdom) other than the mere holding of this Security or the receipt of
principal and interest (including payments of discount and premium, if any)
in respect thereof;
15
<PAGE>
(b) to, or to a Person on behalf of, a Holder who presents this
Security (where presentation is required) for payment more than 30 days
after the Relevant Date except to the extent that the Holder would have
been entitled to such Additional Amounts on presenting this Security for
payment on the last day of such period of 30 days;
(c) to, or to a Person on behalf of, a Holder who presents this
Security (where presentation is required) in the United Kingdom;
(d) to, or to a Person on behalf of, a Holder who would not be liable
or subject to the withholding or deduction by making a declaration of non-
residence or similar claim for exemption to the relevant tax authority; or
(e) to, or to a Person on behalf of, a Holder of a definitive
Registered Security issued pursuant to the request of owners of interests
representing a majority in outstanding principal amount in the Book-Entry
Interest following and during the continuance of an Event of Default if
such Holder (or any predecessor Holder) was one of such owners requesting
that definitive Registered Securities be so issued.
Such Additional Amounts will also not be payable where, had the
beneficial owner of the Security (or any interest therein) been the Holder of
the Security, he would not have been entitled to payment of Additional Amounts
by reason of any one or more of clauses (a) through (e) above. If the Company
shall determine that Additional Amounts will not be payable because of the
immediately preceding sentence, the Company will inform such Holder promptly
after making such determination setting forth the reason(s) therefor.
References to principal, interest, discount or premium in respect of
this Security shall be deemed also to refer to any Additional Amounts which may
be payable as set forth in the Indenture or in this Security.
The Company shall furnish to the Trustee the official receipts (or a
certified copy of the official receipts) evidencing payment of United Kingdom
Taxes. Copies of such receipts shall be made available by the Trustee to the
Holder of this Security upon request.
[Insert any special notice provisions required by any stock exchanges upon which
the Securities of a series are to be listed.]
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer or director duly authorized.
Date:
16
<PAGE>
SOUTHERN INVESTMENTS UK plc
By_____________________________________
[Title]
SECTION 203. Form of Reverse of Security
---------------------------
SOUTHERN INVESTMENTS UK plc
[Title of the Security]
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of ________________ (herein called the
"Indenture"), among the Company and Bankers Trust Company, as trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture) and Bankers Trust Luxembourg S.A., as paying and transfer agent
(herein called the "Paying and Transfer Agent," which term includes any
successor paying and transfer agent under the Indenture), [insert -- particulars
with respect to any indentures supplemental thereto pursuant to which the
Securities of this series are being issued] to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. Terms
defined in the Indenture which are not defined herein are used with the meanings
assigned to them in the Indenture. This Security is one of the series
designated on the face hereof limited in aggregate principal amount to
$___________.
[If applicable, insert -- This Security is not subject to redemption
prior to maturity.] [If applicable, insert -- The Securities of this series are
subject to redemption upon not less than 30 or more than 60 days' notice to the
Holders of such Securities as provided in the Indenture. [If applicable, insert
- -- (1) on _______________ in any year commencing with the year ____ and ending
with the year ______ through operation of the sinking fund for this series at a
Redemption Price equal to 100% of the principal amount, and (2)] at any time [on
or after ____________, 19__], as a whole or in part, at the election of the
Company, at the following Redemption Prices (expressed as percentages of the
principal amount):
If redeemed [if applicable, insert - - on or before ________, _____%,
and if redeemed] during the 12-month period beginning ______________, of the
years indicated:
Year Redemption Price Year Redemption Price
- ------ ---------------- ---- ----------------
and thereafter at a Redemption Price equal to ____% of the principal amount,
together in the case of any such redemption [if applicable, insert -- (whether
through operation of the sinking fund or otherwise)] with accrued and unpaid
interest to the Redemption Date, but interest installments whose Stated Maturity
is on or prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, all as provided in the
Indenture.]
17
<PAGE>
[If applicable, insert -- The Securities of this series are subject to
redemption upon not less than 30 or more than 60 days' notice to the Holders of
such Securities, as provided in the Indenture (1) on _______________ in any year
commencing with the year ______ and ending with the year _______ through
operation of the sinking fund for this series at the Redemption Prices for
redemption through operation of the sinking fund (expressed as percentages of
the principal amount) set forth in the table below, and (2) at any time [on or
after __________________], as a whole or in part, at the election of the
Company, at the Redemption Prices for redemption otherwise than through
operation of the sinking fund (expressed as percentages of the principal amount)
set forth in the table below:
If redeemed during the 12-month period beginning __________ of the
years indicated:
Redemption Price Redemption Price For
for Redemption Redemption Otherwise
Through Operation Than Through
of Operation
Sinking Fund Year of the Sinking Fund
------------ ---- --------------------
and thereafter at a Redemption Price equal to ____% of the principal amount,
together in the case of any such redemption (whether through operation of the
sinking fund or otherwise) with accrued and unpaid interest to the Redemption
Date, but interest installments whose Stated Maturity is on or prior to such
Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, all as provided in the Indenture.]
[If applicable, insert -- Notwithstanding the foregoing, the Company
may not, prior to ____________, redeem any Securities of this series as
contemplated by [Clause (2) of] the preceding paragraph as a part of, or in
anticipation of, any refunding operation by the application, directly or
indirectly, of moneys borrowed having an interest cost to the Company
(calculated in accordance with generally accepted financial practice) of less
than ___% per annum.]
[The sinking fund for this series provides for the redemption on
___________ in each year beginning with the year ______ and ending with the year
_____ of [not less than] ______________ [("mandatory sinking fund") and, at the
option of the Company, not more than _____________] aggregate principal amount
of Securities of this series. [Securities of this series acquired or redeemed by
the Company otherwise than through [mandatory] sinking fund payments may be
credited against subsequent [mandatory] sinking fund payments otherwise required
to be made in the order in which they become due.]]
[If applicable, insert --
The Securities of this series will be redeemable in whole or in part,
at the option of the Company at any time, at a redemption price equal to the
greater of (i) 100% of the principal amount of the Securities of this series
being redeemed or (ii) the sum of the present values of the remaining scheduled
payments of principal of and interest on the Securities of this series being
redeemed discounted to the date of redemption on a semiannual
18
<PAGE>
basis (assuming a 360-day year consisting of twelve 30-day months) at a discount
rate equal to the Treasury Yield plus ___ basis points, plus, for (i) or (ii)
above, whichever is applicable, accrued interest on the Securities of this
series to the date of redemption.
"Treasury Yield" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of Securities of this series to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the Securities of this series.
"Comparable Treasury Price" means, with respect to any redemption
date, (i) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third Business Day in New York City preceding such redemption date, as set forth
in the daily statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations
for US Government Securities" or (ii) if such release (or any successor release)
is not published or does not contain such prices on such Business Day, the
Reference Treasury Dealer Quotation for such redemption date.
"Independent Investment Banker" means an independent investment
banking institution of national standing appointed by the Company and reasonably
acceptable to the Trustee.
"Reference Treasury Dealer Quotation" means, with respect to the
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount and quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day in New York City preceding such redemption date).
"Reference Treasury Dealer" means a primary US Government securities
dealer in New York City appointed by the Company and reasonably acceptable to
the Trustee.
Notice of redemption shall be given as provided for in the Indenture
not less than 15 days nor more than 30 days prior to the date fixed for
redemption.
If fewer than all the Securities of this series are to be redeemed,
selection of Securities of this series for redemption will be made by the
Trustee in any manner the Trustee deems fair and appropriate and that complies
with applicable legal and securities exchange requirements.
Unless the Company defaults in payment of the redemption price, from
and after the redemption date, the Securities of this series or portions thereof
called for redemption will cease to bear interest, and the Holders thereof will
have no right in respect to such Securities of this series except the right to
receive the redemption price thereof.]
19
<PAGE>
[In the event of redemption of this Security in part only, a new
Security or Securities of this series and of like tenor for the unredeemed
portion hereof will be issued to the Holder hereof upon the cancellation
hereof.]
The Indenture contains provisions for defiance of (a) the entire
indebtedness of this security and (b) certain restrictive covenants upon
compliance by the Company with certain conditions set forth therein.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. At any time after such declaration of acceleration with respect to
Securities of this series has been made, but before a judgment or decree for
payment of money has been obtained by the Trustee as provided in the Indenture,
if all Events of Default with respect to Securities of this series have been
cured or waived (other than the non-payment of principal of the Securities of
this series which has become due solely by reason of such declaration of
acceleration) then such declaration of acceleration and its consequences shall
be automatically annulled and rescinded.
[If the Security is an Original Issue Discount Security, insert -- If
an Event of Default with respect to Securities of this series shall occur and be
continuing, an amount of principal of the Securities of this series (the
"Acceleration Amount") may be declared due and payable in the manner and with
the effect provided in the Indenture. In case of a declaration of acceleration
on or before ________________ in any year, the Acceleration Amount per
____________ principal amount at Stated Maturity of the Securities shall be
equal to the amount set forth in respect of such date below:
Acceleration
Amount
per ______
principal amount
Date of declaration at Stated Maturity
--------------------- ------------------
and in case of a declaration of acceleration on any other date, the Acceleration
Amount shall be equal to the Acceleration Amount as of the immediately preceding
date set forth in the table above, plus accrued original issue discount
(computed in accordance with the method used for calculating the amount of
original issue discount that accrues for Federal income tax purposes) from such
next preceding date to the date of declaration at the yield to maturity. For
the purpose of this computation the yield to maturity is ____%. Upon payment
(i) of the Acceleration Amount so declared due and payable and (ii) of interest
on any overdue principal and overdue interest (in each case to the extent that
the payment of such interest shall be legally enforceable), all of the Company's
obligations in respect of the payment of the principal of and interest, if any,
on the Securities of this series shall terminate.]
The Securities of this series are subject to redemption in whole but
not in part upon not less than 15 nor more than 30 days' notice given as
provided in the Indenture to the Holders of Securities of this series at a price
equal to the outstanding principal amount thereof
20
<PAGE>
together with Additional Amounts, if any, and accrued interest, to the
Redemption Date if (a) the Company satisfies the Trustee prior to the giving of
such notice that it has or will become obliged to pay Additional Amounts as a
result of either (x) any change in, or amendment to, the laws or regulations of
the United Kingdom or any political subdivision or any authority or agency
thereof or therein having power to tax or levy duties, or any change in the
application or interpretation of such laws or regulations, which change or
amendment becomes effective on or after the [date of the underwriting agreement
with respect to the Securities of this series,] or (y) the issuance of
definitive Registered Securities pursuant to any of clauses (a), (b) or (d) of
the third following paragraph and (b) such obligation cannot be avoided by the
Company taking reasonable measures available to it, subject, as provided in the
Indenture, to the delivery by the Company of an Officers' Certificate stating
that the obligation referred to in (a) above cannot be avoided by the Company
taking reasonable measures available to it.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the Indenture or any supplemental
indenture or the rights and obligations of the Company and rights of the Holders
of the Securities of each series to be affected under the Indenture at any time
by the Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding of all
series to be affected (voting as a class). The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest, if any, on this Security at the times, place and rate, and in the coin
or currency, herein prescribed.
[If this Security is a Global Security, insert -- This Security shall
be exchangeable, in whole but not in part, for Securities of this series
registered in the names of Persons other than the Book-Entry Depositary with
respect to such series or its nominee only as provided in this paragraph. This
Security shall be so exchangeable if (a) DTC notifies the Company and the Book-
Entry Depositary that it is unwilling or unable to continue to hold the Book-
Entry Interest or at any time it ceases to be a "clearing agency" registered
under the Exchange Act, and, in either case, a successor is not appointed by the
Company within 120 days, (b) the Book-Entry Depositary notifies the Company that
it is unwilling or unable to continue as Book-Entry Depositary with respect to
this Security and no successor is appointed within 120 days, (c) the Company
executes and delivers to the Trustee an Officers' Certificate providing that
this Security shall be so exchangeable or (d) there shall have occurred and be
continuing an Event of Default with respect to the Securities of this series and
the Holder, in such circumstance, shall have requested in writing that this
Security be exchanged for one or more definitive Registered Securities.
Securities so issued in exchange for this Security shall be of the same series,
having the same interest rate, if any, and maturity and having the same terms as
this Security, in authorized denominations and in the aggregate having the same
principal amount as this Security and registered in such names as the Book-Entry
Depositary for this Security shall direct.]
21
<PAGE>
[If this Security is a Registered Security, insert - - As provided in
the Indenture and subject to certain limitations therein set forth, the transfer
of [if this Security is a Registered Global Security, insert -- a Security of
the series of which this Security is a part] [If this Security is a Registered
Security but not a Global Security, insert -- this Security] is registrable in
the Security Register, upon surrender of this Security for registration of
transfer at the office or agency of the Company in any place where the principal
of (and premium, if any) and interest, if any, on this Security are payable,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of this series and of like tenor, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.]
The Securities of the series of which this Security is a part and
which are not Global Securities are issuable only in registered form without
coupons in denominations of $__________ and any integral multiple thereof. [If
this Security is a Global Bearer Security, insert -- The bearer of this Security
shall be treated as the owner of it for all purposes, subject to the terms of
the Indenture.] As provided in the Indenture and subject to certain limitations
therein set forth, Securities of this series are exchangeable for a like
aggregate principal amount of Securities of this series and of like tenor of a
different authorized denomination as requested by the Holder surrendering the
same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
[If this Security is a Registered Security, insert -- Prior to due
presentment of this Security for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof for all purposes,
whether or not this Security be overdue, and neither the Company, the Trustee
nor any such agent shall be affected by notice to the contrary.]
When a successor assumes all the obligations of its predecessor under
the Securities of this series and the Indenture in accordance with the terms of
the Indenture, the predecessor will be released from those obligations.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities of this series and may
otherwise deal with the Company, its Subsidiaries or their respective Affiliates
as if it were not the Trustee.
No stockholder, director, officer, employee, incorporator or Affiliate
of the Company shall have any liability for any obligation of the Company under
the Securities of this series or the Indenture or for any claim based on, in
respect of or by reason of, such obligations or their creation. Each Holder of
the Securities of this series by accepting a Security of this series waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities of this series.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
[Customary abbreviations may be used in the name of a Holder of a
Registered Security of this series or an assignee, such as: TEN COM (= tenants
in common), TEN ENT
22
<PAGE>
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).]
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities of this series as a convenience to the Holders of the
Securities of this series. No representation is made as to the accuracy of such
numbers as printed on the Securities of this series and reliance may be placed
only on the other identification numbers printed hereon.
This Security shall be governed by and construed in accordance with
the laws of the State of New York.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
SECTION 204. Form of Trustee's Certificate of Authentication
-----------------------------------------------
This is one of the Securities of the series designated herein and
referred to in the within-mentioned Indenture.
BANKERS TRUST COMPANY
as Trustee
By:___________________________
Authorized Signatory
SECTION 205. Form of Trustee's Certificate of Authentication by an
-----------------------------------------------------
Authenticating Agent
--------------------
If at any time there shall be an Authenticating Agent appointed with
respect to any series of Securities, then the Trustee's Certificate of
Authentication by such Authenticating Agent to be borne by the Securities of
each such series shall be substantially as follows:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein and
referred to in the within-mentioned Indenture.
BANKERS TRUST COMPANY
as Trustee
By: [NAME OF AUTHENTICATING
------------------------
AGENT]
------
Authenticating Agent
By: __________________________________
Authorized Signatory
23
<PAGE>
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series
------------------------------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and, subject to Section 303,
set forth or determined in the manner provided in an Officers' Certificate, or
established in one or more indentures supplemental hereto, prior to the issuance
of Securities of any series:
(1) the title of the Securities of the series (which shall
distinguish the Securities of the series from all other Securities);
(2) any limit upon the aggregate principal amount of the Securities
of the series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Sections 305, 306, 307 or 906, and except for any
Securities which, pursuant to Section 303, are deemed never to have been
authenticated and delivered hereunder);
(3) the Person to whom any interest on a Security of the series shall
be payable, if other than the bearer (in the case of a Global Bearer
Security) or the Person in whose name the Security (or one or more
Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest (in the case of a Registered
Security);
(4) the date or dates on which the principal of the Securities of the
series is payable;
(5) the rate or rates at which the Securities of the series shall
bear interest, if any, the date or dates from which such interest shall
accrue, the Interest Payment Dates on which such interest shall be payable
and the Regular Record Date for the interest payable on any Interest
Payment Date;
(6) the place or places, if any, in addition to or in the place of
the Corporate Trust Office, where the principal of (and premium, if any)
and interest, if any, on Securities of the series shall be payable and (in
the case of the Registered Securities) where such Securities may be
registered or transferred;
(7) the period or periods within which, the price or prices at which
and the terms and conditions upon which Securities of the series may be
redeemed, in whole or in part, at the option of the Company;
(8) the obligation, if any, of the Company to redeem, repay or
purchase Securities of the series pursuant to any sinking fund or analogous
provisions or at the
24
<PAGE>
option of a Holder thereof, and the period or periods within which, the
price or prices at which and the terms and conditions upon which Securities
of the series shall be redeemed, repaid or purchased, in whole or in part,
pursuant to such obligation;
(9) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which Securities of the series shall be
issuable;
(10) if other than the principal amount thereof, the portion of the
principal amount of Securities of the series which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section
502;
(11) if other than such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public or
private debts, the coin or currency, including composite currencies such as
the European Currency Unit, in which payment of the principal of (and
premium, if any) and interest, if any, on the Securities of the series
shall be payable;
(12) if the principal of (and premium, if any) or interest, if any, on
the Securities of the series are to be payable, at the election of the
Company or a Holder thereof, in a coin or currency other than that in which
the Securities are stated to be payable, the period or periods within
which, and the terms and conditions upon which, such election may be made;
(13) if the amount of payments of principal of (and premium, if any)
or interest, if any, on the Securities of the series may be determined with
reference to an index based on a coin or currency other than that in which
the Securities are stated to be payable, the manner in which such amounts
shall be determined;
(14) any provisions permitted by this Indenture relating to Events of
Default or covenants of the Company with respect to such series of
Securities;
(15) if the Securities of the series shall be issued in whole or in
part in the form of one or more Global Securities, (i) whether beneficial
owners of interests in any such Global Security may exchange such interests
for Securities of such series of like tenor and of authorized form and
denomination and the circumstances under which any such changes may occur,
if other than in the manner provided in Section 306 and (ii) the Book-Entry
Depositary for such Global Security or Securities;
(16) if the Company ever wishes to issue definitive Bearer Securities
then all provisions relating to or governing such Bearer Securities will be
set forth in an indenture supplemental hereto; and
(17) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical
except as to denomination and except as may otherwise be provided in or pursuant
to the Board Resolution referred to above and set forth in the Officers'
Certificate referred to above or in any indenture supplemental hereto referred
to above.
If any of the terms of the Securities of a series, including the form
of Security of such series, are established by action taken pursuant to a Board
Resolution, a copy of an
25
<PAGE>
appropriate record of such action shall be certified by the Secretary or an
Assistant Secretary or other authorized officer or Director of the Company, and
delivered to the Trustee at or prior to the delivery of the Company Order
contemplated by Section 303 for the authentication and delivery of such series
of Securities.
SECTION 302. Denominations
-------------
The Securities of each series shall be issuable in bearer form or in
registered form without coupons, except as otherwise expressly provided in a
supplemental indenture hereto, in such denominations as shall be specified as
contemplated by Section 301. In the absence of any such provisions with respect
to the Securities of any series, the Securities of such series shall be issuable
in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating
----------------------------------------------
The Securities shall be executed on behalf of the Company by any
Director, the Secretary or any other officer of the Company so authorized and
need not be attested. Definitive Registered Securities of any series may have
the Company's seal reproduced thereon which need not be attested. The
Securities of any series shall be executed by such additional Director or
officer, if any, as shall be specified pursuant to Section 301. The signature
of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signature of any individual
who was at any time the proper Director or officer of the Company shall bind the
Company, notwithstanding that such individual has ceased to hold such office
prior to the authentication and delivery of such Securities or did not hold such
office at the date of authentication of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities. If the
form or terms of the Securities of the series have been established in or
pursuant to one or more Board Resolutions as permitted by Sections 201 and 301,
in authenticating such Securities, and accepting the additional responsibilities
under this Indenture in relation to such Securities, the Trustee shall be
entitled to receive, and (subject to Section 601) shall be fully protected in
relying upon, an Opinion of Counsel stating,
(a) if the form of such Securities has been established by or
pursuant to Board Resolution as permitted by Section 201, that such form
has been established in conformity with the provisions of this Indenture;
(b) if the terms of such Securities have been established by or
pursuant to Board Resolution as permitted by Section 301, that such terms
have been established in conformity with the provisions of this Indenture;
and
(c) that such Securities, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any
conditions specified in such opinion of Counsel, will constitute valid and
legally binding obligations of the Company, enforceable in accordance with
their terms, subject to bankruptcy,
26
<PAGE>
insolvency, reorganization and other laws of general applicability relating
to or affecting the enforcement of creditors' rights and to general
principles of equity.
Notwithstanding the provisions of Section 301 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 301 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the time
of authentication of each Security of such series if such documents are
delivered at or prior to the time of authentication upon original issuance of
the first Security of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee or an Authenticating Agent by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 310 together
with a written statement (which need not be accompanied by an Opinion of
Counsel) stating that such Security has never been issued and sold by the
Company, for all purposes of this Indenture such Security shall be deemed never
to have been authenticated and delivered hereunder and shall never be entitled
to the benefits of this Indenture.
SECTION 304. Transfer Agent and Paying Agent
-------------------------------
For so long as the Securities are listed on the Luxembourg Stock
Exchange and such stock exchange shall so require, the Company shall maintain a
Paying Agent and Transfer Agent in Luxembourg.
The Company shall enter into an appropriate agency agreement with any
Registrar, Transfer Agent or Paying Agent not a party to this Indenture, which
shall implement the provisions of this Indenture that relate to such Person.
The Company shall notify the Trustee of the name and address of any such Person.
If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall
act as such and shall be entitled to appropriate compensation therefor pursuant
to Section 607. The Company initially appoints the Trustee as Registrar,
Transfer Agent and Principal Paying Agent in The City of New York and Bankers
Trust Luxembourg S.A. as Paying Agent and Transfer Agent in Luxembourg in
connection with the Securities.
SECTION 305. Temporary Securities
--------------------
Pending the preparation of a permanent Global Security or definitive
Securities of any series, the Company may execute, and upon Company Order the
Trustee or the Authenticating Agent shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are issued, in registered
form or, if authorized, in bearer form, and with such appropriate
27
<PAGE>
insertions, omissions, substitutions and other variations as the [officer or
officers] executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities of any series are issued, the Company will
cause definitive Securities of that series to be prepared without unreasonable
delay. After the preparation of definitive Securities of such series, the
temporary Securities of such series shall be exchangeable for definitive
Securities of such series upon surrender of the temporary securities of such
series at the office or agency of the Company in a Place of Payment for that
series, without charge to the Holder except as provided in Section 306 in
connection with a transfer and except that a Person receiving Definitive Bearer
Securities shall bear the cost of insurance, postage, transportation and the
like. Upon surrender for cancellation of any one or more temporary Securities
of any series the Company shall execute and the Trustee or the Authenticating
Agent shall authenticate and deliver in exchange therefor a like principal
amount of definitive Securities of the same series and of like tenor of
authorized denominations.
Upon any exchange of a portion of a temporary Global Security for a
definitive Global Security for the individual Securities represented thereby
pursuant to this Section 305 or Section 306, the temporary Global Security shall
be endorsed by the Trustee to reflect the reduction of the principal amount of
such temporary Global Security, and such principal amount shall be reduced for
all purposes by the amount so exchanged and endorsed.
SECTION 306. Registration, Registration of Transfer and Exchange
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency of the Company in a Place of Payment being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Registered Securities and of transfers of Registered Securities.
The Trustee is hereby appointed "Security Registrar" for the purpose of
registering Registered Securities and transfers of Registered Securities as
herein provided. The Company may have one or more coregistrars and the term
"Security Registrar" includes any coregistrar.
Upon surrender for registration of transfer of any Registered Security
of any series at the office or agency in a Place of Payment for that series, the
Company shall execute, and the Trustee or the Authenticating Agent shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Registered Securities of the same series, of any
authorized denominations and of a like aggregate principal amount and tenor.
At the option of the Holder, any Registered Security or Registered
Securities of any series, other than a Global Security, may be exchanged for
other Registered Securities of the same series, of any authorized denominations
and of a like aggregate principal amount and tenor, upon surrender of the
Registered Securities to be exchanged at such office or agency. Whenever any
Securities are so surrendered for exchange, the Company shall execute, and upon
receipt of a Company Order the Trustee or the Authenticating Agent shall
authenticate and deliver, the Registered Securities which the Holder making the
exchange is entitled to receive. Bearer Securities may not be delivered by the
Trustee, the Authenticating Agent or the Security Registrar in exchange for
Registered Securities.
28
<PAGE>
All Securities issued upon any registration of transfer or exchange of
Registered Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Registered Securities surrendered upon such registration of transfer or
exchange.
Every Registered Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
Upon the exchange in whole of a Global Security for the definitive
Securities represented thereby, such Global Security shall be canceled by the
Trustee or delivered to the Trustee for cancellation. Registered Securities
issued in exchange for a Global Security or any portion thereof pursuant to this
Section shall be registered in such names and in such authorized denominations
as the Book-Entry Depositary for such Global Security shall instruct in writing
the Trustee and the Security Registrar. The Trustee or the Security Registrar
shall deliver such Registered Securities to the Persons in whose names such
Registered Securities are so registered.
Interests in a Permanent Global Security may be exchanged for
definitive Registered Securities of the same series only under the circumstances
provided in this Indenture or in an indenture supplemental hereto pursuant to
which Securities of that series are issued or in the Securities of that Series.
In such event the Company will execute, and the Trustee or the Authenticating
Agent, upon receipt of a Company Order for the authentication and delivery of
definitive Registered Securities of such series will authenticate and deliver
such definitive Registered Securities. Any such definitive Registered
Securities so issued shall be registered in the name of such Person or Persons
as the Book-Entry Depositary shall instruct the Trustee and the Security
Registrar in writing. Upon the exchange in whole of a Permanent Global Security
for definitive Registered Securities in equal aggregate principal amount, such
Permanent Global Security shall be delivered to the Trustee for cancellation.
Interests in a Permanent Global Security may not be exchanged for definitive
Bearer Securities. Notwithstanding the foregoing, interests in a Global
Security may not be exchanged for definitive Registered Securities during the
sixteen day period immediately prior to and including each Interest Payment
Date.
No service charge shall be made to the Holder for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Sections 305, 906 or 1107 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange Securities of any series during a period beginning at the opening
of business 15 days before the day of the mailing of a notice of redemption
under Section 1103 and ending at the close of business on the day of such
mailing, (ii) to register the transfer of or exchange any Security so selected
for redemption in whole or in part, except the unredeemed portion of any
Security being redeemed in part or (iii) to exchange any Bearer Security so
selected for redemption except that such a Bearer Security may be exchanged for
a Registered Security of the series (but only if and under the circumstances for
which the Securities of such series are issuable as Registered Securities),
PROVIDED that such Registered Security shall be immediately
- --------
29
<PAGE>
surrendered for redemption with written instructions for payment consistent with
the provisions of this Indenture.
The provisions of this Section 306 are, with respect to any Global
Security, subject to Section 312 hereof.
SECTION 307. Mutilated, Destroyed, Lost and Stolen Securities
------------------------------------------------
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of the same series and of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such Security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its written request the Trustee
shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of the same series and of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section 307, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section 307
in lieu of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.
The provisions of this Section 307 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 308. Payment of Interest; Interest Rights Reserved
---------------------------------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid (in the case of a
Bearer Security) to the bearer thereof and (in the case of a Registered
Security) to the Person in whose name that Registered Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest.
30
<PAGE>
Payment of interest, if any, in respect of any Registered Security
will be made by check mailed to the address of the Person entitled thereto as
such person's address appearing in the Security Register. Payment of interest,
if any, in respect of any Registered Security may also be made, in the case of a
Holder of at least U.S. $1,000,000 aggregate principal amount of Registered
Securities, and payment of interest, if any, in respect of a Permanent Global
Security shall be made, by wire transfer to a U.S. Dollar account maintained by
the Holder with a bank in the United States; provided that such Holder elects
payment by wire transfer by giving written notice to the Trustee or a Paying
Agent to such effect designating such account no later than 15 days immediately
preceding the relevant due date for payment (or such other date as the Trustee
may accept in its discretion).
Any interest on any Security of any series which is payable but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall, in the case of Registered Securities,
forthwith cease to be payable to the Holder thereof on the relevant Regular
Record Date by virtue of having been such Holder, and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in Clause
(1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Registered Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest proposed
to be paid on each Registered Security of such series and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. Unless the Trustee is acting as the Security Registrar,
promptly after such Special Record Date, the Company shall furnish the
Trustee with a list, or shall make arrangements satisfactory to the Trustee
with respect thereto, of the names and addresses of, and respective
principal amounts of such Registered Securities held by, the Holders
appearing on the Security Register at the close of business on such Special
Record Date. The Trustee shall promptly notify the Company of such Special
Record Date and, in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage prepaid, to each
Holder of Securities of such series at his address as it appears in the
Security Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Registered Securities of any series or any Permanent Global Security in any
other lawful manner not inconsistent with the requirements of any
securities exchange on
31
<PAGE>
which such Registered Securities may be listed, and upon such notice as may
be required by such exchange.
Defaulted Interest on Global Bearer Securities shall be payable to the
bearer thereof at the time of payment of such Defaulted Interest by the Company.
Subject to the foregoing provisions of this Section 308, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security, shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 309. Persons Deemed Owners
---------------------
Prior to due presentment of a Registered Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Registered Security is registered as the
owner of such Registered Security for the purpose of receiving payment of
principal of (and premium, if any) and (subject to Section 308) interest, if
any, on such Registered Security and for all other purposes whatsoever, whether
or not such Registered Security be overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary. All such payments so made to any such person, or upon such person's
order, shall be valid, and, to the extent of the sums so paid, effectual to
satisfy and discharge the liability for monies payable upon any such Security.
The Company, the Trustee and any agent of the Company or the Trustee
may treat the Book-Entry Depositary for a Global Bearer Security as the absolute
owner of such Bearer Security for the purpose of receiving payment thereof or on
account thereof and for all other purposes whatsoever, whether or not such
Global Bearer Security or coupon be overdue, and neither the Company or the
Trustee nor any agent of the Company or the Trustee shall be affected by notice
to the contrary.
No holder of any beneficial interest in any Global Security held on
its behalf by a Book-Entry Depositary shall have any rights under this Indenture
with respect to such Global Security, and such Book-Entry Depositary may be
treated by the Company, the Trustee, and any agent of the Company or the Trustee
as the owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall impair, as between a Book-
Entry Depositary and such holders of beneficial interests, the operation of
customary practices governing the exercise of the rights of the Book-Entry
Depositary as holder of any Security.
SECTION 310. Cancellation
------------
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly canceled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly canceled by the
Trustee. No Securities shall be authenticated in lieu of or in exchange for any
Securities canceled as
32
<PAGE>
provided in this Section 310, except as expressly permitted by this Indenture.
All canceled Securities held by the Trustee shall be disposed of as directed by
a Company Order.
SECTION 311. Computation of Interest
-----------------------
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, interest, if any, on the Securities of each series
shall be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 312. Global Securities
-----------------
If the Company shall establish pursuant to Section 301 that the
Securities of a particular series are to be issued in the form of a Global
Security, then the Company shall execute and the Trustee shall, in accordance
with Section 303, authenticate and deliver, a Global Security or Securities
which (i) shall represent, and shall be denominated in an aggregate amount equal
to the aggregate principal amount of, all of the Outstanding Securities of such
series, (ii) shall be in bearer form or, if in registered form, registered in
the name of the Book-Entry Depositary or its nominee, (iii) shall be delivered
by the Trustee to the Book-Entry Depositary or pursuant to the Book-Entry
Depositary's instruction and (iv) shall bear a legend substantially to the
following effect:
"This Security is a Global Security within the meaning of the
Indenture hereinafter referred to and if this Security is in bearer form,
is held by a Book-Entry Depositary or, if this Security is in registered
form, is registered in the name of a Book-Entry Depositary or a nominee of
a Book-Entry Depositary. This Security is exchangeable for Securities
registered in the name of a person other than the Book-Entry Depositary or
its nominee only in the limited circumstances described in the Indenture,
and no transfer of this Security (other than a transfer of this Security as
a whole by the Book-Entry Depositary to a nominee of the Book-Entry
Depositary or by a nominee of the Book-Entry Depositary to the Book-Entry
Depositary or another nominee of the Book-Entry Depositary) may be made or
registered, as the case may be, except in limited circumstances.
Unless this Global Security is presented by an authorized
representative of the Book-Entry Depositary to the Company or its agent for
registration of transfer, exchange or payment, and any definitive Security
is issued in the name or names as directed in writing by the Book-Entry
Depositary, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL in as much as the bearer or, if in
registered form, the registered owner hereof, the Book-Entry Depositary,
has an interest herein."
Notwithstanding the provisions of Section 306, the Global Security of
a series may be transferred, in whole but not in part and in the manner provided
in Section 306, only to another nominee of the Book-Entry Depositary for such
series, or to a successor Book-Entry Depositary for such series selected or
approved by the Company or to a nominee of such successor Book-Entry Depositary.
The circumstances, if any, under which the Global Security of a series
may be exchanged for definitive Registered Securities of such series shall be as
specified in an indenture supplemental hereto pursuant to which the Securities
of such series are issued. In such event the Company will execute, and, subject
to Section 306, the Trustee, upon receipt of
33
<PAGE>
an Officers' Certificate evidencing such determination by the Company, will
authenticate and deliver Securities of such series in definitive registered form
without coupons, in authorized denominations, and in an aggregate principal
amount equal to the principal amount of the Global Securities of such series in
exchange for such Global Securities. Upon the exchange of the Global Securities
for such Securities in definitive registered form without coupons, in authorized
denominations, the Global Securities shall be canceled by the Trustee. Such
Securities in definitive registered form issued in exchange for the Global
Securities pursuant to this Section 312, shall be registered in such names and
in such authorized denominations as the Book-Entry Depositary, pursuant to the
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver Securities to the Book-Entry
Depositary for delivery to the persons in whose names such Securities are so
registered.
No Security that is not a Global Security may be payable to bearer
(except as otherwise provided in an indenture supplemental hereto pursuant to
Section 301(16).
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture
---------------------------------------
This Indenture shall upon Company Request cease to be of further
effect (except as to any surviving rights of registration of transfer or
exchange of Securities herein expressly provided for and rights to receive
payments of any principal, premium or interest in respect thereof and any right
to receive any Additional Amount as provided in Section 1009), and the Trustee
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when
(1) either (A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 307 and (ii)
Securities for whose payment money has theretofore been deposited in trust
with the trustee or any paying agent or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust,
as provided in Section 1003) have been delivered to the Trustee for
cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements for the giving of notice of redemption by the Trustee in
the name, and at the expense, of the Company, or
(iv) are deemed paid and discharged pursuant to Section 403, as
applicable.
34
<PAGE>
and the Company, in the case of (i) or (ii) above, has deposited or caused
to be deposited with the Trustee as trust funds in trust for the purpose an
amount of (a) money in the currency or units of currency in which such
Securities are payable, or (b) U.S. Government Obligations (denominated in
the same currency or units of currency in which such Securities are
payable) which through the payment of interest and principal in respect
thereof in accordance with their terms will provide not later than one day
before the Stated Maturity or Redemption Date, as the case may be, money in
an amount, or (c) a combination of money or U.S. Government Obligations as
provided in (d) above, in each case, sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and interest,
if any, to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date, as
the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section 401 or if money or U.S. Government Obligations shall have been
deposited with or received by the Trustee pursuant to Section 403, the
obligations of the Trustee under Section 402 and the last paragraph of Section
1003 shall survive.
SECTION 402. Application of Trust Money
--------------------------
(a) Subject to the provisions of the last paragraph of Section 1003,
all money or U.S. Government Obligations deposited with the Trustee pursuant to
Sections 401 or 403 and all money received by the Trustee in respect of U.S.
Government Obligations deposited with the Trustee pursuant to Sections 401 or
403, shall be held in trust and applied by it, in accordance with the provisions
of the Securities and this Indenture, to the payment, to the persons entitled
thereto, of the principal of (and premium, if any) and interest, if any, on the
Securities for whose payment such money has been deposited with or received by
the Trustee or to make mandatory sinking fund payments or analogous payments as
provided by Sections 401 or 403.
(b) The Company shall pay and shall indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against U.S. Government
Obligations deposited pursuant to Sections 401 or 403 or the interest and
principal received in respect of such obligations other than any payable by or
on behalf of Holders.
(c) The Trustee shall deliver or pay to the Company from time to time
upon Company Request any U.S. Government Obligations or money held by it as
provided in Sections 401 or 403 which, in the opinion of a nationally recognized
firm of independent certified public accountants expressed in a written
certification thereof delivered to the
35
<PAGE>
Trustee, are then in excess of the amount thereof which then would have been
required to be deposited for the purpose for which such U.S. Government
Obligations or money was deposited or received. This provision shall not
authorize the sale by the Trustee of any U.S. Government Obligations held under
this Indenture.
(d) Any monies paid by the Company to the Trustee or any Paying
Agent, or held by the Company in trust, for the payment of the principal of or
any interest or Additional Amounts on any Securities and remaining unclaimed at
the end of two years after such principal, interest or Additional Amounts become
due and payable will be repaid to the Company, or released from the trust, upon
its written request, and upon such repayment or release all liability of the
company, the Trustee and such Paying Agent with respect thereto will cease.
SECTION 403. Satisfaction, Discharge and Defiance of Securities of any Series
----------------------------------------------------------------
The Company, at its option, (a) will be discharged from any and all
obligations in respect of the Securities of a series (except in each case for
the obligations to register the transfer or exchange of the Securities of that
series, replace stolen, lost or mutilated Securities of that series, maintain
paying agencies and hold moneys for payment in trust); or (b) omit to comply
with any term, provision or condition set forth in Sections 801, 1004 and 1005
with respect to the Securities of any series, provided that the following
conditions shall have been satisfied:
(1) The Company has deposited or caused to be irrevocably deposited
(except as provided in Section [607], [402(c)] and the last paragraph of
Section [1003]) with the Trustee (specifying that each deposit is pursuant
to this Section 403) as trust funds in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of the
Securities of such series, (i) money or (ii) U.S. Government Obligations
which through the payment of interest and principal in respect thereof in
accordance with their terms will provide money in an amount, or (iii) a
combination thereof, in each case, sufficient to pay and discharge the
principal and interest on the outstanding Securities of such series on the
dates such payments are due in accordance with the terms of the Securities
of such series, (or if the Company has designated a redemption date
pursuant to the final sentence of this paragraph, to and including the
redemption date so designated by the Company), and no Event of Default or
event which with notice or lapse of time would become an Event of Default
(including by reason of such deposit) with respect to the Securities of
such series shall have occurred and be continuing on the date of such
deposit. To exercise any such option, the Company is required to deliver
to the Trustee (x) an Opinion of Counsel to the effect that the Holders of
the Securities of such series will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit, defeasance and
discharge of certain obligations, which in the case of (a) must be based on
a change in law or a ruling by the U.S. Internal Revenue Service and (y) an
Officers' Certificate as to compliance with all conditions precedent
provided for in the Indenture relating to the satisfaction and discharge of
the Securities of such series. If the Company shall wish to deposit or
cause to be deposited money or U.S. Government Obligations to pay or
discharge the principal of (and premium, if any) and interest, if any, on
the outstanding Securities of such series to and including a Redemption
Date on which all of the outstanding Securities of such series are to be
redeemed, such Redemption Date shall be irrevocably designated by a Board
Resolution delivered to the Trustee on or prior to the date of deposit of
such money or U.S. Government Obligations, and such Board
36
<PAGE>
Resolution shall be accompanied by an irrevocable Company Request that the
Trustee give notice of such redemption in the name and at the expense of
the Company not less than 15 nor more than 30 days prior to such Redemption
Date in accordance with this Indenture.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default
-----------------
"Event of Default", wherever used herein with respect to Securities of
any series, means any one of the following events:
(1) default in the payment of any interest or any Additional Amounts
upon any Security of that series when it becomes due and payable and
continuance of such default for a period of 30 days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security of that series at its Maturity; or
(3) default in the payment of any sinking fund installment, when and
as due by the terms of a Security of that series and continuance of such
default for a period of 15 days; or
(4) material default in the performance, or material breach, of any
covenant or obligation of the Company in this Indenture (other than a
covenant a default in whose performance or whose breach is elsewhere in
this Section 501 specifically dealt with or which has expressly been
included in this Indenture solely for the benefit of a series of Securities
other than that series) and continuance of such material default or breach
for a period of 60 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities of that series a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(5) if this event shall be made to constitute an Event of Default
with respect to the Securities of a particular series, a default in the
payment of the principal of any bond, debenture, note or other evidence of
indebtedness, in each case for money borrowed by the Company or any
Significant Subsidiary, or in the payment of principal under any mortgage,
indenture (including this Indenture) or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for
money borrowed by the Company or any Significant Subsidiary, which default
for payment of principal is in an aggregate principal amount exceeding
$50,000,000 (or its equivalent in any other currency or currencies) when
such indebtedness becomes due and payable (whether at maturity, upon
redemption or acceleration or otherwise), if such default shall continue
unremedied or unwaived for more than 30 Business Days and the time for
payment of such amount has not been expressly extended; provided, however,
-----------------
that, subject to the provisions of Sections 601 and 602, the Trustee shall
not be deemed to have knowledge of such default unless either (A) a
Responsible Officer of
37
<PAGE>
the Trustee shall have actual knowledge of such default or (B) the Trustee
shall have received written notice thereof from the Company, from any
Holder, from the holder of any such indebtedness or from the trustee under
any such mortgage, indenture or other instrument; and provided, further,
-------- -------
that if such default under such indenture or instrument shall be remedied
or cured by the Company or such Significant Subsidiary or waived by the
holders of such indebtedness, then the Event of Default hereunder by reason
thereof shall be deemed likewise to have been remedied, cured or waived
without further action upon the part of the Trustee or any of the Holders;
or
(6) The failure of the Company or a Significant Subsidiary generally
to pay its debts as they become due, or the admission in writing of its
inability to pay its debts generally, or the making of a general assignment
for the benefit of its creditors, or the institution of any proceeding by
or against the Company or a Significant Subsidiary (other than any such
proceeding brought against the Company or a Significant Subsidiary that is
dismissed within 180 days from the commencement thereof) seeking to
adjudicate it bankrupt or insolvent, or seeking liquidation (other than a
solvent liquidation), winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating
to bankruptcy, insolvency, reorganization, moratorium or relief of debtors,
or seeking the entry of an order for relief or appointment of an
administrator, receiver, trustee, intervenor or other similar official for
it or for any substantial part of its property, or the taking of any action
by the Company or a Significant Subsidiary to authorize any of the actions
set forth in this subparagraph (6); or
(7) Any other Event of Default provided in the supplemental indenture
or provided in or pursuant to the Board Resolution under which such series
of Securities is issued or in the form of Security for such series.
SECTION 502. Acceleration of Maturity; Rescission and Annulment
--------------------------------------------------
If an Event of Default with respect to Securities of any series at the
time Outstanding occurs and is continuing, then in every such case the Trustee
or the Holders of not less than 25% in aggregate principal amount of the
Outstanding Securities of that series may declare the principal amount (or, if
any of the Securities of that series are Original Issue Discount Securities,
such portion of the principal amount of such Securities as may be specified in
the terms thereof) of all of the Securities of that series to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), and upon any such declaration such principal amount (or specified
amount) shall become immediately due and payable.
At any time after such declaration of acceleration with respect to
Securities of any series has been made, but before a judgment or decree for
payment of money has been obtained by the Trustee as hereinafter in this Article
provided, if all Events of Default with respect to Securities of that series
have been cured or waived (other than the non-payment of principal of the
Securities which has become due solely by reason of such declaration of
acceleration) then such declaration of acceleration and its consequences shall
be automatically annulled and rescinded.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
38
<PAGE>
For all purposes under this Indenture, if a portion of the principal
of any Original Issue Discount Securities shall have been accelerated and
declared due and payable pursuant to the provisions hereof, then, from and after
such declaration, unless such declaration has been rescinded and annulled, the
principal amount of such Original Issue Discount Securities shall be deemed, for
all purposes hereunder, to be such portion of the principal thereof as shall be
due and payable as a result of such acceleration, and payment of such portion of
the principal thereof as shall be due and payable as a result of such
acceleration, together with interest, if any, thereon and all other amounts
owing thereunder, shall constitute payment in full of such Original Issue
Discount Securities.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee
---------------------------------------------------------------
The Company covenants that if
(1) default is made in the payment of any interest on any Security of
a series when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium,
if any, on) any Security of a series at the Stated Maturity thereof,
the Company will, upon written demand of the Trustee, pay to it, for the benefit
of the Holders of such Securities of such series, the whole amount then due and
payable on such Securities of such series for principal (and premium, if any)
and interest, if any, and, to the extent that payment of such interest shall be
legally enforceable, interest on any overdue principal (and premium, if any) and
any overdue interest, at the rate or rates prescribed therefor in such
Securities of such series, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.
If any Event of Default with respect to Securities of any series
occurs and is continuing, the Trustee may in its discretion proceed to protect
and enforce its rights and the rights of the Holders of Securities of such
series by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights.
SECTION 504. Trustee May File Proofs of Claim
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation
(other than a solvent liquidation), bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to the Company or
any other obligor upon the Securities or the property of the Company or of such
other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Securities shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether the Trustee shall
have
39
<PAGE>
made any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of principal
(and premium, if any) and interest owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities
-----------------------------------------------------------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order with respect to the Securities of any series, at
the date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any) or interest, upon
presentation of the Securities and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: In case the principal and premium, if any, of the Securities
of such series in respect of which moneys have been collected shall not
have become and be then due and payable, to the payment of interest, if
any, on the Securities of such a series in default in the order of the
maturity of the installments of such interest, with interest (to the extent
that such interest has been collected by the Trustee and to the
40
<PAGE>
extent permitted by law) upon the overdue installments of interest at the
rate prescribed therefor in such Securities, such payments to be made
ratably to the Persons entitled thereto, without discrimination or
preference;
THIRD: In case the principal or premium, if any, of the Securities of
such series in respect of which moneys have been collected shall have
become and shall be then due and payable, to the payment of the whole
amount then owing and unpaid upon all the Securities of such series for
principal and premium, if any, and interest, if any, with interest upon the
overdue principal and premium, if any, and (to the extent that such
interest has been collected by the Trustee and to the extent permitted by
law) upon overdue installments of interest at the rate prescribed therefor
in the Securities of such series; and in case such moneys shall be
insufficient to pay in full the whole amount so due and unpaid upon the
Securities of such series, then to the payment of such principal and any
premium and interest, without preference or priority of principal over
interest, or of interest over principal or premium, or of any installment
of interest over any other installment of interest, or of any Security of
such series over any other Security of such series, ratably to the
aggregate of such principal and any premium and accrued and unpaid
interest; and
FOURTH: To the payment of the remainder, if any, to the Company or
any other Person lawfully entitled thereto.
SECTION 507. Limitation on Suits
-------------------
No Holder of any Security of any series shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Securities of that
series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to the Trustee against the costs, expenses and liabilities to
be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this
41
<PAGE>
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
----------------------------------------------------------------
Interest
--------
Subject to Section 507, the Holder of any Security shall have the
right, which is absolute and unconditional, to receive payment of the principal
of (and premium, if any) and (subject to Section 307) interest, if any, on such
Security on the Stated Maturity or Maturities expressed in such Security (or, in
the case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Company, the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver
----------------------------
No delay or omission of the Trustee or of any Holder of any Securities
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient by the Trustee or by the Holders, as the case
may be.
SECTION 512. Control by Holders
------------------
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such series, provided that
--------
42
<PAGE>
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee shall not determine that the action so directed would
be prejudicial to Holders not taking part in such action.
SECTION 513. Waiver of Past Defaults
-----------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities of any series may on behalf of the Holders of all
the Securities of such series waive any past default hereunder with respect to
such series and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest, if any, on any Security of such series, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant in such suit,
but the provisions of this Section 514 shall not apply to any suit instituted by
the Trustee, to any suit instituted by any Holder, or group of Holders, holding
in the aggregate more than 10% in principal amount of the outstanding Securities
of any series, or to any suit instituted by any Holder for the enforcement of
the payment of the principal of or interest, if any, on any Security on or after
the Stated Maturity or Maturities expressed in such Security.
43
<PAGE>
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities
-----------------------------------
(a) Except during the continuance of a default with respect to the
Securities of any series,
(1) the Trustee undertakes to perform, such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
examine the same to determine whether or not they conform to the
requirements of this Indenture.
(b) In case a default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct
of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that
(1) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless the Trustee was
negligent in ascertaining the pertinent facts; and
(2) no provision of this Indenture shall require the Trustee to
spend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if repayment of such funds or adequate indemnity
against such risk or liability satisfactory to the Trustee has not been
assured to it.
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a majority in principal amount of
the outstanding Securities of any series, determined as provided in Section
512, relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture with respect to the
Securities of such series; and
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section 601.
44
<PAGE>
SECTION 602. Notice of Defaults
------------------
Within 90 days after the occurrence of any default hereunder with
respect to the Securities of any series, the Trustee shall transmit by mail to
all Holders of Securities of such series notice of such default hereunder known
to the Trustee, unless such default shall have been cured or waived; provided,
--------
however, that, except in the case of a default in the payment of the principal
- -------
of (or premium, if any) or interest, if any, on any Security of such series or
in the payment of any sinking fund installment with respect to Securities of
such series, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
directors or a Responsible Officer of the Trustee in good faith determine that
the withholding of such notice is in the interest of the Holders of Securities
of such series; and provided, further, that in the case of any default of the
--------- -------
character specified in [Section 501(4)] with respect to Securities of such
series, no such notice to Holders shall be given until at least 30 days after
the occurrence thereof. For the purpose of this Section 602, the term "default"
means any event which is, or after notice or lapse of time or both would become,
an Event of Default with respect to Securities of such series.
SECTION 603. Certain Rights of Trustee
-------------------------
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order or as otherwise
expressly provided herein and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel, and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to expend or risk its own
funds or to exercise, at the request or direction of any of the Holders, any of
the rights or powers vested in it by this Indenture pursuant to this Indenture,
unless such Holders shall have offered to the Trustee security or indemnity
satisfactory to the Trustee against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice,
45
<PAGE>
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled upon reasonable prior request and during
normal business hours to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and shall not be liable for the actions or omissions of such agents
appointed and supervised by it with due care.
SECTION 604. Not Responsible for Recitals or Issuance of Securities
------------------------------------------------------
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities. Neither
the Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities
-------------------
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
SECTION 606. Money Held in Trust
-------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement
------------------------------
The Company agrees
(1) to pay to the Trustee from time to time such compensation as is
agreed upon in writing;
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel, which compensation, expenses
and disbursements shall be set forth in sufficient written detail to the
satisfaction of the Company), except any such expense, disbursement or
advance as may be attributable to its or their negligence or bad faith; and
(3) to indemnify the Trustee, its officers, directors and employees
for, and to hold it harmless against, any loss, liability or expense
incurred without negligence,
46
<PAGE>
bad faith, or willful misconduct on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder. [Obligations under this Section 607(3) will
survive the satisfaction and discharge of this Indenture pursuant to
Section 401 hereof.
SECTION 608. Disqualification; Conflicting Interests
---------------------------------------
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility
---------------------------------------
There shall at all times be a Trustee hereunder which shall be
eligible to act as trustee under the Trust Indenture Act and which shall have a
combined capital and surplus of at least $50,000,000. If the Trustee does not
have an office in The City of New York, the Trustee may appoint an agent in The
City of New York reasonably acceptable to the Company to conduct any activities
which the Trustee may be required under this Indenture to conduct in The City of
New York. If the Trustee does not have an office in The City of New York or has
not appointed an agent in The City of New York, the Trustee shall be a
participant in The Depository Trust Company and FAST distribution systems. If
such corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of a United States federal, state, territorial or
District of Columbia supervising or examining authority, then for the purposes
of this Section 609, the combined capital and surplus of such corporation shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 609, the Trustee
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor Trustee
---------------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611.
(b) The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series, delivered to the Trustee and to
the Company.
(d) If at any time:
47
<PAGE>
(1) the Trustee shall fail to comply with section 310(b) of the Trust
Indenture Act pursuant to Section 608 with respect to any series of
Securities after written request therefor by the Company or by any Holder
who has been a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (ii) subject to Section 514, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, with
respect to the Securities of one or more series, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee or Trustees with respect
to the Securities of that or those series (it being understood that any such
successor Trustee may be appointed with respect to the Securities of one or more
or all of such series and that at any time there shall be only one Trustee with
respect to the Securities of any particular series) and shall comply with the
applicable requirements of Section 611. If no successor Trustee with respect to
the Securities of any series shall have been so appointed by the Company and
accepted appointment in the manner required by Section 611, any Holder who has
been a bona fide Holder of a Security of such series for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee with
respect to the Securities of such series.
(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
by mailing written notice of such event by first-class mail, postage prepaid, to
all Holders of Securities of such series as their names and addresses appear in
the Security Register. Each notice shall include the name of the successor
Trustee with respect to the Securities of such series and the address of its
Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor
--------------------------------------
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges,
48
<PAGE>
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but on request of the company or any successor trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in paragraph (a) or (b) of this Section 611, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business
-----------------------------------------------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
--------
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so
49
<PAGE>
authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 613. Preferential Collecting of Claims Against Company
-------------------------------------------------
(a) Subject to Subsection (b) of this Section 613, if the Trustee
shall be or shall become a creditor, directly or indirectly, secured or
unsecured, of the Company within three months prior to a default, as defined in
Subsection (c) of this Section 613, or subsequent to such a default, then,
unless and until such default shall be cured, the Trustee shall set apart and
hold in a special account for the benefit of the Trustee individually, the
Holders of the Securities and the holders of other indenture securities, as
defined in Subsection (c) of this Section 613:
(1) an amount equal to any and all reductions in the amount due and
owing upon any claim as such creditor in respect of principal or interest
effected after the beginning of such three months' period and valid as
against the Company and its other creditors, except any such reduction
resulting from the receipt or disposition of any property described in
paragraph (2) of this Subsection, or from the exercise of any right of set-
off which the Trustee could have exercised if a petition in bankruptcy had
been applied by or against the Company upon the date of such default; and
(2) all property received by the Trustee in respect of any claims as
such creditor, either as security therefor, or in satisfaction or
composition thereof, or otherwise, after the beginning of such three
months' period, or an amount equal to the proceeds of any such property, if
disposed of, subject, however, to the rights, if any, of the Company and
------- -------
its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the
Trustee:
(A) to retain for its own account (i) payments made on account of any
such claim by any Person (other than the Company) who is liable thereon,
and (ii) the proceeds of the bona fide sale of any such claim by the
Trustee to a third Person, and (iii) distributions made in cash, securities
or other property in respect of claims filed against the Company in
bankruptcy or receivership or in proceedings for reorganization pursuant to
the Federal Bankruptcy Act or applicable State law;
(B) to realize, for its own account, upon any property held by it as
security for any such claim, if such property was so held prior to the
beginning of such three months' period;
(C) to realize, for its own account, but only to extent of the claim
hereinafter mentioned, upon any property held by it as security for any
such claim, if such claim was created after the beginning of such three
months' period and such property was received as security therefor
simultaneously with the creation thereof, and if the Trustee shall sustain
the burden of proving that at the time such property was so received the
Trustee had no reasonable cause to believe that a default, as defined in
Subsection (c) of this Section 613, would occur within three months; or
(D) to receive payment on any claim referred to in paragraph (B) or
(C) , against the release of any property held as security for such claim
as provided in
50
<PAGE>
paragraph (B) or (C) , as the case may be, to the extent of the fair value
of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted
after the beginning of such three months' period for property held as security
at the time of such substitution shall, to the extent of the fair value of the
property released, have the same status as the property released, and, to the
extent that any claim referred to in any of such paragraphs is created in
renewal of or in substitution for or for the purpose of repaying or refunding
any pre-existing claim of the Trustee as such creditor, such claim shall have
the same status as such pre-existing claim.
If the Trustee shall be required to account for the funds and property
held in such special account, the proceeds thereof shall be apportioned among
the Trustee, the Holders and the holders of other indenture securities in such
manner that the Trustee, the Holders and the holders of other indenture
securities realize, as a result of payments from such special account and
payments of dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to the Federal
Bankruptcy Act or applicable State law or winding up or administration pursuant
to the insolvency laws of the United Kingdom, as applicable, the same percentage
of their respective claims, figured before crediting to the claim of the Trustee
anything on account of the receipt by it from the Company of the funds and
property in such special account and before crediting to the respective claims
of the Trustee and the Holders and the holders of other indenture securities
dividends on claims filed against the Company in bankruptcy or receivership or
in proceedings for reorganization pursuant to the Federal Bankruptcy Act or
applicable State law or winding up or administration pursuant to the insolvency
laws of the United Kingdom, as applicable, but after crediting thereon receipts
on account of the indebtedness represented by their respective claims from all
sources other than from such dividends and from the funds and property so held
in such special account. As used in this paragraph, with respect to any claim,
the term "dividends" shall include any distribution with respect to such claim,
in bankruptcy or receivership or proceedings for reorganization pursuant to the
Federal Bankruptcy Act or applicable State law or winding up or administration
pursuant to the insolvency laws of the United Kingdom, as applicable, whether
such distribution is made in cash, securities or other property, but shall not
include any such distribution with respect to the secured portion, if any, of
such claim.
Any Trustee which has resigned or been removed after the beginning of
such three months' period shall be subject to the provisions of this Subsection
as though such resignation or removal had not occurred. If any Trustee has
resigned or been removed prior to the beginning of such three months' period, it
shall be subject to the provisions of this Subsection if and only if the
following conditions exist:
(i) the receipt of property or reduction of claim, which would have
given rise to the obligation to account, if such Trustee had continued as
Trustee, occurred after the beginning of such three months' period; and
(ii) such receipt of property or reduction of claim occurred within
three months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection (a) of
this Section 613 a creditor relationship arising from:
51
<PAGE>
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year or
more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction or by this Indenture, for the purpose of preserving
any property which shall at any time be subject to the lien of this
Indenture or of discharging tax liens or other prior liens or encumbrances
thereon, if notice of such advances and of the circumstances surrounding
the making thereof is given to the Holders at the time and in the manner
provided in this Indenture;
(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depository, or other similar
capacity;
(4) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction, as defined in Subsection (c) of this
Section 613;
(5) the ownership of stock or of other securities of a corporation
organized under the provisions of Section 25 (a) of the Federal Reserve
Act, as amended, which is directly or indirectly a creditor of the Company;
and
(6) the acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptances or obligations which fall within the
classification of self-liquidating paper, as defined in Subsection (c) of
this Section 613.
(c) For the purposes of this Section 613 only:
(1) the term "default" means any failure to make payment in full
of the principal of or interest on any of the Securities or upon the
other indenture securities when and as such principal or interest
becomes due and payable;
(2) the term "other indenture securities" means securities upon
which the Company is an obligor (as defined in the Trust Indenture
Act) outstanding under any other indenture (i) under which the Trustee
is also trustee, (ii) which contains provisions substantially similar
to the provisions of this Section 613, and (iii) under which a default
exists at the time of the apportionment of the funds and property held
in such special account;
(3) the term "cash transaction" means any transaction in which
full payment for goods or securities sold is made within seven days
after delivery of the goods or securities in currency or in checks or
other orders drawn upon banks or bankers and payable upon demand;
(4) the term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares
or merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the
52
<PAGE>
security, provided the security is received by the Trustee
simultaneously with the creation of the creditor relationship with the
Company arising from the making, drawing, negotiating or incurring of
the draft, bill of exchange, acceptance or obligation;
(5) the term "Company" means any obligor upon the Securities;
and
(6) the term "Federal Bankruptcy Act" means the Bankruptcy Code
or Title 11 of the United States Code.
SECTION 614. Authenticating Agents
---------------------
From time to time the Trustee, with the prior written approval of the
Company, may appoint one or more Authenticating Agents with respect to one or
more series of Securities with power to act on the Trustee's behalf and subject
to its direction in the authentication and delivery of Securities of such series
or in connection with transfers and exchanges under Sections 304, 305, 306, and
1104 as fully to all intents and purposes as though the Authenticating Agent had
been expressly authorized by those Sections of this Indenture to authenticate
and deliver Securities of such series. For all purposes of this Indenture, the
authentication and delivery of Securities by an Authenticating Agent pursuant to
this Section 614 shall be deemed to be authentication and delivery of such
Securities "by the Trustee". Each such Authenticating Agent shall be acceptable
to the Company and shall at all times be a corporation organized and doing
business under the laws of the United States, any State thereof or the District
of Columbia, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal, State or District of Columbia authority.
If such corporation publishes reports of condition at leant annually pursuant to
law or the requirements of such authority, then for the purposes of this Section
614 the combined capital and surplus of such corporation shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section 614, such
Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section 614.
Any corporation into which any Authenticating Agent may be merged or
with which it may be consolidated, or any corporation resulting from, any merger
or consolidation or to which any Authenticating Agent shall be a party, or any
corporation succeeding to the corporate trust business of any Authenticating
Agent, shall be the successor of the Authenticating Agent hereunder, if such
successor corporation is otherwise eligible under this Section 614, without the
execution or filing of any paper or any further act on the part of the parties
hereto or the Authenticating Agent or such successor corporation.
An Authenticating Agent may resign at any time by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any Authenticating Agent by giving written notice
of termination to such Authenticating Agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any Authenticating Agent shall cease to be eligible under this Section 614, the
Trustee may appoint a successor Authenticating Agent with the prior written
approval of the Company and shall mail notice of such appointment to all Holders
of Securities of the series with respect to which such Authenticating Agent will
serve, as the names and addresses of such Holders appear on the Security
Register. Any successor Authenticating Agent, upon acceptance of its appointment
hereunder, shall become vested with
53
<PAGE>
all the rights, powers and duties of its predecessor hereunder, with like effect
as if originally named as an Authenticating Agent. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section
614.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section 614 as may be
agreed in a separate writing among the Company, the Trustee and such
Authenticating Agent, and the Trustee shall be entitled to be reimbursed for
such payments pursuant to Section 607.
If an appointment with respect to one or more series of Securities is
made pursuant to this Section 614, the Securities of such series may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication in the following form:
This is one of the Securities of the series designated herein referred
to in the within mentioned Indenture.
BANKERS TRUST COMPANY
As Trustee
[NAME OF AUTHENTICATING
AGENT]
-------------------------------------
Authenticating Agent
By:__________________________________
Authorized Signatory
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders
---------------------------------------------------------
The Company will furnish or cause to be furnished to the Trustee with
respect to the Registered Securities of each series
(a) semi-annually, not later than 15 days after each Regular Record
Date, or, in the case of any series of Registered Securities on which semi-
annual interest is not payable, not more than 15 days after such semi-
annual dates as may be specified by the Trustee, a list, in such form as
the Trustee may reasonably require, of the names and addresses of the
Holders as of such Regular Record Date or semi-annual date, as the case may
be, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
54
<PAGE>
provided, however, that if and so long as the Trustee is Security Registrar for
- -------- -------
any series of Registered Securities, no such list shall be required to be
furnished with respect to any such series.
SECTION 702. Preservation of Information; Communications to Holders
------------------------------------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) If three or more Holders (herein referred to as "applicants")
apply in writing to the Trustee, and furnish to the Trustee reasonable proof
that each such applicant has owned a Security for a period of at least six
months preceding the date of such application, and such application states that
the applicants desire to communicate with other Holders with respect to their
rights under this Indenture or under the Securities and is accompanied by a copy
of the form of proxy or other communication which such applicants propose to
transmit, then the Trustee shall, within five business days after the receipt of
such application, at its election, either
(i) afford such applicants access to the information preserved at
the time by the Trustee in accordance with Section 702(a), or
(ii) inform such applicants as to the approximate number of Holders
whose names and addresses appear in the information preserved at the time
by the Trustee in accordance with Section 702(a), and as to the approximate
cost of mailing to such Holders the form of proxy or other communication,
if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to
such information, the Trustee shall, upon the written request of such
applicants, mail to each Holder whose name and address appear in the information
preserved at the time by the Trustee in accordance with Section 702(a) a copy of
the form of proxy or other communication which is specified in such request,
with reasonable promptness after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment, of the reasonable expenses
of mailing, unless within five days after such tender the Trustee shall mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the beat interest of the Holders
or would be in violation of applicable law. Such written statement shall specify
the basis of such opinion. If the Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed, shall enter an
order refusing to sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all the objections so sustained
have been met and shall enter an order so declaring, the Trustee shall mail
copies of such material to all such Holders with reasonable promptness after the
entry of such order and the renewal of such tender; otherwise the Trustee shall
be relieved of any obligation or duty to such applicants respecting their
application.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of
55
<PAGE>
either of them shall be held accountable, by reason of the disclosure of any
such information as to the names and addresses of the Holders in accordance with
Section 702(b), regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Section 702(b).
SECTION 703. Reports by Trustee
------------------
(a) Within 60 days after ____ 1 of each year, commencing ____1, 1997,
the Trustee shall transmit by mail to all Holders of Securities a brief report
dated as of such ____ 1, of such year with respect to any of the following
events which may have occurred within the previous 12 months (but if no such
event has occurred within such period no report need be transmitted):
(1) any change to its eligibility under Section 609 and its
qualifications under Section 608;
(2) the creation of or any material change to a relationship
specified in Section 608;
(3) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof) made
by the Trustee (as such) which remain unpaid on the date of such report,
and for the reimbursement of which it claims or may claim a lien or charge,
prior to that of the Securities, on any property or funds held or collected
by it as Trustee, except that the Trustee shall not be required (but may
elect) to report such advances if such advances so remaining unpaid
aggregate not more than one-half of one percentum of the principal amount
of the Securities outstanding on the date of such report;
(4) any change to the amount, interest rate and maturity date of all
other indebtedness owing by the Company (or by any other obligor on the
Securities) to the Trustee in its individual capacity, on the date of such
report, with a brief description of any property held as collateral
security therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in Sections 613(b)(2), (3),
(4) or (6);
(5) any change to the property and funds, if any, physically in the
possession of the Trustee as such on the date of such report;
(6) any additional issue of Securities which the Trustee has not
previously reported; and
(7) any action taken by the Trustee in the performance of its duties
hereunder which it has not previously reported and which in its opinion
materially affects the Securities, except action in respect of a default,
notice of which has been or is to be withheld by the Trustee in accordance
with Section 602.
(b) The Trustee shall transmit by mail to all Holders of Securities a
brief report with respect to the character and amount of any advances (and if
the Trustee elects so to state, the circumstances surrounding the making
thereof) made by the Trustee (as such) since the date of the last report
transmitted pursuant to Subsection (a) of this Section 703 (or if no
56
<PAGE>
such report has yet been so transmitted, since the date of execution of this
instrument) for the reimbursement of which it claims or may claim a lien or
charge, prior to that of the Securities, on property or funds held or collected
by it as Trustee and which it has not previously reported pursuant to this
Subsection, except that the Trustee shall not be required (but may elect) to
report such advances if such advances remaining unpaid at any time aggregate 10%
or less of the principal amount of the securities outstanding at such time, such
report to be transmitted within 90 days after such time.
(c) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each U.S. stock exchange
upon which any Securities are listed, with the Commission and with the Company.
The Company will notify the Trustee when any Securities are listed on any U.S.
stock exchange.
SECTION 704. Reports by Company
------------------
The Company shall:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if the Company is not required to file
information, documents or reports pursuant to either of said Sections and
one or more series of the Securities is listed on a U.S. national
securities exchange, then it shall file with the Trustee and the
Commission, in accordance with rules and regulations prescribed from time
to time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to
Section 13 of the Securities Exchange Act of 1934 in respect of a security
listed and registered on a U.S. national securities exchange as may be
prescribed from time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as way be
required from time to time by such rules and regulations; and
(3) transmit by mail to all Holders of Securities within 30 days
after the filing thereof with the Trustee, such summaries of any
information, documents and reports required to be filed by the Company
pursuant to paragraphs (1) and (2) of this Section 704 as may be required
by rules and regulations prescribed from time to time by the Commission.
57
<PAGE>
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, SALE OR LEASE
SECTION 801. Company May Consolidate Etc., Only on Certain Terms
---------------------------------------------------
Nothing contained in this Indenture shall prevent the Company from
consolidating with or merging into another corporation or conveying,
transferring or leasing its properties and assets substantially as an entirety
to any person, provided that (a) the successor entity assumes the Company's
applicable obligations on the Securities and (b) immediately after giving effect
to such transaction no Event of Default and; no event which, after notice or
lapse of time or both, would become an Event of Default, shall have happened and
be continuing.
SECTION 802. Successor Corporation to be Substituted
---------------------------------------
Upon any consolidation by the Company with or merger by the Company
into any other corporation or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety in accordance
with Section 801, the successor corporation formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor corporation had been named as the Company herein, and thereafter the
predecessor corporation shall be relieved of all obligations and covenants under
this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures without Consent of Holders
--------------------------------------------------
Without the consent of any Holders, the Company and the Trustee, at
any time and from time to time, may enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(1) to evidence the succession of another corporation to the Company
and the assumption by any such successor of the covenants of the Company
herein and in the Securities;
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be
for the benefit of less than all series of Securities, stating that such
covenants are expressly being included solely for the benefit of such
series) or to surrender any right or power herein conferred upon the
Company;
(3) to add any additional Events of Default (and if such Events of
Default are to be for the benefit of less than all series of Securities,
stating that such Events of Default are expressly being included solely for
the benefit of such series);
58
<PAGE>
(4) to add to or change any of the provisions of this Indenture to
such extent as shall be necessary to permit or facilitate the issuance of
securities in bearer form, registrable or not registrable as to principal,
and with or without interest coupons, or to facilitate the issuance of
Securities in uncertificated form, or to permit or facilitate the issuance
of extendible Securities;
(5) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only as
--------
to the Securities of any series created by such supplemental indenture and
Securities of any series subsequently created to which such change or
elimination is made applicable by the subsequent supplemental indenture
creating such series;
(6) to secure the Securities;
(7) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301;
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the administration of
the trusts hereunder by more than one Trustee, pursuant to the requirements
of Section 611(b);
(9) to provide for any rights of the Holders of Securities of any
series to require the repurchase of Securities of such series by the
Company;
(10) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein to
evidence the merger of the Company or the replacement of the Trustee, or to
make any other provisions with respect to matters or questions arising
under this Indenture, provided such action shall not materially and
--------
adversely affect the interests of the Holders of Securities of any series;
or
(11) to modify, alter, amend or supplement this Indenture in any other
respect which is not materially adverse to Holders, which does not involve
a change described in clauses (1), (2) or (3) of Section 902 hereof and
which, in the judgment of the Trustee, is not to the prejudice of the
Trustee, or in order to provide for the duties, responsibilities and
compensation of the Trustee as a transfer agent in the event one registered
Security of any series is issued in the aggregate principal amount of all
outstanding Securities of such series in which Holders will hold an
interest.
SECTION 902. Supplemental Indentures with Consent of Holders
-----------------------------------------------
With the consent of the Holders of a majority in aggregate principal
amount of the outstanding Securities of all series affected by such supplemental
indenture (voting as one class), by Act of said Holders delivered to the Company
and the Trustee, the Company, when authorized by or pursuant to a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this indenture or of
modifying in any manner the rights of the Holders of Securities of such series
under this Indenture; provided,
--------
59
<PAGE>
however, that no such supplemental indenture shall, without the consent of the
- -------
Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of principal of or interest, if any, on, any Security, or
reduce the principal amount thereof or the rate of interest thereon
(including Additional Amounts) or any premium payable upon the redemption
thereof, or reduce the amount of the principal of an original Issue
Discount Security that would be due and payable upon a declaration of
acceleration of the maturity thereof pursuant to Section 502, or change any
Place of Payment where, or the coin or currency in which, any Security or
any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or
(2) reduce the percentage in principal amount of the outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required
for any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for in this
Indenture, or
(3) modify any of the provisions of this Section 902 or Section 513,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby,
provided, however, that this clause shall not be deemed to require the
-------- -------
consent of any Holder with respect to changes in the references to "the
Trustee" and concomitant changes in this Section 902, or the deletion of
this proviso, in accordance with the requirements of Sections 611(b) and
901(8).
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section
902 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
60
<PAGE>
SECTION 904. Effect of Supplemental Indentures
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall,
if so required by the Trust Indenture Act, conform to the requirements of the
Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures
--------------------------------------------------
Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article may, and shall
if required by the Trustee, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Company shall
so determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest
---------------------------------------------------
The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of (and premium,
if any) and interest and Additional Amounts, if any, on the Securities of that
series in accordance with the terms of the Securities and this Indenture. An
installment of principal of or interest on the Securities of a series shall be
considered paid on the date it is due if the Trustee or Paying Agent holds at
11:00 a.m. New York City time on that date money deposited by the Company in
immediately available funds and designated for, and sufficient to pay, the
installment in full.
Neither the Company nor any agent of the Company will have any
responsibility or liability for any aspect relating to payments made or to be
made by the Book-Entry Depositary to DTC in respect of the Securities of a
series or the Book-Entry Interests. None of the Company, the Trustee, the Book-
entry Depositary or any agent of any of the foregoing will have any
responsibility or liability for any aspect relating to payments made or to be
made by DTC on account of a Participant's or Indirect Participant's ownership of
an interest in the Book-Entry Interest or for maintaining, supervising or
reviewing any records relating to a Participant's interests in the Book-Entry
Interest.
SECTION 1002. Maintenance of Office or Agency
-------------------------------
The Company will maintain (i) in the Borough of Manhattan, The City of
New York, an office or agency where Securities of any series may be presented or
surrendered for
61
<PAGE>
payment, and where notices and demands to or upon the Company in respect of the
Securities of such series and this Indenture may be served and if definitive
Registered Securities have been issued, an office or agency of a Transfer Agent
where Securities may be surrendered for registration of transfer or exchange,
and (ii) an office or agency of a Paying Agent where the Securities may be paid
in Luxembourg so long as the Securities are listed on the Luxembourg Stock
Exchange and the rules of such exchange so require. The Company will give
prompt written notice to the Trustee of the location, and any change in the
location, of any such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee,
except that Bearer Securities of that series pursuant to Section 1001 may be
presented at the place specified for the purpose pursuant to Section 301, and
the Company hereby appoints the Paying Agent as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of such Place of Payment) where the
Securities of one or more series and any appurtenant coupons (subject to Section
1001) may be presented or surrendered for any or all of such purposes, and may
from time to time rescind such designations; provided, however, that no such
-------- -------
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in each Place of Payment for any
series of Securities for such purposes. The Company will give prompt written
notice to the Trustee of any such designation and any change in the location of
any such other office or agency. The Company will at all time maintain at least
one Paying Agent which is located outside the United Kingdom for each series of
Securities.
SECTION 1003. Money for Securities Payments to Be Held in Trust
-------------------------------------------------
If the Company shall at any time act as its own Paying Agent with
respect to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest, if any, on any of the Securities
of that series, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (and premium, if any) or
interest, if any, so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any
series of Securities, it will, no later than 10:00 a.m., New York Time, on or
prior to each due date of the principal of (and premium, if any) or interest, if
any, on any Securities of that series, deposit with a Paying Agent a sum in
immediately available funds sufficient to pay the principal and premium, if any)
or interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest.
The Company will cause each Paying Agent for any series of Securities
other than the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section 1003, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest, if any, on Securities of that series in trust
for the benefit
62
<PAGE>
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities of that series) in the making of any
payment of principal (and premium, if any) or interest, if any, on the
Securities of that series; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by the Company or by any Paying Agent
to the Trustee, the Company or such Paying Agent, as the case may be, shall be
released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest, if any, on any Security of any series and remaining unclaimed
for two years after such principal (and premium, if any) or interest has become
due and payable shall be paid to the Company on Company Request, or (if then
held by the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease.
SECTION 1004. Limitation on Liens
-------------------
If this covenant shall be made applicable to the Securities of a particular
series, neither the Company nor any Significant Subsidiary shall issue, assume
or guarantee any notes, bonds, debentures or other similar evidences of
indebtedness, in each case for money borrowed ("Debt"), secured by a Lien upon
any property or assets (other than cash) without effectively providing that the
outstanding Securities (together with, if the Company so determines, any other
indebtedness or obligation then existing or thereafter created ranking equally
with such Securities) shall be secured equally and ratably with (or prior to)
such Debt so long as such Debt shall be so secured. The foregoing restriction
on Liens will not, however, apply to:
(a) Liens in existence on the date of original issue of such
Securities;
(b) (i) any Lien created or arising over any property which is
acquired, constructed or created by the Company or any of its Significant
Subsidiaries, but only if (A) such Lien secures only principal amounts (not
exceeding the cost of such acquisition, construction or creation) raised
for the purposes of such acquisition, construction or creation, together
with any costs, expenses, interest and fees incurred in relation thereto or
a guarantee given in respect thereof, (B) such Lien is created or arises on
or before 90 days after the completion of such acquisition, construction or
creation and (C) such Lien is confined solely to the property so acquired,
constructed or created; or (ii) any Lien to secure indebtedness for
borrowed money incurred in
63
<PAGE>
connection with a specifically identifiable project where the Lien relates
to a property (including, without limitation, shares or other rights of
ownership in the entity(ies) which own such property or project) involved
in such project and acquired by the Company or a Significant Subsidiary
after the date of original issue of the Securities and the recourse of the
creditors in respect of such indebtedness is limited to any or all of such
project and property (including as aforesaid);
(c) any Lien securing amounts not more than 90 days overdue or
otherwise being contested in good faith;
(d) (i) rights of financial institutions to offset credit balances in
connection with the operation of cash management programs established for
the benefit of the Company and/or a Significant Subsidiary or in connection
with the issuance of letters of credit for the benefit of the Company
and/or a Significant Subsidiary; (ii) any Lien securing indebtedness of the
Company and/or a Significant Subsidiary for borrowed money incurred in
connection with the financing of accounts receivable; (iii) any Lien
incurred or deposits made in the ordinary course of business, including,
but not limited to, (A) any mechanics', materialmens', carriers',
workmens', vendors' or other like Liens and (B) any Liens securing amounts
in connection with workers' compensation, unemployment insurance and other
types of social security; (iv) any Lien upon specific items of inventory or
other goods and proceeds of the Company and/or a Significant Subsidiary
securing obligations of the Company and/or a Significant Subsidiary in
respect of bankers' acceptances issued or created for the account of such
person to facilitate the purchase, shipment or storage of such inventory or
other goods; (v) any Lien incurred or deposits made securing the
performance of tenders, bids, leases, trade contracts (other than for
borrowed money), statutory obligations, surety bonds, appeal bonds,
government contracts, performance bonds, return-of-money bonds and other
obligations of like nature incurred in the ordinary course of business;
(vi) any Lien created by the Company or a Significant Subsidiary under or
in connection with or arising out of any pooling and settlement agreements
or pooling and settlement arrangements of the electricity industry or any
transactions or arrangements entered into in connection with hedging or
management of risks relating to the electricity industry; (vii) any Lien
constituted by a right of set off or right over a margin call account or
any form of cash or cash collateral or any similar arrangement for
obligations incurred in respect of the hedging or management of risks under
transactions involving any currency or interest rate swap, cap or collar
arrangements, forward exchange transaction, option, warrant, forward rate
agreement, futures contract or other derivative instrument of any kind;
(viii) any Lien arising out of title retention or like provisions in
connection with the purchase of goods and equipment in the ordinary course
of business; and (ix) any Lien securing reimbursement obligations under
letters of credit, guaranties and other forms of credit enhancement given
in connection with the purchase of goods and equipment in the ordinary
course of business;
(e) Liens in favor of the Company or a Significant Subsidiary;
(f) (i) Liens on any property or assets acquired from a corporation
which is merged with or into the Company or a Significant Subsidiary, or
any Liens on the property or assets of any corporation or other entity
existing at the time such corporation or other entity becomes a Subsidiary
of the Company and, in either such case, is not created in anticipation of
any such transaction (unless such Lien is created to secure or provide for
the payment of any part of the purchase price of such
64
<PAGE>
corporation); (ii) any Lien on any property or assets existing at the time
of acquisition thereof and which is not created in anticipation of such
acquisition (unless such Lien was created to secure or provide for the
payment of any part of the purchase price of such property or assets); and
(iii) any Lien created or outstanding on or over any asset of any company
which becomes a Significant Subsidiary on or after the date of the issuance
of such Securities where such Lien is created prior to the date on which
such company becomes a Significant Subsidiary;
(g) Liens required by any contract or statute in order to permit the
Company or a Significant Subsidiary to perform any contract or subcontract
made by it with or at the request of a governmental entity or any
department, agency or instrumentality thereof, or to secure partial,
progress, advance or any other payments by the Company or a Significant
Subsidiary to such governmental unit pursuant to the provisions of any
contract or statute; (ii) any Lien securing industrial revenue, development
or similar bonds issued by or for the benefit of the Company or a
Significant Subsidiary, provided that such industrial revenue, development
or similar bonds are nonrecourse to the Company and/or such Significant
Subsidiary; and (iii) any Lien securing taxes or assessments or other
applicable governmental charges or levies;
(h) (i) any Lien which arises pursuant to any order of attachment,
distraint or similar legal process arising in connection with court
proceedings and any Lien which secures the reimbursement obligation for any
bond obtained in connection with an appeal taken in any court proceeding,
so long as the execution or other enforcement of such Lien arising pursuant
to such legal process is effectively stayed and the claims secured thereby
are being contested in good faith and, if appropriate, by appropriate legal
proceedings, or any Lien in favor of a plaintiff or defendant in any action
before a court or tribunal as security for costs and/or other expenses; or
(ii) any Lien arising by operation of law or by order of a court or
tribunal or any Lien arising by an agreement of similar effect, including,
without limitation, judgment liens; or
(i) any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any Liens referred to
in the foregoing clauses, for amounts not exceeding the principal amount of
the Debt secured by the Lien so extended, renewed or replaced, provided
that such extension, renewal or replacement Lien is limited to all or a
part of the same property or assets that were covered by the Lien extended,
renewed or replaced (plus improvements on such property or assets).
Notwithstanding the foregoing, the Company and/or a Significant Subsidiary
may create or permit to subsist Liens over any property or assets , so long as
the aggregate amount of Debt secured by all such Liens (excluding therefrom the
amount of Debt secured by Liens set forth in clauses (a) through (i), inclusive,
above) does not exceed 10% of the Consolidated Net Tangible Assets.
Nothing contained in this Indenture in any way restricts or prevents the
Company or any Subsidiary from incurring any indebtedness.
SECTION 1005. Limitation on Sale and Lease-Back Transactions
----------------------------------------------
If this covenant shall be made applicable to the Securities of a
particular series, the Company covenants and agrees that so long as any
Securities of such series remains
65
<PAGE>
outstanding neither it nor any Significant Subsidiary will enter into any
arrangement with any person (other than the Company or a Significant
Subsidiary), providing for the leasing to the Company or a Significant
Subsidiary of any assets which have been or are to be sold or transferred by the
Company or such Significant Subsidiary to such person (a "Sale and Lease-Back
Transaction") unless; (i) such transaction involves a lease for a temporary
period not to exceed three years; (ii) such transaction is between the Company
or a Significant Subsidiary and an affiliate of the Company; (iii) the Company
would be entitled to incur indebtedness secured by a Lien on the assets or
property involved in such transaction at least equal in amount to the
attributable debt with respect to such Sale and Lease-Back Transaction, without
equally and ratably securing the Securities, pursuant to the limitation on Liens
described above other than pursuant to the penultimate paragraph thereof; (iv)
such transaction is entered into within 60 days after the initial acquisition by
the Company of the assets or property subject to such transaction; (v) after
giving effect thereto, the aggregate amount of all attributable debt with
respect to all such Sale and Lease-Back Transactions does not exceed 10% of
Consolidated Net Tangible Assets; or (vi) the Company or a Significant
Subsidiary within the twelve months preceding the sale or transfer or the twelve
months following the sale or transfer, regardless of whether such sale or
transfer may have been made by the Company or such Significant Subsidiary,
applies in the case of a sale or transfer for cash, an amount equal to the net
proceeds thereof and, in the case of a sale or transfer otherwise than for cash,
an amount equal to the fair value of the assets so leased at the time of
entering into such arrangement (as determined by the Board of Directors of the
Company or such Significant Subsidiary), (a) to the retirement of indebtedness
for money borrowed, incurred or assumed by the Company or a Significant
Subsidiary, which by its terms matures at, or is extendible or renewable at the
option of the obligor to, a date more than twelve months after the date of
incurring, assuming or guaranteeing such debt or (b) to investment in any assets
of the Company or any Significant Subsidiary.
SECTION 1006. Statement by Officers as to Default
-----------------------------------
The Company will deliver to the Trustee within 120 days after the end
of each fiscal year of the Company a certificate from the principal executive,
financial or accounting officer of the Company, stating that in the course of
the performance by such signer of his duties as an officer of the Company he
would normally have knowledge of any default by the Company in the performance
and observance of any of the covenants contained in Sections 1001 to 1008,
stating whether or not he has knowledge of any such default without regard to
any period of grace or requirement of notice and, if so, specifying each such
default of which such signer has knowledge and the nature thereof.
SECTION 1007. Modification or Waiver of Certain Covenants
-------------------------------------------
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in this Indenture with respect to the
Securities of any series if before the time for such compliance the Holders of
at least a majority in aggregate principal amount of the Outstanding Securities
of such series shall, by Act of such Holders, either modify the covenant or
waive such compliance in such instance or generally waive compliance with such
term, provision or condition, provided that no such modification shall without
the consent of each Holder (a) change the stated maturity upon which the
principal of or the interest on the Securities is due and payable, (b) reduce
the principal amount thereof or the rate of interest thereon, (c) change any
obligation of the Company to pay Additional Amounts, (d) change any place of
payment or the currency in which, the Securities or any premium or the interest
thereon is payable, (e) impair the right to institute suit for the enforcement
of any
66
<PAGE>
such payment on or after the stated maturity thereof (or, in the case of
redemption, on or after redemption date) or (f) reduce the percentage in
principal amount of the outstanding Securities, the consent of whose Holders is
required for any waiver of compliance with certain provisions of the Indenture
or certain defaults hereunder and their consequences provided for in the
Indenture. The Securities owned by the Company or any of its Affiliates shall
be deemed not to be outstanding for, among other purposes, consenting to any
such modification.
SECTION 1008. Further Assurances.
------------------
The Company and the Trustee shall execute and deliver all such other
documents, instruments and agreements and do all such other acts and things as
may be reasonably required to enable the Trustee to exercise and enforce its
rights under this Indenture and under the documents, instruments and agreements
required under this Indenture and to carry out the intent of this Indenture.
SECTION 1009. Payment of Additional Amounts
-----------------------------
If the Securities of a particular series provide for payment of
Additional Amounts, all payments of principal and interest (including payments
of discount and premium, if any) in respect of the Securities of such series
shall be made free and clear of, and without withholding or deduction for or on
account, of any present or future taxes, duties, assessments or governmental
charges of whatever nature imposed, levied, collected, withheld or assessed by
or within the United Kingdom or by or within any political subdivision thereof
or any authority therein or thereof having power to tax ("United Kingdom
Taxes"), unless such withholding or deduction is required by law. In that event
the Company shall pay to the Holder such additional amounts ("Additional
Amounts") as will result in the payment to such Holder of the amount that would
otherwise have been receivable by such Holder in the absence of such withholding
or deduction, except that no such Additional Amounts shall be payable:
(a) to, or to a Person on behalf of, a Holder who is liable for such
United Kingdom Taxes in respect of Securities, by reason of such Holder
having some connection with the United Kingdom (including being a citizen
or resident or national of, or carrying on a business or maintaining a
permanent establishment in, or being physically present in, the United
Kingdom) other than the mere holding of a Security or the receipt of
principal and interest (including payments of discount and premium, if any)
in respect thereof; or
(b) to, or to a Person on behalf of, a Holder who presents a Security
(where presentation is required) for payment more than 30 days after the
Relevant Date except to the extent that such Holder would have been
entitled to such Additional Amounts on presenting such Security for payment
on the last day of such period of 30 days;
(c) to, or to a Person on behalf of, a Holder who presents a Security
(where presentation is required) in the United Kingdom;
(d) to, or to a Person on behalf of, a Holder who would not be liable
or subject to the withholding or deduction by making a declaration of non-
residence or similar claim for exemption to the relevant tax authority; or
(e) to, or to a Person on behalf of, a Holder of a definitive
Registered Security issued pursuant to the request of owners representing a
majority in outstanding
67
<PAGE>
principal amount in the Book-Entry Interest following and during the
continuance of an Event of Default if such Holder (or any predecessor
Holder) was one of such owners requesting that definitive Registered
Securities be so issued.
Such Additional Amounts will also not be payable where, had the
beneficial owner of the Security (or any interest therein) been the Holder of
the Security, he would not have been entitled to payment of Additional Amounts
by reason of any one or more of clauses (a) through (e) above. If the Company
shall determine that Additional Amounts will not be payable because of the
immediately preceding sentence, the Company will inform such Holder promptly
after making such determination setting forth the reason(s) therefor.
Reference to principal, interest, discount or premium in respect of
the Securities shall be deemed also to refer to any Additional Amounts which may
be payable as set forth in this Indenture or in the Securities.
At least 10 Business Days prior to the first Interest Payment Date
(and at least 10 Business Days prior to each succeeding Interest Payment Date if
there has been any change with respect to the matters set forth in the below-
mentioned Officers' Certificate) the Company will furnish to the Trustee and the
Paying Agents an Officers' Certificate instructing the Trustee and the Paying
Agents whether payments of principal of or interest on the Securities due on
such Interest Payment Date shall be without deduction or withholding for or on
account of any United Kingdom Taxes. If any such deduction or withholding shall
be required, prior to such Interest Payment Date the Company will furnish the
Trustee and the Paying Agents with an Officers' Certificate which specifies the
amount, if any, required to be withheld on such payment to Holders and certifies
that the Company shall pay such withholding or deduction. The Company covenants
to indemnify the Trustee for, and to hold the Trustee harmless against, any
loss, liability or expense reasonably incurred without negligence, willful
misconduct or bad faith on their part, arising out of or in connection with
actions taken or omitted by the Trustee in reliance on any Officers' Certificate
furnished pursuant to this paragraph. Any Officers' Certificate required by
this Section 1009 to be provided to the Trustee and any Paying Agent shall be
deemed to be duly provided if telecopied to the Trustee and such Paying Agent.
The Company shall furnish to the Trustee the official receipts (or a
certified copy of the official receipts) evidencing payment of United Kingdom
Taxes. Copies of such receipts shall be made available to the Holders of the
Securities upon request.
SECTION 1010. Copies Available to Holders.
---------------------------
Copies of this Indenture shall be available for inspection by the
Holders on a Business Day during normal business hours at the principal office
of the Company and at the Corporate Trust Office. In addition, if the Securities
of any series are listed on the London Stock Exchange, the Luxembourg Stock
Exchange or any other stock exchange located outside the United States and such
stock exchange shall so require, copies of this Indenture, the Deposit
Agreement, the DTC Agreement, the memorandum and articles of association of the
Company and the most recent publicly available annual report of the Company
shall be made available for inspection by the Holders of such Securities on a
Business Day during normal business hours at the offices of the paying agents
and at the office of the listing agent required to be maintained by such
exchange for so long as the Securities of such series are outstanding and are
listed on such stock exchange.
68
<PAGE>
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article
------------------------
Securities of any series which are redeemable before their Stated
Maturity shall be redeemable in accordance with their terms and (except as
otherwise specified in or contemplated by Section 301 for Securities of any
series) in accordance with this Article Eleven.
SECTION 1102. Election to Redeem; Notice to Trustee
-------------------------------------
The election of the Company to redeem any Securities shall be
authorized by a Board of Directors resolution and evidenced by an Officers'
Certificate. In case of any redemption at the election of the Company of less
than all the Securities of any series, the Company shall, at least 15 days prior
to the Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities of such series to be redeemed. In the case
of any redemption of Securities prior to the expiration of any restriction on
such redemption provided in the terms of such Securities or elsewhere in this
Indenture, or pursuant to an election by the Company which is subject to a
condition specified in the terms of such Securities or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with such restriction or condition.
SECTION 1103. Selection by Trustee of Securities to Be Redeemed
-------------------------------------------------
If less than all the Securities of any series are to be redeemed, the
particular securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions equal to the minimum authorized denomination for
Securities of that series (or any integral multiple thereof) of the principal
amount of Securities of such series of a denomination larger than the minimum
authorized denomination for Securities of that series.
Securities shall be excluded from eligibility for selection for
redemption if they are identified by certificate number in a written statement
signed by an authorized officer of the Company and delivered to the Security
Registrar at least 30 days prior to the Redemption Date as being owned of record
and beneficially by, and not pledged or hypothecated by either (a) the Company
or (b) an entity specifically identified in such written statement which is an
Affiliate of the Company.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities
69
<PAGE>
redeemed or to be redeemed only in part, to the portion of the principal amount
of such Securities which has been or is to be redeemed.
SECTION 1104. Notice of Redemption
--------------------
Notice of redemption shall be given not less than 15 days nor more
than 30 days prior to the Redemption Date to each Holder of Securities to be
redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities of any series are to
be redeemed, the identification (and, in the case of partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date,
(5) the place or places where such Securities are to be surrendered
for payment of the Redemption Price, and
(6) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1105. Deposit of Redemption Price
---------------------------
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Principal Paying Agent (or, if the Company is acting as its
own Paying Agent, segregate and hold in trust as provided in Section 1003) an
amount of money sufficient to pay the Redemption Price of, and (except if the
Redemption Date shall be an Interest Payment Date) accrued interest on, all the
Securities which are to be redeemed on that date (to the extent that such
amounts are not already on deposit at such time in accordance with the
provisions of Sections 401, 403 or 1007).
SECTION 1106. Securities Payable on Redemption Date
-------------------------------------
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued and
unpaid interest) such Securities shall cease to bear interest. Upon surrender
of any such Security for redemption in accordance with said notice, such
Security shall be paid by the Company at the Redemption Price, together with
accrued and unpaid interest to the Redemption Date; provided, however, that
-------- -------
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the
70
<PAGE>
Holders of such Securities, or one or more Predecessor Securities, and in the
case of Registered Securities, registered as such at the close of business on
the relevant Record Dates according to their terms and the provisions of Section
307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Security.
SECTION 1107. Securities Redeemed in Part
---------------------------
Any Security (including any Global Security) which is to be redeemed
only in part shall be surrendered at a Place of Payment therefor (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing), and the
Company shall execute, and the Trustee upon written direction shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities of the same series, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the security so surrendered;
provided, that if a Global Security is so surrendered, the new Global Security
- --------
shall be in a denomination equal to the unredeemed portion of the principal of
the Global Security so surrendered.
SECTION 1108. Optional Redemption in the Event of Change in United Kingdom Tax
----------------------------------------------------------------
Treatment
---------
The Securities of any series may be redeemed at the election of the
Company, as a whole, but not in part, by the giving of notice as provided in
Section 1104, at a price equal to the outstanding principal amount thereof,
together with Additional Amounts, if any, and accrued interest, if any, to the
Redemption Date, if (a) the Company satisfies the Trustee that it has or will
become obligated to pay Additional Amounts on the Securities of such series, as
a result of either (x) any change in, or amendment to, the laws or regulations
of the United Kingdom or any political subdivision or any authority or agency
thereof or therein having power to tax or levy duties, or any change in the
application or interpretation of such laws or regulations, which change or
amendment becomes effective on or after the date of the relevant underwriting
agreement for the Securities of such series, or (y) the issuance of definitive
Registered Securities as the result of DTC having notified the Company and the
Book-Entry Depositary that it is unable or unwilling to continue to hold the
Book-Entry Interest or at any time ceasing to be a "clearing agency" registered
as such under the Exchange Act and, in either case, a successor not being
appointed by the Company within 120 days or the Book-entry Depositary notifying
the Company that it is unwilling or unable to continue as Book-Entry Depositary
with respect to the Securities of such series and a successor Book-Entry
Depositary not being appointed being within 120 days or there having occurred
and being continuing an Event of Default with respect to the Securities of such
series and the Holder, in such circumstances, having requested in writing a
definitive Registered Security, and (b) such obligation cannot be avoided by the
Company taking reasonable measures available to it; provided, however, that no
-------- -------
such notice of redemption shall be given earlier than 90 days prior to the
earliest date on which the Company would be obligated to pay such Additional
Amounts, were a payment in respect of the Securities then due. Prior to the
giving of notice of redemption of such Securities pursuant to this Indenture,
the Company will deliver to the Trustee an Officers' Certificate stating that
the obligation to pay such Additional Amounts cannot be avoided by the Company
taking reasonable measures available to it, and
71
<PAGE>
the Trustee shall accept such certificate as sufficient evidence of such
condition, and such certificate shall be conclusive and binding on the Holders
of the Securities of such series.
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article
------------------------
The provisions of this Article shall be applicable to any sinking fund
for the retirement of Securities of a series except as otherwise specified as
contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series is herein referred to as a "mandatory sinking
fund payment", and any payment in excess of such minimum amount provided for by
the terms of Securities of any series is herein referred to as an "optional
sinking fund payment". If provided for by the terms of Securities of any
series, the cash amount of any sinking fund payment may be subject to reduction
as provided in Section 1202. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of
Securities of such series.
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities
-----------------------------------------------------
In lieu of making all or any part of any mandatory sinking fund
payment with respect to any series of Securities in cash, the Company may at its
option (a) deliver to the Trustee Securities of such series theretofore
purchased or otherwise acquired (except upon redemption pursuant to the
mandatory sinking fund) by the Company or receive credit for Securities of such
series (not previously so credited) theretofore purchased or otherwise acquired
(except as aforesaid) by the Company and delivered to the Trustee for
cancellation pursuant to Section 310, (b) receive credit for optional sinking
fund payments (not previously so credited) made pursuant to this Section 1202,
or (c) receive credit for Securities of such series (not previously so credited)
redeemed by the Company through any optional redemption provision contained in
the terms of such series. Securities so delivered or credited shall be received
or credited by the Trustee at the sinking fund Redemption Price specified in
such Securities.
SECTION 1203. Redemption of Securities for Sinking Fund
-----------------------------------------
Not less than 30 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying (a) the amount of the next ensuing sinking fund payment
for that series pursuant to the terms of that series, (b) whether or not the
Company intends to exercise its right, if any, to make an optional sinking fund
payment with respect to such series on the next ensuing sinking fund payment
date and, if so, the amount of such optional sinking fund payment, and (c) the
portion thereof, if any, which is to be satisfied by payment of cash and the
portion thereof, if any, which is to be satisfied by delivering and crediting
Securities of that series pursuant to Section 1202, and will also deliver to the
Trustee any Securities to be so delivered. Such written statement shall be
irrevocable and upon its receipt by the Trustee the Company shall become
unconditionally obligated to make all the cash payments or payments therein
referred to, if any, on or before the next succeeding sinking fund payment date.
Failure of the Company, on
72
<PAGE>
or before any such 30th day, to deliver such written statement and Securities
specified in this paragraph, if any, shall not constitute a default but shall
constitute, on and as of such date, the irrevocable election of the Company (i)
that the mandatory sinking fund payment for such series due on the next
succeeding sinking fund payment date shall be paid entirely in cash without the
option to deliver or credit Securities of such series in respect therefor and
(ii) that the Company will make no optional sinking fund payment with respect to
such series as provided in this Section 1203.
Not less than [30] days before each such sinking fund payment date the
Trustee shall select the Securities to be redeemed upon such sinking fund
payment date in the manner specified in Section 1103 and cause notice of the
redemption thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 1104. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Sections 1105, 1106 and 1107.
The Trustee shall not redeem or cause to be redeemed any Security of a
series with sinking fund moneys or mail any notice of redemption of Securities
of such series by operation of the sinking fund during the continuance of a
default in payment of interest with respect to Securities of that series or an
Event of Default with respect to the Securities of that series except that,
where the mailing of notice of redemption of any Securities shall theretofore
have been made, the Trustee shall redeem or cause to be redeemed such
Securities, provided that it shall have received from the Company a sum
sufficient for such redemption. Except as aforesaid, any moneys in the sinking
fund for such series at the time when any such default or Event of Default,
shall occur, and any moneys thereafter paid into the sinking fund, shall, during
the continuance of such default or Event of Default, be deemed to have been
collected under Article Five and held for the payment of all such Securities.
In case such Event of Default shall have been waived as provided in Section 513
or the default or Event of Default cured on or before the 30th day preceding the
sinking fund payment date, such moneys shall thereafter be applied on the next
succeeding sinking fund payment date in accordance with this Section 1203 to the
redemption of such Securities.
ARTICLE THIRTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1301 Purposes of Meetings:
--------------------
A meeting of the Holders may be called at any time from time to time
pursuant to this Article Thirteen for any of the following purposes.
(1) to give any notice to the Company or to the Trustee, or to
consent to the waiving of any Default hereunder and its consequence, or to
take any other action authorized to be taken by Holders pursuant to Article
Nine hereof;
(2) to remove the Trustee and appoint a successor trustee pursuant to
Article Six hereof;
(3) to consent to the execution of an indenture supplemental hereto
pursuant to Section 902 hereof.
73
<PAGE>
SECTION 1302 Place of Meetings
-----------------
(a) The Trustee may at any time (upon not less than 21 days' notice)
call a meeting of Holders to be held at such time and at such place in the
location determined by the Trustee pursuant to Section 1302 hereof. Notice of
every meeting of Holders, setting forth the time and the place of such meeting
and in general terms the action proposed to be taken at such meeting, shall be
mailed to each Holder and published in the manner contemplated by Section [106]
hereof.
(b) In case at any time the Company, pursuant to a Board Resolution,
or the Holders of at least 10% in aggregate principal amount of the Securities
then outstanding, shall have requested the Trustee to call a meeting of the
Holders, by written request setting forth in reasonable detail the action
proposed to be taken at the meeting, and the Trustee shall not have made the
first giving of the notice of such meeting within 20 days after receipt of such
request, then the Company or the Holders in the amount above specified may
determine the time (not less than 21 days after notice is given) and the place
in the location determined by the Company or the Holders pursuant to this
Section 1302 for such meeting and may call such meeting to take any action
authorized in Section 1301 hereof by giving notice thereof as provided in
Section 1302(a) hereof.
SECTION 1303 Voting at Meetings.
------------------
To be entitled to vote at any meeting of Holders, a Person shall be
(i) a Holder or (ii) a Person appointed by an instrument in writing as proxy for
a Holder or Holders by such Holder or Holders. The only Persons who shall be
entitled to be present or to speak at any meeting of Holders shall be the
Persons so entitled to vote at such meeting and their counsel, any
representatives of the Trustee and its counsel, any representatives of the
Company and its counsel.
SECTION 1304 Voting Rights, Conduct and Adjournment.
--------------------------------------
(a) Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Holders in regard to proof of the holding of Securities of a series
and of the appointment of proxies and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall deem appropriate. Except as otherwise
permitted or required by any such regulations, the holding of Securities of a
series shall be proved in the manner specified in Article Two hereof and the
appointment of any proxy shall be proved in such manner as is deemed appropriate
by the Trustee or by having the signature of the person executing the proxy
witnessed or guaranteed by any bank, banker or trust company customarily
authorized to certify to the holding of a security such as a Global Note.
(b) At any meeting of Holders, the representative of Persons holding
or representing Securities of a series in an aggregate principal amount
sufficient under the appropriate provision of this Indenture to take action upon
the business for the transaction of which such meeting was called shall
constitute a quorum. In addition to any required aggregate principal amount of
Securities of a series required for the taking of any action pursuant to Article
Nine hereof, in no event shall less than 75% of the votes given by Persons
holding or representing Securities of such series at any meeting of Holders be
sufficient to approve an action. Any meetings of Holders duly called pursuant
to Section 1303 hereof may
74
<PAGE>
be adjourned form time to time by vote of the Holders (or proxies for the
Holders) of a majority of the Securities of a series represented at the meeting
and entitled to vote, whether or not a quorum shall be present; and the meeting
may be held as so adjourned without further notice. No action at a meeting of
Holders shall be effective unless approved by Persons holding or representing
Securities of a series in the aggregate principal amount required by the
provision of this Indenture pursuant to which such action is being taken.
(c) At any meeting of Holders, each Holder or proxy shall be entitled
to one vote for each $1,000 principal amount of outstanding Securities of a
series held or represented.
SECTION 1305 Revocation of Consent by Holders.
--------------------------------
At any time prior to (but not after) the evidencing the Trustee of the
taking of any action at a meeting of Holders by the Holders of the percentage in
aggregate principal amount of the Securities specified in this Indenture in
connection with such action, any Holder of a Security the serial number of which
is included in the Securities the Holders of which have consented to such action
may, by filing written notice with the Trustee at its principal corporate trust
office and upon proof of holding as provided herein, revoke such consent so far
as concerns such Securities. Except as aforesaid any such consent given by the
Holder of any Securities shall be conclusive and binding upon such Holder and
upon all future Holders and owners of such Securities and of any Securities
issued in exchange therefore, in lieu thereof or upon transfer thereof,
irrespective of whether or not any notation in regard thereto is made upon such
Securities. Any action taken by the Holders of the percentage in aggregate
principal amount of the Holders specified in this Indenture in connection with
such action shall be conclusively binding upon the Company, the Trustee and the
Holders of all the Securities.
ARTICLE FOURTEEN
MISCELLANEOUS
SECTION 1401. Consent to Jurisdiction; Appointment of Agent to Accept Service
---------------------------------------------------------------
of Process
----------
(a) The Company irrevocably consents and agrees, for the benefit of
the Holders from time to time of the Securities and the Trustee, that any legal
action, suit or proceeding against it with respect to its obligations,
liabilities or any other matter arising out of or in connection with this
Indenture or the Securities may be brought in the Supreme Court of New York, New
York County or the United States District Court for the Southern District of New
York and any appellate court from either thereof and, until amounts due and to
become due in respect of the Securities have been paid, hereby irrevocably
consents and submits to the non exclusive jurisdiction of each such court in
personam, generally and unconditionally with respect to any action, suit or
proceeding for itself and in respect of its properties, assets and revenues.
(b) The Company has irrevocably designated, appointed, and empowered
[CT Corporation,] as its designee, appointee and agent to receive, accept and
acknowledge for and on its behalf, and its properties, assets and revenues,
service of any and all legal process, summons, notices and documents which may
be served in any action, suit or proceeding brought against the Company in any
United States or State court. If for any reason such designee, appointee and
agent hereunder shall cease to be available to act as such, the Company agrees
to designate a new designee, appointee and agent in the Borough of
75
<PAGE>
Manhattan, The City of New York on the terms and for the purposes of this
Section 1301 satisfactory to the Trustee. The Company further hereby
irrevocably consents and agrees to the service of any and all legal process,
summons, notices and documents in any action, suit or proceeding against the
Company by serving a copy thereof upon the relevant agent for service of process
referred to in this Section 1301 (whether or not the appointment of such agent
shall for any reason prove to be ineffective or such agent shall accept or
acknowledge such service) or by mailing copies thereof by registered or
certified air mail, postage prepaid, to the Company at its address specified in
or designated pursuant to this Indenture. The Company agrees that the failure
of any such designee, appointee and agent to give any notice of such service to
it shall not impair or affect in any way the validity of such service or any
judgment rendered in any action or proceeding based thereon. Nothing herein
shall in any way be deemed to limit the ability of the holders of the Securities
and the Trustee, to serve any such legal process, summons, notices and documents
in any other manner permitted by applicable law or to obtain jurisdiction over
the Company or bring actions, suits or proceedings against the Company in such
other jurisdictions, and in such manner, as may be permitted by applicable law.
The Company irrevocably and unconditionally waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any of the aforesaid actions, suits or proceedings arising out of or
in connection with this Indenture brought in the Supreme Court of New York, New
York County or the United States District Court for the Southern District of New
York and any appellate court from either thereof and hereby further irrevocably
and unconditionally waives and agrees not to plead or claim in any such court
that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
If for the purpose of obtaining judgment in any court it is necessary
to convert a sum due hereunder to the holder of any Security from U.S. dollars
into another currency, the Company has agreed, and each holder by holding such
Security will be deemed to have agreed, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be that at which in
accordance with normal banking procedures such Holder could purchase U.S.
dollars with such other currency in The City of New York on the Business Day
preceding the day on which final judgment is given.
The obligation of the Company in respect of any sum payable by it to
the holder of a Security shall, notwithstanding any judgment in a currency (the
"judgment currency") other than U.S. dollars, be discharged only to the extent
that on the Business Day following receipt by the Holder of such security of any
sum, adjudged to be so due in the judgment currency, the Holder of such Security
may in accordance with normal banking procedures purchase U.S. dollars with the
judgment currency; if the amount of U.S. dollars so purchased is less than the
sum originally due to the holder of such Security in the judgment currency
(determined in the manner set forth in the preceding paragraph), the Company
agrees, as a separate obligation and notwithstanding any such judgment, to
indemnify the Holder of such Security against such loss, and if the amount of
the U.S. dollars so purchased exceeds the sum originally due to the Holder of
such Security, such Holder agrees to remit to the Company such excess, provided
that such Holder shall have no obligation to remit any such excess as long as
the Company shall have failed to pay such Holder any obligations due and payable
under such Security, in which case such excess may be applied to such
obligations of the Company under such Security in accordance with the terms
thereof.
76
<PAGE>
SECTION 1402 Counterparts
------------
This instrument may be executed in any number of Counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed by their respective officers or directors duly authorized thereto,
all as of the day and year first above written.
SOUTHERN INVESTMENTS UK plc
By______________________________
Title:
Attest:
______________________________
BANKERS TRUST COMPANY, as
Trustee, Principal Paying Agent,
Security Registrar and Transfer Agent
By______________________________
Title:
Attest:
______________________________
BANKERS TRUST LUXEMBOURG S.A.
as Paying Agent and Transfer Agent
By______________________________
Title:
77
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the _____ day of ________, 1996, before me personally came
_____________, to me known, who, being by me duly sworn, did depose and say that
he is a of Southern Investments UK plc, one of the corporations described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
______________________________
78
<PAGE>
Exhibit 4.2
SOUTHERN INVESTMENTS UK plc
and
BANKERS TRUST COMPANY
as Trustee, Principal Paying Agent,
Registrar and Transfer Agent
and
BANKERS TRUST LUXEMBOURG S.A.,
as Paying Agent and Transfer Agent
_____% Senior Notes Due 2006
First Supplemental Indenture
Dated as of ________ _____, 1996
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of ________, 1996 (herein called the
"First Supplemental Indenture"), among Southern Investments UK plc, a
corporation duly organized and existing under the laws of England and Wales
(hereinafter called the "Company"), and BANKERS TRUST COMPANY, as Trustee
Principal Paying Agent, Registrar and Transfer Agent under the Original
Indenture referred to below (hereinafter called the "Trustee") and BANKERS TRUST
LUXEMBOURG S.A., as Paying and Transfer Agent under the Original Indenture.
WITNESSETH:
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture dated as of ___________ __, 1996 (hereinafter called the "Original
Indenture"), to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), the form and terms of which are to be established as set forth in
Sections 201 and 301 of the Original Indenture;
WHEREAS, Section 901 of the Original Indenture provides, among other
things, that the Company and the Trustee may enter into indentures supplemental
to the Original Indenture for, among other things, the purpose of establishing
the form and terms of the Securities of any series as permitted in Sections 201
and 301 of the Original Indenture and of appointing an Authenticating Agent with
respect to the Securities of any series;
WHEREAS, the Company desires to create a series of the Securities in an
aggregate principal amount of ______________ to be designated the "___% Senior
Notes Due 2006" (the "Senior Notes"), and all action on the part of the Company
necessary to authorize the issuance of the Senior Notes under the Original
Indenture and this First Supplemental Indenture has been duly taken; and
WHEREAS, all acts and things necessary to make the Senior Notes, when
executed by the Company and authenticated and delivered by the Trustee as in the
Original Indenture provided, the valid and binding obligations of the Company
and to constitute these presents a valid and binding supplemental indenture and
agreement according to its terms, have been done and performed;
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
That in consideration of the premises and of the acceptance and purchase of
the Senior Notes by the holders thereof and of the acceptance of this trust by
the Trustee, the Company covenants and agrees with the Trustee, for the equal
benefit of holders of the Senior Notes, as follows:
<PAGE>
ARTICLE ONE
Definitions
The use of the terms and expressions herein is in accordance with the
definitions, uses and constructions contained in the Original Indenture and the
forms of Senior Notes attached hereto as Exhibits A and B, respectively. In
addition, for all purposes of this First Supplemental Indenture, except as
otherwise expressly provided or unless the context otherwise expressly requires,
the following terms shall have the respective meanings assigned to them as
follows and shall be construed as if defined in Article One of the Original
Indenture:
"Book-Entry Depositary" means the Book-Entry Depositary or its nominee or
the custodian of either, designated by the Company in the Deposit Agreement
until a successor Book-Entry Depositary shall have become such pursuant to the
applicable provisions of the Deposit Agreement, and thereafter "Book-Entry
Depositary" shall mean such successor Book-Entry Depositary or its nominee or
the custodian of either.
"Definitive Registered Senior Note" means a registered Senior Note
substantially in the form of Exhibit B to this First Supplemental Indenture.
"Deposit Agreement" means the Deposit Agreement, dated as of the date of
this First Supplemental Indenture, between the Company and Bankers Trust
Company.
"DTC" means The Depository Trust Company or its successors.
"Global Senior Note" means a bearer Global Senior Note substantially in the
form of Exhibit A to this First Supplemental Indenture.
ARTICLE TWO
Terms and Issuance of ___% Senior Notes Due 2006
Section 201. Issue of Senior Notes. A series of Securities which shall be
designated the "____% Senior Notes Due 2006" (the "Senior Notes") shall be
executed, authenticated and delivered in accordance with the provisions of, and
shall in all respects be subject to, the terms, conditions and covenants of the
Original Indenture and this First Supplemental Indenture (including the forms of
Senior Notes set forth in Exhibits A and B hereto). The aggregate principal
amount of the Senior Notes which may be authenticated and delivered under the
First Supplemental Indenture shall not, except as permitted by the provisions of
the Original Indenture, exceed ___________.
2
<PAGE>
Section 202. Form of Senior Notes; Incorporation of Terms. The form of the
Senior Notes shall be substantially in the forms of Exhibits A and B attached
hereto, the terms of which are herein incorporated by reference and which are
part of this First Supplemental Indenture.
Section 203. Limitation on Liens. The covenant provided by Section 1004 of
the Original Indenture shall be applicable to the Senior Notes.
Section 204. Limitation on Sale and Lease-Back Transactions. The covenant
provided by Section 1005 of the Original Indenture shall be applicable to the
Senior Notes.
Section 205. Additional Amounts. The terms provided by Section 1010 of the
Original Indenture shall be applicable to the Senior Notes.
Section 206. Event of Default. The event specified in Section 501(5) of
the Original Indenture shall constitute an Event of Default with respect to the
Senior Notes.
Section 207. Place of Payment. The Place of Payment in respect of the
Senior Notes will be in The City of New York, initially the Corporate Trust
Office of Bankers Trust Company, and, for so long as the Senior Notes are listed
on the Luxembourg Stock Exchange, in Luxembourg, initially the corporate trust
office of _________ which at the date hereof, is located at _________________.
Section 208. Issuance of Global Senior Note. The Senior Notes shall be
issued as one Bearer Global Senior Note (the "Global Senior Note") and delivered
by the Trustee to the Book-Entry Depositary, as the Holder thereof, or a nominee
or custodian therefor, to be held by the Book-Entry Depositary pursuant to the
Deposit Agreement.
Section 209. Exchange of the Global Senior Note. The Global Senior Note
shall be exchangeable, in whole but not in part, for definitive Registered Notes
only as provided in this paragraph. The Global Senior Note shall be so
exchangeable if (a) DTC notifies the Company and the Book-Entry Depositary that
it is unwilling or unable to continue to hold the Book-Entry Interest or at any
time it ceases to be a "clearing agency" registered as such under the Exchange
Act, and, in either case, a successor is not appointed by the Company within 120
days, (b) the Book-Entry Depositary notifies the Company that it is unwilling or
unable to continue as Book-Entry Depositary with respect to the Global Senior
Note and no successor is appointed within 120 days, (c) the Company executes and
delivers to the Trustee an Officers' Certificate providing that the Global
Senior Note shall be so exchangeable, or (d) there shall have occurred and be
continuing an Event of Default with respect to the Senior Notes and the Holder,
in such circumstance, shall have requested in writing that the Global Senior
Note be exchanged for one or more definitive Registered Notes. Definitive
Registered Notes so issued in exchange for the Global Senior Note shall be of
the same series, having the same interest rate, if any, and maturity and having
the same terms as the Global Senior Note, in authorized
3
<PAGE>
denominations of $1,000 and any integral multiple thereof and in the aggregate
having the same principal amount as the Global Senior Note and registered in
such names as the Book-Entry Depositary for the Global Senior Note shall direct.
Section 210. Regular Record Date for the Senior Notes. The Regular Record
Date for the Senior Notes shall be 15 calendar days immediately prior to each
Interest Payment Date.
ARTICLE THREE
Authenticating Agent; Book-Entry Depositary
Section 301. Authenticating Agent; Book-Entry Depositary. Bankers Trust
Company, a New York banking corporation, and its successors are hereby appointed
Authenticating Agent and Book-Entry Depositary with respect to the Senior Notes.
ARTICLE FOUR
Miscellaneous
Section 401. Execution as Supplemental Indenture. This First Supplemental
Indenture is executed and shall be construed as an indenture supplemental to the
Original Indenture and, as provided in the Original Indenture, this First
Supplemental Indenture forms a part thereof.
Section 402. Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof which is required
to be included in this First Supplemental Indenture by any of the provisions of
the Trust Indenture Act, such required provision shall control.
Section 403. Effect of Headings. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.
Section 404. Successors and Assigns. All covenants and agreements in this
First Supplemental Indenture by the Company shall bind its successors and
assigns, whether so expressed or not.
Section 405. Separability Clause. In case any provision in this First
Supplemental Indenture or in the Senior Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
4
<PAGE>
Section 406. Benefits of First Supplemental Indenture. Nothing in this
First Supplemental Indenture or in the Senior Notes, express or implied, shall
give to any person, other than the parties hereto and their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this First Supplemental Indenture.
Section 407. Execution and Counterparts. This First Supplemental Indenture
may be executed in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereof have caused this First Supplemental
Indenture to be duly executed by their respective officers or directors duly
authorized thereto, all as of the day and year first above written.
SOUTHERN INVESTMENTS UK plc
By___________________________________________
BANKERS TRUST COMPANY AS TRUSTEE
By___________________________________________
BANKERS TRUST LUXEMBOURG S.A. AS PAYING
AND TRANSFER AGENT
By___________________________________________
Attest:
________________________
5
<PAGE>
STATE OF NEW YORK)
:ss
COUNTY OF NEW YORK)
On this ___ day of ________, 1996, before me personally came
___________________, to me known, who, being by me duly sworn, did depose and
say that he is a ________________________ of Southern Investments UK plc, one of
the companies described in and which executed the foregoing instrument; and that
he signed his name thereto by like authority.
________________________________________
6
<PAGE>
EXHIBIT A
[FORM OF FACE OF GLOBAL SENIOR NOTE]
This Security is a Global Security within the meaning of the Indenture
hereinafter referred to and is held by a Book-Entry Depositary or a nominee of a
Book-Entry Depositary. This Security is exchangeable for Securities held by or
registered in the name of a person other than the Book-Entry Depositary or its
nominee only in the limited circumstances described in the Indenture, and no
transfer of this Security (other than a transfer of this Security as a whole by
the Book-Entry Depositary to a nominee of the Book-Entry Depositary or by a
nominee of the Book-Entry Depositary to the Book-Entry Depositary or another
nominee of the Book-Entry Depositary) may be made registered except in limited
circumstances.
Unless this Global Security is presented by an authorized
representative of the Book-Entry Depositary, to the issuer or its agent for
exchange or payment, and any definitive Security is issued in the name or names
as directed in writing by the Book-Entry Depositary, ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch
as the bearer hereof, the Book-Entry Depositary, has an interest herein.
SOUTHERN INVESTMENTS UK plc
__% Senior Notes Due 2006
No. ______________ $_______________
SOUTHERN INVESTMENTS UK plc, a company duly organized and existing under
the laws of the England and Wales (herein called the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to the bearer upon surrender hereof,
the principal sum of ________________ Dollars on ______________________________,
and to pay interest thereon from _________________, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually on ___________ and ____________ in each year, commencing
____________, 199[7], at the rate per annum provided in the title hereof, until
the principal hereof is paid or made available for payment. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in such Indenture, be paid to the bearer on such Interest
Payment Date. Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the bearer on such Interest Payment Date and
may be paid to the bearer hereof at the time of payment of such Defaulted
Interest or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities of this
series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture.
7
<PAGE>
Payment of the principal of (and premium, if any) and interest, if any, on
this Security will be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for the payment of public and private debt. Payment of the principal of
(and premium, if any) and interest, if any, on this Security will be made at the
office or agency of the Company maintained for that purpose in ______________in
such coin or currency of the United States of America as at the time of payment
is legal tender for the payment of public and private debts.
All payments of principal and interest (including payments of discount and
premium, if any) in respect of this Security shall be made free and clear of,
and without withholding or deduction for or on account of any present or future
taxes, duties, assessments or governmental charges of whatever nature imposed,
levied, collected, withheld or assessed by or within the United Kingdom or by or
within any political subdivision thereof or any authority therein or thereof
having power to tax ("United Kingdom Taxes"), unless such withholding or
deduction is required by law. In the event of any such withholding or deduction,
the Company shall pay to the Holder such additional amounts ("Additional
Amounts") as will result in the payment to such Holder of the amount that would
otherwise have been receivable by such Holder in the absence of such withholding
or deduction, except that no such Additional Amounts shall be payable:
(a) to, or to a Person on behalf of, a Holder who is liable for such
United Kingdom Taxes in respect of this Security by reason of such Holder
or beneficial owner having some connection with the United Kingdom
(including being a citizen or resident or national of, or carrying on a
business or maintaining a permanent establishment in, or being physically
present in, the United Kingdom) other than the mere holding of this
Security or the receipt of principal and interest (including payments of
discount and premium, if any) in respect thereof;
(b) to, or to a Person on behalf of, a Holder who presents this
Security (where presentation is required) for payment more than 30 days
after the Relevant Date except to the extent that the Holder would have
been entitled to such Additional Amounts on presenting this Security for
payment on the last day of such period of 30 days;
(c) to, or to a Person on behalf of, a Holder who presents this
Security (where presentation is required in the United Kingdom);
(d) to, or to a Person on behalf of, a Holder who would not be liable
or subject to the withholding or deduction by making a declaration of non-
residence or similar claim for exemption to the relevant tax authority; or
(e) to, or to a Person on behalf of, a Holder of a definitive
Registered Security issued pursuant to the request of owners of interests
representing a majority in
8
<PAGE>
outstanding principal amount in the Book-Entry Interest following and
during the continuance of an Event of Default if such Holder (or any
predecessor Holder) was one of such owners requesting that definitive
Registered Securities be so issued.
Such Additional Amounts will also not be payable where, had the beneficial
owner of the Security (or any interest therein) been the Holder of the Security,
he would not have been entitled to payment of Additional Amounts by reason of
any one or more of clauses (a) through (e) above. If the Company shall determine
that Additional Amounts will not be payable because of the immediately preceding
sentence, the Company will inform such Holder promptly after making such
determination setting forth the reason(s) therefor.
"Relevant Date" means whichever is the later of (i) the date on which
such payment first becomes due and (ii) if the full amount payable has not been
received in The City of New York by the Trustee or the bearer on or prior to
such due date, the date on which, the full amount having been so received,
notice to that effect shall have been given to the bearer hereof in accordance
with the Indenture.
References to principal, interest, discount or premium in respect of
this Security shall be deemed also to refer to any Additional Amounts which may
be payable as set forth in the Indenture or in this Security.
The Company shall furnish to the Trustee the official receipts (or a
certified copy of the official receipts) evidencing payment of United Kingdom
Taxes. Copies of such receipts shall be made available to the Holder of this
Security upon request.
So long as the Securities of this series are listed on the Luxembourg
Stock Exchange and the rules of the Luxembourg Stock Exchange so require,
notices to Holders of Securities of this series will be published in a leading
newspaper having general circulation in Luxembourg (which is expected to be the
Luxemburger Wort).
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY
SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES
HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer or director of the Company duly authorized.
Dated:
9
<PAGE>
SOUTHERN INVESTMENTS UK plc
By:_________________________________
Name:
Title:
10
<PAGE>
[Form of Reverse of Security]
SOUTHERN INVESTMENTS UK plc
___% Senior Notes Due 2006
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of ________ __, 1996 (herein called the
"Original Indenture"), among the Company, Bankers Trust Company, as trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), and Bankers Trust Luxembourg S.A., as paying and transfer agent
(the "Paying and Transfer Agent"), as supplemented by the First Supplemental
Indenture, dated as of _________ __, 1996 (together with the Original Indenture,
the "Indenture"), among the Company, the Trustee and the Paying and Transfer
Agent to which Indenture and all indentures supplemental thereto reference is
hereby made for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Company, the Trustee the Paying and
Transfer Agent and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This Security is one
of the series designated on the face hereof, limited in aggregate principal
amount to $________________.
The Securities of this series will be redeemable in whole or in part,
at the option of the Company at any time, at a redemption price equal to the
greater of (i) 100% of the principal amount of the Securities of this series
being redeemed or (ii) the sum of the present values of the remaining scheduled
payments of principal of and interest on the Securities of this series being
redeemed discounted to the date of redemption on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at a discount rate equal to the
Treasury Yield plus __________ basis points, plus, for (i) or (ii) above,
whichever is applicable, accrued interest on the Securities of this series to
the date of redemption.
"Treasury Yield" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of such Securities of this series to be redeemed that would
be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the Securities of this series.
11
<PAGE>
"Comparable Treasury Price" means, with respect to any redemption
date, (i) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third Business Day in New York City preceding such redemption date, as set forth
in the daily statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations
for US Government Securities" or (ii) if such release (or any successor release)
is not published or does not contain such prices on such business day, the
Reference Treasury Dealer Quotation for such redemption date.
"Independent Investment Banker" means an independent investment
banking institution of national standing appointed by the Company and reasonably
acceptable to the Trustee.
"Reference Treasury Dealer Quotation" means, with respect to the
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount and quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date).
"Reference Treasury Dealer" means a primary US Government securities
dealer in New York City appointed by the Company and reasonably acceptable to
the Trustee.
Notice of redemption shall be given as provided in the Indenture not
less than 15 days nor more than 30 days prior to the date fixed for redemption.
If fewer than all the Securities of this series are to be redeemed,
selection of Securities of this series for redemption will be made by the
Trustee in any manner the Trustee deems fair and appropriate and that complies
with applicable legal and securities exchange requirements.
Unless the Company defaults in payment of the redemption price, from
and after the redemption date, the Securities of this series or portions thereof
called for redemption will cease to bear interest, and the Holders thereof will
have no right in respect to such Securities of this series except the right to
receive the redemption price thereof.
In the event of redemption of this Security in part only, a new
Security of this series and of like tenor for the unredeemed portion hereof will
be issued to the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for defeasance of (a) the entire
indebtedness of this Security and (b) certain restrictive covenants upon
compliance by the Company with certain conditions set forth therein.
12
<PAGE>
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. At any time after such declaration of acceleration with respect to
Securities of any series has been made, but before a judgment or decree for
payment of money has been obtained by the Trustee as provided in the Indenture,
if all Events of Default with respect to Securities of this series have been
cured or waived (other than the non-payment of principal of the Securities which
has become due solely by reason of such declaration of acceleration) then such
declaration of acceleration and its consequences shall be automatically annulled
and rescinded.
The Securities of this Series are subject to redemption in whole but
not in part upon not less than 15 nor more than 30 days' notice given as
provided in the Indenture, at a price equal to the outstanding principal amount
thereof, together with Additional Amounts, if any, and accrued interest, if any,
to the Redemption Date if, (a) the Company satisfies the Trustee prior to the
giving of such notice that it has or will become obliged to pay Additional
Amounts as a result of either (x) any change in, or amendment to, the laws or
regulations of the United Kingdom or any political subdivision or any authority
or agency thereof or therein having power to tax or levy duties, or any change
in the application or interpretation of such laws or regulations, which change
or amendment becomes effective on or after the [date of the underwriting
agreement with respect to the Securities of the series,] or (y) the issuance of
Definitive Registered Securities pursuant to any of clauses (a), (b) or (d) of
the third following paragraph and (b) such obligation cannot be avoided by the
Company taking reasonable measures available to it, subject, as provided in the
Indenture, to the delivery by the Company of an Officers' Certificate stating
that such obligation to pay Additional Amounts cannot be avoided by the Company
taking reasonable measures available to it.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the Indenture or any supplemental
indenture or the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time Outstanding
of all series to be affected (voting as a class). The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and
13
<PAGE>
unconditional, to pay the principal of (and premium, if any) and interest, if
any, on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
This Security shall be exchangeable, in whole but not in part, for
Securities registered in the names of Persons other than the Book-Entry
Depositary with respect to such series or its nominee only as provided in this
paragraph. This Security shall be so exchangeable if (a) DTC notifies the
Company and the Book-Entry Depositary that it is unwilling or unable to continue
to hold the Book-Entry Interest or at any time it ceases to be a "clearing
agency" registered as such under the Exchange Act and in either case, a
successor is not appointed by the Company within 120 days, (b) the Book-Entry
Depositary for the Securities of this series notifies the Company that it is
unwilling or unable to continue as Book-Entry Depositary with respect to this
Security and no successor is appointed within 120 days, (c) the Company executes
and delivers to the Trustee an Officers' Certificate providing that this
Security shall be so exchangeable, or (d) there shall have occurred and be
continuing an Event of Default with respect to the Securities of this series and
the Holder, in such circumstance, shall have requested in writing that this
Security be exchanged for one or more definitive Registered Securities of this
series. Securities so issued in exchange for this Security shall be of the same
series, having the same interest rate, if any, and maturity and having the same
terms as this Security, in authorized denominations and in the aggregate having
the same principal amount as this Security and registered in such names as the
Book-Entry Depositary for this Security shall direct.
The bearer of this Security shall be treated as the owner of it for
all purposes, subject to the terms of the Indenture. As provided in the
Indenture and subject to certain limitations therein set forth, Securities of
this series are exchangeable for a like aggregate principal amount of Securities
of this series and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
When a successor assumes all the obligations of its predecessor under
the Securities of this series and the Indenture in accordance with the terms of
the Indenture, the predecessor will be released from those obligations.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities of this series and may
otherwise deal with the Company, its Subsidiaries or their respective Affiliates
as if it were not the Trustee.
No stockholder, director, officer, employee, incorporator or Affiliate
of the Company shall have any liability for any obligation of the Company under
the Securities of this series or the Indenture or for any claim based on, in
respect of or by reason of, such obligations of their creation. Each Holder of
the Securities of this series by accepting
14
<PAGE>
Securities this series waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities of this
series.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities of this series as a convenience to the Holders of the
Securities of this series. No representation is made as to the accuracy of such
numbers as printed on the Securities of this series and reliance may be placed
only on the other identification numbers printed hereon.
This Security shall be governed by and construed in accordance with
the laws of the State of New York.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
15
<PAGE>
EXHIBIT B
[FORM OF FACE OF DEFINITIVE REGISTERED SENIOR NOTE]
SOUTHERN INVESTMENTS UK plc
__% Senior Notes Due 2006
No. ______________ $_______________
SOUTHERN INVESTMENTS UK plc, a company duly organized and existing under
the laws of the England and Wales (herein called the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for v alue received, hereby promises to pay to[name of registered owner], or its
registered assigns, the principal sum of ________________ Dollars on
______________________________, and to pay interest thereon from
_________________, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, semi-annually on ___________ and
____________ in each year, commencing ____________, 199[7], at the rate per
annum provided in the title hereof, until the principal hereof is paid or made
available for payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the fifteenth day (whether or not a Business
Day) immediately preceding such Interest Payment Date. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered on such Regular Record Date and may be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities of this
series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest, if any, on
this Security will be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for the payment of public and private debt; provided, however, that at
-------- -------
the option of the Company, payment of interest may be made by check mailed to
the address of the Person entitled thereto as such address shall appear in the
Security Register.
16
<PAGE>
All payments of principal and interest (including payments of discount and
premium, if any) in respect of this Security shall be made free and clear of,
and without withholding or deduction for or on account of any present or future
taxes, duties, assessments or governmental charges of whatever nature imposed,
levied, collected, withheld or assessed by or within the United Kingdom or by or
within any political subdivision thereof or any authority therein or thereof
having power to tax ("United Kingdom Taxes"), unless such withholding or
deduction is required by law. In the event of any such withholding or
deduction, the Company shall pay to the Holder such additional amounts
("Additional Amounts") as will result in the payment to such Holder of the
amount that would otherwise have been receivable by such Holder in the absence
of such withholding or deduction, except that no such Additional Amounts shall
be payable:
(a) to, or to a Person on behalf of, a Holder who is liable for such
United Kingdom Taxes in respect of this Security by reason of such Holder
having some connection with the United Kingdom (including a citizen or
resident or national of, or carrying on a business or maintaining a
permanent establishment in, or being physically present in , the United
Kingdom) other than the mere holding of this Security or the receipt of
principal and interest (including payments of discount and premium, if any)
in respect thereof;
(b) to, or to a Person on behalf of, a Holder who presents this
Security (where presentation is required) for payment more than 30 days
after the Relevant Date except to the extent that the Holder would have
been entitled to such Additional Amounts on presenting this Security for
payments on the last day of such period of 30 days;
(c) to, or to a Person on behalf of, a Holder who presents a Security
(where presentation is required) in the United Kingdom;
(d) to, or to a Person on behalf of, a Holder who would not be liable
or subject to the withholding or deduction by making a declaration of non-
residence or similar claim for exemption to the relevant tax authority; or
(e) to, or to a Person on behalf of, a Holder of a definitive
Registered Security issued pursuant to the request of owners of interests
representing a majority in outstanding principal amount in the Book-Entry
Interest following and during the continuance of an Event of Default if
such Holder (or any predecessor Holder) was one of such owners requesting
that definitive Registered Securities be so issued.
Such Additional Amounts will also not be payable where, had the beneficial
owner of the Security (or any interest therein) been the Holder of the Security,
he would not have been entitled to payment of Additional Amounts by reason of
any one or more of clauses (a) through (e) above. If the Company shall
determine that Additional Amounts will not be payable
17
<PAGE>
because of the immediately preceding sentence, the Company will inform such
Holder promptly after making such determination setting forth the reason(s)
therefor.
"Relevant Date" means whichever is the later of (i) the date on which
such payment first becomes due and (ii) if the full amount payable has not been
received in The City of New York by the Trustee or the Holder on or prior to
such due date, the date on which, the full amount having been so received,
notice to that effect shall have been given to the Holder in accordance with
this Indenture.
References to principal, interest, discount or premium in respect of
this Security shall be deemed also to refer to any Additional Amounts which may
be payable as set forth in the Indenture or in this Security.
The Company shall furnish to the Trustee the official receipts (or a
certified copy of the official receipts) evidencing payment of United Kingdom
Taxes. Copies of such receipts shall be made available to the Holder of this
Security upon request.
So long as the Securities of this series are listed on the Luxembourg
Stock Exchange and the rules of the Luxembourg Stock Exchange so require,
notices to Holders of Securities of this series will be published in a leading
newspaper having general circulation in Luxembourg (which is expected to be the
Luxemburger Wort).
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY
SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES
HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer or director of the Company duly authorized.
Dated:
SOUTHERN INVESTMENTS UK plc
By_______________________________________________
[Title]
18
<PAGE>
[Form of Reverse of Security]
SOUTHERN INVESTMENTS UK plc
___% Senior Notes Due 2006
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of ________ __, 1996 (herein called the
"Original Indenture"), among the Company, Bankers Trust Company, as trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), and Bankers Trust Luxembourg S.A., as paying and transfer agent
(the "Paying and Transfer Agent"), as supplemented by the First Supplemental
Indenture, dated as of _______ __, 1996 (together with the Original Indenture,
the "Indenture") among the Company, the Trustee and the Paying and Transfer
Agent to which Indenture and all indentures supplemental thereto reference is
hereby made for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Company, the Trustee the Paying and
Transfer Agent and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This Security is
one of the series designated on the face hereof, limited in aggregate principal
amount to $________________.
The Securities of this series will be redeemable in whole or in part,
at the option of the Company at any time, at a redemption price equal to the
greater of (i) 100% of the principal amount of the Securities of this series
being redeemed or (ii) the sum of the present values of the remaining scheduled
payments of principal of and interest on the Securities of this series being
redeemed discounted to the date of redemption on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at a discount rate equal to the
Treasury Yield plus ___ basis points, plus, for (i) or (ii) above, whichever is
applicable, accrued interest on the Securities of this series to the date of
redemption.
"Treasury Yield" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of such Securities of this series to be redeemed that would
be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the Securities of this series.
19
<PAGE>
"Comparable Treasury Price" means, with respect to any redemption
date, (i) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third Business Day in New York City preceding such redemption date, as set forth
in the daily statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations
for US Government Securities" or (ii) if such release (or any successor release)
is not published or does not contain such prices on such business day, the
Reference Treasury Dealer Quotation for such redemption date.
"Independent Investment Banker" means an independent investment
banking institution of national standing appointed by the Company and reasonably
acceptable to the Trustee.
"Reference Treasury Dealer Quotation" means, with respect to the
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount and quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date).
"Reference Treasury Dealer" means a primary US Government securities
dealer in New York City appointed by the Company and reasonably acceptable to
the Trustee.
Notice of redemption shall be given as provided in the Indenture not
less than 15 days nor more than 30 days prior to the date fixed for redemption.
If fewer than all the Securities of this series are to be redeemed,
selection of Securities for redemption will be made by the Trustee in any manner
the Trustee deems fair and appropriate and that complies with applicable legal
and securities exchange requirements.
Unless the Company defaults in payment of the redemption price, from
and after the redemption date, the Securities of this series or portions thereof
called for redemption will cease to bear interest, and the Holders thereof will
have no right in respect to such Securities of this series except the right to
receive the redemption price thereof.
In the event of redemption of this security in part only, a new
Security or Securities of this series and of like tenor for the unredeemed
portion hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.
The Indenture contains provisions for defeasance of (a) the entire
indebtedness of this Security and (b) certain restrictive covenants upon
compliance by the Company with certain conditions set forth therein.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the
20
<PAGE>
manner and with the effect provided in the Indenture. At any time after such
declaration of acceleration with respect to Securities of any series has been
made, but before a judgment or decree for payment of money has been obtained by
the Trustee as provided in the Indenture, if all Events of Default with respect
to Securities of this series have been cured or waived (other than the non-
payment of principal of the Securities which has become due solely by reason of
such declaration of acceleration) then such declaration of acceleration and its
consequences shall be automatically annulled and rescinded.
The Securities of this series are subject to redemption upon not less
than 15 nor more than 30 days' notice to the Holders of Securities by first-
class mail, at a price equal to the outstanding principal amount thereof,
together with Additional Amounts, if any, and accrued interest, if any, to the
Redemption Date if (a) the Company satisfies the Trustee prior to the giving of
such notice that it has or will become obliged to pay Additional Amounts as a
result of either (x) any change in, or amendment to, the laws or regulations of
the United Kingdom or any political subdivision or any authority or agency
thereof or therein having power to tax or levy duties, or any change in the
application or interpretation of such laws or regulations, which change or
amendment becomes effective on or after the [date of the underwriting
agreement], or (y) the issuance of definitive Registered Securities as a result
of: (i) DTC having notified the Company and the Book-Entry Depositary that it
was unwilling or unable to continue to hold the Book-Entry Interest or at any
time ceasing to be a "clearing agency" registered as such under the Securities
Exchange Act of 1934 and, in either case, a successor is not being appointed by
the Company within 120 days; (ii) the Book-Entry Depositary for the Securities
of this series having notified the Company that it was unwilling or unable to
continue as Book-Entry Depositary with respect to a Global Security of this
series and no successor Book-Entry Depositary having been appointed by the
Company within 120 days, or; (iii) an Event of Default with respect to the
Securities of this series having occurred and being continuing and a Holder, in
such circumstance, having requested in writing that a Global Bearer Security of
this series be exchanged for one or more definitive Registered Securities and
(b) such obligation cannot be avoided by the Company taking reasonable measures
available to it, subject, as provided in the Indenture, to the delivery by the
Company of an Officers Certificate that such obligation referred to in (a)
cannot be avoided by the Company taking reasonable measures available to it.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the Indenture or any supplemental
indenture or the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time Outstanding
of all series to be affected (voting as a class). The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future
21
<PAGE>
Holders of this Security and of any Security issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest, if any, on this Security at the times, place and rate, and in the coin
or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of (and
premium, if any) and interest, if any, on this Security are payable, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of this series and of like tenor, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Securities of this series are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof.
As provided in the Indenture and subject to certain limitations therein set
forth, Securities of this series are exchangeable for a like aggregate principal
amount of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
When a successor assumes all the obligations of its predecessor under
the Securities of this series and the Indenture in accordance with the terms of
the Indenture, the predecessor will be released from those obligations.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities of this series and may
otherwise deal with the Company, its Subsidiaries or their respective Affiliates
as if it were not the Trustee.
22
<PAGE>
No stockholder, director, officer, employee, incorporator or Affiliate
of the Company shall have any liability for any obligation of the Company under
the Securities of this series or the Indenture or for any claim based on, in
respect of or by reason of, such obligations or their creation. Each Holder of
the Securities of this series by accepting a Security of this series waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities of this series.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
Customary abbreviations may be used in the name of a Holder of a
Securities of this series or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities of this series as a convenience to the Holders of the
Securities of this series. No representation is made as to the accuracy of such
numbers as printed on the Securities of this series and reliance may be placed
only on the other identification numbers printed hereon.
This Security shall be governed by and construed in accordance with
the laws of the State of New York.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
23
<PAGE>
================================================================================
DEPOSIT AGREEMENT
BETWEEN
BANKERS TRUST COMPANY
and
SOUTHERN INVESTMENTS UK plc
Dated as of ______ __, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I Definitions and Other General Provisions.................................................... 1
SECTION 1.01. Definitions........................................................................ 1
SECTION 1.02 Rules of Construction.............................................................. 2
ARTICLE II Interests.................................................................................. 3
SECTION 2.01. Deposit of the Global Note......................................................... 3
SECTION 2.02. Book-Entry System.................................................................. 3
SECTION 2.03. Registration of Transfer of the Book-Entry Interest................................ 3
SECTION 2.04. Transfer of Global Note............................................................ 4
SECTION 2.05. Cancellation....................................................................... 4
SECTION 2.06. Payments in Respect of the Book-Entry Interest and Global
Note............................................................................... 4
SECTION 2.07. Change in Principal Amount of Global Note.......................................... 5
SECTION 2.08. Record Date........................................................................ 5
SECTION 2.09. Action in Respect of the Book-Entry Interest or the Global Note.................... 5
SECTION 2.10. Surrender of the Global Note....................................................... 6
SECTION 2.11. Reports............................................................................ 6
SECTION 2.12. Additional Amounts................................................................. 6
ARTICLE III The Book-Entry Depositary................................................................. 7
SECTION 3.01. Certain Duties and Responsibilities................................................ 7
SECTION 3.02. Notice of Default.................................................................. 8
SECTION 3.03. Certain Rights of Book-Entry Depositary............................................ 8
SECTION 3.04. Not Responsible for Recitals or Issuance of Senior Notes........................... 9
SECTION 3.05. Money Held in Trust................................................................ 9
SECTION 3.06. Compensation and Reimbursement..................................................... 9
SECTION 3.07 Book-EntryDepositary Required; Eligibility 10
SECTION 3.08. Resignation and Removal; Appointment of Successor.................................. 10
SECTION 3.09. Acceptance of Appointment by Successor............................................. 12
SECTION 3.10. Merger, Conversion, Consolidation or Succession to Business........................ 12
ARTICLE IV Miscellaneous Provisions................................................................... 13
SECTION 4.01. Notices to Book-Entry Depositary or Company........................................ 13
SECTION 4.02. Notice to Depositarys; Waiver...................................................... 13
SECTION 4.03. Effect of Headings and Table of Contents........................................... 13
SECTION 4.04. Successors and Assigns............................................................. 14
SECTION 4.05. Separability Clause................................................................ 14
SECTION 4.06. Benefits of Agreement.............................................................. 14
SECTION 4.07. Governing Law...................................................................... 14
SECTION 4.08. Jurisdiction....................................................................... 14
SECTION 4.09. Counterparts....................................................................... 14
SECTION 4.10. Inspection of Agreement............................................................ 15
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 4.11. Satisfaction and Discharge......................................................... 15
SECTION 4.12. Amendments......................................................................... 15
SECTION 4.13. Book-Entry Depositary To Sign Amendments........................................... 15
</TABLE>
ii
<PAGE>
DEPOSIT AGREEMENT
This Deposit Agreement (as the same may be amended from time to time
in accordance with the provisions hereof, the "Deposit Agreement"), dated as of
______________, 1996, is between Bankers Trust Company, a New York banking
corporation, as book-entry depositary hereunder (the "Book-Entry Depositary")
and Southern Investments UK plc, a public limited company organized under the
laws of England and Wales (the "Company").
ARTICLE I
Definitions and Other General Provisions
----------------------------------------
SECTION 1.01. Definitions. Terms not defined herein have the meanings
-----------
ascribed to them in the Indenture. The following terms, as used herein, have the
following meanings:
"Book-Entry Depositary" means the party named as such in this Agreement or
---------------------
its nominee or the custodian of either until a successor shall have become such
pursuant to Section 3.08 hereof, and thereafter "Book-Entry Depositary" shall
mean such successor or its nominee or the custodian of either.
"Book-Entry Interest" means the certificateless depositary interests that
-------------------
shall at all times, prior to the issuance of Definitive Registered Notes in
respect thereof, represent the right to receive 100% of the principal, premium
(if any), interest and Additional Amounts (if any) of the underlying Global Note
and that are issued to DTC or its nominee by the Book-Entry Depositary.
"Book-Entry Register" has the meaning ascribed thereto in Section 2.03
-------------------
hereof.
"Company" means the party named as such in this Agreement until a successor
-------
replaces it pursuant to the applicable provisions of the Indenture and,
thereafter, means the successor.
"Corporate Trust Office" means the office of the Book-Entry Depositary in
----------------------
the City of New York, at which any particular time its corporate trust business
shall be principally administered, which at the date hereof is located at
Bankers Trust Company, Four Albany Street, New York, NY 10006, Attn: Corporate
Trust Public Utilities Group and Agency Group.
"Definitive Registered Notes" means the Senior Notes issued pursuant to the
---------------------------
Indenture and the Supplemental Indenture in substantially the form of Exhibit B
to the Supplemental Indenture.
"Depositary" means DTC or any successor, as the Depositary of the Book-
----------
Entry Interest as recorded on the Book-Entry Register.
<PAGE>
"DTC" means The Depository Trust Company or its nominee.
---
"Global Note" means the Global Note in bearer form issued pursuant to the
-----------
Indenture and the Supplemental Indenture in substantially the same form as of
Exhibit A to the Supplemental Indenture.
"Indenture" means the Indenture dated as of____________, 1996, between the
---------
Company and Bankers Trust Company, as Trustee, and Bankers Trust Luxembourg
S.A., as paying and transfer agent relating to the Senior Notes as originally
executed or as it may from time to time be supplemented or amended by one or
more indentures supplemental thereto entered into pursuant to the applicable
provisions thereof, including for all purposes to the extent applicable, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
such instrument.
"Interests" means beneficial interests in the Book-Entry Interest that will
---------
be shown on records maintained in book-entry form by DTC.
"Letter of Representations" means the Letter of Representations to DTC
-------------------------
dated , 1996, from the Book-Entry Depositary and the Company.
"Opinion of Counsel" means a written opinion from legal counsel, who may be
------------------
an employee of or regular counsel for the Company or may be other counsel
reasonably acceptable to the Book-Entry Depositary.
"Responsible Officer", when used with respect to the Book-Entry Depositary,
-------------------
means any authorized officer of the Book-Entry Depositary including any vice
president, assistant vice president, assistant secretary, treasurer, assistant
treasurer, or any other officer of the Book-Entry Depositary who customarily
performs functions similar to those performed by the Persons who at the time
shall be such officers, respectively, or to whom any depositary matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Senior Note" means and ___ Senior Note due 2006 of the Company issued
-----------
under the Indenture and the Supplemental Indenture.
"Supplemental Indenture" means the First Supplemental Indenture dated as of
----------------------
_______, 1996, between the Company and Bankers Trust Company, as Trustee, and
Bankers Trust Luxembourg S.A., as paying and transfer agent, relating to the
Senior Notes.
"Trustee" means Bankers Trust Company and its successors and assigns, as
-------
trustee under the Indenture and the Supplemental Indenture.
SECTION 1.02. Rules of Construction. Unless the context otherwise
---------------------
requires:
(a) a term has the meaning assigned to it;
2
<PAGE>
(b) "or" is not exclusive;
(c) "including" means including without limitation; and
(d) words in the singular include the plural and words in the plural
include the singular.
ARTICLE II
Interests
---------
SECTION 2.01. Deposit of the Global Note. The Book-Entry Depositary hereby
--------------------------
accepts custody of the Global Note from the Trustee and shall act as Book-Entry
Depositary in accordance with the terms of this Agreement. The Book-Entry
Depositary shall hold such Global Note at its Corporate Trust Office in the City
of New York or at such place as it shall determine with the consent of the
Company and shall issue the Book-Entry Interest in accordance with the Letter of
Representations.
SECTION 2.02. Book-Entry System. (a) Upon acceptance by DTC of the Book-
-----------------
Entry Interest for entry into its book-entry settlement system in accordance
with the terms of the Letter of Representations, Interests in the Book-Entry
Interest will be recorded on and traded through DTC's book-entry system, and
ownership of such Interests shall be shown in, and the transfer of such
ownership shall be effected only through, records maintained by (i) DTC or its
successors or (ii) institutions that have accounts with DTC or its successors
("DTC Participants"). Interests shall be transferable only as units representing
authorized denominations of the Senior Notes.
(b) The Book-Entry Interest shall be issuable only to DTC, or successors of
DTC or their respective nominees. Except as provided in Section 2.07, no owner
of Interests shall be entitled to receive a Senior Note on account of such
ownership, and such owner's Interests shall be shown only in accordance with the
procedures of DTC as set forth in the Letter of Representations.
SECTION 2.03. Registration of Transfer of the Book-Entry Interest.
---------------------------------------------------
The Book-Entry Depositary agrees to maintain at the Book-Entry Depositary's
Corporate Trust Office the Book-Entry Register in which the Book-Entry
Depositary shall (i) record DTC as the initial registered owner of the Book-
Entry Interest and (ii) record the registration and transfer of the Book-Entry
Interest. The Book-Entry Interest cannot be transferred unless such transfer is
recorded on the Book-Entry Register. The Book-Entry Depositary shall not
constitute the agent of the Company for any other purpose and, in particular, it
shall not constitute the agent of the Company in relation to any payments it may
make to the owner of the Book-Entry Interest or be authorized to undertake any
obligations on behalf of the Company.
The foregoing paragraph shall not (i) impose an obligation on the Book-
Entry Depositary to record the ownership interests in or transfers of Interests
held by DTC Participants or its successors or Persons that may hold Interests
through such institutions or
3
<PAGE>
(ii) restrict transfers of such Interests held by DTC Participants or such
Persons. The Book-Entry Depositary shall treat the Depositary or its nominee or
their respective successors as the absolute owner of the Book-Entry Interest for
all purposes whatsoever and shall not be bound or affected by any notice to the
contrary, other than an order of a court having jurisdiction over the Book-Entry
Depositary.
SECTION 2.04. Transfer of Global Note. The Book-Entry Depositary
-----------------------
shall hold the Global Note in custody for the benefit of the Depositary. The
Book-Entry Depositary shall not transfer or lend the Global Note or any interest
therein, except that the Book-Entry Depositary may transfer the Global Note as a
whole to a successor Book-Entry Depositary with the consent of the Company.
Notwithstanding the foregoing, the Depositary may not under any circumstances
request the Book-Entry Depositary to surrender or deliver the Global Note to the
Depositary. If (i) the Depositary notifies the Company and the Book-Entry
Depositary that it is unwilling or unable to continue as Depositary with respect
to the Book-Entry Interest or if at any time it is unable to continue as, or
ceases to be, a "clearing agency" under the Exchange Act and a successor
Depositary registered as a "clearing agency" under the Exchange Act is not
appointed by the Company within 120 days; (ii) the Book-Entry Depositary
notifies the Company under Section 3.08 hereof that it is at any time unwilling
or unable to continue as Book-Entry Depositary and no successor Book-Entry
Depositary has been appointed by the Company within 120 days of such
notification; (iii) the Company shall request that Definitive Registered Notes
be issued; or (iv) an Event of Default (as defined in the Indenture) has
occurred and is continuing and the holder of a majority in outstanding principal
amount of interests in the Book-Entry Interest has requested that Definitive
Registered Notes be issued in accordance with Section 2.07 hereof and the
Indenture, then the Book-Entry Depositary will promptly notify the Trustee and
request the Trustee to issue Definitive Registered Notes in such names and
denominations as the Depositary shall specify in accordance with Section 209 of
the Supplemental Indenture, and the Book-Entry Depositary agrees that in such
event it will promptly surrender the Global Note held by it to the Trustee in
connection with such exchange and that such Global Note will be cancelled upon
issuance of such Definitive Registered Notes. All costs (taxes, governmental
charges or otherwise) related to the issuance of Definitive Registered Notes
will be borne by the Company subject to any exceptions set forth in the
Indenture.
SECTION 2.05. Cancellation. If the Global Note is surrendered for
------------
payment, or for redemption of Senior Notes evidenced thereby or for exchange for
Definitive Registered Notes to any Person other than the Trustee, such Global
Note shall, subject to Section 2.07, be delivered to the Trustee for
cancellation.
SECTION 2.06. Payments in Respect of the Book-Entry Interest and Global
---------------------------------------------------------
Note. (a) Whenever the Book-Entry Depositary shall receive from the
- ----
Trustee (or other paying agent under the Indenture) any payment on the Global
Note, such payments shall be distributed promptly to the Depositary on the
payment date for the Global Note. So long as DTC is the Depositary, such
payments shall be made in accordance with the Letter of Representations.
(b) The Book-Entry Depositary will forward to the Company or its agents
such information from its records as the Company may reasonably request in
writing to enable the
4
<PAGE>
Company or its agents to file necessary reports with governmental agencies, and
the Book-Entry Depositary, the Company or their agents may (but shall not be
required to) file any such reports necessary to obtain benefits under any
applicable tax treaties for the Depositary of, or the beneficial owners of
Interests in the Book-Entry Interest.
(c) Notwithstanding any other provisions of this Agreement, the Book-Entry
Depositary shall be required to pay to the Depositary only amounts (including
Additional Amounts (as defined in the Indenture)) received by the Book-Entry
Depositary under the Global Note.
(d) Neither the Company nor any agent of the Company will have any
responsibility or liability for any aspect relating to payments made or to be
made by the Book-Entry Depositary to DTC in respect of the Global Note or the
Book-Entry Interests. None of the Company, the Trustee, the Book-Entry
Depositary or any agent of any of the foregoing will have any responsibility or
liability for any aspect relating to payments made or to be made by DTC on
account of a Participant's or Indirect Participant's ownership of an Interest in
the Book-Entry Interest or for maintaining, supervising or reviewing any records
relating to a Participant's interests in the Book-Entry Interest.
SECTION 2.07. Change in Principal Amount of Global Note. Whenever
-----------------------------------------
the principal amount at maturity of the Global Note held by the Book-Entry
Depositary is changed by the Trustee, the Book-Entry Depositary shall notify the
Depositary of the corresponding change in the principal amount of the related
Book-Entry Interest.
SECTION 2.08. Record Date. Whenever any payment is to be made in
-----------
respect of the Global Note or the Book-Entry Depositary shall receive notice of
any action to be taken by the Depositary of the Global Note or Depositarys of
interests therein, or whenever the Book-Entry Depositary otherwise deems it
appropriate in respect of any other matter, the Book-Entry Depositary shall fix
a record date for the determination of the Depositary who shall be entitled to
receive payment in respect of the Book-Entry Interest or to take any such action
or to act in respect of any such matter. Subject to the provisions of this
Agreement, only the Depositary who is registered on the Book-Entry Register at
the close of business on such record date shall be entitled to receive any such
payment, to give instructions as to such action or to act in respect of any such
matter.
SECTION 2.09. Action in Respect of the Book-Entry Interest or the Global
----------------------------------------------------------
Note. (a) As soon as practicable after receipt by the Book-Entry Depositary of
- ----
notice of any solicitation of consents or request for a waiver or other action
by the Depositary or owners of Interests under this Agreement or the Indenture,
the Book-Entry Depositary shall mail to the Depositary a notice containing (i)
such information as is contained in such notice, (ii) a statement that the
Depositary at the close of business on a specified date will be entitled,
subject to the provisions of or governing the Book-Entry Interest or Global
Note, as the case may be, to instruct the Book-Entry Depositary as to the
consent, waiver or other action, if any, pertaining to the Book-Entry Interest
or Global Note, as the case may be, and (iii) a statement as to the manner in
which such instructions may be given. Upon the written request of the Depositary
5
<PAGE>
received on or before the date established by the Book-Entry Depositary for such
purpose, the Book-Entry Depositary shall endeavor insofar as practicable and
permitted under the provisions of or governing the Book-Entry Interest or Global
Note, as the case may be, to take such action regarding the requested consent,
waiver or other action in respect of such Book-Entry Interest or Global Note, as
the case may be, in accordance with any instructions set forth in such request.
The Book-Entry Depositary shall not itself exercise any discretion in the
granting of consents or waivers or the taking of any other action in respect of
the Book-Entry Interest or Global Note.
(b) The Depositary may direct the time, method and place of conducting
any proceeding for any remedy available to the Book-Entry Depositary or of
exercising any trust or power conferred on the Book-Entry Depositary. However,
the Book-Entry Depositary may refuse to follow any direction that conflicts with
law or this Agreement or the Indenture or, subject to Section 3.01 hereof, that
the Book-Entry Depositary determines would involve it in Personal liability.
SECTION 2.10. Surrender of the Global Note Surrender of the Global Note. In
---------------------------------------------------------
the event of the redemption, payment or purchase in full of all the Senior Notes
represented by the Global Note, then the Global Note shall become void and the
Book-Entry Depositary shall surrender the Global Note to the Trustee for
cancellation.
SECTION 2.11. Reports. The Book-Entry Depositary shall immediately (and in
-------
no event later than 10 days from receipt) send to the Depositary a copy of any
notices, reports and other communications received by it relating to the
Company, the Senior Notes or the Book-Entry Interest.
SECTION 2.12. Additional Amounts. All payments made by the Book-Entry
------------------
Depositary pursuant to this Agreement shall be made without deduction or
withholding for, or on account of, any present or future taxes, duties,
assessments or governmental charges of whatever nature (collectively, "United
Kingdom Taxes") imposed or levied by or on behalf of the United Kingdom or any
political subdivision thereof or any authority therein or thereof having power
to tax therein (each a "U.K. Tax Authority"), unless the withholding or
deduction of such United Kingdom Taxes is then required by law.
At least 10 days prior to the first interest payment date, and at least 10
days prior to each succeeding interest payment date if there has been any change
with respect to the matters set forth in the below-mentioned Directors'
Certificate, the Company will furnish the Book-Entry Depositary with a
Directors' Certificate instructing the Book-Entry Depositary whether such
payment of principal of or interest on such Book-Entry Interest shall be made to
the Depositary without deduction or withholding for or on account of any United
Kingdom Taxes. If any such deduction or withholding shall be required, prior to
such interest payment date the Company will furnish the Book-Entry Depositary
with a Directors' Certificate which specifies the amount required to be deducted
or withheld on such payment. Neither the Company nor any agent of the Company
will have any responsibility or liability for any aspect relating to payments
made or to be made by the Book-Entry Depositary to DTC in respect of the Senior
Notes or the Book-Entry Interests. None of the Company, the Trustee, the Book-
Entry
6
<PAGE>
Depositary or any agent of any of the foregoing will have any responsibility or
liability for any aspect relating to payments made or to be made by DTC on
account of a Participant's or Indirect Participant's ownership of an interest in
the Book-Entry Interest or for maintaining, supervising or reviewing any records
relating to a Participant's or Indirect Participant's interests in the Book-
Entry Interest. The Company shall indemnify the Book-Entry Depositary, its
officers, directors and employees for, and hold it harmless against, any loss,
liability or expense reasonably incurred without negligence, willful misconduct
or bad faith on its part arising out of or in connection with actions taken or
omitted by it in reliance on any Directors' Certificate furnished to it pursuant
to this Section 2.12.
ARTICLE III
The Book-Entry Depositary
-------------------------
SECTION 3.01. Certain Duties and Responsibilities. (a) The Book-Entry
-----------------------------------
Depositary undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Book-Entry Depositary.
(b) In the absence of bad faith on its part, the Book-Entry Depositary
may conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to the
Book-Entry Depositary and conforming to the requirements of this Agreement, but
in the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Book-Entry Depositary, the
Book-Entry Depositary shall examine the same to determine whether or not they
conform to the requirements of this Agreement.
(c) No provision of this Agreement shall be construed to relieve the
Book-Entry Depositary from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) the Book-Entry Depositary shall not be liable for any error
of judgment made in good faith by a Responsible Officer of the Book-Entry
Depositary, unless the Book-Entry Depositary was negligent in ascertaining
the pertinent facts; and
(ii) no provision of this Agreement shall require the Book-Entry
Depositary to spend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if repayment of such funds or
adequate indemnity against such risk or liability satisfactory to the Book-
Entry Depositary has not been assured to it.
(d) The Book-Entry Depositary shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Depositary relating to the time, method and place of conducting
any proceeding for any remedy available to the Book-Entry Depositary, or
exercising any power conferred upon the Book-Entry depositary, under this
Agreement or the Indenture.
7
<PAGE>
(e) Whether or not therein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to the Book-Entry Depositary shall be subject to the
provisions of this Section 3.01.
SECTION 3.02. Notice of Default. Within 90 days after the occurrence of any
-----------------
Event of Default with respect to the Global Note (a "Note Default") of which a
Responsible Officer of the Book-Entry Depositary assigned to its corporate trust
department has actual knowledge, the Book-Entry Depositary shall transmit by
mail to the Depositary in the manner provided in Section 4.02 hereof, notice of
such Note Default, unless such Note Default shall have been cured or waived.
SECTION 3.03. Certain Rights of Book-Entry Depositary. Subject to the
---------------------------------------
provisions of Section 3.01 hereof:
(a) the Book-Entry Depositary may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Directors' Certificate or Company Order or as
otherwise expressly provided herein and any resolution of the Board of Directors
may be sufficiently evidenced by a Board Resolution;
(c) the Book-Entry Depositary may consult with counsel, and the
written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon;
(d) the Book-Entry Depositary shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Book-Entry Depositary, in its discretion, may make further
inquiry or investigation into such facts or matters as it may see fit, and, if
the Book-Entry Depositary shall determine to make such further inquiry or
investigation, it shall be entitled upon reasonable prior request and during
normal business hours to examine the books, records and premises of the Company,
Personally or by agent or attorney;
(e) the Book-Entry Depositary may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys, but the Book-Entry Depositary shall be responsible for any
misconduct or negligence on the part of any such agent or attorney appointed by
it hereunder;
8
<PAGE>
(f) the Book-Entry Depositary shall be under no obligation to expend
or risk its own funds or to exercise, at the request or direction of any
Depositary, any of the rights or powers vested in it by this Agreement or
the Indenture unless the Depositary shall have offered to the Book-Entry
Depositary security or indemnity satisfactory to the Book-Entry Depositary
against the costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction;
(g) whenever in the administration of its duties under this Agreement
the Book-Entry Depositary shall deem it desirable that a matter be proved
or established prior to taking or suffering or omitting any action
hereunder, the Book-Entry Depositary (unless other evidence be herein
specifically prescribed) may, in the absence of negligence or bad faith on
its part, rely upon a Directors' Certificate.
SECTION 3.04. Not Responsible for Recitals or Issuance of Senior Notes. The
--------------------------------------------------------
recitals contained in the Indenture and in the Senior Notes, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company and the Book-Entry Depositary assumes no responsibility for their
correctness. The Book-Entry Depositary makes no representations as to the
validity or sufficiency of this Agreement or of the Senior Notes. The Book-Entry
Depositary shall not be accountable for the use or application by the Company of
the proceeds with respect to the Senior Notes.
SECTION 3.05. Money Held in Trust. Money held by the Book-Entry Depositary
-------------------
in trust hereunder need not be segregated from other funds held by the Book-
Entry Depositary, except to the extent required by law. The Book-Entry
Depositary shall be under no obligation to invest or pay interest on any money
received by it hereunder, except as otherwise agreed in writing with the
Company. Any interest accrued on funds deposited with the Book-Entry Depositary
under this Agreement shall be paid to the Company from time to time and the
Depositary shall have no claim to any such interest.
SECTION 3.06. Compensation and Reimbursement. The Company agrees:
------------------------------
(a) to pay to the Book-Entry Depositary from time to time such
compensation as is agreed upon in writing;
(b) except as otherwise expressly provided herein, to reimburse the
Book-Entry Depositary upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Book-Entry Depositary in
accordance with any provision of this Agreement (including the reasonable
compensation and the reasonable expenses and disbursements of its agents and
counsel, which compensation, expenses and disbursements shall be set forth in
sufficient written detail to the satisfaction of the Company), except any such
expense, disbursement or advance as may be attributable to its or their
negligence or bad faith; and
(c) to indemnify the Book-Entry Depositary for, and to hold it
harmless against, any loss, liability or expense incurred without negligence,
bad faith or willful misconduct on its part arising out of or in connection with
the acceptance or
9
<PAGE>
administration of this Agreement and its duties hereunder, including the
costs and expenses of defending itself against any claim of liability in
connection with the exercise or performance of any of its powers or duties
hereunder. The Indemnity provided by this Section 3.06(c) shall survive the
satisfaction and discharge of this Agreement pursuant to Section 4.11
hereof.
SECTION 3.07. Book-Entry Depositary Required; Eligibility. At all times
-------------------------------------------
when there is a Book-Entry Depositary hereunder, such Book-Entry Depositary
shall be a corporation organized and doing business under the laws of the United
States of America, any state thereof or the District of Columbia, having,
together with its parents, a combined capital and surplus of at least
$50,000,000, subject to supervision or examination by Federal, state or District
of Columbia authority and willing to act on reasonable terms. Such corporation
shall have its principal place of business in the Borough of Manhattan, The City
of New York, if there be such a corporation in such location willing to act upon
reasonable and customary terms and conditions. If such corporation, or its
parent, publishes reports of condition at least annually, pursuant to law or to
the requirements of the aforesaid supervising or examining authority, then for
the purposes of this Section 3.07, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. The Book-Entry Depositary
hereunder shall at all times be the Trustee under the Indenture, subject to
receipt of an Opinion of Counsel that the same Person is precluded by law from
acting in such capacities. If at any time the Book-Entry Depositary shall cease
to be eligible in accordance with the provisions of this Section 3.07, it shall
resign immediately in the manner and with the effect hereinafter specified in
this Article.
SECTION 3.08. Resignation and Removal; Appointment of Successor. (a) No
-------------------------------------------------
resignation or removal of the Book-Entry Depositary and no appointment of a
successor Book-Entry Depositary pursuant to this Article shall become effective
until (i) the acceptance of appointment by the successor Book-Entry Depositary
in accordance with the applicable requirements of Section 3.09 hereof or (ii)
the issuance of Definitive Registered Notes in accordance with Section 2.04 or
Section 2.07 hereof and the Indenture.
(b) The Book-Entry Depositary may resign with respect to the Global Note by
giving written notice thereof to the Company and the Depositary, in accordance
with Section 4.01 and Section 4.02 hereof, 60 days prior to the effective date
of such resignation. The Book-Entry Depositary may be removed at any time upon
90 days' notice by the filing with it of an instrument in writing signed on
behalf of the Company and specifying such removal and the date when it is
intended to become effective. If the instrument of acceptance by a successor
Book-Entry Depositary required by Section 3.09 hereof shall not have been
delivered to the Book-Entry Depositary within 30 days after the giving of such
notice of resignation or removal, the resigning Book-Entry Depositary may
petition any court of competent jurisdiction for the appointment of a successor
Book-Entry Depositary.
(c) If at any time:
10
<PAGE>
(i) the Book-Entry Depositary shall cease to be eligible under Section 3.07
hereof, or shall cease to be eligible as Trustee under the Indenture, and
shall fail to resign after written request therefor by the Company or by
the Depositary, or
(ii) the Book-Entry Depositary shall become incapable of acting with
respect to the Book-Entry Interest or shall be adjudged a bankrupt or
insolvent, or a receiver or liquidator of the Book-Entry Depositary or of
its property shall be appointed or any public officer shall take charge or
control of the Book-Entry Depositary or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation.
then, in any such case, (i) the Company, by Board Resolution, may remove the
Book-Entry Depositary and appoint a successor Book-Entry Depositary, and (ii) if
the Company shall fail to remove such Book-Entry Depositary and appoint a
successor Book-Entry Depositary, the Depositary may, on behalf of itself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Book-Entry Depositary or Book-Entry Depositaries and the
appointment of a successor Book-Entry Depositary, unless Definitive Registered
Notes have been issued in accordance with the Indenture.
(d) If the Book-Entry Depositary shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Book-Entry
Depositary for any cause, the Company, by Board Resolution, shall promptly
appoint a successor Book-Entry Depositary (other than the Company) and shall
comply with the applicable requirements of Section 3.09 hereof. If no successor
Book-Entry Depositary with respect to the Global Note shall have been so
appointed by the Company and accepted appointment in the manner required by
Section 3.09, the Depositary may, on behalf of itself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Book-Entry Depositary unless Definitive Registered Notes have been
issued in accordance with the Indenture.
(e) The Company shall give, or shall cause such successor Book-Entry
Depositary to give, notice of each resignation and each removal of a Book-Entry
Depositary and each appointment of a successor Book-Entry Depositary to the
Depositary in accordance with Section 4.02 hereof. Each notice shall include the
name of the successor Book-Entry Depositary and the address of its Corporate
Trust Office.
SECTION 3.09. Acceptance of Appointment by Successor. (a) In case of the
--------------------------------------
appointment hereunder of a successor Book-Entry Depositary, every such successor
Book-Entry Depositary so appointed shall execute, acknowledge and deliver to the
Company and to the retiring Book-Entry Depositary an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Book-Entry
Depositary shall become effective and such successor Book-Entry Depositary,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, agencies and duties of the retiring Book-Entry Depositary, with
like effect as if originally named as Book-Entry Depositary hereunder; but, on
the request of the Company or the successor Book-Entry Depositary, such retiring
Book-Entry Depositary shall, upon payment of all amounts due and payable to it
pursuant to Section 3.06 hereof, execute and deliver an instrument transferring
to such successor Book-Entry Depositary all the rights and powers of the
retiring Book-Entry Depositary and shall duly
11
<PAGE>
assign, transfer and deliver to such successor Book-Entry Depositary all
property and money held by such retiring Book-Entry Depositary hereunder. Any
retiring Book-Entry Depositary shall, nonetheless, retain a prior claim upon all
property or funds held or collected by such Book-Entry Depositary to secure any
amounts then due it pursuant to Section 3.06 hereof.
(b) Upon request of any such successor Book-Entry Depositary, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Book-Entry Depositary all such rights, powers
and agencies referred to in paragraph (a) of this Section 3.09.
(c) No successor Book-Entry Depositary shall accept its appointment unless
at the time of such acceptance such successor Book-Entry Depositary shall be
eligible under this Article.
(d) Upon acceptance of appointment by any successor Book-Entry Depositary
as provided in this Section 3.09, the Company shall give notice thereof to the
Depositary in accordance with Section 4.02 hereof. If the acceptance of
appointment is substantially contemporaneous with the resignation of the Book-
Entry Depositary, then the notice called for by the preceding sentence may be
combined with the notice called for by Section 3.08(b) hereof. If the Company
fails to give such notice within 10 days after acceptance of appointment by the
successor Book-Entry Depositary, the successor Book-Entry Depositary shall cause
such notice to be given at the expense of the Company.
SECTION 3.10. Merger, Conversion, Consolidation or Succession to Business.
-----------------------------------------------------------
Any corporation into which the Book-Entry Depositary may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Book-Entry Depositary shall be
a party, or any corporation succeeding to all or substantially all the corporate
trust business of the Book-Entry Depositary, shall be the successor of the Book-
Entry Depositary hereunder, without the execution of filing of any paper or any
further act on the part of any of the parties hereto.
ARTICLE IV
Miscellaneous Provisions
------------------------
SECTION 4.01. Notices to Book-Entry Depositary or Company. Any request,
-------------------------------------------
demand, authorization, direction, notice, consent, or waiver or other document
provided or permitted by this Agreement to be made upon, given or furnished to,
or filed with,
(a) the Book-Entry Depositary by the Depositary, by the Trustee or the
Company shall be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if made, given, furnished or filed in writing
and Personally delivered or mailed, first-class postage prepaid, to the
Book-Entry Depositary at is Corporate Trust Office, Attention: Corporate
Trust Trustee Administration Department, or at any other address previously
furnished in writing by the Book-Entry Depositary to the Depositary, the
Trustee and the Company, or
12
<PAGE>
(b) the Company, by the Book-Entry Depositary or by the Depositary shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if made, given, furnished or filed in writing and Personally
delivered or mailed, first-class postage prepaid to Southern Investments UK
plc, Attention: ____________________________, or at any other address
previously furnished in writing to the Book-Entry Depositary by the
Company.
SECTION 4.02. Notice to Depositarys; Waiver. Where this Agreement provides
-----------------------------
for notice to the Depositary of any event, such notice shall be sufficiently
given (unless otherwise herein expressly provided or as provided in the Letter
of Representations) if in writing and mailed, first-class postage prepaid, to
the Depositary at the address notified to the Book-Entry Depositary, in each
case not later than the latest date, and not earlier than the earliest date,
prescribed for the giving of such notice. Where this Agreement provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by the
Depositary shall be filed with the Book-Entry Depositary, but such filing shall
not be a condition precedent to the validity of any action taken in reliance
upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Book-Entry Depositary
shall constitute a sufficient notification for every purpose hereunder.
SECTION 4.03. Effect of Headings and Table of Contents. The Article and
-----------------------------------------
Section headings herein are for convenience only and shall not affect the
construction hereof.
SECTION 4.04. Successors and Assign. All covenants and agreements in this
---------------------
Agreement and the Senior Notes by the Company shall bind its successors and
assigns, whether so expressed or not.
SECTION 4.05. Separability Clause. In case any provision in this Agreement
-------------------
or in the Senior Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions hereof and thereof shall
not in any way be affected or impaired thereby.
SECTION 4.06. Benefits of Agreement. Nothing in this Agreement, the Senior
---------------------
Notes or the Indenture, express or implied, shall give to any Person, other than
the parties hereto and their successors hereunder, any benefits or any legal or
equitable right, remedy or claim under this Agreement. The Depositarys and
owners from time to time of Interests in the Book-Entry Interest shall be
parties to this Agreement and shall be bound by all of the terms and conditions
hereof and of the Indenture and the Senior Notes, by their acceptance of
delivery of the Interests.
13
<PAGE>
SECTION 4.07. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 4.08. Jurisdiction. The Company agrees that any legal suit, action
------------
or proceeding against the Company brought by the Book-Entry Depositary arising
out of or based upon this Agreement may be instituted in any state or Federal
court in the Borough of Manhattan, The City of New York, and waives any
objection which it may now or hereafter have to the laying of venue of any such
proceeding and irrevocably submits to the nonexclusive jurisdiction of such
courts in any suit, action or proceeding. The Company has appointed [CT
Corporation], 1633 Broadway, New York, New York 10019, as its authorized agent
(the "Authorized Agent") upon whom process may be served in any legal suit,
action or proceeding arising out of or based upon this Agreement which may be
instituted in the Supreme Court of New York, New York County of the United
States District Court for the Southern District of New York by the Depositary or
the Book-Entry Depositary, and expressly accepts the nonexclusive jurisdiction
of any such court in respect of any such action. Such appointment shall be
irrevocable. Service of process upon the Authorized Agent shall be deemed, in
every respect, effective service of process upon the Company. Notwithstanding
the foregoing, any action based on this Agreement may be instituted by the Book-
Entry Depositary in any competent court in England.
SECTION 4.09. Counterparts. This Agreement may be executed in any number of
------------
counterparts by the parties hereto on separate counterparts, each of which, when
so executed and delivered, shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
SECTION 4.10. Inspection of Agreement. A copy of this Agreement shall be
-----------------------
available at all reasonable times during normal business hours at the Corporate
Trust Office of the Book-Entry Depositary for inspection by any Depositary.
SECTION 4.11. Satisfaction and Discharge. This Agreement upon Company Order
--------------------------
shall cease to be of further effect, and the Book-Entry Depositary, at the
expense of the Company shall execute proper instruments acknowledging
satisfaction and discharge of this Agreement, when (i) the Indenture has been
satisfied and discharged pursuant to the provisions thereof or Definitive
Registered Notes have been issued and the Global Note has been cancelled in
accordance with the provisions of Section 2.05 hereof and the Indenture, (ii)
the Company has paid or caused to be paid all sums payable hereunder by the
Company and (iii) the Company has delivered to the Book-Entry Depositary a
Directors' Certificate and an Opinion of Counsel, stating that all conditions
precedent herein provided relating to the satisfaction and discharge of this
Agreement have been complied with.
SECTION 4.12. Amendments. The Company and the Book-entry Depositary may
----------
amend this Agreement without the consent of the Depositary:
14
<PAGE>
(a) to cure any formal defect, omission, inconsistency or ambiguity;
(b) to add to the covenants and agreements of the Company or the Book-
Entry Depositary ;
(c) to effect the assignment of the Book-Entry Depositary's rights and
duties to a qualified successor, as provided herein;
(d) to comply with any requirements of the Securities Act, the
Exchange Act or the U.S. Investment Company Act of 1940, as amended, and
the Trust Indenture Act;
(e) to modify this Agreement in connection with an amendment to the
Indenture that does not require the consent of the Depositarys of Senior
Notes; or
(f) to modify, alter, amend or supplement this Agreement in any other
respect not inconsistent with this Agreement which, in the opinion of
counsel acceptable to the Company, is not materially adverse to the
Depositary or the Depositarys of Interests.
Except as set forth in this Section 4.12, no amendment which materially
adversely affects any Depositary or beneficial owner of Interests may be made to
this Agreement without the consent of such Depositary or beneficial owner.
SECTION 4.13. Book-Entry Depositary To Sign Amendments. The Book-Entry
----------------------------------------
Depositary shall sign any amendment authorized pursuant to Section 4.12 if the
amendment does not materially adversely affect the rights, duties, liabilities
or immunities of the Book-Entry Depositary. If it does, the Book-Entry
Depositary may but need not sign it.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
SOUTHERN INVESTMENTS UK PLC
By:____________________
Name:
Title:
BANKERS TRUST COMPANY, as
Book-Entry Depositary,
By:____________________
Name:
Title:
15
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF TROUTMAN SANDERS LLP APPEARS HERE]
Southern Investments UK plc
800 Park Avenue, Aztec West
Almondsbury
Bristol BS12 4SE, England
RE: Registration Statement on Form S-1
Gentlemen:
We have acted as counsel to Southern Investments UK plc (the "Company") in
connection with the preparation of a Registration Statement on Form S-1,
including a preliminary prospectus, filed with the Securities and Exchange
Commission (the "Commission") on July 29, 1996 (File No. 333-09033) as amended
by Amendment No. 1 filed with the Commission on August 28, 1996, and by
Amendment No. 2 filed with the Commission on September 24, 1996, (as so
amended, the "Registration Statement"), for the registration under the
Securities Act of 1933, as amended (the "Act"), of Senior Notes (the "Senior
Notes") to be issued by the Company pursuant to an indenture between the Company
and the trustee named therein (the "Indenture") and pursuant to the supplemental
indenture between the Company and the trustee named therein (the "First
Supplemental Indenture"), in each case in the respective forms filed as exhibits
to the Registration Statement.
In this capacity, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents as we have deemed
necessary as a basis for the opinion hereinafter expressed. In our examinations,
we have assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents presented to us as originals and the
conformity with the originals of all documents submitted to us as copies.
Based upon such examination and the assumptions set forth herein, subject to
the limitations set forth herein and having considered such questions of law as
we have deemed necessary as a basis for the opinion expressed below, we are of
the opinion that, upon compliance with the pertinent provisions of the Act and
the Trust Indenture Act of 1939, as amended, upon the adoption of appropriate
resolutions of the Board of Directors of the Company or a duly authorized
committee thereof, when the Indenture and the Senior Notes have been duly
executed by the parties thereto substantially in the form filed as exhibit to
the Registration Statement and the Senior Notes have been duly authenticated by
the Trustee in the manner contemplated in the Indenture and duly delivered to
and paid for by the Underwriters (as defined in the attached opinion of Shearman
& Sterling) in accordance with the terms of the Underwriting Agreement (as
defined in the attached opinion of Shearman & Sterling), the Senior Notes will
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as enforcement
thereof may be limited by applicable bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights generally
and except as enforcement thereof is subject to possible judicial acting giving
effect to foreign governmental
<PAGE>
Southern Investments UK plc
September 26, 1996
Page 2
actions or foreign laws affecting creditors' rights and to general principles of
equity, including, without limitation, concepts of materiality, reasonableness,
good faith and fair dealing (regardless of whether enforcement is considered in
a proceeding in equity or at law).
In rendering the opinion expressed above, we have assumed the due existence
of each party to each document referred to therein, that the execution and
delivery of each such document will be effected in accordance with all laws,
regulations, procedures and contractual restrictions applicable to the party
taking such action and that such action will not violate any such law,
regulation, contractual restriction or procedure.
We are attorneys admitted to practice in the State of Georgia and we do
not express any opinion herein concerning any law other than the law of the
State of Georgia, the State of New York and the federal law of the United
States. To the extent that our opinion expressed herein relates to the law of
the State of New York, we have relied exclusively on the opinion of Shearman &
Sterling attached hereto as Exhibit A.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the statements with respect to our firm under the
caption "Legal Matters" in the Registration Statement.
Very truly yours,
TROUTMAN SANDERS LLP
<PAGE>
Exhibit 5.2
26 September, 1996
To: Southern Investments UK plc
800 Park Avenue
Aztec West
Almondsbury
Bristol BS12 4SE
England
Dear Sirs:
We have acted as legal advisers as to English law to Southern
Investments UK plc, a public limited company incorporated under the laws of
England and Wales (the "Company"), in connection with the preparation of the
registration statement on Form S-1 (Registration No. 333-09033), filed by the
Company under the U.S. Securities Act of 1933, as amended, (the "Securities
Act") with the U.S. Securities and Exchange Commission (the "Commission") on
29/th/ July, 1996, and the amendments thereto filed by the Company with the
Commission on 28/th/ August, 1996 , and 26/th/ September, 1996, respectively
(the registration statement as amended being hereinafter referred to as the
"Registration Statement"), all in connection with the issue by the Company of
U.S. $235,000,000 aggregate principal amount of the Company's Senior Notes due
2006 (the "Senior Notes") to be issued under and governed by an Indenture (the
"Indenture") between the Company and the Bankers Trust Company, as trustee (the
"Trustee"). The Senior Notes will be represented by a global Note in bearer form
(the "Global Note") which will be deposited on issue with Bankers Trust Company,
as depositary (the "Book-entry Depositary"), under a deposit agreement (the
"Deposit Agreement") between (inter alia) the Company and the Book-Entry
Depositary. The Book-Entry Depositary will issue one or more certificateless
depositary interests (the "CDIs") with respect to the Senior Notes to The
Depository Trust Company ("DTC"), which will then record beneficial interests in
the Senior Notes. Beneficial interests in the Senior Notes that will be shown on
records maintained in book-entry form by DTC are referred to herein as the Book-
Entry Interests. Under certain circumstances as provided for in the Indenture,
holders of Book-Entry Interests will be entitled to receive definitive Senior
Notes in registered form (the "Definitive Registered Notes") in exchange for
their holdings of Book-Entry Interests. References herein to the Senior Notes
shall, unless the context otherwise requires, include the Global Note and the
Definitive Registered Notes.
We have examined copies of:
(a) the Memorandum and Articles of Association of the Company;
(b) a resolution of the Board of Directors of the Company passed on 26/th/
July, 1996;
(c) the Registration Statement;
(d) a draft dated 20/th/ August, 1996 of the underwriting agreement
relating to the Senior Notes (the "Underwriting Agreement") to be
entered into by the Company and others;
(e) a draft dated 24/th/ September, 1996 of the Indenture;
(f) a draft dated 24/th/ September, 1996 of the First Supplemental
Indenture (the "First Supplemental Indenture") to be made between the
Company and the Trustee including the form of the Global Note;
<PAGE>
To: Southern Investments UK plc 26/th/ September, 1996
Page : 2
(g) a draft dated 23/rd/ September, 1996 of the Deposit Agreement; and
(h) a certificate of the Secretary to the effect that the issue of the
Senior Notes will not cause any limit on borrowings to which the
Company is subject to be exceeded.
Our opinion is confined solely to the laws of England.
The Underwriting Agreement, the Indenture, the First Supplemental
Indenture and the Deposit Agreement will be expressed to be governed by the laws
of the State of New York. We have made no investigation of such laws and do not
express or imply any opinion on such laws.
We have assumed that:
(i) each of the Underwriting Agreement, the Indenture, the First
Supplemental Indenture, the Deposit Agreement and the Global Note will
be executed and delivered in the form of the relevant draft referred
to above;
(ii) insofar as any obligation falls to be performed in any jurisdiction
outside England, its performance will not be illegal or ineffective by
virtue of the laws of that jurisdiction;
(iii) all signatures on the executed documents which, or copies of which, we
have examined are genuine;
(iv) each of the parties to the Underwriting Agreement, the Indenture, the
First Supplemental Indenture and the Deposit Agreement, other than the
Company, is able lawfully to enter into and to perform such agreement;
(v) the execution and delivery of the Underwriting Agreement, the
Indenture, the First Supplemental Indenture and the Deposit Agreement
have been duly by each of the parties thereto, other than the Company,
and that such documents will be duly executed and delivered by such
parties (other than the Company);
(vi) each of the parties to the Underwriting Agreement, the Indenture, the
First Supplemental Indenture and the Deposit Agreement who is carrying
on, or purporting to carry on, investment business in the United
Kingdom is an authorised person or an exempted person under the
Financial Services Act 1986 (the "FSA");
(vii) the copy of the Memorandum and Articles of Association of the Company
referred to above is true and up-to-date, and the resolution referred
to above was duly passed in accordance with the Articles of
Association of the Company;
(viii) the absence of any other arrangements between any of the parties to
the Underwriting Agreement, the Indenture, the First Supplemental
Indenture, the Deposit Agreement or the Senior Notes which modify or
supersede any of their terms;
(ix) the certificate referred to in paragraph (h) above is true and
accurate;
(x) all documents presented to us as originals are true and accurate and
all documents submitted to us as copies conform with the originals;
and
(xi) the terms of and documents relating to, the issue of the Senior Notes
will be duly approved by the Finance Committee of the Board of
Directors of the Company appointed pursuant to the resolution referred
to in paragraph (b) above.
<PAGE>
To: Southern Investments UK plc 26/th/ September, 1996
Page : 3
On the basis of the foregoing, and having regard to such legal
considerations as we deem relevant and subject as set out below, we are of the
opinion that:
1. The Company is duly incorporated and validly existing as a public
company with limited liability under the laws of England, and has the
corporate power and authority under such laws to own, lease and
operate its properties and conduct its business as described in the
Registration Statement. We have on 18/th/ September, 1996 made a
search at the Companies Registry which revealed no order or resolution
for the winding up of the Company and no notice of appointment of a
receiver or administrator. However, the search would not reveal
whether or not a winding up petition has been presented. Furthermore
it is possible that notice of a winding up order made or resolution
passed or a receiver or administrator appointed may not have been
filed at the Companies Registry immediately. We have also on 19/th/
September, 1996 made an inquiry of the Companies Court which has
informed us that it has on its central index no record of the
presentation of any winding up petition in respect of the Issuer. We
are assuming that there has been no change in this position since the
date on which the searches were made.
2. The Underwriting Agreement, the Indenture, the First Supplemental
Indenture and the Deposit Agreement have been duly authorised by the
Company. There is no reason, so far as English law is concerned, why
the Underwriting Agreement, the Indenture, the First Supplemental
Indenture and the Deposit Agreement should not, upon execution and
delivery thereof, constitute legal, valid, binding and enforceable
obligations of the Company. As used in this opinion, the term
"enforceable" means that each obligation or document is of a type and
form enforced by the English courts. It is not certain, however, that
each obligation or document will be enforced in accordance with its
terms in every circumstance, enforcement being subject to, inter alia,
the nature of the remedies available in the English courts, the
acceptance by such courts of jurisdiction, the power of such courts to
stay proceedings, the provisions of the Limitation Act 1980 and other
principles of law and equity of general application and all
limitations resulting from the laws of bankruptcy, insolvency,
liquidation or other laws affecting generally the enforcement of
creditors' rights.
3. The issue of the Senior Notes has been duly authorised by the Company.
There is no reason, so far as English law is concerned, why the Global
Note (when executed, authenticated and delivered in the manner
described in the Indenture) should not constitute a legal, valid
binding and enforceable obligation of the Company or why the
Definitive Registered Notes (when executed, authenticated and
delivered in the manner described in the Indenture) should not
constitute valid evidence of enforceable obligations of the Company.
4. The statements in the Registration Statement under the heading
"Certain Income Tax Considerations - UK Income Tax Considerations"
insofar as such statements constitute summaries of certain UK tax laws
and UK Inland Revenue practice, are correct in all material respects.
This opinion is subject to the following:
(a) There could be circumstances in which an English court would not treat
as conclusive those certificates and determinations which the
Underwriting Agreement, the Indenture, the First Supplements
Indenture, the Deposit Agreement and the Senior Notes state are to be
so treated.
(b) Any provision in the Underwriting Agreement, the Indenture, the First
Supplemental Indenture or the Deposit Agreement which involves an
indemnity for the costs of litigation is subject to the discretion of
the court to decide whether and to what extent a party to litigation
should be awarded the costs incurred by it in connection with the
litigation.
<PAGE>
To: Southern Investments UK plc 26/th/ September, 1996
Page : 4
(c) Any provision in any agreement which amounts to an undertaking to
assume the liability on account of the absence of payment of stamp
duty or an indemnity to pay stamp duty may be void.
(d) Any person who is not a party to an agreement may not be able to
enforce any provisions of that agreement which are expressed to be for
the benefit of that person.
(e) The Registration Statement has been issued by the Company who has
accepted responsibility for the information contained therein. Save to
the extent referred to in paragraph 4 above, we have not investigated
or verified the truth or accuracy of the information contained in the
Registration Statement, nor have we been responsible for ensuring that
no material information has been omitted from it.
(f) The effectiveness of terms exculpating a party from a liability or
duty otherwise owed are limited by law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of our name under the headings "Certain
Income Tax Considerations - UK Income Tax Considerations" and "Legal Matters" in
the Registration Statement. In giving such consent we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act.
This opinion, which shall be construed in accordance with English law,
is given to the Company in connection with the issue of the Senior Notes. You
agree, by your acceptance of this opinion, that any proceedings which may be
brought by you against us in relation to this opinion shall only be brought in
the courts of England. You are requested not to give copies of this opinion to
others without our prior written permission except as referred to above.
Yours faithfully,
ALLEN & OVERY
<PAGE>
Exhibit 8.1
September 26, 1996
Southern Investments UK plc
800 Park Avenue
Aztec West
Almondsbury
Bristol BS12 4SE, England
Dear Sirs:
We are acting as counsel to Southern Investments UK plc (the "Company") in
connection with the preparation, authorization, execution and filing of the
Registration Statement (Reg. No. 333-09033) on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
registration of Senior Notes of the Company (the "Senior Notes").
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such corporate records, agreements, documents and other
instruments and such certificates or comparable documents of public officials
and representatives of the Company, and have made such other and further
investigations, as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the authenticity of the
originals of such latter documents.
Based on the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that the statements made in the
Registration Statement under the heading "Certain Income Tax Considerations--
U.S. Federal Income Tax Considerations," insofar as they purport to constitute
summaries of matters of certain U.S. federal income tax laws and regulations,
are confirmed in all material respects.
<PAGE>
Southern Investment UK plc
September 26, 1996
Page 2
- --------------------------
We are members of the Bar of the State of Georgia and we do not express any
opinion herein concerning any law other than the federal law of the United
States.
We hereby consent to the use of our name under the caption "US Federal
Income Tax Considerations" in the Prospectus forming part of the Registration
Statement and to the filing, as an exhibit to the Registration Statement, of
this opinion. In giving the foregoing consent, we do not hereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Commission thereunder.
This opinion is rendered solely for your benefit in connection with the
transactions described above. This opinion may not be used or relied upon by any
other person and may not be disclosed, quoted, filed with a governmental agency
or otherwise referred to without our prior written consent, except as noted
above.
Very truly yours,
Troutman Sanders LLP
<PAGE>
Exhibit 8.2
26 September, 1996
To: Southern Investments UK plc
800 Park Avenue
Aztec West
Almondsbury
Bristol BS12 4SE
England
Dear Sirs:
We have acted as legal advisers as to English law to Southern
Investments UK plc, a public limited company incorporated under the laws of
England and Wales (the "Company"), in connection with the preparation of the
registration statement on Form S-1 (Registration No. 333-09033), filed by the
Company under the U.S. Securities Act of 1933, as amended, (the "Securities
Act") with the U.S. Securities and Exchange Commission (the "Commission") on
29th July, 1996, and the amendments thereto filed by the Company with the
Commission on 28th August, 1996 , and 26th September, 1996, respectively (the
registration statement as amended being hereinafter referred to as the
"Registration Statement"), all in connection with the issue by the Company of
U.S. $235,000,000 aggregate principal amount of the Company's Senior Notes due
2006 (the "Senior Notes") to be issued under and governed by an Indenture (the
"Indenture") between the Company and the Bankers Trust Company, as trustee (the
"Trustee"). The Senior Notes will be represented by a global Note in bearer form
(the "Global Note") which will be deposited on issue with Bankers Trust Company,
as depositary (the "Book-entry Depositary"), under a deposit agreement (the
"Deposit Agreement") between (inter alia) the Company and the Book-Entry
Depositary. The Book-Entry Depositary will issue one or more certificateless
depositary interests (the "CDIs") with respect to the Senior Notes to The
Depository Trust Company ("DTC"), which will then record beneficial interests in
the Senior Notes. Beneficial interests in the Senior Notes that will be shown on
records maintained in book-entry form by DTC are referred to herein as the Book-
Entry Interests. Under certain circumstances as provided for in the Indenture,
holders of Book-Entry Interests will be entitled to receive definitive Senior
Notes in registered form (the "Definitive Registered Notes") in exchange for
their holdings of Book-Entry Interests. References herein to the Senior Notes
shall, unless the context otherwise requires, include the Global Note and the
Definitive Registered Notes.
We have examined copies of:
(a) the Memorandum and Articles of Association of the Company;
(b) a resolution of the Board of Directors of the Company passed on 26th
July, 1996;
(c) the Registration Statement;
(d) a draft dated 20th August, 1996 of the underwriting agreement relating
to the Senior Notes (the "Underwriting Agreement") to be entered into
by the Company and others;
(e) a draft dated 24th September, 1996 of the Indenture;
(f) a draft dated 24th September, 1996 of the First Supplemental Indenture
(the "First Supplemental Indenture") to be made between the Company
and the Trustee including the form of the Global Note;
<PAGE>
To: Southern Investments UK plc 26th September 1996
Page: 2
(g) a draft dated 23rd September, 1996 of the Deposit Agreement; and
(h) a certificate of the Secretary to the effect that the issue of the
Senior Notes will not cause any limit on borrowings to which the
Company is subject to be exceeded.
Our opinion is confined solely to the laws of England.
The Underwriting Agreement, the Indenture, the First Supplemental
Indenture and the Deposit Agreement will be expressed to be governed by the laws
of the State of New York. We have made no investigation of such laws and do not
express or imply any opinion on such laws.
We have assumed that:
(i) each of the Underwriting Agreement, the Indenture, the First
Supplemental Indenture, the Deposit Agreement and the Global Note will
be executed and delivered in the form of the relevant draft referred
to above;
(ii) insofar as any obligation falls to be performed in any jurisdiction
outside England, its performance will not be illegal or ineffective by
virtue of the laws of that jurisdiction;
(iii) all signatures on the executed documents which, or copies of which, we
have examined are genuine;
(iv) each of the parties to the Underwriting Agreement, the Indenture, the
First Supplemental Indenture and the Deposit Agreement, other than the
Company, is able lawfully to enter into and to perform such agreement;
(v) the execution and delivery of the Underwriting Agreement, the
Indenture, the First Supplemental Indenture and the Deposit Agreement
have been duly by each of the parties thereto, other than the Company,
and that such documents will be duly executed and delivered by such
parties (other than the Company);
(vi) each of the parties to the Underwriting Agreement, the Indenture, the
First Supplemental Indenture and the Deposit Agreement who is carrying
on, or purporting to carry on, investment business in the United
Kingdom is an authorised person or an exempted person under the
Financial Services Act 1986 (the "FSA");
(vii) the copy of the Memorandum and Articles of Association of the Company
referred to above is true and up-to-date, and the resolution referred
to above was duly passed in accordance with the Articles of
Association of the Company;
(viii) the absence of any other arrangements between any of the parties to
the Underwriting Agreement, the Indenture, the First Supplemental
Indenture, the Deposit Agreement or the Senior Notes which modify or
supersede any of their terms;
(ix) the certificate referred to in paragraph (h) above is true and
accurate;
(x) all documents presented to us as originals are true and accurate and
all documents submitted to us as copies conform with the originals;
and
(xi) the terms of and documents relating to, the issue of the Senior Notes
will be duly approved by the Finance Committee of the Board of
Directors of the Company appointed pursuant to the resolution referred
to in paragraph (b) above.
2
<PAGE>
To: Southern Investments UK plc 26th September 1996
Page: 3
On the basis of the foregoing, and having regard to such legal
considerations as we deem relevant and subject as set out below, we are of the
opinion that:
1. The Company is duly incorporated and validly existing as a public
company with limited liability under the laws of England, and has the
corporate power and authority under such laws to own, lease and
operate its properties and conduct its business as described in the
Registration Statement. We have on 18th September, 1996 made a search
at the Companies Registry which revealed no order or resolution for
the winding up of the Company and no notice of appointment of a
receiver or administrator. However, the search would not reveal
whether or not a winding up petition has been presented. Furthermore
it is possible that notice of a winding up order made or resolution
passed or a receiver or administrator appointed may not have been
filed at the Companies Registry immediately. We have also on 19th
September, 1996 made an inquiry of the Companies Court which has
informed us that it has on its central index no record of the
presentation of any winding up petition in respect of the Issuer. We
are assuming that there has been no change in this position since the
date on which the searches were made.
2. The Underwriting Agreement, the Indenture, the First Supplemental
Indenture and the Deposit Agreement have been duly authorised by the
Company. There is no reason, so far as English law is concerned, why
the Underwriting Agreement, the Indenture, the First Supplemental
Indenture and the Deposit Agreement should not, upon execution and
delivery thereof, constitute legal, valid, binding and enforceable
obligations of the Company. As used in this opinion, the term
"enforceable" means that each obligation or document is of a type and
form enforced by the English courts. It is not certain, however, that
each obligation or document will be enforced in accordance with its
terms in every circumstance, enforcement being subject to, inter alia,
the nature of the remedies available in the English courts, the
acceptance by such courts of jurisdiction, the power of such courts to
stay proceedings, the provisions of the Limitation Act 1980 and other
principles of law and equity of general application and all
limitations resulting from the laws of bankruptcy, insolvency,
liquidation or other laws affecting generally the enforcement of
creditors' rights.
3. The issue of the Senior Notes has been duly authorised by the Company.
There is no reason, so far as English law is concerned, why the Global
Note (when executed, authenticated and delivered in the manner
described in the Indenture) should not constitute a legal, valid
binding and enforceable obligation of the Company or why the
Definitive Registered Notes (when executed, authenticated and
delivered in the manner described in the Indenture) should not
constitute valid evidence of enforceable obligations of the Company.
4. The statements in the Registration Statement under the heading
"Certain Income Tax Considerations - UK Income Tax Considerations"
insofar as such statements constitute summaries of certain UK tax laws
and UK Inland Revenue practice, are correct in all material respects.
This opinion is subject to the following:
(a) There could be circumstances in which an English court would not treat
as conclusive those certificates and determinations which the
Underwriting Agreement, the Indenture, the First Supplements
Indenture, the Deposit Agreement and the Senior Notes state are to be
so treated.
(b) Any provision in the Underwriting Agreement, the Indenture, the First
Supplemental Indenture or the Deposit Agreement which involves an
indemnity for the costs of litigation is subject to the discretion of
the court to decide whether and to what extent a party to litigation
should be awarded the costs incurred by it in connection with the
litigation.
3
<PAGE>
To: Southern Investments UK plc 26th September 1996
Page: 4
(c) Any provision in any agreement which amounts to an undertaking to
assume the liability on account of the absence of payment of stamp
duty or an indemnity to pay stamp duty may be void.
(d) Any person who is not a party to an agreement may not be able to
enforce any provisions of that agreement which are expressed to be for
the benefit of that person.
(e) The Registration Statement has been issued by the Company who has
accepted responsibility for the information contained therein. Save to
the extent referred to in paragraph 4 above, we have not investigated
or verified the truth or accuracy of the information contained in the
Registration Statement, nor have we been responsible for ensuring that
no material information has been omitted from it.
(f) The effectiveness of terms exculpating a party from a liability or
duty otherwise owed are limited by law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of our name under the headings "Certain
Income Tax Considerations - UK Income Tax Considerations" and "Legal Matters" in
the Registration Statement. In giving such consent we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act.
This opinion, which shall be construed in accordance with English law,
is given to the Company in connection with the issue of the Senior Notes. You
agree, by your acceptance of this opinion, that any proceedings which may be
brought by you against us in relation to this opinion shall only be brought in
the courts of England. You are requested not to give copies of this opinion to
others without our prior written permission except as referred to above.
Yours faithfully,
ALLEN & OVERY
4
<PAGE>
EXHIBIT 12.1
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY UK GAAP PREDECESSOR COMPANY US GAAP
----------------------------------- ----------------------------------
YEAR ENDED PERIOD FROM
YEAR ENDED MARCH 31, MARCH 31, APRIL 1, 1995 TO
----------------------------------- ---------- SEPTEMBER 17,
1992 1993 1994 1995 1994 1995 1995
-------- -------- -------- -------- -------- -------- ----------------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense on
debt.................. 15.7 13.6 10.8 11.3 11.0 11.0 5.0
==== ===== ===== ===== ===== ===== ====
Earnings:
Consolidated net in-
come.................. 62.3 77.7 92.9 85.9 88.0 94.0 24.0
Extraordinary loss
(gain)................ -- -- -- 20.0 -- -- --
Consolidated provision
for income taxes...... 20.7 23.4 23.9 25.6 43.0 50.0 13.0
Discontinued opera-
tions, net............ -- -- (2.1) (1.3) -- 7.0 1.0
Fixed charges.......... 15.7 13.6 10.8 11.3 11.0 11.0 5.0
---- ----- ----- ----- ----- ----- ----
98.7 114.7 125.5 141.5 142.0 162.0 43.0
==== ===== ===== ===== ===== ===== ====
Ratio of earnings to
fixed changes.......... 6.3 8.4 11.6 12.5 12.9 14.7 8.6
==== ===== ===== ===== ===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
COMPANY COMPANY
SUCCESSOR COMPANY US GAAP US GAAP US GAAP
------------------------------------ ------------- -------------
INCEPTION PRO FORMA THREE MONTHS THREE MONTHS
(JUNE 23, 1995) TO FISCAL YEAR ENDED ENDED ENDED
MARCH 31, 1996 MARCH 31, 1996 JUNE 30, 1995 JUNE 30, 1996
------------------ ----------------- ------------- -------------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Fixed charges:
Interest expense on
debt.................. 28.0 66.0 3.0 13.0
===== ===== ==== ====
Earnings:
Consolidated net in-
come.................. 59.0 56.0 16.0 11.0
Extraordinary loss
(gain)................ (6.0) (6.0) -- --
Consolidated provision
for income taxes...... 28.0 30.0 9.0 6.0
Discontinued opera-
tions, net............ -- 1.0 -- --
Fixed charges.......... 28.0 66.0 3.0 13.0
----- ----- ---- ----
109.0 147.0 28.0 30.0
===== ===== ==== ====
Ratio of earnings to
fixed changes.......... 3.9 2.2 9.3 2.3
===== ===== ==== ====
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated July 25, 1996 on the financial statements of SOUTHERN INVESTMENTS UK PLC
AND SUBSIDIARIES (Successor Company) and the related financial statement
schedule included in this registration statement.
Arthur Andersen
Bristol, England
September 24, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts" and to
the use of our reports dated August 27, 1996 with respect to the financial
statements of South Western Electricity plc (Predecessor Company) in Amendment
No. 1 to the Registration Statement (Form S-1 No. 333-09033) of Southern
Investments UK plc for the registration of $235,000,000 of its Senior Notes
Due 2006.
ERNST & YOUNG
Chartered Accountants
Bristol, England
September 24, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated August 27, 1996 on the financial statements of SOUTH WESTERN ELECTRICITY
PLC AND SUBSIDIARIES (Predecessor Company) and the related financial statement
schedule included in this registration statement.
Arthur Andersen
Bristol, England
September 24, 1996
<PAGE>
EXHIBIT 25.1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(b)(2) ___________
______________________________
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
BANKERS TRUST COMPANY
LEGAL DEPARTMENT
130 LIBERTY STREET, 31ST FLOOR
NEW YORK, NEW YORK 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
_________________________________
SOUTHERN INVESTMENTS UK PLC
(Exact name of obligor as specified in its charter)
ENGLAND AND WALES NONE
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) Identification no.)
800 PARK AVENUE, AZTEC WEST
ALMONDSBURY, BRISTOL BS12 4SE, ENGLAND N.A.
(Address of principal executive offices) (Zip Code)
______________________________
___% SENIOR NOTES DUE 2006
(Title of the indenture securities)
- --------------------------------------------------------------------------------
<PAGE>
-2-
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority
to which it is subject.
NAME ADDRESS
---- -------
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
ITEM 3.-15. NOT APPLICABLE
ITEM 16. LIST OF EXHIBITS.
EXHIBIT 1 - Restated Organization Certificate of Bankers Trust
Company dated August 7, 1990 and Certificate of
Amendment of the Organization Certificate of
Bankers Trust Company dated June 21, 1995 -
Incorporated herein by reference to Exhibit 1
filed with Form T-1 Statement, Registration
No. 33-65171.
EXHIBIT 2 - Certificate of Authority to commence business -
Incorporated herein by reference to Exhibit 2
filed with Form T-1 Statement, Registration
No. 33-21047.
EXHIBIT 3 - Authorization of the Trustee to exercise corporate
trust powers - Incorporated herein by reference to
Exhibit 2 filed with Form T-1 Statement,
Registration No. 33-21047.
EXHIBIT 4 - Existing By-Laws of Bankers Trust Company, dated
as amended on October 19, 1995. - Incorporated
herein by reference to Exhibit 4 filed with Form
T-1 Statement, Registration No. 33-65171.
<PAGE>
-3-
EXHIBIT 5 - Not applicable.
EXHIBIT 6 - Consent of Bankers Trust Company required by
Section 321(b) of the Act. - Incorporated herein
by reference to Exhibit 4 filed with Form T-1
Statement, Registration No. 22-18864.
EXHIBIT 7 - A copy of the latest report of condition of
Bankers Trust Company dated as of March 31, 1996.
EXHIBIT 8 - Not Applicable.
EXHIBIT 9 - Not Applicable.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on the 26th day
of September, 1996.
BANKERS TRUST COMPANY
By: /s/ James C McDonough
----------------------------
James C. McDonough
Assistant Vice President
<PAGE>
<TABLE>
<S> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 3/31/96 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1
City, State ZIP: New York, NY 10006 11
FDIC Certificate No.:/ 0 / 0 / 6 / 2 / 3
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED
SAVINGS BANKS MARCH 31, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION> --------------------
C400
-------------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS / / / / / / / / / / /
1. Cash and balances due from depository institutions (from Schedule RC-A): / / / / / / / / / / /
a. Noninterest-bearing balances and currency and coin(1) 0081 1,145,000 1.a.
b. Interest-bearing balances(2)............................................ 0071 1,403,000 1.b.
2. Securities: / / / / / / / / / / /
a. Held-to-maturity securities (from Schedule RC-B, column A).............. 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)............ 1773 3,535,000 2.b.
3 Federal funds sold and securities purchased under agreements to resell
in domestic offices of the bank and of its Edge and Agreement / / / / / / / / / / /
subsidiaries, and in IBFs: / / / / / / / / / / /
a. Federal funds sold...................................................... 0276 3,190,000 3.a.
b. Securities purchased under agreements to resell......................... 0277 2,242,000 3.b.
4. Loans and lease financing receivables: / / / / / / / / / / /
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 24,678,000 / / / / / / / / / / / 4.a.
b. LESS: Allowance for loan and lease losses....................RCFD 3123 938,000 / / / / / / / / / / / 4.b.
c. LESS: Allocated transfer risk reserve........................RCFD 3128 0 / / / / / / / / / / / 4.c.
d. Loans and leases, net of unearned income, / / / / / / / / / / /
allowance, and reserve (item 4.a minus 4.b and 4.c)..................... 2125 23,740,000 4.d.
5. Assets held in trading accounts.............................................. 3545 32,261,000 5.
6. Premises and fixed assets (including capitalized leases)..................... 2145 857,000 6.
7. Other real estate owned (from Schedule RC-M)................................. 2150 247,000 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 2130 253,000 8.
9. Customers' liability to this bank on acceptances outstanding................. 2155 402,000 9.
10. Intangible assets (from Schedule RC-M)....................................... 2143 12,000 10.
11. Other assets (from Schedule RC-F)............................................ 2160 11,579,000 11.
12. Total assets (sum of items 1 through 11)..................................... 2170 80,866,000 12.
----------------------
</TABLE>
___________________________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held in trading accounts.
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: Bankers Trust Company Call Date: 3/31/96 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: Page RC-2
City, State Zip: New York, NY 10006 12
FDIC Certificate No.: / 0 / 0 / 6 / 2 / 3
SCHEDULE RC--CONTINUED
----------------------------------
Dollar Amounts in Thousands / / / / / / / / Bil Mil Thou
- -------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C>
LIABILITIES / / / / / / / / / / / /
13. Deposits: / / / / / / / / / / /
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part RCON 2200 7,327,000 13.a.
(1) Noninterest-bearing(1)................RCON 6631 2,132,000..... / / / / / / / / / / / 13.a.(1)
(2) Interest-bearing......................RCON 6636 5,195,000..... / / / / / / / / / / / 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule / / / / / / / / / / /
RC-E part II) RCFN 2200 18,575,000 13.b.
(1) Noninterest-bearing...................RCON 6631 552,000 / / / / / / / / / / / 13.b.(1)
(2) Interest-bearing......................RCFN 6636 18,023,000 / / / / / / / / / / / 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase in / / / / / / / / / / /
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: / / / / / / / / / / /
a. Federal funds purchased...................................................... RCFD 0278 2,324,000 14.a.
b. Securities sold under agreements to repurchase............................... RCFD 0279 651,000 14.b.
15. a. Demand notes issued to the U.S. Treasury..................................... RCFD 2840 0 15.a.
b. Trading liabilities.......................................................... RCFD 3548 18,807,000 15.b.
16. Other borrowed money: / / / / / / / / / / /
a. With original maturity of one year or less................................... RCFD 13,784,000 16.a.
b. With original maturity of more than one year RCFD 3,462,000 16.b.
17. Mortgage indebtedness and obligations under capitalized leases.................... RCFD 2910 34,000 17.
18. Bank's liability on acceptances executed and outstanding.......................... RCFD 2920 415,000 18.
19. Subordinated notes and debentures................................................. RCFD 3200 1,227,000 19.
20. Other liabilities (from Schedule RC-G)............................................ RCFD 2930 9,724,000 20.
21. Total liabilities (sum of items 13 through 20).................................... RCFD 2948 76,330,000 21.
/ / / / / / / / / / /
22. Limited-life preferred stock and related surplus.................................. RCFD 3282 0 22.
EQUITY CAPITAL / / / / / / / / / / /
23. Perpetual preferred stock and related surplus..................................... RCFD 3838
24. Common stock...................................................................... RCFD 3230 1,002,000 24.
25. Surplus (exclude all surplus related to preferred stock).......................... RCFD 3839 528,000 25.
26. a. Undivided profits and capital reserves RCFD 3632 2,879,000 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities....... RCFD 8434 ( 8,000 26.b.
27. Cumulative foreign currency translation adjustments............................... RCFD 3284 ( 365,000 27.
28. Total equity capital (sum of items 23 through 27)................................. RCFD 3210 4,536,000 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of items / / / / / / / / / / /
21, 22, and 28)................................................................... RCFD 3300 80,866,000 29.
--------------------------------
</TABLE>
<TABLE>
<CAPTION>
Memorandum
<S> <C> <C> <C> <C>
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the Number
most comprehensive level of auditing work performed for the bank by independent external --------------------
audoitors as of any date during 1994........................................./ RCFD 6724 2 M.I
------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statments
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required by
state chartering authority)
</TABLE>
_______________________
(1) Including total demand deposits and noninterest-bearing time and savings
deposits.
