<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
THE ENERGY GROUP PLC
--------------------
(Name of Issuer)
ORDINARY SHARES OF 10p EACH
---------------------------
(Title of Class of Securities)
--------------------
(CUSIP Number)
Peter B. Tinkham, Esq.
Texas Utilities Company
Secretary and Assistant Treasurer
1601 Bryan Street
Dallas, Texas 75201
(214)-812-4600
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
MARCH 3, 1998
----------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
Schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934, as amended (the "Act") or otherwise subject to the liabilities of
that section of the Act but shall be subject to all other provisions of the Act
(however, see the Notes).
<PAGE> 2
SCHEDULE 13D
CUSIP NO.
------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
Texas Utilities Company
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
I.R.S. Employer Identification No. 75-2669310
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)[X]
(b)[ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
BK
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Texas
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES
BENEFICIALLY -----------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 77,500,000
PERSON -----------------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
77,500,000
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
77,500,000
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
14.9%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
HC
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
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SCHEDULE 13D
CUSIP NO.
---------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
TU Acquisitions PLC
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
None
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)[X]
(b)[ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
England & Wales
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES
BENEFICIALLY -----------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 77,500,000
PERSON -----------------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
77,500,000
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
77,500,000
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
14.9%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 4
ITEM 1. SECURITY AND ISSUER.
The securities covered by this Schedule 13D are ordinary shares of 10p
each ("Energy Group Shares") of The Energy Group PLC, a corporation organized
under the laws of England and Wales ("The Energy Group"). The Company's
principal executive offices are located at 117 Piccadilly, London W1V 9FJ,
England.
ITEM 2. IDENTITY AND BACKGROUND.
(a) through (c) and (f). This statement is filed by TU Acquisitions
PLC, a public limited company incorporated in England and Wales ("TU
Acquisitions"), and Texas Utilities Company, a Texas corporation ("Texas
Utilities"). TU Acquisitions is an indirectly wholly owned subsidiary of Texas
Utilities. Information concerning the principal business, the address of the
principal office and place of organization of each of Texas Utilities and TU
Acquisitions is set forth in section 9 under the caption "Information on the
Texas Utilities Group" in the Letter dated March 10, 1998 ("Letter") from
Lehman Brothers International (Europe) ("Lehman Brothers") and Merrill Lynch
International ("Merrill Lynch") contained in the Offer to Purchase dated March
10, 1998 ("Offer to Purchase"), a copy of which is filed as Exhibit (2)(a)
hereto, and in section 2 under the caption "Registered/Principal Offices" in
Appendix V to the Offer to Purchase and is incorporated herein by reference.
Information concerning the name, business address, present principal occupation
or employment and citizenship of each director and executive officer of Texas
Utilities and TU Acquisitions as well as information concerning the material
occupations, positions, offices or employments during the last five years of
such persons is set forth in section 1 under the caption "Directors and
executive officers of TU Acquisitions and Texas Utilities" in Appendix V to the
Offer to Purchase and is incorporated herein by reference.
(d) and (e). During the last five years, neither Texas Utilities nor
TU Acquisitions, nor any person listed in section 1 under the caption "Directors
and executive officers of TU Acquisitions and Texas Utilities" in Appendix V to
the Offer to Purchase, has been either (i) convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors), or (ii) a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining further violations of, or prohibiting activities subject
to, federal or state securities laws or finding any violation of such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The information set forth in section 8 under the caption "Financing
arrangements" in Appendix VIII to the Offer to Purchase is incorporated herein
by reference.
ITEM 4. PURPOSE OF TRANSACTION.
(a) through (d). The information set forth in section 2 under the
caption "Background to and reasons for the Texas Utilities Offer", in section 3
under the caption "The Peabody Sale and certain consents" and in section 4
under the caption "Directors, management and employees", all in the Letter
dated March 10, 1998, from the Chairman of Texas Utilities contained in the
Offer to Purchase, in section 3 under the caption "Terms and Conditions of the
Texas Utilities Offer", in section 10 under the caption "The Peabody Sale" and
in section 13(a) under the caption "Management and employees", all in the
Letter from Lehman Brothers and Merrill Lynch contained in the Offer to
Purchase and in section 7 under the caption "Background to and reasons for the
Texas Utilities Offer", in section 8 under the caption "Financing
arrangements", in section 9 under the caption "Compulsory acquisition" and in
section 10 under the caption "Certain consequences of the Texas Utilities
Offer" all in Appendix VIII to the Offer to Purchase is incorporated herein by
reference.
-4-
<PAGE> 5
(e) through (g). Not applicable.
(h). The information set forth in section 10(a) under
the caption "Market effect" in Appendix VIII to the Offer to Purchase is
incorporated herein by reference.
(i) and (j). Not applicable.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) through (c). The information set forth in section 4(b) under the
caption "Shareholdings and dealings in relevant Energy Group Securities" in
Appendix VIII to the Offer to Purchase is incorporated herein by reference. TU
Acquisitions purchased an aggregate of 77,500,000 Energy Group Shares on March 3
and 4, 1998 and such Energy Group Shares represent 14.9% of the outstanding
Energy Group Shares, including Energy Group Shares evidenced by American
Depository Shares ("Energy Group ADSs"), each representing four Energy Group
Shares and evidenced by American Depository Receipts ("Energy Group ADRs").
Energy Group Shares and Energy Group ADSs are collectively referred to herein as
"Energy Group Securities". These purchases were made by Merrill Lynch on the
London Stock Exchange on behalf of TU Acquisitions at a price of 840 pence per
share. The information set forth under the caption "Rule 10b-13 Exemption" on
page 4 of the Offer to Purchase and in section 3 under the caption "Principal
purchases" in Appendix VIII of the Offer to Purchase is incorporated herein by
reference. The information set forth in section 4(b) under the caption
"Shareholdings and dealings in relevant Energy Group Securities" in Appendix
VIII to the Offer to Purchase is incorporated herein by reference.
As of the close of business on March 6, 1998, Erle Nye, Chairman and
Chief Executive of Texas Utilities and a Director of TU Acquisitions,
beneficially owned 25 Energy Group ADRs which were received in connection with
the demerger by Hanson PLC of The Energy Group on February 24, 1997 (the
"Demerger"). His holdings of Energy Group Securities constitute less than .1%
of the outstanding Energy Group Securities.
As of the close of business on March 6, 1998, the Retirement Plan of
the Texas Utilities Company System (the "Retirement Plan") held 24,375 Energy
Group ADRs which were received in connection with the Demerger. The holdings of
the Retirement Plan constitute less than .1% of the outstanding Energy Group
Securities.
(d) and (e). Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Not applicable.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT
(1)(a) 364-Day Competitive Advance and Revolving Credit Facility
Agreement, dated as of March 2, 1998 among Texas Utilities
Company, Texas Utilities Electric Company, ENSERCH
Corporation, The Chase Manhattan Bank, as Competitive Advance
Facility Agent and Chase Bank of Texas, National Association,
as Administrative Agent and certain banks listed therein (US
Facility A).
(1)(b) 5-Year Competitive Advance and Revolving Credit Facility
Agreement, dated as of March
-5-
<PAGE> 6
2, 1998 among Texas Utilities Company, Texas Utilities
Electric Company, ENSERCH Corporation, The Chase Manhattan
Bank, as Competitive Advance Facility Agent and Chase Bank of
Texas, National Association, as Administrative Agent and
certain banks listed therein (US Facility B).
(1)(c) Amendment No. 1, dated March 3, 1998, to US Facility A and US
Facility B.
(1)(d) Facilities Agreement for L.3,625,000,000 Credit Facilities for
TU Finance (No. 1) Limited, TU Finance (No. 2) Limited, TU
Acquisitions PLC, Chase Manhattan plc, Lehman Brothers
International and Merrill Lynch Capital Corporation as Joint
Lead Arrangers, The Chase Manhattan Bank, Lehman Commercial
Paper Inc. and Merrill Lynch Capital Corporation as
Underwriters (UK Facility).
(1)(e) Amendment No. 1, dated March 3, 1998, to UK Facility.
(1)(f) 364-Day Competitive Advance Revolving Credit Facility
Agreement "Interim Facility", dated as of March 6, 1998 among
Texas Utilities Company, Chase Bank of Texas, National
Association, as Administrative Agent and The Chase Manhattan
Bank, as Competitive Advance Facility Agent, Initial
Underwriters, The Chase Manhattan Bank, Lehman Commercial
Paper Inc., Merrill Lynch Capital Corporation, Chase
Securities Inc., Lehman Brothers Inc. and Merrill Lynch & Co.
as Joint Lead Arrangers and certain banks listed herein.
(2)(a) Offer to Purchase, dated March 10, 1998.
(2)(b) Agreement dated March 2, 1998 between The Energy Group PLC and
P&L Holdings Corporation.
-6-
<PAGE> 7
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in the statement is true, complete and
correct.
Date: March 12, 1998
TU ACQUISITIONS PLC
By: /s/ Robert A. Wooldridge
----------------------------------
Name: Robert A. Wooldridge
Title: Director
TEXAS UTILITIES COMPANY
By: /s/ Robert S. Shapard
----------------------------------
Name: Robert S. Shapard
Title: Treasurer
-7-
<PAGE> 8
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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(1)(a) 364-Day Competitive Advance and Revolving Credit Facility Agreement, dated as of
March 2, 1998 among Texas Utilities Company, Texas Utilities Electric Company,
ENSERCH Corporation, The Chase Manhattan Bank, as Competitive Advance Facility
Agent and Chase Bank of Texas, National Association, as Administrative Agent and
certain banks listed therein (US Facility A).
(1)(b) 5-Year Competitive Advance and Revolving Credit Facility Agreement, dated as of March
2, 1998 among Texas Utilities Company, Texas Utilities Electric Company, ENSERCH
Corporation, The Chase Manhattan Bank, as Competitive Advance Facility Agent and
Chase Bank of Texas, National Association, as Administrative Agent and certain banks
listed therein (US Facility B).
(1)(c) Amendment No. 1, dated March 3, 1998, to US Facility A and US Facility B.
(1)(d) Facilities Agreement for L.3,625,000,000 Credit Facilities for TU Finance (No. 1)
Limited, TU Finance (No. 2) Limited, TU Acquisitions PLC, Chase Manhattan plc,
Lehman Brothers International and Merrill Lynch Capital Corporation as Joint Lead
Arrangers, The Chase Manhattan Bank, Lehman Commercial Paper Inc. and Merrill
Lynch Capital Corporation as Underwriters (UK Facility).
(1)(e) Amendment No. 1, dated March 3, 1998, to UK Facility.
(1)(f) 364-Day Competitive Advance Revolving Credit Facility Agreement "Interim Facility",
dated as of March 6, 1998 among Texas Utilities Company, Chase Bank of Texas,
National Association, as Administrative Agent and The Chase Manhattan Bank,
as Competitive Advance Facility Agent, Initial Underwriters, The Chase Manhattan Bank,
Lehman Commercial Paper Inc., Merrill Lynch Capital Corporation, Chase Securities
Inc., Lehman Brothers Inc. and Merrill Lynch & Co. as Joint Lead Arrangers and certain
banks listed herein.
(2)(a) Offer to Purchase, dated March 10, 1998.
(2)(b) Agreement dated March 2, 1998 between The Energy Group PLC
and P&L Holdings Corporation.
</TABLE>
<PAGE> 1
EXHIBIT(1)(a)
EXECUTION COPY
================================================================================
TEXAS UTILITIES COMPANY
TEXAS UTILITIES ELECTRIC COMPANY
ENSERCH CORPORATION
----------------------------------------
$3,500,000,000
364-DAY COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT
"FACILITY A"
Dated as of March 2, 1998
----------------------------------------
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT
AND
THE CHASE MANHATTAN BANK,
AS COMPETITIVE ADVANCE FACILITY AGENT
INITIAL UNDERWRITERS
THE CHASE MANHATTAN BANK
LEHMAN COMMERCIAL PAPER INC.
MERRILL LYNCH CAPITAL CORPORATION
JOINT LEAD ARRANGERS
CHASE SECURITIES INC.
LEHMAN BROTHERS INC.
MERRILL LYNCH & CO.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
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<S> <C>
ARTICLE I DEFINITIONS; CONSTRUCTION . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Terms Generally . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE II THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.02. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.03. Competitive Bid Procedure . . . . . . . . . . . . . . . . . . 24
SECTION 2.04. Standby Borrowing Procedure . . . . . . . . . . . . . . . . . 26
SECTION 2.05. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.06. Repayment of Loans; Evidence of Indebtedness . . . . . . . . . 28
SECTION 2.07. Interest on Loans . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.08. Default Interest . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.09. Alternate Rate of Interest . . . . . . . . . . . . . . . . . . 29
SECTION 2.10. Termination and Reduction of Commitments . . . . . . . . . . . 30
SECTION 2.11. Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.12. Reserve Requirements; Change in Circumstances . . . . . . . . 32
SECTION 2.13. Change in Legality . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.14. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.15. Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.16. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.17. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 2.18. Assignment of Commitments Under Certain Circumstances . . . . 39
SECTION 2.19. Term Election . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 40
SECTION 3.01. Organization; Powers . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.02. Authorization . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.03. Enforceability . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.04. Governmental Approvals . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.05. Financial Statements . . . . . . . . . . . . . . . . . . . . . 41
SECTION 3.06. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 3.07. Federal Reserve Regulations . . . . . . . . . . . . . . . . . 42
SECTION 3.08. Investment Company Act; Public Utility Holding Company Act . . 42
SECTION 3.09. No Material Misstatements . . . . . . . . . . . . . . . . . . 42
</TABLE>
i
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<TABLE>
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SECTION 3.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 3.11. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 43
SECTION 3.12. Significant Subsidiaries . . . . . . . . . . . . . . . . . . . 43
SECTION 3.13. Environmental Matters . . . . . . . . . . . . . . . . . . . . 43
ARTICLE IV CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . 44
SECTION 4.01. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 4.02. Initial Offer Loans . . . . . . . . . . . . . . . . . . . . . 46
SECTION 4.03. Certain Funds Conditions For All Offer Loans During
the Revolving Period . . . . . . . . . . . . . . . . . . . 46
SECTION 4.04. Initial General Loans . . . . . . . . . . . . . . . . . . . . 47
SECTION 4.05. All General Loans and Offer Loans After the Revolving Period . 47
ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 5.01. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 5.02. Business and Properties . . . . . . . . . . . . . . . . . . . 48
SECTION 5.03. Financial Statements, Reports, Etc . . . . . . . . . . . . . . 49
SECTION 5.04. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 5.05. Taxes, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 5.06. Maintaining Records; Access to Properties and Inspections . . 51
SECTION 5.07. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 5.08. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 5.09. Consolidations, Mergers, Sales and Acquisitions
of Assets and Investments in Subsidiaries . . . . . . . . . 52
SECTION 5.10. Limitations on Liens . . . . . . . . . . . . . . . . . . . . . 52
SECTION 5.11. Fixed Charge Coverage . . . . . . . . . . . . . . . . . . . . 54
SECTION 5.12. Equity Capitalization Ratio . . . . . . . . . . . . . . . . . 55
SECTION 5.13. Restrictive Agreements . . . . . . . . . . . . . . . . . . . . 55
SECTION 5.14. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE VI EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE VII THE AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.02. Survival of Agreement . . . . . . . . . . . . . . . . . . . . 63
SECTION 8.03. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 8.04. Successors and Assigns . . . . . . . . . . . . . . . . . . . . 63
SECTION 8.05. Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . 66
SECTION 8.06. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 8.07. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 8.08. Waivers; Amendment . . . . . . . . . . . . . . . . . . . . . . 68
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 8.09. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 8.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 8.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 8.12. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 8.13. Interest Rate Limitation . . . . . . . . . . . . . . . . . . . 70
SECTION 8.14. Jurisdiction; Venue . . . . . . . . . . . . . . . . . . . . . 70
SECTION 8.15. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
EXHIBITS AND SCHEDULES
Exhibit A-1 - Form of Competitive Bid Request
Exhibit A-2 - Form of Notice of Competitive Bid Request
Exhibit A-3 - Form of Competitive Bid
Exhibit A-4 - Form of Competitive Bid Accept/Reject Letter
Exhibit A-5 - Form of Standby Borrowing Request
Exhibit B - Administrative Questionnaire
Exhibit C - Form of Assignment and Acceptance
Exhibit D-1 - Opinion of Reid & Priest LLP,
special counsel to TUC, TU Electric and Enserch
Exhibit D-2 - Opinion of Worsham, Forsythe & Wooldridge, L.L.P.,
general counsel for TUC, TU Electric and Enserch
Schedule 2.01 - Commitments
Schedule 3.06 - Litigation
iii
<PAGE> 5
COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (the
"AGREEMENT"), dated as of March 2, 1998, among TEXAS UTILITIES
COMPANY, a Texas corporation ("TUC"); TEXAS UTILITIES ELECTRIC
COMPANY, a Texas corporation and a wholly owned subsidiary of TUC
("TU ELECTRIC"), and ENSERCH CORPORATION, a Texas corporation and
a wholly owned subsidiary of TUC ("ENSERCH" and, together with
TUC and TU Electric, the "BORROWERS", and each individually, a
"BORROWER"); the lenders listed in Schedule 2.01 (together with
their successors and assigns, the "LENDERS"); THE CHASE MANHATTAN
BANK ("CHASE"), as Competitive Advance Facility Agent (in such
capacity, the "CAF AGENT"); and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION ("CHASE BANK OF TEXAS"), as administrative agent for
the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"; and,
together with the CAF Agent, the "AGENTS").
The Borrowers have requested the Lenders to extend credit in the form of
Standby Borrowings (such term and each other capitalized term used herein
having the meaning given it in Article I) to the Borrowers in an aggregate
principal amount at any time outstanding not in excess of $3,500,000,000. The
Borrowers have also requested the Lenders to provide a procedure pursuant to
which the Borrowers may invite the Lenders to bid on an uncommitted basis on
short-term borrowings by the Borrowers. Subject to the terms and conditions
set forth herein, the proceeds of any such borrowings are to be used (i) to
finance or refinance equity or subordinated loan advances from TUC to FinCo 1
and FinCo 2 in connection with the Acquisition and (i) to refinance the
Existing TUC Credit Agreements and for working capital and other corporate
purposes, including commercial paper back-up. The Lenders are willing to
extend such credit to the Borrowers on the terms and subject to the conditions
herein set forth.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION
SECTION 1.1. DEFINED TERMS. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR BORROWING" shall mean a Borrowing comprised of ABR Loans.
"ABR LOAN" shall mean any Standby Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with
the provisions of Article II
<PAGE> 6
or any Eurodollar Loan converted (pursuant to Section 2.13(ii)) to a
loan bearing interest at a rate determined by reference to the Alternate
Base Rate.
"ACQUISITION" shall mean the acquisition by Bidco of the Target
Shares, whether pursuant to the Offer or pursuant to the procedures
contained in Part XIIIA of the Companies Act or by way of open market
purchases (and includes where the context permits payments by Bidco to
TEG's share option holders to purchase or cancel the benefit of such
options).
"ACQUISITION COMPANY" shall mean each of FinCo 1, FinCo 2 and
Bidco.
"ACQUISITION DATE" shall mean the date as of which a person or
group of related persons first acquires more than 30% of the outstanding
Voting Shares of TUC (within the meaning of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended, and the applicable
rules and regulations thereunder).
"ADMINISTRATIVE FEES" shall have the meaning assigned to such
term in Section 2.05(b).
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an Administrative
Questionnaire in the form of Exhibit B hereto.
"AFFILIATE" shall mean, when used with respect to a specified
person, another person that directly or indirectly controls or is
controlled by or is under common control with the person specified.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%, (a) the Base CD Rate in effect on such day plus 1% and
(a) the Prime Rate in effect on such day. For purposes hereof, "PRIME
RATE" shall mean the rate of interest per annum publicly announced from
time to time by Chase as its prime rate in effect at its principal
office in New York City; each change in the Prime Rate shall be
effective on the date such change is publicly announced as effective;
"BASE CD RATE" shall mean the sum of (a) the product of (i) the Three-
Month Secondary CD Rate and (i) Statutory Reserves and (a) the
Assessment Rate; "THREE-MONTH SECONDARY CD RATE" shall mean, for any
day, the secondary market rate for three-month certificates of deposit
reported as being in effect on such day (or, if such day shall not be a
Business Day, the next preceding Business Day) by the Board through the
public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on
such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of
major money
-2-
<PAGE> 7
center banks in New York City received at approximately 10:00 a.m., New
York City time, on such day (or, if such day shall not be a Business
Day, on the next preceding Business Day) by the CAF Agent from three New
York City negotiable certificate of deposit dealers of recognized
standing selected by it; "ASSESSMENT RATE" shall mean, for any day, the
annual rate (rounded upwards to the next 1/100 of 1%) most recently
estimated by Chase as the then current net annual assessment rate that
will be employed in determining amounts payable by Chase to the Federal
Deposit Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in US dollars at
Chase's domestic offices; and "FEDERAL FUNDS EFFECTIVE RATE" shall mean,
for any day, the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as released on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
released for any day which is a Business Day, the arithmetic average
(rounded upwards to the next 1/100th of 1%), as determined by Chase, of
the quotations for the day of such transactions received by Chase from
three Federal funds brokers of recognized standing selected by it. If
for any reason Chase shall have determined (which determination shall be
conclusive absent manifest error; provided that Chase, shall, upon
request, provide to the applicable Borrower a certificate setting forth
in reasonable detail the basis for such determination) that it is unable
to ascertain the Federal Funds Effective Rate for any reason, including
the inability of Chase to obtain sufficient quotations in accordance
with the terms thereof, the Alternate Base Rate shall be determined
without regard to clause (a) of the first sentence of this definition
until the circumstances giving rise to such inability no longer exist.
Any change in the Alternate Base Rate due to a change in the Prime Rate
or the Federal Funds Effective Rate shall be effective on the effective
date of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively.
"APPLICABLE MARGIN" shall mean, (i) on any date from the date
hereof to and including the date six months hereafter, 0.0% for ABR
Loans made to any Borrower, 1.05% per annum for Eurodollar Loans made to
TUC, .85% per annum for Eurodollar Loans made to TU Electric and .85%
per annum for Eurodollar Loans made to Enserch and (ii) on any date
following the date six months following the date hereof with respect to
any Borrower, the percentage per annum set forth in the column
identified as Level 1, Level 2, Level 3 or Level 4 below, based upon
the Level corresponding to the lower Debt Rating of such Borrower at the
time of determination, provided, that the Applicable Margins set forth
below with respect to each Level shall be increased by .50% with respect
to Eurodollar Loans outstanding at any time following the Revolving
Period, provided, further, that, the Applicable Margin with respect to
ABR Loans outstanding at any time following the Revolving Period shall
be equal to, for each Level, the then-effective Applicable Margin for
Eurodollar Loans less 1.00% (but not negative). Any change in the
Applicable Margin shall be effective on the date on which the applicable
rating agency announces any change in the Debt Rating.
-3-
<PAGE> 8
<TABLE>
<CAPTION>
========================================================================================
LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4
S&P BBB+OR BETTER BBB BBB- BB+ OR BELOW*
MOODY'S BAA1 OR BETTER BAA2 BAA3 BA1 OR BELOW*
- ----------------------------------------------------------------------------------------
PERCENTAGE PER ANNUM
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EURODOLLAR .625% .85% 1.05% 1.25%
MARGIN
- ----------------------------------------------------------------------------------------
ABR 0 0 .05% .25%
MARGIN
========================================================================================
</TABLE>
* or unrated
"ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and
acceptance entered into by a Lender and an assignee in the form of
Exhibit C.
"AUCTION FEES" shall mean the competitive advance auction fees
provided for in the Letter Agreement, payable to the CAF Agent by the
applicable Borrower at the time of each competitive advance auction
request made by such Borrower pursuant to Section 2.03.
"BIDCO" shall mean TU Acquisition plc, a direct wholly owned
subsidiary of FinCo 2.
"BOARD" shall mean the Board of Governors of the Federal Reserve
System of the United States.
"BOARD OF DIRECTORS" shall mean the Board of Directors of a
Borrower or any duly authorized committee thereof.
"BORROWER" shall have the meaning given such term in the preamble
hereto.
"BORROWING" shall mean a group of Loans of a single Type made by
the Lenders (or, in the case of a Competitive Borrowing, by the Lender
or Lenders whose Competitive Bids have been accepted pursuant to Section
2.03) on a single date and as to which a single Interest Period is in
effect.
"BUSINESS DAY" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York or the State
of Texas) on which banks are open for business in New York City and
Houston; provided, however, that, when used in connection with a
Eurodollar Loan, the term "BUSINESS DAY" shall also exclude any day on
which banks are not open for dealings in dollar deposits in the London
interbank market.
-4-
<PAGE> 9
"A CHANGE IN CONTROL" shall be deemed to have occurred if (a) any
person or group of related persons (other than TUC, any Subsidiary of
TUC, or any pension, savings or other employee benefit plan for the
benefit of employees of TUC and/or any Subsidiary of TUC) shall have
acquired beneficial ownership of more than 30% of the outstanding Voting
Shares of TUC (within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended, and the applicable rules
and regulations thereunder); provided that a Change in Control shall not
be deemed to have occurred if such acquisition has been approved, prior
to the Acquisition Date and the date on which any tender offer for
Voting Shares of TUC was commenced, by a majority of the Disinterested
Directors of TUC, or (a) during any period of 12 consecutive months,
commencing before or after the date of this Agreement, individuals who
on the first day of such period were directors of TUC (together with any
replacement or additional directors who were nominated or elected by a
majority of directors then in office) cease to constitute a majority of
the Board of Directors of TUC.
"CITY CODE" shall mean the City Code on Takeovers and Mergers
(UK).
"CODE" shall mean the Internal Revenue Code of 1986, as the same
may be amended from time to time.
"COMMISSION" shall mean the Public Utility Commission of the
State of Texas.
"COMMITMENT" shall mean, with respect to each Lender, the sum of
such Lender's General Loan Commitment and Offer Loan Commitment.
"COMPANIES ACT" shall mean the Companies Act 1985 (UK).
"COMPETITIVE BID" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.03.
"COMPETITIVE BID ACCEPT/REJECT LETTER" shall mean a notification
made by a Borrower pursuant to Section 2.03(d) in the form of Exhibit
A-4.
"COMPETITIVE BID MARGIN" shall mean, as to any Eurodollar
Competitive Loan, the margin (expressed as a percentage rate per annum
in the form of a decimal to no more than four decimal places) to be
added to or subtracted from the LIBO Rate in order to determine the
interest rate applicable to such Loan, as specified in the Competitive
Bid relating to such Loan.
"COMPETITIVE BID RATE" shall mean, as to any Competitive Bid, (i)
in the case of a Eurodollar Loan, the LIBO Rate for the Interest Period
requested in such Competitive Bid plus the Competitive Bid Margin, and
(i) in the case of a Fixed Rate Loan, the fixed rate of interest offered
by the Lender making such Competitive Bid.
-5-
<PAGE> 10
"COMPETITIVE BID REQUEST" shall mean a request made pursuant to
Section 2.03 in the form of Exhibit A-1.
"COMPETITIVE BORROWING" shall mean a Borrowing consisting of a
Competitive Loan or concurrent Competitive Loans from the Lender or
Lenders whose Competitive Bids for such Borrowing have been accepted
under the bidding procedure described in Section 2.03.
"COMPETITIVE LOAN" shall mean a Loan made pursuant to the bidding
procedure described in Section 2.03. Each Competitive Loan shall be a
Eurodollar Competitive Loan or a Fixed Rate Loan.
"CONSOLIDATED EARNINGS AVAILABLE FOR FIXED CHARGES" for any
twelve-month period shall mean (i) consolidated net income, calculated
after deducting preferred stock dividends and preferred securities
distributions of Subsidiaries, but before any extraordinary items and
before the effect in such twelve-month period of any change in
accounting principles promulgated by the Financial Accounting Standards
Board becoming effective after December 31, 1997, less (i) allowances
for equity funds used during construction to the extent that such
allowances, taken as a whole, increased such consolidated net income,
plus (i) provisions for Federal income taxes, to the extent that such
provisions, taken as a whole, decreased such consolidated net income,
plus (i) Consolidated Fixed Charges, all determined for such twelve-
month period with respect to TUC and its Consolidated Subsidiaries on a
consolidated basis; provided, however, that in computing Consolidated
Earnings Available for Fixed Charges for any twelve-month period the
following amounts shall be excluded: (B) the effect of any regulatory
disallowances resolving fuel or other issues in any proceeding before
the Commission or the Railroad Commission of Texas in an aggregate
amount not to exceed $100,000,000, (B) any non-cash book losses relating
to the sale or write-down of assets and (B) one-time costs incurred in
connection with the Mergers (as defined in the Joint Proxy
Statement/Prospectus dated September 23, 1996 for Texas Utilities
Company (as predecessor to Texas Energy Industries, Inc.) and Enserch)
in an aggregate amount not to exceed $100,000,000.
"CONSOLIDATED FIXED CHARGES" for any twelve-month period shall
mean the sum of (i) interest on mortgage bonds, (i) interest on other
long-term debt, (i) other interest expense, including interest on short-
term debt and the current portion of long-term debt, and (i) preferred
stock dividends and preferred securities distributions of Subsidiaries,
all determined for such twelve-month period with respect to TUC and its
Consolidated Subsidiaries on a consolidated basis.
"CONSOLIDATED SHAREHOLDERS' EQUITY" shall mean the sum of (i)
total common stock equity plus (i) preferred stock not subject to
mandatory redemption, both
-6-
<PAGE> 11
determined with respect to TUC and its Consolidated Subsidiaries on a
consolidated basis.
"CONSOLIDATED SUBSIDIARY" shall mean at any date any Subsidiary
or other entity the accounts of which would be consolidated with those
of TUC, TU Electric or Enserch, as the case may be, in its consolidated
financial statements as of such date.
"CONSOLIDATED TOTAL CAPITALIZATION" shall mean the sum of (i)
total common stock equity, (i) preferred stock and preferred securities,
(i) long-term debt (less amounts due currently) and (iv) the sum of the
outstanding aggregate principal amount of Offer Loans plus the
outstanding aggregate principal amount of General Loans used for the
purposes described in Sections 5.08(ii)(A), (C) and (E), all determined
with respect to TUC and its Consolidated Subsidiaries on a consolidated
basis.
"CONTROLLED GROUP" shall mean all members of a controlled group
of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with TUC, are treated
as a single employer under Section 414(b) or 414(c) of the Code.
"DEBT RATING" shall mean, with respect to any Borrower, the
ratings (whether explicit or implied) assigned by S&P and Moody's to
such Borrower's senior unsecured non-credit enhanced long term debt.
"DEFAULT" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"DISINTERESTED DIRECTOR" shall mean any member of the Board of
Directors of TUC who is not affiliated, directly or indirectly, with, or
appointed by, a person or group of related persons (other than TUC, any
Subsidiary of TUC, or any pension, savings or other employee benefit
plan for the benefit of employees of TUC and/or any Subsidiary of TUC)
acquiring the beneficial ownership of more than 30% of the outstanding
Voting Shares of TUC (within the meaning of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended, and the applicable
rules and regulations thereunder) and who either was a member of the
Board of Directors of TUC prior to the Acquisition Date or was
recommended for election by a majority of the Disinterested Directors in
office prior to the Acquisition Date.
"DOLLARS" or "$" shall mean lawful money of the United States of
America.
"EFFECTIVE DATE" shall mean the later of the date of this
Agreement and the date on which each condition set forth in Section 4.01
has been satisfied.
"ELECTRICITY ACT" shall mean the Electricity Act 1989 (UK).
-7-
<PAGE> 12
"EQUITY EVENT" shall mean the date on which the aggregate amount
of the Offer Loan Commitments as of the date hereof shall be reduced by
$1.5 billion.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.
"ERISA AFFILIATE" shall mean any trade or business (whether or
not incorporated) that is a member of a group of (i) organizations
described in Section 414(b) or (c) of the Code and (i) solely for
purposes of the Lien created under Section 412(n) of the Code,
organizations described in Section 414(m) or (o) of the Code of which
the relevant Borrower is a member.
"ERISA EVENT" shall mean (i) any "Reportable Event"; (i) the
adoption of any amendment to a Plan that would require the provision of
security pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA; (i) the incurrence of any liability under Title IV of ERISA with
respect to the termination of any Plan or the withdrawal or partial
withdrawal of any Borrower or any of its ERISA Affiliates from any Plan
or Multiemployer Plan; (i) the receipt by any Borrower or any ERISA
Affiliate from the PBGC of any notice relating to the intention to
terminate any Plan or Plans or to appoint a trustee to administer any
Plan; (i) the receipt by any Borrower or any ERISA Affiliate of any
notice concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be,
insolvent or in reorganization, within the meaning of Title IV of ERISA;
(i) the occurrence of a "prohibited transaction" with respect to which
any Borrower or any of its subsidiaries is liable; and (i) any other
similar event or condition with respect to a Plan or Multiemployer Plan
that could result in liability of any Borrower other than a liability to
pay premiums or benefits when due.
"EURODOLLAR BORROWING" shall mean a Borrowing comprised of
Eurodollar Loans.
"EURODOLLAR COMPETITIVE LOAN" shall mean any Competitive Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"EURODOLLAR LOAN" shall mean any Eurodollar Competitive Loan or
Eurodollar Standby Loan.
"EURODOLLAR STANDBY LOAN" shall mean any Standby Loan bearing
interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"EVENT OF DEFAULT" shall have the meaning assigned to such term
in Article VI.
-8-
<PAGE> 13
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXISTING TU CREDIT AGREEMENTS" shall mean the Amended and
Restated Competitive Advance and Revolving Credit Facility Agreements
for Facility A and Facility B, each dated as of April 24, 1997, as
amended as of November 10, 1997, among TUC Holding Company (predecessor
to TUC), Texas Utilities Company (predecessor to Texas Energy
Industries, Inc.), TU Electric, Enserch, the lenders parties thereto
from time to time, Texas Commerce Bank National Association (predecessor
to Chase Bank of Texas), as Administrative Agent, and Chase, as
Competitive Advance Facility Agent.
"FACILITY B CREDIT AGREEMENT" shall mean the $1,400,000,000
Competitive Advance and Revolving Credit Facility Agreement, dated as of
the date hereof, among the Borrowers and certain other parties named
therein, as amended, modified or supplemented from time to time.
"FACILITY FEE" shall have the meaning assigned to such term in
Section 2.05(a).
"FACILITY FEE PERCENTAGE" shall mean (i) from the date hereof to
and including the date six months hereafter, .20% per annum and (ii)
thereafter, the percentage per annum set forth in the column identified
as Level 1, Level 2, Level 3 or Level 4 below, based upon the Level
corresponding to the lower Debt Rating of TUC at the time of
determination. Any change in the Facility Fee Percentage shall be
effective on the date on which the applicable rating agency announces
any change in the applicable Debt Rating.
<TABLE>
<CAPTION>
======================================================================================
LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4
S&P BBB+ OR BETTER BBB BBB- BB+ OR BELOW*
MOODY'S BAA1 OR BETTER BAA2 BAA3 BA1 OR BELOW*
- --------------------------------------------------------------------------------------
PERCENTAGE PER ANNUM
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FACILITY FEE 0.125% 0.150% 0.20% 0.25%
======================================================================================
</TABLE>
* or unrated
"FEES" shall mean the Facility Fee, the Auction Fees, the
Administrative Fees and any other fees provided for in the Letter
Agreement.
"FINANCIAL OFFICER" of any corporation shall mean the chief
financial officer, principal accounting officer, treasurer, associate or
assistant treasurer, or any responsible officer designated by one of the
foregoing persons, of such corporation.
-9-
<PAGE> 14
"FINCO 1" shall mean TU Finance No. 1 Ltd, a private limited
company organized under English law, 100% of the share capital of which
is owned directly or indirectly by TUC.
"FINCO 2" shall mean TU Finance No. 2 Ltd, a private limited
company organized under English law, 90% of the share capital of which
is owned directly by FinCo 1 and 10% of the share capital of which is
owned directly or indirectly by TUC.
"FIRST MORTGAGE" shall mean (i) the TU Electric Mortgage and (i)
any Mortgage and Deed of Trust of TU Electric issued to refund, to
replace or in substitution for the TU Electric Mortgage.
"FIXED RATE BORROWING" shall mean a Borrowing comprised of Fixed
Rate Loans.
"FIXED RATE LOAN" shall mean any Competitive Loan bearing
interest at a fixed percentage rate per annum (the "FIXED RATE")
(expressed in the form of a decimal to no more than four decimal places)
specified by the Lender making such Loan in its Competitive Bid.
"FUEL COMPANY" shall mean Texas Utilities Fuel Company, a Texas
corporation, and its successors.
"GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.
"GENERAL LOAN" shall mean a Loan the proceeds of which are used
solely for the purposes permitted under Sections 5.08(i) and
5.08(ii)(A), (C) and (E).
"GENERAL LOAN COMMITMENT" shall mean, with respect to each
Lender, the commitment of such Lender set forth in Schedule 2.01 hereto
to make General Loans, as such General Loan Commitment may be
permanently terminated or reduced from time to time pursuant to Section
2.10 or modified from time to time pursuant to Section 8.04. The
General Loan Commitment of each Lender shall automatically and
permanently terminate on the Maturity Date if not terminated earlier
pursuant to the terms hereof.
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"INDEBTEDNESS" of any corporation shall mean all indebtedness
representing money borrowed which is created, assumed, incurred or
guaranteed in any manner by such corporation or for which such
corporation is responsible or liable (whether by agreement to purchase
indebtedness of, or to supply funds to or invest in, others or
otherwise).
-10-
<PAGE> 15
"INITIAL UNDERWRITERS" shall mean each of Chase, Lehman
Commercial Paper Inc. and Merrill Lynch Capital Corporation, each in its
capacity as an initial underwriter of the credit facilities evidenced by
this Agreement and the Facility B Credit Agreement.
"INTEREST PAYMENT DATE" shall mean, with respect to any Loan, the
last day of the Interest Period applicable thereto and, in the case of a
Eurodollar Loan with an Interest Period of more than three months'
duration or a Fixed Rate Loan with an Interest Period of more than 90
days' duration, each day that would have been an Interest Payment Date
for such Loan had successive Interest Periods of three months' duration
or 90 days' duration, as the case may be, been applicable to such Loan
and, in addition, the date of any prepayment of each Loan or conversion
of such Loan to a Loan of a different Type.
"INTEREST PERIOD" shall mean (a) as to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day (or, if there is no numerically
corresponding day, on the last day) in the calendar month that is 1, 2,
3 or 6 months thereafter; provided that in the case of any Eurodollar
Borrowing made during the period commencing on the Effective Date and
ending on the date on which syndication of the Total Commitment has been
fully completed (as determined by the Joint Lead Arrangers and notified
by them to the Borrowers and the Administrative Agent), such period
shall be 1 month or such other periods as the Joint Lead Arrangers and
TUC agree as being necessary to effect the assignment of Commitments in
connection with syndication and, in addition, in the case of any
Eurodollar Borrowing made during the 30-day period ending on the
Maturity Date, the period commencing on the date of such Borrowing and
ending on the seventh or fourteenth day thereafter, as the Borrower may
elect, (a) as to any ABR Borrowing, the period commencing on the date of
such Borrowing and ending on the earliest of (i) the next succeeding
March 31, June 30, September 30 or December 31, (i) the Maturity Date,
and (i) the date such Borrowing is repaid or prepaid in accordance with
Section 2.06 or Section 2.11 and (a) as to any Fixed Rate Borrowing, the
period commencing on the date of such Borrowing and ending on the date
specified in the Competitive Bids in which the offers to make the Fixed
Rate Loans comprising such Borrowing were extended, which shall not be
earlier than seven days after the date of such Borrowing or later than
360 days after the date of such Borrowing; provided, however, that if
any Interest Period would end on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
unless, in the case of Eurodollar Loans only, such next succeeding
Business Day would fall in the next calendar month, in which case such
Interest Period shall end on the next preceding Business Day. Interest
shall accrue from and including the first day of an Interest Period to
but excluding the last day of such Interest Period.
-11-
<PAGE> 16
"JOINT LEAD ARRANGER" shall mean each of Chase Securities Inc.,
Lehman Brothers Inc. and Merrill Lynch & Co., each in its capacity as a
joint lead arranger of the credit facilities evidenced by this Agreement
and the Facility B Credit Agreement.
"LETTER AGREEMENT" shall mean, collectively, (i) the Syndication
Letter, dated March 2, 1998, among TUC, the Joint Lead Arrangers and the
Initial Underwriters, (ii) the Underwriting Fee Letter, dated March 2,
1998, among TUC and the Initial Underwriters, and (iii) the Agent Fee
Letter, dated March 2, 1998, among the Administrative Agent, the CAF
Agent and the Borrowers.
"LIBO RATE" shall mean, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the rate at which dollar
deposits approximately equal in principal amount to (i) in the case of a
Standby Borrowing, the Administrative Agent's portion of such Eurodollar
Borrowing and (i) in the case of a Competitive Borrowing, a principal
amount that would have been the Administrative Agent's portion of such
Competitive Borrowing had such Competitive Borrowing been a Standby
Borrowing, and for a maturity comparable to such Interest Period are
offered to the principal London offices of Chase in immediately
available funds in the London interbank market at approximately 11:00
a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"LICENSES" shall mean those licenses granted under Section 6 of
the Electricity Act authorizing one or more members of the TEG Group to
carry on the business of electricity generation, supply and distribution
and any activities ancillary thereto, as amended and extended from time
to time.
"LIEN" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect
of such asset. For the purposes of this Agreement, any person shall be
deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to
such asset.
"LOAN" shall mean a Competitive Loan or a Standby Loan, whether
made as a Eurodollar Loan, an ABR Loan or a Fixed Rate Loan, as
permitted hereby.
"MAJOR DEFAULT" shall mean the occurrence of any of the following
events:
(i) any Event of Default described in Section 6.01(h)
or (i);
(ii) any Target Insolvency Event;
-12-
<PAGE> 17
(iii) default shall be made by TUC in the due observance
or performance of any covenant, condition or agreement contained
in Section 5.14(iii), (iv), (v), (vi) or (vii);
(iv) on the date of such Offer Loan, any representation
and warranty set forth in Section 3.01, 3.02 or 3.03 shall be
false or misleading in any material respect; or
(viii) any other Default that is within the power of a
Borrower to remedy with 7 days of receiving notice of such
Default, but that such Borrower chooses not to remedy within 7
days following written notice to the Borrowers by the
Administrative Agent requesting the Borrowers to remedy such
Default.
"MARGIN REGULATIONS" shall mean Regulations G, T, U and X of the
Board as from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"MARGIN STOCK" shall have the meaning given such term under
Regulation U of the Board.
"MATERIAL ADVERSE CHANGE" shall mean a materially adverse change
in the business, assets, operations or financial condition of TUC and
its Subsidiaries taken as a whole which makes any Borrower unable to
perform any of its obligations under this Agreement or the Facility B
Credit Agreement or which impairs the rights of, or benefits available
to, the Lenders under this Agreement or the Facility B Credit Agreement;
provided that it is agreed and understood that the Acquisition, as
contemplated by the Offer Documents and the Offer Press Release, shall
not be deemed to be a Material Adverse Change.
"MATURITY DATE" shall mean the earlier to occur of (i) the last
day of the Revolving Period, or, if the Borrowers shall have made the
Term Election, the date 364 days following the last day of the Revolving
Period and (i) the date of termination or reduction in whole of the
Commitments pursuant to Section 2.10 or Article VI.
"MINING COMPANY" shall mean Texas Utilities Mining Company, a
Texas corporation, and its successors.
"MOODY'S" shall mean Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan as defined
in Section 4001(a)(3) of ERISA to which any Borrower or any ERISA
Affiliate is making, or accruing an obligation to make, contributions,
or has within any of the preceding five plan years made, or accrued an
obligation to make, contributions.
-13-
<PAGE> 18
"NOTICE OF COMPETITIVE BID REQUEST" shall mean a notification
made pursuant to Section 2.03 in the form of Exhibit A-2.
"OFFER" shall mean the offer to be made by and on behalf of
Bidco, on the terms and conditions set forth in the Offer Press Release,
to acquire the whole of the ordinary share capital (whether in issue or
failing to be allotted) of TEG not already owned by Bidco, as such offer
may from time to time be amended, revised, renewed or waived in
accordance with Section 5.14 of this Agreement.
"OFFER DOCUMENTS" shall mean each of the documents issued or to
be issued by Bidco to the shareholders of TEG in respect of the Offer
(including the forms of acceptance).
"OFFER LOAN" shall mean a Loan the proceeds of which are used
solely for the purposes permitted under Section 5.08(ii).
"OFFER LOAN COMMITMENT" shall mean, with respect to each Lender,
the commitment of such Lender set forth in Schedule 2.01 hereto to make
Offer Loans, as such Offer Loan Commitment may be permanently terminated
or reduced from time to time pursuant to Section 2.10, or modified from
time to time pursuant to Section 8.04. The Offer Loan Commitment of
each Lender shall automatically and permanently terminate on the
Maturity Date if not terminated earlier pursuant to the terms hereof.
"OFFER PRESS RELEASE" shall mean the press announcement in form
and substance acceptable to the Joint Lead Arrangers, delivered pursuant
to Section 4.02(a) and proposed to be released in connection with the
Offer.
"OPERATING AGREEMENTS" shall mean the (i) Operating Agreement,
dated April 28, 1978, between Mining Company and Dallas Power & Light
Company, Texas Electric Service Company and Texas Power & Light Company,
as amended by the Modification of Operating Agreement, dated April 20,
1979, between the same parties and (i) the Operating Agreement, dated
December 15, 1976, between Fuel Company and Dallas Power & Light
Company, Texas Electric Service Company and Texas Power & Light Company,
as the same may be amended from time to time, provided that any
resulting amended agreement shall not increase the scope of Liens
permitted under Section 5.10(i).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERMITTED ENCUMBRANCES" shall mean, as to any person at any
date, any of the following:
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(a) (i) Liens for taxes, assessments or governmental charges
not then delinquent and Liens for workers' compensation awards and
similar obligations not then delinquent and undetermined Liens or
charges incidental to construction, Liens for taxes, assessments or
governmental charges then delinquent but the validity of which is being
contested at the time by such person in good faith against which an
adequate reserve has been established, with respect to which levy and
execution thereon have been stayed and continue to be stayed and which
do not impair the use of the property or the operation of such person's
business, (i) Liens incurred or created in connection with or to secure
the performance of bids, tenders, contracts (other than for the payment
of money), leases, statutory obligations, surety bonds or appeal bonds,
and mechanics' or materialmen's Liens, assessments or similar
encumbrances, the existence of which does not impair the use of the
property subject thereto for the purposes for which it was acquired, and
other Liens of like nature incurred or created in the ordinary course of
business;
(b) Liens securing indebtedness, neither assumed nor
guaranteed by such person nor on which it customarily pays interest,
existing upon real estate or rights in or relating to real estate
acquired by such person for any substation, transmission line,
transportation line, distribution line, right of way or similar purpose;
(c) rights reserved to or vested in any municipality or public
authority by the terms of any right, power, franchise, grant, license or
permit, or by any provision of law, to terminate such right, power,
franchise, grant, license or permit or to purchase or recapture or to
designate a purchaser of any of the property of such person;
(d) rights reserved to or vested in others to take or receive
any part of the power, gas, oil, coal, lignite or other minerals or
timber generated, developed, manufactured or produced by, or grown on,
or acquired with, any property of such person and Liens upon the
production from property of power, gas, oil, coal, lignite or other
minerals or timber, and the by-products and proceeds thereof, to secure
the obligations to pay all or a part of the expenses of exploration,
drilling, mining or development of such property only out of such
production or proceeds;
(e) easements, restrictions, exceptions or reservations in any
property and/or rights of way of such person for the purpose of roads,
pipe lines, substations, transmission lines, transportation lines,
distribution lines, removal of oil, gas, lignite, coal or other minerals
or timber, and other like purposes, or for the joint or common use of
real property, rights of way, facilities and/or equipment, and defects,
irregularities and deficiencies in titles of any property and/or rights
of way, which do not materially impair the use of such property and/or
rights of way for the purposes for which such property and/or rights of
way are held by such person;
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(f) rights reserved to or vested in any municipality or public
authority to use, control or regulate any property of such person;
(g) any obligations or duties, affecting the property of such
person, to any municipality or public authority with respect to any
franchise, grant, license or permit;
(h) as of any particular time any controls, Liens,
restrictions, regulations, easements, exceptions or reservations of any
municipality or public authority applying particularly to space
satellites or nuclear fuel;
(i) any judgment Lien against such person securing a judgment
for an amount not exceeding 25% of Consolidated Shareholders' Equity, so
long as the finality of such judgment is being contested by appropriate
proceedings conducted in good faith and execution thereon is stayed;
(j) any Lien arising by reason of deposits with or giving of
any form of security to any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, for any purpose at any time as
required by law or governmental regulation as a condition to the
transaction of any business or the exercise of any privilege or license,
or to enable such person to maintain self-insurance or to participate in
any fund for liability on any insurance risks or in connection with
workers' compensation, unemployment insurance, old age pensions or other
social security or to share in the privileges or benefits required for
companies participating in such arrangements; or
(k) any landlords' Lien on fixtures or movable property
located on premises leased by such person in the ordinary course of
business so long as the rent secured thereby is not in default.
"PERSON" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government,
or any agency or political subdivision thereof.
"PLAN" shall mean any employee pension benefit plan described
under Section 3(2) of ERISA (other than a Multiemployer Plan) subject to
the provisions of Title IV of ERISA that is maintained by any Borrower
or any ERISA Affiliate.
"POOLING AND SETTLEMENT AGREEMENT" shall mean the pooling and
settlement agreement, dated March 30, 1990, between REC and the National
Grid Company plc and others.
"REC" shall mean The Eastern Group plc.
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"REGISTER" shall have the meaning given such term in Section
8.04(d).
"REPORTABLE EVENT" shall mean any reportable event as defined in
Sections 4043(c)(1)-(8) of ERISA or the regulations issued thereunder
(other than a reportable event for which the 30 day notice requirement
has been waived) with respect to a Plan (other than a Plan maintained by
an ERISA Affiliate that is considered an ERISA Affiliate only pursuant
to subsection (m) or (o) of Code Section 414).
"REQUIRED LENDERS" shall mean, at any time, Lenders having
Commitments representing in excess of 50% of the Total Commitment or,
for purposes of acceleration pursuant to clause (ii) of Article VI,
Lenders holding Loans representing in excess of 50% of the aggregate
principal amount of the Loans outstanding.
"RESPONSIBLE OFFICER" of any corporation shall mean any executive
officer or Financial Officer of such corporation and any other officer
or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"REVOLVING PERIOD" shall mean the period beginning on the date
hereof and ending on the 364th calendar day following such date.
"S&P" shall mean Standard & Poor's (a division of The McGraw Hill
Companies).
"SEC" shall mean the Securities and Exchange Commission.
"SIGNIFICANT SUBSIDIARY" shall mean at any time a Subsidiary of
TUC that as of such time satisfies the definition of a "significant
subsidiary" contained as of the date hereof in Regulation S-X of the
SEC; provided, that each of TU Electric, Enserch and any other Borrower
hereunder shall at all times be considered a Significant Subsidiary of
TUC.
"STANDBY BORROWING" shall mean a Borrowing consisting of
simultaneous Standby Loans from each of the Lenders.
"STANDBY BORROWING REQUEST" shall mean a request made pursuant to
Section 2.04 in the form of Exhibit A-5.
"STANDBY LOANS" shall mean the revolving loans made pursuant to
Section 2.04. Each Standby Loan shall be a Eurodollar Standby Loan or
an ABR Loan.
"STATUTORY RESERVES" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator
of which is the number one
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minus the aggregate (without duplication) of the maximum reserve
percentages (including any marginal, special, emergency or supplemental
reserves) expressed as a decimal established by the Board and any other
banking authority to which the Administrative Agent is subject for new
negotiable nonpersonal time deposits in dollars of over $100,000 with
maturities approximately equal to three months. Statutory Reserves
shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
"SUBSIDIARY" shall mean, with respect to any person (the
"PARENT"), any corporation or other entity of which securities or other
ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are
at the time directly or indirectly owned by such parent.
"SUBSTANTIAL" shall mean an amount in excess of 10% of the
consolidated assets of TUC and its Consolidated Subsidiaries taken as a
whole.
"TAKEOVER PANEL" shall mean the Panel on Takeovers and Mergers of
the U.K.
"TARGET INSOLVENCY EVENT" shall mean any one or more of the
following events:
(i) any Acquisition Company is deemed pursuant to
applicable law unable to pay its debts as they fall due or
commences negotiations with its creditors with a view to a
general re-scheduling of indebtedness;
(ii) any administrative or other receiver or manager is
appointed over any Acquisition Company or any material part of
the assets, business or undertaking of such Acquisition Company;
(iii) a winding-up order or an administration order is
made in relation to any Acquisition Company;
(iv) any Acquisition Company threatens to pass or passes
a resolution for (or petitions for) its winding up or
administration; or
(v) with respect to any Loan made for the purpose
described in Section 5.08(ii)(D), the occurrence of any event
described in paragraphs (i) through (iv) above with respect to
TEG, any Significant Subsidiary of TEG or any holder of a
License.
"TARGET SHARES" means the issued and to be issued shares in the
capital of TEG (including TEG's American Depositary Shares) that are the
subject of the Offer.
"TEG" shall mean The Energy Group PLC.
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"TEG GROUP" shall mean TEG and its Subsidiaries.
"TERM ELECTION" shall have the meaning assigned to that term in
Section 2.19.
"TOTAL COMMITMENT" shall mean, at any time, the aggregate amount
of Commitments of all the Lenders, as in effect at such time.
"TRANSACTIONS" shall have the meaning assigned to such term in
Section 3.02.
"TU ELECTRIC APPROVAL DATE" shall mean the first date on which
the following shall have occurred: TU Electric shall have delivered to
the Administrative Agent (in sufficient copies for each of the Lenders)
(i) a certificate of the Secretary or an Assistant Secretary of TU
Electric certifying that (A) attached thereto are true and correct
copies of all corporate resolutions and all orders, consents and
approvals required by any Governmental Authority in order to permit or
authorize TU Electric to borrow and to repay Loans hereunder and "Loans"
under and as defined in the Facility B Credit Agreement in an aggregate
principal amount at least equal to the sum of the General Loan
Commitments hereunder and the "Commitments" under and as defined in the
Facility B Credit Agreement and (B) that all such resolutions, orders,
consents and approvals are in full force and effect, sufficient for
their purpose and, in the case of such orders, consents and approvals,
not subject to any pending or, to the knowledge of such Secretary or
Assistant Secretary (as the case may be), threatened appeal or other
proceeding seeking reconsideration or review thereof and (ii) an opinion
of counsel to TU Electric, in form and substance satisfactory to the
Administrative Agent, as to such orders, consents and approvals and as
to the enforceability of the obligations of TU Electric hereunder on and
after such date.
"TU ELECTRIC MORTGAGE" shall mean the Mortgage and Deed of Trust,
dated as of December 1, 1983, from TU Electric to Irving Trust Company
(now The Bank of New York), Trustee, as amended or supplemented from
time to time.
"TYPE", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the
Loans comprising such Borrowing is determined. For purposes hereof,
"RATE" shall include the LIBO Rate, the Alternate Base Rate and the
Fixed Rate.
"U.K. FACILITY AGREEMENT" shall mean the L.3.515 Billion
Facilities Agreement, dated as of the date hereof, among FinCo 1, FinCo
2, Bidco, the lenders parties thereto and certain other parties named
therein.
"UNCONDITIONAL DATE" shall mean the date the Offer becomes or is
declared unconditional in all respects.
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"VOTING SHARES" shall mean, as to shares of a particular
corporation, outstanding shares of stock of any class of such
corporation entitled to vote in the election of directors, excluding
shares entitled so to vote only upon the happening of some contingency.
"WHOLLY OWNED SUBSIDIARY" shall mean any Consolidated Subsidiary
all the shares of common stock and other voting capital stock or other
voting ownership interests having ordinary voting power to vote in the
election of the board of directors or other governing body performing
similar functions (except directors' qualifying shares) of which are at
the time directly or indirectly owned by TUC.
"WITHDRAWAL LIABILITY" shall mean liability of a Borrower
established under Section 4201 of ERISA as a result of a complete or
partial withdrawal from a Multiemployer Plan, as such terms are defined
in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.2. TERMS GENERALLY. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided,
however, that for purposes of determining compliance with any covenant set
forth in Article V, such terms shall be construed in accordance with GAAP as in
effect on the date hereof applied on a basis consistent with the application
used in preparing the Borrowers' audited financial statements referred to in
Section 3.05.
ARTICLE II
THE CREDITS
SECTION 2.1. COMMITMENTS. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make Standby Loans, at any time and from
time to time until the earlier of the Maturity Date and the termination of the
Commitment of such Lender, to each Borrower in an aggregate principal amount at
any time outstanding not to exceed such Lender's Commitment minus the amount by
which the Competitive Loans made to any Borrower and outstanding at such time
shall be deemed to have used such Commitment pursuant to Section 2.14, subject,
however, to the conditions that (i) at no time shall the sum of (x) the
outstanding aggregate principal amount of all Standby Loans plus (y) the
outstanding aggregate principal amount of all Competitive Loans exceed the
Total Commitment, (i) Offer Loans shall be made solely to TUC and in no
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more than ten Borrowings that would, after giving effect to any such Borrowing,
increase the principal amount of Loans outstanding, (i) at no time shall the
sum of (x) the outstanding aggregate principal amount of Offer Loans plus (y)
the outstanding aggregate principal amount of General Loans used for purposes
described in Sections 5.08(ii)(A), (C) and (E) and Loans under and as defined
in the Facility B Credit Agreement used for purposes described in Section
5.08(ii) exceed $2,930,000,000, (i) at no time shall the sum of (x) the
outstanding aggregate principal amount of all Loans made to Enserch plus (y)
the outstanding aggregate principal amount of all Loans under and as defined in
the Facility B Credit Agreement made to Enserch exceed $650,000,000, (i) unless
and until the TU Electric Approval Date shall have occurred, at no time shall
the sum of (x) the outstanding aggregate principal amount of all Loans made to
TU Electric plus (y) the outstanding aggregate principal amount of all Loans
under and as defined in the Facility B Credit Agreement made to TU Electric
exceed $1,250,000,000, (i) at no time shall the outstanding aggregate principal
amount of all Standby Loans made by any Lender exceed the amount of such
Lender's Commitment and (i) at all times, the outstanding aggregate principal
amount of all Standby Loans made by each Lender to each Borrower shall equal
the product of (B) the percentage which such Lender's Commitment represents of
the Total Commitment times (B) the outstanding aggregate principal amount of
all Standby Loans made to such Borrower.
Within the foregoing limits, the Borrowers may borrow, pay or prepay
and, subject to the limitations set forth in Section 2.11(a), reborrow Standby
Loans hereunder, on and after the Effective Date and prior to the Maturity
Date, subject to the terms, conditions and limitations set forth herein.
SECTION 2.2. LOANS. (a) Each Standby Loan shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance with
their respective Commitments; provided, however, that the failure of any Lender
to make any Standby Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder (it being understood, however, that no Lender
shall be responsible for the failure of any other Lender to make any Loan
required to be made by such other Lender). Each Competitive Loan shall be made
in accordance with the procedures set forth in Section 2.03. The Standby Loans
or Competitive Loans comprising any Borrowing shall be (i) in the case of
Competitive Loans, in an aggregate principal amount which is an integral
multiple of $1,000,000 and not less than $5,000,000 and (i) in the case of
Standby Loans, in an aggregate principal amount which is an integral multiple
of $5,000,000 and not less than $25,000,000 (or an aggregate principal amount
equal to the remaining balance of the available Commitments).
(b) Each Competitive Borrowing shall be comprised entirely of
Eurodollar Competitive Loans or Fixed Rate Loans, and each Standby Borrowing
shall be comprised entirely of Eurodollar Standby Loans or ABR Loans, as the
Borrower may request pursuant to Section 2.03 or 2.04, as applicable. Each
Lender may at its option make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; provided that any
exercise of such option shall not affect the obligation of the Borrower to
repay
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such Loan in accordance with the terms of this Agreement. Borrowings of more
than one Type may be outstanding at the same time.
(c) Subject to paragraph (d) below, each Lender shall make each Loan
to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Administrative Agent in Houston, Texas, not
later than noon, Houston time, and the Administrative Agent shall by 2:00 p.m.,
Houston time, credit the amounts so received to the account or accounts
specified from time to time in one or more notices delivered by the applicable
Borrower to the Administrative Agent or, if a Borrowing shall not occur on such
date because any condition precedent herein specified shall not have been met,
return the amounts so received to the respective Lenders. Competitive Loans
shall be made by the Lender or Lenders whose Competitive Bids therefor are
accepted pursuant to Section 2.03 in the amounts so accepted. Standby Loans
shall be made by the Lenders pro rata in accordance with Section 2.14. Unless
the Administrative Agent shall have received notice from a Lender prior to the
date of any Borrowing that such Lender will not make available to the
Administrative Agent such Lender's portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with this paragraph (c) and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have
made such portion available to the Administrative Agent, such Lender and such
Borrower (without waiving any claim against such Lender for such Lender's
failure to make such portion available) severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent at (i) in the case of the Borrower, the interest rate applicable at the
time to the Loans comprising such Borrowing and (i) in the case of such Lender,
the Federal Funds Effective Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this Agreement.
(d) A Borrower may refinance all or any part of any Standby Borrowing
with a Standby Borrowing of the same or a different Type, subject to the
conditions and limitations set forth in this Agreement. Any Standby Borrowing
or part thereof so refinanced shall be deemed to be repaid or prepaid in
accordance with Section 2.06 or 2.11, as applicable, with the proceeds of a new
Standby Borrowing, and the proceeds of the new Standby Borrowing, to the extent
they do not exceed the principal amount of the Standby Borrowing being
refinanced, shall not be paid by the Lenders to the Administrative Agent or by
the Administrative Agent to such Borrower pursuant to paragraph (c) above.
SECTION 2.3. COMPETITIVE BID PROCEDURE. (a) In order to request
Competitive Bids, a Borrower shall hand deliver or telecopy to the CAF Agent a
duly completed Competitive Bid Request in the form of Exhibit A-1 hereto, to be
received by the CAF Agent (i) in the case of a Eurodollar Competitive
Borrowing, not later than 11:00 a.m., New York City time, four
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Business Days before a proposed Competitive Borrowing and (i) in the case of a
Fixed Rate Borrowing, not later than 11:00 a.m., New York City time, one
Business Day before a proposed Competitive Borrowing. No ABR Loan shall be
requested in, or made pursuant to, a Competitive Bid Request. A Competitive
Bid Request that does not conform substantially to the format of Exhibit A-1
may be rejected in the CAF Agent's sole discretion, and the CAF Agent shall
promptly notify the Borrower of such rejection by telecopy. Each Competitive
Bid Request shall refer to this Agreement and specify (w) whether the Borrowing
then being requested is to be a Eurodollar Borrowing or a Fixed Rate Borrowing,
(x) the date of such Borrowing (which shall be a Business Day) and the
aggregate principal amount thereof which shall be in a minimum principal amount
of $5,000,000 and in an integral multiple of $1,000,000, and (y) the Interest
Period with respect thereto (which may not end after the Maturity Date).
Promptly after its receipt of a Competitive Bid Request that is not rejected as
aforesaid, the CAF Agent shall telecopy to each Lender a Notice of Competitive
Bid Request in the form of Exhibit A-2 inviting the Lenders to bid, on the
terms and conditions of this Agreement, to make Competitive Loans.
(b) Each Lender invited to bid may, in its sole discretion, make one
or more Competitive Bids to the Borrower responsive to such Borrower's
Competitive Bid Request. Each Competitive Bid by a Lender must be received by
the CAF Agent by telecopy, in the form of Exhibit A-3 hereto, (i) in the case
of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York City
time, three Business Days before a proposed Competitive Borrowing and (i) in
the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City
time, on the day of a proposed Competitive Borrowing. Multiple bids will be
accepted by the CAF Agent. Competitive Bids that do not conform substantially
to the format of Exhibit A-3 may be rejected by the CAF Agent, and the CAF
Agent shall notify the Lender making such nonconforming bid of such rejection
as soon as practicable. Each Competitive Bid shall refer to this Agreement and
specify (x) the principal amount (which shall be in a minimum principal amount
of $5,000,000 and in an integral multiple of $1,000,000 and which may equal the
entire principal amount of the Competitive Borrowing requested by the
applicable Borrower) of the Competitive Loan or Loans that the Lender is
willing to make to such Borrower, (y) the Competitive Bid Rate or Rates at
which the Lender is prepared to make the Competitive Loan or Loans and (z) the
Interest Period and the last day thereof. If any Lender invited to bid shall
elect not to make a Competitive Bid, such Lender shall so notify the CAF Agent
by telecopy (I) in the case of Eurodollar Competitive Loans, not later than
9:30 a.m., New York City time, three Business Days before a proposed
Competitive Borrowing, and (II) in the case of Fixed Rate Loans, not later than
9:30 a.m., New York City time, on the day of a proposed Competitive Borrowing;
provided, however, that failure by any Lender to give such notice shall not
cause such Lender to be obligated to make any Competitive Loan as part of such
Competitive Borrowing. A Competitive Bid submitted by a Lender pursuant to
this paragraph (b) shall be irrevocable.
(c) The CAF Agent shall notify the Borrower by telecopy, of all the
Competitive Bids made, the Competitive Bid Rate and the principal amount of
each Competitive Loan in respect of which such Competitive Bid was made and the
identity of the Lender that made each such bid
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by (i) in the case of a Eurodollar Competitive Borrowing, not later than 10:00
a.m., New York City time, three Business Days before a proposed Competitive
Borrowing and (i) in the case of a Fixed Rate Borrowing, not later than 10:00
a.m., New York City time, on the day of a proposed Competitive Borrowing. The
CAF Agent shall send a copy of all Competitive Bids to the Borrower for its
records as soon as practicable after the completion of the bidding process set
forth in this Section 2.03.
(d) A Borrower may in its sole and absolute discretion, subject only
to the provisions of this paragraph (d), accept or reject any or all
Competitive Bids referred to in paragraph (c) above. Such Borrower shall
notify the CAF Agent by telephone, confirmed by telecopy in the form of a
Competitive Bid Accept/Reject Letter, whether and to what extent it has decided
to accept or reject any of or all the bids referred to in paragraph (c) above
by (i) in the case of a Eurodollar Competitive Borrowing, not later than 10:30
a.m., New York City time, three Business Days before a proposed Competitive
Borrowing and (i) in the case of a Fixed Rate Borrowing, not later than 10:30
a.m., New York City time, on the day of a proposed Competitive Borrowing;
provided, however, that (i) the failure by such Borrower to give such notice
shall be deemed to be a rejection of all the bids referred to in paragraph (c)
above, (i) such Borrower shall not accept a bid made at a particular
Competitive Bid Rate if it has decided to reject a bid made at a lower
Competitive Bid Rate, (i) the aggregate amount of the Competitive Bids accepted
by such Borrower shall not exceed the principal amount specified in the
Competitive Bid Request, (i) if such Borrower shall accept a bid or bids made
at a particular Competitive Bid Rate but the amount of such bid or bids shall
cause the total amount of bids to be accepted by such Borrower to exceed the
amount specified in the Competitive Bid Request, then such Borrower shall
accept a portion of such bid or bids in an amount equal to the amount specified
in the Competitive Bid Request less the amount of all other Competitive Bids
accepted with respect to such Competitive Bid Request, which acceptance, in the
case of multiple bids at such Competitive Bid Rate, shall be made pro rata in
accordance with the amount of each such bid at such Competitive Bid Rate, and
(i) except pursuant to clause (iv) above, no bid shall be accepted for a
Competitive Loan unless such Competitive Loan is in a minimum principal amount
of $5,000,000 and an integral multiple of $1,000,000; provided further,
however, that if a Competitive Loan must be in an amount less than $5,000,000
because of the provisions of clause (iv) above, such Competitive Loan may be
for a minimum of $1,000,000 or any integral multiple thereof, and in
calculating the pro rata allocation of acceptances of portions of multiple bids
at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall
be rounded to integral multiples of $1,000,000 in a manner which shall be in
the discretion of the applicable Borrower. A notice given by a Borrower
pursuant to this paragraph (d) shall be irrevocable.
(e) The CAF Agent shall promptly notify each bidding Lender (and the
Administrative Agent), by telecopy, whether or not its Competitive Bid has been
accepted (and if so, in what amount and at what Competitive Bid Rate) and each
successful bidder will thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Loan in respect of which its bid has
been accepted.
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(f) No Competitive Borrowing shall be requested or made hereunder if
after giving effect thereto any of the conditions set forth in clauses (i)
through (iv) of Section 2.01 would not be met.
(g) If either the Administrative Agent or CAF Agent shall elect to
submit a Competitive Bid in its capacity as a Lender, such party shall submit
such bid directly to the Borrower one quarter of an hour earlier than the
latest time at which the other Lenders are required to submit their bids to the
CAF Agent pursuant to paragraph (b) above.
(h) Each of the Borrowers and the CAF Agent shall deliver to the
Administrative Agent by telecopy copies of all notices delivered by it pursuant
to this Section 2.03 at the same times such notices are delivered hereunder.
All notices required by this Section 2.03 shall be given in accordance with
Section 8.01.
(i) A Competitive Bid Request shall not be made within five Business
Days after the date of any previous Competitive Bid which was accepted by a
Borrower pursuant to paragraph (d) above.
SECTION 2.4. STANDBY BORROWING PROCEDURE. In order to request a
Standby Borrowing, a Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Standby Borrowing Request in the form of
Exhibit A-5 (a) in the case of a Eurodollar Standby Borrowing, not later than
10:00 a.m., Houston time, three Business Days before such Borrowing, and (a) in
the case of an ABR Borrowing, not later than 10:00 a.m., Houston time, one
Business Day before such Borrowing. No Fixed Rate Loan shall be requested or
made pursuant to a Standby Borrowing Request. Such notice shall be irrevocable
and shall in each case specify (i) whether the Borrowing then being requested
is to be a Eurodollar Standby Borrowing or an ABR Borrowing; (i) the date of
such Standby Borrowing (which shall be a Business Day) and the amount thereof;
and (i) if such Borrowing is to be a Eurodollar Standby Borrowing, the Interest
Period with respect thereto, which shall not end after the Maturity Date. If
no election as to the Type of Standby Borrowing is specified in any such
notice, then the requested Standby Borrowing shall be an ABR Borrowing. If no
Interest Period with respect to any Eurodollar Standby Borrowing is specified
in any such notice, then the Borrower shall be deemed to have selected an
Interest Period of one month's duration (subject, at all times prior to
completion of syndication of the Total Commitment, to the limitations set forth
in the definition of "Interest Period"). If a Borrower shall not have given
notice in accordance with this Section 2.04 of its election to refinance a
Standby Borrowing prior to the end of the Interest Period in effect for such
Borrowing, then such Borrower shall (unless such Borrowing is repaid at the end
of such Interest Period) be deemed to have given notice of an election to
refinance such Borrowing with an ABR Borrowing. Notwithstanding any other
provision of this Agreement to the contrary, no Standby Borrowing shall be
requested if the Interest Period with respect thereto would end after the
Maturity Date. The Administrative Agent shall promptly advise the Lenders of
any notice given pursuant to this Section 2.04 and of each Lender's portion of
the requested Borrowing.
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SECTION 2.5. FEES. (a) Each Borrower agrees jointly and severally to
pay to each Lender, through the Administrative Agent, on each March 31, June
30, September 30 and December 31 (with the first payment being due on March 31,
1998) and on each date on which the Commitment of such Lender shall be
terminated as provided herein, a facility fee (a "FACILITY FEE"), at a rate per
annum equal to the Facility Fee Percentage from time to time in effect on the
amount of the sum of the unused Commitment of such Lender plus the principal
amount of Loans outstanding made by such Lender (without regard, in either
case, to any Competitive Loans made by any Lender), during the preceding
quarter (or other period commencing on the Effective Date or ending with the
Maturity Date or any date on which the Commitment of such Lender shall be
terminated). All Facility Fees shall be computed on the basis of the actual
number of days elapsed in a year of 365 or 366 days, as the case may be. The
Facility Fee due to each Lender shall commence to accrue on the Effective Date,
and shall cease to accrue on the earlier of the Maturity Date and the
termination of the Commitment of such Lender as provided herein.
(b) Each Borrower agrees jointly and severally to pay the
Administrative Agent, for its own account, the administrative fees provided for
in the Agent Fee Letter referred to in the Letter Agreement (the
"ADMINISTRATIVE FEES").
(c) Each Borrower agrees to pay the CAF Agent, for its own account,
the Auction Fees applicable to such Borrower.
(d) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders, the Initial Underwriters or the Joint Lead Arrangers or to
the CAF Agent. Once paid, none of the Fees shall be refundable under any
circumstances.
SECTION 2.6. REPAYMENT OF LOANS; EVIDENCE OF INDEBTEDNESS. (a) The
outstanding principal balance of each Loan shall be due and payable on the last
day of the Interest Period applicable thereto and on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness to such Lender resulting
from each Loan made by such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time under
this Agreement.
(c) The Administrative Agent shall maintain accounts in which it will
record (i) the amount of each Loan made hereunder, the Type of each Loan made
and the Interest Period applicable thereto, (i) the amount of any principal or
interest due and payable or to become due and payable from each Borrower to
each Lender hereunder and (i) the amount of any sum received by the
Administrative Agent hereunder from each Borrower and each Lender's share
thereof.
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(d) The entries made in the accounts maintained pursuant to
paragraphs (b) and (c) of this Section 2.06 shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein
shall not in any manner affect the obligations of the Borrowers to repay the
Loans in accordance with their terms.
SECTION 2.7. INTEREST ON LOANS. (a) Subject to the provisions of
Section 2.08, the Loans comprising each Eurodollar Borrowing shall bear
interest (computed on the basis of the actual number of days elapsed over a
year of 360 days) at a rate per annum equal to the LIBO Rate for the Interest
Period in effect for such Borrowing plus the Applicable Margin from time to
time in effect and in the case of each Eurodollar Competitive Loan, the LIBO
Rate for the Interest Period in effect for such Borrowing plus the Competitive
Bid Margin offered by the Lender making such Loan and accepted by the
applicable Borrower pursuant to Section 2.03.
(b) Subject to the provisions of Section 2.08, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 365 or 366 days, as the case may be, for
periods during which the Alternate Base Rate is determined by reference to the
Prime Rate and 360 days for other periods) at a rate per annum equal to the
Alternate Base Rate plus the Applicable Margin from time to time in effect.
(c) Subject to the provisions of Section 2.08, each Fixed Rate Loan
shall bear interest at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03.
(d) Interest on each Loan shall be payable on each Interest Payment
Date applicable to such Loan except as otherwise provided in this Agreement.
The applicable LIBO Rate or Alternate Base Rate for each Interest Period or day
within an Interest Period, as the case may be, shall be determined by Chase,
and such determination shall be conclusive absent manifest error; provided that
Chase shall, upon request, provide to the applicable Borrower a certificate
setting forth in reasonable detail the basis for such determination.
SECTION 2.8. DEFAULT INTEREST. If a Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, whether by scheduled maturity, notice of prepayment,
acceleration or otherwise, such Borrower shall on demand from time to time from
the Administrative Agents pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed as provided in Section
2.07(b)) equal to the Alternate Base Rate plus the Applicable Margin for ABR
Loans plus 1%.
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SECTION 2.9. ALTERNATE RATE OF INTEREST. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined (i) that dollar deposits in the principal amounts of the Eurodollar
Loans comprising such Borrowing are not generally available in the London
interbank market or (i) that reasonable means do not exist for ascertaining the
LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter,
give telecopy notice of such determination to the Borrowers and the Lenders.
In the event of any such determination under clauses (i) or (ii) above, until
the Administrative Agent shall have advised the Borrowers and the Lenders that
the circumstances giving rise to such notice no longer exist, (x) any request
by a Borrower for a Eurodollar Competitive Borrowing pursuant to Section 2.03
shall be of no force and effect and shall be denied by the Administrative Agent
and (y) any request by a Borrower for a Eurodollar Standby Borrowing pursuant
to Section 2.04 shall be deemed to be a request for an ABR Borrowing. In the
event the Required Lenders notify the Administrative Agent that the rates at
which dollar deposits are being offered will not adequately and fairly reflect
the cost to such Lenders of making or maintaining Eurodollar Loans during such
Interest Period, the Administrative Agent shall notify the applicable Borrower
of such notice and until the Required Lenders shall have advised the
Administrative Agent that the circumstances giving rise to such notice no
longer exist, any request by such Borrower for a Eurodollar Standby Borrowing
shall be deemed a request for an ABR Borrowing. Each determination by the
Administrative Agent hereunder shall be made in good faith and shall be
conclusive absent manifest error; provided that the Administrative Agent,
shall, upon request, provide to the applicable Borrower a certificate setting
forth in reasonable detail the basis for such determination.
SECTION 2.10. TERMINATION AND REDUCTION OF COMMITMENTS. (a) The
Commitments shall be automatically terminated on the Maturity Date. In
addition, until such time as the Equity Event shall have occurred, the Offer
Loan Commitments shall be automatically reduced by an amount equal to the net
proceeds of any issuance or disposition or any payment to TUC, in each case
described in Section 2.11(d), with such reduction to be effective on the later
to occur of the date of such issuance, sale or payment, as the case may be, and
the date specified under Section 2.11(d) for any related prepayment or
repayment of the Offer Loans.
(b) Upon (i) the date of the withdrawal or lapse of the Offer and (i)
28 days after the Effective Date if the Offer has not yet been posted, the
unused Offer Loan Commitments shall be automatically terminated.
(c) Upon at least two Business Days' prior irrevocable written notice
to the Administrative Agent, the Borrowers, acting jointly, may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Offer Loan Commitments or the General Loan Commitments; provided, however,
that (i) each partial reduction of the Commitments shall be in an integral
multiple of $10,000,000 and in a minimum principal amount of $10,000,000 and
(i) no such termination or reduction shall be made that would reduce the Total
Commitment to an amount (1) less than the aggregate outstanding principal
amount of
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all Competitive Loans or (1) less than $50,000,000, unless the result of such
termination or reduction referred to in this clause (2) is to reduce the Total
Commitment to $0. The Administrative Agent shall advise the Lenders of any
notice given pursuant to this Section 2.10(c) and of each Lender's portion of
any such termination or reduction of the Total Commitment.
(d) If the Borrowers shall make the Term Election, then on the last
day of the Revolving Period the Total Commitment shall be permanently reduced
to an amount equal to the aggregate principal amount of Loans then outstanding.
(e) Each reduction in the Total Commitment hereunder shall be made
ratably among the Lenders in accordance with their respective Commitments. The
Borrowers shall pay to the Administrative Agent for the account of the Lenders,
on the date of each termination or reduction of the Total Commitment, the
Facility Fees on the amount of the Commitments so terminated or reduced accrued
through the date of such termination or reduction.
SECTION 2.11. PREPAYMENT. (a) Each Borrower shall have the right at
any time and from time to time to prepay any Standby Borrowing, in whole or in
part, upon giving telecopy notice (or telephone notice promptly confirmed by
telecopy) to the Administrative Agent: (i) before 10:00 a.m., Houston time,
three Business Days prior to prepayment, in the case of Eurodollar Loans, and
(i) before 10:00 a.m., Houston time, one Business Day prior to prepayment, in
the case of ABR Loans; provided, however, that each partial prepayment shall be
in an amount which is an integral multiple of $10,000,000 and not less than
$10,000,000. No prepayment may be made in respect of any Competitive
Borrowing. Any (i) principal amount of any Offer Loan repaid or prepaid at any
time and not refinanced on the date of such repayment or prepayment (as the
case may be) with the proceeds of another Offer Loan and (ii) any principal
amount of any Loan repaid or prepaid or on or after the last day of the
Revolving Period may not, in either case, be reborrowed.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.10, the Borrowers shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the aggregate principal
amount of the Competitive Loans and Standby Loans outstanding will not exceed
the Total Commitment, after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date and
the principal amount of each Borrowing (or portion thereof) to be prepaid,
shall be irrevocable and shall commit the Borrower to prepay such Borrowing (or
portion thereof) by the amount stated therein on the date stated therein. All
prepayments under this Section 2.11 shall be subject to Section 8.05 but
otherwise without premium or penalty. All prepayments under this Section 2.11
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
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(d) Until such time as the Equity Event shall have occurred, upon (i)
the issuance by TUC (or any special purpose financing Subsidiary of TUC, other
than FinCo 1, FinCo 2 or any Subsidiary of FinCo 1 or of FinCo 2) of any debt,
equity or other capital market instruments or other securities (other than
stock of TUC issued in connection with employee stock option and other stock
purchase and incentive plans in effect on the date hereof), (i) the disposition
by TUC of any of the capital shares of FinCo 1, FinCo 2 or Enserch, or (i) the
payment by any Acquisition Company to TUC of any amount in respect of shares of
TUC exchanged for Target Shares, TUC shall prepay the principal amount of Offer
Loans hereunder in an amount equal to the net proceeds of such issuance or
disposition or such payment, as the case may be, with such prepayment to be
accompanied by payment of accrued interest on such Offer Loans being prepaid to
the date of payment and any amounts payable pursuant to Section 8.05. Any
amounts required to be applied to the prepayment of Offer Loans shall be
applied as follows: first, to the immediate prepayment of ABR Loans
outstanding, second, to the prepayment of Eurodollar Loans (not constituting
Competitive Loans) outstanding on the last day of the respective Interest
Periods for such Eurodollar Loans in the order that they occur, and third, to
the repayment of Competitive Loans, on the last day of the respective Interest
Periods for such Competitive Loans in the order that they occur.
SECTION 2.12. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender hereunder
(except for changes in respect of taxes on the overall net income of such
Lender or its lending office imposed by the jurisdiction in which such Lender's
principal executive office or lending office is located), or shall result in
the imposition, modification or applicability of any reserve, special deposit
or similar requirement against assets of, deposits with or for the account of
or credit extended by any Lender, or shall result in the imposition on any
Lender or the London interbank market of any other condition affecting this
Agreement, such Lender's Commitment or any Eurodollar Loan or Fixed Rate Loan
made by such Lender, and the result of any of the foregoing shall be to
increase the cost to such Lender of making or maintaining any Eurodollar Loan
or Fixed Rate Loan or to reduce the amount of any sum received or receivable by
such Lender hereunder (whether of principal, interest or otherwise) by an
amount deemed by such Lender to be material, then the applicable Borrower or,
if the foregoing circumstances do not relate to a particular Borrowing, the
Borrowers shall, upon receipt of the notice and certificate provided for in
Section 2.12(c), promptly pay to such Lender such additional amount or amounts
as will compensate such Lender for such additional costs incurred or reduction
suffered. Notwithstanding the foregoing, no Lender shall be entitled to
request compensation under this paragraph with respect to any Competitive Loan
if the change giving rise to such request was applicable to such Lender at the
time of submission of the Competitive Bid pursuant to which such Competitive
Loan was made.
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(b) If any Lender shall have determined that the adoption of any law,
rule, regulation or guideline arising out of the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards," or
the adoption after the date hereof of any other law, rule, regulation or
guideline regarding capital adequacy, or any change in any of the foregoing or
in the interpretation or administration of any of the foregoing by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of
law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on such Lender's capital or on
the capital of such Lender's holding company, if any, as a consequence of this
Agreement, such Lender's Commitment or the Loans made by such Lender pursuant
hereto to a level below that which such Lender or such Lender's holding company
could have achieved but for such adoption, change or compliance (taking into
consideration such Lender's policies and the policies of such Lender's holding
company with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time such additional amount or amounts as will
compensate such Lender for any such reduction suffered will be paid by the
Borrowers to such Lender. It is acknowledged that this Agreement is being
entered into by the Lenders on the understanding that the Lenders will not be
required to maintain capital against their Commitments under currently
applicable laws, regulations and regulatory guidelines. In the event the
Lenders shall otherwise determine that such understanding is incorrect, it is
agreed that the Lenders will be entitled to make claims under this paragraph
(b) based upon market requirements prevailing on the date hereof for
commitments under comparable credit facilities against which capital is
required to be maintained.
(c) A certificate of each Lender setting forth such amount or amounts
as shall be necessary to compensate such Lender or its holding company as
specified in paragraph (a) or (b) above, as the case may be, and containing an
explanation in reasonable detail of the manner in which such amount or amounts
shall have been determined, shall be delivered to the applicable Borrower or
the Borrowers, as the case may be, and shall be conclusive absent manifest
error. The Borrowers shall pay each Lender the amount shown as due on any such
certificate delivered by it within 10 days after its receipt of the same. Each
Lender shall give prompt notice to the applicable Borrower of any event of
which it has knowledge, occurring after the date hereof, that it has determined
will require compensation by such Borrower pursuant to this Section; provided,
however, that failure by such Lender to give such notice shall not constitute a
waiver of such Lender's right to demand compensation hereunder.
(d) Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Lender's right to demand compensation with respect to such period or any
other period; provided, however, that no Lender shall be entitled to
compensation under this Section 2.12 for any costs incurred or reductions
suffered with
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respect to any date unless it shall have notified the applicable Borrower that
it will demand compensation for such costs or reductions under paragraph (c)
above not more than 90 days after the later of (i) such date and (i) the date
on which it shall have become aware of such costs or reductions. The
protection of this Section shall be available to each Lender regardless of any
possible contention of the invalidity or inapplicability of the law, rule,
regulation, guideline or other change or condition which shall have occurred or
been imposed.
(e) Each Lender agrees that it will designate a different lending
office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the reasonable judgment of such Lender, be
disadvantageous to such Lender.
SECTION 2.13. CHANGE IN LEGALITY. (a) Notwithstanding any other
provision herein, if any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written
notice to the Borrowers and to the Agents, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made
by such Lender hereunder, whereupon such Lender shall not submit a
Competitive Bid in response to a request for Eurodollar Competitive
Loans and any request for a Eurodollar Standby Borrowing shall, as to
such Lender only, be deemed a request for an ABR Loan unless such
declaration shall be subsequently withdrawn (any Lender delivering such
a declaration hereby agreeing to withdraw such declaration promptly upon
determining that such event of illegality no longer exists); and
(ii) require that all outstanding Eurodollar Loans made by it
be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date
of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied
to repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.13, a notice by any Lender shall
be effective as to each Eurodollar Loan, if lawful, on the last day of the
Interest Period currently applicable to such Eurodollar Loan; in all other
cases such notice shall be effective on the date of receipt.
SECTION 2.14. PRO RATA TREATMENT. Except as provided below in this
Section 2.14 with respect to Competitive Borrowings and as required under
Sections 2.13 and 2.18, each Standby Borrowing, each payment or prepayment of
principal of any Standby Borrowing, each
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payment of interest on the Standby Loans, each payment of the Facility Fees,
each reduction of the Commitments and each refinancing or conversion of any
Borrowing with a Standby Borrowing of any Type, shall be allocated pro rata
among the Lenders in accordance with their respective Commitments (or, if such
Commitments shall have expired or been terminated, in accordance with the
respective principal amounts of their outstanding Standby Loans). Each payment
of principal of any Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the respective
principal amounts of their outstanding Competitive Loans comprising such
Borrowing. Each payment of interest on any Competitive Borrowing shall be
allocated pro rata among the Lenders participating in such Borrowing in
accordance with the respective amounts of accrued and unpaid interest on their
outstanding Competitive Loans comprising such Borrowing. For purposes of
determining the available Commitments of the Lenders at any time, each
outstanding Competitive Borrowing shall be deemed to have utilized the
Commitments of the Lenders (including those Lenders which shall not have made
Loans as part of such Competitive Borrowing) pro rata in accordance with such
respective Commitments. Each Lender agrees that in computing such Lender's
portion of any Borrowing to be made hereunder, the Administrative Agent may, in
its discretion, round each Lender's percentage of such Borrowing to the next
higher or lower whole dollar amount.
SECTION 2.15. SHARING OF SETOFFS. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim, or
pursuant to a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, obtain payment
(voluntary or involuntary) in respect of any Standby Loan or Loans as a result
of which the unpaid principal portion of its Standby Loans shall be
proportionately less than the unpaid principal portion of the Standby Loans of
any other Lender, it shall be deemed simultaneously to have purchased from such
other Lender at face value, and shall promptly pay to such other Lender the
purchase price for, a participation in the Standby Loans of such other Lender,
so that the aggregate unpaid principal amount of the Standby Loans and
participations in the Standby Loans held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Standby Loans then
outstanding as the principal amount of its Standby Loans prior to such exercise
of banker's lien, setoff or counterclaim or other event was to the principal
amount of all Standby Loans outstanding prior to such exercise of banker's
lien, setoff or counterclaim or other event; provided, however, that, if any
such purchase or purchases or adjustments shall be made pursuant to this
Section 2.15 and the payment giving rise thereto shall thereafter be recovered,
such purchase or purchases or adjustments shall be rescinded to the extent of
such recovery and the purchase price or prices or adjustment restored without
interest. Each Borrower expressly consents to the foregoing arrangements and
agrees that any Lender holding a participation in a Standby Loan deemed to have
been so purchased may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by such Borrower to such
Lender by reason thereof as fully as if such Lender had made a Standby Loan in
the amount of such participation.
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SECTION 2.16. PAYMENTS. (a) Each Borrower shall make each payment
(including principal of or interest on any Borrowing or any Fees or other
amounts) hereunder from an account in the United States not later than 10:00
a.m., Houston time, on the date when due in dollars to the Administrative Agent
at its offices at 707 Travis Street, 8-CBBN-N 96, Houston, Texas 77002, in
immediately available funds.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder shall become due, or
otherwise would occur, on a day that is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of interest or Fees, if applicable.
SECTION 2.17. TAXES. (a) Any and all payments of principal and
interest on any Borrowings, or of any Fees or indemnity or expense
reimbursements by a Borrower hereunder ("BORROWER PAYMENTS") shall be made, in
accordance with Section 2.16, free and clear of and without deduction for any
and all current or future United States Federal, state and local taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
to such Borrower Payments, but only to the extent reasonably attributable to
such Borrower Payments, excluding (i) income taxes imposed on the net income of
the Administrative Agent, the CAF Agent or any Lender (or any transferee or
assignee thereof, including a participation holder (any such entity a
"TRANSFEREE")) and (i) franchise taxes imposed on the net income of the
Administrative Agent, the CAF Agent or any Lender (or Transferee), in each case
by the jurisdiction under the laws of which the Administrative Agent, the CAF
Agent or such Lender (or Transferee) is organized or doing business through
offices or branches located therein, or any political subdivision thereof (all
such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities, collectively or individually, "TAXES"). If any Borrower shall be
required to deduct any Taxes from or in respect of any sum payable hereunder to
any Lender (or any Transferee) or the Agents, (i) the sum payable shall be
increased by the amount (an "ADDITIONAL AMOUNT") necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.17) such Lender (or Transferee) or Agent (as the
case may be) shall receive an amount equal to the sum it would have received
had no such deductions been made, (i) such Borrower shall make such deductions
and (i) such Borrower shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law.
(b) In addition, each Borrower shall pay to the relevant United
States Governmental Authority in accordance with applicable law any current or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or the Letter Agreement ("OTHER TAXES").
(c) Each Borrower shall indemnify each Lender (or Transferee thereof)
and each Agent for the full amount of Taxes and Other Taxes with respect to
Borrower Payments paid
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by such Lender (or Transferee) or such Agent, as the case may be, and any
liability (including penalties, interest and expenses (including reasonable
attorney's fees and expenses)) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted by
the relevant United States Governmental Authority. A certificate setting forth
and containing an explanation in reasonable detail of the manner in which such
amount shall have been determined and the amount of such payment or liability
prepared by a Lender, the CAF Agent, or the Administrative Agent on their
behalf, absent manifest error, shall be final, conclusive and binding for all
purposes. Such indemnification shall be made within 30 days after the date the
Lender (or Transferee) or any Agent, as the case may be, makes written demand
therefor.
(d) If a Lender (or Transferee) or any Agent shall become aware that
it is entitled to claim a refund from a United States Governmental Authority in
respect of Taxes or Other Taxes as to which it has been indemnified by a
Borrower, or with respect to which a Borrower has paid additional amounts,
pursuant to this Section 2.17, it shall promptly notify such Borrower of the
availability of such refund claim and shall, within 30 days after receipt of a
request by such Borrower, make a claim to such United States Governmental
Authority for such refund at such Borrower's expense. If a Lender (or
Transferee) or any Agent receives a refund (including pursuant to a claim for
refund made pursuant to the preceding sentence) in respect of any Taxes or
Other Taxes as to which it has been indemnified by a Borrower or with respect
to which a Borrower had paid additional amounts pursuant to this Section 2.17,
it shall within 30 days from the date of such receipt pay over such refund to
such Borrower (but only to the extent of indemnity payments made, or additional
amounts paid, by such Borrower under this Section 2.17 with respect to the
Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
expenses of such Lender (or Transferee) or such Agent and without interest
(other than interest paid by the relevant United States Governmental Authority
with respect to such refund); provided, however, that such Borrower, upon the
request of such Lender (or Transferee) or such Agent, agrees to repay the
amount paid over to such Borrower (plus penalties, interest or other charges)
to such Lender (or Transferee) or such Agent in the event such Lender (or
Transferee) or such Agent is required to repay such refund to such United
States Governmental Authority.
(e) As soon as practicable, but in any event within 30 days, after
the date of any payment of Taxes or Other Taxes by a Borrower to the relevant
United States Governmental Authority, such Borrower will deliver to the
Administrative Agent, at its address referred to in Section 8.01, the original
or a certified copy of a receipt issued by such United States Governmental
Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.17
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
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(g) Each Lender or Agent (or Transferee) that is organized under the
laws of a jurisdiction other than the United States, any State thereof or the
District of Columbia (a "NON-U.S. LENDER" or "NON U.S. AGENT", as applicable)
shall deliver to the Borrowers and the Administrative Agent two copies of
either United States Internal Revenue Service Form 1001 or Form 4224, properly
completed and duly executed by such Non-U.S. Lender claiming complete exemption
from, or reduced rate of, United States Federal withholding tax on payments by
any Borrower under this Agreement. Such forms shall be delivered by each Non-
U.S. Lender on or before the date it becomes a party to this Agreement (or, in
the case of a Transferee that is a participation holder, on or before the date
such participation holder becomes a Transferee hereunder) and on or before the
date, if any, such Non-U.S. Lender changes its applicable lending office by
designating a different lending office (a "NEW LENDING OFFICE"). In addition,
each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Non-U.S. Lender.
Notwithstanding any other provision of this Section 2.17(g), a Non-U.S. Lender
shall not be required to deliver any form pursuant to this Section 2.17(g) that
such Non-U.S. Lender is not legally able to deliver.
(h) A Borrower shall not be required to indemnify any Non-U.S. Lender
or Non-U.S. Agent (including any Transferee), or to pay any additional amounts
to any Non-U.S. Lender or Non-U.S. Agent (including any Transferee), in respect
of United States Federal, state or local withholding tax pursuant to paragraph
(a) or (c) above to the extent that (i) the obligation to withhold amounts with
respect to United States Federal, state or local withholding tax existed on the
date such Non-U.S. Lender became a party to this Agreement (or, in the case of
a Transferee that is a participation holder, on the date such participation
holder became a Transferee hereunder) or, with respect to payments to a New
Lending Office, the date such Non-U.S. Lender designated such New Lending
Office with respect to a Loan; provided, however, that this clause (i) shall
not apply to any Transferee or New Lending Office that becomes a Transferee or
New Lending Office as a result of an assignment, participation, transfer or
designation made at the request of such Borrower; and provided further,
however, that this clause (i) shall not apply to the extent the indemnity
payment or additional amounts any Transferee, or Lender (or Transferee) through
a New Lending Office, would be entitled to receive (without regard to this
clause (i)) do not exceed the indemnity payment or additional amounts that the
person making the assignment, participation or transfer to such Transferee, or
Lender (or Transferee) making the designation of such New Lending Office, would
have been entitled to receive in the absence of such assignment, participation,
transfer or designation or (i) the obligation to pay such additional amounts or
such indemnity payments would not have arisen but for a failure by such
Non-U.S. Lender (including any Transferee) to comply with the provisions of
paragraph (g) above and (i) below.
(i) Any Lender (or Transferee) claiming any indemnity payment or
additional amounts payable pursuant to this Section 2.17 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to file any
certificate or document reasonably requested in writing by a Borrower or to
change the jurisdiction of its applicable lending office if the making of such
a filing or change would avoid the need for or reduce the amount of any such
indemnity payment
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or additional amounts that may thereafter accrue and would not, in the good
faith determination of such Lender (or Transferee), be otherwise
disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.17 shall require any Lender
(or Transferee) or any Agent to make available to such Borrower any of its tax
returns (or any other information) that it deems to be confidential or
proprietary.
(k) Notwithstanding anything herein to the contrary, the
indemnification obligations under this Section shall, to the extent
practicable, be allocated between the Borrowers based upon their relative
liability for the interest, fee or other payments in respect of which such
indemnification obligations arise.
SECTION 2.18. ASSIGNMENT OF COMMITMENTS UNDER CERTAIN CIRCUMSTANCES.
In the event that any Lender shall have delivered a notice or certificate
pursuant to Section 2.12 or 2.13, or any Borrower shall be required to make
additional payments to any Lender under Section 2.17, the Borrowers shall have
the right, at their own expense, upon notice to such Lender and the Agents, to
require such Lender to transfer and assign without recourse (in accordance with
and subject to the restrictions contained in Section 8.04) all such Lender's
interests, rights and obligations contained hereunder to another financial
institution approved by the Agents and the Borrowers (which approval shall not
be unreasonably withheld) which shall assume such obligations; provided that
(i) no such assignment shall conflict with any law, rule or regulation or order
of any Governmental Authority and (i) the assignee or the Borrowers, as the
case may be, shall pay to the affected Lender in immediately available funds on
the date of such assignment the principal of and interest accrued to the date
of payment on the Loans made by it hereunder and all other amounts accrued for
its account or owed to it hereunder.
SECTION 2.19. TERM ELECTION. At least 20 but not more than 40 days
prior to the end of the Revolving Period, the Borrowers may, by delivering a
written notice to the Administrative Agent (with such notice being
irrevocable), and subject to the condition set forth below, elect that the
Maturity Date be extended for a period of 364 days, commencing on the last day
of the Revolving Period (any such election to so extend the Maturity Date being
the "TERM ELECTION"). Upon receipt of any such notice the Administrative Agent
shall promptly communicate such notice to the Lenders. The Term Election shall
be effective on the last day of the Revolving Period, if and only if on such
date, no Default or Event of Default shall have occurred and be continuing.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to each of the Lenders as follows
(except in the case of the representations contained (i) in Section 3.05(a),
which are made by TUC only, and (ii) Section 3.05(b), which are made by TU
Electric only; and provided, that each representation or warranty made by any
Borrower in respect of TEG or any member of the TEG Group on any date up to
(but not including) the 120th day following the Unconditional Date shall be
subject to the qualification that such representation or warranty is true and
accurate insofar as such Borrower was aware as of the date of this Agreement):
SECTION 3.1. ORGANIZATION; POWERS. Such Borrower (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has all requisite power and authority to
own its property and assets and to carry on its business as now conducted and
as proposed to be conducted, (c) is qualified to do business in every
jurisdiction where such qualification is required, except where the failure so
to qualify would not result in a Material Adverse Change, and (d) has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and to borrow hereunder.
SECTION 3.2. AUTHORIZATION. The execution, delivery and performance by
such Borrower of this Agreement, the Borrowings hereunder and the Acquisition
(collectively, the "TRANSACTIONS") (a) have been duly authorized by all
requisite corporate action and (a) will not (i) violate (B) any provision of
any law, statute, rule or regulation (including, without limitation, the Margin
Regulations) or of the certificate of incorporation or other constitutive
documents or by-laws of such Borrower or any of its Subsidiaries to which such
Borrower is subject, (B) any order of any Governmental Authority or (B) any
provision of any indenture, agreement or other instrument to which such
Borrower or any of its Subsidiaries is a party or by which it or any of its
property is or may be bound, (i)) be in conflict with, result in a breach of or
constitute (alone or with notice or lapse of time or both) a default under any
such indenture, agreement or other instrument or (i) result in the creation or
imposition of any Lien upon any property or assets of such Borrower.
SECTION 3.3. ENFORCEABILITY. This Agreement constitutes a legal, valid
and binding obligation of such Borrower enforceable in accordance with its
terms except to the extent that enforcement may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally.
SECTION 3.4. GOVERNMENTAL APPROVALS. No action, consent or approval
of, registration or filing with or other action by any Governmental Authority
is or will be required in connection with the Transactions, to the extent they
relate to such Borrower, except those as have been duly obtained and as are (i)
in full force and effect, (i) sufficient for their purpose and
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(i) not subject to any pending or, to the knowledge of such Borrower,
threatened appeal or other proceeding seeking reconsideration or review
thereof.
SECTION 3.5. FINANCIAL STATEMENTS. (a) The consolidated balance sheet
of TUC and its Consolidated Subsidiaries as of December 31, 1996 and the
related consolidated statements of income, retained earnings and cash flows for
the fiscal year then ended, reported on by Deloitte & Touche LLP and set forth
in TUC's 1996 Annual Report on Form 10-K and the consolidated balance sheet of
TUC and its Consolidated Subsidiaries as of September 30, 1997 and the related
consolidated statements of income, retained earnings and cash flows for the
nine-month period then ended and set forth in TUC's Quarterly Report on Form
10-Q, copies of which have been delivered to each of the Lenders, fairly
present (subject in the case of such financial statements as of September 30,
1997, to year-end adjustments) in conformity with GAAP, the consolidated
financial position of TUC and its Consolidated Subsidiaries as of such date and
their consolidated results of operations and cash flows for such periods ending
on such dates.
(b) The consolidated balance sheet of TU Electric and its
Consolidated Subsidiaries as of December 31, 1996 and the related consolidated
statements of income, retained earnings and cash flows for the fiscal year then
ended, reported on by Deloitte & Touche LLP and set forth in TU Electric's 1996
Annual Report on Form 10-K and the consolidated balance sheet of TU Electric
and its Consolidated Subsidiaries as of September 30, 1997 and the related
consolidated statements of income, retained earnings and cash flows for the
nine-month period then ended and set forth in TU Electric's Quarterly Report on
Form 10-Q, copies of which have been delivered to each of the Lenders, fairly
present (subject in the case of such financial statements as of September 30,
1997, to year-end adjustments), in conformity with GAAP, the consolidated
financial position of TU Electric and its Consolidated Subsidiaries as of such
dates and their consolidated results of operations and cash flows for the
periods ending on such dates.
(c) There has heretofore been delivered to each of the Lenders an
unaudited condensed pro forma consolidated balance sheet as of December 31,
1997 and unaudited condensed statement of income for the fiscal year ending
December 31, 1997 which gave effect to the Acquisition (the "PRO FORMA
FINANCIAL STATEMENTS"), which Pro Forma Financial Statements were prepared in
accordance with GAAP. The assumptions used in preparing the Pro Forma
Financial Statements are reasonable, as of the date of such Pro Forma Financial
Statements and as of the Effective Date, and all material assumptions with
respect to the Pro Forma Financial Statements are set forth therein.
(d) Since September 30, 1997, there has been no Material Adverse
Change with respect to such Borrower, other than as a result of the matters
excluded from the computation of Consolidated Earnings Available for Fixed
Charges as set forth in the definition thereof.
SECTION 3.6. LITIGATION. Except as set forth in the financial
statements or other reports of the type referred to in Section 5.03 hereof and
which have been delivered to the
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Lenders on or prior to the date hereof or as set forth on Schedule 3.06, there
is no action, suit or proceeding pending against, or to the knowledge of such
Borrower threatened against or affecting, TUC or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable possibility of an adverse decision which could materially
adversely affect the ability of such Borrower to pay its obligations hereunder
or which in any manner draws into question the validity of this Agreement.
SECTION 3.7. FEDERAL RESERVE REGULATIONS. (a) Neither such
Borrower nor any of its Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used by such
Borrower, whether directly or indirectly, and whether immediately, incidentally
or ultimately, to purchase or carry Margin Stock (other than the American
Depositary Shares of TEG to be acquired in connection with the Acquisition) or
to refund indebtedness originally incurred for such purpose, or for any other
purpose which entails a violation of, or which is inconsistent with, the
provisions of the Margin Regulations.
(c) Not more than 25% of the value of the assets of any Borrower
subject to the restrictions of Section 5.09 are represented by Margin Stock.
SECTION 3.8. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY
ACT. (a) Neither such Borrower nor any of its Subsidiaries is an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940.
(b) Such Borrower and each of its Subsidiaries is exempt from all
provisions of the Public Utility Holding Company Act of 1935 and rules and
regulations thereunder, except for Sections 9(a)(2) and 33 of such Act and the
rules and regulations thereunder, and the execution, delivery and performance
by the Borrowers of this Agreement and their respective obligations hereunder
do not violate any provision of such Act or any rule or regulation thereunder.
SECTION 3.9. NO MATERIAL MISSTATEMENTS. No report, financial statement
or other written information furnished by or on behalf of such Borrower to the
Agents or any Lender pursuant to or in connection with this Agreement contains
or will contain any material misstatement of fact or omits or will omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were or will be made, not misleading.
SECTION 3.10. TAXES. Such Borrower and its Subsidiaries have filed or
caused to be filed within 3 days of the date on which due, all Federal and
material state and local tax returns which to their knowledge are required to
be filed by them, and have paid or caused to be paid all material taxes shown
to be due and payable on such returns or on any assessments received by them,
other than any taxes or assessments the validity of which is being contested in
good
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faith by appropriate proceedings and with respect to which appropriate
accounting reserves have to the extent required by GAAP been set aside.
SECTION 3.11. EMPLOYEE BENEFIT PLANS. With respect to each Plan such
Borrower and its ERISA Affiliates are in compliance in all material respects
with the applicable provisions of ERISA and the Code and the final regulations
and published interpretations thereunder. No ERISA Event has occurred that
alone or together with any other ERISA Event has resulted or could reasonably
be expected to result in a Material Adverse Change. Neither such Borrower nor
any ERISA Affiliate has incurred any Withdrawal Liability that could result in
a Material Adverse Change. Neither such Borrower nor any ERISA Affiliate has
received any notification that any Multiemployer Plan is in reorganization or
has been terminated within the meaning of Title IV of ERISA, which such
reorganization or termination could result in a Material Adverse Change, and no
Multiemployer Plan is reasonably expected to be in reorganization or to be
terminated where such reorganization or termination has resulted or can
reasonably be expected to result, through an increase in the contributions
required to be made to such Plan or otherwise, in a Material Adverse Change.
SECTION 3.12. SIGNIFICANT SUBSIDIARIES. Each of TUC's corporate
Significant Subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation and
has all corporate powers necessary to carry on its business substantially as
now conducted. TUC's corporate Significant Subsidiaries have all material
governmental licenses, authorizations, consents and approvals required to carry
on the business of the corporate Significant Subsidiaries substantially as now
conducted.
SECTION 3.13. ENVIRONMENTAL MATTERS. Except as set forth in or
contemplated by the financial statements or other reports of the type referred
to in Section 5.03 hereof and which have been delivered to the Lenders on or
prior to the date hereof, such Borrower and each of its Subsidiaries has
complied in all material respects with all Federal, state, local and other
statutes, ordinances, orders, judgments, rulings and regulations relating to
environmental pollution or to environmental or nuclear regulation or control,
except to the extent that failure to so comply could not reasonably be expected
to result in a Material Adverse Change. Except as set forth in or contemplated
by such financial statements or other reports, neither such Borrower nor any of
its Subsidiaries has received notice of any material failure so to comply,
except where such failure could not reasonably be expected to result in a
Material Adverse Change. Except as set forth in or contemplated by such
financial statements or other reports, the facilities of such Borrower or any
of its Subsidiaries, as the case may be, are not used to manage any hazardous
wastes, hazardous substances, hazardous materials, toxic substances, toxic
pollutants or substances similarly denominated, as those terms or similar terms
are used in the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response Compensation and Liability Act, the Hazardous Materials
Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the
Clean Water Act or any other applicable law relating to environmental
pollution, or any nuclear fuel or other radioactive materials, in violation in
any material respect of any law or any regulations promulgated pursuant
thereto,
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except to the extent that such violations could not reasonably be expected to
result in a Material Adverse Change. Except as set forth in or contemplated by
such financial statements or other reports, such Borrower is aware of no
events, conditions or circumstances involving environmental pollution or cold
reasonably be expected to result in a Material Adverse Change.
ARTICLE IV
CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are subject to
the satisfaction of the following conditions:
SECTION 4.1. EFFECTIVE DATE. On the Effective Date:
(a) The representations and warranties set forth in Article
III hereof shall be true and correct in all material respects on and as
of such date with the same effect as though made on and as of such date,
except to the extent such representations and warranties expressly
relate to an earlier date.
(b) No Event of Default or Default shall have occurred and be
continuing on such date.
(c) The Agents shall have received favorable written opinions
of (i) Reid & Priest LLP and Worsham, Forsythe & Wooldridge, L.L.P. each
dated the Effective Date and addressed to the Lenders and satisfactory
to King & Spalding, counsel for the Agents, to the effect set forth in
Exhibits D-1 and D-2 hereto and (i) King & Spalding, dated the Effective
Date, addressed to the Lenders and in form satisfactory to the Agents.
(d) The Agents shall have received (i) a copy of the
certificate of incorporation, including all amendments thereto, of each
Borrower, certified as of a recent date by the Secretary of State of its
state of incorporation, and a certificate as to the good standing of
each Borrower as of a recent date from such Secretary of State; (i) a
certificate of the Secretary or an Assistant Secretary of each Borrower
dated the Effective Date and certifying (B) that attached thereto is a
true and complete copy of the by-laws of such Borrower as in effect on
the Effective Date and at all times since a date prior to the date of
the resolutions described in clause (B) below, (B) that attached thereto
is a true and complete copy of resolutions duly adopted by the Board of
Directors of such Borrower authorizing the execution, delivery and
performance of this Agreement and the Borrowings hereunder, and that
such resolutions have not been modified, rescinded or amended and are in
full force and effect, (B) that the certificate of incorporation
referred to in clause (i) above has not been amended since the date of
the last amendment thereto shown on the certificate of good standing
furnished pursuant to such clause (i) and (B) as to the incumbency and
specimen signature of each officer executing this Agreement or
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any other document delivered in connection herewith on behalf of such
Borrower; (i) a certificate of another officer of such Borrower as to
the incumbency and specimen signature of the Secretary or Assistant
Secretary executing the certificate pursuant to (ii) above; (i) evidence
satisfactory to the Agents that the requisite approvals referred to in
Section 3.04 hereof have been obtained, are in full force and effect
(other than (A) any such approvals that will be set forth in the Offer
Documents as conditions to the Offer and (B) other approvals the failure
to obtain which could not reasonably be expected to have a Material
Adverse Effect); and (i) such other documents as the Lenders or King &
Spalding, counsel for the Agents, shall reasonably request.
(e) The Agents shall have received a certificate, dated the
Effective Date and signed by a Financial Officer of each Borrower,
confirming compliance with the conditions precedent set forth in
paragraphs (a) and (b) of Section 4.01.
(f) The Agents shall have received all Fees and amounts due
and payable by the Borrowers on or prior to the Effective Date.
(g) All the conditions to the effectiveness of the Facility B
Credit Agreement (other than the condition set forth in Section 4.01(g)
thereof) shall have been satisfied.
(h) The Agents shall have received an executed counterpart to
this Agreement of each Agent, each Lender and each Borrower.
(i) The U.K. Facility Agreement shall have been fully executed
and delivered by the parties thereto.
(j) The Agents shall have received such other approvals,
opinions and documents as the Agents may reasonably request as to the
legality, validity, binding effect or enforceability of this Agreement
or the financial condition, properties, operations or prospects of any
Borrower.
SECTION 4.2. INITIAL OFFER LOANS. The Commitment of each Lender to make
its initial Offer Loan shall be subject to the satisfaction of the following
conditions precedent on or after the Effective Date:
(a) The terms of the Offer as set forth in the Offer Press
Release shall have been found to be acceptable by the Joint Lead
Arrangers prior to the public announcement thereof by or on behalf of
Bidco. The Joint Lead Arrangers shall have received copies of the Offer
Documents and the Offer Press Release and of all other documents and
materials filed or released publicly by TUC, Bidco or any of TUC's other
affiliates in connection with the Offer, certified as true and correct
copies thereof as of the date thereof by a responsible officer of TUC,
and the conditions set forth in such
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documents shall conform to the conditions set forth in the Offer Press
Release as approved by the Joint Lead Arrangers prior to the release
thereof.
(b) All conditions precedent to borrowings under the U.K.
Facility Agreement for the purpose of consummating the Acquisition shall
have been satisfied (other than any such condition relating to, or that
would be satisfied upon, the making of Offer Loans).
(c) The Unconditional Date shall have occurred.
(d) The Agents shall have received evidence satisfactory to
them that all amounts outstanding under the Existing TU Credit
Agreements have been repaid (or will be repaid on such date with the
proceeds of the Loans hereunder and the Loans under and as defined in
the Facility B Credit Agreement) and that the "Commitments" thereunder
have been terminated.
SECTION 4.3. CERTAIN FUNDS CONDITIONS FOR ALL OFFER LOANS DURING THE
REVOLVING PERIOD. To ensure that TUC has resources available to advance to
Bidco funds to enable Bidco to fulfill its obligations in respect of the Offer,
the Lenders agree that the Commitment of each Lender to make each Offer Loan to
be made by it (including the initial Offer Loan to be made by it) during the
Revolving Period shall be subject to the satisfaction of the conditions
precedent set forth in Section 4.02 on or prior to the date of such Offer Loan,
and the only further conditions precedent to the Commitment of each Lender to
make each Offer Loan to be made by it during the Revolving Period shall be that
on the date of such Offer Loan:
(a) The Agents shall have received a notice of such Borrowing
as required by Section 2.03 or Section 2.04, as applicable.
(b) No Major Default shall have occurred and be continuing or
would result from the making of such Offer Loan.
(c) The Agents shall have received a certificate of a
Responsible Officer of TUC certifying that the matter set forth in the
foregoing paragraph (b) is true and correct on the date of the making of
such Offer Loan.
Each such Offer Loan shall be deemed to constitute a representation and
warranty by TUC on the date of such Loan as to the matters specified in
subsection (b) of this Section 4.03.
SECTION 4.4. INITIAL GENERAL LOANS. The Commitment of each Lender to
make its initial General Loan shall be subject to the satisfaction of the
following conditions precedent on the date of such Borrowing:
(a) The Effective Date shall have occurred.
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(b) The Agents shall have received evidence satisfactory to
them that all amounts outstanding under the Existing TU Credit
Agreements have been repaid (or will be repaid on such date with the
proceeds of the Loans hereunder and the Loans under and as defined in
the Facility B Credit Agreement) and that the "Commitments" thereunder
have been terminated.
SECTION 4.5. ALL GENERAL LOANS AND OFFER LOANS AFTER THE REVOLVING
PERIOD. The Commitment of each Lender to make each General Loan to be made by
it (including the initial General Loan to be made by it) and each Offer Loan to
be made by it at any time on or after the last day of the Revolving Period
shall be subject to the satisfaction of the following conditions precedent on
the date of such Borrowing:
(a) The Agents shall have received a notice of such Borrowing
as required by Section 2.03 or Section 2.04, as applicable.
(b) The representations and warranties set forth in Article
III hereof (except, in the case of a refinancing of a Standby Borrowing
(whether for Offer Loans or General Loans) with a new Standby Borrowing
that does not increase the aggregate principal amount of the Loans of
any Lender outstanding, the representations set forth in Sections
3.05(d), 3.06, 3.11 and 3.13) shall be true and correct in all material
respects on and as of the date of such Borrowing with the same effect as
though made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date.
(c) At the time of and immediately after such Borrowing no
Event of Default or Default shall have occurred and be continuing.
(d) The Agents shall have received a certificate of a
Responsible Officer of the applicable Borrower certifying that the
matters set forth in paragraphs (b) and (c) of this Section 4.05 are
true and correct as of such date.
Each such Loan shall be deemed to constitute a representation and warranty by
each Borrower on the date of such Borrowing as to the matters specified in
subsections (b) and (c) of this Section 4.05.
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ARTICLE V
COVENANTS
TUC (and each of TU Electric and Enserch, to the extent such covenants
apply to it) agrees that, so long as any Lender has any Commitment hereunder or
any amount payable hereunder remains unpaid (provided, that such covenants
shall not apply to TEG or any member of the TEG Group until the 120th day
following the Unconditional Date, but TUC shall use all reasonable efforts to
cause TEG and all members of the TEG Group to comply with such covenants at all
times on and after the Unconditional Date):
SECTION 5.1. EXISTENCE. It will, and will cause each of its
Significant Subsidiaries to, do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and all
rights, licenses, permits, franchises and authorizations necessary or desirable
in the normal conduct of its business except as otherwise permitted pursuant to
Section 5.09.
SECTION 5.2. BUSINESS AND PROPERTIES. It will, and will cause each of
its Subsidiaries to, comply with all applicable material laws, rules,
regulations and orders of any Governmental Authority, whether now in effect or
hereafter enacted, except where the validity or applicability of such laws,
rules, regulations or orders is being contested by appropriate proceedings in
good faith; and at all times maintain and preserve all property material to the
conduct of its business and keep such property in good repair, working order
and condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times.
SECTION 5.3. FINANCIAL STATEMENTS, REPORTS, ETC. TUC (and TU Electric
and Enserch, to the extent such information relates to TU Electric or Enserch,
as applicable, only) will furnish to the Agents and each Lender:
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of TUC, a consolidated balance sheet
of TUC and its Consolidated Subsidiaries as of the end of such fiscal
year and the related consolidated statements of income, retained
earnings and cash flows for such fiscal year, setting forth in each case
in comparative form the figures for the previous fiscal year, all
reported on in a manner reasonably acceptable to the Securities and
Exchange Commission by Deloitte & Touche LLP or other independent public
accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days after
the end of each of the first three quarters of each fiscal year of TUC a
consolidated balance sheet of TUC and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of
income for such quarter, for the portion of TUC's fiscal year ended at
the end of such quarter, and for the twelve months ended at the end of
such
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quarter, and the related consolidated statement of cash flows for the
portion of TUC's fiscal year ended at the end of such quarter, setting
forth comparative figures for previous dates and periods to the extent
required in Form 10-Q, all certified (subject to normal year-end
adjustments) as to fairness of presentation, GAAP and consistency by a
Financial Officer of TUC;
(c) simultaneously with any delivery of each set of financial
statements referred to in paragraphs (a) and (b) above, (i) an
unconsolidated balance sheet of TUC and the related unconsolidated
statements of income, retained earnings and cash flows as of the same
date and for the same periods applicable to the statements delivered
pursuant to paragraph (a) or (b) above, as applicable, all certified
(subject to normal year-end adjustments in the case of quarterly
statements) as to fairness of presentation, GAAP and consistency by a
Financial Officer or TUC and (i) a certificate of a Financial Officer of
TUC (B) setting forth in reasonable detail the calculations required to
establish whether TUC was in compliance with the requirements of
Sections 5.11 and 5.12 on the date of such financial statements, and (B)
stating whether any Default exists on the date of such certificate and,
if any Default then exists, setting forth the details thereof and the
action which TUC is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in paragraph (a) above, a statement of the firm
of independent public accountants which reported on such statements (i)
stating whether anything has come to their attention to cause them to
believe that any Default existed on the date of such statements and (i)
confirming the calculations set forth in the Financial Officer's
certificate delivered simultaneously therewith pursuant to paragraph (c)
above;
(e) forthwith upon becoming aware of the occurrence of any
Default, a certificate of a Financial Officer of TUC setting forth the
details thereof and the action which TUC is taking or proposes to take
with respect thereto;
(f) promptly upon the mailing thereof to the shareholders of
TUC generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly upon the filing thereof, copies of each final
prospectus (other than a prospectus included in any registration
statement on Form S-8 or its equivalent or with respect to a dividend
reinvestment plan) and all reports on Forms 10-K, 10-Q and 8-K and
similar reports which TUC, TU Electric or Enserch shall have filed with
the SEC, or any Governmental Authority succeeding to any of or all the
functions of the SEC;
(h) if and when any member of the Controlled Group (i) gives
or is required to give notice to the PBGC of any Reportable Event with
respect to any Plan which might constitute grounds for a termination of
such Plan under Title IV of ERISA, or
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knows that the plan administrator of any Plan has given or is required
to give notice of any such Reportable Event, a copy of the notice of
such Reportable Event given or required to be given to the PBGC; (i)
receives notice from a proper representative of a Multiemployer Plan of
complete or partial Withdrawal Liability being imposed upon such member
of the Controlled Group under Title IV of ERISA, a copy of such notice;
or (i) receives notice from the PBGC under Title IV of ERISA of an
intent to terminate, or appoint a trustee to administer, any Plan, a
copy of such notice; and
(i) promptly, from time to time, such additional information
regarding the financial position or business of TUC and its Subsidiaries
as the Agents, at the request of any Lender, may reasonably request.
As promptly as practicable after delivering each set of financial statements as
required in paragraph (a) of this Section, TUC shall make available a copy of
the consolidating workpapers used by TUC in preparing such consolidated
statements to each Lender that shall have requested such consolidating
workpapers. Each Lender that receives such consolidating workpapers shall hold
them in confidence as required by Section 8.15; provided that no Lender may
disclose such consolidating workpapers to any other person pursuant to clause
(iv) of Section 8.15.
SECTION 5.4. INSURANCE. It will, and will cause each of its
Subsidiaries to, maintain such insurance or self insurance, to such extent and
against such risks, including fire and other risks insured against by extended
coverage, as is customary with companies similarly situated and in the same or
similar businesses.
SECTION 5.5. TAXES, ETC. It will, and will cause each of its
Subsidiaries to, pay and discharge promptly when due all material taxes,
assessments and governmental charges imposed upon it or upon its income or
profits or in respect of its property, as well as all other material
liabilities, in each case before the same shall become delinquent or in default
and before penalties accrue thereon, unless and to the extent that the same are
being contested in good faith by appropriate proceedings and adequate reserves
with respect thereto shall, to the extent required by GAAP, have been set
aside.
SECTION 5.6. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND INSPECTIONS.
It will, and will cause each of its Subsidiaries to, maintain financial records
in accordance with GAAP and, upon reasonable notice and at reasonable times,
permit authorized representatives designated by any Lender to visit and inspect
its properties and to discuss its affairs, finances and condition with its
officers.
SECTION 5.7. ERISA. It will, and will cause each of its Subsidiaries
that are members of the Controlled Group to, comply in all material respects
with the applicable provisions of ERISA and the Code except where any
noncompliance, individually or in the aggregate, would not result in a Material
Adverse Change.
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SECTION 5.8. USE OF PROCEEDS. It will not, and will not cause or
permit any of its Subsidiaries to, use the proceeds of the Loans for purposes
other than as set forth below:
(i) up to $800 million of the proceeds of the Loans to
refinance the Existing TU Credit Agreements and for working capital and
other general corporate purposes, including commercial paper back-up
(and excluding the purposes described in clause (ii) below); and
(ii) up to $2.7 billion of the proceeds of the Loans solely to
finance or refinance equity or subordinated loan advances from TUC to
FinCo 1 and FinCo 2 to finance:
(A) consideration payable by Bidco to TEG shareholders
in respect of open market purchases;
(B) the acquisition of the Target Shares by Bidco
pursuant to the Offer;
(C) fees and expenses of TUC in relation to the
Acquisition and the negotiation, execution and
delivery of this Agreement and the Facility B
Credit Agreement;
(D) the consideration payable pursuant to the operation
by Bidco of the procedures contained in Sections
428-430 of the Companies Act; and
(E) consideration payable to TEG share options holders
pursuant to any relevant offer to them by Bidco to
purchase or cancel such share options.
SECTION 5.9. CONSOLIDATIONS, MERGERS, SALES AND ACQUISITIONS OF ASSETS
AND INVESTMENTS IN SUBSIDIARIES. TUC will not (a) consolidate or merge with or
into any person unless (i) the surviving corporation is incorporated under the
laws of a State of the United States of America and assumes or is responsible
by operation of law for all the obligations of TUC hereunder and (i) no
Default or Event of Default shall have occurred or be continuing at the time of
or after giving effect to such consolidation or merger or (a) sell, lease or
otherwise transfer, in a single transaction or in a series of transactions, all
or any Substantial part of its assets to any person or persons other than a
Wholly Owned Subsidiary. TUC will not permit any Significant Subsidiary to
consolidate or merge with or into, or sell, lease or otherwise transfer all or
any Substantial part of its assets to, any person other than TUC or a Wholly
Owned Subsidiary (or a person which as a result of such transaction becomes a
Wholly Owned Subsidiary), provided that in the case of any merger or
consolidation involving TU Electric or Enserch, such person must assume or be
responsible by operation of law for all the obligations
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of TU Electric or Enserch, as applicable, hereunder, and TUC will not in any
event permit any such consolidation, merger, sale, lease or transfer if any
Default or Event of Default shall have occurred and be continuing at the time
of or after giving effect to any such transaction. Notwithstanding the
foregoing, (a) neither TUC nor any of its Subsidiaries will engage to a
Substantial extent in businesses other than those currently conducted by them,
or in the case of Enserch, by Enserch and other businesses reasonably related
thereto, (a) neither TUC nor any of its Subsidiaries will acquire any
Subsidiary or make any investment in any Subsidiary if, upon giving effect to
such acquisition or investment, as the case may be, TUC would not be in
compliance with the covenants set forth in Sections 5.11 and 5.12 and (a)
nothing in this Section shall prohibit any sales of assets permitted by Section
5.10(d).
SECTION 5.10. LIMITATIONS ON LIENS. Neither TUC nor any Significant
Subsidiary will create or assume or permit to exist any Lien in respect of any
property or assets of any kind (real or personal, tangible or intangible) of
TUC or any Significant Subsidiary, or sell any such property or assets subject
to an understanding or agreement, contingent or otherwise, to repurchase such
property or assets, or sell, or permit any Significant Subsidiary to sell, any
accounts receivable; provided that the provisions of this Section shall not
prevent or restrict the creation, assumption or existence of:
(a) any Lien in respect of any such property or assets of any
Significant Subsidiary to secure indebtedness owing by it to TUC or any
Wholly Owned Subsidiary of TUC; or
(b) purchase money Liens (including capital leases) in respect
of property acquired by TUC or any Significant Subsidiary, to secure the
purchase price of such property (or to secure indebtedness incurred
prior to, at the time of, or within 90 days after the acquisition solely
for the purpose of financing the acquisition of such property), or Liens
existing on any such property at the time of acquisition of such
property by TUC or such Significant Subsidiary, whether or not assumed,
or any Lien in respect of property of a corporation existing at the time
such corporation becomes a Subsidiary of TUC; or agreements to acquire
any property or assets under conditional sale agreements or other title
retention agreements, or capital leases in respect of any other
property; provided that
(1) the aggregate principal amount of Indebtedness
secured by all Liens in respect of any such property shall not
exceed the cost (as determined by the board of directors of TUC
or such Significant Subsidiary, as the case may be) of such
property at the time of acquisition thereof (or (x) in the case
of property covered by a capital lease, the fair market value, as
so determined, of such property at the time of such transaction,
or (y) in the case of a Lien in respect of property existing at
the time such corporation becomes a Subsidiary of TUC the fair
market value, as so determined of such property at such time),
and
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(1) at the time of the acquisition of the property by
TUC or such Subsidiary, or at the time such corporation becomes a
Subsidiary of TUC, as the case may be, every such Lien shall
apply and attach only to the property originally subject thereto
and fixed improvements constructed thereon; or
(c) refundings or extensions of any Lien permitted in the
foregoing paragraph (b) for amounts not exceeding the principal amount
of the Indebtedness so refunded or extended or the fair market value (as
determined by the board of directors of TUC or such Significant
Subsidiary, as the case may be) of the property theretofore subject to
such Lien, whichever shall be lower, in each case at the time of such
refunding or extension; provided that such Lien shall apply only to the
same property theretofore subject to the same and fixed improvements
constructed thereon; or
(d) sales subject to understandings or agreements to
repurchase; provided that the aggregate sales price for all such sales
(other than sales to any governmental instrumentality in connection with
such instrumentality's issuance of indebtedness, including without
limitation industrial development bonds and pollution control bonds, on
behalf of TUC or any Significant Subsidiary) made in any one calendar
year shall not exceed $50,000,000; or
(e) any production payment or similar interest which is
dischargeable solely out of natural gas, coal, lignite, oil or other
mineral to be produced from the property subject thereto and to be sold
or delivered by TUC or any Significant Subsidiary; or
(f) any Lien including in connection with sale-leaseback
transactions created or assumed by any Significant Subsidiary on natural
gas, coal, lignite, oil or other mineral properties or nuclear fuel
owned or leased by such Subsidiary, to secure loans to such Subsidiary
in an aggregate amount not to exceed $400,000,000; provided that neither
TUC nor any Subsidiary of TUC shall assume or guarantee such financings;
or
(g) leases (other than capital leases) now or hereafter
existing and any renewals and extensions thereof under which TUC or any
Significant Subsidiary may acquire or dispose of any of its property,
subject, however, to the terms of Section 5.09; or
(h) any Lien created or to be created by the First Mortgage of
TU Electric; or
(i) any Lien on the rights of the Mining Company or Fuel
Company existing under their respective Operating Agreements; or
(j) pledges or sales by TU Electric or Enserch of its accounts
receivable including customers' installment paper; or
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(k) the pledge of current assets, in the ordinary course of
business, to secure current liabilities; or
(l) Permitted Encumbrances.
SECTION 5.11. FIXED CHARGE COVERAGE. TUC will not, as of the end of
each quarter of each fiscal year of TUC, permit Consolidated Earnings Available
for Fixed Charges for the twelve months then ended to be less than or equal to
150% of Consolidated Fixed Charges for the twelve months then ended.
SECTION 5.12. EQUITY CAPITALIZATION RATIO. TUC will not at any time
during any period specified below permit Consolidated Shareholders' Equity to
be less than the percentage of Consolidated Total Capitalization set forth
below next to such period:
<TABLE>
<CAPTION>
============================================================
Period Percentage
- ------------------------------------------------------------
<S> <C>
Until but excluding 6-30-99 26%
- ------------------------------------------------------------
6-30-99 to but excluding 6-30-00 30%
- ------------------------------------------------------------
6-30-00 and thereafter 35%
============================================================
</TABLE>
SECTION 5.13. RESTRICTIVE AGREEMENTS. TUC will not, and will not
permit TU Electric, Enserch or any other Subsidiary of TUC with respect to
which TU Electric or Enserch is also a Subsidiary to, enter into any agreement
restricting the ability of such Subsidiary to make payments, directly or
indirectly, to its shareholders by way of dividends, advances, repayments of
loans or advances, reimbursements of management and other intercompany charges,
expenses and accruals or other returns on investments or any other agreement or
arrangement that restricts the ability of such Subsidiary to make any payment,
directly or indirectly, to its shareholders if the effect of such agreement it
to subject such Subsidiary to restrictions on such payments greater than those
to which such Subsidiary is subject on the date of this Agreement.
SECTION 5.14. THE OFFER. At all times prior to the end of the
Revolving Period, TUC shall:
(i) cause Bidco, until the earlier of the date the Offer
lapses or is finally closed, to comply in all material respects with the
City Code, the Financial Services Act 1986 (UK) and the Companies Act
and all other applicable laws and regulations relevant in the context of
the Offer;
(ii) cause Bidco to provide the Administrative Agent with such
information regarding the progress of the Offer as it may reasonably
request and, provided no breach
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of the City Code would result, all material written advice given to it
in respect of the Offer;
(iii) not cause or permit Bidco to declare the Offer
unconditional at a level of acceptances below that required by Rule 10
of the City Code;
(iv) cause Bidco to ensure that at no time shall circumstances
arise whereby a mandatory offer is required to be made by the terms of
Rule 9 of the City Code in respect of the Target Shares;
(v) not cause or permit Bidco, without the prior consent of
the Administrative Agent (acting on the instructions of the Required
Lenders), to waive, amend or agree or decide not to enforce, in whole or
in part, the conditions of the Offer set out in paragraph (c) (Referral)
of Appendix 1 to the Offer Press Release;
(vi) not cause or permit Bidco, without the prior consent of
the Administrative Agent (acting on the instructions of the Required
Lenders), such consent not to be unreasonably withheld or delayed, to
waive, amend (but not including extending the Offer period, which shall
be at Bidco's discretion provided that the Offer is closed within the
period required by paragraph (ix) below of this Section 5.14) or agree
or decide not to invoke, in whole or in part, in any material respect,
any of the other material conditions of the Offer (and the Borrowers
acknowledge that the total indebtedness of the TEG Group requiring to be
refinanced, and the amount of any contingent liabilities of the TEG
Group which would or might crystallize upon the Offer becoming
unconditional, are material), provided that TUC shall not be in breach
of this paragraph (vi) if it fails to cause Bidco to invoke a condition
of the Offer because the Takeover Panel has directed that Bidco may not
do so;
(vii) cause Bidco to keep the Joint Lead Arrangers informed and
consult with them as to:
(A) the terms of any undertaking or assurance proposed
to be given by it, any of its Affiliates or any member of the TEG
Group to the Director General of Electricity Supply, the Director
General of Gas Supply or the Secretary of State for Trade and
Industry in connection with the Offer;
(B) the terms of any modification to any of the
Licenses proposed in connection with the Offer; and
(C) any terms proposed in connection with any
authorization or determination necessary or appropriate in
connection with the Offer;
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(viii) within 15 days of the date on which acceptances of the
Offer are received from holders of not less than 90% of the Target
Shares, procure that a director of Bidco issues a statutory declaration
pursuant to section 429(4) of the Companies Act, gives notice to all
remaining holders of Target Shares that it intends to acquire their
Target Shares pursuant to section 429 of the Companies Act and cause
Bidco subsequently to purchase all such Target Shares; and
(ix) in any event give notice to close the Offer no less than
120 days after the date of this Agreement, unless the Required Lenders
agree in their discretion to extend such period.
ARTICLE VI
EVENTS OF DEFAULT
In case of the happening of any of the following events (each an "EVENT
OF DEFAULT") (provided that subsection (g) below shall not apply to any member
of the TEG Group at any time prior to the 120th day following the Unconditional
Date):
(a) any representation or warranty made or deemed made by any
Borrower in or in connection with the execution and delivery of this
Agreement or the Borrowings hereunder shall prove to have been false or
misleading in any material respect when so made, deemed made or
furnished;
(b) default shall be made by any Borrower in the payment of
any principal of any Loan when and as the same shall become due and
payable, whether at the due date thereof or at a date fixed for
prepayment thereof or by acceleration thereof or otherwise;
(c) default shall be made by any Borrower in the payment of
any interest on any Loan or any Fee or any other amount (other than an
amount referred to in paragraph (b) above) due hereunder, when and as
the same shall become due and payable, and such default shall continue
unremedied for a period of five days;
(d) default shall be made by any Borrower in the due
observance or performance of any covenant, condition or agreement
contained in Section 5.01, 5.11 or 5.12;
(e) default shall be made by any Borrower in the due
observance or performance of any covenant, condition or agreement
contained in Section 5.09 and such default shall continue unremedied for
a period of 5 days or default shall be made by any Borrower in the due
observance or performance of any covenant, condition or agreement
contained herein (other than those specified in (b), (c) or (d) above)
or in the Letter Agreement and such default shall continue unremedied
for a period of 30 days after
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notice thereof from the Administrative Agent at the request of any
Lender to such Borrower;
(f) TUC shall no longer own, directly or indirectly, all the
outstanding common stock of TU Electric (or any successor) and at least
51% of the outstanding common stock of Enserch (or any successor);
(g) any Borrower or any Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $40,000,000, when and as
the same shall become due and payable, subject to any applicable grace
periods, or (i) fail to observe or perform any other term, covenant,
condition or agreement contained in any agreement or instrument
evidencing or governing any such Indebtedness if the effect of any
failure referred to in this clause (ii) is to cause, or to permit the
holder or holders of such Indebtedness or a trustee on its or their
behalf to cause, such Indebtedness to become due prior to its stated
maturity;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction
seeking (i) relief in respect of TUC or any Significant Subsidiary, or
of a substantial part of the property or assets of TUC or any
Significant Subsidiary, under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (i) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar
official for TUC or any Significant Subsidiary or for a substantial part
of the property or assets of TUC or any Significant Subsidiary or (i)
the winding up or liquidation of TUC or any Significant Subsidiary; and
such proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered;
(i) TUC or any Significant Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title
11 of the United States Code, as now constituted or hereafter amended,
or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (i) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or the filing of any
petition described in (h) above, (i) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator
or similar official for TUC or any Significant Subsidiary or for a
substantial part of the property or assets of it or such Significant
Subsidiary, (i) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (i) make a general
assignment for the benefit of creditors, (i) become unable, admit in
writing its inability or fail generally to pay its debts as they become
due or (i) take any action for the purpose of effecting any of the
foregoing;
(j) A Change in Control shall occur;
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(k) one or more judgments or orders for the payment of money
in an aggregate amount in excess of $50,000,000 shall be rendered
against TUC or any Subsidiary thereof or any combination thereof and
such judgment or order shall remain undischarged or unstayed for a
period of 30 days, or any action shall be legally taken by a judgment
creditor to levy upon assets or properties of TUC or any Subsidiary to
enforce any such judgment or order;
(l) an ERISA Event or ERISA Events shall have occurred that
reasonably could be expected to result in a Material Adverse Change;
then, and in every such event, and at any time thereafter during the
continuance of such event, the Administrative Agent, at the request of the
Required Lenders, shall, by notice to the Borrowers, take either or both of the
following actions, at the same or different times: (i) terminate forthwith the
right of any or all of the Borrowers to borrow pursuant to the Commitments and
(i) declare the Loans of any or all of the Borrowers then outstanding to be
forthwith due and payable in whole or in part, whereupon the principal of the
Loans so declared to be due and payable, together with accrued interest thereon
and any unpaid accrued Fees and all other liabilities of such Borrower accrued
hereunder, shall become forthwith due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein to the contrary notwithstanding; provided
that in the case of any event described in paragraph (h) or (i) above with
respect to any Borrower, the Commitments of the Lenders with respect to such
Borrower shall automatically terminate and the principal of the Loans then
outstanding of the Borrower with respect to which such event has occurred,
together with accrued interest thereon and any unpaid accrued Fees and all
other liabilities of such Borrower accrued hereunder shall automatically become
due and payable, without presentment, demand, protest or any other notice of
any kind, all of which are hereby expressly waived by such Borrower, anything
contained herein to the contrary notwithstanding; and provided further, that
the remedies described in clauses (i) and (ii) above may be exercised with
respect to the Offer Loans and the Offer Commitments during the Revolving
Period only if an Event of Default that is also a Major Default shall have
occurred and be continuing.
ARTICLE VII
THE AGENTS
In order to expedite the transactions contemplated by this Agreement,
Chase Bank of Texas, National Association is hereby appointed to act as
Administrative Agent and Chase is hereby appointed to act as CAF Agent, on
behalf of the Lenders. Each of the Lenders hereby irrevocably authorizes the
Agents to take such actions on behalf of such Lender or holder and to exercise
such powers as are specifically delegated to the Agents by the terms and
provisions hereof, together with such actions and powers as are reasonably
incidental thereto. The Administrative Agent is hereby expressly authorized by
the Lenders and the CAF Agent, without hereby limiting any implied authority,
(a) to receive on behalf of the Lenders and the CAF
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Agent all payments of principal of and interest on the Loans and all other
amounts due to the Lenders and the CAF Agent hereunder, and promptly to
distribute to each Lender and the CAF Agent its proper share of each payment so
received; (a) to give notice on behalf of each of the Lenders to the Borrowers
of any Event of Default of which the Administrative Agent has actual knowledge
acquired in connection with its agency hereunder; and (a) to distribute to each
Lender copies of all notices, financial statements and other materials
delivered by the Borrowers pursuant to this Agreement as received by the
Administrative Agent.
No Agent or any of its directors, officers, employees or agents shall be
liable as such for any action taken or omitted by any of them except for its or
his or her own gross negligence or willful misconduct, or be responsible for
any statement, warranty or representation herein or the contents of any
document delivered in connection herewith, or be required to ascertain or to
make any inquiry concerning the performance or observance by the Borrowers of
any of the terms, conditions, covenants or agreements contained in this
Agreement. The Agents shall not be responsible to the Lenders for the due
execution, genuineness, validity, enforceability or effectiveness of this
Agreement or other instruments or agreements. The Agents may deem and treat
the Lender which makes any Loan as the holder of the indebtedness resulting
therefrom for all purposes hereof until it shall have received notice from such
Lender, given as provided herein, of the transfer thereof. The Agents shall in
all cases be fully protected in acting, or refraining from acting, in
accordance with written instructions signed by the Required Lenders and, except
as otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders. Each of the
Agents shall, in the absence of knowledge to the contrary, be entitled to rely
on any instrument or document believed by it in good faith to be genuine and
correct and to have been signed or sent by the proper person or persons. No
Agent or any of its directors, officers, employees or agents shall have any
responsibility to the Borrowers on account of the failure of or delay in
performance or breach by the other Agent or any Lender of any of its
obligations hereunder or to the other Agent or any Lender on account of the
failure of or delay in performance or breach by any other Lender, the other
Agent or any Borrower of any of their respective obligations hereunder or in
connection herewith. Each of the Agents may execute any and all duties
hereunder by or through agents or employees and shall be entitled to rely upon
the advice of legal counsel selected by it with respect to all matters arising
hereunder and shall not be liable for any action taken or suffered in good
faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Agents shall be under no duty to
take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so
by the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, either Agent may resign at any time by notifying the Lenders
and the Borrowers. Upon any such resignation, the Required Lenders shall have
the right to appoint a successor Agent acceptable to the Borrowers. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Agent gives notice
of its
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resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, having a combined capital and surplus of at least $500,000,000
or an Affiliate of any such bank. Upon the acceptance of any appointment as
Agent hereunder by a successor bank, such successor shall succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any Agent's resignation hereunder, the provisions of this
Article and Section 8.05 shall continue in effect for its benefit in respect of
any actions taken or omitted to be taken by it while it was acting as Agent.
With respect to the Loans made by it hereunder, each of the Agents, in
its individual capacity and not as an Agent shall have the same rights and
powers as any other Lender and may exercise the same as though it were not an
Agent, and each of the Agents and their Affiliates may accept deposits from,
lend money to and generally engage in any kind of business with the Borrowers
or any Subsidiary or other Affiliate thereof as if it were not an Agent.
Each Lender agrees (i) to reimburse the Agents, on demand, in the amount
of its pro rata share (based on its Commitment hereunder or, if the Commitments
shall have been terminated, the amount of its outstanding Loans) of any
expenses incurred for the benefit of the Lenders in its role as Agent,
including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, which shall not have been
reimbursed by the Borrowers and (i) to indemnify and hold harmless each of the
Agents and any of its directors, officers, employees or agents, on demand, in
the amount of such pro rata share, from and against any and all liabilities,
taxes, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against it in any way relating to or
arising out of this Agreement or any action taken or omitted by it under this
Agreement to the extent the same shall not have been reimbursed by the
Borrowers; provided that no Lender shall be liable to any Agent for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the gross
negligence or willful misconduct of such Agent or any of its directors,
officers, employees or agents. Each Lender agrees that any allocation made in
good faith by the Agents of expenses or other amounts referred to in this
paragraph between this Agreement and the Facility B Credit Agreement shall be
conclusive and binding for all purposes.
Each Lender acknowledges that it has, independently and without reliance
upon the Agents or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon the Agents or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any related agreement or any document
furnished hereunder or thereunder.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. NOTICES. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopy, as follows:
(a) if to any Borrower, to Texas Utilities Company, Energy
Plaza, 1601 Bryan Street, 33rd Floor, Dallas, TX 75201, Attention of
Laura Anderson, Manager of Corporate Finance and Compliance (Telecopy
No. 214-812-2488);
(b) if to the CAF Agent, to The Chase Manhattan Bank, Loan and
Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York,
New York 10081, Attention of Chris Consomer (Telecopy No. 212-552-5627,
with a copy to The Chase Manhattan Bank at 270 Park Avenue, New York,
New York 10017, Attention of Jaimin Patel (Telecopy No. 212-270-1354);
(c) if to the Administrative Agent, to Chase Bank of Texas,
National Association, 2200 Ross Avenue 3rd Floor, Dallas TX 75201,
Attention of Allen King (Telecopy No. 214-965-2990); and
(d) if to a Lender, to it at its address (or telecopy number)
set forth in the Administrative Questionnaire delivered to the
Administrative Agent by such Lender in connection with the execution of
this Agreement or previously or in the Assignment and Acceptance
pursuant to which such Lender became a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy to such party as provided in this Section or in accordance with the
latest unrevoked direction from such party given in accordance with this
Section.
SECTION 8.2. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made by the Borrowers herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Lenders and shall survive the making by the Lenders of the Loans regardless of
any investigation made by the Lenders or on their behalf, and shall continue in
full force and effect as long as the principal of or any accrued interest on
any Loan or any Fee or any other amount payable under this Agreement is
outstanding and unpaid or the Commitments have not been terminated.
SECTION 8.3. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrowers and each Agent and when the
Administrative Agent shall
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have received copies hereof (telecopied or otherwise) which, when taken
together, bear the signature of each Lender, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrowers shall not have the right to
assign any rights hereunder or any interest herein without the prior consent of
all the Lenders.
SECTION 8.4. SUCCESSORS AND ASSIGNS. (a) Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of any party that are contained in this
Agreement shall bind and inure to the benefit of its successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion
of its interests, rights and obligations under this Agreement (including all or
a portion of its Commitment and the Loans at the time owing to it); provided,
however, that (i) except in the case of an assignment to a Lender or an
Affiliate of such Lender, an assignment to a Federal Reserve Bank or an
assignment made at any time an Event of Default shall have occurred and be
continuing, the Borrowers and the Agents must give their prior written consent
to such assignment (which consent shall not be unreasonably withheld), (i) the
amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $15,000,000, (i) each such assignment shall be of a constant, and
not a varying, percentage of all the assigning Lender's rights and obligations
under this Agreement, (i) the parties to each such assignment shall execute and
deliver to the Administrative Agent an Assignment and Acceptance, and a
processing and recordation fee of $3,000 (provided that, in the case of
simultaneous assignment of interests under one or more of this Agreement and
the Facility B Credit Agreement, the aggregate fee shall be $3,000), and (i)
the assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire. Upon acceptance and recording pursuant
to Section 8.04(e), from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five Business
Days after the execution thereof unless otherwise agreed by the Administrative
Agent (the Borrowers to be given reasonable notice of any shorter period), (B)
the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement and (B) the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of
an assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto (but shall continue to be entitled to the
benefits of Sections 2.12, 2.17 and 8.05 afforded to such Lender prior to its
assignment as well as to any Fees accrued for its account hereunder and not yet
paid)). Notwithstanding the foregoing, any Lender assigning its rights and
obligations under this Agreement may retain any Competitive Loans made by it
outstanding at such time, and in such case shall retain its rights hereunder in
respect of any Loans so retained until such Loans have been repaid in full in
accordance with this Agreement.
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(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim, (i)
except as set forth in (i) above, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto or the financial condition of the Borrowers or the performance or
observance by the Borrowers of any obligations under this Agreement or any
other instrument or document furnished pursuant hereto; (i) such assignor and
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance; (i) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 5.03 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (i) such
assignee will independently and without reliance upon the Agents, such
assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (i) such
assignee appoints and authorizes each Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to
such Agent by the terms hereof, together with such powers as are reasonably
incidental thereto; and (i) such assignee agrees that it will perform in
accordance with their terms all the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its offices in
the City of Houston a copy of each Assignment and Acceptance delivered to it
and a register for the recordation of the names and addresses of the Lenders,
and the Commitment of, and the principal amount of the Loans owing to, each
Lender pursuant to the terms hereof from time to time (the "REGISTER"). The
entries in the Register shall be conclusive in the absence of manifest error
and the Borrowers, the Agents and the Lenders may treat each person whose name
is recorded in the Register pursuant to the terms hereof as a Lender hereunder
for all purposes of this Agreement. The Register shall be available for
inspection by each party hereto, at any reasonable time and from time to time
upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee together with an Administrative
Questionnaire completed in respect of the assignee (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) above and, if required, the written consent of the Borrowers
and the Agents to such assignment, the Administrative Agent shall (i) accept
such Assignment and Acceptance and (i) record the information contained therein
in the Register.
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(f) Each Lender may without the consent of the Borrowers or the
Agents sell participations to one or more banks or other entities in all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans owing to it); provided, however, that
(i) such Lender's obligations under this Agreement shall remain unchanged, (i)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (i) each participating bank or other entity
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.12, 2.17 and 8.05 to the same extent as if it were the selling
Lender (and limited to the amount that could have been claimed by the selling
Lender had it continued to hold the interest of such participating bank or
other entity), except that all claims made pursuant to such Sections shall be
made through such selling Lender, and (i) the Borrowers, the Agents and the
other Lenders shall continue to deal solely and directly with such selling
Lender in connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrowers under this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement (other than
amendments, modifications or waivers (x) decreasing any fees payable hereunder
or the amount of principal of, or the rate at which interest is payable on, the
Loans, (y) extending any scheduled principal payment date or date fixed for the
payment of interest on the Loans or (z) extending the Commitments).
(g) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrowers furnished to such Lender
by or on behalf of the Borrowers; provided that, prior to any such disclosure,
each such assignee or participant or proposed assignee or participant shall
execute an agreement whereby such assignee or participant shall agree (subject
to customary exceptions) to preserve the confidentiality of any such
information.
(h) The Borrowers shall not assign or delegate any rights and duties
hereunder without the prior written consent of all Lenders, and any attempted
assignment or delegation (except as a consequence of a transaction expressly
permitted under Section 5.09) by a Borrower without such consent shall be void.
(i) Any Lender may at any time pledge all or any portion of its
rights under this Agreement to a Federal Reserve Bank; provided that no such
pledge shall release any Lender from its obligations hereunder or substitute
any such Bank for such Lender as a party hereto. In order to facilitate such
an assignment to a Federal Reserve Bank, each Borrower shall, at the request of
the assigning Lender, duly execute and deliver to the assigning Lender a
promissory note or notes evidencing the Loans made to such Borrower by the
assigning Lender hereunder.
SECTION 8.5. EXPENSES; INDEMNITY. (a) The Borrowers agree to pay all
reasonable out-of-pocket expenses incurred by the Agents in connection with
entering into this Agreement or in connection with any amendments,
modifications or waivers of the provisions hereof (but only if such amendments,
modifications or waivers are requested by a Borrower) (whether or
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not the transactions hereby contemplated are consummated), or incurred by the
Agents or any Lender in connection with the enforcement of their rights in
connection with this Agreement or in connection with the Loans made hereunder,
including the reasonable fees and disbursements of counsel for the Agents or,
in the case of enforcement following an Event of Default, the Lenders.
(b) The Borrowers agree to indemnify each Lender against any loss,
calculated in accordance with the next sentence, or reasonable expense which
such Lender may sustain or incur as a consequence of (a) any failure by such
Borrower to borrow or to refinance, convert or continue any Loan hereunder
(including as a result of such Borrower's failure to fulfill any of the
applicable conditions set forth in Article IV) after irrevocable notice of such
borrowing, refinancing, conversion or continuation has been given pursuant to
Section 2.03 or 2.04, (a) any payment, prepayment or conversion, or assignment
of a Eurodollar Loan or Fixed Rate Loan of such Borrower required by any other
provision of this Agreement or otherwise made or deemed made on a date other
than the last day of the Interest Period, if any, applicable thereto, (a) any
default in payment or prepayment of the principal amount of any Loan or any
part thereof or interest accrued thereon, as and when due and payable (at the
due date thereof, whether by scheduled maturity, acceleration, irrevocable
notice of prepayment or otherwise) or (d) the occurrence of any Event of
Default, including, in each such case, any loss or reasonable expense sustained
or incurred or to be sustained or incurred by such Lender in liquidating or
employing deposits from third parties, or with respect to commitments made or
obligations undertaken with third parties, to effect or maintain any Loan
hereunder or any part thereof as a Eurodollar Loan or a Fixed Rate Loan. Such
loss shall include an amount equal to the excess, if any, as reasonably
determined by such Lender, of (i) its cost of obtaining the funds for the Loan
being paid, prepaid, refinanced, converted or not borrowed (assumed to be the
LIBO Rate or, in the case of a Fixed Rate Loan, the fixed rate of interest
applicable thereto) for the period from the date of such payment, prepayment,
refinancing or failure to borrow or refinance to the last day of the Interest
Period for such Loan (or, in the case of a failure to borrow or refinance the
Interest Period for such Loan which would have commenced on the date of such
failure) over (i) the amount of interest (as reasonably determined by such
Lender) that would be realized by such Lender in reemploying the funds so paid,
prepaid or not borrowed or refinanced for such period or Interest Period, as
the case may be.
(c) The Borrowers agree to indemnify the Agents, each Lender, each of
their Affiliates and the directors, officers, employees and agents of the
foregoing (each such person being called an "INDEMNITEE") against, and to hold
each Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related expenses, including reasonable counsel fees and expenses, incurred
by or asserted against any Indemnitee arising out of (i)the consummation of the
transactions contemplated by this Agreement, including the Acquisition, (i) the
use of the proceeds of the Loans or (i) any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not any Indemnitee is a
party thereto, including any of the foregoing arising from the negligence,
whether sole or concurrent, on the part of any Indemnitee; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses,
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claims, damages, liabilities or related expenses (i) are determined by a final
judgment of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of such Indemnitee or (i) result from any
litigation brought by such Indemnitee against the Borrowers or by any Borrower
against such Indemnitee, in which a final, nonappealable judgment has been
rendered against such Indemnitee; provided, further, that each Borrower agrees
that it will not, nor will it permit any Subsidiary to, without the prior
written consent of each Indemnitee, settle, compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification could be sought under the indemnification
provisions of this Section 8.05(c) (whether or not any Indemnitee is an actual
or potential party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent does not include any statement as to an
admission of fault, culpability or failure to act by or on behalf of any
Indemnitee and does not involve any payment of money or other value by any
Indemnitee or any injunctive relief or factual findings or stipulations binding
on any Indemnitee.
(d) The provisions of this Section shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement,
the consummation of the transactions contemplated hereby, the repayment of any
of the Loans, the invalidity or unenforceability of any term or provision of
this Agreement or any investigation made by or on behalf of any Agent or any
Lender. All amounts due under this Section shall be payable on written demand
therefor.
(e) A certificate of any Lender or Agent setting forth any amount or
amounts which such Lender or Agent is entitled to receive pursuant to paragraph
(b) of this Section and containing an explanation in reasonable detail of the
manner in which such amount or amounts shall have been determined shall be
delivered to the appropriate Borrower and shall be conclusive absent manifest
error.
SECTION 8.6. RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the relevant Borrower against any of and all
the obligations of such Borrower now or hereafter existing under this Agreement
held by such Lender, irrespective of whether or not such Lender shall have made
any demand under this Agreement and although such obligations may be unmatured.
The rights of each Lender under this Section are in addition to other rights
and remedies (including other rights of setoff) which such Lender may have.
SECTION 8.7. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
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SECTION 8.8. WAIVERS; AMENDMENT. (a) No failure or delay of either
Agent or any Lender in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Agents and the Lenders
hereunder are cumulative and are not exclusive of any rights or remedies which
they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on any Borrower or any Subsidiary in any case shall
entitle such party to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrowers and the Required Lenders; provided, however, that
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan, or waive or excuse any such payment or any part
thereof, or decrease the rate of interest on any Loan, without the prior
written consent of each Lender affected thereby, (i) increase any Commitment or
decrease the Facility Fee of any Lender without the prior written consent of
such Lender, or (i) amend or modify the provisions of Section 2.14 or Section
8.04(h), the provisions of this Section or the definition of the "Required
Lenders", without the prior written consent of each Lender; provided further,
however, that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent or the CAF Agent hereunder without
the prior written consent of the Administrative Agent or the CAF Agent, as the
case may be. Each Lender shall be bound by any waiver, amendment or
modification authorized by this Section and any consent by any Lender pursuant
to this Section shall bind any assignee of its rights and interests hereunder.
SECTION 8.9. ENTIRE AGREEMENT. THIS AGREEMENT (INCLUDING THE SCHEDULES
AND EXHIBITS HERETO) AND THE LETTER AGREEMENT CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND
REPRESENT THE ENTIRE CONTRACT AMONG THE PARTIES RELATIVE TO THE SUBJECT MATTER
HEREOF AND THEREOF. ANY PREVIOUS AGREEMENT, WHETHER WRITTEN OR ORAL, AMONG THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, INCLUDING, WITHOUT
LIMITATION, THE EXISTING TU CREDIT AGREEMENTS, IS SUPERSEDED BY THIS AGREEMENT
AND THE LETTER AGREEMENT. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. NOTHING IN THIS AGREEMENT, EXPRESSED OR IMPLIED, IS INTENDED TO
CONFER UPON ANY PARTY OTHER THAN THE PARTIES HERETO ANY RIGHTS, REMEDIES,
OBLIGATIONS OR LIABILITIES UNDER OR BY REASON OF THIS AGREEMENT.
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SECTION 8.10. SEVERABILITY. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 8.11. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 8.03.
SECTION 8.12. HEADINGS. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 8.13. INTEREST RATE LIMITATION. (a) Notwithstanding anything
herein to the contrary, if at any time the applicable interest rate, together
with all fees and charges which are treated as interest under applicable law
(collectively the "CHARGES"), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for, charged,
received, taken or reserved by any Lender, shall exceed the maximum lawful rate
(the "MAXIMUM RATE") which may be contracted for, charged, taken, received or
reserved by such Lender in accordance with applicable law, the rate of interest
payable on the Loans of such Lender, together with all Charges payable to such
Lender, shall be limited to the Maximum Rate.
(b) If the amount of interest, together with all Charges, payable for
the account of any Lender in respect of any interest computation period is
reduced pursuant to paragraph (a) of this Section and the amount of interest,
together with all Charges, payable for such Lender's account in respect of any
subsequent interest computation period, computed pursuant to Section 2.07,
would be less than the Maximum Rate, then the amount of interest, together with
all Charges, payable for such Lender's account in respect of such subsequent
interest computation period shall, to the extent permitted by applicable law,
be automatically increased to such Maximum Rate; provided that at no time shall
the aggregate amount by which interest paid for the account of any Lender has
been increased pursuant to this paragraph (b) exceed the aggregate amount by
which interest, together with all Charges, paid for its account has theretofore
been reduced pursuant to paragraph (a) of this Section.
SECTION 8.14. JURISDICTION; VENUE. (a) Each Borrower hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any
-66-
<PAGE> 71
such action or proceeding may be heard and determined in such New York State
or, to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Subject to the foregoing and to
paragraph (b) below, nothing in this Agreement shall affect any right that any
party hereto may otherwise have to bring any action or proceeding relating to
this Agreement against any other party hereto in the courts of any
jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or thereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any New York State
or Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
SECTION 8.15. CONFIDENTIALITY. Each Lender shall use its best efforts
to hold in confidence all information, memoranda, or extracts furnished to such
Lender (directly or through the Agents) by the Borrowers hereunder or in
connection with the negotiation hereof; provided that such Lender may disclose
any such information, memoranda or extracts (i) to its accountants or counsel,
(i) to any regulatory agency having authority to examine such Lender, (i) as
required by any legal or governmental process or otherwise by law, (i) except
as provided in the last sentence of Section 5.03, to any person to which such
Lender sells or proposes to sell an assignment or a participation in its Loans
hereunder, if such other person agrees for the benefit of the Borrowers to
comply with the provisions of this Section and (i) to the extent that such
information, memoranda or extracts shall be publicly available or shall have
become known to such Lender independently of any disclosure by any Borrower
hereunder or in connection with the negotiation hereof. Notwithstanding the
foregoing, any Lender may disclose the provisions of this Agreement and the
amounts, maturities and interest rates of its Loans to any purchaser or
potential purchaser of such Lender's interest in any Loan.
[Signature pages follow]
-67-
<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
TEXAS UTILITIES COMPANY
By /s/ Texas Utilities Company
--------------------------------------------------
Name:
Title:
TEXAS UTILITIES ELECTRIC COMPANY
By /s/ Texas Utilities Electric Company
--------------------------------------------------
Name:
Title:
ENSERCH CORPORATION
By /s/ ENSERCH Corporation
--------------------------------------------------
Name:
Title:
S-1
<PAGE> 73
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Administrative Agent
By /s/ Chase Bank of Texas, National Association
--------------------------------------------------
Name:
Title:
S-2
<PAGE> 74
THE CHASE MANHATTAN BANK,
individually and as Competitive Advanced Facility
Agent
By /s/ The Chase Manhattan Bank
--------------------------------------------------------
Name:
Title:
S-3
<PAGE> 75
LENDERS:
LEHMAN COMMERCIAL PAPER INC.
By /s/ Lehman Commercial Paper Inc.
--------------------------------------------------------
Name:
Title:
S-4
<PAGE> 76
MERRILL LYNCH CAPITAL CORPORATION
By /s/ Merrill Lynch Capital Corporation
---------------------------------------------------------
Name:
Title:
S-5
<PAGE> 77
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
The Chase Manhattan Bank,
as Competitive Advance Facility Agent
for the Lenders referred to below,
c/o The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Chris Consomer
Telecopy: 212-552-5627
Dear Ladies and Gentlemen:
The undersigned, [Texas Utilities Company][Texas Utilities Electric
Company], [Enserch Corporation] (the "BORROWER"), refers to the 364-Day
Competitive Advance and Revolving Credit Facility Agreement, dated as of March
2, 1998 (as it may hereafter be amended, modified, extended or restated from
time to time, the "AGREEMENT"), among the Borrower, [Texas Utilities Company]
[Texas Utilities Electric Company], [Enserch Corporation], the Lenders named
therein, Chase Bank of Texas, National Association, as Administrative Agent,
and The Chase Manhattan Bank, as Competitive Advance Facility Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Agreement. The Borrower hereby gives
you notice pursuant to Section 2.03(a) of the Agreement that it requests a
Competitive Borrowing under the Agreement, and in that connection sets forth
below the terms on which such Competitive Borrowing is requested to be made:
(A) Date of Competitive Borrowing (which is a Business Day)
----------
(B) Principal amount of aggregate Competitive Borrowing(1)
-----------
1. Principal amount of Competitive Borrowing
comprised of Offer Loans
----------------
2. Principal amount of Competitive Borrowing
comprised of General Loans
----------------
(C) Interest rate basis(2)
----------------
- --------------------
(1) Not less than $5,000,000 (and in integral multiples of
$1,000,000) or greater than the Total Commitment then available.
(2) Eurodollar Loan or Fixed Rate Loan.
FACILITY A CREDIT AGREEMENT
<PAGE> 78
A-1-2
(D) Interest Period and the last day thereof(3)
----------------
Upon acceptance of any or all of the Loans offered by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted that the applicable conditions to lending specified in Article IV of
the Agreement have been satisfied.
Very truly yours,
[TEXAS UTILITIES COMPANY,]
[TEXAS UTILITIES ELECTRIC COMPANY,]
[ENSERCH CORPORATION,]
By
----------------------------------
Name:
Title: [Financial Officer]
- --------------------
(3) Which shall be subject to the definition of INTEREST PERIOD and end
not later than the Maturity Date.
FACILITY A CREDIT AGREEMENT
<PAGE> 79
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
[Name of Lender]
[Address]
New York, New York
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
Reference is made to the 364-Day Competitive Advance and Revolving
Credit Facility Agreement, dated as of March 2, 1998 (as it may hereafter be
amended, modified, extended or restated from time to time, the "AGREEMENT"),
among [Texas Utilities Company][Texas Utilities Electric Company], [Enserch
Corporation] (the "BORROWER"), [Texas Utilities Company][Texas Utilities
Electric Company], [Enserch Corporation], the Lenders named therein, Chase Bank
of Texas, National Association, as Administrative Agent and the Chase Manhattan
Bank, as Competitive Advance Facility Agent. Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to such terms in
the Agreement. The Borrower made a Competitive Bid Request on __________,
[___], pursuant to Section 2.03(a) of the Agreement, and in that connection you
are invited to submit a Competitive Bid by [Date]/[Time].(1) Your Competitive
Bid must comply with Section 2.03(b) of the Agreement and the terms set forth
below on which the Competitive Bid Request was made:
(A) Date of Competitive Borrowing
--------------
(B) Principal amount of Competitive Borrowing
--------------
1. Principal amount of Competitive Borrowing
comprised of Offer Loans
--------------
2. Principal amount of Competitive Borrowing
comprised of General Loans
--------------
(C) Interest rate basis
--------------
- --------------------
(1) The Competitive Bid must be received by the CAF Agent (i) in the case
of Eurodollar Loans, not later than 9:30 a.m., New York City time,
three Business Days before a proposed Competitive Borrowing, and (i)
in the case of Fixed Rate Loans, not later than 9:30 a.m., New York
City time, on the Business Day of a proposed Competitive Borrowing.
FACILITY A CREDIT AGREEMENT
<PAGE> 80
A-2-2
(D) Interest Period and the last day thereof
--------------
Very truly yours,
The Chase Manhattan Bank,
as Competitive Advance Facility Agent,
By
------------------------------------------
Name:
Title:
FACILITY A CREDIT AGREEMENT
<PAGE> 81
EXHIBIT A-3
FORM OF COMPETITIVE BID
The Chase Manhattan Bank,
as Competitive Advance Facility Agent
for the Lenders referred to below,
c/o The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Chris Consomer
Telecopy: 212-552-5627
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
The undersigned, [Name of Lender], refers to the 364-day Competitive
Advance and Revolving Credit Facility Agreement, dated as of March 2, 1998 (as
it may hereafter be amended, modified, extended or restated from time to time,
the "AGREEMENT"), among [Texas Utilities Company][Texas Utilities Electric
Company], [Enserch Corporation] (the "BORROWER"), [Texas Utilities
Company][Texas Utilities Electric Company], [Enserch Corporation], the Lenders
named therein, Chase Bank of Texas, National Association, as Administrative
Agent and The Chase Manhattan Bank, as Competitive Advance Facility Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Agreement. The undersigned hereby makes
a Competitive Bid pursuant to Section 2.03(b) of the Agreement, in response to
the Competitive Bid Request made by the Borrower on ___________, [____], and in
that connection sets forth below the terms on which such Competitive Bid is
made:
(A) Principal Amount(1)
--------------
(B) Competitive Bid Rate(2)
--------------
- --------------------
(1) Not less than $5,000,000 or greater than the requested Competitive
Borrowing and in integral multiples of $1,000,000. Multiple bids will
be accepted by the CAF Agent.
(2) i.e., LIBO Rate + or - __%, in the case of Eurodollar Loans or ___%, in
the case of Fixed Rate Loans.
FACILITY A CREDIT AGREEMENT
<PAGE> 82
A-3-2
(C) Interest Period and last day thereof
--------------
The undersigned hereby confirms that it is prepared, subject to the
conditions set forth in the Agreement, to extend credit to the Borrower upon
acceptance by the Borrower of this bid in accordance with Section 2.03(d) of
the Agreement.
Very truly yours,
[NAME OF LENDER],
By
----------------------------------
Name:
Title:
FACILITY A CREDIT AGREEMENT
<PAGE> 83
EXHIBIT A-4
FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER
[Date]
The Chase Manhattan Bank,
as Competitive Advance Facility Agent
for the Lenders referred to below,
c/o The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Chris Consomer
Telecopy: 212-552-5627
Dear Ladies and Gentlemen:
The undersigned, [Texas Utilities Company][Texas Utilities Electric
Company], [Enserch Corporation], (the "BORROWER"), refers to the 364-Day
Competitive Advance and Revolving Credit Facility Agreement, dated as of March
2, 1998 (as it may hereafter be amended, modified, extended or restated from
time to time, the "AGREEMENT"), among the Borrower, [Texas Utilities Company]
[Texas Utilities Electric Company], [Enserch Corporation], the Lenders named
therein, Chase Bank of Texas, as Administrative Agent and The Chase Manhattan
Bank, as Competitive Advance Facility Agent for the Lenders.
In accordance with Section 2.03(c) of the Agreement, we have received a
summary of bids in connection with our Competitive Bid Request dated
_____________, 19[ ], and in accordance with Section 2.03(d) of the Agreement,
we hereby accept the following bids for maturity on [date]:
<TABLE>
<CAPTION>
Principal Amount Fixed Rate/Margin Lender
---------------- ----------------- ------
<S> <C> <C>
$ [%]/[+/-. %]
$
</TABLE>
We hereby reject the following bids:
FACILITY A CREDIT AGREEMENT
<PAGE> 84
A-4-2
<TABLE>
<CAPTION>
Principal Amount Fixed Rate/Margin Lender
---------------- ----------------- ------
<S> <C> <C>
$ [%]/[+/-. %]
$
</TABLE>
The $__________ should be deposited in The Chase Manhattan Bank account
number [ ] on [date].
Very truly yours,
[TEXAS UTILITIES COMPANY,]
[TEXAS UTILITIES ELECTRIC COMPANY,]
[ENSERCH CORPORATION,]
By
-----------------------------------
Name:
Title:
FACILITY A CREDIT AGREEMENT
<PAGE> 85
EXHIBIT A-5
FORM OF STANDBY BORROWING REQUEST
Chase Bank of Texas, National Association,
as Administrative Agent for the Lenders referred to below,
2200 Ross Avenue, 3rd floor
Dallas, TX 77002
Attention: Allen King
Telecopy: (214) 965-2990
[Date]
Dear Ladies and Gentlemen:
The undersigned, [Texas Utilities Company][Texas Utilities Electric
Company], [Enserch Corporation] (the "BORROWER"), refers to the 364-Day
Competitive Advance and Revolving Credit Facility Agreement dated as of March
2, 1998 (as it may hereafter be amended, modified, extended or restated from
time to time, the "AGREEMENT"), among the Borrower, [Texas Utilities
Company][Texas Utilities Electric Company], [Enserch Corporation], the Lenders
named therein, Chase Bank of Texas, National Association, as Administrative
Agent and The Chase Manhattan Bank, as Competitive Advance Facility Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Agreement. The Borrower hereby gives
you notice pursuant to Section 2.04 of the Agreement that it requests a Standby
Borrowing under the Agreement, and in that connection sets forth below the
terms on which such Standby Borrowing is requested to be made:
(A) Date of Standby Borrowing (which is a Business Day)
-------------
(B) Principal amount of Standby Borrowing(1)
-------------
1. Principal amount of Standby Borrowing
comprised of Offer Loans
-------------
2. Principal amount of Standby Borrowing
comprised of General Loans
-------------
(C) Interest rate basis(2)
-------------
- --------------------
(1) Not less than $25,000,000 (and in integral multiples of $5,000,000) or
greater than the Total Commitment then available.
(2) Eurodollar Loan or ABR Loan.
FACILITY A CREDIT AGREEMENT
<PAGE> 86
A-5-2
(D) Interest Period and the last day thereof(3)
-------------
(E) The Standby Borrowing will [not] comprise
Offer Loans.
-------------
Upon acceptance of any or all of the Loans made by the lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted that the applicable conditions to lending specified in Article IV of
the Agreement have been satisfied.
Very truly yours,
[TEXAS UTILITIES COMPANY,]
[TEXAS UTILITIES ELECTRIC COMPANY,]
[ENSERCH CORPORATION,]
By
----------------------------------
Name:
Title: [Financial Officer]
- --------------------
(3) Which shall be subject to the definition of INTEREST PERIOD and end
not later than the Maturity Date.
FACILITY A CREDIT AGREEMENT
<PAGE> 87
EXHIBIT B
ADMINISTRATIVE QUESTIONNAIRE
TEXAS UTILITIES COMPANY
TEXAS UTILITIES ELECTRIC COMPANY
ENSERCH CORPORATION
PLEASE FORWARD THIS COMPLETED
FORM AS SOON AS POSSIBLE TO:
Donna McGroarty: Fax (713) 216-2291
PLEASE TYPE ALL INFORMATION.
Agent: Chase Bank of Texas, National Association
707 Travis Street, 8-CBB-N 96
Houston, Texas 77002
Telex:
Chase Securities Inc.
Syndications
Telecopier: (713) 216-2291/Alt. Fax (713) 216-2339
Chase Securities Inc.
Syndications
Contacts: Preston Moore Phone: (713) 216-1010
Ann K. Baumgartner Phone: (713) 216-7582
Donna McGroarty Phone: (713) 216-3617
Operations: Gale Manning Phone: (713) 750-2784
Letters of Credit: Gale Manning Phone: (713) 750-2784
FACILITY A CREDIT AGREEMENT
<PAGE> 88
B-2
Competitive Auction
Contact: The Chase Manhattan Bank
Chris Consomer Phone: (212) 552-7259
Fax: (212) 552-5627
Full Legal Name of your Institution:
--------------------------------------------
Hard-copy documents, notices and periodic financial statements of the Borrower
should be sent to the following account officer designated by your bank:
Officer's Name:
-----------------------------------------------------------------
Title:
--------------------------------------------------------------------------
Street Address (No P.O. Boxes please):
------------------------------------------
City, State, Zip:
---------------------------------------------------------------
Phone #:
------------------------------------------------------------------------
Telefax #:
----------------------------------------------------------------------
FACILITY A CREDIT AGREEMENT
<PAGE> 89
B-3
PRIMARY CONTACT INFORMATION
We will send all telecopies regarding time-critical information (drawdowns,
option changes, payments, etc.) to the Primary or Alternate Contact at the
banking location you designate.
1. Your bank's primary contact for telefaxes concerning borrowings, options
on interest rates, etc.:
<TABLE>
<CAPTION>
Primary Telephone Telefax
Name Number Number
-------- -------- ------
<S> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Alternate Name/ Telephone Telefax
Phone No. Number Number
---------------- ---------- ------
<S> <C> <C>
</TABLE>
If at any time any of the above information changes, please advise.
Publicity: Under what name would you prefer your institution to appear in
any future advertisements?
FACILITY A CREDIT AGREEMENT
<PAGE> 90
B-4
Movement of Funds: TO US: Wire Fed Funds to:
Chase Bank of Texas, National Association
ABA # 113000609
for account number # 0010-092-4118
Attention: Gale Manning/Loan Syndication Services
Reference: TEXAS UTILITIES COMPANY
TEXAS UTILITIES ELECTRIC COMPANY
ENSERCH CORPORATION
TO YOU: Wire Fed Funds to:
NAME:
ABA #
For Credit To:
Attention:
Reference:
Other:
If buyer is purchasing Letter of Credit facility as part of this
participation/syndication, please provide the information below:
L/C contact name:
---------------------------------------------------------------
Street Address:
---------------------------------------------------------------
City, State, Zip:
---------------------------------------------------------------
Phone #:
---------------------------------------------------------------
Telefax #:
---------------------------------------------------------------
Wire Fed Funds to:
NAME:
ABA #
For Credit To:
Attention:
Reference:
----------------------------------------------------
FACILITY A CREDIT AGREEMENT
<PAGE> 91
B-5
PLEASE COMPLETE THE FOLLOWING INFORMATION
FOR COMPETITIVE AUCTIONS ONLY
PRIMARY CONTACT
COMPETITIVE AUCTIONS
Bank Name:
----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Primary Contact:
----------------------------------------------------------------
Department:
---------------------------------------------------------------------
Telephone Number:
---------------------------------------------------------------
Telefax Number:
-----------------------------------------------------------------
ALTERNATE CONTACT
COMPETITIVE AUCTIONS
Alternate Contact:
--------------------------------------------------------------
Department:
----------------------------------------------------------------------
Telephone Number:
---------------------------------------------------------------
Telefax Number:
-----------------------------------------------------------------
FACILITY A CREDIT AGREEMENT
<PAGE> 92
B-6
PLEASE COMPLETE THE FOLLOWING INFORMATION
FOR COMPETITIVE AUCTIONS ONLY
PRIMARY CONTACT
COMPETITIVE AUCTIONS
PRIMARY CONTACT
COMPETITIVE AUCTIONS
Bank Name:
----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Primary Contact:
----------------------------------------------------------------
Department:
---------------------------------------------------------------------
Telephone Number:
---------------------------------------------------------------
Telefax Number:
-----------------------------------------------------------------
ALTERNATE CONTACT
COMPETITIVE AUCTIONS
Alternate Contact:
--------------------------------------------------------------
Department:
----------------------------------------------------------------------
Telephone Number:
---------------------------------------------------------------
Telefax Number:
-----------------------------------------------------------------
FACILITY A CREDIT AGREEMENT
<PAGE> 93
EXHIBIT C
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Dated: __________, 19__
Reference is made to the 364-Day Competitive Advance and Revolving
Credit Facility Agreement, dated as of March 2, 1998 (as amended, modified,
extended or restated from time to time, the "AGREEMENT"), among Texas Utilities
Company, Texas Utilities Electric Company, Enserch Corporation (collectively,
the "BORROWERS"), the lenders listed in Schedule 2.01 thereto (the "LENDERS"),
Chase Bank of Texas, National Association, as Administrative Agent and The
Chase Manhattan Bank, as Competitive Advance Facility Agent for the Lenders.
Terms defined in the Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the [Effective Date of Assignment set forth
below], the interests set forth on the reverse hereof (the "ASSIGNED INTEREST")
in the Assignor's rights and obligations under the Agreement, including,
without limitation, the interests set forth on the reverse hereof in the
Commitment of the Assignor on the [Effective Date of Assignment] and the
Competitive Loans and Standby Loans owing to the Assignor which are outstanding
on the [Effective Date of Assignment], together with unpaid interest accrued on
the assigned Loans to the [Effective Date of Assignment] and the amount, if
any, set forth on the reverse hereof of the Fees accrued to the [Effective Date
of Assignment] for the account of the Assignor. Each of the Assignor and the
Assignee hereby makes and agrees to be bound by all the representations,
warranties and agreements set forth in Section 8.04 of the Agreement, a copy of
which has been received by each such party. From and after the [Effective Date
of Assignment], (i) the Assignee shall be a party to and be bound by the
provisions of the Agreement and, to the extent of the interests assigned by
this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent of the interests assigned
by this Assignment and Acceptance, relinquish its rights and be released from
its obligations under the Agreement.
2. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is organized under the
laws of a jurisdiction outside the United States, the forms specified in
Section 2.17(g) of the Agreement, duly completed and executed by such Assignee,
(ii) if the Assignee is not already a Lender under the Agreement, an
Administrative Questionnaire in the form of Exhibit B to the Agreement and
(iii) a processing and recordation fee of $3,000.
FACILITY A CREDIT AGREEMENT
<PAGE> 94
C-2
3. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of New York.
Date of Assignment:
- ----------------------------------------
Legal Name of Assignor:
- ----------------------------------------
Legal Name of Assignee:
- ----------------------------------------
Assignee's Address for Notices:
- ----------------------------------------
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment
unless otherwise agreed by the
Administrative Agent):
- ----------------------------------------
FACILITY A CREDIT AGREEMENT
<PAGE> 95
C-3
<TABLE>
<CAPTION>
Percentage Assigned of
Facility/Commitment (set
Principal Amount Assigned forth, to at least 8
(and identifying decimals, as a percentage of
information the Facility and the
as to individual aggregate Commitments of all
Facility Competitive Loans) Lenders thereunder
- -------------------- --------------------------- -----------------------------
<S> <C> <C>
Commitment Assigned: $____________ __________%
Standby Loans: $____________ __________%
Competitive Loans: $____________ __________%
Fees Assigned (if $____________ __________%
</TABLE>
FACILITY A CREDIT AGREEMENT
<PAGE> 96
C-4
The terms set forth and on the reverse Accepted:
side hereof are hereby agreed to: TEXAS UTILITIES COMPANY
, as By:
- -------------------- --------------------------------
Assignor Name:
Title:
By: , as
-------------------------
Name: TEXAS UTILITIES ELECTRIC
Title: COMPANY
, as
- --------------------
Assignee, By:
--------------------------------
Name:
By: , as Title:
-------------------------
Name:
Title: ENSERCH CORPORATION
By:
--------------------------------
Name:
Title:
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Administrative Agent
By:
--------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
CAF Agent
By:
--------------------------------
Name:
Title:
FACILITY A CREDIT AGREEMENT
<PAGE> 97
EXHIBIT D-1
[LETTERHEAD OF]
REID & PRIEST LLP
_____ __, 1998
To the Lenders listed on
Schedule 2.01 of each
Credit Agreements referred to below
and from time to time party to such Credit Agreements
Ladies and Gentlemen:
We advise you that we have acted as counsel to Texas Utilities Company,
a Texas Corporation ("TUC"), Texas Utilities Electric Company, a Texas
corporation ("TU ELECTRIC") and Enserch Corporation ("ENSERCH") in connection
with the 364-Day Competitive Advance and Revolving Credit Facility Agreement
and the 5-Year Competitive Advance and Revolving Credit Facility Agreement
(collectively, the "CREDIT AGREEMENTS"), each dated as of March 2, 1998, among,
TUC, TU Electric, Enserch Corporation, Chase Bank of Texas, National
Association, as Administrative Agent, The Chase Manhattan Bank, as Competitive
Advance Facility Agent, and the banks listed on Schedule 2.01 thereof (the
"LENDERS"), and have participated in the preparation of or have examined and
are familiar with (a) the current financial statements and reports filed by
TUC, TU Electric and Enserch with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended, (b) the Credit
Agreements, (C) the articles of incorporation and by-laws of TUC, TU Electric
and Enserch and (d) such other records and documents as we have deemed
necessary for the purposes of this opinion.
As to those matters stated herein to be "to our knowledge" or "known to
us" such examination has been limited to discussions with and certificates from
officers of TUC and TU Electric and Enserch and we have not conducted any
independent investigation or verification or taken any action beyond such
discussions and certificates, nor made any search of the records of any
Governmental Authority with respect to such matters.
Capitalized terms used in this opinion and not defined herein shall have
the respective meanings assigned thereto in the Credit Agreements. This
opinion is delivered to you pursuant to Section 4.01(c) of the Credit
Agreements.
We are members of the New York Bar and do not hold ourselves out as
experts on the laws of the State of Texas. As to all matters of Texas law
(including incorporation of TUC,
FACILITY A CREDIT AGREEMENT
<PAGE> 98
D-1-2
TU Electric and Enserch, titles to properties, franchises, licenses and
permits) we have, with your consent, relied upon an opinion of even date
herewith delivered to you by Worsham, Forsythe & Wooldridge, L.L.P., general
counsel for TUC, TU Electric and Enserch. While we represent TUC and TU
Electric on a regular basis, our engagement has been limited to specific
matters as to which we were consulted. We have no direct knowledge of the day-
to-day affairs of TUC, TU Electric or Enserch and have not reviewed generally
their business affairs. Accordingly, we are relying upon representations of
TUC, TU Electric and Enserch contained in the Credit Agreements, in
certificates furnished pursuant thereto, and in certificates furnished to us by
officers of TUC, TU Electric and Enserch.
For purposes of the opinions expressed below, we have assumed (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
to the originals of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such copies, (iii) the
genuineness of all signatures other than on behalf of TUC, TU Electric and
Enserch, (iv) the legal capacity of natural persons, (v) the power, corporate
or otherwise, of all parties other than TUC, TU Electric and Enserch to enter
into and to perform all of their obligations under such documents, and (vi) the
due authorization, execution and delivery of all documents by all parties other
than TUC, TU Electric and Enserch.
Based on the foregoing, we are of the opinion that:
1. Each of TUC, TU Electric and Enserch (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas, (ii) has all requisite power and authority to own its property and
assets and to carry on its business as now conducted, (iii) is qualified to do
business in every jurisdiction within the United States where such
qualification is required, except where the failure so to qualify would not
result in a Material Adverse Change, and (iv) has all requisite corporate power
and authority to execute, deliver and perform its obligations under the Credit
Agreements and to borrow funds thereunder.
2. The execution, delivery and performance by each of TUC, TU Electric
and Enserch of the Credit Agreements and the Borrowings by each of them
thereunder (collectively, the "TRANSACTIONS") and the consummation of the
Acquisition (i) have been duly authorized by all requisite corporate action and
(ii) will not (a) violate (1) any law, statute, rule or regulation presently
binding on or applicable to TUC, TU Electric or Enserch, or the articles of
incorporation, as amended, or by-laws of TUC, TU Electric or Enserch, (2) to
our knowledge, any order of any Governmental Authority presently applicable to
TUC, TU Electric or Enserch or (3) any provision of any indenture, agreement or
other instrument known to us to which TUC, TU Electric or Enserch or its
property is bound, (b) be in conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or (c) except as contemplated by the
UK Facility
FACILITY A CREDIT AGREEMENT
<PAGE> 99
D-1-3
Agreement, result in the creation or imposition of any lien upon or with
respect to any property or assets of TUC, TU Electric or Enserch.
3. The Credit Agreements have been duly executed and delivered by TUC,
TU Electric and Enserch and constitute legal, valid and binding obligations of
TUC, TU Electric and Enserch enforceable against each of them in accordance
with their terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4. No action, consent or approval of, registration or filing with, or
any other action by, any Governmental Authority (including pursuant to the
Public Utility Holding Company Act of 1935, as amended) is required on the part
of TUC, TU Electric or Enserch in connection with the Transactions or the
Acquisition, except such as have been made or obtained and are in full force
and effect and, in the case of the Acquisition, (i) expiration or termination
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1979 and (i) the filing by TUC of a registration statement on Form S-4 under
the Securities Act of 1933, as amended, relating to shares of common stock of
TUC to be issued in connection with the Acquisition, and action by the
Securities and Exchange Commission declaring said registration statement to be
effective under such Act.
5. (a) None of TUC, TU Electric nor Enserch nor any of their
respective Subsidiaries is an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940, as amended, and (b) TUC,
TU Electric and Enserch and each of their respective Subsidiaries is exempt
from all provisions of the Public Utility Holding Company Act of 1935, as
amended, and the rules and regulations thereunder, except for Sections 9(a)(2)
and 33 of such Act and the rules and regulations thereunder, and the execution,
delivery and performance by each of TUC, TU Electric and Enserch of the Credit
Agreements and the consummation of the Acquisition do not violate any
provisions of such Act or any rule or regulation thereunder.
6. Except as described in the Annual Reports on Form 10-K for the year
ended December 31, 1996 and the Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997, filed by TUC, TU
Electric and Enserch with the Securities and Exchange Commission and as set
forth in Schedule 3.06 to the Credit Agreements, to our knowledge there is no
action, suit, or proceeding at law or in equity or by or before any
Governmental Authority now pending or threatened against or affecting TUC, TU
Electric or Enserch (i) which involves the Transactions or (ii) as to which
there is a reasonable possibility of an adverse determination and which, if
adversely determined, could, individually or in the aggregate, result in a
Material Adverse Change.
FACILITY A CREDIT AGREEMENT
<PAGE> 100
D-1-4
7. To our knowledge, after due inquiry, the proposed use of the
proceeds of the Loans is in accordance with the Credit Agreements and, if so
used, will not violate the Margin Regulations.
8. We believe that a New York court would give effect to the provisions
of the Credit Agreements that state that they are to be construed in accordance
with New York law.
This letter is solely for the benefit of the named addressees and may
not be quoted in whole or in part or otherwise referred to in any document or
report and may not be furnished to any person without our prior written
consent, except that Worsham, Forsythe & Wooldridge, L.L.P. may rely hereon in
connection with their opinion being rendered pursuant to Section 4.01(c) of the
Credit Agreements.
Very truly yours,
Reid & Priest LLP
FACILITY A CREDIT AGREEMENT
<PAGE> 101
EXHIBIT D-2
[LETTERHEAD OF]
WORSHAM, FORSYTHE & WOOLDRIDGE, L.L.P.
_____ __, 1998
To the Lenders listed on
Schedule 2.01 of each of the
Credit Agreements referred to below
Ladies and Gentlemen:
We have acted as general counsel for Texas Utilities Company, a Texas
corporation ("TUC"), Texas Utilities Electric Company, a Texas corporation ("TU
ELECTRIC") and Enserch Corporation ("ENSERCH"), in connection with the
execution and delivery of the 364-Day Competitive Advance and Revolving Credit
Facility Agreement and the 5-Year Competitive Advance and Revolving Credit
Facility Agreement (collectively, the "CREDIT AGREEMENTS"), each dated as of
March 2, 1998, among TUC, TU Electric, Enserch Corporation, the banks listed on
Schedule 2.01 thereof (the "LENDERS"), Chase Bank of Texas, National
Association, as Administrative Agent and The Chase Manhattan Bank, as
Competitive Advance Facility Agent.
Capitalized terms used in this opinion and not defined herein shall have
the respective meanings assigned thereto in the Credit Agreements. This
opinion is delivered to you pursuant to Section 4.01(c) of the Credit
Agreements.
In connection with this opinion we have examined a counterpart of the
Credit Agreements executed by TUC, TU Electric and Enserch and have also made
such examination of other documents and of certificates of public officials and
corporate officers of TUC, TU Electric and Enserch, and have made such other
legal and factual examinations and inquiries as we have deemed necessary or
advisable for the purpose of rendering this opinion; but as to those matters
stated herein to be "to our knowledge" or "known to us" such examination has
been limited to discussions with and certificates from officers of TUC, TU
Electric and Enserch and we have not conducted any independent investigation or
verification or taken any action beyond such discussions and certificates, nor
made any search of the records of any Governmental Authority with respect to
such matters.
For purposes of the opinions expressed below, we have assumed (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
to the originals of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such copies, (iii) the
genuineness of all signatures other than on behalf of TUC, TU Electric and
FACILITY A CREDIT AGREEMENT
<PAGE> 102
D-2-2
Enserch, (iv) the legal capacity of natural persons, (v) the power, corporate
or otherwise, of all parties other than TUC, TU Electric and Enserch to enter
into and to perform all of their obligations under such documents, and (vi) the
due authorization, execution and delivery of all documents by all parties other
than TUC, TU Electric and Enserch.
Based upon, and subject to, the foregoing and to such further
limitations and qualifications stated below, we are of the opinion that:
1. Each of TUC, TU Electric and Enserch (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas, (ii) has all requisite power and authority to own its property and
assets and to carry on its business as now conducted, (iii) is qualified to do
business in every jurisdiction within the United States where such
qualification is required, except where the failure so to qualify would not
result in a Material Adverse Change, and (iv) has all requisite corporate power
and authority to execute, deliver and perform its obligations under the Credit
Agreements and to borrow funds thereunder.
2. The execution, delivery and performance by each of TUC, TU Electric
and Enserch of the Credit Agreements and the Borrowings by each of them
(collectively, the "TRANSACTIONS") and the consummation of the Acquisition (i)
have been duly authorized by all requisite corporate action and (ii) will not
(a) violate (1) any law, statute, rule or regulation presently binding on or
applicable to TUC, TU Electric or Enserch, or the articles of incorporation, as
amended, or by-laws of TUC, TU Electric or Enserch, (2) to our knowledge, any
order of any Governmental Authority presently applicable to TUC, TU Electric or
Enserch or (3) any provision of any indenture, agreement or other instrument
known to us to which TUC, TU Electric or Enserch is a party or by which TUC, TU
Electric or Enserch or its property is bound, (b) be in conflict with, result
in a breach of or constitute (alone or with notice or lapse of time or both) a
default under any such indenture, agreement or other instrument or (c) result
in the creation or imposition of any lien upon or with respect to any property
or assets now owned or hereafter acquired by TUC, TU Electric or Enserch.
3. The Credit Agreements have been duly executed and delivered by TUC,
TU Electric and Enserch and constitute legal, valid and binding obligations of
TUC, TU Electric and Enserch enforceable against each of them in accordance
with their terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally and by general equitable principles (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
4. No action, consent or approval of, registration or filing with, or
any other action by, any Government Authority (including pursuant to the Public
Utility Holding Company Act of 1935, as amended) is required on the part of
TUC, TU Electric or Enserch in connection with the Transactions or the
Acquisition, except as such as have been made or obtained and are in
FACILITY A CREDIT AGREEMENT
<PAGE> 103
D-2-3
full force and effect and, in the case of the Acquisition, (i) expiration or
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1979 and (i) the filing by the Company of a Registration
Statement on Form S-4 under the Securities Act of 1933, as amended, and action
by the Securities and Exchange Commission declaring said Registration Statement
effective.
5. None of TUC, TU Electric nor Enserch nor any of their respective
Subsidiaries is an "investment company" as defined in, or subject to regulation
under, the Investment Company Act of 1940, as amended. TUC, TU Electric and
each of their respective Subsidiaries is exempt from all provisions of the
Public Utility Holding Company Act of 1935, as amended, and rules and
regulations thereunder, except for Sections 9(a)(2) and 33 of such Act and
rules and regulations thereunder, and the execution, delivery and performance
by TUC, TU Electric and Enserch of the Credit Agreements and the consummation
of the Acquisition do not violate any provision of such Act or any rule or
regulation thereunder.
6. Except as described in the Annual Reports on Form 10-K for the year
ended December 31, 1996 and the Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997, filed by TUC, TU
Electric and Enserch with the Securities and Exchange Commission and as set
forth in Schedule 3.06 to the Credit Agreements, to our knowledge there is no
action, suit or proceeding at law or in equity or by or before any Governmental
Authority now pending or threatened against or affecting TUC, TU Electric or
Enserch (i) which involves the Transactions or the Acquisition or (ii) as to
which there is a reasonable possibility of an adverse determination and which,
if adversely determined, would, individually or in the aggregate, result in a
Material Adverse change.
7. To our knowledge, TUC, TU Electric and Enserch are not in violation
of any law, rule or regulation, or in default with respect to any judgment,
writ, injunction or decree of any Governmental Authority, where such violation
or default would result in a Material Adverse Change.
8. To our knowledge, after due inquiry, the proposed use of the
proceeds of the Loans is in accordance with the Credit Agreements, and, if so
used, will not violate the Margin Regulations.
9. We believe that a Texas court would give effect to the provisions of
the Credit Agreements that state that they are to be construed in accordance
with New York law; provided, however, that we render no opinion as to the
application of New York law that is contrary to a fundamental or public policy
of the State of Texas.
We are members of the State Bar of Texas and do not purport to be
experts on, nor do we opine as to, the laws of any jurisdiction other than the
State of Texas and the federal laws
FACILITY A CREDIT AGREEMENT
<PAGE> 104
D-2-4
of the United States. To the extent that the opinions hereinabove set forth
involve the laws of the State of New York, we have relied upon the opinion of
even date herewith delivered by you by Reid & Priest LLP, special counsel to
TUC, TU Electric and Enserch.
The foregoing opinions are limited to existing laws and we undertake no
obligation or responsibility to update or supplement this letter in response to
subsequent changes in the law or future events or circumstances affecting the
Transactions. This letter is solely for the benefit of the named addressees
and may not be quoted in whole or in part or otherwise referred to in any
document or report and may not be furnished to any person without our prior
written consent, except that Reid & Priest LLP may rely hereon in connection
with their opinion being rendered pursuant to Section 4.01(c) of the Credit
Agreements.
Very truly yours,
WORSHAM, FORSYTHE &
WOOLDRIDGE, L.L.P.
By:
---------------------------
A Partner
FACILITY A CREDIT AGREEMENT
<PAGE> 105
SCHEDULE 2.01
<TABLE>
<CAPTION>
Offer Loan General Loan Aggregate
Name Commitment Commitment Commitment
- ---- ---------- ---------- ----------
<S> <C> <C> <C>
The Chase Manhattan Bank $ 900,000,000.00 $ 266,666,667.00 $ 1,166,666,667.00
Lehman Commercial Paper Inc. 900,000,000.00 266,666,667.00 1,166,666,667.00
Merrill Lynch Capital Corporation 900,000,000.00 266,666,666.00 1,166,666,666.00
- ------------------------------------ --------------------- -------------------- ----------------------
TOTAL $ 2,700,000,000.00 $ 800,000,000.00 $ 3,500,000,000.00
</TABLE>
FACILITY A CREDIT AGREEMENT
<PAGE> 106
SCHEDULE 3.06
TO THE CREDIT AGREEMENT
Litigation
None
FACILITY A CREDIT AGREEMENT
<PAGE> 1
EXHIBIT (1)(b)
EXECUTION COPY
================================================================================
TEXAS UTILITIES COMPANY
TEXAS UTILITIES ELECTRIC COMPANY
ENSERCH CORPORATION
----------------------------------------
$1,400,000,000
5-YEAR COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT
"FACILITY B"
Dated as of March 2, 1998
----------------------------------------
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Administrative Agent
and
THE CHASE MANHATTAN BANK,
as Competitive Advance Facility Agent
Initial Underwriters
THE CHASE MANHATTAN BANK
LEHMAN COMMERCIAL PAPER INC.
MERRILL LYNCH CAPITAL CORPORATION
Joint Lead Arrangers
CHASE SECURITIES INC.
LEHMAN BROTHERS INC.
MERRILL LYNCH & CO.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
ARTICLE I DEFINITIONS; CONSTRUCTION . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Terms Generally . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE II THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.02. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.03. Competitive Bid Procedure . . . . . . . . . . . . . . . . . . 21
SECTION 2.04. Standby Borrowing Procedure . . . . . . . . . . . . . . . . . 24
SECTION 2.05. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.06. Repayment of Loans; Evidence of Indebtedness . . . . . . . . . 25
SECTION 2.07. Interest on Loans . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.08. Default Interest . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.09. Alternate Rate of Interest . . . . . . . . . . . . . . . . . . 26
SECTION 2.10. Termination and Reduction of Commitments . . . . . . . . . . . 27
SECTION 2.11. Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.12. Reserve Requirements; Change in
Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.13. Change in Legality . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.14. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.15. Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.16. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.17. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.18. Assignment of Commitments Under Certain
Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 36
SECTION 3.01. Organization; Powers . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.02. Authorization . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.03. Enforceability . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.04. Governmental Approvals . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.05. Financial Statements . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.06. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3.07. Federal Reserve Regulations . . . . . . . . . . . . . . . . . 38
SECTION 3.08. Investment Company Act; Public Utility
Holding Company Act . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.09. No Material Misstatements . . . . . . . . . . . . . . . . . . 38
SECTION 3.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.11. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.12. Significant Subsidiaries . . . . . . . . . . . . . . . . . . . 39
SECTION 3.13. Environmental Matters . . . . . . . . . . . . . . . . . . . . 39
ARTICLE IV CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . 40
SECTION 4.01. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 4.02. Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 4.03. All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 5.01. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 5.02. Business and Properties . . . . . . . . . . . . . . . . . . . 43
SECTION 5.03. Financial Statements, Reports, Etc . . . . . . . . . . . . . . 43
SECTION 5.04. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.05. Taxes, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.06. Maintaining Records; Access to Properties
and Inspections . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.07. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.08. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.09. Consolidations, Mergers, Sales and
Acquisitions of Assets and Investments in Subsidiaries . . . . 46
SECTION 5.10. Limitations on Liens . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.11. Fixed Charge Coverage . . . . . . . . . . . . . . . . . . . . 48
SECTION 5.12. Equity Capitalization Ratio . . . . . . . . . . . . . . . . . 49
SECTION 5.13. Restrictive Agreements . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VI EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VII THE AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 8.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 8.02. Survival of Agreement . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.03. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.04. Successors and Assigns . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.05. Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . 58
SECTION 8.06. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 8.07. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 8.08. Waivers; Amendment . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 8.09. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 8.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.12. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.13. Interest Rate Limitation . . . . . . . . . . . . . . . . . . . 62
SECTION 8.14. Jurisdiction; Venue . . . . . . . . . . . . . . . . . . . . . 63
SECTION 8.15. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
EXHIBITS AND SCHEDULES
Exhibit A-1 - Form of Competitive Bid Request
Exhibit A-2 - Form of Notice of Competitive Bid Request
Exhibit A-3 - Form of Competitive Bid
Exhibit A-4 - Form of Competitive Bid Accept/Reject Letter
Exhibit A-5 - Form of Standby Borrowing Request
Exhibit B - Administrative Questionnaire
Exhibit C - Form of Assignment and Acceptance
Exhibit D-1 - Opinion of Reid & Priest LLP, special counsel to TUC, TU
Electric and Enserch
Exhibit D-2 - Opinion of Worsham, Forsythe & Wooldridge, L.L.P., general
counsel for TUC, TU Electric and Enserch
Schedule 2.01 - Commitments
Schedule 3.06 - Litigation
iii
<PAGE> 5
COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (the
"AGREEMENT"), dated as of March 2, 1998, among TEXAS UTILITIES
COMPANY, a Texas corporation ("TUC"); TEXAS UTILITIES ELECTRIC
COMPANY, a Texas corporation and a wholly owned subsidiary of TUC
("TU ELECTRIC"), and ENSERCH CORPORATION, a Texas corporation and
a wholly owned subsidiary of TUC ("ENSERCH" and, together with
TUC and TU Electric, the "BORROWERS", and each individually, a
"BORROWER"); the lenders listed in Schedule 2.01 (together with
their successors and assigns, the "LENDERS"); THE CHASE MANHATTAN
BANK ("CHASE"), as Competitive Advance Facility Agent (in such
capacity, the "CAF AGENT"); and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION ("CHASE BANK OF TEXAS"), as administrative agent for
the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"; and,
together with the CAF Agent, the "AGENTS").
The Borrowers have requested the Lenders to extend credit in the form of
Standby Borrowings (such term and each other capitalized term used herein
having the meaning given it in Article I) to the Borrowers in an aggregate
principal amount at any time outstanding not in excess of $1,400,000,000. The
Borrowers have also requested the Lenders to provide a procedure pursuant to
which the Borrowers may invite the Lenders to bid on an uncommitted basis on
short-term borrowings by the Borrowers. Subject to the terms and conditions
set forth herein, the proceeds of any such borrowings are to be used to
refinance the Existing TUC Credit Agreements and for working capital and other
corporate purposes, including commercial paper back-up. The Lenders are
willing to extend such credit to the Borrowers on the terms and subject to the
conditions herein set forth.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION
SECTION 1.1. DEFINED TERMS. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR BORROWING" shall mean a Borrowing comprised of ABR Loans.
"ABR LOAN" shall mean any Standby Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with
the provisions of Article II or any Eurodollar Loan converted (pursuant
to Section 2.13(ii)) to a loan bearing interest at a rate determined by
reference to the Alternate Base Rate.
<PAGE> 6
"ACQUISITION" shall mean the acquisition by TUC (directly or
indirectly) of the issued and to be issued shares in the capital of TEG,
as contemplated by the Offer Documents and the Offer Press Release (as
such terms are defined in the Facility A Credit Agreement).
"ACQUISITION DATE" shall mean the date as of which a person or
group of related persons first acquires more than 30% of the outstanding
Voting Shares of TUC (within the meaning of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended, and the applicable
rules and regulations thereunder).
"ADMINISTRATIVE FEES" shall have the meaning assigned to such
term in Section 2.05(b).
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an Administrative
Questionnaire in the form of Exhibit B hereto.
"AFFILIATE" shall mean, when used with respect to a specified
person, another person that directly or indirectly controls or is
controlled by or is under common control with the person specified.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%, (a) the Base CD Rate in effect on such day plus 1% and
(a) the Prime Rate in effect on such day. For purposes hereof, "PRIME
RATE" shall mean the rate of interest per annum publicly announced from
time to time by Chase as its prime rate in effect at its principal
office in New York City; each change in the Prime Rate shall be
effective on the date such change is publicly announced as effective;
"BASE CD RATE" shall mean the sum of (a) the product of (i) the Three-
Month Secondary CD Rate and (i) Statutory Reserves and (a) the
Assessment Rate; "THREE-MONTH SECONDARY CD RATE" shall mean, for any
day, the secondary market rate for three-month certificates of deposit
reported as being in effect on such day (or, if such day shall not be a
Business Day, the next preceding Business Day) by the Board through the
public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on
such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately
10:00 a.m., New York City time, on such day (or, if such day shall not
be a Business Day, on the next preceding Business Day) by the CAF Agent
from three New York City negotiable certificate of deposit dealers of
recognized standing selected by it; "ASSESSMENT RATE" shall mean, for
any day, the annual rate (rounded upwards to the next 1/100 of 1%) most
recently estimated by Chase as the then current net annual assessment
rate that will be employed in determining amounts payable by Chase to
the Federal Deposit
-2-
<PAGE> 7
Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in US dollars at
Chase's domestic offices; and "FEDERAL FUNDS EFFECTIVE RATE" shall mean,
for any day, the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as released on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
released for any day which is a Business Day, the arithmetic average
(rounded upwards to the next 1/100th of 1%), as determined by Chase, of
the quotations for the day of such transactions received by Chase from
three Federal funds brokers of recognized standing selected by it. If
for any reason Chase shall have determined (which determination shall be
conclusive absent manifest error; provided that Chase, shall, upon
request, provide to the applicable Borrower a certificate setting forth
in reasonable detail the basis for such determination) that it is unable
to ascertain the Federal Funds Effective Rate for any reason, including
the inability of Chase to obtain sufficient quotations in accordance
with the terms thereof, the Alternate Base Rate shall be determined
without regard to clause (a) of the first sentence of this definition
until the circumstances giving rise to such inability no longer exist.
Any change in the Alternate Base Rate due to a change in the Prime Rate
or the Federal Funds Effective Rate shall be effective on the effective
date of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively.
"APPLICABLE MARGIN" shall mean, (i) on any date from the date
hereof to and including the date six months hereafter, 0.0% for ABR
Loans made to any Borrower, 1.0% per annum for Eurodollar Loans made to
TUC, .80% per annum for Eurodollar Loans made to TU Electric and .80%
per annum for Eurodollar Loans made to Enserch and (ii) on any date
following the date six months following the date hereof with respect to
any Borrower, the percentage per annum set forth in the column
identified as Level 1, Level 2, Level 3 or Level 4 below, based upon
the Level corresponding to the lower Debt Rating of such Borrower at the
time of determination, provided that, if and for so long as any Offer
Loans (as defined in the Facility A Credit Agreement) shall remain
outstanding on or after the 364th day following the date hereof, the
Applicable Margins set forth below with respect to each Level shall be
increased by .50% with respect to Eurodollar Loans outstanding and the
Applicable Margins with respect to ABR Loans shall be equal to, for each
Level, the then-effective Applicable Margin for Eurodollar Loans less
1.00% (but not negative). Any change in the Applicable Margin shall be
effective on the date on which the applicable rating agency announces
any change in the Debt Rating.
-3-
<PAGE> 8
<TABLE>
<CAPTION>
=======================================================================================
Level 1 Level 2 Level 3 Level 4
S&P BBB+or better BBB BBB- BB+ or below*
Moody's Baa1 or better Baa2 Baa3 Ba1 or below*
- ---------------------------------------------------------------------------------------
Percentage Per Annum
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eurodollar .575% .80% 1.00% 1.15%
Margin
- ---------------------------------------------------------------------------------------
ABR 0 0 0 .15%
Margin
=======================================================================================
</TABLE>
* or unrated
"ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and
acceptance entered into by a Lender and an assignee in the form of
Exhibit C.
"AUCTION FEES" shall mean the competitive advance auction fees
provided for in the Letter Agreement, payable to the CAF Agent by the
applicable Borrower at the time of each competitive advance auction
request made by such Borrower pursuant to Section 2.03.
"BOARD" shall mean the Board of Governors of the Federal Reserve
System of the United States.
"BOARD OF DIRECTORS" shall mean the Board of Directors of a
Borrower or any duly authorized committee thereof.
"BORROWER" shall have the meaning given such term in the preamble
hereto.
"BORROWING" shall mean a group of Loans of a single Type made by
the Lenders (or, in the case of a Competitive Borrowing, by the Lender
or Lenders whose Competitive Bids have been accepted pursuant to Section
2.03) on a single date and as to which a single Interest Period is in
effect.
"BUSINESS DAY" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York or the State
of Texas) on which banks are open for business in New York City and
Houston; provided, however, that, when used in connection with a
Eurodollar Loan, the term "BUSINESS DAY" shall also exclude any day on
which banks are not open for dealings in dollar deposits in the London
interbank market.
"A CHANGE IN CONTROL" shall be deemed to have occurred if (a) any
person or group of related persons (other than TUC, any Subsidiary of
TUC, or any pension, savings or other employee benefit plan for the
benefit of employees of TUC and/or any Subsidiary of TUC) shall have
acquired beneficial ownership of more than 30% of the outstanding Voting
-4-
<PAGE> 9
Shares of TUC (within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended, and the applicable rules
and regulations thereunder); provided that a Change in Control shall not
be deemed to have occurred if such acquisition has been approved, prior
to the Acquisition Date and the date on which any tender offer for
Voting Shares of TUC was commenced, by a majority of the Disinterested
Directors of TUC, or (a) during any period of 12 consecutive months,
commencing before or after the date of this Agreement, individuals who
on the first day of such period were directors of TUC (together with any
replacement or additional directors who were nominated or elected by a
majority of directors then in office) cease to constitute a majority of
the Board of Directors of TUC.
"CODE" shall mean the Internal Revenue Code of 1986, as the same
may be amended from time to time.
"COMMISSION" shall mean the Public Utility Commission of the
State of Texas.
"COMMITMENT" shall mean, with respect to each Lender, the
Commitment of such Lender set forth in Schedule 2.01 hereto, as such
Commitment may be permanently terminated or reduced from time to time
pursuant to Section 2.10, or modified from time to time pursuant to
Section 8.04. The Commitment of each Lender shall automatically and
permanently terminate on the Maturity Date if not terminated earlier
pursuant to the terms hereof.
"COMPETITIVE BID" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.03.
"COMPETITIVE BID ACCEPT/REJECT LETTER" shall mean a notification
made by a Borrower pursuant to Section 2.03(d) in the form of Exhibit
A-4.
"COMPETITIVE BID MARGIN" shall mean, as to any Eurodollar
Competitive Loan, the margin (expressed as a percentage rate per annum
in the form of a decimal to no more than four decimal places) to be
added to or subtracted from the LIBO Rate in order to determine the
interest rate applicable to such Loan, as specified in the Competitive
Bid relating to such Loan.
"COMPETITIVE BID RATE" shall mean, as to any Competitive Bid, (i)
in the case of a Eurodollar Loan, the LIBO Rate for the Interest Period
requested in such Competitive Bid plus the Competitive Bid Margin, and
(i) in the case of a Fixed Rate Loan, the fixed rate of interest offered
by the Lender making such Competitive Bid.
"COMPETITIVE BID REQUEST" shall mean a request made pursuant to
Section 2.03 in the form of Exhibit A-1.
-5-
<PAGE> 10
"COMPETITIVE BORROWING" shall mean a Borrowing consisting of a
Competitive Loan or concurrent Competitive Loans from the Lender or
Lenders whose Competitive Bids for such Borrowing have been accepted
under the bidding procedure described in Section 2.03.
"COMPETITIVE LOAN" shall mean a Loan made pursuant to the bidding
procedure described in Section 2.03. Each Competitive Loan shall be a
Eurodollar Competitive Loan or a Fixed Rate Loan.
"CONSOLIDATED EARNINGS AVAILABLE FOR FIXED CHARGES" for any
twelve-month period shall mean (i) consolidated net income, calculated
after deducting preferred stock dividends and preferred securities
distributions of Subsidiaries, but before any extraordinary items and
before the effect in such twelve-month period of any change in
accounting principles promulgated by the Financial Accounting Standards
Board becoming effective after December 31, 1997, less (i) allowances
for equity funds used during construction to the extent that such
allowances, taken as a whole, increased such consolidated net income,
plus (i) provisions for Federal income taxes, to the extent that such
provisions, taken as a whole, decreased such consolidated net income,
plus (i) Consolidated Fixed Charges, all determined for such twelve-
month period with respect to TUC and its Consolidated Subsidiaries on a
consolidated basis; provided, however, that in computing Consolidated
Earnings Available for Fixed Charges for any twelve-month period the
following amounts shall be excluded: (B) the effect of any regulatory
disallowances resolving fuel or other issues in any proceeding before
the Commission or the Railroad Commission of Texas in an aggregate
amount not to exceed $100,000,000, (B) any non-cash book losses relating
to the sale or write-down of assets and (B) one-time costs incurred in
connection with the Mergers (as defined in the Joint Proxy
Statement/Prospectus dated September 23, 1996 for Texas Utilities
Company (as predecessor to Texas Energy Industries, Inc.) and Enserch)
in an aggregate amount not to exceed $100,000,000.
"CONSOLIDATED FIXED CHARGES" for any twelve-month period shall
mean the sum of (i) interest on mortgage bonds, (i) interest on other
long-term debt, (i) other interest expense, including interest on short-
term debt and the current portion of long-term debt, and (i) preferred
stock dividends and preferred securities distributions of Subsidiaries,
all determined for such twelve-month period with respect to TUC and its
Consolidated Subsidiaries on a consolidated basis.
"CONSOLIDATED SHAREHOLDERS' EQUITY" shall mean the sum of (i)
total common stock equity plus (i) preferred stock not subject to
mandatory redemption, both determined with respect to TUC and its
Consolidated Subsidiaries on a consolidated basis.
-6-
<PAGE> 11
"CONSOLIDATED SUBSIDIARY" shall mean at any date any Subsidiary
or other entity the accounts of which would be consolidated with those
of TUC, TU Electric or Enserch, as the case may be, in its consolidated
financial statements as of such date.
"CONSOLIDATED TOTAL CAPITALIZATION" shall mean the sum of (i)
total common stock equity, (i) preferred stock and preferred securities,
(i) long-term debt (less amounts due currently) and (iv) the sum of the
outstanding aggregate principal amount of Loans under and as defined in
the Facility A Credit Agreement used for the purposes described in
Section 5.08(ii) of the Facility A Credit Agreement, all determined with
respect to TUC and its Consolidated Subsidiaries on a consolidated
basis.
"CONTROLLED GROUP" shall mean all members of a controlled group
of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with TUC, are treated
as a single employer under Section 414(b) or 414(c) of the Code.
"DEBT RATING" shall mean, with respect to any Borrower, the
ratings (whether explicit or implied) assigned by S&P and Moody's to
such Borrower's senior unsecured non-credit enhanced long term debt.
"DEFAULT" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"DISINTERESTED DIRECTOR" shall mean any member of the Board of
Directors of TUC who is not affiliated, directly or indirectly, with, or
appointed by, a person or group of related persons (other than TUC, any
Subsidiary of TUC, or any pension, savings or other employee benefit
plan for the benefit of employees of TUC and/or any Subsidiary of TUC)
acquiring the beneficial ownership of more than 30% of the outstanding
Voting Shares of TUC (within the meaning of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended, and the applicable
rules and regulations thereunder) and who either was a member of the
Board of Directors of TUC prior to the Acquisition Date or was
recommended for election by a majority of the Disinterested Directors in
office prior to the Acquisition Date.
"DOLLARS" or "$" shall mean lawful money of the United States of
America.
"EFFECTIVE DATE" shall mean the later of the date of this
Agreement and the date on which each condition set forth in Section 4.01
has been satisfied.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.
-7-
<PAGE> 12
"ERISA AFFILIATE" shall mean any trade or business (whether or
not incorporated) that is a member of a group of (i) organizations
described in Section 414(b) or (c) of the Code and (i) solely for
purposes of the Lien created under Section 412(n) of the Code,
organizations described in Section 414(m) or (o) of the Code of which
the relevant Borrower is a member.
"ERISA EVENT" shall mean (i) any "Reportable Event"; (i) the
adoption of any amendment to a Plan that would require the provision of
security pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA; (i) the incurrence of any liability under Title IV of ERISA with
respect to the termination of any Plan or the withdrawal or partial
withdrawal of any Borrower or any of its ERISA Affiliates from any Plan
or Multiemployer Plan; (i) the receipt by any Borrower or any ERISA
Affiliate from the PBGC of any notice relating to the intention to
terminate any Plan or Plans or to appoint a trustee to administer any
Plan; (i) the receipt by any Borrower or any ERISA Affiliate of any
notice concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be,
insolvent or in reorganization, within the meaning of Title IV of ERISA;
(i) the occurrence of a "prohibited transaction" with respect to which
any Borrower or any of its subsidiaries is liable; and (i) any other
similar event or condition with respect to a Plan or Multiemployer Plan
that could result in liability of any Borrower other than a liability to
pay premiums or benefits when due.
"EURODOLLAR BORROWING" shall mean a Borrowing comprised of
Eurodollar Loans.
"EURODOLLAR COMPETITIVE LOAN" shall mean any Competitive Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"EURODOLLAR LOAN" shall mean any Eurodollar Competitive Loan or
Eurodollar Standby Loan.
"EURODOLLAR STANDBY LOAN" shall mean any Standby Loan bearing
interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"EVENT OF DEFAULT" shall have the meaning assigned to such term
in Article VI.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXISTING TU CREDIT AGREEMENTS" shall mean the Amended and
Restated Competitive Advance and Revolving Credit Facility Agreements
for Facility A and Facility B, each dated as of April 24, 1997, as
amended as of November 10, 1997, among TUC Holding Company (predecessor
to TUC), Texas Utilities Company (predecessor to Texas Energy
Industries, Inc.), TU Electric, Enserch, the lenders parties thereto
from time to time, Texas Commerce
-8-
<PAGE> 13
Bank National Association (predecessor to Chase Bank of Texas), as
Administrative Agent, and Chase, as Competitive Advance Facility Agent.
"FACILITY A CREDIT AGREEMENT" shall mean the $3,500,000,000
Competitive Advance and Revolving Credit Facility Agreement, dated as of
the date hereof, among the Borrowers, the lenders parties thereto, Chase
Bank of Texas, as administrative agent and Chase, as competitive advance
facility agent, as amended, modified or supplemented from time to time.
"FACILITY FEE" shall have the meaning assigned to such term in
Section 2.05(a).
"FACILITY FEE PERCENTAGE" shall mean (i) from the date hereof to
and including the date six months hereafter, .25% per annum and (ii)
thereafter, the percentage per annum set forth in the column identified
as Level 1, Level 2, Level 3 or Level 4 below, based upon the Level
corresponding to the lower Debt Rating of TUC at the time of
determination. Any change in the Facility Fee Percentage shall be
effective on the date on which the applicable rating agency announces
any change in the applicable Debt Rating.
<TABLE>
<CAPTION>
=======================================================================================
Level 1 Level 2 Level 3 Level 4
S&P BBB+ or better BBB BBB- BB+ or below*
Moody's Baa1 or better Baa2 Baa3 Ba1 or below*
- ---------------------------------------------------------------------------------------
Percentage Per Annum
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Facility Fee 0.175% 0.20% 0.25% 0.35%
=======================================================================================
</TABLE>
* or unrated
"FEES" shall mean the Facility Fee, the Auction Fees, the
Administrative Fees and any other fees provided for in the Letter
Agreement.
"FINANCIAL OFFICER" of any corporation shall mean the chief
financial officer, principal accounting officer, treasurer, associate or
assistant treasurer, or any responsible officer designated by one of the
foregoing persons, of such corporation.
"FIRST MORTGAGE" shall mean (i) the TU Electric Mortgage and (i)
any Mortgage and Deed of Trust of TU Electric issued to refund, to
replace or in substitution for the TU Electric Mortgage.
"FIXED RATE BORROWING" shall mean a Borrowing comprised of Fixed
Rate Loans.
"FIXED RATE LOAN" shall mean any Competitive Loan bearing
interest at a fixed percentage rate per annum (the "FIXED RATE")
(expressed in the form of a decimal to no
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<PAGE> 14
more than four decimal places) specified by the Lender making such Loan
in its Competitive Bid.
"FUEL COMPANY" shall mean Texas Utilities Fuel Company, a Texas
corporation, and its successors.
"GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"INDEBTEDNESS" of any corporation shall mean all indebtedness
representing money borrowed which is created, assumed, incurred or
guaranteed in any manner by such corporation or for which such
corporation is responsible or liable (whether by agreement to purchase
indebtedness of, or to supply funds to or invest in, others or
otherwise).
"INITIAL UNDERWRITERS" shall mean each of Chase, Lehman
Commercial Paper and Merrill Lynch Capital Corporation, each in its
capacity as an initial underwriter of the credit facilities evidenced by
this Agreement and the Facility A Credit Agreement.
"INTEREST PAYMENT DATE" shall mean, with respect to any Loan, the
last day of the Interest Period applicable thereto and, in the case of a
Eurodollar Loan with an Interest Period of more than three months'
duration or a Fixed Rate Loan with an Interest Period of more than 90
days' duration, each day that would have been an Interest Payment Date
for such Loan had successive Interest Periods of three months' duration
or 90 days' duration, as the case may be, been applicable to such Loan
and, in addition, the date of any prepayment of each Loan or conversion
of such Loan to a Loan of a different Type.
"INTEREST PERIOD" shall mean (a) as to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day (or, if there is no numerically
corresponding day, on the last day) in the calendar month that is 1, 2,
3 or 6 months thereafter; provided that in the case of any Eurodollar
Borrowing made during the period commencing on the Effective Date and
ending on the date on which syndication of the Total Commitment has been
fully completed (as determined by the Joint Lead Arrangers and notified
by them to the Borrowers and the Administrative Agent), such period
shall be 1 month or such other periods as the Joint Lead Arrangers and
TUC agree as being necessary to effect the assignment of Commitments in
connection with syndication and, in addition, in the case of any
Eurodollar Borrowing made during the 30-day period ending on the
Maturity Date, the period commencing on the date of such Borrowing and
ending on the seventh or fourteenth day thereafter, as the Borrower may
elect, (a) as to any ABR Borrowing, the period commencing on the date of
such Borrowing and ending on the
-10-
<PAGE> 15
earliest of (i) the next succeeding March 31, June 30, September 30 or
December 31, (i) the Maturity Date, and (i) the date such Borrowing is
repaid or prepaid in accordance with Section 2.06 or Section 2.11 and
(a) as to any Fixed Rate Borrowing, the period commencing on the date of
such Borrowing and ending on the date specified in the Competitive Bids
in which the offers to make the Fixed Rate Loans comprising such
Borrowing were extended, which shall not be earlier than seven days
after the date of such Borrowing or later than 360 days after the date
of such Borrowing; provided, however, that if any Interest Period would
end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless, in the case of
Eurodollar Loans only, such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on
the next preceding Business Day. Interest shall accrue from and
including the first day of an Interest Period to but excluding the last
day of such Interest Period.
"JOINT LEAD ARRANGER" shall mean each of Chase Securities Inc.,
Lehman Brothers Inc. and Merrill Lynch & Co., each in its capacity as a
joint lead arranger of the credit facilities evidenced by this Agreement
and the Facility A Credit Agreement.
"LETTER AGREEMENT" shall mean, collectively, (i) the Syndication
Letter, dated March 2, 1998, among TUC, the Joint Lead Arrangers and the
Initial Underwriters, (ii) the Underwriting Fee Letter, dated March 2,
1998, among TUC and the Initial Underwriters, and (iii) the Agent Fee
Letter, dated March 2, 1998, among the Administrative Agent, the CAF
Agent and the Borrowers.
"LIBO RATE" shall mean, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the rate at which dollar
deposits approximately equal in principal amount to (i) in the case of a
Standby Borrowing, the Administrative Agent's portion of such Eurodollar
Borrowing and (i) in the case of a Competitive Borrowing, a principal
amount that would have been the Administrative Agent's portion of such
Competitive Borrowing had such Competitive Borrowing been a Standby
Borrowing, and for a maturity comparable to such Interest Period are
offered to the principal London offices of Chase in immediately
available funds in the London interbank market at approximately 11:00
a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"LIEN" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect
of such asset. For the purposes of this Agreement, any person shall be
deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to
such asset.
-11-
<PAGE> 16
"LOAN" shall mean a Competitive Loan or a Standby Loan, whether
made as a Eurodollar Loan, an ABR Loan or a Fixed Rate Loan, as
permitted hereby.
"MARGIN REGULATIONS" shall mean Regulations G, T, U and X of the
Board as from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"MARGIN STOCK" shall have the meaning given such term under
Regulation U of the Board.
"MATERIAL ADVERSE CHANGE" shall mean a materially adverse change
in the business, assets, operations or financial condition of TUC and
its Subsidiaries taken as a whole which makes any Borrower unable to
perform any of its obligations under this Agreement or the Facility A
Credit Agreement or which impairs the rights of, or benefits available
to, the Lenders under this Agreement or the Facility A Credit Agreement;
provided that it is agreed and understood that the Acquisition shall not
be deemed to be a Material Adverse Change.
"MATURITY DATE" shall mean the earlier to occur of (i) the date
of termination or reduction in whole of the Commitments pursuant to
Section 2.10 or Article VI and (ii) February 27, 2003.
"MINING COMPANY" shall mean Texas Utilities Mining Company, a
Texas corporation, and its successors.
"MOODY'S" shall mean Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan as defined
in Section 4001(a)(3) of ERISA to which any Borrower or any ERISA
Affiliate is making, or accruing an obligation to make, contributions,
or has within any of the preceding five plan years made, or accrued an
obligation to make, contributions.
"NOTICE OF COMPETITIVE BID REQUEST" shall mean a notification
made pursuant to Section 2.03 in the form of Exhibit A-2.
"OFFER" shall mean the offer to be made by and on behalf of a
Subsidiary of TUC relating to the Acquisition.
"OPERATING AGREEMENTS" shall mean the (i) Operating Agreement,
dated April 28, 1978, between Mining Company and Dallas Power & Light
Company, Texas Electric Service Company and Texas Power & Light Company,
as amended by the Modification of Operating Agreement, dated April 20,
1979, between the same parties and (i) the Operating Agreement, dated
December 15, 1976, between Fuel Company and Dallas Power & Light
Company, Texas Electric Service Company and Texas Power & Light Company,
as the
-12-
<PAGE> 17
same may be amended from time to time, provided that any resulting
amended agreement shall not increase the scope of Liens permitted under
Section 5.10(i).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERMITTED ENCUMBRANCES" shall mean, as to any person at any
date, any of the following:
(a) (i) Liens for taxes, assessments or governmental charges
not then delinquent and Liens for workers' compensation awards and
similar obligations not then delinquent and undetermined Liens or
charges incidental to construction, Liens for taxes, assessments or
governmental charges then delinquent but the validity of which is being
contested at the time by such person in good faith against which an
adequate reserve has been established, with respect to which levy and
execution thereon have been stayed and continue to be stayed and which
do not impair the use of the property or the operation of such person's
business, (i) Liens incurred or created in connection with or to secure
the performance of bids, tenders, contracts (other than for the payment
of money), leases, statutory obligations, surety bonds or appeal bonds,
and mechanics' or materialmen's Liens, assessments or similar
encumbrances, the existence of which does not impair the use of the
property subject thereto for the purposes for which it was acquired, and
other Liens of like nature incurred or created in the ordinary course of
business;
(b) Liens securing indebtedness, neither assumed nor
guaranteed by such person nor on which it customarily pays interest,
existing upon real estate or rights in or relating to real estate
acquired by such person for any substation, transmission line,
transportation line, distribution line, right of way or similar purpose;
(c) rights reserved to or vested in any municipality or public
authority by the terms of any right, power, franchise, grant, license or
permit, or by any provision of law, to terminate such right, power,
franchise, grant, license or permit or to purchase or recapture or to
designate a purchaser of any of the property of such person;
(d) rights reserved to or vested in others to take or receive
any part of the power, gas, oil, coal, lignite or other minerals or
timber generated, developed, manufactured or produced by, or grown on,
or acquired with, any property of such person and Liens upon the
production from property of power, gas, oil, coal, lignite or other
minerals or timber, and the by-products and proceeds thereof, to secure
the obligations to pay all or a part of the expenses of exploration,
drilling, mining or development of such property only out of such
production or proceeds;
-13-
<PAGE> 18
(e) easements, restrictions, exceptions or reservations in any
property and/or rights of way of such person for the purpose of roads,
pipe lines, substations, transmission lines, transportation lines,
distribution lines, removal of oil, gas, lignite, coal or other minerals
or timber, and other like purposes, or for the joint or common use of
real property, rights of way, facilities and/or equipment, and defects,
irregularities and deficiencies in titles of any property and/or rights
of way, which do not materially impair the use of such property and/or
rights of way for the purposes for which such property and/or rights of
way are held by such person;
(f) rights reserved to or vested in any municipality or public
authority to use, control or regulate any property of such person;
(g) any obligations or duties, affecting the property of such
person, to any municipality or public authority with respect to any
franchise, grant, license or permit;
(h) as of any particular time any controls, Liens,
restrictions, regulations, easements, exceptions or reservations of any
municipality or public authority applying particularly to space
satellites or nuclear fuel;
(i) any judgment Lien against such person securing a judgment
for an amount not exceeding 25% of Consolidated Shareholders' Equity, so
long as the finality of such judgment is being contested by appropriate
proceedings conducted in good faith and execution thereon is stayed;
(j) any Lien arising by reason of deposits with or giving of
any form of security to any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, for any purpose at any time as
required by law or governmental regulation as a condition to the
transaction of any business or the exercise of any privilege or license,
or to enable such person to maintain self-insurance or to participate in
any fund for liability on any insurance risks or in connection with
workers' compensation, unemployment insurance, old age pensions or other
social security or to share in the privileges or benefits required for
companies participating in such arrangements; or
(k) any landlords' Lien on fixtures or movable property
located on premises leased by such person in the ordinary course of
business so long as the rent secured thereby is not in default.
"PERSON" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government,
or any agency or political subdivision thereof.
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"PLAN" shall mean any employee pension benefit plan described
under Section 3(2) of ERISA (other than a Multiemployer Plan) subject to
the provisions of Title IV of ERISA that is maintained by any Borrower
or any ERISA Affiliate.
"REGISTER" shall have the meaning given such term in Section
8.04(d).
"REPORTABLE EVENT" shall mean any reportable event as defined in
Sections 4043(c)(1)-(8) of ERISA or the regulations issued thereunder
(other than a reportable event for which the 30 day notice requirement
has been waived) with respect to a Plan (other than a Plan maintained by
an ERISA Affiliate that is considered an ERISA Affiliate only pursuant
to subsection (m) or (o) of Code Section 414).
"REQUIRED LENDERS" shall mean, at any time, Lenders having
Commitments representing in excess of 50% of the Total Commitment or,
for purposes of acceleration pursuant to clause (ii) of Article VI,
Lenders holding Loans representing in excess of 50% of the aggregate
principal amount of the Loans outstanding.
"RESPONSIBLE OFFICER" of any corporation shall mean any executive
officer or Financial Officer of such corporation and any other officer
or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"S&P" shall mean Standard & Poor's (a division of The McGraw Hill
Companies).
"SEC" shall mean the Securities and Exchange Commission.
"SIGNIFICANT SUBSIDIARY" shall mean at any time a Subsidiary of
TUC that as of such time satisfies the definition of a "significant
subsidiary" contained as of the date hereof in Regulation S-X of the
SEC; provided that each of TU Electric, Enserch and any other Borrower
hereunder shall at all times be considered a Significant Subsidiary of
TUC.
"STANDBY BORROWING" shall mean a Borrowing consisting of
simultaneous Standby Loans from each of the Lenders.
"STANDBY BORROWING REQUEST" shall mean a request made pursuant to
Section 2.04 in the form of Exhibit A-5.
"STANDBY LOANS" shall mean the revolving loans made pursuant to
Section 2.04. Each Standby Loan shall be a Eurodollar Standby Loan or
an ABR Loan.
"STATUTORY RESERVES" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator
of which is the number one minus the
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aggregate (without duplication) of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves)
expressed as a decimal established by the Board and any other banking
authority to which the Administrative Agent is subject for new
negotiable nonpersonal time deposits in dollars of over $100,000 with
maturities approximately equal to three months. Statutory Reserves
shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
"SUBSIDIARY" shall mean, with respect to any person (the
"PARENT"), any corporation or other entity of which securities or other
ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are
at the time directly or indirectly owned by such parent.
"SUBSTANTIAL" shall mean an amount in excess of 10% of the
consolidated assets of TUC and its Consolidated Subsidiaries taken as a
whole.
"TEG" shall mean The Energy Group, PLC.
"TEG GROUP" shall mean TEG and its Subsidiaries.
"TOTAL COMMITMENT" shall mean, at any time, the aggregate amount
of Commitments of all the Lenders, as in effect at such time.
"TRANSACTIONS" shall have the meaning assigned to such term in
Section 3.02.
"TU ELECTRIC APPROVAL DATE" shall mean the first date on which
the following shall have occurred: TU Electric shall have delivered to
the Administrative Agent (in sufficient copies for each of the Lenders)
(i) a certificate of the Secretary or an Assistant Secretary of TU
Electric certifying that (A) attached thereto are true and correct
copies of all corporate resolutions, orders, consents and approvals
required by any Governmental Authority in order to permit or authorize
TU Electric to borrow and to repay Loans hereunder and "Loans" under and
as defined in the Facility A Credit Agreement in an aggregate principal
amount at least equal to the sum of the Commitments hereunder and the
"General Loan Commitments" under and as defined in the Facility A Credit
Agreement and (B) that all such resolutions, orders, consents and
approvals are in full force and effect, sufficient for their purpose
and, in the case of such orders, consents and approvals, not subject to
any pending or, to the knowledge of such Secretary or Assistant
Secretary (as the case may be), threatened appeal or other proceeding
seeking reconsideration or review thereof and (ii) an opinion of counsel
to TU Electric, in form and substance satisfactory to the Administrative
Agent, as to such orders, consents and approvals and as to the
enforceability of the obligations of TU Electric hereunder on and after
such date.
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"TU ELECTRIC MORTGAGE" shall mean the Mortgage and Deed of Trust,
dated as of December 1, 1983, from TU Electric to Irving Trust Company
(now The Bank of New York), Trustee, as amended or supplemented from
time to time.
"TYPE", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the
Loans comprising such Borrowing is determined. For purposes hereof,
"RATE" shall include the LIBO Rate, the Alternate Base Rate and the
Fixed Rate.
"U.K. FACILITY AGREEMENT" shall mean the L.3.515 Billion
Facilities Agreement, dated as of the date hereof, among TU Finance No.
1 Ltd, a private limited company organized under English law, TU Finance
No. 2 Ltd., a private limited company organized under English law, TU
Acquisition plc, the lenders parties thereto and certain other parties
named therein.
"UNCONDITIONAL DATE" shall mean the date the Offer becomes or is
declared unconditional in all respects.
"VOTING SHARES" shall mean, as to shares of a particular
corporation, outstanding shares of stock of any class of such
corporation entitled to vote in the election of directors, excluding
shares entitled so to vote only upon the happening of some contingency.
"WHOLLY OWNED SUBSIDIARY" shall mean any Consolidated Subsidiary
all the shares of common stock and other voting capital stock or other
voting ownership interests having ordinary voting power to vote in the
election of the board of directors or other governing body performing
similar functions (except directors' qualifying shares) of which are at
the time directly or indirectly owned by TUC.
"WITHDRAWAL LIABILITY" shall mean liability of a Borrower
established under Section 4201 of ERISA as a result of a complete or
partial withdrawal from a Multiemployer Plan, as such terms are defined
in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.2. TERMS GENERALLY. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided,
however, that for purposes of determining compliance with any covenant set
forth in Article V, such terms shall be construed in accordance with GAAP as in
effect on the date
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hereof applied on a basis consistent with the application used in preparing the
Borrowers' audited financial statements referred to in Section 3.05.
ARTICLE II
THE CREDITS
SECTION 2.1. COMMITMENTS. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make Standby Loans, at any time and from
time to time until the earlier of the Maturity Date and the termination of the
Commitment of such Lender, to each Borrower in an aggregate principal amount at
any time outstanding not to exceed such Lender's Commitment minus the amount by
which the Competitive Loans made to any Borrower and outstanding at such time
shall be deemed to have used such Commitment pursuant to Section 2.14, subject,
however, to the conditions that (i) at no time shall the sum of (x) the
outstanding aggregate principal amount of all Standby Loans plus (y) the
outstanding aggregate principal amount of all Competitive Loans exceed the
Total Commitment, (i) at no time shall the sum of the outstanding aggregate
principal amount of Loans hereunder plus Loans under and as defined in Facility
A used, in each case, for purposes described in Section 5.08(ii) of the
Facility A Credit Agreement exceed $2,930,000,000, (i) at no time shall the sum
of (x) the outstanding aggregate principal amount of all Loans made to Enserch
plus (y) the outstanding aggregate principal amount of all Loans under and as
defined in the Facility A Credit Agreement made to Enserch exceed $650,000,000,
(i) unless and until the TU Electric Approval Date shall have occurred, at no
time shall the sum of (x) the outstanding aggregate principal amount of all
Loans made to TU Electric plus (y) the outstanding aggregate principal amount
of all Loans under and as defined in the Facility A Credit Agreement made to TU
Electric exceed $1,250,000,000, (i) at no time shall the outstanding aggregate
principal amount of all Standby Loans made by any Lender exceed the amount of
such Lender's Commitment and (i) at all times, the outstanding aggregate
principal amount of all Standby Loans made by each Lender to each Borrower
shall equal the product of (B) the percentage which such Lender's Commitment
represents of the Total Commitment times (B) the outstanding aggregate
principal amount of all Standby Loans made to such Borrower.
Within the foregoing limits, the Borrowers may borrow, pay or prepay and
reborrow Standby Loans hereunder, on and after the Effective Date and prior to
the Maturity Date, subject to the terms, conditions and limitations set forth
herein.
SECTION 2.2. LOANS. (a) Each Standby Loan shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance with
their respective Commitments; provided, however, that the failure of any Lender
to make any Standby Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder (it being understood, however, that no Lender
shall be responsible for the failure of any other Lender to make any Loan
required to be made by such other Lender). Each Competitive Loan shall be made
in accordance with the
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procedures set forth in Section 2.03. The Standby Loans or Competitive Loans
comprising any Borrowing shall be (i) in the case of Competitive Loans, in an
aggregate principal amount which is an integral multiple of $1,000,000 and not
less than $5,000,000 and (i) in the case of Standby Loans, in an aggregate
principal amount which is an integral multiple of $5,000,000 and not less than
$25,000,000 (or an aggregate principal amount equal to the remaining balance of
the available Commitments).
(b) Each Competitive Borrowing shall be comprised entirely of
Eurodollar Competitive Loans or Fixed Rate Loans, and each Standby Borrowing
shall be comprised entirely of Eurodollar Standby Loans or ABR Loans, as the
Borrower may request pursuant to Section 2.03 or 2.04, as applicable. Each
Lender may at its option make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; provided that any
exercise of such option shall not affect the obligation of the Borrower to
repay such Loan in accordance with the terms of this Agreement. Borrowings of
more than one Type may be outstanding at the same time.
(c) Subject to paragraph (d) below, each Lender shall make each Loan
to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Administrative Agent in Houston, Texas, not
later than noon, Houston time, and the Administrative Agent shall by 2:00 p.m.,
Houston time, credit the amounts so received to the account or accounts
specified from time to time in one or more notices delivered by the applicable
Borrower to the Administrative Agent or, if a Borrowing shall not occur on such
date because any condition precedent herein specified shall not have been met,
return the amounts so received to the respective Lenders. Competitive Loans
shall be made by the Lender or Lenders whose Competitive Bids therefor are
accepted pursuant to Section 2.03 in the amounts so accepted. Standby Loans
shall be made by the Lenders pro rata in accordance with Section 2.14. Unless
the Administrative Agent shall have received notice from a Lender prior to the
date of any Borrowing that such Lender will not make available to the
Administrative Agent such Lender's portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with this paragraph (c) and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have
made such portion available to the Administrative Agent, such Lender and such
Borrower (without waiving any claim against such Lender for such Lender's
failure to make such portion available) severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent at (i) in the case of the Borrower, the interest rate applicable at the
time to the Loans comprising such Borrowing and (i) in the case of such Lender,
the Federal Funds Effective Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this Agreement.
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(d) A Borrower may refinance all or any part of any Standby Borrowing
with a Standby Borrowing of the same or a different Type, subject to the
conditions and limitations set forth in this Agreement. Any Standby Borrowing
or part thereof so refinanced shall be deemed to be repaid or prepaid in
accordance with Section 2.06 or 2.11, as applicable, with the proceeds of a new
Standby Borrowing, and the proceeds of the new Standby Borrowing, to the extent
they do not exceed the principal amount of the Standby Borrowing being
refinanced, shall not be paid by the Lenders to the Administrative Agent or by
the Administrative Agent to such Borrower pursuant to paragraph (c) above.
SECTION 2.3. COMPETITIVE BID PROCEDURE. (a) In order to request
Competitive Bids, a Borrower shall hand deliver or telecopy to the CAF Agent a
duly completed Competitive Bid Request in the form of Exhibit A-1 hereto, to be
received by the CAF Agent (i) in the case of a Eurodollar Competitive
Borrowing, not later than 11:00 a.m., New York City time, four Business Days
before a proposed Competitive Borrowing and (i) in the case of a Fixed Rate
Borrowing, not later than 11:00 a.m., New York City time, one Business Day
before a proposed Competitive Borrowing. No ABR Loan shall be requested in, or
made pursuant to, a Competitive Bid Request. A Competitive Bid Request that
does not conform substantially to the format of Exhibit A-1 may be rejected in
the CAF Agent's sole discretion, and the CAF Agent shall promptly notify the
Borrower of such rejection by telecopy. Each Competitive Bid Request shall
refer to this Agreement and specify (w) whether the Borrowing then being
requested is to be a Eurodollar Borrowing or a Fixed Rate Borrowing, (x) the
date of such Borrowing (which shall be a Business Day) and the aggregate
principal amount thereof which shall be in a minimum principal amount of
$5,000,000 and in an integral multiple of $1,000,000, and (y) the Interest
Period with respect thereto (which may not end after the Maturity Date).
Promptly after its receipt of a Competitive Bid Request that is not rejected as
aforesaid, the CAF Agent shall telecopy to each Lender a Notice of Competitive
Bid Request in the form of Exhibit A-2 inviting the Lenders to bid, on the
terms and conditions of this Agreement, to make Competitive Loans.
(b) Each Lender invited to bid may, in its sole discretion, make one
or more Competitive Bids to the Borrower responsive to such Borrower's
Competitive Bid Request. Each Competitive Bid by a Lender must be received by
the CAF Agent by telecopy, in the form of Exhibit A-3 hereto, (i) in the case
of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York City
time, three Business Days before a proposed Competitive Borrowing and (i) in
the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City
time, on the day of a proposed Competitive Borrowing. Multiple bids will be
accepted by the CAF Agent. Competitive Bids that do not conform substantially
to the format of Exhibit A-3 may be rejected by the CAF Agent, and the CAF
Agent shall notify the Lender making such nonconforming bid of such rejection
as soon as practicable. Each Competitive Bid shall refer to this Agreement and
specify (x) the principal amount (which shall be in a minimum principal amount
of $5,000,000 and in an integral multiple of $1,000,000 and which may equal the
entire principal amount of the Competitive Borrowing requested by the
applicable Borrower) of the Competitive Loan or Loans that the Lender is
willing to make to such Borrower, (y) the Competitive Bid Rate or Rates at
which the Lender is prepared
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to make the Competitive Loan or Loans and (z) the Interest Period and the last
day thereof. If any Lender invited to bid shall elect not to make a
Competitive Bid, such Lender shall so notify the CAF Agent by telecopy (I) in
the case of Eurodollar Competitive Loans, not later than 9:30 a.m., New York
City time, three Business Days before a proposed Competitive Borrowing, and
(II) in the case of Fixed Rate Loans, not later than 9:30 a.m., New York City
time, on the day of a proposed Competitive Borrowing; provided, however, that
failure by any Lender to give such notice shall not cause such Lender to be
obligated to make any Competitive Loan as part of such Competitive Borrowing.
A Competitive Bid submitted by a Lender pursuant to this paragraph (b) shall be
irrevocable.
(c) The CAF Agent shall notify the Borrower by telecopy, of all the
Competitive Bids made, the Competitive Bid Rate and the principal amount of
each Competitive Loan in respect of which such Competitive Bid was made and the
identity of the Lender that made each such bid by (i) in the case of a
Eurodollar Competitive Borrowing, not later than 10:00 a.m., New York City
time, three Business Days before a proposed Competitive Borrowing and (i) in
the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City
time, on the day of a proposed Competitive Borrowing. The CAF Agent shall send
a copy of all Competitive Bids to the Borrower for its records as soon as
practicable after the completion of the bidding process set forth in this
Section 2.03.
(d) A Borrower may in its sole and absolute discretion, subject only
to the provisions of this paragraph (d), accept or reject any or all
Competitive Bids referred to in paragraph (c) above. Such Borrower shall
notify the CAF Agent by telephone, confirmed by telecopy in the form of a
Competitive Bid Accept/Reject Letter, whether and to what extent it has decided
to accept or reject any of or all the bids referred to in paragraph (c) above
by (i) in the case of a Eurodollar Competitive Borrowing, not later than 10:30
a.m., New York City time, three Business Days before a proposed Competitive
Borrowing and (i) in the case of a Fixed Rate Borrowing, not later than 10:30
a.m., New York City time, on the day of a proposed Competitive Borrowing;
provided, however, that (i) the failure by such Borrower to give such notice
shall be deemed to be a rejection of all the bids referred to in paragraph (c)
above, (i) such Borrower shall not accept a bid made at a particular
Competitive Bid Rate if it has decided to reject a bid made at a lower
Competitive Bid Rate, (i) the aggregate amount of the Competitive Bids accepted
by such Borrower shall not exceed the principal amount specified in the
Competitive Bid Request, (i) if such Borrower shall accept a bid or bids made
at a particular Competitive Bid Rate but the amount of such bid or bids shall
cause the total amount of bids to be accepted by such Borrower to exceed the
amount specified in the Competitive Bid Request, then such Borrower shall
accept a portion of such bid or bids in an amount equal to the amount specified
in the Competitive Bid Request less the amount of all other Competitive Bids
accepted with respect to such Competitive Bid Request, which acceptance, in the
case of multiple bids at such Competitive Bid Rate, shall be made pro rata in
accordance with the amount of each such bid at such Competitive Bid Rate, and
(i) except pursuant to clause (iv) above, no bid shall be accepted for a
Competitive Loan unless such Competitive Loan is in a minimum principal amount
of $5,000,000 and an integral multiple
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of $1,000,000; provided further, however, that if a Competitive Loan must be in
an amount less than $5,000,000 because of the provisions of clause (iv) above,
such Competitive Loan may be for a minimum of $1,000,000 or any integral
multiple thereof, and in calculating the pro rata allocation of acceptances of
portions of multiple bids at a particular Competitive Bid Rate pursuant to
clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in
a manner which shall be in the discretion of the applicable Borrower. A notice
given by a Borrower pursuant to this paragraph (d) shall be irrevocable.
(e) The CAF Agent shall promptly notify each bidding Lender (and the
Administrative Agent), by telecopy, whether or not its Competitive Bid has been
accepted (and if so, in what amount and at what Competitive Bid Rate) and each
successful bidder will thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Loan in respect of which its bid has
been accepted.
(f) No Competitive Borrowing shall be requested or made hereunder if
after giving effect thereto any of the conditions set forth in clauses (i)
through (iv) of Section 2.01 would not be met.
(g) If either the Administrative Agent or CAF Agent shall elect to
submit a Competitive Bid in its capacity as a Lender, such party shall submit
such bid directly to the Borrower one quarter of an hour earlier than the
latest time at which the other Lenders are required to submit their bids to the
CAF Agent pursuant to paragraph (b) above.
(h) Each of the Borrowers and the CAF Agent shall deliver to the
Administrative Agent by telecopy copies of all notices delivered by it pursuant
to this Section 2.03 at the same times such notices are delivered hereunder.
All notices required by this Section 2.03 shall be given in accordance with
Section 8.01.
(i) A Competitive Bid Request shall not be made within five Business
Days after the date of any previous Competitive Bid which was accepted by a
Borrower pursuant to paragraph (d) above.
SECTION 2.4. STANDBY BORROWING PROCEDURE. In order to request a
Standby Borrowing, a Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Standby Borrowing Request in the form of
Exhibit A-5 (a) in the case of a Eurodollar Standby Borrowing, not later than
10:00 a.m., Houston time, three Business Days before such Borrowing, and (a) in
the case of an ABR Borrowing, not later than 10:00 a.m., Houston time, one
Business Day before such Borrowing. No Fixed Rate Loan shall be requested or
made pursuant to a Standby Borrowing Request. Such notice shall be irrevocable
and shall in each case specify (i) whether the Borrowing then being requested
is to be a Eurodollar Standby Borrowing or an ABR Borrowing; (i) the date of
such Standby Borrowing (which shall be a Business Day) and the amount thereof;
and (i) if such Borrowing is to be a Eurodollar Standby Borrowing, the Interest
Period with respect thereto, which shall not end after the Maturity Date. If
no election as to the
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Type of Standby Borrowing is specified in any such notice, then the requested
Standby Borrowing shall be an ABR Borrowing. If no Interest Period with
respect to any Eurodollar Standby Borrowing is specified in any such notice,
then the Borrower shall be deemed to have selected an Interest Period of one
month's duration (subject, at all times prior to completion of syndication of
the Total Commitment, to the limitations set forth in the definition of
"Interest Period"). If a Borrower shall not have given notice in accordance
with this Section 2.04 of its election to refinance a Standby Borrowing prior
to the end of the Interest Period in effect for such Borrowing, then such
Borrower shall (unless such Borrowing is repaid at the end of such Interest
Period) be deemed to have given notice of an election to refinance such
Borrowing with an ABR Borrowing. Notwithstanding any other provision of this
Agreement to the contrary, no Standby Borrowing shall be requested if the
Interest Period with respect thereto would end after the Maturity Date. The
Administrative Agent shall promptly advise the Lenders of any notice given
pursuant to this Section 2.04 and of each Lender's portion of the requested
Borrowing.
SECTION 2.5. FEES. (a) Each Borrower agrees jointly and severally to
pay to each Lender, through the Administrative Agent, on each March 31, June
30, September 30 and December 31 (with the first payment being due on March 31,
1998) and on each date on which the Commitment of such Lender shall be
terminated as provided herein, a facility fee (a "FACILITY FEE"), at a rate per
annum equal to the Facility Fee Percentage from time to time in effect on the
amount of the sum of the unused Commitment of such Lender plus the principal
amount of Loans outstanding made by such Lender (without regard, in either
case, to any Competitive Loans made by any Lender), during the preceding
quarter (or other period commencing on the Effective Date or ending with the
Maturity Date or any date on which the Commitment of such Lender shall be
terminated). All Facility Fees shall be computed on the basis of the actual
number of days elapsed in a year of 365 or 366 days, as the case may be. The
Facility Fee due to each Lender shall commence to accrue on the Effective Date,
and shall cease to accrue on the earlier of the Maturity Date and the
termination of the Commitment of such Lender as provided herein.
(b) Each Borrower agrees jointly and severally to pay the
Administrative Agent, for its own account, the administrative fees provided for
in the Agent Fee Letter referred to in the Letter Agreement (the
"ADMINISTRATIVE FEES").
(c) Each Borrower agrees to pay the CAF Agent, for its own account,
the Auction Fees applicable to such Borrower.
(d) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders, the Initial Underwriters or the Joint Lead Arrangers or to
the CAF Agent. Once paid, none of the Fees shall be refundable under any
circumstances.
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SECTION 2.6. REPAYMENT OF LOANS; EVIDENCE OF INDEBTEDNESS. (a) The
outstanding principal balance of each Loan shall be due and payable on the last
day of the Interest Period applicable thereto and on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness to such Lender resulting
from each Loan made by such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time under
this Agreement.
(c) The Administrative Agent shall maintain accounts in which it will
record (i) the amount of each Loan made hereunder, the Type of each Loan made
and the Interest Period applicable thereto, (i) the amount of any principal or
interest due and payable or to become due and payable from each Borrower to
each Lender hereunder and (i) the amount of any sum received by the
Administrative Agent hereunder from each Borrower and each Lender's share
thereof.
(d) The entries made in the accounts maintained pursuant to
paragraphs (b) and (c) of this Section 2.06 shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein
shall not in any manner affect the obligations of the Borrowers to repay the
Loans in accordance with their terms.
SECTION 2.7. INTEREST ON LOANS. (a) Subject to the provisions of
Section 2.08, the Loans comprising each Eurodollar Borrowing shall bear
interest (computed on the basis of the actual number of days elapsed over a
year of 360 days) at a rate per annum equal to the LIBO Rate for the Interest
Period in effect for such Borrowing plus the Applicable Margin from time to
time in effect and in the case of each Eurodollar Competitive Loan, the LIBO
Rate for the Interest Period in effect for such Borrowing plus the Competitive
Bid Margin offered by the Lender making such Loan and accepted by the
applicable Borrower pursuant to Section 2.03.
(b) Subject to the provisions of Section 2.08, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 365 or 366 days, as the case may be, for
periods during which the Alternate Base Rate is determined by reference to the
Prime Rate and 360 days for other periods) at a rate per annum equal to the
Alternate Base Rate plus the Applicable Margin from time to time in effect.
(c) Subject to the provisions of Section 2.08, each Fixed Rate Loan
shall bear interest at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03.
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(d) Interest on each Loan shall be payable on each Interest Payment
Date applicable to such Loan except as otherwise provided in this Agreement.
The applicable LIBO Rate or Alternate Base Rate for each Interest Period or day
within an Interest Period, as the case may be, shall be determined by Chase,
and such determination shall be conclusive absent manifest error; provided that
Chase shall, upon request, provide to the applicable Borrower a certificate
setting forth in reasonable detail the basis for such determination.
SECTION 2.8. DEFAULT INTEREST. If a Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, whether by scheduled maturity, notice of prepayment,
acceleration or otherwise, such Borrower shall on demand from time to time from
the Administrative Agents pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed as provided in Section
2.07(b)) equal to the Alternate Base Rate plus the Applicable Margin for ABR
Loans plus 1%.
SECTION 2.9. ALTERNATE RATE OF INTEREST. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined (i) that dollar deposits in the principal amounts of the Eurodollar
Loans comprising such Borrowing are not generally available in the London
interbank market or (i) that reasonable means do not exist for ascertaining the
LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter,
give telecopy notice of such determination to the Borrowers and the Lenders.
In the event of any such determination under clauses (i) or (ii) above, until
the Administrative Agent shall have advised the Borrowers and the Lenders that
the circumstances giving rise to such notice no longer exist, (x) any request
by a Borrower for a Eurodollar Competitive Borrowing pursuant to Section 2.03
shall be of no force and effect and shall be denied by the Administrative Agent
and (y) any request by a Borrower for a Eurodollar Standby Borrowing pursuant
to Section 2.04 shall be deemed to be a request for an ABR Borrowing. In the
event the Required Lenders notify the Administrative Agent that the rates at
which dollar deposits are being offered will not adequately and fairly reflect
the cost to such Lenders of making or maintaining Eurodollar Loans during such
Interest Period, the Administrative Agent shall notify the applicable Borrower
of such notice and until the Required Lenders shall have advised the
Administrative Agent that the circumstances giving rise to such notice no
longer exist, any request by such Borrower for a Eurodollar Standby Borrowing
shall be deemed a request for an ABR Borrowing. Each determination by the
Administrative Agent hereunder shall be made in good faith and shall be
conclusive absent manifest error; provided that the Administrative Agent,
shall, upon request, provide to the applicable Borrower a certificate setting
forth in reasonable detail the basis for such determination.
SECTION 2.10. TERMINATION AND REDUCTION OF COMMITMENTS. (a) The
Commitments shall be automatically terminated on the Maturity Date.
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(b) Upon at least two Business Days' prior irrevocable written notice
to the Administrative Agent, the Borrowers, acting jointly, may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Total Commitment; provided, however, that (i) each partial reduction of the
Commitments shall be in an integral multiple of $10,000,000 and in a minimum
principal amount of $10,000,000 and (i) no such termination or reduction shall
be made that would reduce the Total Commitment to an amount (1) less than the
aggregate outstanding principal amount of all Competitive Loans or (1) less
than $50,000,000, unless the result of such termination or reduction referred
to in this clause (2) is to reduce the Total Commitment to $0. The
Administrative Agent shall advise the Lenders of any notice given pursuant to
this Section 2.10(c) and of each Lender's portion of any such termination or
reduction of the Total Commitment.
(c) Each reduction in the Total Commitment hereunder shall be made
ratably among the Lenders in accordance with their respective Commitments. The
Borrowers shall pay to the Administrative Agent for the account of the Lenders,
on the date of each termination or reduction of the Total Commitment, the
Facility Fees on the amount of the Commitments so terminated or reduced accrued
through the date of such termination or reduction.
SECTION 2.11. PREPAYMENT. (a) Each Borrower shall have the right at
any time and from time to time to prepay any Standby Borrowing, in whole or in
part, upon giving telecopy notice (or telephone notice promptly confirmed by
telecopy) to the Administrative Agent: (i) before 10:00 a.m., Houston time,
three Business Days prior to prepayment, in the case of Eurodollar Loans, and
(i) before 10:00 a.m., Houston time, one Business Day prior to prepayment, in
the case of ABR Loans; provided, however, that each partial prepayment shall be
in an amount which is an integral multiple of $10,000,000 and not less than
$10,000,000. No prepayment may be made in respect of any Competitive
Borrowing.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.10, the Borrowers shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the aggregate principal
amount of the Competitive Loans and Standby Loans outstanding will not exceed
the Total Commitment, after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date and
the principal amount of each Borrowing (or portion thereof) to be prepaid,
shall be irrevocable and shall commit the Borrower to prepay such Borrowing (or
portion thereof) by the amount stated therein on the date stated therein. All
prepayments under this Section 2.11 shall be subject to Section 8.05 but
otherwise without premium or penalty. All prepayments under this Section 2.11
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
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SECTION 2.12. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender hereunder
(except for changes in respect of taxes on the overall net income of such
Lender or its lending office imposed by the jurisdiction in which such Lender's
principal executive office or lending office is located), or shall result in
the imposition, modification or applicability of any reserve, special deposit
or similar requirement against assets of, deposits with or for the account of
or credit extended by any Lender, or shall result in the imposition on any
Lender or the London interbank market of any other condition affecting this
Agreement, such Lender's Commitment or any Eurodollar Loan or Fixed Rate Loan
made by such Lender, and the result of any of the foregoing shall be to
increase the cost to such Lender of making or maintaining any Eurodollar Loan
or Fixed Rate Loan or to reduce the amount of any sum received or receivable by
such Lender hereunder (whether of principal, interest or otherwise) by an
amount deemed by such Lender to be material, then the applicable Borrower or,
if the foregoing circumstances do not relate to a particular Borrowing, the
Borrowers shall, upon receipt of the notice and certificate provided for in
Section 2.12(c), promptly pay to such Lender such additional amount or amounts
as will compensate such Lender for such additional costs incurred or reduction
suffered. Notwithstanding the foregoing, no Lender shall be entitled to
request compensation under this paragraph with respect to any Competitive Loan
if the change giving rise to such request was applicable to such Lender at the
time of submission of the Competitive Bid pursuant to which such Competitive
Loan was made.
(b) If any Lender shall have determined that the adoption of any law,
rule, regulation or guideline arising out of the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards," or
the adoption after the date hereof of any other law, rule, regulation or
guideline regarding capital adequacy, or any change in any of the foregoing or
in the interpretation or administration of any of the foregoing by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of
law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on such Lender's capital or on
the capital of such Lender's holding company, if any, as a consequence of this
Agreement, such Lender's Commitment or the Loans made by such Lender pursuant
hereto to a level below that which such Lender or such Lender's holding company
could have achieved but for such adoption, change or compliance (taking into
consideration such Lender's policies and the policies of such Lender's holding
company with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time such additional amount or amounts as will
compensate such Lender for any such reduction suffered will be paid by the
Borrowers to such Lender. It is acknowledged that this Agreement is being
entered into by the Lenders on the understanding that the Lenders will not be
required to maintain capital against their Commitments
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under currently applicable laws, regulations and regulatory guidelines. In the
event the Lenders shall otherwise determine that such understanding is
incorrect, it is agreed that the Lenders will be entitled to make claims under
this paragraph (b) based upon market requirements prevailing on the date hereof
for commitments under comparable credit facilities against which capital is
required to be maintained.
(c) A certificate of each Lender setting forth such amount or amounts
as shall be necessary to compensate such Lender or its holding company as
specified in paragraph (a) or (b) above, as the case may be, and containing an
explanation in reasonable detail of the manner in which such amount or amounts
shall have been determined, shall be delivered to the applicable Borrower or
the Borrowers, as the case may be, and shall be conclusive absent manifest
error. The Borrowers shall pay each Lender the amount shown as due on any such
certificate delivered by it within 10 days after its receipt of the same. Each
Lender shall give prompt notice to the applicable Borrower of any event of
which it has knowledge, occurring after the date hereof, that it has determined
will require compensation by such Borrower pursuant to this Section; provided,
however, that failure by such Lender to give such notice shall not constitute a
waiver of such Lender's right to demand compensation hereunder.
(d) Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Lender's right to demand compensation with respect to such period or any
other period; provided, however, that no Lender shall be entitled to
compensation under this Section 2.12 for any costs incurred or reductions
suffered with respect to any date unless it shall have notified the applicable
Borrower that it will demand compensation for such costs or reductions under
paragraph (c) above not more than 90 days after the later of (i) such date and
(i) the date on which it shall have become aware of such costs or reductions.
The protection of this Section shall be available to each Lender regardless of
any possible contention of the invalidity or inapplicability of the law, rule,
regulation, guideline or other change or condition which shall have occurred or
been imposed.
(e) Each Lender agrees that it will designate a different lending
office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the reasonable judgment of such Lender, be
disadvantageous to such Lender.
SECTION 2.13. CHANGE IN LEGALITY. (a) Notwithstanding any other
provision herein, if any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written
notice to the Borrowers and to the Agents, such Lender may:
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(i) declare that Eurodollar Loans will not thereafter be made
by such Lender hereunder, whereupon such Lender shall not submit a
Competitive Bid in response to a request for Eurodollar Competitive
Loans and any request for a Eurodollar Standby Borrowing shall, as to
such Lender only, be deemed a request for an ABR Loan unless such
declaration shall be subsequently withdrawn (any Lender delivering such
a declaration hereby agreeing to withdraw such declaration promptly upon
determining that such event of illegality no longer exists); and
(ii) require that all outstanding Eurodollar Loans made by it
be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date
of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied
to repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.13, a notice by any Lender shall
be effective as to each Eurodollar Loan, if lawful, on the last day of the
Interest Period currently applicable to such Eurodollar Loan; in all other
cases such notice shall be effective on the date of receipt.
SECTION 2.14. PRO RATA TREATMENT. Except as provided below in this
Section 2.14 with respect to Competitive Borrowings and as required under
Sections 2.13 and 2.18, each Standby Borrowing, each payment or prepayment of
principal of any Standby Borrowing, each payment of interest on the Standby
Loans, each payment of the Facility Fees, each reduction of the Commitments and
each refinancing or conversion of any Borrowing with a Standby Borrowing of any
Type, shall be allocated pro rata among the Lenders in accordance with their
respective Commitments (or, if such Commitments shall have expired or been
terminated, in accordance with the respective principal amounts of their
outstanding Standby Loans). Each payment of principal of any Competitive
Borrowing shall be allocated pro rata among the Lenders participating in such
Borrowing in accordance with the respective principal amounts of their
outstanding Competitive Loans comprising such Borrowing. Each payment of
interest on any Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the respective
amounts of accrued and unpaid interest on their outstanding Competitive Loans
comprising such Borrowing. For purposes of determining the available
Commitments of the Lenders at any time, each outstanding Competitive Borrowing
shall be deemed to have utilized the Commitments of the Lenders (including
those Lenders which shall not have made Loans as part of such Competitive
Borrowing) pro rata in accordance with such respective Commitments. Each
Lender agrees that in computing such Lender's portion of any Borrowing to be
made hereunder, the Administrative Agent may, in its discretion, round each
Lender's percentage of such Borrowing to the next higher or lower whole dollar
amount.
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SECTION 2.15. SHARING OF SETOFFS. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim, or
pursuant to a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, obtain payment
(voluntary or involuntary) in respect of any Standby Loan or Loans as a result
of which the unpaid principal portion of its Standby Loans shall be
proportionately less than the unpaid principal portion of the Standby Loans of
any other Lender, it shall be deemed simultaneously to have purchased from such
other Lender at face value, and shall promptly pay to such other Lender the
purchase price for, a participation in the Standby Loans of such other Lender,
so that the aggregate unpaid principal amount of the Standby Loans and
participations in the Standby Loans held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Standby Loans then
outstanding as the principal amount of its Standby Loans prior to such exercise
of banker's lien, setoff or counterclaim or other event was to the principal
amount of all Standby Loans outstanding prior to such exercise of banker's
lien, setoff or counterclaim or other event; provided, however, that, if any
such purchase or purchases or adjustments shall be made pursuant to this
Section 2.15 and the payment giving rise thereto shall thereafter be recovered,
such purchase or purchases or adjustments shall be rescinded to the extent of
such recovery and the purchase price or prices or adjustment restored without
interest. Each Borrower expressly consents to the foregoing arrangements and
agrees that any Lender holding a participation in a Standby Loan deemed to have
been so purchased may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by such Borrower to such
Lender by reason thereof as fully as if such Lender had made a Standby Loan in
the amount of such participation.
SECTION 2.16. PAYMENTS. (a) Each Borrower shall make each payment
(including principal of or interest on any Borrowing or any Fees or other
amounts) hereunder from an account in the United States not later than 10:00
a.m., Houston time, on the date when due in dollars to the Administrative Agent
at its offices at 707 Travis Street, 8-CBBN-N 96, Houston, Texas 77002, in
immediately available funds.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder shall become due, or
otherwise would occur, on a day that is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of interest or Fees, if applicable.
SECTION 2.17. TAXES. (a) Any and all payments of principal and
interest on any Borrowings, or of any Fees or indemnity or expense
reimbursements by a Borrower hereunder ("BORROWER PAYMENTS") shall be made, in
accordance with Section 2.16, free and clear of and without deduction for any
and all current or future United States Federal, state and local taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
to such
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Borrower Payments, but only to the extent reasonably attributable to such
Borrower Payments, excluding (i) income taxes imposed on the net income of the
Administrative Agent, the CAF Agent or any Lender (or any transferee or
assignee thereof, including a participation holder (any such entity a
"TRANSFEREE")) and (i) franchise taxes imposed on the net income of the
Administrative Agent, the CAF Agent or any Lender (or Transferee), in each case
by the jurisdiction under the laws of which the Administrative Agent, the CAF
Agent or such Lender (or Transferee) is organized or doing business through
offices or branches located therein, or any political subdivision thereof (all
such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities, collectively or individually, "TAXES"). If any Borrower shall be
required to deduct any Taxes from or in respect of any sum payable hereunder to
any Lender (or any Transferee) or the Agents, (i) the sum payable shall be
increased by the amount (an "ADDITIONAL AMOUNT") necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.17) such Lender (or Transferee) or Agent (as the
case may be) shall receive an amount equal to the sum it would have received
had no such deductions been made, (i) such Borrower shall make such deductions
and (i) such Borrower shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law.
(b) In addition, each Borrower shall pay to the relevant United
States Governmental Authority in accordance with applicable law any current or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or the Letter Agreement ("OTHER TAXES").
(c) Each Borrower shall indemnify each Lender (or Transferee thereof)
and each Agent for the full amount of Taxes and Other Taxes with respect to
Borrower Payments paid by such Lender (or Transferee) or such Agent, as the
case may be, and any liability (including penalties, interest and expenses
(including reasonable attorney's fees and expenses)) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted by the relevant United States Governmental Authority. A
certificate setting forth and containing an explanation in reasonable detail of
the manner in which such amount shall have been determined and the amount of
such payment or liability prepared by a Lender, the CAF Agent, or the
Administrative Agent on their behalf, absent manifest error, shall be final,
conclusive and binding for all purposes. Such indemnification shall be made
within 30 days after the date the Lender (or Transferee) or any Agent, as the
case may be, makes written demand therefor.
(d) If a Lender (or Transferee) or any Agent shall become aware that
it is entitled to claim a refund from a United States Governmental Authority in
respect of Taxes or Other Taxes as to which it has been indemnified by a
Borrower, or with respect to which a Borrower has paid additional amounts,
pursuant to this Section 2.17, it shall promptly notify such Borrower of the
availability of such refund claim and shall, within 30 days after receipt of a
request by such Borrower, make a claim to such United States Governmental
Authority for such refund at such Borrower's expense. If a Lender (or
Transferee) or any Agent receives a refund (including
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pursuant to a claim for refund made pursuant to the preceding sentence) in
respect of any Taxes or Other Taxes as to which it has been indemnified by a
Borrower or with respect to which a Borrower had paid additional amounts
pursuant to this Section 2.17, it shall within 30 days from the date of such
receipt pay over such refund to such Borrower (but only to the extent of
indemnity payments made, or additional amounts paid, by such Borrower under
this Section 2.17 with respect to the Taxes or Other Taxes giving rise to such
refund), net of all out-of-pocket expenses of such Lender (or Transferee) or
such Agent and without interest (other than interest paid by the relevant
United States Governmental Authority with respect to such refund); provided,
however, that such Borrower, upon the request of such Lender (or Transferee) or
such Agent, agrees to repay the amount paid over to such Borrower (plus
penalties, interest or other charges) to such Lender (or Transferee) or such
Agent in the event such Lender (or Transferee) or such Agent is required to
repay such refund to such United States Governmental Authority.
(e) As soon as practicable, but in any event within 30 days, after
the date of any payment of Taxes or Other Taxes by a Borrower to the relevant
United States Governmental Authority, such Borrower will deliver to the
Administrative Agent, at its address referred to in Section 8.01, the original
or a certified copy of a receipt issued by such United States Governmental
Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.17
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(g) Each Lender or Agent (or Transferee) that is organized under the
laws of a jurisdiction other than the United States, any State thereof or the
District of Columbia (a "NON-U.S. LENDER" or "NON U.S. AGENT", as applicable)
shall deliver to the Borrowers and the Administrative Agent two copies of
either United States Internal Revenue Service Form 1001 or Form 4224, properly
completed and duly executed by such Non-U.S. Lender claiming complete exemption
from, or reduced rate of, United States Federal withholding tax on payments by
any Borrower under this Agreement. Such forms shall be delivered by each Non-
U.S. Lender on or before the date it becomes a party to this Agreement (or, in
the case of a Transferee that is a participation holder, on or before the date
such participation holder becomes a Transferee hereunder) and on or before the
date, if any, such Non-U.S. Lender changes its applicable lending office by
designating a different lending office (a "NEW LENDING OFFICE"). In addition,
each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Non-U.S. Lender.
Notwithstanding any other provision of this Section 2.17(g), a Non-U.S. Lender
shall not be required to deliver any form pursuant to this Section 2.17(g) that
such Non-U.S. Lender is not legally able to deliver.
(h) A Borrower shall not be required to indemnify any Non-U.S. Lender
or Non-U.S. Agent (including any Transferee), or to pay any additional amounts
to any Non-U.S. Lender or Non-U.S. Agent (including any Transferee), in respect
of United States Federal, state or local
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withholding tax pursuant to paragraph (a) or (c) above to the extent that (i)
the obligation to withhold amounts with respect to United States Federal, state
or local withholding tax existed on the date such Non-U.S. Lender became a
party to this Agreement (or, in the case of a Transferee that is a
participation holder, on the date such participation holder became a Transferee
hereunder) or, with respect to payments to a New Lending Office, the date such
Non-U.S. Lender designated such New Lending Office with respect to a Loan;
provided, however, that this clause (i) shall not apply to any Transferee or
New Lending Office that becomes a Transferee or New Lending Office as a result
of an assignment, participation, transfer or designation made at the request of
such Borrower; and provided, further, however, that this clause (i) shall not
apply to the extent the indemnity payment or additional amounts any Transferee,
or Lender (or Transferee) through a New Lending Office, would be entitled to
receive (without regard to this clause (i)) do not exceed the indemnity payment
or additional amounts that the person making the assignment, participation or
transfer to such Transferee, or Lender (or Transferee) making the designation
of such New Lending Office, would have been entitled to receive in the absence
of such assignment, participation, transfer or designation or (i) the
obligation to pay such additional amounts or such indemnity payments would not
have arisen but for a failure by such Non-U.S. Lender (including any
Transferee) to comply with the provisions of paragraph (g) above and (i) below.
(i) Any Lender (or Transferee) claiming any indemnity payment or
additional amounts payable pursuant to this Section 2.17 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to file any
certificate or document reasonably requested in writing by a Borrower or to
change the jurisdiction of its applicable lending office if the making of such
a filing or change would avoid the need for or reduce the amount of any such
indemnity payment or additional amounts that may thereafter accrue and would
not, in the good faith determination of such Lender (or Transferee), be
otherwise disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.17 shall require any Lender
(or Transferee) or any Agent to make available to such Borrower any of its tax
returns (or any other information) that it deems to be confidential or
proprietary.
(k) Notwithstanding anything herein to the contrary, the
indemnification obligations under this Section shall, to the extent
practicable, be allocated between the Borrowers based upon their relative
liability for the interest, fee or other payments in respect of which such
indemnification obligations arise.
SECTION 2.18. ASSIGNMENT OF COMMITMENTS UNDER CERTAIN CIRCUMSTANCES.
In the event that any Lender shall have delivered a notice or certificate
pursuant to Section 2.12 or 2.13, or any Borrower shall be required to make
additional payments to any Lender under Section 2.17, the Borrowers shall have
the right, at their own expense, upon notice to such Lender and the Agents, to
require such Lender to transfer and assign without recourse (in accordance with
and subject to the restrictions contained in Section 8.04) all such Lender's
interests, rights and obligations contained hereunder to another financial
institution approved by the Agents and the Borrowers
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(which approval shall not be unreasonably withheld) which shall assume such
obligations; provided that (i) no such assignment shall conflict with any law,
rule or regulation or order of any Governmental Authority and (i) the assignee
or the Borrowers, as the case may be, shall pay to the affected Lender in
immediately available funds on the date of such assignment the principal of and
interest accrued to the date of payment on the Loans made by it hereunder and
all other amounts accrued for its account or owed to it hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to each of the Lenders as follows
(except in the case of the representations contained (i) in Section 3.05(a),
which are made by TUC only, and (ii) Section 3.05(b), which are made by TU
Electric only; and provided that each representation or warranty made by any
Borrower in respect of TEG or any member of the TEG Group on any date up to
(but not including) the 120th day following the Unconditional Date shall be
subject to the qualification that such representation or warranty is true and
accurate insofar as such Borrower was aware as of the date of this Agreement):
SECTION 3.1. ORGANIZATION; POWERS. Such Borrower (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has all requisite power and authority to
own its property and assets and to carry on its business as now conducted and
as proposed to be conducted, (c) is qualified to do business in every
jurisdiction where such qualification is required, except where the failure so
to qualify would not result in a Material Adverse Change, and (d) has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and to borrow hereunder.
SECTION 3.2. AUTHORIZATION. The execution, delivery and performance by
such Borrower of this Agreement, the Borrowings hereunder (collectively, the
"TRANSACTIONS") (a) have been duly authorized by all requisite corporate action
and (a) will not (i) violate (B) any provision of any law, statute, rule or
regulation (including, without limitation, the Margin Regulations) or of the
certificate of incorporation or other constitutive documents or by-laws of such
Borrower or any of its Subsidiaries to which such Borrower is subject, (B) any
order of any Governmental Authority or (B) any provision of any indenture,
agreement or other instrument to which such Borrower or any of its Subsidiaries
is a party or by which it or any of its property is or may be bound, (i) be in
conflict with, result in a breach of or constitute (alone or with notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument or (i) result in the creation or imposition of any Lien upon any
property or assets of such Borrower.
SECTION 3.3. ENFORCEABILITY. This Agreement constitutes a legal, valid
and binding obligation of such Borrower enforceable in accordance with its
terms except to the extent that
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enforcement may be limited by bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally.
SECTION 3.4. GOVERNMENTAL APPROVALS. No action, consent or approval
of, registration or filing with or other action by any Governmental Authority
is or will be required in connection with the Transactions, to the extent they
relate to such Borrower, except those as have been duly obtained and as are (i)
in full force and effect, (i) sufficient for their purpose and (i) not subject
to any pending or, to the knowledge of such Borrower, threatened appeal or
other proceeding seeking reconsideration or review thereof.
SECTION 3.5. FINANCIAL STATEMENTS. (a) The consolidated balance sheet
of TUC and its Consolidated Subsidiaries as of December 31, 1996 and the
related consolidated statements of income, retained earnings and cash flows for
the fiscal year then ended, reported on by Deloitte & Touche LLP and set forth
in TUC's 1996 Annual Report on Form 10-K and the consolidated balance sheet of
TUC and its Consolidated Subsidiaries as of September 30, 1997 and the related
consolidated statements of income, retained earnings and cash flows for the
nine-month period then ended and set forth in TUC's Quarterly Report on Form
10-Q, copies of which have been delivered to each of the Lenders, fairly
present (subject in the case of such financial statements as of September 30,
1997, to year-end adjustments) in conformity with GAAP, the consolidated
financial position of TUC and its Consolidated Subsidiaries as of such date and
their consolidated results of operations and cash flows for such periods ending
on such dates.
(b) The consolidated balance sheet of TU Electric and its
Consolidated Subsidiaries as of December 31, 1996 and the related consolidated
statements of income, retained earnings and cash flows for the fiscal year then
ended, reported on by Deloitte & Touche LLP and set forth in TU Electric's 1996
Annual Report on Form 10-K and the consolidated balance sheet of TU Electric
and its Consolidated Subsidiaries as of September 30, 1997 and the related
consolidated statements of income, retained earnings and cash flows for the
nine-month period then ended and set forth in TU Electric's Quarterly Report on
Form 10-Q, copies of which have been delivered to each of the Lenders, fairly
present (subject in the case of such financial statements as of September 30,
1997, to year-end adjustments), in conformity with GAAP, the consolidated
financial position of TU Electric and its Consolidated Subsidiaries as of such
dates and their consolidated results of operations and cash flows for the
periods ending on such dates.
(c) There has heretofore been delivered to each of the Lenders an
unaudited condensed pro forma consolidated balance sheet as of December 31,
1997 and unaudited condensed statement of income for the fiscal year ending
December 31, 1997 which gave effect to the Acquisition (the "PRO FORMA
FINANCIAL STATEMENTS"), which Pro Forma Financial Statements were prepared in
accordance with GAAP. The assumptions used in preparing the Pro Forma
Financial Statements are reasonable, as of the date of such Pro Forma Financial
Statements and as of the Effective Date, and all material assumptions with
respect to the Pro Forma Financial Statements are set forth therein.
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(d) Since September 30, 1997, there has been no Material Adverse
Change with respect to such Borrower, other than as a result of the matters
excluded from the computation of Consolidated Earnings Available for Fixed
Charges as set forth in the definition thereof.
SECTION 3.6. LITIGATION. Except as set forth in the financial
statements or other reports of the type referred to in Section 5.03 hereof and
which have been delivered to the Lenders on or prior to the date hereof or as
set forth on Schedule 3.06, there is no action, suit or proceeding pending
against, or to the knowledge of such Borrower threatened against or affecting,
TUC or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
ability of such Borrower to pay its obligations hereunder or which in any
manner draws into question the validity of this Agreement.
SECTION 3.7. FEDERAL RESERVE REGULATIONS. (a) Neither such
Borrower nor any of its Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used by such
Borrower, whether directly or indirectly, and whether immediately, incidentally
or ultimately, to purchase or carry Margin Stock (other than the American
Depositary Shares of TEG to be acquired in connection with the Acquisition) or
to refund indebtedness originally incurred for such purpose, or for any other
purpose which entails a violation of, or which is inconsistent with, the
provisions of the Margin Regulations.
(c) Not more than 25% of the value of the assets of any Borrower
subject to the restrictions of Section 5.09 are represented by Margin Stock.
SECTION 3.8. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY
ACT. (a) Neither such Borrower nor any of its Subsidiaries is an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940.
(b) Such Borrower and each of its Subsidiaries is exempt from all
provisions of the Public Utility Holding Company Act of 1935 and rules and
regulations thereunder, except for Sections 9(a)(2) and 33 of such Act and the
rules and regulations thereunder, and the execution, delivery and performance
by the Borrowers of this Agreement and their respective obligations hereunder
do not violate any provision of such Act or any rule or regulation thereunder.
SECTION 3.9. NO MATERIAL MISSTATEMENTS. No report, financial statement
or other written information furnished by or on behalf of such Borrower to the
Agents or any Lender pursuant to or in connection with this Agreement contains
or will contain any material misstatement of fact or omits or will omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were or will be made, not misleading.
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SECTION 3.10. TAXES. Such Borrower and its Subsidiaries have filed or
caused to be filed within 3 days of the date on which due, all Federal and
material state and local tax returns which to their knowledge are required to
be filed by them, and have paid or caused to be paid all material taxes shown
to be due and payable on such returns or on any assessments received by them,
other than any taxes or assessments the validity of which is being contested in
good faith by appropriate proceedings and with respect to which appropriate
accounting reserves have to the extent required by GAAP been set aside.
SECTION 3.11. EMPLOYEE BENEFIT PLANS. With respect to each Plan such
Borrower and its ERISA Affiliates are in compliance in all material respects
with the applicable provisions of ERISA and the Code and the final regulations
and published interpretations thereunder. No ERISA Event has occurred that
alone or together with any other ERISA Event has resulted or could reasonably
be expected to result in a Material Adverse Change. Neither such Borrower nor
any ERISA Affiliate has incurred any Withdrawal Liability that could result in
a Material Adverse Change. Neither such Borrower nor any ERISA Affiliate has
received any notification that any Multiemployer Plan is in reorganization or
has been terminated within the meaning of Title IV of ERISA, which such
reorganization or termination could result in a Material Adverse Change, and no
Multiemployer Plan is reasonably expected to be in reorganization or to be
terminated where such reorganization or termination has resulted or can
reasonably be expected to result, through an increase in the contributions
required to be made to such Plan or otherwise, in a Material Adverse Change.
SECTION 3.12. SIGNIFICANT SUBSIDIARIES. Each of TUC's corporate
Significant Subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation and
has all corporate powers necessary to carry on its business substantially as
now conducted. TUC's corporate Significant Subsidiaries have all material
governmental licenses, authorizations, consents and approvals required to carry
on the business of the corporate Significant Subsidiaries substantially as now
conducted.
SECTION 3.13. ENVIRONMENTAL MATTERS. Except as set forth in or
contemplated by the financial statements or other reports of the type referred
to in Section 5.03 hereof and which have been delivered to the Lenders on or
prior to the date hereof, such Borrower and each of its Subsidiaries has
complied in all material respects with all Federal, state, local and other
statutes, ordinances, orders, judgments, rulings and regulations relating to
environmental pollution or to environmental or nuclear regulation or control,
except to the extent that failure to so comply could not reasonably be expected
to result in a Material Adverse Change. Except as set forth in or contemplated
by such financial statements or other reports, neither such Borrower nor any of
its Subsidiaries has received notice of any material failure so to comply,
except where such failure could not reasonably be expected to result in a
Material Adverse Change. Except as set forth in or contemplated by such
financial statements or other reports, the facilities of such Borrower or any
of its Subsidiaries, as the case may be, are not used to manage any hazardous
wastes, hazardous substances, hazardous materials, toxic substances, toxic
pollutants or substances
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similarly denominated, as those terms or similar terms are used in the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response
Compensation and Liability Act, the Hazardous Materials Transportation Act, the
Toxic Substance Control Act, the Clean Air Act, the Clean Water Act or any
other applicable law relating to environmental pollution, or any nuclear fuel
or other radioactive materials, in violation in any material respect of any law
or any regulations promulgated pursuant thereto, except to the extent that such
violations could not reasonably be expected to result in a Material Adverse
Change. Except as set forth in or contemplated by such financial statements or
other reports, such Borrower is aware of no events, conditions or circumstances
involving environmental pollution or contamination that could reasonably be
expected to result in a Material Adverse Change.
ARTICLE IV
CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are subject to
the satisfaction of the following conditions:
SECTION 4.1. EFFECTIVE DATE. On the Effective Date:
(a) The representations and warranties set forth in Article
III hereof shall be true and correct in all material respects on and as
of such date with the same effect as though made on and as of such date,
except to the extent such representations and warranties expressly
relate to an earlier date.
(b) No Event of Default or Default shall have occurred and be
continuing on such date.
(c) The Agents shall have received favorable written opinions
of (i) Reid & Priest LLP and Worsham, Forsythe & Wooldridge, L.L.P. each
dated the Effective Date and addressed to the Lenders and satisfactory
to King & Spalding, counsel for the Agents, to the effect set forth in
Exhibits D-1 and D-2 hereto and (i) King & Spalding, dated the Effective
Date, addressed to the Lenders and in form satisfactory to the Agents.
(d) The Agents shall have received (i) a copy of the
certificate of incorporation, including all amendments thereto, of each
Borrower, certified as of a recent date by the Secretary of State of its
state of incorporation, and a certificate as to the good standing of
each Borrower as of a recent date from such Secretary of State; (i) a
certificate of the Secretary or an Assistant Secretary of each Borrower
dated the Effective Date and certifying (B) that attached thereto is a
true and complete copy of the by-laws of such Borrower as in effect on
the Effective Date and at all times since a date prior to the date of
the resolutions described in clause (B) below, (B) that attached thereto
is a true and complete
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copy of resolutions duly adopted by the Board of Directors of such
Borrower authorizing the execution, delivery and performance of this
Agreement and the Borrowings hereunder, and that such resolutions have
not been modified, rescinded or amended and are in full force and
effect, (B) that the certificate of incorporation referred to in clause
(i) above has not been amended since the date of the last amendment
thereto shown on the certificate of good standing furnished pursuant to
such clause (i) and (B) as to the incumbency and specimen signature of
each officer executing this Agreement or any other document delivered in
connection herewith on behalf of such Borrower; (i) a certificate of
another officer of such Borrower as to the incumbency and specimen
signature of the Secretary or Assistant Secretary executing the
certificate pursuant to (ii) above; (i) evidence satisfactory to the
Agents that the requisite approvals referred to in Section 3.04 hereof
have been obtained, are in full force and effect (other than (A) any
such approvals that will be set forth in the Offer Documents as
conditions to the Offer and (B) other approvals the failure to obtain
which could not reasonably be expected to have a Material Adverse
Effect); and (i) such other documents as the Lenders or King & Spalding,
counsel for the Agents, shall reasonably request.
(e) The Agents shall have received a certificate, dated the
Effective Date and signed by a Financial Officer of each Borrower,
confirming compliance with the conditions precedent set forth in
paragraphs (a) and (b) of Section 4.01.
(f) The Agents shall have received all Fees and amounts due
and payable by the Borrowers on or prior to the Effective Date.
(g) All the conditions to the effectiveness of the Facility A
Credit Agreement (other than the condition set forth in Section 4.01(g)
thereof) shall have been satisfied.
(h) The Agents shall have received an executed counterpart to
this Agreement of each Agent, each Lender and each Borrower.
(i) The U.K. Facility Agreement shall have been fully executed
and delivered by the parties thereto.
(j) The Agents shall have received such other approvals,
opinions and documents as the Agents may reasonably request as to the
legality, validity, binding effect or enforceability of this Agreement
or the financial condition, properties, operations or prospects of any
Borrower.
SECTION 4.2. INITIAL LOANS. The Commitment of each Lender to make its
initial Loan shall be subject to the satisfaction of the following conditions
precedent on the date of such Borrowing:
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(a) The Effective Date shall have occurred.
(b) The Agents shall have received evidence satisfactory to
them that all amounts outstanding under the Existing TU Credit
Agreements have been repaid (or will be repaid on such date with the
proceeds of the Loans hereunder and the Loans under and as defined in
the Facility A Credit Agreement) and that the "Commitments" thereunder
have been terminated.
SECTION 4.3. ALL LOANS. The Commitment of each Lender to make each
Loan to be made by it (including the initial Loan to be made by it) shall be
subject to the satisfaction of the following conditions precedent on the date
of such Borrowing:
(a) The Agents shall have received a notice of such Borrowing
as required by Section 2.03 or Section 2.04, as applicable.
(b) The representations and warranties set forth in Article
III hereof (except, in the case of a refinancing of a Standby Borrowing
with a new Standby Borrowing that does not increase the aggregate
principal amount of the Loans of any Lender outstanding, the
representations set forth in Sections 3.05(d), 3.06, 3.11 and 3.13)
shall be true and correct in all material respects on and as of the date
of such Borrowing with the same effect as though made on and as of such
date, except to the extent such representations and warranties expressly
relate to an earlier date.
(c) At the time of and immediately after such Borrowing no
Event of Default or Default shall have occurred and be continuing.
(d) The Agents shall have received a certificate of a
Responsible Officer of the applicable Borrower certifying that the
matters set forth in paragraphs (b) and (c) of this Section 4.05 are
true and correct as of such date.
Each such Loan shall be deemed to constitute a representation and warranty by
each Borrower on the date of such Borrowing as to the matters specified in
subsections (b) and (c) of this Section 4.03.
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ARTICLE V
COVENANTS
TUC (and each of TU Electric and Enserch, to the extent such covenants
apply to it) agrees that, so long as any Lender has any Commitment hereunder or
any amount payable hereunder remains unpaid (provided that such covenants shall
not apply to TEG or any member of the TEG Group until the 120th day following
the Unconditional Date, but TUC shall use all reasonable efforts to cause TEG
and all members of the TEG Group to comply with such covenants at all times on
and after the Unconditional Date):
SECTION 5.1. EXISTENCE. It will, and will cause each of its
Significant Subsidiaries to, do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and all
rights, licenses, permits, franchises and authorizations necessary or desirable
in the normal conduct of its business except as otherwise permitted pursuant to
Section 5.09.
SECTION 5.2. BUSINESS AND PROPERTIES. It will, and will cause each of
its Subsidiaries to, comply with all applicable material laws, rules,
regulations and orders of any Governmental Authority, whether now in effect or
hereafter enacted, except where the validity or applicability of such laws,
rules, regulations or orders is being contested by appropriate proceedings in
good faith; and at all times maintain and preserve all property material to the
conduct of its business and keep such property in good repair, working order
and condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times.
SECTION 5.3. FINANCIAL STATEMENTS, REPORTS, ETC. TUC (and TU Electric
and Enserch, to the extent such information relates to TU Electric or Enserch,
as applicable, only) will furnish to the Agents and each Lender:
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of TUC, a consolidated balance sheet
of TUC and its Consolidated Subsidiaries as of the end of such fiscal
year and the related consolidated statements of income, retained
earnings and cash flows for such fiscal year, setting forth in each case
in comparative form the figures for the previous fiscal year, all
reported on in a manner reasonably acceptable to the Securities and
Exchange Commission by Deloitte & Touche LLP or other independent public
accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days after
the end of each of the first three quarters of each fiscal year of TUC a
consolidated balance sheet of TUC and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of
income for such quarter, for the portion of TUC's fiscal year ended at
the end
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of such quarter, and for the twelve months ended at the end of such
quarter, and the related consolidated statement of cash flows for the
portion of TUC's fiscal year ended at the end of such quarter, setting
forth comparative figures for previous dates and periods to the extent
required in Form 10-Q, all certified (subject to normal year-end
adjustments) as to fairness of presentation, GAAP and consistency by a
Financial Officer of TUC;
(c) simultaneously with any delivery of each set of financial
statements referred to in paragraphs (a) and (b) above, (i) an
unconsolidated balance sheet of TUC and the related unconsolidated
statements of income, retained earnings and cash flows as of the same
date and for the same periods applicable to the statements delivered
pursuant to paragraph (a) or (b) above, as applicable, all certified
(subject to normal year-end adjustments in the case of quarterly
statements) as to fairness of presentation, GAAP and consistency by a
Financial Officer or TUC and (i) a certificate of a Financial Officer of
TUC (B) setting forth in reasonable detail the calculations required to
establish whether TUC was in compliance with the requirements of
Sections 5.11 and 5.12 on the date of such financial statements, and (B)
stating whether any Default exists on the date of such certificate and,
if any Default then exists, setting forth the details thereof and the
action which TUC is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in paragraph (a) above, a statement of the firm
of independent public accountants which reported on such statements (i)
stating whether anything has come to their attention to cause them to
believe that any Default existed on the date of such statements and (i)
confirming the calculations set forth in the Financial Officer's
certificate delivered simultaneously therewith pursuant to paragraph (c)
above;
(e) forthwith upon becoming aware of the occurrence of any
Default, a certificate of a Financial Officer of TUC setting forth the
details thereof and the action which TUC is taking or proposes to take
with respect thereto;
(f) promptly upon the mailing thereof to the shareholders of
TUC generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly upon the filing thereof, copies of each final
prospectus (other than a prospectus included in any registration
statement on Form S-8 or its equivalent or with respect to a dividend
reinvestment plan) and all reports on Forms 10-K, 10-Q and 8-K and
similar reports which TUC, TU Electric or Enserch shall have filed with
the SEC, or any Governmental Authority succeeding to any of or all the
functions of the SEC;
(h) if and when any member of the Controlled Group (i) gives
or is required to give notice to the PBGC of any Reportable Event with
respect to any Plan which might constitute grounds for a termination of
such Plan under Title IV of ERISA, or knows that the plan
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administrator of any Plan has given or is required to give notice of any
such Reportable Event, a copy of the notice of such Reportable Event
given or required to be given to the PBGC; (i) receives notice from a
proper representative of a Multiemployer Plan of complete or partial
Withdrawal Liability being imposed upon such member of the Controlled
Group under Title IV of ERISA, a copy of such notice; or (i) receives
notice from the PBGC under Title IV of ERISA of an intent to terminate,
or appoint a trustee to administer, any Plan, a copy of such notice; and
(i) promptly, from time to time, such additional information
regarding the financial position or business of TUC and its Subsidiaries
as the Agents, at the request of any Lender, may reasonably request.
As promptly as practicable after delivering each set of financial statements as
required in paragraph (a) of this Section, TUC shall make available a copy of
the consolidating workpapers used by TUC in preparing such consolidated
statements to each Lender that shall have requested such consolidating
workpapers. Each Lender that receives such consolidating workpapers shall hold
them in confidence as required by Section 8.15; provided that no Lender may
disclose such consolidating workpapers to any other person pursuant to clause
(iv) of Section 8.15.
SECTION 5.4. INSURANCE. It will, and will cause each of its
Subsidiaries to, maintain such insurance or self insurance, to such extent and
against such risks, including fire and other risks insured against by extended
coverage, as is customary with companies similarly situated and in the same or
similar businesses.
SECTION 5.5. TAXES, ETC. It will, and will cause each of its
Subsidiaries to, pay and discharge promptly when due all material taxes,
assessments and governmental charges imposed upon it or upon its income or
profits or in respect of its property, as well as all other material
liabilities, in each case before the same shall become delinquent or in default
and before penalties accrue thereon, unless and to the extent that the same are
being contested in good faith by appropriate proceedings and adequate reserves
with respect thereto shall, to the extent required by GAAP, have been set
aside.
SECTION 5.6. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND INSPECTIONS.
It will, and will cause each of its Subsidiaries to, maintain financial records
in accordance with GAAP and, upon reasonable notice and at reasonable times,
permit authorized representatives designated by any Lender to visit and inspect
its properties and to discuss its affairs, finances and condition with its
officers.
SECTION 5.7. ERISA. It will, and will cause each of its Subsidiaries
that are members of the Controlled Group to, comply in all material respects
with the applicable provisions of ERISA and the Code except where any
noncompliance, individually or in the aggregate, would not result in a Material
Adverse Change.
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SECTION 5.8. USE OF PROCEEDS. It will not, and will not cause or
permit any of its Subsidiaries to, use the proceeds of the Loans for purposes
other than to refinance the Existing TU Credit Agreements and for working
capital and other general corporate purposes, including commercial paper back-
up.
SECTION 5.9. CONSOLIDATIONS, MERGERS, SALES AND ACQUISITIONS OF ASSETS
AND INVESTMENTS IN SUBSIDIARIES. TUC will not (a) consolidate or merge with or
into any person unless (i) the surviving corporation is incorporated under the
laws of a State of the United States of America and assumes or is responsible
by operation of law for all the obligations of TUC hereunder and (i) no
Default or Event of Default shall have occurred or be continuing at the time of
or after giving effect to such consolidation or merger or (a) sell, lease or
otherwise transfer, in a single transaction or in a series of transactions, all
or any Substantial part of its assets to any person or persons other than a
Wholly Owned Subsidiary. TUC will not permit any Significant Subsidiary to
consolidate or merge with or into, or sell, lease or otherwise transfer all or
any Substantial part of its assets to, any person other than TUC or a Wholly
Owned Subsidiary (or a person which as a result of such transaction becomes a
Wholly Owned Subsidiary), provided that in the case of any merger or
consolidation involving TU Electric or Enserch, such person must assume or be
responsible by operation of law for all the obligations of TU Electric or
Enserch, as applicable, hereunder, and TUC will not in any event permit any
such consolidation, merger, sale, lease or transfer if any Default or Event of
Default shall have occurred and be continuing at the time of or after giving
effect to any such transaction. Notwithstanding the foregoing, (a) neither TUC
nor any of its Subsidiaries will engage to a Substantial extent in businesses
other than those currently conducted by them, or in the case of Enserch, by
Enserch and other businesses reasonably related thereto, (a) neither TUC nor
any of its Subsidiaries will acquire any Subsidiary or make any investment in
any Subsidiary if, upon giving effect to such acquisition or investment, as the
case may be, TUC would not be in compliance with the covenants set forth in
Sections 5.11 and 5.12 and (a) nothing in this Section shall prohibit any sales
of assets permitted by Section 5.10(d).
SECTION 5.10. LIMITATIONS ON LIENS. Neither TUC nor any Significant
Subsidiary will create or assume or permit to exist any Lien in respect of any
property or assets of any kind (real or personal, tangible or intangible) of
TUC or any Significant Subsidiary, or sell any such property or assets subject
to an understanding or agreement, contingent or otherwise, to repurchase such
property or assets, or sell, or permit any Significant Subsidiary to sell, any
accounts receivable; provided that the provisions of this Section shall not
prevent or restrict the creation, assumption or existence of:
(a) any Lien in respect of any such property or assets of any
Significant Subsidiary to secure indebtedness owing by it to TUC or any
Wholly Owned Subsidiary of TUC; or
(b) purchase money Liens (including capital leases) in respect
of property acquired by TUC or any Significant Subsidiary, to secure the
purchase price of such property (or to
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secure indebtedness incurred prior to, at the time of, or within 90 days
after the acquisition solely for the purpose of financing the
acquisition of such property), or Liens existing on any such property at
the time of acquisition of such property by TUC or such Significant
Subsidiary, whether or not assumed, or any Lien in respect of property
of a corporation existing at the time such corporation becomes a
Subsidiary of TUC; or agreements to acquire any property or assets under
conditional sale agreements or other title retention agreements, or
capital leases in respect of any other property; provided that
(1) the aggregate principal amount of Indebtedness
secured by all Liens in respect of any such property shall not
exceed the cost (as determined by the board of directors of TUC
or such Significant Subsidiary, as the case may be) of such
property at the time of acquisition thereof (or (x) in the case
of property covered by a capital lease, the fair market value, as
so determined, of such property at the time of such transaction,
or (y) in the case of a Lien in respect of property existing at
the time such corporation becomes a Subsidiary of TUC the fair
market value, as so determined of such property at such time),
and
(1) at the time of the acquisition of the property by
TUC or such Subsidiary, or at the time such corporation becomes a
Subsidiary of TUC, as the case may be, every such Lien shall
apply and attach only to the property originally subject thereto
and fixed improvements constructed thereon; or
(c) refundings or extensions of any Lien permitted in the
foregoing paragraph (b) for amounts not exceeding the principal amount
of the Indebtedness so refunded or extended or the fair market value (as
determined by the board of directors of TUC or such Significant
Subsidiary, as the case may be) of the property theretofore subject to
such Lien, whichever shall be lower, in each case at the time of such
refunding or extension; provided that such Lien shall apply only to the
same property theretofore subject to the same and fixed improvements
constructed thereon; or
(d) sales subject to understandings or agreements to
repurchase; provided that the aggregate sales price for all such sales
(other than sales to any governmental instrumentality in connection with
such instrumentality's issuance of indebtedness, including without
limitation industrial development bonds and pollution control bonds, on
behalf of TUC or any Significant Subsidiary) made in any one calendar
year shall not exceed $50,000,000; or
(e) any production payment or similar interest which is
dischargeable solely out of natural gas, coal, lignite, oil or other
mineral to be produced from the property subject thereto and to be sold
or delivered by TUC or any Significant Subsidiary; or
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(f) any Lien including in connection with sale-leaseback
transactions created or assumed by any Significant Subsidiary on natural
gas, coal, lignite, oil or other mineral properties or nuclear fuel
owned or leased by such Subsidiary, to secure loans to such Subsidiary
in an aggregate amount not to exceed $400,000,000; provided that neither
TUC nor any Subsidiary of TUC shall assume or guarantee such financings;
or
(g) leases (other than capital leases) now or hereafter
existing and any renewals and extensions thereof under which TUC or any
Significant Subsidiary may acquire or dispose of any of its property,
subject, however, to the terms of Section 5.09; or
(h) any Lien created or to be created by the First Mortgage of
TU Electric; or
(i) any Lien on the rights of the Mining Company or Fuel
Company existing under their respective Operating Agreements; or
(j) pledges or sales by TU Electric or Enserch of its accounts
receivable including customers' installment paper; or
(k) the pledge of current assets, in the ordinary course of
business, to secure current liabilities; or
(l) Permitted Encumbrances.
SECTION 5.11. FIXED CHARGE COVERAGE. TUC will not, as of the end of
each quarter of each fiscal year of TUC, permit Consolidated Earnings Available
for Fixed Charges for the twelve months then ended to be less than or equal to
150% of Consolidated Fixed Charges for the twelve months then ended.
SECTION 5.12. EQUITY CAPITALIZATION RATIO. TUC will not at any time
during any period specified below permit Consolidated Shareholders' Equity to
be less than the percentage of Consolidated Total Capitalization set forth
below next to such period:
<TABLE>
<CAPTION>
==============================================================
Period Percentage
- --------------------------------------------------------------
<S> <C>
Until but excluding 6-30-99 26%
- --------------------------------------------------------------
6-30-99 to but excluding 6-30-00 30%
- --------------------------------------------------------------
6-30-00 and thereafter 35%
==============================================================
</TABLE>
SECTION 5.13. RESTRICTIVE AGREEMENTS. TUC will not, and will not
permit TU Electric, Enserch or any other Subsidiary of TUC with respect to
which TU Electric or Enserch is also a
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<PAGE> 51
Subsidiary to, enter into any agreement restricting the ability of such
Subsidiary to make payments, directly or indirectly, to its shareholders by way
of dividends, advances, repayments of loans or advances, reimbursements of
management and other intercompany charges, expenses and accruals or other
returns on investments or any other agreement or arrangement that restricts the
ability of such Subsidiary to make any payment, directly or indirectly, to its
shareholders if the effect of such agreement it to subject such Subsidiary to
restrictions on such payments greater than those to which such Subsidiary is
subject on the date of this Agreement.
ARTICLE VI
EVENTS OF DEFAULT
In case of the happening of any of the following events (each an "EVENT
OF DEFAULT") (provided that subsection (g) below shall not apply to any member
of the TEG Group at any time prior to the 120th day following the Unconditional
Date):
(a) any representation or warranty made or deemed made by any
Borrower in or in connection with the execution and delivery of this
Agreement or the Borrowings hereunder shall prove to have been false or
misleading in any material respect when so made, deemed made or
furnished;
(b) default shall be made by any Borrower in the payment of
any principal of any Loan when and as the same shall become due and
payable, whether at the due date thereof or at a date fixed for
prepayment thereof or by acceleration thereof or otherwise;
(c) default shall be made by any Borrower in the payment of
any interest on any Loan or any Fee or any other amount (other than an
amount referred to in paragraph (b) above) due hereunder, when and as
the same shall become due and payable, and such default shall continue
unremedied for a period of five days;
(d) default shall be made by any Borrower in the due
observance or performance of any covenant, condition or agreement
contained in Section 5.01, 5.11 or 5.12;
(e) default shall be made by any Borrower in the due
observance or performance of any covenant, condition or agreement
contained in Section 5.09 and such default shall continue unremedied for
a period of 5 days or default shall be made by any Borrower in the due
observance or performance of any covenant, condition or agreement
contained herein (other than those specified in (b), (c) or (d) above)
or in the Letter Agreement and such default shall continue unremedied
for a period of 30 days after notice thereof from the Administrative
Agent at the request of any Lender to such Borrower;
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(f) TUC shall no longer own, directly or indirectly, all the
outstanding common stock of TU Electric (or any successor) and at least
51% of the outstanding common stock of Enserch (or any successor);
(g) any Borrower or any Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $40,000,000, when and as
the same shall become due and payable, subject to any applicable grace
periods, or (i) fail to observe or perform any other term, covenant,
condition or agreement contained in any agreement or instrument
evidencing or governing any such Indebtedness if the effect of any
failure referred to in this clause (ii) is to cause, or to permit the
holder or holders of such Indebtedness or a trustee on its or their
behalf to cause, such Indebtedness to become due prior to its stated
maturity;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction
seeking (i) relief in respect of TUC or any Significant Subsidiary, or
of a substantial part of the property or assets of TUC or any
Significant Subsidiary, under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (i) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar
official for TUC or any Significant Subsidiary or for a substantial part
of the property or assets of TUC or any Significant Subsidiary or (i)
the winding up or liquidation of TUC or any Significant Subsidiary; and
such proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered;
(i) TUC or any Significant Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title
11 of the United States Code, as now constituted or hereafter amended,
or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (i) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or the filing of any
petition described in (h) above, (i) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator
or similar official for TUC or any Significant Subsidiary or for a
substantial part of the property or assets of it or such Significant
Subsidiary, (i) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (i) make a general
assignment for the benefit of creditors, (i) become unable, admit in
writing its inability or fail generally to pay its debts as they become
due or (i) take any action for the purpose of effecting any of the
foregoing;
(j) A Change in Control shall occur;
(k) one or more judgments or orders for the payment of money
in an aggregate amount in excess of $50,000,000 shall be rendered
against TUC or any Subsidiary thereof
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<PAGE> 53
or any combination thereof and such judgment or order shall remain
undischarged or unstayed for a period of 30 days, or any action shall be
legally taken by a judgment creditor to levy upon assets or properties
of TUC or any Subsidiary to enforce any such judgment or order;
(l) an ERISA Event or ERISA Events shall have occurred that
reasonably could be expected to result in a Material Adverse Change;
then, and in every such event, and at any time thereafter during the
continuance of such event, the Administrative Agent, at the request of the
Required Lenders, shall, by notice to the Borrowers, take either or both of the
following actions, at the same or different times: (i) terminate forthwith the
right of any or all of the Borrowers to borrow pursuant to the Commitments and
(i) declare the Loans of any or all of the Borrowers then outstanding to be
forthwith due and payable in whole or in part, whereupon the principal of the
Loans so declared to be due and payable, together with accrued interest thereon
and any unpaid accrued Fees and all other liabilities of such Borrower accrued
hereunder, shall become forthwith due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein to the contrary notwithstanding; provided
that in the case of any event described in paragraph (h) or (i) above with
respect to any Borrower, the Commitments of the Lenders with respect to such
Borrower shall automatically terminate and the principal of the Loans then
outstanding of the Borrower with respect to which such event has occurred,
together with accrued interest thereon and any unpaid accrued Fees and all
other liabilities of such Borrower accrued hereunder shall automatically become
due and payable, without presentment, demand, protest or any other notice of
any kind, all of which are hereby expressly waived by such Borrower, anything
contained herein to the contrary notwithstanding.
ARTICLE VII
THE AGENTS
In order to expedite the transactions contemplated by this Agreement,
Chase Bank of Texas, National Association is hereby appointed to act as
Administrative Agent and Chase is hereby appointed to act as CAF Agent, on
behalf of the Lenders. Each of the Lenders hereby irrevocably authorizes the
Agents to take such actions on behalf of such Lender or holder and to exercise
such powers as are specifically delegated to the Agents by the terms and
provisions hereof, together with such actions and powers as are reasonably
incidental thereto. The Administrative Agent is hereby expressly authorized by
the Lenders and the CAF Agent, without hereby limiting any implied authority,
(a) to receive on behalf of the Lenders and the CAF Agent all payments of
principal of and interest on the Loans and all other amounts due to the Lenders
and the CAF Agent hereunder, and promptly to distribute to each Lender and the
CAF Agent its proper share of each payment so received; (a) to give notice on
behalf of each of the Lenders to the Borrowers of any Event of Default of which
the Administrative Agent has actual knowledge acquired in connection
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with its agency hereunder; and (a) to distribute to each Lender copies of all
notices, financial statements and other materials delivered by the Borrowers
pursuant to this Agreement as received by the Administrative Agent.
No Agent or any of its directors, officers, employees or agents shall be
liable as such for any action taken or omitted by any of them except for its or
his or her own gross negligence or willful misconduct, or be responsible for
any statement, warranty or representation herein or the contents of any
document delivered in connection herewith, or be required to ascertain or to
make any inquiry concerning the performance or observance by the Borrowers of
any of the terms, conditions, covenants or agreements contained in this
Agreement. The Agents shall not be responsible to the Lenders for the due
execution, genuineness, validity, enforceability or effectiveness of this
Agreement or other instruments or agreements. The Agents may deem and treat
the Lender which makes any Loan as the holder of the indebtedness resulting
therefrom for all purposes hereof until it shall have received notice from such
Lender, given as provided herein, of the transfer thereof. The Agents shall in
all cases be fully protected in acting, or refraining from acting, in
accordance with written instructions signed by the Required Lenders and, except
as otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders. Each of the
Agents shall, in the absence of knowledge to the contrary, be entitled to rely
on any instrument or document believed by it in good faith to be genuine and
correct and to have been signed or sent by the proper person or persons. No
Agent or any of its directors, officers, employees or agents shall have any
responsibility to the Borrowers on account of the failure of or delay in
performance or breach by the other Agent or any Lender of any of its
obligations hereunder or to the other Agent or any Lender on account of the
failure of or delay in performance or breach by any other Lender, the other
Agent or any Borrower of any of their respective obligations hereunder or in
connection herewith. Each of the Agents may execute any and all duties
hereunder by or through agents or employees and shall be entitled to rely upon
the advice of legal counsel selected by it with respect to all matters arising
hereunder and shall not be liable for any action taken or suffered in good
faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Agents shall be under no duty to
take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so
by the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, either Agent may resign at any time by notifying the Lenders
and the Borrowers. Upon any such resignation, the Required Lenders shall have
the right to appoint a successor Agent acceptable to the Borrowers. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Agent gives notice
of its resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent, having a combined capital and surplus of at least
$500,000,000 or an Affiliate of any such bank. Upon the acceptance of any
appointment as Agent hereunder by a successor bank, such successor
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<PAGE> 55
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Agent and the retiring Agent shall be discharged from
its duties and obligations hereunder. After any Agent's resignation hereunder,
the provisions of this Article and Section 8.05 shall continue in effect for
its benefit in respect of any actions taken or omitted to be taken by it while
it was acting as Agent.
With respect to the Loans made by it hereunder, each of the Agents, in
its individual capacity and not as an Agent shall have the same rights and
powers as any other Lender and may exercise the same as though it were not an
Agent, and each of the Agents and their Affiliates may accept deposits from,
lend money to and generally engage in any kind of business with the Borrowers
or any Subsidiary or other Affiliate thereof as if it were not an Agent.
Each Lender agrees (i) to reimburse the Agents, on demand, in the amount
of its pro rata share (based on its Commitment hereunder or, if the Commitments
shall have been terminated, the amount of its outstanding Loans) of any
expenses incurred for the benefit of the Lenders in its role as Agent,
including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, which shall not have been
reimbursed by the Borrowers and (i) to indemnify and hold harmless each of the
Agents and any of its directors, officers, employees or agents, on demand, in
the amount of such pro rata share, from and against any and all liabilities,
taxes, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against it in any way relating to or
arising out of this Agreement or any action taken or omitted by it under this
Agreement to the extent the same shall not have been reimbursed by the
Borrowers; provided that no Lender shall be liable to any Agent for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the gross
negligence or willful misconduct of such Agent or any of its directors,
officers, employees or agents. Each Lender agrees that any allocation made in
good faith by the Agents of expenses or other amounts referred to in this
paragraph between this Agreement and the Facility A Credit Agreement shall be
conclusive and binding for all purposes.
Each Lender acknowledges that it has, independently and without reliance
upon the Agents or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon the Agents or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any related agreement or any document
furnished hereunder or thereunder.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. NOTICES. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopy, as follows:
(a) if to any Borrower, to Texas Utilities Company, Energy
Plaza, 1601 Bryan Street, 33rd Floor, Dallas, TX 75201, Attention of
Laura Anderson, Manager of Corporate Finance and Compliance (Telecopy
No. 214-812-2488);
(b) if to the CAF Agent, to The Chase Manhattan Bank, Loan and
Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York,
New York 10081, Attention of Chris Consomer (Telecopy No. 212-552-5627,
with a copy to The Chase Manhattan Bank at 270 Park Avenue, New York,
New York 10017, Attention of Jaimin Patel (Telecopy No. 212-270-1354);
(c) if to the Administrative Agent, to Chase Bank of Texas,
National Association, 2200 Ross Avenue 3rd Floor, Dallas TX 75201,
Attention of Allen King (Telecopy No. 214-965-2990); and
(d) if to a Lender, to it at its address (or telecopy number)
set forth in the Administrative Questionnaire delivered to the
Administrative Agent by such Lender in connection with the execution of
this Agreement or previously or in the Assignment and Acceptance
pursuant to which such Lender became a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy to such party as provided in this Section or in accordance with the
latest unrevoked direction from such party given in accordance with this
Section.
SECTION 8.2. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made by the Borrowers herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Lenders and shall survive the making by the Lenders of the Loans regardless of
any investigation made by the Lenders or on their behalf, and shall continue in
full force and effect as long as the principal of or any accrued interest on
any Loan or any Fee or any other amount payable under this Agreement is
outstanding and unpaid or the Commitments have not been terminated.
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SECTION 8.3. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrowers and each Agent and when the
Administrative Agent shall have received copies hereof (telecopied or
otherwise) which, when taken together, bear the signature of each Lender, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrowers shall
not have the right to assign any rights hereunder or any interest herein
without the prior consent of all the Lenders.
SECTION 8.4. SUCCESSORS AND ASSIGNS. (a) Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of any party that are contained in this
Agreement shall bind and inure to the benefit of its successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion
of its interests, rights and obligations under this Agreement (including all or
a portion of its Commitment and the Loans at the time owing to it); provided,
however, that (i) except in the case of an assignment to a Lender or an
Affiliate of such Lender, an assignment to a Federal Reserve Bank or an
assignment made at any time an Event of Default shall have occurred and be
continuing, the Borrowers and the Agents must give their prior written consent
to such assignment (which consent shall not be unreasonably withheld), (i) the
amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $15,000,000, (i) each such assignment shall be of a constant, and
not a varying, percentage of all the assigning Lender's rights and obligations
under this Agreement, (i) the parties to each such assignment shall execute and
deliver to the Administrative Agent an Assignment and Acceptance, and a
processing and recordation fee of $3,000 (provided that, in the case of
simultaneous assignment of interests under one or more of this Agreement and
the Facility A Credit Agreement, the aggregate fee shall be $3,000), and (i)
the assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire. Upon acceptance and recording pursuant
to Section 8.04(e), from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five Business
Days after the execution thereof unless otherwise agreed by the Administrative
Agent (the Borrowers to be given reasonable notice of any shorter period), (B)
the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement and (B) the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of
an assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto (but shall continue to be entitled to the
benefits of Sections 2.12, 2.17 and 8.05 afforded to such Lender prior to its
assignment as well as to any Fees accrued for its account hereunder and not yet
paid)). Notwithstanding the foregoing, any Lender assigning its rights and
obligations under this Agreement may retain any Competitive Loans made by it
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outstanding at such time, and in such case shall retain its rights hereunder in
respect of any Loans so retained until such Loans have been repaid in full in
accordance with this Agreement.
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim, (i)
except as set forth in (i) above, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto or the financial condition of the Borrowers or the performance or
observance by the Borrowers of any obligations under this Agreement or any
other instrument or document furnished pursuant hereto; (i) such assignor and
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance; (i) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 5.03 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (i) such
assignee will independently and without reliance upon the Agents, such
assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (i) such
assignee appoints and authorizes each Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to
such Agent by the terms hereof, together with such powers as are reasonably
incidental thereto; and (i) such assignee agrees that it will perform in
accordance with their terms all the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its offices in
the City of Houston a copy of each Assignment and Acceptance delivered to it
and a register for the recordation of the names and addresses of the Lenders,
and the Commitment of, and the principal amount of the Loans owing to, each
Lender pursuant to the terms hereof from time to time (the "REGISTER"). The
entries in the Register shall be conclusive in the absence of manifest error
and the Borrowers, the Agents and the Lenders may treat each person whose name
is recorded in the Register pursuant to the terms hereof as a Lender hereunder
for all purposes of this Agreement. The Register shall be available for
inspection by each party hereto, at any reasonable time and from time to time
upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee together with an Administrative
Questionnaire completed in respect of the assignee (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) above and, if required, the written consent of the
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Borrowers and the Agents to such assignment, the Administrative Agent shall (i)
accept such Assignment and Acceptance and (i) record the information contained
therein in the Register.
(f) Each Lender may without the consent of the Borrowers or the
Agents sell participations to one or more banks or other entities in all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans owing to it); provided, however, that
(i) such Lender's obligations under this Agreement shall remain unchanged, (i)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (i) each participating bank or other entity
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.12, 2.17 and 8.05 to the same extent as if it were the selling
Lender (and limited to the amount that could have been claimed by the selling
Lender had it continued to hold the interest of such participating bank or
other entity), except that all claims made pursuant to such Sections shall be
made through such selling Lender, and (i) the Borrowers, the Agents and the
other Lenders shall continue to deal solely and directly with such selling
Lender in connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrowers under this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement (other than
amendments, modifications or waivers (x) decreasing any fees payable hereunder
or the amount of principal of, or the rate at which interest is payable on, the
Loans, (y) extending any scheduled principal payment date or date fixed for the
payment of interest on the Loans or (z) extending the Commitments).
(g) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrowers furnished to such Lender
by or on behalf of the Borrowers; provided that, prior to any such disclosure,
each such assignee or participant or proposed assignee or participant shall
execute an agreement whereby such assignee or participant shall agree (subject
to customary exceptions) to preserve the confidentiality of any such
information.
(h) The Borrowers shall not assign or delegate any rights and duties
hereunder without the prior written consent of all Lenders, and any attempted
assignment or delegation (except as a consequence of a transaction expressly
permitted under Section 5.09) by a Borrower without such consent shall be void.
(i) Any Lender may at any time pledge all or any portion of its
rights under this Agreement to a Federal Reserve Bank; provided that no such
pledge shall release any Lender from its obligations hereunder or substitute
any such Bank for such Lender as a party hereto. In order to facilitate such
an assignment to a Federal Reserve Bank, each Borrower shall, at the request of
the assigning Lender, duly execute and deliver to the assigning Lender a
promissory note or notes evidencing the Loans made to such Borrower by the
assigning Lender hereunder.
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SECTION 8.5. EXPENSES; INDEMNITY. (a) The Borrowers agree to pay all
reasonable out-of-pocket expenses incurred by the Agents in connection with
entering into this Agreement or in connection with any amendments,
modifications or waivers of the provisions hereof (but only if such amendments,
modifications or waivers are requested by a Borrower) (whether or not the
transactions hereby contemplated are consummated), or incurred by the Agents or
any Lender in connection with the enforcement of their rights in connection
with this Agreement or in connection with the Loans made hereunder, including
the reasonable fees and disbursements of counsel for the Agents or, in the case
of enforcement following an Event of Default, the Lenders.
(b) The Borrowers agree to indemnify each Lender against any loss,
calculated in accordance with the next sentence, or reasonable expense which
such Lender may sustain or incur as a consequence of (a) any failure by such
Borrower to borrow or to refinance, convert or continue any Loan hereunder
(including as a result of such Borrower's failure to fulfill any of the
applicable conditions set forth in Article IV) after irrevocable notice of such
borrowing, refinancing, conversion or continuation has been given pursuant to
Section 2.03 or 2.04, (a) any payment, prepayment or conversion, or assignment
of a Eurodollar Loan or Fixed Rate Loan of such Borrower required by any other
provision of this Agreement or otherwise made or deemed made on a date other
than the last day of the Interest Period, if any, applicable thereto, (a) any
default in payment or prepayment of the principal amount of any Loan or any
part thereof or interest accrued thereon, as and when due and payable (at the
due date thereof, whether by scheduled maturity, acceleration, irrevocable
notice of prepayment or otherwise) or (d) the occurrence of any Event of
Default, including, in each such case, any loss or reasonable expense sustained
or incurred or to be sustained or incurred by such Lender in liquidating or
employing deposits from third parties, or with respect to commitments made or
obligations undertaken with third parties, to effect or maintain any Loan
hereunder or any part thereof as a Eurodollar Loan or a Fixed Rate Loan. Such
loss shall include an amount equal to the excess, if any, as reasonably
determined by such Lender, of (i) its cost of obtaining the funds for the Loan
being paid, prepaid, refinanced, converted or not borrowed (assumed to be the
LIBO Rate or, in the case of a Fixed Rate Loan, the fixed rate of interest
applicable thereto) for the period from the date of such payment, prepayment,
refinancing or failure to borrow or refinance to the last day of the Interest
Period for such Loan (or, in the case of a failure to borrow or refinance the
Interest Period for such Loan which would have commenced on the date of such
failure) over (i) the amount of interest (as reasonably determined by such
Lender) that would be realized by such Lender in reemploying the funds so paid,
prepaid or not borrowed or refinanced for such period or Interest Period, as
the case may be.
(c) The Borrowers agree to indemnify the Agents, each Lender, each of
their Affiliates and the directors, officers, employees and agents of the
foregoing (each such person being called an "INDEMNITEE") against, and to hold
each Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related expenses, including reasonable counsel fees and expenses, incurred
by or asserted against any Indemnitee arising out of (i)the consummation of the
transactions contemplated by this Agreement, including the Acquisition, (i) the
use of the proceeds of the
-56-
<PAGE> 61
Loans or (i) any claim, litigation, investigation or proceeding relating to any
of the foregoing, whether or not any Indemnitee is a party thereto, including
any of the foregoing arising from the negligence, whether sole or concurrent,
on the part of any Indemnitee; provided that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses (i) are determined by a final judgment of a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of such Indemnitee or (i) result from any litigation brought
by such Indemnitee against the Borrowers or by any Borrower against such
Indemnitee, in which a final, nonappealable judgment has been rendered against
such Indemnitee; provided further that each Borrower agrees that it will not,
nor will it permit any Subsidiary to, without the prior written consent of each
Indemnitee, settle, compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification could be sought under the indemnification provisions of this
Section 8.05(c) (whether or not any Indemnitee is an actual or potential party
to such claim, action, suit or proceeding), unless such settlement, compromise
or consent does not include any statement as to an admission of fault,
culpability or failure to act by or on behalf of any Indemnitee and does not
involve any payment of money or other value by any Indemnitee or any injunctive
relief or factual findings or stipulations binding on any Indemnitee.
(d) The provisions of this Section shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement,
the consummation of the transactions contemplated hereby, the repayment of any
of the Loans, the invalidity or unenforceability of any term or provision of
this Agreement or any investigation made by or on behalf of any Agent or any
Lender. All amounts due under this Section shall be payable on written demand
therefor.
(e) A certificate of any Lender or Agent setting forth any amount or
amounts which such Lender or Agent is entitled to receive pursuant to paragraph
(b) of this Section and containing an explanation in reasonable detail of the
manner in which such amount or amounts shall have been determined shall be
delivered to the appropriate Borrower and shall be conclusive absent manifest
error.
SECTION 8.6. RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the relevant Borrower against any of and all
the obligations of such Borrower now or hereafter existing under this Agreement
held by such Lender, irrespective of whether or not such Lender shall have made
any demand under this Agreement and although such obligations may be unmatured.
The rights of each Lender under this Section are in addition to other rights
and remedies (including other rights of setoff) which such Lender may have.
-57-
<PAGE> 62
SECTION 8.7. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 8.8. WAIVERS; AMENDMENT. (a) No failure or delay of either
Agent or any Lender in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Agents and the Lenders
hereunder are cumulative and are not exclusive of any rights or remedies which
they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on any Borrower or any Subsidiary in any case shall
entitle such party to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrowers and the Required Lenders; provided, however, that
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan, or waive or excuse any such payment or any part
thereof, or decrease the rate of interest on any Loan, without the prior
written consent of each Lender affected thereby, (i) increase any Commitment or
decrease the Facility Fee of any Lender without the prior written consent of
such Lender, or (i) amend or modify the provisions of Section 2.14 or Section
8.04(h), the provisions of this Section or the definition of the "Required
Lenders", without the prior written consent of each Lender; provided further,
however, that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent or the CAF Agent hereunder without
the prior written consent of the Administrative Agent or the CAF Agent, as the
case may be. Each Lender shall be bound by any waiver, amendment or
modification authorized by this Section and any consent by any Lender pursuant
to this Section shall bind any assignee of its rights and interests hereunder.
SECTION 8.9. ENTIRE AGREEMENT. THIS AGREEMENT (INCLUDING THE SCHEDULES
AND EXHIBITS HERETO) AND THE LETTER AGREEMENT CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND
REPRESENT THE ENTIRE CONTRACT AMONG THE PARTIES RELATIVE TO THE SUBJECT MATTER
HEREOF AND THEREOF. ANY PREVIOUS AGREEMENT, WHETHER WRITTEN OR ORAL, AMONG THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, INCLUDING, WITHOUT
LIMITATION, THE EXISTING TU CREDIT AGREEMENTS, IS SUPERSEDED BY THIS AGREEMENT
AND THE LETTER AGREEMENT. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. NOTHING IN THIS AGREEMENT, EXPRESSED OR IMPLIED, IS INTENDED TO
CONFER UPON ANY PARTY OTHER
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<PAGE> 63
THAN THE PARTIES HERETO ANY RIGHTS, REMEDIES, OBLIGATIONS OR LIABILITIES UNDER
OR BY REASON OF THIS AGREEMENT.
SECTION 8.10. SEVERABILITY. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 8.11. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 8.03.
SECTION 8.12. HEADINGS. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 8.13. INTEREST RATE LIMITATION. (a) Notwithstanding anything
herein to the contrary, if at any time the applicable interest rate, together
with all fees and charges which are treated as interest under applicable law
(collectively the "CHARGES"), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for, charged,
received, taken or reserved by any Lender, shall exceed the maximum lawful rate
(the "MAXIMUM RATE") which may be contracted for, charged, taken, received or
reserved by such Lender in accordance with applicable law, the rate of interest
payable on the Loans of such Lender, together with all Charges payable to such
Lender, shall be limited to the Maximum Rate.
(b) If the amount of interest, together with all Charges, payable for
the account of any Lender in respect of any interest computation period is
reduced pursuant to paragraph (a) of this Section and the amount of interest,
together with all Charges, payable for such Lender's account in respect of any
subsequent interest computation period, computed pursuant to Section 2.07,
would be less than the Maximum Rate, then the amount of interest, together with
all Charges, payable for such Lender's account in respect of such subsequent
interest computation period shall, to the extent permitted by applicable law,
be automatically increased to such Maximum Rate; provided that at no time shall
the aggregate amount by which interest paid for the account of any Lender has
been increased pursuant to this paragraph (b) exceed the aggregate amount by
which interest, together with all Charges, paid for its account has theretofore
been reduced pursuant to paragraph (a) of this Section.
SECTION 8.14. JURISDICTION; VENUE. (a) Each Borrower hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City,
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<PAGE> 64
and any appellate court from any thereof, in any action or proceeding arising
out of or relating to this Agreement, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Subject to the foregoing and to paragraph (b) below, nothing in this Agreement
shall affect any right that any party hereto may otherwise have to bring any
action or proceeding relating to this Agreement against any other party hereto
in the courts of any jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or thereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any New York State
or Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
SECTION 8.15. CONFIDENTIALITY. Each Lender shall use its best efforts
to hold in confidence all information, memoranda, or extracts furnished to such
Lender (directly or through the Agents) by the Borrowers hereunder or in
connection with the negotiation hereof; provided that such Lender may disclose
any such information, memoranda or extracts (i) to its accountants or counsel,
(i) to any regulatory agency having authority to examine such Lender, (i) as
required by any legal or governmental process or otherwise by law, (i) except
as provided in the last sentence of Section 5.03, to any person to which such
Lender sells or proposes to sell an assignment or a participation in its Loans
hereunder, if such other person agrees for the benefit of the Borrowers to
comply with the provisions of this Section and (i) to the extent that such
information, memoranda or extracts shall be publicly available or shall have
become known to such Lender independently of any disclosure by any Borrower
hereunder or in connection with the negotiation hereof. Notwithstanding the
foregoing, any Lender may disclose the provisions of this Agreement and the
amounts, maturities and interest rates of its Loans to any purchaser or
potential purchaser of such Lender's interest in any Loan.
[SIGNATURE PAGES FOLLOW]
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<PAGE> 65
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
TEXAS UTILITIES COMPANY
By /s/ Texas Utilities Company
--------------------------------------------------
Name:
Title:
TEXAS UTILITIES ELECTRIC COMPANY
By /s/ Texas Utilities Electric Company
--------------------------------------------------
Name:
Title:
ENSERCH CORPORATION
By /s/ ENSERCH Corporation
--------------------------------------------------
Name:
Title:
S-1
<PAGE> 66
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Administrative Agent
By /s/ Chase Bank of Texas, National Association
--------------------------------------------------------
Name:
Title:
S-2
<PAGE> 67
THE CHASE MANHATTAN BANK,
individually and as Competitive Advanced Facility
Agent
By /s/ The Chase Manhattan Bank
---------------------------------------------------------
Name:
Title:
S-3
<PAGE> 68
LENDERS:
LEHMAN COMMERCIAL PAPER INC.
By /s/ Lehman Commercial Paper Inc.
---------------------------------------------------------
Name:
Title:
S-4
<PAGE> 69
MERRILL LYNCH CAPITAL CORPORATION
By /s/ Merrill Lynch Capital Corporation
---------------------------------------------------------
Name:
Title:
S-5
<PAGE> 70
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
The Chase Manhattan Bank,
as Competitive Advance Facility Agent
for the Lenders referred to below,
c/o The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Chris Consomer
Telecopy: 212-552-5627
Dear Ladies and Gentlemen:
The undersigned, [Texas Utilities Company][Texas Utilities Electric
Company], [Enserch Corporation] (the "BORROWER"), refers to the 5-Year
Competitive Advance and Revolving Credit Facility Agreement, dated as of March
2, 1998 (as it may hereafter be amended, modified, extended or restated from
time to time, the "AGREEMENT"), among the Borrower, [Texas Utilities Company]
[Texas Utilities Electric Company], [Enserch Corporation], the Lenders named
therein, Chase Bank of Texas, National Association, as Administrative Agent,
and The Chase Manhattan Bank, as Competitive Advance Facility Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Agreement. The Borrower hereby gives
you notice pursuant to Section 2.03(a) of the Agreement that it requests a
Competitive Borrowing under the Agreement, and in that connection sets forth
below the terms on which such Competitive Borrowing is requested to be made:
(A) Date of Competitive Borrowing (which is a Business Day)
-----------
(B) Principal amount of Competitive Borrowing(1)
-----------
- --------------------
(1) Not less than $5,000,000 (and in integral multiples of $1,000,000) or
greater than the Total Commitment then available.
FACILITY B CREDIT AGREEMENT
<PAGE> 71
A-1-7
(C) Interest rate basis(2)
-----------------
(D) Interest Period and the last day thereof(3)
-----------------
Upon acceptance of any or all of the Loans offered by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted that the applicable conditions to lending specified in Article IV of
the Agreement have been satisfied.
Very truly yours,
[TEXAS UTILITIES COMPANY,]
[TEXAS UTILITIES ELECTRIC COMPANY,]
[ENSERCH CORPORATION,]
By
--------------------------------------------------
Name:
Title: [Financial Officer]
- --------------------
(1) Eurodollar Loan or Fixed Rate Loan.
(2) Which shall be subject to the definition of INTEREST PERIOD and end not
later than the Maturity Date.
FACILITY B CREDIT AGREEMENT
<PAGE> 72
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
[Name of Lender]
[Address]
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
Reference is made to the 5-Year Competitive Advance and Revolving Credit
Facility Agreement, dated as of March 2, 1998 (as it may hereafter be amended,
modified, extended or restated from time to time, the "AGREEMENT"), among
[Texas Utilities Company][Texas Utilities Electric Company], [Enserch
Corporation] (the "BORROWER"), [Texas Utilities Company][Texas Utilities
Electric Company], [Enserch Corporation], the Lenders named therein, Chase Bank
of Texas, National Association, as Administrative Agent and the Chase Manhattan
Bank, as Competitive Advance Facility Agent. Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to such terms in
the Agreement. The Borrower made a Competitive Bid Request on [Date], [Year]
pursuant to Section 2.03(a) of the Agreement, and in that connection you are
invited to submit a Competitive Bid by [Date]/[Time].1 Your Competitive Bid
must comply with Section 2.03(b) of the Agreement and the terms set forth below
on which the Competitive Bid Request was made:
(A) Date of Competitive Borrowing
-----------------
(B) Principal amount of Competitive Borrowing
-----------------
(C) Interest rate basis
-----------------
(D) Interest Period and the last day thereof
-----------------
- --------------------
(1) The Competitive Bid must be received by the CAF Agent (i) in the case
of Eurodollar Loans, not later than 9:30 a.m., New York City time,
three Business Days before a proposed Competitive Borrowing, and (i)
in the case of Fixed Rate Loans, not later than 9:30 a.m., New York
City time, on the Business Day of a proposed Competitive Borrowing.
FACILITY B CREDIT AGREEMENT
<PAGE> 73
A-2-2
Very truly yours,
The Chase Manhattan Bank,
as Competitive Advance Facility Agent,
By
-------------------------------------------
Name:
Title:
FACILITY B CREDIT AGREEMENT
<PAGE> 74
A-3-1
EXHIBIT A-3
FORM OF COMPETITIVE BID
The Chase Manhattan Bank,
as Competitive Advance Facility Agent
for the Lenders referred to below,
c/o The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Chris Consomer
Telecopy: 212-552-5627
[Date]
Dear Ladies and Gentlemen:
The undersigned, [Name of Lender], refers to the 5-Year Competitive
Advance and Revolving Credit Facility Agreement, dated as of March 2, 1998 (as
it may hereafter be amended, modified, extended or restated from time to time,
the "AGREEMENT"), among [Texas Utilities Company][Texas Utilities Electric
Company], [Enserch Corporation] (the "BORROWER"), [Texas Utilities
Company][Texas Utilities Electric Company], [Enserch Corporation], the Lenders
named therein, Chase Bank of Texas, National Association, as Administrative
Agent and The Chase Manhattan Bank, as Competitive Advance Facility Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Agreement. The undersigned hereby makes
a Competitive Bid pursuant to Section 2.03(b) of the Agreement, in response to
the Competitive Bid Request made by the Borrower on [Date], [Year] and in that
connection sets forth below the terms on which such Competitive Bid is made:
FACILITY B CREDIT AGREEMENT
<PAGE> 75
(A) Principal Amount(1)
-----------------
(B) Competitive Bid Rate(2)
-----------------
(C) Interest Period and last day thereof
-----------------
The undersigned hereby confirms that it is prepared, subject to the
conditions set forth in the Agreement, to extend credit to the Borrower upon
acceptance by the Borrower of this bid in accordance with Section 2.03(d) of
the Agreement.
Very truly yours,
[NAME OF LENDER],
By
-------------------------------------------
Name:
Title:
- --------------------
(1) Not less than $5,000,000 or greater than the requested Competitive
Borrowing and in integral multiples of $1,000,000. Multiple bids will be
accepted by the CAF Agent.
(2) i.e., LIBO Rate + or - __%, in the case of Eurodollar Loans or ___%, in
the case of Fixed Rate Loans.
FACILITY B CREDIT AGREEMENT
<PAGE> 76
EXHIBIT A-4
FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER
[Date]
The Chase Manhattan Bank,
as Competitive Advance Facility Agent
for the Lenders referred to below,
c/o The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Chris Consomer
Telecopy: 212-552-5627
Dear Ladies and Gentlemen:
The undersigned, [Texas Utilities Company][Texas Utilities Electric
Company], [Enserch Corporation], (the "BORROWER"), refers to the 5-Year
Competitive Advance and Revolving Credit Facility Agreement, dated as of March
2, 1998 (as it may hereafter be amended, modified, extended or restated from
time to time, the "AGREEMENT"), among the Borrower, [Texas Utilities Company]
[Texas Utilities Electric Company], [Enserch Corporation], the Lenders named
therein, Chase Bank of Texas, as Administrative Agent and The Chase Manhattan
Bank, as Competitive Advance Facility Agent for the Lenders.
In accordance with Section 2.03(c) of the Agreement, we have received a
summary of bids in connection with our Competitive Bid Request dated
_____________, 19[ ], and in accordance with Section 2.03(d) of the Agreement,
we hereby accept the following bids for maturity on [date]:
FACILITY B CREDIT AGREEMENT
<PAGE> 77
A-4-2
<TABLE>
<CAPTION>
Principal Amount Fixed Rate/Margin Lender
---------------- ----------------- ------
<S> <C>
$ [%]/[+/-. %]
$
</TABLE>
We hereby reject the following bids:
<TABLE>
<CAPTION>
Principal Amount Fixed Rate/Margin Lender
---------------- ----------------- ------
<S> <C>
$ [%]/[+/-. %]
$
</TABLE>
The $__________ should be deposited in The Chase Manhattan Bank account
number [ ] on [date].
Very truly yours,
[TEXAS UTILITIES COMPANY,]
[TEXAS UTILITIES ELECTRIC COMPANY,]
[ENSERCH CORPORATION,]
By
-------------------------------------
Name:
Title:
FACILITY B CREDIT AGREEMENT
<PAGE> 78
EXHIBIT A-5
FORM OF STANDBY BORROWING REQUEST
Chase Bank of Texas, National Association,
as Administrative Agent for the Lenders referred to below,
2200 Ross Avenue, 3rd floor
Dallas, TX 77002
Attention: Allen King
Telecopy: (214) 965-2990
[Date]
Dear Ladies and Gentlemen:
The undersigned, [Texas Utilities Company][Texas Utilities Electric
Company], [Enserch Corporation] (the "BORROWER"), refers to the 5-Year
Competitive Advance and Revolving Credit Facility Agreement dated as of March
2, 1998 (as it may hereafter be amended, modified, extended or restated from
time to time, the "AGREEMENT"), among the Borrower, [Texas Utilities
Company][Texas Utilities Electric Company], [Enserch Corporation], the Lenders
named therein, Chase Bank of Texas, National Association, as Administrative
Agent and The Chase Manhattan Bank, as Competitive Advance Facility Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Agreement. The Borrower hereby gives
you notice pursuant to Section 2.04 of the Agreement that it requests a Standby
Borrowing under the Agreement, and in that connection sets forth below the
terms on which such Standby Borrowing is requested to be made:
(A) Date of Standby Borrowing (which is a Business Day)
-------------
(B) Principal amount of Standby Borrowing(1)
-------------
(C) Interest rate basis(2)
-------------
- --------------------
(1) Not less than $25,000,000 (and in integral multiples of $5,000,000) or
greater than the Total Commitment then available.
(2) Eurodollar Loan or ABR Loan.
FACILITY B CREDIT AGREEMENT
<PAGE> 79
A-5-2
(D) Interest Period and the last day thereof(3)
----------------
Upon acceptance of any or all of the Loans made by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted that the applicable conditions to lending specified in Article IV of
the Agreement have been satisfied.
Very truly yours,
[TEXAS UTILITIES COMPANY,]
[TEXAS UTILITIES ELECTRIC COMPANY,]
[ENSERCH CORPORATION,]
By
-----------------------------------
Name:
Title: [Financial Officer]
- --------------------
(3) Which shall be subject to the definition of INTEREST PERIOD and end not
later than the Maturity Date.
FACILITY B CREDIT AGREEMENT
<PAGE> 80
EXHIBIT B
ADMINISTRATIVE QUESTIONNAIRE
TEXAS UTILITIES COMPANY
TEXAS UTILITIES ELECTRIC COMPANY
ENSERCH CORPORATION
PLEASE FORWARD THIS COMPLETED
FORM AS SOON AS POSSIBLE TO:
Donna McGroarty: Fax (713) 216-2291
PLEASE TYPE ALL INFORMATION.
Agent: Chase Bank of Texas, National Association
707 Travis Street, 8-CBB-N 96
Houston, Texas 77002
Telex:
Chase Securities Inc.
Syndications
Telecopier: (713) 216-2291/Alt. Fax (713) 216-2339
Chase Securities Inc.
Syndications
Contacts: Preston Moore Phone: (713) 216-1010
Ann K. Baumgartner Phone: (713) 216-7582
Donna McGroarty Phone: (713) 216-3617
FACILITY B CREDIT AGREEMENT
<PAGE> 81
B-2
Operations: Gale Manning Phone: (713) 750-2784
Letters of Credit: Gale Manning Phone: (713) 750-2784
Competitive Auction
Contact: The Chase Manhattan Bank
Chris Consomer Phone: (212) 552-7259
Fax: (212) 552-5627
Full Legal Name of your Institution:
Hard-copy documents, notices and periodic financial statements of the Borrower
should be sent to the following account officer designated by your bank:
Officer's Name:
Title:
Street Address (No P.O. Boxes please):
City, State, Zip:
Phone #:
Telefax #:
FACILITY B CREDIT AGREEMENT
<PAGE> 82
B-3
PRIMARY CONTACT INFORMATION
We will send all telecopies regarding time-critical information (drawdowns,
option changes, payments, etc.) to the Primary or Alternate Contact at the
banking location you designate.
1. Your bank's primary contact for telefaxes concerning borrowings, options
on interest rates, etc.:
<TABLE>
<CAPTION>
Primary Telephone Telefax
Name Number Number
-------- -------- ------
<S> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Alternate Name/ Telephone Telefax
Phone No. Number Number
---------------- ---------- ------
<S> <C> <C>
</TABLE>
If at any time any of the above information changes, please advise.
Publicity: Under what name would you prefer your institution to appear in
any future advertisements?
FACILITY B CREDIT AGREEMENT
<PAGE> 83
B-4
Movement of Funds: TO US: Wire Fed Funds to:
Chase Bank of Texas, National Association
ABA # 113000609
for account number # 0010-092-4118
Attention: Gale Manning/Loan Syndication Services
Reference: TEXAS UTILITIES COMPANY
TEXAS UTILITIES ELECTRIC COMPANY
ENSERCH CORPORATION
TO YOU: Wire Fed Funds to:
NAME:
ABA #
For Credit To:
Attention:
Reference:
FACILITY B CREDIT AGREEMENT
<PAGE> 84
B-5
Other:
If buyer is purchasing Letter of Credit facility as part of this
participation/syndication, please provide the information below:
L/C contact name:
Street Address:
City, State, Zip:
Phone #:
Telefax #:
Wire Fed Funds to:
NAME:
ABA #
For Credit To:
Attention:
Reference:
FACILITY B CREDIT AGREEMENT
<PAGE> 85
B-6
PLEASE COMPLETE THE FOLLOWING INFORMATION
FOR COMPETITIVE AUCTIONS ONLY
PRIMARY CONTACT
COMPETITIVE AUCTIONS
Bank Name:
Address:
Primary Contact:
Department:
Telephone Number:
Telefax Number:
ALTERNATE CONTACT
COMPETITIVE AUCTIONS
Alternate Contact:
Department:
Telephone Number:
Telefax Number:
FACILITY B CREDIT AGREEMENT
<PAGE> 86
B-7
PLEASE COMPLETE THE FOLLOWING INFORMATION
FOR COMPETITIVE AUCTIONS ONLY
PRIMARY CONTACT
COMPETITIVE AUCTIONS
Bank Name:
Address:
Primary Contact:
Department:
Telephone Number:
Telefax Number:
ALTERNATE CONTACT
COMPETITIVE AUCTIONS
Alternate Contact:
Department:
Telephone Number:
Telefax Number:
FACILITY B CREDIT AGREEMENT
<PAGE> 87
EXHIBIT C
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Dated: __________, 19__
Reference is made to the 5-Year Competitive Advance and Revolving Credit
Facility Agreement, dated as of March 2, 1998 (as amended, modified, extended
or restated from time to time, the "AGREEMENT"), among Texas Utilities Company,
Texas Utilities Electric Company, Enserch Corporation (collectively, the
"BORROWERS"), the lenders listed in Schedule 2.01 thereto (the "LENDERS"),
Chase Bank of Texas, National Association, as Administrative Agent and The
Chase Manhattan Bank, as Competitive Advance Facility Agent for the Lenders.
Terms defined in the Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the [Effective Date of Assignment set forth
below], the interests set forth on the reverse hereof (the "ASSIGNED INTEREST")
in the Assignor's rights and obligations under the Agreement, including,
without limitation, the interests set forth on the reverse hereof in the
Commitment of the Assignor on the [Effective Date of Assignment] and the
Competitive Loans and Standby Loans owing to the Assignor which are outstanding
on the [Effective Date of Assignment], together with unpaid interest accrued on
the assigned Loans to the [Effective Date of Assignment] and the amount, if
any, set forth on the reverse hereof of the Fees accrued to the [Effective Date
of Assignment] for the account of the Assignor. Each of the Assignor and the
Assignee hereby makes and agrees to be bound by all the representations,
warranties and agreements set forth in Section 8.04 of the Agreement, a copy of
which has been received by each such party. From and after the [Effective Date
of Assignment], (i) the Assignee shall be a party to and be bound by the
provisions of the Agreement and, to the extent of the interests assigned by
this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent of the interests assigned
by this Assignment and Acceptance, relinquish its rights and be released from
its obligations under the Agreement.
FACILITY B CREDIT AGREEMENT
<PAGE> 88
C-2
2. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is organized under the
laws of a jurisdiction outside the United States, the forms specified in
Section 2.17(g) of the Agreement, duly completed and executed by such Assignee,
(ii) if the Assignee is not already a Lender under the Agreement, an
Administrative Questionnaire in the form of Exhibit B to the Agreement and
(iii) a processing and recordation fee of $3,000.
3. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
FACILITY B CREDIT AGREEMENT
<PAGE> 89
C-3
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment
unless otherwise agreed by the
Administrative Agent):
<TABLE>
<CAPTION>
Percentage Assigned of
Facility/Commitment (set
Principal Amount Assigned forth, to at least 8
(and identifying decimals, as a percentage of
information the Facility and the
as to individual aggregate Commitments of all
Facility Competitive Loans) Lenders thereunder
- ---------------------- ------------------------ ------------------------------
<S> <C> <C>
Commitment Assigned: $____________ __________%
Standby Loans: $____________ __________%
Competitive Loans: $____________ __________%
Fees Assigned (if $____________ __________%
</TABLE>
FACILITY B CREDIT AGREEMENT
<PAGE> 90
C-4
The terms set forth and on the reverse side hereof are
hereby agreed to:
Accepted:
TEXAS UTILITIES COMPANY
, as By:
- ------------------- --------------------------------
Assignor Name:
Title:
By: , as
------------------------
Name: TEXAS UTILITIES ELECTRIC
Title: COMPANY
, as
- -------------------
Assignee, By:
--------------------------------
Name:
By: , as Title:
------------------------
Name:
Title: ENSERCH CORPORATION
By:
--------------------------------
Name:
Title:
FACILITY B CREDIT AGREEMENT
<PAGE> 91
C-5
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Administrative Agent
By:
--------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
CAF Agent
By:
--------------------------------
Name:
Title:
FACILITY B CREDIT AGREEMENT
<PAGE> 92
EXHIBIT D-1
[LETTERHEAD OF]
REID & PRIEST LLP
_____ __, 1998
To the Lenders listed on
Schedule 2.01 of each
Credit Agreements referred to below
and from time to time party to such Credit Agreements
Ladies and Gentlemen:
We advise you that we have acted as counsel to Texas Utilities Company,
a Texas Corporation ("TUC"), Texas Utilities Electric Company, a Texas
corporation ("TU ELECTRIC") and Enserch Corporation ("ENSERCH") in connection
with the 364-Day Competitive Advance and Revolving Credit Facility Agreement
and the 5-Year Competitive Advance and Revolving Credit Facility Agreement
(collectively, the "CREDIT AGREEMENTS"), each dated as of March 2, 1998, among,
TUC, TU Electric, Enserch Corporation, Chase Bank of Texas, National
Association, as Administrative Agent, The Chase Manhattan Bank, as Competitive
Advance Facility Agent, and the banks listed on Schedule 2.01 thereof (the
"LENDERS"), and have participated in the preparation of or have examined and
are familiar with (a) the current financial statements and reports filed by
TUC, TU Electric and Enserch with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended, (b) the Credit
Agreements, (C) the articles of incorporation and by-laws of TUC, TU Electric
and Enserch and (d) such other records and documents as we have deemed
necessary for the purposes of this opinion.
As to those matters stated herein to be "to our knowledge" or "known to
us" such examination has been limited to discussions with and certificates from
officers of TUC and TU Electric and Enserch and we have not conducted any
independent investigation or verification
FACILITY B CREDIT AGREEMENT
<PAGE> 93
D-1-2
or taken any action beyond such discussions and certificates, nor made any
search of the records of any Governmental Authority with respect to such
matters.
Capitalized terms used in this opinion and not defined herein shall have
the respective meanings assigned thereto in the Credit Agreements. This
opinion is delivered to you pursuant to Section 4.01(c) of the Credit
Agreements.
We are members of the New York Bar and do not hold ourselves out as
experts on the laws of the State of Texas. As to all matters of Texas law
(including incorporation of TUC, TU Electric and Enserch, titles to properties,
franchises, licenses and permits) we have, with your consent, relied upon an
opinion of even date herewith delivered to you by Worsham, Forsythe &
Wooldridge, L.L.P., general counsel for TUC, TU Electric and Enserch. While we
represent TUC and TU Electric on a regular basis, our engagement has been
limited to specific matters as to which we were consulted. We have no direct
knowledge of the day-to-day affairs of TUC, TU Electric or Enserch and have not
reviewed generally their business affairs. Accordingly, we are relying upon
representations of TUC, TU Electric and Enserch contained in the Credit
Agreements, in certificates furnished pursuant thereto, and in certificates
furnished to us by officers of TUC, TU Electric and Enserch.
For purposes of the opinions expressed below, we have assumed (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
to the originals of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such copies, (iii) the
genuineness of all signatures other than on behalf of TUC, TU Electric and
Enserch, (iv) the legal capacity of natural persons, (v) the power, corporate
or otherwise, of all parties other than TUC, TU Electric and Enserch to enter
into and to perform all of their obligations under such documents, and (vi) the
due authorization, execution and delivery of all documents by all parties other
than TUC, TU Electric and Enserch.
Based on the foregoing, we are of the opinion that:
1. Each of TUC, TU Electric and Enserch (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas, (ii) has all requisite power and authority to own its property and
assets and to carry on its business as now conducted, (iii) is qualified to do
business in every jurisdiction within the United States where such
qualification is
FACILITY B CREDIT AGREEMENT
<PAGE> 94
D-1-3
required, except where the failure so to qualify would not result in a Material
Adverse Change, and (iv) has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Credit Agreements and to
borrow funds thereunder.
2. The execution, delivery and performance by each of TUC, TU Electric
and Enserch of the Credit Agreements and the Borrowings by each of them
thereunder (collectively, the "TRANSACTIONS") and the consummation of the
Acquisition (i) have been duly authorized by all requisite corporate action and
(ii) will not (a) violate (1) any law, statute, rule or regulation presently
binding on or applicable to TUC, TU Electric or Enserch, or the articles of
incorporation, as amended, or by-laws of TUC, TU Electric or Enserch, (2) to
our knowledge, any order of any Governmental Authority presently applicable to
TUC, TU Electric or Enserch or (3) any provision of any indenture, agreement or
other instrument known to us to which TUC, TU Electric or Enserch or its
property is bound, (b) be in conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or (c) except as contemplated by the
UK Facility Agreement, result in the creation or imposition of any lien upon or
with respect to any property or assets of TUC, TU Electric or Enserch.
3. The Credit Agreements have been duly executed and delivered by TUC,
TU Electric and Enserch and constitute legal, valid and binding obligations of
TUC, TU Electric and Enserch enforceable against each of them in accordance
with their terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4. No action, consent or approval of, registration or filing with, or
any other action by, any Governmental Authority (including pursuant to the
Public Utility Holding Company Act of 1935, as amended) is required on the part
of TUC, TU Electric or Enserch in connection with the Transactions or the
Acquisition, except such as have been made or obtained and are in full force
and effect and, in the case of the Acquisition, (i) expiration or termination
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1979 and (i) the filing by TUC of a registration statement on Form S-4 under
the Securities Act of 1933, as amended, relating to shares of common stock of
TUC to be issued in connection with the Acquisition, and action by
FACILITY B CREDIT AGREEMENT
<PAGE> 95
D-1-4
the Securities and Exchange Commission declaring said registration statement to
be effective under such Act.
5. (a) None of TUC, TU Electric nor Enserch nor any of their
respective Subsidiaries is an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940, as amended, and (b) TUC,
TU Electric and Enserch and each of their respective Subsidiaries is exempt
from all provisions of the Public Utility Holding Company Act of 1935, as
amended, and the rules and regulations thereunder, except for Sections 9(a)(2)
and 33 of such Act and the rules and regulations thereunder, and the execution,
delivery and performance by each of TUC, TU Electric and Enserch of the Credit
Agreements and the consummation of the Acquisition do not violate any
provisions of such Act or any rule or regulation thereunder.
6. Except as described in the Annual Reports on Form 10-K for the year
ended December 31, 1996 and the Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997, filed by TUC, TU
Electric and Enserch with the Securities and Exchange Commission and as set
forth in Schedule 3.06 to the Credit Agreements, to our knowledge there is no
action, suit, or proceeding at law or in equity or by or before any
Governmental Authority now pending or threatened against or affecting TUC, TU
Electric or Enserch (i) which involves the Transactions or (ii) as to which
there is a reasonable possibility of an adverse determination and which, if
adversely determined, could, individually or in the aggregate, result in a
Material Adverse Change.
7. To our knowledge, after due inquiry, the proposed use of the
proceeds of the Loans is in accordance with the Credit Agreements and, if so
used, will not violate the Margin Regulations.
8. We believe that a New York court would give effect to the provisions
of the Credit Agreements that state that they are to be construed in accordance
with New York law.
FACILITY B CREDIT AGREEMENT
<PAGE> 96
D-1-5
This letter is solely for the benefit of the named addressees and may
not be quoted in whole or in part or otherwise referred to in any document or
report and may not be furnished to any person without our prior written
consent, except that Worsham, Forsythe & Wooldridge, L.L.P. may rely hereon in
connection with their opinion being rendered pursuant to Section 4.01(c) of the
Credit Agreements.
Very truly yours,
Reid & Priest LLP
FACILITY B CREDIT AGREEMENT
<PAGE> 97
EXHIBIT D-2
[LETTERHEAD OF]
WORSHAM, FORSYTHE & WOOLDRIDGE, L.L.P.
_____ __, 1998
To the Lenders listed on
Schedule 2.01 of each of the
Credit Agreements referred to below
Ladies and Gentlemen:
We have acted as general counsel for Texas Utilities Company, a Texas
corporation ("TUC"), Texas Utilities Electric Company, a Texas corporation ("TU
ELECTRIC") and Enserch Corporation ("ENSERCH"), in connection with the
execution and delivery of the 364-Day Competitive Advance and Revolving Credit
Facility Agreement and the 5-Year Competitive Advance and Revolving Credit
Facility Agreement (collectively, the "CREDIT AGREEMENTS"), each dated as of
March 2, 1998, among TUC, TU Electric, Enserch Corporation, the banks listed on
Schedule 2.01 thereof (the "LENDERS"), Chase Bank of Texas, National
Association, as Administrative Agent and The Chase Manhattan Bank, as
Competitive Advance Facility Agent.
Capitalized terms used in this opinion and not defined herein shall have
the respective meanings assigned thereto in the Credit Agreements. This
opinion is delivered to you pursuant to Section 4.01(c) of the Credit
Agreements.
In connection with this opinion we have examined a counterpart of the
Credit Agreements executed by TUC, TU Electric and Enserch and have also made
such examination of other documents and of certificates of public officials and
corporate officers of TUC, TU Electric and Enserch, and have made such other
legal and factual examinations and inquiries as we have deemed necessary or
advisable for the purpose of rendering this opinion; but as to those matters
stated herein to be "to our knowledge" or "known to us" such examination has
been limited to discussions with and certificates from officers of TUC, TU
Electric and Enserch and we have not
FACILITY B CREDIT AGREEMENT
<PAGE> 98
D-2-2
conducted any independent investigation or verification or taken any action
beyond such discussions and certificates, nor made any search of the records of
any Governmental Authority with respect to such matters.
For purposes of the opinions expressed below, we have assumed (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
to the originals of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such copies, (iii) the
genuineness of all signatures other than on behalf of TUC, TU Electric and
Enserch, (iv) the legal capacity of natural persons, (v) the power, corporate
or otherwise, of all parties other than TUC, TU Electric and Enserch to enter
into and to perform all of their obligations under such documents, and (vi) the
due authorization, execution and delivery of all documents by all parties other
than TUC, TU Electric and Enserch.
Based upon, and subject to, the foregoing and to such further
limitations and qualifications stated below, we are of the opinion that:
1. Each of TUC, TU Electric and Enserch (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas, (ii) has all requisite power and authority to own its property and
assets and to carry on its business as now conducted, (iii) is qualified to do
business in every jurisdiction within the United States where such
qualification is required, except where the failure so to qualify would not
result in a Material Adverse Change, and (iv) has all requisite corporate power
and authority to execute, deliver and perform its obligations under the Credit
Agreements and to borrow funds thereunder.
2. The execution, delivery and performance by each of TUC, TU Electric
and Enserch of the Credit Agreements and the Borrowings by each of them
(collectively, the "TRANSACTIONS") and the consummation of the Acquisition (i)
have been duly authorized by all requisite corporate action and (ii) will not
(a) violate (1) any law, statute, rule or regulation presently binding on or
applicable to TUC, TU Electric or Enserch, or the articles of incorporation, as
amended, or by-laws of TUC, TU Electric or Enserch, (2) to our knowledge, any
order of any Governmental Authority presently applicable to TUC, TU Electric or
Enserch or (3) any provision of any indenture, agreement or other instrument
known to us to which TUC, TU Electric or Enserch is a party or by which TUC, TU
Electric or Enserch or its property is bound, (b) be in conflict with, result
in a breach of or constitute (alone or with notice or lapse of time or both) a
default under
FACILITY B CREDIT AGREEMENT
<PAGE> 99
D-2-3
any such indenture, agreement or other instrument or (c) except as may be
provided in the UK Facility Agreement, result in the creation or imposition of
any lien upon or with respect to any property or assets now owned or hereafter
acquired by TUC, TU Electric or Enserch.
3. The Credit Agreements have been duly executed and delivered by TUC,
TU Electric and Enserch and constitute legal, valid and binding obligations of
TUC, TU Electric and Enserch enforceable against each of them in accordance
with their terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally and by general equitable principles (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
4. No action, consent or approval of, registration or filing with, or
any other action by, any Government Authority (including pursuant to the Public
Utility Holding Company Act of 1935, as amended) is required on the part of
TUC, TU Electric or Enserch in connection with the Transactions or the
Acquisition, except as such as have been made or obtained and are in full force
and effect and, in the case of the Acquisition, (i) expiration or termination
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1979 and (i) the filing by the Company of a Registration Statement on Form S-4
under the Securities Act of 1933, as amended, and action by the Securities and
Exchange Commission declaring said Registration Statement effective.
5. None of TUC, TU Electric nor Enserch nor any of their respective
Subsidiaries is an "investment company" as defined in, or subject to regulation
under, the Investment Company Act of 1940, as amended. TUC, TU Electric and
each of their respective Subsidiaries is exempt from all provisions of the
Public Utility Holding Company Act of 1935, as amended, and rules and
regulations thereunder, except for Sections 9(a)(2) and 33 of such Act and
rules and regulations thereunder, and the execution, delivery and performance
by TUC, TU Electric and Enserch of the Credit Agreements and the consummation
of the Acquisition do not violate any provision of such Act or any rule or
regulation thereunder.
6. Except as described in the Annual Reports on Form 10-K for the year
ended December 31, 1996 and the Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997, filed by TUC, TU
Electric and Enserch with the Securities and Exchange Commission and as set
forth in Schedule 3.06 to the Credit Agreements,
FACILITY B CREDIT AGREEMENT
<PAGE> 100
D-2-4
to our knowledge there is no action, suit or proceeding at law or in equity or
by or before any Governmental Authority now pending or threatened against or
affecting TUC, TU Electric or Enserch (i) which involves the Transactions or
the Acquisition or (ii) as to which there is a reasonable possibility of an
adverse determination and which, if adversely determined, would, individually
or in the aggregate, result in a Material Adverse change.
7. To our knowledge, TUC, TU Electric and Enserch are not in violation
of any law, rule or regulation, or in default with respect to any judgment,
writ, injunction or decree of any Governmental Authority, where such violation
or default would result in a Material Adverse Change.
8. To our knowledge, after due inquiry, the proposed use of the
proceeds of the Loans is in accordance with the Credit Agreements, and, if so
used, will not violate the Margin Regulations.
9. We believe that a Texas court would give effect to the provisions of
the Credit Agreements that state that they are to be construed in accordance
with New York law; provided, however, that we render no opinion as to the
application of New York law that is contrary to a fundamental or public policy
of the State of Texas.
We are members of the State Bar of Texas and do not purport to be
experts on, nor do we opine as to, the laws of any jurisdiction other than the
State of Texas and the federal laws of the United States. To the extent that
the opinions hereinabove set forth involve the laws of the State of New York,
we have relied upon the opinion of even date herewith delivered by you by Reid
& Priest LLP, special counsel to TUC, TU Electric and Enserch.
The foregoing opinions are limited to existing laws and we undertake no
obligation or responsibility to update or supplement this letter in response to
subsequent changes in the law or future events or circumstances affecting the
Transactions. This letter is solely for the benefit of the named addressees
and may not be quoted in whole or in part or otherwise referred to in any
document or report and may not be furnished to any person without our prior
written consent, except that Reid & Priest LLP may rely hereon in connection
with their opinion being rendered pursuant to Section 4.01(c) of the Credit
Agreements.
FACILITY B CREDIT AGREEMENT
<PAGE> 101
D-2-5
Very truly yours,
WORSHAM, FORSYTHE &
WOOLDRIDGE, L.L.P.
By:
---------------------------------
A Partner
FACILITY B CREDIT AGREEMENT
<PAGE> 102
SCHEDULE 2.01
<TABLE>
<CAPTION>
Name Commitment
---- ----------
<S> <C>
The Chase Manhattan Bank $ 466,666,666.00
Lehman Commercial Paper Inc. 466,666,667.00
Merrill Lynch Capital Corporation 466,666,667.00
-----------------
Total $1,400,000,000.00
</TABLE>
FACILITY B CREDIT AGREEMENT
<PAGE> 103
SCHEDULE 3.06
TO THE CREDIT AGREEMENT
Litigation
None
FACILITY B CREDIT AGREEMENT
<PAGE> 1
EXHIBIT (1)(c)
EXECUTION COPY
AMENDMENT
This AMENDMENT, dated as of March 3, 1998, among TEXAS UTILITIES
COMPANY, a Texas corporation ("TUC"), TEXAS UTILITIES ELECTRIC COMPANY, a Texas
corporation ("TU ELECTRIC"), ENSERCH CORPORATION, a Texas corporation
("ENSERCH" and, together with TUC and TU Electric, the "BORROWERS"), the
lenders parties to the Credit Agreements referred to below (the "LENDERS"), THE
CHASE MANHATTAN BANK, as Competitive Advance Facility Agent (the "CAF AGENT"),
and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as administrative agent for the
lenders (the "ADMINISTRATIVE AGENT" and, together with the CAF Agent, the
"AGENTS").
PRELIMINARY STATEMENTS:
(1) The Borrowers, the Lenders and the Agents have entered into a
364-Day Competitive Advance and Revolving Credit Facility Agreement (the
"FACILITY A CREDIT AGREEMENT") and a Five-Year Competitive Advance and
Revolving Credit Facility Agreement (the "FACILITY B CREDIT AGREEMENT" and,
together with the Facility A Credit Agreement, the "CREDIT AGREEMENTS"), each
dated as of March 2, 1998. Capitalized terms used but not defined herein are
used with the meanings assigned to them in the Credit Agreements.
(2) The Borrowers and the Lenders have agreed to amend the
Facility A Credit Agreement to increase the amount of the Offer Loan
Commitments and to make certain conforming changes in the Facility B Credit
Agreement as hereinafter set forth.
SECTION 1. AMENDMENTS TO FACILITY A CREDIT AGREEMENT. The
Facility A Credit Agreement is, effective as of the date hereof and subject to
the satisfaction of the conditions precedent set forth in Section 3 hereof,
hereby amended as follows:
(a) The cover page to the Facility A Credit Agreement and
the preamble thereto are amended by deleting therefrom the figure
"$3,500,000,000" and substituting for such figure the figure
"$3,600,000,000".
(b) Section 1.01 is amended by deleting from the
definition of "Equity Event" the figure "$1.5 billion" therein and
substituting for such figure the figure "$1.505 billion".
(c) Section 1.01 is amended by inserting at the end of
the definition of "Letter Agreement" (and before the punctuation at
the end of such definition) the phrase ",each as amended, modified or
supplemented from time to time".
<PAGE> 2
2
(d) Section 5.08 is amended by deleting the introductory
clause of paragraph (ii) thereof and substituting for such clause
"(ii) up to $2.8 billion of the proceeds of the Loans solely to
finance or refinance (directly or indirectly, including as a
commercial paper back-up) equity or subordinated loan advances from
TUC to FinCo1 and FinCo2 to finance:".
(e) Schedule 2.01 is deleted in its entirety and replaced
by a new Schedule 2.01 in the form of Exhibit A hereto.
SECTION 2. AMENDMENT TO FACILITY B CREDIT AGREEMENT. Section
1.01 of the Facility B Credit Agreement is, effective as of the date hereof and
subject to the satisfaction of the conditions precedent set forth in Section 3
hereof, hereby amended by inserting at the end of the definition of "Letter
Agreement" (and before the punctuation at the end of such definition) the
phrase ", each as amended, modified or supplemented from time to time".
SECTION 3. CONDITIONS OF EFFECTIVENESS. This Amendment shall
become effective when, and only when, the Administrative Agent shall have
received counterparts of this Amendment executed by the Borrowers and all of
the Lenders, and Sections 1 and 2 hereof shall become effective when, and only
when, the Administrative Agent shall have additionally received all of the
following documents, each document (unless otherwise indicated) being dated the
date of receipt thereof by the Administrative Agent (which date shall be the
same for all such documents and shall be hereinafter referred to as the
"AMENDMENT DATE"), in form and substance satisfactory to the Administrative
Agent:
(a) Fully executed counterparts of an Amended and
Restated Underwriting Fee Letter, substantially in the form of Exhibit
B hereto.
(b) Favorable opinions of Reid & Priest LLP and Worsham,
Forsythe & Wooldridge, L.L.P., each to the effect that this Amendment
has been duly authorized, executed and delivered by the Borrowers and
confirming the opinion of such counsel furnished on March 2, 1998
pursuant to Section 4.01(c) of each Credit Agreement, with references
therein to the Credit Agreements to mean this Amendment and the Credit
Agreements, as amended by this Amendment.
(c) The Lenders shall have received evidence of the
execution and delivery of an amendment to the U.K. Facility Agreement,
in form and substance satisfactory to the Lenders, relating to an
increase in the "Commitments" under and as defined in the U.K.
Facility Agreement.
<PAGE> 3
3
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS.
Each Borrower confirms and repeats, as of the date hereof and as of the
Amendment Date, the representations and warranties made by such Borrower in
Article III of each Credit Agreement, with references therein to any Credit
Agreement to be deemed to be references to this Amendment and such Credit
Agreement, as amended by this Amendment.
SECTION 5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENTS.
Upon the effectiveness of Sections 1 and 2 hereof, on and after the date hereof
each reference in any Credit Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to such Credit Agreement shall mean
and be a reference to such Credit Agreement, as amended hereby. Except as
specifically amended above, the Credit Agreements are and shall continue to be
in full force and effect and are hereby in all respects ratified and confirmed.
The execution, delivery and effectiveness of this Amendment shall not, except
as expressly provided herein, operate as a waiver of any right, power or remedy
of any Lender or any Agent under any Credit Agreement, nor constitute a waiver
of any provision of any Credit Agreement.
SECTION 6. COSTS AND EXPENSES. The Borrowers agree to pay all
reasonable out-of-pocket expenses incurred by the Agents in connection with
entering into this Amendment (whether or not the transactions hereby
contemplated are consummated), or incurred by the Agents or any Lender in
connection with the enforcement of their rights in connection with this
Amendment.
SECTION 7. EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.
SECTION 8. GOVERNING LAW. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
<PAGE> 4
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
TEXAS UTILITIES COMPANY
By /s/ Texas Utilities Company
----------------------------
Name:
Title:
TEXAS UTILITIES ELECTRIC COMPANY
By /s/ Texas Utilties Electric Company
----------------------------
Name:
Title:
ENSERCH CORPORATION
By /s/ ENSERCH Corporation
----------------------------
Name:
Title:
[SIGNATURE PAGE TO AMENDMENT]
<PAGE> 5
S-2
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Administrative Agent
By /s/ Chase Bank of Texas,
National Association
----------------------------
Name:
Title:
[SIGNATURE PAGE TO AMENDMENT]
<PAGE> 6
S-3
THE CHASE MANHATTAN BANK,
as Lender and as Competitive Advance
Facility Agent
By /s/ The Chase Manhattan Bank
----------------------------
Name:
Title:
[SIGNATURE PAGE TO AMENDMENT]
<PAGE> 7
S-4
LEHMAN COMMERCIAL PAPER INC.
By /s/ Lehman Commercial Paper Inc.
----------------------------
Name:
Title:
[SIGNATURE PAGE TO AMENDMENT]
<PAGE> 8
S-5
MERRILL LYNCH CAPITAL CORPORATION
By /s/ Merrill Lynch Capital Corporation
----------------------------
Name:
Title:
[SIGNATURE PAGE TO AMENDMENT]
<PAGE> 9
EXHIBIT A
SCHEDULE 2.01
<TABLE>
<CAPTION>
Offer Loan General Loan Aggregate
Name Commitment Commitment Commitment
- ---- ---------- ---------- ----------
<S> <C> <C> <C>
The Chase Manhattan Bank $ 933,333,333.00 $266,666,667.00 $1,200,000,000.00
Lehman Commercial Paper Inc. 933,333,333.00 266,666,667.00 1,200,000,000.00
Merrill Lynch Capital Corporation 933,333,334.00 266,666,666.00 1,200,000,000.00
- --------------------------------- ----------------- --------------- =================
TOTAL $2,800,000,000.00 $800,000,000.00 $3,600,000,000.00
</TABLE>
<PAGE> 10
EXHIBIT B
THE CHASE MANHATTAN BANK
LEHMAN COMMERCIAL PAPER INC.
MERRILL LYNCH CAPITAL CORPORATION
as of March 2, 1998
AMENDED AND RESTATED UNDERWRITING FEE LETTER
Texas Utilities Company
Energy Plaza
1601 Bryan Street, 33rd Floor
Dallas, Texas 75201
Attention: Robert S. Shapard
Ladies and Gentlemen:
Reference is made to the 364-Day Competitive Advance and Revolving
Facility Agreement and the Competitive Advance and Revolving Facility
Agreement, each dated as of the date hereof (collectively, as amended, modified
or supplemented from time to time, the "CREDIT AGREEMENTS"), among Texas
Utilities Company ("TUC"), Texas Utilities Electric Company, Enserch
Corporation, certain Lenders named therein, Chase Bank of Texas, National
Association, as Administrative Agent, and The Chase Manhattan Bank ("CHASE"),
as Competitive Advance Facility Agent. Capitalized terms used but not defined
herein are used with the meanings assigned to them in the Credit Agreements.
This letter agreement is the Underwriting Fee Letter referred to in the
definition of "Letter Agreement" set forth in the Credit Agreements.
As consideration for the agreement of Chase, Lehman Commercial Paper
Inc. and Merrill Lynch Capital Corporation (collectively, the "INITIAL
UNDERWRITERS") to underwrite the Total Commitment under each Credit Agreement,
TUC agrees to pay to the Initial Underwriters an underwriting fee (the
"UNDERWRITING FEE") in an amount equal to 1.0% of the Total Maximum Commitment
(as defined below) under each Credit Agreement, payable by TUC to the Initial
Underwriters, ratably in accordance with their respective Commitments, as
follows:
<PAGE> 11
2
(a) 25% of the Underwriting Fee shall be payable no later
than the third Business Day following the date of the execution and
delivery by the Borrowers of the Credit Agreements;
(b) 25% of the Underwriting Fee shall be payable upon the
earlier to occur of (i) the thirtieth day following the date of the
execution and delivery by the Borrowers of the Credit Agreements,
provided, that the Offer Loan Commitments under the Facility A Credit
Agreement shall not have been terminated in whole and (ii) the date
the Initial Underwriters distribute to prospective Lenders any written
offering materials (including, without limitation, any transaction
summary, financial information, term sheet, etc.) in connection with
the syndication of the Commitments; and
(c) the remaining 50% of the Underwriting Fee shall be
payable upon the date the Offer shall have been declared
unconditional.
As used herein, "TOTAL MAXIMUM COMMITMENT" shall mean, with respect to
each Credit Agreement, the highest Total Commitment in effect under such Credit
Agreement during the period from the date hereof until (and including) the date
payment is due under paragraph (a) above. You agree that, once paid, the
Underwriting Fee or any part thereof payable hereunder shall not be refundable
under any circumstances, regardless of whether the transactions or borrowings
contemplated by the Credit Agreements are consummated. The Underwriting Fee
shall be paid in immediately available funds and shall be in addition to
reimbursement of out-of-pocket expenses of the Joint Lead Arrangers and the
Initial Underwriters pursuant to the Syndication Letter, dated the date hereof
(the "SYNDICATION LETTER"), among TUC, the Initial Underwriters and the Joint
Lead Arrangers. You agree that the Initial Underwriters may, in their sole
discretion, share all or a portion of any of the Underwriting Fee with any of
the other Lenders.
It is understood and agreed that this Fee Letter shall not constitute
or give rise to any obligation to provide any financing; such an obligation
will arise only to the extent provided in the Credit Agreements. This Fee
Letter may not be amended or waived except by an instrument in writing signed
by the Initial Underwriters and you. This Fee Letter shall be governed by, and
construed in accordance with, the laws of the State of New York. This Fee
Letter may be executed in any number of counterparts, each of which shall be an
original, and all of which, when taken together, shall constitute one
agreement. Delivery of an executed signature page of this Fee Letter by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof.
You agree that this Fee Letter and its contents are subject to the
confidentiality provisions of the Syndication Letter. This Fee Letter replaces
and supersedes all prior agreements and understandings among the parties with
respect to the matters discussed herein.
<PAGE> 12
3
Please confirm that the foregoing is our mutual understanding by
signing and returning to us an executed counterpart of this Fee Letter.
Very truly yours,
THE CHASE MANHATTAN BANK
By
----------------------------
Name:
Title:
LEHMAN COMMERCIAL PAPER INC.
By
----------------------------
Name:
Title:
MERRILL LYNCH CAPITAL CORPORATION
By
----------------------------
Name:
Title:
Accepted and agreed to as of
the date first above written:
TEXAS UTILITIES COMPANY
By
----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT (1)(d)
FACILITIES AGREEMENT
for
L.3,625,000,000 CREDIT FACILITIES
TU FINANCE (NO. 1) LIMITED (1)
TU FINANCE (NO. 2) LIMITED (2)
TU ACQUISITIONS PLC
CHASE MANHATTAN PLC (3)
LEHMAN BROTHERS INTERNATIONAL
MERRILL LYNCH CAPITAL CORPORATION
as Joint Lead Arrangers
THE CHASE MANHATTAN BANK (4)
LEHMAN COMMERCIAL PAPER INC.
MERRILL LYNCH CAPITAL CORPORATION
as Underwriters
THE CHASE MANHATTAN BANK (5)
as Issuing Bank
CHASE MANHATTAN INTERNATIONAL LIMITED (6)
as Facility Agent
CHASE MANHATTAN INTERNATIONAL LIMITED (7)
as Security Agent
FOR THE PRIMARY BORROWER FOR THE FACILITY AGENT
NORTON ROSE LOVELL WHITE DURRANT
London London
<PAGE> 2
CONTENTS
<TABLE>
<S> <C> <C>
1. PURPOSE AND DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. THE COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3. THE CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4. ADVANCES UNDER THE FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5. INTEREST AND INTEREST PERIODS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6. REPAYMENT, PREPAYMENT, CANCELLATION AND REDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7. FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8. PAYMENTS AND TAXES; ACCOUNTS AND CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
10. POSITIVE UNDERTAKINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
11. NEGATIVE UNDERTAKINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
13. INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
14. UNLAWFULNESS, INCREASED COSTS, ALTERNATIVE INTEREST RATES . . . . . . . . . . . . . . . . . . . . . . . . . 78
15. SET-OFF AND PRO-RATA PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
16. ASSIGNMENT, SUBSTITUTION AND LENDING OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
17. FACILITY AGENT AND SECURITY AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
18. POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
19. DUTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
20. EXONERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
21. ENFORCEMENT AND RECOVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
22. DETERMINATION OF MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
23. BASIS OF DECISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
24. MATTERS CONCERNING THE BORROWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
25. NOTICES AND OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
26. GOVERNING LAW AND JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SCHEDULE 1
THE BANKS AND THEIR COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
SCHEDULE 2
FORMS OF DRAWDOWN NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
SCHEDULE 3
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
SCHEDULE 4
CALCULATION OF ADDITIONAL COST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
SCHEDULE 5
FORM OF SUBSTITUTION CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
SCHEDULE 6
FORM OF ACCESSION CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
SCHEDULE 7
TERMS OF BORROWERS' INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
SCHEDULE 8
TERMS OF INTERBANK GUARANTEE AND INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
</TABLE>
<PAGE> 4
THIS AGREEMENT is made the 2nd day of March 1998
BETWEEN:
(1) TU FINANCE (NO. 1) LIMITED (a company registered in England and Wales
with company number 3505836) as Primary Borrower and the initial
Permitted Borrower;
(2) TU FINANCE (NO. 2) LIMITED a company registered in England and Wales
with company number 3514100 ("Finco 2") and TU ACQUISITIONS PLC, a
company registered in England and Wales with company number 3455523
("BIDCO");
(3) CHASE MANHATTAN PLC, LEHMAN BROTHERS INTERNATIONAL AND MERRILL LYNCH
CAPITAL CORPORATION as joint lead arrangers (the "Arrangers");
(4) THE CHASE MANHATTAN BANK, LEHMAN COMMERCIAL PAPER INC. AND MERRILL
LYNCH CAPITAL CORPORATION as the original Banks (the "Underwriters");
(5) THE CHASE MANHATTAN BANK as the initial Issuing Bank;
(6) CHASE MANHATTAN INTERNATIONAL LIMITED as the initial Facility Agent;
and
(7) CHASE MANHATTAN INTERNATIONAL LIMITED as the initial Security Agent.
IT IS AGREED as follows:
1. PURPOSE AND DEFINITIONS
1.1 PURPOSE
This Agreement sets out the terms and conditions upon and subject to
which the Banks agree, according to their several obligations, to make
available:
(a) Acquisition Facility and Interim Facility
to the Primary Borrower, an Acquisition Facility in Sterling
of up to L.1,775,000,000 and an Interim Facility in Sterling
of up to L.1,150,000,000, each to be used for the purposes of
on-lending to Finco 2 by way of debt bearing interest at a
rate at least equivalent to the Facilities, to be, in turn,
on- lent to Bidco in order to assist Bidco in the financing or
refinancing of the following (but only after the Offer is
declared or becomes unconditional in all respects as permitted
by this Agreement):
(i) any consideration payable by Bidco to shareholders of
the Target in respect of open market purchases of
Target Shares;
(ii) the acquisition of Target Shares by Bidco pursuant to
the Offer;
(iii) fees and expenses of the Primary Borrower and Bidco
in relation to the Offer, and/or out of pocket
expenses of the Parent (up to an amount reasonably
satisfactory to the Arrangers), in relation to the
Offer;
(iv) the consideration payable pursuant to the operation
by Bidco of the procedures contained in sections 428
430 of the Companies Act 1985;
<PAGE> 5
- 4 -
(v) the consideration payable to share option holders in
the Target pursuant to any relevant offer to them by
Bidco to purchase or cancel such share options; and
(vi) in payment to the Parent of the Excess Equity Funding
(if any);
(vii) paying amounts due to Loan Note holders if the Loan
Note Facility comes into existence or in funding the
Loan Note Collateral Account with the principal
amount of the Loan Note Obligation if the Loan Note
Facility does not come into existence;
(b) Revolving Credit Facility
to the Primary Borrower and (subject to accession to this
Agreement under clause 24) the Permitted Borrowers, a
Revolving Credit Facility in Sterling (and in the case of
Letters of Credit, such other currencies as are permitted by
this Agreement) of up to L.700,000,000 to be used for the
purpose of refinancing the Target Group's Borrowed Money, for
the Target Group's general corporate purposes, to the Primary
Borrower for payment of interest on the Advances drawn by the
Primary Borrower falling due not more than 6 months after the
Unconditional Date, for the issue of Letters of Credit by the
Issuing Bank and, in part, for the REC's general corporate
purposes as provided in clause 24.5. For the avoidance of
doubt, the Revolving Credit Facility will not be available for
the financing or refinancing of the Acquisition.
No amounts borrowed under any of the Facilities may be used, directly
or indirectly, to repay or refinance the minimum equity contribution
referred to in paragraph (c) of Part B of Schedule 3 or otherwise
make payments to the Parent or any of its Affiliates (except the
Primary Borrower and its Subsidiaries), other than (i) to pay certain
out of pocket expenses of the Parent in accordance with clause
1.1(a)(iii) above and (ii) as contemplated in clause 1.1(a)(vi) above.
1.2 DEFINITIONS
In this Agreement, unless the context otherwise requires:
"ACCESSION CERTIFICATE" means an accession certificate (by way of
deed) in the form or substantially the form of schedule 6 and entered
into or to be entered into by a Permitted Borrower as an acceding
Borrower and the Facility Agent;
"ACQUISITION" means the acquisition by Bidco of the Target Shares
whether pursuant to the Offer or pursuant to the procedures contained
in Part XIIIA of the Act or by way of open market purchases (and
includes where the context admits payments by Bidco to the Target's
share option holders to purchase or cancel the benefit of such
options);
"ACQUISITION ADVANCE" means each borrowing under the Acquisition
Facility or (as the context requires) the principal amount of that
borrowing outstanding at any relevant time;
"ACQUISITION FACILITY" means the facility granted by the Banks under
clause 2.1(a);
"ACQUISITION FACILITY REPAYMENT DATE" means each of the scheduled
repayment dates for the Acquisition Facility referred to in clause
6.1;
"ACT" means the Companies Act 1985;
<PAGE> 6
- 5 -
"ACTING IN CONCERT" has the meaning given to that term in the Code;
"ADDITIONAL COST" means, in relation to any period, a percentage
calculated for such period at an annual rate determined in accordance
with schedule 4;
"ADJUSTED SHARE CAPITAL AND RESERVES" means the aggregate of the
following items namely:
(a) the nominal amount of the share capital of Finco 2 for the
time being issued and paid up or credited as paid up;
(b) the amounts standing to the credit of the consolidated
reserves of the Group (including any share premium account and
capital redemption reserve),
but adjusted, to the extent that the following items have not already
been added, deducted or excluded in arriving at the figures referred
to in (a) or (b) above:
(c) by deducting the amounts standing to the debit of the
consolidated reserves of the Group;
(d) by deducting any amounts attributable to interests of
non-Group members in Group Subsidiaries;
(e) by deducting any reserves set aside for deferred taxation;
(f) by deducting the amount by which the net book value of any
fixed asset has been written up after the date of this
Agreement (or, in the case of a person becoming a member of
the Group after that date, the date on which it becomes a
member of the Group) by way of revaluation or on its transfer
from one member of the Group to another (but no such deduction
shall be made in respect of (a) the amount of goodwill arising
upon and in respect of the acquisition of shares in the Target
or (b) any other amount if supported by, and not exceeding the
amount shown by, an independent written valuation);
(g) by deducting any amounts attributable to the consolidation of
the assets and liabilities of Project Finance Subsidiaries or,
if the value of such Project Finance Subsidiaries is
represented by 'investment in subsidiaries' (or other
investments) in the books of their relevant holding companies,
deducting the amount of such investment;
(h) by deducting the amount of any loan to Project Finance
Subsidiaries (to the extent not deducted under paragraph (g)
above);
but so that no amount to be added, deducted or excluded as a result of
any of the foregoing shall be added, deducted or excluded more than
once in the same calculation and, where the calculation is being made
as at the end of a Test Period, each such amount shall be determined
by reference to the most recent financial statements and compliance
certificates delivered hereunder as adjusted pursuant to the
provisions of clause 10.3(c);
"ADVANCE" means any Acquisition Advance, Interim Advance or Revolving
Advance and, as the context requires, includes the making of any of
the same or the amount of the same which is outstanding at any
relevant time;
"AFFECTED BANK" has the meaning given to it in clause 14.4;
<PAGE> 7
- 6 -
"AFFILIATE" means, in relation to any person, any Subsidiary or
subsidiary undertaking (as defined in section 258 of the Act) of that
person, any holding company of that person and any other Subsidiary or
subsidiary undertaking of that holding company;
"AGREED PROJECTIONS" means the projections for the Group dated 2 March
1998 as amended by the supplemental projections of 3 March 1998, both
in the agreed form;
"APPLICABLE FEES RATE" means at any time in respect of:
(a) the Acquisition Facility and the Interim Facility, 0.5 per
cent per annum at all times and on the Loan Note Facility, 0.5
per cent per annum at all times;
(b) the Revolving Credit Facility, 0.375 per cent. per annum;
(c) if the Stand-alone facility referred to in Clause 24.5 is
executed, the figures for the Applicable Fees Rate for the
Revolving Credit Facility shall be 0.5 per cent per annum.
"APPLICABLE MARGIN" means, at any time, 1.25% per annum or if the most
recent determination of the Leverage Ratio under clause 10.3 shows
that the Leverage Ratio is less than 65%, the rate per annum
determined as follows:
<TABLE>
<CAPTION>
LEVERAGE RATIO AND NOT LESS THAN: APPLICABLE MARGIN IS:
IS LESS THAN:
<S> <C> <C>
65% 60% 1%
60% - 0.75%
</TABLE>
(a) any reduction in the Applicable Margin shall have effect 5
Banking Days following the date of delivery of any set of
audited or management accounts for a Quarter under clause
10.1(b)(i) and (ii), together with the financial covenant
compliance certificate by the Primary Borrower referred to in
clause 10.1(b)(iii), until (but excluding) the effective date
for any subsequent change in the Applicable Margin in
accordance with this definition;
(b) during the continuance of any Default, any margin reduction
under this definition will not apply, and the Applicable
Margin shall be 1.25%;
(c) until Target has become a wholly-owned Subsidiary of Bidco and
no amount is outstanding under the Interim Facility, there
shall be no reduction in the Applicable Margin below 1.25%;
"APPROPRIATE ACCOUNTING PRINCIPLES" means (i) the accounting
principles, policies, standards, practices and bases (being generally
accepted in the United Kingdom), as adopted in the last audited
consolidated accounts of Target published prior to 1 February 1998 or
(ii) where any change has been agreed under clause 10.3(c), such
accounting principles, standards, practices and bases as have been so
agreed;
"ARRANGERS" means Chase Manhattan plc, Lehman Brothers International
and Merrill Lynch Capital Corporation;
"AUDITORS" means Deloitte & Touche L.L.P. or such other
internationally recognised firm of chartered accountants as may be
auditors to the Group for the time being;
<PAGE> 8
- 7 -
"AVAILABLE COMMITMENT" means, in relation to a Bank and save as
otherwise provided herein:
(a) in respect of the Acquisition Facility at any time, its
Commitment in respect of such Facility at such time less its
Contribution to all outstanding Acquisition Advances at such
time;
(b) in respect of the Interim Facility at any time, its Commitment
in respect of such Facility at such time less its Contribution
to all outstanding Interim Advances at such time;
(c) in respect of the Revolving Credit Facility at any time, its
Commitment in respect of such Facility at such time less:
(i) its Contribution to all outstanding Revolving
Advances at such time;
(ii) its Proportion of the Sterling Amount at that time of
the Outstanding Contingent Liabilities under all
Letters of Credit then outstanding; and
(iii) its proportion of any amount paid out by the Issuing
Bank under a Letter of Credit and not yet reimbursed;
"AVAILABLE COMMITMENT TERMINATION DATE" means save as otherwise
provided herein:
(a) in relation to the Revolving Credit Facility, the Final
Repayment Date;
(b) in relation to the Loan Note Facility, the Final Repayment
Date; and
(c) in relation to the balance of the Acquisition Facility and the
Interim Facility, the date falling ten months after the date
of this Agreement;
"AVAILABLE FACILITY AMOUNT" means, at any time and in respect of any
Facility, the aggregate of the Available Commitments of all the Banks
in respect of such Facility at such time;
"BANKING DAY" means a day (other than Saturday or Sunday) on which
banks are open for business in London and in New York;
"BANKS" means the original banks listed in schedule 1 and includes
their successors in title, assignees and Substitutes;
"BIDCO" means TU Acquisitions PLC (company no. 3455523);
"BORROWED MONEY" includes any Indebtedness of a person in respect of
(without double counting):
(a) borrowed money of that person; or
(b) the principal amount outstanding in respect of any debentures
(within the meaning of Section 744 of the Act) of that person
(notwithstanding that the same are or were issued in whole or
in part for a consideration other than cash) which are not
beneficially owned by another member of the Group; or
(c) the principal amount raised by that person by acceptances (not
being an acceptance in relation to the purchase or sale of
goods in the ordinary course of trading) or under any
acceptance credit opened by any bank or accepting house on
behalf of that person; or
<PAGE> 9
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(d) receivables sold or discounted to the extent of any potential
or contingent recourse save for recourse for disputed or
ineligible debts or similar rights of recourse typical in a
securitisation transaction; or
(e) the acquisition cost of any asset to the extent payable after
the time of acquisition or possession by the party liable
where the deferred payment is not normal trade credit, is
deferred for a period of more than 90 days or is arranged
primarily as a method of raising finance or financing the
acquisition of that asset from or through a bank or financial
institution, except that, if the deferred payment is
amortising, only the amount which remains to be paid shall be
taken into account; or
(f) the nominal amount of any share capital and the principal
amount of any debentures or other indebtedness of any other
person, the redemption or repayment of which is guaranteed or
secured by or is the subject of an indemnity given by that
person; or
(g) any fixed or minimum premium payable on final redemption or
repayment of any debenture, share capital or other borrowed
moneys falling to be taken into account under the other
paragraphs of this definition; or
(h) any net liability under any Derivative Transactions; or
(i) the capital element of any Finance Leases; or
(j) any amount raised under any other transaction having the
commercial effect of a borrowing or entered into primarily as
a means of raising finance including the "Existing Facilities"
and "Existing Public Debt" as defined in clause 10.6;
but does not include:
(i) items of the type described in paragraphs (a) to (j)
(inclusive) above which are owed by one wholly- owned member
of the Group to another wholly-owned member of the Group; or
(ii) Project Finance Borrowings of Project Finance Subsidiaries;
"BORROWERS" means the Primary Borrower as the borrower of the
Acquisition Facility and the Interim Facility, and the Revolving
Credit Facility Borrowers, and "BORROWER" means any one of them;
"CANCELLATION DATE" means the earliest of:
(a) the date on which the Offer lapses or is withdrawn, or is
referred as provided for in paragraph c of Appendix 1 of the
Press Release;
(b) the date falling six months after the Posting Date, if the
Offer has not become or been declared unconditional in all
respects at that date; and
(c) the seventh day after the date of this Agreement, if the Offer
has not by then been announced;
"CAPITALISATION" means at any time the aggregate of Adjusted Share
Capital and Reserves and Consolidated Net Borrowings:
"CERTAIN FUNDS PERIOD" means, in respect of the Acquisition Facility,
the period from the date of this Agreement and ending on the earliest
of:
<PAGE> 10
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(a) the Cancellation Date;
(b) the date falling fifteen days after the Closing Date, or if
prior to such fifteenth day the procedures under sections
428-430 of the Act have been implemented, the date which they
are completed and all payments thereunder have been made; and
(c) the date falling seven months after the date of this
Agreement;
"CHANGE IN CONTROL" shall be deemed to have occurred if:
(a) any person or group of related persons (other than the Parent,
any Subsidiary of the Parent, or any pension, savings or other
employee benefit plan for the benefit of employees of the
Parent and/or any Subsidiary of the Parent) shall have
acquired beneficial ownership of more than 30% of the
outstanding Voting Shares of the Parent (within the meaning of
section 13(d) or 14(d) of the Securities Exchange Act of 1934
of the United States of America, as amended, and the
applicable rules and regulations thereunder); provided that a
Change in Control shall not be deemed to have occurred if such
acquisition has been approved, prior to the Parent Acquisition
Date and the date on which any tender offer for Voting Shares
of the Parent was commenced, by a majority of the
Disinterested Directors of the Parent; or
(b) during any period of 12 consecutive months, commencing before
or after the date of this Agreement, individuals who on the
first day of such period were directors of the Parent
(together with any replacement or additional directors who
were nominated or elected by a majority of directors then in
office) cease to constitute a majority of the board of
directors of the Parent;
"CHARGED ASSETS" means any property, assets and/or rights over which
security is granted and/or created under any of the Security
Documents;
"CLOSING DATE" means the effective date on which the Offer is finally
closed in accordance with the Code;
"COALCO" means, collectively, Citizens Power LLC, a limited liability
company organised in the State of Delaware, Gold Fields Mining
Corporation, a Delaware corporation, Peabody Holding Company Inc, a
New York corporation, Darex Capital Inc, a company incorporated in the
Republic of Panama and Peabody Australia Ltd, a private limited
company incorporated in England and Wales;
"COALCO DISPOSAL AGREEMENT" means the agreement for the sale of Coalco
dated 2 March 1998 entered into between the Target and P&L Coal
Holdings Corporation, a Delaware corporation, in the agreed form;
"COAL PROCEEDS" means L.1,313,950,000;
"CODE" means the City Code on Takeovers and Mergers;
"COMMITMENT" means, in relation to a Bank and in respect of any
Facility at any relevant time, the amount set opposite its name in
relation to the relevant Facility in schedule 1 and/or, in the case of
a Substitute, the amount novated in relation to the relevant Facility
as specified in the relevant Substitution Certificate, as reduced, in
each case, by any relevant term of this Agreement;
"CONSOLIDATED NET BORROWINGS" means, at any time, in respect of the
Group, the aggregate of the Borrowed Money of the Group, as shown in
the then latest audited or unaudited consolidated balance sheet of the
Primary
<PAGE> 11
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Borrower then most recently delivered to the Facility Agent pursuant
to clause 10.1 (the "RELEVANT BALANCE SHEET"), less the aggregate book
value (as included in the relevant balance sheet) of:
(a) all Liquid Assets which are freely transferable to the United
Kingdom and which are owned by wholly- owned members of the
Group or (in the case of the Liquid Assets of a member of the
Group which is a partly-owned Subsidiary) the proportion of
the total amount for the time being of Liquid Assets owned by
such member which corresponds to the proportion of the total
nominal amount of the issued equity share capital of such
Subsidiary or subsidiary undertaking which is beneficially
owned directly or indirectly by the Primary Borrower
(exclusive of Liquid Assets constituting or representing
obligations of any member or members of the Group); and
(b) in the case of a member of the Group which is a partly-owned
Subsidiary, the proportion of total amounts for the time being
outstanding of Borrowed Money owing by such Subsidiary
otherwise than to the Primary Borrower or another member of
the Group which corresponds to the proportion of the total
nominal amount of the issued equity share capital of such
Subsidiary not beneficially owned directly or indirectly by
the Primary Borrower (the "MINORITY PROPORTION");
but adding the aggregate book value (as included in the relevant
balance sheet) of the Minority Proportion of the total amount, if any,
for the time being outstanding of Borrowed Money owing to a
partly-owned Subsidiary by any other member of the Group, and
excluding Borrowed Money arising from the Derivatives Transactions
provided for in clause 11.1(b)(x);
"CONTRIBUTION" means, in relation to a Bank, the principal amount of
any or all (as the context requires) of the Acquisition Advances, the
Interim Advances and/or the Revolving Advances owing to such Bank at
any relevant time;
"DEBENTURE" means a composite guarantee and debenture in the agreed
form creating first fixed and floating charges over all its assets to
be entered into by the Primary Borrower, Finco 2 and Bidco in favour
of the Security Agent;
"DEFAULT" means any Event of Default or any event or circumstance
which in the reasonable opinion of the Majority Banks would reasonably
be expected, upon the giving of a notice by the Facility Agent and/or
the expiry of the relevant period and/or the fulfilment of any other
condition (in each case as specified in clause 12.1), to constitute an
Event of Default;
"DERIVATIVES TRANSACTION" means a contract, agreement or transaction
which is:
(a) a rate swap, basis swap, forward rate transaction, equity (or
equity or other index) swap or option, bond option, interest
rate option, foreign exchange transaction, cap, collar or
floor, currency swap, currency option or any other similar
transaction; and/or
(b) any combination of such transactions,
in each case, whether on-exchange or otherwise;
"DIRECTOR GENERAL" means the person appointed from time to time by the
Secretary of State to hold office as the Director General of
Electricity Supply for the purposes of the Electricity Act;
"DIRECTOR GENERAL OF GAS SUPPLY" means the person appointed from time
to time by the Secretary of State to hold office as the Director
General of Gas Supply for the purposes of the Gas Acts 1986 and 1995;
<PAGE> 12
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"DISINTERESTED DIRECTOR" shall mean any member of the Board of
Directors of the Parent who:
(a) is not affiliated, directly or indirectly, with, or appointed
by, a person or group of related persons (other than the
Parent, any Subsidiary of the Parent, or any pension, savings
or other employee benefit plan for the benefit of employees of
the Parent and/or any Subsidiary of the Parent) acquiring the
beneficial ownership of more than 30% of the outstanding
Voting Shares of the Parent (within the meaning of section
13(d) or 14(d) of the Securities Exchange Act of 1934 of the
United States of America, as amended, and the applicable rules
and regulations thereunder); and
(b) either was a member of the board of directors of the Parent
prior to the Parent Acquisition Date or was recommended for
election by a majority of the Disinterested Directors in
office prior to the Parent Acquisition Date;
"DISTRIBUTION BUSINESS" means the business of REC, or any successor
undertaking to that business within the Group, in or ancillary to the
distribution (whether for its own account or that of any other party)
of electricity through the Group's distribution system and includes
any business of providing connections to the Group's distribution
system;
"DOUBLE TAXATION TREATY" means any convention or agreement between the
government of the United Kingdom and any other government for the
avoidance of double taxation and the prevention of fiscal evasion with
respect to taxes on income and capital gains;
"DRAWDOWN DATE" means the date on which an Advance is, or is to be,
made;
"DRAWDOWN NOTICE" means, in respect of a Facility, a notice
substantially in the terms of the relevant Part of schedule 2;
"EBITDA" means, in respect of any Test Period, the total operating
profit of the Group for continuing operations, acquisitions (as a
component of continuing operations) and discontinued operations before
taking into account (a) interest payable and interest receivable, (b)
all amounts provided for depreciation, goodwill and amortisation, (c)
all extraordinary items, (d) all Taxes, (e) the deduction of any Offer
costs in each case, and (f) any share of consolidated profits or
losses which is attributable to Project Finance Subsidiaries, for that
Test Period (calculated on a consolidated basis disregarding any
portion of any item taken into account in that calculation which is
attributable to any minority interests in Subsidiaries, other than the
minority interest in Finco 2) all as determined by reference to the
most recent financial statements and compliance certificates delivered
under clause 10.1(b), as adjusted pursuant to clause 10.3(c);
"ELECTRICITY ACT" means the Electricity Act 1989;
"ENFORCEMENT DATE" means the date of the first declaration made by the
Facility Agent pursuant to clause 12.2;
"ENVIRONMENTAL CLAIM" means any claim, prosecution, demand, action,
official warning, abatement, penalty or other order (conditional or
otherwise) arising as a result of or in connection with any
Environmental Matter against any member or former member of the Group
or associated company and including any formal written notification or
order requiring compliance with the terms of any Environmental Licence
or Environmental Law;
"ENVIRONMENTAL LAWS" means all or any laws, statutes, rules,
regulations, treaties, directives, by-laws, statutory codes of
practices, circulars, guidance notes, orders, notices and demands,
decisions of the courts or anything like any of the foregoing of any
Government Entity or any other body whatsoever in any jurisdiction
<PAGE> 13
- 12 -
or the European Union relating to Environmental Matters and includes
the Environmental Protection Act 1990 and the Environment Act 1995;
"ENVIRONMENTAL LICENCE" means any permit, licence, authorisation,
consent or other approval required at any time by any Environmental
Law;
"ENVIRONMENTAL MATTERS" means:
(a) the generation, deposit, disposal, escape, keeping, treatment,
transportation, transmission, handling, importation,
exportation, processing, collection, sorting, presence or
manufacture of any "waste" (as defined in the Environmental
Protection Act 1990 or in any other Environmental Laws), or
any Relevant Substance which gives rise to a risk of causing
harm to man or any other living organism supported by the
environment, or damaging the environment or public health or
welfare;
(b) nuisance, noise, health and safety at work or elsewhere; and
(c) the pollution, conservation or protection of the environment
(both natural and built) or of man or any living organisms
supported by the environment or any other matter whatsoever
affecting the environment or any part of it;
"ESCROW AGREEMENT" means the escrow agreement made between the parties
to the Coalco Disposal Agreement, in the agreed form;
"EURO" means the single currency of participating member states (so
described in any legislative measures of the European Council for the
introduction of, changeover to or operation of a single or unified
European currency);
"EVENT OF DEFAULT" means any of the events or circumstances described
in clause 12.1;
"EXCESS EQUITY FUNDING" means an amount (which shall not exceed the
amount required to be subscribed in cash under paragraph (c) of Part B
of Schedule 3), which shall be equal to the aggregate price (which
would have been payable by Bidco to persons accepting the Offer in
cash) of Target Shares acquired by Bidco pursuant to the Share
Alternative and the terms of the Investment Agreement;
"EXPIRY DATE" means the date stated in a Letter of Credit to be its
expiry date or (if later) the latest date on which demand may be made
under it;
"FACILITIES" means all or any (as the context requires) of the
Acquisition Facility and the Revolving Credit Facility and (as the
context requires) "FACILITY" means any of them;
"FACILITY AGENT" means Chase Manhattan International Limited of 125
London Wall, London EC2Y 5AJ or such other person as may be appointed
Facility Agent for the Banks pursuant to clause 17;
"FACILITY OFFICE" means, in relation to the Facility Agent, Security
Agent or any Bank, the office identified in Schedule 1 (or, in the
case of a Substitute, at the end of the Substitution Certificate to
which it is a party as a Substitute) or such other office as it may
from time to time select provided written notice thereof has been
given by the Facility Agent, Security Agent or such Bank to the
Primary Borrower;
"FEE LETTERS" means the fee letters referred to in clause 7.1, in the
agreed form, and "FEE LETTER" shall mean any one of them;
<PAGE> 14
- 13 -
"FEE PAYMENT DATE" means each of the dates falling at three monthly
intervals after the date of this Agreement;
"FINAL REPAYMENT DATE" means the fifth anniversary of the date of this
Agreement;
"FINANCE DOCUMENTS" means this Agreement, any L/C-Related Document,
each Drawdown Notice, each Accession Certificate, the Fee Letters, the
Syndication Letter and the Security Documents;
"FINANCE LEASE" means any lease under which a member of the Group is
the lessee which is or should be treated as a finance or capital lease
under the Appropriate Accounting Principles (and includes any hire
purchase contract or other arrangement which is or should be similarly
treated);
"FINANCE PARTIES" means the Facility Agent, the Issuing Bank, the
Arrangers, the Banks, and the Security Agent and (as the context
requires) "FINANCE PARTY" means any one of them;
"FINANCE PERIOD" means the period from the date of this Agreement
until the date on which the Facility Agent confirms that none of the
Finance Parties and none of the Obligors has any actual or contingent
liabilities or obligations under any of the Finance Documents;
"FINANCIAL COVENANTS" means the financial undertakings in clauses
10.3(a) and (b);
"FINANCIAL DEFINITIONS" means the definitions of Adjusted Share
Capital and Reserves, Capitalisation, Consolidated Net Borrowings,
EBITDA, Leverage Ratio, Net Interest Costs and Test Period;
"GAS FRAMEWORK AGREEMENT" means the agreement dated 1st March 1996
between British Gas Transco and Eastern Natural Gas (Retail) Limited;
"GENERATION BUSINESS" means the business of the Group in or ancillary
to the generation of electricity (whether for its own account or that
of any other party);
"GOVERNMENT ENTITY" means and includes (whether having a distinct
legal personality or not) any supra-national, national or local
government authority, regulatory body, central bank, board,
commission, department, division, organ, instrumentality, court or
agency and any association, organisation or institution of which any
of the foregoing is a member of or whose jurisdiction any of the
foregoing is subject or in whose activities any of the foregoing is a
participant and (if the context requires) which, in relation to
Environmental Matters, has regulatory or administrative authority
under Environmental Laws;
"GROUP" means the Primary Borrower and all its Subsidiaries for the
time being (except Project Finance Subsidiaries) save that where the
reference to "Group" is used in respect of the Financial Definitions
used in calculating the Leverage Ratio, "Group" shall mean Finco 2 and
all its Subsidiaries for the time being (except Project Finance
Subsidiaries);
"GUARANTEES" means any guarantees issued by members of the Target
Group under clause 10.6 or Part B of Schedule 3;
"INDEBTEDNESS" means any obligation of a person for the payment or
repayment of money, whether as principal or as surety and whether
present or future, actual or contingent;
"INTEREST PAYMENT DATE" means the last day of an Interest Period;
<PAGE> 15
- 14 -
"INTEREST PERIOD" means in relation to any Acquisition Advance, each
period for the calculation of interest in respect of such Advance
ascertained in accordance with clause 5.2 (or otherwise in this
Agreement);
"INTERIM ADVANCE" means each borrowing under the Interim Facility or
(as the context requires) the principal amount of that borrowing
outstanding at any relevant time;
"INTERIM FACILITY" means the facility granted by the Banks under
2.1(b);
"INVESTMENT AGREEMENT" means the Investment Agreement in the agreed
form dated on or about the date of this Agreement between the Parent,
Texas Utilities Services Inc, the Primary Borrower, Finco 2 and Bidco;
"ISSUE" means with respect to any Letter of Credit, to issue or extend
the expiry of, or to renew or increase the amount of, such Letter of
Credit; and the terms "ISSUED", "ISSUING" and "ISSUANCE" have
corresponding meanings;
"ISSUE DATE" means in relation to a Letter of Credit, the date on
which that Letter of Credit was Issued, or, as the context requires,
is to be Issued under clause 4.3 (Issue of Letters of Credit);
"ISSUING BANK" means The Chase Manhattan Bank or any alternative Bank
which has been notified to the Primary Borrower by the Facility Agent
as the issuer of any Letter of Credit in accordance with the terms of
this Agreement;
"L/C-RELATED DOCUMENTS" means each Letter of Credit, any Drawdown
Notice or other application for a Letter of Credit and any other
document relating to any Letter of Credit;
"LETTER OF CREDIT" means a letter of credit or a bank guarantee (as
the case may be) Issued or to be Issued by the Issuing Bank on the
terms of this Agreement;
"LEVERAGE RATIO" means, at any relevant date, the percentage that
Consolidated Net Borrowings is of Capitalisation of the Group;
"LIBOR" means, in relation to any Advance or unpaid sum, the rate per
annum determined by the Facility Agent to be equal to:
(a) the offered rate (if any) appearing on page 3750 of the
Telerate screen, or such other pages as may replace such page
of the Telerate screen, which displays "BBA LIBOR" for
deposits in Sterling and for the specified period (where
"specified period" means the Interest Period or Maturity
Period of such Advance or, as the case may be, the period for
which LIBOR falls to be determined in relation to such unpaid
sum); or
(b) if the Telerate screen is generally inaccessible or if the
relevant rate does not appear on page 3750 or such other page
as may replace such page of the Telerate screen, the
arithmetic mean (rounded upwards, if not already such a
multiple, to four decimal places) of the rates (as notified to
the Facility Agent) at which each of the Reference Banks was
offering to leading banks in the London inter- bank market
deposits in Sterling and for the specified period,
in each case at or about 11.00 am on the Quotation Date for such
period;
"LICENCE UNDERTAKING" means any and each undertaking or assurance
given in connection with the Offer by any one or more of the Parent,
the Primary Borrower, Finco 2, Bidco or the Target or any Affiliate of
any of
<PAGE> 16
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them to the Director General, the Director General of Gas Supply or
the Secretary of State concerning the management and/or ownership of
and/or other matters concerning the Licensee once the Target has
become a Subsidiary of the Primary Borrower;
"LICENCES" means those licences granted by the Secretary of State:
(a) under section 6 of the Electricity Act authorising the
relevant Licensee to carry on the Distribution Business and
supply of electricity and the Generation Business and any
activities ancillary thereto;
(b) under section 7 of the Gas Act 1986; or
(c) being replacement Licence or Licences granted from time to
time to REC or any member of the Group (or, if more than one,
the most recent such replacement), as amended and/or extended
from time to time;
"LICENSEE" means REC or such other member of the Group which, at any
time, is the licensee under a Licence;
"LIQUID ASSETS" means as at any date, the aggregate (calculated on a
consolidated basis) of:
(a) cash at bank and in hand in a jurisdiction where such amounts
are transferable out of that jurisdiction and convertible into
currencies dealt in on the London foreign exchange market;
(b) short term deposits and money at call;
(c) certificates of deposit the term of which has twelve months or
less remaining to maturity;
(d) gilts the term of which has twelve months or less remaining to
maturity;
(e) deposits made with the Commissioners of Inland Revenue in
respect of which certificates of tax deposit have been issued
by Her Majesty's Treasury;
(f) Sterling bills of exchange eligible for rediscount at the Bank
of England;
(g) any other negotiable money market instrument with a maximum
maturity of 12 months or less excluding commercial paper
issued by any person other than a state entity;
provided that:
(i) where Liquid Assets are deposited subject to restrictions in
order that they are held as security for a liability or can be
offset against a liability, such Liquid Assets shall be taken
into account only to the extent that such liability is taken
into account under Consolidated Net Borrowings; and
(ii) when the aggregate amount of Liquid Assets required to be
taken into account for the purposes of this definition on any
particular day is being ascertained, any such Liquid Assets
denominated or repayable or in respect of which monies are
payable in a currency other than Sterling shall be converted
for the purposes of calculating the Sterling equivalent at the
rate of exchange prevailing on that day in London by taking
the Facility Agent's spot rates as of 11.00 a.m. on such date
for the purchase of such currency with Sterling;
<PAGE> 17
- 16 -
"LOAN NOTE ALTERNATIVE" means the option made available to holders of
Target Shares in the Offer Document to elect to receive loan notes of
Bidco in place of the cash consideration otherwise payable;
"LOAN NOTE COLLATERAL ACCOUNT" means an account with the Security
Agent into which:
(a) amounts drawn down under the Loan Note Facility which, by
reason of the requirements for Advances to be of a minimum
amount, are greater than the amounts immediately required to
satisfy Loan Note Obligations, are to be paid; or
(b) if the Loan Note Facility does not come into existence, all
amounts drawn down from the Acquisition Facility or the
Interim Facility for the purpose of funding Loan Note
Obligations are to be paid;
"LOAN NOTE FACILITY" means if the aggregate Loan Note Obligations
equal or exceed L.50,000,000, a facility converted from an equal
amount of the Acquisition Facility and/or the Interim Facility with a
sub-limit equal to the nominal amount of Loan Notes issued pursuant to
the Loan Note Alternative;
"LOAN NOTE HOLDERS" means the holders from time to time of the Loan
Notes;
"LOAN NOTE INSTRUMENT" means the agreed form deed or instrument
constituting the Loan Notes dated on or about the date of this
Agreement and any certificates evidencing issued Loan Notes;
"LOAN NOTE OBLIGATIONS" means the obligations of Bidco to make the
payments required to be made from time to time to the Loan Note
Holders;
"LOAN NOTES" means the loan notes issued or to be issued by Bidco to
accepting shareholders in the Target under the Loan Note Alternative;
"MAJORITY BANKS" means subject to clause 23.2 at any relevant time
Banks:
(a) the aggregate of whose Contributions to all the Facilities
exceeds 66 2/3 per cent. of the Total Contributions in respect
of all the Facilities; or
(b) (if no principal amounts are outstanding under this Agreement)
the aggregate of whose Commitments in respect of all the
Facilities exceeds 66 2/3 per cent. of the Total Commitments
in respect of all the Facilities but so that if at such time
the Total Commitments in respect of any Facility have been
reduced to zero references to a Bank's Commitment in relation
to such Facility shall be construed as amongst the Finance
Parties (and not so as to give any rights to any other person)
as a reference to that Bank's Commitment in relation to such
Facility immediately prior to such reduction to zero;
"MAJOR DEFAULT" means, any one or more of the events set out below
(whether or not caused by any reason outside the control of any
Relevant Offeror Company):
(a) any Relevant Offeror Company is deemed pursuant to applicable
law unable to pay its debts as they fall due or commences
negotiations with its creditors with a view to a general
re-scheduling of indebtedness;
(b) any administrative or other receiver or any manager is
appointed over any Relevant Offeror Company or any material
part of the assets, business and/or undertaking of any such
company;
(c) a winding-up order or an administration order is made in
relation to any Relevant Offeror Company;
<PAGE> 18
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(d) any Relevant Offeror Company threatens to pass or passes a
resolution for (or petitions for) its winding-up or
administration;
(e) any event occurs in any jurisdiction which corresponds with,
or has an effect equivalent to, any of (a) to (d) above in any
country or territory in relation to a Relevant Offeror
Company;
(f) an event falling within clause 12.1(w) occurs;
(g) a breach of any of clauses 10.4(a)(iii), (iv), (v) or (vi),
10.4(b), 10.4(c) or 10.4(d) occurs;
(g) any of the representations and warranties in clauses 9.1 or 9.2(a) being
incorrect in any material respect in relation to a Relevant Offeror Company; or
(h) any other Default occurs which is within the power of a Relevant Offeror
Company to remedy within 7 days of receiving notice of the Default, but which
it chooses not to remedy having been given at least 7 days' prior written
notice by the Facility Agent requesting it to do so;
(i) so far only as concerns an Offer Advance falling within paragraph (ii) of
that definition, any of the matters referred to in paragraphs (a), (b), (c), or
(d) of this definition occurs in relation to the Target, one of its Principal
Subsidiaries or any Licensee;
"MATERIAL ADVERSE EFFECT" is a reference to:
(a) something having a material adverse effect on the ability of
any Borrower to perform its payment or Financial Covenant
obligations under any of the Finance Documents; or
(b) something (other than the Reservations) which results in any
of the Finance Documents not being legal, valid and binding
on, or enforceable in accordance with their terms against, any
of the Obligors in a manner and to an extent reasonably
considered by the Majority Banks to be materially adverse to
the interests of the Banks;
"MATURITY DATE" means, in relation to any Revolving Advance, the last
day of the period for which that Revolving Advance is drawn down;
"MATURITY PERIOD" means, in relation to any Revolving Advance, the
period beginning on its Drawdown Date and ending on its Maturity Date;
"MONTH" or "MONTHS" means a period beginning in one calendar month and
ending in the relevant later calendar month on the day numerically
corresponding to the day of the calendar month in which it started,
provided that (a) if the period started on the last Banking Day in a
calendar month or if there is no such numerically corresponding day,
it shall end on the last Banking Day in such later calendar month and
(b) if such numerically corresponding day is not a Banking Day, the
period shall end on the next following Banking Day in such later
calendar month but if there is no such Banking Day it shall end on the
preceding Banking Day and "MONTHLY" shall be construed accordingly;
"NET INTEREST COSTS" means, in respect of any period, the aggregate
accruing during such period (whether or not paid or payable within
such period) of:
(a) interest, guarantee and other ancillary facility fees, letter
of credit commission and fronting fees and commitment fees
incurred by the Group (disregarding any portion attributable
to any minority interests
<PAGE> 19
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in Subsidiaries, other than the minority interest in Finco 2)
(including any agency fees or arrangement fees or other costs
associated with the Acquisition or the financing thereof
charged and amortised under FRS4, and including the interest
element of Finance Leases); and
(b) net amounts payable (or reduced by net amounts receivable) in
respect of interest rate hedging for the Facilities;
and deducting credit interest receivable (on an accruals basis) in
cash during such period which would be shown as interest receivable in
the relevant accounts delivered under clause 10.1(b)(i) and (ii), as
adjusted pursuant to clause 10.3(c);
"NON CASH SHARES" means Target Shares acquired pursuant to the Share
Alternative or the Loan Note Alternative;
"OBLIGOR" means a member of the Group party to a Finance Document;
"OFFER" means the offer proposed to be made by and on behalf of
Bidco, in the agreed form and on terms and conditions set out in the
Press Release, to acquire the whole of the ordinary share capital
(whether in issue or falling to be allotted) of the Target not already
owned by Bidco, as such offer may from time to time be amended, added
to, revised, renewed or waived in accordance with clause 10.4;
"OFFER ADVANCE" means an Advance made or to be made under the
Acquisition Facility or the Interim Facility (i) for the purpose of
meeting the obligations of Bidco in respect of the Offer or (ii) for
financing payments by Bidco required under the procedures in sections
428-430 of the Act;
"OFFER DOCUMENTS" means each of the documents issued, or to be issued,
by Bidco to the shareholders of the Target in respect of the Offer
(including the forms of acceptance), in the agreed form;
"OUTSTANDING CONTINGENT LIABILITIES" at any time under a Letter of
Credit means the face value of that Letter of Credit at that time in
accordance with its express provisions less:
(a) the aggregate amount of any cash cover (not including any cash
cover lodged by any Bank) held in relation to that Letter of
Credit at that time; and
(b) (save to the extent that this is taken into account in the
express provisions of that Letter of Credit or unless the
context otherwise requires) the aggregate of all payments made
by the Issuing Bank, pursuant to demands made under that
Letter of Credit on or prior to such time, for which it has
been reimbursed by the relevant Borrower;
or such lesser amount as the Facility Agent and the Issuing Bank may
agree in good faith represents the maximum liability of the Issuing
Bank in respect thereof;
"PARENT" means Texas Utilities Company whose principal place of
business is at 1601 Bryan Street, Dallas, Texas, 15201;
"PARENT ACQUISITION DATE" shall mean the date as of which a person or
group of related persons first acquires more than 30% of the
outstanding Voting Shares of the Parent (within the meaning of section
13(d) or 14(d) of the Securities Exchange Act of 1934 of the United
States of America, as amended, and the applicable rules and
regulations thereunder);
<PAGE> 20
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"PERMITTED BORROWER" means any of the Target and the other members of
the Target Group, except the REC;
"PERMITTED CAPITAL MARKET INSTRUMENT" means a capital market
instrument which is for a term expiring after the Final Repayment Date
and has no option on the part of the holders of such instrument to
request earlier repayment other than on the occurrence of events of
default which are reasonably standard for capital market instruments;
"PERMITTED SECURITY INTEREST" means a Security Interest created by any
member of the Target Group being any of the following, namely:
(a) any lien arising solely by operation of law in the ordinary
course of business and securing amounts not more than 90 days
overdue or which are being contested with due diligence and in
good faith, and other liens agreed to in writing by the
Majority Banks;
(b) any Security Interest existing on or over the assets of any
member of the Target Group as at the Unconditional Date (or
which any such member is obliged to create under a contract
existing at such date), but only if:
(i) the Security Interest was not created in
contemplation of such member becoming a member of the
Group;
(ii) the maximum principal amount of the indebtedness
secured by the Security Interest is not increased
after the Unconditional Date; and
(iii) any such Security Interest which is created between
the date of this Agreement and the Unconditional Date
is discharged within 180 days after the Unconditional
Date (unless the Security Interest was created
pursuant to an obligation existing as at the date of
this Agreement);
(c) any Security Interest existing on or over the assets of such
member at the time it becomes a member of the Target Group
after the date the Target becomes a member of the Group, but
only if:
(i) the Security Interest was not created in
contemplation of the company becoming a member of the
Target Group; and
(ii) the maximum principal amount of the indebtedness
secured by the Security Interest is not subsequently
increased;
(iii) such Security Interest is discharged within 180 days
after the date such member became a member of the
Group;
(d) any Security Interest existing on or over an asset acquired by
a member of the Target Group after the date of this Agreement,
but only if:
(i) the Security Interest was not created in
contemplation of the acquisition; and
(ii) the maximum principal amount of the indebtedness
secured by the Security Interest is not subsequently
increased;
<PAGE> 21
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(iii) such Security Interest is discharged within 180 days
after the date such member became a member of the
Group;
(e) any Security Interest over any asset acquired by a member of
the Target Group after the date of this Agreement as security
for Indebtedness incurred to finance or refinance (within 6
months of the acquisition) all or part of the consideration
for the acquisition of that asset, provided that the
Indebtedness secured by Security Interests under this
subclause (e) shall not exceed L.1,000,000 in aggregate at any
time;
(f) any Security Interest arising over
(i) accounts with any bank or financial institution as a
result of netting and set-off arrangements existing
with such person to the extent that such arrangements
are in support of net overdraft facilities extended
by such person or
(ii) documents of title to goods and insurances under
trade finance facilities provided to any member of
the Target Group as part of the Target Group's normal
day to day banking business;
(g) any Security Interest over goods purchased in the ordinary
course of business arising by virtue of the supplier's
retention of title clause in its standard conditions of supply
to secure only the purchase price of the goods;
(h) any Security Interest created by a Project Finance Subsidiary
to secure Project Finance Borrowings, or over the shares or
other investment in a Project Finance Subsidiary provided that
it is entirely without recourse to any member of the Group
beyond enforcement of such Security Interest;
(i) so far as they relate to netting, settlement or pooling
arrangements or as required by the regulatory framework or
arrangements in which the relevant business operates, any
Security Interest arising under the Relevant Arrangements;
(j) any Security Interest arising under the terms of Derivatives
Transactions or as a result of trading of shares or other
securities where such Security Interest arises under the rules
of the relevant exchange or clearing system;
(k) any Security Interest constituted by a Finance Lease if the
capital value of such Finance Lease would be permitted under
this Agreement as Borrowed Money under clause 11.1(b); and
(l) any Security Interests (other than any Security Interest
permitted by sub-paragraphs (a) to (k) above) securing
indebtedness not exceeding in aggregate L.50,000,000 or its
equivalent in other currencies at any time;
"POOLING AND SETTLEMENT AGREEMENT" means the pooling and settlement
agreement dated 30 March 1990 made between REC and the National Grid
Company Plc and others setting out the rules and procedures for the
operation of an electricity trading pool and of a settlement system in
England and Wales;
"POSTING DATE" means the date on which the Offer is posted;
"PRESS RELEASE" means the press announcement in the agreed form
proposed to be released in connection with the Offer;
<PAGE> 22
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"PRINCIPAL SUBSIDIARY" means:
(a) any member of the Group whose unconsolidated net assets or
pre-tax profit, at any time after the date of this Agreement,
equals or exceeds 10 per cent of the net assets or pre-tax
profit of the Group at that time, and for the purpose of the
above:
(i) the net assets or pre-tax profit of the Group shall
be ascertained by reference to the latest audited
consolidated accounts of the Group or the latest
management accounts delivered to the Facility Agent
in accordance with clause 10.1(b)(ii); and
(ii) the net assets or pre-tax profit of any such member
shall be ascertained by reference to the latest
audited accounts of that Subsidiary or the latest
management accounts delivered to the Facility Agent
in accordance with clause 10.1(b)(ii),
for the purposes of the above, "NET ASSETS" in respect of the
Group or any such member means the fixed assets and current
assets of the Group or that member (as the case may be) but
excluding investments in any Subsidiary and any loan to
another member of the Group; or
(b) a member of the Group to which has been transferred (whether
by one transaction or a series of transactions, related or
not) the whole or a material part of the business, undertaking
or assets of a Subsidiary which immediately prior to those
transactions was a Principal Subsidiary;
(c) any member of the Group which is a holding company, directly
or indirectly, of a Principal Subsidiary;
Provided that if at any time members of the Group which are not
Principal Subsidiaries have in aggregate unconsolidated net assets or
pre-tax profits at any time equal to or exceeding 20% of the net
assets or pre-tax profits of the Group at that time, one or more of
such other members of the Group (beginning with the companies with the
greatest net assets or pre-tax profits as the case may be) shall also
be treated as Principal Subsidiaries until the 20% threshold for
members of the Group which are not Principal Subsidiaries is no longer
exceeded;
"PROJECT FINANCE BORROWINGS" means any Indebtedness of a type referred
to in any of paragraphs (a) to (j) of the definition of "Borrowed
Money" which is owed otherwise than to a member of the Group and
finances the acquisition, construction, development, ownership and/or
operation of an asset:
(a) which is incurred by a Project Finance Subsidiary; and
(b) in respect of which the person or persons to whom such
Borrowed Money is or may be owed by the relevant Project
Finance Subsidiary has or have no recourse whatsoever to any
member of the Group for the repayment thereof (save for
enforcement of a Permitted Security Interest under (h) of the
definition thereof);
"PROJECT FINANCE SUBSIDIARY" means any Subsidiary of the Target:
(a) which is a company that is either (i) not an existing
Subsidiary of the Target as at the date of this Agreement or
(ii) has no Subsidiaries of its own (other than Subsidiaries
which are Project Finance Subsidiaries), and whose principal
assets and business are constituted by the ownership,
acquisition, development and/or operation of an asset or
assets whether directly or indirectly;
<PAGE> 23
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(b) none of whose Borrowed Money or Indebtedness in respect of the
financing of the ownership, acquisition, development and/or
operation of such assets, or other arrangements, benefits from
any recourse whatsoever to any other member of the Group
(including as shareholder in an unlimited company) in respect
of the repayment thereof, and none of whose activities,
business or undertaking will under any applicable law or
regulation result in any member of the Group having any
material risk of a liability which might reasonably be
expected to have a Material Adverse Effect; and
(c) which has been designated as such by the Facility Agent after
the Primary Borrower has given written notice to the Facility
Agent requiring such designation to be made;
or any Subsidiary of a company falling within (a), (b) and (c) above;
"PROPORTION" means, in relation to a Bank, the proportion borne by its
Commitment to the Total Commitments (or, if the Total Commitments are
then zero, by its Commitment to the Total Commitments immediately
prior to their reduction to zero);
"QUALIFYING BANK" means:
(a) a person which:
(i) is a bank within the meaning of Section 840A of the
Income and Corporation Taxes Act 1988;
(ii) will be beneficially entitled to any interest to be
paid to it (as a Bank) under this Agreement; and
(iii) is within the charge to United Kingdom corporation
tax as respects such interest,
except that, if Section 349 or Section 840A of the Income and
Corporation Taxes Act 1988 is repealed, modified, extended or
re-enacted, the Facility Agent may at any time and from time
to time (after consultation with the Primary Borrower and the
Banks) amend this paragraph (a) in such manner as it may
determine acting reasonably to be appropriate by giving notice
of the amended paragraph (a) to the Primary Borrower and the
Banks and, so far as practicable to put the Banks in the same
position as they would otherwise have been in; or
(b) a Treaty Lender;
"QUARTER" means each three-month period ending on the last Banking Day
in March, June, September and December in each year;
"QUARTER DATE" means 31 March, 30 June, 30 September and 31 December;
"QUOTATION DATE" means, in relation to an Interest Period, Maturity
Period or other period for which LIBOR is to be determined, the date
on which quotations would customarily be provided by leading banks in
the London Interbank Market for deposits in Sterling for delivery on
the first day of that Interest Period, Maturity Period or other
period;
"REC" means Eastern Electricity plc (company no. 2366906);
"REC GROUP" means REC and its Subsidiaries (except for any Project
Finance Subsidiaries);
<PAGE> 24
- 23 -
"RECEIVER" has the meaning given to that term in the Debenture;
"RECOVERING BANK" has the meaning given to that term in clause 15.2;
"REFERENCE BANKS" means The Chase Manhattan Bank and any two other
banks selected by the Facility Agent with the consent of the Primary
Borrower (which is not to be unreasonably withheld), or if any of them
cease to so act, such other bank or banks selected by the Facility
Agent in accordance with clause 23.7;
"RELATED PERSONS" each of the Facility Agent, the Security Agent, the
Issuing Bank, any successor Facility Agent, Security Agent or Issuing
Bank arising under clause 17, the Arrangers and the Underwriters,
together with their respective Affiliates and the officers, directors,
employees, agents, trustees and attorneys-in-fact of such persons and
Affiliates;
"RELEVANT ARRANGEMENTS" means any arrangements under or in connection
with any pooling and settlement or onshore transportation arrangements
or agreements of the electricity distribution, supply or generation,
or gas transportation, distribution and/or supply industry or energy
trading (including (but without limitation) the Pooling and Settlement
Agreement or the Gas Framework Agreement) or telecommunications or
water industry or energy or energy-related business or in connection
with any transactions or arrangements entered into in the ordinary
course of its business in a form usual in any such industry or
business;
"RELEVANT COMPANY" means any of the Primary Borrower, Finco 2, Bidco,
the Target and the Principal Subsidiaries;
"RELEVANT OFFEROR COMPANY" means any of the Primary Borrower, Finco 2
and Bidco;
"RELEVANT SUBSTANCE" means any radioactive emissions, radiation,
noise, any natural or artificial substance whatsoever (whether in a
solid or liquid form or in the form of a gas or vapour and whether
alone or in combination with any other substance) and includes,
without limitation, "WASTE" (as defined in the Environmental
Protection Act 1990 or in any equivalent legislation or regulation in
force in any jurisdiction in which any member of the Group is
incorporated, owns property or assets or carries on any business or
operations);
"RESERVATIONS" means (a) the principle that equitable remedies may be
granted or refused at the discretion of the court, (b) the limitation
on enforcement by laws of general application relating to insolvency,
liquidation, reorganisation, court schemes or administration, (c) the
time barring of claims under the Limitation Act 1980 and (d) the
possibility that an undertaking to assume liability for or to
indemnify against non-payment of UK stamp duty may be void;
"REVOLVING ADVANCE" means each borrowing made or to be made by way of
an advance under the Revolving Credit Facility or (as the context
requires) the principal amount of that borrowing outstanding at any
relevant time;
"REVOLVING CREDIT FACILITY" means the facility granted by the Banks to
the Borrowers in accordance with clause 2.1(b);
"REVOLVING CREDIT FACILITY BORROWERS" means the Primary Borrower and
any Permitted Borrower which accedes to this Agreement as a Revolving
Credit Facility Borrower pursuant to clause 24;
"SECRETARY OF STATE" means the Secretary of State for Trade and
Industry from time to time or such other person as may for the time
being be fulfilling the functions of the Secretary of State under the
Electricity Act or the Gas Acts;
<PAGE> 25
- 24 -
"SECURITY AGENT" means Chase Manhattan International Limited or such
other person as may be appointed security agent and trustee pursuant
to clause 17 of this Agreement;
"SECURITY DOCUMENTS" means the Debenture, the Guarantees, the Share
Charge and any further guarantees or security provided to the Security
Agent from time to time under or in connection with this Agreement;
"SECURITY INTEREST" means any mortgage, pledge, lien, charge,
assignment, right of set-off, arrangement for retention of title,
hypothecation or security interest, or any other agreement or
arrangement having the effect of conferring security or a security
interest, or any agreement to sell or otherwise dispose of any asset
on terms whereby such asset is acquired or reacquired by any member of
the Group;
"SHARE ALTERNATIVE" means the limited option made available to holders
of Target Shares in the Offer Documents to elect to receive common
stock of the Parent in place of the cash consideration otherwise
payable;
"SHARE CHARGE" means the share charge, in the agreed form, dated on or
about the date hereof granted by Texas Utilities Services Inc. in
favour of the Security Agent over its shares in Finco 2;
"SHARE VALUE" means, at any time until Bidco has acquired shares
carrying the right to vote 75% of the votes of each class of shares at
a general meeting, the value of the Target Shares acquired pursuant to
the Offer and effectively charged in favour of the Security Agent,
which shall at all times be deemed to be calculated by reference to
the price per share contained in the Offer;
"SPOT RATE" means, in respect of any sum denominated in any currency
other than Sterling at any date, the Facility Agent's spot rate of
exchange for purchase of that sum in that currency in the London
foreign exchange market with Sterling at or about 11.00 am on that
date for delivery of such sum two Banking Days thereafter;
"STERLING" and "L." mean the lawful currency for the time being of the
United Kingdom and in respect of all payments to be made under this
Agreement in Sterling mean immediately available, freely transferable
cleared funds;
"STERLING AMOUNT" means in respect of Outstanding Contingent
Liabilities, the sum of the amount in Sterling of the Outstanding
Contingent Liabilities under Letters of Credit denominated in Sterling
and the amount of Sterling required to purchase the currency amount of
the Outstanding Contingent Liabilities under Letters of Credit
denominated in each other currency at the Spot Rate at that time and
so that such Sterling Amount shall be recalculated by the Facility
Agent:
(a) in any event, on every Quarter Date; and
(b) on each date on which the Majority Banks request the Facility
Agent to do so in accordance with the provisions of clause
4.11 (Currency Fluctuations),
and the recalculated amount shall thereupon and until the next
recalculation required by this Agreement constitute the Sterling
Amount of Outstanding Contingent Liabilities under any Letters of
Credit for all purposes of this Agreement;
"SUBSIDIARY" means:
(a) a subsidiary within the meaning of section 736 of the Act; and
<PAGE> 26
- 25 -
(b) for the purposes of the definition of "Affiliate" and "Group"
and clauses 10.1(a), 10.3, 20.7 and schedule 6 only, a
subsidiary undertaking within the meaning of section 258 of
the Act;
"SUBSTITUTE" has the meaning given to that term in clause 16.3;
"SUBSTITUTION CERTIFICATE" means a certificate substantially in the
terms of schedule 5;
"SYNDICATION DATE" means the date as determined by the Arrangers and
notified by them to the Primary Borrower on which syndication of the
Facilities has been fully completed;
"SYNDICATION LETTER" means the syndication letter from the Arrangers
and the Underwriters to the Primary Borrower dated on or about the
date of this Agreement, in the agreed form;
"TAKEOVER OPERATIVE DATE" means the date falling 120 days after the
Unconditional Date;
"TARGET" means The Energy Group PLC (company no. 3257256);
"TARGET GROUP" means the Target and its Subsidiaries from time to time
(except any Project Finance Subsidiary);
"TARGET PES SUBSIDIARIES" means any Subsidiary of the Target which
holds a Licence;
"TARGET SHARES" means the issued and to be issued shares in the
capital of the Target (including the Target's American Depositary
Shares) which are the subject of the Offer;
"TAXES" includes all present and future taxes, levies, imposts,
duties, fees or charges of whatever nature including without
limitation any interest or penalties payable in connection with any
failure or delay in paying any of the same and "TAXATION" shall be
construed accordingly;
"TEST PERIOD" means:
(a) each twelve-month period ending on the last day of each
Quarter beginning with the last day of the second complete
Quarter following the Unconditional Date; and
(b) each Accounting Reference Period of the Primary Borrower
ending on 31 December in each year;
"TOTAL COMMITMENTS" means, in respect of a Facility or (as the context
requires) the Facilities at any relevant time, and save as otherwise
provided herein, the total of the Commitments of all the Banks in
respect of such Facility or Facilities (as appropriate) at such time;
"TOTAL CONTRIBUTIONS" means, in respect of any Facility or (as the
context requires) the Facilities at any relevant time, the total of
the Contributions of all the Banks in respect of such Facility or
Facilities (as appropriate) at such time;
"TREATY LENDER" means a person which is resident (as such term is
defined in the appropriate double taxation treaty) in a country with
which the United Kingdom has a double taxation treaty giving residents
of that country complete exemption from the imposition of any
withholding or deduction for or on account of United Kingdom Taxes on
interest (and which does not carry on business in the United Kingdom
through a permanent establishment with which the Indebtedness under
this Agreement in respect of which the interest is paid is effectively
connected);
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"TRUST PERIOD" means the period ending on the last day of the period
of 80 years from the date of this Agreement, which period (and no
other) shall be the applicable perpetuity period;
"TRUST PROPERTY" means all or any part of the rights, titles,
interests, assets and income that may now or hereafter be mortgaged,
charged, assigned or granted or the subject of a Security Interest in
favour of the Security Agent or the Finance Parties by or pursuant to
the Finance Documents and the proceeds of any such security;
"UNCONDITIONAL DATE" means the date the Offer becomes or is declared
unconditional in all respects;
"UTILISATION" means the making of an Advance or the Issue of a Letter
of Credit; and
"VOTING SHARES" means outstanding shares of capital stock of any class
of the Parent entitled to vote in the election of directors, excluding
shares entitled so to vote only upon the happening of some
contingency.
1.3 HEADINGS
Clause headings and the table of contents are inserted for convenience
of reference only and shall be ignored in the interpretation of this
Agreement.
1.4 CONSTRUCTION OF CERTAIN TERMS
In this Agreement, unless the context otherwise requires:
(a) references to clauses and schedules are to be construed as
references to the clauses of, and schedules to, this Agreement
and references to this Agreement include its schedules;
(b) references to (or to any specified provision of) this
Agreement or any other document shall be construed as
references to this Agreement (including any Accession
Certificate and Substitution Certificate), that provision or
that document as in force for the time being and as from time
to time amended, novated or supplemented in accordance with
its terms, or, as the case may be, with the agreement of the
relevant parties and (where such consent is, by the terms of
this Agreement or the relevant document, required to be
obtained as a condition to such amendment being permitted) the
prior written consent of the Facility Agent;
(c) references to a "REGULATION" include any present or future
regulation, rule, directive, requirement, request or guideline
(whether or not having the force of law) of any Government
Entity;
(d) references to an "AUTHORISATION" mean and include any consent,
authorisation, licence, approval and permit;
(e) words importing the plural shall include the singular and vice
versa;
(f) references to a time of day are to London time;
(g) references to a "PERSON" shall be construed as including
references to an individual, firm, company, corporation,
unincorporated body of persons or any State or any of its
agencies;
<PAGE> 28
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(h) references to "ASSETS" include all or part of any business,
undertaking, real property, personal property, shareholdings,
assets, revenues, uncalled capital and any rights (whether
actual or contingent, present or future) to receive, or
require delivery of, any of the foregoing;
(i) references to the "EQUIVALENT" of an amount specified in a
particular currency (the "SPECIFIED CURRENCY AMOUNT") shall be
construed as a reference to the amount of the other relevant
currency which can be purchased with the specified currency
amount in the London foreign exchange market at or about 11
a.m. on the day on which the calculation falls to be made for
spot delivery, as conclusively determined by the Facility
Agent (with the relevant exchange rate of any such purchase
being the "SPOT RATE");
(j) references to any enactment shall be deemed to include
references to such enactment as re-enacted, amended or
extended;
(k) references to documents being in the "AGREED FORM" mean
documents initialled by both Lovell White Durrant (on behalf
of the Facility Agent and the Arrangers) and Norton Rose (on
behalf of the Borrowers), or otherwise in the form required by
the Facility Agent;
(l) references to "VAT" are to be construed as including
references to any similar Tax;
(m) "INCLUDING" and "IN PARTICULAR" shall not be construed
restrictively but shall mean "including, without prejudice to
the generality of the foregoing" and "in particular, but
without prejudice to the generality of the foregoing"
respectively;
(n) obligations of more than one Obligor under this Agreement are
joint and several;
(o) references to documents being "CERTIFIED COPIES" mean copies
certified as being true, complete and up- to-date copies as of
a date no earlier than the date of this Agreement by an
officer of the Primary Borrower who is at such time duly
authorised to execute or certify such documents on behalf of
the Primary Borrower;
(p) "ARMS LENGTH TERMS" means on terms which are fair and
reasonable to the relevant member of the Group and no more or
less favourable to the other party to the relevant transaction
than could reasonably be expected to be obtained in a
comparable transaction with a person unconnected with the
Group;
(q) references to "HOLDING COMPANY", save as otherwise defined,
shall bear the same meaning as in section 736 of the Act, as
if extended to bodies corporate wherever incorporated;
(r) a Letter of Credit being "REPAID" or "PREPAID" is effected by:
(i) providing the Issuing Bank with cash cover in the
currency in which that Letter of Credit is
denominated;
(ii) reducing (in accordance with the terms of this
Agreement and the relevant Letter of Credit) the
amount that may be demanded under that Letter of
Credit (or by such amount automatically reducing in
accordance with the terms of the relevant Letter of
Credit); or
(iii) cancelling that Letter of Credit by returning the
original to the Issuing Bank together with written
confirmation (in form and substance satisfactory to
the Issuing Bank) from the beneficiary that the
Issuing Bank has no further liability under that
Letter of Credit.
<PAGE> 29
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2. THE COMMITMENTS
2.1 THE FACILITIES
The Banks, relying upon each of the representations and warranties in
clause 9 and upon and subject to the conditions hereof, agree to make
available:
(a) to the Primary Borrower, the Acquisition Facility in the
principal sum of L.1,775,000,000;
(b) to the Primary Borrower, the Interim Facility in the principal
sum of L.1,150,000,000;
(c) to the Revolving Credit Facility Borrowers, the Revolving
Credit Facility in the principal sum of L.700,000,000
(including the stand-alone facility for REC provided for in
clause 24.5).
The obligations of each Bank under this Agreement shall be to
participate in each Advance in the proportion which its Commitment in
respect of the relevant Facility bears to the Total Commitments in
respect of the relevant Facility but so that no Bank shall be under
any obligation to participate in an Advance if and to the extent its
Commitment in respect of the relevant Facility would thereby be
exceeded.
2.2 FINANCE PARTIES' OBLIGATIONS SEVERAL
The obligations of each Finance Party under this Agreement are
several; the failure of any Finance Party to perform such obligations
shall not relieve any other Finance Party or any Borrower of any of
their respective obligations or liabilities under this Agreement nor
shall any Finance Party be responsible for the obligations of any
other Finance Party under this Agreement.
2.3 FINANCE PARTIES' INTERESTS SEVERAL
Notwithstanding any other term of this Agreement (but without
prejudice to the provisions of this Agreement relating to or requiring
action by the Majority Banks) the interests of the Finance Parties are
several and the amount due to each of the Finance Parties (for its own
account) is a separate and independent debt. Without prejudice to any
other provision of this Agreement (including any requirement for
action to be approved or instigated by, or with the consent or
approval of, the Majority Banks) each of the Finance Parties shall
have the right to protect and enforce its rights to amounts which have
become due and payable to it under this Agreement and it shall not be
necessary for any other Finance Party to be joined as an additional
party in any proceedings for this purpose.
3. THE CONDITIONS
3.1 DOCUMENTS AND EVIDENCE
No Advance may be made until the Unconditional Date and until the
Facility Agent, or its duly authorised representative, shall have
received the documents and evidence specified in Parts A and B of
Schedule 3, in each case in form and substance satisfactory to the
Facility Agent which the Facility Agent shall, once it is so
satisfied, confirm in writing to the Primary Borrower.
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3.2 GENERAL CONDITIONS PRECEDENT
Subject to clause 3.3, in respect of each Facility, the obligation of
each Bank to contribute to an Advance is subject to the further
conditions that at the date of each Drawdown Notice and on each
Drawdown Date:
(a) the applicable representations and warranties set out in
clause 9 are true and correct on and as of each such date as
if each were made with respect to the facts and circumstances
existing at such date; and
(b) no Default shall have occurred and be continuing or would
result from the making of such Advance,
but this clause 3.2(b) shall not prevent the rollover of an existing
Revolving Credit Advance (without increasing the amount thereof) for a
Maturity Period of no more than one month at any time when no Event of
Default has occurred and is continuing.
3.3 CONDITIONS RELATING TO OFFER ADVANCES DURING CERTAIN FUNDS PERIOD
To ensure that the Primary Borrower has resources available to advance
to Finco 2 funds to on-lend to Bidco funds to enable Bidco to fulfil
its obligations in respect of the Offer, the Banks agree that, in
relation to each Offer Advance requested and to be advanced during the
Certain Funds Period, clause 3.2 shall not be applicable and subject
to satisfying the requirements of clause 3.1 and to providing the
appropriate Drawdown Notice at the appropriate time in accordance with
this Agreement, the only further condition to the obligations of the
Banks to make such Offer Advance is that at the date of each Drawdown
Notice and on each Drawdown Date no Major Default shall have occurred
and be continuing or would result from the making of such Offer
Advance.
It is further confirmed, for the avoidance of doubt, that the
commitment in this clause 3.3 operates notwithstanding any contrary
provisions of the Finance Documents and that no Bank shall be entitled
to rescind this Agreement or to fail to contribute to an Offer Advance
where the conditions in clause 3.3 are fulfilled.
3.4 WAIVER OF CONDITIONS PRECEDENT
The conditions specified in this clause 3 are inserted solely for the
benefit of the Banks and may be waived on their behalf in whole or in
part and with or without conditions by the Facility Agent acting on
the instructions of the Majority Banks in respect of any Advance.
4. ADVANCES UNDER THE FACILITIES
4.1 THE ACQUISITION FACILITY
(a) Drawdown
Subject to the terms and conditions of this Agreement,
Acquisition Advances shall be made to the Primary Borrower
following receipt by the Facility Agent from the Primary
Borrower of an appropriately completed Drawdown Notice
relating to the Acquisition Facility not later than 11 a.m.
two Banking Days before the proposed Drawdown Date.
(b) Amount
Each Drawdown Notice delivered pursuant to clause 4.1(a) shall
be irrevocable and specify:
(i) the proposed Drawdown Date, which shall be a Banking
Day prior to the relevant Available Commitment
Termination Date;
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(ii) the amount of the proposed Advance, which shall be of
L.10,000,000 (or any larger sum which is an integral
multiple of L.5,000,000) or, if less, the Available
Facility Amount in respect of the Acquisition
Facility or the Interim Facility (as the case may be)
on the relevant Drawdown Date;
(iii) subject to clause 4.1(c), the first Interest Period
relating to the Advance in question (in the case of
the Acquisition Facility, (being a period of 1, 2, 3
or 6 months or such other duration as the Primary
Borrower and the Banks may agree, and in the case of
the Interim Facility being one month) will begin on
the proposed Drawdown Date and end on a Banking Day
which is or precedes the Final Repayment Date (and in
the case of Interim Advances, the relevant Available
Commitment Termination Date); and
(iv) the account to which the proceeds of the proposed
Advance are to be paid.
There shall be no more than 10 Acquisition Advances and 10
Interim Advances outstanding at any time and not more than one
Acquisition Advance and/or Interim Advance may be made in any
period of 5 consecutive Banking Days.
(c) Interest Periods at time of syndication
The Primary Borrower shall until the Syndication Date select
one month Interest Periods or such other periods as the
Facility Agent and the Primary Borrower agree as being
necessary to effect the transfer of participations following
syndication.
(d) Acquisition Facility
No Interim Advances shall be made unless and until the
Acquisition Facility has been drawn down in full.
(e) Loan Note Obligations
If the Loan Note Obligations as at the Available Commitment
Termination Date for the Acquisition Facility are in excess of
L.50,000,000, the Loan Note Facility shall be available until
the Final Repayment Date and Advances may be drawn down by the
Primary Borrower from time to time under the Loan Note
Facility to be on-lent to Finco 2 to be used by it to on-lend
to Bidco to be used to fund Loan Note Obligations. To the
extent that, by reason of the minimum drawdown requirements
set out above, an Advance drawn down under the Loan Note
Facility exceeds the then outstanding Loan Note Obligations,
any excess shall be retained by the Primary Borrower and paid
into the Loan Note Collateral Account which shall be a blocked
account maintained by the Security Agent. To the extent that
the aggregate Loan Note Obligations as at the Available
Commitment Termination Date for the Acquisition Facility are
not in excess of L.50,000,000 the Loan Note Facility shall not
come into existence, but Advances may be drawn down by the
Primary Borrower under the Acquisition Facility or if there is
no further available Commitment under that Facility, under the
Interim Facility to be on-lent to Finco 2 to be used by it to
on-lend to Bidco to be used to fund Loan Note Obligations.
Any Advance drawn down under the Acquisition Facility or
Interim Facility shall be drawn down by the Primary Borrower
and paid into the Loan Note Collateral Account. The Security
Agent shall permit the Primary Borrower to draw amounts from
the Loan Note Collateral Account from time to time:
(i) to the extent of Loan Note Obligations then due, to
be on-lent to Finco 2 to be used by it to on-lend to
Bidco to be used by Bidco to fund such Loan Note
Obligations; provided that
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(ii) at the relevant time, no Event of Default shall have
occurred which has not been remedied or waived to the
reasonable satisfaction of the Security Agent.
The Loan Note Collateral Account shall not be a trust account
and sums standing to its credit from time to time shall be
charged by way of fixed charge under the Debenture and
available to the Security Agent by way of security.
(f) Cancellation on Available Commitment Termination Date
If there is any Available Facility Amount outstanding in
relation to the Acquisition Facility or the Interim Facility
on the Available Commitment Termination Date in respect of
such Facility, such Available Facility Amount (other than the
Loan Note Facility as at such date) shall thereupon be
automatically cancelled and no further Advance may be made
under the Acquisition Facility or the Interim Facility other
than the Loan Note Facility. If a Loan Note Facility has not
been established, the Primary Borrower may draw down on the
Acquisition Facility or, if it has been drawn down in full the
Interim Facility on the day before the relevant Available
Commitment Termination Date to fund the Loan Note Collateral
Account with sufficient funds to meet its actual or contingent
Loan Note Obligations as at such date.
4.2 THE REVOLVING CREDIT FACILITY
(a) Drawdown
Subject to the terms and conditions of this Agreement, and to
the prior delivery of a notice of cancellation of the
agreement dated 5th August 1996 between the Target and
Citibank International plc as agent, Barclays Bank PLC and
Midland Bank plc so that it is no longer available for
drawing, Revolving Advances shall be made to the relevant
Revolving Credit Facility Borrower following receipt by the
Facility Agent from such Borrower of an appropriately
completed Drawdown Notice relating to the Revolving Credit
Facility not later than 11 a.m. two Banking Days before the
proposed Drawdown Date (which, in respect of the first
Revolving Advance to be made for the purpose of refinancing
certain Target Group Borrowed Money will be the Unconditional
Date).
(b) Amount
Each Drawdown Notice delivered to the Facility Agent pursuant
to clause 4.2(a) shall be irrevocable and shall specify:
(i) the proposed Drawdown Date, which shall be a Banking
Day falling prior to the Available Commitment
Termination Date;
(ii) the amount of the Revolving Advance, which shall be
of L.10,000,000 or any larger sum which is an
integral multiple of L.5,000,000 or, if less, the
Available Facility Amount in respect of the Revolving
Credit Facility on the relevant Drawdown Date;
(iii) the Maturity Period which shall be of 1, 2, 3 or 6
months (or such other period as the Facility Agent,
acting on the instructions of the Majority Banks,
shall agree) ending not later than the Final
Repayment Date;
(iv) the account to which the proceeds of the proposed
Advance are to be paid.
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(c) Number of Advances
There shall be no more than 10 Revolving Advances outstanding
at any time, and not more than one Revolving Advance may be
made in any period of 5 consecutive Banking Days.
(d) First drawdown
No Revolving Advance may be made unless and until the first
Acquisition Advance could have been drawn down (but for the
delayed settlement of acceptances of the Offer).
(e) Calculation of Available Commitment
For the purpose of calculating the Available Commitment, the
Outstanding Contingent Liabilities under a Letter of Credit
will initially be its Sterling Amount on the Issue Date,
subject to recalculation by the Facility Agent in accordance
with the definition of "Sterling Amount" and clause 4.11
(Currency Fluctuations).
(f) Cancellation on the Available Commitment Termination Date
Without prejudice to any other provision of this Agreement,
the Total Commitments under the Revolving Credit Facility
shall in any event be reduced to zero on the Available
Commitment Termination Date in respect of such Facility and no
Advance may be drawn by the Revolving Credit Facility
Borrowers under the Revolving Credit Facility thereafter.
4.3 ISSUE OF LETTERS OF CREDIT
Subject to the provisions of this Agreement, the Issuing Bank will
Issue a Letter of Credit specified in a Drawdown Notice at the request
of a Revolving Credit Facility Borrower, if the Agent has received the
Drawdown Notice for a Letter of Credit in the form set out in Part C
of Schedule 2 (Letters of Credit) signed on behalf of that Borrower
not later than 11.00 am five Banking Days prior to the proposed Issue
Date: and
(a) the proposed Issue Date is a Banking Day on or before the
Final Repayment Date;
(b) the face value of each Letter of Credit is a minimum Sterling
Amount of L.1,000,000;
(c) the Expiry Date falls on or before the earlier of 12 months
from the Issue Date and the Final Repayment Date;
(d) the Issuing Bank and (if different) the Facility Agent has
agreed its terms;
(e) the Sterling Amount of the Letter of Credit requested does not
exceed the Available Facility Amount in respect of the
Revolving Credit Facility;
(f) after such Issue, there will be no more than ten Letters of
Credit outstanding;
(g) no order, judgment or decree of any Governmental Entity or
arbitrator shall be outstanding which by its terms purports to
enjoin or restrain the Issuing Bank from Issuing such Letter
of Credit, nor shall any requirement of law applicable to the
Issuing Bank or any request or directive (whether or not
having the force of law) from any Governmental Entity with
jurisdiction over the Issuing Bank prohibit, or request that
the Issuing Bank refrain from, the Issuance of Letters of
Credit generally or such Letter
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of Credit in particular or shall impose upon the Issuing Bank
with respect to such Letter of Credit any restriction, reserve
or capital requirement (for which the Issuing Bank is not
otherwise compensated hereunder and which is not in effect on
the date of this Agreement), or shall impose upon the Issuing
Bank any unreimbursed loss, cost or expense which was not
applicable on the date of this Agreement and which the Issuing
Bank in good faith deems material to it;
(h) the currency in which the relevant Letter of Credit is to be
denominated is, in the opinion of the Issuing Bank, not likely
to be subject to undue fluctuation against Sterling and is
likely to be freely convertible and available in sufficient
amounts to enable the Issuing Bank to discharge its
obligations as they fall due;
(i) the Issuing Bank has approved (and been approved by) the
relevant beneficiary; and
(j) the total Sterling Amount of all Outstanding Contingent
Liabilities under all Letters of Credit then outstanding would
not exceed L.250,000,000.
4.4 ADVANCES GENERALLY
(a) A Drawdown Notice (or notice purporting to be such) shall only
be effective if it complies with this Agreement and only upon
actual receipt by the Facility Agent and, once given, shall be
irrevocable.
(b) As soon as practicable after receipt of each Drawdown Notice
complying with this Agreement the Facility Agent shall notify
each Bank of such receipt and of the date on which the
proposed Advance is to be made and of the relevant Interest
Period or, as the case may be, the relevant Maturity Period
and each Bank shall on such Drawdown Date or, the case may be,
on the first day of the relevant Interest Period participate
in such Advance by making available to the Facility Agent its
portion of such Advance in accordance with clause 8.2.
4.5 APPLICATION OF PROCEEDS
Without prejudice to the Borrowers' obligations under clause 10.2(a),
none of the Finance Parties shall have any responsibility for the
application of the proceeds of any Advance by any Borrower.
4.6 LETTERS OF CREDIT
(a) Issuing Bank as principal: the Issuing Bank will act as
principal of each Letter of Credit Issued by it and each Bank
will counter-indemnify the Issuing Bank in respect of the
Outstanding Contingent Liabilities thereunder in the relevant
Proportion;
(b) Borrowers' Authorisation and Indemnity: each Borrower
unconditionally and irrevocably:
(i) authorises the Issuing Bank to comply with any demand
which appears to be duly made by a third party in
respect of a Letter of Credit without any further
reference to the relevant Borrower on the terms set
out in Schedule 7 (Terms of Borrowers' Indemnity);
(ii) agrees that its authorisation under clause 4.6(b)(i)
and its indemnity under clause 4.6(b)(iv) shall
remain in full force and effect and shall not be
discharged until such date as the Facility Agent
(acting on the instructions of the Issuing Bank)
shall notify the relevant Borrower that it is
satisfied (acting reasonably) that the Issuing Bank
remains under no liability (actual or contingent) in
respect of any Letter of Credit;
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(iii) agrees that each Letter of Credit is Issued subject
to and with the benefit of the provisions of Schedule
7 (Terms of Borrowers' Indemnity); and
(iv) if a Finance Party suffers any liabilities, damages,
costs, expenses, losses and charges whatsoever in
relation to or arising out of any Letter of Credit
Issued or clause 4.7 (Banks' Guarantee and
Indemnity), the benefit of Schedule 7 (Terms of
Borrowers' Indemnity) shall extend to such Finance
Party. A Borrower may finance a payment under such
indemnity by drawing down a Revolving Advance if it
is then entitled to do so in accordance with the
terms of this Agreement.
4.7 BANKS' GUARANTEE AND INDEMNITY
Each Bank hereby irrevocably and unconditionally:
(a) subject to clause 4.7(b), guarantees to and indemnifies on the
terms set out in Schedule 8 (Terms of Interbank Guarantee and
Indemnity) the Issuing Bank severally in its Proportion and on
demand by the Issuing Bank, the due and punctual performance
by any relevant Borrower of all its obligations in respect of
each Letter of Credit Issued by the Issuing Bank;
(b) if it is not permitted by its constitutional documents or any
applicable law to grant guarantees, agrees that, upon any
failure of a relevant Borrower to make timely payment of any
amount due in respect of a Letter of Credit, such Bank shall
take (and upon the occurrence of an Event of Default specified
in clauses 12.1(e) to (n) (Events of Default) (or any event
occurs which under the applicable law of any relevant
jurisdiction has an analogous, similar or equivalent effect to
any such events) shall be deemed to have taken without any
further action, as of the Issue Date of each outstanding
Letter of Credit), an undivided participating interest from
the Issuing Bank in each Letter of Credit outstanding at such
time in a proportion equal to such Bank's Proportion. Each
Bank shall hold the Issuing Bank harmless and indemnify the
Issuing Bank for such Bank's proportionate share of any
drawing under any Letter of Credit in which it has taken an
undivided participating interest under this clause 4.7;
(c) as a separate and independent stipulation agrees that any sum
of money intended to be the subject of the guarantee in clause
4.7(a), and subject to clause 4.7(b) and Schedule 8 (Terms of
Interbank Guarantee and Indemnity), shall be recoverable from
it (in its Proportion) as sole principal debtor even if such
sum would not be recoverable from any relevant Borrower by
reason of any legal limitation, disability or incapacity or
liquidation of any of them or any other fact or circumstance
(whether known to the Issuing Bank or not) but which would
have been recoverable from such Bank if it were the sole or
principal debtor in respect of such liability in place of any
such Borrower;
(d) if it ceases to have the Minimum Rating as defined in clause
16.5, to lodge forthwith with the Security Agent cash cover as
security for its indemnity obligations in the same amount as
if it had been, on that date, a Substitute.
4.8 CALCULATION OF INTEREST IF BANK MAKES A GUARANTEE OR INDEMNITY PAYMENT
Any payment made or to be made by a Bank pursuant to clause 4.7
(Banks' Guarantee and Indemnity) and any unreimbursed amount on the
part of the Issuing Bank shall (for the purpose of calculating
interest thereon which is due from the relevant Borrower) be deemed to
have been made available to that Borrower by way of a Revolving
Advance on the date such payment is made or is to be made (or
reimbursed) and accordingly is subject to the terms and conditions
hereof and, after the earliest date on which a Revolving Advance could
have
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been drawn down to fund such liability, such amount shall be treated
as if it were an overdue sum with an initial term of one month but
(for all other purposes) shall be immediately due and payable by the
relevant Borrower.
4.9 DEFAULTING BANKS
If a Bank (a "DEFAULTING BANK") fails to make payment on its due date
of any amount (an "OVERDUE AMOUNT") due from it for the account of the
Issuing Bank pursuant to clause 4.7 (Banks' Guarantee and Indemnity)
then until the Issuing Bank (or the Agent on its behalf) has received
payment of such overdue amount in full (and without prejudice to any
other rights or remedies of the Issuing Bank in respect of such
failure):
(a) the Issuing Bank shall be entitled to receive any remuneration
which such Defaulting Bank would otherwise have been entitled
to receive in respect of the Revolving Credit Facility; and
(b) the overdue amount shall bear interest at the rate of one per
cent per annum over LIBOR plus the Additional Cost for the
time being from the due date until the date of payment and any
such interest which accrues shall be compounded monthly.
4.10 SUBROGATION OF BANKS MAKING GUARANTEE PAYMENTS
(a) Each Obligor agrees that if any Bank makes any payment under
clause 4.7 (Banks' Guarantee and Indemnity) it will
immediately be subrogated to any rights that the Issuing Bank
may then have against the relevant Borrower in respect of the
amount paid and such subrogation will be subject to the terms
set out in Schedule 7 (Terms of Borrowers' Indemnity).
(b) Each Obligor agrees to indemnify the Bank making such a
payment in respect of such payment and all costs and expenses
properly incurred by the Bank in recovering or attempting to
recover any amount pursuant to such rights of subrogation.
4.11 CURRENCY FLUCTUATIONS
In addition and without prejudice to the Banks' other rights
hereunder, the Facility Agent shall on every Quarter Date (and at any
other time at which it is requested to do so by the Majority Banks)
calculate the aggregate of the Sterling Amounts of all Outstanding
Contingent Liabilities under all Letters of Credit then outstanding.
4.12 CLAWBACK
If the Facility Agent at any time issues a certificate addressed to
the Primary Borrower that in its opinion the aggregate of the Sterling
Amounts of Outstanding Contingent Liabilities under all Letters of
Credit then outstanding is equal to or exceeds 105% of the aggregate
amount of the Banks' Commitments under the Revolving Credit Facility
less the amount of all outstanding Revolving Advances at that time,
the Agent may give notice to the Primary Borrower requiring it within
five Banking Days either to:
(a) make arrangements to repay Revolving Advances and/or reduce
the amount of the Letters of Credit outstanding so as to bring
the Sterling Amount of all such Outstanding Contingent
Liabilities to an amount equal to or below 100% of that
aggregate amount; or
(b) provide the Issuing Bank with cash cover in the currency in
which any Letter of Credit is denominated of such amount as
would cause the requirements of this clause 4.12 to be
satisfied.
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4.13 CASH COVER
Where cash cover is provided by an Obligor under clause 4.12
(Clawback) or otherwise under this Agreement, the Issuing Bank or
other recipient Bank undertakes to place the relevant cash deposit in
an account with it (subject to such security arrangements as the
Facility Agent may specify) bearing interest at a rate and on the
standard terms (other than as to the security arrangements) applicable
to corporate customers of such Bank making deposits of an equivalent
size and for an equivalent duration (or on such other terms as such
Bank and the relevant Obligor may agree). Interest accruing on cash
deposited as cash cover shall be for the account of and paid to such
Obligor but shall not be paid to any Obligor during the continuance of
an Event of Default.
5. INTEREST AND INTEREST PERIODS
5.1 INTEREST ON THE ACQUISITION ADVANCES AND INTERIM ADVANCES
The Primary Borrower shall pay interest on each Acquisition Advance
and Interim Advance in respect of each Interest Period on the relevant
Interest Payment Date (or, in the case of Interest Periods of more
than six months, by instalments, every six months from the
commencement of the relevant Interest Period and on the relevant
Interest Payment Date) at the rate per annum determined by the
Facility Agent to be the aggregate of (a) the Applicable Margin, (b)
the Additional Cost and (c) LIBOR.
5.2 INTEREST PERIODS FOR THE ACQUISITION ADVANCES AND INTERIM ADVANCES
(a) The Primary Borrower may by notice received by the Facility
Agent not later than 11 a.m. on the second Banking Day before
the beginning of each Interest Period in respect of each
Acquisition Advance specify whether such Interest Period shall
have a duration of 1, 2, 3 or 6 months (or such other period
as the Facility Agent, acting on the instructions of the
Majority Banks, may agree). All Interest Periods for the
Interim Facility shall have a duration of one month, save as
provided in (b) below.
(b) Every Interest Period in respect of each Acquisition Advance
and Interim Advance shall be of the duration specified by the
Primary Borrower pursuant to clause 5.2(a) but so that:
(i) the initial Interest Period in respect of each such
Advance will commence on the relevant Drawdown Date
and each subsequent Interest Period in respect of
each such Advance shall commence on the date of the
expiry of the previous Interest Period, and until the
Syndication Date the provisions of clause 4.1(c)
shall apply to the selection of Interest Periods;
(ii) if otherwise there would be more than 10 Acquisition
Advances or 10 Interim Advances outstanding with
different Interest Payment Dates, the Primary
Borrower shall select Interest Periods for such
Advances ending on the same day as the then current
Interest Period for another such Advance and on the
last day of such Interest Period, such Advances shall
be consolidated into and shall thereafter constitute
a single Advance;
(iii) if any Interest Period in respect of an Acquisition
Advance would otherwise overrun the Final Repayment
Date or the date the First Repayment is due, such
Interest Period shall end on such date;
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(iv) if any Interest Period in respect of an Interim
Advance would otherwise overrun the Available
Commitment Termination Date for the Interim Facility,
it shall end on such Available Commitment Termination
Date; and
(v) if the Primary Borrower fails to select the duration
of an Interest Period in respect of an Advance in
accordance with the provisions of clause 5.2(a) and
this clause 5.2(b) such Interest Period shall have a
duration of 3 months or such other period as shall
comply with this clause 5.2(b) selected at the
Facility Agent's sole discretion.
5.3 INTEREST UNDER THE REVOLVING CREDIT FACILITY
The relevant Revolving Credit Facility Borrower shall pay interest on
each Revolving Advance on its Maturity Date (or, in the case of a
Revolving Advance having a Maturity Period of more than six months, by
instalments, every six months from the relevant Drawdown Date and on
the relevant Maturity Date) at the rate per annum determined by the
Facility Agent to be the aggregate of (i) the Applicable Margin, (ii)
the Additional Cost and (iii) LIBOR.
5.4 INTEREST ON UNPAID SUMS
(a) If any Borrower fails to pay any sum (including, without
limitation, any sum payable pursuant to this clause 5.4) on
its due date for payment under this Agreement such Borrower
shall pay interest on such sum from the due date up to the
date of actual payment (as well after as before judgment) at a
rate determined by the Facility Agent pursuant to this clause
5.4.
(b) The period beginning on the due date for payment and ending on
the date of actual payment shall be divided into successive
periods of not more than three months as selected by the
Facility Agent (after consultation with the Banks so far as
reasonably practicable in the circumstances) each of which
(other than the first, which shall commence on such due date)
shall commence on the last day of the preceding such period
but so that if the unpaid sum is an amount of principal which
shall have become due and payable prior to the next succeeding
Interest Payment Date relating thereto or, as the case may be,
prior to the relevant Maturity Date, then the first such
period selected by the Facility Agent shall end on such
Interest Payment Date or, as the case may be, such Maturity
Date.
(c) The rate of interest applicable to each period referred to in
clause 5.4(b) shall (subject to clause 5.6) be the aggregate
(as determined by the Facility Agent) of (i) one per cent per
annum, (ii) the Applicable Margin (iii) the Additional Cost
and (iv) LIBOR but so that if the unpaid sum is an amount of
principal (as referred to in clause 5.4(b)) interest shall be
payable on such unpaid sum during the first period determined
pursuant to clause 5.4(b) at a rate one per cent above the
rate applicable thereto immediately before it fell due.
(d) Interest under this clause 5.4 shall be due and payable on the
last day of each period determined by the Facility Agent
pursuant to this clause 5.4 or, if earlier, on the date on
which the sum in respect of which such interest is accruing
shall actually be paid or on such date or other dates which
the Facility Agent may specify by written notice to the
Primary Borrower (but not more frequently than once a month).
Any interest payable under this clause 5.4 which is not paid
when due shall be deemed an unpaid sum and shall itself bear
interest accordingly.
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5.5 NOTIFICATION OF INTEREST PERIODS AND INTEREST RATE
The Facility Agent shall notify the Primary Borrower (who shall notify
any other relevant Borrower) and the Banks promptly of the duration of
each Interest Period, Maturity Period or other period for the
calculation of interest (or, as the case may be, default interest) and
of each rate of interest determined by it under this clause 5.
5.6 ALTERNATIVE INTEREST RATES
If:
(a) in attempting to calculate LIBOR under paragraph (b) of the
definition of LIBOR for a specified period the Facility Agent
determines at 11.00 a.m. (London time) on the Quotation Date
that it is unable to obtain quotations for LIBOR from any of
the Reference Banks in respect of the relevant Advance or
unpaid sum for the specified period; or
(b) before its close of business on such day, the Facility Agent
has been notified in writing by a Bank or group of Banks to
which 35% or more of the relevant Advance or unpaid sum is
(or, if the relevant Advance were made, would then be) owed
that LIBOR calculated in accordance with its definition in
this Agreement does not accurately reflect the cost to them of
funding their participation; or
(c) the Facility Agent, acting reasonably, determines that, by
reason of circumstances affecting the London inter-bank
market, adequate and fair means do not or will not exist for
determining the rate of interest applicable to the specified
period,
then:
(i) the Facility Agent shall promptly notify in writing
the Primary Borrower and the Banks of such event or
circumstance;
(ii) the Facility Agent (on behalf of and after
consultation with the Banks) shall, within three
Banking Days of such notice, negotiate with the
Primary Borrower with a view to agreeing a substitute
basis on which the relevant part of the Facility may
be maintained;
(iii) any substitute basis agreed in writing by the
Facility Agent (on behalf of and with the consent of
all the Banks) and the Primary Borrower within 30
days of such notice shall take effect in accordance
with its terms and interest shall be calculated as if
the substitute basis had come into effect from the
beginning of the relevant specific period;
(iv) in default of agreement within 30 days, each Bank's
participation in the Advance or unpaid sum (if any)
shall during that specific period bear interest at
the annual rate equal to the cost to that Bank (as
certified by it to the Primary Borrower within ten
days of the end of that 30 day period and expressed
as a percentage rate per annum) of funding its
participation during that specific period by whatever
means that Bank determines to be most appropriate
plus the Applicable Margin and the Additional Cost
and if clause 5.4 (Interest on unpaid sums) applies,
a further one per cent.
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6. REPAYMENT, PREPAYMENT, CANCELLATION AND REDUCTIONS
6.1 REPAYMENT OF THE ACQUISITION AND INTERIM ADVANCES
The Primary Borrower shall repay in full:
(a) Acquisition Advances
all outstanding Acquisition Advances on the following dates
and in the following amounts:
DATE AMOUNT (L.)
Second anniversary of the date 600,000,000 (less
of this Agreement voluntary prepayments
previously made)
(the "First Repayment")
Final Repayment Date All remaining Acquisition
Advances outstanding
(the "Final Repayment")
(b) Interim Advances
all outstanding Interim Advances on the Available Commitment
Termination Date of the Interim Facility.
6.2 MANDATORY REPAYMENT EQUAL TO COAL PROCEEDS
(a) On the Available Commitment Termination Date of the Interim
Facility the Primary Borrower shall prepay outstanding
Acquisition Advances in an amount equal to the product of the
Coal Proceeds and the fraction of the share capital of the
Target acquired by Bidco at such date less the amount of the
Interim Advances repaid under clause 6.1(b).
(b) Amounts repaid and/or prepaid in accordance with this clause
6.2 shall be applied in accordance with clause 6.6(c).
6.3 REPAYMENT OF REVOLVING ADVANCES
The relevant Revolving Credit Facility Borrower shall repay each
Revolving Advance in full on its Maturity Date but, subject to the
terms of this Agreement, amounts repaid may be reborrowed.
On the Final Repayment Date the balance of all outstanding Revolving
Advances shall in any event be repaid in full and may not be
reborrowed.
6.4 OPTIONAL PREPAYMENT OF ALL THE BANKS
The relevant Borrower may, subject to clause 6.6, prepay:
(a) an Acquisition Advance or an Interim Advance in whole or part
(if in part, being L.10,000,000 or any larger sum which is an
integral multiple of L.5,000,000) on the next succeeding
Interest Payment Date in respect of such Advance or, together
with any relevant amounts payable pursuant to clause 13.1, any
other Banking Day, Provided that in prepaying such Advance,
the Banks to whom such Advance is owing are prepaid on a pro
rata basis;
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(b) Revolving Advances in whole (but not in part) together with
any relevant amounts payable pursuant to clause 13.1.
6.5 AFFECTED BANKS
(a) The relevant Borrower may and, where required under this
Agreement shall prepay (in whole but not in part only),
without premium or penalty, subject to clause 6.6, the whole
of the Contributions to all the Facilities of any Affected
Bank. Upon any such notice of such prepayment being given, or
as provided for in clause 14.1, the Commitments of the
relevant Bank to all the relevant Facilities shall be reduced
to zero and the undrawn amount of the Total Commitments in
respect of all the Facilities shall be reduced accordingly.
(b) Instead of or, in addition to, its rights under clause 6.5(a)
the relevant Borrower may on payment of the fee under clause
16.5, without prejudice to clause 14.4, require the Affected
Bank to transfer pursuant to clause 16.5 at par all of its
Commitments and Contributions to a Qualifying Bank nominated
by the Borrower provided that the relevant Qualifying Bank
agrees (in its absolute discretion) to accept the transfer to
it and, in the case of clause 14.1, that Bank is lawfully able
to do so and the transfer is to take effect prior to the
prepayment date specified by the Facility Agent thereunder.
6.6 PREPAYMENTS GENERALLY
(a) No prepayment may be made pursuant to clauses 6.2, 6.4 or 6.5
unless the Primary Borrower shall have given the Facility
Agent 5 Banking Days prior notice (or in the case of a
prepayment pursuant to clause 14.1 such notice as is required
under clause 14.1) specifying the proposed date of the
prepayment and the amount to be prepaid. Every such notice
shall be effective only on actual receipt by the Facility
Agent, shall be irrevocable and shall oblige the relevant
Borrower to make the relevant prepayment on the date
specified.
(b) No amount of the Acquisition Facility or the Interim Facility
which is repaid or prepaid may be reborrowed.
(c) Prepayments (other than under clause 6.5) shall be applied in
the following order:
(i) against outstanding Interim Advances;
(ii) against outstanding Acquisition Advances, in inverse
order of maturity save that:
(aa) prepayments of Coal Proceeds under Clause
6.2(a) shall be applied against the First
Repayment and thereafter against the Final
Repayment; and
(bb) voluntary prepayments shall be applied first
against the First Repayment and thereafter
against the Final Repayment;
(iii) in repayment of outstanding Revolving Advances and in
permanent reduction of the Revolving Credit Facility;
(iv) to provide cash cover for the Outstanding Contingent
Liabilities under the Revolving Credit Facility.
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(d) All prepayments shall be made together with (to the extent
these relate to the amounts prepaid) (i) accrued interest to
the date of prepayment; (ii) any additional amount payable
under clauses 8.5 or 14.2; and (iii) all other sums payable by
the Borrower to the relevant Banks under this Agreement
including, without limitation, any accrued commitment
commission payable under clause 7.2, any Letter of Credit
commission and fees under clause 7.3, expenses under clause
7.4 and any amounts payable under clause 13.1.
(e) No Borrower shall prepay all or any part of an Advance
outstanding hereunder except at the times and in the manner
expressly provided herein.
6.7 CANCELLATION OF THE FACILITIES
The Primary Borrower may at any time prior to the Available Commitment
Termination Date in respect of the relevant Facility by notice to the
Facility Agent (effective only on actual receipt) cancel with effect
from a date not less than 10 Banking Days after the receipt by the
Facility Agent of such notice the whole or any part (if in part, being
L.10,000,000 or any larger sum which is an integral multiple of
L.5,000,000) of the Available Facility Amount of the relevant
Facility, in each case which is not the subject of a Drawdown Notice
at such time. Such notice shall specify the Facility to which it
refers, the date upon which such cancellation is to be made and the
amount of such cancellation. Any such notice of cancellation, once
given, shall be irrevocable and upon such cancellation taking effect
the Commitments of the Banks in respect of the relevant Facility shall
be reduced accordingly (pro-rata their respective Commitments in
respect of the relevant Facility).
6.8 TERMINATION
The Commitment of each Bank shall be automatically cancelled and
reduced to zero at the close of business in London on the relevant
Available Commitment Termination Date or, if it occurs, the
Cancellation Date.
7. FEES AND EXPENSES
7.1 ARRANGEMENT, UNDERWRITING, PARTICIPATION AND AGENCY FEES
The Primary Borrower shall pay to the Facility Agent or shall procure
that there is paid, whether or not any part of the Commitments is ever
advanced:
(a) on the date of this Agreement, for the account of the
Arrangers, fees of an amount agreed between the Primary
Borrower and the Arrangers in a letter dated on or about the
date of this Agreement;
(b) on the date of this Agreement and on each anniversary thereof
until the end of the Finance Period, for the account of the
Facility Agent, an agency fee and for the account of the
Security Agent, a security agency fee, in each case of an
amount agreed between the Primary Borrower and the Facility
Agent in a letter dated on or about the date of this
Agreement.
7.2 COMMITMENT FEES
The Primary Borrower shall pay to the Facility Agent, whether or not
any part of the Commitments is ever advanced, from the date of this
Agreement on each Fee Payment Date after the date of this Agreement
and on the Available Commitment Termination Date in respect of each
Facility (or the Cancellation Date if earlier), for the account of
each of the Banks (pro-rata their respective Commitments for the
relevant Facility), commitment commission computed in arrears at the
Applicable Fees Rate on the daily amount by which the Total
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Commitments in respect of the relevant Facility exceeds the aggregate
of the Contributions in respect of the relevant Facility. Accrued
commitment commission will also be payable on the amount of any
Commitment when cancelled on the date of its cancellation.
7.3 LETTER OF CREDIT FEES
(a) Each relevant Borrower shall (on the dates set out in clause
7.3(c)) pay commission in Sterling to the Facility Agent for
the account of the Banks (in their respective Proportions) on
the Issue of any Letter of Credit requested by such Borrower
in Sterling at a percentage rate per annum equal to the
Applicable Margin on the Sterling Amount of the Outstanding
Contingent Liabilities under such Letter of Credit calculated
in each case on the date of Issue and recalculated on each
Quarter Date from the Issue Date of such Letter of Credit
until the earlier of its Expiry Date or such date as the
Issuing Bank and the Banks have ceased to be under any
liability (actual or contingent) in respect thereof, and on
the basis of a 365 day year. If the relevant Borrower has
provided cash cover for any Letter of Credit, the percentage
rate per annum payable on cash covered amounts shall instead
be 0.25%.
(b) Each relevant Borrower shall pay a fronting fee to the
Facility Agent for the account of the Issuing Bank on the
Issue of any Letter of Credit at a rate of 0.2% per annum on
the Sterling Amount of the face amount of the relevant Letter
of Credit payable in advance on the date of Issue and on each
Quarter Date thereafter.
(c) The commission and fronting fee payable under clauses 7.3(a)
and 7.3(b) in respect of each Letter of Credit shall be paid
in advance on the relevant Issue Date and on each Quarter Date
in each year during the continuance of such Letter of Credit
(or if such day is not a Banking Day, on the preceding Banking
Day) commencing on the first Quarter Date falling on or after
the Issue of the relevant Letter of Credit. If a Letter of
Credit is terminated leaving no Outstanding Contingent
Liabilities before a Quarter Date, any commission paid in
advance for the period from the date of cancellation until the
next Quarter Date shall be repaid to the Borrower which made
the advance commission payment by set-off against any amounts
then due from the Borrower to any Finance Party or, if no such
amounts are due, by payment in cash.
(d) For the avoidance of doubt, the Issuing Bank's Proportion of
the commission at the rate and calculated in the manner
specified in clause 7.3(a) shall be payable to the Issuing
Bank in respect of its residual liability in its capacity as a
Bank, notwithstanding that it does not purport to guarantee
itself in its capacity as Issuing Bank.
(e) The Borrowers shall pay interest on the amount demanded and
outstanding under the indemnity given by them in respect of
Letters of Credit in accordance with clause 4.8 (Calculation
of Interest if Bank makes a Guarantee or Indemnity Payment) in
addition to the commission and other fees payable under this
Agreement in respect of the Revolving Credit Facility.
7.4 EXPENSES
The Primary Borrower shall reimburse the Arrangers, the Banks, the
Security Agent and the Facility Agent from time to time within three
Banking Days of demand:
(a) all reasonable costs and expenses (including without
limitation legal, printing and out-of-pocket expenses)
together with any VAT thereon incurred by the Facility Agent
and the Arrangers in connection with the negotiation,
preparation and execution of the Finance Documents and the
completion and syndication of the transactions therein
contemplated, and the negotiation, preparation
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and execution of any amendment or extension of, or the
granting of any waiver or consent under, any of the Finance
Documents; and
(b) without prejudice to the generality of (c) below, all expenses
and costs (including without limitation the fees and expenses
of lawyers, accountants, surveyors, valuers, environmental
consultants and other professional advisers and out-of-pocket
expenses) incurred by the Facility Agent in connection with
the obtaining of reports and/or advice and/or the undertaking
of investigations by or on behalf of the Facility Agent into
or concerning the Primary Borrower or the Group following the
occurrence of a Default and whilst it is continuing (or where
the Majority Banks' reasonable opinion is that a Default may
have occurred) and the Primary Borrower undertakes to give,
and to procure that its Subsidiaries give, all such reasonable
assistance (including, without limitation, access to its
and/or their properties and financial and other records) at
all times as the Facility Agent shall reasonably require for
the purpose of enabling such reports or advice to be prepared
or such investigations to be undertaken; and
(c) after a Default has occurred, all costs and expenses
(including without limitation legal and out-of- pocket
expenses) incurred by any of the Finance Parties in
contemplation of, or otherwise in connection with, the
enforcement or attempted enforcement of, or preservation or
attempted preservation of any rights under, any of the Finance
Documents, or otherwise in respect of the recovery, or
attempted recovery, of moneys owing under the same, together
with interest at the rate referred to in clause 5.4 from the
date on which such expenses were incurred to the date of
payment (as well after as before judgment).
7.5 VALUE ADDED TAX
All fees, costs and expenses payable pursuant to this clause 7 shall
be paid together with an amount equal to any VAT thereon payable by
any of the Finance Parties in respect of such fees and expenses.
7.6 STAMP AND OTHER DUTIES
The Primary Borrower shall pay all stamp, documentary, registration,
notarisation or other duties or Taxes (including any duties or Taxes
payable by, or assessed on, the Finance Parties) imposed on or in
connection with the negotiation, preparation, and execution of any of
the Finance Documents and the syndication of the Facilities and shall
indemnify the Finance Parties against any liability arising by reason
of any delay or omission by the Primary Borrower to pay such duties or
Taxes.
8. PAYMENTS AND TAXES; ACCOUNTS AND CALCULATIONS
8.1 NO SET-OFF OR COUNTERCLAIM; DISTRIBUTION TO THE BANKS
All payments to be made by any Borrower under this Agreement shall be
made in full, without any set-off or counterclaim whatsoever and,
subject as provided in clause 8.5, free and clear of any deductions or
withholdings, in Sterling (except for costs, charges or expenses which
shall be payable in the currency in which they are incurred) on the
due date to the account of the Facility Agent at such bank as the
Facility Agent may from time to time specify for this purpose. Save
where this Agreement provides for a payment to be made for the account
of a particular Finance Party or Finance Parties, in which case the
Facility Agent shall distribute the relevant payment to the relevant
Finance Party or Finance Parties concerned, payments to be made by any
Borrower under this Agreement shall be for the account of all the
Banks and the Facility Agent shall forthwith distribute such payments
in like funds as are received by the Facility Agent to the Banks
rateably for the account of such Banks' respective Facility Offices in
accordance with their Commitments or Contributions, as the case may
be.
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8.2 PAYMENTS BY THE BANKS
All sums to be advanced by the Banks to any Borrower under this
Agreement shall be remitted in Sterling in immediately available funds
not later than 11 a.m. on the relevant Drawdown Date or, as the case
may be, the first day of the relevant Interest Period to the account
of the Facility Agent at such bank as the Facility Agent may have
notified to the Banks and shall be paid by the Facility Agent on such
date to the account of the relevant Borrower in England specified in
the relevant Drawdown Notice.
8.3 NON-BANKING DAYS
When any payment under this Agreement would otherwise be due on a day
which is not a Banking Day, the due date for payment shall be
postponed to the next following Banking Day unless such Banking Day
falls in the next calendar month, in which case payment shall be made
on the immediately preceding Banking Day.
8.4 FACILITY AGENT MAY ASSUME RECEIPT
Where any sum is to be paid under this Agreement to the Facility Agent
for the account of another person, the Facility Agent may assume that
the payment will be made when due and may (but shall not be obliged
to) make such sum available to the person so entitled. If it proves
to be the case that such payment was not made to the Facility Agent,
then the person to whom such sum was so made available shall on
request refund such sum to the Facility Agent together with interest
thereon sufficient to compensate the Facility Agent for the cost of
making available such sum up to (and/or, as the case may be, the cost
to the relevant other person of not receiving such sum until) the date
of such repayment and the person by whom such sum was payable shall
indemnify the Facility Agent (or the relevant other person) for any
and all loss or expense which the Facility Agent (or the relevant
other person) may sustain or incur as a consequence of such sum not
having been paid on its due date together with any interest, expenses
and penalties payable or incurred in connection therewith.
8.5 GROSSING-UP FOR TAXES
If at any time any Borrower is required to make any deduction or
withholding in respect of Taxes from any payment due under any Finance
Document for the account of any Finance Party (or if the Facility
Agent, or as the case may be, the Security Agent is required to make
any such deduction or withholding from a payment to a Finance Party),
the sum due from the relevant Borrower in respect of such payment
shall, subject to clause 8.6, be increased to the extent necessary to
ensure that, after the making of such deduction or withholding (and
any further deduction and withholding which may be levied on the
additional amounts paid by reason of this clause), each Finance Party
receives on the due date for such payment (and retains, free from any
liability in respect of such deduction or withholding) a net sum equal
to the sum which it would have received and so retained had no such
deduction or withholding been made or required to be made and (without
prejudice to the foregoing provisions of this clause 8.5) each
Borrower shall indemnify each Finance Party on demand by the Facility
Agent against any losses or costs incurred by any of them together
with any interest, expenses and penalties payable or incurred in
connection therewith by reason of any failure of such Borrower to make
any such deduction or withholding.
Each Borrower shall promptly deliver to the Facility Agent any
receipts, certificates or other proof evidencing the amounts (if any)
paid or payable in respect of any such deduction or withholding.
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8.6 QUALIFYING BANK
(a) If:
(i) any Bank is not or ceases to be a Qualifying Bank; and
(ii) as a result an Obligor is required to deduct or
withhold United Kingdom income tax in respect of
payments of interest to be made by such Obligor to
that Bank under any Finance Document or would
otherwise have been required to make an indemnity
payment or a greater indemnity payment under clause
8.5 or 14.2,
then such Obligor shall (as the case may be) not be liable to
pay under clause 8.5 in respect of any such payment of
interest any amount in excess of the amount it would have been
obliged to pay if such Bank were a Qualifying Bank, nor shall
it be liable to make an indemnity payment or a greater
indemnity payment under clause 8.5 or, as the case may be,
Clause 14.2 than would have been required if the aforesaid
Bank had been or had not ceased to be a Qualifying Bank
Provided that this Clause 8.6 shall not apply, and such
Obligor shall be obliged to comply with its obligations under
clause 8.5, or as the case may be 14.2, if on or after the
date hereof:
(aa) there shall have been any change in, or in the
official interpretation or application of, any
relevant law or the practice of the United Kingdom
Inland Revenue (or, in the case of a Treaty Lender,
any Government Entity in the country in which it is
resident for the purpose of the relevant double
taxation treaty) and as a result thereof the Bank is
not or ceases to be a Qualifying Bank, or
(bb) the Bank referred to in clause 8.6(a) has transferred
its Facility Office in respect of any Facility
outside the United Kingdom or has become a Bank
hereunder with a Facility Office outside the United
Kingdom in respect of any Facility, in each case,
with the consent of the Primary Borrower if and
insofar as required under this Agreement.
(b) A person intending to make a claim pursuant to clause 8.5
shall, promptly after such person becomes aware of the
circumstances giving rise to such claim and the amount of such
claim, deliver to the Primary Borrower through the Facility
Agent a certificate to that effect specifying the amount of
such claim and setting out in reasonable detail the basis of
such claim, provided that nothing shall require such person to
disclose any confidential information relating to the
organisation of its affairs.
(c) If at any time after the date of this Agreement any Bank is
aware that it is not or will cease to be a Qualifying Bank
(for whatever reason), it shall promptly notify the Primary
Borrower.
(d) A Treaty Lender will submit such claim to the appropriate
authorities (together with such forms, papers, other documents
and/or evidence as necessary) as may be required for the
Obligors to make payment of interest to such Treaty Lender on
its Advances free of withholding or deduction on account of
United Kingdom Tax. No Obligor will be liable to pay any
additional amount under clause 8.5 in respect of the
withholding or deduction on account of United Kingdom income
tax from any such interest unless such claim has been
submitted to those authorities promptly after that Treaty
Leader became a party to this Agreement as a Treaty Lender or
the proviso to clause 8.6(a) applies.
8.7 CLAW-BACK OF TAX BENEFIT
If following any such deduction or withholding as is referred to in
clause 8.5 any Finance Party determines in its sole discretion that it
has received or been granted a credit against or remission for any
Taxes payable by it, such Finance Party shall, subject to the relevant
Borrower having made any increased payment in accordance with clause
8.5 and subject to there not being any Default which is continuing,
and to the extent that such Finance Party can do so without
prejudicing the retention of the amount of such credit or remission
and without
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prejudice to the right of such Finance Party to obtain any other
relief or allowance which may be available to it, reimburse the
relevant Borrower with such amount as such Finance Party shall in its
absolute discretion certify to be the proportion of such credit or
remission as will leave such Finance Party (after such reimbursement)
in no worse position than it would have been in had there been no such
deduction or withholding from the payment by the relevant Borrower as
aforesaid. Such reimbursement shall be made forthwith upon such
Finance Party certifying that the amount of such credit or remission
has been received by it, provided that the Finance Party shall be the
sole judge of the amount of any such benefit and of the date on which
it was received. Nothing contained in this Agreement shall interfere
with the right of any Finance Party to arrange its tax affairs in
whatever manner it thinks fit nor oblige any Finance Party to disclose
any information regarding its tax affairs and computations. Without
prejudice to the generality of the foregoing, no Borrower shall, by
virtue of this clause 8.7, be entitled to enquire about any Finance
Party's tax affairs or computations. The Finance Parties are under no
obligation to investigate whether any tax credit is available or to
claim any tax credit. Any amount paid by any Finance Party to a
Borrower under this clause shall be conclusive evidence of the amount
payable and will be accepted by the Borrower in full and final
settlement of its claim.
8.8 BANK ACCOUNTS
Each Bank shall maintain, in accordance with its usual practices, an
account or accounts evidencing the amounts from time to time lent by,
owing to and paid to it under this Agreement. The Facility Agent
shall maintain a control account showing the utilisation of the
Facilities and other sums owing by each Borrower under this Agreement
and all payments in respect thereof made by each Borrower from time to
time. In any legal action arising out of or in connection with the
Finance Documents the entries made in the accounts maintained pursuant
to this clause 8.8 shall, in the absence of manifest error, be
conclusive as to the amount from time to time owing by each Borrower
under this Agreement.
8.9 PARTIAL PAYMENTS
If:
(a) on any date on which a payment is due to be made by any
Borrower under this Agreement, the amount received by the
Facility Agent from such Borrower falls short of the total
amount of the payment due to be made by such Borrower on such
date; or
(b) on any date on which the Facility Agent receives any payment
from the Security Agent or otherwise receives any amount
representing proceeds of realisations or other recoveries
under any of the Security Documents, the amount of such
payment or other receipt falls short of the total amount owing
to the Finance Parties under this Agreement on such date
then (in any such case), without prejudice to any rights or remedies
available to the Finance Parties under any of the Finance Documents,
the Facility Agent shall apply the amount actually received by it in or
towards discharge of the obligations of such Borrower under this
Agreement in the following order, notwithstanding any appropriation
made, or purported to be made, by such Borrower:
(i) first, in or towards payment, on a pro-rata basis, of
any unpaid costs and expenses of the Facility Agent,
Security Agent or the Arrangers under this Agreement;
(ii) secondly, in or towards payment to the Banks, on a
pro-rata basis, of any amount owing to the Banks
under clause 20.2;
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(iii) thirdly, in or towards payment to the Arrangers, on a
pro-rata basis, of any portion of the fees payable
under clause 7.1(a) which remains unpaid;
(iv) fourthly, in or towards payment to the Facility Agent
and the Security Agent, on a pro-rata basis, of any
portion of the fees payable under clause 7.1(b) which
remains unpaid;
(v) fifthly, in or towards payment to the Banks, on a
pro-rata basis, of any accrued commitment commission
payable under clause 7.2 which shall have become due
but remains unpaid;
(vi) sixthly, in or towards payment to the Banks, on a
pro-rata basis, of any accrued interest, Letter of
Credit commission and (in the case of the Issuing
Bank) Letter of Credit fronting fees or commission
which shall have become due but remain unpaid, but so
that any amount payable by virtue of clause 8.5 shall
be excluded;
(vii) seventhly, in or towards payment to the Banks, on a
pro-rata basis, of any principal which shall have
become due but remains unpaid;
(viii) eighthly, in or towards payment to any such Banks, on
a pro-rata basis, of any amount payable to any Banks
by virtue of clause 8.5 which remains unpaid; and
(ix) ninthly, in or towards payment of any other sum which
shall have become due but remains unpaid (and, if
more than one such sum so remains unpaid, on a
pro-rata basis).
Each reference in clause 8.9(i) to (ix) (inclusive) to a category of
unpaid sums shall include interest thereon payable in accordance with
this Agreement (including, without limitation, default interest under
clause 5.4). Accordingly, clause 8.9(vi) shall be construed as
referring to interest on principal and accrued interest thereon which
remain unpaid to the extent due.
The order of application set out in this clause 8.9(v) to 8.9(ix)
shall be varied by the Facility Agent if the Majority Banks so direct,
without any reference to, or consent or approval from, the Borrowers.
8.10 CALCULATIONS
All interest and other payments of an annual nature under this
Agreement or any of the Security Documents shall accrue from day to
day and be calculated on the basis of the actual number of days
elapsed, and in the case of Sterling a 365 day year and in the case of
other currencies a 360 day year. In calculating the actual number of
days elapsed in a period which is one of a series of consecutive
periods with no interval between them or a period on the last day of
which any payment falls to be made in respect of such period, the
first day of such period shall be included but the last day excluded.
Where the Applicable Margin or Additional Cost changes during any
period, interest and commitment fees shall be calculated on the rate
prevailing from day to day.
8.11 CERTIFICATES CONCLUSIVE
Any certificate of, or determination by, a Finance Party as to any
rate of interest or any other amount payable under this Agreement or
any of the Security Documents shall, in the absence of manifest error,
be conclusive and binding evidence of such rate or amount on each
Borrower and (in the case of a certificate of or determination by the
Facility Agent) on the Banks.
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8.12 EFFECT OF MONETARY UNION
If the country of any national currency in which any amount is
expressed to be payable under this Agreement participates in economic
and monetary union in accordance with Article 109J of the Treaty on
European Union, then:
(a) any amount expressed to be payable under this Agreement in
that national currency shall (until the end of the
transitional period) be made in that national currency or in
Euros as the Facility Agent may, by not less than two Banking
Days' notice to the Primary Borrower and the Banks to that
effect, require;
(b) any amount so required under clause 8.12(a) to be paid in
Euros shall be converted from that national currency at the
rate stipulated pursuant to Article 109L(4) of the Treaty on
European Union and payment of the amount in Euro derived from
such conversion shall discharge the obligation of the relevant
party to pay such national currency amount; and
(c) after consultation with the Primary Borrower and the Banks and
notwithstanding clause 22, the Facility Agent shall be
entitled to make from time to time such amendments to this
Agreement as it may determine to be necessary to take account
of monetary union and any consequent changes in market
practices (whether as to the settlement or rounding of
obligations, the calculation of interest or otherwise
howsoever).
Any amendment so made to this Agreement by the Facility Agent shall be
promptly notified to the other Finance Parties and the Primary
Borrower by the Facility Agent and shall be binding on all the other
Finance Parties and any Borrower and any other party to this
Agreement.
9. REPRESENTATIONS AND WARRANTIES
9.1 REPEATED REPRESENTATIONS AND WARRANTIES
Each Obligor party hereto represents and warrants to each Finance
Party that (subject to clause 9.5):
(a) Due incorporation: it and the other members of the Group from
time to time are duly incorporated and validly existing under
the laws of England as limited liability companies and have
power to carry on their respective businesses as they are now
being conducted and to own their respective property and other
assets;
(b) Corporate Power: it and the other Obligors have power to
execute, deliver and perform their respective obligations
under each of the Finance Documents to which they are parties
and to borrow the Commitments; all necessary corporate,
shareholder and other action has been taken to authorise the
making of the Offer and the issue of the Press Release and the
Offer Documents, and the execution, delivery and performance
of the same and no limitation on the powers of any Obligor to
borrow will be exceeded as a result of any Advance under any
of the Finance Documents and no limitation on any of their
respective powers to give guarantees and/or to create security
will be exceeded as a result of the execution and delivery of
any of the Security Documents;
(c) Binding obligations: (subject, in the case of the Security
Documents, to registration under section 395 Companies Act
1985) (i) each of the Finance Documents when executed and
delivered by any Obligor will (subject to the Reservations)
constitute, valid, legally binding and enforceable
obligations of it in accordance with their respective terms
and (ii) it is not necessary, to ensure the legality,
validity,
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enforceability or admissibility in evidence of any Finance
Document that they or any other instrument be notarised,
filed, recorded, registered or enrolled in any court, public
office or elsewhere in the United Kingdom or elsewhere or
that any stamp, registration or similar tax or charge be paid
in the United Kingdom or elsewhere on or in relation to any
Finance Documents;
(d) No conflict with other obligations: the execution and
delivery of, the exercise of its rights and the performance of
its obligations under, and compliance with the provisions of,
the Finance Documents by it and all other Obligors will not
(i) contravene any existing applicable law, statute, rule or
regulation or any judgment, decree or permit to which any of
them are subject, (ii) conflict with, or result in any breach
of any of the terms of, or constitute a default under any of
the Licences or the Pooling and Settlement Agreement, or under
any other agreement or other instrument to which any of them
are a party or are subject or by which any of their property
is bound to an extent which is reasonably likely in the
reasonable opinion of the Majority Banks to have a Material
Adverse Effect, (iii) contravene or conflict with any
provision of their respective Memorandum or Articles of
Association or (iv) result, other than pursuant to the
provisions of any of the Finance Documents, in the creation or
imposition of, or oblige any member of the Group to create,
any Security Interest (save in favour of the Finance Parties)
on any member of the Group's, assets, rights or revenues; and
(e) Pari passu: in the case of each Borrower, its obligations
under this Agreement are its direct, general and unconditional
obligations and rank at least pari passu with all its other
present and future unsecured and unsubordinated Indebtedness
with the exception of any obligations which are mandatorily
preferred by law and not by contract.
9.2 NON-REPEATING REPRESENTATIONS AND WARRANTIES
Each Obligor party hereto further represents and warrants to each of
the Finance Parties that (subject to clause 9.5):
(a) Clean company: (other than as may result from entry into the
Finance Documents, the Offer Documents and the documents
ancillary thereto, copies of which have been provided to the
Arrangers) prior to the date of this Agreement neither the
Primary Borrower nor Finco 2 nor Bidco has undertaken any
trading or incurred any material liabilities of any nature
whatsoever whether actual or contingent other than liabilities
for professional fees and any liability which would arise if
the relevant company were wound up;
(b) Winding Up: no meeting has been convened for the winding up or
administration of the Primary Borrower, Finco 2, Bidco or (so
far as the Primary Borrower is aware) any other member of the
Group and so far as the Primary Borrower is aware, no such
step is intended by any of them and no petition, application
or the like is outstanding for the winding up or
administration of any of them;
(c) Full Disclosure: so far as the Primary Borrower, Finco 2 and
Bidco are aware, the written factual information supplied by
or on behalf of the Primary Borrower, Finco 2, Bidco or the
Parent, to any of the Finance Parties in connection with this
Agreement, the Parent and its Subsidiaries, the Offer and/or
the Target Group (including but not limited to the Press
Release and the Offer Document and any other information
concerning the Borrowed Monies, cash balances and Security
Interests of the Target Group) was and remains (except insofar
as superseded by later material supplied to the Finance
Parties by the Primary Borrower prior to the date of this
Agreement) true and accurate in all material respects and it
is not aware of any material facts or circumstances that have
not been disclosed to the Finance Parties and which
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might reasonably be expected to have a Material Adverse
Effect, or which might reasonably be expected to be material
to a bidder in the context of whether to make an offer or
whether the offer is correctly priced;
(d) Agreed Projections: the Agreed Projections delivered to the
Arrangers prior to the date of this Agreement in the agreed
form were arrived at after careful consideration, were fair
and were based on assumptions which were reasonable having
regard to the state of knowledge of the officers of the
Primary Borrower, Finco 2 and Bidco;
(e) No Default: no Default has occurred and is continuing;
(f) Existing Security: no Security Interest exists on or over any
member of the Group's assets except as permitted by clause
11.1(a); and
(g) Litigation:
(i) no litigation, alternative dispute resolution,
arbitration or administration proceeding is taking
place, pending or, to the knowledge of the officers
of the Primary Borrower, Finco 2 or Bidco, threatened
against the Primary Borrower, Finco 2 or Bidco; and
(ii) so far as it is aware, no litigation, alternative
dispute resolution, arbitration or administration
proceeding is taking place, pending or threatened
against any other member of the Group which is
reasonably likely (in the reasonable opinion of the
Majority Banks) in either case to have a Material
Adverse Effect.
9.3 REPRESENTATIONS ON AND FROM THE TAKEOVER OPERATIVE DATE
Each Obligor party hereto represents and warrants to each Finance
Party that on the Takeover Operative Date:
(a) Compliance with Environmental Laws: each member of the Group:
(i) as at the Takeover Operative Date complies; and
(ii) has (to the extent that non-compliance would be
reasonably likely to give rise to a material
liability as at the Takeover Operative Date) at all
times complied,
in all material respects with all Environmental Laws, where
non-compliance, in each case, would be reasonably likely to
have a Material Adverse Effect;
(b) No Environmental Claims:
(i) no Environmental Claim is pending or has been made or
threatened against any member of the Group or any of
their respective officers in their capacity as such;
and
(ii) no member of the Group is aware of any circumstances
or situation which would be reasonably likely to
result in it having any liability in relation to
Environmental Matters,
which, in either case, would be reasonably likely to have a
Material Adverse Effect;
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(c) The Licensees:
(i) each relevant Licensee has been duly authorised by
the Secretary of State under Section 6 of the
Electricity Act to generate, and/or distribute and/or
supply electricity and/or, as the case may be,
section 7 of the Gas Act 1986 to supply and transport
gas; and
(ii) no Licensee is in contravention of:
(A) any term or condition of any Licence; or
(B) any requirement of the Electricity Act or Gas
Acts or any regulations made thereunder; or
(C) any other statutory requirement or any final
order or confirmed provisional order made
under the Electricity Act or Gas Acts; or
(D) any undertaking given by it to the Director
General, Director General of Gas Supply or
the Secretary of State in relation to the
conduct of its business as a generator of
electricity or, as the case may be, as a
public electricity supplier or (as the case
may be) public gas supplier or transporter;
the contravention or consequence of which is
reasonably likely to have a Material Adverse Effect;
(d) The Licences:
(i) each Licence is in full force and effect and neither
the Director General nor the Director General of Gas
Supply nor the Secretary of State has given notice to
revoke a Licence;
(ii) no amendment of any of the terms of a Licence has
been made or proposed;
(iii) no other material licence, consent, undertaking or
authorisation necessary for the carrying on by any
member of the Group of its business substantially as
it is currently carried on has been terminated or
breached or not obtained or is otherwise not in full
force and effect;
which in either case is reasonably likely to have a Material
Adverse Effect.
9.4 REPETITION
The representations and warranties in clauses 9.1 and 9.3 shall be
deemed to be repeated on and as of the first Drawdown Date (or in the
case of clause 9.3, the Takeover Operative Date), each subsequent
Drawdown Date and each Interest Payment Date, as if made with
reference to the facts and circumstances existing on each such date,
and shall, after the first set of financial statements have been
delivered under clauses 10.1(b)(i) and (ii), be deemed to include a
representation that the then latest financial statements delivered to
the Banks under clauses 10.1(b)(i) and (ii) have been prepared in
accordance with the Appropriate Accounting Principles which have been
consistently applied and give a true and fair view of (or in the case
of unaudited accounts, present with reasonable accuracy) the financial
position of the Primary Borrower and the consolidated financial
position of the Group respectively as at the date to which such
financial statements were made up and the results of the operations of
the Primary Borrower and the results of the operations of the Group
respectively for the relevant
<PAGE> 53
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period, and in the case of audited accounts are not subject to any
qualifications save of a technical and non- adverse nature.
9.5 APPLICATION TO TARGET GROUP
Each representation or warranty given in respect of Target or any
member of the Target Group on any date up to (but not including) the
Takeover Operative Date shall be given only by the Primary Borrower,
Finco 2 and Bidco and only on a qualified basis, namely that the
representation and warranty is true and accurate with regard to the
Target and the Target Group so far as the Primary Borrower, Finco 2
and Bidco are aware as at the date of this Agreement.
9.6 OBLIGORS' ACKNOWLEDGEMENT
Each Obligor party hereto acknowledges that the Finance Parties are
relying on the representations and warranties but not on any other
information contradictory to them or varying them of which the Finance
Parties or any of them or their respective agents or advisers may have
actual or constructive knowledge.
10. POSITIVE UNDERTAKINGS
10.1 INFORMATION UNDERTAKINGS
Each Obligor party hereto undertakes with each of the Finance Parties
that, throughout the Finance Period (but subject to clause 11.2):
(a) Preparation of financial statements: it will:
(i) Annual audited financial statements: beginning with
the financial year ending 31 December 1998, prepare
financial statements in respect of itself and
consolidated financial statements in respect of the
Group and consolidated financial statements of Finco
2 in accordance with the Appropriate Accounting
Principles (consistently applied) in respect of each
financial year and cause the same to be reported on
by the Auditors; and
(ii) Quarterly financial statements: after the
Unconditional Date, prepare unaudited consolidated
financial statements of the Group and the
consolidated financial statements of Finco 2 in
respect of each Quarter in each financial year in
accordance with the Appropriate Accounting Principles
(consistently applied);
(b) Delivery of financial statements: it will deliver to the
Facility Agent, for distribution to the Banks, sufficient
copies for all the Banks of each of the following documents:
(i) Annual audited financial statements: at the time of
issue thereof to the shareholders of the Primary
Borrower and Finco 2, but in any event not later than
120 days after the end of the financial year to which
they relate, the audited financial statements
referred to in clause 10.1(a)(i) for each financial
year together, in each case, with the report of the
Auditors thereon, the notes thereto, the directors'
report thereon and the certificate referred to in
clause 10.1(b)(iii);
(ii) Unaudited management accounts: within 45 days after
the end of each Quarter in each financial year,
consolidated management accounts for the Group and
for Finco 2 in respect
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of such Quarter prepared in accordance with the
requirements of clause 10.1(a)(ii) together with the
certificate referred to in clause 10.1(b)(iii);
(iii) Compliance with Financial Undertakings: with each set
of accounts delivered by it under clauses 10.1(b)(i)
and (ii) above (except the first Quarter's accounts
under clause 10.1(b)(ii)), the Primary Borrower will
deliver to the Facility Agent a certificate signed by
a director of the Primary Borrower:
(aa) confirming compliance with the financial
undertakings in clause 10.3(a) as at the end
of the relevant Test Period; and
(bb) setting out in reasonable detail and in a
form satisfactory to the Facility Agent the
computations necessary to demonstrate such
compliance;
(iv) Regulatory Accounts: at the time of their issue to
the relevant Government Entity or regulator, all
accounts and other financial statements or
information required under any law or regulation to
be provided to any Government Entity, industry
regulator or similar body or person;
(v) Reports and notices to shareholders and creditors: at
the time of issue thereof every report, circular,
notice or like document issued by the Primary
Borrower, Finco 2 and/or Bidco to its shareholders or
creditors generally and every notice convening a
meeting of its shareholders or any class of its
shareholders; and
(vi) Further information: promptly upon request, such
further information concerning the financial position
of the Group (or any member of it) as the Facility
Agent shall reasonably require;
(c) Notice of Default: it will promptly upon becoming aware of the
same inform the Facility Agent of any Default;
(d) Notice of litigation: it will, upon becoming aware that the
same is threatened or pending and in any case promptly after
the commencement thereof, give to the Facility Agent notice in
writing of any litigation, alternative dispute resolution,
arbitration or administrative proceedings or any dispute
affecting any member of the Group or any of their respective
assets, rights or revenues which if determined against it
could reasonably be expected to result in a liability
(including costs) of more than L.10,000,000 or otherwise have
a Material Adverse Effect; and
(e) Environmental Claims: promptly upon receipt of formal written
notice of the same inform the Facility Agent of any material
Environmental Claim.
10.2 GENERAL UNDERTAKINGS
Each Obligor party hereto undertakes with each of the Finance
Parties that, throughout the Finance Period but subject to
clause 11.2:
(a) Use of proceeds: it will procure that the proceeds of Advances
under the Facilities are used exclusively for their respective
purposes specified in clause 1.1;
(b) Consents etc relating to the Finance Documents: it will
obtain or cause to be obtained, maintain in full force and
effect and comply in all material respects with the conditions
and restrictions (if any) imposed in,
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or in connection with, every consent, authorisation, licence
or approval of any Government Entity or consents required by
it in connection with the execution, delivery, validity,
enforceability or admissibility in evidence of the Finance
Documents and do, or cause to be done, all other acts and
things, which may from time to time be necessary under
applicable law for the continued due performance of all its
(or its Subsidiaries) obligations under the Finance Documents;
(c) Pari passu: it will ensure that its obligations, and those of
each other Obligor, under each of the Finance Documents shall,
at all times be direct, general and unconditional obligations
and rank at least pari passu with all its other present and
future unsecured and unsubordinated Indebtedness with the
exception of any obligations which are mandatorily preferred
by law and not by contract;
(d) Licences and Environmental Laws:
(i) it will obtain and maintain and procure that each
member of the Group obtains and maintains in full
force and effect each Licence required for the
carrying on of their respective businesses; and
(ii) it will obtain and maintain and procure that each
member of the Group obtains and maintains in full
force and effect all other material Environmental
Licences and ensures that its business and the
business of each of its Subsidiaries complies in all
respects with all material Environmental Laws and all
other material Environmental Licences;
(e) Clear Market: from the date of this Agreement until the
Syndication Date it will not and will procure that no member
of the Group will, except with the prior written consent of
the Arrangers or in relation to the refinancing in full of the
Facilities, mandate or place in the syndicated or bilateral
loan markets any Borrowed Money, or issue any floating rate
notes, other than the Facilities;
(f) Hedging Transactions: within 90 days of the date of this
Agreement the Primary Borrower shall enter into one or more
hedging agreements so as to swap the floating element of
interest on the Facilities to a fixed rate in respect of at
least 50% of the aggregate Facilities, such hedging agreements
to be:
(i) with a counterparty having a credit rating with
Standard & Poors of at least A; and
(ii) for a period or periods such that the average
maturity of the hedging agreements is at least 2
years after the date on which the hedging agreements
are entered into;
(g) Upstreaming:
(i) it will take all steps available to it to ensure that
sufficient funds are lawfully (and subject to
compliance with applicable regulations including the
Licences) upstreamed (directly or indirectly) to it
by the Target Group, Finco 2 and Bidco (by way of
dividend or otherwise) to ensure that it is able to
meet its obligations under this Agreement;
(ii) in particular, it will take all steps available to it
to ensure that an amount equal to the proceeds of the
Coalco Disposal Agreement (or as much of such
proceeds as it is or can be made lawful and in
compliance with regulations as are referred to in (i)
above to upstream) are lawfully upstreamed (directly
or indirectly) from the Target to the Primary
Borrower (and not to any minority shareholder in
Finco 2, unless such minority shareholder makes a
simultaneous equity investment of an equal amount
into the Primary Borrower, the proceeds of which are
applied in immediate prepayment of the Facilities in
accordance with clause 6)
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as soon as is practicable following the Unconditional
Date, provided that the Primary Borrower may refrain
from requiring the upstreaming of such proceeds for
so long as:
(aa) it does not own 100% of the issued share
capital of Target; and
(bb) the Offer is still open for acceptance,
and/or Bidco is still entitled to implement
or is in the course of implementing the
procedures in Section 428-30 of the Companies
Act;
(h) Insurance: it will procure that each member of the
Group maintains insurances on and in relation to its
business and assets with reputable underwriters or
insurance companies against such risks and to such
extent that is usual for companies carrying on a
business such as that carried on by such member of
the Group;
(i) Investment Agreement: the Primary Borrower, Finco 2
and Bidco will comply with their obligations under
the Investment Agreement save if and insofar as they
conflict with clause 11.1(f).
10.3 FINANCIAL UNDERTAKINGS
(a) Each Obligor party hereto undertakes with each of the Finance
Parties that, from the Unconditional Date and thereafter
throughout the Finance Period, it will procure that:
(i) for each Test Period, the ratio of EBITDA to Net
Interest Costs is not less than 2:1;
(ii) as at the last day of each Test Period, the Leverage
Ratio is not more than 70% until and including 30
September 2000, and thereafter 65%;
where a Test Period commences prior to the Unconditional Date
the calculation of the Financial Definitions shall be amended
so that:
(aa) for the purposes of calculating Net Interest
Costs the whole amount of the Advances drawn
down and other Utilisations as at the end of
the relevant Test Period shall be deemed to
have been made on the first day of such Test
Period and no amount in respect of Net
Interest Costs attributable to Indebtedness
which is refinanced in connection with the
Acquisition shall be brought into account;
and
(bb) for all purposes Coalco will be deemed not to
have been part of the Group;
(b) Each Obligor party hereto shall procure that:
(i) as from the Unconditional Date until such time as
Bidco shall have acquired shares carrying the right
to vote 75% of each class of shares of the Target,
the Share Value of all the Target Shares acquired and
effectively charged to the Security Agent shall not
at any time be less than twice the aggregate of the
outstanding Advances (excluding Revolving Credit
Advances) at that time;
(ii) on each Drawdown Date, the sum of:
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(aa) 50% of the Share Value of all the Target
Shares consisting of American Depositary
Receipts acquired and effectively charged to
the Security Agent, plus;
(bb) the Share Value of all other Target Shares
acquired and effectively charged to the
Security Agent,
shall not be less than the aggregate of the
outstanding Advances;
(c) Each of the Primary Borrower and Finco 2 undertakes with each
of the Finance Parties that it will not adopt any accounting
policy or change the consistency of application of its
accounting principles from the Appropriate Accounting
Principles unless:
(i) the revised policy and practice adopted from time to
time is in accordance with generally accepted
accounting practice in the United Kingdom, and
(ii) prior to any revised policy and practice being
adopted the Primary Borrower has notified the
Facility Agent thereof and, if required by the
Facility Agent, will negotiate in good faith with the
Facility Agent in order that the Financial Covenants
may be amended as required by the Facility Agent in
order for it to be able to make the same judgments as
to the financial performance of the Group as it is
able to under the present accounting policy.
If such negotiations are not concluded to the satisfaction of
the Facility Agent within a period of 30 days from the
commencement of such negotiations each of the Primary Borrower
and Finco 2 agrees that it will procure that the Auditors
provide financial statements reflecting the Appropriate
Accounting Policies, and any reference in this Agreement to
financial statements under this Agreement shall be construed
as a reference to such financial statements as adjusted to
reflect the Appropriate Accounting Policies;
(d) For the purposes of calculating Net Interests Costs, any
incremental impact of interest rate hedging transactions or
refinancings entered into by the Primary Borrower from time to
time shall be treated as varying the Net Interest Costs
payable by Finco 2, whether or not they actually do so;
(e) Each of the Primary Borrower and Finco 2 undertakes with each
of the Finance Parties that it will not vary or waive the
terms of the Investment Agreement, and undertakes to procure
that the principal amount of the intercompany loan from the
Primary Borrower to Finco 2 is not reduced save by way of
amounts which are repaid by Finco 2 to the Primary Borrower
and promptly applied by the Principal Borrower in repayment
and permanent reduction of sums outstanding under the
Facilities.
10.4 THE OFFER
(a) The Primary Borrower, Finco 2 and Bidco each undertake with
each of the Finance Parties that it shall (or shall procure
that Bidco shall, as applicable):
(i) until the earlier of the date the Offer lapses or is
finally closed, comply in all material respects with
the Code, the Financial Services Act 1986 and the Act
and all other applicable laws and regulations
relevant in the context of the Offer;
(ii) provide the Facility Agent with such information
regarding the progress of the Offer as it may
reasonably request and, provided no breach of the
Code would result, all material written advice given
to it in respect of the Offer;
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(iii) not declare the Offer unconditional at a level of
acceptances below that required by Rule 10 of the
Code;
(iv) ensure that at no time shall circumstances arise
whereby a mandatory offer is required to be made by
the terms of Rule 9 of the Code in respect of the
Target Shares;
(v) not, without the prior consent of the Arrangers
(acting on the instructions of the Majority Banks),
waive, amend or agree or decide not to enforce, in
whole or in part, the conditions of the Offer set out
in paragraphs (c) (Referral) or (b) (Coalco Disposal
Agreement) of Appendix 1 to the Press Release;
(vi) not, without the prior consent of the Arrangers
(acting on the instructions of the Majority Banks),
such consent not to be unreasonably withheld or
delayed, waive, amend (but not including extending
the Offer period, which shall be at the Primary
Borrower's discretion provided that the Offer is
closed within the period required by clause 10.4(f)
below) or agree or decide not to invoke, in whole or
in part, in any material respect, any of the other
material conditions of the Offer (and the Primary
Borrower, Finco 2 and Bidco acknowledge that the
total Indebtedness of the Target Group requiring to
be refinanced, and the amount of any contingent
liabilities of the Target Group which would or might
crystallise upon the Offer becoming unconditional,
are material), provided that the Primary Borrower,
Finco 2 and Bidco shall not be in breach of this
clause (vi) if they fail to invoke a condition of the
Offer because the Takeover Panel has directed that
they may not do so.
(b) Each of the Primary Borrower, Finco 2 and Bidco acknowledges
and confirms to the Finance Parties that if any event or
circumstance occurs which under the conditions of the Offer
may entitle Bidco to lapse the Offer, Bidco will promptly
notify the Facility Agent and if in the reasonable opinion of
the Majority Banks such event or circumstance would have a
material and adverse affect on the ability of the Borrowers to
comply with their material obligations under this Agreement
(or the adequacy of the facilities available for refinancing
indebtedness or other liabilities of the Target Group) and the
Facility Agent acting on the instructions of the Majority
Banks so requests, Bidco will promptly seek the consent of the
Takeover Panel to lapse the Offer. If the Takeover Panel
consents to Bidco's lapsing the Offer in the light of such
event or circumstance, Bidco shall then lapse the Offer
promptly.
(c) Each of the Primary Borrower, Finco 2 and Bidco shall keep the
Arrangers informed and consult with them as to:
(i) the terms of any undertaking or assurance proposed to
be given by it, any of its Affiliates or any member
of the Target Group to the Director General, the
Director General of Gas Supply or the Secretary of
State for Trade and Industry in connection with the
Offer;
(ii) the terms of any modification to any of the Licences
proposed in connection with the Offer;
(iii) any terms proposed in connection with any
authorisation or determination necessary or
appropriate in connection with the Offer;
If the Majority Banks (acting reasonably) state that in their
opinion such proposed undertakings(s), assurance(s),
modification(s) and/or term(s), or compliance therewith, would
materially and adversely affect the ability of the Group to
comply with its material obligations under the Finance
Documents, Bidco shall promptly request the Takeover Panel to
confirm (and shall use its reasonable endeavours to ensure
that the Takeover Panel does confirm) that the Takeover Panel
will not object to the lapsing
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of the Offer as a result of the non-satisfaction of whichever
of the conditions in Appendix 1 to the Press Release is
relevant, provided that Bidco will not be obliged to lapse the
Offer as a result of any proposed modifications of any Licence
or any proposed undertakings or assurances from the Primary
Borrower, Finco 2, Bidco or any member of the Target Group to
be given to the Director General to the extent that such
modifications, undertakings or assurances (as the case may be)
are no more onerous than those set out and required by the
Director General from Pacificorp and/or the Target Group in
accordance with the terms of the Monopolies and Mergers
Commission Report dated 19 December 1997 into the original
Pacificorp offer for the Target. If the Takeover Panel gives
a confirmation substantially in those terms, Bidco shall at
the earliest opportunity declare the Offer lapsed by reason of
the non- fulfilment of such condition(s).
(d) Each of the Primary Borrower, Finco 2 and Bidco acknowledges
and confirms to the Finance Parties that the Offer, or an
accompanying circular to shareholders of the Target, should
also contain a super class one resolution to be passed by the
shareholders of the Target, seeking approval of the completion
of the Coalco Disposal Agreement with effect on and from the
Unconditional Date. Where the context permits, all references
in this Agreement (and in the Offer) to the Offer being
accepted and/or becoming unconditional shall be construed to
include such approval being granted.
(e) Each of the Primary Borrower, Finco 2 and Bidco undertakes to
the Finance Parties that within 15 days of the date on which
acceptances of the Offer are received from holders of not less
than 90% of the Target Shares to which the Offer relates,
Bidco shall procure that a director of Bidco issues a
statutory declaration pursuant to section 429(4) of the
Companies Act 1985, gives notice to all remaining holders of
the Target Shares that it intends to acquire their shares
pursuant to section 429 of the Companies Act 1985, and Bidco
shall subsequently purchase all such shares.
(f) Each of the Primary Borrower, Finco 2 and Bidco undertakes to
the Finance Parties that Bidco shall in any event give notice
to close the Offer no later than 120 days after the date of
this Agreement, unless the Arrangers agree in their absolute
discretion to extend such period.
10.5 DELISTING
Each of the Primary Borrower, Finco 2 and Bidco undertakes to the
Finance Parties to procure that, as soon as legally and practically
possible after the Unconditional Date, the American Depositary Shares
represented by the American Depositary Receipts tendered to Bidco
shall be converted into ordinary shares of the Target or otherwise
held in form satisfactory to the Security Agent, the Target shall be
removed from the Official List of the London Stock Exchange Limited
and reregistered as a private company and its American Depositary
Shares shall be delisted from the New York Stock Exchange.
10.6 FINANCIAL ASSISTANCE AND GUARANTEES
Each Obligor party hereto undertakes with each of the Finance Parties
that it will take all steps available to it to procure that any
company in the Target Group selected and notified to the Principal
Borrower by the Facility Agent shall give such guarantees to the
Security Agent as may be requested by the Facility Agent, in respect
of the Indebtedness of the Borrowers to the Banks, save that no such
guarantee may be requested (or, if requested, may be refused) where:
(a) the giving of such a guarantee would be unlawful and it is not
legally possible for the proposed giver of such guarantee to
take steps to render the giving of such guarantee lawful; or
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(b) the giving of any such guarantee would reasonably be expected
to breach a condition of any of the Licences or the Pooling
and Settlement Agreement or the Gas Framework Agreement and,
as a consequence, entitle the Secretary of State, the Director
General or the Director General of Gas Supply to revoke or
withdraw such Licence, or amend such Licence in any respect
which would reasonably be expected to have a Material Adverse
Effect; or
(c) the giving of such a guarantee would:
(i) cause any of the Existing Public Debt to be repayable
at the option of the holder thereof or cause the
coupon thereunder to increase materially; and/or
(ii) cause Indebtedness under the Existing Facilities to
become repayable before the stated maturity date;
and/or
(iii) cause the exercise of a put option under clause 18.1
of the Existing Guarantee (or any similar provision)
in circumstances necessitating the making of a
payment or payments by a company or companies in the
Target Group pursuant to the terms of clause 18 of
the Existing Guarantee (or any similar provision);
and in any such case either:
(aa) the aggregate amount of Existing Public Debt
or Indebtedness to be repaid under the
Existing Facilities and payments to be made
by a Target Group company (as referred to in
sub-clause (iii)) would exceed the aggregate
of (A) all financing facilities then
available to the Borrowers, Bidco or any
member of the Target Group and (B) all Liquid
Assets less (C) the Headroom; or
(bb) the financial consequences to the Group of
refinancing such Indebtedness as referred to
in (aa) above would be so materially adverse
(whether in terms of coupon, all-in inherent
costs or otherwise) compared with not so
refinancing such Indebtedness as to make it
unreasonable for the Finance Parties to
require guarantees to be given.
The Primary Borrower undertakes to use all reasonable endeavours to
obtain any necessary consents under the Existing Facilities or the
Existing Public Debt as are needed to enable guarantees by Target
Group companies in favour of the Security Agent to be given within six
months of the Unconditional Date.
In this clause:
"EE" means the REC (company no. 2366906);
"EG" means Eastern Group plc (company no. 3247622);
"EGL" means Eastern Generation Ltd (company no. 2353756);
"EMGL" means Eastern Merchant Generation Ltd (company no. 3113665);
"EXISTING FACILITIES" means facilities for Borrowed Money (not being
capital markets issues) existing in the Target Group at the
Unconditional Date, including:
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(a) the facility agreement dated 1 July 1996 (as amended and
restated on 8 August 1996) between EMGL, EMPL, EE, The
Industrial Bank of Japan, Limited (as arranger and agent), and
the Banks and participants listed therein;
(b) a standby facility agreement dated 28 October 1996 between EG
and EGL (as guarantors), EMPL, EMGL, The Industrial Bank of
Japan, Limited as arranger and agent and the financial
institutions named therein;
(c) the guarantee and indemnity dated 28 October 1996 between EG,
EGL, EE, the Banks therein mentioned, Barclays Bank PLC and
Barclays de Zoete Wedd Limited;
"EXISTING PUBLIC DEBT" means capital markets issues existing in the
Target Group at the Unconditional Date, including (without
limitation):
(a) the US $200,000,000 7.375% Guaranteed Notes Due 2017 and US
$300,000,000 7.500% Guaranteed Notes Due 2027 issued by
Eastern Group Overseas B.V. and unconditionally and
irrevocably guaranteed by the Target;
(b) L.200,000,000 8.5% Bonds due 2025 issued by EE;
(c) L.200,000,000 8.75% Bonds due 2012 issued by EE;
(d) L.350,000,000 8.375% Bonds due 2004 issued by EE;
"HEADROOM" means an amount agreed in good faith by the Facility Agent
and the Primary Borrower to be equal to the aggregate of the Group's
working capital requirements and such other amounts as the directors,
acting reasonably and properly, recommend (by directors' certificate)
should be reserved against other liabilities at the applicable time.
11. NEGATIVE UNDERTAKINGS
11.1 NEGATIVE UNDERTAKINGS
Each Obligor party hereto undertakes with each of the Finance Parties
that throughout the Finance Period (but subject to clause 11.2),
without the prior written consent of the Facility Agent acting on the
instructions of the Majority Banks:
(a) Negative pledge: it will not permit, and will procure that no
other member of the Group will permit, any Security Interest
by it or any other member of the Group to subsist, arise or be
created or extended over all or any part of their respective
present or future undertakings, assets, rights or revenues,
save for any Permitted Security Interest;
(b) No other Borrowed Money: it will not, and will procure that no
member of the Group will, incur or permit to exist on its
behalf any obligations in respect of Borrowed Money (excluding
any guarantees, indemnities or other forms of assurance
against financial loss in respect of Borrowed Money, which are
referred to in clause 11.1(d) below) to any person except:
(i) the Facilities;
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(ii) the Loan Notes;
(iii) Borrowed Money owed by any member of the Group to
another member of the Group;
(iv) Borrowed Money incurred under the hedge transactions
entered into pursuant to clause 10.2(f) and/or clause
(n) of Schedule 3, Part A;
(v) Borrowed Money to the extent secured by a Security
Interest permitted by paragraphs (c) (d) (e) (f) and
(l) of the definition of Permitted Security Interest,
but only for so long as such Security Interest
remains a Permitted Security Interest;
(vi) Borrowed Money incurred to repay and discharge the
Facilities in full;
(vii) Borrowed Money of the Target Group as at the
Unconditional Date (and refinancings thereof)
provided that:
(aa) each refinancing extends the tenor of the
refinanced amount to beyond the Final
Repayment Date; and
(bb) all refinancings shall be by way of capital
markets instruments which are of a similar
nature to the Target Group's existing
instruments having regard to market
conditions and the issuer's credit status, or
are structurally or contractually
subordinated to the Facilities and the
Guarantees in a manner satisfactory to the
Majority Banks (acting reasonably); and
(cc) any new facilities for Borrowed Money entered
into by the Target Group between the date of
this Agreement and the Unconditional Date
(except the REC's facility referred to in
clause 24.5) shall be cancelled and repaid in
full within 180 days of the Unconditional
Date;
(viii) provided that as a result of Borrowed Money incurred
under this paragraph (viii) the outstanding Advances
under the Acquisition Facility would be not more than
L.1,000,000,000 and the total Borrowed Money in the
Primary Borrower (excluding Borrowed Money which is
subordinated to the Facilities as referred to in (ix)
below) would not exceed L.1,600,000,000, Borrowed
Money may be incurred by way of a Permitted Capital
Markets Instrument issued by the Primary Borrower
provided that the proceeds are applied solely to
repay or prepay all or any part of the Facilities.
If the Primary Borrower shall exercise its rights to
incur Borrowed Money and repay or prepay all or part
of the Facilities under and in compliance with this
sub-paragraph (viii) and no Default has occurred and
is continuing, the Facility Agent and the Security
Agent shall permit the lenders under the relevant
Permitted Capital Markets Instrument (in this clause,
the "New Capital Markets Lenders") to take security
over the shares in Finco 2 held by the Primary
Borrower and by Texas Utilities Services Inc. (in
terms satisfactory to the Majority Banks) and shall
execute a pari passu agreement with the New Capital
Markets Lenders (in terms satisfactory to the
Majority Banks) agreeing that the Finance Parties'
and the New Capital Markets Lenders' security over
the Finco 2 shares shall rank pari passu, and in
addition the Facility Agent acting on the
instructions of the Majority Banks shall elect in its
discretion which of the following alternatives it
wishes to occur so as to put the New Capital Markets
Lenders in a pari passu position with the Finance
Parties:
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(aa) the Security Agent to release all of the
remaining guarantees and security constituted
by the Debenture and the Guarantees, save for
the Finance Parties' security over the Finco
2 shares referred to above; or
(bb) the Security Agent to retain all or part of
the security and guarantees referred to in
(aa) above, but permit the New Capital
Markets Lenders to take identical security
and/or guarantees to that retained and to
execute a pari passu agreement with the
Finance Parties (on terms satisfactory to the
Majority Banks) agreeing that the guarantees
and/or security held by the Finance Parties
and the New Capital Markets Lenders shall
rank pari passu;
(ix) to the extent that it is necessary to repay the
outstanding Interim Advances under clause 6.1(b), or
prepay Acquisition Advances under clause 6.2 but the
Primary Borrower is either unable or elects not to
meet such payments by upstreaming Coal Proceeds,
Borrowed Money incurred which is contractually and/or
structurally subordinated to the Facilities and
Guarantees in a manner satisfactory to the Majority
Banks;
(x) contracts for differences and contracts to hedge
commodity and energy related exposures and positions
in the ordinary course of trading;
(xi) in respect of the Target, Borrowed Money in addition
to that permitted by sub-clauses (i) to (x) above,
provided that:
(aa) the Target has provided a guarantee to the
Security Agent in respect of all of the
obligations of the Borrowers hereunder in
accordance with clause 10.6; and
(bb) such Borrowed Money would not result in a
breach of the Leverage Ratio if it were added
to Consolidated Net Borrowings as at the end
of the last Test Period (and calculating the
Leverage Ratio taking into account any assets
acquired with such Borrowed Money), and the
Leverage Ratio was recalculated;
(c) Disposals: it shall procure that neither it nor any member of
the Group will, either in a single transaction or in a series
of transactions, whether related or not and whether
voluntarily or involuntarily, sell, factor, discount,
transfer, licence, lend, grant or lease or otherwise dispose
of:
(i) any shares in Finco 2, Bidco, any Target Shares and
any shares in REC or in any holding company thereof;
or
(ii) all or any part of the assets or undertaking of the
Target Group (except the assets referred to in
paragraph (i) above), other than:
(aa) to another member of the Group;
(bb) pursuant to the Coalco Disposal Agreement;
(cc) disposals in the ordinary course of trading;
(dd) disposals of obsolete or redundant plant and
equipment;
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(ee) other disposals to third parties on arm's
length terms, provided that the consideration
for such disposals does not exceed
L.50,000,000 in aggregate for the Group in
any financial year;
(ff) in any financial year, disposals of assets by
any member of the Target Group, (1) the gross
value of which (based, in relation to a
disposal occurring before the first delivery
of any annual audited accounts in accordance
with clause 10.1(b), on the annual audited
accounts in respect of the financial year to
31 December 1997 and, in relation to
disposals occurring thereafter, on the
audited consolidated accounts of the Target
Group most recently delivered to the Facility
Agent) when aggregated with all other
disposals by each member of the Target Group
during such financial year not permitted by
any other paragraph of this clause 11.1(c),
does not exceed an amount equal to 10% of the
consolidated gross assets of the Target Group
as shown in such annual audited consolidated
accounts (excluding Coalco and its
Subsidiaries) and (2) in respect of which the
net proceeds of such disposal will be applied
(A) within one year of their receipt in or
towards acquiring for any member of the
Target Group assets of a type ordinarily
employed in the operation of any business
permitted by clause 11.1(i) or (B) in
prepayment of any Acquisition Advance or
Interim Advance in accordance with clause
6.6;
(gg) disposals constituting the creation of
Permitted Security Interests;
(hh) securitisations of receivables of the REC in
accordance with the REC's securitisation
programme in existence at the date of this
Agreement; or
(ii) other disposals where the proceeds are
upstreamed promptly to the Primary Borrower
and used in repayment or prepayment of the
Advances in accordance with clause 6.6;
(d) Restriction on Guarantees: it shall not and shall procure that
no other member of the Group shall give any guarantee (which
includes an indemnity or other form of assurance against
financial loss), except:
(i) where the guarantee is given by a member of the Group
in connection with cash management and netting
facilities extended to the Group by a bank or
financial institution in the normal course of
business; or
(ii) any guarantee, indemnity, letter of credit or similar
assurance against financial loss under any Relevant
Arrangements;
(iii) guarantees in favour of the Finance Parties;
(iv) guarantees of Borrowed Money or other obligations of
other members of the Group, where such guarantees are
already in existence as at the Unconditional Date
(including guarantees given by the same guarantor
companies as had previously guaranteed the relevant
obligation in respect of a new obligation which
refinances or replaces the existing obligation)
provided that any such guarantees of Borrowed Money
entered into between the date of this Agreement and
the Unconditional Date shall be discharged and
released within 180 days of the Unconditional Date
(unless the guarantee was created pursuant to an
obligation existing as at the date of this
Agreement);
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(v) any guarantee permitted under clause 11.1(b)(x);
(vi) any other guarantees given with the prior written
consent of the Majority Banks;
(e) The Licences: it shall procure that each Licensee will:
(i) take all appropriate steps efficiently to perform and
discharge the duties and functions of a generator of
electricity or, as the case may be, public
electricity supplier in accordance with the
provisions of the Electricity Act and, in particular,
to comply with:
(aa) the terms and conditions of the Licence;
(bb) the provisions of any final order or
confirmed provisional order made under the
Electricity Act; and
(cc) all Licence Undertakings given by it to the
Director General and/or the Secretary of
State in respect of the matters referred to
in Section 25(5) of the Electricity Act;
(ii) not consent to any amendment to the terms and
conditions of the Licence if that amendment is
reasonably likely to have a Material Adverse Effect;
(iii) not consent to any revocation of the Licence except
where a replacement Licence is to be granted to a
member of the Group in its place;
(iv) promptly inform the Facility Agent of any material
Licence Undertakings given by it or any Affiliate to
the Director General, and/or the Secretary of State
and subsequently comply with its terms;
(v) promptly supply to the Facility Agent:
(aa) certified copies of all notices or orders
served on it by the Director General or the
Secretary of State in exercise of the powers
conferred on him by the Electricity Act;
(bb) details of any references to the Monopolies
and Mergers Commission; and
(cc) details of the exercise or purported exercise
by the Secretary of State or the Director
General of the powers conferred on him by the
Fair Trading Act 1973, the Competition Act
1980 and/or Section 12 of the Electricity
Act;
(vi) ensure that all times the Licensee has
sufficient working capital to finance the
performance and discharge of its duties as a
generator of electricity or, as the case may
be, public electricity supplier, in
accordance with the provisions of the
Electricity Act and the terms and conditions
of any Licence; and
(vii) not permit any person other than a member of
the Group to perform or manage on its behalf
any of its functions as a public electricity
supplier, as set out in any Licence and the
Electricity Act;
(f) Dividend payments: neither the Primary Borrower nor Finco 2
will:
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(i) redeem or purchase any of its shares or otherwise
reduce its share capital, or declare or pay
(including, without limitation, by way of set-off,
combination of accounts or otherwise) any dividend or
make any other distribution or payment (whether in
cash or in specie), including any interest and/or
unpaid dividends, to its shareholders or their
Affiliates for the time being; or
(ii) make any payment (including, without limitation, by
way of set-off, combination of accounts or otherwise)
of interest or principal, or make any other payment,
in respect of any loan stock or similar instrument
issued by the Primary Borrower or Finco 2 (other than
payments in respect of the intercompany loan from the
Primary Borrower to Finco 2 referred to in the
Investment Agreement),
unless:
(aa) the Primary Borrower or, as the case may be,
Finco 2 has notified the Facility Agent in
writing of the proposed payment or
distribution at least 15 days in advance of
the proposed payment date; and
(bb) to the extent that the most recent financial
statements provided to the Facility Agent
under clause 10.1(b)(ii) and the accompanying
financial covenant compliance certificates
confirm in a manner satisfactory to the
Facility Agent (acting reasonably) that there
is no breach of the Leverage Ratio covenant,
and there would still be no breach of the
Leverage Ratio covenant as at the end of the
financial Quarter if the proposed payment or
distribution (and any related advance
corporation tax or similar tax) was deducted
from Adjusted Share Capital and Reserves at
the end of such preceding Quarter and if
Consolidated Net Borrowings was increased to
reflect any increase in Consolidated Net
Borrowings since the end of the preceding
Quarter, and the relevant financial covenant
recalculated; and
(cc) no Default has occurred and is continuing; and
(dd) Bidco holds at least 90% of the Target Shares;
(g) Contracts and arrangements between the Group and the Parent:
it will not, and will procure that no other member of the
Group will, enter into any arrangement or contract with the
Parent or any of its Subsidiaries or Affiliates (not being a
member of the Group), or any Project Finance Subsidiaries,
save for contracts entered into on an arm's length basis in
the ordinary course of trade (and in any event neither it nor
any member of the Group will make any loan to or give any
guarantee in respect of the Parent or any of its Subsidiaries
or Affiliates (not being a member of the Group) or Project
Finance Subsidiaries) except that the Primary Borrower may
(i) at any time after the Unconditional Date repay to the
Parent the Excess Equity Funding; or
(ii) make equity investments in or loans to Project
Finance Subsidiaries if and to the extent:
(aa) such loans or equity investments are financed
by further equity subscribed by the Parent or
subordinated loans permitted in accordance
with clause 11.1(b)(ix) made by the Parent to
the Primary Borrower or Finco 2; or
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(bb) such loans or equity investments do not
exceed the amount of dividend payments which
could have been made at the same time under
clause 11.1(f) and the Primary Borrower and
Finco 2 complies with the provisions of
clause 11.1(f)(aa) to (dd) immediately prior
to making such loans;
(h) Amalgamation and merger: it will not, and will procure that no
other member of the Group will, amalgamate or merge with any
other company or person (other than intra-Group or if a member
of the Group is the surviving corporation, and such merger or
amalgamation would not result in an Event of Default);
(i) Change in business: it will not, and will ensure
that no other member of the Group will, carry on any
business other than those which are usual for
electricity companies in the United Kingdom
including, without limitation, electricity
distribution, supply and generation and energy
trading and business activities related to the gas,
telecommunications and water industries. Provided
that the limitation of business activities contained
in this clause 11.1(i) will not apply to any other
business activities carried on by members of the
Group as long as such other business activities do
not in aggregate account for more than 10% of the
consolidated gross assets or gross revenues of the
Group;
(j) Primary Borrower, Finco 2 and Bidco business and Subsidiaries:
the Primary Borrower, Finco 2 and Bidco will not (i) carry on
any business or own any material assets other than their
shareholdings in Finco 2, Bidco and the Target respectively,
intra-group credit balances and credit balances in bank
accounts (which shall be held with the Security Agent or as it
directs), (ii) establish or acquire any company or other
entity or (iii) incur any liabilities other than in connection
with this Agreement and the Acquisition;
(k) Target Group Acquisitions: the Primary Borrower, Finco 2 and
Bidco shall procure that the Target and its Subsidiaries shall
not acquire any business, assets or shares without the prior
written consent of the Majority Banks, save for:
(i) where the business, assets or shares acquired fall
within the Group's general business as described in
subclause 11.1(i) above (disregarding the business
activities referred to in the proviso to that clause)
and are subject to regulation by a Government Entity
as to pricing and operations, or constitute any other
business within the limits permitted by the proviso
to subclause 11.1(i) above;
(ii) acquisitions by Project Finance Subsidiaries where no
funds or assets of, or other financial support by,
the Primary Borrower, Bidco or any member of the
Group are invested in, lent to or otherwise provided
to such Project Finance Subsidiary in connection with
or at any time after the acquisition, save as
provided by clause 11.1(g); and
(iii) acquisitions by Project Finance Subsidiaries where
any equity investment or subordinated debt required
to be invested in the Project Finance Subsidiary is
obtained by the Project Finance Subsidiary from third
parties (or the Parent) and not from resources of the
Group, save as provided by clause 11.1(g);
(l) Treasury Transactions: it will not, and will procure that no
other member of the Group will, enter into any Derivatives
Transactions, save for hedging financial exposures of the
Group arising in the ordinary course of business and the
hedging agreements contemplated by clause 10.2(f) and clause
(n) of Schedule 3, Part A; and
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(m) Regulations G, T, U and X: it will not use the Facilities or
the proceeds of the Facilities in contravention of Regulations
G, T, U or X of the Board of Governors of the Federal Reserve
System of the United States of America.
11.2 APPLICATION TO TARGET GROUP
No covenant or undertaking (except the financial covenants in clause
10.3(a)) shall apply to the Target Group until the Takeover Operative
Date, but the Primary Borrower, Finco 2 and Bidco shall use all
commercially reasonable endeavours to procure that the Target Group is
run as if the covenants and undertakings in this Agreement applied to
it as from the Unconditional Date.
12. EVENTS OF DEFAULT
12.1 EVENTS OF DEFAULT
Each of the events set out below is an Event of Default (whether or
not caused by any reason whatsoever outside the control of any
Relevant Company (or any other person)) namely if:
(a) Non-payment: any Borrower or Obligor fails to pay any sum due
from it under any of the Finance Documents on its due date in
the manner stipulated in the relevant Finance Document (or
within three Banking Days of the due date if the delay is
caused by technical difficulties or administrative error in
the transfer of funds); or
(b) Breach of certain obligations: any Borrower or other Obligor
commits any breach or omits to observe any of the obligations
or undertakings expressed to be assumed by it under clause
10.3, 10.4, 11.1(a), 11.1(f) or 11.1(i); or
(c) Breach of other obligations: any Borrower or other Obligor
commits any breach of or omits to observe any of the
obligations or undertakings expressed to be assumed by it
under any of the Finance Documents (other than any such
obligations referred to in clause 12.1(a) and (b)) and in
respect of any such breach or omission which, in the
reasonable opinion of the Majority Banks, is capable of
remedy, such action as shall remedy the same to the reasonable
satisfaction of the Majority Banks shall not have been taken
within 21 days of the relevant Borrower becoming aware of such
default; or
(d) Misrepresentation: any representation, warranty or statement
made or deemed to be made or repeated by or on behalf of any
Borrower or other Obligor in, or in connection with, any of
the Finance Documents or in any notice, accounts, certificate
or statement referred to in or delivered under any of the
Finance Documents is or proves to have been incorrect or
misleading and if capable of being remedied, in the reasonable
opinion of the Majority Banks, is not remedied to the
reasonable satisfaction of the Majority Banks 21 days after
the date on which the relevant Group Company becomes aware of
such misrepresentation; or
(e) Cross-default:
(i) any Borrowed Money of a member of the Group is not
paid when due or within any originally stated
applicable grace period; or
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(ii) any Borrowed Money of a member of the Group is
declared or becomes capable of being declared (by
reason of an event of default or default howsoever
described) to be or otherwise becomes due and payable
prior to its specified maturity; or
(iii) any Borrowed Money of a member of the Group which is
repayable on demand is not repaid on demand being
made,
in circumstances where, in all or any of the above paragraphs,
the Borrowed Money amounts in aggregate at any one time to
more than L.20,000,000 or its equivalent in other currencies,
unless the Borrowed Money concerned is being disputed in good
faith and the Primary Borrower has shown to the Facility
Agent's satisfaction (acting reasonably) that it has adequate
cash reserves to pay that Borrowed Money and its other
outstanding debts; or
(f) Legal process: (without prejudice to any other provision of
this Agreement) any final judgment or order in an amount
exceeding L.2,000,000 (or its equivalent in other currencies)
made against any Relevant Company is not stayed or complied
with or paid within 28 days (or in the case of payments, when
due (if later)) or a creditor attaches or takes possession of,
or a distress, execution, sequestration or other process is
levied or enforced upon or sued out against, any part of the
undertakings, assets, rights or revenues of any Relevant
Company with a book value or market value in excess of
L.2,000,000 and is not discharged or stayed within 14 days; or
(g) Insolvency: any Relevant Company (i) is deemed unable to pay
its debts in accordance with Section 123(1)(a), (b) or (e) or
(2) of the Insolvency Act 1986 unless, in the case of Section
123(1)(a) only, a statutory notice has been withdrawn, stayed
or dismissed within 14 days or (ii) is unable generally to pay
its debts as they fall due; or
(h) Administration: (i) any meeting of any Relevant Company is
convened for the purpose of considering any resolution to
present an application for an administration order or (ii) a
petition on administration order is presented to the Court in
relation to any Relevant Offeror Company or (iii) a petition
for an administration order in relation to any other Relevant
Company is presented to the court or an administration order
is sought of the court on the basis of an undertaking to
subsequently present a petition which is being contested by
the Relevant Company in good faith with appropriate
proceedings diligently pursued, and is not discharged within
21 days or (iv) any Relevant Company passes a resolution to
present an application for an administration order or (v) an
administration order is made in relation to any Relevant
Company; or
(i) Compositions etc: any steps are taken, or negotiations
commenced, by any Relevant Company or by any of its creditors
with a view to proposing any kind of composition, scheme of
arrangement, compromise or arrangement, in each case involving
such company and any of its creditors; or
(j) Appointment of receivers and managers: (i) any administrative
or other receiver or any manager is appointed of any Relevant
Company or any material part of its assets and/or undertaking
or (ii) the directors of any Relevant Company request any
person to appoint such a receiver or manager or (iii) any
other steps are taken to enforce any Security Interest over
all or any material part of the assets and/or undertakings of
any Relevant Company; or
(k) Winding up: (i) any meeting of any Relevant Company is
convened for the purpose of considering any resolution for (or
to petition for) its winding up or (ii) any Relevant Company
passes such a resolution; or (iii) any person presents any
petition for the winding up of any Relevant Company (not being
a petition which the Primary Borrower can demonstrate to the
satisfaction of the Facility Agent is
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frivolous vexatious or an abuse of the process of the court)
which is not discharged within 14 days or (iv) an order for
the winding up of any Relevant Company is made, not (in any
case) being a winding-up of a Subsidiary of the Primary
Borrower involving an amalgamation or reorganisation on a
solvent basis which has been approved in advance by the
Facility Agent (acting reasonably); or
(l) Dissolution: any corporate, legal or administrative
proceedings are commenced by any person (including, without
limitation, the Registrar of Companies) with a view to the
dissolution of any Relevant Company, not being a dissolution
involving an amalgamation or reorganisation on a solvent basis
which has been approved in advance by the Facility Agent
(acting reasonably); or
(m) Analogous proceedings: there occurs, in relation to any
Relevant Company, in any country or territory in which any of
them carries on business or to the jurisdiction of whose
courts any part of their assets is subject, any event which,
in the reasonable opinion of the Majority Banks, appears in
that country or territory to correspond with, or have an
effect equivalent to, any of those mentioned in clauses
12.1(f) to (l) (inclusive) or any Relevant Company otherwise
becomes subject, in any such country or territory, to the
operation of any law relating to insolvency, bankruptcy or
liquidation; or
(n) Cessation of business: other than in relation to a disposal
permitted under this Agreement, any Relevant Company suspends
or ceases or threatens to suspend or cease to carry on its
business; or
(o) Change of Control:
(i) Bidco ceases to be a wholly owned subsidiary (as that
term is used in section 736 of the Act) of Finco 2;
or
(ii) Finco 2 ceases to be a wholly owned Subsidiary of the
Parent and at least a 90% owned direct subsidiary of
the Primary Borrower; or
(iii) less than 100% (until the first anniversary of the
Unconditional Date) or 75% (until the second
anniversary of the Unconditional Date) or 60%
(thereafter) of the equity share capital of the
Primary Borrower is held by the Parent (directly or
indirectly) at any time; or
(iv) Bidco at any time reduces its shareholding in the
Target; or
(v) REC, any other Licensee ceases to be a wholly-owned
Subsidiary of the Target; or
(vi) there is a Change in Control of the Parent; or
(p) Distribution Business/Generation Business:
(i) the Group ceases, or threatens to cease, to carry on
the Distribution Business;
(ii) all or a majority of the issued shares of the
Licensee or any other Relevant Company or the whole
or any material part of the assets or revenues of the
Distribution Business or Generation Business are
seized, nationalised, expropriated or compulsorily
acquired by or under the authority of a Government
Entity;
(iii) any change is made in the statutory or regulatory
requirements applicable to the Distribution Business
or Generation Business or any new statutory or
regulatory requirements are imposed on it which would
be reasonably likely to have a Material Adverse
Effect; or
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(q) Licences:
(i) the Secretary of State gives notice in writing of the
revocation of a Licence for any reason or a Licence
ceases to be in full force and effect in any material
respect except where a similar licence is or licences
are granted to a member of the Group in its place;
(ii) without prejudice to paragraph (i) above, any
legislation (whether primary or subordinate) with
regard to the creditors of Licensees or the ability
of Licensees to raise finance under a Licence or with
regard to generators or electricity or public
electricity suppliers generally is enacted and that
enactment would be reasonably likely to have a
Material Adverse Effect;
(iii) any amendment is made to the terms and conditions of
a Licence and the amendment would be reasonably
likely to have a Material Adverse Effect;
(r) Electricity Act:
(i) any of the provisions of the Electricity Act (or any
subordinate legislation) detailing the rights,
powers, authorities, obligations and duties of the
Secretary of State or the Director General, or the
manner in or time at which they are to be exercised,
are repealed or amended in a manner which would be
reasonably likely (in the opinion of the Majority
Banks) to have a Material Adverse Effect; or
(ii) the Licensee fails to comply with a final order
(within the meaning of section 25 of the Electricity
Act) or with a provisional order (within the meaning
of that section) which has been confirmed under that
section and in either case which has not been revoked
under that section or the validity of which has not
been questioned under section 27 of the Electricity
Act, if such failure to comply would be reasonably
likely to have a Material Adverse Effect; or
(s) Pooling and Settlement Agreement: REC or any other member of
the Group ceases to be a party to the Pooling and Settlement
Agreement, or any notice requiring REC or any other member of
the Group to cease to be a party to the Pooling and Settlement
Agreement is given to such company under the relevant clauses
of the Pooling and Settlement Agreement, except where another
member of the Group becomes a party to that agreement in its
place;
(t) Gas Framework Agreement: REC or any other member of the Group
ceases to be a party to the Gas Framework Agreement where this
would be reasonably likely to lead to a Material Adverse
Effect, except where another member of the Group becomes a
party to that agreement in its place;
(u) Finance Documents: any Finance Document is not or ceases to be
legal, valid and binding on or enforceable against any Obligor
or is alleged by any Borrower or other Obligor to be
ineffective for any reason; or
(v) Unlawfulness: it becomes unlawful at any time for any
Borrower or other Obligor to perform all or any of its
material obligations under any of the Finance Documents;
(w) Coalco Disposal Agreement: the Target varies, waives or
amends any material provision of the Coalco Disposal Agreement
or the Escrow Agreement (save with the prior written consent
of the Majority Banks).
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12.2 ACCELERATION
The Facility Agent may, and, if so requested by the Majority Banks,
shall, without prejudice to any other rights of the Finance Parties:
(a) Certain Funds Period: during the Certain Funds Period, at any
time after the happening of a Major Default; or
(b) Other times: at any other time, after the happening of an
Event of Default,
and so long as the same is continuing, by notice to the Primary
Borrower:
(i) declare that the obligation of each Bank to make its
Commitments available shall be terminated, whereupon the Total
Commitments in respect of all Facilities shall be reduced to
zero forthwith; and/or
(ii) declare that the Advances and all interest, fees and
commitment commission accrued and all other sums payable under
the Finance Documents have become due and payable or have
become due and payable on demand, whereupon the same shall,
immediately or in accordance with the terms of such notice,
become due and payable; and/or
(iii) demand full cash cover for the Outstanding Contingent
Liabilities under all Letters of Credit then outstanding in
the currency in which those Letters of Credit are denominated;
and/or
(iv) declare that the Security Documents (or any of them) have
become enforceable (in whole or in part).
On or at any time after the making of any such declaration, the
Facility Agent shall be entitled, to the exclusion of the Borrowers,
to select the duration of Interest Periods.
12.3 LIMITED RIGHTS OF RESCISSION DURING THE CERTAIN FUNDS PERIOD
Prior to the end of the Certain Funds Period, except as expressly
permitted by clause 12.2(a), none of the Finance Parties shall have or
seek to exercise any right of rescission or other remedy in
consequence of any of the representations or warranties in the Finance
Documents being or being proved to have been incorrect in any respect
or any Borrower having failed to perform, observe or comply with any
of its obligations, undertakings or agreements under the Finance
Documents or otherwise (except for the Security Agent's rights under
the Debenture to take control of and vote the Target Shares).
12.4 APPLICATION TO TARGET GROUP
Without limitation to clauses 9.5, 11.2 and 12.3, the occurrence of
any event falling within clause 12.1 in respect of the Target or any
member of the Target Group at any time prior to the Takeover Operative
Date shall not (unless it constitutes a breach of clause 11.2)
constitute an Event of Default or a Default if:
(a) the same arises under clauses 12.1(e), (f), (i) or (u); and
(b) the event is remedied to the satisfaction of the Majority
Banks by the Takeover Operative Date.
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13. INDEMNITIES
13.1 MISCELLANEOUS INDEMNITIES
The Primary Borrower shall within three Banking Days of demand
indemnify each Finance Party, without prejudice to any of their other
rights under any of the Finance Documents, against any cost, loss,
claim, expense (including loss of Applicable Margin and legal fees) or
liability together with any Tax thereon which such Finance Party shall
certify as sustained or incurred by it as a consequence of:
(a) any default in payment by any Borrower of any sum under any of
the Finance Documents when due,
(b) the occurrence of any other Default,
(c) any prepayment of the Facilities or part thereof being made
otherwise than on an Interest Payment Date or, as the case may
be, Maturity Date relative thereto,
(d) any Advance not being made for any reason (excluding, but only
to the extent of the indemnification of a particular Finance
Party, any gross negligence or wilful default by such Finance
Party) after a Drawdown Notice has been given, or
(e) any notice sent by telefax failing to be received,
including, in any such case, but not limited to, any loss or expense
sustained or incurred in maintaining or funding its Contributions or
any part thereof or in liquidating or re-employing deposits from third
parties acquired or contracted for to fund all or any part of its
Contributions or any other amount owing to such Finance Party.
13.2 CURRENCY OF ACCOUNT; CURRENCY INDEMNITY
(a) No payment by any Borrower under any of the Finance Documents
which is made in a currency other than the currency
("CONTRACTUAL CURRENCY") in which such payment is required to
be made pursuant to the relevant Finance Documents shall
discharge the obligation in respect of which it is made except
to the extent of the net proceeds in the Contractual Currency
received by the Facility Agent upon the sale of the currency
so received, after taking into account any premium and costs
of exchange in connection with such sale.
(b) The Finance Parties shall not be obliged to accept any such
payment in a currency other than the Contractual Currency nor
shall the Finance Parties be liable to any Borrower for any
loss or alleged loss arising from fluctuations in exchange
rates between the date on which such payment is so received by
the Facility Agent and the date on which the Facility Agent
effects such sale, as to which the Facility Agent shall (as
against each Borrower) have an absolute discretion.
(c) If any sum due from any Borrower under any Finance Documents
or any order or judgment given or made in relation hereto is
required to be converted from the Contractual Currency or the
currency in which the same is payable under such order or
judgment (the "FIRST CURRENCY") into another currency (the
"SECOND CURRENCY") for the purpose of (i) making or filing a
claim or proof against any Borrower, (ii) obtaining an order
or judgment in any court or other tribunal or (iii) enforcing
any order or judgment given or made in relation to any of the
Finance Documents, each Borrower shall indemnify and hold
harmless each Finance Party from and against any loss suffered
as a result of any difference between (A) the rate of exchange
used for such purpose to convert the sum in question from the
first
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currency into the second currency and (B) the rate or rates of
exchange at which each such Finance Party may in the ordinary
course of business purchase the first currency with the second
currency upon receipt of a sum paid to it in satisfaction, in
whole or in part, of any such order, judgment, claim or proof.
(d) Any amount due from any Borrower under the indemnity contained
in this clause 13.2 shall be due as a separate debt and shall
not be affected by judgment being obtained for any other sums
due under or in respect of any of the Finance Documents and
the term "RATE OF EXCHANGE" includes any premium and costs of
exchange payable in connection with the purchase of the first
currency with the second currency.
13.3 ACQUISITION FINANCE INDEMNITY
The Primary Borrower shall forthwith on demand indemnify each Finance
Party and each of their respective Affiliates and Subsidiaries and its
respective directors officers and employees (each being an
"INDEMNIFIED PERSON") from and against any cost, claim, loss, expense
(including without limitation, the fees, costs and expenses of legal
advisors arising from any legal procedures (including, without
limitation, any administrative regulatory or judicial actions or
investigations) to which that Indemnified Person becomes subject or
joined as a party or which may be threatened or pending against it) or
liability together with any Tax thereon which may be incurred or
asserted against such Indemnified Person arising out of or in
connection with the Offer (whether or not made) or it agreeing to
finance or refinance any acquisition by Bidco or any person acting in
concert with Bidco of any shares or share options of any class in
Target or the use of the proceeds of any Advance (save to the extent
any such loss or liability arises as a result of the gross negligence
or wilful default of the relevant Finance Party).
13.4 NO SETTLEMENT WITHOUT CONSENT
The Primary Borrower agrees on its own behalf and on behalf of each
other member of the Group that, without the prior written consent of
each relevant Agent and the Majority Banks, no member of the Group
will settle, compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of
which indemnification could be sought under the indemnification
provisions of clauses 8.4, 8.5, 8.6, 7.6, 13, 16.14, 20.2 or 20.3
(whether or not any indemnitee thereunder (the "Indemnitee") is an
actual or potential party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent does not include any
statement as to an admission of fault, culpability or failure to act
by or on behalf of any Indemnitee and does not involve any payment of
money or other value by any Indemnitee or any injunctive relief or
factual findings or stipulations binding on any Indemnitee.
14. UNLAWFULNESS, INCREASED COSTS, ALTERNATIVE INTEREST RATES
14.1 UNLAWFULNESS
(a) If it is or becomes contrary to any law or regulation or
contrary to any request from or requirement of any fiscal
monetary or other authority (with which such Finance Party
would normally comply) for a Finance Party to contribute to
any Utilisation or to maintain its Commitments in respect of a
Facility or fund its Contribution to a Facility, such Finance
Party shall promptly after becoming aware of the same, through
the Facility Agent, notify the Primary Borrower whereupon (a)
such Finance Party's Commitments shall be reduced to zero
(and, if it is the Issuing Bank, it shall have no further
obligation to Issue Letters of Credit if to do so would in the
opinion of the Issuing Bank be or become contrary to any law
or regulation or contrary to any request from or requirement
of any fiscal monetary or other
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authority (with which such Finance Party would normally
comply)) and (b) if the Facility Agent on behalf of the
Finance Party so requires each relevant Borrower shall be
obliged to prepay the Contribution of such Finance Party to
such Facility and provide full cash cover for any Outstanding
Contingent Liabilities of the relevant Finance Party on a
future date specified by the Facility Agent not being earlier
than the latest date permitted by the relevant law or
regulation or not contrary to such request or requirement.
Any prepayment pursuant to this clause 14.1 shall be made
together with all amounts referred to in clause 6.6.
(b) When any relevant Borrower makes any prepayment under this
clause 14.1 the Facility Agent shall not release the amount of
such prepayment which is cash cover for any Outstanding
Contingent Liabilities of the relevant Finance Party to such
Finance Parties but shall place such monies on suspense
account and such money may be used as collateral for the
actual and the contingent liabilities of that Finance Party to
the Issuing Bank, which liabilities shall remain in full force
and effect notwithstanding such prepayment; and such Finance
Party shall remain liable under all the relevant provisions of
this Agreement to the Issuing Bank to pay in cash any
shortfall between the amount held by the Facility Agent and
its liabilities under this Agreement.
14.2 INCREASED COSTS
If the result of any change in, or in the interpretation or
application of, or the introduction of, (after the date of this
Agreement):
(a) any law (including, the introduction of the proposed Bank of
England Act following the publication of the Bank of England
Bill 1997) or
(b) any regulation, request or requirement (which if not having
the force of law is one of a kind with which the relevant
Finance Party or, as the case may be, its holding company
habitually complies), including those relating to Taxation,
capital adequacy, European monetary union, liquidity, reserve
assets, cash ratio deposits and special deposits or requested
or required by any central bank (including without limitation
any European Central Bank) or other fiscal monetary or other
authority,
is to:
(i) subject any Finance Party or its holding company to
Taxes or change the basis of Taxation of any Finance
Party with respect to any payment under this
Agreement (other than Taxes or Taxation on the
overall net income, profits or gains of such Finance
Party imposed in the jurisdiction in which its
principal office or Facility Office is located);
and/or
(ii) increase the cost to, or impose an additional cost
on, any Finance Party or its holding company in
entering into or performing its obligations under the
Finance Documents and/or in making or keeping
available all or part of such Finance Party's
Commitments and/or maintaining or funding all or part
of such Finance Party's Contributions (and/or
providing any guarantee or indemnity of any other
Finance Party's obligations); and/or
(iii) reduce the amount payable or the effective return to
any Finance Party under this Agreement; and/or
(iv) reduce any Finance Party's or its holding company's
rate of return on its overall capital by reason of a
change in the manner in which it is required to
allocate capital resources in respect of all or any
of the advances or obligations comprised in a class
of advances or
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obligations formed by or including such Finance
Party's share in Utilisations made or to be made
under this Agreement; and/or
(v) require any Finance Party or its holding company to
make a payment or forgo a return calculated by
reference to or on any amount received or receivable
by such Finance Party under this Agreement; and/or
(vi) require any Finance Party or its holding company to
incur or sustain a loss (including a loss of future
potential profits) by reason of being obliged to
deduct all or part of such Finance Party's
Commitments or Contributions from its capital for
regulatory purposes,
then and in each such case (but subject to clause 8.6 and
14.3):
(aa) such Finance Party shall notify the Primary
Borrower through the Facility Agent in
writing of such event promptly upon its
becoming aware of the same; and
(bb) following such notification the Primary
Borrower shall, whether or not such Finance
Party's Contribution to any Facility has been
repaid, pay to the Facility Agent on demand
for the account of such Finance Party the
amount which such Finance Party specifies (in
a certificate setting forth the basis of the
computation of such amount but not including
any matters which such Finance Party or its
holding company regards as confidential) is
required to compensate such Finance Party
and/or its holding company in its sole
discretion for such liability to Taxes,
increased or additional cost, reduction,
payment, forgone return or loss.
For the purposes of this clause 14.2 each Finance Party may in good
faith allocate or spread costs and/or losses among its assets and
liabilities (or any class thereof) on such basis as it considers
appropriate.
Each Finance Party shall use all reasonable endeavours to notify the
Primary Borrower as soon as reasonably practicable of any such
increased cost, reduction, payment or forgone return which is to
result in a demand under clause 14.2(bb).
For the purposes of this clause 14.2 and clause 14.4 "HOLDING COMPANY"
means, in relation to a Finance Party, the company or entity (if any)
within the consolidated supervision of which such Finance Party is
included.
For the purposes of this clause 14.2, the Borrowers acknowledge that
any requirement that the Finance Parties treat interest hereunder as
anything other than interest shall be a change in law or the
interpretation thereof.
14.3 EXCEPTIONS
Nothing in clause 14.2 shall entitle any Finance Party to receive any
amount in respect of compensation for any such liability to Taxes,
increased or additional cost, reduction, payment, forgone return or
loss to the extent that the same:
(a) is taken into account in calculating the Additional Cost; or
(b) is the subject of an additional payment under clause 8.5; or
(c) arises as a consequence of (or of any law or regulation
implementing) (i) the proposals for international convergence
of capital measurement and capital standards published by the
Basle Committee on
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Banking Regulations and Supervisory Practices in July 1988
and/or (ii) any applicable directive of the European Union (in
each case) unless it results from any change in, or in the
interpretation or application of, such proposals or any such
applicable directive (or any law or regulation implementing
the same) occurring after the date hereof; or
(d) is attributable to Taxation save where it is recovered under
clause 14.2(i); or
(e) is attributable to the wilful default or gross negligence of a
Finance Party.
For the purposes of clause 14.3(c) the term "APPLICABLE DIRECTIVE"
means (exclusively) each of the Own Funds Directive (89/299/EEC of
17th April 1989) and the Solvency Ratio Directive (89/647/EEC of 18th
December 1989).
14.4 MITIGATION
If, in respect of any Finance Party (an "AFFECTED BANK"),
circumstances arise or exist which would result in:
(a) any Borrower being required to make an increased payment to
that Finance Party pursuant to clause 8.5;
(b) the reduction of that Finance Party's Commitment in respect of
any Facility to zero or any Borrower being required to prepay
that Finance Party's Contribution to any Facility pursuant to
clause 14.1;
(c) any Borrower being required to make a payment to any Finance
Party to compensate such Finance Party or its holding company
for a liability to Taxes, increased or additional cost,
reduction, payment, forgone return or loss pursuant to clause
14.2(bb); or
(d) any Borrower not being entitled to a deduction for UK
corporation tax purposes in respect of interest payable under
this Agreement to that Finance Party;
then, without in any way limiting, reducing or otherwise qualifying
the obligations of any Borrower under clause 8 and this clause 14 (and
subject to the Borrower's rights under clause 6.5), such Finance Party
shall, in consultation with the Facility Agent, endeavour to take such
reasonable steps (and/or, in the case of clause 14.2(bb) and where the
increased or additional cost, reduction, payment, forgone return or
loss is that of its holding company, endeavour to procure that its
holding company takes such reasonable steps) as are open to it (or, as
the case may be, its holding company) to mitigate or remove such
circumstances unless the taking of such steps might (in the opinion of
such Finance Party) be prejudicial to such Finance Party (or, as the
case may be, its holding company) and provided that such Finance Party
shall be under no obligation to take any such action if in the opinion
of such Finance Party to do so might have any adverse effect upon its
business, operations or financial condition.
15. SET-OFF AND PRO-RATA PAYMENTS
15.1 SET-OFF
Each Borrower hereby agrees that each Finance Party may at any time,
whilst any Default shall be continuing notwithstanding any settlement
of account or other matter whatsoever, combine or consolidate all or
any of its then existing accounts wheresoever situate (including
accounts in the name of such Finance Party or of such Borrower jointly
with others), whether such accounts are current, deposit, loan or of
any other nature
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whatsoever, whether they are subject to notice or not and whether they
are denominated in Sterling or in any other currency, and set-off or
transfer any sum standing to the credit of any one or more such
accounts in or towards satisfaction of any moneys, obligations or
liabilities which are due and payable by such Borrower to such Finance
Party under the Finance Documents but are unpaid. For this purpose
each Finance Party is authorised to purchase with the moneys standing
to the credit of such account such other currencies as may be
necessary to effect such application. No Finance Party shall be
obliged to exercise any right given to it by this clause 15.1. Each
Finance Party shall notify the Facility Agent promptly upon the
exercise or purported exercise of any right of set-off in relation to
any member of the Group giving full details in relation thereto and
the Facility Agent shall inform the other Finance Parties.
15.2 PRO-RATA PAYMENTS
(a) If at any time any Bank (the "RECOVERING BANK") receives or
recovers any amount owing to it by any Borrower under this
Agreement by direct payment, set-off or in any manner other
than by payment through the Facility Agent (not being a
payment received from a Substitute or a sub-participant in
such Bank's Contribution to any Facility or any other payment
of an amount due to the Recovering Bank for its sole account),
the Recovering Bank shall, within two Banking Days of such
receipt or recovery (a "RELEVANT RECEIPT") notify the Facility
Agent of the amount of the Relevant Receipt. If the Relevant
Receipt exceeds the amount which the Recovering Bank would
have received if the Relevant Receipt had been received by the
Facility Agent then:
(i) within two Banking Days of demand by the Facility
Agent, the Recovering Bank shall pay to the Facility
Agent an amount equal to the excess;
(ii) the Facility Agent shall treat the excess amount so
paid by the Recovering Bank as if it were a payment
made by the relevant Borrower and shall distribute
the same to the Banks (other than the Recovering
Bank); and
(iii) as between the relevant Borrower and the Recovering
Bank, the excess amount so re-distributed shall be
treated as not having been paid but the obligations
of the relevant Borrower to the other Banks shall, to
the extent of the amount so re-distributed to them,
be treated as discharged.
(b) If any part of a Relevant Receipt subsequently has to be
wholly or partly refunded by the Recovering Bank (whether to a
liquidator or otherwise) each Bank to which any part of such
Relevant Receipt was so re-distributed shall on request from
the Recovering Bank repay to the Recovering Bank such Bank's
pro-rata share of the amount which has to be refunded by the
Recovering Bank.
(c) Each Bank shall on request supply to the Facility Agent such
information as the Facility Agent may from time to time
request for the purpose of this clause 15.2.
(d) Notwithstanding the foregoing provisions of this clause 15.2,
no Recovering Bank shall be obliged to share any Relevant
Receipt which it receives or recovers pursuant to legal
proceedings taken by it to recover any sums owing to it under
this Agreement with any other party which has a legal right
to, but does not, either join in such proceedings or commence
and diligently pursue separate proceedings to enforce its
rights in the same or another court (unless the proceedings
instituted by the Recovering Bank are instituted by it in
breach of clause 18.2).
(e) The amounts due from each relevant Borrower to each of the
Banks shall reflect any payments and receipts among the Banks
prescribed by this clause.
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(f) Nothing in this clause 15.2 shall prevent the Issuing Bank
from recovering from the relevant Borrowers any amounts due
under a Letter of Credit issued by the Issuing Bank.
15.3 NO RELEASE
For the avoidance of doubt it is hereby declared that failure by any
Recovering Bank to comply with the provisions of clause 15.2 shall not
release any other Recovering Bank from any of its obligations or
liabilities under clause 15.2.
15.4 NO CHARGE
The provisions of this clause 15 are not intended to, shall not, and
shall not be construed so as to, constitute a charge by a Bank. In
particular it is not intended to create a charge over all or any part
of a sum received or recovered by any Bank in the circumstances
mentioned in clause 15.2.
16. ASSIGNMENT, SUBSTITUTION AND LENDING OFFICES
16.1 BENEFIT AND BURDEN
This Agreement shall be binding upon, and enure for the benefit of,
the Finance Parties and the Borrowers and their respective successors,
transferees and assigns.
16.2 NO ASSIGNMENT BY THE BORROWERS
The Borrowers may not assign or otherwise transfer any of their
respective rights or obligations under any of the Finance Documents.
16.3 SUBSTITUTION
Each Bank (an "EXISTING BANK") may at any time assign all or any of
its rights and benefits under the Finance Documents or novate in
accordance with clause 16.5 all or any part of its rights, benefits
and/or obligations under the Finance Documents to another Qualifying
Bank (a "SUBSTITUTE") with the consent of the Issuing Bank, and with
the consent of the Primary Borrower (not to be unreasonably withheld
or delayed), save that such consent of the Primary Borrower will not
be required to assignments or novations which take place prior to the
Syndication Date.
16.4 ASSIGNMENT
If any Bank assigns all or any of its rights and benefits under the
Finance Documents in accordance with clause 16.3, then, unless and
until the assignee has agreed with the other Finance Parties that it
shall be under the same obligations towards each of them as it would
have been if it had been an original party thereto as a Bank, the
other Finance Parties shall not be obliged to recognise that assignee
as having the rights against each of them which it would have had if
it had been such a party thereto.
16.5 SUBSTITUTION CERTIFICATE
(a) Subject to clause 16.5 (b), if a duly completed Substitution
Certificate duly executed by the Existing Bank and the
Substitute is delivered to and counter-signed by the Facility
Agent (for itself and the other parties to this Agreement
other than the Existing Bank), then on the Effective Date (as
specified in that
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Substitution Certificate) to the extent that the Existing
Bank's rights, benefits and obligations under the Finance
Documents are expressed in such Substitution Certificate to be
the subject of a novation in favour of the Substitute effected
pursuant to this clause 16.5:
(i) the existing parties to the Finance Documents and the
Existing Bank shall be released from their respective
obligations towards one another under the Finance
Documents ("DISCHARGED OBLIGATIONS") except for any
obligation which the Existing Bank has to the Issuing
Bank under clause 4.7 (Bank's Guarantee and
Indemnity) before the date on which the novation
takes place unless otherwise agreed in writing by the
Issuing Bank and their respective rights against one
another under the Finance Documents ("DISCHARGED
RIGHTS") shall be cancelled;
(ii) the Substitute party to such Substitution Certificate
and the existing parties to the Finance Documents
shall assume obligations towards each other which
differ from the discharged obligations only insofar
as they are owed to or assumed by such Substitute
instead of to or by such Existing Bank;
(iii) the Substitute party to such Substitution Certificate
and the existing parties to the Finance Documents
shall acquire rights against each other which differ
from the discharged rights only insofar as they are
exercisable by or against such Substitute instead of
by or against such Existing Bank; and
(iv) the Finance Parties shall acquire the same rights and
benefits and assume the same obligations between
themselves as they would have acquired and assumed
had such Substitute been an original party hereto as
a Bank with the rights, benefits and/or obligations
acquired or assumed by it as a result of such
transfer;
and, on such Effective Date, the Substitute shall (unless such
novation is part of the syndication process carried out by the
Arrangers) pay to the Facility Agent for its own account a fee
of L.750. The Facility Agent shall promptly notify the other
Banks of the receipt by it of any Substitution Certificate and
shall promptly deliver a copy of such Substitution Certificate
to the Primary Borrower.
(b) A Substitution Certificate executed under this clause shall be
automatically effective only if and to the extent that the
Substitute shall have a credit rating issued by Standard &
Poors Corporation of at least A (the "Minimum Rating"). If
any Substitute does not have the Minimum Rating as at the time
of the transfer, then the Substitution Certificate shall not
take effect until such time as the Substitute has lodged with
the Security Agent such amount of cash by way of cash cover as
would represent the amount required to be paid by that
Substitute to the Issuing Bank, if the Issuing Bank were to
call on the Bank's indemnity in respect of Letters of Credit
contained in clause 4.7. Should the Issuing Bank issue any
further Letters of Credit, such Substitute shall lodge such
further cash cover as shall equal the contribution which it
could be required to make to the Banks' indemnity in respect
of such additional Letters of Credit.
16.6 RELIANCE ON SUBSTITUTION CERTIFICATE
The Facility Agent (on behalf of itself and the Security Agent) and
the Borrowers shall be fully entitled to rely on any Substitution
Certificate delivered to the Facility Agent in accordance with the
foregoing provisions of this clause 16 which is complete and regular
on its face as regards its contents and purportedly signed on behalf
of the relevant Existing Bank(s) and the Substitute(s) and none of the
Facility Agent, the Security Agent and the Borrowers shall have any
liability or responsibility to any party as a consequence of placing
reliance on and
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acting in accordance with any such Substitution Certificate if it
proves to be the case that the same was not authentic or duly
authorised.
16.7 AUTHORISATION OF FACILITY AGENT
Each party to this Agreement irrevocably authorises the Facility Agent
to counter-sign each Substitution Certificate on its behalf for the
purposes of clause 16.5 without any further consent of, or
consultation with, such party except, in the case of the Primary
Borrower, any consent required pursuant to clause 16.3.
16.8 ACCESSION DEEDS
The Obligors shall from time to time at the request of the Facility
Agent promptly execute any accession deed to any of the Security
Documents and do any other act or thing or execute such further
documents as directed by the Facility Agent in connection with the
transfer of rights or benefits under clause 16.3.
16.9 COSTS AND EXPENSES
The Primary Borrower shall, promptly after demand by the Facility
Agent, pay to the Facility Agent and the Security Agent the reasonable
costs and expenses incurred by them or any other Finance Party in
connection with the creation of valid security in respect of any
Substitute taking an assignment of rights and/or an assumption of
obligations pursuant to clause 16 in those jurisdictions requiring
further steps to be taken following such assignment or assumption.
16.10 CONSTRUCTION OF CERTAIN REFERENCES
If any Bank novates all or any part of its rights, benefits and
obligations as provided in clause 16.3 all relevant references in this
Agreement to such Bank shall thereafter be construed as a reference to
such Bank and/or its Substitute to the extent of their respective
interests.
16.11 LENDING OFFICES
Each Bank shall lend through its office at the address specified in
schedule 1 or, as the case may be, in or pursuant to any relevant
Substitution Certificate or through any other office of such Bank
selected from time to time by such Bank through which such Bank wishes
to lend for the purposes of this Agreement. If the office through
which a Bank is lending is changed pursuant to this clause 16.11, such
Bank shall notify the Facility Agent promptly of such change. No Bank
shall exercise its rights under this clause in any manner which might
reasonably be expected to result in it not being a Qualifying Bank.
16.12 DISCLOSURE OF INFORMATION
The Obligors party to this Agreement agree that the Finance Parties
may at any time disclose such information relating to the Obligors,
their Affiliates and associated companies as shall come into their
possession, whether or not in relation to the Facilities:
(a) to any prospective assignee, Substitute or sub-participant;
(b) to their respective advisers, professional or otherwise;
(c) to any Affiliate of such Finance Party;
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(d) to the other Finance Parties;
(e) if required to do so by an order of a court in any
jurisdiction;
(f) under any law or regulation or to any applicable regulatory
authority (including the Bank of England) in any jurisdiction;
and
(g) where such information shall have already entered the public
domain,
and in the case of (a) and (b) above, subject to requiring and
receiving a written confirmation from the recipient of the information
that it will treat in confidence any confidential information so
disclosed to it and not use it for any unauthorised purpose and, upon
receipt of such confirmation, such Finance Party shall in no way be
liable or responsible for such information not being kept confidential
by such proposed assignee, Substitute or other person.
16.13 RESTRICTIONS ON NOVATIONS
Any novation by an Existing Bank which is transferring part (but not
all) of its Commitment may only be made under this clause 16 if (i) it
is made in respect of a Commitment of L.5,000,000 or any larger
integral multiple of L.5,000,000 and (ii) as a consequence of such
novation (or as a consequence of that and any other novation between
the same or related parties taking effect at or about the same time)
the Commitment of the Existing Bank would be less than L.5,000,000.
If part (but not all) of a Bank's Contribution is being transferred,
the previous sentence shall be read as if it referred to
"Contribution", "Contributions" and assignment instead of "Commitment"
and "Commitments" and "novation" respectively.
16.14 NO OBLIGATION
The Existing Bank shall not be obliged by any Finance Document to:
(a) accept a re-transfer from the Substitute of any of the rights
and/or obligations assigned or transferred under this clause
16; or
(b) indemnify the Substitute for any losses arising by reason of
any Obligor's failure to perform its obligations under any
Finance Documents or otherwise.
16.15 SYNDICATION
It is acknowledged that at the date of this Agreement the Facilities
are being made available by the Underwriters with the intention that
each Underwriter may transfer any part of its participation in
accordance with clause 16.5 (Substitution) and, accordingly,
references to the Banks shall, before the first date on which such
transfer shall be made of the Underwriter's rights, benefits and
obligations under this Agreement in accordance with clause 16.5
(Substitution), be construed as a reference solely to the
Underwriters.
16.16 OBLIGORS' UNDERTAKINGS IN CONNECTION WITH SYNDICATION
The Obligors acknowledge that syndication of the Facilities in
accordance with this clause 16.16 and the Syndication Letter will take
place and undertake to take reasonable steps to assist and co-operate
with the Arrangers, the Facility Agent and the Underwriters in
syndication by, among other things:
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(a) co-operating with site visits by the Banks and persons invited
by the Arrangers to participate (in this clause 16.16 only,
together the "BANKS");
(b) participating at an appropriate senior management level in
presentations to the Banks concerning the Parent, the members
of the Group and their activities;
(c) using reasonable endeavours to obtain appropriate
authorisations from the Auditors, other accountants,
consultants and professional advisers to release for the
benefit of the Banks any information addressed to any Obligor
and/or the Facility Agent;
(d) refraining from making any statement, announcement or
publication or doing any act or thing which may obstruct
syndication in any way;
(e) providing the Banks with such information relating to the
Parent and members of the Group, and their associated
companies and their activities as the Banks reasonably
request;
(f) assisting the Facility Agent and the Arrangers in the
preparation and review of any information which such Facility
Agent and/or the Arrangers reasonably require for the purposes
of syndication, including assisting in the preparation of any
information memorandum and the giving of such additional
warranties as the Facility Agent may reasonably request of the
contents of the information and/or the warranties in clause 9,
provided that any such warranties are expressed to be to the
best of the relevant Obligor's knowledge, information and
belief and that the Obligors may disclose against such
warranties such matters as they deem appropriate;
(g) passing on to the Facility Agent any enquiries received by
them from potential Banks; and
(h) agreeing to amendments to the Finance Documents of an
administrative or technical nature or to correct typographical
or other clerical errors.
17. FACILITY AGENT AND SECURITY AGENT
17.1 APPOINTMENT OF FACILITY AGENT AND SECURITY AGENT
Each Finance Party (except the relevant agent) appoints the Facility
Agent to act as its agent in connection with the Finance Documents to
which the Facility Agent is a party and the Security Agent to act as
its agent and trustee in relation to the Security Documents, and
authorises each of the Facility Agent and the Security Agent to
exercise such rights, remedies, powers and discretions as are
specifically delegated to them by the terms of this Agreement and the
Security Documents together with all reasonably incidental rights,
powers and discretions. The Obligors shall be entitled to assume that
the Facility Agent and the Security Agent represent the Finance
Parties (except the relevant agent), the Reference Banks or the
Majority Banks (as the case may be), and that all consents and notices
given by the Facility Agent or the Security Agent on their behalf are
validly given.
17.2 SEPARATE TREATMENT OF SYNDICATION DIVISION
In acting as Facility Agent or Security Agent, the Facility Agent's
or, as the case may be, the Security Agent's syndication division (or
such other division as may undertake such task) shall be treated as a
separate entity from any other of its divisions or departments and,
despite the provisions of clauses 17 to 21, if the Facility Agent or
Security Agent or any Related Person acts for or transacts business
with any member of a group comprising
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the Parent and its Affiliates or associated companies (the "Parent
Group") or any other person which may be a trade competitor of the
Parent Group or Target Group or any member of either such group or may
otherwise have commercial interests similar to those of any member of
such groups in any capacity in relation to any other matter (including
as a Bank under this Agreement), any information acquired by the
Facility Agent or Security Agent or any Related Person in such other
capacity may be treated as confidential by the Facility Agent or
Security Agent. The Borrowers and Bidco hereby expressly acknowledge
that the Finance Parties and Related Persons may be providing debt
financing, equity capital or other services (including financial
advisory services) to other persons with whom the Parent or the Group
may have conflicting interests in respect of the Facilities or
otherwise.
17.3 ACTIONS OF FACILITY AGENT AND SECURITY AGENT
Each action taken or decision made by the Facility Agent or the
Security Agent under or in relation to any Finance Document with
requisite authority under this Agreement, including on the basis of
the requisite instructions, shall be binding on all the Finance
Parties.
17.4 NOTIFICATION OF RETIREMENT OF FACILITY AGENT, SECURITY AGENT OR
ISSUING BANK
Each of the Facility Agent, the Security Agent and/or the Issuing Bank
may resign its appointment under this Agreement at any time without
assigning any reason therefor by giving not less than 30 days' prior
written notice to that effect to each of the other parties to this
Agreement Provided that no such resignation shall be effective until a
successor for such Facility Agent, Security Agent or Issuing Bank (as
the case may be) is appointed in accordance with the succeeding
provisions of this clause.
17.5 SUCCESSOR FACILITY AGENT, SECURITY AGENT OR ISSUING BANK
If the Facility Agent, Security Agent or Issuing Bank gives notice of
its resignation pursuant to clause 17.4, then any reputable and
experienced bank or other financial institution with an office in
London may after consultation with the Primary Borrower be appointed
as a successor to such Facility Agent, Security Agent or Issuing Bank
(as the case may be) by the Majority Banks but, if no such successor
is so appointed, the Facility Agent, Security Agent or Issuing Bank
(as the case may be) may appoint such a successor itself.
17.6 PROVISIONS RELATING TO SUCCESSOR FACILITY AGENT, SECURITY AGENT OR
ISSUING BANK
With effect from the date that a successor is appointed and accepts
the office of Facility Agent, Security Agent or, as the case may be,
Issuing Bank and executes such necessary documentation under this
clause 17:
(a) as regards the other Finance Parties and the Obligors, such
successor shall become bound by all the obligations of the
Facility Agent, Security Agent or, as the case may be, the
Issuing Bank and become entitled to all the rights,
privileges, powers, authorities and discretions of the
Facility Agent, Security Agent or, as the case may be, the
Issuing Bank under the Finance Documents;
(b) the agency of the retiring Facility Agent, the trusteeship of
the retiring Security Agent or, as the case may be, the duties
of the Issuing Bank shall terminate and the retiring Facility
Agent, Security Agent or, as the case may be, the retiring
Issuing Bank shall be discharged from any further liability or
obligation under the Finance Documents, but without prejudice
to any liabilities which the retiring Facility Agent, Security
Agent or, as the case may be, the retiring Issuing Bank may
have incurred (including with respect to the retiring Issuing
Bank any then outstanding Issued Letter of Credit) before the
termination of its agency, trusteeship and/or duties;
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(c) the costs, charges and expenses of the retiring Facility
Agent, Security Agent or, as the case may be, the retiring
Issuing Bank shall be discharged if recoverable under the
provisions of this Agreement;
(d) the provisions of the Finance Documents shall continue in
effect for the benefit of any retiring Facility Agent,
Security Agent or, as the case may be, the retiring Issuing
Bank in respect of any actions taken or omitted to be taken by
it or any event occurring before the termination of its
agency, trusteeship and/or duties (including with respect to
the retiring Issuing Bank any then outstanding Issued Letter
of Credit);
(e) it is intended that (except only as may be agreed in writing
between any retiring Security Agent and its successor with the
prior approval of the Majority Banks), in the case of the
appointment of successor to the Security Agent, the property,
assets and rights vested in the retiring Security Agent
pursuant to the Security Documents should, with immediate
effect, be vested in such successor Security Agent under the
provisions of the Trustee Act 1925, either by operation of law
or, failing that, by assignment or other form of transfer or
conveyance;
(f) at any time and from time to time following such appointment
of a successor to the Security Agent, the retiring Security
Agent shall do and execute all acts, deeds and documents
reasonably required by such successor in order to transfer to
such successor Security Agent (or its nominee, as such
successor may direct) any such property, assets and rights
which shall not have vested in such successor by operation of
law and all such acts, deeds and documents under clauses
17.6(e) and (f) shall be done or, as the case may be, executed
at the cost of the retiring Security Agent; and
(g) the retiring Facility Agent, Security Agent or Issuing Bank
shall (at the expense of the Primary Borrower) provide its
successor with copies of such of its records as its successor
reasonably requires to carry out its functions as such.
17.7 MERGER OF FACILITY AGENT, SECURITY AGENT OR ISSUING BANK
Any corporation into which the Facility Agent, the Security Agent or
the Issuing Bank may be merged or converted or any corporation with
which the Facility Agent, the Security Agent or the Issuing Bank may
be consolidated or any corporation resulting from any merger,
conversion, amalgamation, consolidation or other reorganisation to
which the Facility Agent, the Security Agent or the Issuing Bank shall
be a party shall, to the extent permitted by applicable law, be the
successor Facility Agent, Security Agent or, as the case may be,
Issuing Bank under this Agreement and the other Finance Documents (as
appropriate) without the execution or filing of any document or any
further act on the part of any of the parties to this Agreement or, as
the case may be, the other Finance Documents save that notice of
merger, conversion, amalgamation, consolidation or other
reorganisation shall forthwith be given to the Primary Borrower and
the Banks.
17.8 ROLE OF ISSUING BANK
The Issuing Bank shall act on behalf of the Banks with respect to any
Letters of Credit Issued by it and the documents associated therewith
until such time and except for so long as the Facility Agent may agree
at the request of the Majority Banks to act for such Issuing Bank with
respect thereto.
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18. POWERS
18.1 GENERAL POWERS
Each of the Facility Agent, the Security Agent, the Arrangers and the
Underwriters may:
(a) assume that the Facility Office of each Bank is that
identified with its signature below (or, in the case of a
Substitute, that identified in the Substitution Certificate
under which it became a party to this Agreement) until it has
received from such Bank a notice designating some other office
of such Bank as its Facility Office, and may act upon any such
notice until the same is superseded by a further such notice;
(b) engage and pay for the advice or services of any lawyers,
accountants or other advisers whose advice or services may
seem necessary, expedient or desirable to it and may rely upon
any advice so obtained;
(c) rely as to matters of fact which might reasonably be expected
to be within the knowledge of an Obligor upon a certificate or
statement signed by or on behalf of that Obligor;
(d) rely upon any communication or document believed by it to be
genuine and correct and to have been communicated or signed by
the person by whom it purports to be communicated or signed;
(e) refrain from exercising any right, power or discretion vested
in it under any Finance Document unless and until instructed
by the Majority Banks or, where required, all of the Banks as
to whether or not such right, power or discretion is to be
exercised and, if it is to be exercised, as to the manner in
which it should be exercised, and it shall not be liable for
acting or refraining from acting in accordance with or in the
absence of such instructions;
(f) refrain from taking any step to protect or enforce the rights
of any Finance Party under any Finance Document and from
beginning any legal action or proceeding arising out of or in
connection with any Finance Document until it has been
indemnified and/or secured as it may require (whether by way
of payment in advance or otherwise) against all costs, claims,
expenses (including legal fees) and liabilities which it will
or may expend or incur in complying with such instructions;
(g) refrain from doing anything which would or might in its
opinion be contrary to any applicable law or any requirements
(whether or not having the force of law) of any governmental,
judicial or regulatory body or otherwise render it liable to
any person, and do anything which is in its opinion necessary
to comply with any such applicable law or requirement;
(h) do any act or thing in the exercise of any of its powers and
duties under the Finance Documents which may lawfully be done
and which in its absolute discretion it deems advisable for
the protection and benefit of the Finance Parties
collectively;
(i) perform any of its duties, obligations and responsibilities
under the Finance Documents by or through its personnel or
agents; and
(j) accept deposits from, lend money (secured or unsecured) to and
generally engage in any kind of banking or other business
with, be the owner or holder of any shares or other securities
of, and provide advisory or other services to the Parent and
its Affiliates, and/or the Group or any of the Finance
Parties, without any liability to account.
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18.2 SPECIFIC POWERS OF FACILITY AGENT AND SECURITY AGENT
Each of the Facility Agent and the Security Agent:
(a) may assume that:
(i) any representation made by the Obligors in or in
connection with the Finance Documents is true;
(ii) no Default has occurred;
(iii) no Obligor is in breach of or default under its
obligations under any Finance Document; and
(iv) any right, power, authority or discretion vested in
any of the Finance Documents upon the Majority Banks,
all Banks, or any other person or group of persons
has not been exercised,
unless the Facility Agent or, as the case may be, the Security
Agent has in its capacity as agent (or where relevant, as
agent and trustee) for the relevant Finance Parties received
actual notice to the contrary from any other party to any
Finance Document;
(b) shall be at liberty to place any Finance Document and any
other instruments, documents or deeds delivered to it pursuant
thereto or in connection therewith for the time being in its
possession in any safe deposit, safe or receptacle selected by
the Security Agent or Facility Agent, as the case may be, or
with any bank, any company whose business includes undertaking
the safe custody of documents or any firm of lawyers of good
repute and may make any such arrangements as it thinks fit for
allowing the Primary Borrower access to, or its solicitors or
auditors possession of, such documents when necessary or
convenient and, in the absence of gross negligence or wilful
default on its part, shall not be responsible for any loss
thereby incurred;
(c) may, whenever it thinks fit, delegate by power of attorney or
otherwise to any person or persons all or any of the rights,
trusts, powers, authorities and discretion vested in it by any
Finance Document and such delegation may be made upon such
terms and subject to such conditions and subject to such
regulations as the Security Agent or Facility Agent, as the
case may be, may think fit and shall not be bound to supervise
the proceedings or (in the absence of gross negligence or
wilful default on its part) be in any way responsible for any
loss incurred by reason of any misconduct or default on the
part of any such delegate;
(d) notwithstanding anything else herein contained, may refrain
from doing anything which would or might in its opinion be
contrary to any relevant law of any jurisdiction or any
relevant directive or regulation of any agency of any state or
which would or might otherwise render it liable to any persons
and may do anything which is, in its opinion, necessary or
desirable to comply with any such law, directive or
regulations;
(e) may indemnify itself and/or every attorney, agent or other
person appointed by it under any Finance Document out of the
Trust Property against all Liabilities (as defined in clause
20.3) and/or in respect of any other matter or thing done or
omitted to be done in any way relating to any Finance Document
or by law and/or acting as Facility Agent or Security Agent
(as the case may be);
(f) shall have the power to institute, prosecute and defend any
suits or actions or other proceedings affecting the Facility
Agent or Security Agent respectively or the Trust Property and
to compromise any matter or difference or submit any such
matter to arbitration and to compromise or compound any debts
owing to the Facility Agent or Security Agent respectively or
any other claims against it or any such terms as it shall deem
sufficient and to make petition upon such terms as it shall
deem desirable;
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(g) save as otherwise expressly provided herein, shall have
absolute discretion as to the exercise or non exercise (and as
to the manner and time of any such exercise) of all rights,
trust, powers, authorities and discretions vested in it by any
of the Finance Documents but shall be entitled to refrain from
exercising any right, power or discretion vested in it as
agent or trustee under any Finance Document unless and until
instructed by the Majority Banks or, where required under this
Agreement, all Banks as to whether or not such right, power or
discretion is to be exercised and, if it is to be exercised,
as to the manner in which it should be exercised; and
(h) shall have absolute discretion as to the exercise or
non-exercise (and as to the manner and time of any such
exercise) of all rights, trust, powers, authorities and
discretions in relation to any matter, or in any context, not
expressly provided for by this Agreement to act or, as the
case may be, refrain from acting in accordance with the
instructions of the Majority Banks;
(i) shall have the power to give or enter into any indemnity,
warranty, guarantee, undertaking or covenant or to enter into
any type of agreement as it shall, with the approval of the
Majority Banks (or, where required under this Agreement, all
Banks) and subject to all other provisions of the Finance
Documents, think fit in relation to the Trust Property;
(j) shall (subject to clause 19) be entitled (in its own name or
in the names of nominees) to invest moneys from time to time
including in the case of the Security Agent moneys forming
part of the Trust Property or otherwise held by it as a
consequence of any enforcement of the security constituted by
the Security Documents which, in the opinion of the Facility
Agent or (as the case may be) the Security Agent, it would not
be practicable to distribute immediately by placing the same
on deposit in the name or under the control of itself as it
may think fit without being under any duty to diversify the
same and it shall not be responsible for any loss due to
interest rate or exchange rate fluctuations;
(k) with respect to its own Commitments and Contributions (if
any), shall have the same rights and powers under this
Agreement and the other Finance Documents as any other Bank
and may exercise the same as though it were not performing the
duties and functions delegated to it under this Agreement
and/or the other Finance Documents and the term "BANKS" shall,
unless the context clearly otherwise indicates, include the
Security Agent and the Facility Agent in their individual
capacities as Banks.
18.3 SPECIFIC POWERS OF SECURITY AGENT
The Security Agent:
(a) shall have all the powers and discretions conferred upon
trustees by the Trustee Act 1925 (to the extent not
inconsistent herewith) and upon the Security Agent by this
Agreement and the other Finance Documents and upon a receiver
appointed under any Finance Documents (as though the Security
Agent were a receiver thereunder);
(b) shall, without prejudice to any of the powers, discretions and
immunities conferred upon trustees by law (and to the extent
not inconsistent with the provisions of this Agreement or any
of the Security Documents), have all the same powers and
discretions as a natural person acting as the beneficial owner
of such property and/or as are conferred upon the Security
Agent by this Agreement and/or any Security Document but so
that the Security Agent may only exercise such powers and
discretions to the extent that it is authorised to do so by
the provisions of this Agreement;
(c) shall have full power to determine all questions and doubts
arising in relation to the interpretation or application of
any of the provisions of this Agreement or any of the Security
Documents as it affects
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the Security Agent and every such determination (whether made
upon a question actually raised or implied in the acts or
proceedings of the Security Agent) shall be conclusive and
shall bind all the other parties to this Agreement and the
Security Documents;
(d) may at any time appoint any person (whether or not a trust
corporation) to act either as a separate trustee or as a
co-trustee jointly with it (i) if it considers such
appointment to be in the interests of the Finance Parties or
(ii) for the purposes of conforming to any legal requirements,
restrictions or conditions which the Security Agent deems
relevant for the purposes hereof, and shall give prior notice
to the Primary Borrower and the Facility Agent of any such
appointment; and any person so appointed shall have such
powers, authorities and discretions (including the receipt and
payment of money) and such duties and obligations as shall be
conferred or imposed on such person by the instrument of
appointment and shall have the same benefits under clauses 17
to 23 as the Security Agent; and the Security Agent shall have
power in like manner to remove any person so appointed; and
may pay to any person so appointed, and any costs, charges and
expenses incurred by such person in performing its functions
pursuant to such appointment, shall for the purposes hereof be
treated as costs, charges and expenses incurred by the
Security Agent in performing its function as trustee
hereunder;
(e) has at its absolute discretion the right to make or retain or
register in the names of nominees any investment of any part
or all of the Trust Property;
(f) without prejudice to the provisions of any of the Finance
Documents, shall have the right to, but shall not be under any
obligation to, insure any of the Trust Property or to require
any other person to maintain any such insurance and (in the
absence of gross negligence or wilful default on the part of
the Security Agent) shall not be responsible for any loss
which may be suffered by any person as a result of the lack of
or inadequacy or insufficiency of any such insurance;
(g) may at its sole discretion, and without reference to the
Finance Parties, release any asset or assets from the Security
Documents to the extent that their disposal or release is
permitted or required by the terms of this Agreement or any of
the Security Documents;
(h) shall be entitled to make the deductions and withholdings (on
account of Taxes or otherwise) from payments to the Facility
Agent hereunder which it is required by any applicable law to
make, and to pay all Taxes which may be assessed against it in
respect of any of the Trust Property, in respect of anything
done by it in its capacity as trustee or otherwise by virtue
of its capacity as trustee;
(i) shall be entitled to carry out all dealings with the other
Finance Parties through the Facility Agent and shall be
entitled to rely on the Facility Agent's certificate as to the
entitlement of all or any of the Finance Parties; and
(j) shall be authorised to execute each of the Security Documents
on behalf of the Finance Parties.
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19. DUTIES
19.1 SPECIFIC DUTIES OF THE FACILITY AGENT AND THE SECURITY AGENT
Each of the Facility Agent and the Security Agent (for the benefit of
the other Finance Parties only) shall:
(a) promptly upon receipt inform each Bank of the contents of any
notice or document or other information received by it on or
after the date of this Agreement in its capacity as Facility
Agent under this Agreement from any Obligor or as Security
Agent under the Security Documents from any Obligor;
(b) promptly notify each Bank of the occurrence of any Default or
any material breach by any Obligor in the due performance of
its obligations under this Agreement or any Security Document
of which the Facility Agent or, as the case may be, the
Security Agent (in its capacity as such) has received written
notice from any other party to any Finance Document;
(c) save as otherwise provided herein, act in accordance with any
instructions given to it by the Majority Banks (which
instructions shall be binding on all of the Finance Parties);
(d) if so instructed by the Majority Banks (or, where so required
under this Agreement, all Banks), refrain from exercising any
right, remedy power or discretion vested in it under the
Finance Documents;
(e) except as regards purely administrative acts, consult whenever
reasonably practicable with the Banks before doing or
refraining from doing any act or thing in the exercise of its
powers as agent and/or trustee;
(f) to the extent that it receives or recovers monies following
the service of a notice in accordance with Clause 12.2
pursuant to or as a result of any breach of any Finance
Document to be applied in discharging any obligation (whether
actual or contingent, present or future) of any Obligor under
any Finance Document, apply such monies (without prejudice to
the respective rights of the Facility Agent or the Security
Agent pursuant to any Finance Document to credit any monies
received by it to any suspense account) as between the Finance
Parties in accordance with clause 8.9 as if they were a
partial payment; and
(g) shall make each such application and/or distribution as soon
as is practicable after the relevant moneys are received by,
or otherwise become available to, it save that (without
prejudice to any other provision contained in any of the
Security Documents) the Security Agent (acting on the
instructions of the Facility Agent), the Facility Agent or any
Receiver may credit any moneys received by it to a suspense
account for so long and in such manner as the Security Agent,
Facility Agent or such Receiver may from time to time
determine with a view to preserving the rights of the Finance
Parties or any of them to prove for the whole of their
respective claims against any Borrower or any other person
liable.
19.2 SPECIFIC DUTIES OF SECURITY AGENT
The Security Agent (for the benefit of the other Finance Parties only)
shall:
(a) during the Trust Period hold the Trust Property as trustee
upon trust for the Finance Parties from time to time and (as
well after as before enforcement) perform and exercise (as the
case may be) the obligations, rights and benefits vested or to
be vested in the Security Agent by the Finance Documents or
any document entered into pursuant thereto in accordance with
the provisions of Clauses 17 to 23.
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(b) (subject to the provisions contained in clause 3.3 (Certain
Funds Period)) only make demand under the Security Documents
and to the extent practicable enforce the security constituted
by the Security Documents:
(i) before the Final Repayment Date at the direction of
the Majority Banks, if any of the Facilities has been
declared to be immediately due and payable by the
Facility Agent under clause 12.2; or
(ii) on or after the Final Repayment Date at the direction
of any Bank, if any Borrower defaults in repaying the
Facilities in full on the Final Repayment Date or in
paying any other amount due by any Borrower to any
Finance Party, under the Finance Documents; or
(iii) at any time, if requested to do so by a member of the
Group which has granted security to the Security
Agent;
(c) hold any recoveries which it receives under the security
constituted by the Security Documents on trust for
distribution to the Finance Parties, in accordance with the
provisions of this clause 19 and shall hold the security
constituted by the Security Documents on trust for the Finance
Parties, to give effect to this Agreement and shall exercise
its rights, powers and duties under the Security Documents
(and particularly those concerned with the protection and
enforcement of the security afforded by such documents) and/or
under this Agreement for the benefit of all Finance Parties;
and
(d) carry out all dealings with the other Finance Parties through
the Facility Agent.
20. EXONERATION
20.1 ABSENCE OF OBLIGATION ON INITIAL FINANCE PARTIES
Despite anything to the contrary expressed or implied in any Finance
Document, each of the Facility Agent, the Security Agent, the Issuing
Bank, the Arrangers and the Underwriters shall:
(a) not be bound to enquire as to and will have no liability in
respect of:
(i) whether or not any representation or warranty made by
any Obligor under or in connection with any Finance
Document is true complete or adequate;
(ii) the occurrence or otherwise of any Default;
(iii) the performance by any Obligor of its obligations
under any Finance Document; or
(iv) any breach or default by any Obligor of or under its
obligations under any Finance Document;
(b) not be bound to account to any Finance Party for any fee or
other sum or the profit element of any sum received by it for
its own account;
(c) not be bound to disclose to any other person any information
relating to any member of the Group if such disclosure would
or might in its opinion constitute a breach of any law or
regulation or duty of confidentiality or be otherwise
actionable at the suit of any person;
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(d) not be under any fiduciary or other duty towards any Finance
Party or under any obligations other than those expressly
provided for in any Finance Documents;
(e) not be liable (in the absence of its own gross negligence or
willful default):
(i) for any failure, omission, or defect in the due
execution, delivery, validity, legality, adequacy,
performance, enforceability, or admissibility in
evidence of any Finance Document or any
communication, report or other document delivered
under any Finance Document; or
(ii) in respect of its exercise or failure to exercise any
of its powers and duties under any Finance Document;
or
(f) not have any duties, obligations or liabilities other than
those expressly provided for in this Agreement and (in the
case of the Security Agent) the Security Documents and have no
liability or responsibility (in the absence of its own gross
negligence or wilful default) of any kind to:
(i) any member of the Group arising out of or in relation
to any failure or delay in the performance or breach
by any Finance Party (other than itself) of any of
its obligations under or in connection with any
Finance Document; or
(ii) any Finance Party arising out of or in relation to:
(aa) the financial condition of any member of the
Group; or
(bb) any failure or delay in the performance or
breach by any Obligor of any of its
obligations under or in connection with any
Finance Document or the Facilities;
(g) not be bound to check or enquire on behalf of any other
Finance Party into or liable for the adequacy, accuracy,
execution, genuineness, enforceability, admissibility in
evidence or completeness of any communication delivered to it
under any of the Finance Documents, any legal or other
opinions, reports, valuations, certificates, appraisals or
other documents delivered or made or required to be delivered
or made at any time in connection with any of the Finance
Documents, any security to be constituted thereby or any other
report or other document, statement or information circulated,
delivered or made, whether orally or otherwise and whether
before, on or after the date of this Agreement;
(h) be entitled to accept without enquiry, requisition or
objection such right and title as any Obligor may have to that
part of the property belonging to it (or any part thereof)
which is the subject matter of any Finance Document and not be
bound or concerned to investigate or make any enquiry into the
right or title of such person to such property (or any part
thereof) or, without prejudice to the foregoing, to require
such person to remedy any defect in such person's right or
title as aforesaid;
(i) in enforcing the security constituted by the Finance Documents
and in determining the respective entitlements of the Finance
Parties, be entitled to rely on its own account;
(j) be entitled to invest monies which in the opinion of the
Facility Agent or Security Agent (as the case may be) may not
be paid out promptly following receipt in the name or under
the control of such Facility Agent or Security Agent (as the
case may be) in any of the investments for the time being
authorised by law for the investment by trustees of trust
monies or in any other investments whether similar to the
aforesaid or not which may be requested by the Majority Banks
or by placing the same
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on deposit in the name or under the control of the Facility
Agent or the Security Agent as the Facility Agent or Security
Agent (as the case may be) may think fit and the Facility
Agent and Security Agent (as the case may be) may at any time
vary or transpose any such investments for or into any others
of a like nature and (in the absence of gross negligence or
wilful default on the part of such Facility Agent or Security
Agent) shall not be responsible for any loss thereby incurred
whether due to depreciation in value of such investments or
any other reason whatever;
(k) not be bound to take any steps or perform any obligation or
exercise any right or fulfil any request if to do so might in
its sole opinion breach or conflict with or contradict or be
contrary to any rule, regulation, law, regulatory requirement,
court order or judgment in any jurisdiction or expose the
Facility Agent, the Security Agent, the Arrangers or the
Underwriters to liabilities in any jurisdiction or be
otherwise actionable at the suit of any person;
(l) not be liable for any failure:
(i) to require the deposit with it of any deed or
document certifying, representing or constituting the
title of any of the Obligors to any of the property
mortgaged, charged, assigned or otherwise encumbered
by or pursuant to any of the Security Documents;
(ii) to obtain any licence, consent or other authority for
the execution, delivery, validity, legality,
adequacy, performance, enforceability or
admissibility in evidence of any of the Finance
Documents;
(iii) to register or notify any of the foregoing in
accordance with the provisions of any of the
documents of title of any of the Obligors;
(iv) to effect or procure registration of or otherwise
protect any of the security created by the Security
Documents by registering the same under any
applicable registration laws in any territory;
(v) to take, or to require any of the Obligors to take,
any steps to render the security created by the
Security Documents effective or to secure the
creation of any ancillary charge under the laws of
any other jurisdiction; or
(vi) to require any further assurances in relation to any
of the Security Documents;
(vii) to become or remain a mortgagee or heritable creditor
in possession (or equivalent in any foreign
jurisdiction);
(viii) to take or omit to take any other action under or in
connection with the Security Documents or any aspect
thereof (save as otherwise expressly provided in
clause 19); or
(ix) in the case of each of the Facility Agent, Arrangers
and Underwriters, by the Security Agent to perform or
discharge any of its duties or obligations under the
Security Documents;
(m) in the case of the Security Agent, not be bound to supervise,
or be responsible for any loss incurred by reason of any act
or omission of, any trustee or co-trustee of the Security
Agent if the Security Agent shall have exercised reasonable
care in the selection of such trustee or co-trustee; and
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(n) have no liability (save as otherwise provided in clauses 17 to
23) otherwise in connection with the Facilities or their
negotiations or for acting (or as the case may be refraining
from acting) in connection with the instructions of the
Majority Banks.
20.2 INDEMNITY FROM BANKS
Each Bank and the Issuing Bank shall, in its Proportion, on demand by
the Facility Agent, the Security Agent or any Arranger from time to
time, indemnify the Facility Agent or, as the case may be, the
Security Agent or the Arranger, against any and all fees (to the
extent properly chargeable by the Facility Agent or, as the case may
be, the Security Agent or the Arranger under any Finance Document but
not promptly recovered from the Obligors), costs, claims and expenses
and liabilities including any VAT thereon:
(a) to which the Facility Agent or, as the case may be, the
Security Agent becomes subject by reason of it acting as agent
or security trustee; or
(ii) incurred by the Facility Agent or, as the case may be, the
Security Agent or any attorney, agent, delegate or other
person appointed by the Facility Agent or the Security Agent
under any Finance Document in relation to or arising out of
the taking or holding of any of the security given or created
by or pursuant to any of the Finance Documents or in the
execution or purported or attempted execution of the rights,
trusts, powers, authorities, discretions and obligations
vested in it; or
(iii) which it is otherwise entitled to recover from any Obligor,
in each case under any of the Finance Documents or by law, including
those relating to all actions, proceedings, claims and demands in
respect of any matter or thing done or omitted in any way relating to
the Finance Documents any exercise or non exercise of any right, power
or discretion, and all amounts due to the Facility Agent or the
Security Agent by way of remuneration for acting as agent or trustee
(as the case may be) under any of the Finance Documents (collectively
the "LIABILITIES"). Each Borrower shall counter-indemnify the Banks
and the Issuing Bank against all payments by them under this clause
20.2. If a Bank or the Issuing Bank (referred to in this clause 20.2
as a "defaulting Bank") fails to pay its due contribution under this
indemnity, then the Facility Agent or, as the case may be, the
Security Agent may (without prejudice to its other rights and
remedies) deduct the amount due from the defaulting Bank from any sums
which are then or afterwards in its possession which would otherwise
be payable to the defaulting Bank.
20.3 INDEMNITY FROM TRUST PROPERTY
The Security Agent and every employee, officer, trustee or co-trustee
or other person appointed by it in connection with its appointment
under the Security Documents (each a "PROTECTED PARTY") shall be
entitled to be indemnified out of the Trust Property in respect of all
liabilities, damages, costs, claims, charges or expenses whatsoever
properly incurred or suffered by any Protected Party:
(a) in the execution or exercise or bona fide purported execution
or exercise of the trusts, rights, powers, authorities,
discretions and duties created or conferred by or pursuant to
the Security Documents;
(b) as a result of any breach by a member of the Group of any of
its obligations under any Security Document;
(c) in respect of any Environmental Claim made or asserted against
a Protected Party which would not have arisen if the Security
Documents had not been executed; and
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(d) in respect of any matter or thing done or omitted in any way
relating to the Trust Property or the provisions of any of the
Security Documents.
The rights conferred by this clause 20.3 are without prejudice to any
right to indemnity by law given to trustees generally and to any
provision of the Security Documents entitling the Security Agent or
any other person to an indemnity in respect of, and/or reimbursement
of, any liabilities, damages, costs, claims, charges or expenses
incurred or suffered by it in connection with any of the Security
Documents or the performance of any duties under any of the Security
Documents. Nothing contained in this clause 20.3 shall entitle any
Protected Party to be indemnified in respect of any liabilities,
damages, costs, claims, charges or expenses to the extent that the
same arise from such person's own gross negligence or wilful
misconduct.
20.4 DISCLAIMER
Neither the Facility Agent, the Security Agent, nor any Arranger or
Underwriter accepts responsibility to any other Finance Party for the
accuracy and/or completeness of any information supplied in connection
with any Finance Document or for the legality, validity,
effectiveness, adequacy or enforceability of any Finance Document and
neither the Facility Agent, the Security Agent, nor any Arranger or
Underwriter shall be under any liability to any other Finance Party as
a result of taking or omitting to take any action in relation to any
Finance Document (except in the case of its gross negligence or wilful
misconduct).
20.5 NO ACTIONS AGAINST INDIVIDUALS
Each of the Banks agrees that it will not assert or seek to assert
against any director, officer or employee of the Facility Agent, the
Security Agent, any Arranger or Underwriter any claim it may have
against any of them in respect of the matters referred to in clause
20.4.
20.6 CREDIT APPRAISALS
It is agreed by each Bank, by virtue of its execution of this
Agreement or its accession to this Agreement, that it has itself been,
and will continue to be, solely responsible for making its own
independent appraisal of and investigations into the financial
condition, creditworthiness, condition, affairs, status and nature of
each member of the Group, and, accordingly, each Bank confirms to the
Facility Agent, the Security Agent, and each Arranger and Underwriter
that it:
(a) does not enter into this Agreement nor accede to it on the
basis of and has not relied on and will not rely on any
statement, opinion, forecast or other representation (whether
negligent or innocent) or warranty or other provision (in any
case whether oral, written, express or implied) made by, or
agreed to, the Facility Agent, the Security Agent, any
Arranger, any Underwriter or any other Bank to induce it to
enter into this Agreement or any other Finance Document except
as expressly set out therein and the remedies available in
respect of any such misrepresentation or untrue statement made
to such Bank shall be limited to a claim for breach of
contract under this Agreement; and
(b) has not relied on and will not rely on the Facility Agent, the
Security Agent, any Arranger, any Underwriter or any other
Bank:
(i) to check or enquire on its behalf into the adequacy,
accuracy or completeness of any information provided
by or on behalf of any member of the Group in
connection with any Finance Document and/or the
transactions contemplated in the Finance Documents
(whether or not such information has been or is after
the date of this Agreement circulated to such Bank
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by the Facility Agent, the Security Agent, any
Arranger or Underwriter or as the case may be any
other Bank); or
(ii) to assess or keep under review on its behalf the
financial condition, creditworthiness, condition,
affairs, status or nature of any member of the Group.
Provided that clause 20.6(a) shall not apply to any statement or
representation made fraudulently, or to any provision of this
Agreement which was induced by fraud for which the remedies available
shall be all those available under English law.
20.7 EXONERATION OF RELATED PERSONS
All the provisions of this clause 20 and of any other provision of any
Finance Document protecting (including indemnifying) or limiting the
liability of any Finance Party, or exonerating it from liability or
responsibility, which may enure to the benefit of the such Finance
Party shall also be deemed to be given for the benefit of the Security
Agent and all Related Persons to whom they are capable of relating or
in respect of whom they are capable of taking effect.
20.8 PRE-CONTRACTUAL EFFECT OF EXONERATION
For the avoidance of doubt, the guarantee, indemnity, exonerations and
other protections in favour of the Facility Agent, the Security Agent,
the Arrangers, the Underwriters and the Related Persons contained in
the Finance Documents shall take effect in respect of all events,
action and omissions occurring before the execution and completion of
this Agreement as well as events, actions and omissions occurring on
or after its execution and completion and to the extent that any
liability should be adjudged to have arisen prior to the date of this
Agreement, such liability is hereby completely released.
20.9 COMMON PARTIES
Notwithstanding that the Facility Agent and the Security Agent may
from time to time be the same entity, the Facility Agent and the
Security Agent have entered into this Agreement in their separate
capacities as agent or (as appropriate) security agent and trustee for
the Finance Parties provided that, where this Agreement provides for
the Facility Agent or Security Agent to communicate with or provide
instructions to another Facility Agent or Security Agent while the two
parties in question are the same entity, it will not be necessary for
there to be any such formal communication or instructions.
21. ENFORCEMENT AND RECOVERIES
21.1 OBLIGATIONS OWED BY OBLIGORS TO FINANCE PARTIES
Each Obligor agrees that:
(a) the security comprised in the Security Documents may be
enforced, realised and distributed by the Security Agent and
Facility Agent in accordance with their respective powers and
obligations to the Finance Parties set out in clauses 18 and
19;
(b) the obligations and liabilities the subject of the Security
Documents shall only be discharged by virtue of receipt or
recovery by the Security Agent of monies, or of payments made
by the Security Agent
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hereunder, to the extent that the ultimate recipient actually
receives monies from the Security Agent hereunder;
(c) if it receives any sum from any person which, pursuant to the
Finance Documents, should have been paid to the Security
Agent, such sum shall be held on trust for the Finance Parties
and shall forthwith be paid over to the Security Agent;
(d) it hereby waives, to the extent permitted under applicable
law, all rights it may otherwise have to require that the
security created pursuant to the Facility Documents be
enforced in any particular order or manner or that any sum
received or recovered from any person or by virtue of the
enforcement of any of the security or any other Encumbrance of
any nature over any assets or revenues, which is capable of
being applied in or towards discharge of any of the Secured
Obligations is so applied, whether on receipt or recovery or
at any time thereafter.
21.2 OBLIGATIONS OWED BY FINANCE PARTIES TO FACILITY AGENT AND SECURITY
AGENT
The Finance Parties agree between themselves:
(a) to furnish to the Facility Agent, for transmission to the
Security Agent, such information as the Security Agent may
reasonably specify (through the Facility Agent) as being
necessary or desirable for the purpose of enabling the
Security Agent to perform its functions as trustee or
administrator;
(b) to co-operate with each other and with the Security Agent and
any Receiver under the Security Documents in realising the
property and assets subject to the Security Documents and in
ensuring that the net proceeds realised under the Security
Documents after deduction of the expenses of realisation are
applied in accordance with clause 19.1; and
(c) not to take any action separately to enforce or attempt to
enforce any of the Security Documents or to exercise any
rights, discretions or powers or to grant any consents or
releases under or pursuant to any of the Security Documents or
otherwise have direct recourse to the security and/or
guarantees constituted by any of the Security Documents.
21.3 PERPETUITY PERIOD
The trusts constituted or evidenced in or by the Security Documents
shall remain in full force and effect during the Trust Period.
22. DETERMINATION OF MATTERS
22.1 MAJORITY BANK MATTERS: AMENDMENTS AND WAIVERS
Except as provided in clause 22.4 and 22.5 (Unanimous consent), with
the prior written consent of the Majority Banks, the Facility Agent
(or as the case may be, the Security Agent) and the Primary Borrower
may from time to time:
(a) enter into written amendments, supplements or modifications to
the Finance Documents (however fundamental) for the purpose of
adding any provisions to the Finance Documents or changing in
any manner the rights and/or obligations of any of the
Borrowers, the Facility Agent, the Security Agent and the
Banks; and
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(b) execute and deliver to any Borrower a written instrument
waiving prospectively or retrospectively, on such terms and
conditions as the Facility Agent (or, as the case may be,
Security Agent) may specify in such instrument, any of the
requirements of any of the Finance Documents, or giving any
consents or approvals thereunder.
22.2 DOCUMENTATION OF MAJORITY BANK CHANGES
Any action so authorised and effected by the Facility Agent or the
Security Trustee under clause 22.1 shall be documented in such manner
as the Facility Agent shall (with the approval of the Majority Banks)
determine, shall be promptly notified to the Banks by the Facility
Agent and (without prejudice to the generality of clause 17.3) shall
be binding on all the Banks.
22.3 MAJORITY BANK MATTERS: ENFORCEMENT
If the Facility Agent makes a declaration under clause 12.2 the
Facility Agent shall, in the names of all the Banks, take such action
on behalf of the Banks and conduct such negotiations with any Borrower
and any other members of the Group and generally administer the
Advances in accordance with the wishes of the Majority Banks. All the
Banks shall be bound by the provisions of this clause 22.3 and no Bank
shall be entitled to take action independently against any Borrower or
any other member of the Group without the prior consent of the
Majority Banks.
22.4 ALL BANK MATTERS: AMENDMENTS AND WAIVERS
Except with the prior written consent of all the Banks, the Facility
Agent shall not have authority on behalf of the Banks to agree with
any Borrower any amendment or modification to this Agreement or to
vary or waive breaches of or defaults under or otherwise excuse
performance of any provision of this Agreement by any Obligor, if the
effect of such would be to:
(a) reduce the Applicable Margin;
(b) postpone the due date or reduce the amount of any payment of
principal, interest, commitment commission or other amount
payable by any Borrower under this Agreement;
(c) change the currency in which any amount is payable by any
Borrower under this Agreement;
(d) have the effect of changing the amount of any Facility, any
Bank's Commitment or the principal or face amount or currency
of any Advance;
(e) extend any period during which a Drawdown Notice may be
delivered;
(f) change any provision of this Agreement which expressly
requires the approval or consent of all the Banks such that
the relevant approval or consent may be given otherwise than
with the sanction of all the Banks;
(g) change the definitions of Borrowed Moneys, Security Interests,
Event of Default, Major Default, Majority Banks, Default,
Cancellation Date, Certain Funds Period, Available Commitment
Termination Date or Substitution Certificate;
(h) change clause 15.2 (Pro-rata Payments) or clause 3.3; or
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(i) change this clause 22 or clause 23.
22.5 ALL BANK MATTERS: SECURITY
Except with the prior written consent of all the Banks, the Facility
Agent shall not have authority on behalf of the Banks to authorise the
Security Agent to agree amendments or modifications to the Security
Documents with the members of the Group (or the Parent on their
behalf) and/or vary or waive breaches of, or defaults under, or
otherwise excuse performance of, any provision of any of the Security
Documents by any member of the Group if the effect of such would be
to:
(a) release any member of the Group from the security constituted
by any Security Document;
(b) release any of the Charged Assets from the security
constituted by any Security Document other than any such
release (pursuant to (a) or (b)) as part of a disposal made
pursuant to the terms of this Agreement or once the Facilities
have been repaid and/or discharged in full and the Finance
Period has terminated;
(c) agree with the Parent or any other member of the Group any
amendment of, or action in relation to, any of the Security
Documents which would have the effect of:
(i) extending the due date or reducing the amount of any
payment under any Security Document or
(ii) changing the currency in which any amount is payable
under any Security Document.
22.6 EXECUTION OF NEW SECURITY
For the purposes of this clause 22 it is expressly agreed and
acknowledged that the execution of a guarantee and/or deed of
adherence by a new Subsidiary or other Obligor or proposed Obligor or
any deed or instrument pursuant to a further assurance provision in
this Agreement or the other Finance Documents shall not constitute an
amendment or modification to, or variation of, any of the Finance
Documents.
22.7 VETO OF SECURITY AGENT AND FACILITY AGENT
Regardless of any other provision in this Agreement, the Facility
Agent, or as the case may be, the Security Agent, shall not be obliged
to agree to any such waiver, amendment, supplement or modification if
it would:
(a) amend, modify or waive any provision of clause 22; or
(b) otherwise amend, modify or waive any of the Facility Agent's,
the Arrangers' or the Security Agent's rights under any of the
Finance Documents or subject the Facility Agent or the
Security Agent to any additional obligations under such
documents.
22.8 ADMINISTRATIVE DETERMINATIONS
The Facility Agent may determine purely administrative matters without
reference to the Banks.
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23. BASIS OF DECISIONS
23.1 MEANING OF MAJORITY BANKS
Where this Agreement or any of the Security Documents provides for any
matter to be determined by reference to the opinion of, or to be
subject to the consent or request of, the Majority Banks or for any
action to be taken on the instructions of the Majority Banks, such
opinion, consent, request or instructions shall (as between the Banks)
only be regarded as having been validly given or issued by the
Majority Banks if all the Banks shall have received prior notice of
the matter on which such opinion, consent, request or instructions are
required to be obtained and the relevant majority of Banks shall have
given or issued such opinion, consent, request or instructions, but so
that (as between the Obligors and the Finance Parties) the Obligors
shall each be entitled (and bound) to assume that such notice shall
have been duly received by each Bank and that the relevant majority
shall have been obtained to constitute Majority Banks when notified to
this effect by the Facility Agent whether or not this is the case.
23.2 NOTICE TO MAJORITY BANKS
If, within 10 Banking Days (or in the case of any approval sought
under clause 10.4, 2 Banking Days) of the Facility Agent despatching
to each Bank a notice requesting instructions (or confirmation of
instructions) from the Banks or the agreement of the Banks to any
amendment, modification, waiver, variation or excuse of performance
for the purposes of, or in relation to, any of the Finance Documents,
the Facility Agent has not received a reply specifically giving or
confirming or refusing to give or confirm the relevant instructions
or, as the case may be, approving or refusing to approve the proposed
amendment, modification, waiver, variation or excuse of performance,
then (subject to clause 23.4) the Facility Agent shall treat any Bank
which has not so responded as having indicated a desire to be bound by
the wishes of 66 2/3 per cent. of those Banks (measured in terms of
the relevant Contributions or, if none, the relevant Commitments of
those Banks) which have so responded. Any Bank which notifies the
Facility Agent of a wish or intention to abstain on any particular
issue shall be treated as if it had not responded.
23.3 MEANING OF ALL BANKS
Where this Agreement or any other Finance Document, provides for any
matter to be determined by reference to the opinion of, or to be
subject to the consent of or request of all of the Banks or the Banks
acting unanimously or for any action to be taken on the instruction of
all the Banks such opinion, consent, request or instructions shall (as
between the Banks) only be regarded as having been validly given or
issued by all the Banks (or the Banks acting unanimously) if all the
Banks shall have received prior notice (the "AGENT'S NOTICE") of such
matter containing a request for written instructions from such Bank to
be received by the Facility Agent or, as the case may be, the Security
Agent within ten Banking Days of the receipt (or the deemed receipt
pursuant to clause 25.1(b)) of the Agent's Notice. If, in respect of
a Bank, the Facility Agent or the Security Agent, as appropriate:
(a) shall not have received written instructions in respect of
such matter from such Bank; and
(b) the Facility Agent or Security Agent shall have received
written instructions in respect of such matter from at least
five other Banks,
in each case within such time period (and subject to clause 23.4),
such Bank shall be deemed to have irrevocably renounced and waived its
right to make any such determination, approval, consent or provide
instructions to the Facility Agent or the Security Agent in respect
of such matter; shall not have any rights, recourse or remedy against
the Facility Agent or the Security Agent in respect of such matter;
and shall be bound (as shall each of the Obligors) by the
determination, approval, consent or instructions of the other Banks in
respect of such
<PAGE> 101
- 100 -
matter. Clauses 23.1 and 23.2 shall not apply in relation to those
matters which are to be decided by all the Banks.
23.4 LATE RESPONSES
In any case where a Bank fails to respond within the time limit set
down under clauses 23.2 or 23.3, such Bank's response, if it responds
before any determination or instruction is acted upon or communicated
to any Obligor, will be taken into account as if it had been received
within the time limit Provided that the Facility Agent has received
actual notice of such response before any such action or
communication.
23.5 COSTS
If any Borrower requests, or if the Facility Agent requires in
accordance with clause 10.3(c) or any other provision of this
Agreement, any amendment, supplement, modification or waiver under
clause 22.1 (Majority Bank matters) or clauses 22.4 or 22.5 (All Bank
matters), then the Borrowers shall, on demand by the Facility Agent,
reimburse the Facility Agent for all costs and expenses (including
legal fees), together with any VAT on them, incurred by the Facility
Agent in the negotiation, preparation and execution of any written
instrument contemplated by clause 22.1 (Majority Bank matters) or
clauses 22.4 or 22.5 (All Bank matters).
23.6 NO PARTNERSHIP
This Agreement shall not and shall not be construed so as to
constitute a partnership between the parties or any of them.
23.7 CHANGE OF REFERENCE BANKS
If:
(a) the whole of the Contributions (if any) of any Reference Bank
are prepaid;
(b) the Commitments (if any) of any Reference Bank are reduced to
zero prior to the end of the Finance Period;
(c) a Reference Bank novates the whole of its rights and
obligations (if any) as a Bank under this Agreement; or
(d) a Reference Bank ceases to provide quotations to the Facility
Agent upon request for the purposes of determining LIBOR
(where such quotations are required having regard to the
definition of "LIBOR" in clause 1.2)
the Facility Agent may, acting on the instructions of the Majority
Banks, terminate the appointment of such Reference Bank and after
consultation with the Primary Borrower appoint another Bank to
replace such Reference Bank.
<PAGE> 102
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24. MATTERS CONCERNING THE BORROWERS
24.1 ADDITIONAL BORROWER
The Primary Borrower may, at any time during the term of this
Agreement (unless a Default shall have occurred and be continuing),
notify the Facility Agent that a Permitted Borrower is to be
designated as an additional Borrower under the Revolving Credit
Facility. Such notice shall be in writing and signed by the Primary
Borrower and the relevant Permitted Borrower and shall take effect in
accordance with its terms on the condition that:
(a) such Permitted Borrower shall have entered into an Accession
Certificate with the Facility Agent which, subject to (b)
below, the Facility Agent shall execute on behalf of all the
parties to this Agreement (and all such parties so authorise
the Facility Agent without any further consent of, or
consultation with, such party); and
(b) such Permitted Borrower, before entering into such an
Accession Certificate, shall have fulfilled all appropriate
conditions precedent, as notified to the Primary Borrower by
the Facility Agent, to the satisfaction of the Facility Agent
including the delivery to the Facility Agent of the documents
and evidence referred to in Part C of Schedule 3 in form and
substance satisfactory to the Facility Agent.
Upon satisfaction of such conditions such Permitted Borrower shall
become a party to this Agreement in the capacity of a Borrower in
respect of the Revolving Credit Facility and shall assume all the
obligations and rights of such a Borrower under this Agreement.
24.2 PRIMARY BORROWER AS OBLIGORS' AGENT
Each Obligor by its execution of this Agreement or an Accession
Certificate, as the case may be, irrevocably appoints and authorises
the Primary Borrower:
(a) as agent for each Borrower and Bidco to receive all notices,
requests, demands or other communications under this Agreement
which shall, without prejudice to any other effective mode of
serving the same, be properly served on the Obligor concerned
if served on the Primary Borrower in accordance with clause
25.1; and
(b) to give all notices (including any Drawdown Notices) and
instructions and make such agreements expressed to be capable
of being given or made by such Obligor or Obligors in this
Agreement (including an agreement for the continuance of any
guarantee or security) notwithstanding that they may affect
such Obligor without further reference to, or the consent of,
such Obligor and such Obligor shall, as regards the Finance
Parties, be bound thereby as though such Obligor itself had
given such notice or instructions or made such agreement.
24.3 OBLIGATIONS UNCONDITIONAL
The obligations of each Obligor under this Agreement and the Security
Documents are unconditional and irrevocable (subject to the express
provisions of this Agreement or any Security Document) and shall not
be in any way affected or discharged by reason of any matter affecting
the Offer or the Acquisition (or the Offer Documents). Each Obligor
acknowledges that any approval or authorisation given under this
Agreement or a Security Document by a Finance Party in relation to the
Offer or the Acquisition (or the Offer Documents) shall not constitute
any representation or warranty by such (or any) Finance Party as to
the adequacy or effectiveness of such Offer or the Acquisition (or the
Offer Documents), the purchase consideration payable by Bidco, the
commercial advisability of any Obligor or Bidco entering into the
arrangements contemplated thereby or otherwise.
<PAGE> 103
- 102 -
24.4 OBLIGATIONS SEVERAL
The obligations of each Obligor under this Agreement and the Security
Documents are several and the failure of any Obligor to perform such
obligations shall not release any other Obligor of its obligations
under this Agreement.
24.5 STAND-ALONE REVOLVING CREDIT FACILITY TO REC
The Finance Parties and the Obligors agree that they shall as soon as
reasonably practicable after the date of the Press Release agree the
form of an agreement for a stand-alone revolving credit facility to be
made available by the Banks to REC (the "REC Facility Agreement").
The REC Facility Agreement shall be entered into between the Finance
Parties and REC upon the Unconditional Date and, upon such date, the
Commitment of each Bank in respect of the Revolving Credit Facility
shall reduce by an amount equal to the commitment assumed by such Bank
under the REC Facility Agreement. The REC Facility Agreement shall be
on terms and subject to conditions identical, mutatis mutandis, to the
terms and conditions of the Revolving Credit Facility as set out
herein save that it shall:
(a) create a commitment on the part of each of the Banks (pro rata
to their respective Proportions) of an aggregate amount of
L.250,000,000;
(b) be available for the general corporate purposes of REC;
(c) have an Applicable Fees Rate of 0.25% and an Applicable Margin
of 0.50%;
(d) contain no covenants, representations and warranties or events
of default referencing any person other than REC and that all
such covenants, representations and warranties and events of
default shall be confined to, and to events occurring in
respect of, the REC (but otherwise corresponding where
applicable, to the covenants, representations and warranties
and events of default in this Agreement which by their terms
herein operate to include the REC Group) and without
limitation to the above the following clauses shall not appear
in the REC Facility Agreement: 9.2, 10.2(e), (f), (g), 10.4,
10.5, 10.6, 11.1(f), 12.1(o)(i), (ii) or (iii), 12.1(w), and
any covenant contained in clause 10.3 shall be replaced by the
covenant in clause 20.14(b) of the agreement between the
Target, Citibank International plc (as agent), Barclays Bank
PLC and Midland Bank plc dated 5 August 1996.
Following such stand-alone REC facility being executed:
(i) the Revolving Credit Facility shall reduce by the
principal amount of the commitment created under such
stand-alone REC facility; and
(ii) amounts committed or outstanding thereunder shall not
be deemed to be committed or outstanding under this
Agreement.
25. NOTICES AND OTHER MATTERS
25.1 ADDRESS FOR NOTICE
Every notice, request, demand or other communication under this
Agreement shall:
(a) be in writing delivered personally or by first-class prepaid
letter (airmail if available) or telefax;
<PAGE> 104
- 103 -
(b) be deemed to have been received, subject as otherwise provided
in this Agreement, in the case of a letter, when delivered
personally or 2 days after it has been put into the post and,
in the case of a telefax, when a complete and legible copy is
received by the addressee (unless the time of despatch of any
telefax is after close of business in which case it shall be
deemed to have been received at the opening of business on the
next business day); and
(c) be sent:
(i) to the Primary Borrower (for itself, Bidco, Finco 2
and the other Borrowers) at:
Kempson House
Camomile Street
London EC3A 7AN
Telefax: +44 171 283 6500
Attention: Andrew Bamber/Marcus Dougherty
(ii) to the Facility Agent at:
Chase Manhattan International Ltd
Trinity Tower
9 Thomas More Street
London E1 9YT
Telefax: +44 171 777 2353
Attention: Stephen Clarke
(iii) to the Security Agent at:
Chase Manhattan International Ltd
Trinity Tower
9 Thomas More Street
London E1 9YT
Telefax: +44 171 777 2353
Attention: Stephen Clarke
(iv) to the Issuing Bank at:
The Chase Manhattan Bank
Trinity Tower
9 Thomas More Street
London E1 9YT
Telefax: +44 171 777 2353
Attention: Stephen Clarke
(v) to each Bank at its address or telefax number
specified in schedule 1 or in, or pursuant to, any
relevant Substitution Certificate
<PAGE> 105
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(vi) to the Arrangers:
Chase Manhattan plc
125 London Wall
London EC2Y 5AJ
Telefax: +44 171 777 3840
Attention: Cheryl Boucher/Kristian Orssten
Lehman Brothers International
3 World Financial Center
10th Floor
200 Vesey Street
New York
NY 10285
Telefax: 001 212 528 0819
Attention: Michele Swanson
Merrill Lynch Capital Corporation
C/o Merrill Lynch & Co
World Financial Center
North Tower
250 Vesey Street
New York
NY 10281
Telefax: 001 212 447 8405
Attention: Chris Reilly
or to such other address or telefax number as is notified by
the Primary Borrower, or a Finance Party, as the case may be,
to the other parties to this Agreement.
25.2 NOTICE TO FACILITY AGENT
Every notice, request, demand or other communication under this
Agreement to be given by a Borrower shall be given by the Primary
Borrower and by the Primary Borrower to any other party shall be given
to the Facility Agent for onward transmission as appropriate and to be
given to a Borrower shall (except as otherwise provided in this
Agreement) be given by the Facility Agent to the Primary Borrower.
25.3 NO IMPLIED WAIVER, REMEDIES CUMULATIVE
No failure or delay on the part of the Finance Parties or any of them
to exercise any power, right or remedy under this Agreement or any
Security Document shall operate as a waiver thereof, nor shall any
single or partial exercise by the Finance Parties or any of them of
any power, right or remedy preclude any other or further exercise
thereof or the exercise of any other power, right or remedy. The
remedies provided in this Agreement and each of the Security Documents
are cumulative and are not exclusive of any remedies provided by law.
<PAGE> 106
- 105 -
25.4 ENGLISH TRANSLATIONS
All certificates, instruments and other documents to be delivered
under or supplied in connection with this Agreement shall be in the
English language or shall be accompanied by a certified English
translation upon which the Finance Parties shall be entitled to rely.
25.5 COUNTERPARTS
This Agreement may be executed in any number of counterparts and by
the different parties on separate counterparts, each of which when so
executed and delivered shall be an original, but all counterparts
shall together constitute one and the same instrument.
25.6 SEVERANCE
If any provision of this Agreement is held to be illegal, invalid or
unforceable in whole or in part this Agreement shall continue to be
valid as to its other provisions and the remainder of the affected
provision.
26. GOVERNING LAW AND JURISDICTION
26.1 LAW
This Agreement shall be governed by English law.
26.2 SUBMISSION TO JURISDICTION
The parties to this Agreement agree for the benefit of the Finance
Parties that:
(a) if any party has any claim against any other arising out of or
in connection with this Agreement, such claim shall (subject
to clause 26.2(c)) be referred to the High Court of Justice in
England, to the jurisdiction of which each of the parties
irrevocably submits;
(b) the jurisdiction of the High Court of Justice in England over
any such claim against any Finance Party shall be a
non-exclusive jurisdiction and no courts outside England shall
have jurisdiction to hear or determine any such claim; and
(c) nothing in this clause 26.2 shall limit the right of any
Finance Party to refer any such claim against any Borrower to
any other court of competent jurisdiction outside England, to
the jurisdiction of which any Borrower hereby irrevocably
agrees to submit, nor shall the taking of proceedings by any
Finance Party before the courts in one or more jurisdictions
preclude the taking of proceedings in any other jurisdiction
whether concurrently or not.
IN WITNESS whereof the parties to this Agreement have caused this Agreement to
be duly executed on the date first above written.
<PAGE> 107
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SCHEDULE 1
THE BANKS AND THEIR COMMITMENTS
<TABLE>
<CAPTION>
===========================================================================================================
COMMITMENTS
- -----------------------------------------------------------------------------------------------------------
BANK ACQUISITION FACILITY INTERIM FACILITY REVOLVING CREDIT
L. L. FACILITY
ADDRESS AND TELEFAX NUMBER L.
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Chase Manhattan Bank 591,666,667 383,333,334 233,333,334
125 London Wall
London
EC2Y 5AJ
Fax: +44 171 777 3840
Attn: Jane Ritchie
- -----------------------------------------------------------------------------------------------------------
Lehman Commercial Paper Inc. 591,666,666 383,333,333 233,333,333
3 World Financial Center
10th Floor
200 Vesey Street
New York
NY 10285
Fax: +212 528 0819
Tel: +212 526 0330
Attn: Michele Swanson
- -----------------------------------------------------------------------------------------------------------
Merrill Lynch Capital 591,666,667 383,333,333 233,333,333
Corporation
4 World Financial Center
C/o Merrill Lynch & Co
North Tower
7th Floor
250 Vesey Street
New York
NY 10281 1307
Tel: +212 449 8405
Attn: Chris Reilly
===========================================================================================================
</TABLE>
<PAGE> 108
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SCHEDULE 2
FORMS OF DRAWDOWN NOTICE
PART A
THE ACQUISITION AND INTERIM FACILITY
To: [NAME AND ADDRESS OF FACILITY AGENT]
[DATE]
Attention:
L. CREDIT FACILITIES AGREEMENT DATED 1998
1. We refer to the above Agreement and hereby give you notice that we
wish to draw down an [Acquisition/Interim] Advance [under the Loan
Note Facility]:
(a) on 19 ;
(b) in the sum of L. ;
(c) [with a first Interest Period in respect thereof of
.............. months.] [with the first Interest
Period in respect thereof to expire on
............................. 19 ] ; and
(d) [the proceeds of such Advance to be credited to [NAME
AND NUMBER OF ACCOUNT] at [NAME OF BANK IN LONDON]
[Loan Note Collateral Account].
2. We confirm that each condition specified in clause 3 is satisfied on
the date of this Drawdown Notice.] OR
3. We confirm that:
(a) the Advance is an Offer Advance;
(b) [the date of this Drawdown Notice is within the Certain
Funds Period; and]
(c) each condition in clause 3.3 is satisfied on the date of
this Drawdown Notice.]
3. Words and expressions defined in the Agreement shall have the same
meanings where used herein.
For and on behalf of
TU FINANCE (NO. 1) LTD
------------------------------
Director
<PAGE> 109
- 108 -
PART B
THE REVOLVING CREDIT FACILITY
To: [NAME AND ADDRESS OF FACILITY AGENT]
[DATE]
Attention:
L. CREDIT FACILITIES AGREEMENT DATED 1998
1. We refer to the above Agreement and hereby give you notice that [NAME
OF BORROWER] wishes to draw a Revolving Credit Advance:
(a) on o 19 ;
(b) in the sum of L. ;
(c) with a Maturity Period in respect thereof of months; and
(d) the proceeds of such fund to be credited to [NAME AND NUMBER
OF ACCOUNT] with [DETAILS OF BANK IN LONDON].
2. We confirm that:
(a) no event or circumstance has occurred and is continuing which
constitutes a Default; and
(b) the applicable representations and warranties contained in
clause 9 of the Agreement are true and correct at the date
hereof as if made with respect to the facts and circumstances
existing at such date.
3. Words and expressions defined in the Agreement shall have the same
meanings where used herein.
For and on behalf of
[NAME OF BORROWER]
------------------------------
Director
<PAGE> 110
- 109 -
PART C
LETTERS OF CREDIT
To: [NAME AND ADDRESS OF FACILITY AGENT]
Attention:
[DATE]
L. CREDIT FACILITIES AGREEMENT DATED 1998
1. We refer to the above Agreement and hereby give you notice that [NAME
OF BORROWER] requests the Issue of a Letter of Credit as follows:
(a) Drawdown Date: [ ]
(b) Expiry Date: [ ]
(c) Currency: [ ]
(d) Beneficiary: [ ]
(e) Amount: [ ]
(f) Purpose: [ ]
(g) Issue instructions: [ ]
(f) Documents required to be presented: [ ].
2. We confirm that:
(a) no event or circumstance has occurred and is
continuing which constitutes a Default; and
(b) the applicable representations and warranties
contained in clause 9 of the Agreement are true and
correct at the date hereof as if made with respect to
the facts and circumstances existing at such date.
3. Words and expressions defined in the Agreement shall have the same
meanings where used herein.
For and on behalf of
[NAME OF BORROWER]
----------------------
Director
<PAGE> 111
- 110 -
SCHEDULE 3
CONDITIONS PRECEDENT
PART A DOCUMENTS AND EVIDENCE REQUIRED AS CONDITIONS PRECEDENT
PRIOR TO THE ISSUE OF THE PRESS RELEASE
(a) Certified copies of the memorandum and articles of association and the
certificate of incorporation and any change of name certificates of
the Primary Borrower, Finco 2 and Bidco, in the agreed form.
(b) Certified copies of resolutions of the shareholders and the board of
directors of each of the Primary Borrower, Finco 2 and Bidco in the
agreed form approving:
(i) the execution and delivery of and the performance of their
respective obligations under the Finance Documents to which
they are a party;
(ii) the acquisition of the Target on the terms and subject to the
conditions set out in the Offer Documents and the issuing of
the Offer Documents;
(iii) the execution and completion of the Investment Agreement; and
(iv) (in the case of the shareholders' resolutions) the adoption of
their respective articles of association,
and authorising a person or persons (specified by name or office) on
behalf of each of them to sign such documents and any other documents
to be delivered by them under such documents.
(c) A certificate of a duly authorised signatory of each of the Primary
Borrower, Finco 2 and Bidco setting out the names and specimen
signatures of the persons authorised to sign on behalf of such
companies the documents referred to in clause (b) above and any other
documents to be delivered by such companies pursuant to them, and
confirming that the resolutions referred to in (b) above are still in
effect and have not been varied or rescinded.
(d) The opinions of Lovell White Durrant, English solicitors for the
Facility Agent and (in the agreed form) of the Parent's US counsel.
(e) Certified copies of the Press Release and the Offer Documents, each as
despatched by Bidco, and of the Loan Note Instrument (in the agreed
form) and the Investment Agreement (duly executed).
(f) The Agreed Projections.
(g) Certified copies of the Coalco Disposal Agreement and the Escrow
Agreement.
(h) A side letter from the Parent to the Facility Agent in the agreed form
confirming that it is aware of the terms of this Agreement, that it
and its Subsidiaries will comply with clear market and syndication
obligations in the same terms as are in clause 10.2(e) and clause
16.16, and that it will:
(i) not permit the memorandum and articles of association of the
Primary Borrower to be amended without the prior written
consent of the Facility Agent;
<PAGE> 112
- 111 -
(ii) not receive any dividends, distributions or other payments
from the Primary Borrower or any other member of the Group
save as permitted by clause 11.1(f), and in the event that it
does receive any such payments in breach of clause 11.1(f), it
will hold them on trust for the payer and forthwith return
them to the payer; and
(iii) provide and maintain appropriate senior management for the
Group during the continuance of the Facilities.
(i) A report from Coopers & Lybrand in the agreed form.
(j) The Fee Letters, duly executed and countersigned, and the fees and
expenses payable under the Fee Letters and under clause 7 on or before
the date of issue of the Press Release.
(k) The Syndication Letter, duly countersigned.
(l) Written confirmation that an option has been purchased to buy a fixed
sum of L. Sterling with the amount of the Coal Proceeds.
PART B DOCUMENTS AND EVIDENCE REQUIRED AS CONDITIONS PRECEDENT
TO THE FIRST DRAWDOWN
(a) Written confirmation from a duly authorised officer of the Primary
Borrower that the Office of Fair Trading has announced that it is not
the intention of the Secretary of State for Trade and Industry to
refer the Acquisition, or any matters arising from it, to the
Monopolies and Mergers Commission.
(b) Evidence satisfactory to the Facility Agent, to the Arrangers and the
Banks dated as at the date of the first Drawdown Notice that
completion of the Coalco Disposal Agreement is unconditional in all
respects save for any condition or conditions relating to the Offer
becoming unconditional in all respects, and that the consideration
required for the purchaser to complete the Coalco Disposal Agreement
has been received in full by the Escrow Agent (as defined in the
Escrow Agreement), subject to the Escrow Agreement, and that such
amount will be released unconditionally to the Target without the need
for any further confirmations, consents, permissions or actions from
or on the part of any person, save only for the confirmation (referred
to in (d) below) from the financial advisers to the Offer that the
Offer has become unconditional in all respects.
(c) Evidence satisfactory to the Facility Agent that
(i) the Parent (in respect of 90% of the required amount) and
Texas Utilities Services Inc. (in respect of 10%) have
invested an amount of L.1,678,082,000 in cash in subscription
for equity share capital in the Primary Borrower and Finco 2
respectively; and
(ii) the Primary Borrower has in turn invested the entire sum
subscribed under paragraph (i) above by way of equity share
capital into Finco 2, and Finco 2 shall have invested the
entire sum (including the subscription monies provided by TU
Services Inc.) by way of equity share capital into Bidco; and
(iii) the cash proceeds of such investments referred to in (ii)
above have been paid in full by Bidco to the receiving bankers
for the financing of the Acquisition; and
(iv) all shares acquired at such time pursuant to the Loan Note
Alternative and the Share Alternative have been transferred to
and are beneficially owned by Bidco.
<PAGE> 113
- 112 -
(d) A certified copy of the announcement by the financial advisers to the
Offer that the Offer has become or has been declared unconditional in
all respects.
(e) All share certificates representing Target Shares which Bidco owns as
at the first Drawdown Date, together with stock transfer forms
executed in blank to enable the Security Agent or its nominee to
become registered as the owner of such shares, except to the extent
that such share certificates are lodged with the receiving bankers to
the Offer or any brokers executing market purchases on the Parent or
Bidco's behalf and are covered by the acknowledgement issued by such
persons to the Security Agent referred to in sub-clause (k) of Part A
of this Schedule.
(f) Written confirmation from a duly authorised officer of the Primary
Borrower that the terms and conditions of the Offer have not been
waived, amended, varied or declared to be satisfied other than in
compliance with the terms of this Agreement.
(g) The fees and expenses payable under the Fees Letters and under clause
7 on or before the Unconditional Date.
(h) The Loan Note Instrument, duly executed by the parties thereto; the
Debenture, duly executed by the Primary Borrower, Finco 2 and Bidco;
and the Share Charge duly executed by Texas Utilities Services Inc.,
together with:
(i) such directions by Bidco to, and/or undertakings from, the
trustees of the American Depositary Receipts and American
Depositary Shares and/or the person performing similar
functions to the Receiving Bankers to the offer in the United
States as the Agent, acting reasonably and on counsel's
advice, considers to be normal and appropriate for perfecting
a valid security interest in the United States over such
depositary receipts and depositary shares; and
(ii) share certificates and stock transfer forms executed in blank
in respect of the whole of the issued share capital of Finco 2
and Bidco;
(i) Certified copies of:
(i) the agreement appointing Royal Bank of Scotland plc as
receiving bankers to the Offer, in the agreed form; and
(ii) the notice to the receiving bankers and any brokers engaged to
purchase Target Shares in the market and their
acknowledgement, each in the form set out in the Third
Schedule to the Debenture.
<PAGE> 114
- 113 -
PART C TO BE DELIVERED BY EACH PERMITTED BORROWER
(a) A certified copy of the certificate of incorporation and the
memorandum and articles of association of the Permitted Borrower.
(b) A certified copy of the resolutions of the board of directors of the
Permitted Borrower evidencing approval of this Agreement and the
Security Documents (to which that company is a party) and authorising
its appropriate duly authorised officers to execute and deliver this
Agreement and those Security Documents and to give all notices and
take all other action required by the relevant company under this
Agreement and those Security Documents.
(c) Specimen signatures, authenticated by the company secretary or a
director of the Permitted Borrower, of the persons authorised in the
resolutions of the board of directors referred to in paragraph (b)
above.
(d) The Accession Certificate duly executed by the Permitted Borrower.
(e) A certificate of a director of the Permitted Borrower certifying that
the borrowing and/or guaranteeing of the Total Commitments in respect
of the Revolving Credit Facility would not cause any borrowing limit
binding on the Permitted Borrower to be exceeded.
(f) A cross-guarantee executed by the Permitted Borrower and the other
Revolving Credit Facility Borrowers in favour of the Security Agent of
each other's liabilities under the Revolving Credit Facility
(excluding any such liabilities which the relevant Borrower is not
permitted by law to guarantee), in the form required by the Facility
Agent.
<PAGE> 115
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SCHEDULE 4
CALCULATION OF ADDITIONAL COST
1. The Additional Cost for any period shall (subject to paragraph 5
below) be calculated in accordance with the following formula:
BY + L(Y X) + S(Y Z) per cent per annum
--------------------
100 (B + S)
where on the day of application of the formula:
B is the percentage of the Facility Agent's eligible liabilities
which the Bank of England then requires the Facility Agent to
hold on a non-interest-bearing deposit account in accordance
with its cash ratio requirements;
Y is the rate at which Sterling deposits are offered by the
Facility Agent to leading banks in the London Interbank Market
at or about 11 a.m. on that day for the relevant period;
L is the percentage of eligible liabilities which (as a result
of the requirements of the Bank of England) the Facility Agent
maintains as secured money with members of the London Discount
Market Association or in certain marketable or callable
securities approved by the Bank of England;
X is the rate at which secured Sterling investments may be
placed by the Facility Agent with members of the London
Discount Market Association at or about 11 a.m. on that day
for the relevant period or, if greater, the rate at which
Sterling bills of exchange (of a tenor equal to the duration
of the relevant period) eligible for rediscounting at the Bank
of England can be discounted in the London Discount Market at
or about 11 a.m. on that day;
S is the percentage of the Facility Agent's eligible liabilities
which the Bank of England requires the Facility Agent to place
as a special deposit; and
Z is the interest rate expressed as a percentage per annum
allowed by the Bank of England on special deposits.
2. For the purpose of this schedule 4:
2.1 "ELIGIBLE LIABILITIES" and "SPECIAL DEPOSITS" have the meanings given
to them at the time of application of the formula by the Bank of
England; and
2.2 "RELEVANT PERIOD" in relation to each period for which Additional Cost
falls to be calculated means:
(a) if it is 3 months or less, that period; or
(b) if it is more than 3 months, 3 months.
2.3 In the application of the formula, B, Y, L, X, S and Z are included
in the formula as figures and not as percentages, e.g. if B = 0.5
per cent and Y = 15 per cent BY is calculated as 0.5 x 15.
<PAGE> 116
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2.4 The formula shall be applied on the first day of each relevant
period. Each amount shall be rounded up to the nearest four decimal
places.
2.5 If the Facility Agent determines that a change in circumstances has
rendered, or will render, the formula inappropriate, the Facility Agent
(after consultation with the Banks) shall notify the Primary Borrower
of the manner in which the Additional Cost will subsequently be
calculated. The manner of calculation so notified by the Facility Agent
shall, in the absence of manifest error, be binding on all the parties.
<PAGE> 117
- 116 -
SCHEDULE 5
FORM OF SUBSTITUTION CERTIFICATE
(REFERRED TO IN CLAUSE 16.5)
NB 1. Banks are advised not to employ Substitution Certificates or
otherwise to assign, novate or transfer interests in the
Agreement without first ensuring that the transaction complies
with all applicable laws and regulations, including the
Financial Services Act 1986 and regulations made thereunder.
2. It is expected that Banks will enter into separate
arrangements dealing with the monies to be paid to the
Existing Bank by the Substitute in consideration of the
novation (e.g. principal, accrued interest, fees and any
mismatched funding adjustment). Unless the Effective Date is
a rollover date, mismatches of parties' funding may arise.
This Certificate does not deal with these issues, nor does it
deal with any interim risk participation the Existing Bank may
grant to the Substitute pending the Effective Date.
To: [NAME OF FACILITY AGENT] on its own behalf, as Facility Agent and on
behalf of each other party to the Agreement mentioned below.
Attention: [DATE]
SUBSTITUTION CERTIFICATE
This Substitution Certificate relates to a L.[ ] Facilities Agreement (the
"AGREEMENT") dated 2 March 1998 between TU Finance (No. 1) Ltd as the initial
Borrower (1) TU Finance Ltd and Bidco (2), Chase Manhattan plc, Lehman Brothers
International, Merrill Lynch Capital Corporation as Arrangers (3), various
banks and financial institutions as Underwriters (4) The Chase Manhattan Bank
as Issuing Bank (5) Chase Manhattan International Limited as Facility Agent (6)
and Chase Manhattan International Limited as Security Agent (7). Terms defined
in the Agreement shall have the same meaning in this Substitution Certificate.
1. [Existing Bank] (the "EXISTING BANK") (a) confirms the accuracy of the
summary of its participation in the Agreement set out in the schedule
below; and (b) requests [Substitute Bank] (the "SUBSTITUTE") to accept
by way of novation the portion of such participation specified in the
schedule to this Substitution Certificate by counter-signing and
delivering this Substitution Certificate to the Facility Agent at its
address for the service of notices specified in the Agreement.
2. The Substitute hereby requests the Facility Agent (on behalf of itself,
the other Finance Parties, the Borrowers and all other parties to the
Agreement) to accept this Substitution Certificate as being delivered
to the Facility Agent pursuant to and for the purposes of clause 16.5
of the Agreement so as to take effect in accordance with the terms of
such clause 16.5 on [date of transfer] (the "EFFECTIVE DATE") or on
such later date as may be determined in accordance with the terms of
the Agreement.
3. The Facility Agent (on behalf of itself, the other Finance Parties, the
Borrowers and all other parties to the Agreement) confirms the novation
effected by this Substitution Certificate pursuant to and for the
purposes of clause 16.5 of the Agreement so as to take effect in
accordance with the terms of such clause 16.5.
4. The Substitute confirms:
<PAGE> 118
- 117 -
(a) that it has received a copy of the Agreement and each of the
Security Documents and all other documentation and
information required by it in connection with the
transactions contemplated by this Substitution Certificate;
(b) that it has not relied upon any statement, opinion, forecast
or other representation or warranty made by the Existing Bank
or any other party to induce it to enter into this
Substitution Certificate;
(c) that it has made and will continue to make, without reliance
on the Existing Bank or any other Finance Party, and based on
such documents as it considers appropriate, its own appraisal
of the creditworthiness of any Borrower and the Group and its
own independent investigation of the financial condition,
prospects and affairs of any Borrower and the Group in
connection with the making and continuation of the Facilities
under the Agreement and the other Finance Documents;
(d) that neither the Existing Bank nor any other Finance Party
shall at any time be deemed to have had or have a duty or
responsibility, either historically, initially or on a
continuing basis, to provide the Substitute with any credit
or other information with respect to any Borrower or any
other member of the Group whether coming into its possession
before the making of any Advance or at any time or times
thereafter, other than (in the case of the Facility Agent) as
provided in clause 19.1 of the Agreement;
(e) that it has made and will continue to make its own assessment
of the legality, validity, enforceability and sufficiency of
the Agreement, the Security Documents, any other Finance
Document and this Substitution Certificate and has not relied
and will not rely on the Existing Bank or any other Finance
Party or any statements made by any of them in that respect;
(f) that, accordingly, none of the Existing Bank nor any other
Finance Party makes any representations or warranties in
respect of, or shall have any liability or responsibility to
the Substitute in respect of, any of the foregoing matters or
any other matter referred to in clause 20 of the Agreement;
(g) that it is a Qualifying Bank; and
(h) that it has signed an appropriate confidentiality undertaking
issued by the Existing Bank.
5. The Substitute hereby undertakes to the Existing Bank, the Finance
Parties, the Borrowers and each of the other parties to the Agreement
that it will perform in accordance with its terms all those obligations
which by the terms of the Agreement will be assumed by it after
counter-signature of this Substitution Certificate by the Facility
Agent.
6. The Substitute irrevocably and unconditionally guarantees to and
indemnifies the Issuing Bank as required under clause 4.7 (Banks'
Guarantee and Indemnity).
7. Without limiting the above paragraphs, nothing in this Substitution
Certificate obliges the Existing Bank to:
(a) accept any re-transfer from the Substitute of any of the
rights, benefits and/or obligations hereby transferred; or
(b) support any losses incurred by the Substitute by reason of
any non-performance by the Borrowers or any other party to
the Agreement or any of the Security Documents or any
document relating thereto of any of its obligations under the
same.
<PAGE> 119
- 118 -
8. This Substitution Certificate and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with
English law.
NOTE: This Substitution Certificate is not a security, bond, note,
debenture, investment or similar instrument.
AS WITNESS the hands of the authorised signatories of the parties to this
Substitution Certificate on the date appearing below.
THE SCHEDULE
THE ACQUISITION FACILITY
<TABLE>
<S> <C> <C>
Commitment (L.) Portion Transferred (L.)
[ ] [ ]
Contribution (L.) Next Interest Payment Date Portion Transferred (L.)
[ ] [ ] [ ]
THE INTERIM FACILITY
Commitment (L.) Portion Transferred (L.)
[ ] [ ]
Contribution (L.) Next Interest Payment Date Portion Transferred (L.)
[ ] [ ] [ ]
THE REVOLVING CREDIT FACILITY
Commitment (L.) Portion Transferred (L.)
[ ] [ ]
Contribution (L.) Next Maturity Date(s) Portion Transferred (L.)
[ ] [ ] [ ]
Transferor's share of Portion of Letters of Credit
Outstanding Letters of Credit Transferred
[ ] [ ]
</TABLE>
<PAGE> 120
- 119 -
ADMINISTRATIVE DETAILS OF SUBSTITUTE
<TABLE>
<S> <C>
Lending Office:
Account for payments:
Telephone:
Telefax:
Attention:
[EXISTING BANK] [SUBSTITUTE]
By: By:
---------------------------- ----------------------------
Date: Date:
THE FACILITY AGENT
By: By:
---------------------------- ----------------------------
Date: Date:
</TABLE>
on its own behalf and on behalf of all other parties to the Agreement (other
than the Existing Bank)
<PAGE> 121
- 120 -
SCHEDULE 6
FORM OF ACCESSION CERTIFICATE
To: [NAME OF FACILITY AGENT] on its own behalf as Facility Agent and on
behalf of each other party to the Agreement.
Attention: [Date]
ACCESSION CERTIFICATE
This Accession Certificate relates to a L. Facilities Agreement (the
"AGREEMENT") dated 2 March 1998 between, among others, the Primary Borrower
(1), Finco 2 and Bidco (2), Chase Manhattan plc, Lehman Brothers International,
Merrill Lynch Capital Corporation as Arrangers (3), various banks and financial
institutions as Underwriters (4) The Chase Manhattan Bank as Issuing Bank (5)
Chase Manhattan International Limited as Facility Agent (6) and Chase Manhattan
International Limited as Security Agent (7). Terms defined in the Agreement
shall have the same meaning in this Accession Certificate.
1. [ ] (the "ACCEDING BORROWER") hereby requests the Facility Agent (on
behalf of itself and all other parties to the Agreement) to accept this
Accession Certificate as being delivered to the Facility Agent pursuant
to and for the purposes of clause 24.1 of the Agreement so as to take
effect in accordance with the respective terms thereof on the date
hereof.
2. The Acceding Borrower is, pursuant to this Accession Certificate,
acceding to the Agreement as a Borrower in respect of the Revolving
Credit Facility (only) and accordingly shall, subject to the terms of
this Accession Certificate and the Agreement, become a Revolving Credit
Facility Borrower under the Agreement.
3. The Facility Agent (on behalf of itself, and all other parties to the
Agreement) confirms the novation effected by this Accession Certificate
pursuant to and for the purposes of clause 24.1 of the Agreement so as
to take effect in accordance with the terms thereof.
4. The Acceding Borrower hereby undertakes to the Facility Agent (on
behalf of itself and the other Finance Parties) that it will perform in
accordance with their terms all those obligations which by the terms of
the Agreement will be assumed by it as a Borrower after acceptance of
this Accession Certificate by the Facility Agent.
5. [This Accession Certificate is intended to take effect as a Deed
notwithstanding that the Facility Agent may execute it under hand
only.]
6. This Accession Certificate and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with
English law.
IN WITNESS whereof this Accession Certificate has been entered into as a Deed
on the date above.
NOTICE DETAILS OF ACCEDING BORROWER
Address:
Telephone:
Telefax:
Attention:
<PAGE> 122
- 121 -
THE ACCEDING BORROWER
[Execution particulars Acceding Borrower to execute as a Deed]
THE FACILITY AGENT
By:
on its own behalf and on behalf of
all the other parties to the Facility Agreement.
<PAGE> 123
- 122 -
SCHEDULE 7
TERMS OF BORROWERS' INDEMNITY
1. Each Borrower unconditionally and irrevocably undertakes to the
Issuing Bank as follows:
(a) each Borrower will at all times on demand indemnify the
Issuing Bank against all actions, suits, proceedings, claims,
demands, liabilities, damages, costs, expenses, losses and
charges whatsoever (except those arising from the gross
negligence or wilful misconduct of the Issuing Bank) in
relation to or arising out of the Issue of any Letter of
Credit and each Borrower will pay to the Facility Agent for
the account of the Issuing Bank in immediately available funds
and in the currency in which the relevant Letter of Credit is
denominated the amount of all payments made (whether directly
or by way of set-off, counterclaim or otherwise howsoever) and
all losses, costs or expenses suffered or incurred from time
to time by the Issuing Bank, arising under any liability which
the Issuing Bank has incurred under the Issue of any Letter of
Credit and any of the indemnities relating thereto;
(a) the liability of each Borrower under this indemnity shall not
be affected by any time being given or by anything being done
by the Issuing Bank unless the same constitutes the gross
negligence or wilful misconduct of the Issuing Bank.
2. Each of the Borrowers specifically releases and indemnifies the
Issuing Bank against the consequences of:
(a) the failure of the Issuing Bank or any other person to receive
any telex or telephone message in a form in which it was
despatched; and
(b) any delay that may occur during the course of the transmission
of any such message
save in respect of any failure arising from the gross negligence or
wilful misconduct of the Issuing Bank.
3. (a) The obligations of any Borrower under this Agreement and any
L/C-Related Document to reimburse the Issuing Bank for a
drawing under a Letter of Credit and to repay any drawing
under a Letter of Credit which is converted into Advances,
shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement and
each such other L/C-Related Document under all circumstances,
including the following:
(i) any lack of validity or enforceability of this
Agreement or any L/C-Related Document;
(ii) any change in the time, manner or place of payment
of, or in any other term of, all or any of the
obligations of the relevant Borrower in respect of
any Letter of Credit or any other amendment or waiver
of or any consent to departure from all or any of the
L/C-Related Documents;
(iii) the existence of any claim, set-off, defence or other
right that the relevant Borrower may have at any time
against any beneficiary or any transferee of any
Letter of Credit (or any person for whom any such
beneficiary or any such transferee may be acting),
the Issuing Bank or any other person, whether in
connection with this Agreement, the transactions
contemplated hereby or by the L/C-Related Documents
or any unrelated transaction;
<PAGE> 124
- 123 -
(iv) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be
forged, fraudulent, (save where the Issuing Bank
should decline to make payment under the terms of the
Uniform Customs and Practice for Documentary Credits
(1993) (ICC Publication No. 500 (the "UCPDC"))
invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any
respect; or any loss or delay in the transmission or
otherwise of any document required in order to make a
drawing under any Letter of Credit;
(v) any payment by the Issuing Bank under any Letter of
Credit against presentation of a draft or certificate
that does not strictly comply with the terms of any
Letter of Credit; or any payment made by the Issuing
Bank under any Letter of Credit to any person
purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of
creditors, liquidator, receiver or other
representative of or successor to any beneficiary or
transferee of any Letter of Credit, including any
arising in connection with any voluntary or
involuntary proceeding, process or arrangement under
any law, regulation or procedure relating to
insolvency in any jurisdiction including in relation
to winding up, bankruptcy, administration,
administrative receivership, receivership and
management, receivership, judicial custodianship,
judicial trusteeship or the appointment of a judicial
conservator or other official or the reconstruction,
rescheduling, readjustment, moratorium or suspension
of payments of any Indebtedness;
(vi) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of
or consent to departure from any other guarantee, for
all or any of the obligations of the relevant
Borrower in respect of any Letter of Credit; or
(vii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing,
including any other circumstance that might otherwise
constitute a defence available to, or a discharge of,
the relevant Borrower;
(b) The obligations of each of the Borrowers under the Senior
Finance Documents shall not be affected in any way by reason
of any time or other indulgence which may be granted:
(i) to the Issuing Bank by any beneficiary of any Letter
of Credit; or
(ii) by the Issuing Bank to any person from whom it may
seek reimbursement in respect of sums paid out by it
under any Letter of Credit or any other obligation
pursuant thereto or pursuant to this Agreement, as
the case may be.
4. The Issuing Bank may, at any time, without affecting any security
created by, pursuant to or in relation to this Agreement or the
rights, powers and remedies conferred upon it by this Agreement, any
such security or by law:
(a) offer or agree to or enter into agreement for the extension or
variation of the Issue of any Letter of Credit (provided it
does so in accordance with written instructions of the
Borrower); or
(b) offer or agree to give any time or other indulgence for any
sums paid out by it under any Letter of Credit or any
obligation pursuant to any Letter of Credit.
5. Any rights conferred on the Issuing Bank by this Agreement and by each
document executed in relation to this Agreement shall be in addition
to and not in substitution for or derogation of any other rights which
the Issuing Bank may at any time have to seek from any person
reimbursement of or indemnification against payments made or
liabilities incurred under any Letter of Credit, any obligation
pursuant thereto or to this Agreement.
<PAGE> 125
- 124 -
6. Any satisfaction of obligations by any Borrower or any other person to
the Issuing Bank or any discharge given by the Issuing Bank to any
Borrower or any other person in respect of obligations under this
Agreement or any related agreement between the Issuing Bank and any
Borrower or any other person shall be, and be deemed always to have
been, void if any act satisfying any of such obligations or on the
faith of which any such discharge was given or any such agreement was
entered into is subsequently avoided by law (otherwise than as a
result of any act or default by the Issuing Bank).
7. Any Letter of Credit shall be considered to be outstanding until the
later of:
(a) its Expiry Date, or a reasonable time after its Expiry Date to
allow for the presentation of documents through an advising
bank; and
(b) if, in the opinion of the Issuing Bank, its liability under
the Letter of Credit does not expire on its stated Expiry Date
or there is any doubt as to its Expiry Date, the date of
return of the document evidencing the Issuing Bank's liability
to the relevant beneficiary under any Letter of Credit.
8. Each Borrower confirms and agrees that:
(a) the Issuing Bank shall make any payment that appears to be
duly requested or demanded in writing by any beneficiary under
any Letter of Credit subject to its compliance (where
applicable) with its obligations as Issuing Bank under the
UCPDC regardless of whether or not the relevant Borrower shall
be in any way in breach of any of its obligations under or by
virtue of the transaction in connection with which the Letter
of Credit was Issued and without making any further reference
to the relevant Borrower or any investigation as to the bona
fide nature, validity or genuineness of any such request or
demand (unless, under applicable law, the Issuing Bank is
under no obligation to make such payment), and
(b) the liability of such Borrower hereunder and the right and
obligation of the Issuing Bank to make such payment shall be
in no way diminished or prejudiced if it should appear that,
as between the relevant Borrower and that beneficiary, that
beneficiary was not entitled for whatever reason to demand
payment under the Letter of Credit or that such demand was not
valid or genuine (subject as mentioned in paragraph 8(a)
above).
<PAGE> 126
- 125 -
SCHEDULE 8
TERMS OF INTERBANK GUARANTEE AND INDEMNITY
1. Each Bank agrees to pay to the Facility Agent for the account of the
Issuing Bank on demand made through the Facility Agent under clause
4.7 (Banks' Guarantee and Indemnity) to such account as the Facility
Agent may have specified for the purpose in immediately available
funds and in the currency in which the relevant Letter of Credit is
denominated, its Proportion of:
(a) any and every sum of money which such Borrower shall from time
to time be liable to pay to the Issuing Bank in respect of
that Letter of Credit in full without set-off or counterclaim
on the later of the date that the Issuing Bank has itself to
make payment under the Letter of Credit (as notified by the
Facility Agent to such Bank in the demand) and two Banking
Days after receipt by such Bank of such demand; and
(b) full cash cover for the Outstanding Contingent Liabilities
under that Letter of Credit at any time after the Issuing Bank
has become entitled to demand an indemnity through the
Facility Agent in respect thereof from the relevant Borrower
and which shall not have been paid at the time such demand is
made.
2. Where a Bank makes a payment pursuant to paragraph 1 after the date on
which the Issuing Bank makes the relevant payment under the Letter of
Credit in question, such Bank shall pay on demand to the Issuing Bank
its Proportion (as calculated in clause 4.7) of such amount as the
Issuing Bank certifies as necessary to compensate it for funding the
amount demanded in the interim.
3. No assurance, security or payment avoided under any law relating to
bankruptcy, liquidation, insolvency, reconstruction or reorganisation
or any similar laws and no release, settlement, arrangement or
discharge which may have been given or made on the basis of any such
assurance, security or payment shall prejudice or affect the right of
the Issuing Bank to recover from each of the Banks to the full extent
of their obligations under clause 4.7.
4. The obligations of each Bank under clause 4.7 shall not be impaired,
affected or revoked by any act, omission, matter, thing or
circumstance whatsoever which but for this provision might operate to
release or exonerate such Bank from all or any part of its obligations
under clause 4.7 or reduce, impair or affect such obligations or cause
all or any part of such obligations to be irrecoverable from or
unenforceable against any Obligor or to discharge, reduce, affect or
impair any of such obligations, including without limitation:
(a) any time, waiver or indulgence granted to any person or the
forbearance of the Issuing Bank in enforcing the obligations
of any person under any Finance Document or in respect of any
other guarantee, security, obligation, right or remedy;
(b) the recovery of any judgment against any person or any action
to enforce the same;
(c) the taking of any other security from any person or the
failure, refusal, or neglect to take, perfect or enforce, any
rights, remedies or securities from or against any person or
all or any part of the security constituted by any of the
Finance Documents;
(d) any alteration in the constitution of any Obligor or any
defect in or irregular exercise of the borrowing or other
powers of any person or any legal limitation, disability,
incapacity or other
<PAGE> 127
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circumstance relating to any person or any legal limitation,
disability, incapacity or other circumstance relating to any
person whether arising in relation to any Finance Document or
otherwise howsoever;
(e) subject to clause 22.4 and 22.5 (Unanimous consents), any
amendment or supplement to or variation of any L/C Related
Document or any other Finance Document;
(f) the insolvency, bankruptcy, liquidation, reconstruction or
reorganization of, or analogous proceedings relating to any
person or any composition or arrangement made by any of them
with the Issuing Bank, any Bank or any other person or any
transfer or extinction of any liabilities of any Obligor by
any law, order regulation, decree, court order or similar
instrument;
(g) any irregularity, unenforceability or invalidity of any
obligations of any person under any security or document (to
the intent that such Bank's obligations under clause 4.7 shall
remain in full force as if there were no such irregularity,
unenforceability or invalidity);
(h) the occurrence of an Event of Default;
(i) the existence of any claim, set-off defence or other right
which any Obligor may have against any beneficiary of any
Letter of Credit or any other person; or
(j) any draft, certificate or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect.
5. The Issuing Bank shall be entitled to enforce the obligations of each
Bank under clause 4.7 without making any demand on or taking any
proceedings against or filing any proof of claim in any insolvency,
winding up, dissolution or liquidation of any person or exhausting any
right or remedy against any person or taking any action to enforce any
part of the security constituted or evidenced by any of the Finance
Documents.
6. The obligations of each Bank under clause 4.7 shall be continuing
obligations and shall extend to the ultimate balance of the
obligations referred to therein. If, for any reason, such obligations
cease to be continuing obligations, the Issuing Bank may open a new
account with or continue any existing account with any person and the
liability of each Bank in respect of amounts guaranteed by it pursuant
to clause 4.7 at the date of such cessation shall remain regardless of
any payments in or out of any such account.
7. The Issuing Bank's rights under clause 4.7 shall be in addition to and
shall be in no way prejudiced by any other rights of or security held
by the Issuing Bank in relation to the obligations of any Obligor.
The Issuing Bank's rights under clause 4.7 are in addition to and are
not exclusive of those provided by law.
8. A certificate of the Issuing Bank as to any amount due to it from any
Bank pursuant to clause 4.7 shall be conclusive (in the absence of
manifest error).
<PAGE> 128
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PRIMARY BORROWER, FINCO 2 AND BIDCO
Signed for and on behalf of
TU FINANCE (NO. 1) LTD
(company number 3505836)
/s/ TU Finance (No. 1) Ltd
- ----------------------------
Signed for and on behalf of
TU FINANCE (NO. 2) LTD
(company number 3514100)
/s/ TU Finance (No. 2) Ltd
- ----------------------------
Signed for and on behalf of
TU ACQUISITIONS PLC
(company number 3455523)
/s/ TU Acquisitions PLC
- -----------------------------------
JOINT LEAD ARRANGERS
Signed for and on behalf of
CHASE MANHATTAN PLC
as Arranger
/s/ Chase Manhattan plc
- -----------------------------------
Signed for and on behalf of
LEHMAN BROTHERS INTERNATIONAL
as Arranger
/s/ Lehman Brothers International
- -----------------------------------
<PAGE> 129
- 128 -
Signed for and on behalf of
MERRILL LYNCH CAPITAL CORPORATION
as Arranger
/s/ Merrill Lynch Capital Corporation
- -------------------------------------
ORIGINAL BANKS
Signed for and on behalf of
THE CHASE MANHATTAN BANK
as Underwriter
/s/ The Chase Manhattan Bank
- ------------------------------------
Signed for and on behalf of
LEHMAN COMMERCIAL PAPER INC
as Underwriter
/s/ Lehman Commercial Paper Inc
- ------------------------------------
Signed for and on behalf of
MERRILL LYNCH CAPITAL CORPORATION
as Underwriter
/s/ Merrill Lynch Capital Corporation
- ------------------------------------
ISSUING BANK
Signed for and on behalf of
THE CHASE MANHATTAN BANK
as Issuing Bank
/s/ The Chase Manhattan Bank
- ------------------------------------
<PAGE> 130
- 129 -
FACILITY AGENT
Signed for and on behalf of
CHASE MANHATTAN INTERNATIONAL LIMITED
as Facility Agent
/s/ Chase Manhattan International Limited
- ------------------------------------------
SECURITY AGENT
Signed for and on behalf of
CHASE MANHATTAN INTERNATIONAL LIMITED
as Security Agent
/s/ Chase Manhattan International Limited
- ------------------------------------------
<PAGE> 1
EXHIBIT (1)(e)
AMENDMENT AGREEMENT
RELATING TO A FACILITIES AGREEMENT DATED 2 MARCH 1998
TU Finance (No. 1) Limited (1)
TU Finance (No. 2) Limited (2)
TU Acquisitions PLC
Chase Manhattan plc (3)
Lehman Brothers International
Merrill Lynch Capital Corporation
as Joint Lead Arrangers
The Chase Manhattan Bank (4)
Lehman Commercial Paper Inc.
Merrill Lynch Capital Corporation
as Underwriters
The Chase Manhattan Bank (5)
as Issuing Bank
Chase Manhattan International Limited (6)
as Facility Agent
Chase Manhattan International Limited (7)
as Security Agent
For the Primary Borrower For the Facility Agent
Norton Rose Lovell White Durrant
London London
<PAGE> 2
THIS AGREEMENT is made the 3rd day of March 1998
BETWEEN:
(1) TU Finance (No. 1) Limited (a company registered in England and Wales
with company number 3505836) as Primary Borrower and the initial
Permitted Borrower;
(2) TU Finance (No. 2) Limited a company registered in England and Wales
with company number 3514100 ("Finco 2") and TU Acquisition PLC, a
company registered in England and Wales with company number 3455523
("Bidco");
(3) Chase Manhattan plc, Lehman Brothers International and Merrill Lynch
Capital Corporation as joint lead arrangers (the "Arrangers");
(4) The Chase Manhattan Bank, Lehman Commercial Paper Inc. and Merrill
Lynch Capital Corporation as the original Banks (the "Underwriters");
(5) The Chase Manhattan Bank as the initial Issuing Bank;
(6) Chase Manhattan International Limited as the Initial Facility Agent;
and
(7) Chase Manhattan International Limited as the initial Security Agent.
WHEREAS:
(A) This Agreement is supplemental to a facilities agreement dated 2 March
1998 (the "Facilities Agreement") made between the parties to this
Agreement.
(B) The offer is to be increased today to 840p per Target Share and the
parties to this Agreement have agreed that the Facilities Agreement
shall be amended as follows in order to give effect to the increased
equity and debt financing necessary to give effect to the offer as
amended.
NOW IT IS HEREBY AGREED as follows:
1. Interpretation
In this Agreement unless otherwise provided in this Agreement or
unless there is something in the subject or context inconsistent with
it, all words and expressions defined in the Facilities Agreement
shall have the same respective meanings in this Agreement.
2. Amendment of the Facilities Agreement
<PAGE> 3
2.1 On receipt by the Facility Agent of the Conditions Precedent set out
in Schedule 1 to this Agreement, in form and substance satisfactory to
the Facility Agent the Facilities Agreement shall be amended by
amending the amount on the cover page to be L.3,625,000,000 and as
follows:
(a) Clause 1.1(a) (Purpose) of the Facilities Agreement is
amended by deleting "L.1,700,000,000" and inserting
"L.1,775,000,000" and by deleting "L.1,115,000,000" and
inserting "L.1,150,000,000";
(b) Clause 2.1(a) ("The Facilities") of the Facilities Agreement
is amended by deleting "L.1,700,000,000" and inserting
"L.1,775,000,000";
(c) Clause 2.1(b) (The Facilities) of the Facilities Agreement is
amended by deleting "L.1,115,000,000" and inserting
"L.1,150,000,000";
(d) Paragraph (c)(i) of Part B of Schedule 3 (Conditions
Precedent) of the Facilities Agreement is amended by deleting
"L.1,622,390,000" and inserting "L.1,678,082,000";
(e) Paragraph (f) and (k) of Part A of Schedule 3 (Conditions
Precedent) of the Facilities agreement are deleted and
inserted in Part B of Schedule 3 as new paragraphs (h) and (i)
respectively. It is expressly recognized that whilst these
conditions precedent have not been satisfied as at the date of
this Agreement, the documents necessary to satisfy these
conditions are in agreed form subject only to the Debenture
being amended to refer to the Facilities as they are finally
amended in order to implement the Offer and to receiving the
advice of King & Spalding in respect of the perfection of the
security interest created by the Debenture over American
Depository Receipts;
(f) The definition of "Agreed Projections" in Clause 1.2
(Definitions) of the Facilities Agreement shall be amended to
read "means the projections for the Group dated 2nd March 1998
as amended by the supplemental projections of 3rd March 1998,
both in the agreed form";
(g) It is recognized that whilst the Loan Note Instrument referred
to in paragraph (e) of Part A of Schedule 3 (Conditions
Precedent) is in agreed form, it has not yet been executed; a
reference to the Loan Note Instrument, duly executed, will be
added to the new paragraph (h) of Part B of Schedule 3
referred to above;
(h) The definition of "Fee Letters" in Clause 1.2 (Definitions) of
Facilities Agreement shall be construed as including, without
limitation, the fee letter referred to in Clause 7.1(a) of the
Facilities Agreement, as amended and restated on 3 March 1998;
and
<PAGE> 4
(i) Schedule 1 (The Banks and their Commitments) to the Facilities
Agreement is amended and restated in the terms of Schedule 2
of this Agreement.
3. Construction
3.1 The Facilities Agreement and this Agreement shall hereafter be read
and construed as one document and references in the Facilities
Agreement and each of the Finance Documents to the Facilities
Agreement shall be read and construed as references to the Facilities
Agreement as supplemented and amended by this Agreement.
3.2 Except where inconsistent with the provisions of this Agreement the
terms of the Facilities Agreement are hereby confirmed and shall
remain in full force and effect.
3.3 The execution, delivery and effectiveness of this Agreement shall not,
except as expressly provided by the terms of this Agreement, operate
as a waiver of any right, power or remedy of any Finance Party or the
Facility Agent under the Facilities Agreement, nor constitute a waiver
of any provisions of the Facilities Agreement.
4. Representations and Warranties of the Obligors
Each Obligor confirms and repeats, as of the date of this Agreement
and as of the date on which the amendments contained in this Agreement
take effect in accordance with clause 2 above, the representations and
warranties made by such Obligor in clause 9 (Representations and
Warranties) of the Facilities Agreement, with references therein to
the "Agreement" to be deemed to be references to the Facilities
Agreement as amended by this Agreement and the definition of "Finance
Documents" shall be construed accordingly.
5. Costs and Expenses
The Principal Borrower will reimburse to the Facility Agent on demand
all proper costs and expenses (including legal costs and out-of-pocket
expenses) and all value added tax thereon incurred by the Facility
Agent in connection with the negotiation, preparation and execution of
this Agreement, whether or not the Facilities Agreement is actually
amended in accordance with Clause 2 of this Agreement.
6. Counterparts
This Agreement may be executed in any number of counterparts and by
the different parties hereto on separate counterparts each of which
when executed and delivered shall constitute an original but all the
counterparts shall together constitute one and the same instrument.
<PAGE> 5
7. Law
This Agreement shall be governed by and construed in accordance with
English Law.
IN WITNESS whereof this Agreement has been entered into the day and year first
above written.
<PAGE> 6
SCHEDULE 1
CONDITIONS PRECEDENT
1. Certified copies of resolutions of the board of directors of each of
the Primary Borrower, Finco 2 and Bidco in the agreed form approving
the execution and delivery of this Amendment Agreement and the
borrowing of the increased Facilities provided for in this Amendment
Agreement.
2. The amended underwriting fee letter, restating the fees payable by
reference to the increased facilities, countersigned by the Primary
Borrower.
<PAGE> 7
SCHEDULE 2
THE BANKS AND THEIR COMMITMENTS
<TABLE>
<CAPTION>
==========================================================================================================
Commitments
- ----------------------------------------------------------------------------------------------------------
Bank Revolving Credit
Acquisition Facility Interim Facility Facility
Address and telefax number L. L. L.
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Chase Manhattan Bank 591,666,667 383,333,334 233,333,334
125 London Wall
London
EC2Y 5AJ
Fax: +44 171 777 3840
Attn: Jane Ritchie
- ----------------------------------------------------------------------------------------------------------
Lehman Commercial Paper Inc. 591,666,666 383,333,333 233,333,333
3 World Financial Center
10th Floor
200 Vesey Street
New York, NY 10285
Fax: +212 528 0819
tel: +212 526 0330
Attn: Michele Swanson
- ----------------------------------------------------------------------------------------------------------
Merrill Lynch Capital Corporation 591,666,667 383,333,333 233,333,333
4 World Financial Center
c/o Merrill Lynch & Co.
North Tower
7th Floor
250 Vesey Street
New York, NY 10281-1307
Tel: +212 449 8405
Attn: Chris Reilly
==========================================================================================================
</TABLE>
<PAGE> 8
PRIMARY BORROWER, FINCO 2 AND BIDCO
Signed for and on behalf of
TU Finance (No.1) Ltd.
(company number 3505836)
/s/ TU Finance (No.1) Ltd.
- -----------------------------------------------------
Signed for and on behalf of
TU Finance (No.2) Ltd.
(company number 3514100)
/s/ TU Finance (No.2) Ltd.
- -----------------------------------------------------
Signed for and on behalf of
TU Acquisitions PLC
(company number 3455523)
/s/ TU Acquisitions PLC
- -----------------------------------------------------
JOINT LEAD ARRANGERS
Signed for and on behalf of
Chase Manhattan plc
as Arranger
/s/ Chase Manhattan plc
- -----------------------------------------------------
Signed for and on behalf of
Lehman Brothers International (Europe) Limited
as Arranger
/s/ Lehman Brothers International (Europe) Limited
- -----------------------------------------------------
<PAGE> 9
Signed for and on behalf of
Merrill Lynch Capital Corporation
as Arranger
/s/ Merrill Lynch Capital Corporation
- -----------------------------------------------------
ORIGINAL BANKS
Signed for and on behalf of
The Chase Manhattan Bank
as Underwriter
/s/ The Chase Manhattan Bank
- -----------------------------------------------------
Signed for and on behalf of
Lehman Commercial Paper Inc.
as Underwriter
/s/ Lehman Commercial Paper Inc.
- -----------------------------------------------------
Signed for and on behalf of
Merrill Lynch Capital Corporation
as Underwriter
/s/ Merrill Lynch Capital Corporation
- -----------------------------------------------------
ISSUING BANK
Signed for and on behalf of
The Chase Manhattan Bank
as Issuing Bank
/s/ The Chase Manhattan Bank
- -----------------------------------------------------
<PAGE> 10
FACILITY AGENT
Signed for and on behalf of
Chase Manhattan International Limited
as Security Agent
/s/ Chase Manhattan International Limited
- -----------------------------------------------------
SECURITY AGENT
Signed for and on behalf of
Chase Manhattan International Limited
as Security Agent
/s/ Chase Manhattan International Limited
- -----------------------------------------------------
<PAGE> 1
EXHIBIT (1)(f)
EXECUTION COPY
================================================================================
TEXAS UTILITIES COMPANY
----------------------------------
$900,000,000
364-DAY COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT
"INTERIM FACILITY"
Dated as of March 6, 1998
----------------------------------
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT
AND
THE CHASE MANHATTAN BANK,
AS COMPETITIVE ADVANCE FACILITY AGENT
INITIAL UNDERWRITERS
THE CHASE MANHATTAN BANK
LEHMAN COMMERCIAL PAPER INC.
MERRILL LYNCH CAPITAL CORPORATION
JOINT LEAD ARRANGERS
CHASE SECURITIES INC.
LEHMAN BROTHERS INC.
MERRILL LYNCH & CO.
================================================================================
INTERIM FACILITY
<PAGE> 2
2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ARTICLE I DEFINITIONS; CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Terms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE II THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.02. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.03. Competitive Bid Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.04. Standby Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.05. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.06. Repayment of Loans; Evidence of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.07. Interest on Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.08. Default Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.09. Alternate Rate of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.10. Termination and Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.11. Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.12. Reserve Requirements; Change in Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.13. Change in Legality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.14. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.15. Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.16. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.17. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.18. Assignment of Commitments Under Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.01. Organization; Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.02. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.03. Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.04. Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.05. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.06. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.07. Federal Reserve Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.08. Investment Company Act; Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.09. No Material Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
INTERIM FACILITY
<PAGE> 3
3
<TABLE>
<CAPTION>
<S> <C>
SECTION 3.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3.11. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3.12. Significant Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3.13. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE IV CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.01. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.02. All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.01. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.02. Business and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.03. Financial Statements, Reports, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.04. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.05. Taxes, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.06. Maintaining Records; Access to Properties and Inspections . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.07. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.08. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.09. Consolidations, Mergers, Sales and Acquisitions
of Assets and Investments in Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.10. Limitations on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.11. Fixed Charge Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 5.12. Equity Capitalization Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 5.13. Indebtedness of the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 5.14. Restrictive Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VI EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VII THE AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 8.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 8.02. Survival of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.03. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.04. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.05. Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 8.06. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 8.07. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 8.08. Waivers; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 8.09. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
INTERIM FACILITY
<PAGE> 4
4
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 8.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.12. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.13. Interest Rate Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.14. Jurisdiction; Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.15. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A-1 - Form of Competitive Bid Request
Exhibit A-2 - Form of Notice of Competitive Bid Request
Exhibit A-3 - Form of Competitive Bid
Exhibit A-4 - Form of Competitive Bid Accept/Reject Letter
Exhibit A-5 - Form of Standby Borrowing Request
Exhibit B - Administrative Questionnaire
Exhibit C - Form of Assignment and Acceptance
Exhibit D-1 - Opinion of Reid & Priest LLP,
special counsel to the Borrower, TU Electric and Enserch
Exhibit D-2 - Opinion of Worsham, Forsythe & Wooldridge, L.L.P.,
general counsel for the Borrower, TU Electric and Enserch
</TABLE>
Schedule 2.01 - Commitments
Schedule 3.06 - Litigation
INTERIM FACILITY
<PAGE> 5
COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT
(the "AGREEMENT"), dated as of March 6, 1998, among TEXAS
UTILITIES COMPANY, a Texas corporation (the "BORROWER"); the
lenders listed in Schedule 2.01 (together with their
successors and assigns, the "LENDERS"); THE CHASE MANHATTAN
BANK ("CHASE"), as Competitive Advance Facility Agent (in such
capacity, the "CAF AGENT"); and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION ("CHASE BANK OF TEXAS"), as administrative agent
for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT";
and, together with the CAF Agent, the "AGENTS").
The Borrower has requested the Lenders to extend credit in the form of
Standby Borrowings (such term and each other capitalized term used herein
having the meaning given it in Article I) to the Borrower in an aggregate
principal amount at any time outstanding not in excess of $900,000,000. The
Borrower has also requested the Lenders to provide a procedure pursuant to
which the Borrower may invite the Lenders to bid on an uncommitted basis on
short-term borrowings by the Borrower. Subject to the terms and conditions set
forth herein, the proceeds of any such borrowings are to be used to finance or
refinance (directly or indirectly, including as a commercial paper back-up)
equity or subordinated loan advances from the Borrower to FinCo 1 and FinCo 2
in connection with the Acquisition. The Lenders are willing to extend such
credit to the Borrower on the terms and subject to the conditions herein set
forth.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR BORROWING" shall mean a Borrowing comprised of ABR Loans.
"ABR LOAN" shall mean any Standby Loan bearing interest at a
rate determined by reference to the Alternate Base Rate in accordance
with the provisions of Article II or any Eurodollar Loan converted
(pursuant to Section 2.13(ii)) to a loan bearing interest at a rate
determined by reference to the Alternate Base Rate.
"ACQUISITION" shall mean the acquisition by Bidco of the
Target Shares, whether pursuant to the Offer or pursuant to the
procedures contained in Part XIIIA of the Companies Act 1985 (UK) or
by way of open market purchases (and includes where the
INTERIM FACILITY
<PAGE> 6
context permits payments by Bidco to TEG's share option holders to
purchase or cancel the benefit of such options).
"ACQUISITION COMPANY" shall mean each of FinCo 1, FinCo 2 and
Bidco.
"ACQUISITION DATE" shall mean the date as of which a person or
group of related persons first acquires more than 30% of the
outstanding Voting Shares of the Borrower (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations thereunder).
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an Administrative
Questionnaire in the form of Exhibit B hereto.
"AFFILIATE" shall mean, when used with respect to a specified
person, another person that directly or indirectly controls or is
controlled by or is under common control with the person specified.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to
the greatest of (a) the Federal Funds Effective Rate in effect on such
day plus 1/2 of 1%, (b) the Base CD Rate in effect on such day plus
1% and (c) the Prime Rate in effect on such day. For purposes hereof,
"PRIME RATE" shall mean the rate of interest per annum publicly
announced from time to time by Chase as its prime rate in effect at
its principal office in New York City; each change in the Prime Rate
shall be effective on the date such change is publicly announced as
effective; "BASE CD RATE" shall mean the sum of (a) the product of (i)
the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b)
the Assessment Rate; "THREE-MONTH SECONDARY CD RATE" shall mean, for
any day, the secondary market rate for three-month certificates of
deposit reported as being in effect on such day (or, if such day shall
not be a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve
Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day, the average
of the secondary market quotations for three-month certificates of
deposit of major money center banks in New York City received at
approximately 10:00 a.m., New York City time, on such day (or, if such
day shall not be a Business Day, on the next preceding Business Day)
by the CAF Agent from three New York City negotiable certificate of
deposit dealers of recognized standing selected by it; "ASSESSMENT
RATE" shall mean, for any day, the annual rate (rounded upwards to the
next 1/100 of 1%) most recently estimated by Chase as the then current
net annual assessment rate that will be employed in determining
amounts payable by Chase to the Federal Deposit Insurance Corporation
(or any successor) for insurance by such Corporation (or such
successor) of time deposits made in US dollars at
INTERIM FACILITY
<PAGE> 7
Chase's domestic offices; and "FEDERAL FUNDS EFFECTIVE RATE" shall
mean, for any day, the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as released on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate
is not so released for any day which is a Business Day, the arithmetic
average (rounded upwards to the next 1/100th of 1%), as determined by
Chase, of the quotations for the day of such transactions received by
Chase from three Federal funds brokers of recognized standing selected
by it. If for any reason Chase shall have determined (which
determination shall be conclusive absent manifest error; provided that
Chase, shall, upon request, provide to the Borrower a certificate
setting forth in reasonable detail the basis for such determination)
that it is unable to ascertain the Federal Funds Effective Rate for
any reason, including the inability of Chase to obtain sufficient
quotations in accordance with the terms thereof, the Alternate Base
Rate shall be determined without regard to clause (a) of the first
sentence of this definition until the circumstances giving rise to
such inability no longer exist. Any change in the Alternate Base Rate
due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective on the effective date of such change in the Prime
Rate or the Federal Funds Effective Rate, respectively.
"APPLICABLE MARGIN" shall mean 0.0% per annum for ABR Loans
and 1.05% per annum for Eurodollar Loans.
"ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and
acceptance entered into by a Lender and an assignee in the form of
Exhibit C.
"AUCTION FEES" shall mean the competitive advance auction fees
provided for in the Letter Agreement, payable to the CAF Agent by the
Borrower at the time of each competitive advance auction request made
by the Borrower pursuant to Section 2.03.
"BIDCO" shall mean TU Acquisition plc, a direct wholly owned
subsidiary of FinCo 2.
"BOARD" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"BOARD OF DIRECTORS" shall mean the Board of Directors of a
Borrower or any duly authorized committee thereof.
"BORROWER" shall have the meaning given such term in the
preamble hereto.
"BORROWING" shall mean a group of Loans of a single Type made
by the Lenders (or, in the case of a Competitive Borrowing, by the
Lender or Lenders whose Competitive
INTERIM FACILITY
<PAGE> 8
Bids have been accepted pursuant to Section 2.03) on a single date and
as to which a single Interest Period is in effect.
"BUSINESS DAY" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York or the
State of Texas) on which banks are open for business in New York City
and Houston; provided, however, that, when used in connection with a
Eurodollar Loan, the term "BUSINESS DAY" shall also exclude any day on
which banks are not open for dealings in dollar deposits in the London
interbank market.
"A CHANGE IN CONTROL" shall be deemed to have occurred if (a)
any person or group of related persons (other than the Borrower, any
Subsidiary of the Borrower, or any pension, savings or other employee
benefit plan for the benefit of employees of the Borrower and/or any
Subsidiary of the Borrower) shall have acquired beneficial ownership
of more than 30% of the outstanding Voting Shares of the Borrower
(within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended, and the applicable rules and
regulations thereunder); provided that a Change in Control shall not
be deemed to have occurred if such acquisition has been approved,
prior to the Acquisition Date and the date on which any tender offer
for Voting Shares of the Borrower was commenced, by a majority of the
Disinterested Directors of the Borrower, or (b) during any period of
12 consecutive months, commencing before or after the date of this
Agreement, individuals who on the first day of such period were
directors of the Borrower (together with any replacement or additional
directors who were nominated or elected by a majority of directors
then in office) cease to constitute a majority of the Board of
Directors of the Borrower.
"CODE" shall mean the Internal Revenue Code of 1986, as the
same may be amended from time to time.
"COMMISSION" shall mean the Public Utility Commission of the
State of Texas.
"COMMITMENT" shall mean, with respect to each Lender, the
commitment of such Lender set forth in Schedule 2.01 hereto, as such
commitment may be permanently terminated or reduced from time to time
pursuant to Section 2.10 or modified from time to time pursuant to
Section 8.04. The Commitment of each Lender shall automatically and
permanently terminate on the Maturity Date if not terminated earlier
pursuant to the terms hereof.
"COMPETITIVE BID" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.03.
INTERIM FACILITY
<PAGE> 9
"COMPETITIVE BID ACCEPT/REJECT LETTER" shall mean a
notification made by a Borrower pursuant to Section 2.03(d) in the
form of Exhibit A-4.
"COMPETITIVE BID MARGIN" shall mean, as to any Eurodollar
Competitive Loan, the margin (expressed as a percentage rate per annum
in the form of a decimal to no more than four decimal places) to be
added to or subtracted from the LIBO Rate in order to determine the
interest rate applicable to such Loan, as specified in the Competitive
Bid relating to such Loan.
"COMPETITIVE BID RATE" shall mean, as to any Competitive Bid,
(i) in the case of a Eurodollar Loan, the LIBO Rate for the Interest
Period requested in such Competitive Bid plus the Competitive Bid
Margin, and (ii) in the case of a Fixed Rate Loan, the fixed rate of
interest offered by the Lender making such Competitive Bid.
"COMPETITIVE BID REQUEST" shall mean a request made pursuant
to Section 2.03 in the form of Exhibit A-1.
"COMPETITIVE BORROWING" shall mean a Borrowing consisting of a
Competitive Loan or concurrent Competitive Loans from the Lender or
Lenders whose Competitive Bids for such Borrowing have been accepted
under the bidding procedure described in Section 2.03.
"COMPETITIVE LOAN" shall mean a Loan made pursuant to the
bidding procedure described in Section 2.03. Each Competitive Loan
shall be a Eurodollar Competitive Loan or a Fixed Rate Loan.
"CONSOLIDATED EARNINGS AVAILABLE FOR FIXED CHARGES" for any
twelve-month period shall mean (i) consolidated net income, calculated
after deducting preferred stock dividends and preferred securities
distributions of Subsidiaries, but before any extraordinary items and
before the effect in such twelve-month period of any change in
accounting principles promulgated by the Financial Accounting
Standards Board becoming effective after December 31, 1997, less (ii)
allowances for equity funds used during construction to the extent
that such allowances, taken as a whole, increased such consolidated
net income, plus (iii) provisions for Federal income taxes, to the
extent that such provisions, taken as a whole, decreased such
consolidated net income, plus (iv) Consolidated Fixed Charges, all
determined for such twelve-month period with respect to the Borrower
and its Consolidated Subsidiaries on a consolidated basis; provided,
however, that in computing Consolidated Earnings Available for Fixed
Charges for any twelve-month period the following amounts shall be
excluded: (A) the effect of any regulatory disallowances resolving
fuel or other issues in any proceeding before the Commission or the
Railroad Commission of Texas in an aggregate amount not to exceed
$100,000,000, (B) any non-cash book losses relating to the sale or
write-down of assets
INTERIM FACILITY
<PAGE> 10
and (C) one-time costs incurred in connection with the Mergers in an
aggregate amount not to exceed $100,000,000.
"CONSOLIDATED FIXED CHARGES" for any twelve-month period shall
mean the sum of (i) interest on mortgage bonds, (ii) interest on other
long-term debt, (iii) other interest expense, and (iv) preferred stock
dividends and preferred securities distributions of Subsidiaries, all
determined for such twelve-month period with respect to the Borrower
and its Consolidated Subsidiaries on a consolidated basis.
"CONSOLIDATED SHAREHOLDERS' EQUITY" shall mean the sum of (i)
total common stock equity plus (ii) preferred stock not subject to
mandatory redemption, both determined with respect to the Borrower and
its Consolidated Subsidiaries on a consolidated basis.
"CONSOLIDATED SUBSIDIARY" shall mean at any date any
Subsidiary or other entity the accounts of which would be consolidated
with those of the Borrower in its consolidated financial statements as
of such date.
"CONSOLIDATED TOTAL CAPITALIZATION" shall mean the sum of (i)
total common stock equity, (ii) preferred stock and preferred
securities and (iii) long-term debt (less amounts due currently), all
determined with respect to the Borrower and its Consolidated
Subsidiaries on a consolidated basis, but without giving effect to any
acceleration or potential acceleration of long-term debt.
"CONTROLLED GROUP" shall mean all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower,
are treated as a single employer under Section 414(b) or 414(c) of the
Code.
"CORPORATE REVOLVERS" shall mean the Amended and Restated
Competitive Advance and Revolving Credit Facility Agreements, each
dated as of April 24, 1997, as amended as of November 10, 1997, among
TUC Holding Company (predecessor to the Borrower), Texas Utilities
Company (predecessor to TEII), TU Electric, Enserch, the lenders
parties thereto from time to time, Texas Commerce Bank National
Association (predecessor to Chase Bank of Texas), as Administrative
Agent, and Chase, as Competitive Advance Facility Agent.
"DEFAULT" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"DISINTERESTED DIRECTOR" shall mean any member of the Board of
Directors of the Borrower who is not affiliated, directly or
indirectly, with, or appointed by, a person or group of related
persons (other than the Borrower, any Subsidiary of the Borrower, or
any
INTERIM FACILITY
<PAGE> 11
pension, savings or other employee benefit plan for the benefit of
employees of the Borrower and/or any Subsidiary of the Borrower)
acquiring the beneficial ownership of more than 30% of the outstanding
Voting Shares of the Borrower (within the meaning of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended, and the
applicable rules and regulations thereunder) and who either was a
member of the Board of Directors of the Borrower prior to the
Acquisition Date or was recommended for election by a majority of the
Disinterested Directors in office prior to the Acquisition Date.
"DOLLARS" or "$" shall mean lawful money of the United States
of America.
"EFFECTIVE DATE" shall mean the later of the date of this
Agreement and the date on which each condition set forth in Section
4.01 has been satisfied.
"ENSERCH" shall mean Enserch Corporation, a Texas corporation
and wholly owned subsidiary of the Borrower.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.
"ERISA AFFILIATE" shall mean any trade or business (whether or
not incorporated) that is a member of a group of (i) organizations
described in Section 414(b) or (c) of the Code and (ii) solely for
purposes of the Lien created under Section 412(n) of the Code,
organizations described in Section 414(m) or (o) of the Code of which
the Borrower is a member.
"ERISA EVENT" shall mean (i) any "Reportable Event"; (ii) the
adoption of any amendment to a Plan that would require the provision
of security pursuant to Section 401(a)(29) of the Code or Section 307
of ERISA; (iii) the incurrence of any liability under Title IV of
ERISA with respect to the termination of any Plan or the withdrawal or
partial withdrawal of the Borrower or any of its ERISA Affiliates from
any Plan or Multiemployer Plan; (iv) the receipt by the Borrower or
any ERISA Affiliate from the PBGC of any notice relating to the
intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan; (v) the receipt by the Borrower or any ERISA
Affiliate of any notice concerning the imposition of Withdrawal
Liability or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA; (vi) the occurrence of a "prohibited transaction"
with respect to which the Borrower or any of its subsidiaries is
liable; and (vii) any other similar event or condition with respect to
a Plan or Multiemployer Plan that could result in liability of the
Borrower other than a liability to pay premiums or benefits when due.
"EURODOLLAR BORROWING" shall mean a Borrowing comprised of
Eurodollar Loans.
INTERIM FACILITY
<PAGE> 12
"EURODOLLAR COMPETITIVE LOAN" shall mean any Competitive Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"EURODOLLAR LOAN" shall mean any Eurodollar Competitive Loan
or Eurodollar Standby Loan.
"EURODOLLAR STANDBY LOAN" shall mean any Standby Loan bearing
interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"EVENT OF DEFAULT" shall have the meaning assigned to such
term in Article VI.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"EXISTING TU CREDIT AGREEMENTS" shall mean the Competitive
Advance and Revolving Credit Facility Agreements for Facility A and
Facility B, each dated as of March 2, 1998, as amended, modified, or
supplemented from time to time, among the Borrower, TU Electric,
Enserch, the lenders parties thereto from time to time, Chase Bank of
Texas), as Administrative Agent, and Chase, as Competitive Advance
Facility Agent.
"FACILITY FEE" shall have the meaning assigned to such term in
Section 2.05(a).
"FACILITY FEE PERCENTAGE" shall mean .20% per annum.
"FEES" shall mean the Facility Fee, the Auction Fees and any
other fees provided for in the Letter Agreement.
"FINANCIAL OFFICER" of any corporation shall mean the chief
financial officer, principal accounting officer, treasurer, associate
or assistant treasurer, or any responsible officer designated by one
of the foregoing persons, of such corporation.
"FINCO 1" shall mean TU Finance No. 1 Ltd, a private limited
company organized under English law, 100% of the share capital of
which is owned directly or indirectly by the Borrower.
"FINCO 2" shall mean TU Finance No. 2 Ltd, a private limited
company organized under English law, 90% of the share capital of which
is owned directly by FinCo 1 and 10% of the share capital of which is
owned directly or indirectly by the Borrower.
"FIRST MORTGAGE" shall mean (i) the TU Electric Mortgage and
(ii) any Mortgage and Deed of Trust of TU Electric issued to refund,
to replace or in substitution for the TU Electric Mortgage.
INTERIM FACILITY
<PAGE> 13
"FIXED RATE BORROWING" shall mean a Borrowing comprised of
Fixed Rate Loans.
"FIXED RATE LOAN" shall mean any Competitive Loan bearing
interest at a fixed percentage rate per annum (the "FIXED RATE")
(expressed in the form of a decimal to no more than four decimal
places) specified by the Lender making such Loan in its Competitive
Bid.
"FUEL COMPANY" shall mean Texas Utilities Fuel Company, a
Texas corporation, and its successors.
"GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body.
"INDEBTEDNESS" of any corporation shall mean all indebtedness
representing money borrowed which is created, assumed, incurred or
guaranteed in any manner by such corporation or for which such
corporation is responsible or liable (whether by agreement to purchase
indebtedness of, or to supply funds to or invest in, others or
otherwise).
"INITIAL UNDERWRITERS" shall mean each of Chase, Lehman
Commercial Paper Inc. and Merrill Lynch Capital Corporation, each in
its capacity as an initial underwriter of the credit facility
evidenced by this Agreement.
"INTEREST PAYMENT DATE" shall mean, with respect to any Loan,
the last day of the Interest Period applicable thereto and, in the
case of a Eurodollar Loan with an Interest Period of more than three
months' duration or a Fixed Rate Loan with an Interest Period of more
than 90 days' duration, each day that would have been an Interest
Payment Date for such Loan had successive Interest Periods of three
months' duration or 90 days' duration, as the case may be, been
applicable to such Loan and, in addition, the date of any prepayment
of each Loan or conversion of such Loan to a Loan of a different Type.
"INTEREST PERIOD" shall mean (a) as to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and
ending on the numerically corresponding day (or, if there is no
numerically corresponding day, on the last day) in the calendar month
that is 1, 2, 3 or 6 months thereafter; provided that in the case of
any Eurodollar Borrowing made during the period commencing on the
Effective Date and ending on the date on which syndication of the
Total Commitment has been fully completed (as determined by the Joint
Lead Arrangers and notified by them to the Borrower and the
Administrative Agent), such period shall be 1 month or such other
periods as the Joint Lead Arrangers and the Borrower agree as being
necessary to effect the assignment of
INTERIM FACILITY
<PAGE> 14
Commitments in connection with syndication and, in addition in the
case of any Eurodollar Borrowing made during the 30-day period ending
on the Maturity Date, the period commencing on the date of such
Borrowing and ending on the seventh or fourteenth day thereafter, as
the Borrower may elect, (b) as to any ABR Borrowing, the period
commencing on the date of such Borrowing and ending on the earliest of
(i) the next succeeding March 31, June 30, September 30 or December
31, (ii) the Maturity Date, and (iii) the date such Borrowing is
repaid or prepaid in accordance with Section 2.06 or Section 2.11 and
(c) as to any Fixed Rate Borrowing, the period commencing on the date
of such Borrowing and ending on the date specified in the Competitive
Bids in which the offers to make the Fixed Rate Loans comprising such
Borrowing were extended, which shall not be earlier than seven days
after the date of such Borrowing or later than 360 days after the date
of such Borrowing; provided, however, that if any Interest Period
would end on a day other than a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless, in the
case of Eurodollar Loans only, such next succeeding Business Day would
fall in the next calendar month, in which case such Interest Period
shall end on the next preceding Business Day. Interest shall accrue
from and including the first day of an Interest Period to but
excluding the last day of such Interest Period.
"JOINT LEAD ARRANGER" shall mean each of Chase Securities
Inc., Lehman Brothers Inc. and Merrill Lynch & Co., each in its
capacity as a joint lead arranger of the credit facility evidenced by
this Agreement.
"LETTER AGREEMENT" shall mean, collectively (i) the Amended
and Restated Syndication Letter, dated as of March 2, 1998, among the
Borrower, the Joint Lead Arrangers and the Initial Underwriters, (ii)
the Amended and Restated Underwriting Fee Letter, dated as of March 2,
1998, between the Borrower and the Initial Underwriters, and (iii) the
Agent Fee Letter, dated March 6, 1998, between the CAF Agent and the
Borrower, each as amended, modified or supplemented from time to time.
"LIBO RATE" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the rate at
which dollar deposits approximately equal in principal amount to (i)
in the case of a Standby Borrowing, the Administrative Agent's portion
of such Eurodollar Borrowing and (ii) in the case of a Competitive
Borrowing, a principal amount that would have been the Administrative
Agent's portion of such Competitive Borrowing had such Competitive
Borrowing been a Standby Borrowing, and for a maturity comparable to
such Interest Period are offered to the principal London offices of
Chase in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
INTERIM FACILITY
<PAGE> 15
"LIEN" shall mean, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in
respect of such asset. For the purposes of this Agreement, any person
shall be deemed to own subject to a Lien any asset which it has
acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"LOAN" shall mean a Competitive Loan or a Standby Loan,
whether made as a Eurodollar Loan, an ABR Loan or a Fixed Rate Loan,
as permitted hereby.
"MARGIN REGULATIONS" shall mean Regulations G, T, U and X of
the Board as from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"MARGIN STOCK" shall have the meaning given such term under
Regulation U of the Board.
"MATERIAL ADVERSE CHANGE" shall mean a materially adverse
change in the business, assets, operations or financial condition of
the Borrower and its Subsidiaries taken as a whole which makes the
Borrower, TU Electric or Enserch unable to perform any of its
obligations under this Agreement or the Existing TU Credit Agreements,
or which impairs the rights of, or benefits available to, the Lenders
under this Agreement or the Existing TU Credit Agreements; provided
that it is agreed and understood that the Acquisition, as contemplated
by the Offer Documents and the Offer Press Release, shall not be
deemed to be a Material Adverse Change.
"MATURITY DATE" shall mean the earliest to occur of (i) the
364th day after the date hereof, (ii) the 14th day following the
Unconditional Date, (iii) the date of the initial Loan under and as
defined in the Existing TU Credit Agreements and (iv) the date of
termination or reduction in whole of the Commitments pursuant to
Section 2.10 or Article VI.
"MERGERS" shall have the meaning assigned to that term in the
Joint Proxy Statement/Prospectus dated September 25, 1996 for Texas
Utilities Company (as predecessor to TEII) and Enserch.
"MINING COMPANY" shall mean Texas Utilities Mining Company, a
Texas corporation, and its successors.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan as
defined in Section 4001(a)(3) of ERISA to which the Borrower or any
ERISA Affiliate is making, or accruing an obligation to make,
contributions, or has within any of the preceding five plan years
made, or accrued an obligation to make, contributions.
INTERIM FACILITY
<PAGE> 16
"NOTICE OF COMPETITIVE BID REQUEST" shall mean a notification
made pursuant to Section 2.03 in the form of Exhibit A-2.
"OFFER" shall mean the offer to be made by and on behalf of
Bidco, on the terms and conditions set forth in the Offer Press
Release, to acquire the whole of the ordinary share capital (whether
in issue or failing to be allotted) of TEG not already owned by Bidco,
as such offer may from time to time be amended, revised, renewed or
waived in accordance with Section 5.14 of this Agreement.
"OFFER DOCUMENTS" shall mean each of the documents issued or
to be issued by Bidco to the shareholders of TEG in respect of the
Offer (including the forms of acceptance).
"OFFER PRESS RELEASE" shall mean the press announcement
released in connection with the Offer.
"OPERATING AGREEMENTS" shall mean the (i) Operating Agreement,
dated April 28, 1978, between Mining Company and Dallas Power & Light
Company, Texas Electric Service Company and Texas Power & Light
Company, as amended by the Modification of Operating Agreement, dated
April 20, 1979, between the same parties and (ii) the Operating
Agreement, dated December 15, 1976, between Fuel Company and Dallas
Power & Light Company, Texas Electric Service Company and Texas Power
& Light Company, as the same may be amended from time to time,
provided that any resulting amended agreement shall not increase the
scope of Liens permitted under Section 5.10(i).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"PERMITTED ENCUMBRANCES" shall mean, as to any person at any
date, any of the following:
(a) (i) Liens for taxes, assessments or governmental
charges not then delinquent and Liens for workers' compensation awards
and similar obligations not then delinquent and undetermined Liens or
charges incidental to construction, Liens for taxes, assessments or
governmental charges then delinquent but the validity of which is
being contested at the time by such person in good faith against which
an adequate reserve has been established, with respect to which levy
and execution thereon have been stayed and continue to be stayed and
which do not impair the use of the property or the operation of such
person's business, (ii) Liens incurred or created in connection with
or to secure the performance of bids, tenders, contracts (other than
for the payment of money), leases, statutory obligations, surety bonds
or appeal bonds, and mechanics' or materialmen's Liens, assessments or
similar encumbrances, the existence of which does not impair the
INTERIM FACILITY
<PAGE> 17
use of the property subject thereto for the purposes for which it was
acquired, and other Liens of like nature incurred or created in the
ordinary course of business;
(b) Liens securing indebtedness, neither assumed nor
guaranteed by such person nor on which it customarily pays interest,
existing upon real estate or rights in or relating to real estate
acquired by such person for any substation, transmission line,
transportation line, distribution line, right of way or similar
purpose;
(c) rights reserved to or vested in any municipality or
public authority by the terms of any right, power, franchise, grant,
license or permit, or by any provision of law, to terminate such
right, power, franchise, grant, license or permit or to purchase or
recapture or to designate a purchaser of any of the property of such
person;
(d) rights reserved to or vested in others to take or
receive any part of the power, gas, oil, coal, lignite or other
minerals or timber generated, developed, manufactured or produced by,
or grown on, or acquired with, any property of such person and Liens
upon the production from property of power, gas, oil, coal, lignite or
other minerals or timber, and the by-products and proceeds thereof, to
secure the obligations to pay all or a part of the expenses of
exploration, drilling, mining or development of such property only out
of such production or proceeds;
(e) easements, restrictions, exceptions or reservations
in any property and/or rights of way of such person for the purpose of
roads, pipe lines, substations, transmission lines, transportation
lines, distribution lines, removal of oil, gas, lignite, coal or other
minerals or timber, and other like purposes, or for the joint or
common use of real property, rights of way, facilities and/or
equipment, and defects, irregularities and deficiencies in titles of
any property and/or rights of way, which do not materially impair the
use of such property and/or rights of way for the purposes for which
such property and/or rights of way are held by such person;
(f) rights reserved to or vested in any municipality or
public authority to use, control or regulate any property of such
person;
(g) any obligations or duties, affecting the property of
such person, to any municipality or public authority with respect to
any franchise, grant, license or permit;
(h) as of any particular time any controls, Liens,
restrictions, regulations, easements, exceptions or reservations of
any municipality or public authority applying particularly to space
satellites or nuclear fuel;
(i) any judgment Lien against such person securing a
judgment for an amount not exceeding 25% of Consolidated Shareholders'
Equity, so long as the finality of such
INTERIM FACILITY
<PAGE> 18
judgment is being contested by appropriate proceedings conducted in
good faith and execution thereon is stayed;
(j) any Lien arising by reason of deposits with or giving
of any form of security to any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, for any purpose at any time as
required by law or governmental regulation as a condition to the
transaction of any business or the exercise of any privilege or
license, or to enable such person to maintain self-insurance or to
participate in any fund for liability on any insurance risks or in
connection with workers' compensation, unemployment insurance, old age
pensions or other social security or to share in the privileges or
benefits required for companies participating in such arrangements; or
(k) any landlords' Lien on fixtures or movable property
located on premises leased by such person in the ordinary course of
business so long as the rent secured thereby is not in default.
"PERSON" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government,
or any agency or political subdivision thereof.
"PLAN" shall mean any employee pension benefit plan described
under Section 3(2) of ERISA (other than a Multiemployer Plan) subject
to the provisions of Title IV of ERISA that is maintained by the
Borrower or any ERISA Affiliate.
"REGISTER" shall have the meaning given such term in Section
8.04(d).
"REPORTABLE EVENT" shall mean any reportable event as defined
in Sections 4043(c)(1)-(8) of ERISA or the regulations issued
thereunder (other than a reportable event for which the 30 day notice
requirement has been waived) with respect to a Plan (other than a Plan
maintained by an ERISA Affiliate that is considered an ERISA Affiliate
only pursuant to subsection (m) or (o) of Code Section 414).
"REQUIRED LENDERS" shall mean (i) if and for so long as the
Initial Underwriters shall be the only Lenders, all the Lenders and
(ii) at any other time, Lenders having Commitments representing in
excess of 50% of the Total Commitment or, for purposes of acceleration
pursuant to clause (ii) of Article VI, Lenders holding Loans
representing in excess of 50% of the aggregate principal amount of the
Loans outstanding.
"RESPONSIBLE OFFICER" of any corporation shall mean any
executive officer or Financial Officer of such corporation and any
other officer or similar official thereof
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<PAGE> 19
responsible for the administration of the obligations of such
corporation in respect of this Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"SIGNIFICANT SUBSIDIARY" shall mean at any time a Subsidiary
of the Borrower that as of such time satisfies the definition of a
"significant subsidiary" contained as of the date hereof in Regulation
S-X of the SEC; provided, that each of TU Electric and Enserch shall
at all times be considered a Significant Subsidiary of the Borrower.
"STANDBY BORROWING" shall mean a Borrowing consisting of
simultaneous Standby Loans from each of the Lenders.
"STANDBY BORROWING REQUEST" shall mean a request made pursuant
to Section 2.04 in the form of Exhibit A-5.
"STANDBY LOANS" shall mean the revolving loans made pursuant
to Section 2.04. Each Standby Loan shall be a Eurodollar Standby Loan
or an ABR Loan.
"STATUTORY RESERVES" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator
of which is the number one minus the aggregate (without duplication)
of the maximum reserve percentages (including any marginal, special,
emergency or supplemental reserves) expressed as a decimal established
by the Board and any other banking authority to which the
Administrative Agent is subject for new negotiable nonpersonal time
deposits in dollars of over $100,000 with maturities approximately
equal to three months. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any
reserve percentage.
"SUBSIDIARY" shall mean, with respect to any person (the
"PARENT"), any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such parent.
"SUBSTANTIAL" shall mean an amount in excess of 10% of the
consolidated assets of the Borrower and its Consolidated Subsidiaries
taken as a whole.
"TARGET SHARES" means the issued and to be issued shares in
the capital of TEG (including TEG's American Depositary Shares) that
are the subject of the Offer.
"TEII" shall mean Texas Energy Industries, Inc., predecessor
to Texas Utilities Company.
INTERIM FACILITY
<PAGE> 20
"TEG" shall mean The Energy Group PLC.
"TOTAL COMMITMENT" shall mean, at any time, the aggregate
amount of Commitments of all the Lenders, as in effect at such time.
"TRANSACTIONS" shall have the meaning assigned to such term in
Section 3.02.
"TU ELECTRIC" shall mean Texas Utilities Electric Company, a
wholly owned subsidiary of the Borrower.
"TU ELECTRIC MORTGAGE" shall mean the Mortgage and Deed of
Trust, dated as of December 1, 1983, from TU Electric to Irving Trust
Company (now The Bank of New York), Trustee, as amended or
supplemented from time to time.
"TYPE", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on
the Loans comprising such Borrowing is determined. For purposes
hereof, "RATE" shall include the LIBO Rate, the Alternate Base Rate
and the Fixed Rate.
"UNCONDITIONAL DATE" shall mean the date the Offer becomes or
is declared unconditional in all respects.
"VOTING SHARES" shall mean, as to shares of a particular
corporation, outstanding shares of stock of any class of such
corporation entitled to vote in the election of directors, excluding
shares entitled so to vote only upon the happening of some
contingency.
"WHOLLY OWNED SUBSIDIARY" shall mean any Consolidated
Subsidiary all the shares of common stock and other voting capital
stock or other voting ownership interests having ordinary voting power
to vote in the election of the board of directors or other governing
body performing similar functions (except directors' qualifying
shares) of which are at the time directly or indirectly owned by the
Borrower.
"WITHDRAWAL LIABILITY" shall mean liability of a Borrower
established under Section 4201 of ERISA as a result of a complete or
partial withdrawal from a Multiemployer Plan, as such terms are
defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. TERMS GENERALLY. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the
INTERIM FACILITY
<PAGE> 21
context shall otherwise require. Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time; provided, however, that
for purposes of determining compliance with any covenant set forth in Article
V, such terms shall be construed in accordance with GAAP as in effect on the
date hereof applied on a basis consistent with the application used in
preparing the Borrower's audited financial statements referred to in Section
3.05.
ARTICLE II
THE CREDITS
SECTION 2.01. COMMITMENTS. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make Standby Loans, at any time and from
time to time until the earlier of the Maturity Date and the termination of the
Commitment of such Lender, to the Borrower in an aggregate principal amount at
any time outstanding not to exceed such Lender's Commitment minus the amount by
which the Competitive Loans made to the Borrower and outstanding at such time
shall be deemed to have used such Commitment pursuant to Section 2.14, subject,
however, to the conditions that (i) at no time shall the sum of (x) the
outstanding aggregate principal amount of all Standby Loans plus (y) the
outstanding aggregate principal amount of all Competitive Loans exceed the
Total Commitment, (ii) Loans shall be made in no more than ten Borrowings that
would, after giving effect to any such Borrowing, increase the principal amount
of Loans outstanding, (iii) at no time shall the sum of (x) the outstanding
aggregate principal amount of Loans hereunder plus (y) the outstanding
aggregate principal amount of all other Indebtedness of the Borrower used for
purposes described in Section 5.08 exceed $2,000,000,000, (iv) at no time shall
the outstanding aggregate principal amount of all Standby Loans made by any
Lender exceed the amount of such Lender's Commitment and (v) at all times, the
outstanding aggregate principal amount of all Standby Loans made by each Lender
to the Borrower shall equal the product of (A) the percentage which such
Lender's Commitment represents of the Total Commitment times (B) the
outstanding aggregate principal amount of all Standby Loans made to the
Borrower.
Within the foregoing limits, the Borrowers may borrow, pay or prepay
and, subject to the limitations set forth in Section 2.11(a), reborrow Standby
Loans hereunder, on and after the Effective Date and prior to the Maturity
Date, subject to the terms, conditions and limitations set forth herein.
SECTION 2.02. LOANS. (a) Each Standby Loan shall be made as part of
a Borrowing consisting of Loans made by the Lenders ratably in accordance with
their respective Commitments; provided, however, that the failure of any Lender
to make any Standby Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder (it being understood, however, that no Lender
shall be responsible for the failure of any other Lender to make any Loan
required to be made by such other Lender). Each Competitive Loan shall be made
in accordance with the
INTERIM FACILITY
<PAGE> 22
procedures set forth in Section 2.03. The Standby Loans or Competitive Loans
comprising any Borrowing shall be (i) in the case of Competitive Loans, in an
aggregate principal amount which is an integral multiple of $1,000,000 and not
less than $5,000,000 and (ii) in the case of Standby Loans, in an aggregate
principal amount which is an integral multiple of $5,000,000 and not less than
$25,000,000 (or an aggregate principal amount equal to the remaining balance of
the available Commitments).
(b) Each Competitive Borrowing shall be comprised entirely of
Eurodollar Competitive Loans or Fixed Rate Loans, and each Standby Borrowing
shall be comprised entirely of Eurodollar Standby Loans or ABR Loans, as the
Borrower may request pursuant to Section 2.03 or 2.04, as applicable. Each
Lender may at its option make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; provided that any
exercise of such option shall not affect the obligation of the Borrower to
repay such Loan in accordance with the terms of this Agreement. Borrowings of
more than one Type may be outstanding at the same time.
(c) Subject to paragraph (d) below, each Lender shall make each
Loan to be made by it hereunder on the proposed date thereof by wire transfer
of immediately available funds to the Administrative Agent in Houston, Texas,
not later than noon, Houston time, and the Administrative Agent shall by 2:00
p.m., Houston time, credit the amounts so received to the account or accounts
specified from time to time in one or more notices delivered by the Borrower to
the Administrative Agent or, if a Borrowing shall not occur on such date
because any condition precedent herein specified shall not have been met,
return the amounts so received to the respective Lenders. Competitive Loans
shall be made by the Lender or Lenders whose Competitive Bids therefor are
accepted pursuant to Section 2.03 in the amounts so accepted. Standby Loans
shall be made by the Lenders pro rata in accordance with Section 2.14. Unless
the Administrative Agent shall have received notice from a Lender prior to the
date of any Borrowing that such Lender will not make available to the
Administrative Agent such Lender's portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with this paragraph (c) and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have
made such portion available to the Administrative Agent, such Lender and the
Borrower (without waiving any claim against such Lender for such Lender's
failure to make such portion available) severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent at (i) in the case of the Borrower, the interest rate applicable at the
time to the Loans comprising such Borrowing and (ii) in the case of such
Lender, the Federal Funds Effective Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this Agreement.
INTERIM FACILITY
<PAGE> 23
(d) The Borrower may refinance all or any part of any Standby
Borrowing with a Standby Borrowing of the same or a different Type, subject to
the conditions and limitations set forth in this Agreement. Any Standby
Borrowing or part thereof so refinanced shall be deemed to be repaid or prepaid
in accordance with Section 2.06 or 2.11, as applicable, with the proceeds of a
new Standby Borrowing, and the proceeds of the new Standby Borrowing, to the
extent they do not exceed the principal amount of the Standby Borrowing being
refinanced, shall not be paid by the Lenders to the Administrative Agent or by
the Administrative Agent to the Borrower pursuant to paragraph (c) above.
SECTION 2.03. COMPETITIVE BID PROCEDURE. (a) In order to request
Competitive Bids, the Borrower shall hand deliver or telecopy to the CAF Agent
a duly completed Competitive Bid Request in the form of Exhibit A-1 hereto, to
be received by the CAF Agent (i) in the case of a Eurodollar Competitive
Borrowing, not later than 11:00 a.m., New York City time, four Business Days
before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate
Borrowing, not later than 11:00 a.m., New York City time, one Business Day
before a proposed Competitive Borrowing. No ABR Loan shall be requested in, or
made pursuant to, a Competitive Bid Request. A Competitive Bid Request that
does not conform substantially to the format of Exhibit A-1 may be rejected in
the CAF Agent's sole discretion, and the CAF Agent shall promptly notify the
Borrower of such rejection by telecopy. Each Competitive Bid Request shall
refer to this Agreement and specify (x) whether the Borrowing then being
requested is to be a Eurodollar Borrowing or a Fixed Rate Borrowing, (y) the
date of such Borrowing (which shall be a Business Day) and the aggregate
principal amount thereof which shall be in a minimum principal amount of
$5,000,000 and in an integral multiple of $1,000,000, and (z) the Interest
Period with respect thereto (which may not end after the Maturity Date).
Promptly after its receipt of a Competitive Bid Request that is not rejected as
aforesaid, the CAF Agent shall telecopy to each Lender a Notice of Competitive
Bid Request in the form of Exhibit A-2 inviting the Lenders to bid, on the
terms and conditions of this Agreement, to make Competitive Loans.
(b) Each Lender invited to bid may, in its sole discretion, make
one or more Competitive Bids to the Borrower responsive to the Borrower's
Competitive Bid Request. Each Competitive Bid by a Lender must be received by
the CAF Agent by telecopy, in the form of Exhibit A-3 hereto, (i) in the case
of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York City
time, three Business Days before a proposed Competitive Borrowing and (ii) in
the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City
time, on the day of a proposed Competitive Borrowing. Multiple bids will be
accepted by the CAF Agent. Competitive Bids that do not conform substantially
to the format of Exhibit A-3 may be rejected by the CAF Agent, and the CAF
Agent shall notify the Lender making such nonconforming bid of such rejection
as soon as practicable. Each Competitive Bid shall refer to this Agreement and
specify (x) the principal amount (which shall be in a minimum principal amount
of $5,000,000 and in an integral multiple of $1,000,000 and which may equal the
entire principal amount of the Competitive Borrowing requested by the Borrower)
of the Competitive Loan or Loans that the Lender is willing to make to the
Borrower, (y) the Competitive Bid Rate or Rates at which the
INTERIM FACILITY
<PAGE> 24
Lender is prepared to make the Competitive Loan or Loans and (z) the Interest
Period and the last day thereof. If any Lender invited to bid shall elect not
to make a Competitive Bid, such Lender shall so notify the CAF Agent by
telecopy (I) in the case of Eurodollar Competitive Loans, not later than 9:30
a.m., New York City time, three Business Days before a proposed Competitive
Borrowing, and (II) in the case of Fixed Rate Loans, not later than 9:30 a.m.,
New York City time, on the day of a proposed Competitive Borrowing; provided,
however, that failure by any Lender to give such notice shall not cause such
Lender to be obligated to make any Competitive Loan as part of such Competitive
Borrowing. A Competitive Bid submitted by a Lender pursuant to this paragraph
(b) shall be irrevocable.
(c) The CAF Agent shall notify the Borrower by telecopy, of all
the Competitive Bids made, the Competitive Bid Rate and the principal amount of
each Competitive Loan in respect of which such Competitive Bid was made and the
identity of the Lender that made each such bid by (i) in the case of a
Eurodollar Competitive Borrowing, not later than 10:00 a.m., New York City
time, three Business Days before a proposed Competitive Borrowing and (ii) in
the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City
time, on the day of a proposed Competitive Borrowing. The CAF Agent shall send
a copy of all Competitive Bids to the Borrower for its records as soon as
practicable after the completion of the bidding process set forth in this
Section 2.03.
(d) The Borrower may in its sole and absolute discretion, subject
only to the provisions of this paragraph (d), accept or reject any or all
Competitive Bids referred to in paragraph (c) above. The Borrower shall notify
the CAF Agent by telephone, confirmed by telecopy in the form of a Competitive
Bid Accept/Reject Letter, whether and to what extent it has decided to accept
or reject any of or all the bids referred to in paragraph (c) above by (i) in
the case of a Eurodollar Competitive Borrowing, not later than 10:30 a.m., New
York City time, three Business Days before a proposed Competitive Borrowing and
(ii) in the case of a Fixed Rate Borrowing, not later than 10:30 a.m., New York
City time, on the day of a proposed Competitive Borrowing; provided, however,
that (i) the failure by the Borrower to give such notice shall be deemed to be
a rejection of all the bids referred to in paragraph (c) above, (ii) the
Borrower shall not accept a bid made at a particular Competitive Bid Rate if it
has decided to reject a bid made at a lower Competitive Bid Rate, (iii) the
aggregate amount of the Competitive Bids accepted by the Borrower shall not
exceed the principal amount specified in the Competitive Bid Request, (iv) if
the Borrower shall accept a bid or bids made at a particular Competitive Bid
Rate but the amount of such bid or bids shall cause the total amount of bids to
be accepted by the Borrower to exceed the amount specified in the Competitive
Bid Request, then the Borrower shall accept a portion of such bid or bids in an
amount equal to the amount specified in the Competitive Bid Request less the
amount of all other Competitive Bids accepted with respect to such Competitive
Bid Request, which acceptance, in the case of multiple bids at such Competitive
Bid Rate, shall be made pro rata in accordance with the amount of each such bid
at such Competitive Bid Rate, and (v) except pursuant to clause (iv) above, no
bid shall be accepted for a Competitive Loan unless such Competitive Loan is in
a minimum principal amount of $5,000,000 and an integral multiple
INTERIM FACILITY
<PAGE> 25
of $1,000,000; provided further, however, that if a Competitive Loan must be in
an amount less than $5,000,000 because of the provisions of clause (iv) above,
such Competitive Loan may be for a minimum of $1,000,000 or any integral
multiple thereof, and in calculating the pro rata allocation of acceptances of
portions of multiple bids at a particular Competitive Bid Rate pursuant to
clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in
a manner which shall be in the discretion of the Borrower. A notice given by
the Borrower pursuant to this paragraph (d) shall be irrevocable.
(e) The CAF Agent shall promptly notify each bidding Lender (and
the Administrative Agent), by telecopy, whether or not its Competitive Bid has
been accepted (and if so, in what amount and at what Competitive Bid Rate) and
each successful bidder will thereupon become bound, subject to the other
applicable conditions hereof, to make the Competitive Loan in respect of which
its bid has been accepted.
(f) No Competitive Borrowing shall be requested or made hereunder
if after giving effect thereto any of the conditions set forth in clauses (i)
through (iv) of Section 2.01 would not be met.
(g) If either the Administrative Agent or CAF Agent shall elect to
submit a Competitive Bid in its capacity as a Lender, such party shall submit
such bid directly to the Borrower one quarter of an hour earlier than the
latest time at which the other Lenders are required to submit their bids to the
CAF Agent pursuant to paragraph (b) above.
(h) Each of the Borrower and the CAF Agent shall deliver to the
Administrative Agent by telecopy copies of all notices delivered by it pursuant
to this Section 2.03 at the same times such notices are delivered hereunder.
All notices required by this Section 2.03 shall be given in accordance with
Section 8.01.
(i) A Competitive Bid Request shall not be made within five
Business Days after the date of any previous Competitive Bid which was accepted
by the Borrower pursuant to paragraph (d) above.
SECTION 2.04. STANDBY BORROWING PROCEDURE. In order to request a
Standby Borrowing, the Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Standby Borrowing Request in the form of
Exhibit A-5 (a) in the case of a Eurodollar Standby Borrowing, not later than
10:00 a.m., Houston time, three Business Days before such Borrowing, and (b) in
the case of an ABR Borrowing, not later than 10:00 a.m., Houston time, one
Business Day before such Borrowing. No Fixed Rate Loan shall be requested or
made pursuant to a Standby Borrowing Request. Such notice shall be irrevocable
and shall in each case specify (i) whether the Borrowing then being requested
is to be a Eurodollar Standby Borrowing or an ABR Borrowing; (ii) the date of
such Standby Borrowing (which shall be a Business Day) and the amount thereof;
and (iii) if such Borrowing is to be a Eurodollar Standby Borrowing, the
INTERIM FACILITY
<PAGE> 26
Interest Period with respect thereto, which shall not end after the Maturity
Date. If no election as to the Type of Standby Borrowing is specified in any
such notice, then the requested Standby Borrowing shall be an ABR Borrowing.
If no Interest Period with respect to any Eurodollar Standby Borrowing is
specified in any such notice, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration (subject, at all times
prior to completion of syndication of the Total Commitment, to the limitations
set forth in the definition of "Interest Period"). If the Borrower shall not
have given notice in accordance with this Section 2.04 of its election to
refinance a Standby Borrowing prior to the end of the Interest Period in effect
for such Borrowing, then the Borrower shall (unless such Borrowing is repaid at
the end of such Interest Period) be deemed to have given notice of an election
to refinance such Borrowing with an ABR Borrowing. Notwithstanding any other
provision of this Agreement to the contrary, no Standby Borrowing shall be
requested if the Interest Period with respect thereto would end after the
Maturity Date. The Administrative Agent shall promptly advise the Lenders of
any notice given pursuant to this Section 2.04 and of each Lender's portion of
the requested Borrowing.
SECTION 2.05. FEES. (a) The Borrower agrees to pay to each Lender,
through the Administrative Agent, on each March 31, June 30, September 30 and
December 31 (with the first payment being due on March 31, 1998) and on each
date on which the Commitment of such Lender shall be terminated as provided
herein, a facility fee (a "FACILITY FEE"), at a rate per annum equal to the
Facility Fee Percentage from time to time in effect on the amount of the sum of
the unused Commitment of such Lender plus the principal amount of Loans
outstanding made by such Lender (without regard, in either case, to any
Competitive Loans made by any Lender), during the preceding quarter (or other
period commencing on the Effective Date or ending with the Maturity Date or any
date on which the Commitment of such Lender shall be terminated). All Facility
Fees shall be computed on the basis of the actual number of days elapsed in a
year of 365 or 366 days, as the case may be. The Facility Fee due to each
Lender shall commence to accrue on the Effective Date, and shall cease to
accrue on the earlier of the Maturity Date and the termination of the
Commitment of such Lender as provided herein.
(b) The Borrower agrees to pay the CAF Agent, for its own account,
the Auction Fees provided for in the Agent Fee Letter referred to in the
Letter Agreement.
(c) All Fees shall be paid on the dates due, in immediately
available funds, to the Administrative Agent for distribution, if and as
appropriate, among the Lenders, the Initial Underwriters or the Joint Lead
Arrangers or to the CAF Agent. Once paid, none of the Fees shall be refundable
under any circumstances.
SECTION 2.06. REPAYMENT OF LOANS; EVIDENCE OF INDEBTEDNESS. (a) The
outstanding principal balance of each Loan shall be due and payable on the last
day of the Interest Period applicable thereto and on the Maturity Date.
INTERIM FACILITY
<PAGE> 27
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
(c) The Administrative Agent shall maintain accounts in which it
will record (i) the amount of each Loan made hereunder, the Type of each Loan
made and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the accounts maintained pursuant to
paragraphs (b) and (c) of this Section 2.06 shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein
shall not in any manner affect the obligations of the Borrower to repay the
Loans in accordance with their terms.
SECTION 2.07. INTEREST ON LOANS. (a) Subject to the provisions of
Section 2.08, the Loans comprising each Eurodollar Borrowing shall bear
interest (computed on the basis of the actual number of days elapsed over a
year of 360 days) at a rate per annum equal to the LIBO Rate for the Interest
Period in effect for such Borrowing plus the Applicable Margin from time to
time in effect and in the case of each Eurodollar Competitive Loan, the LIBO
Rate for the Interest Period in effect for such Borrowing plus the Competitive
Bid Margin offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03.
(b) Subject to the provisions of Section 2.08, the Loans
comprising each ABR Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as the case may
be, for periods during which the Alternate Base Rate is determined by reference
to the Prime Rate and 360 days for other periods) at a rate per annum equal to
the Alternate Base Rate plus the Applicable Margin from time to time in effect.
(c) Subject to the provisions of Section 2.08, each Fixed Rate
Loan shall bear interest at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to the fixed rate
of interest offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03.
(d) Interest on each Loan shall be payable on each Interest
Payment Date applicable to such Loan except as otherwise provided in this
Agreement. The applicable LIBO Rate or Alternate Base Rate for each Interest
Period or day within an Interest Period, as the case may be, shall be
determined by Chase, and such determination shall be conclusive absent manifest
error;
INTERIM FACILITY
<PAGE> 28
provided that Chase shall, upon request, provide to the Borrower a certificate
setting forth in reasonable detail the basis for such determination.
SECTION 2.08. DEFAULT INTEREST. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, whether by scheduled maturity, notice of prepayment,
acceleration or otherwise, the Borrower shall on demand from time to time from
the Administrative Agents pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed as provided in Section
2.07(b)) equal to the Alternate Base Rate plus the Applicable Margin for ABR
Loans plus 1%.
SECTION 2.09. ALTERNATE RATE OF INTEREST. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined (i) that dollar deposits in the principal amounts of the Eurodollar
Loans comprising such Borrowing are not generally available in the London
interbank market or (ii) that reasonable means do not exist for ascertaining
the LIBO Rate, the Administrative Agent shall, as soon as practicable
thereafter, give telecopy notice of such determination to the Borrower and the
Lenders. In the event of any such determination under clauses (i) or (ii)
above, until the Administrative Agent shall have advised the Borrower and the
Lenders that the circumstances giving rise to such notice no longer exist, (x)
any request by the Borrower for a Eurodollar Competitive Borrowing pursuant to
Section 2.03 shall be of no force and effect and shall be denied by the
Administrative Agent and (y) any request by the Borrower for a Eurodollar
Standby Borrowing pursuant to Section 2.04 shall be deemed to be a request for
an ABR Borrowing. In the event the Required Lenders notify the Administrative
Agent that the rates at which dollar deposits are being offered will not
adequately and fairly reflect the cost to such Lenders of making or maintaining
Eurodollar Loans during such Interest Period, the Administrative Agent shall
notify the Borrower of such notice and until the Required Lenders shall have
advised the Administrative Agent that the circumstances giving rise to such
notice no longer exist, any request by the Borrower for a Eurodollar Standby
Borrowing shall be deemed a request for an ABR Borrowing. Each determination
by the Administrative Agent hereunder shall be made in good faith and shall be
conclusive absent manifest error; provided that the Administrative Agent,
shall, upon request, provide to the Borrower a certificate setting forth in
reasonable detail the basis for such determination.
SECTION 2.10. TERMINATION AND REDUCTION OF COMMITMENTS. (a) The
Commitments shall be automatically terminated on the earliest to occur of (i)
Maturity Date, (ii) the date of the withdrawal or lapse of the Offer and (iii)
28 days after the Effective Date if the Offer has not yet been posted.
(b) In addition, the Commitments shall be automatically reduced by
an amount equal to the net proceeds of any issuance or disposition or any
payment to the Borrower, in each case, described in Section 2.11(d), with such
reduction to be effective on the later to occur of the date
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of such issuance, disposition or payment, as the case may be, and the date
specified under Section 2.11(d) for any related prepayment or repayment of the
Loans.
(c) Upon at least two Business Days' prior irrevocable written
notice to the Administrative Agent, the Borrower may at any time in whole
permanently terminate, or from time to time in part permanently reduce, the
Commitments; provided, however, that (i) each partial reduction of the
Commitments shall be in an integral multiple of $10,000,000 and in a minimum
principal amount of $10,000,000 and (ii) no such termination or reduction shall
be made that would reduce the Total Commitment to an amount (1) less than the
aggregate outstanding principal amount of all Competitive Loans or (2) less
than $50,000,000, unless the result of such termination or reduction referred
to in this clause (2) is to reduce the Total Commitment to $0. The
Administrative Agent shall advise the Lenders of any notice given pursuant to
this Section 2.10(c) and of each Lender's portion of any such termination or
reduction of the Total Commitment.
(d) Each reduction in the Total Commitment hereunder shall be made
ratably among the Lenders in accordance with their respective Commitments. The
Borrower shall pay to the Administrative Agent for the account of the Lenders,
on the date of each termination or reduction of the Total Commitment, the
Facility Fees on the amount of the Commitments so terminated or reduced accrued
through the date of such termination or reduction.
SECTION 2.11. PREPAYMENT. (a) The Borrower shall have the right at
any time and from time to time to prepay any Standby Borrowing, in whole or in
part, upon giving telecopy notice (or telephone notice promptly confirmed by
telecopy) to the Administrative Agent: (i) before 10:00 a.m., Houston time,
three Business Days prior to prepayment, in the case of Eurodollar Loans, and
(ii) before 10:00 a.m., Houston time, one Business Day prior to prepayment, in
the case of ABR Loans; provided, however, that each partial prepayment shall be
in an amount which is an integral multiple of $10,000,000 and not less than
$10,000,000. No prepayment may be made in respect of any Competitive
Borrowing. Any principal amount of any Loan repaid or prepaid at any time and
not refinanced on the date of such repayment or prepayment (as the case may be)
with the proceeds of another Loan may not be reborrowed.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.10, the Borrower shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the aggregate principal
amount of the Competitive Loans and Standby Loans outstanding will not exceed
the Total Commitment, after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date
and the principal amount of each Borrowing (or portion thereof) to be prepaid,
shall be irrevocable and shall commit the Borrower to prepay such Borrowing (or
portion thereof) by the amount stated therein on the date stated therein. All
prepayments under this Section 2.11 shall be subject to Section 8.05 but
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otherwise without premium or penalty. All prepayments under this Section 2.11
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
(d) Upon (i) the issuance by the Borrower (or any special purpose
financing Subsidiary of the Borrower, other than FinCo 1, FinCo 2 or any
Subsidiary of FinCo 1 or of FinCo 2) of any debt, equity or other capital
market instruments or other securities (other than stock of the Borrower issued
in connection with employee stock option and other stock purchase and incentive
plans in effect on the date hereof), (ii) the disposition by the Borrower of
any of the capital shares of FinCo 1, FinCo 2 or Enserch, or (iii) the payment
by any Acquisition Company to the Borrower of any amount in respect of shares
of the Borrower exchanged for Target Shares, the Borrower shall prepay the
principal amount of Loans hereunder in an amount equal to the net proceeds of
such issuance or disposition or such payment, as the case may be, with such
prepayment to be accompanied by payment of accrued interest on such Loans being
prepaid to the date of payment and any amounts payable pursuant to Section
8.05. Any amounts required to be applied to the prepayment of Loans shall be
applied as follows: first, to the immediate prepayment of ABR Loans
outstanding, second, to the prepayment of Eurodollar Loans (not constituting
Competitive Loans) outstanding on the last day of the respective Interest
Periods for such Eurodollar Loans in the order that they occur, and third, to
the repayment of Competitive Loans, on the last day of the respective Interest
Periods for such Competitive Loans in the order that they occur.
SECTION 2.12. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender hereunder
(except for changes in respect of taxes on the overall net income of such
Lender or its lending office imposed by the jurisdiction in which such Lender's
principal executive office or lending office is located), or shall result in
the imposition, modification or applicability of any reserve, special deposit
or similar requirement against assets of, deposits with or for the account of
or credit extended by any Lender, or shall result in the imposition on any
Lender or the London interbank market of any other condition affecting this
Agreement, such Lender's Commitment or any Eurodollar Loan or Fixed Rate Loan
made by such Lender, and the result of any of the foregoing shall be to
increase the cost to such Lender of making or maintaining any Eurodollar Loan
or Fixed Rate Loan or to reduce the amount of any sum received or receivable by
such Lender hereunder (whether of principal, interest or otherwise) by an
amount deemed by such Lender to be material, then the Borrower shall, upon
receipt of the notice and certificate provided for in Section 2.12(c), promptly
pay to such Lender such additional amount or amounts as will compensate such
Lender for such additional costs incurred or reduction suffered.
Notwithstanding the foregoing, no Lender shall be entitled to request
compensation under this paragraph with respect to any Competitive Loan if
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the change giving rise to such request was applicable to such Lender at the
time of submission of the Competitive Bid pursuant to which such Competitive
Loan was made.
(b) If any Lender shall have determined that the adoption of any
law, rule, regulation or guideline arising out of the July 1988 report of the
Basle Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards," or
the adoption after the date hereof of any other law, rule, regulation or
guideline regarding capital adequacy, or any change in any of the foregoing or
in the interpretation or administration of any of the foregoing by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of
law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on such Lender's capital or on
the capital of such Lender's holding company, if any, as a consequence of this
Agreement, such Lender's Commitment or the Loans made by such Lender pursuant
hereto to a level below that which such Lender or such Lender's holding company
could have achieved but for such adoption, change or compliance (taking into
consideration such Lender's policies and the policies of such Lender's holding
company with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time such additional amount or amounts as will
compensate such Lender for any such reduction suffered will be paid by the
Borrower to such Lender. It is acknowledged that this Agreement is being
entered into by the Lenders on the understanding that the Lenders will not be
required to maintain capital against their Commitments under currently
applicable laws, regulations and regulatory guidelines. In the event the
Lenders shall otherwise determine that such understanding is incorrect, it is
agreed that the Lenders will be entitled to make claims under this paragraph
(b) based upon market requirements prevailing on the date hereof for
commitments under comparable credit facilities against which capital is
required to be maintained.
(c) A certificate of each Lender setting forth such amount or
amounts as shall be necessary to compensate such Lender or its holding company
as specified in paragraph (a) or (b) above, as the case may be, and containing
an explanation in reasonable detail of the manner in which such amount or
amounts shall have been determined, shall be delivered to the Borrower and
shall be conclusive absent manifest error. The Borrower shall pay each Lender
the amount shown as due on any such certificate delivered by it within 10 days
after its receipt of the same. Each Lender shall give prompt notice to the
Borrower of any event of which it has knowledge, occurring after the date
hereof, that it has determined will require compensation by the Borrower
pursuant to this Section; provided, however, that failure by such Lender to
give such notice shall not constitute a waiver of such Lender's right to demand
compensation hereunder.
(d) Failure on the part of any Lender to demand compensation for
any increased costs or reduction in amounts received or receivable or reduction
in return on capital with respect to any period shall not constitute a waiver
of such Lender's right to demand compensation with respect
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to such period or any other period; provided, however, that no Lender shall be
entitled to compensation under this Section 2.12 for any costs incurred or
reductions suffered with respect to any date unless it shall have notified the
Borrower that it will demand compensation for such costs or reductions under
paragraph (c) above not more than 90 days after the later of (i) such date and
(ii) the date on which it shall have become aware of such costs or reductions.
The protection of this Section shall be available to each Lender regardless of
any possible contention of the invalidity or inapplicability of the law, rule,
regulation, guideline or other change or condition which shall have occurred or
been imposed.
(e) Each Lender agrees that it will designate a different lending
office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the reasonable judgment of such Lender, be
disadvantageous to such Lender.
SECTION 2.13. CHANGE IN LEGALITY. (a) Notwithstanding any other
provision herein, if any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written
notice to the Borrower and to the Agents, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be
made by such Lender hereunder, whereupon such Lender shall not submit
a Competitive Bid in response to a request for Eurodollar Competitive
Loans and any request for a Eurodollar Standby Borrowing shall, as to
such Lender only, be deemed a request for an ABR Loan unless such
declaration shall be subsequently withdrawn (any Lender delivering
such a declaration hereby agreeing to withdraw such declaration
promptly upon determining that such event of illegality no longer
exists); and
(ii) require that all outstanding Eurodollar Loans made by
it be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date
of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied
to repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.13, a notice by any Lender
shall be effective as to each Eurodollar Loan, if lawful, on the last day of
the Interest Period currently applicable to such Eurodollar Loan; in all other
cases such notice shall be effective on the date of receipt.
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SECTION 2.14. PRO RATA TREATMENT. Except as provided below in this
Section 2.14 with respect to Competitive Borrowings and as required under
Sections 2.13 and 2.18, each Standby Borrowing, each payment or prepayment of
principal of any Standby Borrowing, each payment of interest on the Standby
Loans, each payment of the Facility Fees, each reduction of the Commitments and
each refinancing or conversion of any Borrowing with a Standby Borrowing of any
Type, shall be allocated pro rata among the Lenders in accordance with their
respective Commitments (or, if such Commitments shall have expired or been
terminated, in accordance with the respective principal amounts of their
outstanding Standby Loans). Each payment of principal of any Competitive
Borrowing shall be allocated pro rata among the Lenders participating in such
Borrowing in accordance with the respective principal amounts of their
outstanding Competitive Loans comprising such Borrowing. Each payment of
interest on any Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the respective
amounts of accrued and unpaid interest on their outstanding Competitive Loans
comprising such Borrowing. For purposes of determining the available
Commitments of the Lenders at any time, each outstanding Competitive Borrowing
shall be deemed to have utilized the Commitments of the Lenders (including
those Lenders which shall not have made Loans as part of such Competitive
Borrowing) pro rata in accordance with such respective Commitments. Each
Lender agrees that in computing such Lender's portion of any Borrowing to be
made hereunder, the Administrative Agent may, in its discretion, round each
Lender's percentage of such Borrowing to the next higher or lower whole dollar
amount.
SECTION 2.15. SHARING OF SETOFFS. Each Lender agrees that if it
shall, through the exercise of a right of banker's lien, setoff or
counterclaim, or pursuant to a secured claim under Section 506 of Title 11 of
the United States Code or other security or interest arising from, or in lieu
of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other
means, obtain payment (voluntary or involuntary) in respect of any Standby Loan
or Loans as a result of which the unpaid principal portion of its Standby Loans
shall be proportionately less than the unpaid principal portion of the Standby
Loans of any other Lender, it shall be deemed simultaneously to have purchased
from such other Lender at face value, and shall promptly pay to such other
Lender the purchase price for, a participation in the Standby Loans of such
other Lender, so that the aggregate unpaid principal amount of the Standby
Loans and participations in the Standby Loans held by each Lender shall be in
the same proportion to the aggregate unpaid principal amount of all Standby
Loans then outstanding as the principal amount of its Standby Loans prior to
such exercise of banker's lien, setoff or counterclaim or other event was to
the principal amount of all Standby Loans outstanding prior to such exercise of
banker's lien, setoff or counterclaim or other event; provided, however, that,
if any such purchase or purchases or adjustments shall be made pursuant to this
Section 2.15 and the payment giving rise thereto shall thereafter be recovered,
such purchase or purchases or adjustments shall be rescinded to the extent of
such recovery and the purchase price or prices or adjustment restored without
interest. The Borrower expressly consents to the foregoing arrangements and
agrees that any Lender holding a participation in a Standby Loan deemed to have
been so purchased may exercise any and all rights of banker's lien, setoff
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or counterclaim with respect to any and all moneys owing by the Borrower to
such Lender by reason thereof as fully as if such Lender had made a Standby
Loan in the amount of such participation.
SECTION 2.16. PAYMENTS. (a) The Borrower shall make each payment
(including principal of or interest on any Borrowing or any Fees or other
amounts) hereunder from an account in the United States not later than 10:00
a.m., Houston time, on the date when due in dollars to the Administrative Agent
at its offices at 707 Travis Street, 8-CBBN-N 96, Houston, Texas 77002, in
immediately available funds.
(b) Whenever any payment (including principal of or interest on
any Borrowing or any Fees or other amounts) hereunder shall become due, or
otherwise would occur, on a day that is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of interest or Fees, if applicable.
SECTION 2.17. TAXES. (a) Any and all payments of principal and
interest on any Borrowings, or of any Fees or indemnity or expense
reimbursements by the Borrower hereunder ("BORROWER PAYMENTS") shall be made,
in accordance with Section 2.16, free and clear of and without deduction for
any and all current or future United States Federal, state and local taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect to such Borrower Payments, but only to the extent reasonably
attributable to such Borrower Payments, excluding (i) income taxes imposed on
the net income of the Administrative Agent, the CAF Agent or any Lender (or any
transferee or assignee thereof, including a participation holder (any such
entity a "TRANSFEREE")) and (ii) franchise taxes imposed on the net income of
the Administrative Agent, the CAF Agent or any Lender (or Transferee), in each
case by the jurisdiction under the laws of which the Administrative Agent, the
CAF Agent or such Lender (or Transferee) is organized or doing business through
offices or branches located therein, or any political subdivision thereof (all
such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities, collectively or individually, "TAXES"). If the Borrower shall be
required to deduct any Taxes from or in respect of any sum payable hereunder to
any Lender (or any Transferee) or the Agents, (i) the sum payable shall be
increased by the amount (an "ADDITIONAL AMOUNT") necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.17) such Lender (or Transferee) or Agent (as the
case may be) shall receive an amount equal to the sum it would have received
had no such deductions been made, (ii) the Borrower shall make such deductions
and (iii) the Borrower shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay to the relevant United
States Governmental Authority in accordance with applicable law any current or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made
INTERIM FACILITY
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hereunder or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or the Letter Agreement ("OTHER TAXES").
(c) The Borrower shall indemnify each Lender (or Transferee
thereof) and each Agent for the full amount of Taxes and Other Taxes with
respect to Borrower Payments paid by such Lender (or Transferee) or such Agent,
as the case may be, and any liability (including penalties, interest and
expenses (including reasonable attorney's fees and expenses)) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted by the relevant United States Governmental
Authority. A certificate setting forth and containing an explanation in
reasonable detail of the manner in which such amount shall have been determined
and the amount of such payment or liability prepared by a Lender, the CAF
Agent, or the Administrative Agent on their behalf, absent manifest error,
shall be final, conclusive and binding for all purposes. Such indemnification
shall be made within 30 days after the date the Lender (or Transferee) or any
Agent, as the case may be, makes written demand therefor.
(d) If a Lender (or Transferee) or any Agent shall become aware
that it is entitled to claim a refund from a United States Governmental
Authority in respect of Taxes or Other Taxes as to which it has been
indemnified by the Borrower, or with respect to which the Borrower has paid
additional amounts, pursuant to this Section 2.17, it shall promptly notify the
Borrower of the availability of such refund claim and shall, within 30 days
after receipt of a request by the Borrower, make a claim to such United States
Governmental Authority for such refund at the Borrower's expense. If a Lender
(or Transferee) or any Agent receives a refund (including pursuant to a claim
for refund made pursuant to the preceding sentence) in respect of any Taxes or
Other Taxes as to which it has been indemnified by a Borrower or with respect
to which a Borrower had paid additional amounts pursuant to this Section 2.17,
it shall within 30 days from the date of such receipt pay over such refund to
the Borrower (but only to the extent of indemnity payments made, or additional
amounts paid, by the Borrower under this Section 2.17 with respect to the Taxes
or Other Taxes giving rise to such refund), net of all out-of-pocket expenses
of such Lender (or Transferee) or such Agent and without interest (other than
interest paid by the relevant United States Governmental Authority with respect
to such refund); provided, however, that the Borrower, upon the request of such
Lender (or Transferee) or such Agent, agrees to repay the amount paid over to
the Borrower (plus penalties, interest or other charges) to such Lender (or
Transferee) or such Agent in the event such Lender (or Transferee) or such
Agent is required to repay such refund to such United States Governmental
Authority.
(e) As soon as practicable, but in any event within 30 days, after
the date of any payment of Taxes or Other Taxes by the Borrower to the relevant
United States Governmental Authority, the Borrower will deliver to the
Administrative Agent, at its address referred to in Section 8.01, the original
or a certified copy of a receipt issued by such United States Governmental
Authority evidencing payment thereof.
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(f) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.17
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(g) Each Lender or Agent (or Transferee) that is organized under
the laws of a jurisdiction other than the United States, any State thereof or
the District of Columbia (a "NON-U.S. LENDER" or "NON U.S. AGENT", as
applicable) shall deliver to the Borrower and the Administrative Agent two
copies of either United States Internal Revenue Service Form 1001 or Form 4224,
properly completed and duly executed by such Non-U.S. Lender claiming complete
exemption from, or reduced rate of, United States Federal withholding tax on
payments by the Borrower under this Agreement. Such forms shall be delivered
by each Non-U.S. Lender on or before the date it becomes a party to this
Agreement (or, in the case of a Transferee that is a participation holder, on
or before the date such participation holder becomes a Transferee hereunder)
and on or before the date, if any, such Non-U.S. Lender changes its applicable
lending office by designating a different lending office (a "NEW LENDING
OFFICE"). In addition, each Non-U.S. Lender shall deliver such forms promptly
upon the obsolescence or invalidity of any form previously delivered by such
Non-U.S. Lender. Notwithstanding any other provision of this Section 2.17(g),
a Non-U.S. Lender shall not be required to deliver any form pursuant to this
Section 2.17(g) that such Non-U.S. Lender is not legally able to deliver.
(h) The Borrower shall not be required to indemnify any Non-U.S.
Lender or Non-U.S. Agent (including any Transferee), or to pay any additional
amounts to any Non-U.S. Lender or Non-U.S. Agent (including any Transferee), in
respect of United States Federal, state or local withholding tax pursuant to
paragraph (a) or (c) above to the extent that (i) the obligation to withhold
amounts with respect to United States Federal, state or local withholding tax
existed on the date such Non-U.S. Lender became a party to this Agreement (or,
in the case of a Transferee that is a participation holder, on the date such
participation holder became a Transferee hereunder) or, with respect to
payments to a New Lending Office, the date such Non-U.S. Lender designated such
New Lending Office with respect to a Loan; provided, however, that this clause
(i) shall not apply to any Transferee or New Lending Office that becomes a
Transferee or New Lending Office as a result of an assignment, participation,
transfer or designation made at the request of the Borrower; and provided
further, however, that this clause (i) shall not apply to the extent the
indemnity payment or additional amounts any Transferee, or Lender (or
Transferee) through a New Lending Office, would be entitled to receive (without
regard to this clause (i)) do not exceed the indemnity payment or additional
amounts that the person making the assignment, participation or transfer to
such Transferee, or Lender (or Transferee) making the designation of such New
Lending Office, would have been entitled to receive in the absence of such
assignment, participation, transfer or designation or (ii) the obligation to
pay such additional amounts or such indemnity payments would not have arisen
but for a failure by such Non-U.S. Lender (including any Transferee) to comply
with the provisions of paragraph (g) above and (i) below.
INTERIM FACILITY
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(i) Any Lender (or Transferee) claiming any indemnity payment or
additional amounts payable pursuant to this Section 2.17 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to file any
certificate or document reasonably requested in writing by the Borrower or to
change the jurisdiction of its applicable lending office if the making of such
a filing or change would avoid the need for or reduce the amount of any such
indemnity payment or additional amounts that may thereafter accrue and would
not, in the good faith determination of such Lender (or Transferee), be
otherwise disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.17 shall require any
Lender (or Transferee) or any Agent to make available to the Borrower any of
its tax returns (or any other information) that it deems to be confidential or
proprietary.
SECTION 2.18. ASSIGNMENT OF COMMITMENTS UNDER CERTAIN CIRCUMSTANCES.
In the event that any Lender shall have delivered a notice or certificate
pursuant to Section 2.12 or 2.13, or the Borrower shall be required to make
additional payments to any Lender under Section 2.17, the Borrower shall have
the right, at its own expense, upon notice to such Lender and the Agents, to
require such Lender to transfer and assign without recourse (in accordance with
and subject to the restrictions contained in Section 8.04) all such Lender's
interests, rights and obligations contained hereunder to another financial
institution approved by the Agents and the Borrower (which approval shall not
be unreasonably withheld) which shall assume such obligations; provided that
(i) no such assignment shall conflict with any law, rule or regulation or order
of any Governmental Authority and (ii) the assignee or the Borrower, as the
case may be, shall pay to the affected Lender in immediately available funds on
the date of such assignment the principal of and interest accrued to the date
of payment on the Loans made by it hereunder and all other amounts accrued for
its account or owed to it hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each of the Lenders as follows
(provided, that each representation or warranty made by the Borrower in respect
of TEG or any of its Subsidiaries shall be subject to the qualification that
such representation or warranty is true and accurate insofar as the Borrower
was aware as of the date of this Agreement):
SECTION 3.01. ORGANIZATION; POWERS. Each of the Borrower, TU Electric
and Enserch (a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has all
requisite power and authority to own its property and assets and to carry on
its business as now conducted and as proposed to be conducted, (c) is qualified
to do business in every jurisdiction where such qualification is required,
except where the failure so to qualify would not result in a Material Adverse
Change, and (d) has the corporate
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power and authority to execute, deliver and perform its obligations under this
Agreement and to borrow hereunder.
SECTION 3.02. AUTHORIZATION. The execution, delivery and performance
by the Borrower of this Agreement, the Borrowings hereunder and the Acquisition
(collectively, the "TRANSACTIONS") (a) have been duly authorized by all
requisite corporate action and (b) will not (i) violate (A) any provision of
any law, statute, rule or regulation (including, without limitation, the Margin
Regulations) or of the certificate of incorporation or other constitutive
documents or by-laws of the Borrower or any of its Subsidiaries to which the
Borrower is subject, (B) any order of any Governmental Authority or (C) any
provision of any indenture, agreement or other instrument to which the Borrower
or any of its Subsidiaries is a party or by which it or any of its property is
or may be bound, (ii)) be in conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or (iii) result in the creation or
imposition of any Lien upon any property or assets of the Borrower.
SECTION 3.03. ENFORCEABILITY. This Agreement constitutes a legal,
valid and binding obligation of the Borrower enforceable in accordance with its
terms except to the extent that enforcement may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally.
SECTION 3.04. GOVERNMENTAL APPROVALS. No action, consent or approval
of, registration or filing with or other action by any Governmental Authority
is or will be required in connection with the Transactions, to the extent they
relate to the Borrower, except those as have been duly obtained and as are (i)
in full force and effect, (ii) sufficient for their purpose and (iii) not
subject to any pending or, to the knowledge of the Borrower, threatened appeal
or other proceeding seeking reconsideration or review thereof.
SECTION 3.05. FINANCIAL STATEMENTS. (a) The consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 1996
and the related consolidated statements of income, retained earnings and cash
flows for the fiscal year then ended, reported on by Deloitte & Touche LLP and
set forth in the Borrower's 1996 Annual Report on Form 10-K and the
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of September 30, 1997 and the related consolidated statements of income,
retained earnings and cash flows for the nine-month period then ended and set
forth in the Borrower's Quarterly Report on Form 10-Q, copies of which have
been delivered to each of the Lenders, fairly present (subject in the case of
such financial statements as of September 30, 1997, to year-end adjustments) in
conformity with GAAP, the consolidated financial position of the Borrower and
its Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such periods ending on such dates.
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(b) The consolidated balance sheet of TU Electric and its
Consolidated Subsidiaries as of December 31, 1996 and the related consolidated
statements of income, retained earnings and cash flows for the fiscal year then
ended, reported on by Deloitte & Touche LLP and set forth in TU Electric's 1996
Annual Report on Form 10-K and the consolidated balance sheet of TU Electric
and its Consolidated Subsidiaries as of September 30, 1997 and the related
consolidated statements of income, retained earnings and cash flows for the
nine-month period then ended and set forth in TU Electric's Quarterly Report on
Form 10-Q, copies of which have been delivered to each of the Lenders, fairly
present (subject in the case of such financial statements as of September 30,
1997, to year-end adjustments), in conformity with GAAP, the consolidated
financial position of TU Electric and its Consolidated Subsidiaries as of such
dates and their consolidated results of operations and cash flows for the
periods ending on such dates.
(c) There has heretofore been delivered to each of the Lenders an
unaudited condensed pro forma consolidated balance sheet as of December 31,
1997 and unaudited condensed statement of income for the fiscal year ending
December 31, 1997 which gave effect to the Acquisition (the "PRO FORMA
FINANCIAL STATEMENTS"), which Pro Forma Financial Statements were prepared in
accordance with GAAP. The assumptions used in preparing the Pro Forma
Financial Statements are reasonable, as of the date of such Pro Forma Financial
Statements and as of the Effective Date, and all material assumptions with
respect to the Pro Forma Financial Statements are set forth therein.
(d) Since September 30, 1997, there has been no Material Adverse
Change with respect to the Borrower, other than as a result of the matters
excluded from the computation of Consolidated Earnings Available for Fixed
Charges as set forth in the definition thereof.
SECTION 3.06. LITIGATION. Except as set forth in the financial
statements or other reports of the type referred to in Section 5.03 hereof and
which have been delivered to the Lenders on or prior to the date hereof or as
set forth on Schedule 3.06, there is no action, suit or proceeding pending
against, or to the knowledge of the Borrower threatened against or affecting,
the Borrower or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
ability of the Borrower to pay its obligations hereunder or which in any manner
draws into question the validity of this Agreement.
SECTION 3.07. FEDERAL RESERVE REGULATIONS. (a) Neither the
Borrower nor any of its Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used by the
Borrower, whether directly or indirectly, and whether immediately, incidentally
or ultimately, to purchase or carry Margin Stock (other than the American
Depositary Shares of TEG to be acquired in connection with the Acquisition) or
to refund indebtedness originally incurred for such purpose, or for any other
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purpose which entails a violation of, or which is inconsistent with, the
provisions of the Margin Regulations.
(c) Not more than 25% of the value of the assets of the Borrower
subject to the restrictions of Section 5.09 are represented by Margin Stock.
SECTION 3.08. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY
ACT. (a) Neither the Borrower nor any of its Subsidiaries is an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940.
(b) The Borrower and each of its Subsidiaries is exempt from all
provisions of the Public Utility Holding Company Act of 1935 and rules and
regulations thereunder, except for Sections 9(a)(2) and 33 of such Act and the
rules and regulations thereunder, and the execution, delivery and performance
by the Borrower of this Agreement and its obligations hereunder do not violate
any provision of such Act or any rule or regulation thereunder.
SECTION 3.09. NO MATERIAL MISSTATEMENTS. No report, financial
statement or other written information furnished by or on behalf of the
Borrower to the Agents or any Lender pursuant to or in connection with this
Agreement contains or will contain any material misstatement of fact or omits
or will omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were or will be
made, not misleading.
SECTION 3.10. TAXES. The Borrower and its Subsidiaries have filed or
caused to be filed within 3 days of the date on which due, all Federal and
material state and local tax returns which to their knowledge are required to
be filed by them, and have paid or caused to be paid all material taxes shown
to be due and payable on such returns or on any assessments received by them,
other than any taxes or assessments the validity of which is being contested in
good faith by appropriate proceedings and with respect to which appropriate
accounting reserves have to the extent required by GAAP been set aside.
SECTION 3.11. EMPLOYEE BENEFIT PLANS. With respect to each Plan the
Borrower and its ERISA Affiliates are in compliance in all material respects
with the applicable provisions of ERISA and the Code and the final regulations
and published interpretations thereunder. No ERISA Event has occurred that
alone or together with any other ERISA Event has resulted or could reasonably
be expected to result in a Material Adverse Change. Neither the Borrower nor
any ERISA Affiliate has incurred any Withdrawal Liability that could result in
a Material Adverse Change. Neither the Borrower nor any ERISA Affiliate has
received any notification that any Multiemployer Plan is in reorganization or
has been terminated within the meaning of Title IV of ERISA, which such
reorganization or termination could result in a Material Adverse Change, and no
Multiemployer Plan is reasonably expected to be in reorganization or to be
terminated where such reorganization or termination has resulted or can
reasonably be expected to result, through
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an increase in the contributions required to be made to such Plan or otherwise,
in a Material Adverse Change.
SECTION 3.12. SIGNIFICANT SUBSIDIARIES. Each of the Borrower's
corporate Significant Subsidiaries is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all corporate powers necessary to carry on its business
substantially as now conducted. The Borrower's corporate Significant
Subsidiaries have all material governmental licenses, authorizations, consents
and approvals required to carry on the business of the corporate Significant
Subsidiaries substantially as now conducted.
SECTION 3.13. ENVIRONMENTAL MATTERS. Except as set forth in or
contemplated by the financial statements or other reports of the type referred
to in Section 5.03 hereof and which have been delivered to the Lenders on or
prior to the date hereof, the Borrower and each of its Subsidiaries has
complied in all material respects with all Federal, state, local and other
statutes, ordinances, orders, judgments, rulings and regulations relating to
environmental pollution or to environmental or nuclear regulation or control,
except to the extent that failure to so comply could not reasonably be expected
to result in a Material Adverse Change. Except as set forth in or contemplated
by such financial statements or other reports, neither the Borrower nor any of
its Subsidiaries has received notice of any material failure so to comply,
except where such failure could not reasonably be expected to result in a
Material Adverse Change. Except as set forth in or contemplated by such
financial statements or other reports, the facilities of the Borrower or any of
its Subsidiaries, as the case may be, are not used to manage any hazardous
wastes, hazardous substances, hazardous materials, toxic substances, toxic
pollutants or substances similarly denominated, as those terms or similar terms
are used in the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response Compensation and Liability Act, the Hazardous Materials
Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the
Clean Water Act or any other applicable law relating to environmental
pollution, or any nuclear fuel or other radioactive materials, in violation in
any material respect of any law or any regulations promulgated pursuant
thereto, except to the extent that such violations could not reasonably be
expected to result in a Material Adverse Change. Except as set forth in or
contemplated by such financial statements or other reports, the Borrower is
aware of no events, conditions or circumstances involving environmental
pollution or contamination that could reasonably be expected to result in a
Material Adverse Change.
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ARTICLE IV
CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are subject to
the satisfaction of the following conditions:
SECTION 4.01. EFFECTIVE DATE. On the Effective Date:
(a) The representations and warranties set forth in
Article III hereof shall be true and correct in all material respects
on and as of such date with the same effect as though made on and as
of such date, except to the extent such representations and warranties
expressly relate to an earlier date.
(b) No Event of Default or Default shall have occurred
and be continuing on such date.
(c) The Agents shall have received favorable written
opinions of (i) Reid & Priest LLP and Worsham, Forsythe & Wooldridge,
L.L.P., each dated the Effective Date and addressed to the Lenders and
satisfactory to King & Spalding, counsel for the Agents, to the effect
set forth in Exhibits D-1 and D-2 hereto and (ii) King & Spalding,
dated the Effective Date, addressed to the Lenders and in form
satisfactory to the Agents.
(d) The Agents shall have received (i) a copy of the
certificate of incorporation, including all amendments thereto, of the
Borrower, certified as of a recent date by the Secretary of State of
its state of incorporation, and a certificate as to the good standing
of the Borrower as of a recent date from such Secretary of State; (ii)
a certificate of the Secretary or an Assistant Secretary of the
Borrower dated the Effective Date and certifying (A) that attached
thereto is a true and complete copy of the by-laws of the Borrower as
in effect on the Effective Date and at all times since a date prior to
the date of the resolutions described in clause (B) below, (B) that
attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of the Borrower authorizing the
execution, delivery and performance of this Agreement and the
Borrowings hereunder, and that such resolutions have not been
modified, rescinded or amended and are in full force and effect, (C)
that the certificate of incorporation referred to in clause (i) above
has not been amended since the date of the last amendment thereto
shown on the certificate of good standing furnished pursuant to such
clause (i) and (D) as to the incumbency and specimen signature of each
officer executing this Agreement or any other document delivered in
connection herewith on behalf of the Borrower; (iii) a certificate of
another officer of the Borrower as to the incumbency and specimen
signature of the Secretary or Assistant Secretary executing the
certificate pursuant to (ii) above; (iv) evidence satisfactory to the
Agents that the requisite approvals referred to in Section 3.04 hereof
have been obtained, are in full force and effect (other than (A) any
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such approvals that will be set forth in the Offer Documents as
conditions to the Offer and (B) other approvals the failure to obtain
which could not reasonably be expected to have a Material Adverse
Effect); and (v) such other documents as the Lenders or King &
Spalding, counsel for the Agents, shall reasonably request.
(e) The Agents shall have received a certificate, dated
the Effective Date and signed by a Financial Officer of the Borrower,
confirming compliance with the conditions precedent set forth in
paragraphs (a) and (b) of Section 4.01.
(f) The Agents shall have received all Fees and amounts
due and payable by the Borrower on or prior to the Effective Date.
(g) The Agents shall have received an executed
counterpart to this Agreement of each Agent, each Lender and the
Borrower.
(h) The Agents shall have received such other approvals,
opinions and documents as the Agents may reasonably request as to the
legality, validity, binding effect or enforceability of this Agreement
or the financial condition, properties, operations or prospects of the
Borrower.
SECTION 4.02. ALL LOANS. The Commitment of each Lender to make each
Loan to be made by it (including the initial Loan to be made by it) shall be
subject to the satisfaction of the following conditions precedent on the date
of such Borrowing:
(a) The Effective Date shall have occurred.
(b) The Agents shall have received a notice of such
Borrowing as required by Section 2.03 or Section 2.04, as applicable.
(c) The representations and warranties set forth in
Article III hereof (except, in the case of a refinancing of a Standby
Borrowing with a new Standby Borrowing that does not increase the
aggregate principal amount of the Loans of any Lender outstanding, the
representations set forth in Sections 3.05(d), 3.06, 3.11 and 3.13)
shall be true and correct in all material respects on and as of the
date of such Borrowing with the same effect as though made on and as
of such date, except to the extent such representations and warranties
expressly relate to an earlier date.
(d) At the time of and immediately after such Borrowing
no Event of Default or Default shall have occurred and be continuing.
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(e) The Agents shall have received a certificate of a
Responsible Officer of the Borrower certifying that the matters set
forth in paragraphs (c) and (d) of this Section 4.02 are true and
correct as of such date.
Each such Loan shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Borrowing as to the matters specified in
subsections (c) and (d) of this Section 4.02.
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Lender has any Commitment
hereunder or any amount payable hereunder remains unpaid (provided, that such
covenants shall not apply to TEG or any of it Subsidiaries):
SECTION 5.01. EXISTENCE. It will, and will cause each of its
Significant Subsidiaries to, do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and all
rights, licenses, permits, franchises and authorizations necessary or desirable
in the normal conduct of its business except as otherwise permitted pursuant to
Section 5.09.
SECTION 5.02. BUSINESS AND PROPERTIES. It will, and will cause each
of its Subsidiaries to, comply with all applicable material laws, rules,
regulations and orders of any Governmental Authority, whether now in effect or
hereafter enacted, except where the validity or applicability of such laws,
rules, regulations or orders is being contested by appropriate proceedings in
good faith; and at all times maintain and preserve all property material to the
conduct of its business and keep such property in good repair, working order
and condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times.
SECTION 5.03. FINANCIAL STATEMENTS, REPORTS, ETC. The Borrower will
furnish to the Agents and each Lender:
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, a consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of
the end of such fiscal year and the related consolidated statements of
income, retained earnings and cash flows for such fiscal year, setting
forth in each case in comparative form the figures for the previous
fiscal year, all reported on in a manner reasonably acceptable to the
Securities and Exchange Commission by Deloitte & Touche LLP or other
independent public accountants of nationally recognized standing;
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(b) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year
of the Borrower a consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such quarter and the
related consolidated statements of income for such quarter, for the
portion of the Borrower's fiscal year ended at the end of such
quarter, and for the twelve months ended at the end of such quarter,
and the related consolidated statement of cash flows for the portion
of the Borrower's fiscal year ended at the end of such quarter,
setting forth comparative figures for previous dates and periods to
the extent required in Form 10-Q, all certified (subject to normal
year-end adjustments) as to fairness of presentation, GAAP and
consistency by a Financial Officer of the Borrower;
(c) simultaneously with any delivery of each set of
financial statements referred to in paragraphs (a) and (b) above, (i)
an unconsolidated balance sheet of the Borrower and the related
unconsolidated statements of income, retained earnings and cash flows
as of the same date and for the same periods applicable to the
statements delivered pursuant to paragraph (a) or (b) above, as
applicable, all certified (subject to normal year-end adjustments in
the case of quarterly statements) as to fairness of presentation, GAAP
and consistency by a Financial Officer or the Borrower and (ii) a
certificate of a Financial Officer of the Borrower (A) setting forth
in reasonable detail the calculations required to establish whether
the Borrower was in compliance with the requirements of Sections 5.11
and 5.12 on the date of such financial statements, and (B) stating
whether any Default exists on the date of such certificate and, if any
Default then exists, setting forth the details thereof and the action
which the Borrower is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of
financial statements referred to in paragraph (a) above, a statement
of the firm of independent public accountants which reported on such
statements (i) stating whether anything has come to their attention to
cause them to believe that any Default existed on the date of such
statements and (ii) confirming the calculations set forth in the
Financial Officer's certificate delivered simultaneously therewith
pursuant to paragraph (c) above;
(e) forthwith upon becoming aware of the occurrence of
any Default, a certificate of a Financial Officer of the Borrower
setting forth the details thereof and the action which the Borrower is
taking or proposes to take with respect thereto;
(f) promptly upon the mailing thereof to the shareholders
of the Borrower generally, copies of all financial statements, reports
and proxy statements so mailed;
(g) promptly upon the filing thereof, copies of each
final prospectus (other than a prospectus included in any registration
statement on Form S-8 or its equivalent or with respect to a dividend
reinvestment plan) and all reports on Forms 10-K, 10-Q and 8-K and
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similar reports which the Borrower, TU Electric or Enserch shall have
filed with the SEC, or any Governmental Authority succeeding to any of
or all the functions of the SEC;
(h) if and when any member of the Controlled Group (i)
gives or is required to give notice to the PBGC of any Reportable
Event with respect to any Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the
plan administrator of any Plan has given or is required to give notice
of any such Reportable Event, a copy of the notice of such Reportable
Event given or required to be given to the PBGC; (ii) receives notice
from a proper representative of a Multiemployer Plan of complete or
partial Withdrawal Liability being imposed upon such member of the
Controlled Group under Title IV of ERISA, a copy of such notice; or
(iii) receives notice from the PBGC under Title IV of ERISA of an
intent to terminate, or appoint a trustee to administer, any Plan, a
copy of such notice; and
(i) promptly, from time to time, such additional
information regarding the financial position or business of the
Borrower and its Subsidiaries as the Agents, at the request of any
Lender, may reasonably request.
As promptly as practicable after delivering each set of financial statements as
required in paragraph (a) of this Section, the Borrower shall make available a
copy of the consolidating workpapers used by the Borrower in preparing such
consolidated statements to each Lender that shall have requested such
consolidating workpapers. Each Lender that receives such consolidating
workpapers shall hold them in confidence as required by Section 8.15; provided
that no Lender may disclose such consolidating workpapers to any other person
pursuant to clause (iv) of Section 8.15.
SECTION 5.04. INSURANCE. It will, and will cause each of its
Subsidiaries to, maintain such insurance or self insurance, to such extent and
against such risks, including fire and other risks insured against by extended
coverage, as is customary with companies similarly situated and in the same or
similar businesses.
SECTION 5.05. TAXES, ETC. It will, and will cause each of its
Subsidiaries to, pay and discharge promptly when due all material taxes,
assessments and governmental charges imposed upon it or upon its income or
profits or in respect of its property, as well as all other material
liabilities, in each case before the same shall become delinquent or in default
and before penalties accrue thereon, unless and to the extent that the same are
being contested in good faith by appropriate proceedings and adequate reserves
with respect thereto shall, to the extent required by GAAP, have been set
aside.
SECTION 5.06. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND
INSPECTIONS. It will, and will cause each of its Subsidiaries to, maintain
financial records in accordance with GAAP and, upon reasonable notice and at
reasonable times, permit authorized representatives designated by
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any Lender to visit and inspect its properties and to discuss its affairs,
finances and condition with its officers.
SECTION 5.07. ERISA. It will, and will cause each of its Subsidiaries
that are members of the Controlled Group to, comply in all material respects
with the applicable provisions of ERISA and the Code except where any
noncompliance, individually or in the aggregate, would not result in a Material
Adverse Change.
SECTION 5.08. USE OF PROCEEDS. It will not, and will not cause or
permit any of its Subsidiaries to, use the proceeds of the Loans for purposes
other than to finance or refinance (directly or indirectly, including as a
commercial paper back-up) equity or subordinated loan advances from the
Borrower to FinCo 1 and FinCo 2 to finance:
(A) consideration payable by Bidco to TEG
shareholders in respect of open market
purchases;
(B) fees and expenses of the Borrower in relation
to the Acquisition and the negotiation,
execution and delivery of this Agreement and
the Existing TU Credit Agreements; and
(C) consideration payable to TEG share options
holders pursuant to any relevant offer to
them by Bidco to purchase or cancel such
share options.
SECTION 5.09. CONSOLIDATIONS, MERGERS, SALES AND ACQUISITIONS OF
ASSETS AND INVESTMENTS IN SUBSIDIARIES. The Borrower will not (a) consolidate
or merge with or into any person unless (i) the surviving corporation is
incorporated under the laws of a State of the United States of America and
assumes or is responsible by operation of law for all the obligations of the
Borrower hereunder and (ii) no Default or Event of Default shall have occurred
or be continuing at the time of or after giving effect to such consolidation or
merger or (b) sell, lease or otherwise transfer, in a single transaction or in
a series of transactions, all or any Substantial part of its assets to any
person or persons other than a Wholly Owned Subsidiary. The Borrower will not
permit any Significant Subsidiary to consolidate or merge with or into, or
sell, lease or otherwise transfer all or any Substantial part of its assets to,
any person other than the Borrower or a Wholly Owned Subsidiary (or a person
which as a result of such transaction becomes a Wholly Owned Subsidiary),
provided that in the case of any merger or consolidation involving TU Electric
or Enserch, such person must assume or be responsible by operation of law for
all the obligations of TU Electric or Enserch, as applicable, hereunder, and
the Borrower will not in any event permit any such consolidation, merger, sale,
lease or transfer if any Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to any such transaction.
Notwithstanding the foregoing, (a) neither the Borrower nor any of its
Subsidiaries will engage to a Substantial extent in businesses other than those
currently conducted by them, or in the case
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of Enserch, by Enserch and other businesses reasonably related thereto, (b)
neither the Borrower nor any of its Subsidiaries will acquire any Subsidiary or
make any investment in any Subsidiary if, upon giving effect to such
acquisition or investment, as the case may be, the Borrower would not be in
compliance with the covenants set forth in Sections 5.11 and 5.12 and (c)
nothing in this Section shall prohibit any sales of assets permitted by Section
5.10(d).
SECTION 5.10. LIMITATIONS ON LIENS. Neither the Borrower nor any
Significant Subsidiary will create or assume or permit to exist any Lien in
respect of any property or assets of any kind (real or personal, tangible or
intangible) of the Borrower or any Significant Subsidiary, or sell any such
property or assets subject to an understanding or agreement, contingent or
otherwise, to repurchase such property or assets, or sell, or permit any
Significant Subsidiary to sell, any accounts receivable; provided that the
provisions of this Section shall not prevent or restrict the creation,
assumption or existence of:
(a) any Lien in respect of any such property or assets of
any Significant Subsidiary to secure indebtedness owing by it to the
Borrower or any Wholly Owned Subsidiary of the Borrower; or
(b) purchase money Liens (including capital leases) in
respect of property acquired by the Borrower or any Significant
Subsidiary, to secure the purchase price of such property (or to
secure indebtedness incurred prior to, at the time of, or within 90
days after the acquisition solely for the purpose of financing the
acquisition of such property), or Liens existing on any such property
at the time of acquisition of such property by the Borrower or such
Significant Subsidiary, whether or not assumed, or any Lien in respect
of property of a corporation existing at the time such corporation
becomes a Subsidiary of the Borrower; or agreements to acquire any
property or assets under conditional sale agreements or other title
retention agreements, or capital leases in respect of any other
property; provided that
(1) the aggregate principal amount of
Indebtedness secured by all Liens in respect of any such
property shall not exceed the cost (as determined by the board
of directors of the Borrower or such Significant Subsidiary,
as the case may be) of such property at the time of
acquisition thereof (or (x) in the case of property covered by
a capital lease, the fair market value, as so determined, of
such property at the time of such transaction, or (y) in the
case of a Lien in respect of property existing at the time
such corporation becomes a Subsidiary of the Borrower the fair
market value, as so determined of such property at such time),
and
(2) at the time of the acquisition of the
property by the Borrower or such Subsidiary, or at the time
such corporation becomes a Subsidiary of the Borrower,
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as the case may be, every such Lien shall apply and attach only
to the property originally subject thereto and fixed
improvements constructed thereon; or
(c) refundings or extensions of any Lien permitted in the
foregoing paragraph (b) for amounts not exceeding the principal amount
of the Indebtedness so refunded or extended or the fair market value
(as determined by the board of directors of the Borrower or such
Significant Subsidiary, as the case may be) of the property
theretofore subject to such Lien, whichever shall be lower, in each
case at the time of such refunding or extension; provided that such
Lien shall apply only to the same property theretofore subject to the
same and fixed improvements constructed thereon; or
(d) sales subject to understandings or agreements to
repurchase; provided that the aggregate sales price for all such sales
(other than sales to any governmental instrumentality in connection
with such instrumentality's issuance of indebtedness, including
without limitation industrial development bonds and pollution control
bonds, on behalf of the Borrower or any Significant Subsidiary) made
in any one calendar year shall not exceed $50,000,000; or
(e) any production payment or similar interest which is
dischargeable solely out of natural gas, coal, lignite, oil or other
mineral to be produced from the property subject thereto and to be
sold or delivered by the Borrower or any Significant Subsidiary; or
(f) any Lien including in connection with sale-leaseback
transactions created or assumed by any Significant Subsidiary on
natural gas, coal, lignite, oil or other mineral properties or nuclear
fuel owned or leased by such Subsidiary, to secure loans to such
Subsidiary in an aggregate amount not to exceed $400,000,000; provided
that neither the Borrower nor any Subsidiary of the Borrower shall
assume or guarantee such financings; or
(g) leases (other than capital leases) now or hereafter
existing and any renewals and extensions thereof under which the
Borrower or any Significant Subsidiary may acquire or dispose of any
of its property, subject, however, to the terms of Section 5.09; or
(h) any Lien created or to be created by the First
Mortgage of TU Electric; or
(i) any Lien on the rights of the Mining Company or Fuel
Company existing under their respective Operating Agreements; or
(j) pledges or sales by TU Electric or Enserch of its
accounts receivable including customers' installment paper; or
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(k) the pledge of current assets, in the ordinary course
of business, to secure current liabilities; or
(l) Permitted Encumbrances.
SECTION 5.11. FIXED CHARGE COVERAGE. The Borrower will not, as of
the end of each quarter of each fiscal year of the Borrower, permit
Consolidated Earnings Available for Fixed Charges for the twelve months then
ended to be less than or equal to 150% of Consolidated Fixed Charges for the
twelve months then ended.
SECTION 5.12. EQUITY CAPITALIZATION RATIO. The Borrower will not at
any time permit Consolidated Shareholders' Equity to be less than 35% of
Consolidated Total Capitalization.
SECTION 5.13. INDEBTEDNESS OF THE BORROWER. The Borrower will not
incur, create, assume or permit to exist Indebtedness (other than guarantees
existing as of [the date hereof] and guarantees of any obligations of
Subsidiaries) in an amount at any time in excess of the sum of the following:
(A) $3,100,000,000;
(B) the excess, if any, of:
(i) cumulative consolidated net income of the Borrower
(after preferred stock dividends and preferred securities
distributions)
LESS:
cumulative combined consolidated net income (after preferred
stock dividends and preferred securities distributions) of the
Subsidiaries of the Borrower in excess of the sum of (x)
dividend income received by the Borrower from such
Subsidiaries and (y) cash proceeds received by the Borrower
from the purchase from the Borrower by a Subsidiary of the
Borrower of common stock of such Subsidiary in lieu of payment
of cash dividends by such Subsidiary
over
(ii) the sum of the aggregate amount of dividends paid by
the Borrower plus the aggregate amount of cash paid by the
Borrower to purchase any of its capital stock from
shareholders (other than pursuant to the Borrower's previously
announced stock buyback program of up to $250,000,000 of
common stock); provided that calculations for clauses (B)(i)
and (ii) shall be applied and included for each fiscal quarter
commencing on or after July 1, 1997; and
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(C) the aggregate proceeds received by TEII and the Borrower from
issuances of capital stock of TEII after April 24, 1997 and
before August 5, 1997 and of the Borrower on and after August
5, 1997 (other than issuances of capital stock of the Borrower
in connection with the Mergers and in any event only to the
extent such proceeds have not been used to prepay Indebtedness
(other than Indebtedness under this Agreement or Indebtedness
under the Corporate Revolvers or any short-term debt));
provided that Indebtedness of the Borrower (other than guarantees existing as
of April 24, 1997 and guarantees of any obligations of Subsidiaries) in an
amount in excess of such sum may be incurred, created, assumed or permitted to
exist for a period of up to 120 days if the Borrower shall have given the
Lenders prior written notice of its intent to issue capital stock within such
120-day period for net cash proceeds to the Borrower sufficient to eliminate
such excess; provided further that notwithstanding the above limitations, the
Borrower may incur additional Indebtedness in an aggregate principal amount of
up to $1,900,000,000 outstanding at any time in the form of commercial paper
for the sole purpose of making intercompany loans (i) to TU Electric in an
aggregate principal amount not to exceed $1,900,000,000 outstanding at any time
and (ii) to Enserch in an aggregate principal amount not to exceed $650,000,000
outstanding at any time.
SECTION 5.14. RESTRICTIVE AGREEMENTS. The Borrower will not, and
will not permit TU Electric, Enserch or any other Subsidiary of the Borrower
with respect to which TU Electric or Enserch is also a Subsidiary to, enter
into any agreement restricting the ability of such Subsidiary to make payments,
directly or indirectly, to its shareholders by way of dividends, advances,
repayments of loans or advances, reimbursements of management and other
intercompany charges, expenses and accruals or other returns on investments or
any other agreement or arrangement that restricts the ability of such
Subsidiary to make any payment, directly or indirectly, to its shareholders if
the effect of such agreement it to subject such Subsidiary to restrictions on
such payments greater than those to which such Subsidiary is subject on the
date of this Agreement.
ARTICLE VI
EVENTS OF DEFAULT
In case of the happening of any of the following events (each an
"EVENT OF DEFAULT"):
(a) any representation or warranty made or deemed made by
the Borrower in or in connection with the execution and delivery of
this Agreement or the Borrowings hereunder shall prove to have been
false or misleading in any material respect when so made, deemed made
or furnished;
(b) default shall be made by the Borrower in the payment
of any principal of any Loan when and as the same shall become due and
payable, whether at the due date thereof or at a date fixed for
prepayment thereof or by acceleration thereof or otherwise;
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(c) default shall be made by the Borrower in the payment
of any interest on any Loan or any Fee or any other amount (other than
an amount referred to in paragraph (b) above) due hereunder, when and
as the same shall become due and payable, and such default shall
continue unremedied for a period of five days;
(d) default shall be made by the Borrower in the due
observance or performance of any covenant, condition or agreement
contained in Section 5.01, 5.11, 5.12 or 5.13;
(e) default shall be made by the Borrower in the due
observance or performance of any covenant, condition or agreement
contained in Section 5.09 and such default shall continue unremedied
for a period of 5 days or default shall be made by the Borrower in the
due observance or performance of any covenant, condition or agreement
contained herein (other than those specified in (b), (c) or (d) above)
or in the Letter Agreement and such default shall continue unremedied
for a period of 30 days after notice thereof from the Administrative
Agent at the request of any Lender to the Borrower;
(f) the Borrower shall no longer own, directly or
indirectly, all the outstanding common stock of TU Electric (or any
successor) and at least 51% of the outstanding common stock of Enserch
(or any successor);
(g) the Borrower or any Subsidiary shall (i) fail to pay
any principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $40,000,000, when and
as the same shall become due and payable, subject to any applicable
grace periods, or (ii) fail to observe or perform any other term,
covenant, condition or agreement contained in any agreement or
instrument evidencing or governing any such Indebtedness if the effect
of any failure referred to in this clause (ii) is to cause, or to
permit the holder or holders of such Indebtedness or a trustee on its
or their behalf to cause, such Indebtedness to become due prior to its
stated maturity;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Borrower or any
Significant Subsidiary, or of a substantial part of the property or
assets of the Borrower or any Significant Subsidiary, under Title 11
of the United States Code, as now constituted or hereafter amended, or
any other Federal or state bankruptcy, insolvency, receivership or
similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Significant Subsidiary or for a substantial part of the property or
assets of the Borrower or any Significant Subsidiary or (iii) the
winding up or liquidation of the Borrower or any Significant
Subsidiary; and such proceeding or petition shall continue undismissed
for 60 days or an order or decree approving or ordering any of the
foregoing shall be entered;
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(i) the Borrower or any Significant Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking
relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner,
any proceeding or the filing of any petition described in (h) above,
(iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the
Borrower or any Significant Subsidiary or for a substantial part of
the property or assets of it or such Significant Subsidiary, (iv) file
an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for
the benefit of creditors, (vi) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or
(vii) take any action for the purpose of effecting any of the
foregoing;
(j) A Change in Control shall occur;
(k) one or more judgments or orders for the payment of
money in an aggregate amount in excess of $50,000,000 shall be
rendered against the Borrower or any Subsidiary thereof or any
combination thereof and such judgment or order shall remain
undischarged or unstayed for a period of 30 days, or any action shall
be legally taken by a judgment creditor to levy upon assets or
properties of the Borrower or any Subsidiary to enforce any such
judgment or order;
(l) an ERISA Event or ERISA Events shall have occurred
that reasonably could be expected to result in a Material Adverse
Change;
then, and in every such event, and at any time thereafter during the
continuance of such event, the Administrative Agent, at the request of the
Required Lenders, shall, by notice to the Borrower, take either or both of the
following actions, at the same or different times: (i) terminate forthwith the
right of the Borrower to borrow pursuant to the Commitments and (ii) declare
the Loans then outstanding to be forthwith due and payable in whole or in part,
whereupon the principal of the Loans so declared to be due and payable,
together with accrued interest thereon and any unpaid accrued Fees and all
other liabilities of the Borrower accrued hereunder, shall become forthwith due
and payable, without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived, anything contained herein to
the contrary notwithstanding; provided that in the case of any event described
in paragraph (h) or (i) above with respect to the Borrower, the Commitments of
the Lenders shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and any unpaid accrued Fees
and all other liabilities of the Borrower accrued hereunder shall automatically
become due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by the Borrower,
anything contained herein to the contrary notwithstanding.
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ARTICLE VII
THE AGENTS
In order to expedite the transactions contemplated by this Agreement,
Chase Bank of Texas, National Association is hereby appointed to act as
Administrative Agent and Chase is hereby appointed to act as CAF Agent, on
behalf of the Lenders. Each of the Lenders hereby irrevocably authorizes the
Agents to take such actions on behalf of such Lender or holder and to exercise
such powers as are specifically delegated to the Agents by the terms and
provisions hereof, together with such actions and powers as are reasonably
incidental thereto. The Administrative Agent is hereby expressly authorized by
the Lenders and the CAF Agent, without hereby limiting any implied authority,
(a) to receive on behalf of the Lenders and the CAF Agent all payments of
principal of and interest on the Loans and all other amounts due to the Lenders
and the CAF Agent hereunder, and promptly to distribute to each Lender and the
CAF Agent its proper share of each payment so received; (b) to give notice on
behalf of each of the Lenders to the Borrower of any Event of Default of which
the Administrative Agent has actual knowledge acquired in connection with its
agency hereunder; and (c) to distribute to each Lender copies of all notices,
financial statements and other materials delivered by the Borrower pursuant to
this Agreement as received by the Administrative Agent.
No Agent or any of its directors, officers, employees or agents shall
be liable as such for any action taken or omitted by any of them except for its
or his or her own gross negligence or willful misconduct, or be responsible for
any statement, warranty or representation herein or the contents of any
document delivered in connection herewith, or be required to ascertain or to
make any inquiry concerning the performance or observance by the Borrower of
any of the terms, conditions, covenants or agreements contained in this
Agreement. The Agents shall not be responsible to the Lenders for the due
execution, genuineness, validity, enforceability or effectiveness of this
Agreement or other instruments or agreements. The Agents may deem and treat
the Lender which makes any Loan as the holder of the indebtedness resulting
therefrom for all purposes hereof until it shall have received notice from such
Lender, given as provided herein, of the transfer thereof. The Agents shall in
all cases be fully protected in acting, or refraining from acting, in
accordance with written instructions signed by the Required Lenders and, except
as otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders. Each of the
Agents shall, in the absence of knowledge to the contrary, be entitled to rely
on any instrument or document believed by it in good faith to be genuine and
correct and to have been signed or sent by the proper person or persons. No
Agent or any of its directors, officers, employees or agents shall have any
responsibility to the Borrower on account of the failure of or delay in
performance or breach by the other Agent or any Lender of any of its
obligations hereunder or to the other Agent or any Lender on account of the
failure of or delay in performance or breach by any other Lender, the other
Agent or the Borrower of any of their respective obligations hereunder or in
connection herewith. Each of the Agents may execute any and all duties
hereunder by or through agents or employees and shall be entitled to rely upon
the advice of legal counsel selected by it with respect to all matters arising
hereunder
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and shall not be liable for any action taken or suffered in good faith by it in
accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Agents shall be under no duty
to take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so
by the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, either Agent may resign at any time by notifying the Lenders
and the Borrower. Upon any such resignation, the Required Lenders shall have
the right to appoint a successor Agent acceptable to the Borrower. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Agent gives notice
of its resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent, having a combined capital and surplus of at least
$500,000,000 or an Affiliate of any such bank. Upon the acceptance of any
appointment as Agent hereunder by a successor bank, such successor shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any Agent's resignation hereunder, the
provisions of this Article and Section 8.05 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
With respect to the Loans made by it hereunder, each of the Agents, in
its individual capacity and not as an Agent shall have the same rights and
powers as any other Lender and may exercise the same as though it were not an
Agent, and each of the Agents and their Affiliates may accept deposits from,
lend money to and generally engage in any kind of business with the Borrower or
any Subsidiary or other Affiliate thereof as if it were not an Agent.
Each Lender agrees (i) to reimburse the Agents, on demand, in the
amount of its pro rata share (based on its Commitment hereunder or, if the
Commitments shall have been terminated, the amount of its outstanding Loans) of
any expenses incurred for the benefit of the Lenders in its role as Agent,
including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, which shall not have been
reimbursed by the Borrower and (ii) to indemnify and hold harmless each of the
Agents and any of its directors, officers, employees or agents, on demand, in
the amount of such pro rata share, from and against any and all liabilities,
taxes, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against it in any way relating to or
arising out of this Agreement or any action taken or omitted by it under this
Agreement to the extent the same shall not have been reimbursed by the
Borrower; provided that no Lender shall be liable to any Agent for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the gross
negligence or willful misconduct of such Agent or any of its directors,
officers, employees or agents.
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Each Lender acknowledges that it has, independently and without
reliance upon the Agents or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agents or any other Lender
and based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any related agreement or any document
furnished hereunder or thereunder.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. NOTICES. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopy, as follows:
(a) if to the Borrower, to Texas Utilities Company,
Energy Plaza, 1601 Bryan Street, 33rd Floor, Dallas, TX 75201,
Attention of Laura Anderson, Manager of Corporate Finance and
Compliance (Telecopy No. 214- 812-2488);
(b) if to the CAF Agent, to The Chase Manhattan Bank,
Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor,
New York, New York 10081, Attention of Chris Consomer (Telecopy No.
212-552-5627, with a copy to The Chase Manhattan Bank at 270 Park
Avenue, New York, New York 10017, Attention of Jaimin Patel (Telecopy
No. 212-270-1354);
(c) if to the Administrative Agent, to Chase Bank of
Texas, National Association, 2200 Ross Avenue 3rd Floor, Dallas TX
75201, Attention of Allen King (Telecopy No. 214-965-2990); and
(d) if to a Lender, to it at its address (or telecopy
number) set forth in the Administrative Questionnaire delivered to the
Administrative Agent by such Lender in connection with the execution
of this Agreement or previously or in the Assignment and Acceptance
pursuant to which such Lender became a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy to such party as provided in this Section or in accordance with the
latest unrevoked direction from such party given in accordance with this
Section.
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SECTION 8.02. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Lenders and shall survive the making by the Lenders of the Loans regardless of
any investigation made by the Lenders or on their behalf, and shall continue in
full force and effect as long as the principal of or any accrued interest on
any Loan or any Fee or any other amount payable under this Agreement is
outstanding and unpaid or the Commitments have not been terminated.
SECTION 8.03. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrower and each Agent and when the
Administrative Agent shall have received copies hereof (telecopied or
otherwise) which, when taken together, bear the signature of each Lender, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower shall not
have the right to assign any rights hereunder or any interest herein without
the prior consent of all the Lenders.
SECTION 8.04. SUCCESSORS AND ASSIGNS. (a) Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of any party that are contained in this
Agreement shall bind and inure to the benefit of its successors and assigns.
(b) Each Lender may assign to one or more assignees all or a
portion of its interests, rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing
to it); provided, however, that (i) except in the case of an assignment to a
Lender or an Affiliate of such Lender, an assignment to a Federal Reserve Bank
or an assignment made at any time an Event of Default shall have occurred and
be continuing, the Borrower and the Agents must give their prior written
consent to such assignment (which consent shall not be unreasonably withheld),
(ii) the amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $15,000,000, (iii) each such assignment shall be of a constant,
and not a varying, percentage of all the assigning Lender's rights and
obligations under this Agreement, (iv) the parties to each such assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, and a processing and recordation fee of $3,000, and (v) the
assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire. Upon acceptance and recording pursuant
to Section 8.04(e), from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five Business
Days after the execution thereof unless otherwise agreed by the Administrative
Agent (the Borrower to be given reasonable notice of any shorter period), (A)
the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement and (B) the assigning Lender
thereunder shall, to
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the extent of the interest assigned by such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease
to be a party hereto (but shall continue to be entitled to the benefits of
Sections 2.12, 2.17 and 8.05 afforded to such Lender prior to its assignment as
well as to any Fees accrued for its account hereunder and not yet paid)).
Notwithstanding the foregoing, any Lender assigning its rights and obligations
under this Agreement may retain any Competitive Loans made by it outstanding at
such time, and in such case shall retain its rights hereunder in respect of any
Loans so retained until such Loans have been repaid in full in accordance with
this Agreement.
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim, (ii)
except as set forth in (i) above, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto or the financial condition of the Borrower or the performance or
observance by the Borrower of any obligations under this Agreement or any other
instrument or document furnished pursuant hereto; (iii) such assignor and such
assignee represents and warrants that it is legally authorized to enter into
such Assignment and Acceptance; (iv) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 5.03 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (v) such
assignee will independently and without reliance upon the Agents, such
assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (vi) such
assignee appoints and authorizes each Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to
such Agent by the terms hereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its offices
in the City of Houston a copy of each Assignment and Acceptance delivered to it
and a register for the recordation of the names and addresses of the Lenders,
and the Commitment of, and the principal amount of the Loans owing to, each
Lender pursuant to the terms hereof from time to time (the "REGISTER"). The
entries in the Register shall be conclusive in the absence of manifest error
and the Borrower, the Agents and the Lenders may treat each person whose name
is recorded in the Register pursuant to the terms hereof as a Lender hereunder
for all purposes of this Agreement. The Register shall
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be available for inspection by each party hereto, at any reasonable time and
from time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee together with an Administrative
Questionnaire completed in respect of the assignee (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) above and, if required, the written consent of the Borrower
and the Agents to such assignment, the Administrative Agent shall (i) accept
such Assignment and Acceptance and (ii) record the information contained
therein in the Register.
(f) Each Lender may without the consent of the Borrower or the
Agents sell participations to one or more banks or other entities in all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans owing to it); provided, however, that
(i) such Lender's obligations under this Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) each participating bank or other entity
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.12, 2.17 and 8.05 to the same extent as if it were the selling
Lender (and limited to the amount that could have been claimed by the selling
Lender had it continued to hold the interest of such participating bank or
other entity), except that all claims made pursuant to such Sections shall be
made through such selling Lender, and (iv) the Borrower, the Agents and the
other Lenders shall continue to deal solely and directly with such selling
Lender in connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrower under this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement (other than
amendments, modifications or waivers (x) decreasing any fees payable hereunder
or the amount of principal of, or the rate at which interest is payable on, the
Loans, (y) extending any scheduled principal payment date or date fixed for the
payment of interest on the Loans or (z) extending the Commitments).
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower; provided that, prior to any such disclosure,
each such assignee or participant or proposed assignee or participant shall
execute an agreement whereby such assignee or participant shall agree (subject
to customary exceptions) to preserve the confidentiality of any such
information.
(h) The Borrower shall not assign or delegate any rights and
duties hereunder without the prior written consent of all Lenders, and any
attempted assignment or delegation (except as a consequence of a transaction
expressly permitted under Section 5.09) by the Borrower without such consent
shall be void.
INTERIM FACILITY
<PAGE> 60
(i) Any Lender may at any time pledge all or any portion of its
rights under this Agreement to a Federal Reserve Bank; provided that no such
pledge shall release any Lender from its obligations hereunder or substitute
any such Bank for such Lender as a party hereto. In order to facilitate such
an assignment to a Federal Reserve Bank, the Borrower shall, at the request of
the assigning Lender, duly execute and deliver to the assigning Lender a
promissory note or notes evidencing the Loans made to the Borrower by the
assigning Lender hereunder.
SECTION 8.05. EXPENSES; INDEMNITY. (a) The Borrower agrees to pay
all reasonable out-of-pocket expenses incurred by the Agents in connection with
entering into this Agreement or in connection with any amendments,
modifications or waivers of the provisions hereof (but only if such amendments,
modifications or waivers are requested by the Borrower) (whether or not the
transactions hereby contemplated are consummated), or incurred by the Agents or
any Lender in connection with the enforcement of their rights in connection
with this Agreement or in connection with the Loans made hereunder, including
the reasonable fees and disbursements of counsel for the Agents or, in the case
of enforcement following an Event of Default, the Lenders.
(b) The Borrower agrees to indemnify each Lender against any loss,
calculated in accordance with the next sentence, or reasonable expense which
such Lender may sustain or incur as a consequence of (a) any failure by the
Borrower to borrow or to refinance, convert or continue any Loan hereunder
(including as a result of the Borrower's failure to fulfill any of the
applicable conditions set forth in Article IV) after irrevocable notice of such
borrowing, refinancing, conversion or continuation has been given pursuant to
Section 2.03 or 2.04, (b) any payment, prepayment or conversion, or assignment
of a Eurodollar Loan or Fixed Rate Loan of the Borrower required by any other
provision of this Agreement or otherwise made or deemed made on a date other
than the last day of the Interest Period, if any, applicable thereto, (c) any
default in payment or prepayment of the principal amount of any Loan or any
part thereof or interest accrued thereon, as and when due and payable (at the
due date thereof, whether by scheduled maturity, acceleration, irrevocable
notice of prepayment or otherwise) or (d) the occurrence of any Event of
Default, including, in each such case, any loss or reasonable expense sustained
or incurred or to be sustained or incurred by such Lender in liquidating or
employing deposits from third parties, or with respect to commitments made or
obligations undertaken with third parties, to effect or maintain any Loan
hereunder or any part thereof as a Eurodollar Loan or a Fixed Rate Loan. Such
loss shall include an amount equal to the excess, if any, as reasonably
determined by such Lender, of (i) its cost of obtaining the funds for the Loan
being paid, prepaid, refinanced, converted or not borrowed (assumed to be the
LIBO Rate or, in the case of a Fixed Rate Loan, the fixed rate of interest
applicable thereto) for the period from the date of such payment, prepayment,
refinancing or failure to borrow or refinance to the last day of the Interest
Period for such Loan (or, in the case of a failure to borrow or refinance the
Interest Period for such Loan which would have commenced on the date of such
failure) over (ii) the amount of interest (as reasonably determined by such
Lender) that would be realized by such Lender in reemploying the funds so paid,
prepaid or not borrowed or refinanced for such period or Interest Period, as
the case may be.
INTERIM FACILITY
<PAGE> 61
(c) THE BORROWER AGREES TO INDEMNIFY THE AGENTS, EACH LENDER, EACH
OF THEIR AFFILIATES AND THE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS OF THE
FOREGOING (EACH SUCH PERSON BEING CALLED AN "INDEMNITEE") AGAINST, AND TO HOLD
EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES
AND RELATED EXPENSES, INCLUDING REASONABLE COUNSEL FEES AND EXPENSES, INCURRED
BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF (i)THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, INCLUDING THE ACQUISITION, (ii)
THE USE OF THE PROCEEDS OF THE LOANS OR (iii) ANY CLAIM, LITIGATION,
INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER OR NOT
ANY INDEMNITEE IS A PARTY THERETO, INCLUDING ANY OF THE FOREGOING ARISING FROM
THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, ON THE PART OF ANY INDEMNITEE;
PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO
THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES
(i) ARE DETERMINED BY A FINAL JUDGMENT OF A COURT OF COMPETENT JURISDICTION TO
HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH
INDEMNITEE OR (ii) RESULT FROM ANY LITIGATION BROUGHT BY SUCH INDEMNITEE
AGAINST THE BORROWER OR BY THE BORROWER AGAINST SUCH INDEMNITEE, IN WHICH A
FINAL, NONAPPEALABLE JUDGMENT HAS BEEN RENDERED AGAINST SUCH INDEMNITEE;
PROVIDED, FURTHER, THAT THE BORROWER AGREES THAT IT WILL NOT, NOR WILL IT
PERMIT ANY SUBSIDIARY TO, WITHOUT THE PRIOR WRITTEN CONSENT OF EACH INDEMNITEE,
SETTLE, COMPROMISE OR CONSENT TO THE ENTRY OF ANY JUDGMENT IN ANY PENDING OR
THREATENED CLAIM, ACTION, SUIT OR PROCEEDING IN RESPECT OF WHICH
INDEMNIFICATION COULD BE SOUGHT UNDER THE INDEMNIFICATION PROVISIONS OF THIS
SECTION 8.05(c) (WHETHER OR NOT ANY INDEMNITEE IS AN ACTUAL OR POTENTIAL PARTY
TO SUCH CLAIM, ACTION, SUIT OR PROCEEDING), UNLESS SUCH SETTLEMENT, COMPROMISE
OR CONSENT DOES NOT INCLUDE ANY STATEMENT AS TO AN ADMISSION OF FAULT,
CULPABILITY OR FAILURE TO ACT BY OR ON BEHALF OF ANY INDEMNITEE AND DOES NOT
INVOLVE ANY PAYMENT OF MONEY OR OTHER VALUE BY ANY INDEMNITEE OR ANY INJUNCTIVE
RELIEF OR FACTUAL FINDINGS OR STIPULATIONS BINDING ON ANY INDEMNITEE.
(d) The provisions of this Section shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term
or provision of this Agreement or any investigation made by or on behalf of any
Agent or any Lender. All amounts due under this Section shall be payable on
written demand therefor.
(e) A certificate of any Lender or Agent setting forth any amount
or amounts which such Lender or Agent is entitled to receive pursuant to
paragraph (b) of this Section and containing an explanation in reasonable
detail of the manner in which such amount or amounts shall have been determined
shall be delivered to the Borrower and shall be conclusive absent manifest
error.
SECTION 8.06. RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations
INTERIM FACILITY
<PAGE> 62
of the Borrower now or hereafter existing under this Agreement held by such
Lender, irrespective of whether or not such Lender shall have made any demand
under this Agreement and although such obligations may be unmatured. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
SECTION 8.07. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 8.08. WAIVERS; AMENDMENT. (a) No failure or delay of either
Agent or any Lender in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Agents and the Lenders
hereunder are cumulative and are not exclusive of any rights or remedies which
they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on the Borrower or any Subsidiary in any case shall
entitle such party to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders; provided, however, that
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan, or waive or excuse any such payment or any part
thereof, or decrease the rate of interest on any Loan, without the prior
written consent of each Lender affected thereby, (ii) increase any Commitment
or decrease the Facility Fee of any Lender without the prior written consent of
such Lender, or (iii) amend or modify the provisions of Section 2.14 or Section
8.04(h), the provisions of this Section or the definition of the "Required
Lenders", without the prior written consent of each Lender; provided further,
however, that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent or the CAF Agent hereunder without
the prior written consent of the Administrative Agent or the CAF Agent, as the
case may be. Each Lender shall be bound by any waiver, amendment or
modification authorized by this Section and any consent by any Lender pursuant
to this Section shall bind any assignee of its rights and interests hereunder.
SECTION 8.09. ENTIRE AGREEMENT. THIS AGREEMENT (INCLUDING THE
SCHEDULES AND EXHIBITS HERETO) AND THE LETTER AGREEMENT CONSTITUTE A "LOAN
AGREEMENT" AS DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE
CODE, AND REPRESENT THE ENTIRE CONTRACT AMONG THE PARTIES RELATIVE TO THE
SUBJECT MATTER HEREOF AND THEREOF. ANY PREVIOUS AGREEMENT, WHETHER WRITTEN OR
ORAL, AMONG THE PARTIES
INTERIM FACILITY
<PAGE> 63
WITH RESPECT TO THE SUBJECT MATTER HEREOF IS SUPERSEDED BY THIS AGREEMENT AND
THE LETTER AGREEMENT. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. NOTHING IN THIS AGREEMENT, EXPRESSED OR IMPLIED, IS INTENDED TO
CONFER UPON ANY PARTY OTHER THAN THE PARTIES HERETO ANY RIGHTS, REMEDIES,
OBLIGATIONS OR LIABILITIES UNDER OR BY REASON OF THIS AGREEMENT.
SECTION 8.10. SEVERABILITY. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good- faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 8.11. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 8.03.
SECTION 8.12. HEADINGS. Article and Section headings and the Table
of Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 8.13. INTEREST RATE LIMITATION. (a) Notwithstanding
anything herein to the contrary, if at any time the applicable interest rate,
together with all fees and charges which are treated as interest under
applicable law (collectively the "CHARGES"), as provided for herein or in any
other document executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by any Lender, shall exceed the maximum
lawful rate (the "MAXIMUM RATE") which may be contracted for, charged, taken,
received or reserved by such Lender in accordance with applicable law, the rate
of interest payable on the Loans of such Lender, together with all Charges
payable to such Lender, shall be limited to the Maximum Rate.
(b) If the amount of interest, together with all Charges, payable
for the account of any Lender in respect of any interest computation period is
reduced pursuant to paragraph (a) of this Section and the amount of interest,
together with all Charges, payable for such Lender's account in respect of any
subsequent interest computation period, computed pursuant to Section 2.07,
would be less than the Maximum Rate, then the amount of interest, together with
all Charges, payable for such Lender's account in respect of such subsequent
interest computation period shall, to the extent permitted by applicable law,
be automatically increased to such Maximum Rate; provided that at no time shall
the aggregate amount by which interest paid for the account of any Lender has
been increased pursuant to this paragraph (b) exceed the aggregate amount by
which interest, together with all Charges, paid for its account has theretofore
been reduced pursuant to paragraph (a) of this Section.
INTERIM FACILITY
<PAGE> 64
SECTION 8.14. JURISDICTION; VENUE. (a) The Borrower hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, in such Federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Subject to the
foregoing and to paragraph (b) below, nothing in this Agreement shall affect
any right that any party hereto may otherwise have to bring any action or
proceeding relating to this Agreement against any other party hereto in the
courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or thereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any New York State
or Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
SECTION 8.15. CONFIDENTIALITY. Each Lender shall use its best
efforts to hold in confidence all information, memoranda, or extracts furnished
to such Lender (directly or through the Agents) by the Borrower hereunder or in
connection with the negotiation hereof; provided that such Lender may disclose
any such information, memoranda or extracts (i) to its accountants or counsel,
(ii) to any regulatory agency having authority to examine such Lender, (iii) as
required by any legal or governmental process or otherwise by law, (iv) except
as provided in the last sentence of Section 5.03, to any person to which such
Lender sells or proposes to sell an assignment or a participation in its Loans
hereunder, if such other person agrees for the benefit of the Borrower to
comply with the provisions of this Section and (v) to the extent that such
information, memoranda or extracts shall be publicly available or shall have
become known to such Lender independently of any disclosure by the Borrower
hereunder or in connection with the negotiation hereof. Notwithstanding the
foregoing, any Lender may disclose the provisions of this Agreement and the
amounts, maturities and interest rates of its Loans to any purchaser or
potential purchaser of such Lender's interest in any Loan.
[Signature pages follow]
INTERIM FACILITY
<PAGE> 65
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
TEXAS UTILITIES COMPANY
By /s/ Texas Utilities Company
----------------------------
Name:
Title:
TEXAS UTILITIES ELECTRIC COMPANY
By /s/ Texas Utilities Electric Company
-------------------------------------
Name:
Title:
ENSERCH CORPORATION
By /s/ Enserch Corporation
----------------------------
Name:
Title:
INTERIM FACILITY
<PAGE> 66
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Administrative Agent
By /s/ Chase Bank of Texas, National
Association
----------------------------
Name:
Title:
INTERIM FACILITY
<PAGE> 67
THE CHASE MANHATTAN BANK,
individually and as Competitive
Advanced Facility Agent
By /s/ The Chase Manhattan Bank
-------------------------------
Name:
Title:
INTERIM FACILITY
<PAGE> 68
LENDERS:
LEHMAN COMMERCIAL PAPER INC.
By /s/ Lehman Commercial Paper Inc.
-----------------------------------
Name:
Title:
INTERIM FACILITY
<PAGE> 69
MERRILL LYNCH CAPITAL CORPORATION
By /s/ Merrill Lynch Capital Corporation
--------------------------------------
Name:
Title:
INTERIM FACILITY
<PAGE> 70
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
The Chase Manhattan Bank,
as Competitive Advance Facility Agent
for the Lenders referred to below,
c/o The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Chris Consomer
Telecopy: 212-552-5627
Dear Ladies and Gentlemen:
The undersigned, Texas Utilities Company (the "BORROWER"), refers to
the 364-Day Competitive Advance and Revolving Credit Facility Agreement, dated
as of March 6, 1998 (as it may hereafter be amended, modified, extended or
restated from time to time, the "AGREEMENT"), among the Borrower, the Lenders
named therein, Chase Bank of Texas, National Association, as Administrative
Agent, and The Chase Manhattan Bank, as Competitive Advance Facility Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Agreement. The Borrower hereby gives
you notice pursuant to Section 2.03(a) of the Agreement that it requests a
Competitive Borrowing under the Agreement, and in that connection sets forth
below the terms on which such Competitive Borrowing is requested to be made:
(A) Date of Competitive Borrowing (which is a Business Day)
--------
(B) Principal amount of aggregate Competitive Borrowing(1)
--------
1. Principal amount of Competitive Borrowing
comprised of Offer Loans
--------
2. Principal amount of Competitive Borrowing
comprised of General Loans --------
(C) Interest rate basis(2) --------
- --------------
(1) Not less than $5,000,000 (and in integral multiples of $1,000,000) or
greater than the Total Commitment then available.
(2) Eurodollar Loan or Fixed Rate Loan.
i
<PAGE> 71
(D) Interest Period and the last day thereof(3)
--------
Upon acceptance of any or all of the Loans offered by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted that the applicable conditions to lending specified in Article IV of
the Agreement have been satisfied.
Very truly yours,
TEXAS UTILITIES COMPANY
By
------------------------------
Name:
Title: [Financial Officer]
- -----------------
(3) Which shall be subject to the definition of INTEREST PERIOD and end not
later than the Maturity Date.
ii
<PAGE> 72
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
[Name of Lender]
[Address]
New York, New York
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
Reference is made to the 364-Day Competitive Advance and Revolving
Credit Facility Agreement, dated as of March 6, 1998 (as it may hereafter be
amended, modified, extended or restated from time to time, the "AGREEMENT"),
among Texas Utilities Company (the "BORROWER"), the Lenders named therein,
Chase Bank of Texas, National Association, as Administrative Agent and the
Chase Manhattan Bank, as Competitive Advance Facility Agent. Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned
to such terms in the Agreement. The Borrower made a Competitive Bid Request on
__________, [___], pursuant to Section 2.03(a) of the Agreement, and in that
connection you are invited to submit a Competitive Bid by [Date]/[Time].(1) Your
Competitive Bid must comply with Section 2.03(b) of the Agreement and the terms
set forth below on which the Competitive Bid Request was made:
(A) Date of Competitive Borrowing
--------
(B) Principal amount of Competitive Borrowing
--------
1. Principal amount of Competitive
Borrowing comprised of Offer Loans
--------
2. Principal amount of Competitive Borrowing
comprised of General Loans
--------
(C) Interest rate basis --------
- ------------
(1) The Competitive Bid must be received by the CAF Agent (vi) in the case of
Eurodollar Loans, not later than 9:30 a.m., New York City time, three
Business Days before a proposed Competitive Borrowing, and (vii) in the case
of Fixed Rate Loans, not later than 9:30 a.m., New York City time, on the
Business Day of a proposed Competitive Borrowing.
<PAGE> 73
(D) Interest Period and the last day thereof
--------
Very truly yours,
The Chase Manhattan Bank,
as Competitive Advance Facility Agent,
By
------------------------------
Name:
Title:
A-2-ii
<PAGE> 74
EXHIBIT A-3
FORM OF COMPETITIVE BID
The Chase Manhattan Bank,
as Competitive Advance Facility Agent
for the Lenders referred to below,
c/o The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Chris Consomer
Telecopy: 212-552-5627
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
The undersigned, [Name of Lender], refers to the 364-day Competitive
Advance and Revolving Credit Facility Agreement, dated as of March 6, 1998 (as
it may hereafter be amended, modified, extended or restated from time to time,
the "AGREEMENT"), among Texas Utilities Company (the "BORROWER"), the Lenders
named therein, Chase Bank of Texas, National Association, as Administrative
Agent and The Chase Manhattan Bank, as Competitive Advance Facility Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Agreement. The undersigned hereby makes
a Competitive Bid pursuant to Section 2.03(b) of the Agreement, in response to
the Competitive Bid Request made by the Borrower on ___________, [____], and in
that connection sets forth below the terms on which such Competitive Bid is
made:
(A) Principal Amount(1)
--------
(B) Competitive Bid Rate(2)
--------
(C) Interest Period and last day thereof
--------
- ----------------
(1) Not less than $5,000,000 or greater than the requested Competitive
Borrowing and in integral multiples of $1,000,000. Multiple bids will be
accepted by the CAF Agent.
(2) i.e., LIBO Rate + or - __%, in the case of Eurodollar Loans or ___%, in the
case of Fixed Rate Loans.
<PAGE> 75
The undersigned hereby confirms that it is prepared, subject to the
conditions set forth in the Agreement, to extend credit to the Borrower upon
acceptance by the Borrower of this bid in accordance with Section 2.03(d) of
the Agreement.
Very truly yours,
[NAME OF LENDER],
By /s/
----------------------------
Name:
Title:
A-3-ii
<PAGE> 76
EXHIBIT A-4
FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER
[Date]
The Chase Manhattan Bank,
as Competitive Advance Facility Agent
for the Lenders referred to below,
c/o The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Chris Consomer
Telecopy: 212-552-5627
Dear Ladies and Gentlemen:
The undersigned, Texas Utilities Company (the "BORROWER"), refers to
the 364-Day Competitive Advance and Revolving Credit Facility Agreement, dated
as of March 6, 1998 (as it may hereafter be amended, modified, extended or
restated from time to time, the "AGREEMENT"), among the Borrower, the Lenders
named therein, Chase Bank of Texas, as Administrative Agent and The Chase
Manhattan Bank, as Competitive Advance Facility Agent for the Lenders.
In accordance with Section 2.03(c) of the Agreement, we have received
a summary of bids in connection with our Competitive Bid Request dated
_____________, 19[ ], and in accordance with Section 2.03(d) of the Agreement,
we hereby accept the following bids for maturity on [date]:
<TABLE>
<CAPTION>
Principal Amount Fixed Rate/Margin Lender
---------------- ----------------- ------
<S> <C> <C>
$ [%]/[+/-. %]
$
</TABLE>
We hereby reject the following bids:
<TABLE>
<CAPTION>
Principal Amount Fixed Rate/Margin Lender
---------------- ----------------- ------
<S> <C> <C>
$ [%]/[+/-. %]
$
</TABLE>
<PAGE> 77
The $__________ should be deposited in The Chase Manhattan Bank
account number [ ] on [date].
Very truly yours,
TEXAS UTILITIES COMPANY
By
-------------------------------
Name:
Title:
A-4-ii
<PAGE> 78
EXHIBIT A-5
FORM OF STANDBY BORROWING REQUEST
Chase Bank of Texas, National Association,
as Administrative Agent for the Lenders referred to below,
2200 Ross Avenue, 3rd floor
Dallas, TX 77002
Attention: Allen King
Telecopy: (214) 965-2990
[Date]
Dear Ladies and Gentlemen:
The undersigned, Texas Utilities Company (the "BORROWER"), refers to
the 364-Day Competitive Advance and Revolving Credit Facility Agreement dated
as of March 6, 1998 (as it may hereafter be amended, modified, extended or
restated from time to time, the "AGREEMENT"), among the Borrower, the Lenders
named therein, Chase Bank of Texas, National Association, as Administrative
Agent and The Chase Manhattan Bank, as Competitive Advance Facility Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Agreement. The Borrower hereby gives
you notice pursuant to Section 2.04 of the Agreement that it requests a Standby
Borrowing under the Agreement, and in that connection sets forth below the
terms on which such Standby Borrowing is requested to be made:
(A) Date of Standby Borrowing (which is a Business Day)
--------
(B) Principal amount of Standby Borrowing(1)
--------
1. Principal amount of Standby Borrowing
comprised of Offer Loans --------
2. Principal amount of Standby Borrowing
comprised of General Loans
--------
(C) Interest rate basis(2)
--------
(D) Interest Period and the last day thereof(3)
--------
- -----------------
(1) Not less than $25,000,000 (and in integral multiples of $5,000,000) or
greater than the Total Commitment then available.
(2) Eurodollar Loan or ABR Loan.
(3) Which shall be subject to the definition of INTEREST PERIOD and end not
later than the Maturity Date.
<PAGE> 79
(E) The Standby Borrowing will [not] comprise
Offer Loans.
--------
Upon acceptance of any or all of the Loans made by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted that the applicable conditions to lending specified in Article IV of
the Agreement have been satisfied.
Very truly yours,
TEXAS UTILITIES COMPANY
By
------------------------------
Name:
Title: [Financial Officer]
A-5-ii
<PAGE> 80
EXHIBIT B
ADMINISTRATIVE QUESTIONNAIRE
TEXAS UTILITIES COMPANY
PLEASE FORWARD THIS COMPLETED
FORM AS SOON AS POSSIBLE TO:
Donna McGroarty: Fax (713) 216-2291
PLEASE TYPE ALL INFORMATION.
Agent: Chase Bank of Texas, National Association
707 Travis Street, 8-CBB-N 96
Houston, Texas 77002
Telex:
Chase Securities Inc.
Syndications
Telecopier: (713) 216-2291/Alt. Fax (713) 216-2339
Chase Securities Inc.
Syndications
Contacts: Preston Moore Phone: (713) 216-1010
Ann K. Baumgartner Phone: (713) 216-7582
Donna McGroarty Phone: (713) 216-3617
Operations: Gale Manning Phone: (713) 750-2784
Letters of Credit: Gale Manning Phone: (713) 750-2784
Competitive Auction
Contact: The Chase Manhattan Bank
Chris Consomer Phone: (212) 552-7259
Fax: (212) 552-5627
<PAGE> 81
Full Legal Name of your Institution:
Hard-copy documents, notices and periodic financial statements of the Borrower
should be sent to the following account officer designated by your bank:
Officer's Name:
Title:
Street Address (No P.O. Boxes please):
City, State, Zip:
Phone #:
Telefax #:
B-ii
<PAGE> 82
PRIMARY CONTACT INFORMATION
We will send all telecopies regarding time-critical information (drawdowns,
option changes, payments, etc.) to the Primary or Alternate Contact at the
banking location you designate.
1. Your bank's primary contact for telefaxes concerning borrowings,
options on interest rates, etc.:
<TABLE>
<CAPTION>
Primary Telephone Telefax
Name Number Number
-------- -------- ------
<S> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Alternate Name/ Telephone Telefax
Phone No. Number Number
---------------- ---------- ------
<S> <C> <C>
</TABLE>
If at any time any of the above information changes, please advise.
Publicity: Under what name would you prefer your institution to appear in
any future advertisements?
B-iii
<PAGE> 83
Movement of Funds: TO US: Wire Fed Funds to:
Chase Bank of Texas, National Association
ABA # 113000609
for account number # 0010-092-4118
Attention: Gale Manning/Loan Syndication
Services
Reference: TEXAS UTILITIES COMPANY
TO YOU: Wire Fed Funds to:
NAME:
ABA #
For Credit To:
Attention:
Reference:
Other:
If buyer is purchasing Letter of Credit facility as part of this
participation/syndication, please provide the information below:
L/C contact name:
Street Address:
City, State, Zip:
Phone #:
Telefax #:
Wire Fed Funds to:
NAME:
ABA #
For Credit To:
Attention:
Reference:
B-iv
<PAGE> 84
PLEASE COMPLETE THE FOLLOWING INFORMATION
FOR COMPETITIVE AUCTIONS ONLY
PRIMARY CONTACT
COMPETITIVE AUCTIONS
Bank Name:
Address:
Primary Contact:
Department:
Telephone Number:
Telefax Number:
ALTERNATE CONTACT
COMPETITIVE AUCTIONS
Alternate Contact:
Department:
Telephone Number:
Telefax Number:
B-v
<PAGE> 85
PLEASE COMPLETE THE FOLLOWING INFORMATION
FOR COMPETITIVE AUCTIONS ONLY
PRIMARY CONTACT
COMPETITIVE AUCTIONS
Bank Name:
Address:
Primary Contact:
Department:
Telephone Number:
Telefax Number:
ALTERNATE CONTACT
COMPETITIVE AUCTIONS
Alternate Contact:
Department:
Telephone Number:
Telefax Number:
B-vi
<PAGE> 86
EXHIBIT C
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Dated: __________, 19__
Reference is made to the 364-Day Competitive Advance and Revolving
Credit Facility Agreement, dated as of March 6, 1998 (as amended, modified,
extended or restated from time to time, the "AGREEMENT"), among Texas Utilities
Company (the "BORROWER"), the lenders listed in Schedule 2.01 thereto (the
"LENDERS"), Chase Bank of Texas, National Association, as Administrative Agent
and The Chase Manhattan Bank, as Competitive Advance Facility Agent for the
Lenders. Terms defined in the Agreement are used herein with the same
meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the [Effective Date of Assignment set forth
below], the interests set forth on the reverse hereof (the "ASSIGNED INTEREST")
in the Assignor's rights and obligations under the Agreement, including,
without limitation, the interests set forth on the reverse hereof in the
Commitment of the Assignor on the [Effective Date of Assignment] and the
Competitive Loans and Standby Loans owing to the Assignor which are outstanding
on the [Effective Date of Assignment], together with unpaid interest accrued on
the assigned Loans to the [Effective Date of Assignment] and the amount, if
any, set forth on the reverse hereof of the Fees accrued to the [Effective Date
of Assignment] for the account of the Assignor. Each of the Assignor and the
Assignee hereby makes and agrees to be bound by all the representations,
warranties and agreements set forth in Section 8.04 of the Agreement, a copy of
which has been received by each such party. From and after the [Effective Date
of Assignment], (i) the Assignee shall be a party to and be bound by the
provisions of the Agreement and, to the extent of the interests assigned by
this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent of the interests assigned
by this Assignment and Acceptance, relinquish its rights and be released from
its obligations under the Agreement.
2. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is organized under the
laws of a jurisdiction outside the United States, the forms specified in
Section 2.17(g) of the Agreement, duly completed and executed by such Assignee,
(ii) if the Assignee is not already a Lender under the Agreement, an
Administrative Questionnaire in the form of Exhibit B to the Agreement and
(iii) a processing and recordation fee of $3,000.
<PAGE> 87
3. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment
unless otherwise agreed by the
Administrative Agent):
C-ii
<PAGE> 88
<TABLE>
<CAPTION>
Percentage Assigned of Facility/Commitment
Principal Amount Assigned (set forth, to at least 8 decimals, as a
(and identifying information percentage of the Facility and the
Facility as to individual Competitive Loans) aggregate Commitments of all Lenders thereunder
- -------------------------- ----------------------------------- -----------------------------------------------
<S> <C> <C>
Commitment Assigned: $ %
------------ ----------
Standby Loans: $ %
------------ ----------
Competitive Loans: $ %
------------ ----------
Fees Assigned (if any): $ %
------------ ----------
</TABLE>
C-iii
<PAGE> 89
<TABLE>
<S> <C>
The terms set forth and on the reverse Accepted:
side hereof are hereby agreed to: TEXAS UTILITIES COMPANY
, as By:
- ---------------------------- ----------------------------
Assignor Name:
Title:
By: , as
---------------------------- CHASE BANK OF TEXAS, NATIONAL
Name: ASSOCIATION, as Administrative Agent
Title:
, as By:
- ---------------------------- ----------------------------
Assignee, Name:
Title:
By: , as
---------------------------- THE CHASE MANHATTAN BANK, as
Name: CAF Agent
Title:
By:
----------------------------
Name:
Title:
</TABLE>
C-iv
<PAGE> 90
EXHIBIT D-1
[LETTERHEAD OF]
REID & PRIEST LLP
_____ __, 1998
To the Lenders listed on
Schedule 2.01 of each
Credit Agreement referred to below
and from time to time party to such Credit Agreement
Ladies and Gentlemen:
We advise you that we have acted as counsel to Texas Utilities Company, a
Texas Corporation ("TUC"), in connection with the 364-Day Competitive Advance
and Revolving Credit Facility Agreement (the "CREDIT AGREEMENT"), dated as of
March 6, 1998, among TUC, Chase Bank of Texas, National Association, as
Administrative Agent, The Chase Manhattan Bank, as Competitive Advance Facility
Agent, and the banks listed on Schedule 2.01 thereof (the "LENDERS"), and have
participated in the preparation of or have examined and are familiar with (a)
the current financial statements and reports filed by TUC, TU Electric and
Enserch with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended, (b) the Credit Agreement, (C) the articles of
incorporation and by-laws of TUC and (d) such other records and documents as we
have deemed necessary for the purposes of this opinion.
As to those matters stated herein to be "to our knowledge" or "known to us"
such examination has been limited to discussions with and certificates from
officers of TUC and we have not conducted any independent investigation or
verification or taken any action beyond such discussions and certificates, nor
made any search of the records of any Governmental Authority with respect to
such matters.
Capitalized terms used in this opinion and not defined herein shall have
the respective meanings assigned thereto in the Credit Agreement. This opinion
is delivered to you pursuant to Section 4.01(c) of the Credit Agreement.
We are members of the New York Bar and do not hold ourselves out as experts
on the laws of the State of Texas. As to all matters of Texas law (including
incorporation of TUC, titles to properties, franchises, licenses and permits)
we have, with your consent, relied upon an opinion of even date herewith
delivered to you by Worsham, Forsythe & Wooldridge, L.L.P., general
<PAGE> 91
counsel for TUC. While we represent TUC on a regular basis, our engagement has
been limited to specific matters as to which we were consulted. We have no
direct knowledge of the day-to-day affairs of TUC and have not reviewed
generally their business affairs. Accordingly, we are relying upon
representations of TUC contained in the Credit Agreement, in certificates
furnished pursuant thereto, and in certificates furnished to us by officers of
TUC.
For purposes of the opinions expressed below, we have assumed (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
to the originals of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such copies, (iii) the
genuineness of all signatures other than on behalf of TUC, (iv) the legal
capacity of natural persons, (v) the power, corporate or otherwise, of all
parties other than TUC to enter into and to perform all of their obligations
under such documents, and (vi) the due authorization, execution and delivery of
all documents by all parties other than TUC.
Based on the foregoing, we are of the opinion that:
1. TUC (i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas, (ii) has all requisite power and
authority to own its property and assets and to carry on its business as now
conducted, (iii) is qualified to do business in every jurisdiction within the
United States where such qualification is required, except where the failure so
to qualify would not result in a Material Adverse Change, and (iv) has all
requisite corporate power and authority to execute, deliver and perform its
obligations under the Credit Agreement and to borrow funds thereunder.
2. The execution, delivery and performance by TUC of the Credit Agreement
and the Borrowings by it thereunder (collectively, the "TRANSACTIONS") and the
consummation of the Acquisition (i) have been duly authorized by all requisite
corporate action and (ii) will not (a) violate (1) any law, statute, rule or
regulation presently binding on or applicable to TUC, or the articles of
incorporation, as amended, or by-laws of TUC, (2) to our knowledge, any order
of any Governmental Authority presently applicable to TUC or (3) any provision
of any indenture, agreement or other instrument known to us to which TUC or its
property is bound, (b) be in conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or (c) except as contemplated by the
UK Facility Agreement (as defined in the Existing Credit Agreements), result in
the creation or imposition of any lien upon or with respect to any property or
assets of TUC.
3. The Credit Agreement has been duly executed and delivered by TUC and
constitutes legal, valid and binding obligations of TUC enforceable against TUC
in accordance with its terms except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
D-1-ii
<PAGE> 92
4. No action, consent or approval of, registration or filing with, or any
other action by, any Governmental Authority (including pursuant to the Public
Utility Holding Company Act of 1935, as amended) is required on the part of TUC
in connection with the Transactions or the Acquisition, except such as have
been made or obtained and are in full force and effect and, in the case of the
Acquisition, (vi) expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1979 and (vii) [the filing by
TUC of a registration statement on Form S-4] under the Securities Act of 1933,
as amended, relating to shares of common stock of TUC to be issued in
connection with the Acquisition, and action by the Securities and Exchange
Commission declaring said registration statement to be effective under such
Act.
5. (a) Neither TUC nor any of its respective Subsidiaries is an
"investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940, as amended, and (b) TUC and each of its
Subsidiaries is exempt from all provisions of the Public Utility Holding
Company Act of 1935, as amended, and the rules and regulations thereunder,
except for Sections 9(a)(2) and 33 of such Act and the rules and regulations
thereunder, and the execution, delivery and performance by TUC of the Credit
Agreement and the consummation of the Acquisition do not violate any provisions
of such Act or any rule or regulation thereunder.
6. Except as described in the Annual Reports on Form 10-K for the year
ended December 31, 1996 and the Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997, filed by TUC, TU
Electric and Enserch with the Securities and Exchange Commission and as set
forth in Schedule 3.06 to the Credit Agreement, to our knowledge there is no
action, suit, or proceeding at law or in equity or by or before any
Governmental Authority now pending or threatened against or affecting TUC, TU
Electric or Enserch (i) which involves the Transactions or (ii) as to which
there is a reasonable possibility of an adverse determination and which, if
adversely determined, could, individually or in the aggregate, result in a
Material Adverse Change.
7. To our knowledge, after due inquiry, the proposed use of the proceeds
of the Loans is in accordance with the Credit Agreement and, if so used, will
not violate the Margin Regulations.
8. We believe that a New York court would give effect to the provisions of
the Credit Agreement that state that they are to be construed in accordance
with New York law.
D-1-iii
<PAGE> 93
This letter is solely for the benefit of the named addressees and may not
be quoted in whole or in part or otherwise referred to in any document or
report and may not be furnished to any person without our prior written
consent, except that Worsham, Forsythe & Wooldridge, L.L.P. may rely hereon in
connection with their opinion being rendered pursuant to Section 4.01(c) of the
Credit Agreement.
Very truly yours,
Reid & Priest LLP
D-1-iv
<PAGE> 94
EXHIBIT D-2
[LETTERHEAD OF]
WORSHAM, FORSYTHE & WOOLDRIDGE, L.L.P.
________, 1998
To the Lenders listed on
Schedule 2.01 of each of the
Credit Agreement referred to below
Ladies and Gentlemen:
We have acted as general counsel for Texas Utilities Company, a Texas
corporation ("TUC"), in connection with the execution and delivery of the
364-Day Competitive Advance and Revolving Credit Facility Agreement (the
"CREDIT AGREEMENT"), dated as of March 6, 1998, among TUC, the banks listed on
Schedule 2.01 thereof (the "LENDERS"), Chase Bank of Texas, National
Association, as Administrative Agent and The Chase Manhattan Bank, as
Competitive Advance Facility Agent.
Capitalized terms used in this opinion and not defined herein shall have
the respective meanings assigned thereto in the Credit Agreement. This opinion
is delivered to you pursuant to Section 4.01(c) of the Credit Agreement.
In connection with this opinion we have examined a counterpart of the
Credit Agreement executed by TUC and have also made such examination of other
documents and of certificates of public officials and corporate officers of
TUC, and have made such other legal and factual examinations and inquiries as
we have deemed necessary or advisable for the purpose of rendering this
opinion; but as to those matters stated herein to be "to our knowledge" or
"known to us" such examination has been limited to discussions with and
certificates from officers of TUC and we have not conducted any independent
investigation or verification or taken any action beyond such discussions and
certificates, nor made any search of the records of any Governmental Authority
with respect to such matters.
For purposes of the opinions expressed below, we have assumed (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
to the originals of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such copies, (iii) the
genuineness of all signatures other than on behalf of TUC, (iv) the legal
capacity of natural persons, (v) the power, corporate or otherwise, of all
parties other than TUC to enter into and to perform all of their obligations
under such documents, and (vi) the due authorization, execution and delivery of
all documents by all parties other than TUC.
<PAGE> 95
Based upon, and subject to, the foregoing and to such further limitations
and qualifications stated below, we are of the opinion that:
1. TUC (i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas, (ii) has all requisite power and
authority to own its property and assets and to carry on its business as now
conducted, (iii) is qualified to do business in every jurisdiction within the
United States where such qualification is required, except where the failure so
to qualify would not result in a Material Adverse Change, and (iv) has all
requisite corporate power and authority to execute, deliver and perform its
obligations under the Credit Agreement and to borrow funds thereunder.
2. The execution, delivery and performance by TUC of the Credit Agreement
and the Borrowings by it (collectively, the "TRANSACTIONS") and the
consummation of the Acquisition (i) have been duly authorized by all requisite
corporate action and (ii) will not (a) violate (1) any law, statute, rule or
regulation presently binding on or applicable to TUC, or the articles of
incorporation, as amended, or by-laws of TUC, (2) to our knowledge, any order
of any Governmental Authority presently applicable to TUC or (3) any provision
of any indenture, agreement or other instrument known to us to which TUC is a
party or by which TUC or its property is bound, (b) be in conflict with, result
in a breach of or constitute (alone or with notice or lapse of time or both) a
default under any such indenture, agreement or other instrument or (c) result
in the creation or imposition of any lien upon or with respect to any property
or assets now owned or hereafter acquired by TUC.
3. The Credit Agreement has been duly executed and delivered by TUC and
constitutes legal, valid and binding obligations of TUC enforceable against TUC
in accordance with its terms except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4. No action, consent or approval of, registration or filing with, or any
other action by, any Government Authority (including pursuant to the Public
Utility Holding Company Act of 1935, as amended) is required on the part of TUC
in connection with the Transactions or the Acquisition, except as such as have
been made or obtained and are in full force and effect and, in the case of the
Acquisition, (i) expiration or termination of the waiting period under the
Hart- Scott-Rodino Antitrust Improvements Act of 1979 and (ii) [the filing by
the Company of a Registration Statement on Form S-4] under the Securities Act
of 1933, as amended, and action by the Securities and Exchange Commission
declaring said Registration Statement effective.
5. Neither TUC nor any of its Subsidiaries is an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940,
as amended. TUC and each of its Subsidiaries is exempt from all provisions of
the Public Utility Holding Company Act of 1935, as amended, and rules and
regulations thereunder, except for Sections 9(a)(2) and 33 of such
D-2-ii
<PAGE> 96
Act and rules and regulations thereunder, and the execution, delivery and
performance by TUC of the Credit Agreement and the consummation of the
Acquisition do not violate any provision of such Act or any rule or regulation
thereunder.
6. Except as described in the Annual Reports on Form 10-K for the year
ended December 31, 1996 and the Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997, filed by TUC, TU
Electric and Enserch with the Securities and Exchange Commission and as set
forth in Schedule 3.06 to the Credit Agreement, to our knowledge there is no
action, suit or proceeding at law or in equity or by or before any Governmental
Authority now pending or threatened against or affecting TUC, TU Electric or
Enserch (i) which involves the Transactions or the Acquisition or (ii) as to
which there is a reasonable possibility of an adverse determination and which,
if adversely determined, would, individually or in the aggregate, result in a
Material Adverse change.
7. To our knowledge, TUC is not in violation of any law, rule or
regulation, or in default with respect to any judgment, writ, injunction or
decree of any Governmental Authority, where such violation or default would
result in a Material Adverse Change.
8. To our knowledge, after due inquiry, the proposed use of the proceeds
of the Loans is in accordance with the Credit Agreement, and, if so used, will
not violate the Margin Regulations.
9. We believe that a Texas court would give effect to the provisions of
the Credit Agreement that state that it is to be construed in accordance with
New York law; provided, however, that we render no opinion as to the
application of New York law that is contrary to a fundamental or public policy
of the State of Texas.
We are members of the State Bar of Texas and do not purport to be experts
on, nor do we opine as to, the laws of any jurisdiction other than the State of
Texas and the federal laws of the United States. To the extent that the
opinions hereinabove set forth involve the laws of the State of New York, we
have relied upon the opinion of even date herewith delivered by you by Reid &
Priest LLP, special counsel to TUC.
D-2-iii
<PAGE> 97
The foregoing opinions are limited to existing laws and we undertake no
obligation or responsibility to update or supplement this letter in response to
subsequent changes in the law or future events or circumstances affecting the
Transactions. This letter is solely for the benefit of the named addressees
and may not be quoted in whole or in part or otherwise referred to in any
document or report and may not be furnished to any person without our prior
written consent, except that Reid & Priest LLP may rely hereon in connection
with their opinion being rendered pursuant to Section 4.01(c) of the Credit
Agreement.
Very truly yours,
WORSHAM, FORSYTHE &
WOOLDRIDGE, L.L.P.
By:
----------------------------
A Partner
D-2-iv
<PAGE> 98
SCHEDULE 2.01
<TABLE>
<CAPTION>
Name Commitment
---- ----------
<S> <C>
The Chase Manhattan Bank $ 300,000,000.00
Lehman Commercial Paper Inc. 300,000,000.00
Merrill Lynch Capital Corporation 300,000,000.00
------------------------------------ ======================
TOTAL $ 900,000,000.00
</TABLE>
<PAGE> 99
SCHEDULE 3.06
TO THE CREDIT AGREEMENT
Litigation
None
<PAGE> 1
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-47135
OFFER DOCUMENT
[TEXAS UTILITIES LOGO]
CASH OFFER
FOR
THE ENERGY GROUP PLC
<PAGE> 2
THE TEXAS UTILITIES OFFER
REPRESENTS
A PREMIUM OF 20 PENCE PER ENERGY GROUP SHARE
TO THE INCREASED PACIFICORP OFFER.
TO ACCEPT THE TEXAS UTILITIES OFFER:
1. COMPLETE THE FORM OF ACCEPTANCE OR LETTER OF TRANSMITTAL (AS APPROPRIATE) IN
ACCORDANCE WITH PARAGRAPH 17 OF THE LETTER FROM LEHMAN BROTHERS AND MERRILL
LYNCH (SEE PAGE 26).
2. RETURN THE COMPLETED FORM OF ACCEPTANCE OR LETTER OF TRANSMITTAL (ALONG WITH
ANY APPROPRIATE DOCUMENTS OF TITLE) USING THE ENCLOSED REPLY-PAID ENVELOPE AS
SOON AS POSSIBLE.
IF YOU REQUIRE ASSISTANCE, TELEPHONE:
UK RECEIVING AGENT: 0117 937 0672
US DEPOSITARY: (888) 460-7637
THE FIRST CLOSING DATE OF THE TEXAS UTILITIES OFFER IS
7 APRIL 1998
TO WITHDRAW FROM THE PACIFICORP OFFER:
1. COMPLETE THE (PINK) NOTICE OF WITHDRAWAL IN ACCORDANCE WITH THE INSTRUCTIONS
ACCOMPANYING THE NOTICE.
2. RETURN THE COMPLETED NOTICE OF WITHDRAWAL IN THE ENCLOSED REPLY-PAID ENVELOPE
PROVIDED AS SOON AS POSSIBLE.
THIS PAGE SHOULD BE READ IN CONJUNCTION WITH THE REST OF THIS DOCUMENT. HOLDERS
OF ENERGY GROUP SECURITIES ARE RECOMMENDED TO SEEK FINANCIAL ADVICE FROM THEIR
INDEPENDENT FINANCIAL ADVISOR AUTHORISED UNDER THE FINANCIAL SERVICES ACT 1986.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter from the Chairman of Texas Utilities 6
Letter from Lehman Brothers and Merrill Lynch 9
Appendix I: Conditions and Further Terms of the Texas
Utilities Offer I-1
Part A: Conditions of the Texas Utilities Offer I-1
Part B: Further terms of the Texas Utilities Offer I-7
1. Acceptance period I-7
2. Announcements I-8
3. Rights of withdrawal I-9
4. Limited Share Alternative I-10
5. Loan Note Alternative I-12
6. Effect of elections I-13
7. Revisions of the Texas Utilities Offer, the Loan
Note Alternative and/or the Share Alternative I-14
8. General I-15
9. Overseas shareholders I-16
10. Procedures for tendering Energy Group ADSs I-18
11. Procedures for tendering Energy Group Shares I-21
12. Forms of Acceptance I-24
13. Certain provisions concerning acceptances I-27
14. Substitute Acceptance Forms I-28
15. Settlement I-28
16. Currency of cash consideration I-29
Appendix II: Description of Texas Utilities Capital Stock;
Comparison of Shareholder Rights II-1
Appendix III: Summary of the Terms of the Loan Notes III-1
Appendix IV: Financial and Other Information on The Energy
Group IV-1
Appendix V: Financial and Other Information on TU
Acquisitions and Texas Utilities V-1
Appendix VI: Unaudited Pro Forma Condensed Consolidated
Financial Statements VI-1
Appendix VII: Certain Market, Dividend and Exchange Rate
Information VII-1
Appendix VIII: Additional Information VIII-1
1. Responsibility VIII-1
2. Directors VIII-1
3. Principal purchases VIII-1
4. Shareholdings and dealings VIII-2
5. Other information VIII-81
6. Material contracts VIII-81
7. Background to and reasons for the Texas Utilities
Offer VIII-84
8. Financing arrangements VIII-85
9. Compulsory acquisition VIII-91
10. Certain consequences of the Texas Utilities Offer VIII-91
11. Legal and regulatory matters VIII-92
12. United Kingdom taxation VIII-94
13. United States federal income taxation VIII-98
14. Experts VIII-101
15. Legal matters VIII-101
16. Fees and expenses VIII-102
17. Sources of information and bases of calculation VIII-102
18. Documents available for inspection VIII-103
Appendix IX: Certain provisions of the Companies Act IX-1
Appendix X: Definitions X-1
</TABLE>
<PAGE> 4
OFFER TO PURCHASE DATED 10 MARCH 1998
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
WHEN CONSIDERING WHAT ACTION YOU SHOULD TAKE, YOU ARE RECOMMENDED IMMEDIATELY TO
SEEK YOUR OWN FINANCIAL ADVICE FROM YOUR STOCKBROKER, BANK MANAGER, SOLICITOR,
ACCOUNTANT OR OTHER INDEPENDENT FINANCIAL ADVISOR AUTHORISED UNDER THE FINANCIAL
SERVICES ACT 1986.
If you have sold or otherwise transferred all your Energy Group Securities,
please send this document, together with the accompanying documents but NOT the
Form of Acceptance if it is personalised, as soon as possible, to the purchaser
or transferee, or to the stockbroker, bank or other agent through whom the sale
or transfer was effected for onward transmission to the purchaser or transferee.
HOWEVER, SUCH DOCUMENTS SHOULD NOT BE FORWARDED OR TRANSMITTED IN OR INTO
CANADA, AUSTRALIA OR JAPAN.
Lehman Brothers and Merrill Lynch, which are regulated in the United Kingdom by
The Securities and Futures Authority Limited, are acting for TU Acquisitions and
Texas Utilities and for no one else in connection with the Texas Utilities Offer
and will not be responsible to anyone other than TU Acquisitions and Texas
Utilities for providing the protections afforded to their respective customers
or for giving advice in relation to the Texas Utilities Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE US SECURITIES AND
EXCHANGE COMMISSION OR BY ANY US STATE SECURITIES COMMISSION NOR HAS THE US
SECURITIES AND EXCHANGE COMMISSION OR ANY SUCH US STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFER DOCUMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Initial Offer Period will expire at 10.00 pm (London time), 5.00 pm (New
York City time) on 7 April 1998, unless extended. At the conclusion of the
Initial Offer Period, including any extension thereof, if all the Conditions of
the Texas Utilities Offer have been satisfied, fulfilled or, where permitted,
waived, the Texas Utilities Offer will be extended for a Subsequent Offer Period
of at least 14 calendar days. Holders of Energy Group Securities will have
withdrawal rights during the Initial Offer Period, including any extension
thereof, but not during the Subsequent Offer Period.
Completed Acceptance Forms should be returned as soon as possible, but in any
event so as to be received by no later than 10.00 pm (London time), 5.00 pm (New
York City time) on 7 April 1998. The procedure for acceptance of the Texas
Utilities Offer is set out on pages 27 to 29 of this document and in the
accompanying Acceptance Form.
The Texas Utilities Offer is not being made, directly or indirectly, in or into
Canada, Australia or Japan. Accordingly, neither this document nor Acceptance
Forms are to be mailed or otherwise distributed or sent into Canada, Australia
or Japan.
The New Texas Utilities Shares to be issued pursuant to the Texas Utilities
Offer have not been, and will not be, the subject of a prospectus under the
securities laws of any province of Canada and will not be registered under any
relevant securities laws of any country other than the federal securities laws
of the United States. The New Texas Utilities Shares are not being offered, sold
or delivered, directly or indirectly, in or into Canada, Australia or Japan.
The Loan Notes to be issued pursuant to the Texas Utilities Offer have not been,
and will not be registered under the Securities Act or under any relevant
securities laws of any state or district of the United States, will not be the
subject of a prospectus under the securities laws of any province of Canada and
will not be registered under any relevant securities laws of any other country.
The Loan Notes are not being offered, sold or delivered, directly or indirectly,
in or into the United States, Canada, Australia or Japan.
<PAGE> 5
APPLICABLE DISCLOSURE REQUIREMENTS
The Texas Utilities Offer is made for securities of a United Kingdom company
and, while the Texas Utilities Offer is subject to United Kingdom and US
disclosure requirements, US investors should be aware that this document has
been prepared in accordance with United Kingdom format and style, which differs
from US format and style. In particular, the Appendices to this document contain
information concerning the Texas Utilities Offer responsive to US disclosure
requirements that may be material and which are summarized in the letter from
Lehman Brothers and Merrill Lynch set out on pages 9 to 32 of this document. In
addition, the summary financial statements of the TEG Group therein have been
prepared in accordance with United Kingdom GAAP, and thus may not be comparable
to financial statements of US companies.
AVAILABLE INFORMATION
Texas Utilities has filed with the SEC a Registration Statement with respect to
the offering of the New Texas Utilities Shares. This Offer Document constitutes
a part of the Registration Statement and, in accordance with the rules of the
SEC, omits certain of the information contained in the Registration Statement.
For such information, reference is made to the Registration Statement and the
exhibits thereto.
The Energy Group and Texas Utilities are, and Texas Utilities' predecessors, TEI
(formerly Texas Utilities Company) and ENSERCH, have been, subject to the
informational requirements of the Exchange Act, and in accordance therewith
file, and have filed, reports, proxy statements and other information with the
SEC. Such reports, proxy statements and other information filed by The Energy
Group, Texas Utilities and Texas Utilities' predecessors can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the SEC: Chicago Regional Office, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and New York Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. In addition, the SEC maintains
a World Wide Web site (http://www.sec.gov) that contains reports and other
information filed by Texas Utilities, TEI and ENSERCH. Energy Group Shares are
listed on the London Stock Exchange and Energy Group ADRs are listed on the
NYSE. Reports, and other information concerning The Energy Group may be
inspected at such exchanges. The Texas Utilities Common Stock is listed on the
NYSE, the CSE and the PSE, where reports, proxy statements and other information
concerning Texas Utilities and TEI may be inspected. Reports, proxy statements
and other information concerning ENSERCH may be inspected at the NYSE and the
CSE. The Registration Statement also may be inspected at the offices of Norton
Rose, Kempson House, Camomile Street, London EC3A 7AN, England, during normal
business hours on any weekday (English public holidays excepted) while the Texas
Utilities Offer remains open for acceptance.
DOCUMENTS INCORPORATED BY REFERENCE
On 5 August 1997, Texas Utilities became a holding company which owns all of the
outstanding common stock of TEI (SEC File No. 1-3591) and ENSERCH (SEC File No.
1-3183). The following documents previously filed with the SEC by Texas
Utilities (SEC File No. 1-12833), TEI or ENSERCH pursuant to the Exchange Act
are incorporated herein by reference:
(a) TEI's Annual Report on Form 10-K for the year ended 31 December 1996
("TEI 10-K").
(b) TEI's Quarterly Reports on Form 10-Q for the quarterly periods ended 31
March 1997 and 30 June 1997.
(c) ENSERCH's Annual Report on Form 10-K for the year ended 31 December
1996 ("ENSERCH 10-K").
(d) ENSERCH's Quarterly Reports on Form 10-Q for the quarterly periods
ended 31 March 1997 and 30 June 1997.
2
<PAGE> 6
(e) ENSERCH's Current Reports on Form 8-K dated 14 January 1997, 12 March
1997, 5 June 1997, 3 July 1997, 4 August 1997 and 6 August 1997.
(f) Texas Utilities' Quarterly Report on Form 10-Q for the quarterly period
ended 30 September 1997 ("September 1997 10-Q").
(g) Texas Utilities' Current Reports on Form 8-K dated 5 August 1997, 25
August 1997, 21 November 1997, 17 December 1997 and 26 February 1998.
(h) The description of the Texas Utilities Common Stock, which is contained
in a registration statement filed under the Exchange Act, including any
amendment or report filed for the purpose of updating such description.
All documents filed by Texas Utilities pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Offer Document and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference in this Offer Document and to be a part hereof from the date of filing
of such documents; provided, however, that the documents enumerated above or
subsequently filed by Texas Utilities pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act prior to the filing with the SEC of Texas Utilities'
most recent Annual Report on Form 10-K shall not be incorporated by reference in
this Offer Document or be a part hereof from and after the filing of such Form
10-K.
The documents which are incorporated by reference in this Offer Document are
sometimes hereinafter referred to as the "Incorporated Documents." Any statement
contained in an Incorporated Document (including, but not limited to, Items 7
and 8 of the TEI 10-K, which have been modified or superseded by the information
contained in the Current Report on Form 8-K of Texas Utilities dated 26 February
1998) shall be deemed to be modified or superseded for purposes of this Offer
Document to the extent that a statement contained herein or in any other
subsequently filed document which is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Offer Document.
THIS OFFER DOCUMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. TEXAS UTILITIES HEREBY UNDERTAKES TO PROVIDE
WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER OF ENERGY GROUP
SHARES OR ENERGY GROUP ADSS EVIDENCED BY ENERGY GROUP ADRS, TO WHOM A COPY OF
THIS OFFER DOCUMENT HAS BEEN DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY
SUCH PERSON, A COPY OF ANY AND ALL OF THE INCORPORATED DOCUMENTS, OTHER THAN
EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO SUCH DOCUMENTS). IN THE UNITED STATES, REQUESTS FOR SUCH
COPIES SHOULD BE DIRECTED TO: SECRETARY, TEXAS UTILITIES COMPANY, ENERGY PLAZA,
1601 BRYAN STREET, DALLAS, TEXAS 75201; TELEPHONE NUMBER (214) 812-4600. IN THE
UNITED KINGDOM, REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO: NORTON ROSE,
KEMPSON HOUSE, CAMOMILE STREET, LONDON EC3A 7AN; TELEPHONE NUMBER 0171-283-6000
(REF: TEXAS UTILITIES OFFER). IN ADDITION, SUCH DOCUMENTS AND INFORMATION MAY
ALSO BE INSPECTED AT THE OFFICES OF NORTON ROSE, KEMPSON HOUSE, CAMOMILE STREET,
LONDON EC3A 7AN, ENGLAND DURING NORMAL BUSINESS HOURS ON ANY WEEKDAY (ENGLISH
PUBLIC HOLIDAYS EXCEPTED) WHILE THE TEXAS UTILITIES OFFER REMAINS OPEN FOR
ACCEPTANCE.
FORWARD-LOOKING STATEMENTS
This Offer Document does, and the Incorporated Documents may, include
forward-looking statements. Although Texas Utilities believes its expectations
are based on reasonable assumptions, no assurance can be given that actual
results will not differ from those in the forward-looking statements contained
herein and in the Incorporated Documents. The forward-looking statements
contained herein may be affected by, among other things, the competitive
environment; local, state and national regulatory initiatives that increase
competition, threaten cost and investment recovery and impact rate structures;
the economic climate and growth in the service territories of service providers
within the Texas Utilities Group and the TEG Group; the weather and other
natural phenomena; conditions in capital markets; changes in technology used and
services offered by service providers within the Texas Utilities Group and the
TEG Group; and the ability to achieve the goals described in paragraph 2
("Background to and reasons for the Texas Utilities Offer") of the letter
3
<PAGE> 7
from the Chairman of Texas Utilities and in paragraph 7 of Appendix VIII herein,
in each case during the periods covered by the forward-looking statements. For a
discussion of factors which may affect forward-looking statements contained in
the Incorporated Documents, see Texas Utilities' most recent Annual Report on
Form 10-K or Quarterly Report on Form 10-Q.
REDUCTION OF THE ACCEPTANCE CONDITION
The Texas Utilities Offer is conditional, amongst other things, on valid
acceptances being received (and not, where permitted, withdrawn) by the Initial
Closing Date in respect of not less than 90 per cent. in nominal value of Energy
Group Shares (including Energy Group Shares represented by Energy Group ADSs) to
which the Texas Utilities Offer relates, or such lesser percentage as TU
Acquisitions may decide, provided that such Condition (the "Acceptance
Condition") shall not be satisfied unless TU Acquisitions and its wholly-owned
subsidiaries shall have acquired or agreed to acquire, whether pursuant to the
Texas Utilities Offer or otherwise, Energy Group Shares (including Energy Group
Shares represented by Energy Group ADSs) carrying in aggregate more than 50 per
cent. of the voting rights then exercisable at general meetings of The Energy
Group and provided further that the Acceptance Condition shall be capable of
being satisfied only at a time when all other Conditions have been satisfied,
fulfilled or waived. TU Acquisitions expects that it will reduce the percentage
of Energy Group Shares (including Energy Group Shares represented by Energy
Group ADSs) required to satisfy the Acceptance Condition at some time prior to
all the Conditions being satisfied, fulfilled or, where permitted, waived. At
least five Business Days prior to any such reduction, TU Acquisitions will
announce that it has reserved the right so to reduce the Acceptance Condition.
TU Acquisitions will not make such an announcement unless it believes that there
is a significant possibility that sufficient Energy Group Shares (including
Energy Group Shares represented by Energy Group ADSs) will be tendered to permit
the Acceptance Condition to be satisfied at such reduced level. Holders of
Energy Group Securities who are not willing to accept the Texas Utilities Offer
if the Acceptance Condition is reduced to the minimum permitted level should
either not accept the Texas Utilities Offer until the Subsequent Offer Period or
be prepared to withdraw their acceptances promptly following an announcement by
TU Acquisitions of its reservation of the right to reduce the Acceptance
Condition.
RULE 10B-13 EXEMPTION
In accordance with normal United Kingdom practice, TU Acquisitions or its
nominees or brokers (acting as agents for TU Acquisitions) or another subsidiary
of Texas Utilities may make certain purchases of Energy Group Securities outside
the United States during the period in which the Texas Utilities Offer remains
open for acceptance and affiliates of Merrill Lynch will continue to act as
market makers and principal traders for Energy Group Shares on the London Stock
Exchange pursuant to relief granted by the SEC staff from Rule 10b-13 under the
Exchange Act. For further details on this relief, see paragraph 3 of Appendix
VIII ("Principal purchases") below.
CONVERSION OF CASH CONSIDERATION INTO US DOLLARS
Holders of Energy Group Shares may receive US dollars instead of pounds sterling
on the basis described in paragraph 19(f) ("Currency of cash consideration") of
the letter from Lehman Brothers and Merrill Lynch included in this Offer
Document. Holders of Energy Group ADSs evidenced by Energy Group ADRs, unless
they elect to receive pounds sterling, will receive US dollars on the basis
described in that paragraph. The attention of all holders of Energy Group
Securities is drawn to the description in that paragraph of the mechanism for
converting pounds sterling into US dollars and of the exchange rate risks
attached thereto.
FINANCIAL INFORMATION AND CURRENCY TRANSLATIONS
The extracts from the consolidated financial statements of, and other
information about, Texas Utilities appearing in this Offer Document are
presented in US dollars ($) and have been prepared in accordance with US GAAP.
The extracts from the consolidated financial statements of, and other
information about, the TEG Group appearing in this Offer Document are presented
in pounds (L) and have been prepared in accordance with United Kingdom GAAP. US
GAAP and United Kingdom GAAP differ in certain significant respects. As a
result, and for the convenience of the reader, certain of the financial
information of the TEG Group included herein and used in the preparation of the
pro forma information appearing in this Offer Document
4
<PAGE> 8
has been adjusted to comply with US GAAP and contains translations of pounds
sterling amounts into US dollars at rates specified in paragraph 10 of the
letter from Lehman Brothers and Merrill Lynch included in this Offer Document.
Such translations should not be construed as representations that the pounds
sterling amounts represent, or have been, or could be converted into US dollars
at that or any other rate. Effective on 5 March, 1998 the conversion rate of
pounds sterling (L) to US dollars ($) was $1.6450 per L1, as set by 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. This information
is provided for the convenience of the reader and may differ from the actual
rates in effect during the periods covered by the TEG Group financial
information discussed herein. Some US GAAP information for the TEG Group
appearing in this Offer Document is unaudited.
RULE 8 NOTICES
Any person who, alone or acting together with any other person(s) pursuant to an
agreement or understanding (whether formal or informal) to acquire or control
securities of The Energy Group or of Texas Utilities, owns or controls, or
becomes the owner or controller, directly or indirectly, of 1 per cent. or more
of any class of securities of The Energy Group or of Texas Utilities is
generally required under the provisions of Rule 8 of the City Code to notify the
London Stock Exchange and the Panel of every dealing in such securities during
the Initial Offer Period. Dealings by The Energy Group or by Texas Utilities or
by their respective "associates" (within the definition set out in the City
Code) in any class of securities of The Energy Group or of Texas Utilities from
26 January 1998 until the end of the Initial Offer Period must also be so
disclosed. Please consult your financial adviser immediately if you believe this
Rule may be applicable to you.
5
<PAGE> 9
LETTER FROM THE CHAIRMAN OF TEXAS UTILITIES
TEXAS UTILITIES COMPANY
ENERGY PLAZA - 1601 BRYAN STREET - DALLAS, TEXAS 75201-3411
10 MARCH 1998
To holders of Energy Group Securities and, for information only, to participants
in the Energy Group Share Schemes
Dear Sir/Madam
CASH OFFER FOR THE ENERGY GROUP
On 2 March 1998, the Boards of Texas Utilities and The Energy Group announced
that they had reached agreement on the terms of a recommended cash offer for The
Energy Group at a price of 810 pence per Energy Group Share, surpassing the
recommended offer of 765 pence per Energy Group Share announced by PacifiCorp on
3 February 1998. Texas Utilities further announced that, subject to the SEC
declaring the relevant documentation effective, it would, in addition to a full
loan note alternative, also make available a limited share alternative.
On 3 March 1998, the Board of Texas Utilities announced, in response to the
increase by PacifiCorp of its offer, an increase in Texas Utilities' offer to
840 pence per Energy Group Share and an increase in the value of the limited
share alternative. Texas Utilities has acquired 77,500,000 Energy Group Shares
at a price of 840 pence per share, representing approximately 14.9 per cent of
The Energy Group's issued share capital.
Texas Utilities announced today that the SEC declared the relevant documentation
effective on 6 March 1998. Accordingly, Texas Utilities today confirmed that the
limited share alternative is being made available to holders of Energy Group
Securities who validly accept the Texas Utilities Offer.
Holders of Energy Group Securities should note that both the Share Alternative
and the Loan Note Alternative are alternatives to Texas Utilities' full cash
offer and are available at the holder's option.
1 THE TEXAS UTILITIES OFFER
The Texas Utilities Offer is being made on the following basis:
<TABLE>
<S> <C>
FOR EACH ENERGY GROUP SHARE 840 PENCE; AND
FOR EACH ENERGY GROUP ADS L33.60
</TABLE>
representing a premium of 20 pence per Energy Group Share to the Increased
PacifiCorp Offer.
Under the Share Alternative, holders of Energy Group Securities who validly
accept the Texas Utilities Offer will be entitled to receive New Texas Utilities
Shares with a value equal to:
<TABLE>
<S> <C>
FOR EACH ENERGY GROUP SHARE 865 PENCE; AND
FOR EACH ENERGY GROUP ADS L34.60
</TABLE>
determined as, and subject to the limitations, referred to in paragraph 4 of the
letter from Lehman Brothers and Merrill Lynch.
As an alternative to some or all of the cash consideration receivable under the
Texas Utilities Offer, holders of Energy Group Shares who validly accept the
Texas Utilities Offer (apart from US citizens or residents and certain other
overseas persons) may elect to receive Loan Notes instead of cash on the
following basis:
<TABLE>
<S> <C>
FOR EVERY L1 OF CASH CONSIDERATION L1 NOMINAL OF LOAN NOTES
</TABLE>
A summary of the tax effects for holders of Energy Group Shares resident for tax
purposes in the UK who accept the Texas Utilities Offer is set out in paragraph
12 of Appendix VIII ("United Kingdom taxation") to this Offer Document. A
summary of the tax effects for holders of Energy Group Securities who are
citizens or
6
<PAGE> 10
residents of the US, US domestic corporations or otherwise taxed as United
States residents is set out in paragraph 13 of Appendix VIII ("United States
federal income taxation") to this Offer Document.
2 BACKGROUND TO AND REASONS FOR THE TEXAS UTILITIES OFFER
Texas Utilities has formulated a strategy to position itself to thrive in a more
competitive environment and to identify new business investments that both
capitalise on its core competencies and are complementary to its existing
portfolio of businesses in order to grow earnings, broaden its markets beyond
the traditional service areas and expand customer services.
The acquisition of The Energy Group would be further confirmation of Texas
Utilities' commitment to this strategy. The Energy Group comprises a unique
blend of electricity generation, supply and distribution assets, combined with
strengths in natural gas and energy trading. Texas Utilities believes that the
highly complementary nature of these activities to those of Texas Utilities,
combined with The Energy Group's experience of operating within a deregulating
market, will enable the enlarged group to capitalise upon the sharing of the
expertise and best practices that reside within the two groups.
Texas Utilities expects the transaction to be earnings and cash flow enhancing
in the first complete year following completion of the Acquisition and
thereafter (prior to considering any synergy or other benefits that the
transaction may give rise to). This statement should not be interpreted to mean
that the future earnings per share of Texas Utilities, as enlarged by the
acquisition of The Energy Group, will necessarily be greater than the historical
published earnings per share of Texas Utilities.
3 THE PEABODY SALE AND CERTAIN CONSENTS
Subject to certain regulatory consents and to the Texas Utilities Offer becoming
or being declared unconditional in all respects, The Energy Group has agreed to
sell the Peabody Coal Business to an affiliated company of Lehman Merchant for a
cash consideration of approximately $2.3 billion plus the assumption of debt.
The Peabody Sale does not require the approval of holders of Energy Group
Securities in general meeting.
The Texas Utilities Offer is subject to, inter alia, certain further regulatory
consents and confirmations. Texas Utilities expects that all consents and
confirmations relating to the Texas Utilities Offer and the Peabody Sale will be
obtained within the normal timetable for an offer in the United Kingdom.
4 DIRECTORS, MANAGEMENT AND EMPLOYEES
TU Acquisitions has given assurances to the Board of The Energy Group that the
existing employment rights, including pension rights, of all TEG Group
management and employees will be fully safeguarded. Texas Utilities looks
forward to welcoming all TEG Group employees to the Texas Utilities Group.
5 ACTION TO BE TAKEN TO ACCEPT THE TEXAS UTILITIES OFFER
The procedure for acceptance of the Texas Utilities Offer is set out on pages 27
to 29 of this document and in the Acceptance Form. The Initial Closing Date will
be 10.00 pm (London Time), 5.00 pm (New York City time), on 7 April 1998, unless
extended.
6 HELPLINES FOR THE TEXAS UTILITIES OFFER
If you have any questions on the Texas Utilities Offer, please call the
shareholder helplines on 0171-600 5005 (UK) or (800) 848-3416 (US). If you have
any questions regarding the Acceptance Form, please call the UK Receiving Agent
on 0117 937 0672 or the US Depositary on (888) 460-7637.
7
<PAGE> 11
THE TEXAS UTILITIES OFFER REPRESENTS A PREMIUM OF 20 PENCE PER ENERGY GROUP
SHARE TO THE INCREASED PACIFICORP OFFER. HOLDERS OF ENERGY GROUP SECURITIES ARE
STRONGLY URGED TO ACCEPT THE TEXAS UTILITIES OFFER AS SOON AS POSSIBLE AND, IN
ANY EVENT, BY NO LATER THAN 10.00 PM (LONDON TIME), 5.00 PM (NEW YORK CITY TIME)
ON 7 APRIL 1998.
HOLDERS OF ENERGY GROUP SECURITIES WHO HAVE ALREADY ACCEPTED THE PACIFICORP
OFFER MAY WITHDRAW THEIR ACCEPTANCES AT ANY TIME UNTIL THE INCREASED PACIFICORP
OFFER BECOMES OR IS DECLARED WHOLLY UNCONDITIONAL, BY USING THE ENCLOSED NOTICE
OF WITHDRAWAL.
Yours faithfully
/s/ ERLE NYE
Erle Nye
Chairman and Chief Executive
8
<PAGE> 12
<TABLE>
<S> <C>
[Lehman Brothers Logo] [Merrill Lynch Logo]
LEHMAN BROTHERS INTERNATIONAL (EUROPE) Merrill Lynch International
One Broadgate, London EC2M 7HA
Regulated by the Securities and Futures Authority Registered in England (no. 2312079)
Member of the London Stock Exchange and the International Registered Office: 25 Ropemaker Street, London EC2Y 9LY
Securities Market Association A Subsidiary of Merrill Lynch & Co., Inc., Delaware, USA.
Registered in England No 2538254 at the above address Regulated by The Securities and Futures Authority Limited
Member of the London Stock Exchange
</TABLE>
10 March 1998
To holders of Energy Group Securities and, for information only, to participants
in the Energy Group Share Schemes
Dear Sir/Madam
CASH OFFER FOR THE ENERGY GROUP
1 INTRODUCTION
This letter contains the formal offer on behalf of TU Acquisitions. The Texas
Utilities Offer and this document are subject to the applicable requirements of
both the United Kingdom City Code and US federal securities laws.
2 THE TEXAS UTILITIES OFFER
On behalf of TU Acquisitions, we hereby offer to purchase, upon the terms and
subject to the Conditions set out in this document and in the relevant
Acceptance Form, all the Energy Group Securities not already held by TU
Acquisitions, for 840 pence in cash per Energy Group Share and L33.60 in cash
per Energy Group ADS, together with the benefits of the Share Alternative and
the Loan Note Alternative referred to in paragraphs 4 and 5 below and the right
to elect to receive the consideration in US dollars set out in paragraph 19
below.
The Texas Utilities Offer values the fully diluted share capital of The Energy
Group at approximately L4.45 billion (assuming the exercise in full of all
outstanding options and the vesting of all outstanding awards under the Energy
Group Share Schemes). The Texas Utilities Offer represents a premium of:
- 20 pence to the Increased PacifiCorp Offer of 820 pence per Energy Group
Share;
- 49.6 per cent. to the Closing Price of 561.5 pence per Energy Group Share
on 9 June 1997, the last dealing day before the announcement by The
Energy Group that it was in talks with PacifiCorp in relation to the
Original PacifiCorp Offer; and
- 22.5 per cent. to the Closing Price of 685.5 pence per Energy Group Share
on 23 January 1998, the last dealing day prior to the announcement by The
Energy Group that it was in talks with parties other than PacifiCorp
which might lead to an offer.
Under the Share Alternative, holders of Energy Group Securities would be
entitled to receive New Texas Utilities Shares with a value equal to 865 pence
for each Energy Group Share and L34.60 for each Energy Group ADS, calculated in
accordance with, and subject to the limitations referred to in, paragraph 4
below.
Energy Group Securities will be acquired under the Texas Utilities Offer fully
paid and free from all liens, equities, charges, encumbrances and other
interests and together with all rights attaching thereto on or after 2 March
1998, including, without limitation, the right to receive and retain all
dividends and other distributions declared, made or paid on or after 2 March
1998, the date on which the original Texas Utilities offer was announced.
TO ACCEPT THE TEXAS UTILITIES OFFER YOU SHOULD RETURN THE RELEVANT ACCEPTANCE
FORM AS SOON AS POSSIBLE AND, IN ANY EVENT, SO AS TO BE RECEIVED BY THE UNITED
KINGDOM RECEIVING AGENT OR THE US DEPOSITARY NO LATER THAN
9
<PAGE> 13
10.00 PM (LONDON TIME), 5.00 PM (NEW YORK CITY TIME) ON 7 APRIL 1998. THE
PROCEDURE FOR ACCEPTANCE OF THE TEXAS UTILITIES OFFER IS SET OUT IN PARAGRAPH 17
("PROCEDURE FOR ACCEPTANCE OF THE TEXAS UTILITIES OFFER") BELOW, IN PARAGRAPHS
10, 11, 12 AND 13 OF PART B OF APPENDIX I BELOW AND IN THE ACCOMPANYING
ACCEPTANCE FORM.
IF YOU WISH TO WITHDRAW FROM THE RENEWED PACIFICORP OFFER OR THE INCREASED
PACIFICORP OFFER AND YOU WISH TO ACCEPT THE TEXAS UTILITIES OFFER, YOU SHOULD
DELIVER A WRITTEN NOTICE OF WITHDRAWAL TO THE PACIFICORP AGENT TO WHOM THE
ACCEPTANCE WAS SENT AS SOON AS POSSIBLE, RETRIEVE ANY ENERGY GROUP SECURITIES
TENDERED TO SUCH PACIFICORP AGENT AND ACCEPT THE TEXAS UTILITIES OFFER AS
PROVIDED IN PARAGRAPHS 10 AND 11 OF PART B OF APPENDIX I BELOW. FOR THIS PURPOSE
YOU MAY USE THE ENCLOSED NOTICE OF WITHDRAWAL.
3 TERMS AND CONDITIONS OF THE TEXAS UTILITIES OFFER
The Texas Utilities Offer is subject to the Conditions and further terms set out
in Appendix I below. The following summary of certain of the Conditions and
terms of the Texas Utilities Offer is subject to and qualified in its entirety
by reference to Appendix I below.
The Texas Utilities Offer is conditional on, amongst other things, valid
acceptances being received (and not, where permitted, withdrawn) by the Initial
Closing Date in respect of not less than 90 per cent. in nominal value of Energy
Group Shares (including Energy Group Shares represented by Energy Group ADSs) to
which the Texas Utilities Offer relates (the "90 per cent. threshold"), or such
lesser percentage as TU Acquisitions may decide, provided that the Acceptance
Condition shall not be satisfied unless TU Acquisitions and its wholly-owned
subsidiaries shall have acquired or agreed to acquire (in accordance with the
requirements of Notes 4 to 6 of Rule 10 of the City Code, to which reference is
made in paragraph 13(b) of Part B of Appendix I below), whether pursuant to the
Texas Utilities Offer or otherwise, Energy Group Shares (including Energy Group
Shares represented by Energy Group ADSs) carrying in aggregate more than 50 per
cent. of the voting rights then exercisable at general meetings of The Energy
Group and provided further that the Acceptance Condition shall be capable of
being satisfied only at a time when all other Conditions have been satisfied,
fulfilled or waived.
TU Acquisitions expects that it will reduce the percentage of Energy Group
Shares (including Energy Group Shares represented by Energy Group ADSs) required
to satisfy the Acceptance Condition at some time prior to all the Conditions
being satisfied, fulfilled or, where permitted, waived. At least five Business
Days prior to any reduction in the percentage of Energy Group Shares (including
Energy Group Shares represented by Energy Group ADSs) required to satisfy the
Acceptance Condition, TU Acquisitions will announce that it has reserved the
right to reduce the Acceptance Condition. TU Acquisitions will not make such an
announcement unless it believes there is a significant possibility that
sufficient Energy Group Securities will be tendered to permit the Acceptance
Condition to be satisfied at such reduced level. Holders of Energy Group
Securities who are not willing to accept the Texas Utilities Offer if the
Acceptance Condition is reduced to the minimum permitted level should either not
accept the Texas Utilities Offer until the Subsequent Offer Period or be
prepared to withdraw their acceptances promptly following an announcement by TU
Acquisitions of its reservation of the right to reduce the Acceptance Condition.
The Initial Offer Period will expire at 10.00 pm (London time), 5.00 pm (New
York City time), on 7 April 1998, unless extended. At the conclusion of the
Initial Offer Period, including any extension thereof, if all Conditions have
been satisfied, fulfilled or, where permitted, waived, the Texas Utilities Offer
will be extended for a Subsequent Offer Period of at least 14 calendar days.
Holders of Energy Group Securities will have the right to withdraw their
acceptances of the Texas Utilities Offer during the Initial Offer Period, but
not during the Subsequent Offer Period, except in certain limited circumstances.
TU Acquisitions reserves the right (but will not be obliged) at any time to
extend the Initial Offer Period, provided that TU Acquisitions may not extend
the Initial Offer Period beyond 9 May 1998 without the consent of the Panel. TU
Acquisitions may terminate any extension of the Initial Offer Period (other than
an extension required by the City Code or the Exchange Act) prior to its
scheduled expiry if all Conditions have been satisfied, fulfilled or, where
permitted, waived. In that case, the Initial Offer Period and, consequently,
withdrawal rights, except in certain limited circumstances, will terminate
immediately.
10
<PAGE> 14
If all of the Conditions are satisfied, fulfilled or, where permitted, waived
within the time permitted, payment for tendered Energy Group Securities will be
made as provided in paragraph 19 ("Settlement") below.
If all Conditions are satisfied, fulfilled or, where permitted, waived and TU
Acquisitions acquires or contracts to acquire, pursuant to the Texas Utilities
Offer or otherwise, at least 90 per cent. in nominal value of Energy Group
Shares (including Energy Group Shares represented by Energy Group ADSs) to which
the Texas Utilities Offer relates, it will be entitled to, and intends to,
acquire the remaining Energy Group Securities on the same terms as the Texas
Utilities Offer pursuant to and subject to sections 428 to 430 F (inclusive) of
the Companies Act. See paragraph 9 of Appendix VIII ("Compulsory acquisition")
below.
Whether or not TU Acquisitions is in a position to effect the compulsory
acquisition of any outstanding Energy Group Shares in accordance with the
Companies Act as referred to above, and irrespective of the size of any
outstanding minority in The Energy Group, TU Acquisitions intends to seek to
procure, after the Texas Utilities Offer becomes or is declared unconditional,
an application by The Energy Group to the London Stock Exchange for Energy Group
Shares to be delisted and an application by The Energy Group to the NYSE for
Energy Group ADSs to be delisted.
Shareholders of corporations organised under the laws of certain US states have,
subject to a number of significant exceptions, "appraisal rights" with respect
to their shares in connection with certain transactions (including mergers,
consolidations and acquisitions). These appraisal rights typically confer on
dissenting shareholders the right to have a court determine the fair value of
their shares and require the surviving or resulting corporation to pay such fair
value to such shareholders. As The Energy Group is incorporated under the laws
of England and Wales, holders of Energy Group Securities have no such appraisal
rights in connection with the Texas Utilities Offer. However, in the event that
the compulsory acquisition procedures referred to herein are available to TU
Acquisitions, holders of Energy Group Securities whose Energy Group Securities
have not been purchased pursuant to the Texas Utilities Offer will have certain
rights under section 430C of the Companies Act to object to their acquisition by
TU Acquisitions under the compulsory acquisition procedures. See paragraph 9 of
Appendix VIII ("Compulsory acquisition") below.
4 LIMITED SHARE ALTERNATIVE
Subject to the limitations set out below, holders of Energy Group Securities who
validly accept the Texas Utilities Offer may elect to receive, instead of cash
consideration for all (but not part) of their Energy Group Shares (including
Energy Group Shares represented by Energy Group ADSs), that number of New Texas
Utilities Shares with a value (the "Share Alternative Value") equal to 865 pence
for each Energy Group Share based on the average of the closing prices of shares
of Texas Utilities Common Stock on the NYSE for the 20 consecutive dealing days
ending on the day (the "Calculation Day") falling three dealing days prior to
the date on which, in the absence of unforeseen circumstances, TU Acquisitions
intends to declare the Texas Utilities Offer unconditional in all respects. As
soon as practicable after the Share Alternative Ratio, as defined below, has
been calculated, and in any event no later than 3.00 pm (London time), 10.00 am
(New York City time) on the dealing day immediately following the Calculation
Day, TU Acquisitions will announce the Share Alternative Ratio, as defined
below, and state that, in the absence of unforeseen circumstances, it intends to
declare the Texas Utilities Offer unconditional in all respects on the date
falling two dealing days following such announcement. During such two dealing
day period, any person who has tendered his Energy Group Securities will
continue to be entitled to withdraw his acceptance and, at any time before the
end of that period or the Subsequent Offer Period, may retender his Energy Group
Securities using a new Acceptance Form (which he may obtain from the United
Kingdom Receiving Agent or the US Depositary whose details are set out at the
end of this document).
For the purpose of determining the number of New Texas Utilities Shares
receivable by a holder of Energy Group ADSs, each Energy Group ADS shall be
deemed to represent four Energy Group Shares.
CALCULATION OF ENTITLEMENTS UNDER THE SHARE ALTERNATIVE
The number of New Texas Utilities Shares receivable by a holder of Energy Group
Securities who validly elects for the Share Alternative will be based on the
number of Energy Group Shares in respect of which the
11
<PAGE> 15
relevant holder has or is deemed to have accepted the Texas Utilities Offer,
scaled down as necessary on the pro rata basis referred to below under the
heading "Limited availability of the Share Alternative". Such scaled down number
of Energy Group Shares will be multiplied by the Share Alternative Ratio and the
resultant figure rounded down to the nearest whole number to determine the
number of New Texas Utilities Shares that will be issued to the relevant holder
of Energy Group Securities. The Share Alternative Ratio for determining the
number of New Texas Utilities Shares per Energy Group Share will be 865 pence
(the "Share Alternative Value") divided by the New Texas Utilities Share Price,
rounded down to the nearest three decimal places and subject to a maximum Share
Alternative Ratio of 0.390. The New Texas Utilities Share Price will be
calculated as the average of the closing prices of shares of Texas Utilities
Common Stock on the NYSE Composite Tape on the 20 consecutive dealing days
ending on the Calculation Day, converted into pounds sterling from US dollars at
the Noon Buying Rate on the Calculation Day and expressed as a number of pence
(rounded up or down to the nearest whole number).
By the way of illustration, there follows a worked example of the calculation of
an entitlement under the Share Alternative. Assuming the Calculation Day were 5
March 1998 (the latest practicable dealing day prior to the publication of this
document): the New Texas Utilities Share Price would be 2468 pence (based on the
average of the closing prices of shares of Texas Utilities Common Stock on the
NYSE Composite Tape on the 20 consecutive dealing days ending on such
Calculation Day (being $40.60) and a Noon Buying Rate on that day of $1.6450 per
L1) and the Share Alternative Ratio would be 0.350. Accordingly, a holder of 100
Energy Group Shares or 25 Energy Group ADSs who validly elected for the Share
Alternative in respect of his entire holding would, assuming no requirement for
scaling down of his election, be entitled to receive 35 New Texas Utilities
Shares.
The following table illustrates the entitlement of such a holder, assuming the
same Noon Buying Rate of $1.6450 per L1, on the basis of the following possible
New Texas Utilities Share Prices:
<TABLE>
<CAPTION>
ENTITLEMENT TO
NEW TEXAS UTILITIES SHARE PRICE ----------------
- --------------------------------------- SHARE ALTERNATIVE PRODUCT OF NEW TEXAS
PENCE RATIO (865P / (A)) B X 100 UTILITIES
$ (A) (B) (D) SHARES(1)
- ------------------------------- ----- ------------------ ---------- ----------------
<S> <C> <C> <C> <C>
42.00 2553 0.338 33.8 33
40.60 2468 0.350 35.0 35
38.00 2310 0.374 37.4 37
36.47 2217 0.390(2) 39.0 39
34.00 2067 0.390(2) 39.0 39
</TABLE>
Notes
(1) Represents the result of rounding down to the nearest whole number that
number appearing in column (D)
(2) Represents the maximum Share Alternative Ratio
VALUE OF THE SHARE ALTERNATIVE
The average of the closing prices of shares of Texas Utilities Common Stock for
the 20 consecutive dealing days ending on the Calculation Day may vary from the
average closing price of $40.60 used in the worked example above.
TU Acquisitions will announce, at or about 12 noon on a daily basis through the
London Stock Exchange, commencing on the day after the posting of this Offer
Document and concluding on the Calculation Day, the rolling average closing
prices of shares of Texas Utilities Common Stock on the NYSE Composite Tape
calculated on the 20 consecutive dealing days ending on the day immediately
preceding the day on which the announcement is made, converted into pounds
sterling from US dollars at the Noon Buying Rate on the Business Day immediately
preceding the date of such announcement. The announcement will also specify the
Share Alternative Ratio that would apply if the day on which such announcement
is made were the Calculation Day and an illustration of the number of New Texas
Utilities Shares to which a holder of Energy Group Securities who validly
elected for the Share Alternative would become entitled assuming no scaling down
of his election.
12
<PAGE> 16
LIMITED AVAILABILITY OF THE SHARE ALTERNATIVE
The aggregate maximum number of Energy Group Shares (including Energy Group
Shares represented by Energy Group ADSs) which can be exchanged for New Texas
Utilities Shares pursuant to the Share Alternative is limited to 20 per cent. of
the fully diluted number of Energy Group Shares (including Energy Group Shares
represented by Energy Group ADSs). As a result, if elections (including
Potential Elections, as defined below) for the Share Alternative exceed this 20
per cent. limit, it will be necessary to scale down these elections as described
below. If it becomes necessary to calculate such a scale down, then, as a result
of the terms of the Texas Utilities Offer and applicable law, there will need to
be taken into account not only those Energy Group Shares (including Energy Group
Shares represented by Energy Group ADSs) in respect of which elections have been
made for the Share Alternative up to and including the tenth day after the Texas
Utilities Offer becomes wholly unconditional, but also those Energy Group Shares
(including Energy Group Shares represented by Energy Group ADSs) which may be
tendered or otherwise acquired by TU Acquisitions after such tenth day. The
scale down ratio will be determined based on the following formula (which is set
out in full in paragraph 4 of Part B of Appendix I):
scale down ratio =A
--
B+C
where: A is 20 per cent. of the fully diluted number of Energy Group Shares
(including Energy Group Shares represented by Energy Group ADSs);
B is the total number of Energy Group Shares (including Energy Group
Shares represented by Energy Group ADSs) tendered under the Share
Alternative up to and including the tenth day after the Texas Utilities
Offer becomes wholly unconditional; and
C is 100 per cent. of the fully diluted number of Energy Group Shares
(including Energy Group Shares represented by Energy Group ADSs) which
may be tendered, or otherwise acquired by TU Acquisitions, following the
tenth day after the Texas Utilities Offer becomes wholly unconditional
("Potential Elections").
In order for each holder of Energy Group Shares (including Energy Group Shares
represented by Energy Group ADSs) who has elected for the Share Alternative to
determine the actual number of such tendered Energy Group Shares which will be
exchanged for New Texas Utilities Shares, each such holder would multiply those
Energy Group Shares (including Energy Group Shares represented by Energy Group
ADSs) which he/she tendered by the scale down ratio.
An example of the calculation of the scale down ratio is set out below, based on
the following assumptions:
<TABLE>
<S> <C>
Fully diluted number of Energy Group Shares (including
Energy Group Shares represented by Energy Group ADSs)..... 530,000,000
Total number of Energy Group Shares (including Energy Group
Shares represented by Energy Group ADSs) tendered for the
Share Alternative up to and including the tenth day after
the Texas Utilities Offer becomes wholly unconditional.... 159,000,000
100 per cent. of the Potential Elections of Energy Group
Shares (including Energy Group Shares represented by
Energy Group ADSs)........................................ 79,500,000
Total number of Energy Group Shares (including Energy Group
Shares represented by Energy Group ADSs) tendered by an
individual holder for the Share Alternative............... 100
20% (530,000,000) 106,000,000
Scale down ratio = --------------------------- = ------------ = 0.4444
159,000,000 + 79,500,000 238,500,000
</TABLE>
13
<PAGE> 17
<TABLE>
<S> <C>
Number of individual holder's Energy
Group Shares (including Energy Group
Shares represented by Energy Group
ADSs) permitted to be tendered for the
Share Alternative after application of 100 X 0.4444 = 44.44 Energy Group
scale down ratio...................... Shares
</TABLE>
If it becomes necessary to scale down elections for the Share Alternative, each
such election, if validly made, will be scaled down by Lehman Brothers and
Merrill Lynch, as nearly as practicable, by the same proportion as such election
bears to all such elections. Further details of this pro rata scaling down are
set out in paragraph 4 of Part B of Appendix I. The summary in this paragraph 4
is qualified in its entirety by the terms set out in paragraph 4 of Part B of
Appendix I.
PAYMENT IN THE EVENT OF SCALING DOWN AND/OR IN LIEU OF FRACTIONAL ENTITLEMENTS
No fractions of New Texas Utilities Shares will be issued. In lieu of any such
fraction, a holder of Energy Group Securities electing for the Share Alternative
will receive cash consideration equivalent to such fraction multiplied by the
New Texas Utilities Share Price.
To the extent that a valid election for the Share Alternative by a holder of
Energy Group Securities is scaled down, such holder will be entitled to receive,
in addition to the New Texas Utilities Shares to which he will be entitled, the
cash consideration in respect of his Energy Group Securities for which he did
not receive New Texas Utilities Shares as a result of the scaling down as if he
had not elected for the Share Alternative in respect of such Energy Group
Securities.
Any cash amounts payable to a holder of Energy Group Securities in lieu of
fractional entitlements and pursuant to any scaling down will be aggregated and,
if the aggregate amount is less than L3.00, will not be paid to holders of
Energy Group Securities but will be retained for the benefit of TU Acquisitions.
TEXAS UTILITIES COMMON STOCK
The New Texas Utilities Shares will, when issued, rank pari passu in all
respects with the existing issued and outstanding shares of Texas Utilities
Common Stock, including the right to receive any future dividends and other
distributions declared with a record date after the date of issuance of such
shares.
The Texas Utilities Common Stock is listed on the NYSE, the CSE and the PSE, but
is not listed on the London Stock Exchange. Texas Utilities has not applied for
admission of shares of Texas Utilities Common Stock to the Official List of the
London Stock Exchange but retains its discretion to make such application.
A REGISTRATION STATEMENT, AS AMENDED, COVERING THE OFFER AND SALE OF NEW TEXAS
UTILITIES SHARES PURSUANT TO THE SHARE ALTERNATIVE, HAS BEEN DECLARED EFFECTIVE
BY THE SEC ON 6 MARCH 1998 AND TEXAS UTILITIES INTENDS TO APPLY FOR LISTING OF
SUCH SHARES ON THE NYSE, THE CSE AND THE PSE. HOLDERS OF ENERGY GROUP SHARES WHO
HAVE NO EXISTING ARRANGEMENTS TO TRADE SUCH SHARES SHOULD TAKE INTO ACCOUNT THE
DIFFICULTY AND EXPENSES ASSOCIATED WITH TRADING TEXAS UTILITIES COMMON STOCK
WHEN MAKING THEIR INVESTMENT DECISION WITH RESPECT TO THE TEXAS UTILITIES OFFER
AND IN PARTICULAR THE SHARE ALTERNATIVE.
YOUR DECISION AS TO WHETHER TO ELECT TO RECEIVE ANY NEW TEXAS UTILITIES SHARES
UNDER THE SHARE ALTERNATIVE WILL DEPEND UPON YOUR INDIVIDUAL CIRCUMSTANCES
INCLUDING YOUR INVESTMENT CRITERIA AND TAX POSITION. YOU SHOULD BEAR IN MIND
THAT THE POUNDS STERLING VALUE OF AN INVESTMENT IN TEXAS UTILITIES AND ANY
DIVIDEND INCOME FROM THAT INVESTMENT (WHICH IS PAYABLE IN US DOLLARS AND SUBJECT
TO US WITHHOLDING TAX) WILL BE AFFECTED BY THE PREVAILING US DOLLAR/POUNDS
STERLING EXCHANGE RATE. A HISTORY OF THE US DOLLAR/POUNDS STERLING EXCHANGE RATE
FOR THE PAST FIVE YEARS IS SET OUT IN APPENDIX VII OF THIS DOCUMENT.
IF YOU ARE IN ANY DOUBT AS TO THE COURSE OF ACTION YOU SHOULD FOLLOW, YOU SHOULD
CONSULT YOUR PROFESSIONAL ADVISER.
14
<PAGE> 18
5 LOAN NOTE ALTERNATIVE
A Loan Note Alternative is available to holders of Energy Group Shares (other
than persons who are citizens or residents of the United States and certain
other overseas shareholders) who validly accept the Texas Utilities Offer, on
the basis of L1 nominal of Loan Notes for every L1 of cash that they would
otherwise receive under the Texas Utilities Offer, subject to aggregate valid
elections being received on or before the date on which the Texas Utilities
Offer becomes or is declared unconditional in all respects for in excess of L1
million nominal value of Loan Notes. If insufficient elections are received,
holders of Energy Group Shares who validly accept the Texas Utilities Offer and
elect for the Loan Note Alternative will instead receive cash in accordance with
the terms of the Texas Utilities Offer. Subject as aforesaid, the Loan Note
Alternative will remain open as long as the Texas Utilities Offer is open for
acceptance. Where an Energy Group shareholder elects or is deemed to have
elected for the Loan Note Alternative in respect of all the Energy Group Shares
for which he has accepted the Texas Utilities Offer, fractional entitlements to
Loan Notes will be disregarded and not paid.
Merrill Lynch, as broker to the Texas Utilities Offer, has advised that, based
on market conditions on 5 March 1998 (the latest practicable date prior to the
publication of this document), in their opinion, if the Loan Notes had then been
in issue, the value of each L1 nominal of Loan Notes would have been
approximately 98 pence.
In considering the Loan Note Alternative, holders of Energy Group Shares should
note that the obligations of TU Acquisitions are not guaranteed or secured.
A summary of the terms of the Loan Notes, including provisions relating to the
calculation of the interest rate on the Loan Notes, is set out in Appendix III
below.
6 FINANCIAL EFFECTS OF ACCEPTANCE OF THE TEXAS UTILITIES OFFER
The following table shows, for illustrative purposes only, and on the bases and
assumptions set out in the notes below, the financial effects of acceptance of
the Texas Utilities Offer (either entirely for cash or on the basis that
elections are made in full under the Share Alternative) on capital value and
income for a holder of 100 Energy Group Shares, if the Texas Utilities Offer
becomes or is declared unconditional in all respects:
<TABLE>
<CAPTION>
CASH SHARE
OFFER ALTERNATIVE
NOTES L L
<S> <C> <C> <C>
(a) CAPITAL VALUE
Cash consideration of 840p per Energy Group Share........ 840.00 --
Market value of 35.967 New Texas Utilities Shares........ (1) -- 865.00
Market value of 100 Energy Group Shares.................. (2) 778.50 778.50
------ ------
Increase in capital value................................ 61.50 86.50
====== ======
Representing an increase of.............................. 7.9% 11.1%
====== ======
(b) INCOME
Income from cash consideration........................... (3) 50.99 --
Dividend income on 35.967 New Texas Utilities Shares..... (4) -- 46.46
------ ------
Net dividend income on 100 Energy Group Shares........... (5) 27.50 27.50
------ ------
Increase in income....................................... 23.49 18.96
====== ======
Representing an increase of.............................. 85.4% 68.9%
====== ======
</TABLE>
- ---------------
(1) The market value of a New Texas Utilities Share is based on the closing
price of $39 9/16 as derived from the NYSE Composite Tape and converted
into pounds sterling at the Noon Buying Rate on 5 March 1998, being the
latest practicable date prior to the publication of this document.
15
<PAGE> 19
(2) The market value of an Energy Group Share is based on the Closing Price of
778 1/2p on 27 February 1998, being the last dealing day prior to
announcement of the original Texas Utilities offer.
(3) The income from the cash consideration has been calculated on the
assumption that the cash is re-invested in UK Government securities so as
to achieve an income of 6.07 per cent. per annum, being the average gross
redemption yield on medium coupon UK Government fixed interest rate
securities of maturities of 5 to 15 years, as derived from the FT Actuaries
Index as at 5 March 1998 as published in the Financial Times on 6 March
1998, the latest practicable date prior to publication of this document.
(4) The dividend income on a Texas Utilities Share is based on the aggregate
dividend of $2.125 per Texas Utilities Share in respect of the year ended
31 December 1997.
(5) The dividend income on an Energy Group Share is based on the dividend of
5.5p (net) per Energy Group Share in respect of the period from 1 January
to 31 March 1997 multiplied by 4 and grossed up by a factor of 100/80.
(6) No account has been taken of any liability to taxation nor the treatment of
fractions in assessing the financial effects of acceptance.
7 ACCOUNTING TREATMENT
The Acquisition will be accounted for by Texas Utilities as a "purchase" for
financial accounting purposes in accordance with US GAAP. The purchase price
(i.e., the consideration) will be allocated based on the fair value of The
Energy Group's assets acquired and liabilities assumed. Such allocations will be
made based upon valuations and other studies that have not been finalised as of
the date hereof. The excess of the purchase price of the Acquisition over the
amounts so allocated will be allocated to goodwill.
8 REGULATION
The Texas Utilities Offer is subject to certain regulatory consents and
confirmations being obtained. Amongst other approaches to relevant regulatory
authorities, TU Acquisitions has submitted a Merger Notice to the Director
General of Fair Trading concerning the Texas Utilities Offer and is in
discussions with the DGES. The Peabody Sale is subject to the conditions
described in paragraph 10 below.
It is currently anticipated that all consents and confirmations required under
the Texas Utilities Offer and the Peabody Sale will be received within the
normal timetable for an offer in the United Kingdom.
TU Acquisitions will not invoke either of Conditions (d) or (e) of the Texas
Utilities Offer in respect of the DGES seeking, or indicating that it is his
intention to seek, modifications to any of the TEG Group's licences under the
Electricity Act 1989 or undertakings or assurances from any member of the Texas
Utilities Group or the TEG Group provided that such modifications, undertakings
or assurances substantially reflect the assurances proposed by the DGES to
PacifiCorp in connection with the referral of the Original PacifiCorp Offer to
the Monopolies and Mergers Commission (as described in the Monopolies and
Mergers Commission Report relating to the Original PacifiCorp Offer published on
19 December 1997) or are substantially in keeping with the proposals outlined by
the DGES in his consultation paper dated 24 February 1998 regarding
modifications to public electricity supply licences following takeovers.
The full text of the Conditions to the Texas Utilities Offer is set out in
Appendix I.
Further details of regulatory issues applicable to the Texas Utilities Offer are
set out in paragraph 11 of Appendix VIII ("Legal and regulatory matters") below.
9 INFORMATION ON THE TEXAS UTILITIES GROUP
TEXAS UTILITIES AND ITS SUBSIDIARIES
Texas Utilities is a Texas corporation organized in 1996 for the purpose of
becoming the holding company for TEI, formerly Texas Utilities Company, and
ENSERCH upon the mergers of TEI and ENSERCH with
16
<PAGE> 20
wholly-owned subsidiaries of Texas Utilities ("Mergers"). At the effective time
of the Mergers, (i) Texas Utilities changed its name from TUC Holding Company to
Texas Utilities Company, (ii) TEI changed its name from Texas Utilities Company
to Texas Energy Industries, Inc., (iii) all shares of common stock of TEI were
automatically converted into an equal number of shares of Texas Utilities Common
Stock, (iv) ENSERCH distributed to its shareholders ENSERCH's entire interest in
its former subsidiaries, Lone Star Energy Plant Operations, Inc. and Enserch
Exploration, Inc., and (v) each share of common stock of ENSERCH was
automatically converted into approximately 0.225 of a share of Texas Utilities
Common Stock.
TEI, a Texas corporation, is a holding company whose principal subsidiary, TU
Electric, is an operating public utility company engaged in the generation,
purchase, transmission, distribution and sale of electric energy in the north
central, eastern and western portions of Texas, an area with a population
estimated at 5,890,000. Two other subsidiaries of TEI are engaged directly or
indirectly in public utility operations: (i) SESCO, which is engaged in the
purchase, transmission, distribution and sale of electric energy in ten counties
in the eastern and central parts of Texas, with a population estimated at
125,000 and (ii) TU Australia, which in 1995 acquired the common stock of
Eastern Energy, a company engaged in the purchase, distribution, marketing and
sale of electric energy to approximately 481,000 customers in the Melbourne area
of Australia. Eastern Energy is not affiliated with The Energy Group or any of
its subsidiaries. Neither SESCO nor Eastern Energy generates any electricity.
TEI also has other wholly-owned subsidiaries which perform specialized functions
within the Texas Utilities Company system.
ENSERCH, a Texas corporation, is an integrated company focused on natural gas.
ENSERCH operate primarily in the north central and eastern parts of Texas. Its
major business operations are natural gas pipelines, processing, marketing and
distribution. Through these business operations, ENSERCH is engaged in owning
and operating interconnected natural gas transmission lines, underground storage
reservoirs, compressor stations and related properties in Texas; gathering and
processing natural gas to remove impurities and extract liquid hydrocarbons for
sale; and the wholesale and retail marketing of natural gas in several areas of
the United States; and owning and operating approximately 550 local gas utility
distribution systems in Texas.
In November 1997, Texas Utilities consummated the acquisition of LCC, a
privately held, independent local exchange telephone company, with sixteen
exchanges that serve approximately 100,000 access lines in the Alto, Conroe and
Lufkin areas of southeast Texas. LCC also provides access services to a number
of interexchange carriers who provide long distance services. LCC owns fiber
optic cable systems which it leases to interexchange carriers, leases radio
communications towers, and provides Internet access, cellular mobile telephone,
radio paging and private branch exchange (PBX) services to local customers. LCC
also provides interchange long distance services, with the primary focus being
on business customers. Approximately 8.7 million shares of Texas Utilities
Common Stock were issued to LCC shareholders in a stock for stock exchange.
Approximately $31 million of LCC's long-term debt remains outstanding.
The principal executive offices of Texas Utilities are located at 1601 Bryan
Street, Dallas, Texas 75201-3411; the telephone number is (214) 812-4600.
TU Acquisitions, a wholly-owned subsidiary of Texas Utilities, is a public
limited company incorporated in England and Wales on 27 October 1997.
SELECTED HISTORICAL AND PRO FORMA TEXAS UTILITIES FINANCIAL DATA
The Acquisition will be treated as a purchase for accounting purposes. The
Energy Group assets acquired and liabilities assumed will be recorded at their
fair value.
The following selected historical financial data of Texas Utilities for each of
the five years in the period ended 31 December 1997 is derived from the
consolidated financial statements included in the Texas Utilities Current Report
on Form 8-K dated 26 February 1998, which have been audited by Deloitte & Touche
LLP, independent public accountants, and selected financial data included in the
TEI 10-K, each incorporated by reference herein.
17
<PAGE> 21
The selected unaudited pro forma financial data of Texas Utilities for the year
31 December 1997 is derived from the historical financial statements of Texas
Utilities and The Energy Group and gives effect to the Acquisition, Peabody Sale
and Texas Utilities' acquisitions of ENSERCH and LCC (together, the "Pro Forma
Transactions"). The balance sheet data is presented as if the Pro Forma
Transactions had occurred on 31 December 1997, and the income statement data
assumes the Acquisition and Peabody Sale occurred at the beginning of such
period. This information is not necessarily indicative of the financial results
that would have occurred had the above-described events been consummated on the
indicated dates, or of Texas Utilities' future financial results, and should be
read in conjunction with the historical financial statements of Texas Utilities
and The Energy Group and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Texas Utilities and The Energy Group
incorporated by reference or included herein and "Unaudited Pro Forma Condensed
Consolidated Financial Information" included elsewhere herein.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
HISTORICAL TEXAS TEXAS
TEI UTILITIES UTILITIES
--------------------------------------------- ---------- ------------
YEAR ENDED 31 DECEMBER YEAR ENDED
---------------------------------------------------------- 31 DECEMBER
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- ---------- ------------
UNAUDITED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BASIC INCOME STATEMENT DATA
Operating Revenues.......... $ 5,434.5 $ 5,663.5 $ 5,638.7 $ 6,550.9 $ 7,945.6 $14,544.0
Net Income (Loss)(a)........ 368.7 542.8 (138.6) 753.6 660.5 778.0
Per Share of Common Stock
Basic Earnings
(Loss)(a).............. 1.66 2.40 (.61) 3.35 2.86 2.95
Diluted Earnings
(Loss)................. 1.66 2.40 (.61) 3.35 2.85 2.93
Dividends Declared....... 3.08 3.08 2.81 2.025 2.125 2.125
BALANCE SHEET DATA (at period
end)
Total Assets................ $21,518.1 $20,893.4 $21,535.9 $21,375.7 $24,874.1 $37,709.0
Long-term Debt, less amounts
due currently............ 8,379.8 7,888.4 9,174.6 8,668.1 8,759.4 15,941.0
Preferred Stock
Not Subject to Mandatory
Redemption............. 1,083.0 870.2 489.7 464.4 304.2 304.2
Subject to Mandatory
Redemption............. 396.9 387.5 263.2 238.4 20.6 20.6
TU Electric Obligated,
Mandatorily Redeemable,
Preferred Securities of
Trusts Holding Solely
Debentures of TU
Electric(b).............. -- -- 381.5 381.3 875.1 875.1
Common Stock Equity......... 6,571.0 6,490.0 5,731.7 6,032.9 6,843.1 7,598.0
--------- --------- --------- --------- --------- ---------
Total Capitalization..... $16,430.7 $15,636.1 $16,040.7 $15,785.2 $16,802.4 $24,738.9
========= ========= ========= ========= ========= =========
</TABLE>
- ---------------
(a) The year ended 31 December 1993 was affected by the recording of regulatory
disallowances in TU Electric's Docket 11735. The year ended 31 December
1995 was affected by the impairment of several nonperforming assets,
including TU Electric's partially completed Twin Oak and Forest Grove
lignite-fueled facilities and the New Mexico coal reserves of a subsidiary,
as well as several minor assets. Such impairment, on an after-tax basis,
amounted to $802 million. (See the TEI 10-K). The year ended 31 December
1997 includes a one time base revenue refund of $80 million as a result of
a settlement with the Public Utility Commission of Texas (PUC) and a fuel
disallowance charge of $80 million as a result of a fuel reconciliation
proceeding before the PUC. (See the 26 February 1998 Form 8-K.)
18
<PAGE> 22
(b) The sole assets of such trusts consist of junior subordinated debentures of
TU Electric in principal amounts, and having other payment terms,
corresponding to the securities issued by such trusts.
Further information on Texas Utilities is set out in Appendix V below.
10 INFORMATION ON THE ENERGY GROUP
The TEG Group is a diversified international energy group which includes
Eastern, one of the leading integrated electricity and gas groups in the United
Kingdom, and Peabody, the world's largest private producer of coal. The Energy
Group has entered into an agreement to sell the Peabody Coal Business to an
affiliated company of Lehman Merchant, subject to the conditions summarised
under the heading "The Peabody Sale" below.
Through Eastern, The Energy Group is involved in a wide range of operations:
- Eastern Generation, the fourth largest generator of electricity in Great
Britain, currently owns, operates or has an interest in eight power
stations, representing approximately 10 per cent. of the United Kingdom's
total registered generating capacity as at 31 March 1997;
- Eastern Power & Energy Trading manages for the TEG Group the price and
volume risks associated with the generation, wholesaling and sale to end
users of electricity. These exposures are managed by trading its contract
portfolio and by bidding Eastern's generation output into the Electricity
Pool (the electricity trading market in England and Wales). It also has
small equity interests in three natural gas-producing fields in the North
Sea;
- Eastern Natural Gas is one of the largest suppliers of natural gas in the
United Kingdom after Centrica plc; and
- Eastern Electricity is the largest supplier and distributor of
electricity in England and Wales, with over three million customers and
an authorised area covering approximately 20,300 sq. km. in the east of
England and parts of North London.
Peabody is the largest producer of coal in the United States and operates 25
underground and surface mines in the United States and three surface mines in
Australia:
- as at 31 March 1997, Peabody owned or controlled 9.5 billion tons of
proven and probable coal reserves;
- in the six months ended 31 March 1997, Peabody sold 81.4 million tons of
coal worldwide and had an estimated 14.4 per cent. of the US market; and
- Peabody Australia, one of the ten largest coal producers in Australia,
has interests in four surface mines in New South Wales, three of which
are currently in operation. Peabody's equity share of the coal sales of
these mines amounted to 3.5 million tons in the six months ended 31 March
1997 and its equity share of the proven and probable reserves associated
with these mines as at 31 March 1997 amounted to 466 million tons.
The Peabody Coal Business also includes Citizens Power, one of the leading US
power marketing firms which was acquired by the TEG Group in May 1997. Its
headquarters are in Boston and it has field offices in Milwaukee, Denver and
Toronto.
On a pro forma basis for the year ended 31 March 1997, The Energy Group reported
consolidated turnover of L4,460 million and consolidated profit on ordinary
activities after taxation of L286 million. For the nine months ended 31 December
1997, The Energy Group reported unaudited consolidated turnover of L3,390
million and operating profits of L379 million before exceptional costs
associated with the Original PacifiCorp Offer and restructuring charges.
19
<PAGE> 23
THE PEABODY SALE
Subject to the conditions set out below, The Energy Group has agreed to sell the
Peabody Coal Business to an affiliated company of Lehman Merchant for a cash
consideration of approximately $2.3 billion, payable on completion, plus the
assumption of debt.
Information on the Peabody Coal Business is set out above. For the nine months
ended 31 December 1997, the Peabody Coal Business contributed L1,014 million and
L112 million to TEG Group turnover and operating profits respectively.
The Peabody Sale is conditional on the fulfilment of conditions to the following
effect:
(a) the Texas Utilities Offer becoming or being declared unconditional in
all respects (and the Texas Utilities Offer not at that time being
publicly opposed by the Board of The Energy Group);
(b) the waiting period applicable to the Peabody Sale under the US HSR Act
having expired or been terminated;
(c) the consent of the Treasurer of the Commonwealth of Australia, acting
in such capacity or through the body known as the Foreign Investment
Review Board, having been given to the Peabody Sale (or to any aspect
thereof as is subject to approval pursuant to the Foreign Acquisitions
and Takeovers Act of Australia) either unconditionally or subject to
such conditions as do not have and could not reasonably be expected to
have a material adverse effect on the value of the relevant companies
and their subsidiaries (taken as a whole);
(d) FERC having issued an order approving the Peabody Sale or any aspect
thereof which shall be subject to regulation by FERC on terms that do
not have and could not reasonably be expected to have a material
adverse effect on the value of the relevant companies and their
subsidiaries (taken as a whole); and
(e) no order having been issued (and remaining in effect) by any court or
other governmental authority, and no statute, rule, regulation,
executive order, decree or other order of any kind existing or having
been enacted, entered or enforced by any governmental authority, which
(in any such case to an extent which is material in the context of the
Peabody Sale) prohibits, restrains or restricts completion of the
Peabody Sale.
In the event that (i) the Peabody Sale is not completed because of a breach of
condition (e) above and (ii) the Renewed PacifiCorp Offer (or any revision of
that offer, including the Increased PacifiCorp Offer) lapses, Texas Utilities
will, subject to certain exceptions, pay The Energy Group a break-fee of $50
million on 2 March 1999.
Texas Utilities has entered into an agreement with Lehman Merchant relating to
the Peabody Sale which, inter alia, provides for the parties to make certain
payments to each other to reflect changes in the net assets of the Peabody Coal
Business as shown in a post-completion balance sheet and contains other payment
obligations of Texas Utilities in certain circumstances.
Further details in relation to the Peabody Sale are set out in paragraph 6 of
Appendix VIII.
20
<PAGE> 24
SUMMARY TEG GROUP FINANCIAL INFORMATION
The following summary consolidated financial information of the TEG Group has
been extracted from publicly available information and should be read in
conjunction with, and is qualified in its entirety by reference to, the
Financial Statements and Notes thereto appearing elsewhere in this Offer
Document. See Appendix IV for the press release announcing the TEG Group's
results for the nine months ended 31 December 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED AND
YEAR ENDED AND AS AT 30 SEPTEMBER AS AT 31 MARCH
---------------------------------------------------- ----------------------------
1992 1993 1994 1995 1996(1) 1996(1)(2) 1996(1)(2) 1997 1997(2)
----- ----- ----- ----- ------- ---------- ---------- ----- -------
(L) (L) (L) (L) (L) ($) (L) (L) ($)
(UNAUD-
ITED PRO
FORMA)
(IN MILLIONS EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PROFIT AND LOSS ACCOUNT DATA
AMOUNTS IN ACCORDANCE
WITH UK GAAP
Turnover (sales)(1)...... 1,088 1,087 1,247 1,446 3,635 5,961 1,826 2,519 4,131
Operating profit before
exceptional items...... 137 44 99 135 446 731 243 317 520
Operating profit after
exceptional items...... 137 (552) 99 135 490 804 287 297 487
Profit on disposal of
First Hydro............ -- -- -- -- 25 41 -- -- --
Profit/(loss)............ 88 (600) 68 68 357 585 190 179 294
RATIO OF EARNINGS TO
FIXED CHARGES.......... 10.6 -- 5.6 8.5 5.9 5.9 9.1 3.9 3.9
AMOUNTS IN ACCORDANCE
WITH US GAAP
Sales.................... 1,247 1,446 3,635 5,961 2,519 4,131
Operating
profit/(loss).......... 96 161 (142) (233) 299 490
Net income/(loss)........ 48 90 (108) (177) 177 290
BALANCE SHEET DATA
AMOUNTS IN ACCORDANCE
WITH UK GAAP
Total assets............. 2,394 2,671 3,019 5,642 5,728 9,394 6,745 11,061
Creditors due after more
than one year.......... 212 292 224 911 945 1,550 1,655 2,714
Invested capital
shareholders' equity... 896 899 972 2,108 2,185 3,583 1,845 3,026
AMOUNTS IN ACCORDANCE
WITH US GAAP
Total assets............. 3,584 7,689 6,944 11,388 7,935 13,013
Invested capital/
shareholders' equity... 1,224 3,716 3,056 5,012 2,713 4,449
</TABLE>
- ---------------
1. The results of operations of Eastern, which was acquired by Hanson in
September 1995, are included above for periods beginning on or after 1
October 1995. The net assets of Eastern are included above at 30 September
1995 and each subsequent date.
2. Pounds sterling have been translated into US dollars solely for the
convenience of the reader at $1.64 per L1.00, the Noon Buying Rate on 31
March 1997.
21
<PAGE> 25
3. Turnover for the year ended 30 September 1996 is stated net of a special
discount to electricity customers of L132 million relating to the flotation
of National Grid Group plc.
4. Operating exceptional items in the year ended 30 September 1996 arise from
the flotation of National Grid Group plc. See Note 7 to the Financial
Statements.
5. Results for the year ended 30 September 1993 reflect a charge for impairment
of coal assets of L578 million under The Energy Group's accounting policy for
the impairment of long-lived assets which, under UK GAAP, is reflected in the
year such impairment is considered to have been incurred.
6. The principal differences between UK GAAP and US GAAP which affect The Energy
Group are described in Note 30 of Notes to the Financial Statements.
7. For the purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before taxes plus fixed charges (excluding
capitalised interest). Fixed charges consist of interest expense (including
capitalised interest), together with an amount representative of the interest
element of operating lease rentals. Under UK GAAP, fixed charges exceeded
earnings by L566.9 million for the year ended 30 September 1993. Under US
GAAP, fixed charges exceeded earnings by L200.0 million in the year ended 30
September 1996.
8. The pro forma operating results for the six months ended 31 March 1996 have
been prepared on the same basis as that used by The Energy Group for prior
periods adjusted to reflect net interest payable and taxation as if the
Demerger had occurred at the beginning of the period. The pro forma
adjustment to net interest payable reflects an additional pro forma interest
charge calculated at 6.2 per cent. of the L381 million of additional net debt
which was assumed would be allocated to The Energy Group on the Demerger. The
L381 million of assumed additional net debt increased The Energy Group's net
bank and other borrowings on a pro forma basis at 30 September 1996 to L1,440
million. The effective rate of 6.2 per cent. is based on the three month
LIBOR at 30 September 1996 together with the margin payable under The Energy
Group's credit facilities. The pro forma adjustment to taxation has been
calculated to reflect the impact of the pro forma adjusted interest charge
resulting from the assumed change in capital structure of The Energy Group
following the Demerger and after allowing for group relief surrendered (L30
million) for no consideration by other Hanson Group companies.
11 COMPARATIVE PER SHARE DATA AND COMPARISON OF SHAREHOLDER RIGHTS
The following table illustrates certain historical comparative per share
data of Texas Utilities and The Energy Group for the years ended 31 December
1997 and 30 September 1997, respectively, contained in Appendices IV, V and VI.
The table also illustrates, on a pro forma basis, the same data for a holder of
one Energy Group Share validly electing for the Share Alternative, assuming no
scaling down.
<TABLE>
<CAPTION>
TEXAS UTILITIES THE ENERGY GROUP
----------------------------------- ---------------------------------
PRO FORMA
HISTORICAL ADJUSTED PRO FORMA HISTORICAL EQUIVALENT(A)
---------- ---------- --------- --------------- ---------------
$ $ $ L $ L $
---------- ---------- --------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings per share(b)(c) (US GAAP).......... 2.86 2.70 2.95 46.1p 0.76 62.8p 1.03
Dividends declared per share(c)(d)................ 2.125 2.125 2.125 13.5p 0.22 45.2p 0.744
Book value per share(c) (US GAAP)................. 27.90 27.90 28.76 486p 7.97 612p 10.07
</TABLE>
- ---------------
(a) The pro forma equivalent of one Energy Group Share is equal to the Texas
Utilities pro forma per share data multiplied by an assumed exchange ratio
of 0.350, being the Share Alternative Ratio used in the worked example on
page 12 given under the heading "Calculation of entitlements under the
Share Alternative".
(b) Based on Income before Extraordinary Item.
(c) Per share of Texas Utilities Common Stock or per Energy Group Share, as the
case may be.
(d) Amounts for Texas Utilities represent historical dividends declared per
share of Texas Utilities Common Stock.
COMPARISON OF SHAREHOLDER RIGHTS
There are a number of differences between the rights attaching to shares of
Texas Utilities Common Stock, as detailed above, and those attaching to Energy
Group Shares. Certain rights attaching to Energy
22
<PAGE> 26
Group Shares, where those differences exist, are identified below. Such
differences may arise from the differences between legislation and regulations
governing The Energy Group and those governing Texas Utilities as well as
between the constitutional documents of the two companies. The following is not
a complete description of the differences between the rights associated with
Energy Group Shares as compared to Texas Utilities Common Stock. Further, it
does not address the differing rights of holders of Texas Utilities preference
stock.
For a complete understanding of such differences, holders of Energy Group
Securities are referred to the laws and applicable regulations of England, the
United States and the State of Texas, the rules of the London Stock Exchange,
the NYSE, the CSE, the PSE and the constitutional documents of both The Energy
Group and Texas Utilities.
General
The Energy Group is incorporated in England and operates in accordance with
the Companies Act. Rules and regulations governing trading of Energy Group
Shares differ from those relating to shares of Texas Utilities Common Stock.
Dividends
Pursuant to The Energy Group's articles of association, and subject to the
restrictions of English law, dividends may be declared by the Board of The
Energy Group, or by The Energy Group, on the recommendation of the Board, by
ordinary resolution in an amount not to exceed that recommended by the Board.
Meetings
The holders of not less than one tenth of the paid up voting capital of The
Energy Group have the right to requisition general meetings of shareholders.
Transfers
The Energy Group's articles of association allow The Energy Group Board, in
its absolute discretion, and without giving any reason for so doing, to refuse
to register certain transfers of shares, being shares which are not fully paid
up, or being shares, whether fully paid up or not, which are in favour of more
than four joint transferees.
12 FINANCING
TU Acquisitions has arranged appropriate financing in connection with the Texas
Utilities Offer. Texas Utilities and other wholly-owned subsidiaries of Texas
Utilities have arranged their own funding to assist in TU Acquisitions'
financing of the Texas Utilities Offer. Details of the financing arrangements
for the Texas Utilities Offer are set out in paragraph 8 of Appendix VIII
("Financing arrangements") below.
13 EMPLOYEE MATTERS AND SHARE SCHEMES
(a) MANAGEMENT AND EMPLOYEES
TU Acquisitions has given assurances to the Board of The Energy Group that the
existing employment rights, including pension rights, of all TEG Group
management and employees will be fully safeguarded. Texas Utilities looks
forward to welcoming all TEG Group employees to the Texas Utilities Group.
(b) THE ENERGY GROUP SHARE SCHEMES
The Texas Utilities Offer will extend to any fully paid Energy Group Shares
which are unconditionally allotted or issued while the Texas Utilities Offer is
open for acceptance, including those unconditionally allotted or issued pursuant
to the exercise of options or vesting of awards under the Energy Group Share
Schemes.
23
<PAGE> 27
Appropriate proposals will be made to participants in the Energy Group Share
Schemes in due course. In relation to the Energy Group Sharesave Scheme, it is
anticipated that, as an additional alternative to the rights provided under the
rules of that scheme, participants will be offered an opportunity to surrender
their existing options in consideration for a cash sum, calculated by reference
to the difference between 840 pence and the exercise price of their options
multiplied by the number of Energy Group Shares that they could have acquired
with their total savings contributions (together with any interest payable
thereon) under the Energy Group Sharesave Scheme up to the date the Texas
Utilities Offer becomes or is declared unconditional in all respects, plus a
further six months' savings contributions.
14 UNITED KINGDOM TAXATION
TU Acquisitions has been advised that, under United Kingdom legislation and
Inland Revenue practice current at the date of this document, the taxation
treatment of acceptance of the Texas Utilities Offer and, where applicable,
election for the Share Alternative and/or the Loan Note Alternative for holders
of Energy Group Shares who are the beneficial owners of their Energy Group
Shares, hold their Energy Group Shares as an investment (otherwise than under a
personal equity plan), and are resident or ordinarily resident in the United
Kingdom for tax purposes will, in summary, be as follows:
(a) TAXATION OF CHARGEABLE GAINS
Liability to United Kingdom taxation on chargeable gains ("CGT") will depend on
the particular circumstances of holders of Energy Group Shares and on the form
of consideration received.
-- Cash
To the extent that a holder of Energy Group Shares receives cash under
the Texas Utilities Offer, this will constitute a disposal, or part
disposal, of his Energy Group Shares for CGT purposes. Such a disposal
or part disposal may, depending on that shareholder's individual
circumstances, give rise to a liability to CGT.
-- Loan Notes
A holder of Energy Group Shares who, either alone or together with
persons connected with him, holds not more than 5 per cent. of shares
in, or of any class of debentures of, The Energy Group, will not be
treated as making a disposal of his Energy Group Shares for CGT purposes
to the extent that he receives Loan Notes by way of consideration.
A holder of Energy Group Shares who, either alone or together with
persons connected with him, holds more than 5 per cent. of shares in, or
of any class of debentures of, The Energy Group is advised that an
application to the Inland Revenue has been made for clearance under
section 138 of the Taxation of Chargeable Gains Act 1992. The Inland
Revenue has not yet granted such clearance. Subject to the granting of
this clearance, such holder of Energy Group Shares will be treated in
the manner described in the previous paragraph.
A subsequent disposal of Loan Notes (including their redemption or
repayment) may give rise to a liability to CGT.
-- New Texas Utilities Shares
To the extent a holder of Energy Group Shares receives New Texas
Utilities Shares under the Texas Utilities Offer, this will constitute a
disposal, or part disposal, of his Energy Group Shares for CGT purposes
for a consideration equal to the market value of the New Texas Utilities
Shares received at the date the Texas Utilities Offer becomes
unconditional, or, if later, the date on which the relevant shareholder
accepts the Texas Utilities Offer. Such a disposal or part disposal may,
depending on that shareholder's individual circumstances, give rise to a
liability to CGT.
24
<PAGE> 28
(b) TAXATION OF INTEREST
Payment of interest on the Loan Notes will be made subject to the deduction of
United Kingdom income tax at the lower rate (currently, 20 per cent.). An
individual holder of Loan Notes will generally be liable to income tax in the
United Kingdom on the gross amount of interest received, credit being allowed
for the tax deducted. A corporate holder of Loan Notes will generally bring
interest on the Loan Notes into account as income for the purposes of
corporation tax in the United Kingdom, credit being allowed for the tax
deducted.
(c) TAXATION OF DIVIDEND INCOME
A holder of Texas Utilities Common Stock (including any New Texas Utilities
Shares issued pursuant to the Share Alternative) will generally be liable to
income tax or corporation tax in the United Kingdom on the aggregate of any
dividend received from Texas Utilities and any tax withheld at source in the US
and any tax withheld in the United Kingdom in relation to that dividend. In
computing that liability to taxation, credit will be given for any tax withheld
in the US and any tax withheld in the United Kingdom.
FURTHER INFORMATION ON UNITED KINGDOM TAX LAW AND INLAND REVENUE PRACTICE
CURRENT AT THE DATE OF THIS DOCUMENT IS CONTAINED IN PARAGRAPH 12 OF APPENDIX
VIII ("UNITED KINGDOM TAXATION") BELOW. FURTHER INFORMATION ON US FEDERAL INCOME
TAX CURRENT AT THE DATE OF THIS DOCUMENT IS CONTAINED IN PARAGRAPH 15 OF THIS
LETTER ("US TAXATION") AND IN PARAGRAPH 13 OF APPENDIX VIII ("UNITED STATES
FEDERAL INCOME TAXATION") BELOW.
ANY HOLDER OF ENERGY GROUP SHARES WHO IS IN ANY DOUBT ABOUT HIS OWN TAX POSITION
OR WHO IS SUBJECT TO TAXATION IN ANY JURISDICTION OTHER THAN THE UNITED KINGDOM
OR THE US (OR IN BOTH THE UNITED KINGDOM AND THE US) IS STRONGLY RECOMMENDED TO
CONSULT HIS INDEPENDENT PROFESSIONAL ADVISER IMMEDIATELY.
15 US TAXATION
The paragraphs below address certain current US federal income tax consequences
applicable to holders of Energy Group Securities who are citizens or residents
of the US, US domestic corporations or otherwise taxed as United States
residents. It does not apply to tax issues arising from a holder's particular
circumstances, such as participation in the Energy Group Share Schemes, being a
dealer in securities or holders whose functional currency is not the US dollar.
The receipt of cash or of cash and New Texas Utilities Shares pursuant to the
Texas Utilities Offer will be a taxable transaction for US income tax purposes
and may also be a taxable transaction under applicable state, local, foreign and
other tax laws.
In general, a holder of Energy Group Securities who sells such securities
pursuant to the Texas Utilities Offer will, for US federal income tax purposes,
recognise gain or loss equal to the difference between such holder's adjusted
tax basis in the Energy Group Securities sold and the amount realized as a
result of the disposition. The amount realized will equal the sum of (i) the
dollar value of the pounds sterling received, and (ii) the fair market value of
any New Texas Utilities Shares received. Such gain or loss generally will be
capital gain or loss. An accrual basis holder of Energy Group Securities who
sells such securities pursuant to the Texas Utilities Offer may have a foreign
currency exchange gain or loss for US federal income tax purposes on account of
currency fluctuations between the sale date and the settlement date, in addition
to the gain or loss recognised by the holder on the disposition of Energy Group
Securities pursuant to the Texas Utilities Offer.
FURTHER INFORMATION ON THE APPLICATION OF CURRENT US TAX LAWS IS CONTAINED IN
PARAGRAPH 13 OF APPENDIX VIII ("UNITED STATES FEDERAL INCOME TAXATION") BELOW.
ANY HOLDER OF ENERGY GROUP SECURITIES WHO IS IN ANY DOUBT ABOUT HIS OWN TAX
POSITION OR WHO IS SUBJECT TO TAXATION IN ANY JURISDICTION OTHER THAN THE UNITED
KINGDOM OR THE US (OR IN BOTH THE UNITED KINGDOM AND THE US) IS STRONGLY
RECOMMENDED TO CONSULT HIS INDEPENDENT PROFESSIONAL ADVISER IMMEDIATELY.
25
<PAGE> 29
16 OVERSEAS SHAREHOLDERS
The attention of holders of Energy Group Securities who are citizens or
residents of jurisdictions outside the United Kingdom or the US is drawn to
paragraph 9 of Part B of Appendix I ("Overseas shareholders") below and to the
relevant provisions of the Acceptance Form.
The Texas Utilities Offer is not being made, directly or indirectly, in or into
Canada, Australia or Japan. Persons who are citizens or residents of such
jurisdictions may not accept the Texas Utilities Offer. Any purported acceptance
of the Texas Utilities Offer by holders of Energy Group Securities who are
unable to give the warranty set out in paragraph 12(l) of Part B of Appendix I
to this document will be disregarded.
The New Texas Utilities Shares have been registered under the Securities Act.
However, such shares will not be the subject of a prospectus under the
securities laws of any province of Canada. In addition, no steps have been
taken, or will be taken, to enable the New Texas Utilities Shares to be offered
in Japan in compliance with applicable securities laws of Japan and no
prospectus in relation to the New Texas Utilities Shares has been, or will be,
lodged with or registered by the Australian Securities Commission, nor will the
New Texas Utilities Shares be registered under any relevant securities laws of
any other country. The New Texas Utilities Shares are not being offered, sold or
delivered, directly or indirectly, in or into Canada, Australia or Japan.
The Loan Notes to be issued pursuant to the Loan Note Alternative have not been,
and will not be, registered under the Securities Act or under any relevant
securities laws of any state or district of the United States and will not be
the subject of a prospectus under the securities laws of any province of Canada.
In addition, no steps have been taken, or will be taken, to enable the Loan
Notes to be offered in Japan in compliance with applicable securities laws of
Japan and no prospectus in relation to the Loan Notes has been, or will be,
lodged with or registered by the Australian Securities Commission, nor will the
Loan Notes be registered under any relevant securities laws of any other
country. The Loan Notes are not being offered, sold or delivered, directly or
indirectly, in or into the United States, Canada, Australia or Japan.
17 PROCEDURE FOR ACCEPTANCE OF THE TEXAS UTILITIES OFFER
(a) HOLDERS OF ENERGY GROUP SHARES
The attention of holders of Energy Group Shares is drawn to paragraph 11 of Part
B of Appendix I ("Procedures for tendering Energy Group Shares") below and to
the relevant provisions of the Form of Acceptance.
You should note that, if you hold Energy Group Shares in both certificated and
uncertificated form (that is, in CREST), you should complete a separate Form of
Acceptance for each holding. If you hold Energy Group Shares in uncertificated
form, but under different member account IDs, you should complete a separate
Form of Acceptance in respect of each member account ID. Similarly, if you hold
Energy Group Shares in certificated form, but under different designations, you
should complete a separate Form of Acceptance in respect of each designation.
(i) TO ACCEPT THE TEXAS UTILITIES OFFER
To accept the Texas Utilities Offer, you should complete Box 1 and (if your
Energy Group Shares are in CREST) Box 8, and sign Box 7 of the Form of
Acceptance in accordance with the instructions printed on it. All holders
of Energy Group Shares who are individuals should sign the Form of
Acceptance in the presence of a witness, who should also sign Box 7 in
accordance with the instructions printed on it.
(ii) TO ELECT FOR THE SHARE ALTERNATIVE
To accept the Texas Utilities Offer and elect for the Share Alternative,
you should complete Box 3 in addition to taking the actions described in
paragraph (i) above. The attention of those holders of Energy Group Shares
considering accepting the Share Alternative is drawn to paragraph 4
("Limited Share Alternative") and paragraph 16 ("Overseas shareholders") of
this letter and to paragraphs 4 and 9 of Part B of Appendix I below.
26
<PAGE> 30
(iii) TO ELECT FOR THE LOAN NOTE ALTERNATIVE
To elect for the Loan Note Alternative in respect of some or all of the
Energy Group Shares for which you are accepting the Texas Utilities Offer,
you should complete Box 4 in addition to taking the actions described in
paragraph (i) above. The attention of those holders of Energy Group Shares
considering accepting the Loan Note Alternative is drawn to paragraph 5
("Loan Note Alternative") above and to paragraphs 5 and 9 of Part B of
Appendix I below.
(iv) RETURN OF FORM OF ACCEPTANCE
To accept the Texas Utilities Offer, the Form of Acceptance must be
completed and returned, whether or not your Energy Group Shares are in
CREST. The completed, signed and (if you are an individual) witnessed Form
of Acceptance, together with, if your Energy Group Shares are not in CREST,
the share certificate(s) and/or other document(s) of title for your Energy
Group Shares, should be returned by post or by hand to The Royal Bank of
Scotland plc, Registrar's Department, New Issues Section, PO Box 859,
Consort House, East Street, Bedminster, Bristol BS99 1XZ, or by hand,
during normal business hours only, to The Royal Bank of Scotland plc,
Registrar's Department, New Issues Section, 5-10 Great Tower Street, London
EC3R 5ER or by post or by hand to The Bank of New York, 101 Barclay Street,
New York, New York 10286, marked for the attention of Tenders and
Exchanges, as soon as possible but, in any event, so as to be received no
later than 10.00 pm (London time), 5.00 pm (New York City time) on 7 April
1998. A reply-paid envelope is enclosed for your convenience and may be
used by holders of Energy Group Shares for returning Forms of Acceptance
within the United Kingdom and the US only. The instructions printed on the
Form of Acceptance shall be deemed to form part of the terms of the Texas
Utilities Offer.
Any Form of Acceptance received in an envelope postmarked in Canada,
Australia or Japan or otherwise appearing to TU Acquisitions or its agents
to have been sent from Canada, Australia or Japan may be rejected as an
invalid acceptance of the Texas Utilities Offer. For further information
for overseas shareholders, see paragraph 16 ("Overseas shareholders") above
and paragraph 9 of Part B of Appendix I ("Overseas shareholders") below.
(v) ENERGY GROUP SHARES IN UNCERTIFICATED FORM (THAT IS, IN CREST)
If your Energy Group Shares are in uncertificated form (that is, if you do
not have a paper share certificate because your shares are held in CREST),
you should read carefully paragraphs 11(d)-(l) of Part B of Appendix I,
which set out the acceptance procedures for holders of Energy Group Shares
in uncertificated form.
If you are a CREST sponsored member, you should refer to your CREST sponsor
before taking any action.
(vi) SHARE CERTIFICATES NOT READILY AVAILABLE OR LOST
If your Energy Group Shares are in certificated form, but your share
certificate(s) and/or other document(s) of title is/are not readily
available or is/are lost, the Form of Acceptance should nevertheless be
completed, signed and returned as stated in paragraph (iv) above so as to
arrive no later than 10.00 pm (London time), 5.00 pm (New York City time)
on 7 April 1998, together with any share certificate(s) and/or other
document(s) of title that you have available, accompanied by a letter
stating that the balance will follow. You should then arrange for the
relevant share certificate(s) and/or other document(s) of title to be
forwarded as soon as possible thereafter. No acknowledgement of receipt of
documents will be given. In the case of loss, you should write as soon as
possible to LLOYDS BANK REGISTRARS, THE CAUSEWAY, GORING-BY-SEA, WORTHING,
WEST SUSSEX BN99 6 DA for a letter of indemnity for lost share
certificate(s) and/or other document(s) of title which, when completed in
accordance with the instructions given, should be returned to The Royal
Bank of Scotland plc as stated above.
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(vii) DEPOSITS OF ENERGY GROUP SHARES INTO, AND WITHDRAWALS OF ENERGY GROUP
SHARES FROM, CREST
Normal CREST procedures (including timings) apply in relation to any Energy
Group Shares that are, or are to be, converted from uncertificated to
certificated form, or from certificated to uncertificated form, during the
course of the Texas Utilities Offer (whether any such conversion arises as a
result of a transfer of Energy Group Shares or otherwise). Holders of Energy
Group Shares who are proposing so to convert any such shares are recommended
to ensure that the conversion procedures are implemented in sufficient time
to enable the person holding or acquiring the shares as a result of the
conversion to take all necessary steps in connection with an acceptance of
the Texas Utilities Offer (in particular, as regards delivery of share
certificate(s) and/or other document(s) of title or transfers to an escrow
balance as described above) prior to 10.00 pm (London time), 5.00 pm (New
York City time) on 7 April 1998.
(b) HOLDERS OF ENERGY GROUP ADSS
The attention of holders of Energy Group ADSs is drawn to paragraph 10 of Part B
of Appendix I ("Procedures for tendering Energy Group ADSs") below and to the
relevant provisions of the Letter of Transmittal.
To accept the Texas Utilities Offer, holders of Energy Group ADSs must complete
the Letter of Transmittal in accordance with the instructions printed on it or
comply with the instructions in such Letter of Transmittal applicable to
book-entry transfers. The completed Letter of Transmittal should be sent in the
accompanying reply-paid envelope or delivered by hand together with the required
signature guarantees and any other required documents to the US Depositary at
one of its addresses set forth on the back cover of this document and the Energy
Group ADRs must be either received by the US Depositary at one of such addresses
or delivered in accordance with paragraph 10 of Part B of Appendix I referred to
above.
(c) VALIDITY OF ACCEPTANCE
Subject to the City Code, TU Acquisitions reserves the right to treat as valid
in whole or in part any acceptance of the Texas Utilities Offer which is not
entirely in order or which is not accompanied (as applicable) by the relevant
transfer to escrow or the relevant share certificate(s) and/or other document(s)
of title or which is received by it in a form or at a place or places other than
set out in this document or the Acceptance Form. In that event, no payment of
cash or issue of Loan Notes or receipts or certificates for New Texas Utilities
Shares under the Texas Utilities Offer will be made until after (as applicable)
the relevant transfer to escrow has settled or the relevant share certificate(s)
and/or other document(s) of title or indemnities satisfactory to TU Acquisitions
have been received.
(d) GENERAL
No acknowledgement of receipt of Acceptance Forms, share certificates, Energy
Group ADRs or other documents of title will be given.
IF YOU ARE IN ANY DOUBT AS TO THE PROCEDURES FOR ACCEPTANCE, PLEASE CONTACT THE
UNITED KINGDOM RECEIVING AGENT, THE ROYAL BANK OF SCOTLAND PLC BY TELEPHONE ON
0117-937-0672 OR AT EITHER OF ITS ADDRESSES STATED IN PARAGRAPH 17(A)(IV) ABOVE
OR THE US DEPOSITARY, THE BANK OF NEW YORK ON (888) 460-7637. YOU ARE REMINDED
THAT, IF YOU ARE A CREST SPONSORED MEMBER, YOU SHOULD CONTACT YOUR CREST SPONSOR
BEFORE TAKING ANY ACTION.
18 RIGHTS OF WITHDRAWAL
With certain exceptions pursuant to an SEC exemptive order, the Texas Utilities
Offer is subject to the US tender offer rules applicable to securities
registered under the Exchange Act, as well as to the City Code. This has
necessitated a number of changes from the procedures which normally apply to
offers for United Kingdom companies, including those applicable to the rights of
holders of Energy Group Securities to withdraw their acceptance of an offer.
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Under the Texas Utilities Offer, holders of Energy Group Securities will be able
to withdraw their acceptances at any time prior to the Initial Closing Date and
in certain other circumstances. The Texas Utilities Offer will not be deemed to
have been validly accepted in respect of any Energy Group Securities which have
been withdrawn.
However, the Texas Utilities Offer may be accepted again in respect of the
withdrawn Energy Group Securities by following one of the procedures described
in paragraph 17 ("Procedure for acceptance of the Texas Utilities Offer") above
at any time prior to the expiry or lapse of the Texas Utilities Offer.
Further details of these rights of withdrawal and the procedure for effecting
withdrawals are set out in paragraph 3 of Part B of Appendix I ("Rights of
withdrawal") below.
19 SETTLEMENT
(a) DATE OF PAYMENT
The settlement procedure with respect to the Texas Utilities Offer will be
consistent with United Kingdom practice, which differs from the US tender offer
rules in certain material respects, particularly with regard to the date of
payment.
Subject to the satisfaction, fulfilment or, where permitted, waiver of all the
Conditions, settlement of acceptances from holders of Energy Group Shares and
accepting holders of Energy Group ADSs or other designated agents will be
effected:
(i) in the case of acceptances received complete in all respects by the
Initial Closing Date within 14 calendar days of such date; or
(ii) in the case of acceptances received complete in all respects after
such date, but while the Texas Utilities Offer remains open for
acceptance, within 14 calendar days of such receipt.
(b) ENERGY GROUP SHARES IN UNCERTIFICATED FORM (THAT IS, IN CREST)
Where an acceptance relates to Energy Group Shares in uncertificated form, (i)
the cash consideration to which accepting holders of Energy Group Shares are
entitled will be paid by means of CREST by Texas Utilities procuring the
creation of an assured payment obligation in favour of the accepting
shareholders' payment bank in respect of the cash consideration due, in
accordance with the CREST assured payment arrangement; and (ii) definitive
certificates for any New Texas Utilities Shares or Loan Notes or receipts for
New Texas Utilities Shares to which the accepting holder of Energy Group Shares
is entitled will be despatched by post (or by such other method as may be
approved by the Panel).
TU Acquisitions reserves the right to settle all or any part of the cash
consideration referred to above, for all or any accepting shareholder(s), in the
manner referred to in paragraph (c) below, if, for any reason, it wishes to do
so.
(c) ENERGY GROUP SHARES IN CERTIFICATED FORM AND ENERGY GROUP ADSS
Where an acceptance relates to Energy Group Shares in certificated form or
Energy Group ADSs evidenced by Energy Group ADRs, cheques for cash due and,
where applicable, definitive certificates for any New Texas Utilities Shares or
Loan Notes or receipts for New Texas Utilities Shares will be despatched by post
(or by such other method as may be approved by the Panel).
(d) LAPSING OF THE TEXAS UTILITIES OFFER
If the Conditions are not satisfied, fulfilled or, where permitted, waived, (i)
in respect of Energy Group Shares in certificated form and Energy Group ADRs in
certificated form, the relevant share certificate(s) and/or other documents of
title will be returned by post (or by such other method as may be approved by
the Panel) within 14 days of the Texas Utilities Offer lapsing, (ii) in respect
of Energy Group Shares in uncertificated
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form (that is, in CREST) The Royal Bank of Scotland plc will, immediately after
the lapsing of the Texas Utilities Offer (or within such longer period as the
Panel may permit, not exceeding 14 days of the lapsing of the Texas Utilities
Offer), give TFE Instructions to CRESTCo to transfer all relevant Energy Group
Shares held in escrow balances and in relation to which it is the escrow agent
for the purposes of the Texas Utilities Offer to the original available balances
of the holders of Energy Group Shares concerned, and (iii) in respect of Energy
Group ADRs in book-entry form, the US Depository will return such Energy Group
ADRs to the tendering holders unless otherwise instructed by such holder.
(e) GENERAL
All documents and remittances sent by, to, or from holders of Energy Group
Securities or their appointed agents will be sent at their own risk.
All mandates and other instructions in force relating to holdings of Energy
Group Securities will, unless and until revoked, continue in force in relation
to payments of principal and interest under the Loan Notes.
(f) CURRENCY OF CASH CONSIDERATION
Instead of receiving cash consideration in pounds sterling under the Texas
Utilities Offer, including cash receivable on the scaling down of elections for
the Share Alternative or in lieu of fractional entitlements to New Texas
Utilities Shares, holders of Energy Group Shares who so wish may elect to
receive US dollars on the following basis: the cash amount payable in pounds
sterling to which such holder would otherwise be entitled pursuant to the terms
of the Texas Utilities Offer will be converted, without charge, from pounds
sterling to US dollars at the exchange rate obtainable by the relevant payment
agent (either the United Kingdom Receiving Agent or the US Depositary) on the
spot market in London at approximately noon (London time) on the date the cash
consideration is made available by TU Acquisitions to the relevant payment agent
for delivery in respect of the relevant Energy Group Shares. A holder of Energy
Group Shares may receive such amount on the basis set out above only in respect
of the whole of any cash amounts payable to him under the Texas Utilities Offer.
Holders of Energy Group Securities may not elect to receive both pounds sterling
and US dollars. Unless they elect to receive pounds sterling, holders of Energy
Group ADSs will receive any such cash consideration converted into US dollars as
described above, as if such holders of Energy Group ADSs had elected to receive
US dollars. Consideration in US dollars may be inappropriate for holders of
Energy Group Securities other than persons in the US and holders of Energy Group
ADSs.
THE ACTUAL AMOUNT OF US DOLLARS RECEIVED WILL DEPEND UPON THE EXCHANGE RATE
PREVAILING ON THE BUSINESS DAY ON WHICH FUNDS ARE MADE AVAILABLE TO THE RELEVANT
PAYMENT AGENT BY TU ACQUISITIONS. HOLDERS OF ENERGY GROUP SECURITIES SHOULD BE
AWARE THAT THE US DOLLAR/POUNDS STERLING EXCHANGE RATE WHICH IS PREVAILING AT
THE DATE ON WHICH AN ELECTION IS MADE OR DEEMED TO BE MADE TO RECEIVE DOLLARS
AND ON THE DATES OF DESPATCH AND RECEIPT OF PAYMENT MAY BE DIFFERENT FROM THAT
PREVAILING ON THE BUSINESS DAY ON WHICH FUNDS ARE MADE AVAILABLE TO THE RELEVANT
PAYMENT AGENT BY TU ACQUISITIONS. IN ALL CASES, FLUCTUATIONS IN THE US DOLLAR/
POUNDS STERLING EXCHANGE RATE ARE AT THE RISK OF ACCEPTING HOLDERS OF ENERGY
GROUP SECURITIES WHO ELECT OR ARE TREATED AS HAVING ELECTED TO RECEIVE THEIR
CONSIDERATION IN US DOLLARS. NEITHER TU ACQUISITIONS NOR ANY OF ITS ADVISERS OR
AGENTS SHALL HAVE RESPONSIBILITY WITH RESPECT TO THE ACTUAL AMOUNT OF CASH
CONSIDERATION PAYABLE OTHER THAN IN POUNDS STERLING.
20 FURTHER INFORMATION
Your attention is drawn to Appendix I to this document, which contains the
Conditions and further terms and information and forms part of this document and
to the other Appendices to this document which contain important information in
connection with the Texas Utilities Offer and form part of this document and to
the accompanying Acceptance Form.
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21 ACTION TO BE TAKEN
YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED FORM OF ACCEPTANCE OR
LETTER OF TRANSMITTAL (AS APPROPRIATE) AS SOON AS POSSIBLE, BUT IN ANY EVENT SO
AS TO ARRIVE BY NO LATER THAN 10.00 PM (LONDON TIME), 5.00 PM (NEW YORK CITY
TIME) ON 7 APRIL 1998.
Yours faithfully
<TABLE>
<S> <C>
Richard Collier Justin Dowley
Managing Director Managing Director
Lehman Brothers Merrill Lynch
</TABLE>
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APPENDIX I
CONDITIONS AND FURTHER TERMS OF THE TEXAS UTILITIES OFFER
PART A
CONDITIONS OF THE TEXAS UTILITIES OFFER
The Texas Utilities Offer, which is being made by Lehman Brothers and Merrill
Lynch on behalf of TU Acquisitions, will comply with the rules and regulations
of the City Code and with US federal securities laws (except to the extent that
exemptive relief has been granted by the SEC) and the rules and regulations made
thereunder, is governed by English law and is subject to the jurisdiction of the
courts of England and the following Conditions:
(a) valid acceptances being received (and not, where permitted, withdrawn) by
not later than 10.00 pm (London time), 5.00 pm (New York City time) on 7
April 1998 (or such later time(s) and/or date(s) as TU Acquisitions may,
subject to the rules and regulations of the City Code, decide) in respect
of not less than 90 per cent. in nominal value of Energy Group Shares
(including Energy Group Shares represented by Energy Group ADSs) to which
the Texas Utilities Offer relates (or such lesser percentage as TU
Acquisitions may decide), provided that this Condition shall not be
satisfied unless TU Acquisitions and its wholly-owned subsidiaries shall
have acquired or agreed to acquire, whether pursuant to the Texas Utilities
Offer or otherwise, Energy Group Shares (including Energy Group Shares
represented by Energy Group ADSs) carrying in aggregate more than 50 per
cent. of the voting rights then exercisable at general meetings of The
Energy Group and provided further that this Condition shall be capable of
being satisfied only at a time when all other Conditions have been
satisfied, fulfilled or waived. For the purposes of this Condition: (A) any
Energy Group Shares (including Energy Group Shares represented by Energy
Group ADSs) which have been unconditionally allotted shall be deemed to
carry the voting rights they will carry upon being entered in the register
of members of The Energy Group; (B) the expression "Energy Group Shares
(including Energy Group Shares represented by Energy Group ADSs) to which
the Texas Utilities Offer relates" shall be construed in accordance with
sections 428 to 430F of the Companies Act; and (C) valid acceptances shall
be treated as having been received in respect of any Energy Group Shares
which TU Acquisitions shall, pursuant to section 429(8) of the Companies
Act, be treated as having acquired or contracted to acquire by virtue of
acceptances of the Texas Utilities Offer;
(b) the Peabody Sale Agreement becoming unconditional in all respects (except
for any condition or conditions relating to the Texas Utilities Offer
becoming unconditional in all respects) and not being amended or varied
without the prior approval of TU Acquisitions;
(c) an announcement being made in terms reasonably satisfactory to TU
Acquisitions that it is not the intention of the Secretary of State for
Trade and Industry to refer the Acquisition, or any matters arising from
it, to the Monopolies and Mergers Commission;
(d) the DGES indicating in terms reasonably satisfactory to TU Acquisitions
that it is not his intention to seek modifications to any of Eastern's
licences under the Electricity Act 1989 (except on terms reasonably
satisfactory to TU Acquisitions);
(e) the DGES indicating in terms reasonably satisfactory to TU Acquisitions
that he will not seek undertakings or assurances from any member of the TU
Acquisitions Group or the TEG Group (except on terms reasonably
satisfactory to TU Acquisitions) and that in connection with the
Acquisition he will seek or agree to such modifications (if any) and such
other consents and/or directions (if any) as are in the reasonable opinion
of TU Acquisitions necessary or appropriate with respect to the licences
referred to in Condition (d);
(f) the waiting period applicable to the Texas Utilities Offer under the US HSR
Act having expired or been terminated;
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(g) no relevant authority having intervened in a way which would be likely, or
having failed to institute or implement any action the failure of which
would be likely (to an extent which is, in the case of (i) to (iv) below,
material in the context of the TU Acquisitions Group or of the TEG Group or
of the financing of the Texas Utilities Offer):
(i) to require, prevent or delay the divestiture or materially alter the
terms of any proposed divestiture by TU Acquisitions or The Energy
Group or any member of the TU Acquisitions Group or the wider TEG
Group of all or any portion of their respective businesses, assets or
properties or impose any limitation on the ability of any of them to
conduct any of their respective businesses or to own any of their
respective assets or property or any part thereof;
(ii) to impose any limitation on the ability of any member of the TU
Acquisitions Group or the wider TEG Group to acquire, or to hold or
to exercise effectively, directly or indirectly, any rights of
ownership in respect of shares in, or management control over, any
member of the wider TEG Group;
(iii) otherwise adversely to affect the financial or trading position of
any member of the TU Acquisitions Group or the wider TEG Group;
(iv) to make the Texas Utilities Offer or its implementation or the
acquisition or the proposed acquisition of any Energy Group Shares or
Energy Group ADSs or control of The Energy Group by any member of the
TU Acquisitions Group void, illegal and/or unenforceable, or
otherwise, directly or indirectly, to restrain, restrict, prohibit,
delay or otherwise interfere with the implementation thereof, or
impose additional conditions or obligations with respect thereto, or
otherwise challenge or hinder any thereof;
(v) to result in a delay in the ability of any member of the TU
Acquisitions Group, or render any such person unable, to acquire some
or all of the Energy Group Shares or Energy Group ADSs or require or
prevent or materially delay divestiture by any such person of any
such securities; or
(vi) to require any member of the TU Acquisitions Group or the wider TEG
Group to offer to acquire any shares or other securities (or the
equivalent) in any member of the wider TEG Group owned by any third
party;
and all applicable waiting and other time periods during which any relevant
authority could, in respect of the Texas Utilities Offer or the acquisition
or proposed acquisition of any Energy Group Shares or Energy Group ADSs or
control of The Energy Group by TU Acquisitions, intervene having expired,
lapsed or terminated;
(h) all necessary filings having been made, all regulatory and statutory
obligations having been complied with, all appropriate waiting periods
under any applicable legislation or regulations of any jurisdiction having
expired, lapsed or terminated in each case in respect of the Texas
Utilities Offer or the acquisition of any shares or other securities in, or
control of, The Energy Group by any member of the TU Acquisitions Group and
all authorisations and determinations necessary or appropriate in any
jurisdiction for or in respect of the Texas Utilities Offer (including,
without limitation, its implementation and financing) or proposed
acquisition of any shares or other securities in, or control of, The Energy
Group by any member of the TU Acquisitions Group or in relation to the
affairs of any member of the TU Acquisitions Group or the wider TEG Group
having been obtained in terms and in a form reasonably satisfactory to TU
Acquisitions from all relevant authorities or (without prejudice to the
generality of the foregoing) from any persons or bodies with whom any
member of the TU Acquisitions Group or the wider TEG Group, as the case may
be, has entered into contractual arrangements and such authorisations and
determinations together with all material authorisations and determinations
necessary or appropriate for any member of the TU Acquisitions Group or the
wider TEG Group to carry on a business which is material in the context of
the TU Acquisitions Group or the TEG Group as a whole or of the financing
of the Texas Utilities Offer remaining in full force and effect and all
filings necessary for such purpose having been made and there being no
notice or intimation of any intention to revoke or not to renew any of the
same and all necessary statutory or regulatory obligations in all relevant
jurisdictions having been complied with;
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(i) TU Acquisitions not having discovered (other than by virtue of the same
having been disclosed to it prior to 2 March 1998 by any member of the TEG
Group) any provision of any agreement, arrangement, licence or other
instrument to which any member of the wider TEG Group is a party or by or
to which any member of the wider TEG Group or any part of its assets may be
bound, entitled or subject which would be likely, as a result of the Texas
Utilities Offer, the proposed acquisition by TU Acquisitions of any shares
in, or change in the control or management of, The Energy Group or
otherwise, to result in (to an extent which is material in the context of
the TU Acquisitions Group or the wider TEG Group as a whole or of the
financing of the Texas Utilities Offer):
(i) any moneys borrowed by or any other indebtedness, actual or
contingent, of any member of the wider TEG Group being or becoming
repayable or capable of being declared repayable immediately or prior
to its stated maturity, or the ability of any such member to borrow
moneys or incur any indebtedness being withdrawn or inhibited;
(ii) any such agreement, arrangement, licence or instrument being
terminated or adversely modified or any obligation or liability
arising or any action being taken or arising thereunder;
(iii) the rights, liabilities, obligations or interests of any member of
the wider TEG Group under any such arrangement, agreement, licence or
instrument or the interests or business of any such member in or with
any other person, firm, company or body (or any arrangements relating
to any such interests or business) being terminated or adversely
modified or affected;
(iv) any assets or interests of any such member being or becoming liable
to be disposed of or charged, or any right arising under which any
such asset or interest is required or is likely to be required to be
disposed of or charged, in each case other than in the ordinary
course of business;
(v) the creation of any mortgage, charge or other security interest over
the whole or any part of the business, property or assets of any
member of the wider TEG Group or any such security interest, whenever
arising or having arisen, becoming enforceable;
(vi) the creation of liabilities for any member of the wider TEG Group
other than in the ordinary course of business; or
(vii) the financial or trading position of any member of the wider TEG
Group being prejudiced or adversely affected;
(j) TU Acquisitions not having discovered, save as publicly announced by The
Energy Group in accordance with the Listing Rules prior to 2 March 1998, or
as disclosed to it prior to that date by any member of the TEG Group, that
any member of the wider TEG Group has, since 31 December 1997 to an extent
which is material in the context of the TEG Group as a whole or of the
financing of the Texas Utilities Offer:
(i) save to any member of the TEG Group and save for the issue of Energy
Group Securities on the exercise of options granted under any of the
Energy Group Share Schemes prior to 2 March 1998, issued or agreed to
issue or authorised or proposed the issue of additional shares of any
class, or of securities convertible into, or rights, warrants or
options to subscribe for or acquire, any such shares or convertible
securities or redeemed, purchased or reduced any part of its share
capital;
(ii) recommended, declared, paid or made or proposed to recommend,
declare, pay or make any bonus, dividend or other distribution in
respect of the share capital of The Energy Group;
(iii) merged with any body corporate or acquired or disposed of or
transferred, mortgaged or charged or created any security interest
over any assets or any right, title or interest in any assets
(including shares and trade investments) or authorised or proposed or
announced any intention to propose a merger, demerger, acquisition,
disposal, transfer, mortgage, charge or security interest (in each
case, other than in the ordinary course of business);
(iv) made or authorised or proposed or announced an intention to propose
any change in its share or loan capital save for options granted
under any of the Energy Group Share Schemes prior to 2 March 1998 and
for any Energy Group Securities allotted upon exercise of such
options;
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(v) issued, authorised or proposed or announced an intention to propose
the issue of any debentures or (save in the ordinary course of
business) incurred or increased any indebtedness or contingent
liability;
(vi) otherwise than in the ordinary course of business, entered into any
contract, reconstruction, amalgamation, commitment or other
transaction or arrangement or (save for changes in remuneration
notified to TU Acquisitions prior to 2 March 1998) changed the terms
of any contract with any Director of The Energy Group;
(vii) save in the ordinary course of business, entered into or varied any
contract, transaction or commitment (whether in respect of capital
expenditure or otherwise) which is of a long-term, onerous or unusual
nature or magnitude or which involves or could involve an obligation
of such a nature or magnitude;
(viii)waived or compromised any claim otherwise than in the ordinary course
of business;
(ix) taken any corporate action or had any order made for its winding-up,
dissolution or reorganisation or for the appointment of a receiver,
administrator, administrative receiver, trustee or similar officer of
all or any of its assets or revenues; or
(x) entered into any contract, commitment, agreement or arrangement or
passed any resolution with respect to, or announced an intention to,
or to propose to effect, any of the transactions, matters or events
referred to in this Condition;
(k) since 31 December 1997, save as publicly announced in accordance with the
Listing Rules by The Energy Group prior to 2 March 1998 or as otherwise
disclosed to TU Acquisitions prior to that date by any member of the TEG
Group, none of the following having occurred to an extent which is material
in the context of the wider TEG Group as a whole or of the financing of the
Texas Utilities Offer:
(i) any adverse change or deterioration in the business, assets,
financial or trading position of any member of the wider TEG Group;
(ii) any litigation or arbitration proceedings, prosecution or other legal
proceedings having been instituted or threatened in writing by or
against or remaining outstanding against any member of the wider TEG
Group or to which any member of the wider TEG Group is a party
(whether as plaintiff, defendant or otherwise) and any investigation
by any relevant authority against, or in respect of any member of the
wider TEG Group having been threatened in writing, announced or
instituted or remaining outstanding by, against or in respect of any
member of the wider TEG Group; and
(iii) a contingent or other liability of any member of the wider TEG Group
having arisen which would be likely adversely to affect any member of
the wider TEG Group;
(l) TU Acquisitions not having discovered:
(i) that any financial, business or other information which has been
publicly disclosed at any time by or on behalf of any member of the
wider TEG Group is materially misleading, contains a material
misrepresentation of fact or omits to state a fact necessary to make
the information contained therein not misleading and which in any
such case is material in the context of the wider TEG Group taken as
a whole or of the financing of the Texas Utilities Offer; or
(ii) that any member of the wider TEG Group was, at the date of the Energy
Group Listing Particulars, or has, outside the ordinary course of
business since that date, become subject to any liability (contingent
or otherwise) which is not disclosed or referred to in the Energy
Group Listing Particulars and which is material in the context of the
wider TEG Group taken as a whole or of the financing of the Texas
Utilities Offer; and
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(m) save as publicly announced in accordance with the Listing Rules by The
Energy Group prior to 2 March 1998 or as otherwise disclosed to it prior to
that date by any member of the TEG Group, TU Acquisitions not having
discovered:
(i) that any past or present member of the wider TEG Group has not
complied with all applicable legislation or regulations of any
jurisdiction with regard to the disposal, discharge, spillage, leak
or emission of any waste or hazardous substance or any substance
likely to impair the environment or harm human health, which
non-compliance or any other disposal, discharge, spillage, leak or
emission which has occurred would be likely to give rise to any
liability (whether actual or contingent) on the part of any member of
the wider TEG Group and which is material in the context of the wider
TEG Group taken as a whole or of the financing of the Texas Utilities
Offer; or
(ii) that there is, or is likely to be, any liability (whether actual or
contingent) to make good, repair, reclaim, remediate, reinstate or
clean up property now or previously owned, occupied or made use of by
any past or present member of the wider TEG Group under any
legislation, regulation, notice, circular or order of any relevant
authority relating to the protection of or enhancement of the
environment and which is material in the context of the wider TEG
Group taken as a whole or of the financing of the Texas Utilities
Offer.
For the purposes of these Conditions:
(A) "AUTHORISATIONS" mean authorisations, orders, grants, recognitions,
certifications, confirmations, consents, licences, clearances, permissions
and approvals;
(B) the "TU ACQUISITIONS GROUP" means Texas Utilities and its subsidiary
undertakings, associated undertakings and any other undertaking in which
Texas Utilities and such undertakings (aggregating their interests) have a
substantial interest and, for the purposes of this sub-paragraph (B) and
sub-paragraph (C) below, "SUBSIDIARY UNDERTAKING", "ASSOCIATED
UNDERTAKING", "HOLDING COMPANY" and "UNDERTAKING" have the meanings given
by the Companies Act (but for this purpose ignoring paragraph 20(1)(b) of
Schedule 4A of the Companies Act) and "SUBSTANTIAL INTEREST" means a direct
or indirect interest in 20 per cent. or more of the equity capital of an
undertaking;
(C) the "WIDER TEG GROUP" means The Energy Group and its subsidiary
undertakings, associated undertakings and any other undertakings in which
The Energy Group and such undertakings (aggregating their interests) have a
substantial interest;
(D) "RELEVANT AUTHORITY" means any government, government department or
governmental, quasi-governmental, supranational, statutory or regulatory
body, court, trade agency, professional association or institution or
environmental body in any jurisdiction; and
(E) a relevant authority shall be regarded as having "INTERVENED" if it has
instituted, implemented or threatened to take any action, proceedings,
suit, investigation or enquiry or reference, or made, enacted or proposed
any statute, regulation, decision or order and "INTERVENE" shall be
construed accordingly.
TU Acquisitions will not invoke either of Conditions (d) or (e) in respect of
the DGES seeking, or indicating that it is his intention to seek, modifications
to any of the TEG Group's licences under the Electricity Act 1989 or
undertakings or assurances from any member of the TU Acquisitions Group or the
TEG Group provided that such modifications undertakings or assurances
substantially reflect the assurances proposed by the DGES to PacifiCorp in
connection with the referral of the Original PacifiCorp Offer to the Monopolies
and Mergers Commission (as described in the Monopolies and Mergers Commission
Report relating to the Original PacifiCorp Offer published on 19 December 1997)
or are substantially in keeping with the proposals outlined by the DGES in his
consultation paper dated 24 February 1998 regarding modifications to public
electricity supply licences following takeovers.
TU Acquisitions reserves the right to waive, in whole or in part, all or any of
Conditions (b) to (m) inclusive. TU Acquisitions reserves the right, subject to
the consent of the Panel, to extend the time required under the City Code for
satisfaction of Condition (a) until such time as Conditions (b) to (m) inclusive
have been
I-5
<PAGE> 40
satisfied, fulfilled or waived. TU Acquisitions shall be under no obligation to
waive or treat as satisfied any of the Conditions (b) to (m) inclusive by a date
earlier than the latest date specified below for the satisfaction thereof,
notwithstanding that the other Conditions may at such earlier date have been
waived or fulfilled and that there are at such earlier date no circumstances
indicating that any such Conditions may not be capable of fulfilment.
If TU Acquisitions is required to make an offer for Energy Group Securities
under the provisions of Rule 9 of the City Code, TU Acquisitions may make such
alterations to any of the Conditions, including Condition (a), as are necessary
to comply with that Rule.
The Texas Utilities Offer will lapse unless all the Conditions set out above are
fulfilled or (if capable of waiver) waived or, where appropriate, have been
determined by TU Acquisitions in its reasonable opinion to be or to remain
satisfied no later than the Initial Closing Date (as it may be extended). The
Texas Utilities Offer will also lapse if the Acquisition is referred to the
Monopolies and Mergers Commission before the Initial Closing Date (as it may be
extended). The Initial Closing Date cannot be extended beyond midnight (London
time), 7.00 pm (New York City time) on 9 May 1998, except with the consent of
the Panel.
The Condition in paragraph (b) of this Appendix I is not expected to be
fulfilled before the date falling 30 Business Days after the posting of this
Offer Document.
I-6
<PAGE> 41
PART B
FURTHER TERMS OF THE TEXAS UTILITIES OFFER
The following further terms apply, where the context permits, to the Texas
Utilities Offer.
1 ACCEPTANCE PERIOD
(a) The Texas Utilities Offer will initially be open until 10.00 pm (London
time), 5.00 pm (New York City time) on 7 April 1998. TU Acquisitions
expressly reserves the right (but will not be obliged, other than as may be
required by the City Code or US federal securities laws and the rules and
regulations thereunder) at any time or from time to time to extend the Texas
Utilities Offer after the Initial Closing Date and, in such event, will make
a public announcement of such extension in the manner described in paragraph
2 below and give oral or written notice of such extension to the United
Kingdom Receiving Agent and the US Depositary. TU Acquisitions may terminate
any such extension (other than an extension required by the City Code or US
federal securities laws and the rules and regulations thereunder) prior to
its scheduled expiry if all Conditions have been satisfied or, where
permitted, waived. If all Conditions have not been satisfied, fulfilled or,
where permitted, waived by TU Acquisitions by 10.00 pm (London time), 5.00
pm (New York City time) on the Initial Closing Date, TU Acquisitions
currently intends, subject to the rules of the City Code, to extend the
Texas Utilities Offer until such time as all Conditions have been satisfied,
fulfilled or, where permitted, waived. There can be no assurance, however,
that TU Acquisitions will, in such circumstances, extend the Texas Utilities
Offer and, if no such extension is made, the Texas Utilities Offer will
lapse on the Initial Closing Date and no Energy Group Securities will be
purchased pursuant to the Texas Utilities Offer.
(b) Although no revision is envisaged, if the Texas Utilities Offer is revised,
the Initial Offer Period will be extended, if necessary, for a period of at
least 14 calendar days from the date of posting of the revised Texas
Utilities Offer to holders of Energy Group Securities. Except with the
consent of the Panel, no revision of the Texas Utilities Offer may be made
after 25 April 1998.
(c) The Initial Offer Period cannot (except with the consent of the Panel) be
extended beyond midnight (London time), 7.00 pm (New York City time) on 9
May 1998 (or any earlier time and/or date beyond which TU Acquisitions has
stated that the Texas Utilities Offer will not be extended and in respect of
which it has not withdrawn that statement). If all Conditions are not
satisfied, fulfilled or, where permitted, waived at such time (taking
account of any prescribed extension of the Initial Offer Period), the Texas
Utilities Offer will lapse in the absence of a competing bid and/or unless
the Panel agrees otherwise. If the Texas Utilities Offer lapses for any
reason, the Texas Utilities Offer shall cease to be capable of further
acceptance and TU Acquisitions and holders of Energy Group Securities shall
cease to be bound by prior acceptances. TU Acquisitions reserves the right,
if appropriate, to seek the Panel's approval to extend the final date for
expiry of the Initial Offer Period to 30 May 1998, or such later date as the
Panel may agree. Except with the consent of the Panel, TU Acquisitions may
not, for the purposes of determining whether the Acceptance Condition has
been satisfied, take into account acceptances or purchases of Energy Group
Securities made after 1.00 pm (London time), 8.00 am (New York City time) on
9 May 1998 (or any other time or date beyond which TU Acquisitions has
stated that the Texas Utilities Offer will not be extended and in respect of
which it has not withdrawn that statement) or such later time and/or date as
TU Acquisitions, with the permission of the Panel, may determine.
(d) If all Conditions are satisfied, fulfilled or, where applicable, waived and
the Initial Offer Period expires, the Texas Utilities Offer will remain open
for acceptance for the Subsequent Offer Period of not less than 14 calendar
days from the expiry of the Initial Offer Period. If it is stated that the
Texas Utilities Offer will remain open until further notice, then not less
than 14 calendar days' notice will be given prior to the closing of the
Subsequent Offer Period.
(e) If a competitive situation arises after a no extension and/or a no increase
statement has been made by or on behalf of TU Acquisitions in relation to
the Texas Utilities Offer, TU Acquisitions may, if it has specifically
reserved the right to do so at the same time as such statement is made (or
otherwise with the
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<PAGE> 42
consent of the Panel), withdraw such statement and be free to extend the
Texas Utilities Offer if it announces such withdrawal within four Business
Days after the announcement of the competing offer and gives notice to the
holders of Energy Group Securities to that effect in writing or (in the
case of holders of Energy Group Securities with registered addresses
outside the United Kingdom or the United States or whom TU Acquisitions
knows to be nominees, trustees or custodians holding Energy Group
Securities for such persons) by announcement in the United Kingdom and in
the United States at the earliest opportunity. TU Acquisitions may choose
not to be bound by the terms of a no extension and/or a no increase
statement if it would otherwise prevent the posting of an increased or
improved Texas Utilities Offer, (i) if it has reserved the right to do so,
and the increased or improved Texas Utilities Offer is recommended for
acceptance by the Board of Directors of The Energy Group or (ii) with the
consent of the Panel.
(f) For the purposes of determining whether the Acceptance Condition has been
satisfied, TU Acquisitions will not be bound (unless otherwise required by
the Panel) to take into account any Energy Group Securities which have been
issued or unconditionally allotted, or which arise as the result of the
exercise of conversion rights, before that determination takes place,
unless written notice containing relevant details of the allotment, issue
or conversion has been received from The Energy Group or its agents before
that time by TU Acquisitions or The Royal Bank of Scotland plc or The Bank
of New York on behalf of TU Acquisitions at one of the addresses specified
at the end of this document. Notification by telex or facsimile or other
electronic transmission will not be sufficient.
(g) In accordance with an SEC exemptive order received by TU Acquisitions, at
least five Business Days prior to any reduction in the percentage of Energy
Group Securities required to satisfy the Acceptance Condition, TU
Acquisitions will announce that it has reserved the right so to reduce the
Acceptance Condition. TU Acquisitions will not make such an announcement
unless TU Acquisitions believes there is a significant possibility that
sufficient Energy Group Securities will be tendered to permit the
Acceptance Condition to be satisfied at such reduced level. Holders of
Energy Group Securities who are not willing to accept the Texas Utilities
Offer if the Acceptance Condition is reduced to the minimum permitted level
should either not accept the Texas Utilities Offer until the Subsequent
Offer Period or be prepared to withdraw their acceptance promptly following
an announcement by TU Acquisitions of its reservation of the right to
reduce the Acceptance Condition.
2 ANNOUNCEMENTS
(a) Without prejudice to paragraph 3 ("Rights of withdrawal") below, by 8.30 am
(London time) in the United Kingdom and 8.30 am (New York City time) in the
United States on the Business Day (the "relevant day") next following the
day on which the Texas Utilities Offer is due to expire or on which all
Conditions become or are declared to have been satisfied, fulfilled or,
where applicable, waived or on which the Texas Utilities Offer is revised
or extended (or such later time and/or date as the Panel may agree), TU
Acquisitions will make an appropriate announcement and inform the London
Stock Exchange and the Dow Jones News Service, respectively, of the
position regarding the Texas Utilities Offer. Such announcements will
(unless otherwise permitted by the Panel) also state the total number of
Energy Group Securities and rights over Energy Group Securities (as nearly
as practicable):
(i) for which acceptances of the Texas Utilities Offer have been received
(showing the extent, if any, to which such acceptances have been
received from persons acting or deemed to be in concert with TU
Acquisitions);
(ii) acquired or agreed to be acquired by or on behalf of TU Acquisitions
and any person acting or deemed to be in concert with TU
Acquisitions; and
(iii) held prior to the Initial Offer Period by or on behalf of TU
Acquisitions and any persons acting or deemed to be in concert with
it;
and will specify the percentages of Energy Group Securities represented by
each of these figures.
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<PAGE> 43
In computing the numbers of Energy Group Securities represented by
acceptances and/or purchases for the above purposes, only those acceptances
and/or purchases permitted to be counted towards fulfilling the Acceptance
Condition in accordance with paragraph 13 ("Certain provisions concerning
acceptances") below shall be included in the totals.
(b) Any decision to extend the Initial Offer Period may be made at any time up
to, and will be announced not later than, 8.30 am (London time) in the
United Kingdom and 8.30 am (New York City time) in the United States on the
relevant day (or such later time and/or date as the Panel may agree) and
the announcement will state the next expiry date of the Initial Offer
Period.
(c) References to the making of an announcement by or on behalf of TU
Acquisitions include the release of an announcement by TU Acquisitions, by
public relations consultants retained by TU Acquisitions, or by Lehman
Brothers or Merrill Lynch, to the press and the delivery by hand or
telephone, facsimile or telex transmission or other electronic transmission
of an announcement to the London Stock Exchange and the Dow Jones News
Service, as the case may be. An announcement made otherwise than to the
London Stock Exchange will be notified simultaneously to the London Stock
Exchange.
(d) Without limiting the manner in which TU Acquisitions may choose to make any
public announcement and, subject to TU Acquisitions' obligations under
applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange
Act relating to TU Acquisitions' obligation to disseminate promptly public
announcements concerning material changes to the Texas Utilities Offer), TU
Acquisitions will have no obligation to publish, advertise or otherwise
communicate any such public announcement other than by making a release to
the London Stock Exchange and the Dow Jones News Service.
3 RIGHTS OF WITHDRAWAL
(a) Except as otherwise provided in this paragraph, tenders of Energy Group
Securities and elections are irrevocable. Energy Group Securities tendered
pursuant to the Texas Utilities Offer may be withdrawn pursuant to the
procedures set out below at any time during the Initial Offer Period and in
certain other circumstances described below. Energy Group Securities
tendered during the Initial Offer Period and not validly withdrawn prior to
the Initial Closing Date, and Energy Group Securities tendered during the
Subsequent Offer Period, may not be withdrawn. Holders of Energy Group
Securities will not have withdrawal rights during the Subsequent Offer
Period, except in certain limited circumstances described below.
(b) If TU Acquisitions, having announced that the Acceptance Condition has been
satisfied, fails by 3.30 pm (London time), 10.30 am (New York City time) on
the relevant day (or such later time or date as the Panel may agree) to
comply with any of the relevant requirements relating to the Texas
Utilities Offer specified in paragraph 2(a) of this Part B of Appendix I
above, an accepting holder of Energy Group Securities may immediately after
that time withdraw his acceptance of the Texas Utilities Offer by written
notice given by post or by hand to The Royal Bank of Scotland plc or The
Bank of New York, at any of the relevant addresses specified at the end of
this document, in each case receiving such notice on behalf of TU
Acquisitions. This right of withdrawal may be terminated not less than
eight days after the relevant day by TU Acquisitions confirming, if that be
the case, that the Texas Utilities Offer is still unconditional and
complying with the other relevant requirements relating to the Texas
Utilities Offer specified in paragraph 2(a) of this Part B of Appendix I
above. If any such confirmation is given, the first period of 14 days
referred to in paragraph 1 (b) of this Part B of Appendix I above will run
from the date of that confirmation and compliance.
(c) If a no extension and/or a no increase statement is withdrawn in accordance
with paragraph 1(e) of this Part B of Appendix I above, any acceptance of
the Texas Utilities Offer made after the date of that statement may be
withdrawn thereafter in the manner referred to in paragraph 3(b) of this
Part B of Appendix I above, for a period of eight days following the date
on which the notice of the withdrawal of such statement is posted to
holders of Energy Group Securities.
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<PAGE> 44
(d) Subject to (b) above, to be effective, a written notice of withdrawal must
be received before the end of the Initial Offer Period by the party (either
the United Kingdom Receiving Agent or the US Depositary) to whom the
Acceptance Form was originally sent and must specify the name of the person
who has tendered the Energy Group Securities, the number of Energy Group
Securities to be withdrawn and (if certificates have been tendered) the
name of the registered holder of the relevant Energy Group Securities, if
different from the name of the person who tendered such Energy Group
Securities.
(e) In respect of Energy Group ADSs, if Energy Group ADRs have been delivered
or otherwise identified to the US Depositary, then, prior to the physical
release of such Energy Group ADRs, the serial numbers shown on such Energy
Group ADRs must be submitted and, unless the Energy Group ADSs evidenced by
such Energy Group ADRs have been tendered by an Eligible Institution or by
means of a Letter of Transmittal, the signatures on the notice of
withdrawal must be guaranteed by an Eligible Institution. If interests in
Energy Group ADSs evidenced by Energy Group ADRs have been delivered
pursuant to the procedures for book-entry transfer set out in paragraph 10
of this Part B of Appendix I below, any notice of withdrawal must also
specify the name and number of the account at the appropriate Book-Entry
Transfer Facility to be credited with the withdrawn Energy Group ADSs and
must otherwise comply with such Book-Entry Transfer Facility's procedures.
(f) Withdrawals of tendered Energy Group Securities may not be rescinded
(without TU Acquisitions' consent) and any Energy Group Securities properly
withdrawn and not properly re-tendered will thereafter be deemed not
validly tendered for the purposes of the Texas Utilities Offer. Withdrawn
Energy Group Securities may be subsequently re-tendered, however, by
following one of the procedures described in either paragraph 10 or
paragraph 11 of this Part B of Appendix I below, as the case may be, at any
time whilst the Texas Utilities Offer remains open.
(g) All questions as to the validity (including time of receipt) of any notice
of withdrawal will be determined by TU Acquisitions, whose determination
(except as required by the Panel) will be final and binding. None of TU
Acquisitions, The Energy Group, Lehman Brothers, Merrill Lynch, the US
Depositary, the United Kingdom Receiving Agent or any other person will be
under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give such
notification.
4 LIMITED SHARE ALTERNATIVE
(a) The Share Alternative is conditional upon:
(i) the Texas Utilities Offer becoming or being declared unconditional
in all respects;
(ii) New Texas Utilities Shares having been approved for listing, subject
to notice of issuance, on the NYSE, the CSE and the PSE; and
(iii) the Registration Statement remaining effective under the Securities
Act.
(b) If the conditions referred to in paragraphs 4(a)(ii) and (iii) above are
not satisfied at the time the Texas Utilities Offer becomes or is declared
unconditional in all respects, the Share Alternative will lapse and any
holder of Energy Group Securities who has elected for the Share Alternative
will be entitled to receive only the cash consideration payable under the
Texas Utilities Offer (and will be deemed not to have elected for the Share
Alternative).
(c) (i) The maximum aggregate number of Energy Group Securities in respect of
which valid elections for the Share Alternative shall be deemed to
have been made shall be limited, in such manner as TU Acquisitions may
decide, so that the total number of Energy Group Shares (including
Energy Group Shares represented by Energy Group ADSs) acquired by TU
Acquisitions other than for cash or for Loan Notes, whether pursuant
to the Texas Utilities Offer or otherwise (and having regard to the
maximum number of shares which may be issued as a result of the
exercise of options or subscription rights under the Energy Group
Share Schemes or otherwise and the maximum level of elections for New
Texas Utilities Shares which may be made by holders of Energy Group
Shares whose shares are acquired compulsorily under sections 428 to
430F
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<PAGE> 45
(inclusive) of the Companies Act), shall represent a maximum of 20 per
cent. of the total number of Energy Group Shares (including Energy
Group Shares represented by Energy Group ADSs) acquired by TU
Acquisitions pursuant to the Texas Utilities Offer or otherwise. To
the extent that total elections for the Share Alternative exceed or
may exceed this limit, elections will be scaled down on a pro rata
basis. For the purposes of applying the limit on the maximum aggregate
number of Energy Group Shares in respect of which valid elections for
the Share Alternative shall be deemed to have been made and scaling
down elections for the Share Alternative on a pro rata basis, each
election for the Share Alternative with respect to an Energy Group ADS
shall be deemed to be an election for the Share Alternative with
respect to four Energy Group Shares.
(ii)
The scaling down (if required) of elections for the Share Alternative
shall be calculated in accordance with the following formula:
<TABLE>
<S> <C> <C> <C>
A
X = N X ( ----- )
B + C
where X is the scaled down number of Energy Group Shares (including
Energy Group Shares represented by Energy Group ADSs) on the
basis of which the entitlement of an accepting Energy Group
Shareholder to receive New Texas Utilities Shares under the
Share Alternative will be calculated;
N is the number of Energy Group Shares (including Energy Group
Shares represented by Energy Group ADSs) in respect of which
such shareholder has elected for the Share Alternative;
A is 20 per cent. of the fully diluted number of Energy Group
Shares (including Energy Group Shares represented by Energy
Group ADSs), as determined by TU Acquisitions;
B is the total number of Energy Group Shares (including Energy
Group Shares represented by Energy Group ADSs) in respect of
which Energy Group Shareholders have elected for the Share
Alternative as at midnight (London time), 7.00 pm (New York
City time) on the date ten days after the Initial Closing
Date (as it may be extended); and
C is the fully diluted number of Energy Group Shares
(including Energy Group Shares represented by Energy Group
ADSs), as determined by TU Acquisitions, less the total
number of Energy Group Shares (including Energy Group Shares
represented by Energy Group ADSs) for which valid
acceptances have been received as at midnight (London Time),
7.00 pm (New York City time) on the date ten days after the
Initial Closing Date (as it may be extended).
</TABLE>
(c) The New Texas Utilities Shares will be issued free from all liens, charges
and other encumbrances or other equitable interests. New Texas Utilities
Shares will rank pari passu in all respects with existing shares of Texas
Utilities Common Stock, including the right to receive in full all
dividends, if any, and other distributions declared on such shares with a
record date after the date of issuance of such shares.
(d) No election for the Share Alternative will be valid unless both a valid
acceptance of the Texas Utilities Offer and a valid election for the Share
Alternative, duly completed in all respects and accompanied by, if
appropriate, all relevant share certificates and/or other document(s) of
title, are duly received by the time and date on which the Share
Alternative closes.
(e) If any acceptance of the Texas Utilities Offer which includes an election
for the Share Alternative is not, or is not deemed to be, valid or
complete in all respects at such time, such election shall for all
purposes be void and the holder(s) of Energy Group Securities purporting
to make such election shall not, for any purpose, be entitled to receive
New Texas Utilities Shares under the Share Alternative, but any such
acceptance which is otherwise valid shall be deemed to be an acceptance of
the Texas Utilities Offer (without the Share Alternative) for the number
of Energy Group Securities which are the subject of the acceptance and the
relevant holder(s) of Energy Group Securities will, on the Texas Utilities
Offer becoming unconditional in all respects, be entitled to receive such
cash consideration as shall become due under the Texas Utilities Offer.
(f) The Share Alternative will remain open for acceptance for as long as the
Texas Utilities Offer remains open for acceptance. An election for the
Share Alternative will be made on the terms and subject to the conditions
set out in this document and in the relevant Acceptance Form.
(g) Holders of Energy Group Securities who are entitled to receive New Texas
Utilities Shares pursuant to the Texas Utilities Offer may take advantage
of safekeeping services provided by Texas Utilities Shareholder Services
("Shareholder Services") with respect to such New Texas Utilities Shares.
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<PAGE> 46
Unless the person entitled to such New Texas Utilities Shares elects to
receive certificated securities, all New Texas Utilities Shares to which
such person is entitled will be held by Shareholder Services or its
nominee and credited to such person's account. There will be no charge for
safekeeping of the New Texas Utilities Shares by Shareholder Services.
An owner of New Texas Utilities Shares held by Shareholder Services may
request Shareholder Services at any time to sell all or a portion of his or
her New Texas Utilities Shares by delivering to Shareholder Services a
written request. Shareholder Services will instruct an independent broker
to sell such shares as soon as practicable after processing the request and
will transmit to the owner the proceeds of the sale (less brokerage fees
and commissions, any transfer taxes and a fee of $10 for each such
transfer).
Each owner of New Texas Utilities Shares held by Shareholder Services will
receive a receipt for such New Texas Utilities Shares from Shareholder
Services, together with information about other services provided by
Shareholder Services, mailed as soon as practicable after the end of the
Subsequent Offer Period. Thereafter, Shareholder Services will mail a
quarterly statement of account to each owner of New Texas Utilities Shares
held in safekeeping by Shareholder Services for such owner. Quarterly
statements are the owner's record of the shares of Texas Utilities Common
Stock held by Shareholder Services, including any sales or transfers
thereof, and should be retained for tax purposes.
Certificates for any number of whole New Texas Utilities Shares held by
Shareholder Services for an owner will be issued at no charge upon the
written request of such owner mailed to Shareholder Services. New Texas
Utilities Shares held by Shareholder Services may not be pledged. Any owner
who wishes to pledge such shares must request that certificates for the
shares be issued in such owner's name.
Cash dividends paid on New Texas Utilities Shares held by Shareholder
Services will be paid by cheque mailed to the owner, subject to any
required United States income tax withholding.
For additional information regarding the safekeeping services and available
options, please contact:
Texas Utilities Shareholder Services
P.O. Box 225249
Dallas, TX 75222-5249
(toll free telephone) (800) 828-0812
(local telephone) (214) 812-8100
5 LOAN NOTE ALTERNATIVE
(a) The Loan Note Alternative is conditional upon the Texas Utilities Offer
becoming or being declared unconditional in all respects.
(b) No election for the Loan Note Alternative will be valid unless both a valid
acceptance of the Texas Utilities Offer and a valid election for the Loan
Note Alternative, duly completed in all respects and accompanied by, if
appropriate, all relevant share certificates and/or other document(s) of
title, are duly received by the time and date on which the Loan Note
Alternative closes.
(c) If any acceptance of the Texas Utilities Offer which includes an election
for the Loan Note Alternative is not, and is not deemed to be, valid or
complete in all respects at such time, such election shall for all purposes
be void and the holder(s) of Energy Group Shares purporting to make such
election shall not, for any purpose, be entitled to receive the Loan Note
Alternative, but any such acceptance which is otherwise valid shall be
deemed to be an acceptance of the Texas Utilities Offer (without the Loan
Note Alternative) for the number of Energy Group Shares which are the
subject of the acceptance and the holder(s) of Energy Group Shares will, on
the Texas Utilities Offer becoming unconditional in all respects, be
entitled to receive the cash consideration due under the Texas Utilities
Offer.
(d) The Loan Note Alternative will remain open for acceptance for as long as
the Texas Utilities Offer remains open for acceptance.
(e) The Loan Note Alternative is not available to or for the account or benefit
of any US Person.
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<PAGE> 47
6 EFFECT OF ELECTIONS
(a) The completion of Box 3 on the Form of Acceptance or of the Limited Share
Election box in the Letter of Transmittal shall, subject to the other terms
of the Texas Utilities Offer, be treated as an election for the Share
Alternative summarised in paragraph 4 of the letter from Lehman Brothers
and Merrill Lynch set out earlier in this Offer Document and described in
paragraph 4 of Part B of Appendix I above and as an acknowledgement and
agreement by the relevant holder of Energy Group Securities that:
(i) he shall release and discharge TU Acquisitions from any obligation
pursuant to the Texas Utilities Offer to pay cash in respect of that
part of his holding of Energy Group Securities in respect of which he
is entitled to receive New Texas Utilities Shares (except any amount
of L3.00 or over payable as referred to in (ii) below and/or in
respect of a fractional entitlement to a New Texas Utilities Share)
and accepts the undertaking of Texas Utilities to issue to him the
New Texas Utilities Shares to which he is entitled pursuant to the
Share Alternative;
(ii) to the extent that such holder's election for the Share Alternative
is scaled down (in the manner referred to in paragraph 4 of Part B of
Appendix I above), such holder will, in relation to that part of his
holding for which his election for the Share Alternative is
unsuccessful, receive the cash consideration to which he is entitled,
in respect of that part of his holding, under the Texas Utilities
Offer as if he had not elected for the Share Alternative (other than
any amount which, when aggregated with any fractional entitlement to
a New Texas Utilities Share, is less than L3.00); and
(iii) if the conditions to the Share Alternative referred to in paragraphs
4(a)(ii) and (iii) of Part B of Appendix I above relating to the
listing of New Texas Utilities Shares and the Registration Statement
are not satisfied at the time the Texas Utilities Offer becomes or is
declared unconditional in all respects, the Share Alternative will
lapse and such holder will only be entitled to receive the cash
consideration payable under the Texas Utilities Offer (and will be
deemed not to have elected for the Share Alternative);
and shall also constitute the acceptance by such holder of an offer to him
by TU Acquisitions and Texas Utilities to enter into an agreement with TU
Acquisitions and Texas Utilities to the effect that:
(iv) he shall release and discharge TU Acquisitions from any obligation
pursuant to the Texas Utilities Offer to pay cash in respect of that
part of his holding of Energy Group Securities in respect of which he
is entitled to receive New Texas Utilities Shares (except any amount
of L3.00 or over payable in respect of a fractional entitlement to a
New Texas Utilities Share) and accepts the undertaking of Texas
Utilities to issue to him the New Texas Utilities Shares to which he
is entitled pursuant to the Share Alternative;
(v) Texas Utilities agrees to issue to such holder the New Texas
Utilities Shares to which such holder is entitled pursuant to the
Share Alternative; and
(vi) TU Acquisitions accepts the release and discharge of its liability to
pay cash consideration by such holder as specified in (iv) above and
agrees to pay to Texas Utilities an amount equal to the amount of the
cash consideration from the obligation to pay which such holder has
agreed to release and discharge TU Acquisitions.
(b) The insertion of a number in Box 4 on the Form of Acceptance shall, subject
to the other terms of the Texas Utilities Offer, be treated in respect of
the relevant number of Energy Group Shares as an election for the Loan Note
Alternative described in paragraph 5 of this Part B of Appendix I above.
(c) An election will not be valid unless the Acceptance Form is completed
correctly in all respects and is received in accordance with paragraph 10
("Procedures for tendering Energy Group ADSs") or paragraph 11 ("Procedures
for tendering Energy Group Shares") below.
(d) To allow TU Acquisitions to pay interest on the Loan Notes without
withholding US income tax, beneficial owners of Loan Notes must certify
that they are not US Persons for the purposes of US federal income tax laws
(see paragraph 13(b) of Appendix VIII below).
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(e) In the event that both Boxes 3 and 4 are completed on a Form of Acceptance,
any election for the Loan Note Alternative will only be effective to the
extent that the shareholder's election for the Share Alternative is scaled
down (in the manner referred to in paragraph 4 of Part B of Appendix I
above) so that there are a number of Energy Group Shares (the "residual
number") in respect of which the relevant shareholder has accepted the
Texas Utilities Offer but will not be entitled to receive New Texas
Utilities Shares. If, in such circumstances the number inserted or deemed
to be inserted in Box 4 on the Form of Acceptance is greater than the
residual number, the election for the Loan Note Alternative will be treated
as being made in respect of a number of Energy Group Shares equal to the
residual number.
7 REVISIONS OF THE TEXAS UTILITIES OFFER, THE LOAN NOTE ALTERNATIVE AND/OR THE
SHARE ALTERNATIVE
(a) Although no revision of the Texas Utilities Offer is envisaged, if the
Texas Utilities Offer (in its original or any previously revised form(s))
is revised (either in its terms or Conditions or in the value or form of
the consideration offered or otherwise) and any such revision represents,
on the date on which such revision is announced (on such basis as Lehman
Brothers and Merrill Lynch may consider appropriate) an improvement (or no
diminution) in the value of the consideration under the Texas Utilities
Offer as so revised compared with the value of the consideration previously
offered, the benefit of the revised Texas Utilities Offer will, subject as
provided in this paragraph 7 below, be made available to holders of Energy
Group Securities who have accepted the Texas Utilities Offer in its
original or any previously revised form(s) and not validly withdrawn such
acceptance (hereinafter called a "Previous Acceptor"). The acceptance by or
on behalf of a Previous Acceptor of the Texas Utilities Offer in its
original or any previously revised form(s) shall, subject as provided in
this paragraph 7 and in paragraph 10 or paragraph 11 of Part B of this
Appendix I below, be deemed to be an acceptance of the Texas Utilities
Offer as so revised and shall constitute the appointment of any director of
TU Acquisitions or of Lehman Brothers and/or Merrill Lynch as his attorney
and/or agent with authority to accept any such revised Texas Utilities
Offer on behalf of such Previous Acceptor and to make such elections as
those made by the Previous Acceptor in relation to the Texas Utilities
Offer in the Acceptance Form previously executed by him or on his behalf
and to execute on behalf of and in the name of such Previous Acceptor all
such further documents and take such further actions (if any) as may be
required to give effect to such acceptances and/or elections. In making any
such acceptance or making any such election, the attorney and/or agent will
take into account the nature of any previous acceptances and/or elections
made by or on behalf of the Previous Acceptor and such other facts or
matters as he may reasonably consider relevant.
(b) The authorities conferred by paragraph 7(a) of Part B of this Appendix I
above shall not be exercised by any director of TU Acquisitions or of
Lehman Brothers and/or Merrill Lynch, as the case may be, if, as a result
thereof, the Previous Acceptor would thereby receive less in cash than he
would have received as a result of his acceptance of the Texas Utilities
Offer (in its original or any previously revised form(s)) in the form in
which it was originally accepted by him and the exercise of the powers of
attorney so conferred by paragraph 7(a) of Part B of this Appendix I above
of any such Previous Acceptor shall be ineffective to the extent that such
Previous Acceptor shall lodge, within 14 calendar days of the posting of
the document pursuant to which the improved consideration referred to in
paragraph 7(a) of Part B of this Appendix I above is made available to
holders of Energy Group Securities, an Acceptance Form validly accepting
the Texas Utilities Offer in which he validly elects to receive the
consideration receivable by him in some other manner than that set out in
his original acceptance.
(c) TU Acquisitions reserves the right (subject to paragraph 7(a) of this Part
B of this Appendix I above) to treat an executed Acceptance Form relating
to the Texas Utilities Offer (in its original or any previously revised
form(s)) which is received (or dated) after the announcement or issue of
the Texas Utilities Offer in any revised form as a valid acceptance and/or
election of the revised Texas Utilities Offer and such acceptance shall
constitute an authority in the terms of paragraph 7(a) of Part B of this
Appendix I above, mutatis mutandis, on behalf of the relevant holder of
Energy Group Securities.
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8 GENERAL
(a) If the Texas Utilities Offer lapses, pursuant to the City Code, neither TU
Acquisitions nor any person acting or deemed to be acting in concert with
TU Acquisitions for the purpose of the Texas Utilities Offer nor any of
their respective affiliates may make an offer (whether inside or outside
the United Kingdom) for Energy Group Securities for a period of one year
following the date of such lapse, except with the consent of the Panel.
(b) Except with the consent of the Panel, settlement of the consideration to
which any holder of Energy Group Securities is entitled under the Texas
Utilities Offer will be implemented in full in accordance with the terms of
the Texas Utilities Offer without regard to any lien, right of set-off,
counterclaim or other analogous right to which TU Acquisitions may
otherwise be, or claim to be, entitled as against such holder of Energy
Group Securities. Consideration due to a holder of Energy Group Securities
who validly accepts the Texas Utilities Offer will (except with the consent
of the Panel) be despatched not later than 14 calendar days after the later
of the Initial Closing Date and the date of receipt of a valid and complete
acceptance from such holder of Energy Group Securities. Cash consideration
will be settled as described in paragraph 15 ("Settlement") below.
(c) Any omission or failure to despatch this document, the Acceptance Form, any
other document relating to the Texas Utilities Offer and/or any notice
required to be despatched under the terms of the Texas Utilities Offer to,
or any failure to receive the same by, any person to whom the Texas
Utilities Offer is made or should be made shall not invalidate the Texas
Utilities Offer in any way. Subject to the provisions of paragraph 9
("Overseas shareholders") below, the Texas Utilities Offer extends to any
such persons to whom this document, the Acceptance Form, and/or any related
offering document may not have been despatched or who may not receive such
documents and such persons may collect copies of those documents from
Lehman Brothers or Merrill Lynch.
(d) All powers of attorney, appointment of agents and authorities on the terms
conferred by or referred to in this Appendix I or in the Acceptance Form
are given by way of security for the performance of the obligations of the
holder of Energy Group Securities concerned and are irrevocable in
accordance with section 4 of the Powers of Attorney Act 1971, except in the
circumstances where the donor of such power of attorney or authority is
entitled to withdraw his acceptance in accordance with paragraph 3 ("Rights
of withdrawal") above and duly does so.
(e) If all Conditions are satisfied, fulfilled or, where permitted, waived and
TU Acquisitions acquires or contracts to acquire, pursuant to the Texas
Utilities Offer or otherwise, at least 90 per cent. in value of the Energy
Group Shares (including Energy Group Shares represented by Energy Group
ADSs) to which the Texas Utilities Offer relates before the end of the
period of four months beginning with the date of the Texas Utilities Offer,
it will be entitled to and intends to acquire the remaining Energy Group
Shares on the same terms as the Texas Utilities Offer pursuant to and
subject to sections 428 to 430F (inclusive) of the Companies Act.
Whether or not TU Acquisitions is in a position to effect the compulsory
acquisition of any outstanding Energy Group Shares in accordance with the
Companies Act as referred to above, and irrespective of the size of any
outstanding minority in The Energy Group, TU Acquisitions intends to seek
to procure, after the Texas Utilities Offer becomes or is declared
unconditional, an application by The Energy Group to the London Stock
Exchange for Energy Group Shares to be delisted and an application by The
Energy Group to the NYSE for Energy Group ADSs to be delisted.
(f) TU Acquisitions, Lehman Brothers and Merrill Lynch reserve the right to
notify any matter, including the making of the Texas Utilities Offer, to
all or any holders of Energy Group Securities with a registered address
outside the United Kingdom and the United States, or whom TU Acquisitions
knows to be a custodian, trustee or nominee holding Energy Group Securities
for persons in Canada, Australia, or Japan, by announcement in the United
Kingdom to the London Stock Exchange and in the United States to the Dow
Jones News Service or in any other appropriate manner, or by paid
advertisement in a newspaper published and circulated in the United Kingdom
and the United States, in which event such
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notice will be deemed to have been sufficiently given, notwithstanding any
failure by any such holders of Energy Group Securities to receive or see
such notice. All references in this document to notice in writing by or on
behalf of TU Acquisitions will be construed accordingly. No such document
will be sent to an address in Canada, Australia or Japan.
(g) The Texas Utilities Offer is being extended by means of an advertisement to
be inserted in the Financial Times (United Kingdom version only) on 10
March 1998 to all persons to whom this document or an Acceptance Form may
not be despatched (or by whom such documents may not be received) who hold
or are entitled to have allotted or issued to them Energy Group Securities.
(h) The terms, provisions, instructions and authorities contained in the
Acceptance Form constitute part of the terms of the Texas Utilities Offer.
Words and expressions defined in this document have the same meanings when
used in the Acceptance Form, unless the context otherwise requires.
(i) References to a holder of Energy Group Securities include references to the
person or persons executing any Acceptance Form and in the event of more
than one person executing an Acceptance Form, such references will apply to
them jointly and severally.
9 OVERSEAS SHAREHOLDERS
(a) The making of the Texas Utilities Offer in, or to certain persons who are
citizens, residents or nationals of, jurisdictions outside the United
Kingdom or the United States (and the availability of Loan Notes and/or New
Texas Utilities Shares to such persons and, in the case of Loan Notes, to
citizens or residents of the United States) may be prohibited or affected
by the laws of the relevant overseas jurisdiction. Holders of Energy Group
Securities who are citizens, residents or nationals of jurisdictions
outside the United Kingdom and the United States (and, in the case of Loan
Notes, the United Kingdom only) should inform themselves about and observe
any applicable legal requirements. It is the responsibility of any such
holder of Energy Group Securities wishing to accept the Texas Utilities
Offer, the Share Alternative or the Loan Note Alternative to satisfy
himself as to the full observance of the laws of the relevant jurisdiction
in connection therewith, including the obtaining of any governmental,
exchange control or other consents which may be required, compliance with
other necessary formalities and the payment of any issue, transfer or other
taxes or duties in such jurisdiction. Any such holder of Energy Group
Securities will also be responsible for payment of any issue, transfer or
other taxes or duties or other requisite payments due in such jurisdiction
by whomsoever payable and each of TU Acquisitions and Lehman Brothers,
Merrill Lynch and any person acting on their behalf shall be entitled to be
fully indemnified and held harmless by such holder of Energy Group
Securities for any issue, transfer or other taxes or duties as TU
Acquisitions, Lehman Brothers, Merrill Lynch or such person may be required
to pay.
(b) In particular, the Texas Utilities Offer is not being made, directly or
indirectly, in or into Canada, Australia or Japan, or by use of the mails
or any means or instrumentality (including, without limitation, facsimile
transmission, telex or telephone) of interstate or foreign commerce of, or
any facilities of a national securities exchange of, any of these
jurisdictions. Accordingly, copies of this document, the Acceptance Form
and any related offer documents are not being mailed or otherwise
distributed or sent in or into Canada, Australia or Japan. Persons
receiving such documents (including, without limitation, custodians,
nominees and trustees) must not distribute, send or mail them in, into or
from Canada, Australia or Japan or use any such means, instrumentality or
facilities in connection with the Texas Utilities Offer, and doing so may
render invalid any related purported acceptance of the Texas Utilities
Offer. Persons wishing to accept the Texas Utilities Offer must not use the
Canadian, Australian or Japanese mails or any such means, instrumentality
or facilities for any purpose directly or indirectly related to acceptance
of the Texas Utilities Offer. Envelopes containing the Acceptance Form must
not be postmarked in Canada, Australia or Japan or otherwise despatched
from these jurisdictions and all acceptors must provide addresses outside
Canada, Australia and Japan for the receipt of the consideration to which
they are entitled under the Texas Utilities Offer and which is despatched
by post or for the
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return of the Acceptance Form and (in relation to Energy Group Shares in
certificated form) any Energy Group Share certificate(s) and/or other
document(s) of title.
(c) The provisions of this paragraph 9 and/or other terms of the Texas
Utilities Offer relating to overseas holders of Energy Group Securities may
be waived, varied or modified as regards specific holders of Energy Group
Securities or on a general basis by TU Acquisitions in its absolute
discretion. References in this paragraph 9 to holders of Energy Group
Securities shall include references to the person or persons executing an
Acceptance Form and, in the event of more than one person executing an
Acceptance Form, the provisions of this paragraph 9 shall apply to them
jointly and severally.
(d) If, pursuant to the Texas Utilities Offer, any New Texas Utilities Shares
would otherwise be issued to any person(s) whom TU Acquisitions believes
would be unable to give the representation and warranty set out in
paragraph 12(l) of Part B of this Appendix I below, then such person(s)
shall be deemed to have given an authority to TU Acquisitions and its
agents, as agents and/or attorneys of such person(s) in respect of the New
Texas Utilities Shares to which such person(s) thereby become(s) entitled:
(i) to sell such shares on behalf of such holder in the market within 21
days of such shares being allotted, (ii) to receive the certificate(s)
and/or other document(s) of title therefor and to execute instrument(s) of
transfer in respect of such shares, and (iii) to remit the net proceeds of
such sale(s) (after deducting therefrom the expenses of sale) as soon as
reasonably practicable to the person or agent whose name and address is set
out in the relevant box in the Acceptance Form or, if no name is set out,
to the first-named holder at his registered address. Neither TU
Acquisitions nor any person acting on behalf of it shall have any liability
to any person for any loss or alleged loss arising from the price, timing
or manner of any sale made pursuant to the authority set out above or
otherwise in connection therewith.
(e) The New Texas Utilities Shares to be issued pursuant to the Share
Alternative will not be the subject of a prospectus under the securities
laws of any province of Canada. In addition, no steps have been taken, nor
will be taken, to enable the New Texas Utilities Shares to be offered in
Japan in compliance with applicable securities laws of Japan and no
prospectus in relation to the New Texas Utilities Shares has been, or will
be, lodged with or registered by the Australian Securities Commission, nor
will the New Texas Utilities Shares be registered under any relevant
securities laws of any other country. TU Acquisitions will not authorise
the delivery of any document(s) of title in respect of any New Texas
Utilities Shares falling to be allotted pursuant to the Texas Utilities
Offer to any address in Canada, Australia or Japan or to any person who is,
or whom TU Acquisitions has reason to believe is a person in Canada,
Australia or Japan or who, by completing Box 9 of the Form of Acceptance or
otherwise, does not give the warranty set out in paragraph 12(l) of this
Part B of Appendix I. Any holder of Energy Group Securities accepting the
Texas Utilities Offer who is a person in Canada, Australia or Japan or who
does not give such warranty shall be deemed not to have accepted the Share
Alternative.
(f) The Loan Notes to be issued pursuant to the Loan Note Alternative have not
been, and will not be, registered under the Securities Act or under any
relevant securities law of any state or district of the United States and
will not be the subject of a prospectus under the securities laws of any
province of Canada. In addition, no steps have been taken, or will be
taken, to enable the Loan Notes to be offered in Japan in compliance with
applicable securities laws of Japan and no prospectus in relation to the
Loan Notes has been, or will be, lodged with or registered by the
Australian Securities Commission, nor will the Loan Notes be registered
under any relevant securities laws of any other country. TU Acquisitions
will not authorise the delivery of any document(s) of title in respect of
any Loan Notes falling to be allotted pursuant to the Texas Utilities Offer
to any address in the United States, Canada, Australia or Japan or to any
person who is, or whom TU Acquisitions has reason to believe is, a US
Person or a person in Canada, Australia or Japan or who, by completing Box
9 of the Form of Acceptance or otherwise, does not give the warranty set
out in paragraph 12(l) of this Part B of Appendix I. Any holder of Energy
Group Securities accepting the Texas Utilities Offer who is a US Person or
a person in Canada, Australia or Japan or who does not give such warranty
shall be deemed not to have accepted the Loan Note Alternative.
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10 PROCEDURES FOR TENDERING ENERGY GROUP ADSS
(a) If you are a holder of Energy Group ADSs evidenced by Energy Groups ADRs,
you will have also received a Letter of Transmittal and Notice of
Guaranteed Delivery for use in connection with the Texas Utilities Offer.
This section should be read together with the instructions on the Letter of
Transmittal. The provisions of this section shall be deemed to be
incorporated in, and form a part of, the relevant Letter of Transmittal.
The instructions printed on the relevant Letter of Transmittal shall be
deemed to form part of the terms of the Texas Utilities Offer.
(b) For a holder of Energy Group ADSs evidenced by Energy Group ADRs to tender
such Energy Group ADSs validly pursuant to the Texas Utilities Offer,
either:
(i) a properly completed and duly executed Letter of Transmittal, together
with any required signature guarantees and any other required
documents (or Agent's Message in the case of book-entry transfers),
must be received by the US Depositary at one of its addresses set
forth on the back cover of this document and the Energy Group ADRs
evidencing such Energy Group ADSs must be either received by the US
Depositary at one of such addresses or delivered pursuant to the
procedures for book-entry transfers set out below (and a confirmation
of receipt of such transfer received by the US Depositary); or
(ii) such holder must comply with the "Guaranteed Delivery Procedures" (as
set forth in paragraph 10(h) below).
The Texas Utilities Offer in respect of Energy Group ADSs evidenced by Energy
Group ADRs shall be validly accepted by delivery of a Letter of Transmittal (or
Agent's Message in case of book-entry transfers), the relevant Energy Group ADRs
evidencing Energy Group ADSs and other required documents to the US Depositary
by holders of Energy Group ADSs (without any further action by the US
Depositary), subject to the terms and conditions set out in the Letter of
Transmittal. The acceptance of the Texas Utilities Offer by a tendering holder
of Energy Group ADSs evidenced by Energy Group ADRs pursuant to the procedures
described above, subject to the withdrawal rights described below, will be
deemed to constitute a binding agreement between such tendering holder of Energy
Group ADSs and TU Acquisitions upon the terms and subject to the Conditions of
the Texas Utilities Offer. IF AN ENERGY GROUP ADR EVIDENCING AN ENERGY GROUP ADS
HAS BEEN TENDERED BY A HOLDER OF ENERGY GROUP ADSS, THE ENERGY GROUP SHARES
REPRESENTED BY SUCH ENERGY GROUP ADSS MAY NOT BE TENDERED INDEPENDENTLY. A
LETTER OF TRANSMITTAL AND OTHER REQUIRED DOCUMENTS CONTAINED IN AN ENVELOPE
POSTMARKED IN CANADA, AUSTRALIA OR JAPAN OR OTHERWISE APPEARING TO TU
ACQUISITIONS OR ITS AGENTS TO HAVE BEEN SENT FROM CANADA, AUSTRALIA OR JAPAN MAY
BE REJECTED AS INVALID.
(c) BOOK-ENTRY TRANSFER
The US Depositary will establish an account at the Book-Entry Transfer
Facilities with respect to interests in Energy Group ADSs evidenced by
Energy Group ADRs held in book-entry form for the purposes of the Texas
Utilities Offer within two Business Days from the date of this document.
Any financial institution that is a participant in any of the Book-Entry
Transfer Facility's systems may make book-entry delivery of interests
Energy Group ADSs by causing a Book-Entry Transfer Facility to transfer
such interests in Energy Group ADSs into the US Depositary's account at
such Book-Entry Transfer Facility in accordance with that Book-Entry
Transfer Facility's procedure for such transfer. Although delivery of
interests in Energy Group ADSs evidenced by Energy Group ADRs may be
effected through book-entry transfer into the US Depositary's account at a
Book-Entry Transfer Facility, either:
(i) the Letter of Transmittal, properly completed and duly executed,
together with any required signature guarantees; or
(ii) an Agent's Message (as defined below),
and, in either case, any other required documents must in any case be
transmitted to, and received by, the US Depositary at one of its addresses
set forth on the back cover of this document before Energy Group ADSs
evidenced by Energy Group ADRs will be either counted as a valid acceptance
or purchased, or
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such holder must comply with the Guaranteed Delivery Procedures described
below. The term "Agent's Message" means a message transmitted by a
Book-Entry Transfer Facility to, and received by, the US Depositary and
forming a part of a Book-Entry Confirmation that states that such
Book-Entry Transfer Facility has received an express acknowledgement from
the participant in such Book-Entry Transfer Facility tendering the
interests in Energy Group ADSs that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal. Delivery of
documents to a Book-Entry Transfer Facility does not constitute delivery to
the US Depositary.
(d) METHOD OF DELIVERY
The method of delivery of Energy Group ADRs, the Letters of Transmittal and
all other required documents is at the option and risk of the tendering
holder of Energy Group ADSs. Energy Group ADSs will be deemed delivered
only when the Energy Group ADRs representing such Energy Group ADSs are
actually received by the US Depositary (including in the case of a
book-entry transfer, by Book-Entry Confirmation). If delivery is by mail,
registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to ensure
timely delivery. No acknowledgement of receipt of any Letter of Transmittal
or other required documents will be given by, or on behalf of, TU
Acquisitions.
(e) SIGNATURE REQUESTS
No signature guarantee is required on the Letter of Transmittal if:
(i) the Letter of Transmittal is signed by the registered holder of the
Energy Group ADSs tendered therewith and such registered holder has
not completed either the Box entitled "Special Payment Instructions"
or the Box entitled "Special Delivery Instructions" or the box
entitled "Special Texas Utilities Common Stock Instructions" in the
Letter of Transmittal; or
(ii) such Energy Group ADSs are tendered for the account of an Eligible
Institution.
In all other cases all signatures on Letters of Transmittal must be
guaranteed by an Eligible Institution. See Instruction 1 on the Letter of
Transmittal.
(f) ENERGY GROUP ADSS AND ADRS
If the Energy Group ADSs are registered in the name of a person other than
the person who signs the Letter of Transmittal, then the tendered Energy
Group ADRs must be endorsed or accompanied by appropriate stock powers,
signed exactly as the name or names of the registered owner or owners
appear on the Energy Group ADRs, with the signatures on the Energy Group
ADRs or stock powers guaranteed as aforesaid. See Instructions 1 and 5 on
the Letter of Transmittal.
(g) PARTIAL ACCEPTANCES
If fewer than all of the Energy Group ADSs evidenced by any Energy Group
ADRs delivered to the US Depositary are to be tendered, the holder thereof
should so indicate in the Letter of Transmittal by filling in the number of
Energy Group ADSs which are to be tendered in the box entitled "Number of
Energy Group ADSs Tendered". In such case, a new Energy Group ADR for the
remainder of the Energy Group ADSs represented by the former Energy Group
ADR will be sent to the person(s) signing such Letter of Transmittal (or
delivered as such person properly indicates thereon) as promptly as
practicable following the date the tendered Energy Group ADSs are
purchased. All Energy Group ADSs delivered to the US Depositary will be
deemed to have been tendered unless otherwise indicated. See Instruction 4
to the Letter of Transmittal. In the case of partial tenders, Energy Group
ADSs not tendered will not be reissued to a person other than the
registered holder.
(h) GUARANTEED DELIVERY PROCEDURES
(i) If a holder of Energy Group ADSs evidenced by Energy Group ADRs desires to
tender Energy Group ADSs pursuant to the Texas Utilities Offer and the
Energy Group ADRs evidencing such Energy Group ADSs are not immediately
available or the procedures for book-entry transfer cannot be completed on
a timely basis, or if time will not permit all required documents to reach
the US Depositary prior to the
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expiry of the Subsequent Offer Period, such holder's tender of Energy Group
ADSs may be effected if all the following conditions are met (the
"Guaranteed Delivery Procedures"):
(aa) such tender is made by or through an Eligible Institution;
(bb) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by TU Acquisitions
is received by the US Depositary, as provided below, prior to
the expiry of the Subsequent Offer Period; and
(cc) the Energy Group ADRs evidencing all tendered Energy Group ADSs
(or, in the case of interests in Energy Group ADSs held in
book-entry form, timely confirmation of the book-entry transfer
of such interests in Energy Group ADSs into the US Depositary's
account at a Book-Entry Transfer Facility as described above),
together with a properly completed and duly executed Letter of
Transmittal with any required signature guarantees and any
other documents required by the Letter of Transmittal, are
received by the US Depositary within three Business Days after
the date of execution of such Notice of Guaranteed Delivery.
(ii) The Notice of Guaranteed Delivery may be delivered by hand or mailed
to the US Depositary and must include a signature guarantee by an
Eligible Institution in the form set out in such Notice of Guaranteed
Delivery.
(iii) Receipt of a Notice of Guaranteed Delivery will not be treated as a
valid acceptance for the purpose of satisfying the Acceptance
Condition. To be counted towards satisfaction of this requirement,
Energy Group ADRs evidencing Energy Group ADSs referred to in the
Notice of Guaranteed Delivery must, prior to the Initial Closing
Date, be received by the US Depositary (or, in the case of interests
in Energy Group ADSs evidenced by Energy Group ADRs held in book-
entry form, timely confirmation of a book-entry transfer of such
interests in Energy Group ADSs into the US Depositary's account at a
Book-Entry Transfer Facility pursuant to the procedure set out
above), together with a duly executed Letter of Transmittal with any
required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message) and any other required documents.
(i) OTHER REQUIREMENTS
By executing the Letter of Transmittal as set out above, the tendering
holder of Energy Group ADSs evidenced by Energy Group ADRs will agree that
effective from and after the date all Conditions are satisfied or, where
permitted, waived:
(i) TU Acquisitions shall be entitled to direct the exercise of any votes
attaching to any Energy Group Shares represented by Energy Group ADSs,
in respect of which the Texas Utilities Offer has been accepted or is
deemed to have been accepted and any other rights and privileges
attaching to such Energy Group Shares, including any right to
requisition a general meeting of The Energy Group or of any class of
its shareholders; and
(ii) the execution of the Letter of Transmittal and its delivery to the US
Depositary (or delivery of an Agent's message to the US Depositary)
will constitute:
(aa) an authority to The Energy Group or its agents from the
tendering holder of Energy Group ADSs to send any notice,
circular, warrant, document or other communication, which may be
sent to him as a holder of Energy Group ADSs, to TU Acquisitions
at its registered office;
(bb) an authority to TU Acquisitions or its agent to sign any consent
to short notice of a general meeting or separate class meeting
on behalf of the tendering holder of Energy Group ADSs and/or to
execute a form of proxy in respect of such Energy Group ADSs
appointing any person nominated by TU Acquisitions to attend
general meetings or separate class meetings of The Energy Group
or its members (or any of them) (or any adjournments thereof)
and to exercise the votes attaching to such Energy Group ADSs on
the holders' behalf; and
(cc) the agreement of the tendering holder of Energy Group ADSs not
to exercise any of such rights without the consent of TU
Acquisitions and the irrevocable undertaking of the tendering
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holder of Energy Group ADSs not to appoint a proxy for or to
attend general meetings or separate class meetings.
(j) If the Texas Utilities Offer lapses, all documents tendered will be
returned within 14 calendar days thereafter at the risk of the holder of
Energy Group Securities concerned.
(k) If you are a holder of Energy Group ADSs and are in any doubt about the
procedure for acceptance, please telephone the Information Agent on (800)
848-3416 (in the US), 0171-600-5005 (in Europe) or (212) 269-5550 (outside
the US and Europe).
11 PROCEDURES FOR TENDERING ENERGY GROUP SHARES
(a) Holders of Energy Group Shares will have received with this document a Form
of Acceptance. This section should be read together with the Form of
Acceptance. The provisions of this section shall be deemed to be
incorporated in, and to form a part of, the Form of Acceptance. The
instructions printed on the Form of Acceptance shall be deemed to form part
of the terms of the Texas Utilities Offer.
If a holder of Energy Group Shares holds Energy Group Shares in both
certificated and uncertificated form, he should complete a separate Form of
Acceptance for each holding. Similarly, such holder should complete a
separate Form of Acceptance for Energy Group Shares held in uncertificated
form, but under different member account IDs, and for Energy Group Shares
held in certificated form, but under different designations.
(b) To accept the Texas Utilities Offer, any holder of Energy Group Shares,
including any person in the US who holds Energy Group Shares, wishing to
accept the Texas Utilities Offer in respect of all or any portion of such
holder's Energy Group Shares, should complete Box 1 and, if such holder's
Energy Group Shares are in CREST, Box 8, and sign Box 7 on the Form of
Acceptance in accordance with the instructions printed on it. All holders
of Energy Group Shares who are individuals should sign the Form of
Acceptance in the presence of a witness who should also sign Box 7 in
accordance with the instructions printed on it. Unless witnessed, an
acceptance will not be valid.
(c) An accepting holder of Energy Group Shares should return the completed,
signed and witnessed Form of Acceptance, whether or not such Energy Group
Shares are in CREST, to the United Kingdom Receiving Agent or US
Depositary. The completed Form of Acceptance, together, if such holder's
Energy Group Shares are in certificated form, with his share certificate(s)
and/or other document(s) of title, must be lodged with the United Kingdom
Receiving Agent or the US Depositary, as soon as possible, but in any event
so as to arrive not later than 10.00 pm (London time), 5.00 pm (New York
City time) on 7 April 1998. If you have any questions as to how to complete
the Form of Acceptance, please contact the United Kingdom Receiving Agent
on 0117 937 0672 or the US Depositary on (888) 460-7637.
A person in the US who holds Energy Group Shares may submit the Form of
Acceptance, together with his share certificate(s) and/or other document(s)
of title, to the US Depositary, who will receive such Form(s) of Acceptance
and certificate(s) and/or other document(s) of title on behalf of the
United Kingdom Receiving Agent. A Form of Acceptance contained in an
envelope postmarked Canada, Japan or Australia or otherwise appearing to TU
Acquisitions or its agents to have been sent from Canada, Japan or
Australia may be rejected as invalid.
(d) If Energy Group Shares are in uncertificated form, the holder should insert
in Box 8 of the Form of Acceptance the participant ID and member account ID
under which such Energy Group Shares are held by him in CREST and otherwise
complete and return the Form of Acceptance as described above. In addition,
such holder should take (or procure to be taken) the action set out below
to transfer the Energy Group Shares in respect of which he wishes to accept
the Texas Utilities Offer to an escrow balance, specifying The Royal Bank
of Scotland plc (in its capacity as a CREST participant under the
participant ID referred to below) as the escrow agent, as soon as possible
and in any event so that the transfer to escrow settles not later than
10.00 pm (London time), 5.00 pm (New York City time) on 7 April 1998.
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<PAGE> 56
(e) If the holder of such Energy Group Shares is a CREST sponsored member, he
should refer to his CREST sponsor before taking any action. Such holder's
sponsor will be able to confirm details of his participant ID and the
member account ID under which his Energy Group Shares are held. In
addition, only his CREST sponsor will be able to send the TTE Instruction
to CRESTCo in relation to his Energy Group Shares.
(f) The holder of such Energy Group Shares in uncertificated form should send
(or, if he is a CREST sponsored member, procure that his CREST sponsor
sends) a TTE Instruction to CRESTCo which must be properly authenticated in
accordance with CRESTCo's specifications and which must contain, in
addition to the other information that is required for a TTE Instruction to
settle in CREST, the following details:
(i) the number of Energy Group Shares to be transferred to an escrow
balance;
(ii) the member account ID of such holder of Energy Group Shares. This
must be the same member account ID as the member account ID that is
inserted in Box 8 of the Form of Acceptance;
(iii) the participant ID of such holder of Energy Group Shares. This must
be in the same participant ID as the participant ID that is inserted
in Box 8 of the Form of Acceptance;
(iv) the participant ID of the escrow agent (the United Kingdom Receiving
Agent in its capacity as a CREST Receiving Agent). This is RA75;
(v) the member account ID of the escrow agent. This is ENERGY;
(vi) the Form of Acceptance Reference Number. This is the Form of
Acceptance Reference Number that appears on page 3 of the Form of
Acceptance. This Reference Number should be inserted in the first
eight characters of the shared note field on the TTE Instruction.
Such insertion will enable the United Kingdom Receiving Agent to
match the transfer to escrow to your Form of Acceptance. The holder
of such shares should keep a separate record of this Form of
Acceptance Reference Number for future reference;
(vii) the Intended Settlement Date. This should be as soon as possible and
in any event not later than 7 April 1998;
(viii) the Corporate Action Number for the Texas Utilities Offer. This is
5.
(g) After settlement of the TTE Instruction, such holder of Energy Group Shares
will not be able to access the Energy Group Shares concerned in CREST for
any transaction or charging purposes. If the Conditions are satisfied,
fulfilled or, where permitted, waived, the escrow agent will transfer the
Energy Group Shares concerned to itself in accordance with paragraph 12(d)
of this Part B of Appendix I below.
(h) Such holder of Energy Group Shares is recommended to refer to the CREST
Manual published by CRESTCo for further information on the CREST procedures
outlined above. For ease of processing, such holder is requested, wherever
possible, to ensure that a Form of Acceptance relates to only one transfer
to escrow.
(i) If no Form of Acceptance Reference Number, or an incorrect Form of
Acceptance Reference Number, is included on the TTE Instruction, TU
Acquisitions may treat any amount of Energy Group Shares transferred to an
escrow balance in favour of the escrow agent specified above from the
participant ID and member account ID identified in the TTE Instruction as
relating to any Form(s) of Acceptance which relate(s) to the same member
account ID and participant ID (up to the amount of Energy Group Shares
inserted or deemed to be inserted on the Form(s) of Acceptance concerned).
(j) Such holder of Energy Group Shares should note that CRESTCo does not make
available special procedures, in CREST, for any particular corporate
action. Normal system timings and limitations will therefore apply in
connection with a TTE Instruction and its settlement. Such holder should
therefore ensure that all necessary action is taken by him (or by his CREST
sponsor) to enable a TTE Instruction relating to his Energy Group Shares to
settle prior to 10.00 pm (London time), 5.00 pm (New York City
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<PAGE> 57
time) on 7 April 1998. In this connection such holder is referred in
particular to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings.
(k) TU Acquisitions will make an appropriate announcement if any of the details
contained in this paragraph 11 alter for any reason.
(l) Normal CREST procedures (including timings) apply in relation to any Energy
Group Shares that are, or are to be, converted from uncertificated to
certificated form, or from certificated to uncertificated form, during the
course of the Texas Utilities Offer (whether any such conversion arises as
a result of a transfer of Energy Group Shares or otherwise). Holders of
Energy Group Shares who are proposing so to convert any Energy Group Shares
are recommended to ensure that the conversion procedures are implemented in
sufficient time to enable the person holding or acquiring the Energy Group
Shares as a result of the conversion to take all necessary steps in
connection with an acceptance of the Texas Utilities Offer (in particular,
as regards delivery of share certificate(s) or other documents of title or
transfers to an escrow balance as described above) prior to 10.00 pm
(London time), 5.00 pm (New York City time) on 7 April 1998.
(m) If the share certificate(s) and/or other document(s) of title is/are not
readily available or is/are lost, the Form of Acceptance should
nevertheless be completed, signed and returned as stated above to the
United Kingdom Receiving Agent or the US Depositary so as to be received as
soon as possible, but in any event no later than 10.00 pm (London time),
5.00 pm (New York City time) on 7 April 1998 together with any share
certificate(s) and/or other document(s) of title that is/are available,
accompanied by a letter stating that the balance will follow or that one or
more share certificate(s) and/or other document(s) of title have been lost
and the certificate(s) and/or other document(s) of title should be
forwarded as soon as possible thereafter. If the share certificate(s)
and/or other document(s) of title are lost, the accepting holder should
request the registrar of The Energy Group (Lloyds Bank Registrars, The
Causeway, Goring-by-Sea, Worthing, West Sussex BN99 6DA) to send him a
letter of indemnity for completion in accordance with the instructions
given. When completed the letter of indemnity must be lodged with the
United Kingdom Receiving Agent or the US Depositary, in accordance with
instructions given, in support of the Form of Acceptance.
(n) Subject to the City Code, TU Acquisitions reserves the right to treat as
valid in whole or in part any acceptance of the Texas Utilities Offer which
is not entirely in order or in the correct form or which is not accompanied
by (as applicable) the relevant transfer to escrow or the relevant share
certificate(s) and/or other document(s) of title or which is received by it
at a place or places other than as set out in this document or the
Acceptance Forms. In that event, the consideration under the Texas
Utilities Offer will be despatched only when the acceptance is entirely in
order and (as applicable) the relevant transfer to escrow or the relevant
share certificate(s) and/or document(s) of title or indemnity satisfactory
to TU Acquisitions has/have been received.
(o) If the Texas Utilities Offer lapses, all documents lodged for acceptance
will be returned within 14 calendar days thereafter at the risk of the
holder of Energy Group Shares concerned.
(p) No acknowledgement of receipt of any Form of Acceptance, share certificates
and/or other documents(s) of title will be given by, or on behalf of TU
Acquisitions. The method of delivery of share certificate(s) and/or other
document(s) of title for Energy Group Shares and all other required
documents is at the option and risk of the accepting holder of Energy Group
Shares. In all cases, sufficient time should be allowed to ensure timely
delivery and in any event to ensure delivery by 10.00 pm (London time),
5.00 pm (New York City time) on 7 April 1998.
(q) Any holder of Energy Group Shares who is in any doubt as to the procedure
for acceptance should contact the United Kingdom Receiving Agent by
telephone on 0117 937 0672. Such holder is also reminded that, if he is a
CREST sponsored member, he should contact his CREST Sponsor before taking
any action.
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<PAGE> 58
12 FORMS OF ACCEPTANCE
Each holder of Energy Group Shares by whom, or on whose behalf, a Form of
Acceptance is executed and lodged with the United Kingdom Receiving Agent or US
Depositary (subject to the rights of withdrawal set forth in this document)
undertakes, represents, warrants to and agrees with TU Acquisitions, Lehman
Brothers, Merrill Lynch and the United Kingdom Registrar and US Depositary (so
as to bind such holder and his personal or legal representatives, heirs,
successors and assigns) to the following effect:
(a) that execution of the Form of Acceptance and its delivery to the United
Kingdom Receiving Agent or US Depositary constitutes (i) an acceptance of
the Texas Utilities Offer in respect of the number of Energy Group Shares
inserted or deemed to have been inserted in Box 1 of the Form of
Acceptance; (ii) an election under the Loan Note Alternative in respect of
the number of Energy Group Shares inserted, or deemed to be inserted, in
Box 4 of the Form of Acceptance; (iii) an election under the Share
Alternative in respect of the number of Energy Group Shares inserted, or
deemed to be inserted, in Box 3 of the Form of Acceptance; and (iv) an
undertaking to execute any further documents and give any further
assurances which may be required to enable TU Acquisitions to obtain the
full benefit of paragraph 11 of Part B of Appendix I above and this
paragraph 12 and/or to perfect any of the authorities expressed to be given
hereunder on and subject to the terms and Conditions set out or referred to
in this document and the Form of Acceptance;
(b) that such holder has full power and authority to tender, sell, assign or
transfer the Energy Group Shares in respect of which the Texas Utilities
Offer is accepted or deemed to be accepted (together with all rights
attaching to them) and when the same are transferred to TU Acquisitions
pursuant to the terms of the Texas Utilities Offer, TU Acquisitions will
acquire such Energy Group Shares fully paid and free from all liens,
equities, charges, encumbrances and other interests and together with all
rights attaching thereto on or after 2 March 1998, including, without
limitation, the right to receive and retain all dividends, interest and
other distributions declared, made or paid on or after 2 March 1998;
(c) that the execution of the Form of Acceptance and its delivery to the United
Kingdom Receiving Agent or US Depositary constitutes, subject to the
Conditions being satisfied, fulfilled or, where permitted, waived and to
the holder of Energy Group Shares not having validly withdrawn his
acceptance and as security for its obligations to TU Acquisitions under
paragraph 12(a)(iv) above, the irrevocable appointment of any director of,
or other person nominated by, TU Acquisitions to act on its behalf as such
holder's attorney and agent ("attorney"), and an irrevocable instruction to
the attorney, to complete and execute all or any forms of transfer and/or
such other documents at the attorney's discretion in relation to the Energy
Group Shares referred to in paragraph 12(a) above in favour of TU
Acquisitions or such other persons as TU Acquisitions may direct and to
deliver such forms of transfer and/or other document(s) at the attorney's
discretion together with the share certificate(s) and/or other document(s)
of title relating to such Energy Group Shares for registration within six
months of their purchase and to do all such other acts and things as may in
the opinion of such attorney be necessary or expedient for the purpose of,
or in connection with, the acceptance of the Texas Utilities Offer and to
vest in TU Acquisitions or its nominees the Energy Group Shares to which
such Form of Acceptance relates as aforesaid;
(d) that the execution of the Form of Acceptance and its delivery to the United
Kingdom Receiving Agent or US Depositary constitutes, subject to the
Conditions being satisfied, fulfilled or, where permitted, waived, and to
the accepting holder of Energy Group Shares not having validly withdrawn his
acceptance, an irrevocable authority and request:
(i) to transfer to TU Acquisitions (or to such other person or persons as
TU Acquisitions or its agents may direct) by means of CREST all or
any of the Relevant Energy Group Shares (as defined below) (but not
exceeding the number of Energy Group Shares in respect of which the
Texas Utilities Offer is accepted or deemed to be accepted);
(ii) if the Conditions are not satisfied, fulfilled or, where permitted,
waived, to give instructions to CRESTCo, immediately after the
lapsing of the Texas Utilities Offer (or within such longer period as
the Panel may permit, not exceeding 14 days of the lapsing of the
Texas Utilities Offer), to
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<PAGE> 59
transfer all Relevant Energy Group Shares to the original available
balance of the accepting holder of Energy Group Shares. "Relevant
Energy Group Shares" means Energy Group Shares in uncertificated form
and in respect of which a transfer or transfers to escrow has or have
been effected pursuant to the procedures described in paragraphs
11(d) to 11(l) of this Part B of Appendix I above and where the
transfer(s) to escrow was or were made in respect of Energy Group
Shares held under the same member account ID and participant ID as
the member account ID and participant ID relating to the Form of
Acceptance concerned (but irrespective of whether or not any Form of
Acceptance Reference Number, or a Form of Acceptance Reference Number
corresponding to that appearing on the Form of Acceptance concerned,
was included in the TTE Instruction concerned);
(iii) to The Energy Group or its agents to procure the registration of the
transfer of the Energy Group Shares in certificated form pursuant to
the Texas Utilities Offer and the delivery of the share
certificate(s) and/or other document(s) of title in respect of them
to TU Acquisitions or as it may direct;
(iv) if the Energy Group Shares concerned are in certificated form, or if
either of the provisos to sub-paragraph (v) of this paragraph 12(d)
apply, to TU Acquisitions or its agents to procure the despatch by
post (or by such other methods as may be approved by the Panel) of a
cheque (in the case of a pounds sterling amount, drawn on a branch of
a United Kingdom clearing bank) for any cash to which an accepting
Energy Group Shareholder is entitled, at the risk of such
shareholder, to the person or agent whose name and address outside
Canada, Australia and Japan is set out in Box 10 of the Form of
Acceptance, or if no name and address is set out in Box 10, to the
first-named holder at his registered address outside Canada,
Australia or Japan as set out in Box 2 (or, if applicable, Box 6) on
the Form of Acceptance together with a cheque for any cash payable to
such holder of Energy Group Shares in respect of fractional
entitlements;
(v) if the Energy Group Shares concerned are in uncertificated form, to
TU Acquisitions or its agents to procure the creation of an assured
payment obligation in favour of the holder of Energy Group Shares'
payment bank in accordance with the CREST assured payment
arrangements in respect of the cash consideration to which such
shareholder is entitled, provided that (aa) TU Acquisitions may (if,
for any reason, it wishes to do so) determine that all or any part of
any such cash consideration shall be paid by cheque despatched by
post and (bb) if the Energy Group Shareholder concerned is a CREST
member whose registered address is in Canada, Australia or Japan, any
cash consideration to which such shareholder is entitled shall be
paid by cheque despatched by post, and in either of such cases,
sub-paragraph (iii) of this paragraph 12(d) shall apply;
(vi) to TU Acquisitions or its agent(s) to record and act upon any
instructions with regard to payment or notices which have been
recorded in the records of The Energy Group in respect of such holder
of Energy Group Shares as if such instructions had been given in
respect of his entitlement to Loan Notes (if any); and
(vii) to TU Acquisition or its agent(s) to procure that the name of such
holder of Energy Group Shares is entered on the share register of
Texas Utilities in respect of any New Texas Utilities Shares to which
such holder becomes entitled pursuant to this acceptance of the Texas
Utilities Offer and under the Share Alternative (subject to the
provisions of Texas Utilities's restated articles of incorporation
and bylaws) and to procure the despatch by post (or by such other
method as may be approved by the Panel) of the document(s) of title
for such New Texas Utilities Shares, at the risk of such holder, to
the person whose name and address is set out in Box 2 (or as the case
may be, Box 6 or Box 10) of the Form of Acceptance provided that this
is outside Canada, Australia or Japan.
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<PAGE> 60
(e) that subject to the Texas Utilities Offer becoming or being declared wholly
unconditional (or if the Texas Utilities Offer will become unconditional in
all respects or lapses immediately upon the outcome of the resolution in
question) or if the Panel otherwise gives its consent and pending
registration:
(i) TU Acquisitions or its agents shall be entitled to direct the exercise
of any votes attaching to any Energy Group Securities in respect of
which the Texas Utilities Offer has been accepted or is deemed to have
been accepted and not validly withdrawn and any of the rights and
privileges attaching to such Energy Group Securities including the
right to requisition a general meeting of The Energy Group or of
holders of any class of its securities; and
(ii) the execution of the Form of Acceptance and its delivery to the United
Kingdom Receiving Agent or US Depositary shall constitute:
(aa) an authority to The Energy Group or its agents from such holder to
send any notice, circular, warrant, document or other
communication which may be required to be sent to him or her as a
shareholder of The Energy Group to TU Acquisitions at its
registered office;
(bb) an authority to TU Acquisitions or its agents to sign any consent
to short notice of a general meeting or separate class meeting on
his behalf and/or to execute a form of proxy in respect of such
Energy Group Shares appointing any person nominated by TU
Acquisitions to attend general meetings and separate class
meetings of The Energy Group or its members (or any of them) (or
any adjournment of them) and to exercise the votes attaching to
such Energy Group Shares on his behalf, such votes to be cast so
far as possible to satisfy any outstanding Condition or otherwise
as TU Acquisitions or its agents sees fit; and
(cc) the agreement of such holder not to exercise any of such rights
without the consent of TU Acquisitions and the irrevocable
undertaking of such holder not to appoint a proxy for or to attend
general meetings or separate class meetings;
(f) that such holder will deliver, or procure the delivery to the United
Kingdom Receiving Agent or US Depositary of, his share certificates and/or
other documents of title in respect of the Energy Group Shares referred to
in paragraph 12(a) above in certificated form, or an indemnity acceptable
to TU Acquisitions in lieu thereof, as soon as possible and in any event
within six months of the purchase of such Energy Group Shares;
(g) that such holder will take (or procure to be taken) the action necessary to
transfer all Energy Group Shares in respect of which the Texas Utilities
Offer has been accepted or is deemed to have been accepted held by him in
uncertificated form to an escrow balance as soon as possible and in any
event so that the transfer to escrow settles within two months of the Texas
Utilities Offer becoming unconditional in all respects;
(h) that if, for any reason, any Energy Group Shares in respect of which a
transfer to an escrow balance has been effected are converted to
certificated form, he will immediately deliver or procure the immediate
delivery of, the share certificate(s) and/or other document(s) of title in
respect of all such Energy Group Shares as so converted to The Royal Bank
of Scotland plc at one of its addresses set out at the back of this
document;
(i) that the creation of an assured payment obligation in favour of his payment
bank in accordance with the CREST assured payments arrangements as referred
to in paragraph 12(d)(v) of this Part B of Appendix I above shall, to the
extent of the obligation so created, discharge in full any obligation of TU
Acquisitions and/or Lehman Brothers and Merrill Lynch to pay to him the
cash consideration to which he is entitled pursuant to the Texas Utilities
Offer;
(j) that the terms and Conditions contained in this document shall be deemed to
be incorporated in, and form part of, the Form of Acceptance, which shall
be read and construed accordingly;
(k) that such holder agrees to do all such acts and things as shall be
necessary, and execute any additional documents deemed by TU Acquisitions
to be desirable, to complete the purchase and transfer of the
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<PAGE> 61
Energy Group Shares and to vest in TU Acquisitions or its nominees the
Energy Group Shares aforesaid and all such acts and things as may be
necessary or expedient to enable the United Kingdom Receiving Agent to
perform its functions as escrow agent for the purposes of the Texas
Utilities Offer;
(l) that unless "Yes" is put in Box 9 on the Form of Acceptance, such holder:
(i) has not received or sent copies of this document or any Acceptance
Forms or any related documents in, into or from Canada, Australia or
Japan and has not otherwise utilised in connection with the Texas
Utilities Offer, directly or indirectly, the Canadian, Australian or
Japanese mails or any means or instrumentality (including, without
limitation, facsimile transmission, telex and telephone) of interstate
or foreign commerce, or any facilities of a national securities
exchange, of Canada, Australia or Japan;
(ii) is accepting the Texas Utilities Offer from outside Canada, Australia
or Japan; and
(iii)is not an agent or fiduciary acting on a non-discretionary basis for a
principal, unless such agent or fiduciary is an authorised employee of
such principal or such principal has given any instructions with
respect to the Texas Utilities Offer from outside Canada, Australia or
Japan;
(m) that the execution of the Form of Acceptance constitutes an authority to TU
Acquisitions and its agent in the terms of paragraph 7(a) of this Part B of
Appendix I above;
(n) that such holder agrees and acknowledges that he is not a customer (as
defined in the rules of The Securities and Futures Authority Limited) of
Lehman Brothers or Merrill Lynch in connection with the Texas Utilities
Offer;
(o) that such holder agrees to ratify each and every act or thing which may be
done or effected by any Director of, or other person nominated by, TU
Acquisitions or their respective agents, as the case may be, in the
exercise of any of his powers and/or authorities hereunder;
(p) that if any provision of this paragraph 12 shall be unenforceable or
invalid or shall not operate so as to afford TU Acquisitions or the United
Kingdom Receiving Agent or the US Depositary or their respective agents the
benefit of the authority expressed to be given herein, he shall with all
practicable speed do all such acts and things and execute all such
documents that may be required to enable those persons to secure the full
benefits of this section;
(q) that the execution of the Form of Acceptance constitutes the submission of
such holder, in relation to all matters arising out of the Texas Utilities
Offer and the Form of Acceptance, to the jurisdiction of the Courts of
England;
(r) that on execution of a Form of Acceptance, it shall take effect as a Deed;
and
(s) that, if such holder elects for the Loan Note Alternative (in whole or in
part), he is not a citizen or resident of the United States, nor acting on
behalf of such person.
DELIVERY OF THE FORM OF ACCEPTANCE AND CERTIFICATES REPRESENTING ENERGY GROUP
SHARES AND/OR OTHER DOCUMENTS OF TITLE TO THE US DEPOSITARY WILL CONSTITUTE
DELIVERY OF THEM TO THE UNITED KINGDOM RECEIVING AGENT FOR THE PURPOSES OF
PARAGRAPH 11 OF THIS PART B OF APPENDIX I ABOVE AND THIS PARAGRAPH.
13 CERTAIN PROVISIONS CONCERNING ACCEPTANCES
(a) Without prejudice to the right reserved by TU Acquisitions to treat
Acceptance Forms as valid even though not entirely in order or not
accompanied by, where Energy Group Shares are in certificated form, the
relevant share certificates and/or other documents of title, or not
accompanied by the relevant transfer to escrow, except as otherwise agreed
by the Panel:
(i) an acceptance of the Texas Utilities Offer will only be counted towards
fulfilling the Acceptance Condition if the requirements of Note 4 and,
if applicable, Note 6 to Rule 10 of the City Code are satisfied in
respect of such acceptance. For additional information on Note 4 and
Note 6 to Rule 10 of the City Code, see paragraph 13(b) below;
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<PAGE> 62
(ii) a purchase of Energy Group Securities by TU Acquisitions or its
nominee(s) (or a person acting in concert with TU Acquisitions or its
nominee(s)), will only be counted towards fulfilling the Acceptance
Condition if the requirements of Note 5 and, if applicable, Note 6 to
Rule 10 of the City Code are satisfied in respect of such purchase.
For additional information on Note 5 and Note 6 to Rule 10 of the City
Code, see paragraph 13(b) below; and
(iii)the Acceptance Condition will not be declared satisfied until the
United Kingdom Receiving Agent has issued a certificate to TU
Acquisitions (or its agent) which states the number of Energy Group
Securities in respect of which acceptances have been received which
comply with paragraph 13(a)(i) above and the number of Energy Group
Securities otherwise acquired, whether before or during the Initial
Offer Period, which comply with paragraph 13(a)(ii) above.
(b) Notes 4 to 6 to Rule 10 of the City Code contain detailed provisions for
verifying which acceptances and purchases may be counted towards fulfilling
the Acceptance Condition or in determining whether the Acceptance Condition
has been fulfilled and are principally concerned to ensure that the
acceptor is the registered owner of the securities which he is tendering.
The principal requirements of Notes 4 to 6 to Rule 10 are that any
Acceptance Form must be completed to a suitable standard (i.e., it must
constitute a transfer or a valid and irrevocable appointment of TU
Acquisitions of some person on its behalf or as agent or attorney for the
purpose of executing a transfer) and it must be accompanied by, where
Energy Group Shares are in certificated form, the appropriate share
certificate(s) or other document(s) of title and, in all cases, any
relevant supporting documentation (such as powers of attorney). Immediately
prior to the satisfaction of the Acceptance Condition the United Kingdom
Receiving Agent will issue a certificate to TU Acquisitions stating the
number of Energy Group Securities tendered and not validly withdrawn
pursuant to the Texas Utilities Offer and the number of Energy Group
Securities otherwise acquired, on or before the Initial Closing Date as the
case may be, in compliance with the provision referred to in paragraph
13(a) above. Copies of such certificates will be sent to the Panel as soon
as possible after they are issued.
(c) Subject to the City Code, TU Acquisitions reserves the right to treat as
valid in whole or in part any acceptance of the Texas Utilities Offer which
is not entirely in order or which is not accompanied by the (as applicable)
relevant transfer to escrow or the relevant share certificate(s) and/or
other document(s) of title or which is received by it at a place or places
other than set out in this document or the Acceptance Form. In that event,
the consideration under the Texas Utilities Offer will be despatched only
after the relevant transfer to escrow has settled or (as applicable) the
relevant share certificate(s) and/or document(s) of title or indemnities
satisfactory to TU Acquisitions have been received.
14 SUBSTITUTE ACCEPTANCE FORMS
The holders of Energy Group Securities have been sent with this document either
a Letter of Transmittal (accompanied by a Notice of Guaranteed Delivery) and/or
a Form of Acceptance. All holders of Energy Group ADSs have been sent a Letter
of Transmittal and a Notice of Guaranteed Delivery, which they must use to
tender their Energy Group ADSs and accept the Texas Utilities Offer. All holders
of Energy Group Shares, including persons in the US who hold Energy Group
Shares, have been sent a Form of Acceptance, which they must use to tender their
Energy Group Shares and accept the Texas Utilities Offer. Should any holder of
Energy Group Securities receive an incorrect form with which to accept the Texas
Utilities Offer or require any additional forms, that person should contact the
United Kingdom Receiving Agent or the US Depositary at the addresses set out at
the end of this document, who will provide the appropriate forms.
15 SETTLEMENT
Subject to the satisfaction, fulfilment or, where permitted, the waiver of all
Conditions (except as provided in paragraph 9 of this Part B of Appendix I in
the case of certain overseas holders of Energy Group Securities), settlement of
the consideration to which any holder of Energy Group Securities is entitled
under the Texas Utilities Offer will be effected (i) in the case of acceptances
received, complete in all respects, by the Initial Closing Date, within 14 days
of such date, or (ii) in the case of acceptances of the Texas Utilities Offer
I-28
<PAGE> 63
received, complete in all respects, after such date, but while the Texas
Utilities Offer remains open for acceptance, within 14 days of such receipt, in
the following manner:
(a) ENERGY GROUP SHARES IN UNCERTIFICATED FORM (THAT IS, IN CREST)
Where an acceptance relates to Energy Group Shares in uncertificated form,
the cash consideration to which the accepting holder of Energy Group Shares
is entitled will be paid by means of CREST by TU Acquisitions procuring the
creation of an assured payment obligation in favour of such accepting
holder's payment bank in respect of the cash consideration due, in
accordance with the CREST assured payment arrangements (other than any US
dollar amount which will be payable by cheque). Loan Notes or receipts or
definitive certificates for New Texas Utilities Shares will be despatched
by first class post (or by such other method as may be approved by the
Panel). TU Acquisitions reserves the right to settle all or any part of the
consideration referred to in this paragraph, for all or any accepting
holders of Energy Group Securities, in the manner referred to in paragraph
15(b) below, if, for any reason, it wishes to do so.
(b) ENERGY GROUP SECURITIES IN CERTIFICATED FORM
Where an acceptance relates to Energy Group Securities in certificated
form, cheques for cash due or Loan Notes or receipts or definitive
certificates for New Texas Utilities Shares will be despatched by first
class post (or by such other method as may be approved by the Panel).
16 CURRENCY OF CASH CONSIDERATION
Instead of receiving cash consideration in pounds sterling, holders of Energy
Group Shares who so wish may receive US dollars on the following basis: the cash
amount payable in pounds sterling to which such holder would otherwise be
entitled pursuant to the terms of the Texas Utilities Offer will be converted,
without charge, from pounds sterling to US dollars at the exchange rate
obtainable by the relevant payment agent (either the United Kingdom Receiving
Agent or the US Depositary) on the spot market in London at approximately noon
(London time) on the date the cash consideration is made available by TU
Acquisitions to the relevant payment agent for delivery in respect of the
relevant Energy Group Shares. A holder of Energy Group Shares may receive such
amount on the basis set out above only in respect of the whole of his holding of
Energy Group Shares in respect of which he accepts the Texas Utilities Offer.
Holders of Energy Group Securities may not elect to receive both pounds sterling
and US dollars. Unless they elect to receive pounds sterling, holders of Energy
Group ADSs will receive consideration converted into US dollars as described
above, as if such holders of Energy Group ADSs had elected to receive dollars.
Consideration in US dollars may be inappropriate for holders of Energy Group
Shares other than persons in the US and holders of Energy Group ADSs.
THE ACTUAL AMOUNT OF US DOLLARS RECEIVED WILL DEPEND UPON THE EXCHANGE RATE
PREVAILING ON THE BUSINESS DAY ON WHICH FUNDS ARE MADE AVAILABLE TO THE RELEVANT
PAYMENT AGENT BY TU ACQUISITIONS. HOLDERS OF ENERGY GROUP SECURITIES SHOULD BE
AWARE THAT THE US DOLLAR/POUNDS STERLING EXCHANGE RATE WHICH IS PREVAILING AT
THE DATE ON WHICH AN ELECTION IS MADE TO RECEIVE DOLLARS AND ON THE DATES OF
DESPATCH AND RECEIPT OF PAYMENT MAY BE DIFFERENT FROM THAT PREVAILING ON THE
BUSINESS DAY ON WHICH FUNDS ARE MADE AVAILABLE TO THE RELEVANT PAYMENT AGENT BY
TU ACQUISITIONS. IN ALL CASES, FLUCTUATIONS IN THE US DOLLAR/POUNDS STERLING
EXCHANGE RATE ARE AT THE RISK OF ACCEPTING HOLDERS OF ENERGY GROUP SECURITIES
WHO ELECT OR ARE TREATED AS HAVING ELECTED TO RECEIVE THEIR CONSIDERATION IN US
DOLLARS. NEITHER TU ACQUISITIONS NOR ANY OF ITS ADVISERS OR AGENTS SHALL HAVE
RESPONSIBILITY WITH RESPECT TO THE ACTUAL AMOUNT OF CASH CONSIDERATION PAYABLE
OTHER THAN IN POUNDS STERLING.
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<PAGE> 64
APPENDIX II
DESCRIPTION OF TEXAS UTILITIES CAPITAL STOCK; COMPARISON OF SHAREHOLDER RIGHTS
1 DESCRIPTION OF TEXAS UTILITIES CAPITAL STOCK
The authorized capital stock of Texas Utilities consists of Common Stock,
without par value, of which 245,237,559 shares were outstanding at 31 December
1997 and serial preference stock, par value $25 per share, of which none is
outstanding. The following statements with respect to such capital stock of
Texas Utilities are a summary of certain rights and privileges attaching to the
stock under the laws of the State of Texas and the Restated Articles of
Incorporation of Texas Utilities ("Texas Utilities Articles") and Bylaws, as
amended, of ("Texas Utilities Bylaws"). This summary does not purport to be
complete and is qualified in its entirety by reference to such laws, the Texas
Utilities Articles and Texas Utilities Bylaws for complete statements.
Each holder of Texas Utilities Common Stock is entitled to one vote for
each share of Texas Utilities Common Stock held on all questions submitted to
shareholders and to cumulative voting at all elections of directors. The Texas
Utilities Common Stock has no preemptive or conversion rights. Upon issuance and
delivery, the New Texas Utilities Shares, will be fully paid and nonassessable.
The holders of the preference stock are not accorded voting rights, except
that, when dividends thereon are in default in an amount equivalent to four full
quarterly dividends, the holders of the preference stock are entitled to vote
for the election of one-third of the Board of Directors or two Directors,
whichever is greater, and, when dividends are in default in an amount equivalent
to eight full quarterly dividends, for the election of the smallest number of
Directors necessary so that a majority of the full Texas Utilities Board shall
have been elected by the holders of the preference stock. Texas Utilities must
also secure the approval of the holders of two-thirds of the outstanding shares
of preference stock prior to effecting various changes in its capital structure.
After the payment of full preferential dividends on the preference stock,
holders of Texas Utilities Common Stock are entitled to dividends when and as
declared by the Texas Utilities Board of Directors. After payment to the holders
of preference stock of the preferential amounts to which they are entitled, the
remaining assets to be distributed, if any, upon any dissolution or liquidation
of Texas Utilities shall be distributed to the holders of the Texas Utilities
Common Stock. Each share of Texas Utilities Common Stock is equal to every other
share of Texas Utilities Common Stock with respect to dividends and also with
respect to distributions upon any dissolution or liquidation.
The Texas Utilities Common Stock is listed on the NYSE, CSE and PSE.
The transfer agent and registrar for the Texas Common Stock is Texas
Utilities Shareholder Services, Dallas, Texas.
2 COMPARISON OF SHAREHOLDER RIGHTS
There are a number of differences between the rights attaching to shares of
Texas Utilities Common Stock, as detailed above, and those attaching to Energy
Group Shares. Certain rights attaching to Energy Group Shares, where those
differences exist, are identified below. Such differences may arise from the
differences between legislation and regulations governing The Energy Group and
those governing Texas Utilities as well as between the constitutional documents
of the two companies. The following is not a complete description of the
differences between the rights associated with Energy Group Shares as compared
to New Texas Utilities Shares. Further, it does not address the differing rights
of holders of Texas Utilities preference stock.
For a complete understanding of such differences, holders of Energy Group
Securities are referred to the laws and applicable regulations of England, the
United States and the State of Texas, the rules of the London Stock Exchange,
the NYSE, the CSE, the PSE and the constitutional documents of both The Energy
Group and Texas Utilities.
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<PAGE> 65
General
The Energy Group is incorporated in England and operates in accordance with
the Companies Act. Rules and regulations governing trading of Energy Group
Shares differ from those relating to shares of Texas Utilities Common Stock.
Dividends
Pursuant to The Energy Group's articles of association, and subject to the
restrictions of English law, dividends may be declared by the Board of The
Energy Group, or by The Energy Group, on the recommendation of the Board, by
ordinary resolution in an amount not to exceed that recommended by the Board.
Meetings
The holders of not less than one tenth of the paid up voting capital of The
Energy Group have the right to requisition general meetings of shareholders.
Transfers
The Energy Group articles of association allow The Energy Group Board, in
its absolute discretion, and without giving any reason for so doing, to refuse
to register certain transfers of shares, being shares which are not fully paid
up, or being shares, whether fully paid up or not, which are in favour of more
than four joint transferees.
II-2
<PAGE> 66
APPENDIX III
SUMMARY OF THE TERMS OF THE LOAN NOTES
The unsecured floating rate loan notes 1998/2004 of TU Acquisitions will be
created by a resolution of the Board of TU Acquisitions (or a duly authorised
committee of TU Acquisitions) and will be constituted by a loan note instrument
(the "Loan Note Instrument") executed as a deed by TU Acquisitions. The Loan
Notes will not be guaranteed. The issue of the Loan Notes will be conditional on
the Texas Utilities Offer becoming or being declared unconditional in all
respects. Loan Notes will only be issued if the aggregate valid elections for
the Loan Note Alternative received on or before the date on which the Texas
Utilities Offer becomes or is declared unconditional in all respects will result
in TU Acquisitions issuing in excess of L1 million nominal value of Loan Notes.
The Loan Note Alternative is not (subject to certain exceptions) available to
persons with registered addresses in the United States, Canada, Japan or
Australia or to or for the account or benefit of any US Person. The Loan Note
Instrument will contain provisions, among others, to the effect set out below.
1 FORM AND STATUS
The Loan Notes will be issued by TU Acquisitions in registered form in amounts
and integral multiples of L1 and will constitute unsecured obligations of TU
Acquisitions ranking pari passu with its other unsecured obligations apart from
those preferred by law. Fractional entitlements will be disregarded. The Loan
Note Instrument will not contain any restrictions on borrowing, disposals or
charging of assets by TU Acquisitions or any member of the Texas Utilities
Group.
2 INTEREST
a) Interest on the Loan Notes will accrue from day to day and will be calculated
on the basis of a 365-day year (or in the case of a leap year, a 366-day
year) and will be payable (subject to any requirement to deduct income tax
therefrom) twice yearly in arrears on 30 June and 31 December or, if any such
day is not a business day, on the immediately preceding business day
("interest payment dates") in each year in respect of the interest periods
(as defined below) ending on those dates at a rate calculated as provided in
sub-paragraph 2(b) below or, if no rate can be established in accordance with
sub-paragraph 2(b) below, as provided in sub-paragraph 2(c) below, except
that the first payment of interest on any Loan Note, which will be made on 31
December 1998, will be in respect of the period from the date of issue of
such Loan Note to 31 December 1998 (both dates inclusive). The period from
the date of issue of such Loan Notes to 31 December 1998 and the period from
the day following 31 December 1998, or any subsequent interest payment date,
to the next following interest payment date (inclusive of the next following
interest payment date) is herein called an "interest period".
b) The rate of interest on the Loan Notes for each interest period will be that
calculated by TU Acquisitions to be 0.5 per cent. below the rate per annum of
the offer quotation for six months' deposits in sterling for an interest
period which appears on Telerate Page 3750 at or about 12.00 noon (showing
the rate as at or about 11.00 am) on the first day of the relevant interest
period, except that in the case of the first interest period (being from the
date of the issue of each Loan Note to 31 December 1998) such calculation
will be made on the day on which any of the Loan Notes are first issued or,
if any such day is not a business day, on the next succeeding business day
(the "Calculation Day"). If no such offer quotation as at or about 11.00 am
appears on Telerate Page 3750 on or before 3.00 pm on the Calculation Day,
the rate of interest for each interest period shall be the arithmetic mean
(rounded upward to the nearest five decimal places) of the offer quotations
for sterling deposits for a period equal, or as nearly equal as possible, to
an interest period which appear on the Reuters Screen LIBP Page at or about
11.00 am on the Calculation Day. Any calculation of the rate of interest and
of each such interest amount shall, in the absence of manifest error, be
final and binding.
c) If a rate of interest cannot be established in accordance with the provisions
in sub-paragraph 2(b) above for any interest period, then the rate of
interest on the Loan Notes for such interest period shall be calculated by
reference to a rate 0.5 per cent. below such rate as TU Acquisitions shall
determine on the
III-1
<PAGE> 67
basis of quotations made by reference to a London clearing bank or a group of
London clearing banks as selected by TU Acquisitions or (failing which) to
rates offered in any other sterling inter-bank market or markets as TU
Acquisitions may select, and if a rate of interest cannot be established in
accordance with the above provisions of this sub-paragraph for any interest
period then the applicable rate of interest shall be the same as that
applicable to the Loan Notes during the previous interest period.
3 REDEMPTION OF LOAN NOTES
a) A holder of Loan Notes ("Noteholder") shall be entitled to require TU
Acquisitions to redeem the whole (whatever the amount) or any part of his
holding of Loan Notes at par, together with accrued interest (subject to any
requirement to deduct income tax therefrom) to (and including) the date of
payment, on 31 December 1998, and on any interest payment date falling
thereafter by giving notice in writing to TU Acquisitions (in the form
endorsed on the Loan Note certificate) not less than 30 days prior to such
interest payment date accompanied by the certificate(s) for all the Loan
Notes to be redeemed, provided that no such notice may be given in respect of
any Loan Notes for which notice of redemption has previously been given by TU
Acquisitions in accordance with sub-paragraph 3(b) below.
b) If, at any time, the nominal amount of all Loan Notes outstanding is 20 per
cent. or less of the total nominal amount of Loan Notes issued, TU
Acquisitions shall have the right on giving to the remaining Noteholders not
less than 30 days' notice in writing, such notice not to take effect prior to
31 December 1998, to redeem, on the expiry of such notice, all (but not some
only) of the outstanding Loan Notes by payment of the nominal amount thereof
together with accrued interest (subject to any requirement to deduct income
tax therefrom) to (and including) the date of redemption.
c) Any Loan Notes not previously so redeemed or purchased will be repaid in full
at par on 31 December 2004.
4 PURCHASE OF LOAN NOTES
TU Acquisitions will be entitled at any time after 31 December 1998 to purchase
Loan Notes at any price by tender, private treaty or otherwise by agreement with
the relevant Noteholder(s).
5 CANCELLATION
Any Loan Notes redeemed under paragraph 3 above or purchased under paragraph 4
above shall be cancelled and shall not be available for re-issue.
6 MODIFICATIONS
The provisions of the Loan Note Instrument and the rights of the Noteholders
will be subject to modification, abrogation or compromise in any respect with
the sanction of an Extraordinary Resolution of the Noteholders, as defined in
the Loan Note Instrument, subject to the consent of TU Acquisitions. TU
Acquisitions may amend the provisions of the Loan Note Instrument without such
sanction or consent if, in the reasonable opinion of the financial adviser to TU
Acquisitions, such amendment would not be materially prejudicial to the
interests of Noteholders or is of a formal, minor or technical nature or
corrects a manifest error.
7 REGISTRATION AND TRANSFER
The Loan Notes will be registered in amounts and multiples of L1. The Loan Notes
will be transferable in amounts or integral multiples of L1.
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<PAGE> 68
8 RESTRICTIONS ON OWNERSHIP AND TRANSFER
Notwithstanding the foregoing, prior to the date occurring 180 days after the
last date of issue of any Loan Notes pursuant to the Texas Utilities Offer or,
where applicable, pursuant to the provisions of sections 428 to 430F of the
Companies Act:
a) no transfer of Loan Notes will be registered until each transferee has
delivered to TU Acquisitions a certificate in the prescribed form to the
effect that such transferee is not a US Person and is not acquiring, and will
not be holding, such Loan Notes for the account or benefit of a US Person or
with a view to the offer, sale or delivery, directly or indirectly, of such
Loan Notes in the United States, Canada, Australia or Japan, or to or for the
account or benefit of any US Person or any other person whom such transferee
has reason to believe is purchasing for the purpose of such offer, sale or
delivery;
b) payments of interest or principal in respect of the Loan Notes will not be
made to addresses in the United States, Canada, Australia or Japan;
c) documents of title in respect of the Loan Notes will not be sent to addresses
in the United States, Canada, Australia or Japan; and
d) registered addresses of holders of Loan Notes must be outside the United
States, Canada, Australia or Japan.
9 PRESCRIPTION
Noteholders will cease to be entitled to amounts in respect of interest which
remain unclaimed for a period of 12 years, and to amounts due in respect of
principal which remain unclaimed for a period of 12 years, in each case from the
date on which the relevant payment first becomes due, and such amounts shall
revert to TU Acquisitions.
10 FURTHER LOAN NOTES
Provision will be made in the Loan Note Instrument to enable TU Acquisitions to
make further issues of the Loan Notes so as to form a single series with the
Loan Notes issued pursuant to the Texas Utilities Offer or to carry such rights
as to interest, redemption and otherwise as TU Acquisitions may think fit.
Each Noteholder will have the right to acquire by subscription at par additional
loan notes, to be issued by a subsidiary of TU Acquisitions (the "Additional
Notes"), having a nominal value of an amount up to or equal to such Noteholder's
holding of Notes, on terms and conditions substantially the same as those
applicable to the Loan Notes, except as follows:
a) the rate of interest will be 1.5 per cent. below the rate per annum described
in paragraph 2(b) above; and
b) the Additional Notes will not carry any right to acquire any additional
securities.
The right to subscribe for Additional Notes will be exercisable on and after 31
December 2003.
11 NO LISTING
No application has been made or is intended to be made for the Loan Notes to be
listed or dealt in on any stock exchange.
12 EVENTS OF DEFAULT
Each Noteholder shall be entitled to require all or any part of the Loan Notes
held by him to be repaid at par together with accrued interest (subject to any
requirement to deduct any income tax therefrom) whilst any of the following is
continuing:
a) any principal or interest on any of the Loan Notes held by that Noteholder
shall fail to be paid in full within 30 days after the due date for payment
thereof; or
III-3
<PAGE> 69
b) an order is made or an effective resolution is passed for the winding-up or
dissolution (or any equivalent procedure in any other jurisdiction) of TU
Acquisitions (other than for the purposes of an amalgamation or
reconstruction or a members' voluntary winding-up upon terms previously
approved by Extraordinary Resolution); or
c) an encumbrancer takes possession or a trustee, receiver or an administrator,
administrative receiver or similar officer is appointed of all or
substantially all of the undertaking of TU Acquisitions and such person has
not been paid out or discharged within 30 days.
13 SUBSTITUTION
The Loan Notes will contain provisions entitling TU Acquisitions, without the
consent of Noteholders, to substitute any of its subsidiaries or any holding
company or subsidiaries of such holding company resident in the United Kingdom
for tax purposes (other than Eastern or any of its subsidiaries) as the
principal debtor under the Loan Notes, or to require all or any of the
Noteholders to exchange their Loan Notes for loan notes issued on the same terms
mutatis mutandis by any such company provided that (a) TU Acquisitions
guarantees such company's obligations thereunder; and (b) following such
substitution or exchange, the Loan Notes or (as the case may be) such loan notes
shall not contain a provision equivalent to this paragraph 13. References to TU
Acquisitions in this summary shall be construed accordingly. TU Acquisitions'
right to require substitution of such company as principal debtor (but not the
right to require exchange of the Loan Notes) will be exercisable only if prior
clearance has been obtained from the Inland Revenue to the effect that the
substitution will not be treated as a disposal of the Loan Notes for the
purposes of United Kingdom taxation of chargeable gains and TU Acquisitions'
right to require such an exchange will be exercisable only if the exchange will
fall within section 135 of the Taxation of Chargeable Gains Act 1992 and, to the
extent relevant, clearance has been received from the Inland Revenue under
section 138 of that Act in respect of the exchange.
14 GOVERNING LAW
The Loan Notes and the Loan Note Instrument will be governed by and construed in
accordance with English Law.
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<PAGE> 70
APPENDIX IV
FINANCIAL AND OTHER INFORMATION ON THE ENERGY GROUP
1 RESULTS FOR THE NINE MONTHS ENDED 31 DECEMBER 1997.
The text on pages IV-1 to IV-3 is a reproduction of the announcement made by The
Energy Group on 3 February 1998:
"THE ENERGY GROUP -- THIRD QUARTER RESULTS
FINANCIAL HIGHLIGHTS
- - TURNOVER AT L3.4 BILLION UP 10%
- - OPERATING PROFIT UP 15%
The Energy Group PLC today announces its results for the period 1 October 1997
to 31 December 1997. The results for the quarter have been compared to the pro
forma operating results for the equivalent period in 1996 of certain of the
businesses which were previously reported as part of Hanson plc.
FINANCIAL RESULTS
Group turnover for the nine months to 31 December 1997 was L3,390 million, an
increase of 10 per cent. on the same period last year (pro forma 1996: L3,084
million). Operating profit for the nine month period was L379 million up 15 per
cent. (pro forma 1996: L330 million), before exceptional costs associated with
the Pacificorp bid and restructuring charges. Pre-exceptional earnings per share
for this period were 40.0p.
TRADING
COAL
Third quarter turnover declined slightly to L323 million (pro forma 1996: L325
million) mainly due to adverse exchange rate movements. Operating profit rose 8
per cent. to L27 million (pro forma 1996: L25 million). Peabody sold 40 million
tons (1996: 41 million tons) of steam and metallurgical coal during the quarter
and its steam coal products continue to fuel approximately 9 per cent. of all
electricity produced by US electricity companies.
POWER
Third quarter turnover was up 17 per cent. to L1,005 million (pro forma: L860
million) and operating profit rose 88 per cent. to L107 million (pro forma 1996:
L57 million). This substantial improvement reflects an excellent performance
from our trading activities including Citizens Power and the UK coal-fired power
stations. The new gas-fired power station at King's Lynn was fully commissioned
in December and Eastern's gas and electricity retail business has also shown an
upturn, reflecting improved margins.
NETWORKS
Third quarter turnover rose 9 per cent. to L139 million (pro forma: L127
million) with operating profit increasing 18 per cent. to L66 million (pro forma
1996: L56 million). These improved results are mainly due to property disposal
and other one-off profits. The underlying networks business was broadly flat,
reflecting continuing regulatory price reductions, offset by cost reductions.
Derek Bonham, Chairman, said: "These results demonstrate the strengths of The
Energy Group's businesses. The increases in profit in our three sectors are very
encouraging. With our mix of generating capacity this was always going to be a
good quarter for us.
Today we have announced the terms of a recommended renewed offer by Pacificorp
for The Energy Group. Together we can create a group with the scale and scope of
operations to compete more effectively in international energy markets. Detailed
terms of the offer will be mailed to our shareholders shortly."
IV-1
<PAGE> 71
UNAUDITED FINANCIAL RESULTS
THIRD QUARTER ENDED 31 DECEMBER 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
3 MONTHS TO 3 MONTHS TO 9 MONTHS TO 9 MONTHS TO
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
1997 LM 1996 LM 1997 LM 1996 LM
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
TURNOVER
Coal (Note 1)............................. 323 325 1,014 1,058
Power..................................... 1,005 860 2,253 1,946
Networks.................................. 139 127 354 331
Other..................................... 5 4 18 19
Intra-group............................... (89) (101) (249) (270)
----- ----- ----- -----
1,383 1,215 3,390 3,084
----- ----- ----- -----
OPERATING PROFIT
Coal (Note 1)............................. 27 25 112 113
Power..................................... 107 57 138 96
Networks.................................. 66 56 147 134
Other (Note 2)............................ (8) (4) (18) (13)
----- ----- ----- -----
192 134 379 330
PRE-EXCEPTIONAL OPERATING PROFIT
Bid-related costs (Note 3)................ (1) - (10) -
Restructuring and re-organisation costs
(Note 3).................................. - - (7) -
----- ----- ----- -----
TOTAL OPERATING PROFIT.................... 191 134 362 330
----- ----- ----- -----
Net interest and similar charges.......... (103)
-----
PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION................................ 259
Taxation charge for the period on
results................................. (66)
-----
193
Windfall tax.............................. (112)
-----
Profit on ordinary activities after
taxation................................ 81
Dividends................................. (41)
-----
Profit retained for the period............ 40
-----
Earnings per ordinary share (Note 4)
Pre-exceptional........................... 40.0
Basic..................................... 15.7
</TABLE>
Notes:
(1) Turnover and operating profit for coal include the results for contract
restructuring.
(2) Pro forma adjustments have been made to the figures to 31 December 1996 in
respect of the additional administration costs that arose following the
demerger. The directors estimate that such costs amount to approximately L15
million per annum.
(3) Exceptional costs in the nine months ended 31 December 1997 relate to L7
million of restructuring costs within the Power segment and bid-related
costs of L10 million, of which L1 million arose in the quarter ended 31
December 1997.
(4) The earnings per share for the 9 months ended 31 December 1997 are based on
the profits for that period and on 516,756,926 shares which excludes the
4,100,891 shares held by The Energy Group Employee Benefit Trust, which has
waived the right to dividends on the shares it holds.
IV-2
<PAGE> 72
UNAUDITED FINANCIAL RESULTS
THIRD QUARTER ENDED 31 DECEMBER 1997
<TABLE>
<CAPTION>
PRO FORMA
9 MONTHS
PRO FORMA 9 MONTHS TO TO 31
3 MONTHS TO 31 3 MONTHS TO 31 31 DECEMBER DECEMBER
DECEMBER 1997 DECEMBER 1996 1997 1996
$M $M $M $M
-------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
TURNOVER
Coal (Note 2).......................... 532 535 1,670 1,743
Power.................................. 1,656 1,417 3,712 3,206
Networks............................... 229 209 583 545
Other.................................. 8 7 30 31
Intra-group............................ (147) (166) (410) (444)
----- ----- ----- -----
2,278 2,002 5,585 5,081
OPERATING PROFIT
Coal (Note 2).......................... 44 41 185 186
Power.................................. 176 94 227 158
Networks............................... 109 92 242 221
Other (Note 3)......................... (13) (6) (30) (21)
----- ----- ----- -----
PRE-EXCEPTIONAL OPERATING PROFIT....... 316 221 624 544
Bid-related costs (Note 4)............. (2) - (16) -
Restructuring and re-organisation costs
(Note 4)............................. - - (12) -
----- ----- ----- -----
TOTAL OPERATING PROFIT................. 314 221 596 544
----- ----- -----
Net interest and similar charges....... (169)
-----
PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION............................. 427
Taxation charge for the period on
results.............................. (109)
-----
318
Windfall tax........................... (185)
-----
Profit on ordinary activities after
taxation............................. 133
Dividends.............................. (67)
-----
Profit retained for the period......... 66
Earnings per ordinary ADS (Note 5)
Pre-exceptional........................ 2.64
Basic.................................. 1.03
</TABLE>
- ---------------
(1) The above US$ figures have been translated at the average exchange rate for
the nine months to 31 December 1997 of $1.6474 to the L.
(2) Turnover and operating profit for coal include the results for contract
restructuring.
(3) Pro forma adjustments have been made to the figures to 31 December 1996 in
respect of the additional administration costs that arose following the
demerger. The directors estimate that such costs amount to approximately $25
million per annum.
(4) Exceptional costs in the nine months ended 31 December 1997 relate to $12
million of restructuring costs within the Power segment and bid-related
costs of $16 million, of which $2 million arose in the quarter ended 31
December 1997.
(5) The earnings per ADS for the 9 months ended 31 December 1997 are based on
the profits for that period and on 516,756,926 shares which excludes the
4,100,891 shares held by The Energy Group Employee Benefit Trust, which has
waived the right to dividends on the shares it holds. One ADS is equivalent
to four ordinary shares."
IV-3
<PAGE> 73
2 THE FOLLOWING DOCUMENTS FILED BY THE ENERGY GROUP WITH THE SEC ARE SET FORTH
HEREIN:
a. Transition Report on Form 20-F of TEG for the period ended March 31, 1997,
as filed with the SEC in September 1997;
b. Form 6-K of The Energy Group for the month of August 1997;
c. Form 6-K of The Energy Group for the month of September 1997;
d. Form 6-K of The Energy Group for the month of October 1997;
e. Form 6-K of The Energy Group for the month of November 1997; and
f. Form 6-K of The Energy Group for the month of December 1997.
IV-4
<PAGE> 74
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 20-F
(MARK ONE)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
--------------------------------------
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM OCTOBER 1, 1996 TO MARCH 31, 1997
COMMISSION FILE NUMBER 1-14576
---------------------
THE ENERGY GROUP PLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------------
ENGLAND AND WALES
(JURISDICTION OF INCORPORATION OR ORGANIZATION)
117 PICCADILLY
LONDON W1V 9FJ, ENGLAND
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
---------------------
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
------------------- ---------------------
<S> <C>
Ordinary Shares of 10p each New York Stock Exchange*
</TABLE>
- ---------------
* Listed, not for trading, but only in connection with the registration of
American Depositary Shares, pursuant to the requirements of the Securities and
Exchange Commission.
---------------------
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d)
OF THE ACT:
None
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of
March 31, 1997, the close of the period covered by the transition report:
Ordinary Shares of 10p each ........................ 520,857,817
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark which financial statement item the registrant has
elected to follow: [ ] Item 17 [X] Item 18
================================================================================
<PAGE> 75
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
PART I
Item 1. Description of Business..................................... 1
Item 2. Description of Property..................................... 28
Item 3. Legal Proceedings........................................... 29
Item 4. Control of Registrant....................................... 29
Item 5. Nature of Trading Market.................................... 29
Item 6. Exchange Controls and Other Limitations Affecting Security
Holders................................................... 30
Item 7. Taxation.................................................... 30
Item 8. Selected Financial Data..................................... 34
Item 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 37
Item 10. Directors and Officers of Registrant........................ 46
Item 11. Compensation of Directors and Officers...................... 48
Item 12. Options to Purchase Securities from Registrant or
Subsidiaries.............................................. 49
Item 13. Interest of Management in Certain Transactions.............. 50
PART II
Item 14. Description of Securities to be Registered*.................
PART III
Item 15. Defaults Upon Senior Securities............................. 51
Item 16. Changes in Securities and Changes in Security for Registered
Securities................................................ 51
PART IV
Item 17. Financial Statements**...................................... 51
Item 18. Financial Statements........................................ 51
Item 19. Financial Statements and Exhibits........................... 51
DEFINITIONS AND GLOSSARY........................................................ 52
SIGNATURE....................................................................... 59
</TABLE>
- ---------------
* Not applicable.
** The registrant has responded to Item 18 in lieu of responding to this Item.
<PAGE> 76
As used in this Transition Report, "Energy" refers to The Energy Group
PLC and the "Group" refers collectively to Energy and its consolidated
subsidiaries, except as the context otherwise requires. Capitalized terms used
in this Transition Report are defined in "Definitions and Glossary" commencing
on page 50.
The consolidated (combined) financial statements ("Financial
Statements") of the Group appearing in this Transition Report are presented in
pounds sterling and are prepared in accordance with accounting principles
generally accepted in the UK ("UK GAAP"). UK GAAP differ in certain respects
from accounting principles generally accepted in the US ("US GAAP"). The
significant differences between UK GAAP and US GAAP relevant to the Group are
explained in Note 30 of Notes to the Financial Statements.
Merely for the convenience of the reader, this Transition Report
contains translations of certain amounts in pounds sterling ("L") or pence
("p")(1p is equivalent to 1/100 of L1) into US dollars ("US dollars" or "$") or
cents ("c"). The translations of pounds sterling and pence to US dollars or
cents appearing in this Transition Report have been made at the noon buying rate
in New York City for cable transfers in foreign currencies as announced for
customs purposes by the Federal Reserve Bank of New York (the "Noon Buying
Rate") on March 31, 1997 of $1.6448 = L1.00. On September 22, 1997, the Noon
Buying Rate was $1.6025 = L1.00. For additional information on exchange rates
between the pound sterling and the US dollar, see "Exchange Rates" in Item 8 of
this Transition Report.
All statements, other than statements of historical fact, included in
this Transition Report including, without limitation, the statements under
"Description of Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are, or may be deemed to be,
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. Important factors that could cause actual results to
differ materially from those discussed in such forward-looking statements
("Cautionary Statements") include: with respect to Peabody's coal operations,
trends in coal prices, coal consumption patterns in the US, Australia and the
Asian Pacific Rim countries, competition from other coal producers and
alternative energy sources, renegotiation and replacement of Peabody's coal
supply contracts, the impact of changes in environmental and other governmental
regulations, and industrial relations and uncertain mining conditions; with
respect to the Group's power operations, regulation of power station emissions,
increasing competition in the electricity supply business in the UK once the
electricity supply industry is progressively opened to competition commencing
from April 1, 1998 and fluctuations in the purchase prices of electricity from
the electricity trading market in England and Wales (the "Pool") and the
continuing availability of counterparties for CfDs, and with respect to
Eastern's networks operations, price regulation of electricity distribution and
environmental and other regulatory changes. All subsequent written and oral
forward-looking statements attributable to the Group or persons acting on behalf
of the Group are expressly qualified in their entirety by such Cautionary
Statements.
ITEM 1. DESCRIPTION OF BUSINESS
Energy, a public limited company incorporated in England and Wales, owns
and operates a diversified international energy group which includes Peabody,
the world's largest private producer of coal, and Eastern, one of the largest
integrated electricity and gas groups in the UK. The registered office of Energy
is located at 117 Piccadilly, London W1V 9FJ, and its telephone number is (44)
171 647 3200.
Energy's strategy is to establish itself as a leading integrated
international energy business in the United States, the United Kingdom,
Australia and elsewhere through building a presence across the value chain in
these markets and by exploiting the potential created by the continuing
privatization of electricity generation, networks and sales in world markets.
COAL
Through Peabody, the largest producer of coal in the US, Energy
operated, as of March 31, 1997, 26 underground and surface mines in the US and
three surface mines in Australia:
- As of March 31, 1997, Peabody owned a controlled 9.5 billion tons
of proven and probable coal reserves which is the largest coal
reserve base of any active private mining company in the US;
- In the six months ended March 31, 1997, Peabody sold 81.4 million
tons of coal representing an estimated 14.4% of the US market; and
- Peabody Australia, one of the ten largest coal producers in
Australia, has interests in four surface mines in New South Wales,
three of which are currently in operation. Peabody's equity share
of
<PAGE> 77
the coal sales of these mines amounted to 3.5 million tons in the six
months ended March 31, 1997 and its equity share of the proven and
probable reserves associated with these mines as of March 31, 1997
amounted to 466 million tons.
POWER AND NETWORKS
Through Eastern, Energy is one of the leading integrated electricity and
gas groups in the UK:
- Eastern Generation, the fourth largest generator of electricity in
Great Britain, currently owns, operates or has an interest in
eight power stations, representing approximately 10% of the total
registered generating capacity of 71,850 MW as of March 31, 1997;
- Eastern Power & Energy Trading manages for the Group the price and
volume risks associated with electricity generation and the supply
of fuels required for electricity generation, and with the
wholesaling and retailing of electricity and natural gas. These
exposures are managed by trading its contract portfolio and by
bidding Eastern's generation output into the Pool. Eastern Power &
Energy Trading also has small equity interests in three natural
gas producing fields in the North Sea;
- Eastern Natural Gas is one of the largest suppliers of natural gas
in the UK after Centrica plc (formerly part of British Gas); and
- Eastern Electricity is the largest supplier and distributor of
electricity in England and Wales, with over three million
customers and an authorized area covering approximately 20,300
square kilometers in the east of England and parts of north
London.
Energy also owns Citizens Power LLC (formerly Citizens Lehman Power
L.L.C.) ("Citizens"), one of the leading US power marketing firms which was
acquired by the Group in May 1997. Its headquarters are in Boston and it has
field offices in Milwaukee, Denver and Toronto.
Energy has been an independent, publicly owned company since February
24, 1997 when, through Energy, Hanson effected the demerger (i.e., spin-off) of
its energy businesses (the "Demerger"). Pursuant to the Demerger, on February
24, 1997, Hanson transferred Rollalong, a wholly-owned direct subsidiary of
Hanson which owned Eastern, Consolidated Gold Fields (which indirectly owned Lee
Ranch) and the companies which owned Peabody Australia, to Energy in
consideration for Energy issuing Ordinary Shares representing all of its then
outstanding share capital (other than subscriber shares) to holders of Hanson
Shares (including Hanson Shares represented by Hanson ADSs) on a pro rata basis
of one Ordinary Share for every ten Hanson Shares and one ADS for every eight
Hanson ADSs. On March 7, 1997, PUSH, a wholly-owned indirect subsidiary of
Hanson, transferred to Peabody Investments (which was and continues to be
approximately a 99.4% subsidiary of Energy, with subsidiaries of Hanson owning
the remaining 0.6% interest), the entire issued share capital of Peabody in
consideration for $1,637.5 million.
OFFER BY PACIFICORP ACQUISITIONS
On June 13, 1997, Energy announced the terms of a recommended cash offer
(the "Offer") for Energy made on behalf of PacifiCorp Acquisitions, a
wholly-owned subsidiary of PacifiCorp. PacifiCorp is a diversified energy group
based in Portland, Oregon, serving retail electricity customers in Oregon,
Washington, California, Montana, Idaho, Utah and Wyoming. The terms of the
Offer, which was unanimously approved by Energy's Board of Directors, were 690p
per Ordinary Share and L27.60 per ADS, together with the right to retain the
dividend of 5.5p (net) per Ordinary Share paid on July 4, 1997 to those
shareholders on the register of members on June 27, 1997. The Offer valued the
equity of Energy at approximately L3,659 million (assuming the exercise in full
of all outstanding options and the vesting of all outstanding awards under
Energy's employee share schemes). Including the dividend referred to above, the
Offer represented a premium of approximately 31% to the closing price of 529.5p
per Ordinary Share on May 13, 1997, the business day one month before the
announcement of the Offer and a premium of approximately 24% to the closing
price of 561.5p per Ordinary Share on June 9, 1997, the last business day before
the announcement by Energy that it was involved in talks with PacifiCorp in
relation to the Offer.
The Offer was subject to certain conditions and regulatory consents and
confirmations being obtained. On August 1, 1997, the UK Secretary of State for
Trade and Industry (the "Secretary of State") announced that she had concerns
over whether it would be possible to maintain adequate control over the merged
company and that, accordingly, she had decided to refer the proposed acquisition
of Energy by PacifiCorp to the Monopolies and Mergers Commission ("MMC"). The
MMC has a deadline of November 21, 1997 for completing its investigation
2
<PAGE> 78
and reporting to the Secretary of State whether the proposed acquisition of
Energy by PacifiCorp operates or may be expected to operate against the public
interest. Following receipt of the MMC report the Secretary of State will
announce whether the acquisition has been cleared. The Secretary of State is not
required to make her decision within any specified time period. Even if the MMC
were to give the acquisition a conditional clearance, the Secretary of State has
the discretion to reject the MMC's recommendations.
As a result of the referral to the MMC, the Offer immediately lapsed by
its own terms. Prior to the announcement of the referral, holders of Ordinary
Shares and ADSs representing approximately two-thirds of Energy's shares capital
had submitted valid acceptances of the Offer. PacifiCorp and Energy have each
stated that they will cooperate fully in the inquiry and respond promptly to
information requests by the MMC and are communicating with each other as
appropriate for this purpose. In addition, PacifiCorp and Energy are in the
process of complying with a request for additional information in relation to
the Offer by the US Federal Trade Commission (the "FTC") under the
Hart-Scott-Rodino Antitrust Improvements Act in relation to the potential
acquisition of Energy by PacifiCorp. It is uncertain when the FTC will complete
its review.
In addition, there can be no assurance that the regulatory consents and
confirmations mentioned above will be obtained or, if obtained, that such
consents and confirmations will be on satisfactory terms, or that PacifiCorp
will make a new offer for Energy or, if made, that such offer will be on terms
acceptable to the Board of Directors of Energy, which would be required to
consider any new offer by PacifiCorp in the context of the circumstances then
prevailing.
DESCRIPTION OF THE BUSINESSES
COAL
The Group's coal operations are conducted through Peabody. Peabody,
which is the largest producer of coal in the US and the largest private coal
producer in the world, currently operates 25 underground and surface mines in
the US (one small underground mine having been sold in June 1997) and three
surface mines in Australia and 11 processing plants. Since September 30, 1990,
the Group's total US and Australian annual sales have increased from 93 million
tons to 163 million tons in the year ended September 30, 1996 (81.4 million tons
in the six months ended March 31, 1997). The Directors estimate that the Group's
US market share has grown from 9% in the year ended September 30, 1990 to 15% in
the year ended September 30, 1996 with sales increasing from 156 million tons to
163 million tons. In the six months ended March 31, 1997, the Directors estimate
that the Group had a market share of 14% with sales of 74.8 million tons.
Peabody's US operations are managed through four principal units: Powder
River; Peabody Western; Peabody East; and Lee Ranch. Peabody's 25 US mines sell
coal to 141 US power plants and Peabody also exports from the US to customers in
12 other countries, principally power generation plants and industrial users.
Peabody's head office in St. Louis, Missouri, provides general policy overview,
co-ordinates coal sales and business development activities and performs
financial management and consolidation functions, with a view to ensuring that
capital is allocated to the most profitable purposes.
Peabody's base of approximately 9.5 billion tons of proven and probable
owned or controlled coal reserves has increased from approximately 7.0 billion
tons in 1990, and is the largest coal reserve base of any active private mining
company in the US. Certain of Peabody's coal reserves are held by Peabody
Development, a subsidiary of Peabody, which is responsible for acquiring coal
assets for future development and the disposal of coal and surface property
interests which have no further strategic value to the Group.
Peabody has a substantial base of low sulfur coal reserves consisting of
approximately 4.7 billion tons and additional such reserves are available for
lease from private parties or federal, state or tribal governments, especially
in the Powder River Basin. Of the 51% of Peabody's coal reserves which are high
sulfur, many are located near coal-fired power stations which may make them
attractive for development because of the lower transportation costs. The US
Clean Air Act Amendments of 1990 (the "Clean Air Act Amendments"), which are
described under "Regulatory Matters" below, limit the ability of some of
Peabody's customers to burn higher sulfur coals unless they have installed, at
significant cost, "scrubbers", or are able to purchase so-called "emission
allowances". The development of the Group's high sulfur coal reserves is thus
dependent on the cost of such emission allowances, the cost and availability of
low sulfur coal and whether electric utilities install scrubbers to meet the
requirements of Phase II of the Clean Air Act Amendments by 2000 as described
under "Regulatory Matters" below.
Peabody Australia is one of the ten largest coal producers in Australia.
It owns or holds joint venture interests in and also manages four surface mines
in New South Wales, Australia and is well positioned to serve the
3
<PAGE> 79
growing market in the Asian Pacific Rim. One of these mines, Bengalla, is
currently under development and is scheduled to begin operations in 1999. In the
six months ended March 31, 1997, Peabody Australia's equity share of sales from
these mines totaled 3.5 million tons and its share of the proven and probable
reserves associated with these operations amounted to 466 million tons.
COAL RESERVES
The following table provides a summary of Peabody's sales for the six
months ended March 31, 1997 and its recoverable reserves as of March 31, 1997:
<TABLE>
<CAPTION>
SALES IN SIX
MONTHS
ENDED
MARCH 31,
1997 RECOVERABLE RESERVES AS OF MARCH 31, 1997(1)
------------ ----------------------------------------------------------------
------------ --------------------------------------------
PROVEN PROBABLE TOTAL SULFUR CONTENT OWNED LEASED
UNITS LOW HIGH OR
OPTIONED
(MILLIONS OF TONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US
Powder River 45.4 2,447 46 2,493 2,371 122 86 2,408
Peabody Western 8.3 670 -- 670 486 184 1 669
Peabody East 18.3 1,065 607 1,672 579 1,093 798 874
Lee Ranch 2.1 152 512 664 607 57 659 5
Peabody Development -- 1,756 1,638 3,394 113 3,280 2,699 694
Other(2) 3.8 46 59 105 0 105 8 97
----- ------ ------ ------ ------ ------ ------ ------
Total US 77.9 6,136 2,862 8,998 4,156 4,841 4,251 4,747
Peabody Australia 3.5 147 319 466 466 -- -- 466
----- ------ ------ ------ ------ ------ ------ ------
Total 81.4 6,283 3,181 9,464 4,622 4,841 4,251 5,213
===== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
RECOVERABLE RESERVES AS OF MARCH 31, 1997(1)
----------------------------------------------
SURFACE UNDER- ASSIGNED(2) UNASSIGNED(3)
UNITS GROUND
<S> <C> <C> <C> <C>
US
Powder River 2,493 -- 1,963 531
Peabody Western 567 103 567 103
Peabody East 246 1,426 599 1,073
Lee Ranch 661 4 171 493
Peabody Development 480 2,914 -- 3,393
Other(2) 5 100 105 0
------ ------ ------ ------
Total US 4,452 4,547 3,405 5,593
Peabody Australia 365 101 273 193
------ ------ ------ ------
Total 4,817 4,648 3,678 5,786
====== ====== ====== ======
</TABLE>
- ---------------
(1) Recoverable reserves have been adjusted to take account of all losses
involved in producing a saleable product.
(2) The Roadside Mine, included in "Other", was sold in June 1997.
(3) Assigned reserves are coal reserves which are legally recoverable,
generally through existing facilities using current mining technology.
Unassigned reserves are coal reserves which are also legally
recoverable using current mining technology, but which require
substantial capital investment for facilities to enable recovery of the
coal.
Reserve estimates are based on geological data assembled and analyzed by
Peabody's staff which includes 13 qualified geologists and more than 100
qualified engineers, based both at the individual mines and Peabody's
headquarters, and independent experts. The reserve estimates are reviewed by
them periodically to reflect new drilling or other data received and production
of coal from the reserves. Accordingly, reserve estimates will change from time
to time to reflect mining activities, analysis of new engineering and geological
data, changes in reserve holdings, modifications of mining methods and other
factors. Reserve information, including the quantity and quality (where
available) of reserves as well as production rates, surface ownership, lease
payments and other information relating to the Group's coal reserve and land
holdings, is maintained through the computerized land management system
developed by Peabody.
Peabody's reserve base estimates are based on information obtained from
its extensive drilling program, which totals nearly 500,000 individual drill
holes. Data from individual drill holes are input into a computerized drill hole
system from which the depth, thickness and, where core drilling is used, the
quality of the coal, are determined. The density of the drill pattern determines
whether the reserves will be calculated as proven or probable. The drill hole
data are then input into the computerized land management system which overlays
the geological data with data on ownership or control of the mineral and surface
interests to determine the extent of the reserves in a given area. Drilling
operations are typically undertaken by qualified staff engineers and geologists.
4
<PAGE> 80
The cost and net book value of plant and equipment as extracted from the
Financial Statements included herein were L927 million and L395 million,
respectively, at March 31, 1997. In line with current accounting practice, the
Group's coal reserves and related plant and equipment have been individually
assessed to determine whether their value has been impaired in any way by market
or other circumstances. The carrying value of the reserves as stated in the
Financial Statements included herein reflects the results of that assessment.
Of the Group's reserves, approximately 45% are owned by Peabody,
approximately 16% are leased from private parties and approximately 39% are
leased from federal, state or tribal governments.
The private leases normally have terms of between 10 and 20 years, and
usually give Peabody the right to renew the lease for a stated period or to
maintain the lease in force until the exhaustion of mineable and merchantable
coal contained on the relevant site. These private leases provide for royalties
to be paid to the lessor either as a fixed amount per ton or as a percentage of
the sales price. Many leases also require payment of a lease bonus or minimum
royalty, payable either at the time of execution of the lease or in periodic
installments. Private leases are invariably maintained by active production.
Leases containing unassigned reserves may expire or such leases may be renewed
periodically. As mines deplete or reserves are assigned, production is often
commenced in a new mine to replace the depleted capacity.
Peabody held, as at March 31, 1997, 24 federal coal leases which are
administered by the US Department of the Interior pursuant to the Federal Coal
Leasing Amendments Act of 1976. These leases cover Peabody's principal reserves
in Wyoming and other reserves in Montana and Colorado. Each of these leases
continues indefinitely provided that there is diligent development of the lease
and continued operation of the related mine or mines. The Bureau of Land
Management has asserted the right to adjust the terms and conditions of these
leases, including rents and royalties, after the first 20 years of their life
and at ten yearly intervals thereafter. Annual rents under Peabody's federal
coal leases are now set at $3.00 per acre. Production royalties on federal
leases are set by statute at 12.5% of the gross proceeds of coal mined and sold
for surface mined coal and 8% for underground mined coal. Similar provisions
govern Peabody's three coal leases with the Navajo and Hopi Indian tribes. These
leases cover coal contained in 65,000 acres of land in northern Arizona lying
within the boundaries of the Navajo and Hopi Indian reservations.
Consistent with industry practice, Peabody conducts only limited
investigation of title to its coal properties prior to leasing. Title to lands
and reserves of the lessors or grantors and the boundaries of Peabody's leased
properties are not completely verified until such time as Peabody prepares to
mine such reserves.
The following provides a description of the operating characteristics of
the principal mines and reserves of each of Peabody's US and Australian mining
units.
Powder River
Powder River, which has its headquarters in Gillette, Wyoming, owns and
manages four large surface mines in Wyoming's coal-rich Powder River Basin. The
four mines are North Antelope, Rochelle, Caballo and Rawhide.
Powder River's coal reserves are classified as surface mineable and
subbituminous. Coal is produced from the Wyodak-Anderson seam, which contains
low sulfur coal. The sulfur content of the coal in current production ranges
from 0.19% to 0.40% and the heat value ranges from 8,250 BTU to 8,850 BTU.
The following table provides a summary of the main characteristics of
the principal mines of Powder River:
<TABLE>
<CAPTION>
AVERAGE SALES IN SIX
YEAR MINING SULFUR SEAM MONTHS ENDED
MINE MINE TYPE BEGAN TYPE OF COAL CONTENT THICKNESS MARCH 31, 1997
- -------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------ (FEET) (MILLIONS OF TONS)
<S> <C> <C> <C> <C> <C> <C>
North Antelope surface 1983 steam low 76.0 16.1
Rochelle surface 1985 steam low 75.5 12.1
Caballo surface 1978 steam low 70.0 10.5
Rawhide surface 1977 steam low 105.0 6.7
----
Total 45.4
====
</TABLE>
5
<PAGE> 81
North Antelope. The North Antelope mine, located adjacent to the
Rochelle mine, was opened in late 1983 and in calendar 1996 it was among the ten
largest US coal mines. The mine's approximately 250 employees use a 64-cubic
yard dragline along with truck and shovel methods to mine coal. Raw coal is
crushed and sized and stored in three 15,000 ton storage silos in preparation
for the automatic batch loading system, which can load coal into 100 ton rail
cars in 100 to 115 car unit trains at a rate of 6,000 tons per hour. Under state
regulations, North Antelope's current permitted annual capacity is 35 million
tons.
Rochelle. The Rochelle mine is located 65 miles south of Gillette,
Wyoming. Its approximately 272 employees use modern truck and shovel methods.
The mine has two 15,000-ton silos and a 55,000-ton slot storage facility. Under
state regulations, it is permitted to mine up to 30 million tons of coal
annually. The Rochelle mine produces premium quality coal with a sulfur content
averaging 0.22% and a heat value range of 8,600 BTU to 8,800 BTU.
Caballo. The Caballo mine, located 20 miles south of Gillette, Wyoming
employs approximately 233 persons. Caballo is a truck and shovel operation with
a coal handling system which includes two 12,000-ton silos and two 11,000-ton
silos. Under state regulations, Caballo is permitted to mine 35 million tons of
coal per year.
Rawhide. The Rawhide mine is located ten miles north of Gillette,
Wyoming. Its approximately 155 employees use truck and shovel mining methods,
with four 11,000-ton silos and two 12,000-ton silos. Under state regulations,
Rawhide is permitted to mine 24 million tons of coal per year.
Peabody Western
Peabody Western, headquartered in Flagstaff, Arizona, manages four
surface mines in Arizona, Colorado and Montana: Black Mesa, Kayenta, Big Sky and
Seneca. All of Peabody Western's coal is sold to electricity generating plants.
The following table provides a summary of the main characteristics of
the principal mines of Peabody Western:
<TABLE>
<CAPTION>
AVERAGE SALES IN SIX
YEAR MINING SULFUR SEAM MONTHS ENDED
MINE MINE TYPE BEGAN TYPE OF COAL CONTENT THICKNESS MARCH 31, 1997
- -----------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------- (FEET) (MILLIONS OF TONS)
<S> <C> <C> <C> <C> <C> <C>
Black Mesa surface 1970 steam low 6.6 2.4
Kayenta surface 1973 steam low 5.9 2.7
Big Sky surface 1968 steam low/high 21.4 2.4
Seneca surface 1964 steam low 9.9 0.8
---
Total 8.3
===
</TABLE>
Black Mesa. Black Mesa mine employs approximately 337 persons producing
steam coal using two draglines in two mining areas. Its coal is crushed, mixed
with water and then transported 273 miles through the underground Black Mesa
Pipeline to Southern California Edison's Mohave Generating Station near
Laughlin, Nevada under a long-term contract.
Kayenta. Kayenta mine is adjacent to the Black Mesa mine. The Kayenta
mine employs approximately 428 persons using three draglines in three mining
areas and sells steam coal under a long-term contract. The coal is crushed, then
carried 17 miles by conveyor belt to storage silos where it is loaded on to an
electric train and transported 83 miles to the Navajo Generating Station,
operated by The Salt River Project near Page, Arizona.
Big Sky Coal Company. The Big Sky Coal Company mine is located at the
northern end of the Powder River Basin near Colstrip, Montana. The mine employs
approximately 123 people and produces steam coal with two draglines. The coal is
shipped by rail to several major electric utilities.
6
<PAGE> 82
Seneca Coal Company. Seneca Coal Company operates the Seneca mine near
Hayden, Colorado. The mine employs approximately 77 people and produces steam
coal using two draglines in two mining areas. The majority of the Seneca mine's
coal is hauled by truck to a nearby generating station where it is sold pursuant
to a long-term contract.
Peabody East
Peabody East comprises principally Eastern Associated and Peabody Coal
Company.
Eastern Associated, based in Charleston, West Virginia, owns or manages
five business units comprising six mines and related facilities in West
Virginia. These operations sell metallurgical and steam coal to customers in the
US and abroad. Approximately 38% of Eastern Associated's steam and metallurgical
coal is sold to export customers in Canada and approximately 10 other countries
worldwide and the remainder is sold to customers in the US. Approximately 54% of
Eastern Associated's production is sold to domestic electric utilities under
long-term contracts.
Peabody Coal Company, whose headquarters are in Charleston, West
Virginia, operates five business units with eight mines in the midwestern US.
Peabody Coal Company's four underground and four surface mines, along with five
preparation plants and three barge loading facilities, are located in Kentucky,
Illinois and Indiana and currently employ approximately 2,052 people.
Approximately 92% of Peabody Coal Company's coal is shipped to 18
electricity generating plants operated by domestic electric utilities in eight
states, principally in the midwest. Most of this coal is sold under long-term
contracts of five or more years in length. Approximately 8% of sales are to US
industrial customers who use the coal to produce their own electricity and steam
power. About 48% of Peabody Coal Company's coal is transported to customers by
river barge, approximately 49% by rail and most of the balance is carried on
conveyor belts to nearby power plants.
The following table provides a summary of the main characteristics of
the principal mines of Peabody East:
<TABLE>
<CAPTION>
AVERAGE SALES IN SIX
YEAR MINING SULFUR SEAM MONTHS ENDED
MINE MINE TYPE BEGAN TYPE OF COAL CONTENT THICKNESS MARCH 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
(FEET) (MILLIONS OF TONS)
<S> <C> <C> <C> <C> <C> <C>
Eastern Associated
Big Mountain underground 1990 steam low 4.8-5.6 0.5
Robin Hood underground 1971 steam low 4.8-5.6 0.2
Federal No. 2 underground 1968 steam high 6.8 2.1
Harris No. 1 underground 1966 steam/met low 5.2 1.2
Rocklick(1) underground 1938 met low 2.5-5.6 1.9
Kopperston(1) underground 1938 met low 2.5-5.6 0.6
Wells underground 1975 steam/met low 5.2 1.8
Peabody Coal Company
Camp I & II underground 1971/77 steam high 5.1/4.9 3.0
Lynnville surface 1955 steam high 9.0 1.6
Squaw Creek surface 1965 steam high 6.0 0.7
Hawthorn surface 1965 steam high 8.0 1.7
Marissa underground 1979 steam high 6.5 1.8
Martwick underground 1985 steam high 4.5 0.9
Ken surface 1955 steam high 4.8 0.3
----
Total 18.3
====
</TABLE>
(1) These units process coal owned by Peabody and mined by third party
contract mining companies.
Big Mountain/Robin Hood. The Big Mountain/Robin Hood business unit
currently employs approximately 291 people in southern West Virginia. The Big
Mountain mine opened in 1990 near Prenter and uses continuous miners, continuous
face haulage and shuttle cars. The Robin Hood mine uses one continuous miner
section and ram
7
<PAGE> 83
cars for face haulage. A contractor mined approximately 0.7 million tons of coal
in the six months ended March 31, 1997.
Federal No. 2. The Federal No 2 mine in northern West Virginia has
approximately 476 employees and produces steam coal using a longwall unit and
three continuous miner sections for development.
Harris No. 1/Rocklick/Kopperston. The Harris mine in southern West
Virginia uses a longwall and two continuous miner sections for development and
has approximately 289 employees. The Harris preparation plant has the capability
to load onto two different rail systems. The Rocklick/Kopperston business unit
manages the Rocklick and Kopperston operations which process coal produced from
Eastern Associated reserves by contact mining companies. The Rocklick
preparation plant in southern West Virginia employs approximately 60 persons.
Kopperston preparation plant also in southern West Virginia employs
approximately 54 people. The Harris and Rocklick/Kopperston business units have
recently merged into one business unit.
Wells. The Wells business unit in southern West Virginia employs
approximately 395 persons. The business unit consists of the Lightfoot No 1 and
No 2 mines and the Wells preparation plant. Lightfoot No 1 mine, near Wharton,
sold approximately 0.3 million tons of steam and metallurgical coal in the six
months ended March 31, 1997 with two continuous miner sections. Lightfoot No 2
mine, also near Wharton, operates two continuous miner sections and two
continuous haulage systems and shipped approximately 0.6 million tons of steam
and metallurgical coal during the six months ended March 31, 1997.
Camp. The Camp business unit in western Kentucky employs approximately
684 people. Camp No 1 mine has five continuous miner sections using both
continuous haulage systems and shuttle car haulage. Camp No 11 mine has Peabody
Coal Company's only longwall mining machine and uses two continuous miner
sections with battery ram car haulage for development.
Lynnville/Squaw Creek. The Lynnville/Squaw Creek business unit in
southern Indiana employs approximately 424 people. The two operations were
combined into one business unit in February 1996. Squaw Creek, a surface mine,
operates one dragline with a 50-cubic-yard bucket and sold approximately 0.7
million tons of coal in the six months ended March 31, 1997. Lynnville, also a
surface mine, uses two draglines, each with a 34-cubic-yard bucket, and a power
shovel with a 112-cubic-yard bucket. In the six months ended March 31, 1997 the
mine sold 1.6 million tons of coal.
Hawthorn. The Hawthorn business unit in southern Indiana uses three
draglines: a 34-cubic-yard, a 95-cubic-yard and 155-cubic-yard bucket capacity.
Currently there are approximately 263 employees at Hawthorn.
Marissa. The Marissa business unit in Illinois currently employs
approximately 440 people. It consists of the Marissa Underground mine, the
Randolph Preparation Plant and associated transportation facilities. The Marissa
mine sells its coal primarily to an electric utility, Illinois Power, under a
long-term contract and also to industrial customers in Illinois and Missouri.
The mine uses six continuous miner sections, one of which has a flexible
conveyor train for face haulage, and the other five of which use shuttle cars
for haulage.
Midwest. The Midwest business unit in western Kentucky comprises the Ken
surface mine, the Martwick underground mine and the Gibraltar Preparation Plant
and Dock, and includes the reclamation staff responsible for reclaiming Peabody
Coal Company's closed or suspended mining operations throughout the midwest. The
Ken mine in Ohio County, western Kentucky, is a surface operation which has
three active pits. This mine is scheduled to close in late 1997, due to
depletion of its coal reserves. The Martwick mine in Western Kentucky, is an
underground mine using two continuous miner sections.
8
<PAGE> 84
Lee Ranch
The Lee Ranch mine is located near Grants, New Mexico and its main
characteristics are summarized as follows:
<TABLE>
<CAPTION>
AVERAGE SALES IN SIX
YEAR MINING SULFUR SEAM MONTHS ENDED
MINE MINE TYPE BEGAN TYPE OF COAL CONTENT THICKNESS MARCH 31, 1997
- -----------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------- (FEET) (MILLIONS OF TONS)
<S> <C> <C> <C> <C> <C> <C>
Lee Ranch surface 1994 steam low/high 5.7 2.1
===
</TABLE>
Coal from the Lee Ranch mine is shipped to two customers in Arizona and
New Mexico under long-term contracts. Although the reserves include high sulfur
coal, there is currently no high sulfur coal mined at Lee Ranch. The
approximately 228 employees at Lee Ranch use a combination of dragline and
truck/shovel for overburden removal to uncover coal in multiple seams ranging
from one to six feet thick.
Other
Patriot Coal Company. The Patriot Coal Company operates one surface mine
and one underground mine in western Kentucky. Patriot Coal Company sold
approximately 0.7 million tons of coal in the six months ended March 31, 1997.
The underground mine has two continuous miner sections. The surface mine uses
truck and shovel equipment. The business unit also has a preparation plant and
dock. There are approximately 143 persons employed at the two mines and related
facilities.
Powderhorn Coal Company. The Powderhorn Coal Company, which operated the
Roadside underground mine near Grand Junction in western Colorado, sold
approximately 0.4 million tons of steam coal in the six months ended March 31,
1997. Powderhorn Coal Company was sold to a subsidiary of Quaker Coal Company on
June 30, 1997. Peabody paid Quaker $2.1 million for it to assume the Powderhorn
Coal Company's liabilities.
Peabody Australia
Peabody Australia, whose headquarters are in Sydney, New South Wales,
operates the Ravensworth, Narama and Warkworth mines in the Hunter Valley.
Approximately 74% of Peabody Australia's joint venture share of the production
of these mines is sold domestically under long-term contracts and approximately
26% is exported to Asian Pacific Rim countries, principally under contracts of
one year or longer. Peabody Australia also manages and holds a 35% interest in a
joint venture which is developing a new surface mine (Bengalla) in the upper
Hunter Valley. In addition, Peabody Australia operates a Mining Services
Division, based in Brisbane, Queensland, which provides specialist tunneling and
underground contract mining services to the mining and civil engineering
industries. The division currently has a number of projects throughout Australia
and employs approximately 284 people.
9
<PAGE> 85
The following table provides a summary of the main characteristics of
Peabody Australia's mines:
<TABLE>
<CAPTION>
SALES IN SIX
MONTHS
ENDED
YEAR MINING AVERAGE SEAM MARCH 31, EQUITY
MINE MINE TYPE BEGAN TYPE OF COAL SULFUR CONTENT THICKNESS(3) 1997 INTEREST
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------
<CAPTION>
(METERS) (MILLIONS (%)
OF TONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Ravensworth surface 1972 steam low 5.5 2.2 100.00
Narama surface 1993 steam low 4.8 0.6 50.00
Warkworth surface 1981 steam/met low 8.0 0.7 43.75
Bengalla(1) surface -- -- low -- -- 35.00
---
Total(2) 3.5
===
</TABLE>
- ---------------
(1) Under development.
(2) Sales relate to the Group's equity interest by mine. The totals
represent Peabody Australia's equity interest.
(3) Includes multiple seams.
Ravensworth/Narama. Ravensworth mine is managed by Peabody Australia
under a long-term contract which runs to 2001 and requires the company to
produce approximately 4.5 million tons per year from coal reserves which are
under contract to Macquarie Generation, one of New South Wales' state electric
utilities. Ravensworth mines eight coal seams ranging from one to 26 feet thick.
The overburden is pre-stripped using trucks and power shovels followed by
draglines to uncover the lower three seams. The coal is trucked from the pit to
a crushing plant and then shipped raw by overland conveyor belt to Macquarie
Generation's nearby Bayswater and Liddell power stations.
Narama mine opened in January 1993 and is operated as an extension of
the adjacent Ravensworth facility using similar mining techniques in the same
coal seams. Peabody Australia and RGC Limited, an Australian company, each hold
50% of Narama Joint Venture which has a 20-year contract running to 2012 to
supply about 2.3 million tons annually to Macquarie Generation. The mine's
employees come from a combined labor pool with Ravensworth which totals
approximately 364 people.
Warkworth. Warkworth mine, seven miles southwest of Singleton, opened in
1981 and produces steam and met coal primarily for export. Peabody Australia
manages and owns 43.75% of the Warkworth Associates Joint Venture which owns the
mine. The mine is currently being expanded to produce approximately 4.9 million
tons of coal each year by 1999.
Approximately 420 employees produce coal from five pits using truck and
shovel pre-stripping and dragline stripping techniques to uncover four to six
groups of seams. This coal is processed at Warkworth's preparation plant and
blended to customer specifications before being carried by overland conveyor to
the Mount Thorley rail loop and then by rail to the port of Newcastle. Warkworth
owns 13.9% of the Mount Thorley facility and 4.2% of a coal loading terminal at
the port.
Bengalla. Peabody Australia also manages and holds a 35% interest in the
Bengalla joint venture which has been awarded a mining lease and a permit to
develop a new surface mine near Nuswellbrook, New South Wales, in the upper
Hunter Valley. The new mine is expected to produce up to six million tons of
steam coal per year for export beginning in 1999. The joint venture partners
include Taiwanese and Korean electric utilities and Japanese and Korean trading
companies.
Customers, Sales and Marketing
Peabody COALSALES co-ordinates sales and marketing activities for all of
Peabody's US mining operations and also engages in brokerage transactions,
purchasing coal from or acting as agent to sell coal on behalf of other
producers. Its regional sales executives are responsible for marketing in their
assigned regions, while a central team co-ordinates sales activities and
provides marketing support from extensive industry databases.
10
<PAGE> 86
US Sales. Approximately 92% of Peabody's US coal sales volume for the
six months ended March 31, 1997 was sold to domestic electric utilities,
approximately 3% was sold to US industrial customers and approximately 5% was
exported to electric utility and steel making customers in 12 countries.
Approximately 90% of Peabody's US coal production was sold under supply
contracts with remaining terms from one to 17 years, and an average remaining
term of approximately six years. Typically, customers enter into supply
contracts to secure reliable sources of coal at predictable prices, while
Peabody seeks stable sources of revenue to support the investments required to
open, expand, maintain or improve productivity at mines needed to supply such
contracts. Such contracts are negotiated in the ordinary course of business.
Peabody currently has an order book of nearly 1,100 million tons of coal, of
which approximately 65% is scheduled for delivery after 2000.
Most of Peabody's US coal supply contracts which have terms greater than
one year are subject to periodic price adjustments or "reopener" provisions
under which the contract price is subject to periodic adjustment by either party
to reflect the changes in the market price of coal. Furthermore, a majority of
the Group's coal supply contracts with terms greater than one year currently
have prices which exceed the price at which such coal could be sold in the spot
market. Over the last few years, a significant number of these contracts have
been renegotiated bringing the contract prices payable closer to current market
prices, thus leading to a reduction in the revenue received by Peabody albeit,
in many cases, offset to a large extent by one-time payments by the purchaser. A
similar reduction in contract prices has also been experienced in relation to
the replacement of expiring contracts. However, to date, the effect of such
reductions has been mitigated by lower operating costs and expansions and
acquisitions to increase sales volumes. The Directors believe that over the next
five years there is likely to be a continuing adverse impact on revenues under
such contracts because of renegotiation and replacement of existing contracts.
There can be no assurance that any reductions in revenues resulting therefrom
will continue to be mitigated by improvements in productivity or increased sales
volumes.
From time to time, Peabody is involved in disputes with customers under
its long-term coal supply contracts relating to among other things, coal
quality, which have occasionally resulted in arbitration and other legal
proceedings. While customer disputes, if unresolved, could result in termination
or cancellation of the contract involved, Peabody's experience has been that
curative and/or dispute resolution measures decrease the likelihood of
termination or cancellation. In addition, Peabody's development of long-term
business relationships with many of its customers has generally permitted it to
resolve business disputes in a mutually acceptable manner.
Australian Sales. Approximately 66% of the 5.0 million aggregate tons of
coal sold by the Australian mines in which Peabody Australia had an interest in
the six months ended March 31, 1997 (of which Peabody's equity share was 3.5
million tons) was sold under long-term contracts to the New South Wales power
utility, Macquarie Generation. The remainder was exported to Asian Pacific Rim
countries. Coal from the Ravensworth and Narama mines is sold to Macquarie
Generation under contracts which expire in 2000 and 2012, respectively. The
contracts have price adjustment provisions which are based on the qualities of
coal delivered and changes in indices of mining costs. All of the output from
the Warkworth mine is exported; approximately 80% is sold under contracts,
including contracts with the other joint venture partners in Warkworth, and
approximately 20% is sold on the spot market. Peabody Australia's export
contracts normally provide for annual price renegotiations.
Peabody Australia's Mining Services Division provides specialized
tunneling and underground mining services to the civil engineering and mining
industries.
Peabody Development
At March 31, 1997, Peabody Development owned or controlled approximately
3.4 billion tons of Peabody's unassigned proven and probable reserves and
managed approximately 100,000 acres of land. Peabody Development also operates a
computerized land management system which maintains a record of Peabody's US
coal reserves and coal-related land holdings, and is responsible for the
disposal of surplus lands and reserves in the US which no longer have strategic
value. Peabody Development is also responsible for acquiring additional reserves
for the Group, through exploration and the acquisition of additional leases.
Other
Peabody owns Patriot Coal Company, which operates a small surface mine
and a small underground mine in western Kentucky, both of which produce high
sulfur coal. The employees of Patriot Coal Company are not unionized.
In addition to the coal interests described above, Peabody owns a one
third interest in Black Beauty Coal Company ("Black Beauty"), the largest coal
producer in Indiana. The remainder of Black Beauty is owned by The
11
<PAGE> 87
Pittsburgh and Midway Mining Company and Black Beauty Inc. Black Beauty operates
five mines in Indiana and one in Illinois. In the six months ended March 31,
1997, Black Beauty sold approximately 1.5 million tons of low and high sulfur
coal. Two additional mines are under development in Indiana, the annual capacity
of which is expected to be approximately four million tons when they reach full
production later in 1997. The employees of Black Beauty are not unionized.
Transportation
Peabody's US customers are generally responsible for arranging and
paying for the transportation of coal from Peabody's mines to the customers'
locations. The majority of Peabody's coal is transported by railway, although
barge, truck, conveyor belts and coal pipelines are also used.
Peabody's US export customers generally take delivery at several port
facilities, including Dominion Terminals Associates, which operates the US's
largest coal export facility in Newport News, Virginia with approximately 24
million tons of annual capacity and which is used to ship coal from Peabody's
West Virginian mines to its export customers. Peabody owns a 30% interest in
Dominion Terminals Associates.
Peabody Australia's exports are shipped through the Port of Newcastle,
where the joint venture company which owns the Warkworth mine owns 4.2% of a
coal loading terminal.
Competition
The top ten producers in the US coal industry accounted for
approximately 55% of total US coal production in 1996, although there were an
estimated 981 coal producers in the US in that year. The Group's principal
competitors in its coal operations are other large coal producers, including
certain major oil companies which have extensive coal operations.
The markets in which the Group sells its coal are affected by a number
of factors beyond its control. Continued demand for the Group's coal and the
prices obtained by the Group depend primarily on the coal consumption patterns
of the electricity industries in the US and the Asian Pacific Rim countries, the
availability, location (and therefore the cost of transportation) and the price
of competing coal and alternative electricity generation and fuel supply sources
such as natural gas, oil, nuclear and hydroelectric. Coal consumption patterns
are affected primarily by the demand for electricity, environmental and other
governmental regulations and technological developments. In addition, the
Directors believe that the continuing deregulation of US electric utilities,
which accounted for approximately 91% of Peabody's sales by volume in the year
ended September 30, 1996, will continue to cause such utilities to be more
aggressive in negotiating with coal suppliers. In recent years there has been
excess coal production capacity in the US due to increased development of large
surface mining operations in the western US, more efficient mining equipment and
techniques, and reduced consumption of high sulfur coal. Competition resulting
from excess capacity tends to cause producers to reduce prices and to pass
productivity gains achieved at the mines through to customers. Peabody competes
on the basis of coal quality, delivered price, customer service and support and
reliability.
In the six years ended December 31, 1996, Australian saleable coal
production increased by approximately 18.5%. Total Australian coal production
rose approximately 3.4% in 1996 and the top ten producers in the Australian coal
industry accounted for approximately 79% of total Australian production in that
year. The Group's Australian competitors are principally coal companies owned by
large mining or oil producing companies, although one of the top ten competitors
is a state-owned enterprise.
POWER
The Group's power business comprises three core activities: the
generation of electricity, the sale of electricity and the sale of natural gas.
This combination of integrated activities within the electricity and gas
industries provides the Group with opportunities to benefit throughout the
electricity and gas supply chains, from fuel sourcing to customer sales. The
overall financial efficiency of these activities is co-ordinated by the growing
energy trading business of Eastern.
In Great Britain, the Group's power business is:
- the fourth largest generator of electricity;
- one of the largest suppliers of electricity and the largest
supplier of electricity in England and Wales; and
12
<PAGE> 88
- one of the largest suppliers of natural gas after Centrica plc
(formerly part of British Gas).
GENERATION
The Group is the fourth largest generator of electricity in Great
Britain with a share of approximately 11% of total registered generating
capacity of 71,850 MW. It currently owns, operates or has an interest in eight
power stations in Great Britain. It also has a controlling interest in Nedalo
(UK) Limited, the largest supplier of small (up to one MW (electrical)) combined
heat and power ("CHP") plants in the UK, and has a controlling interest in
Teplarny Brno a.s. ("Teplarny Brno"), a heating and generation company in the
Czech Republic.
Further information on the Group's interests in power stations in Great
Britain is set out in the following table:
[CAPTION]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
DATE OF EARLIEST
PLANT TYPE CAPACITY(1) COMMISSIONING
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MW
<S> <C> <C> <C>
West Burton Coal-fired 2,012 1967
Rugeley B Coal-fired 1,046 1972
Drakelow C Coal-fired 976 1965
Ironbridge Coal-fired 970 1970
High Marnham Coal-fired 945 1959
Peterborough CCGT 360 1993
King's Lynn(2) CCGT 340 1997
Barking(3) CCGT 135 1995
-----
Total 6,784
=====
</TABLE>
Source: Electricity Supply Handbook 1997 and 1997 National Grid Company plc
Seven Year Statement for the years 1996/7 to 2002/3.
(1) All capacity is registered generating capacity except for Peterborough
and King's Lynn, which have registered generating capacities of 405MW
and 380MW respectively, but installed generating capacities of 360MW
and 340MW respectively.
(2) Currently being commissioned and scheduled to commence full commercial
operation in late 1997.
(3) Registered generating capacity is 1,000MW. The Group holds an interest
of approximately 13.5%.
The Group's current portfolio of power stations, a mix of combined cycle
gas turbine ("CCGT") and coal-fired stations, represents both base load (running
throughout most of the year) and mid-merit (running in high demand periods)
plants. The inclusion of coal-fired plants within the Group's portfolio of power
stations has enabled the Group to reduce its fuel supply risk. The energy
trading business of the Group is responsible for setting the level of bids into
the Pool for the output of each of its generating stations (other than Barking)
so as to co-ordinate the operation of its generating stations with its fuel
contract position, and its retail and wholesale electricity and gas sales
portfolios. For further information, see "Energy Trading" below.
West Burton, Rugeley B and Ironbridge
In June 1996, the Group assumed operational and commercial control, by a
combination of operating lease and outright sale, from National Power, of all of
the assets and liabilities of the West Burton, Rugeley B and Ironbridge power
stations (with the exception of trade and certain other debts and liabilities
outstanding at the date of completion). All existing staff at these stations
were transferred to Eastern, which holds a 99 year lease over the land,
buildings and plant at each of the power stations, and has the right to purchase
the freehold land for a nominal sum after 50 years. Under the leases, Eastern is
committed to aggregate fixed payments totalling L737.5 million, of which L337.5
million was paid at commencement of the leases. The balance, together with
interest, is payable over seven years from 2000. Further payments of
approximately L6 per MWh linked to output levels from these stations are also
payable to National Power for the first seven years of operation.
13
<PAGE> 89
Drakelow C and High Marnham
The Group has leased, for a period of 99 years, the land, buildings and
plant at the Drakelow C and High Marnham power stations from PowerGen pursuant
to agreements entered into in July 1996. PowerGen is responsible for
decommissioning costs should Eastern decide to close these stations during the
term of the leases. Eastern is committed to fixed payments totalling L230
million (subject to minor adjustments if aggregate capacity falls below certain
threshold) payable in installments (together with interest) over eight years
from 1996. As with the National Power leases, further output-related payments of
approximately L6 per MWh are payable to PowerGen for the first five years of
operation. From August 1, 1997 the Drakelow and High Marnham power stations have
been operated by Eastern.
Peterborough
The power station at Peterborough was developed and constructed as a
joint venture between Eastern and Hawker Siddeley Power (Peterborough) Limited
("Hawker Siddeley") between 1990 and 1993. Eastern acquired Hawker Siddeley's
interest in September 1994. The station's gas requirements are sourced from the
Group's gas business. The Peterborough plant is operated and maintained on
behalf of Eastern by a third party contractor under a seven year contract which
commenced in 1993.
King's Lynn
A new 340MW CCGT power station at King's Lynn has been constructed for
Eastern under a turnkey contract. The station, which is currently being
commissioned, is scheduled to commence commercial generation in late 1997 and
will be operated and maintained by Eastern. The station's gas needs will be
provided by the Group's gas business.
Barking
Eastern has an interest of approximately 13.5% in a 1,000MW CCGT power
station at Barking which became operational in 1995, having been constructed as
a joint venture between Eastern and a number of other companies.
Nedalo
The Group owns 75% of Nedalo (UK) Ltd., which provides small scale CHP
equipment of up to one MW (electrical) as a single unit. Nedalo is estimated to
have a share of approximately 80% of the UK market for this equipment.
Czech Republic
In November 1996, the Group invested approximately L21 million in
acquiring a controlling interest of 52.8% in Teplarny Brno, a heating and
generation company based in Brno, the second largest city in the Czech Republic.
In 1997 the Group acquired a further 30.4% of the share capital of Teplarny Brno
for L6.6 million. A mandatory offer to purchase from the public the balance of
the share capital of Teplarny Brno will be made by the Group within 60 days
after September 14, 1997 and will be open for acceptance for 60 days thereafter.
Teplarny Brno owns coal and gas plants which are capable of generating 1,204MW
of energy in the form of steam and hot water which is sold principally to
industrial and domestic customers. It also owns a 169 kilometer pipe network for
distributing heat to customers' premises. Teplarny Brno also has an electricity
generation capacity of approximately 97MW, the output of which is sold to the
regional electricity company. A CCGT plant is currently under construction for
Teplarny Brno under a turnkey contract to provide 140MW of additional heat
capacity, and to allow 94MW of additional electricity generating capacity. In
addition, as described under "Networks" below, the Group has acquired a minority
interest in Czech electricity distribution company.
Poland
On September 9, 1997 the Group announced that it had agreed (subject to
satisfaction of preconditions) to acquire 49 per cent of Zamosc Energy Company
which is a joint venture with the Polish regional distribution company Zaklod
Energetyczny Zamosc SA and holds the right to develop three 70MW electric
co-generation plants in Chelm, Zamosc and Przemysl in southwest Poland which are
expected to cost approximately US$100 million each to build.
14
<PAGE> 90
Other Projects
A number of new generation projects are currently under consideration by
the Group including applications for permission to construct and operate two
additional CCGT units at the King's Lynn site to give an additional capacity of
680MW. Eastern is also considering opportunities for large scale CHP plants and
has recently applied for permission to construct a 240MW CHP power station in
conjunction with a major industrial energy user.
Other opportunities for large and small scale CHP plants and renewable
energy projects are actively being considered together with other conventional
generating projects. These include a project to develop a reduced emission coal
fired ("cleaner coal") power station in Great Britain via a joint venture
arrangement.
Competition
Eastern was the fourth largest generator in Great Britain as of March
31, 1997, with a share of approximately 10% of total registered generating
capacity. This compares to shares of approximately 26%, 25% and 12% for National
Power, PowerGen and British Energy, respectively. Eastern's mix of generating
plants enables it to operate in the mid-merit and base load sectors of the
market and to spread its fuel risk. Its future competitiveness in the generating
market will be affected by the rate at which it brings new, more efficient,
generating capacity onstream and by the impact of other generators and end-users
themselves building and owning new capacity, including CHP.
Given the current relative costs of various generation technologies, the
Directors believe it is likely that most new generating capacity to be built in
the UK over the next few years will be CCGT. The technology, while capable of
running at either base load or mid-merit, is, in the view of the Directors,
likely to be bid into the Pool so as to run at base load. Such an increase in
base load capacity may encourage larger numbers of existing power stations to
run in mid-merit mode, thereby increasing competition in the sector in which the
Group has recently established itself. However, this may be mitigated to the
extent that older power stations running in mid-merit mode are run down or
closed.
Electricity Sales
Eastern supplies electricity to customers in both the franchise market
and the competitive market and is the largest supplier of electricity in England
and Wales.
Franchise Market
Eastern Electricity has the largest franchise market in England and
Wales, supplying electricity to over 3 million customers comprising
approximately 2.9 million domestic customers and 250,000 small businesses.
15
<PAGE> 91
The following table shows the approximate number of franchise customers
within the authorized area of each Public Electricity Supply ("PES") License
holder for the year ended March 31, 1996:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
NUMBER OF FRANCHISE
COMPANY CUSTOMERS
=================================================================================
MILLION
<S> <C>
Eastern Electricity plc 3.1
Southern Electric plc 2.6
East Midlands Electricity plc 2.3
Midlands Electricity plc 2.2
NORWEB plc 2.2
Yorkshire Electricity plc 2.0
SEEBOARD plc 2.0
London Electricity plc 1.9
Scottish Power plc 1.8
Northern Electric plc 1.4
Manweb plc 1.3
SWEB plc 1.3
SWALEC plc 1.0
Scottish Hydro-Electric plc 0.6
----
Total 25.7
====
</TABLE>
Source: MarketLine International Limited - "UK Domestic and Commercial
Electricity 1997."
Eastern Electricity's authorized area covers approximately 20,300 square
kilometers in the east of England and parts of north London.
Competitive Market
Eastern is an active participant in the national competitive market.
According to MarketLine International (a research company which produces annual
market statistics on the electricity industry), Eastern has an aggressive
competitive strategy for customer retention. The competitive market currently
comprises over 51,000 sites, which the Directors estimate represents a market
size of approximately L6 billion per annum at current electricity prices. The
Directors estimate that over 50% of the Group's electricity sales to the
competitive market are to customers outside Eastern's authorized area.
Competition
Eastern competes in the competitive market on the basis of quality of
customer service and by competitive pricing. According to MarketLine
International, Eastern's market share for the twelve months ended March 31, 1997
was approximately 9.3% by sales volume and 14.1% by number of sites, making it
one of the leading competitive market suppliers among the PES License holders.
The largest suppliers in the competitive market over the same period were
PowerGen and National Power.
Eastern is currently the largest franchise market supplier in Great
Britain, supplying electricity to over three million customers in its authorized
area and is currently scheduled to remain the sole supplier of electricity to
those customers until March 31, 1998, after which competition for customers in
all areas of Great Britain is expected to be progressively phased in. The full
consequences of such deregulation are unpredictable, including the extent to
which new entrants who are not PES License holders will enter the supply market,
the impact of price competition, if any, and customers' propensity to change
suppliers. There can be no assurance that competition among suppliers of
electricity will not adversely affect the Group. The Group intends to continue
to compete for customers nationally following the introduction of such
competition.
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<PAGE> 92
Energy Trading
Typically, PES License holders are exposed to risk, as they are obliged
to supply electricity to their customers at stable prices, but have to purchase
almost all the electricity necessary to supply those customers from the Pool at
prices which are constantly changing. This potential risk is hedged through the
use of financial instruments such as Contracts for Differences ("CfDs"). In
addition, the ownership of generating assets provides a hedge to this risk.
A CfD is an agreement between two parties calling for payments between
the parties in amounts equal to the product of (a) the difference in each
settlement period between the Pool price and the price ("strike price")
specified in the CfD and (b) the amount of electricity provided for in that
settlement period which is usually expressed in MW of demand. The settlement
period is half an hour. CfDs effectively fix the prices a supplier pays and a
generator receives for electricity and therefore reduce the financial risk
otherwise associated with the sale and purchase of electricity through the Pool.
The energy trading business co-ordinates the Group's activities in
managing risk and provides support to Eastern's electricity and natural gas
retail activities. The Group's risk management activities are also fully
integrated with its natural gas purchase and sales, wholesale and trading
contract portfolios to ensure that the operation of Eastern's power stations is
optimized having regard to relative prices in gas and electricity markets. The
energy trading business also earns revenue by providing risk management services
to other retailers of electricity aimed at removing or reducing their Pool price
risk.
Eastern seeks to manage its financial exposure by trading its portfolio
of CfDs (a small number of which are long-term), bidding Eastern's generation
output into the Pool, in terms of both price and volume, for each half hour of
the day, and by agreeing with the electricity sales division the volume and
pricing of sales in the competitive market. The overall position for each half
hour of the day is monitored by the energy trading business with the aim of
balancing electricity purchases and sales, although the inflexibility of CfDs
available in the market and the physical availability of plant means that an
exact balance for every half hour cannot be achieved. The resulting net position
is subject to risk exposure limits which are monitored independently within
Eastern. Credit checks are also undertaken on counterparties. Although to date
Eastern has successfully managed such risk through management operations and has
reduced its exposure to this risk by building and leasing generation assets,
Eastern's ability to manage such risk in the future will depend, in part, on the
terms of its supply contracts, its ability to implement and manage an
appropriate hedging strategy, the continuation of an adequate market for hedging
instruments and the performance of its generating assets.
The energy trading business purchases coal, oil and natural gas for the
Group's UK power stations and has small equity interests in three natural
gas-producing fields in the North Sea. It also coordinates the purchase and sale
of natural gas on a long and short term basis.
As part of the Group's strategy to exploit opportunities in energy
trading services with third parties, in December 1996, Eastern entered into
agreements with Enron Capital & Trade Resources Limited ("Enron") to provide
certain energy management services to Enron in connection with its proposed new
790MW power station at Sutton Bridge in Lincolnshire. Subject to the
satisfaction of certain conditions precedent, the arrangements will come into
effect in mid-1999 coincidental with scheduled commencement of full operation of
the power station, and will expire 15 years later. Eastern has also agreed to
purchase up to 475 million therms of gas per annum from Enron over the 15 year
term commencing in mid-1999 at prices related to the prevailing market price for
gas at the time, the daily volume of gas supplied being dependent on the
relative market prices of electricity and gas. Under these arrangements, Eastern
may either use this gas in its portfolio or sell some or all of it back to
Enron, the resale volume being related to an associated electricity purchase
agreement. The electricity purchase agreement will, in turn, form another
element in Eastern's electricity portfolio. Overall, these arrangements provide
Eastern with additional flexibility in the management of its energy portfolio as
a whole.
On April 9, 1997 Eastern entered into an energy conversion arrangement
with Rolls Royce Power Ventures Ltd to provide natural gas and take the
electricity output from a mid-merit approximately 100MW gas fired power station
subject to receiving formal consent from the Office of Electricity Regulation
("OFFER"), which has been approved in principle, and other preconditions.
In order to help meet the expected needs of its natural gas wholesale
and retail customers (including the Group's power stations), Eastern has entered
into a range of purchase contracts. As of June 30, 1997, the commitments under
long-term purchase contracts amounted to an estimated L3.0 billion covering
periods of up to 18
17
<PAGE> 93
years from such date. Firm sales commitments (including estimated power station
usage) at the same date amounted to L3.0 billion, covering periods up to 18
years from such date.
Energy Marketing
The Group acquired Citizens in May 1997 for an initial cash payment of
$20 million, plus a payment due on March 31, 2000 equivalent to the net assets
of the Citizens companies as of June 30, 1997. In addition, the Group is
required to pay additional amounts based on the achievement of profit goals up
to 2002, subject to a maximum payment for the entire transaction of $120 million
(including the net asset payment).
Citizens, which is headquartered in Boston and employs approximately 100
persons, engages in the purchase, sale and marketing of physical electric power
and transmission rights; the structuring and trading of electricity, gas and
fuel-related risk management products; the restructuring of power sales and
power supply agreements between third party sellers and purchasers; and the
marketing of Orimulsion(R) (a Venezuelan boiler fuel). In the year ended
December 31, 1996, prior to its acquisition by the Group, Citizens had gross
profit of $21.5 million and operating profit of $5.3 million.
Through Citizens Power Sales, Citizens was the fifth largest independent
wholesale electricity marketer in the US during 1996. Citizens purchases and
resells wholesale electric power and designs and applies electricity risk
management tools which include purchases and exchanges of electric capacity
and/or energy; banking, storage, and swaps of physical electricity; swaps of
fuel and electricity; forward purchases of fuel and electricity; and floors,
caps and collars on electricity and fuel pricing. It also engages in fuel to
electricity tolling transactions and electricity/fuel exchanges.
Citizens, through its subsidiaries Hartford Power Sales, L.L.C. ("HPS"),
CL Power Sales One, L.L.C. ("CL One"), CL Power Sales Two, L.L.C. ("CL Two"),
and CL Power Sales Eight, L.L.C. ("CL Eight"), has conducted the restructuring
of power sales agreements between several non-utility generators and electric
utilities in the northeastern US. Citizens is currently pursuing additional
restructuring opportunities throughout the US.
In connection with the Offer by PacifiCorp, Citizens filed an
application to sell Citizens Power Sales and other subsidiaries of Citizens to
Lehman Brothers Holdings, Inc ("Lehman"). Since these entities have received
authorization from the Federal Energy Regulatory Commission (the "FERC"),
transfer of control of these entities is subject to further approval by the
FERC.
The sale of these assets to Lehman is not expected to be completed
unless and until a further offer for Energy is made by PacifiCorp. If the sale
were to take place, it is anticipated that Lehman would purchase Citizens Power
Sales for the amount of $10 million, to be financed by a non-recourse
non-interest bearing note payable to Citizens out of the cash flows of and
proceeds from the disposition of assets of Citizens Power Sales. Citizens would
also receive 80% of the proceeds in excess of the principal amount of the note.
A separate purchase price would be established for each of the other companies
sold, which would be financed by non-recourse notes payable solely out of cash
flows or proceeds from the sale of the projects owned by those companies.
NATURAL GAS RETAILING
The Group, through Eastern Natural Gas and its subsidiaries, is one of
the largest suppliers of natural gas in Great Britain after Centrica plc. The
Directors estimate that as of March 31, 1997 the Group's market share by volume
was approximately 11% of gas delivered to the competitive industrial and
commercial market, an increase from approximately 5% as of March 31, 1996.
The Group is taking advantage of the increased competition progressively
being introduced into the industry by the British Government. It currently has
approximately 100,000 customers in the UK at 120,000 sites, ranging from
domestic households to large industrial companies. The Group's move into the
domestic sector has included supplying customers in the pilot deregulation
scheme in southwest England which began in April 1996 and has since been
extended to other counties in the south of England in the first half of 1997 and
to Scotland and the northeast of England in the second half of the year.
Competition
The gas supply market is highly competitive, with the Group's main
competitors being Centrica plc and the gas marketing arms of certain major oil
companies. Further competition is provided by a number of other electricity
18
<PAGE> 94
companies and smaller gas suppliers which are independent of the major oil
companies and which each have a minor presence in the market.
In the six months ended March 31, 1997, the Directors estimate that the
Group maintained its market share of the retail gas supply market (by volume) at
11%. The Group aims to maintain a significant share of this market through
high-quality customer service and competitive pricing, and also utilizing the
economics of scale that its current level of sales provides in purchasing gas.
NETWORKS
ELECTRICITY
Almost all electricity customers in Eastern's authorized area, whether
franchise or competitive, are connected to and dependent upon Eastern's
distribution system. Eastern distributes approximately 31TWh of electricity
annually to over three million customers, representing more than seven million
people. The majority of the Group's owned tangible fixed assets in the UK are
currently employed in the electricity distribution business. The distribution by
Eastern of electricity in its authorized area is regulated by its PES License,
which, save in exceptional circumstances, is due to remain in effect until at
least 2025.
Physical Distribution System
Eastern receives electricity from the National Grid at 21 supply points
within its authorized area and three points in the authorized areas of
neighboring RECs. The majority of this electricity is received at 132kV. It is
then distributed to customers through the Group's system of approximately 35,600
kilometers of overhead line, 53,100 kilometers of underground cable, and
numerous transformers and switchgear, via a series of interconnected networks
operating at successively lower voltages. Eastern also receives electricity
directly from power stations located in its authorized area and, from time to
time, from customers' own generating plants and connections with neighboring
RECs.
Customers
Networks derived approximately 91% of its use of system revenue in the
six months ended March 31, 1997 from Eastern's electricity sales operations. The
remaining 9% was derived from holders of Second Tier Supply Licenses in respect
of the delivery of electricity in those of their customers located in Eastern's
authorized area.
System Performance
The performance of the network is monitored and publicly reported upon
annually by OFFER. According to recent figures, in the year ended March 31,
1996, Eastern achieved the best overall distribution system performance (number
of faults per 100 kilometers of network) of all the PES License holders. It also
achieved one of the best performances for supply restoration following a fault
and reduced the average time a customer was off supply during a fault.
Distribution Charges and Price Control
The distribution charges levied by Eastern and the other RECs consist of
use of system charges and charges for other "excluded services" (i.e., services
outside the scope of the price control) including connection charges.
Distribution and supply charges are regulated by certain conditions in Eastern's
PES License, which sets out a formula for determining the maximum charge per
unit distributed in any financial year. A substantial majority of the sales of
the Group's electricity network business consists of charges for the use of its
distribution system, most of which are charged to its Power business and are
passed through to its customers. Most of the charges for the use of the
distribution system are subject to distribution price controls. See "Regulatory
Matters" below.
Czech Republic
In October 1996, the Group acquired a minority interest in
Severomoravska Energetika a.s., a Czech electricity distribution and supply
company, as part of its plan to develop interests in companies that would enable
it to implement further its integrated energy strategy overseas. As described
under "Generation", the Group acquired an interest in Teplarny Brno, a heating
and generation company in the Czech Republic, in November 1996 and subsequently
increased its interest during 1997.
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<PAGE> 95
Competition
At present, the Group experiences little competition in the operation of
its electricity distribution system. However, in certain limited circumstances,
some customers may establish (or increase) capacity for "own generation", by
becoming directly connected to the National Grid or establishing their own
generating capacity, thereby avoiding use of distribution system charges.
Telecommunications
The Group's telecommunications network comprises an established radio
telemetry network and a recently constructed optical fiber cable network of
approximately 1,100 kilometers which principally covers Eastern Electricity's
authorized area, but also connects to certain other business centers, including
central London. Extensions in the Kent/Sussex area are currently in planning and
implementation and are expected to increase the network to approximately 1,800
kilometers by 1998. Capacity is made available to large business users, cable
operators and public telephone operators. The Group also holds a public
telephone operations license and runs a radio site sharing the optical fiber
renting operation with a number of major telecommunications companies.
Contracting
Eastern's Contracting Division provides electrical contracting services.
These services, to domestic, commercial and industrial customers (including
other PES License holders) for voltages up to and including 132kV, involve the
design, installation and maintenance of heating, security, fire alarm and
prevention, power generation and standby systems, overhead lines, switchgear and
electrical wiring systems. Eastern is in competition with other electrical
contractors, including other RECs.
OTHER ACTIVITIES
The Group is involved in a number of other peripheral activities,
including a gold and copper exploration prospect in northern Chile, a landfill
project in Imperial County, California, and the design, manufacture, sale and
lease of modular buildings.
The first two of these are residual activities conducted by the
Consolidated Gold Fields group which was acquired by Hanson in 1989. The
Consolidated Gold Fields group was established in the 1890s to finance gold
mining prospects in Southern Africa. It subsequently diversified into a range of
other activities including mining, extractive and metal processing operations in
various other countries, including the US, the UK and Australia. In addition to
its continuing interests relating to coal mining, and the gold and copper and
landfill projects mentioned above, Consolidated Gold Fields has a number of
other minor and/or non-trading subsidiaries.
The design, manufacture, sale and lease of modular buildings is
conducted by Rollalong, a UK company, which is also a holding company of Eastern
and Consolidated Gold Fields.
For a discussion of certain contingent liabilities relating to certain
former operations of Consolidated Gold Fields, see "Other Regulatory Matters"
below.
The Group also owns Major Insurance Company Limited ("Major"), a company
incorporated in Bermuda, which formerly acted as a captive insurance company for
certain of Hanson's and the Group's existing and previous US businesses. Prior
to the Demerger, the outstanding insurance business of Major was reconfigured,
reinsured or indemnified by other present or former Hanson entities, so that its
continuing business relates only to Peabody's US operations and Consolidated
Gold Fields' US operations.
EMPLOYEES
The average number of persons employed by the Group during the six
months ended March 31, 1997 was 15,108, of whom approximately 6,770 were based
in the UK, approximately 6,549 were based in the US, approximately 1,120 were
based in Australia and approximately 669 were based in other countries. As of
March 31, 1997, the total number of employees was 15,025.
UNION REPRESENTATION
Approximately 60% of the Group's US coal employees (which produced
approximately 34% of its US sales volume in the six months ended March 31,
1997), all of the Group's Australian coal employees and approximately
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<PAGE> 96
62% of the Group's power and networks employees as of March 31, 1997 were
members of unions. Certain of Peabody's competitors in the US have non-union
workforces. Because of the increased risk of strikes and other related work
stoppages, in addition to higher labor costs which may be associated with union
operations in the coal industry, Peabody's non-union competitors may have a
competitive advantage in areas where they compete with Peabody's unionized
operations.
The workers at Peabody East (approximately 3,010 at March 31, 1997) are
represented by the United Mine Workers of American Union (the "UMWA") and work
under the 1993 National Bituminous Coal Wage Agreement (the "NBCWA"), a
multi-employer agreement negotiated by the Bituminous Coal Operators'
Association (the "BCOA") of which Peabody East is a member. The NBCWA became
effective on December 15, 1993 and is due to expire on August 1, 1998, although
negotiations to extend the contract beyond that date are expected to begin later
in 1997. The previous multi-employer agreement covering the workers at Peabody
East, the National Bituminous Coal Wage Agreement of 1988, expired in February
1993. A new agreement had not been reached when the agreement expired and the
union immediately called a strike. Except for a 60 day period in March and April
1993, the strike continued until December 1993 when the current NBCWA was
signed. The Directors estimate that this resulted in lost profits of L100
million to L120 million in the year ended September 30, 1993 and L70 million to
L80 million in the year ended September 30, 1994. During the 1993 dispute, the
main demands by the UMWA included (a) automatic unionization of new mines opened
by Peabody; (b) rights to non-union jobs; and (c) rights to all jobs available
whenever a new mine was opened by Peabody. Although the BCOA would not agree to
these demands, the parent companies of the BCOA members signed individual
Memoranda of Understanding which gave the UMWA members the right to the first
three out of every five new jobs at non-union bituminous mines. This currently
affects two mines operated by Peabody. The NBCWA provided for two reopener
provisions to be exercised by the UMWA and the BCOA between September and
December 1996 and September and December 1997. Under the reopener provisions,
wages, pensions and medical benefits could be renegotiated. The BCOA settled
both reopeners early in August 1996. The settlements provide for increases in
wages (on a lump sum basis) and pensions and a lower medical deductible. Peabody
East has enjoyed a good relationship with the UMWA since the NBCWA was signed.
Peabody Western employees (approximately 723 at March 31, 1997) are
covered by the Western Surface Agreement of 1992. This agreement was due to
expire in May 1997, but has been extended to August 2000. Peabody Western was
not affected by the strikes in 1993 and no significant production has been lost
at Peabody Western since 1987 as a result of industrial action. No assurance can
be given that the existing NBCWA and the Western Surface Agreement will be
successfully renegotiated upon their expiration without a strike or other work
stoppage. Apart from work stoppages which may occur upon termination of a
collective bargaining agreement, Peabody East and Peabody Western may from time
to time be subject to certain unauthorized work stoppages or wildcat strikes.
The Australian coal mining industry is highly unionized and all the
workers employed at Peabody Australia are members of trade unions. These
employees are represented by three unions, the United Mine Workers which
represents the production employees, and two unions which represent the other
staff. The miners at Warkworth mine have signed a three year labor agreement
which is due to expire in September 1999 and the miners at the Ravensworth and
Narama mines have signed a two year labor agreement which will expire in March
1998. Although production is lost due to industrial action from time to time, in
recent years there have not been any significant disputes or stoppages at mines
operated by Peabody Australia.
Eastern recognizes trade unions for collective bargaining purposes and
approximately 66% of employees of Eastern's businesses are union members.
Eastern Natural Gas and the energy trading businesses do not recognize trade
unions and most workers in these businesses are employed under individual
contracts. There have been no industrial disputes or work stoppages at Eastern
since its privatization in 1990. Eastern has negotiated a two year agreement
relating to pay with employees in the electricity supply and networks businesses
which expires at the end of June 1998.
REGULATORY MATTERS
The Group's operations are subject to extensive and changing regulation
in the UK, the US and Australia regarding production, sale, distribution, health
and safety and environmental matters.
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<PAGE> 97
REGULATORY MATTERS AFFECTING PEABODY
US
The US coal mining industry is subject to regulation by federal, state
and local authorities on matters such as employee health and safety, permitting
and licensing requirements, air quality standards, water pollution, plant and
wildlife protection, the reclamation and restoration of mining properties after
mining has been completed, the discharge of hazardous substances into the
environment, surface subsidence from underground mining and the effects of
mining on groundwater quality and availability. Costs associated with such
regulatory compliance increase the overall cost of mining. While it is not
possible to quantify the costs of compliance with all applicable federal and
state laws, those costs have been and are expected to continue to be
significant. For a discussion of the costs associated with the Group's health
care obligations to employees, reclamation and environmental obligations, see
Notes 19 and 21 of Notes to the Financial Statements included herein.
Mining Health and Safety
Stringent health and safety standards have been imposed by federal
legislation since the Federal Coal Mine Health and Safety Act of 1969 was
adopted. That Act resulted in increased operating costs and reduced
productivity. The Federal Mine Health and Safety Act of 1977 significantly
expanded the enforcement of health and safety standards and imposed health and
safety standards on all aspects of mining operations.
Most of the states in which Peabody operates have state programs for
mine health and safety regulation and enforcement. In combination, federal and
state health and safety regulation in the coal mining industry is a very
comprehensive and pervasive system for protection of employee health and safety.
This regulation has a significant effect on Peabody's operating costs. However,
Peabody's US competitors are subject to the same degree of regulation. Peabody's
accident rate has fallen by approximately 58% during the period from October 1,
1990 to March 31, 1997.
Black Lung
Under the Black Lung Benefits Revenue Act of 1977 and the Black Lung
Benefits Reform Act of 1977, as amended by the Black Lung Benefits and Revenue
Amendment Act of 1981, each coal mine operator is required to secure payment of
federal black lung benefits to claimants who are current and former employees
and to a trust fund for the payment of benefits and medical expenses to
claimants who last worked in the coal industry prior to July 1, 1973. Less than
7% of the miners currently seeking federal black lung benefits are awarded such
benefits by the federal government. The trust fund is funded by an excise tax on
coal sales which is passed on to the purchaser under many of Peabody's coal
sales agreements. The maximum fee is $1.10 per ton on underground mined coal and
$0.55 per ton on surface mined coal.
The US Department of Labor has proposed new regulations which would
liberalize the procedures used to award federal black lung benefits. If the
proposed regulations are finally adopted by the Department of Labor, there is
expected to be a substantial increase in the number of miners that are awarded
federal black lung benefits and Peabody's liability for federal black lung
benefits is likely to increase.
Coal Industry Retiree Health Benefit Act of 1992 ("Health Benefit Act")
The Health Benefit Act was enacted to provide for the funding of health
benefits for certain UMWA retirees and their spouses. The Health Benefit Act
established a fund into which "signatory operators" and "related persons" are
obliged to pay annual premiums for beneficiaries. The Health Benefit Act also
created a second benefit fund ("1992 Fund") for miners who retired between July
21, 1992 and September 30, 1994 and whose former employers are no longer in
business. Companies which are signatories to the NBCWA labor agreement must pay
premiums to the 1992 Fund. Peabody East made payments under the Health Benefit
Act of $4.17 million for the six months ended March 31, 1997 and expects that
total payments for the year ending March 31, 1998 will be approximately $8.4
million. These payments are less than half of the amounts paid prior to the
enactment of that Act.
Environmental Laws
Peabody is subject to various federal and state environmental laws.
These laws require approval of many aspects of coal mining operations, and both
federal and state inspectors regularly visit Peabody's mines and other
facilities to ensure compliance.
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<PAGE> 98
A risk of environmental liability is inherent in the coal mining
operations of the Group with respect to both current and past operations. The
Group has incurred and will continue to incur expenses for environmental
matters, including those arising from sites relating to former operations or
corporate predecessors of the Group.
Surface Mining Control and Reclamation Act: The Surface Mining Control
and Reclamation Act of 1977 ("SMCRA") requires coal mining companies to reclaim
land after mining has been completed. The mine operator must submit a bond or
otherwise secure performance of its reclamation obligations. Peabody has $629
million of reclamation bonds in place which assure compliance with all
applicable regulations.
Permits for surface mining operations are obtained from the Federal
Office of Surface Mining Reclamation and Enforcement or, where state regulatory
agencies have adopted federally approved state programs under SMCRA, the
appropriate state regulatory authority. Mining permits issued pursuant to SMCRA
must be renewed. The renewal of a mining permit may be denied if there are
violations of SMCRA, or other environmental laws. Although the Group does not
anticipate permit renewal problems, there can be no assurance that Peabody's
mining permits will be renewed in the future. In addition, the Peabody Western
Black Mesa Mine has been operating under a temporary permit since 1978. The mine
has been operating continuously since 1978, and the Group does not anticipate
that the temporary permit status will have an effect on operations at this mine.
There can be no assurance, however, that Peabody will be allowed to continue
operating under this temporary permit in the future, or that other permit issues
will not arise which will adversely affect Peabody's operations.
SMCRA also imposes a tax on coal production to pay for reclamation of
lands mined prior to 1978. The maximum fee is $0.35 per ton on surface mined
coal and $0.15 per ton on underground mined coal. Under many of the coal sales
agreements to which Peabody is a party, the fee is passed on to the purchaser.
Peabody accrues for the liability associated with all end of mine reclamation on
a ratable basis as the coal reserve is being mined. Peabody has won numerous
national and state awards for its reclamation practices. Accrued obligations
were $444.3 million and $429 million for the year ended September 30, 1996 and
the six months ended March 31, 1997, respectively.
Clean Air Act: The Clean Air Act, including the Clean Air Act
Amendments of 1990, extensively regulates the air emissions of coal-fired
electric power generating plants. Title IV of the Clean Air Act Amendments
places limits on sulfur dioxide emissions from electric power generation plants.
The first phase ("Phase I") of reductions, which became effective on January 1,
1995, applies to certain identified facilities. The second phase, which will
became effective in 2000 ("Phase II"), applies to all facilities including those
subject to the 1995 restrictions. The affected utilities will be able to meet
these requirements by switching to lower sulfur fuels, by installing pollution
control devices such as scrubbers, by reducing electricity generating levels or
by purchasing or trading so-called "emission allowances". Specific emissions
sources may use these allowances, which utilities and industrial concerns can
trade or sell, to allow other units to emit higher levels of sulfur dioxide.
Title III of the Clean Air Act Amendments also required certain utility
power plants to reduce their nitrogen oxide emissions with effect from January
1, 1995. The EPA adopted regulations in December 1996 requiring the remaining
utility power plants to reduce their nitrogen oxide emissions. Although
Peabody's customers are affected by these regulations, based on current
information, the Directors do not expect any material loss of sales as a result
of these nitrogen oxide regulations.
The EPA announced in July 1997 that it had adopted changes to the
National Ambient Air Quality Standards ("NAAQS") for particulate matter ("PM")
and ozone ("O(3)"). The NAAQS are set at the level judged to protect the
public's health and welfare. The states will be required to implement changes to
their existing plants to attain and maintain compliance with the revisions to
the standards. Because mining operations emit PM and the electric utility
industry emits sulfur dioxide and nitrogen oxides, which are precursors to PM
and O(3), Peabody's mining operations and electric utility customers are likely
to be affected when the revisions to the NAAQS are implemented by the states.
The extent of such effects, which could be material to Peabody, will depend on
the policies and control strategies associated with the state implementation
process under the Clean Air Act. The impact, if any, on Peabody is unlikely to
occur until after 2000.
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"): CERCLA and similar state laws affect coal mining operations by
imposing clean-up requirements for threatened or actual releases of hazardous
substances that may endanger public health or welfare or the environment. Under
CERCLA, joint and several liability may be imposed on waste generators, site
owners and operators and others regardless of fault or the legality of the
original disposal activity. Waste substances generated by coal mining and
processing are generally not regarded as hazardous substances for purposes of
CERCLA.
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Clean Water Act: The Federal Water Pollution Control Act, as amended by
the Clean Water Act of 1977, affects coal mining operations by imposing
restrictions on effluent discharge into water. Regular monitoring, reporting
requirements and performance standards are preconditions for the issuance and
renewal of permits governing the discharge of pollutants into water.
Resource Conservation and Recovery Act: The Resource Conservation and
Recovery Act ("RCRA") of 1976, affects coal mining operations by imposing
requirements for the treatment, storage and disposal of hazardous wastes. Coal
mining operations covered by SMCRA permits are exempted from regulation under
RCRA by statute. However, the EPA is considering the possibility of expanding
regulation of mining wastes under RCRA. Any changes in the types of substances
regulated under RCRA could have a material adverse effect on the Group's
business or financial position.
Global Climate Change: The US, Australia and 165 other nations have
signed and ratified the UN Framework Convention on Climate (the "Convention"),
under which the US, Australia and 34 other developed countries have agreed to
implement measures aimed at reducing their greenhouse gas emissions to 1990
levels by 2000. The parties to the Convention are currently working on a further
protocol that is expected to commit the developed nations to adopt policies and
measures and set quantified emission limitations and reduction objectives for
implementation no earlier than 2005. That protocol is expected to be completed
at the end of 1997. Any new protocol adopted by the parties to the Convention
would have to be ratified by the US Senate and the Australian Government before
it became effective in their respective countries. It is unclear what impact
this protocol might have on Peabody's operations, and there is no guarantee that
such impact will not have a material adverse effect upon the Group's business or
financial position.
AUSTRALIA
The Australian mining industry is regulated by Australian federal, state
and local governments with respect to environmental issues such as land
reclamation, water quality, air quality and noise, planning issues such as
approvals to expand existing mines or to develop new mines and health and safety
issues. The Australian federal government retains control over the level of
foreign investment, export approvals and industrial relations. Australian state
governments also require coal companies to post security deposits against land
which has been used for mining, which are refundable after satisfactory
rehabilitation.
REGULATORY MATTERS AFFECTING EASTERN
The electricity industry in Great Britain is subject to regulation,
inter alia, under the Electricity Act and certain UK and EU environmental
legislation. The Group is also subject to existing UK and EU legislation on
competition and regulation in its gas and telecommunications businesses. In
addition, an element of any profit received by Eastern on its disposal of
certain categories of the assets vested in it at the time of its privatization
is subject to clawback by the Secretary of State for Trade and Industry until
March 31, 2000.
In June 1997, the UK Secretary of State for Trade and Industry announced
a review of utility regulation (including price controls) covering gas,
electricity, water and telecommunications. If an internal governmental review
team concludes that change is needed, the Government has stated that it intends
to publish a consultation paper in the fall of 1997. This review may result in
significant changes to the existing regulatory regime. There can be no assurance
regarding the impact of those potential utility regulatory changes, if any, on
Eastern and the Group.
POWER LICENSES
Generation
Unless covered by an exemption, all electricity generators operating a
power station in Great Britain are required to have a Generation License. The
conditions attached to such a license in England and Wales require the holder,
among other things, to be a member of the Pool and to submit relevant generating
sets for central dispatch. Failure to comply with any of the Generation License
conditions may subject the licensee to a variety of sanctions, including
enforcement orders by the Director General of Electricity Supply in Great
Britain ("DGES"), or license revocation if an enforcement order is not complied
with.
The Secretary of State has power under the Electricity Act to require
generators operating power stations with a capacity of not less than 50MW to
maintain stocks of fuel and other materials at power stations. The Secretary of
State is currently reviewing the level of fuel stocks held by generators.
24
<PAGE> 100
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 DGES ("own-generation limits"). These own-generation limits
currently restrict the participation by a REC in generation to a level of
approximately 15% of the simultaneous maximum electricity demand in that REC's
authorized area at privatization, setting Eastern's limit at 1,000MW. Following
a process of consultation on the own-generation limits, the DGES stated in
January 1995 that he would be prepared to consider a REC's request to increase
its generation capacity on condition that it accepted explicit restrictions on
the contracts it signed with its supply business, and that at a minimum it would
be prohibited from passing additional own-generation output into its franchise
market. In August 1995, he published model draft license modifications which he
indicated that he would consider proposing in connection with a relaxation of
own-generation limits of a REC.
In June 1996, the DGES stated that he had indicated to Eastern that he
would consider relaxing its own-generation limits, subject to agreeing license
modifications as set out in his consultation paper of August 1995. The specific
consent of the DGES to the leasing by Eastern of generating capacity from each
of National Power and PowerGen has been confirmed by OFFER, and the Directors
expect consent to be granted on a conditional basis in relation to the Shotton
CCGT and the Dowlais clean coal plants.
Electricity Sales
Subject to certain exceptions, each supplier of electricity in the
franchise market in Great Britain is required to have a PES License for its
authorized area and is required under the Electricity Act to provide a supply of
electricity upon request to any premises in that area, except in specified
circumstances. Each PES License holder is subject to various obligations under
its PES License, including prohibitions on cross-subsidy between its various
regulated businesses and on discrimination in respect of the supply of
customers. Each PES License holder is also required to offer open access to its
distribution network on non-discriminatory terms. This obligation includes a
requirement not to discriminate between its own supply business and other users
of its distribution system. PES License holders are subject to separate revenue
controls on the actual costs they may pass through for the supply of electricity
to franchise customers and in respect of distribution charges.
A supplier of electricity to the competitive market in Great Britain
must, subject to certain exemptions, possess a Second Tier Supply License, or
hold a PES License for the authorized area in which customers are supplied.
Supply charges in the franchise market are regulated by an (RPI-X)+Y
revenue control formula. The RPI-X element relates to the costs of the supply
business, and includes a profit element. For the current control, which was set
for the period April 1994 to March 1998, X has been set at 2%. The Y factor
enables each PES License holder to pass through to customers costs already
regulated (transmission and distribution costs) and certain costs which are
unregulated (electricity purchase costs and the Fossil Fuel Levy). The formula
takes a forward-looking approach and therefore includes a correction factor to
allow for forecasting errors.
The DGES is currently reviewing with the PES License holders, the supply
price restraints to apply to tariff customers from April 1, 1998, when the
process of opening up competition in the under 100KW market is due to begin. The
DGES intends to publish final proposals in early October 1997.
Energy Trading
Eastern Power and Energy Trading Limited ("EPETL") is authorized by the
Securities and Investments Board under the Financial Services Act 1986 to deal
in electricity contracts for differences (including futures and options). A
subsidiary of EPETL is a joint holder of production licenses relating to its
equity interest in three North Sea natural gas fields described above.
Energy Marketing
The purchasing, wholesaling, and transmission of electricity in the US
is regulated by the FERC. Citizens Power Sales has been authorized by the FERC
to engage in wholesale electric power and energy transactions as a marketer of
electricity at rates established by agreement between Citizens Power Sales and
the purchaser. Citizens Power Sales is obligated to notify the FERC of any
changes in status, including ownership of generation or transmission facilities
or affiliation with any entity that has generation or transmission facilities or
a franchised service area in the US. Each of HPS, CL One, CL Two and CL Eight
has received the same authorization from the FERC and is under the same
obligation to advise the FERC of any changes in status.
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<PAGE> 101
Citizens trades in electricity futures on the New York Mercantile
Exchange. Citizens files periodic reports with the Commodity Futures Trading
Commission.
Restructuring transactions, under which affiliates of Citizens
participate in the restructuring or replacing of power sales agreements between
non-utility generators and utility purchasers, generally require approvals from
state regulatory agencies for the utility purchasers to enter into new power
purchase agreements. Also, long term power purchase contracts from utility
sellers which may be entered into in connection with restructuring transactions
require filing with, and acceptance of filing by, the FERC. These approvals have
been obtained in the restructuring transactions completed to date.
Conversion of generating plants to Orimulsion(R) as a fuel requires
extensive environmental approvals. Final approval for the conversion to
Orimulsion(R) at the 1,600 MW Manatee plant of Florida Power & Light ("FP&L")
was denied by the Florida Siting Board on April 23, 1996. On appeal, the Siting
Board's order was vacated and remanded for reconsideration. On remand, the
Siting Board, on September 9, 1997, by a 5-2 vote, returned the case to the
original hearing officer to consider additional measures to mitigate pollution
and community impacts, which additions are believed acceptable to FP&L. Final
decisions are expected within three months. All other approvals, other than
Siting Board approval, have been obtained by FP&L for the Manatee project.
Gas
The gas supply activities on ENG are principally regulated by the
Director General of Gas Supply under the Gas Acts and by the conditions of ENG's
Gas Licenses. ENG currently holds a public gas transporter's license, a gas
supplier's license and a gas shipper's license. The gas business is not subject
to price regulation.
NETWORKS
Electricity
Approximately 95% of the operating income of Eastern Electricity's
networks business is controlled by a distribution price control formula of
RPI+X(d) which determines the maximum charge per unit that Eastern Electricity
is permitted to charge in any financial year to March 31 for distribution
services which are subject to the control. The X(d) factor for Eastern was
initially related to the numbers of units (kWh) of electricity distributed and
was set at +0.25% for the period 1990 to 1995. Since the distribution price
reviews in August 1994 (effective April 1, 1995) and July 1995 (effective April
1, 1996), price control has been related to the number of customers served and
the number of units sold in equal weightings. These price reviews have resulted
in the X(d) factor being reduced to -11% for 1995/96, -10% for 1996/97 and -3%
for each of the years 1997/98 to 1999/2000. The August 1994 review resulted in
an estimated total reduction of Eastern's prospective revenues of some L350
million over the five years to April 2000 and July 1995 review resulted in an
estimated total reduction of Eastern's revenues of a further L150 million over
the four year period from April 1, 1996 compared with revenue under the previous
distribution price controls. To allow for forecasting errors, an annual
correction factor is built into the control to allow any under-recovery or over-
recovery of income to be recovered in following years, the latter with an
interest penalty. A further distribution price control review is schedule to
take place in 2000. Any additional revenue by the DGES may adversely affect the
Group. Similarly, the DGES may issue further or additional statements or take
further or additional actions which may impact upon the Group's operations.
Distribution costs vary with the voltage at which consumers are
connected and the utilization of the distribution system at the time units are
distributed. Changes in the mix of units distributed at different voltage levels
and between peak and off-peak periods are reflected in the calculation of the
maximum average allowed charge per unit distributed by reference to a "basket"
of distribution categories which take account of the different costs of
distributing electricity at various voltages and at various times of the day.
Electricity distributed to extra high voltage premises is excluded from
the distribution price control formula, as are charges for certain additional
services including connection charges. Connection charges must be set at a level
which enables the licensee to recover no more than the appropriate proportion of
the costs incurred and no more than a reasonable rate of return on the capital
represented by such costs. Any dispute over connection charges may be determined
by the DGES. In addition, income received in respect of National Grid Group exit
charges incurred by a REC and received through use of system charges is not
subject to distribution price control.
In certain circumstances, the DGES may propose amendments to the
distribution price control formula or the terms of the license. In the cases
where a PES License holder is not willing to accept modifications to the
26
<PAGE> 102
distribution price control formula or other license conditions put forward by
the DGES, the normal process would be for the DGES to refer the matter to the
MMC.
Telecommunications
The Group's telecommunications activities are principally regulated by
the Telecommunications Act 1984 and by the conditions of its public telephone
operations license. The UK Secretary of State for Trade and Industry and the
Director General of Telecommunications are the principal regulators of the
telecommunications industry in the UK. The telecommunications business is not
subject to price regulation.
ENVIRONMENTAL REGULATIONS AND EMISSIONS
The electricity generation industry in the UK is subject to a framework
of national and EU environmental laws which regulate the construction, operation
and decommissioning of power stations.
Under these laws, each power station operated by the Group is required
to have an authorization which regulates its releases into the environment and
seeks to minimize pollution of the environment taken as a whole, having regard
to the best practicable environmental option.
The responsibility for these requirements in England and Wales is vested
in the Environment Agency ("EA") whose role is to regulate industrial plants and
to monitor the environment, to obtain environmental information and to promote
the objective of sustainable development. When performing its functions, the EA
is required to take into account the best available techniques for controlling
emissions, the life expectancy and rate of utilization of the plant, and the
desirability of not involving excessive cost.
The principal EU Directive affecting environmental emissions currently
in force is the Large Combustion Plants Directive ("LCPD").
The LCPD requires the UK to reduce sulfur dioxide ("SO(2)") emissions
from existing plants by 60% by 2003 and emissions of nitrogen oxides ("NOx") by
30% by 1998 compared with their 1980 levels. The Large Combustion Plant National
Plan is the mechanism by which this directive has been implemented in the UK and
sets year on year programs of reductions for various industries including the
electricity industry. Each site has an annual limit of emissions. Negotiations
are underway regarding further restrictions on emissions.
In addition, the UK has ratified the second United Nations Economic
Commission Sulfur Protocol. The Protocol commits the UK to a reduction in SO(2)
emissions from all sources by 80% by 2010 compared with their 1980 levels.
At a local level, the UK's Air Quality Strategy provides set targets for
2005 and places a duty on local authorities to review air quality with a view to
setting up management in places where targets are not being met. When adverse
meteorological conditions occur, some power stations may have to introduce
measures to comply with these targets.
The UK is also a signatory to the Greenhouse Gases Convention which
commits it to draw up programs aimed at reducing emissions of carbon dioxide and
other greenhouse gases to their 1990 levels by 2000. Negotiations will take
place in December 1997 aimed at cutting emissions further.
For a discussion of the costs associated with environmental matters
affecting the Group, see Item 9 of this Transition Report and Notes 17 and 19 of
Notes to the Financial Statements included elsewhere herein.
OTHER REGULATORY MATTERS
Certain US subsidiaries of Consolidated Gold Fields are or may become
parties to environmental proceedings which have been commenced or threatened in
the US in relation to certain sites previously owned or operated by those
subsidiaries or companies associated with them. This includes sites formerly
owned or operated by Consolidated Gold Fields and as well as dormant sites that
the Group currently owns. The EPA has placed some of these sites on the National
Priorities List, promulgated pursuant to CERCLA, and some of these sites are on
similar state priority lists. There are a number of further sites in the US
which were previously owned or operated by such companies which could give rise
to environmental proceedings in which members of the Group could incur
liabilities.
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<PAGE> 103
Where such sites have been identified, the Directors have commissioned a
review of publicly available information by independent environmental
consultants in order to assess the total amount of the liability per site and
the proportion of those liabilities which the members of the Group are likely to
bear. The available information on which to base this review is very limited,
especially in relation to sites which are no longer owned or operated by members
of the Group.
On the basis of that review, the Directors have made a provision against
the above environmental liabilities relating to Consolidated Gold Fields in the
total sum of $73.6 million as of March 31, 1997 (which is included in the
overall provision of L280 million as discussed in Note 19 of Notes to the
Financial Statements included herein), but significant uncertainty exists as to
whether these claims will be pursued against the Group in all cases, and where
they are pursued, the amount of the eventual costs and liabilities. See Note 21
of Notes to the Financial Statements included herein.
In addition to all of the foregoing, the Group may incur environmental
liability and be subject, among other things, to an order requiring the clean-up
of contaminated soils, surface or groundwater, administrative proceedings,
long-term monitoring requirements to evaluate impact on the environment, common
law suits, toxic tort suits, penal proceedings or, in some instances, an
obligation to reimburse governmental agencies or third parties for certain
costs, including natural resource damages.
ITEM 2. DESCRIPTION OF PROPERTY
The principal establishments owned or occupied by the Group as of March
31, 1997 are as follows:
<TABLE>
<CAPTION>
PROPERTY OWNER TENURE TERM OF LEASE PRINCIPAL USE SITE AREA (ACRES)
<S> <C> <C> <C> <C> <C>
117 Piccadilly, London Eastern Energy Freehold -- Head Office --
Limited
St. Louis, Missouri Peabody Leasehold 5 years Offices 0.9
Sydney, Australia Peabody Australia Leasehold 3 years Offices 0.2
Charleston, West Virginia Peabody East Leasehold 1 year Offices 1.1
Flagstaff, Arizona Peabody Western Freehold -- Offices 2.2
Grants, New Mexico Lee Ranch Freehold -- Offices & Mine 3.0
Gillette, Wyoming Powder River Freehold -- Offices 3.0
Carterhatch Lane, Enfleid Eastern Freehold -- Offices and Depot 4.0
Electricity
Milton, Cambridge Eastern Freehold -- Offices and Depot 24.0
Electricity
Wherstead Park, Wherstead, Ipswich Eastern Freehold -- Offices 17.0
Electricity
Peterborough Power Station Eastern Generation Freehold -- Power station 18.1
Limited
King's Lynn Power Station Anglian Power Freehold -- Power station 16.1
Generators Limited
Drakelow C Power Station PowerGen Leasehold 99 years Power station 177.0
High Marnham Power Station PowerGen Leasehold 99 years Power station 178.4
Ironbridge Power Station National Power Leasehold 99 years Power station 212.7
Rugeley B Power Station National Power Leasehold 99 years Power station 299.0
West Burton Power Station National Power Leasehold 99 years Power station 511.5
</TABLE>
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<PAGE> 104
For information concerning the Group's coal reserves, see "Description
of the Businesses - Coal - Coal Reserves" and for information concerning the
Group's power stations, see "Description of the Businesses - Power Generation"
in Item 1 of this Transition Report.
ITEM 3. LEGAL PROCEEDINGS
Other than as mentioned in "Regulatory Matters -- Other Regulatory
Matters" in Item 1 of this Transition Report, the Group is not involved in any
legal or arbitral proceedings which management believes will have a material
adverse effect upon the Group's business or financial position.
ITEM 4. CONTROL OF REGISTRANT
To its knowledge, Energy is not owned or controlled directly or
indirectly by any government or by any other corporation. For information
concerning a possible change in control of Energy in connection with the Offer
by PacifiCorp Acquisitions, as to which there can be no assurances, see "Offer
by PacifiCorp Acquisitions" in Item 1 of this Transition Report.
The following table sets forth certain information as of September 1,
1997 with respect to those persons that had interests in 3% or more of Energy's
issued Ordinary Shares:
<TABLE>
<CAPTION>
PER CENT OF
ORDINARY SHARES CLASS
--------------- ----------------
(MILLIONS)
---------------
<S> <C> <C>
National City Nominees Limited* 133.1 25.6
Mercury Asset Management Limited 33.4 6.4
Chase Nominees Limited 23.9 4.6
Barrow, Hanley, Mcwhinney & Strauss, Inc. 23.5 4.5
PDFM Limited and UBS International Investment
London Ltd 19.2 3.7
</TABLE>
* Custodian for Citibank, N.A., as Depositary (the "Depositary") under the
Deposit Agreement (the "Deposit Agreement"), dated as of February 21, 1997,
among Energy, the Depositary and all holders and beneficial owners of ADRs
issued thereunder.
As of September 1, 1997, the Directors and officers as a group (10
persons) beneficially owned 139,482 Ordinary Shares (including Ordinary Shares
represented by ADSs), which in the aggregate represented less than 1% of the
outstanding Ordinary Shares.
ITEM 5. NATURE OF TRADING MARKET
The principal trading market for the Ordinary Shares is the London Stock
Exchange ("LSE"), ADSs, each representing four Ordinary Shares, are listed on
the New York Stock Exchange (the "NYSE"). The ADSs are evidenced by American
Depositary Receipts ("ADRs") issued by the Depositary under the Deposit
Agreement.
The following table sets forth, for the periods indicated, (i) the
reported high and low middle market quotations for the Ordinary Shares based on
the Daily Official List of the London Stock Exchange and (ii) the reported high
and low sales prices of the ADSs on the NYSE Composite Tape.
<TABLE>
<CAPTION>
LONDON STOCK EXCHANGE NYSE
---------------------- ------------------
(PENCE PER) (US DOLLARS PER)
ORDINARY SHARE ADS
---------------------- ------------------
HIGH LOW HIGH LOW
------- ------- ----- -----
<S> <C> <C> <C> <C>
Year ended March 31, 1997
*Fourth Quarter (from February 24)........... 568.5 466.5 37.20 29.75
Year ending March 31, 1998
First Quarter................................ 648.0 486.0 43.25 31.25
Second Quarter (through September 2)......... 658.5 617.0 44.00 39.00
</TABLE>
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<PAGE> 105
* Energy was demerged from Hanson and the Ordinary Shares commenced trading on
the LSE and the ADSs commenced trading on the NYSE on February 24, 1997.
As of September 1, 1997, approximately 430,000 Ordinary Shares and ADRs
evidencing approximately 33.3 million ADSs (representing 133.1 million Ordinary
Shares) were held of record in the US. These Ordinary Shares and ADRs were held
by approximately 375 and 18,424 record holders, respectively, and collectively
represented or evidenced approximately 26% of the total number of Ordinary
Shares outstanding. Energy also believes that as of September 1, 1997,
approximately 4% of its outstanding Ordinary Shares were beneficially owned by
US holders. Since certain of these securities are held by brokers or other
nominees, the number of record holders in the US may not be representative of
the number of beneficial holders or of where the beneficial holders are
resident.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no UK restrictions on the import or export of capital
including foreign exchange controls that affect the remittances of dividends or
other payments to non-resident holders of Ordinary Shares except as otherwise
set forth in Item 7 of this Transition Report and except for certain
restrictions imposed from time to time by HM Treasury pursuant to legislation,
such as The United Nations Act 1946 and the Emergency Laws Act 1964, against the
government or residents of certain countries.
Except for certain restrictions that may be imposed from time to time by
HM Treasury under legislation as described above, under English law and Energy's
Memorandum and Articles of Association, persons who are neither residents nor
nationals of the UK may freely hold, vote and transfer Ordinary Shares in the
same manner as UK residents or nationals.
ITEM 7. TAXATION
The following discussion of taxation is intended only as a descriptive
summary and does not purport to be a complete technical analysis or listing of
all potential tax effects relevant to UK Holders and US Holders of the Ordinary
Shares or ADSs. A US Holder is: (i) a citizen or resident of the US; (ii) a
corporation created or organized in the US under the laws of the US or any
state; (iii) an estate the income of which is included in gross income for US
federal income tax purposes regardless of its source or (iv) a trust if a court
within the United States is able to exercise primary jurisdiction over the trust
and one or more US persons have the authority to control substantial decisions
of the trust. A UK Holder is a person resident or ordinarily resident in the UK
for tax purposes or who is subject to UK taxation on capital gains or income by
virtue of having a trade, profession or vocation in the UK.
The statements of US federal and UK tax laws set forth below are based
on US federal and UK tax laws and UK Inland Revenue practice in force as of the
date of the filing of this Transition Report and are subject to any changes in
UK or US law, and in any double taxation convention between the US and the UK,
occurring after that date.
The following discussion is principally directed at UK tax laws and not
to US tax laws and therefore does not describe all material potential US
federal/or other US/tax consequences. In addition, while this summary is
principally directed to UK tax law, it does not describe all material potential
UK tax consequences. The tax treatment of a shareholder may vary depending on
such shareholder's particular situation, and certain shareholders (including
insurance companies, tax-exempt organizations, dual resident entities, financial
institutions, broker-dealers or entities which, alone or together with one or
more associated corporations, control directly or indirectly more than 10% of
the voting shares of Energy) may be subject to special rules not discussed
below. A US Holder of Ordinary Shares or ADSs should consult its tax advisor in
respect of US tax consequences.
For purposes of the current income tax convention between the UK and the
US (the "Income Tax Convention"), the current estate and gift tax convention
between the UK and the US (the "Estate and Gift Tax Convention") and the US
Internal Revenue Code, holders of ADSs will be treated as the owners of the
underlying Ordinary Shares.
TAXATION OF DIVIDENDS
UK Holders
Under current UK taxation legislation, no withholding tax will be
deducted from dividends paid by Energy, but whenever Energy pays a dividend, it
will be liable to account to the UK Inland Revenue for an amount of tax
30
<PAGE> 106
known as advance corporation tax ("ACT"). The rate of ACT is currently equal to
one quarter of the dividend ACT paid by Energy can be set off against its
liability to corporation tax, subject to certain limits and restrictions. If
Energy receives dividends in respect of which ACT has been accounted for and to
which an equivalent tax credit is attached, it will normally be entitled to set
that tax credit against its own liability to account for ACT.
A UK Holder who is a UK resident individual who receives a dividend on
Ordinary Shares or ADSs will be entitled to a tax credit of an amount equal to
one quarter of the dividend. An individual so resident will be taxed on the
total of the dividend and the related tax credit, which will be regarded as the
top slice of such individual's income. The tax credit will, however, be treated
as discharging the individual's liability to income tax in respect of the
dividend, unless and except to the extent that the dividend and related tax
credit exceeds the individual's threshold for the higher rate of income tax. In
such cases the individual will, to that extent, be liable to tax on the dividend
and related tax credit at a rate equal to the excess of the higher rate
(currently 40%) over the lower rate (currently 20%). If the tax credit exceeds
the individual's liability to income tax on the total dividend and tax credit,
the individual will able to claim payment of the excess. Under current
proposals, the rate of tax credit that will be available to UK Holders (other
than UK resident companies or pension providers) in respect of dividends paid on
or after April 6, 1999 will be halved to 10% and tax credits will no longer be
repayable to UK Holders with no tax liability. Under such proposals, individuals
whose income is within the lower or basic rate tax bands will be liable to tax
at 10% on dividend income and the tax credit will continue to satisfy their
income tax liability on UK dividends. It is further proposed that the higher
rate of tax on dividend income will be reduced to 32.5% from April 6, 1999,
which is intended to leave higher rate taxpayers the same amount of after tax
income as they would have received prior to such changes.
Subject to certain exceptions, a UK Holder of Ordinary Shares or ADSs
which is a UK resident company and which receives a dividend paid by the Group
will not be taxable on the dividend. The dividend and related tax credit in
respect of ACT paid on such dividend will be treated as franked investment
income. Such tax credit will be an amount equal to one quarter of the dividend
(although the amount of the tax credit to which the recipient will be entitled
will be reduced to one ninth of the dividend under the provisions. Under current
proposals, pension providers and most UK resident companies will no longer be
entitled to the payment of tax credits in respect of dividends paid to them on
or after July 2, 1997.
Subject to certain exceptions for individuals who are Commonwealth
citizens, citizens of the Republic of Ireland, residents of the Isle of Man or
the Channel Islands, nationals of states which are part of the European Economic
Area and certain other persons, the right of holders of Ordinary Shares or ADSs
who are not resident in the UK for tax purposes to claim payment from the UK
Inland Revenue for a proportion of the tax credit relating to their dividends
will depend, in general, upon the provisions of any double taxation agreement or
convention which exists between the UK and their country of residence.
The above paragraphs do not address the provisions in Chapter VA of Part
VI of the UK Income and Corporation Taxes Act 1988, relating to a dividend which
the paying company elects to be treated as a foreign income dividend ("FID"). In
the future Energy may receive foreign source income. If such circumstances arise
Energy may consider availing itself of the benefits of the FID rules. In the
event that a FID is declared, a UK Holder that is a UK resident company holding
Ordinary Shares or ADSs will not be subject to UK corporation tax in respect of
a FID paid by Energy. The FID will not, however, constitute franked investment
income for such UK Holders. Under current proposals, the rules for payment of
FIDs may be repealed from April 6, 1999.
US Holders
Under the provisions of the Income Tax Convention and the Arrangement
(as defined and more fully described below), a US Holder who is an individual or
a corporate portfolio holder (which is defined as a shareholder who holds less
than 10% of the voting shares of Energy) of Ordinary Shares or ADSs will be
entitled to receive from the UK Inland Revenue a refund (the "Tax Treaty
Payment") of an amount equal to the tax credit in respect of ACT minus a
withholding tax of 15% of the sum of the cash dividend plus the tax credit. The
rate of ACT is currently 25% of the cash dividend paid. On the basis of an ACT
rate of 25% of the dividend, a L80 dividend (which amount and rate of ACT have
been selected for illustrative proposes only) would result in a L20 payment of
ACT by Energy. The tax credit related to the dividend would be equal to L20 (20%
of the sum of the L80 dividend and the L20 tax credit). The US Holder who is an
individual or corporate portfolio would be entitled to receive a L5 Tax Treaty
Payment, calculated by reducing the L20 tax credit by withholding tax of L15
(15% of the sum of the L80 dividend and the L20 tax credit). Accordingly, such
US Holder would have a total net receipt of L85 (cash dividend of L80 plus a net
tax credit of L5). Under current proposals the rate of tax credits will be
halved from 20% to 10% on dividends paid on or after April 6, 1999 with the
result that a US Holder who is an individual or a corporate portfolio holder
would not be entitled to receive any Tax Treaty Payment.
31
<PAGE> 107
A US Holder of Ordinary Shares of ADSs nonetheless will not be entitled
to claim the Tax Treaty Payment described above if: (i) the holding of Ordinary
Shares of ADSs is effectively connected with (a) a permanent establishment
situated in the UK through which the US Holder carries on business in the UK, or
(b) a fixed base in the UK from which the US Holder performs independent
personal services; or (ii) in the case of a US Holder that is a US corporation,
the US Holder is (a) also a resident of the UK, or (b) in certain circumstances,
an investment or holding company at least 25% of the capital of which is held,
directly or indirectly, by persons that are not individual residents or
nationals of the US. Further, special rules may apply if the US Holder is exempt
from tax in the US on dividends paid by Energy. The refund may not be available
in the case of a US Holder who owns 10% or more of the class of shares in
respect of which the dividend is paid to the extent that the dividend can only
have been paid out of profits which were earned, or from income which was
received, in a period ending 12 months or more before the date on which the US
Holder becomes the owner of 10% or more of the class of shares in question. If
the US Holder of Ordinary Shares or ADSs is a US partnership, trust or estate,
the refund will be available only to the extent that the income derived by such
partnership, trust or estate is subject to US tax either as the income of a US
resident in its hands or the hands of its partners or beneficiaries, as the case
may be.
The aggregate of the dividend paid to a US Holder who is an individual
or a corporate portfolio holder and the gross tax credit in respect of it will
be treated as dividend income for US federal income tax purposes to the extent
made from current or accumulated earnings and profits of Energy as determined
under US federal income tax principles. Such dividend will not be eligible for
the dividends received deduction allowed to US corporations under Section 245 of
the US Internal Revenue Code. However, the 15% withholding tax will be treated
as a foreign income tax eligible for credit or deduction against such US
Holder's US federal income tax liability at such US Holder's option subject to
applicable limitations. US Holders should consult their tax advisors as to the
method of claiming such foreign tax credit or deduction.
For dividends paid before April 6, 1999, a US Holder who is an
individual or a corporate portfolio holder who receives the L80 dividend in the
above example for US federal income tax purposes would be considered to receive
a dividend of L100 (L80 dividend plus L20 tax credit) and would include the
amount in income. Such US Holder also would be considered to have paid L15 of UK
tax that, subject to the applicable limitations, would be creditable against
such US Holder's US federal income tax liability.
For dividends paid on or after April 6, 1999 (assuming that the current
proposals are enacted and no further changes in law occur) a US Holder who is an
individual or a corporate portfolio holder who receives the L80 dividend in the
above example for US federal income tax purposes should be considered to receive
a dividend of L88.89 (L80 dividend plus the L8.89 tax credit) and would include
that amount in income. Such US Holder also should be considered to have paid
L8.89 of UK tax that, subject to the applicable limitations, would be creditable
against such US Holder's US federal income tax liability.
As a result of recently enacted legislation, a US Holder will be denied
a foreign tax credit with respect to income tax withheld from dividends received
in respect of Ordinary Shares is such US Holder has not had the Ordinary Shares
for a minimum period or to the effect such US Holder is under an obligation to
make certain related payments with respect to substantially similar property.
Energy will use reasonable efforts to effect an "H" Arrangement
("Arrangement") with respect to the payments of dividends to a US Holder of
ADSs. An Arrangement applies where shares are held through an American
depositary receipt system and the operator of such system makes arrangements for
the Tax Treaty Payment to be paid by Energy rather than the UK Inland Revenue at
the same time as the dividend is paid to a US Holder of New Ads if such US
Holder completes the necessary declaration of the US residency and US tax
status. This avoids the need for such a US Holder of ADSs, to the extent such US
Holder is entitled to a Tax Treaty Payment to make a claim to the UK Inland
Revenue for a refund of tax. The following categories of US Holders of ADSs will
be excluded from the Arrangement: (i) any person, whether an individual or a
corporation, who will control 10% or more of the Ordinary Shares or ADSs, (ii)
certain bodies exempt from tax in the US on dividends paid by Energy, (iii)
estates or trusts where any of the beneficiaries are not resident in the US,
(iv) an investment or holding company where 25% of the capital is owned directly
or indirectly by persons who are neither residents of the US nor US nationals,
or (v) a corporation which either alone or together with one or more associated
companies, controls at least 10% of the voting power of Energy. US Holders of
ADSs who are excluded from the Arrangement or who do not satisfy the
requirements stated above must, in order to obtain a refund, file in the manner
and at the time described in Revenue Procedure 80-18, 1980-1 C.B. 623 (as
clarified and amplified by Revenue Procedure 90-61, 1990-2 C.B. 657), Revenue
Procedure 81-58, 1981-2 C.B. 678 and Revenue Procedure 84-60, 1984-2 C.B. 504,
summarized below, a claim for refund identifying the dividends with respect to
which the tax credit was paid.
32
<PAGE> 108
A US Holder who does not obtain a refund by completing the declaration
referred to in the preceding paragraph generally is entitled to claim, in
accordance with the refund procedures summarized below, a refund from the UK
Inland Revenue with respect to any dividend paid, to the extent such US Holder
is entitled to a Tax Treaty Payment with respect to such dividend.
The first claim of a US Holder for a refund is made by sending the
appropriate UK form in duplicate to the IRS-Philadelphia Service Center, Foreign
Certification Requests PO Box 16347, Philadelphia, PA 94114-0447. Forms may be
obtained by writing to the US Internal Revenue Service, Assistant Commissioner
International 950 L'Enfant Plaza South, SW, Washington DC 20024, Attention:
Taxpayers Service Division, Room 2223. Because a refund claim is not considered
made until the UK tax authorities receive the appropriate form from the US
International Revenue Service, forms should be sent to the US Internal Revenue
Service well before the end of the applicable limitation period. Any claim for
refund of tax credit by a US Holder after the first claim by such US Holder has
been processed should be filed directly with the UK Financial Intermediaries and
Claims Office (International), FitzRoy House, PO Box 46, Nottingham NG2 1BD,
England.
Under current US Treasury regulations, dividends paid on Ordinary Shares
or ADSs will not be subject to US backup withholding tax. However, if proposed
Treasury regulations are adopted in their current form, on a prospective basis,
dividends paid on Ordinary Shares or ADSs to a US or to a non-US holder in the
US or through US or US-related persons may be subject to a 31% US backup
withholding tax in certain circumstances. In addition, under current US Treasury
regulations, the payment of proceeds of a sale, exchange or redemption of
Ordinary Shares or ADSs to a US Holder or non-US holder in the US or through US
or US-related persons may be subject to US information reporting requirements
and/or backup withholding tax.
US Holders can avoid the imposition of backup withholding tax by
reporting their taxpayer identification number to their broker or paying agent
on US Internal Revenue Service Form W-9. Non-US holders can avoid the imposition
of backup withholding tax by providing a duly completed US Internal Revenue
Service Form W-8 to their broker or paying agent. Any amounts withheld under the
backup withholding rules from a payment to a holder will be allowed as a refund
or a credit against such holder's US federal income tax liability, provided that
the required returns are filed with the US Internal Revenue Service on a timely
basis.
GENERAL
Whether holders of Ordinary Shares or ADSs who are resident in countries
other than the US are entitled to refunds of tax credits in respect of dividends
on such shares depends in general upon the provisions of such conventions or
agreements, if any, as may exist between such countries and the UK.
UK TAXATION OF CAPITAL GAINS
UK capital gains tax (or, for companies, corporation tax on chargeable
gains) applies only to a UK Holder on the disposal of Ordinary Shares or ADSs,
if held as a capital asset. On such disposal the capital gain or allowance loss
is calculated by reference to the difference between the acquisition cost for UK
tax purposes and the net proceeds realized. Capital gains in each tax year
realized by UK Holders who are individuals are (subject to exemptions and
reliefs) currently taxed at the highest marginal tax rate applicable to the
individual's income. Chargeable gains of UK Holders who are companies are
currently taxed at 33% to be changed to 31% retrospectively from April 1, 1997
under the provisions in the Finance Bill (subject to lower rates for small
companies). UK Holders which are companies can offset ACT (up to a limit)
against their corporation tax liability on all taxable profits, which include
chargeable gains.
A US Holder that is not resident or ordinarily resident for tax purposes
in the UK will not be liable for UK tax on capital gains on the disposal of
Ordinary Shares or ADSs unless the US Holder carries on a trade, profession or
vocation in the UK through a branch or agency and such Ordinary Shares or ADSs
are or have been used by, held by, or acquired for use by or for the purpose of
such trade, profession, vocation, branch or agency.
A US Holder that is liable for both UK tax (ie, capital gains tax or
corporation tax on chargeable gains) and US federal income tax on a gain on the
disposal of Ordinary Shares or ADSs generally will be entitled to offset a
credit for UK tax against its US federal income tax liability in respect of such
gain.
UK INHERITANCE TAX (ON ESTATES AND GIFTS)
The Estate and Gift Tax Convention provides that the UK tax to which the
Convention applies is Capital Transfer Tax ("CTT") and that it will also apply
to any identical or substantially similar taxes which are imposed
33
<PAGE> 109
subsequently. On January 1, 1985 CTT was replaced by a tax known as Inheritance
Tax ("IHT"). It is understood that in practice the US tax authorities and the UK
Inland Revenue apply the Convention on the basis that IHT has replaced CTT as
the tax to which the Convention now applies, although the Convention has not
been amended to that effect.
On the basis of that practice, Ordinary Shares or ADSs held in the US by
an individual who is domiciled for the purposes of the Estate and Gift Tax
Convention in the US and is not for the purposes of the Convention a national of
the UK, will not, be subject to IHT on the individual's death or on a transfer
of the Ordinary Shares or ADSs during the individual's lifetime (although
special rules apply in the case of Ordinary Shares or ADSs held in trust, or as
part of the business property of a permanent establishment in the UK or related
to the fixed base in the UK of a person providing independent personal
services).
UK STAMP DUTY AND STAMP DUTY RESERVE TAX
Stamp duty is (subject to exceptions for charities) currently payable at
the rate of 1 1/2% on any instrument transferring Ordinary Shares to the
Custodian of the Depositary, on the value of such Ordinary Shares. In accordance
with the terms of the Deposit Agreement relating to the Ordinary Shares, any tax
or duty payable by the Depositary or the Custodian of the Depositary on future
deposits of Ordinary Shares will be charged by the Depositary to the party to
whom ADSs are delivered against such deposits.
No UK stamp duty will be payable on transfer of an ADS, provided that
the ADS (and any separate instrument of transfer) is executed and retained at
all times outside the UK. A transfer of an ADS in the US thus will not give rise
to UK stamp duty provided the instrument of transfer is not brought into the UK.
A transfer of ADSs in the UK may attract stamp duty at a rate of 1/2% of the
consideration. Any transfer (which will include a transfer from the Depositary
to an ADS holder) of the Ordinary Shares, including ordinary Shares underlying
ADSs, may result in a stamp duty liability at the rate of 1/2% of the
consideration. There is no charge to ad valorem stamp duty on gifts. On a
transfer of Ordinary Shares from a nominee to the beneficial owner (the nominee
having at all times held the Ordinary Shares on behalf of the transferee) under
which no beneficial interest passes and which is neither a sale, nor arises
under or following a contract of sale, nor is in contemplation of sale, a fixed
50p stamp duty will be payable. The amount of ad valorem stamp duty payable is
generally calculated at the applicable rate on the purchase price of the
Ordinary Shares.
Stamp duty reserve tax generally at a rate of 1/2% on the
consideration, is currently payable on any agreement to transfer Ordinary Shares
or any interest therein unless: (i) an instrument transferring the Ordinary
Shares is executed; (ii) stamp duty, generally at a rate of 1/2% is paid; and
(iii) the instrument is stamped on or before the last day of the month following
the month in which the agreement is made, or, where the agreement is
conditional, the last day of the month following the month in which it becomes
unconditional. The duty will, however, be refundable if within six years the
agreement is completed by an instrument which has been duly stamped, generally
at the rate of 1/2%. Stamp duty reserve tax will not be payable on any
agreement to transfer ADSs.
ITEM 8. SELECTED FINANCIAL DATA
The selected financial data set forth below as of and for each of the
three or five (as applicable) years ended September 30, 1996, and as of and for,
the six months ended March 31, 1997, are derived, in part, from the Financial
Statements of the Group included elsewhere in this Transition Report, which have
been audited by Ernst & Young, chartered accountants, the Group's independent
auditors. The selected financial data are qualified in their entirety by
reference to, and should be read in conjunction with, the financial statements,
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Transition Report.
The Group's Financial Statements are prepared in accordance with UK
GAAP, which differ in certain significant respects from US GAAP. Reconciliations
to US GAAP are set forth in Note 30 of Notes to Financial Statements.
34
<PAGE> 110
PROFIT AND LOSS ACCOUNT DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------------- ---------------------
1992 1993 1994 1995 1996(1) 1996 1997
(UNAUDITED
PRO FORMA)(8)
(L MILLION, EXCEPT PER ORDINARY SHARE AND PER ADS AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
AMOUNTS IN ACCORDANCE WITH UK GAAP
Turnover (sales)(2) 1,088 1,087 1,247 1,446 3,635 1,826 2,519
Operating profit before exceptional
items 137 44 99 135 446 243 317
Operating profit after exceptional
items(3) 137 (552) 99 135 490 287 297
Profit on disposal of First Hydro -- -- -- -- 25 -- --
Profit/(loss)(4) 88 (600) 68 68 357 190 179
Earnings/(loss) per Ordinary Share(5) 16.9p (115.2)p 13.1p 13.1p 68.5p 36.5p 34.5p
Adjusted earnings/(loss) per Ordinary
Share(6) 16.9p (115.2)p 13.1p 13.1p 60.8p 28.8p 38.2p
AMOUNTS IN ACCORDANCE WITH US GAAP(7)
Sales 1,247 1,446 3,635 2,519
Operating profit/(loss) 96 161 (142) 299
Net income/(loss) 48 90 (108) 177
Net income/(loss) per Ordinary Share 9.2p 17.3p (20.7)p 34.1p
Net income/(loss) per ADS(9) 36.8p 69.2p (82.8)p 136.4p
</TABLE>
(1) The results of operations of Eastern, which was acquired by Hanson in
September 1995, are included above for periods beginning on or after
October 1, 1995.
(2) Turnover for the year ended September 30, 1996 is stated net of a
special discount to electricity customers of L132 million relating to
the flotation of National Grid Group plc.
(3) Operating exceptional items in the year ended September 30, 1996 arise
from the flotation of National Grid Group plc. See Note 7 of Notes to
the Financial Statements.
(4) Results for the year ended September 30, 1993 reflect a charge for
impairment of coal assets of L578 million under the Group's accounting
policy for the impairment of long-lived assets which, under UK GAAP, is
reflected in the year such impairment is considered to have been
incurred.
(5) Per Ordinary Share data for each of the five years in the period ended
September 30, 1996 are based on 520.9 million Ordinary Shares (including
Ordinary Shares represented by ADSs), being the number of Ordinary
Shares (including Ordinary Shares represented by ADSs) issued in respect
of the Demerger, and for the six months ended March 31, 1997 are based
on 518.6 million Ordinary Shares (including Ordinary Shares represented
by ADSs), being the weighted average number of Ordinary Shares
(including Ordinary Shares represented by ADSs) in the period, excluding
Ordinary Shares held by The Energy Group Employee Benefit Trust (which
has waived its right to dividends on such Ordinary Shares) at the end of
the period.
(6) Adjusted earnings per Ordinary Share data are based on the same number
of Ordinary Shares (including Ordinary Shares represented by ADSs) and
the profit for the year after excluding the items relating to the
flotation of the National Grid Group plc, the disposal of the Group's
interest in First Hydro, other exceptional items and the related
taxation.
(7) The principal differences between UK GAAP and US GAAP which affect the
Group are described in Note 30 of Notes to the Financial Statements.
(8) The pro forma operating results for the six months ended March 31, 1996
have been prepared on the same basis as that used by the Group for prior
periods adjusted to reflect net interest payable and taxation as if the
Demerger had occurred at the beginning of the period. The pro forma
adjustment to net interest payable reflects an additional pro forma
interest charge calculated at 6.2% of the L381 million of additional net
debt allocated to the Group on the Demerger based on assumptions
contained in the section captioned "Unaudited Pro Forma Combined
Financial Information" in the Information Statement, dated January 27,
1997, issued by Energy in connection with the Demerger (the "Information
Statement"). The pro forma adjustment to taxation reflects the impact of
the pro forma adjusted interest charge resulting from the assumed change
in capital structure of the Group following the Demerger calculated at
the same effective tax rate before exceptional items as that assumed in
the pro forma tax charge for the twelve months ended September 30, 1995
and contained in the section captioned "Unaudited Pro Forma Combined
Financial Information" in the Information Statement.
(9) One ADS is equivalent to four Ordinary Shares.
35
<PAGE> 111
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
------------------------------------------- MARCH 31,
------------------------------------------- ---------
1992 1993 1994 1995(1) 1996
(L MILLION) 1997
<S> <C> <C> <C> <C> <C> <C>
AMOUNTS IN ACCORDANCE WITH UK GAAP
Total assets 2,394 2,671 3,019 5,642 5,728 6,745
Creditors due after more than one
year 212 292 224 911 945 1,655
Invested capital/shareholders' equity 896 899 972 2,108 2,185 1,845
AMOUNTS IN ACCORDANCE WITH US GAAP(2)
Total assets 3,584 7,689 6,944 7,935
Invested capital/shareholders' equity 1,224 3,716 3,056 2,713
</TABLE>
- ---------------
(1) The net assets of Eastern, which was acquired by Hanson in September
1995, are included above for all dates on or after September 30, 1995.
(2) The principal difference between UK GAAP and US GAAP which affect the
Group are described in Note 30 of Notes to the Financial Statements.
DIVIDENDS
A dividend of 5.5 pence per share for the period January 1, 1997 to
March 31, 1997 was paid on July 4, 1997, to those holders of Ordinary Shares on
the register of members at the close of business (London time) on June 27, 1997.
For ADS holders, the dividend was converted to US dollars on the UK
dividend payment date using the prevailing exchange rate on that day
(L1.00 = $1.6819). Payment of the July 4, 1997 dividend to ADS holders was made
by the Depositary on July 11, 1997 to holders of record on June 27, 1997.
EXCHANGE RATES
The following table sets out, for the periods and dates indicated,
certain information regarding the Noon Buying Rates for pounds sterling in US
dollars per L1 (to the nearest cent):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD END AVERAGE(1) HIGH LOW
<S> <C> <C> <C> <C>
SEPTEMBER 30,
1992 1.78 1.82 2.00 1.70
1993 1.50 1.51 1.73 1.42
1994 1.58 1.51 1.58 1.46
1995 1.58 1.59 1.64 1.53
1996 1.57 1.54 1.57 1.49
SIX MONTHS ENDED
MARCH 31, 1997 1.64 1.65 1.71 1.56
YEAR ENDING MARCH
31, 1998 (THROUGH
SEPTEMBER 22)(2) 1.60 1.63 1.69 1.58
</TABLE>
- ---------------
(1) The average of the exchange rates on the last day of each month during
the period.
(2) On September 22, 1997, the Noon Buying Rate for pounds sterling was
$1.6025 per L1.00.
36
<PAGE> 112
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Financial Statements of the Group for the three years ended
September 30, 1994, 1995 and 1996 have been prepared on the basis of a fiscal
year ending September 30 consistent with Hanson's fiscal year-end. The Group
adopted a March 31 fiscal year-end commencing with the six months ended March
31, 1997, to conform to the business year most commonly adopted in the UK
electricity industry.
The following discussion is based on the Financial Statements and other
financial information included in this Transition Report. The Financial
Statements for the six months ended March 31, 1997 and for each of the years in
the three year period ended September 30, 1996 have been audited by Ernst &
Young, chartered accountants, independent auditors. The pro forma selected
financial information for the six months ended March 31, 1996 is derived from
unaudited combined financial statements of the Group and has been prepared on
the same basis as that used by the Group for prior periods adjusted to reflect
net interest payable and taxation as if the Demerger had occurred at the
beginning of the period. The selected financial information of the Group for the
years ended September 30, 1992 and 1993 is unaudited, but has been derived from
the audited financial returns submitted to Hanson for consolidation purposes
and, in the opinion of management, has been prepared on a basis consistent with
that for subsequent years. See "Selected Financial Data" in Item 8 of this
Transition Report.
The Financial Statements are prepared in accordance with UK GAAP, which
differ in certain respects from US GAAP. See Note 30 of Notes to the Financial
Statements for a description of the significant differences and a reconciliation
to US GAAP of net income, and invested capital/shareholders' equity for the six
month period ended March 31, 1997 and the three years in the period ended
September 30, 1996. The discussion below should be read in conjunction with the
Financial Statements of the Group and Notes thereto appearing elsewhere in this
Transition Report.
The comparability of the Group's results of operations for the periods
discussed below have been significantly affected by the Demerger and acquisition
of Eastern.
THE DEMERGER
Prior to the Demerger, Rollalong (then a wholly-owned subsidiary of
Hanson) acquired, directly or indirectly, 100% of the share capital of each of
Eastern, Consolidated Gold Fields (which indirectly owned Lee Ranch (a single
surface mine)) and Peabody Australia.
The Demerger was effected on February 24, 1997, when Hanson transferred
Rollalong to Energy in consideration for Energy issuing Ordinary Shares
representing all of its then outstanding share capital (other than the
subscriber shares) to holders of Hanson Shares (including Hanson Shares
represented by Hanson ADSs) on a pro rata basis of one Ordinary Share for every
ten Hanson Shares and one ADS for every eight Hanson ADSs. On March 7, 1997,
PUSH, a wholly owned indirect subsidiary of Hanson, transferred to Peabody
Investments (which was and continues to be approximately a 99.4% subsidiary of
Energy, with subsidiaries of Hanson owning the other 0.6% interest), the entire
issued share capital of Peabody, in consideration for $1,637.5 million. The net
effect of the transactions involved in the Demerger was to transfer the energy
business previously conducted by Hanson to the Group and to attribute to the
Group a total of L1,440 million of net indebtedness as of September 30, 1996 on
a pro forma basis.
The Financial Statements for each year in the three year period ended
September 30, 1996 reflect the capital structure in place prior to the Demerger,
which historically was considered appropriate to Hanson, and the capital
position, finance charges and tax liabilities included in such data do not
reflect the capital position, finance charges and tax liabilities which the
Group might have had in respect of any of the periods covered if it had been an
independently financed and managed company during such periods, or which it may
have in respect of any future period.
ACQUISITION OF EASTERN
Although Hanson acquired Eastern on September 18, 1995, its results of
operations and cash flows have been included in the Financial Statements
included herein based on an effective acquisition date of September 30, 1995.
Accordingly, the Group's results of operations and cash flows reflect Eastern
from October 1, 1995 and do not include Eastern for prior years while the
balance sheet of Eastern was included in the Group's balance sheet at
37
<PAGE> 113
September 30, 1995 and the years thereafter. The results and cash flows of
Eastern for the period from September 19, 1995 to September 30, 1995 were not
material.
GENERAL BUSINESS TRENDS
Coal
In recent years the coal operations of the Group have generally
experienced declines in the market price of coal, reductions in the average term
of coal supply contracts and reductions in revenues due to the effects of price
reopener provisions, which provide for price increases or decreases to reflect
current market conditions more closely, and expiring coal supply agreements.
These adverse trends have, however, been largely offset by cost reductions and
improved operating efficiencies in the Group's coal operations. The Directors
estimate that price reopener provisions and expiring coal supply contracts have
reduced revenues in excess of $246 million (L150 million) over the six years
since 1990. The Directors believe that the impact on revenues as a result of
contract renegotiations should be less in the coming years than it has been over
the past six years, owing to a decline in the volume of coal represented by
contracts which are due to expire over that period.
Power
Until October 1996, the Group's power operations were only in Great
Britain, where the increase in demand for electricity in recent years has been
modest. However, the Group has managed to increase the profit attributable to
its power operations significantly over the three years to March 31, 1997 by
adding related assets, such as the addition of three power stations leased from
National Power in June 1996 and two power stations leased from PowerGen in July
1996, the two largest generations in the United Kingdom (which increased the
Group's generation capacity by almost 6,000MW), the successful expansion of
electricity and gas sales in markets opened to competition, and the development
of energy trading activities. In addition, the franchise market for electricity
sales is currently scheduled to be fully deregulated over a six month period
commencing from April 1, 1998. Deregulation of the franchise market will allow
Eastern Electricity and other licensed electricity suppliers to compete for
current franchise customers outside their authorized areas. Although Eastern
intends to compete for customers nationally following the introduction of
competition in the franchise market, there can be no assurance that it will be
successful in doing so nor that such competition will not adversely affect
Eastern's operating margins on electricity sales.
Networks
The Group's networks operations have been a predictable source of
operating profits and cashflow and, historically, the growth in units of
electricity distributed has generally matched increases in the gross domestic
product for Great Britain. The networks business is highly regulated and in 1994
and 1995 was the subject of two distribution price reviews by OFFER. The
Directors estimate that the effect of those price reviews will be to reduce
prospective revenues over the five years to March 31, 2000 by some L500 million
compared with expected revenues under the previous distribution price control. A
further distribution price control review is scheduled for 2000. Accordingly,
future increases in profit by the networks operations of the Group will depend
upon unit growth and productivity improvements, which there can be no assurance
the Group will achieve. In addition, any future price reviews by OFFER could
have a material adverse effect on the Group.
OPERATING RESULTS
[CAPTION]
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
-------------------- ----------
1994 1995 1996 1997
<S> <C> <C> <C> <C>
--------------------
<S> <C> <C> <C> <C>
Sales (units sold)
Coal (GWh) 102 151 163 81
Electricity (millions of units) -- -- 32,067 13,651
Gas (millions of therms) -- -- 1,520 1,378
Capital expenditure (L millions) 133 140 374 668
</TABLE>
The following table sets out the turnover and operating profit for the
Group's current coal, power and networks operations for the six months ended
March 31, 1996 and 1997 and the three years ended September 30,
38
<PAGE> 114
1994, 1995 and 1996 and the results of Eastern's power and networks operations
for the two years ended September 30, 1994 and 1995.
<TABLE>
<CAPTION>
EASTERN GROUP
------------- ---------------------------------------------------
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
------------- ----------------------------- -------------------
1994 1995 1994 1995 1996 1996 1997
LM LM LM LM LM LM LM
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Coal
Turnover (sales revenue) 1,217 1,415 1,461 656 647
Operating profit 102 160 154 66 66
Power
Turnover (sales revenue) 1,779 2,091 - - 2,178 1,092 1,801
Operating profit (before exceptional
items) 28 51 - - 83 44 129
Networks
Turnover (sales revenue) 514 501 - - 482 278 274
Operating profit (before exceptional
items) 209 198 - - 211 133 122
Operating exceptional items (net) (29) (81) - - 44 44 (20)
Intra-group turnover (431) (398) - - (378) (209) (212)
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997 COMPARED WITH UNAUDITED PRO FORMA SIX MONTHS
ENDED MARCH 31, 1996
For the six months ended March 31, 1997, the Group had turnover of L2.5
billion and operating profit (before exceptional items) of L317.0 million
compared to turnover of L1.8 billion and operating profit (before exceptional
items) of L243.0 million for the six months ended March 31, 1996. The 38.9%
increase in turnover and 30.4% increase in operating profit were primarily
attributable to the addition of three power stations leased from National Power
in June 1996 and two power stations leased from PowerGen in July 1996.
After a detailed consideration of the nature of the Group's 33% interest
in the Black Beauty Coal Company joint venture with the Pittsburgh and Midway
Cola Mining Company and Black Beauty Resources, Inc., as of and for the six
months ended March 31, 1997, the Group began to account for the results and
period-end position of that operation on an equity basis rather than on the
basis of proportional consolidation which had historically been applied. The
Group believes this change in treatment better reflects the nature of its
interest in the operation, its revenues and its assets. The principal effect of
the change has been to reduce overall net debt by L62 million. Further details
are contained in Note 13 of Notes to the Financial Statements included herein.
No change in accounting treatment has been applied to any of the Group's other
joint venture operations which are accounted for on a proportional consolidation
basis.
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<PAGE> 115
COAL
Coal turnover of L647 million for the six months ended March 31, 1997
decreased 1.4% from L656 million for the six months ended March 31, 1996,
principally as a result of adverse currency movements. Excluding the impact of
currency movements, turnover rose 4%. The positive impact of a 6% growth in
sales volume to 81.4 million tons for the six months ended March 31, 1997 was
partly offset by a decline in spot market coal prices in the Powder River Basin
operations. The mines operated by Peabody Australia had coal sales of 5.0
million tons for the six months ended March 31, 1997, an increase of 19% from
the previous period, resulting from favorable customer demand. Low sulfur coal
sales represented 82% of total coal sales in the six month period ended March
31, 1997 and sales under long term contracts represented 88% of total sales
volume in that period.
Operating profit of L66 million from coal mining operations for the six
months ended March 31, 1997 was the same as for the six months ended March 31,
1996. However, on a US dollar basis, operating profit increased approximately 5%
to $108 million for the six months ended March 31, 1997, primarily as a result
of continued increases in productivity and cost improvements.
Peabody's cost reduction measures and productivity (i.e., tons per man
shift) enhancements continued to have a positive impact on operating profit
which was partly offset by a decline in coal prices. The success of the cost
reduction initiatives improved productivity 13%, with Peabody's US operating
companies averaging 92 tons per employee per manshift for the six-month period
which represents a company record. Peabody Australia's productivity also showed
significant improvement increasing more than 17% from the equivalent period in
the previous year.
POWER
Turnover of L1.8 billion from the Group's power operations for the six
months ended March 31, 1997 increased approximately 65% from L1.1 billion for
the six months ended March 31, 1996. The increase was primarily attributable to
the additional output provided by the three power stations leased from National
Power in June 1996 and two power stations leased from PowerGen in July 1996,
which increased Eastern's generating capacity from 495MW at March 31, 1996 to
6,784MW at March 31, 1997. During the six months ended March 31, 1997, sales
from the Group's retail gas business increased approximately 143.7% from L59.0
million for the six months ended March 31, 1996 to L143.8 million for the six
months ended March 31, 1997.
Operating profit of L129 million for the six months ended March 31,
1997, increased approximately 193% from L44 million for the six months ended
March 31, 1996 primarily as a result of the addition of the power stations.
NETWORKS
Networks turnover of L247 million for the six months ended March 31,
1997 decreased approximately 1% from L278 million for the six months ended March
31, 1996. As a result of the last regulatory price review in 1995 (effective
April 1, 1996), regulated income decreased L20 million during the six months
ended March 31, 1997, which was partially offset by a L15 million growth in
unregulated income.
Operating profit of L122 million for the Group's networks operations for
the six months ended March 31, 1997 decreased approximately 8% from L133.1
million for the six months ended March 31, 1996. The decrease was primarily
attributable to the effect of the regulatory price review in April 1996, which
lowered revenues without a corresponding decrease in fixed operating costs.
EXCEPTIONAL ITEMS
On February 24, 1997, the Group announced the re-opening of Eastern's
voluntary severance scheme in its networks business. The estimated cost of L20
million was provided for at March 31, 1997 and separately identified because of
its size.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1995
For the year ended September 30, 1996, the Group had turnover (before
special discount to electricity customers of L132 million relating to the
flotation of national Grid) of L3.8 billion and operating profit (before
exceptional items) of L446 million. the 161% increase in turnover (before
special discount) and 230% increase in operating profit (before exceptional
items) reflect the acquisition of Eastern, the result of which is included in
the Group's Financial Statements from October 1, 1995.
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<PAGE> 116
COAL
Coal sales volume of 163 million tons in the year ended September 30,
1996 increased 8% from 151 million tons in the year ended September 30, 1995.
The Directors estimate that Peabody's market share in the United States rose
from 14% in the year ended September 30, 1995 to 15% in the year ended September
30, 1996. The higher volume was attributable to expansion in Peabody's Powder
River Basin operations, including a full year's contribution from the Caballo
and Rawhide mines acquired in November 1994. Peabody Australia had coal sales
volume of 9.7 million tons in the year ended September 30, 1996. Peabody's
overall production reflected the impact of its continued investment aimed at
improving productivity, in particular at Powder River. Low sulfur coal sales
represented 82% of total sales volume in the year ended September 30, 1996, up
from 80% in 1995. Sales under long-term contracts represented 88% of sales
volume in 1996.
Turnover was L1.5 billion in the year ended September 30, 1996, an
increase of 7.1% from L1.4 billion in the year ended September 30, 1995. The
positive impact of higher sales volumes in 1996 was offset by lower pricing of
certain high sulfur coal contracts. Turnover was also adversely affected by
reduced demand at Peabody Western, as customers purchase lower price
hydro-electric generation that was available due to unusually high rain and
show-fall in the western US.
Operating profit of L154 million from coal mining operations for the
year ended September 30, 1996 decreased 4% from L160 million for the year ended
September 30, 1995. The 1996 results were affected by lower customer demand at
Peabody Western, the re-pricing of certain high sulfur coal contracts (which the
Directors estimate accounted for a decrease in profit of L15 million to L20
million), operational difficulties at two Peabody East mines during the first
nine months of the year and a decline in spot prices for coal from the Powder
River Basin.
Offsetting the above conditions was a reduction in costs due to measures
implemented during 1996 as part of continuing efforts to reduce production
costs. These included employee reductions, improvements in working practices
permitted under new union contracts and the effects of investment in more
efficient equipment. The success of Peabody's cost reduction initiatives was
evidenced by an improvement in productivity, as tons per man shift improved 17%
in absolute terms over 1995 and 3% on a weighted average mine by mine basis
taking into account the shift in sources of production. Firming prices in the
higher sulfur spot markets in the last six months of the year also benefited
profits slightly and the re-negotiation of a coal supply agreement resulted in a
one-off receipt of L14 million.
Operating profit in 1996 also includes the benefit of a provision
reduction of L15 million, part of a L42 million reduction in Peabody's provision
relating to a UMWA Combined Fund established under the Health Benefit Act, which
is being released over three years commencing in 1996. This provision reduction
resulted from Peabody's successful appeal of US government beneficiary
assignments and its active participation in the administrative process with
respect to this fund.
Peabody Australia's operating profits of L28 million for the year ended
September 30 1996 increased its contribution from L25 million for the year ended
September 30 1995.
POWER
Turnover of L2.2 billion from the Group's power operations for the year
ended September 30, 1996 increased 4% from L2.1 billion for the year ended
September 30, 1995. The increase arose mainly from growth in gas sales and also
from sales related to the addition of three power stations leased from National
Power in June 1996 and two power stations leased from PowerGen in July 1996,
which increased Eastern's generating capacity from 495MW to 6,378MW. There was
also an increase in turnover in the franchise market arising from additional
unit volumes and a tariff increase, which took effect in 1996, although this was
partially offset by a small decrease in turnover from electricity sales
resulting from lower sales prices in the competitive market. Gas sales exceeded
L250 million for the year ended September 30, 1996, an increase of 63% from the
year ended September 30, 1995, as market share continued to grow in the
competitive element of the gas market.
This was achieved by Eastern's increased marketing efforts targeted at
large and medium-sized commercial customers. Growth in Eastern's gas sales was
also assisted by Eastern's taking advantage of falling spot market prices for
gas to lock in sales to customers on favorable terms.
Operating profit of L83 million for the year ended September 30, 1996
increased by 63% from L51 million for the year ended September 30, 1995. This
increase reflects the first time (but part year) contribution from the
coal-fired power stations for the period from July 1996 to September 1996.
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<PAGE> 117
NETWORKS
Networks turnover of L482 million for the year ended September 30, 1996
declined by approximately 4% from L501 million for the year ended September 30,
1995. This decline was mainly due to two changes in the distribution price
control formula imposed by the Director General of Electricity Supply ("DGES"),
which were effective from April 1, 1995 and April 1, 1996. The effect of these
changes was partially offset by an above average increase in the volume of units
distributed. This increase in volume arose principally from considerably colder
weather than normal at the end of 1995 and early 1996.
Despite the effects of the revisions to the distribution price control
formula, operating profits (before exceptional items) of L211 million for the
year ended September 30, 1996 increased by 6.6% from L198 million for the year
ended September 30, 1995, due to significant reductions in operating costs in
the distribution business through reductions in manpower.
EXCEPTIONAL ITEMS
The principal operating exceptional items in the year ended September
30, 1996 related to the flotation of National Grid and comprised a discount to
electricity customers of L132 million offset by dividends received of L176
million. A further exceptional amount of L25 million represents profit
associated with the disposal of the Group's interest in First Hydro.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1994
For the year ended September 30, 1995, the Group had turnover of L1.4
billion and operating profit of L135 million, increases of 16% and 36%,
respectively, over the previous year. As described below, these increases
resulted primarily from Peabody's recovery from the 1993 coal strike which
affected the first quarter of the year ended September 30, 1994.
COAL
The major factor contributing to the improved results of Peabody's coal
operation in 1995 was its recovery from the impact of the previous year's coal
strike, which the Directors estimate reduced operating profit by between L70
million and L80 million in the year ended September 30, 1994. Another
contributing factor was the first time contribution from strategic acquisitions
made by Peabody in low sulfur coal mining operations in the Powder River Basin.
Coal sales by volume of 151 million tons in the year ended September 30,
1995 increased 48% from 102 million tons in the year ended September 30, 1994.
The Directors estimate that Peabody's market share rose to 14% in the US in
1995. The acquisition of Rawhide and Caballo mines in Wyoming's Powder River
Basin in the early part of the year ended September 30, 1995 added 30 million
tons to the sales volume while increasing overall coal reserves by more than one
billion tons. Sales of low sulfur coal increased from 75% of total sales in the
year ended September 30, 1994 to 80% in the year ended September 30, 1995 and
approximately 87% of sales volume for 1995 was attributable to long-term
contracts.
Turnover of L1.4 billion in the year ended September 30, 1995 increased
17% from L1.2 billion in the year ended September 30, 1994. Mid weather and
abundant hydro-electric generation in the western US depressed coal prices by 10
to 15% in the calendar year 1995, and the negative impact of the expiration and
re-negotiation of long-term contracts resulted in an average 5% decline in
Peabody's US sales revenues per ton, although this decline was offset by the
increase in sales volumes.
Operating profit of L160 million from coal mining operations in the year
ended September 30, 1995 increased 57% from L102 million in the year ended
September 30,1994, due principally to increased turnover following the end of
the miner's strike. Major investment in more efficient earth moving equipment in
the US and an increase in the proportion of Peabody's US coal production
represented by Powder River coal (from 36% in the year ended September 30, 1994
to 52% in the year ended September 30, 1995) helped increased overall
productivity at Peabody's facilities by 26% during the year ended September 30,
1996. Productivity per man shift improved at all US operations other than in
West Virginia, which experienced operating and geological difficulties at
several of its mining facilities. Peabody Australia's operations contributed an
operating profit of L25 million in the year ended September 30, 1995 compared
with L27 million in the previous year.
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<PAGE> 118
Operating difficulties as Peabody East's Tygart River, Colony Bay,
Harris and Camp 11 mines had an adverse impact on 1995 operating profit, as
profits at these locations were approximately L30 million lower than anticipated
levels. Profits were also adversely affected by the lower steam coal prices in
the western US and the expiration on re-pricing of long-term contracts.
Peabody Australia acquired an additional 10% interest in the Bengalla
Mine Development in New South Wales during the year, bringing its interest in
the venture to 35%. Bengalla is expected to commence production in 1999.
POWER
Turnover of L2.1 billion from the Group's power operations in the year
ended September 30, 1995 an increase of 17.5% from L1.8 billion in the year
ended September 30, 1994 arose principally from an increase of approximately 10%
in net additional sales volume from the year ended September 30, 1994 the
enlarged national competitive market which opened up (for customers with annual
maximum demands of 100kW or more) on April 1, 1994. Gas sales of L158 million in
the year ended September 30, 1995 increased 229% from L48 million from the year
ended September 30, 1994 as market shares increased due to focused marketing
efforts towards new customers, including trade associations and multiple retail
outlets. The full consolidation of the Peterborough power station, following the
acquisition of the remaining 50% share from Hawker Siddeley in September 1994,
also contributed L75 million to the increase in turnover.
Operating profit of L51 million for the year ended September 30, 1995,
increased by 82% from L28 million for the year ended September 30, 1994. This
reflected the effects of the review by the DGES of the supply price control
(covering the reduced franchise market) and successful entry into the
competitive electricity sales market, both with effect from April 1, 1994, and
the contribution from the additional 50% interest in Peterborough power station
acquired in September 1994.
NETWORKS
Turnover of L501 million from the Group's networks operations for the
year ended September 30, 1995 decreased by 3% from L514 million in the year
ended September 30, 1994. This decrease principally reflected the effect of the
first review of distribution charges applicable from April 1, 1995, which
reduced turnover in the distribution business by approximately 2% compared with
the previous year. The remaining L3 million decline in turnover resulted from a
lower volume of charges for new connections and ancillary networks.
Operating profit of L198 million for the year ended September 30, 1995
decreased by L11 million from L209 million for the year ended September 30,
1994. The principal reason for this decrease was the reduction in the
distribution charges from April 1, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Demerger, the Group financed its operations and capital and
other expenditures from a combination of cash generated from operations,
external borrowings and loans and invested capital provided by Hanson or its US
affiliates. Since the Demerger, the Group has had to meet all of its cash
requirements through internally generated funds and external borrowings. The
Group's ability to generate cash from operations depends upon numerous business
factors, some of which are outside the control of the Group, including changes
in economic and climatic conditions and taxation regimes in force in each
country of operation.
Net cash generated by operating activities was L346 million for the six
months ended March 31, 1997. Net cash generated by operating activities was L12
million for the year ended September 30, 1996 compared with L402 million for the
year ended September 30, 1995. The decrease in 1996 resulted principally from
payments made under the agreements to lease power stations from National Power
amounting to L342 million, an increase in working capital requirements (due
mainly to the purchase of fuel stocks for the coal-fired power stations) and an
increase of L72 million of UK advance corporation tax ("ACT") recoverable. Net
cash provided by operating activities for the year ended September 30, 1995 was
higher by L259 million than the previous year, largely because of improvements
in working capital as well as an operating profit increase of L36 million.
Net cash used by investing activities was L176 million for the six
months ended March 31, 1997. Net cash used by investing activities was L2,605
million for the year ended September 30, 1996 compared with net cash used of L73
million for the year ended September 30, 1995. The increase principally relates
to the payment for the acquisition of Eastern of L2,495 million. In addition,
there were further outflows in 1996 in respect of capital
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<PAGE> 119
investments made in plant and equipment in the previous year and in the
distribution system of the networks business and capital installments of L93
million paid in respect of the new 340MW gas-fired power station at King's Lynn.
Net cash used in investing activities was L73 million in the year ended
September 30, 1995, compared with L57 million for the year ended September 30,
1994. The principal reason for this increase in net cash used in investing
activities related to the acquisition by Peabody of the Caballo and Rawhide coal
mines in the United States, which was partly offset by cash deposits of L264
million acquired with Eastern.
The Group made capital expenditures of L133 million in the six months
ended March 31, 1997 and L133 million, L140 million and L374 million in the
years ended September 30, 1994, 1995 and 1996, respectively. In addition,
Eastern made capital expenditures of L113 million in the year ended September
30, 1994 and L212 million in the year ended September 30, 1995. As of March 31,
1997, the Group had capital commitments totalling L146 million, including
commitments relating to the completion of the King's Lynn power station. The
Group anticipates funding these capital expenditures with its internally
generated cash and borrowings under its available bank facilities.
Net cash from financing activities was L938 million for the six months
ended March 31, 1997. Net cash from financing activities was L2,418 million in
the year ended September 30, 1996 compared with L77 million used for the year
ended September 1995, principally representing the contribution to invested
capital by Hanson for the acquisition of Eastern. Net cash used in financing
activities of L34 million in 1994 principally relates to repayment of invested
capital to Hanson.
Profit of L150 million was retained and added to shareholders' funds for
the six months ended March 31, 1997, after allowing for the L29 million cost of
the dividend. Overall shareholders' funds have decreased L340 million since
October 1, 1996, with retained earnings being more than offset by the additional
net debt of L423 million attributed to the Group pursuant to the Demerger,
together with adverse currency differences on foreign net investments of L52
million.
FINANCING ARRANGEMENTS
Prior to the Demerger, the Group entered into a credit facility (the
"Credit Facility") with various participating banks for the provision of credit
facilities to the Group and its subsidiaries. As of March 31, 1997, L500 million
of borrowings were outstanding under the Credit Facility.
The Credit Facility consists of a five-year syndicated multi-currency
unsecured revolving credit facility in an amount up to L1 billion including a US
dollar swingline facility (with an acceptance credit option) of the US dollar
equivalent of L300 million. The proceeds of the Credit Facility may be used to
provide working capital to the Group for general corporate purposes of the
Group, including the repayment of debt to Hanson or Hanson subsidiaries.
The interest rates under the revolving credit facility are based upon
either the London Interbank Offered Rate plus Mandatory Liquid Asset Costs in
the case of sterling advances, or the Eligible Bill Discount Rate, plus 0.1875%
per annum, in the case of sterling banker's acceptances. The interest rate under
the swingline facility is the higher of (a) the aggregate of the US Federal
Funds Rate and 0.5% per annum and (b) the prime commercial lending rate from
time to time publicly announced by the agent bank.
The Credit Facility requires the Group to satisfy certain financial
performance criteria. In particular, "operating profit" (as defined) must be a
minimum of 2.25 times the level of net interest expense for each semi-annual
period. The Credit Facility also contains covenants and provisions that
restrict, among other things, the ability of the Group and its material
subsidiaries to: (i) create any security interest on any of its property or
assets, or (ii) dispose of all or substantially all of the assets of Peabody or
Eastern other than to another member of the Group.
In addition to the Credit Facility described above, the Group has
available uncommitted bank facilities of approximately L467 million. As of March
31, 1997, L63 million of borrowings were outstanding under these facilities.
As of March 31, 1997, Eastern Electricity had issued long-term, fixed
rate bonds in the aggregate outstanding principal amount of L727 million and on
April 14, 1997, a further bond issue of L200 million was made at a fixed rate of
8.75% per annum. The Group may from time to time issue additional bonds.
During the six months ended March 31, 1997, certain subsidiaries of
Energy entered into an agreement with commercial banks under which certain
future intra-group rental payments receivable from the leased power station
facilities at Drakelow C, High Marnham, Ironbridge, Rugeley B and West Burton
for a five year period were assigned
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<PAGE> 120
in return for a capital sum of L1,097 million. Such capital sum was drawn down
on October 28, 1996 and L408 million was used to cash collateralize existing
future obligations to certain banks in respect of the funding of the operating
leases of power stations leased from National Power. The remaining funds are
held within the Group. The payment of the assigned rentals or, in certain
circumstances, their capital value on resale by the banks, is subject to
guarantees and indemnities provided by Energy subsidiaries.
As of March 31, 1997, the Group's gearing was 71%, defined as net debt
divided by net equity. This compares with pro forma gearing as of September 30,
1996 of 80%. The decrease principally reflects the positive cash generation from
the operating businesses and profits retained within the Group.
CERTAIN ENVIRONMENTAL MATTERS
As discussed under "Regulatory Matters" in Item 1 of this Transition
Report, the Group's operations are subject to extensive and changing regulation
in the United States, United Kingdom and Australia regarding environmental
matters. As of March 31, 1997, the Group had a provision of L280 million for
reclamation and environmental obligations. The Group's expenditures relating to
environmental matters were approximately L13 million in the six months ended
March 31, 1997 and L38 million, L43 million and L43 million in the years ended
September 30, 1994, 1995 and 1996, respectively.
Certain US subsidiaries of Consolidated Gold Fields, which are members
of the Group, are or may become parties to environmental proceedings which have
been commenced or threatened in the United States in relation to certain sites
previously owned or operated those subsidiaries or companies associated with
them. This includes sites formerly owned or operated by Consolidated Gold Fields
as well as dormant sites that the Group currently owns. The US Environmental
Protection Agency ("EPA") has placed some of these sites on the National
Priorities List promulgated pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA" or
"Superfund"), and some of these sites are on similar state priority lists. There
are a number of further sites in the United States which were previously owned,
operated or used by such companies which could give rise to environmental
proceedings in which members of the Group could incur liabilities. Where such
sites have been identified, the Directors have commissioned a review of publicly
available information by independent environmental consultants in order to
assess the total amount of the liability per site and also the proportion of
those liabilities which the members of the Group are likely to bear. The
available information on which to base this review is very limited, especially
in relation to sites which are no longer owned, operated or used by members of
the Group. On the basis of that review the Directors have made a provision
against the above environmental liabilities relating to Consolidated Gold Fields
in the total sum of $73.6 million as of March 31, 1997 (which is included in the
overall provision of L280 million), but significant uncertainty exists as to
whether these claims will be pursued against the Group in all cases, and where
they are pursued, the amount of the eventual costs and liabilities, which could
be greater or less than the Group's provision. See Note 21 of Notes to the
Financial Statements included herein.
While the Group believes that it has identified costs likely to be incurred for
environmental matters, and that those costs are not likely to have a material
adverse effect upon the Group's business or financial position, there can be no
assurance that the Group's total costs and liabilities for environmental matters
will not increase in the future. The magnitude of such additional liabilities
and the costs of complying with environmental laws and containing or remediating
contamination cannot be predicted with certainty due to the lack of specific
information available with respect to many sites, the potential for new or
changed laws and regulations and for the development of new remediation
technologies and the uncertainty regarding the timing of work with respect to
particular sites. As a result, there can be no assurance that material
liabilities or costs related to environmental matters will not be incurred in
the future or that Energy's liquidity will not be adversely impacted by such
environmental liabilities or costs. See "Business - Regulatory Matters".
PENSION SURPLUS CONTINGENCY
In February 1997 final determinations were made against National Grid
and its group trustees by the Pensions Ombudsman on complaints by two pensioners
in National Grid's section of the Electricity Supply Pension Scheme ("ESPS")
relating to the use of the surplus arising under the actual valuation of the
National Grid section as of March 31, 1992 to meet certain additional costs
arising from the payment of pensions on early retirement pursuant to
reorganization or redundancy and certain additional contributions. These
determinations were set aside by the High Court on June 10, 1997 and the
arrangements made by National Grid and its trustees in dealing with its
section's surplus were confirmed, although leave to appeal to the Court of
Appeal has been granted to the two pensioners. If a similar complaint were to be
made against Eastern in relation to its use of actuarial surplus in its section
of the ESPS, it would resist it, ultimately through the courts. However, if a
determination were finally to be made against it and
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upheld by the courts, Eastern could have a potential liability to repay to its
section of the ESPS an amount estimated by the Directors to be up to L75 million
(exclusive of any applicable interest charges).
WINDFALL TAX
The UK Finance (No 2) Act 1997 introduced a windfall tax on certain
privatized undertakings. This one-time tax applies to companies privatized by
flotation and regulated by statute and therefore includes Eastern. The tax is
charged at a rate of 23% of the difference between company value, calculated by
reference to profits over a period of up to four years following privatization,
and the value placed on the company at the time of flotation. The charge for
Eastern is estimated to be approximately L112 million. The tax is payable in two
equal installments on or before December 1, 1997 and December 1, 1998.
FINANCE ACT 1997
The UK Finance Act 1997 was enacted in March 1997. One of the provisions
of this Act reduces the capital allowances available in relation to certain
types of capital assets, including certain capital assets of the types acquired
after November 1996 by Eastern in connection with its networks business. The
Directors estimate that Eastern's annual tax charge could be increased by
approximately L10 million as a result of this legislation.
FOREIGN CURRENCY MATTERS
The functional currency of each of the Group's non-UK operations
(principally the operations of Peabody in the US and of Peabody Australia in
Australia) is the local currency. The impact of currency translation in
combining the results of operations and financial position of such operations
has not been material to the consolidated (combined) financial position of the
Group. Additionally, the Group generates revenue from exports (see Note 4 of
Notes to the Financial Statements included herein) and revenue from operations
conducted outside the UK which may be denominated in currencies other than
sterling, US dollars or Australian dollars.
EFFECT OF INFLATION
Because of the relatively low level of inflation experienced in the
United Kingdom and the United States, inflation did not have a material impact
on the Group's results of operations for the six months ended March 31, 1997 or
the years ended September 30, 1994, 1995 or 1996.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
DIRECTORS
The following table sets forth information as to Energy's Directors and
executive officers as of September 1, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Derek C Bonham, FCA 54 Chairman and Director
John F Devaney, BSc, C.Eng 51 Chief Executive - Eastern and Director
Irl F Engelhardt, MBA 50 Chief Executive - Peabody and Director
Eric E Anstee, FCA 46 Finance Director
Sir Christopher Harding 57 Non-executive Director
Sarah Hogg, Baroness of Kettlethorpe 51 Non-executive Director
David P Nash 57 Non-executive Director
John Neerhout, Jr 66 Non-executive Director
Martin C Murray 42 Company Secretary
Michael F Andrews 51 Treasurer
</TABLE>
Messrs Bonham, Devaney, Engelhardt and Anstee were appointed Directors
on December 9, 1996 and Sir Christopher Harding, Baroness Hogg, and Messrs Nash
and Neerhout were appointed Directors on December 16, 1996. The Company
Secretary of Energy took office on October 1, 1996 and the Treasurer on February
24, 1997.
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Derek Bonham has served as Executive Chairman of Energy since the
Demerger. Mr. Bonham joined Hanson in 1971, served as the Deputy Chairman from
1993 until the Demerger, as Chief Executive Officer from 1992 until the Demerger
and Finance Director from 1981 until 1992. He is also non-executive Chairman of
Imperial Tobacco Group PLC and a non-executive director of Glaxo Wellcome plc.
John Devaney joined Eastern in 1992 and became its Chief Executive
Officer in 1993 and Executive Chairman in September 1995. Prior to joining
Eastern, from 1989 to 1992 he was Chairman and Chief Executive of Kelsey-Hayes
Corporation, which is the brakes division of Varity Corporation, based in
Detroit. He began his career with Perkins Engines in 1968, gaining wide
experience in the UK and overseas before becoming President in 1983. He is also
a non-executive director of Midland Bank plc and NFC plc.
Irl Engelhardt joined Peabody in 1979 and became its President and Chief
Executive Officer in 1990 and Chairman in 1993. He was formerly Chairman of
Cornerstone Construction & Materials (a subsidiary of Hanson), Chairman of
Suburban Propane Company (which was a subsidiary of Hanson), Chairman of the US
National Mining Association and Chairman of the US National Coal Association. He
is currently Chairman of the Coal Advisory Board to the International Energy
Agency and Vice Chairman of the US Center for Energy and Economic Development.
He is also a non-executive director of Mercantile Bank of St. Louis.
Eric Anstee has served as Finance Director of Energy since the Demerger.
He served as Group Finance Director of Eastern from 1993 until the Demerger.
Before joining Eastern, he was a partner in Ernst & Young from 1984 and latterly
was a member of the management board of Ernst & Young Management Consultants,
gaining substantial experience in the utility sector and in project finance. He
is Chairman of the UK Government's Eastern Region Industrial Development Board
and a member of the Urgent Issues Task Force of the UK Accounting Standards
Board.
Sir Christopher Harding has served as a non-executive director and
Chairman of the Remuneration Committee of Energy since the Demerger. Sir
Christopher Harding joined Hanson from ICI plc in 1969 and served as a
non-executive director of Hanson from 1979 until the Demerger. He was Chairman
of British Nuclear Fuels plc from 1986 to 1992 and has been Chairman of Legal
and General Group Plc since 1994 and of Newarthill plc since 1993. He is also a
non-executive director of The General Electric Company, p.l.c. and of The Post
Office and is Chairman of the trustees of the Prince's Youth Business Trust.
Baroness Hogg has served as a non-executive director of Energy since the
Demerger. Baroness Hogg is Chairman of London Economics Limited. She is a
non-executive director of GKN plc, National Provident Institution and 3i Group
Plc, Chairman of Foreign & Colonial Smaller Companies Investment Trust plc and a
member of the International Advisory Board of National Westminster Bank PLC. She
was head of the Prime Minister's Policy Unit from 1990 to 1995, dealing with
both UK domestic strategy and international economic issues.
David Nash has served as a non-executive director of Energy since the
Demerger. Mr. Nash was group finance director of Grand Metropolitan Plc from
1989 to 1993 and chairman and chief executive of the food sector of that company
from 1993 to 1995. He is non-executive chairman of Amicus Healthcare Group
Limited and of Kenwood Appliances plc and a non-executive director of Cable &
Wireless plc, Sun Life & Provincial Holdings plc and Investment Management
Regulatory Organisation Limited.
John Neerhout, Jr has served as a non-executive director of Energy since
the Demerger. Mr. Neerhout was, until 1996, executive vice-president and
latterly a director of Bechtel Group, Inc. having joined that company in 1966.
He is Managing Director of Union Railways Limited and a non-executive director
of London & Continental Railways Limited and of Homestake Mining Company of San
Francisco.
Martin Murray has served as Company Secretary of Energy since the
Demerger. Mr. Murray was a senior member of Hanson's legal department from 1986
until the Demerger. Prior to this he was assistant company secretary at
Berisford plc, having previously practised as a solicitor with Clifford Chance.
He has law degrees from Cambridge and Harvard Universities.
Michael Andrews has served as Treasurer of Energy since the Demerger.
Mr. Andrews joined Eastern in 1989 as Treasury Manager and served as Eastern's
Group Treasurer from 1995 until the Demerger.
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<PAGE> 123
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
For the six months ended March 31, 1997, the aggregate compensation paid
or accrued by the Group to or for all Directors and executive officers at March
31, 1997 as a group (10 persons) for services in all capacities was
approximately L1.1 million.
The remuneration of Energy's senior executives consists of:
Base salary - This is set by reference to individual responsibilities,
performance and external market data. In addition certain benefits in kind are
provided, principally a fully expensed motor car and medical and life insurance.
Annual bonus - An annual performance-related cash bonus can be earned,
subject to the achievement of pre-determined annual profit targets. The maximum
amount of annual bonus is 75% of base salary for Irl Engelhardt and 50% of base
salary for Derek Bonham, Eric Anstee and John Devaney. Each of the last three
may elect, at the commencement of the financial year concerned, to take all, or
part, of any bonus to which they become entitled in Ordinary Shares, entitling
them to receive, three years after the bonus would otherwise have been paid,
shares equal to 133.4% of the cash value of that part of the bonus in respect of
which they have made such an election, subject to their remaining in employment
with the Group for that further three year period. A cash bonus was earned by
senior executives (including the executive Directors) for achieving profit
targets for the six month period to March 31, 1997.
The Long Term Incentive Plan ("LTIP") - Certain executives (including
the executive Directors) are granted performance-related awards of Ordinary
Shares up to a maximum market value of 75% of base salary each year. The first
awards, granted in February 1997, require the achievement of a total shareholder
return, normally calculated over three years, which is greater than the return
achieved by at least half of the constituents of the FTSE 100 index for the
awards to vest. 30% of the awards will vest if energy achieves a total
shareholder return greater than that achieved by 50% of the comparator group,
with all of the awards vesting if the total shareholder return is greater than
that achieved by 80% of the comparator group over the same three year period.
Awards will vest proportionately if the shareholder return falls between these
two points.
In recognition of the fact that the first awards under the LTIP will
not, except in special circumstances, vest until after the expiration of the
applicable three year performance period, the Remuneration Committee established
a special additional bonus scheme for certain executives (including the
executive Directors). Under this arrangement, if earnings of Energy increase by
RPI plus 6% or more in each of the years ending on March 31, 1998 and 1999,
participants will be entitled to receive an award of Ordinary Shares, valued at
the beginning of the respective year, equal to 25% of base salary for that year.
The Energy Group Executive Share Option Scheme ("Executive
Scheme") - The maximum value of Ordinary Shares over which options can be
outstanding in favor of any participant under Energy's UK Inland Revenue
approved Executive Share Option Scheme is L30,000. Under Energy's current
policy, participants in the LTIP may not also be granted executive share
options. Also, under the rules of this scheme, Energy's Directors are not
eligible to be granted executive share options.
Savings-related share schemes - Energy operates savings-related share
schemes providing a long-term savings and investment opportunity for all
qualifying employees (including the executive Directors) in the UK and US.
The Energy Group Sharesave Scheme ("Sharesave Scheme"). Under the UK
Inland Revenue approved Sharesave Scheme, options over Ordinary Shares may be
granted at a price equivalent to not less than 80% of the market value of the
shares at the time when participation in the scheme is offered, and are normally
exercisable three or five years after the date of grant.
Peabody Savings Plans ("Peabody Plans"). In the US employees may
participate in retirement savings plans which provide for the purchase of
Ordinary Shares or ADSs in Energy. Employees contribute a percentage of basic
pay in respect of which their employing companies make limited matching
contributions. The value of the matching contributions is restricted under US
regulations.
Pensions. Energy operates or participates in a number of defined benefit
pension schemes for employees (including executive Directors) in the UK, the US
and Australia. Mr Bonham's salary from Energy is not pensionable. Messrs Anstee
and Devaney are members within the Eastern group of the Electricity Supply
Pension Scheme and have been granted special terms which provide for pensions
equal to 1/30 of pensionable salary for each year of
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<PAGE> 124
pensionable service. Mr Engelhardt is a member of the contributory Peabody
Salaried Plan, under which benefits relate to the number of years of service and
compensation limits under US federal tax laws. With the exception of Mr Bonham,
each of the executive Directors is also entitled to unfunded retirement benefit
scheme arrangements to provide for full pensions, depending on years of service.
The total unfunded retirement benefit scheme arrangements which are provided for
amounted to L5 million at March 31, 1997 of which L3 million related to Messrs
Anstee, Devaney and Engelhardt.
The following information is provided in respect of the Directors of
Energy from the dates of their respective appointments as Directors to March 31,
1997:
<TABLE>
<CAPTION>
RATE OF ANNUAL SALARY/ FEES PENSION OTHER
SALARY/ FEES(1) PAID(2) BONUS(3) CONTRIBUTIONS(4) BENEFITS TOTAL
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
D C Bonham(5) 450 138 109 -- 6 253
E E Anstee 250 67 51 26 6 150
J F Devaney 350 98 77 59 5 239
I F Engelhardt(6) 337 91 119 16 6 232
Sir Christopher Harding(7) 35 10 -- -- -- 10
Baroness Hogg 30 9 -- -- -- 9
D P Nash(7) 35 10 -- -- -- 10
J Neerhout, Jr 30 9 -- -- -- 9
-------------- ----------- -------- ---------------- -------------- -----
1,517 432 356 101 23 912
============== =========== ======== ================ ============== =====
</TABLE>
Notes:
(1) Rates of annual salary/fees apply from February 24, 1997.
(2) Salary/fees paid relate to the period from the date of appointment to
March 31, 1997. All the executive Directors were appointed on December 9,
1996 and all the non-executive Directors were appointed on December 16,
1996.
(3) Bonuses have been calculated by reference to salaries in the full six
month period to March 31, 1997.
(4) The amounts shown represent contributions paid by Energy, all to defined
benefit schemes.
(5) D C Bonham has agreed with Hanson that it will pay him an amount equal to
the difference between his previous base salary with Hanson and his base
salary for acting as chairman of Energy, after taking account of his fee
for acting as non-executive chairman of Imperial Tobacco Group PLC. This
agreement expires on September 30, 1997. The figure for D C Bonham's
salary includes the assessed element of amounts received from Hanson
during the period from December 9, 1996 to February 24, 1997 relating to
services as a director of Energy or otherwise in connection with the
management of the affairs of Energy.
(6) The amounts shown for I F Engelhardt represent the sterling equivalent of
his US dollar remuneration, translated at the average rate for the period
of $1.6339.
(7) The non-executive Directors receive fees at the rate of L30,000 per
annum. The chairman of the Audit and Remuneration Committees each receive
an additional L5,000 per annum.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Options to purchase Ordinary Shares may be granted under the Sharesave
Scheme and the Executive Scheme. In addition, grants of Ordinary Shares may be
made pursuant to the LTIP and the Peabody Plans.
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<PAGE> 125
Details of options outstanding under the Sharesave Scheme and the Executive
Scheme at September 1, 1997 are set out below:
<TABLE>
<CAPTION>
NUMBER OF
ORDINARY SHARES EXERCISE PRICE PER
TITLE OF PLAN ISSUABLE UPON EXERCISE ORDINARY SHARE EXPIRATION DATE
<S> <C> <C> <C>
Sharesave Scheme 847,996 465.0p September 2000
Sharesave Scheme 5,126,919 438.0p September 2002
Executive Scheme 1,613,614 547.5p February 2007
Total
</TABLE>
Of the total number of Ordinary Shares subject to outstanding options at
September 1, 1997, 17,746 Ordinary Shares were subject to options held by
Directors and executive officers of Energy (10 persons), all of which were
granted pursuant to the Sharesave Scheme.
The following table sets forth certain information as of September 1,
1997, with respect to the interests of the Directors of Energy at that date in
options to acquire Ordinary Shares, all of which were granted pursuant to the
Sharesave Scheme:
SHARESAVE SCHEME OPTIONS
<TABLE>
<CAPTION>
NUMBER OF
ORDINARY SHARES
UNDERLYING OPTIONS EXERCISE PRICE EXERCISABLE
<S> <C> <C> <C>
D C Bonham 2,363 438p April/Sept 2002
E E Anstee 3,150 438p April/Sept 2002
E E Anstee 419 465p April/Sept 2000
J F Devaney 3,938 438p April/Sept 2002
</TABLE>
The Sharesave Scheme options were granted on March 25, 1997 at option
prices discounted from the middle market price of 547.5p on February 25, 1997 by
20% for five year savings contracts and 15% for three year savings contracts.
The following table sets forth certain information as of September 1,
1997, with respect to the contingent rights of the Directors of Energy at that
date in Ordinary Shares pursuant to performance-related schemes:
CONTINGENT RIGHTS IN ORDINARY SHARES
<TABLE>
<CAPTION>
NUMBER OF ORDINARY SHARES NUMBER OF ORDINARY SHARES
GRANTED PURSUANT TO LTIP GRANTED PURSUANT TO SPECIAL
AWARDS BONUS SCHEME RIGHTS
<S> <C> <C>
D C Bonham 64,285 21,428
E E Anstee 35,714 11,904
J F Devaney 50,000 16,666
I F Engelhardt 48,292 16,097
</TABLE>
The Ordinary Shares subject to each of the above performance-related
schemes were valued at 525p per share.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
In addition to providing indemnification pursuant to Energy's Memorandum
and Articles of Association or the by-laws of Energy's subsidiaries, Energy
maintains directors' and officers' liability insurance for Directors and
officers of Energy and its subsidiaries.
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<PAGE> 126
Prior to the expiration of the Offer by PacifiCorp Acquisitions for
Energy, PacifiCorp had stated that it intended to invite Messrs. Bonham and
Devaney to join the board of Directors of PacifiCorp, and to invite Messrs.
Bonham, Devaney, Anstee and Engelhardt to participate in a management committee
to be established to co-ordinate the activities of the combined group. All of
the Directors of Energy who owned Ordinary Shares or ADSs gave irrevocable
undertakings to accept or procure acceptance of the Offer in respect of their
personal holdings. See "Offer by PacifiCorp Acquisitions" in Item 1 of this
Transition Report.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
None.
PART IV
ITEM 17. FINANCIAL STATEMENTS
The registrant has responded to Item 18 in lieu of responding to this
item.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to Item 19 for a list of financial statements filed as
part of this Transition Report.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Financial Statements as of March 31, 1997 and September 30, 1996 and for
the six months ended March 31, 1997 and the three years in the period ended
September 30, 1996.
Report and Consent of Independent Auditors
Consolidated Profit and Loss Accounts
Consolidated Statement of Total Recognized Gains and Losses
Consolidated Balance Sheets
Consolidated Cash Flow Statements
Changes in Invested Capital/Shareholders' Equity
Notes to the Financial Statements
The information required by the Financial Statement Schedules is either
included within the Financial Statements or is inapplicable, and is therefore
omitted.
(b) Exhibit:
Consent of Independent Auditors (included on Page F-1)
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<PAGE> 127
DEFINITIONS AND GLOSSARY
DEFINITIONS
ACT UK advance corporation tax
ADS an American Depositary Share representing four
Ordinary Shares
Articles the Articles of Association of Energy
Citizens Citizens Power LLC (formerly Citizens Lehman Power
L.L.C.)
Clean Air Act Amendments the US Clean Air Act Amendments of 1990
Commission US Securities and Exchange Commission
Companies Act the Companies Act 1985, as amended, of Great
Britain
Consolidated Gold Fields Consolidated Gold Fields Limited and, where the
context permits, its subsidiaries
Demerger the demerger (spin-off) by Hanson of Energy on
February 24, 1997
Demerger Agreement the Demerger agreement, dated as of January 27,
1997, between Hanson and Energy
Demerger Date February 24, 1997
DGES the Director General of Electricity Supply in Great
Britain
Directors the Directors of Energy
Eastern Eastern Group plc and/or its subsidiaries or any of
them from time to time as the context may require
Eastern Associated Eastern Associated Coal Corp., a subsidiary of
Peabody
Eastern Electricity Eastern Electricity plc, a wholly-owned subsidiary
of Eastern
Electricity Act the Electricity Act 1989 of Great Britain
Energy The Energy Group PLC
ENG Eastern Natural Gas Limited, a wholly-owned
subsidiary of Eastern
ESPS Electricity Supply Pension Scheme
FERC Federal Energy Regulatory Commission
FID foreign income dividend
Gas Acts the UK Gas Act 1986 as amended by the Gas Act 1995
Gas Licenses a Gas Shipper's License, Gas Supplier's License
and/or Public Gas Transporter's License issued
under the Gas Acts
Generation Licenses a license granted under the Electricity Act to
generate electricity
Great Britain England, Wales and Scotland
Group Energy and/or its subsidiaries or any of them from
time to time as the context may require
Hanson or Hanson Group Hanson PLC and, where the context permits, its
subsidiaries
Hanson ADS an American Depositary Share of Hanson representing
five Hanson Shares
Hanson Shares ordinary shares of 25p each in Hanson, before such
shares were consolidated into ordinary shares of L2
each in Hanson following the Demerger
Health Benefit Act US Coal Industry Retiree Health Benefit Act of 1992
IRS US Internal Revenue Service
Lee Ranch Lee Ranch Coal Company, an affiliate of Peabody
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<PAGE> 128
London Stock Exchange London Stock Exchange Limited
MMC the Monopolies and Mergers Commission
National Grid Group The National Grid Group plc
National Power National Power plc
NBCWA US National Bituminous Coal Wage Agreement of 1993
Noon Buying Rate the noon buying rate in The City of New York for
cable transfers in pounds sterling as certified for
customs purposes by the Federal Reserve Bank of New
York
NYSE The New York Stock Exchange, Inc.
OFFER the Office of Electricity Regulation covering
England, Wales and Scotland
Ordinary Shares ordinary shares of 10p each in Energy
Peabody Peabody Holding, Lee Ranch and Peabody Australia
Peabody Australia Peabody Resources Limited and its subsidiaries, the
Australian operations of Peabody
Peabody COALSALES Peabody COALSALES Company, a subsidiary of Peabody
Peabody Development Peabody Development Company, a subsidiary of
Peabody
Peabody East Peabody Coal Company, Pine Ridge Coal Company,
Mountain View Coal Company, Eastern Associated and
Martinka Coal Company
Peabody Holding Peabody Holding Company, Inc. and its subsidiaries
Peabody Western Peabody Western Coal Company, Seneca Coal Company
and Big Sky Coal Company
PES License a public electricity supply license issued pursuant
to the Electricity Act in connection with the
supply and distribution of electricity within an
authorised area in Great Britain
Pool the electricity trading market in England and
Wales, the rules and procedures of which are
contained in the Pooling and Settlement Agreement
Pooling and Settlement
Agreement an agreement dated 30 March 1990 (as amended) and
made between the generators named therein, the RECs
named therein, the National Grid Company Limited (a
subsidiary of National Grid Group) and certain of
its subsidiaries, and certain other parties named
therein and which sets out, inter alia, the rules
and procedures for the operation of the Pool and
for the operation of the system of payments
Powder River Powder River Coal Company and its subsidiaries
PowerGen PowerGen plc
PUSH Peabody US Holdings, Inc., a wholly-owned, indirect
subsidiary of Hanson
REC a regional electricity company in England and Wales
Rollalong Rollalong Limited and, where the context admits,
its subsidiary, Rollalong Hire Limited
Second Tier Supply License a license issued pursuant to the Electricity Act to
supply electricity to specified premises or
premises of a specified description outside the
authorised area of a PES License holder
Teplarny Brno Teplarny Brno a.s., a heating and generation
company in the Czech Republic
UK United Kingdom of Great Britain and Northern
Ireland
UK GAAP accounting principles generally accepted in the UK
UMWA the United Mine Workers of America Union
53
<PAGE> 129
US the United States of America and its territories
and possessions
US GAAP accounting principles generally accepted in the US
54
<PAGE> 130
GLOSSARY
assigned reserves coal reserves legally recoverable, generally
through existing facilities, using current mining
technology
authorized area geographical area in which a REC has been
authorised to supply electricity by its PES License
base load refers to generating plant that operates
continuously throughout the day and night and
normally only shuts down for planned routine
inspection and maintenance
bcf billion cubic feet
billion one thousand million (1,000,000,000)
BTU British thermal unit -- a measure of the energy
required to raise the temperature of one pound of
water by one degree Fahrenheit
CCGT combined cycle gas turbine
CfD an agreement between two parties calling for
payments between the parties in amounts equal to
the product of (a) the difference in each
settlement period between the Pool price and the
price ("strike price") specified in the CfD; and
(b) the amount of electricity provided for in that
settlement period which is usually expressed in MW
of demand. The settlement period is half an hour.
CfDs are used to fix the prices a supplier pays and
a generator receives for electricity and are
therefore used to reduce the price risk that would
otherwise be associated with the sale and purchase
of electricity through the Pool
CHP combined heat and power
Fossil Fuel Levy the levy imposed on PES License holders by
regulations made pursuant to section 33 of the
Electricity Act to compensate a PES License holder
for the additional costs incurred as a result of
satisfying Non-fossil fuel orders requiring the
purchase of electricity from Non-fossil fuel
sources
GWh one gigawatt hour, representing one hour's
consumption at a rate of 1,000,000kW
installed generating
capacity the actual generating capacity of 7.5 degrees
centigrade ambient of the plant at a power station
kV one kilovolt (1,000 volts)
kW one kilowatt (1,000 watts)
low sulfur coal coal consisting of 1%, sulfur or less, by weight
MW megawatt (1,000kW)
MWh one megawatt hour, representing one hour's
consumption at a rate of one MW
metallurgical coal the various grades of coal suitable for
carbonisation to make coke for steel manufacture.
Also known as "met" coal, it possesses four
important qualities: volatility, which affects coke
yield; the level of impurities, which affects coke
quality; composition, which affects coke strength;
and basic characteristics, which affect coke oven
safety. Metallurgical coal has a low ash content
mid-merit refers to generating plant that normally operates
daily, typically between 0700 hours and 2300 hours.
This plant is usually shut down during the night
hours when overall system demand falls
National Grid the transmission system for electricity in England
and Wales operated by The National Grid Company
Limited (a subsidiary of National Grid Group)
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<PAGE> 131
overburden ratios the number of cubic yards of earth and rock
overlying the coal that must be removed to uncover
one ton of coal
probable reserves in relation to coal, means reserves for which there
is a moderate degree of geological assurance. Coal
tonnages are computed by projection of data from
available scam measurements for a distance beyond
coal classed as measured or proven. The assurance,
although lower than for proven coal, is high enough
to assume continuity between points of measurement.
The maximum acceptable distance for projection of
indicated probable tonnage is 1/2 to 3/4 mile from
points of observation. Further exploration is
necessary to place these reserves in a proven
category
proven reserves in relation to coal, means reserves for which there
is the highest degree of geological assurance. The
sites for measurement are so closely spaced and the
geological character so well defined that the
thickness, real extent, size, shape and depth of
coal are well established. The maximum acceptable
distance for projections from seam data points
varies with the geological nature of the coal seam
being studied, but generally, a radius of 1/4 mile
is recognized as the standard. Proven reserves may
also be referred to as measured
recoverable reserves the amount of coal that can be recovered from the
reserve base taking into account all losses
involved in producing a saleable product using
existing methods and under current law. In the US
the average recovery factor for underground mines
ranges from 45 to 60% and about 90% from surface
mines
registered generating
capacity the generating capacity of a power station
registered with National Grid Group
resources deposits of coal whose characteristics are
estimated from specific geologic evidence and whose
economic extraction is potentially feasible.
Identified resources may include economic,
marginally economic and subeconomic components
RPI or Retail Price Index the general index of retail prices published by the
UK Office for National Statistics each month (or,
if there is a material change in the basis of such
index, such other index as the DGES may after
consultation determine), or, where the context
requires, the percentage change in such index over
any period for which a calculation fails to be made
scrubber any of several forms of chemical/physical devices
which operate to neutralize sulfur compounds formed
during coal combustion. These devices combine the
sulfur in gaseous emissions with other chemicals to
form inert compounds, such as gypsum, which must
then be removed for disposal. Although effective in
substantially reducing sulfur from combustion
gases, scrubbers require about 3 to 5% of a power
plant's electrical output and thousands of gallons
of water to operate
steam coal coal used by power plan and industrial steam
boilers to produce electricity or process steam. It
generally is lower in BTU content and higher in
volatile matter than metallurgical coal
Superfund National
Priorities List a list of sites, prepared and added to by the US
Environmental Protection Agency pursuant to
administrative rule making, at which the
Environmental Protection Agency or a responsible
state is authorized to disburse funds to clean up
environmental damage and to seek reimbursement from
private parties for the same
surface mine a mine in which the coal lies near the surface and
can be extracted by removing the covering layer of
earth and rock. About 60% of total US coal
production comes from surface mines
therm a unit of energy used in the gas industry. One
therm is approximately equivalent to 29.3kWh
56
<PAGE> 132
ton a short ton equal to 2,000 pounds
TWh one terawatt hour representing one hour's
consumption at a rate of 1,000,000,000kW
unassigned reserves reserves legally recoverable using current mining
technology, but which require substantial capital
investment for facilities to enable recovery of the
coal
underground mine also known as "deep" mine. Usually located several
hundred feet below the earth's surface, coal from
an underground mine is removed mechanically and
usually transferred by conveyor to the surface
Note: In this document, unless otherwise stated:
- - all statistics relating to the US coal industry are taken from reports
published by the relevant agencies within the US Federal Government, the US
National Mining Association and the International Energy Agency;
- - all statistics relating to the Australian Coal Industry are taken from the
Australian Coal Report -- 1996; and
- - all statistics relating to the electricity industry in Great Britain have been
previously published by OFFER.
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<PAGE> 133
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Transition Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE ENERGY GROUP PLC
By: /s/ MARTIN C. MURRAY
----------------------------------
Name: Martin C. Murray
Title: General Counsel and
Secretary
September 26, 1997
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<PAGE> 134
REPORT OF INDEPENDENT AUDITORS
To: The Board of Directors
The Energy Group PLC
We have audited the consolidated balance sheets of The Energy Group PLC as
at 31 March 1997 and 30 September 1996, and the related consolidated profit and
loss accounts and statements of total recognised gains and losses, cash flows
and changes in invested capital/shareholders' equity for the six months ended 31
March 1997 and each of the three years in the period ended 30 September 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to form 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 United States
generally accepted auditing standards. 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 audits provide a
reasonable basis of our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Energy
Group PLC at 31 March 1997 and 30 September 1996, and the consolidated results
of its operations and its consolidated cash flows for the six months ended 31
March 1997 and each of the three years in the period ended 30 September 1996 in
conformity with accounting principles generally accepted in the United Kingdom
which differ in certain respects from those generally accepted in the United
States (see Note 30 of Notes to the Financial Statements).
/s/ ERNST & YOUNG
------------------------------------
ERNST & YOUNG
Chartered Accountants
London, England
12 June 1997, except for
Note 31 -- Subsequent Events,
as to which the date is
1 August 1997
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8, Nos. 333-7032, 333-7034, 333-7036, 333-7038 and 333-7042) pertaining
to the employee share plans named on the facing sheets thereof, of the
references to our firm in Item 8. Selected Financial Data and Item 9.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of our report dated 12 June 1997, except for Note 31 -- Subsequent
Events, as to which the date is 1 August 1997, with respect to the consolidated
financial statements of The Energy Group PLC included in the Transition Report
(Form 20-F) for the period ended 31 March 1997.
/s/ ERNST & YOUNG
------------------------------------
ERNST & YOUNG
Chartered Accountants
London, England
26 September 1997
F-1
<PAGE> 135
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
------------------------ ----------------
1994 1995 1996 1997
NOTE ------ ------ ------ ----------------
(L MILLION)
<S> <C> <C> <C> <C> <C>
Turnover 1,247 1,446 3,635 2,519
Add: Special discount -- -- 132 --
------ ------ ------ ----------------
Turnover before special discount 4 1,247 1,446 3,767 2,519
Costs and overheads less other income 5 (1,148) (1,311) (3,321) (2,222)
------ ------ ------ ----------------
Operating profit before National Grid Group
flotation 99 135 446 297
National Grid Group flotation dividends
receivable 7 -- -- 176 --
special discount 7 -- -- (132) --
------ ------ ------ ----------------
Operating profit 4 99 135 490 297
Profit on disposal of First Hydro 7 -- -- 25 --
Net interest 8 (14) (11) (43) (37)
------ ------ ------ ----------------
Profit on ordinary activities before taxation 85 124 472 260
Taxation 9 (17) (56) (115) (81)
------ ------ ------ ----------------
Profit for the period* 68 68 357 179
Dividend 11 -- -- -- (29)
------ ------ ------ ----------------
Profit retained for the period 68 68 357 150
====== ====== ====== ================
Earnings per share 10 13.1p 13.1p 68.5p 34.5p
====== ====== ====== ================
Adjusted earnings per share 10 13.1p 13.1p 60.8p 38.2p
====== ====== ====== ================
</TABLE>
The net interest expense and taxation in each of the three years in the period
ended 30 September 1996 shown above were affected significantly by the financing
and taxation arrangements of Hanson Group. The results of Eastern are included
from 1 October 1995.
* A summary of the adjustments to the profit for the period that would be
required if United States generally accepted accounting principles had been
applied instead of those generally accepted in the United Kingdom is set forth
in Note 30 of Notes to the Financial Statements.
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED 30 SEPTEMBER ENDED 31 MARCH
------------------------ ----------------
1994 1995 1996 1997
------ ------ ------ ----------------
(L MILLIONS)
<S> <C> <C> <C> <C>
Profit for the period 68 68 357 179
Currency differences on foreign net investments (29) -- 20 (52)
------ ------ ------ ----------------
Total recognised gains relating to the period 39 68 377 127
====== ====== ====== ================
</TABLE>
The Notes to the Financial Statements are an integral part of these Financial
Statements
F-2
<PAGE> 136
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT AS AT
30 SEPTEMBER 31 MARCH
------------ --------
1996 1997
NOTE ------------ --------
(L MILLION)
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets 12 3,975 3,910
Investments 13 17 72
------------ --------
3,992 3,982
------------ --------
CURRENT ASSETS
Stocks 14 254 256
Amounts due from the Hanson Group 2 --
Debtors
amounts falling due after one year 15 536 561
amounts falling due within one year 15 763 798
Investments 16 8 10
Short-term deposits 17 -- 753
Cash 173 385
------------ --------
1,736 2,763
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 18 (1,041) (1,747)
------------ --------
NET CURRENT ASSETS 695 1,016
------------ --------
TOTAL ASSETS LESS CURRENT LIABILITIES 4,687 4,998
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 18 (945) (1,655)
PROVISIONS FOR LIABILITIES AND CHARGES 19 (1,557) (1,498)
------------ --------
2,185 1,845
============ ========
INVESTED CAPITAL/SHAREHOLDERS' EQUITY*
Called up share capital -- 52
Other reserves -- 639
Profit and loss account -- 1,154
Invested capital 2,185 --
------------ --------
2,185 1,845
============ ========
</TABLE>
* A summary of the adjustments to invested capital/shareholders' equity that
would be required if United States generally accepted accounting principles
had been applied instead of those generally accepted in the United Kingdom is
set forth in Note 30 of Notes to the Financial Statements.
The Notes to the Financial Statements are an integral part of these Financial
Statements
F-3
<PAGE> 137
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED 30 SEPTEMBER ENDED 31 MARCH
------------------------- --------------
1994 1995 1996 1997
NOTE ----- ----- ------- --------------
(L MILLION)
<S> <C> <C> <C> <C> <C>
Net cash inflow from operating activities 24 143 402 12 346
---- ---- ------ --------------
Returns on investments and servicing of
finance
Interest received -- -- -- 29
Interest paid (19) (11) (33) (83)
Dividends received from investments -- -- -- 1
National Grid Group flotation -- -- 44 --
---- ---- ------ --------------
(19) (11) 11 (53)
---- ---- ------ --------------
Taxation (5) (4) (128) (23)
---- ---- ------ --------------
Capital expenditure and financial investment
Purchase of tangible fixed assets (133) (140) (374) (133)
Purchase of investments -- -- -- (39)
Sale of tangible fixed assets 76 31 29 4
Sale of investments -- -- 235 12
---- ---- ------ --------------
(57) (109) (110) (156)
---- ---- ------ --------------
Acquisitions
Purchase of subsidiary undertakings 25 -- 36 (2,495) (20)
---- ---- ------ --------------
Cash flow before use of liquid resources and
financing 62 314 (2,710) 94
Management of liquid resources
Net cash placed on short-term deposit 26 -- -- -- (753)
Financing
Net new short-term borrowings 26 36 (20) 97 149
Debt due beyond a year:
New secured loan repayable within 5 years 26 -- -- -- 907
Repayments of amounts borrowed 26 (9) -- 31 (118)
Changes in invested capital from cash funding 26 (61) (57) 2,290 --
---- ---- ------ --------------
(34) (77) 2,418 938
---- ---- ------ --------------
Increase/(decrease) in cash in the period 28 237 (292) 279
==== ==== ====== ==============
</TABLE>
The returns on investments and servicing of finance, taxation and financing cash
flows shown above for the three years in the period ended 30 September 1996 were
affected significantly by the financing and taxation arrangements of the Hanson
Group. The cash flows of Eastern are included from 1 October 1995.
The significant differences between the cash flow statements presented above and
those required under United States generally accepted accounting principles are
described in Note 30 of Notes to the Financial Statements.
The Notes to the Financial Statements are an integral part of these Financial
Statements.
F-4
<PAGE> 138
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
CHANGES IN INVESTED CAPITAL/SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED 30 SEPTEMBER ENDED 31 MARCH
------------------------ --------------
1994 1995 1996 1997
---- ------- ------- --------------
(L MILLION)
<S> <C> <C> <C> <C>
Profit on ordinary activities after taxation 68 68 357 179
Dividend -- -- -- (29)
Currency differences on foreign net investments -- -- -- (52)
Other net recognised gains/(losses) relating to period (29) -- 20 --
Movements on demerger
-- additional net debt -- -- -- (391)
-- contribution towards dividend paid by Hanson in
January 1997 -- -- -- (32)
-- other net movements -- -- -- (15)
Increases/(decreases) in funding by Hanson
Cash (61) (57) 2,290 --
Non-Cash 95 2,493 (2,418) --
Dividend in specie of Investment in National Grid
Group -- -- (393) --
Goodwill (set off)/write back -- (1,368) 221 --
---- ------- ------- --------------
Net increase in invested capital/shareholders' equity 73 1,136 77 (340)
Opening invested capital/shareholders' equity 899 972 2,108 2,185
---- ------- ------- --------------
Closing invested capital/shareholders' equity 972 2,108 2,185 1,845
==== ======= ======= ==============
</TABLE>
No goodwill arose on the acquisition of the Group's Interest in Teplarny Brno.
The cumulative amount of goodwill resulting from acquisitions prior to 31 March
1997, net of goodwill attributable to subsidiary undertakings or businesses
disposed of prior to 31 March 1997, amounted to L1,147 million derived by
calculating the amount of historical goodwill in the currency of acquisition at
period end rates of exchange. This has been set off against merger reserve and
the net amount reported as other reserves.
Included in the consolidated reserves as at 31 March 1997 was L1 million in
respect of associated undertakings, all of which arose in the period ended 31
March 1997.
There are no significant statutory or contractual restrictions on the
distribution of current profits of subsidiary or associated undertakings:
undistributed profits of prior years are, in the main, permanently employed in
the businesses of these companies. The undistributed profits of Group companies
overseas may be liable to overseas taxes and/or UK taxation (after allowing for
double taxation relief) if they were to be distributed as dividends.
F-5
<PAGE> 139
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
1. THE COMPANY AND ITS CAPITALISATION
The Company was incorporated as a private limited company on 1 October 1996 as
The Energy Group Limited, with an authorised share capital of L50,000 divided
into 5,000,000 ordinary shares of 1p each, of which two ordinary shares were
issued to the subscribers fully paid. On 4 December 1996, 4,999,998 of the
authorised but unissued ordinary shares of 1p each were converted into 4,999,998
redeemable preference shares of 1p each (the "Preference Shares") and were
issued on that date at par. On 6 December 1996, the Company was re-registered as
a public limited company under the name The Energy Group PLC. The Preference
Shares were redeemed at par prior to the Demerger using funds contributed to the
Company by Hanson and such shares were re-converted into ordinary shares of 1p
each. On 22 January 1997, the Company's authorised share capital was increased
to L100,000,000 by the creation of 9,995,000,000 ordinary shares of 1p each.
Upon admission of the Company's ordinary shares to the Official List of the
London Stock Exchange becoming effective ("Admission"), every ten authorised and
issued ordinary shares of 1p each were consolidated into one ordinary share of
10p. 520,857,817 ordinary shares of 10p each were in issue following this
consolidation.
THE DEMERGER
At the date of the Demerger, Rollalong Limited ("Rollalong"), a wholly-owned
subsidiary of Hanson, pursuant to an agreement dated 27 January 1997 (the
"Demerger Agreement"), owned or had contracted to acquire, all of the
energy-related businesses of Hanson, as described below.
At various dates between 30 September 1996 and 27 January 1997, various of the
energy-related businesses of Hanson were reorganised under the ownership of
Rollalong, Peabody Holding Company, Inc. and its subsidiaries ("Peabody
Holding") was transferred to a subsidiary of Rollalong on 7 March 1997. On 24
February 1997, Hanson transferred to the Company the entire issued share capital
of Rollalong. In consideration for which the Company issued ordinary shares,
credited as fully paid, to Hanson shareholders pro rata to their shareholdings
in Hanson, in satisfaction of a dividend in specie declared by Hanson. The
transactions provided for under the Demerger Agreement, including the agreement
for the transfer of Peabody Holding, are together referred to as the "Demerger
Transactions".
THE GROUP
Following completion of the Demerger Transactions, the Company became the
holding company for a group of companies and businesses (together, the "Group")
comprising:
<TABLE>
<S> <C>
Eastern Group plc and its subsidiaries ("Eastern")
Peabody Holding
Lee Ranch Coal Company ("Peabody")
Peabody Resources Limited (Australia) and its subsidiaries
Rollalong Limited, Consolidated Gold Fields Limited, Major
Insurance Company Limited and various other subsidiaries and ("Infrastructure companies")
Intermediate holding companies and non-trading companies
</TABLE>
The Group now includes Citizens Power LLC and its subsidiaries, which were
acquired on 19 May 1997.
F-6
<PAGE> 140
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
2. BASIS OF PREPARATION
The financial statements have been prepared to show the performance of the Group
for the three years and six months in the period ended 31 March 1997 as if it
had been in existence from 1 October 1993 as described below. Peabody and the
infrastructure companies were wholly-owned by Hanson throughout that period
until they became part of the Group upon completion of the respective Demerger
Transactions. Eastern was acquired by Hanson on 18 September 1995.
(i) The financial statements have been prepared using merger accounting
principles as if the companies and businesses comprising the Group had been
part of the Group for all periods presented, or, in the case of those
acquired or disposed of (other than pursuant to the Demerger Transactions)
during this period, from or up to the date control passed, as appropriate.
Some individual elements of the reorganisation under Rollalong and of the
Demerger Transactions were for cash consideration. Such individual elements
do not satisfy all of the conditions for merger accounting to be permitted
in accordance with UK Financial Reporting Standard 6 and Schedule 4A to the
Companies Act 1985 (the "Companies Act"), which would require such
transfers to be accounted for using acquisition accounting principles.
The Directors took account of the continuity of ownership under Hanson of
all of its energy-related businesses that formed the Group following
completion of the Demerger Transactions and considered that the Demerger
Transactions, taken as a whole, required the adoption of merger accounting
principles in order to show a true and fair view in accordance with section
226(5) of the Companies Act.
The adoption of acquisition accounting principles for some individual
elements of the reorganisation under Rollalong and of the Demerger
Transactions would have required: the restatement at fair value of certain
assets and liabilities transferred; the recognition of goodwill which, in
some cases, would not be representative of that arising had the transfers
been conducted at arm's length; and the inclusion of the results of certain
businesses only from the various arbitrary dates chosen for the transfers.
As a result of the foregoing, in the opinion of the Directors, financial
statements using different bases of accounting would not give a true and
fair view. No qualification has been given of the effects of this departure
because to do so would be misleading.
(ii) Although Eastern was acquired by Hanson on 18 September 1995, its results
and cash flows have been included in the financial statements based on an
effective acquisition date of 30 September 1995. The results and cash flows
for the period 19 to 30 September 1995 are not material.
(iii)Transactions and balances owing between companies and businesses forming
part of the Group have been eliminated.
(iv) Interest income and expense prior to the Demerger are based on amounts
recorded in the historical financial returns submitted to Hanson in respect
of the companies and businesses forming part of the Group. No adjustments
have been made to reflect the capital structure of the Group as it is
following the Demerger and, as such, the historical level of interest
income and expense may not be representative of such amounts following the
Demerger.
(v) Taxation charges and liabilities prior to the Demerger are based on amounts
recorded in the historical financial returns submitted to Hanson in respect
of the companies and businesses forming part of the Group, except that
adjustments have been made, where appropriate, to provide for deferred tax
liabilities consequent upon the Group being on a stand-alone basis
following Demerger. Prior to the Demerger and in previous accounting
periods, there were various tax-sharing arrangements between Hanson, those
subsidiaries that form part of the Group and other Hanson subsidiaries.
These arrangements have had the effect that tax charges shown in the
financial statements may not be representative of tax charges that will be
incurred following the Demerger.
The preparation of the financial statements requires management to make
estimates and assumptions that affect the amounts reported. Actual results could
differ from estimates.
F-7
<PAGE> 141
The financial statements have been prepared in accordance with applicable UK
Accounting Standards. The principal accounting policies, which have been applied
consistently for all periods, are set out below.
Accounting convention
The financial statements have been prepared in accordance with the historical
cost convention.
Accounting for acquisitions
Other than in respect of the Demerger Transactions, the results of acquired
companies and businesses are dealt with in the financial statements from the
date of acquisition. On the acquisition of a company or business, fair values
reflecting conditions at the date of acquisition are attributed to the
identifiable tangible assets and liabilities acquired. Where the consideration
paid exceeds the fair value of the net tangible assets acquired, the difference
is treated as goodwill and is set off against reserves in the acquisition
period.
Associated undertakings
Investments which are not subsidiary undertakings and over which the Group
exercises significant influence (other than those which are unincorporated joint
ventures) have been accounted for as associated companies using the equity
method of accounting. Where the Group has an interest in an unincorporated joint
venture or a partnership, such interest has been accounted for as follows:
(i) where all of the ventures share in common the benefits and risks of the
entire venture, the Group's interest is accounted for using the equity
method of accounting.
(ii) where each venturer has its own separate interest in the benefits and
risks, the Group's interest is accounted for using proportional
consolidation on a line-by-line basis.
Turnover
Coal sales revenue is recognized at the time of shipment. Electricity and gas
sales include an estimated accrual for the value of electricity and gas consumed
by customers between the date of their last meter reading and the period end.
Turnover is stated exclusive of UK value added tax, but inclusive of related US
coal production duties and UK fossil fuel levy.
Tangible fixed assets
(a) Capitalisation
Tangible fixed assets are stated at cost or valuation less accumulated
depreciation.
Interest costs relating to the construction or development of production
facilities are capitalised during the pre-production period. Interest costs
incurred after production has commenced are expensed.
Costs incurred to increase the productive capacity of a coal mine or gas field
are capitalised. Costs incurred to maintain the productive capacity of a coal
mine or gas field are expensed.
(b) Depreciation and depletion
Buildings and improvements at coal mines are depreciated over the expected
productive life of the mine from the date that full production commences.
Depletion of coal and gas reserves is charged on a unit-of-production basis,
based on an assessment of available and proven reserves respectively.
Freehold land is not depreciated.
F-8
<PAGE> 142
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Depreciation of assets other than freehold land, coal and gas reserves and
buildings and improvements at coal mines is charged as follows:
<TABLE>
<S> <C>
Electricity generating station assets 30 years
Electricity distribution system assets 40 years at a rate of 3 per cent per annum for first
20 years and 2 per cent per annum for remaining 20
years
Freehold buildings up to 60 years
Leasehold buildings shorter of 60 years and remaining period of lease
Telecommunications network assets 10 to 40 years
Plant, equipment and motor vehicles 2 to 49 years
</TABLE>
(c) Assets held under leases
Assets held under finance leases are included within fixed assets at the
capitalized value of future minimum lease payments and are depreciated over the
shorter of their lease period and their useful life. The capital element of the
future payments is treated as a liability and the interest element is charged to
the profit and loss account so as to reflect a constant annual rate of interest
on the remaining balance of the outstanding obligation.
Rentals paid on operating leases are charged to the profit and loss account on a
straight line basis over the shorter of the lease period and the useful life of
the leased asset.
(d) Impairment
At each financial year end, an assessment is made of the recoverability of the
balance sheet carrying values of coal and gas assets. This assessment is made
individually at the lowest operational level at which income and cash flows are
monitored as a separate unit. A reduction in carrying value is triggered when
the current book value of such a unit of assets exceeds the undiscounted future
cash flows. Where shortfalls in cash flows compared with carrying values arise,
the assets are written down to fair value, determined usually by discounted
future cash flows generated from the assets.
(e) Reclamation, restoration and abandonment costs
Provision is made for surface reclamation and restoration costs in respect of
coal mines and for abandonment costs in respect of gas fields in accordance with
local conditions and requirements on the basis of costs estimated at the balance
sheet date. The costs are charged to accounting periods on a unit-of-production
basis for gas assets and over the life of the mine for coal.
(f) Environmental costs and obligations
Costs incurred in respect of environmental protection are capitalized if they
provide future economic benefits for the related production facility.
Liabilities for environmental clean-up costs are recognised when clean-ups are
probably and the associated costs can be estimated reasonably.
(g) Customers' contributions
Customer contributions to electricity distribution system assets are credited to
the profit and loss account over a 40-year period at a rate of 3 per cent per
annum for the first 20 years followed by 2 per cent per annum for the following
20 years. The unamortized amount of these contributions is deducted form
tangible fixed assets.
(h) Disposals of fixed assets
HM Government is entitled to a proportion of any gain realised by Eastern on
certain property disposals made up to 31 March 2000. A provision for drawback in
respect of such disposals is made to the extent that it is probable that a
liability would crystalize. Such a liability would crystalize when an actual or
deemed disposal occurs.
F-9
<PAGE> 143
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Stocks
Stocks are stated at the lower of cost and net realisable value. Cost includes
labour, supplies, equipment and an appropriate proportion of operating and
overhead costs.
Investments
Fixed asset investments are stated at cost or Directors' valuation less
provisions for permanent diminutions in value. Current asset investments are
stated at the lower of cost and net realisable value. Investment income is
included in the financial statements of the period to which it relates.
Foreign currencies
Transactions in foreign currencies are recorded at the exchange rates ruling at
the date of the transactions. Monetary assets and liabilities denominated in
foreign currencies are translated at the rates of exchange ruling at the balance
sheet date. All differences on translation are taken to the profit and loss
account.
Average rates of exchange ruling during the period are used to translate the
profit and loss accounts of overseas subsidiary and associated undertakings. The
balance sheets of overseas subsidiary undertakings are translated at rates
ruling at the balance sheet date. Differences on translation arising from
changes in the sterling value of overseas net assets, together with the
differences between profit and loss accounts translated at average rates and at
balance sheet rates, are shown as a movement on reserves and in the statement of
recognized gains and losses. Other exchange rate differences are dealt with in
the profit and loss account for the period.
Deferred taxation
Deferred taxation is provided on the liability method in respect of timing
differences except where the liability or asset is not expected to crystallize
in the foreseeable future. No deferred tax asset is recognised corresponding to
liabilities provided for in respect of post-retirement healthcare benefits.
Provision is not made for additional taxation which might be payable if profits
retained by overseas companies were distributed as dividends.
Healthcare and other obligations to employees
The Group provides healthcare and other benefits, including workers'
compensation benefits, to certain qualifying employees and former employees of
the Peabody companies and their dependants under the provisions of various
benefit plans or as required by US state or federal law. These benefits are
accrued and charged to the profit and loss account over the expected service
lives of the employees with the exception of pneumoconiosis (black lung)
benefits in respect of employees ceasing employment prior to 1 July 1973, which
are accounted for as payments are made. Pneumoconiosis benefits in respect of
employees ceasing employment after 30 June 1973 are estimated actuarially; the
last actuarial review was performed as at 1 October 1996. Other workers'
compensation benefits are also assessed actuarially.
Pension costs
The Group operates retirement benefit schemes in the UK, the US and Australia,
in accordance with local regulations and custom. The assets of the schemes are
held in separate funds administered by trustees.
The costs of providing pensions are charged to the consolidated profit and loss
account over employees' service lives. The pension costs relating to those
schemes which provide defined benefits are assessed in accordance with the
advice of qualified actuaries.
F-10
<PAGE> 144
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
4. SEGMENTAL INFORMATION
By activity:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
------------------------------------------------------------------------------ ------------------------
1994 1995 1996 1997
------------------------ ------------------------ ------------------------ ------------------------
OPERATING OPERATING OPERATING OPERATING
TURNOVER PROFIT/(LOSS) TURNOVER PROFIT/(LOSS) TURNOVER PROFIT/(LOSS) TURNOVER PROFIT/(LOSS)
-------- ------------- -------- ------------- -------- ------------- -------- -------------
(L MILLION)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Coal 1,217 102 1,418 160 1,461 154 647 66
Power -- -- -- -- 2,178 83 1,801 129
Networks -- -- -- -- 482 211 274 122
Other 30 (3) 28 (25) 24 (2) 9 --
Intra-group trading -- -- -- -- (378) -- (212) --
-------- ------------- -------- ------------- -------- ------------- -------- -------------
1,247 99 1,446 135 3,767 446 2,519 317
Exceptional items -- -- -- -- (132) 44 -- (20)
-------- ------------- -------- ------------- -------- ------------- -------- -------------
1,247 99 1,446 135 3,635 490 2,519 297
======== ============= ======== ============= ======== ============= ======== =============
</TABLE>
Power turnover includes gas sales of L258 million in the year ended 30 September
1996 and L251 million in the six months ended 31 March 1997.
All intra-group trading represent charges, at market rates, for use of the
distribution system from the Networks business to the Power business.
By geographical location:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
------------------------------------------------------------------------------ ------------------------
1994 1995 1996 1997
------------------------ ------------------------ ------------------------ ------------------------
OPERATING OPERATING OPERATING OPERATING
TURNOVER PROFIT/(LOSS) TURNOVER PROFIT/(LOSS) TURNOVER PROFIT/(LOSS) TURNOVER PROFIT/(LOSS)
-------- ------------- -------- ------------- -------- ------------- -------- -------------
(L MILLION)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United Kingdom 22 6 22 (31) 2,303 293 1,853 248
US 1,108 66 1,297 141 1,317 125 574 52
Australia 117 27 127 25 147 28 74 14
Other -- -- -- -- -- -- 18 3
-------- ------------- -------- ------------- -------- ------------- -------- -------------
1,247 99 1,446 135 3,767 446 2,519 317
Exceptional items -- -- -- -- (132) 44 -- (20)
-------- ------------- -------- ------------- -------- ------------- -------- -------------
1,247 99 1,446 135 3,635 490 2,519 297
======== ============= ======== ============= ======== ============= ======== =============
</TABLE>
The above analysis of turnover shows the geographical segments from which goods
and services are supplied.
Turnover by geographical destination:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
----------------------- ----------
1994 1995 1996 1997
----- ----- ----- ----------
(L MILLION)
<S> <C> <C> <C> <C>
United Kingdom 27 34 2,183 1,861
North and South America 1,053 1,197 1,218 542
Rest of Europe 35 57 62 42
Asia/Pacific 132 158 172 74
----- ----- ----- ----------
1,247 1,446 3,635 2,519
===== ===== ===== ==========
</TABLE>
F-11
<PAGE> 145
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
4. SEGMENTAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER AS OF 31 MARCH
--------------------------------------------------------- -----------------
1994 1995 1996 1997
----------------- ----------------- ----------------- -----------------
TOTAL CAPITAL TOTAL CAPITAL TOTAL CAPITAL TOTAL CAPITAL
ASSETS EMPLOYED ASSETS EMPLOYED ASSETS EMPLOYED ASSETS EMPLOYED
------ -------- ------ -------- ------ -------- ------ --------
(L MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
By activity:
Coal 2,933 1,277 3,004 1,399 3,102 1,440 2,975 1,370
Power -- -- 608 273 1,317 889 1,934 1,117
Networks -- -- 1,149 1,008 1,192 1,089 1,175 1,063
Other 86 (7) 69 (23) 30 (4) 105 8
----- -------- ----- -------- ----- -------- ----- --------
3,019 1,270 4,830 2,657 5,641 3,414 6,189 3,558
===== ======== ===== ======== ===== ======== ===== ========
By geographical location:
United Kingdom 44 7 1,780 1,283 2,520 1,981 3,121 2,166
US 2,685 1,048 2,723 1,154 2,727 1,226 2,706 1,148
Australia 290 215 327 220 394 207 269 226
Other -- -- -- -- -- -- 93 18
----- -------- ----- -------- ----- -------- ----- --------
3,019 1,270 4,830 2,657 5,641 3,414 6,189 3,558
===== ======== ===== ======== ===== ======== ===== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF 30 SEPTEMBER 31 MARCH
--------------------- --------
1994 1995 1996 1997
----- ----- ----- --------
(L MILLIONS)
<S> <C> <C> <C> <C>
Total assets are reconciled to the consolidated balance
sheet as follows:
Assets analysed by activity 3,019 4,830 5,641 6,189
Unallocated cash, investments and other assets -- 812 87 556
----- ----- ----- -----
Total assets 3,019 5,642 5,728 6,745
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF 30 SEPTEMBER 31 MARCH
---------------------- --------
1994 1995 1996 1997
----- ----- ------ --------
(L MILLIONS)
<S> <C> <C> <C> <C>
Capital employed is reconciled to invested
capital/shareholders' equity as follows:
Capital employed by activity 1,270 2,657 3,414 3,558
Current and deferred taxes (99) (303) (147) (285)
Dividend -- -- -- (29)
Borrowings less cash, investments and other unallocated
assets and liabilities (199) (246) (1,082) (1,399)
----- ----- ------ ------
Invested capital/shareholders' equity 972 2,108 2,185 1,845
===== ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
------------------------------------------------------------------------------------
1994 1995 1996
-------------------------- -------------------------- --------------------------
DEPRECIATION DEPRECIATION DEPRECIATION
CAPITAL AND CAPITAL AND CAPITAL AND
EXPENDITURE DEPLETION EXPENDITURE DEPLETION EXPENDITURE DEPLETION
----------- ------------ ----------- ------------ ----------- ------------
(L MILLIONS)
By ac-
tivity:
<S> <C> <C> <C> <C> <C> <C>
Coal 133 113 140 119 98 121
Power -- -- -- -- 134 15
Networks -- -- -- -- 142 61
Other -- -- -- -- -- --
----------- ------------ ----------- ------------ ----------- ------------
133 113 140 119 374 197
=========== ============ =========== ============ =========== ============
<CAPTION>
SIX MONTHS ENDED
31 MARCH
--------------------------
1997
--------------------------
DEPRECIATION
CAPITAL AND
EXPENDITURE DEPLETION
----------- ------------
(L MILLIONS)
By ac-
tivity:
<S> <C> <C>
Coal 43 58
Power 26 11
Networks 71 31
Other 10 --
----------- ------------
150 100
=========== ============
</TABLE>
F-12
<PAGE> 146
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
5. COSTS AND OVERHEADS LESS OTHER INCOME
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
----------------------- ----------
1994 1995 1996 1997
----- ----- ----- ----------
(L MILLIONS)
<S> <C> <C> <C> <C>
Changes in stocks of finished goods and work in progress (6) (18) (19) (10)
Raw materials and consumables 194 232 1,983 1,334
Employment costs (Note 6) 304 321 411 220
Depreciation 60 58 128 64
Depletion 53 61 69 36
Restructuring and reorganisation -- 29 (29) 20
Other acquisition-related costs of Eastern -- -- 31 --
Production taxes 113 138 162 70
Other operating charges less other income 430 430 585 488
----- ----- ----- ----------
1,148 1,311 3,321 2,222
===== ===== ===== ==========
</TABLE>
Included above are costs and overheads for the six months ended 31 March 1997
within Teplarny Brno of L15 million.
The reorganisation expense of L20 million in the six months ended 31 March 1997
reflects full provision for the reopening of Eastern's voluntary severance
scheme in its Networks business.
The reorganisation provision created on the acquisition of Eastern in 1995 of
L29 million was no longer deemed necessary and was reversed in 1996. A deferred
tax asset of L11 million, recognised in 1995 to reflect the taxation relief in
respect of this provision, was also reversed in 1996.
Other operating charges less other income for the six months ended 31 March 1997
includes operating lease rentals payable of L138 million (years ended 30
September 1996 L77 million, 1995 L20 million, 1994 L20 million) primarily in
respect of plant and machinery.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
-------------------------- ----------
1994 1995 1996 1997
------ ------ ------ ----------
(L MILLION)
<S> <C> <C> <C> <C>
Audit fees 0.4 0.4 0.8 0.6
Non-audit fees payable to Ernst & Young in the
United Kingdom -- -- 7.3 6.1
Non-audit fees payable to Ernst & Young outside the
United Kingdom and to other auditors -- -- -- 1.8
</TABLE>
F-13
<PAGE> 147
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
6. EMPLOYEES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
------------------------ ----------
1994 1995 1996 1997
------ ------ ------ ----------
(L MILLIONS)
<S> <C> <C> <C> <C>
(a) Employment costs
Wages and salaries 270 288 411 208
Employers' social security costs 20 20 28 14
Post-retirement benefits -- -- -- 17
Pension costs (Note 23) 14 13 17 10
------ ------ ------ ----------
304 321 456 249
Less: amounts capitalized -- -- (45) (29)
------ ------ ------ ----------
Charged to profit and loss account 304 321 411 220
====== ====== ====== ==========
</TABLE>
(b) Numbers employed
The average number of persons employed by the Group was:
<TABLE>
<CAPTION>
(NUMBER)
<S> <C> <C> <C> <C>
United Kingdom 193 201 6,195 6,770
US 7,442 7,336 6,824 6,549
Australia 1,054 1,069 1,098 1,120
Other -- -- -- 669
------ ------ ------ ------
8,689 8,606 14,117 15,108
====== ====== ====== ======
</TABLE>
The average number of persons employed by the Group by activity was:
<TABLE>
<S> <C> <C> <C> <C>
Coal 8,488 8,399 7,916 7,670
Power -- -- 1,630 2,906
Networks -- -- 4,370 4,256
Other 201 207 201 276
------ ------ ------ ------
8,689 8,606 14,117 15,108
====== ====== ====== ======
</TABLE>
7. EXCEPTIONAL ITEMS
During 1996, the Group received an interim dividend of L11 million and special
dividends (net of associated costs) totaling L165 million connected with the
flotation of The National Grid Group plc ("National Grid Group"). Amounts
credited to electricity customers in the form of a discount on electricity bills
connected with this flotation totalled L132 million.
The profit on disposal of First Hydro of L25 million in 1996 arose on the
disposal of the Group's interest in the pumped storage business of National Grid
Group.
F-14
<PAGE> 148
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
8. NET INTEREST
Prior to the Demerger, a significant proportion of the Group's cash and bank
balances and borrowing requirements were transferred to, or provided by, the
Hanson Group. No interest was received or paid on the amounts so transferred or
provided.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
-------------------------------------- ----------
1994 1995 1996 1997
---------- ---------- ---------- ----------
(L MILLION)
<S> <C> <C> <C> <C>
Interest expense
On loans wholly repayable within five years 7 5 68 42
On other loans 10 10 20 35
Interest capitalised -- -- (8) (5)
---------- ---------- ---------- ----------
17 15 80 72
Interest income (3) (4) (37) (35)
---------- ---------- ---------- ----------
Net interest expense 14 11 43 37
========== ========== ========== ==========
</TABLE>
Included in interest payable for the six months ended 31 March 1997 is L3
million relating to finance leases (year ended 30 September 1996: L7 million).
9. TAXATION CHARGE/(CREDIT)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
-------------------------------------- ----------
1994 1995 1996 1997
---------- ---------- ---------- ----------
(L MILLION)
<S> <C> <C> <C> <C>
UNITED KINGDOM
Corporation tax at 33 per cent -- -- 3 68
Adjustment in respect of previous years -- -- (15) --
Advance corporation tax written off 1 -- -- --
Deferred taxation -- (11) 22 2
Tax credit on franked investment income -- -- 29 --
---------- ---------- ---------- ----------
1 (11) 39 70
OVERSEAS
Current taxation 21 25 19 7
Deferred taxation (5) 42 57 4
---------- ---------- ---------- ----------
Charge for the period 17 56 115 81
========== ========== ========== ==========
The taxation charge for the period has been
reduced by the following amounts arising
from group relief surrendered for nil
consideration by other Hanson Group
companies -- -- 30 26
========== ========== ========== ==========
</TABLE>
F-15
<PAGE> 149
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
9. TAXATION CHARGE/(CREDIT) (CONTINUED)
The tax charge for the six months ended 31 March 1997 is net of a credit of L1
million in respect of an exceptional item. If full provision had been made for
deferred tax for the period ended 31 March 1997, the tax charge would have
decreased by L71 million (year ended 30 September 1996 increased by L31 million,
1995 Lnil, 1994 reduced by L6 million) being L38 million in respect of capital
allowances in excess of depreciation and L33 million in respect of other timing
differences. As a result of the stand-alone basis of providing for deferred tax,
the charge for deferred tax shown above was increased by L57 million for the
year ended 30 September 1996 (1995 L42 million, 1994 reduced by L5 million).
As a result of the surrender of group relief for nil consideration, together
with the taxation effects of the National Grid Group flotation, the tax charge
shown for the three years ended 30 September 1996 is not representative of the
charge that may arise following the Demerger Transactions.
A reconciliation of the tax charge at the UK statutory rate of corporation tax
to the actual tax charge is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
-------------------------------------- ----------
1994 1995 1996 1997
---------- ---------- ---------- ----------
(L MILLION)
<S> <C> <C> <C> <C>
Profit before taxation 85 124 472 260
========== ========== ========== ==========
National UK corporation tax at 33 per cent 28 41 156 86
Permanent differences (4) (20) (4) 16
Timing differences (4) 3 (31) --
Free group relief -- -- (30) (26)
Effect of overseas tax rates (3) 32 39 4
Adjustments in respect of prior years -- -- (15) --
Other -- -- -- 1
---------- ---------- ---------- ----------
Actual tax charge 17 56 115 81
========== ========== ========== ==========
</TABLE>
10. EARNINGS PER SHARE
Earnings per share are based on the profit for each period and on 521 million
ordinary shares for each of the three years in the period ended 30 September
1996, being the number of ordinary shares in the Company which were issued in
respect of the Demerger.
Earnings per share for the six months ended 31 March 1997 are based on 519
million ordinary shares. This excludes the 2 million shares held as at 31 March
1997 by The Energy Group Employee Benefit Trust which has waived its right to
dividends on the shares it holds.
Adjusted earnings per share are based on the same number of shares and the
profit for the relevant period after excluding the items relating to the
National Grid Group flotation, the profit on disposal of First Hydro, the
exceptional restructuring and reorganisation and the related taxation as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
-------------------------------------- ----------
1994 1995 1996 1997
---------- ---------- ---------- ----------
(L MILLION)
<S> <C> <C> <C> <C>
Profit for the period as reported 68 68 357 179
Adjusted for
National Grid Group flotation -- -- (44) --
Profit on disposal of First Hydro -- -- (25) --
Exceptional restructuring and
reorganisation cost -- -- -- 20
Related taxation -- -- 29 (1)
---------- ---------- ---------- ----------
Profit as adjusted 68 68 317 198
========== ========== ========== ==========
</TABLE>
F-16
<PAGE> 150
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
11. DIVIDEND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
31 MARCH
PENCE PER 1997 IN
SHARE MILLION
--------- ----------
<S> <C> <C>
Dividend paid to ordinary shareholders on 4 July 1997 5.5p 29
</TABLE>
Prior to the Demerger, the businesses comprising The Energy Group PLC were owned
by Hanson and appropriations of cash and other assets have been treated as
diminutions in net assets.
12. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
PLANT,
OIL EQUIPMENT
LAND AND AND GAS DISTRIBUTION GENERATING AND MOTOR
BUILDINGS ASSETS SYSTEM STATIONS VEHICLES TOTAL
--------- ------- ------------ ---------- --------- -----
(L MILLION)
<S> <C> <C> <C> <C> <C> <C>
COST
As at 1 October 1993 -- 2,298 -- -- 832 3,130
Exchange adjustments -- (99) -- -- (26) (125)
Additions -- 55 -- -- 77 132
Disposals -- (101) -- -- (52) (153)
-------- ------- ------------ ---------- --------- -----
As at 30 September 1994 -- 2,153 -- -- 831 2,984
Exchange adjustments -- (5) -- -- -- (5)
Additions -- 36 -- -- 104 140
Acquisitions 78 228 904 261 118 1,589
Disposals and other -- (30) -- -- (72) (102)
-------- ------- ------------ ---------- --------- -----
As at 30 September 1995 78 2,382 904 261 981 4,606
Exchange adjustments -- 35 -- -- 18 53
Additions 14 55 83 93 129 374
Disposals (17) (6) -- -- (32) (55)
-------- ------- ------------ ---------- --------- -----
As at 30 September 1996 75 2,466 987 354 1,096 4,978
Exchange adjustments -- (116) -- -- (45) (161)
Additions 14 21 48 13 54 150
Acquisitions -- -- -- 36 7 43
Disposals and other -- (75) (3) (1) (44) (123)
-------- ------- ------------ ---------- --------- -----
As at 31 March 1997 89 2,296 1,032 402 1,068 4,887
======== ======= ============ ========== ========= =====
</TABLE>
F-17
<PAGE> 151
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
12. TANGIBLE FIXED ASSETS (CONTINUED)
<TABLE>
<CAPTION>
PLANT,
OIL EQUIPMENT
LAND AND AND GAS DISTRIBUTION GENERATING AND MOTOR
BUILDINGS ASSETS SYSTEM STATIONS VEHICLES TOTAL
--------- ------- ------------ ---------- --------- -----
(L MILLION)
<S> <C> <C> <C> <C> <C> <C>
ACCUMULATED DEPRECIATION AND DEPLETION
As at 1 October 1993 -- 289 -- -- 505 794
Exchange adjustments -- (14) -- -- (18) (32)
Charge for the year -- 53 -- -- 60 113
Disposals -- (34) -- -- (47) (81)
-------- ------- ------------ ---------- --------- -----
As at 30 September 1994 -- 294 -- -- 500 794
Exchange adjustments -- (2) -- -- -- (2)
Charge for the period -- 61 -- -- 58 119
Disposals -- (23) -- -- (56) (79)
-------- ------- ------------ ---------- --------- -----
As at 30 September 1995 -- 330 -- -- 502 832
Exchange adjustments -- 6 -- -- 10 16
Charge for the year 2 69 39 7 80 197
Disposals -- (16) -- -- (26) (42)
-------- ------- ------------ ---------- --------- -----
As at 30 September 1996 2 389 39 7 566 1,003
Exchange adjustments -- (19) -- -- (26) (45)
Charge for the period 1 36 20 -- 43 100
Disposals and other -- (20) -- (1) (60) (81)
-------- ------- ------------ ---------- --------- -----
As at 31 March 1997 3 386 59 6 523 977
======== ======= ============ ========== ========= =====
NET BOOK VALUE
As at 1 October 1993 -- 2,009 -- -- 327 2,336
======== ======= ============ ========== ========= =====
As at 30 September 1994 -- 1,859 -- -- 331 2,190
======== ======= ============ ========== ========= =====
As at 30 September 1995 78 2,052 904 261 479 3,774
======== ======= ============ ========== ========= =====
As at 30 September 1996 73 2,077 948 347 530 3,975
======== ======= ============ ========== ========= =====
As at 31 March 1997 86 1,910 973 396 545 3,910
======== ======= ============ ========== ========= =====
</TABLE>
The net book value of land and buildings at 31 March 1997 comprises freeholds of
L85 million (30 September 1996 L72 million), long leaseholds of L1 million (30
September 1996 L1 million) and short leaseholds of Lnil (30 September 1996
Lnil).
Coal and gas assets at 31 March 1997 include natural gas assets with a cost of
L40 million (30 September 1996 L35 million), accumulated depletion of L8 million
(30 September 1996 L2 million) and net book value of L32 million (30 September
1996 L33 million).
Capitalised interest at 31 March 1997 included within fixed assets amounts to
L13 million (30 September 1996 L8 million).
The cost of distribution system fixed assets at 31 March 1997 is shown net of
customer contributions of L359 million (30 September 1996 L343 million). The net
book value of customer contributions at 31 March 1997 was L267 million (30
September 1996 L256 million).
Other movements consist mainly of the change in treatment of Black Beauty Coal
Company which is described in Note 13.
Assets in the course of construction at 31 March 1997 amounted to L298 million
(30 September 1996 L310 million).
F-18
<PAGE> 152
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
12. TANGIBLE FIXED ASSETS (CONTINUED)
Generating stations include assets held under finance leases as follows:
<TABLE>
<CAPTION>
AS AT AS AT
30 SEPTEMBER 31 MARCH
1996 1997
------------ --------
(L MILLIONS)
<S> <C> <C>
Cost 128 128
Accumulated depreciation (12) (14)
------------ --------
Net book value 116 114
============ ========
</TABLE>
13. FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
UNFIXED INVESTMENTS
-------------------------------------------------------
LOANS TO ASSOCIATED INVESTMENT IN
MODERATOR UNDERTAKING OTHER OWN SHARES TOTAL
--------- ----------- ----- ------------- -----
(L MILLION)
<S> <C> <C> <C> <C> <C>
As at 1 October 1993 -- 5 -- -- 5
Share of retained profit -- 1 -- -- 1
--------- ----------- ----- ------------- -----
As at 30 September 1994 -- 6 -- -- 6
Acquisitions 16 -- 15 -- 31
--------- ----------- ----- ------------- -----
As at 30 September 1995 16 6 15 -- 37
Disposals (16) (1) (3) -- (20)
--------- ----------- ----- ------------- -----
As at 30 September 1996 -- 5 12 -- 17
Adjustment -- 25 -- -- 25
Acquisitions -- -- 2 -- 2
Additions -- -- 28 11 39
Share of retained profit -- 1 -- -- 1
Disposals -- -- (12) -- (12)
--------- ----------- ----- ------------- -----
As at 31 March 1997 -- 31 30 11 72
========= =========== ===== ============= =====
</TABLE>
The investment in own shares represents The Energy Group Employee Benefit
Trust's investment in the company's shares.
The Energy Group Employee Benefit Trust has been established to acquire ordinary
shares in the company, by subscription or purchase, with funds provided by the
company to satisfy rights to shares arising on the exercise of share options and
on the vesting of performance-related share awards. At 31 March 1997 the trust
had acquired 2,250,000 ordinary shares at a cost of L10.7 million, financed by
interest-free loans from the company, which at the balance sheet data totalled
L15 million. Since 31 March 1997 the trust has acquired a further 1,850,891
ordinary shares at a cost of L9.3 million and a further interest-free loan of L5
million has been made to the trust. The trust has waived its right to dividends
on the ordinary shares held by it.
The principal associated undertaking at 31 March 1997 was:
<TABLE>
<CAPTION>
FINANCIAL SHARE CAPITAL PRE-TAX %
COUNTRY YEAR END AND RESERVES PROFIT OWNED
------- ----------- ------------- ------- -----
<S> <C> <C> <C> <C> <C>
Black Beauty Coal Company USA 31 December L74m L6m 33
</TABLE>
F-19
<PAGE> 153
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
13. FIXED ASSET INVESTMENTS (CONTINUED)
Following a detailed consideration of the nature of the joint venture agreement
governing Black Beauty Coal Company ("BBCC"), the Group's interest in that
operation is now accounted for on an equity accounting basis, rather than the
proportional consolidation basis which had historically been applied. This
change in treatment better reflects the nature of the Group's interest in the
operation, its revenues and its assets. A summary of the effect of this change
in accounting treatment on the Group balance sheet is shown below:
<TABLE>
<CAPTION>
GROUP'S SHARE OF
BBCC'S BALANCE SHEET
------------------------
AS AT AS AT
30 SEPTEMBER 31 MARCH
1996 1997
------------ --------
(L MILLION)
<S> <C> <C>
Tangible fixed assets 41 44
Working capital 37 43
Net debt (53) (62)
------------ --------
Group's share of net assets 25 25
============ ========
</TABLE>
Each of the individual items in the summarised BBCC balance sheet at 30
September 1996 was included within the Group balance sheet as at 30 September
1996 under proportional consolidation. During the six month period ended 31
March 1997 adjustments have been made to remove these items due to the change in
treatment. The above BBCC balance sheet analysis as at 31 March 1997 is purely
for information purposes as it is only the Group's share of the net assets of
BBCC which is included within the consolidated balance sheet under "Fixed Asset
Investments -- Associated Undertakings." The balance at the start of the period
is shown as an adjustment in the above table of fixed asset investments.
14. STOCKS
<TABLE>
<CAPTION>
AS AT AS AT
30 SEPTEMBER 31 MARCH
1996 1997
------------ --------
(L MILLION)
<S> <C> <C>
Raw materials and consumables 152 118
Work in progress 52 66
Finished stock and items for resale 50 72
------------ --------
254 256
============ ========
</TABLE>
15. DEBTORS
<TABLE>
<CAPTION>
AS AT AS AT
30 SEPTEMBER 31 MARCH
1996 1997
------------ --------
(L MILLION)
<S> <C> <C>
Amounts falling due after more than one year
Trade debtors -- 6
Advance corporation tax recoverable 84 91
Royalties receivable and other debtors 182 232
Operating lease prepayments 270 232
------------ --------
536 561
============ ========
Amounts falling due within one year
Trade debtors 502 647
Other debtors and prepayments 261 151
------------ --------
763 798
============ ========
</TABLE>
F-20
<PAGE> 154
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
16. CURRENT ASSET INVESTMENTS
At 31 March 1997 and at 30 September 1996 all current asset investments were in
unlisted entities.
17. SHORT-TERM DEPOSITS
At 31 March 1997, L408 million of the short-term deposits has been used to
cash-collateralise existing future obligations to certain banks in respect of
the funding of the operating leases of power stations leased from National
Power.
18. CREDITORS
<TABLE>
<CAPTION>
AS AT AS AT
30 SEPTEMBER 31 MARCH
1996 1997
------------ --------
(L MILLION)
<S> <C> <C>
Amounts falling due within one year
Bank overdrafts 119 61
Short-term loans 14 732
Commercial paper 144 --
Finance leases 10 6
Trade creditors 313 376
Corporation tax 39 105
Other taxation and social security 61 20
Other creditors 49 148
Accruals and deferred income 292 270
Dividend -- 29
------------ --------
1,041 1,747
============ ========
</TABLE>
Weighted average interest rates at 31 March 1997 on bank overdrafts were 12.8
per cent, and on short-term loans and commercial paper, 6.5 per cent.
Weighted average interest rates at 30 September 1996 on bank overdrafts were 7.4
per cent, short-term loans, 7.5 per cent and commercial paper 7.1 per cent.
<TABLE>
<CAPTION>
AS AT AS AT
30 SEPTEMBER 31 MARCH
1996 1997
------------ --------
(L MILLION)
<S> <C> <C>
Amounts falling due after more than one year
Loans not wholly repayable within 5 years
$300 million 5% subordinated income note 2006 192 170
L350 million 8.375% bonds 2004 347 348
L200 million 8.5% bonds 2025 197 197
------------ --------
736 715
Other loans repayable within 5 years 56 791
Net obligations under finance leases 153 149
------------ --------
945 1,655
============ ========
</TABLE>
L100 million of the L350 million 8.375 per cent bonds has been converted into
floating rate debt by way of interest rate swaps expiring in 2004. At 31 March
1997, the weighted average interest rate payable was 7.4 per cent (30 September
1996 5.7 per cent). Amounts shown above for bonds are net of unamortised issue
costs.
F-21
<PAGE> 155
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
18. CREDITORS (CONTINUED)
Long-term debt and finance leases are repayable as follows:
<TABLE>
<CAPTION>
AS AT AS AT
30 SEPTEMBER 31 MARCH
1996 1997
------------ --------
(L MILLION)
<S> <C> <C>
1998 29 --
1999 32 227
2000 43 243
2001 28 261
2002 26 149
thereafter 787 775
------------ --------
945 1,655
============ ========
</TABLE>
Long-term debt and finance leases are denominated in the following currencies:
<TABLE>
<CAPTION>
AS AT AS AT
30 SEPTEMBER 31 MARCH
1996 1997
------------ --------
(L MILLION)
<S> <C> <C>
Sterling 689 1,473
US dollars 248 174
Australian dollars 8 8
------------ --------
945 1,655
============ ========
</TABLE>
The Group is exposed to loss in the event of non-performance by banks under
currency swap and interest rate protection agreements described above. The
extent of this exposure varies with the prevailing interest and currency rates
and was not material throughout the period. No single bank was party as at 31
March 1997 to more than L235 million nominal value of such agreements. The Group
does not anticipate non-performance by any of its counterparties.
Obligations of commercial banks under standby letters of credit totalled L135
million as at 31 March 1997.
F-22
<PAGE> 156
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
19. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
HEALTH CARE RECLAMATION
AND AND
OBLIGATIONS TO ENVIRONMENTAL DEFERRED
EMPLOYEES OBLIGATIONS TANGIBLES OTHER TOTAL
-------------- ------------- --------- ----- -----
(L MILLION)
<S> <C> <C> <C> <C> <C>
As at 1 October 1993 966 378 101 68 1,513
Exchange adjustments (49) (20) (5) (2) (76)
Utilised in year (84) (38) (4) (8) (134)
Provided/(released) in year 84 (8) (5) 2 73
Acquisitions -- (3) -- (1) (4)
-------------- ------------- -------- ----- -----
As at 30 September 1994 917 309 87 59 1,372
Exchange adjustments (3) (1) (2) -- (6)
Utilised in year (68) (43) -- (29) (140)
Provided/(released) in year 65 23 42 36 166
Acquisitions 8 17 86 258 369
-------------- ------------- -------- ----- -----
As at 30 September 1995 919 305 213 324 1,761
Exchange adjustments 12 4 1 -- 17
Utilised in year (80) (43) 7 (62) (178)
Provided/(released) in year 48 19 57 (4) 120
Acquisition adjustment (Note 16) -- -- (86) (77) (163)
-------------- ------------- -------- ----- -----
As at 30 September 1996 899 285 192 181 1,557
Exchange adjustments (43) (14) (9) (1) (67)
Utilised in period (34) (13) (7) (15) (69)
Provided in period 26 22 4 25 77
-------------- ------------- -------- ----- -----
As at 31 March 1997 848 280 180 190 1,498
============== ============= ======== ===== =====
</TABLE>
Deferred tax provided as at 30 September 1996 included L142 million in respect
of liabilities recognised by the Group, consequent upon being on a stand-alone
basis following the Demerger. The provided and unprovided liabilities to
deferred taxation were as follows:
<TABLE>
<CAPTION>
AMOUNTS PROVIDED AMOUNTS UNPROVIDED
----------------------- -----------------------
AS AT AS AT AS AT AS AT
30 SEPTEMBER 31 MARCH 30 SEPTEMBER 31 MARCH
------------ -------- ------------ --------
1996 1997 1996 1997
------------ -------- ------------ --------
(L MILLION)
<S> <C> <C> <C> <C>
Excess of capital allowances 100 87 803 753
Post-retirement healthcare benefits -- -- (226) (215)
Other timing differences 92 93 (200) (220)
------------ -------- ------------ --------
192 180 377 318
============ ======== ============ ========
</TABLE>
F-23
<PAGE> 157
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
20. ACQUISITIONS
During the six months ended 31 March 1997 the Group acquired 52.8 per cent. of
the issued share capital of Teplarny Brno a.s., a heating and generation company
based in the Czech Republic. For the period since acquisition, turnover of L18
million and operating profit of L3 million in respect of this acquisition are
included within the consolidated profit and loss account. The total purchase
consideration for the acquisition of this 52.8 per cent. interest was L21
million. Its operating assets and liabilities were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED 31 MARCH 1997
---------------------------------------
BOOK VALUE ADJUSTMENTS FAIR VALUE
---------- ----------- ----------
(L MILLION)
<S> <C> <C> <C>
Tangible fixed assets 33 10 43
Fixed asset investments 2 -- 2
Working capital (4) (2) (6)
Cash 1 -- 1
---------- ----------- ----------
32 8 40
========== =========== ==========
Cash consideration 21
Minority interest 19
----------
40
==========
The net cash flow for the acquisition was:
Cash consideration 21
Cash acquired (1)
----------
Net cash paid 20
==========
</TABLE>
Fair value adjustments were made to the book value of the assets and liabilities
of the above acquisition to bring them into alignment with the Group's
accounting policies and to adjust where applicable the carrying values of
certain assets and liabilities.
The above figures reflect a preliminary allocation of the purchase consideration
to the net assets and liabilities of the acquisition made in the period. The
preliminary allocation will be reviewed based on additional information up to 31
March 1998. The Directors do not believe that any net adjustments resulting from
such a review would have a material adverse effect on the Group.
For the year prior to acquisition, Teplarny Brno reported profit after tax of L4
million.
There were no significant acquisitions in the year ended 30 September 1994 and
the year ended 30 September 1996.
Eastern was acquired by Hanson on 18 September 1995. As explained above, Eastern
has been included in the balance sheet of the Group as at 30 September 1995 and
in its results from 1 October 1995. The Caballo and Rawhide mines were acquired
by Peabody on 1 November 1994.
F-24
<PAGE> 158
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
20. ACQUISITIONS (CONTINUED)
The operating assets and liabilities of Eastern and the Caballo and Rawhide
mines together with the fair value adjustments were as follows:
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
----------------------------------------------------------------------------------------
1995 1996
------------------------------------------------------------- ------------------------
CABALLO
EASTERN AND RAWHIDE
BOOK MINES TOTAL TOTAL TOTAL TOTAL TOTAL
VALUE BOOK VALUE BOOK VALUE ADJUSTMENTS FAIR VALUE ADJUSTMENTS FAIR VALUE
------- ----------- ---------- ----------- ---------- ----------- ----------
(L MILLION)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed assets 1,106 124 1,230 359 1,589 -- 1,589
Stock 12 10 22 -- 22 -- 22
Debtors 379 2 381 (13) 368 13 381
Cash 264 -- 264 -- 264 -- 264
Unlisted investments 284 -- 284 295 579 44 623
Creditors (392) (10) (402) (17) (419) 17 (402)
Loans and finance leases (688) -- (688) -- (688) -- (688)
Provisions for liabilities
and charges (129) (11) (140) (220) (360) 147 (213)
------- ----------- ---------- ----------- ---------- ----------- ----------
836 115 951 404 1,355 221 1,576
======= =========== ========== =========== ========== =========== ==========
Consideration (Eastern L2,496 million; Caballo and Rawhide L227 million) 2,723 2,723
Goodwill (Eastern) (1,368) (1,147)
---------- ----------
1,355 1,576
========== ==========
</TABLE>
The following fair value adjustments relating to Eastern and the Caballo and
Rawhide mines were made to the book values of the assets and liabilities
acquired:
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
-----------------------------------------------
1995 1996
----------------------------- ---------------
CABALLO
AND RAWHIDE
EASTERN MINES TOTAL EASTERN TOTAL
------- ----------- ----- ------- -----
(L MILLION)
<S> <C> <C> <C> <C> <C>
Tangible fixed assets 242 117 359 -- 359
Unlisted investments 295 -- 295 44 339
Debtors (13) -- (13) 13 --
Liabilities in respect of purchase contracts (129) -- (129) 61 (68)
Creditors (17) -- (17) 17 --
Deferred tax (86) -- (86) 86 --
Other liabilities -- (5) (5) -- (5)
------- ----------- ----- ------- -----
292 112 404 221 625
======= =========== ===== ======= =====
</TABLE>
Goodwill arising at the time of acquisition of Eastern of L1,368 million was
reduced in 1996 by L221 million, principally as a result of the release of
provisions no longer considered necessary.
F-25
<PAGE> 159
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
20. ACQUISITIONS (CONTINUED)
All of the above acquisitions have been accounted for using the acquisition
method of accounting. Had the acquisitions been made at the beginning of the
years in which they were actually made and at the beginning of the respective
previous years, the unaudited pro forma results of operations of the Group would
have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
------------------------
1994 1995
------ ------
(L MILLION)
<S> <C> <C>
Turnover 3,109 3,640
Profit for the year 210 132
Earnings per share 40.3p 25.3p
</TABLE>
The acquisition of Teplarny Brno would not have had a material impact on the
Group's results prior to acquisition.
21. CONTINGENT LIABILITIES
Certain properties in the US in which the Group has or has had an interest are
subject to actual or potential environmental claims. The Directors have made a
L42 million provision, included in provisions for reclamation and environmental
obligations (Note 19), in relation to these claims, but significant uncertainty
exists as to whether these claims will be pursued against the Group in all cases
and, where they are pursued, the amount of the eventual costs and liabilities.
In the event that future costs and liabilities are in excess of amounts accrued,
the Directors do not anticipate that they will have a material adverse effect on
the consolidated results of operations, financial portion or liquidity of the
Group.
In February 1997 final determinations were made against The National Grid
Company plc ("National Grid") and its group trustees by the Pensions Ombudsman
on complaints by two pensioners in National Grid's section of the Electricity
Supply Pension Scheme ("ESPS") relating to the use of the surplus arising under
the actuarial valuation of the National Grid section as at 31 March 1992 to meet
certain additional costs arising from the payment of pensions on early
retirement pursuant to reorganisation or redundancy and certain additional
contributions. These determinations were set aside by the High Court on 10 June
1997 and the arrangements made by National Grid and its trustees in dealing with
its section's surplus were confirmed. The two pensioners have now appealed
against this decision. If a similar complaint were to be made against Eastern in
relation to its use of actuarial surplus in its section of the ESPS, it would
resist it, ultimately through the courts. However, if a determination were
finally to be made against it and upheld by the courts, Eastern could have a
potential liability to repay to its section of the ESPS an amount estimated by
the Directors to be up to L75 million (exclusive of any applicable interest
charges).
The Group is subject to business risks which are actively managed against
exposures.
22. FINANCIAL COMMITMENTS
(a) Capital commitments of the Group were as follows:
<TABLE>
<CAPTION>
AS AT AS AT
30 SEPTEMBER 31 MARCH
1996 1997
------------ --------
(L MILLIONS)
<S> <C> <C>
Contracted but not provided for 83 146
============ ========
</TABLE>
(b) Gas take or pay contracts
There are various types of contracts for the purchase of gas. Almost all include
"take or pay" obligations under which the buyer agrees to pay for a minimum
quantity of gas in a year. In order to help meet the expected needs of its
wholesale and retail customers. Eastern has entered into a range of gas purchase
contracts. As at 31 March 1997 the commitments under long-term gas purchase
contracts amounted to an estimated L2.2 billion (30 September 1996 L2.3 billion)
covering periods up to 18 years forward. The Directors do not consider it
likely, on the basis of the Group's current expectations of demand from its
customers as compared with its take or pay obligations under such purchase
contracts, that any material payments will become due from the Group for gas not
taken.
F-26
<PAGE> 160
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
22. FINANCIAL COMMITMENTS (CONTINUED)
(c) The future minimum rental commitments at 31 March 1997, under finance leases
and non-cancellable operating leases, together with the present value of minimum
lease payments under finance leases were as follows:
<TABLE>
<CAPTION>
OPERATING FINANCE
YEAR ENDING 31 MARCH LEASES LEASES
-------------------- --------- -------
(L MILLION)
<S> <C> <C>
1998 22 16
1999 66 19
2000 62 20
2001 38 18
2002 36 17
thereafter 120 121
--------- -------
Total minimum lease payments 344 211
=========
Less amount representing interest (56)
-------
Present value of minimum lease payments 155
=======
</TABLE>
The majority of the operating lease commitments relate to coal-fired power
stations. Additional payments of approximately L6 per megawatt hour (indexed)
linked to output levels from these stations are payable for between the first
five and seven years of their operation by the Group.
(d) The annual commitments under non-cancellable operating leases at 30
September 1996 and 31 March 1997 were:
<TABLE>
<CAPTION>
30 SEPTEMBER 1996 31 MARCH 1997
------------------ ------------------
LAND AND LAND AND
BUILDINGS OTHER BUILDINGS OTHER
--------- ----- --------- -----
(L MILLION)
<S> <C> <C> <C> <C>
Leases expiring
Within one year -- -- -- --
Within two to five years -- 9 2 5
After five years 2 29 1 14
--------- ----- --------- -----
2 38 3 19
========= ===== ========= =====
</TABLE>
23. PENSION AND POST-RETIREMENT HEALTHCARE
PENSIONS
The Group participates in several defined benefit pension plans in the UK, the
US and Australia which cover the majority of employees. The benefits for these
plans are based primarily on years of credited service and final average
pensionable pay as defined under the respective plan provisions.
The total cost of all pensions of the Group in the years ended 30 September
1994, 1995 and 1996 and the six months ended 31 March 1997, was L14 million, L13
million, L17 million and L10 million, respectively. The amount for 1996 includes
L4 million relating to UK employees and L10 million in respect of additional
one-off cash retirement costs for US employees.
In the US, Peabody sponsors four main defined benefit pension plans. With the
exception of one plan, assets are set aside in separate trustee-administered
funds. Each of these plans is assessed annually by independent qualified
actuaries using the projected unit method, the latest valuations being as at 30
September 1996. In addition, Peabody participates in two multi-employer plans.
In these plans, the assets contributed by the participating employers are
aggregated and the contributions payable are determined by independent qualified
actuaries in accordance with industry-wide agreements. Peabody also has a number
of defined contribution plans. Costs relating to the multi-employer and the
defined contribution plans are recognised as incurred.
F-27
<PAGE> 161
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
23. PENSION AND POST-RETIREMENT HEALTHCARE (CONTINUED)
In the UK, the majority of Eastern employees are members of the ESPS which
provides pensions of a defined benefit nature for employees throughout the
Electricity Supply industry. The ESPS operates on the basis that there is no
cross-subsidy between employers and the financing of Eastern's pension
liabilities is therefore independent of the experience of other participating
employers. The assets of the ESPS are held in a separate trustee-administered
fund.
The pension cost relating to the Eastern part of the ESPS is assessed in
accordance with the advice of independent qualified actuaries using the
projected unit method. The latest actuarial valuation was carried out as at 31
March 1995.
The total market value of the assets of the US plans, excluding the
multi-employer and defined contribution plans, was L255 million as at 30
September 1996. The market value of the assets of Eastern's section of the ESPS
was L681 million at 31 March 1995.
The assumptions which had the most significant effect on the results of the
valuations were that the rate of investment return would exceed salary increases
(exclusive of merit awards) by 2 1/2 per cent. per annum for the UK plans and by
an average 3 1/2 per cent. per annum in the US, and with investment returns in
the UK being assumed to exceed future pension increases by 4 per cent. per
annum. The actuarial value of the assets was sufficient to cover 104 per cent.
of the benefits that had accrued to members in the UK and 98 per cent. in the
US.
Provisions for liabilities and charges (Note 19) include a provision of L4
million (provision of L1 million at 30 September 1994 and L10 million at 30
September 1995, prepayment of L1 million at 30 September 1996) representing the
excess of the accumulated amount charged against the Group's profits in respect
of pension costs over the contributions paid to the plans concerned.
POST-RETIREMENT HEALTHCARE
The Group also provides post-retirement health care and life assurance benefits
under plans mainly in the US to certain groups of its retired and active
employees.
As at 31 March 1997 the accumulated post-retirement benefit obligation excluding
pensions, as assessed by independent qualified actuaries, for retirees and the
obligation for prior service costs of currently active employees is
approximately L576 million. The charge for the six months ended 31 March 1997
has been accrued based upon actuarial calculations determined in accordance with
required accounting standards. This resulted in the recognition of service costs
for benefits earned during the period of approximately L2 million, and interest
cost on accumulated benefit obligations of approximately L21 million. The
actuarial assumptions used to estimate the obligations vary according to the
claims experience and economic conditions relevant to each plan. It has been
assumed that the annual per capita cost of benefits will increase 6-8 per cent.
depending on claims experience and economic conditions relevant to each plan.
This rate is assumed to decrease 1/2 per cent. a year to 5 per cent. The
weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7 1/2 per cent. as at 31 March 1997.
24. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
-------------------------- ----------
1994 1995 1996 1997
----- ----- ------ ----------
(L MILLION)
<S> <C> <C> <C> <C>
Operating profit before exceptional items 99 135 446 317
Depreciation and depletion 113 119 197 100
Profit on sale of fixed assets (4) (8) (16) (3)
Share of profit of associated undertaking -- -- -- (2)
Increase in investments -- -- -- (2)
Increase in stocks (11) (19) (93) (8)
(Increase)/decrease in debtors (62) 197 (94) (83)
Operating lease prepayments -- -- (342) --
Increase/(decrease) in creditors 60 (6) 36 50
Decrease in provisions and other long-term creditors (52) (16) (122) (23)
----- ----- ------ -------
Net cash inflow from operating activities 143 402 12 346
===== ===== ====== =======
</TABLE>
F-28
<PAGE> 162
<TABLE>
<CAPTION>
LONG-TERM
LOANS CURRENT
AND FINANCES LOAN
SHARE LEASE AND NOTES
CAPITAL OBLIGATIONS PAYABLE TOTAL
------- ------------ ---------- -------
(L MILLION)
<S> <C> <C> <C> <C>
As at 1 October 1993 -- 245 51 296
Exchange adjustments -- (12) -- (12)
Cash (outflow)/inflow from financing -- (9) 36 27
---- ------- ----- -------
As at 30 September 1994 -- 224 87 311
Exchange adjustments -- (1) 1 --
Cash inflow/(outflow) from financing -- -- (20) (20)
Loans and finance lease obligations of Eastern -- 688 -- 688
---- ------- ----- -------
As at 30 September 1995 -- 911 68 979
Exchange adjustments -- 3 3 6
Cash inflow from financing -- 31 97 128
---- ------- ----- -------
As at 30 September 1996 -- 945 168 1,113
Additional net debt at 1 October 1996 -- -- 381 381
Non-cash demerger share issue 52 -- -- 52
Additional debt on demerger -- -- 42 42
Exchange movements -- (12) (9) (21)
Cash inflow from financing -- 789 149 938
Other movements -- (54) (6) (60)
Current loan reallocations -- (13) 13 --
---- ------- ----- -------
Balance as at 31 March 1997 52 1,655 738 2,445
==== ======= ===== =======
</TABLE>
Other movements principally comprise the debt of Black Beauty Coal Company which
is now accounted for on an equity accounting basis (see Note 13).
In 1996 the Group distributed its shareholding in National Grid Group to Hanson
as a dividend in specie of L393 million which is reflected in invested capital.
Analysis of net inflow/(outflow) of cash and cash equivalents in respect of the
acquisition of subsidiaries:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
------------------------ ----------
1994 1995 1996 1996
------ ------ ------ ----------
(L MILLION)
<S> <C> <C> <C> <C>
Cash consideration for Eastern -- (1) (2,495) --
Cash consideration for the Caballo and Rawhide mines -- (227) -- --
Cash consideration for Teplarny Brno -- -- -- (21)
Deposits acquired on acquisition of Eastern -- 264 -- --
Cash acquired on acquisition of Teplarny Brno -- -- -- 1
------ ------ ------ ----------
-- 36 (2,495) (20)
====== ====== ====== ==========
</TABLE>
F-29
<PAGE> 163
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
26. ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
DEBT DUE DEBT DUE
AFTER WITHIN SHORT-TERM
CASH OVERDRAFTS 1 YEAR 1 YEAR DEPOSITS TOTAL
---------- ---------- ---------- ---------- ---------- ----------
(L MILLION)
<S> <C> <C> <C> <C> <C> <C>
As at 1 October 1993 79 -- (245) (51) -- (217)
Exchange adjustments (1) -- 12 -- -- 11
Net cash flow 28 -- 9 (36) -- 1
---------- ---------- ---------- ---------- ---------- ----------
As at 30 September 1994 106 -- (224) (87) -- (205)
Exchange adjustments -- -- 1 (1) -- --
Net cash flow 237 -- -- 20 -- 257
Loans and finance leases
acquired -- -- (688) -- -- (688)
---------- ---------- ---------- ---------- ---------- ----------
As at 30 September 1995 343 -- (911) (68) -- (636)
Exchange adjustments 3 -- (3) (3) -- (3)
Net cash flow (173) (119) (31) (97) -- (420)
---------- ---------- ---------- ---------- ---------- ----------
As at 30 September 1996 173 (119) (945) (168) -- (1,059)
Pro forma additional debt at 1
October 1996 -- -- -- (381) -- (381)
---------- ---------- ---------- ---------- ---------- ----------
Pro forma net debt at 1 October
1996 173 (119) (945) (549) -- (1,440)
Additional debt on demerger -- -- -- (42) -- (42)
Exchange adjustments (8) -- 12 9 -- 13
Net cash flow 221 58 (789) (149) 753 94
Other movements (1) -- 67 (7) -- 59
---------- ---------- ---------- ---------- ---------- ----------
As at 31 March 1997 385 (61) (1,655) (738) 753 (1,316)
========== ========== ========== ========== ========== ==========
</TABLE>
27. RECONCILIATION OF NET CASH FLOW MOVEMENT TO MOVEMENT IN NET DEBT (NOTE 26)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
------------------------------------ ----------
1994 1995 1996 1997
---------- ---------- ---------- ----------
(L MILLION)
<S> <C> <C> <C> <C>
Net cash inflow/(outflow) in period 28 237 (292) 279
Increase in liquid cash resources -- -- -- 753
Change in debt resulting from cash flows (27) 20 (128) (938)
---------- ---------- ---------- ----------
1 257 (420) 94
Additional debt on the Demerger -- -- -- (42)
Other movements -- (688) -- 59
Exchange movements 11 -- (3) 13
---------- ---------- ---------- ----------
Movement in net debt in period 12 (431) (423) 124
Opening net debt (217) (205) (636) (1,059)
Opening additional net debt -- -- -- (381)
---------- ---------- ---------- ----------
Closing net debt (205) (636) (1,059) (1,316)
========== ========== ========== ==========
</TABLE>
28. RELATED PARTY TRANSACTIONS
During the six months ended 31 March 1997, a subsidiary of the Group has
purchased coal from Black Beauty Coal Company, a partnership in which the Group
has a 33 per cent. investment. The subsidiary purchased 37,645 tons of coal at a
cost of approximately L1 million during the six months ended 31 March 1997.
F-30
<PAGE> 164
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
28. RELATED PARTY TRANSACTIONS (CONTINUED)
Prior to the Demerger, the Group did not operate as a separate group, and
consequently there were a number of related party transactions between it and
the Hanson Group. These include transactions in respect of treasury, insurance,
taxation and other central services supplied by the Hanson Group to the Group.
These transactions have not been identified individually as it is not practical
to do so.
Hanson has agreed to provide the Group with business development and consultancy
services in the Far East for a period of three years following the Demerger. The
amounts payable for these services are not material.
29. EMPLOYEE SHARE PLANS
The Group has the following employee share plans:
(a) The Energy Group Sharesave Scheme which is available to all UK based
employees of participating companies within the Group and those directors
who are employees of participating companies and who devote more than 25
hours a week to their duties. Employees who participate in this scheme
have to enter into a monthly savings contract.
(b) The Energy Group Executive Share Option Scheme which is administered by
the Remuneration Committee of the Board of Directors of the Company ("the
Remuneration Committee") and is available at its discretion to employees
of the Group and those directors (other than Directors of the Company) who
devote more than 25 hours a week to their duties.
(c) The Energy Group Long-term Incentive Plan operates in conjunction with the
Company's Employee Benefit Trust. The Plan is supervised and administered
by the Remuneration Committee. The Plan may be made available to all
employees and directors of the Group at the discretion of the Remuneration
Committee, but the current intention is to limit it to the executive
directors of the Company and certain senior executives of the Group.
(d) The Energy Group Employee Benefit Trust is for the benefit of employees,
ex-employees and the spouses and dependants of such employees or
ex-employees of the Group. The purpose of the Trust is to facilitate and
encourage ownership of the Company's shares.
(e) The Peabody Plans are voluntary plans open to all applicable US based
employees of Peabody (one plan is also open to hourly paid employees).
Share options outstanding at 31 March 1997:
<TABLE>
<CAPTION>
NUMBER EXERCISE
OUTSTANDING PRICE (PENCE)
----------- -------------
<S> <C> <C>
Executive share options 1,624,572 547.5
Sharesave scheme 871,797 465.0
Sharesave scheme 5,168,260 438.0
</TABLE>
The options listed above were all granted between 25 February and 31 March 1997.
No options lapsed or were exercised prior to 31 March 1997.
30. DIFFERENCES BETWEEN UK GAAP AND US GAAP
The financial statements have been prepared under UK GAAP which differ in
certain respects from US GAAP.
The following is a summary of the principal differences between UK GAAP and US
GAAP that are significant to the Group and adjustments to profit for the year
end equity shareholders' funds (shareholders' equity reserves) which would be
required if the financial statements were to be restated under US GAAP.
GOODWILL
Under UK GAAP, goodwill arising on the acquisition of a subsidiary is set off
against reserves in the year in which that subsidiary is acquired. Under US
GAAP, such goodwill is capitalized and amortized through the profit and loss
account over its estimated useful life, not exceeding 40 years. For the purposes
of the reconciliations set out below, an estimated useful life of 25 years has
been adopted. Under UK GAAP, the gain or loss on the sale of a subsidiary
includes any goodwill previously set off against reserves. Under US GAAP, such
gain or loss includes any unamortized
F-31
<PAGE> 165
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
30. DIFFERENCES BETWEEN UK GAAP AND US GAAP (CONTINUED)
goodwill relating thereto. For US GAAP purposes, the carrying amount of goodwill
is periodically compared with future potential cash flows over the remaining
amortization period.
TAXATION
Under UK GAAP, deferred tax is provided using the liability method for all
timing differences to the extent that it is probable that the liability will
crystallize in the foreseeable future. US GAAP require deferred taxation to be
provided in full, using the liability method on all temporary differences
between the tax and book bases of assets and liabilities.
Under US GAAP, valuation allowances with respect to deferred tax assets are
provided when it is considered more likely than not that all or a portion of the
deferred tax assets will not be realized. As discussed in Note 9, the tax borne
by the Group may not be representative of the charges it will incur following
Demerger and thus differs from the amount the Group in the three years ended 30
September 1996 would have borne as a stand-alone entity. US GAAP require taxes
to be allocated among the members of a group if they prepare separate financial
statements.
PENSION PLANS
Under both UK GAAP and US GAAP, the cost of providing pensions under the Group's
defined benefit schemes is charged to the consolidated profit and loss account
over the employees' service lives. US GAAP require that the projected benefit
obligations be matched against the fair value of the schemes' assets and that
adjustments be made to reflect any unrecognised obligations or assets in
determining the pension cost or credit for the period. US GAAP also prescribe
the basis for determining curtailment costs. In connection with the acquisition
of Eastern, under US GAAP, a prepaid pension cost of L119 million, equal to the
excess of Eastern's pension scheme assets over the related projected benefit
obligation at 30 September 1995, has been recognised.
PROVISION FOR RESTRUCTURING AND REORGANISATION
Under UK GAAP, the Group charged L20 million against profit in the six months
ended 31 March 1997 (and L29 million in the year ended 30 September 1995) in
relation to provisions for restructuring and reorganisation. Under US GAAP these
provisions would not have been permitted. The 1995 provision was reversed under
UK GAAP in the year ended 30 September 1996 as it was no longer required.
Accordingly, under US GAAP, this reversal has been removed in the reconciliation
below.
IMPAIRMENT OF LONG-LIVED ASSETS
The Group's accounting policy for impairment of long-lived assets was adopted
for the first time in the year ended 30 September 1996. This policy accords with
the requirements of Statement of Financial Accounting Standards ("SFAS") No.
121. Under UK GAAP, the change in accounting policy has been treated as a prior
year adjustment and, accordingly, the financial statements have been presented
on the basis of the revised policy with the effect of the change on prior years
reflected in invested capital at 1 October 1993. Under US GAAP, impairment
losses resulting from the application of SFAS 121 to assets to be held and used
are reported in the period in which the recognition criteria are first applied
and met as a component of continuing operations.
SUBORDINATED INCOME NOTE
Under UK GAAP, the 5 per cent. subordinated income note 2006 is recorded at its
nominal amount. Under US GAAP, this income note has been discounted at a rate of
13 per cent. per annum.
DIVIDEND
Under UK GAAP, dividends are recorded in the financial statements for the period
to which they relate. Under US GAAP, dividends are not recorded until they are
declared.
EXCEPTIONAL ITEMS
Under UK GAAP, the exceptional effects of the flotation of National Grid Group
have been shown separately in the consolidated profit and loss account and
operating profit and earnings per ordinary share are disclosed both before and
after this effect. Further, the gain on sale of First Hydro is reported as a
non-operating exceptional item after operating profit. Under US GAAP, the gain
on sale of First Hydro would have been included in the determination of
operating profit and disclosure of operating profit and earnings per ordinary
share before and after exceptional items is not permitted.
F-32
<PAGE> 166
PROFIT FOR THE YEAR/PERIOD
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
------------------------ ----------
1994 1995 1996 1997
----- ----- ------ ----------
(L MILLION)
<S> <C> <C> <C> <C>
Profit for the year/period as reported in the
consolidated profit and loss accounts 68 68 357 179
Significant adjustments:
Discount on subordinated income note (6) (6) (7) (7)
Goodwill amortization -- -- (55) (23)
Impairment of long lived assets (3) (3) (578) --
Restructuring and reorganisation provision -- 29 (29) 20
Pensions -- -- 5 5
Taxation--stand-alone adjustment (9) 17 (2) (6)
Deferred taxation:
Effect of the above adjustments 1 (8) 242 (9)
Effect of differences in methodology (3) (7) (41) 18
---- ---- ----- --------
Profit/(loss) for the period (net income/(loss)) as
adjusted to accord with US GAAP 48 90 (108) 177
==== ==== ===== ========
Per ordinary share as so adjusted 9.2p 17.3p (20.7)p 34.1p
Per American Depositary Share as so adjusted 36.8p 69.2p (82.8)p 136.4p
Number of shares used in computing per ordinary share
amounts (millions) 521 521 521 519
==== ==== ===== ========
</TABLE>
Note: Each American Depositary Share represents four ordinary shares.
INVESTED CAPITAL/SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
AS AT AS AT
30 SEPTEMBER 31 MARCH
------------ --------
1996 1997
------------ --------
(L MILLION)
<S> <C> <C>
Invested capital/shareholders' equity as reported in the
consolidated balance sheets 2,185 1,845
Significant adjustments:
Goodwill--cost 1,147 1,147
--amortization (55) (78)
Tangible fixed assets -- --
Subordinated income note 67 60
Restructuring and reorganization provision -- 20
Pensions 124 132
Fixed asset investments--own shares -- (11)
Taxation--stand-alone adjustment 6 --
Dividend -- 29
Deferred taxation:
Effect of the above adjustments (41) (50)
Effect of differences in methodology (377) (381)
------------ --------
Invested capital/shareholders' equity as adjusted to accord
with US GAAP 3,056 2,713
============ ========
</TABLE>
F-33
<PAGE> 167
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
30. DIFFERENCES BETWEEN UK GAAP AND US GAAP (CONTINUED)
CONSOLIDATED CASH FLOW STATEMENT
The consolidated statements of cash flows present substantially the same
information as that required under US GAAP. UK GAAP and US GAAP differ, however,
with regard to classification of items within the statements and as regards the
definition of cash and cash equivalents.
In 1996 the UK Accounting Standards Board revised the UK Financial Reporting
Standard No. 1, "Cash Flow Statements". The consolidated cash flow statement for
the six months ended 31 March 1997 set out on page F-4 has been prepared in
conformity with the revised standard and prior years have been restated to
conform with the new presentation. The principal differences between this
statement and cash flow statements presented in accordance with US GAAP are as
follows:
1. Under UK GAAP, net cash flow from operating activities is determined before
considering cash flows from (a) returns on investments and servicing of
finance and (b) taxes paid. Under US GAAP, net cash flow from operating
activities is determined after these items.
2. Under UK GAAP, capital expenditure is classified separately, while under US
GAAP, it is classified as an investing activity.
3. Under UK GAAP, dividends are classified separately, while under US GAAP,
dividends are classified as financing activities.
4. Under UK GAAP, movements in short-term investments are not included in cash,
but classified as management of liquid resources. Under US GAAP, short-term
investments with a maturity of three months or less at the date of
acquisition are included in cash.
The categories of cash flow activity under US GAAP can be summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
-------------------------- ----------
1994 1995 1996 1997
------ ------ ------ ----------
(L MILLION)
<S> <C> <C> <C> <C>
Cash flows from operating activities 119 387 (30) 216
Cash outflows on investing activities (84) (338) (2,348) (801)
Cash flows from financing activities (34) (77) 2,418 938
------ ------ ------ -------
Decrease/(increase) in cash and cash equivalents 1 (28) 40 353
Effect of foreign exchange rate changes (2) -- -- (8)
Cash and cash equivalents as at start of period 29 28 -- 40
------ ------ ------ -------
Cash and cash equivalents as at end of period 28 -- 40 385
====== ====== ====== =======
</TABLE>
F-34
<PAGE> 168
OPERATING PROFIT
Operating profit under US GAAP is derived as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
-------------------------------------- ----------
1994 1995 1996 1997
---------- ---------- ---------- ----------
(L MILLION)
<S> <C> <C> <C> <C>
Operating profit under UK GAAP 99 135 490 297
Profit on disposal of First Hydro -- -- 25 --
Goodwill amortization -- -- (55) (23)
Restructuring and reorganisation provision -- 29 (29) 20
Pensions -- -- 5 5
Impairment of long-lived assets (3) (3) (578) --
---------- ---------- ---------- ----------
Operating profit/(loss) under US GAAP 96 161 (142) 299
========== ========== ========== ==========
Comprising:
Coal 99 157 (424) 66
Power -- -- 83 129
Networks -- -- 216 127
Other (3) 4 (17) (23)
---------- ---------- ---------- ----------
96 161 (142) 299
========== ========== ========== ==========
</TABLE>
ADDITIONAL INFORMATION ABOUT PROFITS BEFORE TAXATION REQUIRED BY US GAAP
Profit before taxation:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED 31 MARCH 1997
(L MILLION)
<S> <C>
United Kingdom 194
Other 66
------
260
======
</TABLE>
The interest expense prior to the Demerger was affected significantly by the
financing arrangements of Hanson. Accordingly the allocation of interest expense
between the United Kingdom and Other for periods ending on or before 30
September 1996 is not considered meaningful. Consequently the analysis of profit
before taxation is only presented here for the six months ended 31 March 1997.
ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS REQUIRED BY US GAAP
Contracts for differences and electricity forward agreements
Almost all electricity generated in England and Wales must be sold to the Pool,
and electricity suppliers must likewise generally buy electricity from the Pool
for resale to their customers. The Pool is operated under a Pooling and
Settlement Agreement to which all licensed generators and suppliers of
electricity in Great Britain are party.
The Eastern Group utilizes contracts for differences ("CfDs") and electricity
forward agreements ("EFAs") to manage its net exposure to fluctuations in
electricity pool prices. CfDs and EFAs are contracts which fix the price of
electricity for an agreed quantity and duration by reference to an agreed strike
price. EFAs are similar in nature to CfDs, except that they tend to last for
shorter time periods and are based on standard industry terms rather than being
individually negotiated. Long-term CfDs are in place to hedge a proportion of
electricity purchases up to 2009. Up until 1998 the costs of such CfDs are
passed through to customers as part of franchise tariffs. From 1998 such CfDs
represent an annual commitment of approximately five terawatt hours ("TWh"),
falling on a linear basis to two TWh by 2005 and finally expiring in 2010. There
are no similar long-term commitments under EFAs.
F-35
<PAGE> 169
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
30. DIFFERENCES BETWEEN UK GAAP AND US GAAP (CONTINUED)
Estimates of the fair value of these contracts would be based upon assumptions
of a number of complex factors, in particular the anticipated long-term level of
Pool prices and appropriate market discount rates. It is not possible to
estimate the long-term level of Pool prices with reasonable accuracy because of
their inherent volatility. In addition, there is no readily identifiable market
through which they could be realised in an exchange. In view of the foregoing,
it is not practicable to ascribe a fair value of these contracts.
Approximately 60 per cent by volume of all of the Group's CfDs and EFAs in the
six months ended 31 March 1997 were contracted with National Power plc and
PowerGen plc.
Interest rate swaps
Interest rate swaps are used by the Group to convert fixed into floating rate
debt. The Group is exposed to credit loss in the event of non-performance by the
counterparties to the interest rate swaps. This exposure is managed by selecting
counterparties based on their credit ratings and by monitoring total exposure to
each counterparty.
Fair value of financial instruments
US GAAP require the disclosure of estimated fair values for all financial and
derivative financial instruments for which it is practicable to estimate that
value. The carrying amounts and fair values of the material financial
instruments of the Group are as follows:
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER AS AT 31 MARCH
1996 1997
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(L MILLION)
<S> <C> <C> <C> <C>
Assets
Fixed asset investments 17 17 72 72
Current asset investments 8 8 10 10
Short-term deposits -- -- 753 753
Cash 173 173 385 385
Liabilities
Bank overdrafts, short-term loans and commercial
paper 277 277 793 793
Long-term debt 792 782 1,506 1,502
Off balance sheet instruments interest rate swaps -- 11 -- 5
</TABLE>
The following methods and assumptions were used to determine the above fair
values:
(i) Because of the unusual and specific nature of the fixed asset investments
it is not considered practicable to estimate their fair value;
(ii) The carrying amounts of current asset investments, short-term deposits and
cash approximate their fair value;
(iii) The fair value of the 5 per cent. subordinated income note 2006 is based
on estimated borrowing rates used to discount the cash flows to their
present value. The fair value of the investment bonds is based on their
quoted mid-market prices and excludes the value of the interest rate
swaps; and
(iv) The fair value of the interest rate swaps is based on the cancellation
value of each swap quoted by the relevant bank counterparty.
F-36
<PAGE> 170
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
30. DIFFERENCES BETWEEN UK GAAP AND US GAAP (CONTINUED)
ADDITIONAL DEFERRED TAX INFORMATION REQUIRED BY US GAAP
The components of the estimated net deferred tax liability that would be
recognised under US GAAP are as follows:
<TABLE>
<CAPTION>
AS AT AS AT
30 SEPTEMBER 31 MARCH
------------ --------
1996 1997
------------ --------
(L MILLION)
<S> <C> <C>
Deferred taxation liabilities
Excess of book value over taxation value of fixed assets 885 866
Other temporary differences 167 33
------ -------
1,052 899
------ -------
Deferred taxation assets
Taxation effect of losses carried forward (2) (7)
Other temporary differences (563) (389)
------ -------
(565) (396)
Less: valuation adjustment 133 108
------ -------
(432) (288)
------ -------
Net deferred tax liability 620 611
====== =======
Of which:
Current (23) (25)
Non-current 643 636
------ -------
620 611
====== =======
</TABLE>
ADDITIONAL PENSIONS AND POST-RETIREMENT HEALTHCARE BENEFITS INFORMATION REQUIRED
BY US GAAP
Pensions
The long-term assumptions used in accounting for pension costs under US GAAP
were:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
----------------------- ----------
1994 1995 1996 1997
----- ----- ----- ----------
% % % %
<S> <C> <C> <C> <C>
US plans:
Expected long-term rate of return on assets 9.0 9.0 9.0 9.0
Rate of salary increases 4.5 4.3 4.3 3.8
Discount rate 8.5 7.5 7.5 7.5
UK plans:
Expected long-term rate of return on assets -- 9.0 9.0 8.5
Rate of salary increases -- 6.5 6.5 5.0
Discount rate -- 9.0 9.0 8.0
Pension increases -- 5.0 5.0 4.0
</TABLE>
F-37
<PAGE> 171
The net periodic cost calculated in accordance with US GAAP, included the
following components:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
-------------------------------------- ----------
1994 1995 1996 1997
---------- ---------- ---------- ----------
(L MILLION)
<S> <C> <C> <C> <C>
Defined benefit plans:
Service cost-benefits earned during the
period 7 7 23 8
Interest cost on projected benefit
obligations 17 18 74 38
Actual return on plan assets (18) (18) (86) (48)
Net amortisation and deferral 1 -- (1) 1
----- ----- ----- -----
Net periodic cost 7 7 10 (1)
Less employees' contributions -- -- (6) --
----- ----- ----- -----
Group's pension cost 7 7 4 (1)
Additional cost on curtailment under SFAS 88 -- -- 10 --
Defined contribution plans 3 3 3 1
Multi-employer plans 3 3 3 1
----- ----- ----- -----
Total expenses under US GAAP 13 13 20 1
===== ===== ===== =====
</TABLE>
The following table sets forth the funded status and amounts recognised in the
combined balance sheet at 31 March 1997 and 30 September 1996 for the Group's
defined pension plans excluding multi-employer plans. Of the total amounts of
assets shown in the note, approximately 25 per cent. applies to US defined
benefit plans.
Under purchase accounting, a fair value adjustment of L119 million, equal to the
excess of Eastern's pension plan assets over the projected benefit obligation,
was included as a prepaid pension cost under US GAAP at 30 September 1995.
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER 1996 AS AT 31 MARCH 1997
----------------------------- -----------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(L MILLION)
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation 814 34 647 236
Non-vested benefit obligation 9 6 -- 16
------ ----- ----- -----
Accumulated benefit obligation 823 40 647 252
====== ===== ===== =====
Projected benefit obligation 895 47 697 274
Plan assets at fair value 1,025 27 844 251
------ ----- ----- -----
Plan assets in excess of/(less than)
projected benefit obligation 130 (20) 147 (23)
Unrecognised prior service costs (1) 4 -- 5
Unrecognised net gain/(loss) 10 7 1 13
Unrecognised net (asset) obligation at
transition -- -- -- --
Adjustment required to recognise minimum
liability -- (5) -- (6)
Tax effect of liability of pension plans
recorded at acquisition date -- -- -- --
------ ----- ----- -----
Prepaid (accrued) pension cost recognised
in the balance sheet 139 (14) 148 (11)
====== ===== ===== =====
Prepaid/(accrued) pension cost recognised
under UK GAAP 16 15 5 (11)
US GAAP adjustment 123 (1) 143 --
------ ----- ----- -----
Prepaid (accrued) pension cost recognised
under US GAAP 139 (14) 148 (11)
====== ===== ===== =====
</TABLE>
F-38
<PAGE> 172
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
30. DIFFERENCES BETWEEN UK GAAP AND US GAAP (CONTINUED)
Post-retirement healthcare
The Group also provides post-retirement healthcare and life insurance benefits
under plans mainly in the US to certain groups of its retired and active
employees.
The long-term assumptions used were:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED 30 SEPTEMBER ENDED 31 MARCH
--------------------------------------------------- ---------------
1994 1995 1996 1997
--------------- --------------- --------------- ---------------
% % % %
<S> <C> <C> <C> <C>
Healthcare cost trend rate:
Age under 65 9.9 down to 5.5 9.4 down to 5.0 8.6 down to 5.0 8.0 down to 5.0
over 9 years over 8 years over 7 years over 6 years
Age over 65 7.7 down to 5.5 7.4 down to 5.0 7.0 down to 5.0 6.7 down to 5.0
over 9 years over 8 years over 7 years over 6 years
Medicare 6.8 down to 5.5 6.7 down to 5.0 6.3 down to 5.0 6.0 down to 5.0
over 9 years over 8 years over 7 years over 6 years
Discount rate 8.5 7.5 7.5 7.5
</TABLE>
The health care cost trend rate assumption has a significant effect on the
amounts reported. Increasing the assumed health care cost trend rates
one-percentage-point in each year would increase the accumulated postretirement
benefit obligation as of 31 March 1997 by L73.0 million. The effect of this
change on the aggregate of the service cost and interest cost components of net
periodic post retirement benefit costs for the six months ended 31 March 1997
would be an increase of L3.5 million.
The post-retirement benefit cost included the following components:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
------------------------------------ ----------
1994 1995 1996 1997
---------- ---------- ---------- ----------
(L MILLION)
<S> <C> <C> <C> <C>
Service cost 7 7 8 2
Interest cost 36 40 40 21
Amortisation of transition obligation 1 -- -- --
Net amortisation and deferral -- (6) (13) (6)
--- --- ----- ---
Group's post-retirement benefit cost 44 41 35 17
=== === ===== ===
</TABLE>
The provisions for post-retirement healthcare and life insurance benefits
included in Note 19 are derived as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED 30 SEPTEMBER 31 MARCH
------------------------------------ ----------
1994 1995 1996 1997
---------- ---------- ---------- ----------
(L MILLION)
<S> <C> <C> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees 277 312 330 343
Fully eligible plan participants 93 65 63 168
Other active plan participants 151 180 185 65
----- ----- ----- -----
521 557 578 576
Unrecognized net gain/(loss) 26 (19) (30) (39)
Unrecognized prior service cost -- 23 25 16
Unrecognized transition obligation (13) -- -- --
----- ----- ----- -----
Accrued post-retirement benefit cost recognized
in the balance sheet 534 561 573 553
===== ===== ===== =====
</TABLE>
F-39
<PAGE> 173
FINANCIAL STATEMENTS -- SECTION 1: THE GROUP
- --------------------------------------------------------------------------------
30. DIFFERENCES BETWEEN UK GAAP AND US GAAP (CONTINUED)
ADDITIONAL INFORMATION ABOUT IMPAIRMENT OF LONG-LIVED ASSETS REQUIRED US GAAP
SFAS 121 requires impairment losses to be recognised on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated under various assumptions by those assets
are less than the assets' carrying amount, impairment losses under SFAS 121 are
measured by comparing the estimated fair value of the assets to their carrying
amount.
During the course of its financial year ended 30 September 1996, Hanson
commissioned independent valuations of each of its principal operating
businesses in connection with formulating its plans for their possible demerger.
These indicated, inter alia, possible impairment in certain of the Group's US
coal assets, arising from the cumulative effects of the Clean Air Amendments Act
1990 and weak demand and lower prices in certain markets. As a result, a
detailed evaluation of the Group's US coal assets was undertaken in accordance
with the principles laid down by SFAS 121.
Under US GAAP, a non-cash charge of L578 million would be recorded in the year
ended 30 September 1996 as a result of adopting the evaluation methodology of
SFAS 121, principally related to impairment of certain inactive and undeveloped
coal reserves.
Under US GAAP, prior to the adoption of SFAS 121, asset impairment was evaluated
at an operating company level based on the contribution of operating profits and
undiscounted cash flows being generated from those operations. Under the Group's
previous policy, assets used in operations, which consisted of multiple
operating companies, were evaluated for impairment based on gross margins and
cash flows generated by each separate operating company in a given business
cycle. No reduction in carrying value was required since, on that basis,
earnings and cash flows indicated no impairment in asset value.
SFAS 121 requires the impairment review to be performed at the lowest level of
asset grouping for which there are identifiable cash flows, a change from the
higher level at which the Group's previous accounting policy measured
impairment. The Group's economic grouping of assets was based on the markets in
which the operations compete, and in the coal segment consisted of both active
and inactive mines, as well as undeveloped properties. Evaluation of assets at
the lower grouping level indicated an impairment of certain of those assets.
This policy does not allow off-setting of surpluses from assets whose future
cash flows exceed current book values. Where shortfalls in cash flows compared
to carrying values arise, the assets are written down to fair value, determined
by discounted future cash flows from the assets or estimated current market
values.
CONCENTRATION OF CREDIT RISK
The Directors did not consider there to be any significant concentration of
credit risk as at 31 March 1997.
IMPACT OF NEW ACCOUNTING STANDARDS
Environmental remediation liabilities
Statement of Position No. 96-1 "Environmental Remediation Liabilities" ("SOP
96-1") was issued in October 1996. The statement provides authoritative guidance
on specific accounting issues that are present in the recognition, measurement,
display and disclosure of environmental liabilities. The provisions of the
statement are effective for fiscal years beginning after 15 December 1996. SOP
96-1 is not expected to have a material impact on the financial position or
results of operations of the Group presented under US GAAP.
Earnings per share
In February 1997, FAS 128 "Earnings per Share" was issued. The provisions of
this statement must be adopted for accounting periods ending after 15 December
1997. Earlier adoption is not permitted. FAS 128 simplifies the provisions
relating to the computation of earnings per share ("EPS") previously found in
APB Opinion No. 15 "Earnings per Share" ("APB 15"). It replaces the presentation
of primary EPS with basic EPS and requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. EPS for US GAAP purposes are not computed using the
methodology prescribed by APB 15 as the impact of doing so is not material. The
adoption of FAS 128 by the Company is not expected to have any material impact
on the EPS amounts previously reported under US GAAP.
F-40
<PAGE> 174
FINANCIAL STATEMENTS -- SECTION 1: THE GROUP
- --------------------------------------------------------------------------------
30. DIFFERENCES BETWEEN UK GAAP AND US GAAP (CONTINUED)
Accounting and disclosure of stock based compensation
FASB Statement of Financial Accounting Standards No. 123 -- "Accounting for
Stock-Based Compensation" which establishes financial accounting and reporting
standards for stock-based employee compensation plans, is effective for
accounting periods beginning after 15 December 1995. The Statement provides the
option to continue under the accounting provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25),
providing that proforma footnote disclosures of the effects on net income and
earnings per share, calculated as if the new method had been implemented, are
included. The Company has elected to continue under APB No. 25, but the proforma
disclosures have been omitted, as the effects on net income and earnings per
share are not material.
Additional information required by US GAAP is shown below:
<TABLE>
<CAPTION>
ASSUMED ASSUMED
REMAINING -------- --------- FAIR
CONTRACTUAL EXPECTED RISK-FREE VALUE OF
LIFE LIFE RATE OPTION
(YEARS) (YEARS) (%) (P)
----------- -------- --------- --------
<S> <C> <C> <C> <C>
Executive share options 6.5 3 6.41 100.6
Sharesave scheme 3.3 3 6.41 133.9
Sharesave scheme 5.3 5 6.68 157.4
</TABLE>
The fair values of options granted have been estimated using the Black-Scholes
option-pricing model, assuming a dividend yield of 5.02%, an expected volatility
of 29.5% and the risk-free rates and expected lives shown above.
31. SUBSEQUENT EVENTS
On 14 April 1997 Eastern Electricity plc issued L200 million 8.75% bonds due
2012.
On 24 April 1997 Eastern issued promissory notes of CZK 2,900 million
(approximately L59 million) to Ceska Sporiteina a.s. in the Czech Republic
redeemable no later than 29 April 2004. The notes are secured by the Group's
investments in Severomoravska Energetika a.s. and Teplarny Brno a.s.
On 19 May 1997 the Group completed its acquisition of Citizens Lehman Power
L.L.C., which has been renamed Citizens Power L.L.C. The acquisition involved an
initial payment of L12.5 million in cash, plus a payment deferred until 31 March
2000, equivalent to the net assets as of 30 June 1997. There will be additional
purchase consideration linked to profit goals up to 2002, subject to a maximum
consideration for the entire transaction of $120 million.
At 12 June 1997 the Group's shareholding in Teplarny Brno a.s. had increased to
70.3 per cent. at an additional cost of L4 million.
On 2 July 1997 UK government confirmed its previously-announced intention to
charge a windfall levy on certain privatised UK utilities. The Directors
estimate Eastern's, and therefore the Group's liability to be approximately L112
million. This amount will be paid in two equal installments which fall due in
December 1997 and December 1998.
On 10 June 1997 the company announced it was in discussions with PacifiCorp
which might lead to a combination of the two groups through a recommended cash
offer for The Energy Group PLC.
On 13 June 1997 the company announced that it had agreed terms with PacifiCorp
for a recommended cash offer to be made by a wholly owned subsidiary of
PacifiCorp for The Energy Group PLC.
On 1 August 1997 the UK Secretary of State for Trade and Industry referred the
proposed acquisition of the Group by PacifiCorp to the Monopolies and Mergers
Commission. As a result of the referral, the recommended cash offer
automatically lapsed in accordance with its terms.
F-41
<PAGE> 175
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August, 1997
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
(Translation of registrant's name into English)
117 Piccadilly, London W1V 9FJ, England
- --------------------------------------------------------------------------------
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
<TABLE>
<S> <C>
Form 20-F Form 40-F
[X] [ ]
</TABLE>
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
<TABLE>
<S> <C>
Yes No
[ ] [X]
</TABLE>
<PAGE> 176
15:10 01 Aug RNS-Energy Group PLC <TEG.L>Response Re MMC Referral
RNS No 2196v
ENERGY GROUP PLC
1st August 1997
In response to the statement made today by Mrs Beckett referring PacifiCorp
Acquisitions' offer for The Energy Group PLC to the Monopolies and Mergers
Commission, Derek Bonham, Chairman of the Energy Group said:
"We are surprised and disappointed at Mrs Beckett's decision, particularly as
PacifiCorp had indicated their willingness to comply with all assurances
required by the UK regulatory authorities. Over 61 per cent of our shareholders
have already demonstrated their support for this transaction. We will cooperate
with the MMC in their deliberations, meanwhile we will continue to develop the
businesses of the Group in line with our stated strategy to become one of the
world's leading international energy suppliers."
END
Friday, 1 August 1997 15:10:52
ENDS [nRNSA2196V]
<PAGE> 177
[EASTERN ELECTRICITY Letterhead] Corporate
Communications
Eastern Electricity
plc
Wherstead Park
P.O. Box 40
Wherstead
Ipswich
Suffolk IP9 2AQ
Direct tel: (01473)
553401
(01473) 553410
(01473) 553403
HQ37D
8th August 1997
TWO NEW BOARD APPOINTMENTS AT EASTERN GROUP
EASTERN GROUP, ONE OF THE COUNTRY'S LEADING GAS AND ELECTRICITY GROUPS, HAS
ANNOUNCED THE APPOINTMENTS OF TWO NEW BOARD DIRECTORS.
Dr David Huber joins the company on September 1, 1997, as Human Resources
Director. He has wide experience in the fields of human resources and retail
markets having previously worked for major corporations including Dunlop and the
Burton Group before becoming HR Director at Safeway Stores.
Jim Whelan was appointed Managing Director, Power and Energy Trading, on July 1.
He joined Eastern in 1993 and has successfully lead the company's power and
energy trading activities to be a prominent force in UK energy markets. His
experience in energy market transactions came to the fore in the 1996
negotiations for Eastern's leasing of five coal-fired power stations from
National Power and PowerGen. Jim has extensive experience of the UK energy
sector and international commodity and energy trading.
John Devaney, Eastern's Executive Chairman, said: "Both appointments bring
significant experience and expertise to the Board at a time when the group
continues to grow rapidly and also meet the challenges of full deregulation in
its gas and electricity markets."
Ends
Media inquiries: Dave Betteridge (01473) 553410.
<PAGE> 178
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
13 AUGUST 1997
THE ENERGY GROUP -- FIRST QUARTER
RESULTS -- IN LINE WITH EXPECTATIONS
FINANCIAL HIGHLIGHTS
(COMPARED ON A PRO FORMA BASIS)
-- TURNOVER UP 19 PER CENT TO L1033 MILLION.
-- OPERATING PROFIT OF L96 MILLION DESPITE ABSORBING SEASONAL FIRST QUARTER
LOSSES ON COAL STATIONS.
-- POSITIVE PROFIT CONTRIBUTIONS FROM RECENT ACQUISITIONS IN THE USA AND THE
CZECH REPUBLIC.
-- CONTINUING POWER STATION AND DEVELOPMENT PROJECTS IN AUSTRALIA, TAIWAN AND
INDIA.
-- ONE OFF WINDFALL TAX PROVISION OF L112 MILLION.
The Energy Group announces results for the period 1 April to 30 June 1997. The
results for the quarter have been compared to the pro forma operating results
for certain of the businesses which were previously reported as part of Hanson
PLC. Previously announced results and retained profits for the six months to 31
March 1997 are also provided for comparison.
Cont . . .
<PAGE> 179
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 2
The Group's businesses have performed above or in line with expectations with
useful profit contributions from acquisitions in the USA and the Czech Republic.
Group turnover for the quarter rose by 19 per cent from L869 million to L1,033
million, and underlying operating profit was 14 per cent above the same period
last year. However, operating profit of L96 million was 2 per cent down after
absorbing approximately L20 million of seasonal losses on the UK coal-fired
power stations. These stations only came into the Group's control in the second
quarter of fiscal 1995/6.
A one off provision of L112 million has been taken for the windfall levy.
COAL
Turnover for the quarter increased to L354 million despite mild spring weather
in the USA that reduced coal consumption and power output by one per cent below
the previous year's level. Profit improved by 5 per cent to L40 million. On a
dollar basis, operating profit increased 11 per cent but was moderated by
exchange rate movements.
POWER
Results from the power business show an increase in turnover to L649 million and
in profit to L17 million despite absorbing first quarter losses at the
coal-fired stations.
Cont . . .
<PAGE> 180
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 3
The coal-fired stations' performance continued to exceed our original
expectations at close to 96 per cent availability.
Citizens Power, the acquisition of which was completed in May 1997, has produced
a positive first quarter contribution and the gas business of Eastern continues
to expand; domestic customers now exceed 120,000.
NETWORKS
Results for the networks business for the first quarter are down on the
comparable period last year, with turnover at L105 million and profit at L45
million. This is largely as a result of the regulatory review which has only
been partly offset by further cost reductions. In addition units distributed
were slightly lower, due mainly to mild weather.
OUTLOOK
Derek Bonham, Chairman of The Energy Group, said:
"Prospects for the Group are in line with those described at the time of
demerger. Our core businesses are continuing to perform strongly and we are
pleased with the initial contribution from our new investments."
FOR FURTHER INFORMATION: Aviva Gershuny-Roth
The Energy Group PLC
Tel: 0171-647 3200
RESULTS ATTACHED
<PAGE> 181
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 4
UNAUDITED FINANCIAL RESULTS
FIRST QUARTER ENDED 30 JUNE 1997
<TABLE>
<CAPTION>
Pro forma
3 months 3 months 6 months
to 30 June 1997 to 30 June 1996 to 31 March 1997
Lmn Lmn Lmn
<S> <C> <C> <C>
Turnover
Coal 354 347 647
Power 649 492 1,801
Networks 105 110 274
Other 5 5 9
Intra-group (80) (85) (212)
----- ---- -----
1,033 869 2,519
----- ---- -----
Operating Profit
Coal 40 38 66
Power 17 12 129
Networks 45 52 122
Other (Note 4) (6) (4) -
----- ---- -----
Pre-exceptional operating profit 96 98 317
Restructuring and reorganisation costs - - (20)
----- ---- -----
Total operating profit 96 98 297
- -- - -
PacifiCorp offer costs (Note 1) (2) -
Net interest and similar charges (33) (37)
----- -----
Profit on ordinary activities before taxation 56 260
Ordinary taxation charge for the period (17) (81)
----- -----
39 179
Exceptional taxation (Note 2) (112) -
----- -----
Profit/(loss) on ordinary activities after taxation (73) 179
Dividends - (29)
----- -----
Profit/(loss) retained for the period (73) 150
-- - -- -
Earnings/(loss) per ordinary share (Note 3)
Pre-exceptional 8.9p 38.2p
Basic (14.1)p 34.5p
</TABLE>
- ---------------
NOTES
1. "PacifiCorp offer costs" reflect the expenditure incurred to date by the
Group in relation to the recommended cash offer by PacifiCorp Acquisitions
for The Energy Group PLC. That offer lapsed on 1 August 1997 upon its
referral to the Monopolies & Mergers Commission.
2. "Exceptional taxation" relates to the Group's estimated share of the
windfall levy announced in the UK Budget on 2 July 1997.
3. The earnings per share for the 3 months ended 30 June 1997 are based on the
profits for that period and on 516,756,626 shares which excludes the
4,100,891 shares held by The Energy Group Employee Benefit Trust, which has
waived its right to dividends on the shares it holds.
The earnings per share for the six months ended 31 March 1997 are based on
the profits for that period and on 518,607,817 shares which excludes the
2,250,000 shares then held by The Energy Group Employee Benefit Trust.
4. Pro forma adjustments have been made to the figures to 30 June 1996 in
respect of the additional administration costs that arose following the
demerger. The directors estimate that such costs amount to approximately L15
million per annum.
<PAGE> 182
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 5
UNAUDITED FINANCIAL RESULTS
FIRST QUARTER ENDED 30 JUNE 1997
<TABLE>
<CAPTION>
PRO FORMA
3 MONTHS 3 MONTHS 6 MONTHS
TO 30 JUNE 1997 TO 30 JUNE 1996 TO 31 MARCH 1997
--------------- --------------- ----------------
$MN $MN $MN
<S> <C> <C> <C>
Turnover
Coal 582 570 1,064
Power 1,067 809 2,960
Networks 173 181 450
Other 8 8 15
Intra-group (132) (140) (348)
------ ------ ------
1,698 1,428 4,141
------ ------ ------
Operating Profit
Coal 66 62 108
Power 28 20 212
Networks 74 86 201
Other (Note 5) (10) (7) -
------ ------ ------
Pro-exceptional operating profit 158 161 521
Restructuring and reorganisation costs - - (33)
------ ------ ------
Total operating profit 158 161 488
-- -
PacifiCorp offer costs (Note 2) (12) -
Net interest and similar charges (54) (61)
------ ------
Profit on ordinary activities before taxation 92 427
Ordinary taxation charge for the period (28) (133)
------ ------
64 294
------ ------
Exceptional taxation (Note 3) (184) -
------ ------
Profit/(loss) on ordinary activities after taxation (120) 294
Dividends - (47)
------ ------
Profit/(loss) retained for the period (120) 247
-- - -- -
Earnings/(loss) per ADS (Note 4)
Pre-exceptional $ 0.59 $ 2.51
Basic $(0.93) $ 2.27
</TABLE>
- ---------------
NOTES
1. The above US$ figures have been translated at the average exchange rate for
the three months to 30 June 1997 of $1.6438 to the L.
2. "PacifiCorp offer costs" reflect the expenditure incurred to date by the
Group in relation to the recommended cash offer by PacifiCorp Acquisitions
for The Energy Group PLC. That offer lapsed on 1 August 1997 upon its
referral to the Monopolies & Mergers Commission.
3. "Exceptional taxation" relates to the Group's estimated share of the
windfall levy announced in the UK Budget on 2 July 1997.
4. The earnings per ADS for the three months ended 30 June 1997 are based on
the profits for that period and on 518,756,926 shares which includes the
4,100,891 shares held by The Energy Group Employee Benefit Trust, which has
waived its right to dividends on the shares it holds. One ADS is equivalent
to four ordinary shares.
The earnings per share for the six months ended 31 March 1997 are based on
the profits for that period and on 518,607,817 shares which excludes the
2,250,000 shares then held by The Energy Group Employee Benefit Trust.
5. Pro forma adjustments have been made to the figures to 30 June 1996 in
respect of the additional administration costs that arose following the
demerger. The directors estimate that such costs amount to approximately
US$25 million per annum.
<PAGE> 183
[Peabody Letterhead] Peabody Holding Company, Inc.
NEWS RELEASE
CONTACT:
Gayla Hoffman
314-342-7768
FOR IMMEDIATE RELEASE
Aug. 19, 1997
CLIMATE CHANGE TREATY WOULD
CURB U.S. ECONOMIC GROWTH,
JEOPARDIZE ELECTRICITY SUPPLY
ST. LOUIS, Mo., Aug. 18 -- An international climate treaty being negotiated this
year to reduce carbon dioxide (CO(2)) emissions at power plants will curb U.S.
economic growth by jeopardizing the electricity supply, according to a new study
by Resource Data International, Inc. (RDI).
The study examines how growth in the U.S. electricity supply helps drive
economic growth as measured by the Gross Domestic Product (GDP). About 56
percent of all U.S. electricity is generated from coal which is the lowest cost
fuel. Coal's primary component is carbon, and according to the Clinton
Administration, reducing coal use is the most likely scenario to control CO(2)
emissions.
The study considered the effects of removing a significant proportion of
coal from the mix of resources that generate electricity and replacing it with
alternate sources.
RDI concluded that no single alternative resource or combination of natural
gas, nuclear, hydroelectric and renewables such as solar or wind, can replace
coal to generate electricity and sustain current levels of U.S. economic growth
to meet even the most modest climate treaty proposal that would stabilize CO(2)
emissions at 1990 levels.
The Clinton Administration has indicated that stabilizing emissions at 1990
levels by 2010 would require a tax of $100 on each ton of CO(2). The study found
that reducing CO(2) emissions to 1990 levels with a tax of this magnitude
drastically limits electricity supplies after 2005, reducing GDP growth by up to
$1.314 trillion, or 14 percent by 2010, and up to $16.823 trillion over a
10-year period.
- more -
<PAGE> 184
CLIMATE CHANGE TREATY -- ADD ONE
The RDI study also found that the economic impacts of the current CO(2)
reduction proposals will fall unevenly across the United States. The nation's
heartland will be hardest hit because interior regions lack hydroelectric and
nuclear generating resources and rely upon on Inexpensive coal-generated
electricity for 72 percent of their energy. Inexpensive electricity is also why
energy-intensive industries are more heavily concentrated in the U.S. interior.
Seaboard economies tend to be more service-oriented.
RDI, an independent energy research group in Boulder, Colo., was retained
by St. Louis-based Peabody Holding Company, Inc., the world's largest private
coal producer, to study the economic effects of current proposals for a new
treaty on climate change. The new treaty will be considered at the December 1997
United Nations conference in Kyoto, Japan, where binding limits for the
mandatory reduction of carbon dioxide emissions in developed nations will be
debated.
The proposed treaty will require the United States and other developed
nations to control CO(2) emissions, while China and other developing nations --
many of them major international trade competitors -- will be exempt from
binding limitations. The U.S. Department of Energy projects that, under current
conditions, the United States will contribute less than 19 percent of global
CO(2) emissions by 2015 compared to 58 percent from developing nations.
The RDI study concludes that: "In short, there will be no benefit to global
climate. At the same time, the U.S. economy will be more at risk than either the
other [developed] nations or the nations that will be exempt from any potential
Kyoto treaty."
Copies of the RDI study, THE ECONOMIC RISKS OF REDUCING THE U.S.
ELECTRICITY SUPPLY, CO(2) CONTROL AND THE U.S. ELECTRICITY SECTOR, may be
obtained by calling Peabody at (314) 342-7554 or via the Internet at
www.peabodygroup.com/ and select "Company Publications", then "Report."
The Executive Summary of the study is attached.
- 30 -
<PAGE> 185
The Economic Risks of Reducing
the U.S. Electricity Supply
CO(2) Control and the U.S. Electricity Sector
EXECUTIVE SUMMARY
In response to international efforts to address perceived global climate change
impacts, the United States has expressed commitment to the goal of reducing
carbon dioxide ("CO(2)") emissions to 1990 levels, or lower. To that end, the
Department of Energy and the Environmental Protection Agency have formed an
Interagency Analytical Team ("IAT") to work with outside economists in
determining the impacts associated with various proposals for emission
reductions, timetables, and mechanisms for attaining reductions.
This study focuses on the U.S. electricity sector and identifies the risks that
would be posed to the economy by reducing CO(2) emissions to 1990 levels in that
sector. These risks are quite great and would provide no tangible benefit, since
the nations with the fastest growing CO(2) emissions will be exempt from any
treaty that may be signed in Kyoto, Japan later this year.
Specific findings include:
CURRENT CO2 CONTROL PROPOSALS WILL PUT THE U.S. ECONOMY AT RISK
--Growth in the U.S. economy is tied to growth in electricity supply, with
current electricity-to-Gross Domestic Product ("GDP") ratios at 1.34% growth
in electricity associated with each 1% growth in GDP;
--Reducing CO(2) to 1990 levels will limit the annual growth rate in the supply
of electricity between 1995 to 2015 to 0.83%, down from 1.45% under the
Department of Energy's projected business-as-usual scenario. Neither natural
gas nor CO(2) neutral generating resources will be able to offset this supply
restriction;
--Therefore, up to $1.314 trillion, or 14% of GDP, will be at risk in 2010 and
up to $16.823 trillion cumulatively from 2005 to 2015.
<PAGE> 186
Proposed CO2 Emission Trading Proposals are not a Panacea
--Clinton Administration is using the success of the acid rain sulfur dioxide
("SO(2)") trading program to suggest that CO(2) trading will limit compliance
costs. However, the two programs differ fundamentally;
--While the EPA distributes SO(2) emission allocations at no cost, the
Administration proposes to auction CO(2) allocations. Such an auction would
mimic the effects of a carbon tax, with the federal government collecting at
least $133 billion annually from all sectors and $50 billion from the
electricity sector alone. The idea that "recycling" of these revenues will
counterbalance the economic consequences of both the "tax" and the costs of
compliance is an unproven presumption;
--The success of SO(2) trading lies in the ability of power plants to switch
from high sulfur to low sulfur coal sources. Because low sulfur coal is now
generally cheaper than high sulfur coal, over-compliance with the acid rain
program often comes as a windfall. There are no "low carbon" coal sources,
and natural gas is a higher cost fuel alternative.(1)
CO2 Stabilization will Disproportionately Impact the U.S. Interior
--The Eastern and Western Coastal regions of the country have greater access to
hydroelectric, nuclear, natural gas, and renewable energy resources than the
Interior regions and therefore generate electricity that is less
carbon-intensive than the interior. Where the Interior regions relied on coal
for 72% of their electricity generation in 1995, the Coastal regions relied
on coal for only 35%;
--The economies of the Interior regions are more electricity-intensive than the
economies of the Coastal regions. In 1995, the Interior regions consumed 0.51
terraWatthours of electricity per billion dollars of Gross State Product
("tWh/GSP"), compared to 0.38 tWh/GSP for the Coastal regions;
--Therefore, because the Interior regions rely on more carbon-intensive energy
resources for electricity and require more of this carbon-intensive
electricity per unit of GSP than the Coastal regions, the Interior regions
will bear the brunt of any CO(2) stabilization effort.
- ---------------
(1) There are slight differences between the carbon contents of bituminous
and sub-bituminous coals and lignite, but these are insignificant in
relation to sulfur differentials.
<PAGE> 187
U.S. Efforts to Reduce CO2 will have Diminishing Returns
- ---------------------------------------------------------------
--The U.S. emitted 23% of global CO(2) emissions in 1995, but is projected to
emit only 19% by 2015 under a business-as-usual scenario;
--China and other non-OECD Asian nations emitted 23% of global CO(2) emissions
in 1995, but are projected to emit 33% by 2015 under a business-as-usual
scenario;
--Only the Annex 1 nations (including the U.S. and OECD, as well as certain
Eastern European countries) will be required to control CO(2) emissions under
the Kyoto treaty, while China and all other non-OECD nations will be exempt.
Thus, even if the OECD reduces its carbon emissions by 916 million metric
tonnes ("mmt") by 2015 to meet 1990 levels, the non-OECD nations will still
increase emissions by 2,360 mmt.
<PAGE> 188
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE ENERGY GROUP PLC
--------------------------------------
(Registrant)
<TABLE>
<S> <C>
Date September 2, 1997 By /s/ MARTIN MURRAY
------------------------ -----------------------------------------
Martin Murray
General Counsel
and Secretary
</TABLE>
<PAGE> 189
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of September, 1997
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
(Translation of registrant's name into English)
117 Piccadilly, London W1V 9FJ, England
- --------------------------------------------------------------------------------
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
<TABLE>
<S> <C>
Form 20-F Form 40-F
[X] [ ]
</TABLE>
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
<TABLE>
<S> <C>
Yes No
[ ] [X]
</TABLE>
<PAGE> 190
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
September 9, 1997
THE ENERGY GROUP ENTERS AN AGREEMENT TO ACQUIRE
AN INTEREST IN THE ZAMOSC ENERGY COMPANY, POLAND
The Energy Group through its subsidiary Eastern Generation has reached agreement
with Southern Energy Inc., to acquire their development interests in three
co-generation projects in Poland based in Chelm, Zamosc and Przemysl. The
acquisition will take place via a 49 per cent. share purchase of the Zamosc
Energy Company (ZEC).
ZEC is a joint venture with Polish regional distribution company Zaklad
Energetyczny Zamosc SA and holds the rights to develop three 70MW electrical
co-generation plants which will cost approximately $100 million each to build.
Derek Bonham, Chairman of The Energy Group said: "Following our recent
acquisition of a majority stake in Teplarny Brno in the Czech Republic, this
represents another important strategic move into the rapidly developing energy
markets of Eastern Europe."
ENQUIRIES: AVIVA GERSHUNY-ROTH
THE ENERGY GROUP PLC
0171-647 3200
ATTACHMENT: NOTES TO EDITORS
<PAGE> 191
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
NOTES TO EDITORS:
1. Eastern Generation Ltd, part of Eastern Group plc, is a subsidiary of The
Energy Group PLC and is the fourth largest electricity generator in the UK.
2. Zaklad Energeryczny Zamosc SA is a regional distribution company in the
South East of Poland. It has approximately 400,000 customers and for the
year to 31(st) December 1996 had a turnover of PLZ 282,152,700
(approximately L50 million) and made a profit of PLZ 3,375,000
(approximately L600,000).
3. ZEC is the trading name for Zamojska Spolka Elektroenergetyczna Sp zoo.
END
<PAGE> 192
[EASTERN letterhead] Corporate
Communications
Eastern Group plc
Wherstead Park
P.O. Box 40
Wherstead
Ipswich
Suffolk IP9 2AQ
Direct tel: (01473)
553401
(01473) 553410
(01473) 553403
HQ42
16 September 1997
DUAL-FIRING PLANS FOR DRAKELOW
AND RUGELEY POWER STATIONS
EASTERN GENERATION, BRITAIN'S FOURTH LARGEST ELECTRICITY GENERATOR AND PART OF
EASTERN GROUP, TODAY UNVEILED PLANS TO INTRODUCE NATURAL GAS FIRING ALONGSIDE
COAL AT DRAKELOW AND RUGELEY POWER STATIONS.
The conversion plans, which are being submitted to the Department of Trade and
Industry for approval, will allow the stations to burn gas, coal or a
combination of both.
The L40 million investment includes the cost of laying six kilometres of
underground gas pipelines to each site. The gas pipes will be laid under mainly
agricultural land and care will be taken to minimise any disruption during
construction.
The plant modifications and pipeline laying could begin as early as April 1998
with dual-firing starting in July 1998.
Rugeley (Staffordshire) and Drakelow (South Derbyshire) each generate up to
1,000MW of electricity. Together the stations could burn up to 5.5 million
therms of gas each day.
The gas will be supplied by Eastern Power and Energy Trading from its expanding
portfolio of contracts. The company, one of Britain's largest independent
shippers of natural gas, is a sister company to Eastern Generation within
Eastern Group.
The advanced dual-firing technology will help in the management of station
emissions in the face of increasingly tight regulations. Burning natural gas
produces no sulphur dioxide, less nitrogen oxides and carbon dioxide and no dust
when compared to conventional coal firing.
John Devaney, Eastern Group's Executive Chairman, said: "This significant
investment will help secure the long-term future of generation on both sites."
<PAGE> 193
Ends
NOTE TO EDITORS
Eastern Group currently owns, operates or has interest in eight power stations
in Britain representing around 10 per cent of the country's total generating
capacity. Its portfolio consists of a mix of combined-cycle gas turbine and
coal-fired stations.
The capacity was increased in 1996 as a result of leasing agreements for five
coal-fired stations -- Rugeley, Ironbridge and West Burton from National Power
and High Marnham and Drakelow from PowerGen.
Media Inquiries: Bill Watson, Managing Director, Eastern Generation
Jim Whelan, Managing Director, Eastern Power and Energy
Trading
Dave Betteridge or Ian Seaton, Media Relations, Eastern
Group 01473 553410.
<PAGE> 194
THE ENERGY GROUP PLC
Announcement to the London Stock Exchange
DATE ANNOUNCEMENT SENT: 25 SEPTEMBER, 1997
The Energy Group PLC expects to announce its interim results for the period of
six months ending 30 September 1997 on 12 November 1997.
The Company's first Annual General Meeting is to be held in London on 13
November 1997. Notice of the meeting will be sent to shareholders shortly.
<PAGE> 195
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE ENERGY GROUP PLC
--------------------------------------
(Registrant)
Date October 7, 1997 By /s/ MARTIN MURRAY
------------------------------------
Martin Murray
General Counsel
and Secretary
<PAGE> 196
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of October, 1997
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
(Translation of registrant's name into English)
117 Piccadilly, London W1V 9FJ, England
- --------------------------------------------------------------------------------
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
<TABLE>
<S> <C>
Form 20-F Form 40-F
[X] [ ]
</TABLE>
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
<TABLE>
<S> <C>
Yes No
[ ] [X]
</TABLE>
<PAGE> 197
[EASTERN letterhead] Corporate
Communications
Eastern Group plc
Wherstead Park
P.O. Box 40
Wherstead
Ipswich
Suffolk IP9 2AQ
Direct tel: (01473)
553401
(01473) 553410
(01473) 553403
[News Release]
HQ45
Embargoed until 8 October 1997
EASTERN KICKS-OFF BIG SAVINGS ON GAS
GAS BILL SAVINGS OF AROUND 20% ARE IN THE PIPELINE FOR MILLIONS OF HOMES ACROSS
EASTERN ELECTRICITY'S REGION.
Eastern Natural Gas, sister company to Eastern Electricity, today becomes the
first rival to British Gas to kick-off its sales and customer awareness
campaign -- starting the countdown to full competition next year.
Both companies are part of Eastern Group, a nation-wide supplier of electricity
and natural gas.
Eastern, already one of Britain's biggest gas suppliers, currently offers an
average reduction of 20% off British Gas bills. Customers switching to direct
debit are saving up to 24.6% -- or around L100 on a typical L400 annual gas
bill.
More than 250,000 homes have signed with Eastern in those parts of the country
already free to choose from rival gas suppliers -- the south-west, south-east
and north-east of England and Scotland.
Ofgas, the industry watchdog, plans to see competition "go live" in May next
year in Norfolk, Suffolk, Essex, Cambridgeshire, Buckinghamshire, Bedfordshire
and Hertfordshire. Greater London boroughs are expected to follow in June.
Eastern is kicking-off with football ground advertising. Fully trained sales
representatives are spearheading the campaign region-wide from November 1.
Jonathan Baggott, Eastern's gas sales and marketing manager, said: "One in four
homes are now switching away from British Gas in places where competition has
already started. We have been looking forward to playing on 'home-turf' where
people are already familiar with Eastern as their local electricity supplier."
He added: "Eastern aims to secure more than 1.5 million new gas customers across
Britain by the turn of the century."
<PAGE> 198
more
gas/2
Switching suppliers is simple. Eastern will use existing pipes and meters and
will bill customers directly. BG Transco is still responsible for leaks and
emergencies.
In addition to cheaper gas, Eastern also offers a full range of other services
including boiler servicing and emergency cover and bill payment protection.
A new gas sales inquiry line, charged at the local rate, is now available on
0345 236236.
Ends
Media inquiries: Dave Betteridge or Judith Hanlon, Eastern Group, 01473
553410.
<PAGE> 199
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
October 13, 1997
ENERGY GROUP OVERSEAS B.V. ISSUES $500 MILLION GUARANTEED NOTES
Energy Group Overseas B.V., a wholly owned subsidiary of The Energy Group PLC,
announced today the issue of a total of $500 million Guaranteed Notes. The notes
are in two series, $200 million 7 3/8 per cent due 2017 and $300 million 7 1/2
per cent due 2027, and are unconditionally guaranteed by The Energy Group PLC.
The $200 million notes due 2017 are being issued to investors at a price of
99.524 per cent to yield 95 basis points over the 6 5/8 per cent Treasury Stock
2027 so as to yield 7.421 per cent to investors on a semi-annual basis. Interest
will be payable semi-annually in arrear on April 15 and October 15 in each year
beginning April 1998.
The $300 million notes due 2027 are being issued to investors at a price of
99.987 per cent to yield 103 basis points over the 6 5/8 per cent Treasury Stock
2027 so as to yield 7.501 per cent to investors on a semi-annual basis. Interest
will be payable semi-annually in arrear on April 15 and October 15 in each year
beginning April 1998.
Eric Anstee, Finance Director of The Energy Group said: "The proceeds of this
issue will be used for our general corporate purposes enabling us to repay short
term debt."
<TABLE>
<S> <C> <C>
Enquiries: Eric Anstee Finance Director
Mike Andrews Treasurer
Aviva Gershuny-Roth Head of Corporate Communication
</TABLE>
Tel: 0171-647 3200
The Guaranteed Notes have not been registered under the U.S. Securities Act of
1933 and may not be offered or sold in the United States absent registration or
an applicable exemption from registration.
<PAGE> 200
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
October 24, 1997
THE ENERGY GROUP WINS BID FOR TURKISH GENERATION PLANT
The Energy Group, through its subsidiary, Peabody, together with NRG and Koc
Holding, have won a bid to acquire the 450 megawatt Kangal coal-fired generation
plant in central Turkey for $125 million.
The consortium interest is split: Koc 50%, Peabody 25% and NRG 25%. The bids are
subject to the negotiation of definitive agreements. The consortium has
submitted bids for other distribution and generation assets which are still
under evaluation.
Power from the Kangal station will be sold to TEAS, The Turkish national power
company, under a 20-year power purchase agreement. The agreement which will be
denominated in US dollars will contain minimum take-or-pay provisions. The plant
will be retrofitted with up-to-date technology to improve its environmental
performance significantly.
"This project is a further step in the realisation of The Energy Group's
strategy to develop as an international, integrated energy company", said Derek
Bonham, Chairman of The Energy Group. "The Kangal power station represents a
significant opportunity to acquire a quality asset which will produce immediate
earnings enhancement."
<TABLE>
<S> <C> <C>
ENQUIRIES: Aviva Gershuny-Roth Chris Farrand
The Energy Group Peabody
Tel: 0171-647 3200 Tel: 001 314 342 7623
ATTACHMENT: Notes to Editors
</TABLE>
<PAGE> 201
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
NOTES TO EDITORS
The disposal is part of the Turkish government's efforts to ensure a more
reliable and cost-efficient supply of energy by privatising its electric
distribution, generation and related coal mining assets. The Turkish economy is
growing at a rapid pace and growth in electricity demand is projected to be much
higher than that in most of Europe or the United States. The electricity growth
rate in Turkey is projected to be 6 to 8.5 per cent annually.
The Energy Group is a diversified international energy company which includes
Peabody, the world's largest private coal producer; Eastern, one of the leading
integrated electricity and gas companies in Great Britain; and Citizens Power,
one of the top five power marketers in the United States.
NRG is a wholly owned subsidiary of Northern States Power Company, which owns
and operates more than 7000 MW of coal, gas, nuclear, hydro and alternative
fuel-fired plants in the United States. NRG has significant investments in
Germany, Australia, Bolivia, the Czech Republic and the United States.
Koc Holding, founded in 1926, is the largest conglomerate in Turkey and a
Fortune Global 500 corporation.
END
<PAGE> 202
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
October 27, 1997
THE ENERGY GROUP IN L870,000 SPONSORSHIP OF THE NATIONAL
YOUTH THEATRE
The Energy Group today announced its three-year sponsorship of the National
Youth Theatre of Great Britain. The sponsorship programme will provide L250,000
a year for three years and will cover essential core costs as well as money
towards productions. The Government's ABSA "Pairing Scheme" has also awarded a
grant of L40,000 a year for the sponsorship duration, bringing the total funds
available to L870,000.
Derek Bonham, Chairman of The Energy Group, said:
"I have always admired the drive, ambition and enthusiasm of the National Youth
Theatre, qualities which I believe are mirrored at The Energy Group. So I am
delighted that we are able to support them via this sponsorship which will cover
a substantial part of their core costs."
"It is in the best interest of business to encourage young people's creative
potential and not to overlook the benefits which drama and the arts can offer in
terms of training, education, self-confidence and long term contribution to
society."
Cont...
<PAGE> 203
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 2
The Energy Group already provides support to a wide range of causes including
disadvantaged young and elderly people; and those involved in environmental
conservation. In addition the company has contributed to the Wildlife Trust,
Macmillan Cancer Relief and the NSPCC, through Eastern, its UK based electricity
and gas company.
In the U.S.A., The Energy Group provides American Indians with scholarship
funding, while the Smithsonian Institute in Washington, D.C. benefits from
co-sponsorship of a coal and electricity educational exhibit through Peabody,
The Energy Group's U.S. based coal producer which is the largest private coal
producer in the world.
<TABLE>
<S> <C> <C>
ENQUIRIES: Aviva Gershuny-Roth Cathy Barnhill
The Energy Group National Youth Theatre
Tel: 0171-647 3200 Tel: 0171-281 3863
</TABLE>
PRESS RELEASE
<PAGE> 204
THE ENERGY GROUP PLC
Announcement to the London Stock Exchange
DATE ANNOUNCEMENT SENT: 28 OCTOBER, 1997
Following purchases of additional shares on 24 October 1997 UBS UK Holding
Limited notified The Energy Group PLC on 27 October 1997 that UBS Limited and
PDFM Limited had acquired respective interests in 15,691,254 and 18,734,185
ordinary shares of The Energy Group PLC, representing 3.012% and 3.596% of the
issued ordinary share capital of the company, respectively.
UBS Limited and PDFM Limited are subsidiaries of UBS UK Holding Limited which is
also treated as having an interest in these shares.
<PAGE> 205
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
October 28, 1997
The Energy Group announces that Sir Christopher Harding has informed the Board
that he has accepted an invitation to join United Utilities PLC as Deputy
Chairman from November 1, 1997 taking over as Chairman on April 1, 1998. He has
accordingly resigned as a Non-Executive Director of The Energy Group with
immediate effect and the resolution for his re-appointment as a Director of the
company will therefore not be put to the Annual General Meeting of The Energy
Group on November 13, 1997. Derek Bonham, Chairman of The Energy Group, said
that Sir Christopher Harding's contribution would be missed by all his
colleagues and wished him well in his future position.
ENQUIRIES: Aviva Gershuny-Roth
The Energy Group
Tel: 0171-647 3200
<PAGE> 206
[EASTERN ELECTRICITY Letterhead] Corporate
Communications
Eastern Electricity
plc
Wherstead Park
P.O. Box 40
Wherstead
Ipswich
Suffolk IP9 2AQ
Direct tel: (01473)
553401
(01473) 553410
(01473) 553403
HQ52
30 October 1997
EASTERN NATURAL GAS SIGNS 200,000 IN
SCOTLAND AND THE NORTH EAST.
Eastern Natural Gas, already one of Britain's biggest gas suppliers, has signed
around 200,000 new customers in Scotland and the North East -- representing
approximately half the households switching from November 1.
ENG, part of Eastern Group, a nation-wide provider of electricity and natural
gas, has signed around 108,000 homes in the North East and 92,000 in Scotland.
Ofgas announced today that more than 400,000 households out of a market of 2.5
million have signed to switch from British Gas in the latest competition phase.
Eastern offers an average reduction of 20% off British Gas bills. Customers
switching to direct debit are saving up to 24.6% -- or around L100 on a typical
L400 annual gas bill.
John Devaney, Executive Chairman, Eastern Group, said: "We're delighted with the
results of our sales campaign particularly in an area where Eastern was a new
name with households. We're already active in the south west and south east of
England and aim to secure 1.5 million new domestic gas customers nation-wide by
the turn of the century."
Ends
Enquiries: Dave Betteridge (01473) 553410.
<PAGE> 207
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE ENERGY GROUP PLC
--------------------------------------
(Registrant)
Date: November 3, 1997 /s/ MARTIN MURRAY
By
--------------------------------------
Martin Murray
General Counsel
and Secretary
<PAGE> 208
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November, 1997
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
(Translation of registrant's name into English)
117 Piccadilly, London W1V 9FJ, England
- --------------------------------------------------------------------------------
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
<TABLE>
<S> <C>
Form 20-F Form 40-F
[X] [ ]
</TABLE>
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
<TABLE>
<S> <C>
Yes No
[ ] [X]
</TABLE>
<PAGE> 209
[EASTERN ELECTRICITY Letterhead] Corporate
Communications
Eastern Electricity
plc
Wherstead Park
P.O. Box 40
Wherstead
Ipswich
Suffolk IP9 2AQ
Direct tel: (01473)
553401
(01473) 553410
(01473) 553403
HQ48
4 November 1997
EASTERN POWERS INTO NORD POOL
Eastern Power and Energy Trading, part of Eastern Group, has become the first
British company to buy and sell electricity in the Norwegian and Scandinavian
power market.
The market, known as Nord Pool, was the world's first commodity exchange for
electrical power when it was established in 1993.
Easter is trading from Ipswich -- making it the first non-Scandinavian Nord Pool
member to operate remotely.
Unlike its UK operations, Eastern is trading for the first time on the
electricity futures market -- where the buying and selling is on paper and there
is no physical delivery of the electricity.
Jim Whelan, Managing Director of Eastern Power and Energy Trading, said:
"Joining Nord Pool is part of our strategic development overseas. It is a very
attractive way of gaining a closely controlled exposure and experience of a
foreign market."
Ends
Media inquiries: Dave Betteridge (01473) 553410.
<PAGE> 210
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
12 November 1997
THE ENERGY GROUP INTERIM RESULTS
FINANCIAL HIGHLIGHTS
- - TURNOVER EXCEEDS L2 BILLION.
- - UNDERLYING OPERATING PROFIT UP BY OVER 12%
- - INTERIM DIVIDEND OF 8.0 PENCE PER SHARE.
- - WELL POSITIONED FOR DOMESTIC COMPETITION IN THE
UK ELECTRICITY AND GAS MARKETS.
- - OVER 300,000 UK GAS CUSTOMERS NOW SIGNED UP.
- - POWER STATION DEVELOPMENT PROJECTS ANNOUNCED
IN POLAND, TURKEY, TAIWAN AND THE UK.
Derek Bonham, Chairman said: "The Energy Group has made an impressive start
to life as an independent company. With underlying operating profit up 12%, the
financial results are both encouraging and in line with expectations. We are
particularly well positioned to profit from the emerging competitive UK gas and
electricity sectors as well as the deregulating US energy market. Developments
in this period underpin our ambitions to become a leading international
integrated energy company."
The Energy Group announces results for the period 1 April to 30 September
1997. The results for the quarter have been compared to the pro forma operating
results for certain of the businesses which were previously reported as part of
Hanson PLC. Previously announced results and retained profits for the six months
to 31 March 1997 are also provided for comparison.
cont...
<PAGE> 211
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 2
FINANCIAL RESULTS
Group turnover for the six months to 30 September 1997 was L2,007 million, an
increase of 7% on the same period last year. Operating profit for the period was
L187 million (pro forma 1996: L196 million) before the exceptional costs
associated with PacifiCorp's bid and restructuring costs within EASTERN.
Earnings per share, before exceptional items, fell to 17.7p (pro forma 1996:
21.7p). As reported in our first quarter results, compared with last year, these
results were adversely affected by some L20 million of normal seasonal losses
associated with the coal-fired power stations we leased in July 1996. Excluding
this, and using consistent exchange rates, underlying operating profit has grown
by more than 12%.
As reported, the L112 million cost of the windfall tax was fully provided for in
the first quarter. The underlying tax rate for ordinary activities in the six
months to 30 September 1997, before the windfall tax, was 26.3%.
In October the group successfully issued $500 million of bonds due for repayment
in 2017/2027, adding to the long term stability of our financial base.
DIVIDEND
An interim dividend of 8.0 pence per share will be paid on 9 January 1998 to
ordinary shareholders on the register on 19 December 1997. Subject to prevailing
circumstances, we expect to pay a further dividend in August 1998.
cont. . .
<PAGE> 212
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 3
PACIFICORP'S OFFER
PACIFICORP'S recommended offer for THE ENERGY GROUP of 690 pence per share
lapsed on 1 August 1997, when the UK Secretary of State for Trade and Industry
referred its bid to the Monopolies and Mergers Commission. We are co-operating
fully with this enquiry and also with the US regulatory authorities, who are
conducting their own reviews of the proposed merger.
REVIEW
The six months to 30 September 1997 have been a period of significant
development for THE ENERGY GROUP. In May we completed the acquisition of
CITIZENS POWER, one of the top ten electricity trading businesses in the USA.
This is a key element in our strategy of building an integrated energy company
in North America. Citizens is already working closely with PEABODY to market
jointly a range of new trading-based products to help utilities compete more
effectively in the deregulating US electricity markets. EASTERN continues to
make considerable headway in the UK gas supply market and is now one of the
largest suppliers after Centrica plc. We intend to be a major national player in
both the electricity and gas markets. The Energy Group has also announced major
energy projects in Poland, Turkey, Taiwan and the UK.
cont . . .
<PAGE> 213
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 4
TRADING
COAL
PEABODY produced 83.5 million (86 million) tons of coal in the period and
continues to lead the US coal industry with a 14% share of the coal market. Its
steam coal products were used to generate over 9% of all electricity produced by
US electric companies. Turnover for the six months decreased 6% to L691 million
(L733 million) and operating profit declined 3% to L85 million (L88 million).
However, these results are distorted by the impact of the strong L:$ exchange
rate in the period. On a US dollar basis, turnover increased 1% to $1,137
million ($1,131 million). Operating profit was also up 3% to $140 million ($136
million) for the period. These figures included the favourable impact of a coal
supply agreement restructuring of $38 million, partially offset by reduced
demand for coal for electricity due to mild weather. Earnings improved at
PEABODY'S Australian operations and at the Powder River Coal Company.
In Australia, PEABODY is continuing to expand the Warkworth Mine and to
construct a new mine at Bengalla in New South Wales to serve the fast-growing
Asia/Pacific Rim market. Initial shipments from Bengalla are expected to begin
in early 1999.
PEABODY is also continuing with its competitiveness initiatives, including
productivity investments and consolidation of production. Our US mines achieved
record safety results, with a 20% year on year improvement, and an 80%
improvement since 1990.
cont. . .
<PAGE> 214
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 5
POWER
Turnover in our POWER business increased by 15% to L1,248 million.
Operating profit fell by L8 million to L31 million due to the adverse impact of
seasonal losses referred to earlier.
EASTERN'S UK power stations, notably the 5,949MW coal-fired portfolio, have
undergone routine summer maintenance during this half year and are well
positioned for the important winter months ahead. The 360MW CCGT power station
at Peterborough continued to achieve very high levels of availability throughout
the period, the 340MW CCGT power station at King's Lynn is completing its
commissioning phase and plans for further development of previously announced
new generation facilities are in advanced stages of the planning and approval
process. Eastern also intends to introduce dual-firing for coal and gas for
2,022MW of existing capacity at Drakelow and Rugeley to manage increasingly
tight emission regulations more effectively.
The growth of EASTERN'S domestic gas retail business has been impressive,
adding to its strong position in the industrial and commercial markets. EASTERN
NATURAL GAS serves domestic customers in those parts of the south west and the
south east of England which are already open to competition and is winning
customers in Scotland and the north east. It has now signed up over 300,000
customers.
EASTERN ELECTRICITY'S retail business continues to perform well in those
parts of the UK electricity market which are open for competition, with around
13% of eligible commercial sites in this market. We are currently on target to
be one of the four REC's fully ready for competition from 1 April 1998. Plans to
serve the national residential and small business electricity markets are well
advanced, including the recent launch of the innovative 'EcoPower' tariff.
cont...
<PAGE> 215
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 6
We are still in discussion with the electricity regulator about his price
proposals for electricity supply for the two years from 1 April 1998, and will
make a further announcement shortly. We welcome in principle the move to maximum
price caps as a means of facilitating competition in both the retail and
wholesale markets.
Following the demerger from Hanson PLC the group retained L68m of provisions
against long-term electricity contracts. We are now examining the implications
of a fully competitive market on these provisions against certain long term
electricity contracts entered into after privatisation, with the possibility
that provisions might need to be increased.
In the USA, CITIZENS POWER increased electricity and gas trading volume by 334%
over the comparable period in 1996. Since its acquisition, Citizens Power has
completed additional non-utility generating restructuring agreements, providing
it with a continuing earnings stream and has established a state-of-the-art
energy trading floor which co-ordinates with PEABODY in the marketing of new
combined fuel/power arrangements for the deregulating US electric utility
industry.
In September we reached an agreement to acquire a 49% interest in the
development of three 70MW co-generation projects in Poland. As part of a
consortium in which we have a 25% interest, we have recently won a bid to
acquire a 450MW coal-fired generation plant in central Turkey with a related
mining facility. In Taiwan, we have entered a joint venture to develop a 550MW
coal-fired plant. THE ENERGY GROUP is the first major western energy company to
become involved in this kind of project in Taiwan.
cont...
<PAGE> 216
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 7
NETWORKS
Another solid performance from the Networks business has contributed L81 million
(L78 million) to profit in the six month period, reflecting a 14% reduction in
operating costs.
EASTERN ELECTRICITY'S 89,000 km network continues to be one of the most reliable
in the UK. Network investment plans are on target and will further improve
performance and reliability.
EASTERN GROUP TELECOMS continues to build a strong position as a network
provider to UK telecoms operators, with additional investments made during the
period.
DIRECTOR
On 28 October 1997, Sir Christopher Harding resigned as a non-executive director
on becoming chairman designate of United Utilities PLC. His contribution will be
missed and we wish him well in his new position.
INTERIM REPORT
The interim report is being mailed to shareholders and ADS holders.
FOR FURTHER INFORMATION: Aviva Gershuny-Roth
The Energy Group PLC
Tel: 0171-647 3200
RESULTS ATTACHED
cont...
<PAGE> 217
Page 8
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
UNAUDITED PRO FORMA PRO FORMA
SIX MONTHS TO SIX MONTHS TO YEAR TO
30 SEPTEMBER 30 SEPTEMBER 31 MARCH
1997 1996 1997
NOTE LM LM LM
<S> <C> <C> <C> <C>
Turnover -- continuing activities 3 2,007 1,869 4,460
Costs and overheads less other income (1,836) (1,673) (3,975)
------ ------ ------
Operating profit -- continuing activities 3 171 196 485
Net interest payable and similar charges (65) (35) (88)
------ ------ ------
Profit on ordinary activities before taxation 106 161 397
Taxation charge for period -- on results 5 (28) (48) (121)
-- windfall 5 (112) - -
------ ------ ------
(Loss)/profit on ordinary activities after
taxation (34) 113 276
Dividend (41) - (29)
------ ------ ------
(Loss)/profit retained for the period (75) 113 247
------ ------ ------
Earnings per ordinary share
Basic 6 (6.5)P 21.7p 53.2p
Pre-exceptional costs 6 17.7P 21.7p 56.7p
</TABLE>
DIVIDEND
Ordinary shareholders: an interim dividend of 8p per ordinary share will be paid
on 9 January 1998 to those shareholders on the register on 19 December 1997. The
shares are expected to trade ex-dividend on the London Stock Exchange from 15
December 1997.
ADS holders: the dividend will be converted to US dollars on 9 January 1998
using the prevailing exchange rate on that date. Payment will be made on 16
January 1998 to holders on record on 19 December 1997. The ADSs are expected to
trade ex-dividend on the New York Stock Exchange from 17 December 1997.
<PAGE> 218
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 9
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
UNAUDITED AT AUDITED AS AT AUDITED AS AT
30 SEPTEMBER 30 SEPTEMBER 31 MARCH
1997 1996 1997
LM LM LM
<S> <C> <C> <C>
FIXED ASSETS
Tangible fixed assets 3,986 3,975 3,910
Investments 83 17 72
------ ------ ------
4,069 3,992 3,982
------ ------ ------
CURRENT ASSETS
Stocks 309 254 256
Debtors 1,714 1,301 1,359
Investments 11 8 10
Short-term deposits 1,129 - 753
Cash 174 173 385
------ ------ ------
3,337 1,736 2,763
------ ------ ------
CREDITORS -- DUE WITHIN ONE YEAR
Short-term borrowings (648) (168) (738)
Overdrafts (70) (119) (61)
Other creditors (1,406) (754) (948)
------ ------ ------
(2,124) (1,041) (1,747)
------ ------ ------
NET CURRENT ASSETS 1,213 695 1,016
------ ------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES 5,282 4,687 4,998
CREDITORS -- DUE AFTER ONE YEAR (2,050) (945) (1,655)
PROVIDES FOR LIABILITIES AND CHARGES (1,506) (1,557) (1,498)
------ ------ ------
NET ASSETS 1,726 2,185 1,845
------ ------ ------
CAPITAL AND RESERVES
Called up share capital 52 52
Other reserves 583 639
Profit and loss account 1,091 1,154
Invested capital 2,185
------ ------ ------
EQUITY SHAREHOLDERS' FUNDS 1,726 2,185 1,845
------ ------ ------
</TABLE>
<PAGE> 219
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 10
CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
UNAUDITED AUDITED
SIX MONTHS TO SIX MONTHS TO
30 SEPTEMBER 31 MARCH
1997 1997
LM LM
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES 273 346
---- ----
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received and other income 58 29
Interest paid (91) (83)
Dividends received from investments 3 1
---- ----
(30) (53)
---- ----
TAXATION (8) (23)
---- ----
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (167) (133)
Purchase of investments (9) (39)
Sale of tangible fixed assets 5 4
Sale of investments - 12
---- ----
(171) (156)
---- ----
ACQUISITIONS
Purchase of subsidiary undertakings (14) (20)
---- ----
EQUITY DIVIDENDS PAID (29) -
---- ----
CASH FLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING 21 94
---- ----
MANAGEMENT OF LIQUID RESOURCES
Net cash placed on short-term deposit (373) (753)
---- ----
FINANCING
Net new short-term borrowings (153) 149
Debt due beyond a year:
New long term loans 278 907
Repayment of amounts borrowed - (118)
---- ----
125 938
---- ----
(Decrease)/increase in cash in the period (227) 279
---- ----
</TABLE>
cont. . .
<PAGE> 220
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 11
1. BASIS OF PREPARATION OF ACCOUNTS
The results for the six months to 30 September 1997 are unaudited. The
accounting policies are as stated in the Report and Accounts for the six months
ended 31 March 1997, together with the additional policy described below. The
figures for the six months ended 31 March 1997 are an extract from the full
published financial statements that have been delivered to the Registrar of
Companies, and on which the auditors have issued an unqualified report.
The group's recent acquisition, Citizens Power, provides contract restructuring
services to the energy industry. In connection with these activities, the group
has adopted the following accounting policy:
Assets and liabilities associated with contract restructuring activities are
marked to market. Movements in the market value are recognised in the profit
and loss account in the period of change. In the absence of a readily
available market price, fair value based on discounted cash flows is used.
2. PRO FORMA INFORMATION
a) The pro forma information for the year ended 31 March 1997 and for the six
months ended 30 September 1996 has been extracted from audited financial
returns for the period. The information has been prepared on a consistent
basis to that presented in the group's listing particulars issued in January
1997 and to the pro forma information provided in the group's report and
accounts for the six months ended 31 March 1997.
b) Pro forma central charges of L15 million in the year to 31 March 1997 and L7
million in the six months to 30 September 1996 have been included in pro
forma operating profit for these periods. In the group's listing particulars
these charges were identified, but not included in the pro forma results.
c) Pro forma net interest payable for the year ended 31 March 1997 is based on
the actual interest charges borne by the individual operating entities which
now comprise the group, increased for an additional pro forma interest
charge calculated as 7.5% of the actual additional net debt allocated to the
group by Hanson on demerger.
Pro forma net interest payable for the six months ended 30 September 1996 is
calculated on a similar basis, but using an additional pro forma interest
charge which is based on the additional net debt and average interest rate
assumed in the group's listing particulars.
cont...
<PAGE> 221
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 12
d) The pro forma tax charge for the year ended 31 March 1997 has been
calculated at the same effective rate before exceptional items as that which
existed for the six months ended 31 March 1997.
The pro forma tax charge for the six months ended 30 September 1996 has been
calculated at the same effective rate before exceptional items as that
assumed in the pro forma tax charge for the year ended 30 September 1996
which was given in the group's listing particulars.
3. SEGMENTAL ANALYSIS
<TABLE>
<CAPTION>
Unaudited Unaudited pro forma
six months ended six months ended
30 September 1997 30 September 1996
----------------------- -----------------------
Operating Operating
TURNOVER profit Turnover profit
- ----------------------------------------------------------------------------------------------------
Lm Lm Lm Lm
<S> <C> <C> <C> <C>
BY ACTIVITY
Coal 691 85 733 88
Power 1,248 31 1,086 39
Networks 215 81 204 78
Other 13 (10) 15 (9)
Intra-group trading (160) - (169) -
----- ----- ----- -----
2,007 187 1,869 196
Exceptional operating costs (Note 4) - (16) - -
----- ----- ----- -----
2,007 171 1,869 196
----- ----- ----- -----
BY GEOGRAPHICAL LOCATION
United Kingdom 1,296 96 1,136 108
USA 622 73 650 70
Australia 79 17 83 18
Other 10 1 - -
----- ----- ----- -----
2,007 187 1,869 196
----- ----- ----- -----
</TABLE>
Turnover and operating profit for coal include the results for contract
restructuring.
cont . . .
<PAGE> 222
Page 13
4. EXCEPTIONAL OPERATING COSTS
The exceptional costs in the six month period relate to L7 million of
restructuring costs within the Power segment and costs of L9 million associated
with PacifiCorp's bid.
5. TAXATION
The effective rate of tax for the six month period is 132.0% compared with 31.2%
for the six months ended 31 March 1997. The increase is due mainly to the
exceptional windfall tax charge of L112 million. The underlying rate, excluding
the impact of the exceptional restructuring charge, is 26.3%.
6. EARNINGS PER ORDINARY SHARE
Earnings per ordinary share are calculated using the number of ordinary shares
in issue excluding those held by The Energy Group Employee Benefit Trust which
has waived its right to dividends on the shares it holds. The number of ordinary
shares used to calculate earnings per share was as follows:
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
UNAUDITED PRO FORMA PRO FORMA
SIX MONTHS TO SIX MONTHS TO YEAR TO
30 SEPTEMBER 30 SEPTEMBER 31 MARCH
1997 1996 1997
000'S 000'S 000'S
<S> <C> <C> <C>
Total number of shares in issue 520,858 520,858 520,858
Shares held by Trust (4,101) - (2,250)
------- ------- -------
Total number of shares used in calculation 516,757 520,858 518,608
------- ------- -------
</TABLE>
Earnings per share before exceptional costs is based on profits before the
exceptional windfall tax charge and exceptional operating costs.
7. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE SIX MONTHS ENDED
30 SEPTEMBER 1997
<TABLE>
<CAPTION>
LM
<S> <C>
Opening shareholders' funds 1,845
Retained loss on ordinary activities (75)
Currency differences on foreign net investments 12
Goodwill arising on acquisitions (56)
-----
Closing shareholders' funds 1,726
-----
</TABLE>
cont...
<PAGE> 223
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 14
8. CASH FLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
UNAUDITED AUDITED
SIX MONTHS TO SIX MONTHS TO
30 SEPTEMBER 31 MARCH
1997 1997
LM LM
<S> <C> <C>
Operating profit before exceptional costs 187 317
Depreciation and depletion 109 100
Increase in investments (1) (2)
Increase in stocks (52) (8)
Increase in debtors (53) (83)
Increase in creditors 130 50
Provisions (24) (23)
Other movements (23) (5)
--- ---
Net cash inflow from operating activities 273 346
--- ---
</TABLE>
9. ANALYSIS OF MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
ACQUISITIONS
(EXCLUDING
OPENING CASH AND OTHER EXCHANGE CLOSING
BALANCE CASH FLOW OVERDRAFTS) MOVEMENTS MOVEMENTS BALANCE
LM LM LM LM LM LM
<S> <C> <C> <C> <C> <C> <C>
Cash 385 (212) - - 1 174
Overdrafts (61) (15) - - 6 (70)
----
(227)
----
Debt due after 1 year (1,655) (278) (143) 29 (3) (2,050)
Debt due within 1 year (738) 153 (11) (53) 1 (648)
----
(125)
----
Short term deposits 753 373 - - 3 1,129
------ ---- ---- --- -- ------
Net Debt (1,316) 21 (154) (24) 8 (1,465)
====== ==== ==== === == ======
</TABLE>
cont...
<PAGE> 224
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
Page 15
US $ EQUIVALENT CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
Unaudited Unaudited
Unaudited pro forma pro forma
six months to six months to year to
30 September 30 September 31 March
1997 1996 1997
LM Lm Lm
<S> <C> <C> <C>
TURNOVER
Coal 1,137 1,131 2,232
Power 2,050 1,783 4,741
Networks 353 335 785
Other 21 25 39
Intra-group trading (263) (278) (625)
------ ----- -----
TURNOVER -- CONTINUING ACTIVITIES 3,298 2,996 7,172
------ ----- -----
OPERATING PROFIT
Coal 140 136 242
Power 51 64 276
Networks 133 128 328
Other (17) (14) (28)
------ ----- -----
307 314 818
EXCEPTIONAL CHARGES (26) - (33)
------ ----- -----
OPERATING PROFIT -- CONTINUING ACTIVITIES 281 314 785
NET INTEREST PAYABLE AND SIMILAR CHARGES (107) (57) (145)
------ ----- -----
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 174 257 640
TAXATION CHARGE FOR PERIOD (230) (79) (199)
------ ----- -----
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION (56) 178 441
DIVIDEND (67) - (48)
------ ----- -----
(LOSS)/PROFIT REGAINED FOR THE PERIOD (123) 178 393
------ ----- -----
EARNINGS PER ADS
Basic $(0.43) $1.43 $3.49
Pre-exceptional $ 1.16 $1.43 $3.72
------ ----- -----
</TABLE>
NOTES:
i For convenience only, sterling figures, other than coal, have been
translated into US dollars at the average rate for the six months ended
30 September 1997 of L1 = $1.6421.
ii Coal figures have been stated in their original US dollar values so as
to eliminate the impact of movements in the L:$ rate from revenues and
earnings which are earned substantially in the United States.
iii For convenience only, sterling earnings per share figures have been
translated into US dollars at the average rate for the six months ended
30 September 1997 of L1 = $1.6421 and multiplied by a factor of four to
give earnings per ADS figures.
<PAGE> 225
PRESS RELEASE
[THE ENERGY GROUP PLC letterhead]
November 14, 1997
EASTERN ELECTRICITY ACCEPTS OFFER PRICE PROPOSALS
The Energy Group announces that Eastern Electricity, part of Eastern Group,
confirmed today that it has accepted OFFER's supply price review proposals.
From April next year Eastern's three million customers can expect to receive an
average reduction in their electricity bills of nearly 12 per cent in real terms
over two years.
For a typical customers -- on the standard domestic tariff with an annual bill
of L260 a year -- this represents a reduction in 1998/99 of L23. There will be a
further reduction of L8 in the following year -- giving a total real terms
reduction of L54 over the two years.
Including the latest reductions, power prices for a typical Eastern domestic
customer will have fallen by 30 per cent in real terms since 1991.
John Devaney, Executive Chairman of Eastern Group, said: "This is excellent news
for customers who will continue to receive an excellent product at a competitive
price. They are now guaranteed price reductions of nearly 12 per cent over the
next two years with no real increase in current standing charges."
INQUIRIES: Ian Seaton or Dave Betteridge (01473) 553400 or 553410
<PAGE> 226
[POWDER RIVER COAL Letterhead] NEWS RELEASE
CONTACT:
Ryan Tew
307-687-6951
FOR IMMEDIATE RELEASE
Nov. 14, 1997
RAWHIDE MINE IDLED
DUE TO WEAK MARKET CONDITIONS
GILLETTE, Wyo., Nov. 14 -- Rawhide Mine in Wyoming will be idled on April 1,
1998, for an indefinite period due to weak market conditions. Rawhide is
operated by Peabody Holding Company's Powder River Coal Company.
"Although Rawhide's employees have made the mine very productive, we will
not squander the mine's low sulfur reserves by selling its production at today's
spot prices," said Peabody Holding President and Chief Operating Officer Peter
B. Lilly.
Powder River Coal President Larry H. Fox said, "We will consolidate our
business and optimize production at our other mines until market conditions
justify reopening Rawhide. For 1998, contract sales for Rawhide will be shipped
from Powder River Coal's three other mines in Wyoming."
The mine's 154 employees will be offered other jobs at Powder River Coal's
North Antelope, Rochelle and Caballo mines or remain at the mine to continue
reclamation, maintenance or operational activities.
-more -
<PAGE> 227
RAWHIDE MINE IDLED -- ADD ONE
"By idling Rawhide, Powder River Coal Company will avoid participation in
the weak spot markets," Fox said. All of the company's 1997 and 1998 scheduled
coal production has been sold. "Market prices have improved somewhat in recent
weeks but the increase is not sufficient to justify selling Rawhide's coal in
the spot market. We expect that Phase Two of the Clean Air Act and further
penetration of the eastern U.S. coal market will increase demand for Powder
River's coal and allow us to reopen Rawhide Mine."
Rawhide Mine, located nine miles north of Gillette, Wyo., shipped 12
million tons of coal in the 12 months ending September 30, 1997. Powder River
Coal Company sold 91.6 million tons during the year. According to U.S. Labor
Department data, Powder River Coal's four mines -- North Antelope, Rawhide,
Rochelle and Caballo -- were the top four mines in the United States in 1996 in
terms of productivity.
Peabody, the world's largest private coal producer, is part of The Energy
Group PLC, a diversified international energy company, which also includes
Eastern, a leading integrated electricity and gas group in Great Britain, and
Citizens Power, one of the top ten power marketers in the United States.
Peabody's coal products fuel more than 9 percent of U.S. electricity generation.
-30-
<PAGE> 228
[EASTERN Letterhead] Corporate
Communications
Eastern Group plc
Wherstead Park
P.O. Box 40
Wherstead
Ipswich
Suffolk IP9 2AQ
Direct tel: (01473)
553401
(01473) 553410
(01473) 553403
HQ55
14 NOVEMBER 1997
EASTERN GROUP AGREES COAL DEAL WITH RJB MINING
EASTERN POWER & ENERGY TRADING LTD, PART OF EASTERN GROUP, ANNOUNCED TODAY THAT
IT HAS SUCCESSFULLY CONCLUDED NEGOTIATIONS WITH RJB MINING FOR THE PURCHASE OF 4
MILLION TONNES OF COAL PER ANNUM FOR THE NEXT THREE YEARS, STARTING APRIL 1998.
Eastern Group, through its subsidiary Eastern Generation, is Britain's fourth
biggest electricity generator with around 10 per cent of the country's total
generating capacity. It currently owns, operates or has interests in eight power
stations -- a mix of combined-cycle gas turbine and coal-fired stations.
The capacity increased by almost 6,000MW in 1996 as a result of leasing
agreements for five coal-fired stations -- Rugeley, Ironbridge, West Burton,
High Marnham and Drakelow.
John Devaney, Eastern's Executive Chairman, said: "We are very pleased to have
concluded negotiations with RJB. This contract forms an important part of our
coal portfolio for the next three years."
Ends
Inquiries: Ian Seaton or Dave Betteridge (01473) 553400 or 553410.
<PAGE> 229
[EASTERN Letterhead] Corporate
Communications
Eastern Group plc
Wherstead Park
P.O. Box 40
Wherstead
Ipswich
Suffolk IP9 2AQ
Direct tel: (01473)
553401
(01473) 553410
(01473) 553403
HQ56D
24TH NOVEMBER 97
GEARING-UP FOR THE MILLENNIUM -- HOLMER GREEN
EASTERN ELECTRICITY, A NATION-WIDE PROVIDER OF ELECTRICITY, IS INVESTING
L250,000 TO REVOLUTIONISE THE ELECTRICITY SUPPLY NETWORK AT HOLMER GREEN IN
BUCKINGHAMSHIRE.
A major scheme to refurbish the 11,000 volt overhead lines which transport power
from Amersham and Great Missenden to Holmer Green is currently underway. The
work will be completed by Christmas.
The work follows an earlier underground cable laying project which included new
switchgear being strategically installed on both high voltage circuits supplying
Holmer Green. This scheme is leading edge technology and a first for Eastern
Electricity and the UK.
The current work will include improving lightning protection, installing vermin
protection and selective undergrounding of high voltage overhead lines in
densely wooded areas. The new technology brings the benefits of greater
flexibility, greater protection and low maintenance.
Much of the new equipment can be controlled remotely from Eastern's Central
Control Centre. Once fitted, the system will mean fewer interruptions and
improved restoration times if a fault occurs.
By the turn of the century the company will have refurbished or replaced the
majority of its 11,000 volt overhead network of wires -- some 19,700 kilometres
in total and the backbone of the rural network.
Eddie Hyams, Managing Director Networks said: "Eastern is looking to the future.
We are half-way through a major programme of investment throughout the region
which serves to reaffirm the company's continuing commitment to reliability and
a quality customer service."
Another innovation, a method of working on overhead lines while they are still
live, is now widely used by Eastern Electricity linesmen. Called 'hot-glove'
working it often enables maintenance to be carried out on overhead lines without
interrupting power supplies.
<PAGE> 230
New diagnostic techniques are being introduced which will pin-point the optimum
time to schedule maintenance work -- again minimising the need to interrupt
customers electricity supplies.
Latest statistics show that the overall reliability of Eastern's network is
continually improving. During 1996/97, for the second year running, the overall
time customers were without electricity was reduced. When faults did occur,
supplies were restored within three hours in 93.1 per cent of cases -- one of
the best performances in the country.
ends
Inquiries: Clare Bacon (01473) 553401.
<PAGE> 231
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE ENERGY GROUP PLC
--------------------------------------
(Registrant)
Date: December 2, 1997 By /s/ MARTIN MURRAY
------------------------------------
Martin Murray
General Counsel
and Secretary
<PAGE> 232
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1933
For the month of December, 1997
THE ENERGY GROUP PLC
- --------------------------------------------------------------------------------
(Translation of registrant's name into English)
117 Piccadilly, London WIV 9FJ, England
- --------------------------------------------------------------------------------
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
<TABLE>
<S> <C>
Form 20-F Form 40-F
[X] [ ]
</TABLE>
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
<TABLE>
<S> <C>
Yes No
[ ] [X]
</TABLE>
<PAGE> 233
THE ENERGY GROUP PLC
Announcements to the London Stock Exchange during December 1997
DATE ANNOUNCEMENT SENT: DECEMBER 9, 1997
On 8 December 1997 National Westminster Bank PLC notified The Energy Group PLC
that it is interested, for the purposes of sections 208 and 209 of the Companies
Act 1985, in a total of 15,898,193 ordinary shares of The Energy Group PLC,
representing 3.05% of the issued ordinary share capital of the company.
DATE ANNOUNCEMENT SENT: DECEMBER 19, 1997
By a letter dated 17 December 1997 (received by the company on 19 December),
National Westminster Bank PLC notified The Energy Group PLC that it no longer
has a notifiable interest, within the meaning of Section 199(2) of the Companies
Act 1985, in the issued ordinary share capital of the company.
DATE ANNOUNCEMENT SENT: DECEMBER 24, 1997
By a letter dated 22 December 1997 (received by the company on 24 December),
National Westminster Bank PLC notified The Energy Group PLC that it is
interested, for the purposes of Sections 208 and 209 of the Companies Act 1985,
in a total of 15,629,214 ordinary shares of The Energy Group PLC, representing
3.0006% of the issued ordinary share capital of the company.
DATE ANNOUNCEMENT SENT: DECEMBER 29, 1997
By a letter dated 23 December 1997 (received by the company on 29 December),
National Westminster Bank PLC notified The Energy Group PLC that it no longer
has a notifiable interest, within the meaning of Section 199(2) of the Companies
Act 1985, in the issued ordinary share capital of the company.
DATE ANNOUNCEMENT SENT: DECEMBER 31, 1997
By a letter dated 30 December 1997, National Westminster Bank PLC notified The
Energy Group PLC that it is interested, for the purposes of Sections 208 and 209
of the Companies Act 1985, in a total of 15,729,341 ordinary shares of The
Energy Group PLC, representing 3.02% of the issued ordinary share capital of the
company.
<PAGE> 234
PRESS RELEASE [THE ENERGY GROUP PLC letterhead]
December 1, 1997
EASTERN GROUP EXPANDS NORTH SEA GAS INTERESTS
THE ENERGY GROUP ANNOUNCES THAT EASTERN NATURAL GAS (OFFSHORE) LTD, A SUBSIDIARY
OF EASTERN POWER & ENERGY TRADING LTD, WHOSE PARENT COMPANY IS EASTERN GROUP,
HAS PURCHASED A 30 PER CENT INTEREST IN THE ESMOND TRANSPORTATION SYSTEM (ETS)
FOR A CONSIDERATION OF APPROXIMATELY L4 MILLION FROM BHP PETROLEUM GREAT BRITAIN
PLC AND BHP PETROLEUM (U.K.) CORPORATION, SUBSIDIARIES OF THE BROKEN HILL
PROPRIETARY COMPANY LIMITED.
ETS is a subsea pipeline, part of the EAGLES transportation system and operated
by ARCO, which transports natural gas from the southern North Sea to the Bacton
terminal in Norfolk. The owners of ETS receive a tariff for the transportation
of gas owned by North Sea gas producers.
Jim Whelan, Managing Director, Eastern Power & Energy Trading, said: "In
addition to tariff revenues and certain capacity rights, this purchase will give
us a closer insight into local operating conditions and the gas market
environment. We will apply this information into our gas operations generally.
This strategic purchase also signals our intention to be an active player
internationally in significant infrastructure projects which generate trading
benefits."
ENQUIRIES: Jim Whelan, Managing Director,
Eastern Energy & Trading
01473 554600
<PAGE> 235
[Peabody letterhead] NEWS RELEASE
CONTACT:
Gayla Hoffman
314-342-7768
e-mail:
[email protected]
FOR IMMEDIATE RELEASE
Dec. 1, 1997
PEABODY WEB SITE WILL FEATURE
DAILY STATUS OF KYOTO TREATY NEGOTIATIONS
ST. LOUIS, Dec. 1 -- The Peabody Group has added two links to its web site
(www.peabodygroup.com) that will publish daily updates on the climate change
treaty negotiations opening today in Kyoto, Japan.
Visitors to the Peabody web site may access information through links to
the Earth Negotiations Bulletin and the Global Climate Coalition. By clicking on
Kyoto Treaty, viewers will be taken to another page with buttons for the Earth
Negotiations Bulletin and the Global Climate Coalition.
Earth Negotiation Bulletin is published by the international institute for
Sustainable Development as an electronic clearing-house for information on past
and upcoming international meetings related to environment and development. The
Global Climate Coalition is an organization of private companies and business
trade associations established to coordinate business participation in the
scientific and policy debate on the global climate change issue.
John M. Wooten, Peabody's vice president-environment and technology, will
attend the Kyoto negotiations as an official Non-Governmental Observer.
- 30 -
<PAGE> 236
[Eastern letterhead]
Corporate
Communications
Eastern Group plc
Wherstead Park
P.O. Box 40
Wherstead
Ipswich
Suffolk IP9 2AQ
Direct tel: (01473)
553401
(01473) 553410
(01473) 553403
HQ58D
2nd December 1997
GEARING-UP FOR THE MILLENNIUM IN -- NEWTON FLOTMAN
Eastern Electricity, a nation-wide provider of electricity, is rebuilding the
overhead power network in and around Newton Flotman using a new covered
conductor developed in Finland.
It is the first time this type of covered conductor which has been designed to
improve supply reliability in the harshest of environments, has been used on
Eastern Electricity's high voltage network.
A total of 54km of overhead lines will be replaced at a cost of L1.5m. The work
will be completed by the Spring.
The improved insulating properties of the covering greatly reduces the risk of
damage by clashing conductors, tree branches, windbourne debris and vermin.
Eastern Electricity will be rebuilding the existing 11,000 volt overhead lines
in the parishes of Newton Flotman, Swainsthorpe, Shotesham, Stoke Holy Cross,
Poringland, Bracon Ash, Flordon and Saxlingham Nethergate.
Region wide, Eastern Electricity is investing L460 million over the five year
period 1995-2000 to revolutionise its electricity network -- already one of the
most reliable in the country.
Eddie Hyarns, Managing Director Networks said: "Eastern is looking to the
future. We are half-way through a major programme of investment which serves to
reaffirm the company's continuing commitment to reliability and a quality
customer service."
By the turn of the century the company will have renovated or replaced the
majority of its 11,000 volt overhead network of wires -- some 19,700 kilometres
in total and the backbone of the rural network.
<PAGE> 237
Latest statistics show that the overall reliability of Eastern's network is
continually improving. During 1996/97, for the second year running, the overall
time customers were without electricity was reduced. When faults did occur,
supplies were restored within three hours in 93.1 per cent of cases -- one of
the best performances in the country.
ends
Inquiries: Clare Bacon (01473) 553401.
<PAGE> 238
[EASTERN ELECTRICITY letterhead]
<TABLE>
<S> <C>
Corporate Communications
Eastern Group plc
Wherstead Park
P.O. Box 40
Wherstead
Ipswich
Suffolk IP9 2AQ
Direct tel: (01473) 553401
(01473) 553410
(01473) 553403
</TABLE>
HQ59
9 December 1997
EASTERN GROUP TO SELL CONTRACTING BUSINESS
The Energy Group PLC announces that its subsidiary Eastern Group is selling its
Eastern Electricity Contracting division to its current management.
Eastern Electricity Contracting provides design, installation and maintenance
services for high voltage networks, power generation and standby systems to a
wide range of customers. This business has until recently made small operating
losses. It employs over 800 people and is based at Milton, Cambridgeshire.
As a consequence of the sale, Eastern expects to release in excess of L10mn in
cash. Completion of the transaction is expected to take place by the beginning
of January 1998.
John Devaney, Executive Chairman of Eastern Group, said: "Eastern's policy is to
concentrate on its core activities namely generation, distribution, trading and
the retail sale of energy. We are pleased to have agreed the terms of this sale
to the current management."
Ends
Enquiries: Ian Seaton or Dave Betteridge, Media Relations, 01473 553410.
<PAGE> 239
EASTERN letterhead
CCorporate Communications
Eastern Group plc
Wherstead Park
P.O. Box 40
Wherstead
Ipswich
Suffolk IP9 2AQ
Direct tel: (01473)
553401
(01473) 553410
(01473) 553403
HQ60
Embargoed: 00:01 15 December 1997
EASTERN LAUNCHES ELECTRICITY SALES NATION-WIDE
AND SLICES L150 OFF GAS AND ELECTRICITY BILLS
EASTERN GROUP -- ALREADY A NATION-WIDE SUPPLIER OF ELECTRICITY AND GAS TO
BUSINESSES -- TODAY PLEDGED TO SLICE L150 OR MORE OFF GAS AND ELECTRICITY BILLS
NEXT YEAR FOR MILLIONS OF HOUSEHOLDS PREPARED TO SWITCH SUPPLIERS FOR THE
FIRST-TIME.
The company aims to supply up to six million homes nation-wide by the turn of
the century -- building on its existing three million electricity customers and
450,000 households that have now switched to Eastern Natural Gas as gas
competition is phased-in across Britain.
Eastern is offering 20% or 24.6% off current British Gas standard
prices -- saving at least L100 a year on a L500 bill. Households switching to
Eastern for electricity will receive L30 cash-back plus typical savings of
between L20 and L50 per year. Either deal is available separately.
John Devaney, Executive Chairman, Eastern Group, said: "We are the leading and
fastest growing supplier and aim to be the number one choice for customers
through innovation, competitive pricing and the quality of our service."
This major initiative, under the name Eastern Electricity & Natural Gas, is
already underway and has secured thousands of new electricity customers ahead of
the start of competition.
The early targets include Canterbury, Hull and Chester postcode areas which,
along with Norwich within Eastern's own region, are the first areas to be opened
up to electricity competition in 1998.
Customers can find out more about the savings by calling free-phone 0800 7 313
313. Switching suppliers is simple. Eastern will use existing meters, pipes and
cables and will bill customers directly.
<PAGE> 240
. . . 2 more
Eastern Group is the leading nation-wide supplier of electricity and natural gas
in the industrial and commercial markets which have already opened to
competition. The company has 13% of the 100kW-plus electricity market and 11% of
the competitive business gas market.
Eastern's existing three million domestic customers in north London and the
eastern counties will have seen, by April 1998, average electricity prices fall
by around 30% in real terms since 1991.
Ends
Media inquiries: Dave Betteridge or Ian Seaton (01473) 553410 or
553400.
Notes to editors
- - A household currently spending L500 a year on gas and paying quarterly by cash
or cheque with British Gas would save around 20% (L100) by switching to
Eastern -- or up to 24.6% by switching to direct debit.
- - The customer will receive a one-off L30 cash-back for switching to Eastern
from their local electricity company. Electricity tariffs vary from region to
region. Eastern offers typical savings of between L20-L25 per year for a
customer using 3,300 units per year and L45-L50 per year for a consumption of
7,500 units. Prices are based on latest announced prices.
- - According to the electricity regulator, OFFER, Eastern Electricity is one of
only four electricity companies likely to be prepared for the start of
electricity competition. Customers in the Norwich(NR), Canterbury(CT),
Chester(CH) and Hull(HU) postcode areas should be among the first to be able
to shop around.
<PAGE> 241
PRESS RELEASE [THE ENERGY GROUP PLC letterhead]
December 19, 1997
THE PRESIDENT OF THE BOARD OF TRADE GIVES APPROVAL
FOR PACIFICORP'S PROPOSED OFFER FOR THE ENERGY
GROUP PLC
The Energy Group welcomes the announcement today by the President of the Board
of Trade approving the proposed offer for The Energy Group by PacifiCorp.
Commenting on the announcement, Derek Bonham, Chairman of The Energy Group said:
"We note that approval has been received based on the original undertakings
provided by PacifiCorp. However, approvals from the Federal Trade Commission and
the Federal Energy Regulatory Commission in the USA are still awaited and, until
all the regulatory hurdles have been cleared, we do not intend making any
further comment or announcements. It will be recalled that the offer made by
PacifiCorp in June 1997 lapsed on its referral to the Monopolies and Mergers
Commission.
We continue to believe, however, that the combination of The Energy Group and
PacifiCorp would create a premier global energy company. The Energy Group has an
exciting future and our core businesses continue to perform strongly. Our
success in winning significant numbers of new gas customers demonstrates our
ability to compete in the UK. We intend to be a vigorous competitor in the
electricity markets as they open up.
Cont . . .
<PAGE> 242
PRESS RELEASE [THE ENERGY GROUP PLC letterhead]
Page 2
The combination of Peabody and Citizens Power is already providing the Group
with many opportunities to take advantage of the deregulating US market. We have
an enviable range of skills across the whole of the energy chain and we are
winning new business in targeted international markets."
<TABLE>
<S> <C>
ENQUIRIES: Aviva Gershuny-Roth
The Energy Group PLC
Tel: 0171-647 3200
</TABLE>
<PAGE> 243
[POWDER RIVER COAL letterhead] NEWS RELEASE
<TABLE>
<S> <C>
CONTACT: Ryan Tew
Curt Freeman Powder River Coal Company
Montana Power 307-887-6951
408-497-2368
</TABLE>
FOR IMMEDIATE RELEASE
Dec. 22, 1997
PEABODY GROUP, MONTANA POWER
ANNOUNCE ROCKY BUTTE ACQUISITION
GILLETTE, Wyo., Dec. 22 -- Subsidiaries of the Peabody Group and The Montana
Power Company said today that Caballo Coal Company has acquired from Horizon
Coal Services Inc. 280 million tons of recoverable reserves, known as Rocky
Butte, adjacent to the Caballo Mine south of Gillette.
Caballo Coal Company is a subsidiary of the Peabody Group's Powder River
Coal Company, headquartered in Gillette. Horizon Coal Services is a subsidiary
of Butte-based Montana Power, a broadly diversified energy and
telecommunications services company. Terms of the agreement were not disclosed.
Powder River Coal President Larry H. Fox said, "This is an excellent
addition of a high quality coal reserve to our portfolio. In the short term,
this strategic acquisition will maximize our current coal recovery at Caballo,
while extending the life of the mine by about 10 years. More importantly,
however, the acquisition of the Rocky Butte reserves demonstrates our long-term
commitment to coal development in the Powder River Basin."
Dick Cromer, executive vice president of Montana Power's Energy Supply
Division, said the transaction is good for both companies.
"While the Rocky Butte reserves are no longer a strategic asset for us
because of corporate decisions to focus on other Montana Power energy and
telecommunications business lines, they do represent a logical expansion to an
existing operation in the Power River Basin," he said. "I'm pleased we were able
to reach this agreement with Peabody, a company we consider to be a premiere
coal operation."
- more -
<PAGE> 244
ROCKY BUTTE -- ADD ONE
Caballo Mine, located 15 miles south of Gillette, shipped 20.8 million tons of
coal in the 12 months ending September 30, 1997. Powder River Coal Company sold
91.6 million tons during the year. According to U.S. Labor Department data,
Caballo Mine was the nation's fourth most productive mine in 1996.
Peabody, the world's largest private coal producer, is part of The Energy
Group PLC, a diversified international energy company, which also includes
Eastern, a leading integrated electricity and gas group in Great Britain, and
Citizens Power, one of the top ten power marketers in the United States.
Peabody's coal products fuel more than 9 percent of U.S. electricity generation.
<PAGE> 245
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE ENERGY GROUP PLC
------------------------------------
(Registrant)
<TABLE>
<S> <C>
Date: January 5, 1998 By /s/ MARTIN MURRAY
----------------------------------
Martin Murray
General Counsel
and Secretary
</TABLE>
<PAGE> 246
APPENDIX V
FINANCIAL AND OTHER INFORMATION OF TU ACQUISITIONS AND TEXAS UTILITIES
1 DIRECTORS AND EXECUTIVE OFFICERS OF TU ACQUISITIONS AND TEXAS UTILITIES
Set out in the table below are the names and present principal occupations or
employments, and the material occupations, positions, offices and employments
during the past five years, for the directors and executive officers of TU
Acquisitions and Texas Utilities and the name, principal business and address
for any corporation or other organisation in which such employment is carried
on. Each person listed below is of United States citizenship, and, unless
otherwise indicated, positions have been held for the past five years. Directors
are identified by the year in which such person became a director in
parentheses.
TU ACQUISITIONS
<TABLE>
<CAPTION>
NAME AND RESIDENCE PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT (AND PRINCIPAL BUSINESS);
OR BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING PAST FIVE YEARS
------------------- --------------------------------------------------------------------
<S> <C>
Erle Nye (1998) Chairman of the Board and Chief Executive of Texas Utilities since
Texas Utilities Company May 1997; prior thereto President and Chief Executive of TEI
Energy Plaza (formerly named Texas Utilities Company) (May 1995-May 1997);
1601 Bryan Street, 41st Floor prior thereto President of TEI (February 1987-May 1995).
Dallas, TX 75201-3411
H. Jarrell Gibbs (1998) Vice Chairman of the Board of Texas Utilities since November 1997;
Texas Utilities Company Vice Chairman of the Board of TEI since August 1997; prior thereto
Energy Plaza President, TU Electric (February 1996-December 1997); prior
1601 Bryan Street, 41st Floor thereto Vice President and Chief Financial Officer of Texas
Dallas, TX 75201-3411 Utilities (November 1991-February 1996) and President of Texas
Utilities Services, Inc. (March 1994-February 1996); prior thereto
Executive Vice President, Texas Utilities Services, Inc. (October
1991-March 1994); and prior thereto Executive Vice President, TU
Electric (May 1991-March 1994).
Michael J. McNally (1998) Executive Vice President and Chief Financial Officer of TEI since
Texas Utilities Company August 1997; Executive Vice President and Chief Financial Officer
Energy Plaza of Texas Utilities since May 1997; President of Texas Utilities
1601 Bryan Street, 41st Floor Services, Inc. since May 1997; prior thereto President, TU
Dallas, TX 75201-3411 Electric Transmission Division (February 1996-May 1997); prior
thereto Executive Vice President and General Manager, TU Electric
Transmission Division (October 1995-February 1996); prior thereto
Principal, Enron Development Corp. (October 1994-November 1995);
prior thereto Managing Director of Industrial Services, Enron
Capital and Trade Resources; President of Houston Pipe Line and
Louisiana Resources Company, and President of Enron Gas Liquids,
Inc. (February 1992-September 1994); and prior thereto Vice
President of Marketing, Houston Pipe Line Company (February
1990-January 1992).
Robert A. Wooldridge (1998) Partner of the law firm Worsham, Forsythe & Wooldridge, L.L.P.
Worsham, Forsythe & Wooldridge,
L.L.P.
Energy Plaza
1601 Bryan Street, Suite 30025
Dallas, TX 75201-3411
</TABLE>
V-1
<PAGE> 247
TEXAS UTILITIES
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE DURING PAST FIVE YEARS
---- ------------------------------------------
<S> <C>
J. S. Farrington (1983) Chairman Emeritus of Texas Utilities since May 1997; prior
Texas Utilities Company thereto Chairman of the Board of Texas Utilities (May
Energy Plaza 1995-May 1997); prior thereto Chairman of the Board and
1601 Bryan Street, 41st Floor Chief Executive of Texas Utilities (February 1987-May
Dallas, TX 75201-3411 1995); prior thereto President of Texas Utilities (May
1983-February 1987).
Bayard H. Friedman (1991) Friedman & Uhlemeyer, Inc., Investment Adviser, since
500 Throckmorton St., December 1992. Prior thereto, Senior Chairman and
Box 44225 Director, Team Bank (January 1990-November 1992). A
Fort Worth, TX 76102-3708 Director of Justin Industries.
William M. Griffin (1966) Principal, Griffin, Swanson & Company, Inc. (investments).
Griffin, Swanson & Co., Inc. Executive Vice President (until August 1985) and Chairman
1 State Street, Suite 1740 of the Finance Committees (until March 1986) of The
Hartford, CT 06103 Hartford Fire Insurance Company and Subsidiaries. A
Director of The Hartford Fire Insurance Company (until
March 1991) and Shawmut National Corporation (until April
1992).
Kerney Laday (1993) President, The Laday Company (management consulting and
The Laday Company business development) since July 1995; prior thereto Vice
122 W. Carpenter Freeway, Suite 480 President, field operations, Southern Region, U. S.
Irving, TX 75039 Customer Operations, Xerox Corporation (January 1991-June
1995); prior thereto Vice President and region general
manager, Xerox (1986-1991).
Margaret N. Maxey (1984) Director, Clint W. Murchison, Sr. Chair of Free Enterprise
The University of Texas and Professor, Biomedical Engineering Program, College of
CPE 3.168 Engineering, The University of Texas at Austin since 1982;
Austin, TX 78712 prior thereto Assistant Director, Energy Research
Institute, Columbia, South Carolina (1980-1982).
James A. Middleton (1989) Chairman of the Board and Chief Executive Officer, Crown
574 Chapala Drive Energy Company (oil and gas producing and tar sands
Pacific Palisades, CA 90272-4429 processing) since January 1996; prior thereto Executive
Vice President (October 1987-December 1994) and Senior
Vice President (June 1981-October 1987) of Atlantic
Richfield Company. President, ARCO Oil and Gas Company,
(January 1985-October 1990); a Director of ARCO Chemical
Company and Berry Petroleum Corp.
Erle Nye (1987) Chairman of the Board and Chief Executive of Texas Utilities
Texas Utilities Company since May 1997; prior thereto President and Chief
Energy Plaza Executive of Texas Utilities (May 1995-May 1997); prior
1601 Bryan Street, 41st Floor thereto President of Texas Utilities (February 1987-May
Dallas, TX 75201-3411 1995).
J. E. Oesterreicher (1996) Chairman of the Board of J. C. Penney Company, Inc.
J.C. Penney Company, Inc. (department store chain) since January 1997 and Chief
P.O. Box 10001 Executive Officer since January 1995; Vice Chairman of the
Dallas, TX 75301-0005 Board from 1995 to 1997; President, J. C. Penney Stores
and Catalog from 1992 to 1995. Director Brinker
International, Inc.
Charles R. Perry (1985) Oil and gas interests, private investments. Chairman of the
Perry Management, Inc. Board of Perry Management, Inc., Avion Flight Centre, Inc.
P.O. Box 60380 and Perry Gas Companies, Inc.
Midland, TX 79711-0380
</TABLE>
V-2
<PAGE> 248
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE DURING PAST FIVE YEARS
---- ------------------------------------------
<S> <C>
Herbert H. Richardson (1992) Associate Vice Chancellor for Engineering and Director,
Office of the Director Texas Transportation Institute, The Texas A&M University
Texas Transportation Institute System; Associate Dean of Engineering, Regents Professor
8th Floor CE/TTI, Suite 802 and Distinguished Professor of Engineering, Texas A&M
College Station, TX 77843-3135 University; Chancellor, The Texas A&M University System
(1991-1993) and Deputy Chancellor for Engineering, The
Texas A&M University System (1986-1991).
</TABLE>
2 REGISTERED/PRINCIPAL OFFICES
The registered office of TU Acquisitions is located at Kempson House,
Camomile Street, London EC3A 7AN United Kingdom.
The principal executive offices of Texas Utilities are located at 1601
Bryan Street, Dallas, Texas 75201, United States.
3 FINANCIAL INFORMATION FOR TEXAS UTILITIES
The following financial information for Texas Utilities has been extracted
from the Form 8-K, dated 26 February 1998:
V-3
<PAGE> 249
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
FORWARD LOOKING STATEMENTS
This report and other presentations made by Texas Utilities Company (the
Company or TUC) contain forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. Although the Company
believes that in making any such statement its expectations are based on
reasonable assumptions, any such statement involves uncertainties and is
qualified in its entirety by reference to the following important factors, among
others, that could cause the actual results of the Company to differ materially
from those projected in such forward-looking statement: (i) prevailing
governmental policies and regulatory actions, including those of the Federal
Energy Regulatory Commission, the Public Utility Commission of Texas (PUC), the
Railroad Commission of Texas (RRC), the Nuclear Regulatory Commission, and the
Office of the Regulator General of Victoria, Australia, with respect to allowed
rates of return, industry and rate structure, purchased power and investment
recovery, operations of nuclear generating facilities, acquisitions and
disposals of businesses or assets and facilities, operation and construction of
plant facilities, decommissioning costs, present or prospective wholesale and
retail competition, changes in tax laws and policies and changes in and
compliance with environmental and safety laws and policies, (ii) weather
conditions and other natural phenomena, (iii) unanticipated population growth or
decline, and changes in market demand and demographic patterns, (iv) competition
for retail and wholesale customers, (v) pricing and transportation of crude oil,
natural gas and other commodities, (vi) unanticipated changes in interest rates,
rates of inflation or in foreign exchange rates, (vii) unanticipated changes in
operating expenses and capital expenditures, (viii) capital market conditions,
(ix) competition for new energy development opportunities, (x) legal and
administrative proceedings and settlements, (xi) inability of counterparties to
meet their obligations with respect to the Company's financial instruments,
(xii) changes in technology used and services offered by the Company, and (xiii)
significant changes in the Company's relationship with its employees and the
potential adverse effects if labor disputes or grievances were to occur.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for the
Company to predict all of such factors; nor can the impact of each such factor
or the extent to which any factor, or combination of factors, may cause results
to differ materially from those contained in any forward-looking statement be
assessed.
FINANCIAL CONDITION
Mergers and Acquisitions
Certain comparisons in this Annual Report have been affected by the August
1997 acquisition of ENSERCH Corporation (ENSERCH) and the November 1997
acquisition of Lufkin-Conroe Communications Co. (LCC) by the Company and by the
December 1995 acquisition of Eastern Energy Limited (Eastern Energy) by Texas
Utilities Australia Pty. Ltd. (TU Australia), a wholly-owned subsidiary of the
Company. The results of each acquired company are included only for the periods
subsequent to acquisition. (See Note 1 to Consolidated Financial Statements.)
On August 5, 1997, the merger transactions (Merger) between the former
Texas Utilities Company, now known as Texas Energy Industries Inc. (TEI), and
ENSERCH were completed. At the effective time of the Merger: (i) the former
Texas Utilities Company changed its name to TEI, (ii) TEI and ENSERCH merged
with wholly-owned subsidiaries of TUC Holding Company, which, as a result, owned
all the common stock of TEI and of ENSERCH, (iii) TUC Holding Company changed
its name to Texas Utilities Company (now the Company), (iv) each share of TEI's
common stock was automatically converted into one share of common stock of TUC,
and (v) each share of common stock of ENSERCH was automatically converted into
0.225 share of common stock of TUC, with cash issued in lieu of fractional
shares. The share conversions were tax-free transactions.
V-4
<PAGE> 250
In the Merger, approximately 15. 9 million shares of TUC common stock were
issued to former holders of ENSERCH common stock. The value assigned to the TUC
shares issued and costs incurred in connection with the acquisition of ENSERCH
aggregated $579 million. At the date of the Merger, ENSERCH had debt and
preferred stock outstanding of approximately $1.3 billion.
Businesses and subsidiaries acquired in the Merger were Lone Star Gas
Company (Lone Star Gas), a gas distribution company in Texas, Lone Star Pipeline
Company (Lone Star Pipeline) and subsidiaries engaged in natural gas processing,
natural gas marketing, independent power production and international gas
distribution systems development.
On November 21, 1997, the Company acquired LCC. Approximately 8.7 million
shares of TUC common stock were issued to LCC stockholders in a stock-for-stock
exchange. The value assigned to the TUC shares issued and costs incurred in
connection with the acquisition of LCC aggregated $319 million. At the date of
the acquisition, LCC had debt outstanding of approximately $31 million.
The acquisitions of ENSERCH, LCC and Eastern Energy were accounted for as
purchase business combinations. The assets and liabilities of the acquired
companies at the acquisition dates were adjusted to their estimated fair values.
The excess of the purchase price paid by the Company over the estimated fair
value of net assets acquired and liabilities assumed was recorded as goodwill
and is being amortized over 40 years. The process of determining the fair value
of assets and liabilities of ENSERCH and LCC as of the date of acquisition is
continuing, and the final result awaits primarily the resolution of income tax
and other contingencies and finalization of some preliminary estimates.
For financial reporting purposes, the Company is being treated as the
successor to TEI. Unless otherwise specified, all references to the Company
which relate to a period prior to August 5, 1997, shall be deemed to be
references to TEI.
The Company continues to seek potential investment opportunities from time
to time when it concludes that such investments are consistent with its business
strategies and are likely to enhance the long-term return to its shareholders.
In January 1998, the Company announced that it had approached the Energy Group
plc (TEG) in connection with its possible interest in acquiring TEG. TEG is a
diversified international energy group. Discussions between the Company and TEG
are continuing and may or may not lead to an offer being made by the Company.
Likewise, the timing, amount and funding of any specific new business investment
opportunities are presently undetermined.
CAPITAL EXPENDITURES
The primary capital expenditures of the Company and all of its
majority-owned subsidiaries (System Companies) in 1997 and as estimated for 1998
through 2000 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000
---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash construction expenditures
(excluding allowance for funds used
during construction)............... $ 577,000 $ 886,000 $ 799,000 $ 852,000
Nuclear fuel (excluding allowance for
funds used during construction).... 71,000 104,000 81,000 92,000
Maturities and redemptions of
long-term debt, sinking fund
requirements, redemptions of
preferred stock and reacquisitions
of common stock.................... 2,276,000 772,000 505,000 1,859,000
---------- ---------- ---------- ----------
Total...................... $2,924,000 $1,762,000 $1,385,000 $2,803,000
========== ========== ========== ==========
</TABLE>
For information concerning construction work contemplated by the System
Companies and the commitments with respect thereto, see Note 15 to the
Consolidated Financial Statements.
V-5
<PAGE> 251
In 1997, the Company bought ENSERCH for $579 million and LCC for $319
million primarily through the issuance of common stock.
LIQUIDITY AND CAPITAL RESOURCES
For 1997, the System Companies generated cash from operations sufficient to
meet operating needs and debt service requirements, pay dividends on capital
stock, pay distributions on preferred securities of trusts and finance capital
expenditures. Factors affecting the continued ability of Texas Utilities
Electric Company (TU Electric), the Company's primary subsidiary, to fund its
capital requirements from operations include responsive regulatory practices
allowing recovery of capital investment through adequate depreciation rates,
recovery of the cost of fuel and purchased power and the opportunity to earn
competitive rates of return required in the capital markets.
External funds of a permanent or long-term nature are obtained through the
issuance of common and preferred stock, preferred securities and long-term debt
by the System Companies. The capitalization ratios of the Company and its
subsidiaries at December 31, 1997, consisted of approximately 52% long-term
debt, 5% TU Electric obligated, mandatorily redeemable, preferred securities of
subsidiary trusts holding solely debentures of TU Electric, 2% preferred stock
and 41% common stock equity.
Proceeds from financings by System Companies in 1997 were used primarily
for the early redemption or reacquisition of debt and preferred stock. The
financings consisted of:
<TABLE>
<CAPTION>
PRINCIPAL CURRENT
DESCRIPTION AMOUNT INTEREST RATES MATURITY
----------- ---------- ---------------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Senior Notes issued by the Company......... $ 300,000 6.20% to 6.375% 2002-2004
Unsecured Debentures issued by TU
Electric................................. 300,000 7.17% 2007
Pollution Control Revenue Bonds (backed by
TU Electric First Mortgage Bonds)........ 212,715 3.70% to 5.60% 2022-2032
TU Electric obligated, mandatorily
redeemable, preferred securities......... 493,273 7.183% to 8.175% 2037
Other...................................... 9,964
----------
Total............................ $1,315,952
==========
</TABLE>
During 1997, the Company purchased and retired 4,015,000 shares of its
common stock at a cost of $148.8 million. In addition, long-term debt and
preferred stock of subsidiary companies totaling $2.1 billion was retired. Early
redemptions of long-term debt and preferred stock may occur from time to time in
amounts presently undetermined. (See Notes 6 and 8 to Consolidated Financial
Statements.)
At December 31, 1997, TUC, TU Electric and ENSERCH had joint lines of
credit under credit facility agreements (Credit Agreements) with a group of
commercial banks. The Credit Agreements have two facilities. Facility A provides
for short-term borrowings aggregating up to $570 million outstanding at any one
time at variable interest rates and terminates April 23, 1998. Facility B
provides for short-term borrowings aggregating up to $1,330 million outstanding
at any one time at variable interest rates and terminates April 24, 2002. The
combined borrowings of TUC, TU Electric and ENSERCH under both facilities are
limited to an aggregate of $1,900 million outstanding at any one time. ENSERCH's
borrowings under both facilities are limited to an aggregate of up to $650
million outstanding at any one time. Borrowings under these facilities will be
used for working capital and other corporate purposes, including commercial
paper backup. The total of short-term borrowings authorized by the Board of
Directors of TUC at December 31, 1997, from banks or other lenders, was $2,150
million.
In addition, certain non-U.S. subsidiaries have revolving credit agreements
aggregating approximately $95 million, of which $61 million was outstanding at
December 31, 1997. These revolving credit agreements expire at various dates
through 2000.
V-6
<PAGE> 252
In January 1998, the Company issued $200 million of 6.375% Series C Senior
Notes due 2008, and ENSERCH issued $125 million of 6 1/4% Series A Notes due
2003 and $125 million of Remarketed Reset Notes due 2008 with a variable
interest rate (5.82% at date of issuance). Net proceeds from these borrowings
were used to refinance or redeem like amounts of higher rate debt and preferred
stock.
The System Companies may issue additional debt and equity securities as
needed, including the possible future sale: (i) by TU Electric of up to $148.9
million principal amount of debt securities, (ii) by TU Electric of up to
250,000 shares of Cumulative Preferred Stock ($100 liquidation value), and (iii)
by ENSERCH of up to $250 million aggregate principal amount of securities, all
of which are currently registered with the Securities and Exchange Commission
(SEC) for offering pursuant to Rule 415 under the Securities Act of 1933.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's market risk exposure is primarily a result of changes in
interest rates and commodity price exposures. Derivative instruments including
options, swaps, futures and other contractual commitments are used to reduce and
manage a portion of those risks. With the exception of the marketing activities
of a subsidiary, Enserch Energy Services, Inc. (EES), the Company's
participation in derivative transactions are designated for hedging purposes;
derivative instruments are not held or issued for trading purposes.
Credit Risk -- Credit risk relates to the risk of loss that the Company
would incur as a result of nonperformance by counterparties to their respective
derivative instruments. The Company maintains credit policies with regard to its
counterparties that management believes significantly minimize overall credit
risk. The Company does not obtain collateral to support the agreements but
monitors the financial viability of counterparties and believes its credit risk
is minimal on these transactions. The Company believes the risk of
nonperformance by counterparties is minimal.
V-7
<PAGE> 253
Interest Rate Market Risk -- The table below provides information
concerning the Company's financial instruments as of December 31, 1997 that are
sensitive to changes in interest rates, which include debt obligations and
interest rate swaps. For debt obligations, the table presents principal cash
flows and related weighted average interest rates by expected maturity dates.
The Company has entered into interest rate swaps under which it has agreed to
exchange the difference between fixed-rate and variable-rate interest amounts
calculated with reference to the specified notional principal amounts. The
contracts require settlement of net interest receivable or payable at specified
intervals (primarily semi-annually) which generally coincide with the dates on
which interest is payable on the underlying debt. When differences exist between
the swap settlement dates and the dates on which interest is payable on the
underlying debt, the gap exposure, or basis risk, is managed by means of forward
rate agreements. These forward rate agreements are not expected to have a
material effect on the Company's financial position, results of operations or
cash flows. For interest rate swaps, the table presents notional amounts and
weighted average interest rates by expected (contractual) maturity dates.
Weighted average variable rates are based on rates in effect at the reporting
date.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
------------------------------------
1998 1999 2000 2001
------ ------ ------ ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Long-term Debt (including current maturities)
Fixed Rate ($US).............................. $772.1 $504.7 $868.5 $344.4
Average interest rate...................... 7.18% 8.38% 6.61% 8.00%
Variable Rate ($US)........................... -- -- $990.4 --
Average interest rate...................... -- -- 6.18% --
Interest Rate Swaps (notional amounts)
Variable to Fixed ($US)....................... $ 16.3 $110.5 $ 32.5 --
Average pay rate........................... 5.29% 6.68% 6.14% --
Average receive rate....................... 5.08% 4.89% 4.89% --
Fixed to Variable ($US)....................... -- -- -- --
Average pay rate........................... -- -- -- --
Average receive rate....................... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
------------------------------------------
THERE- FAIR
2002 AFTER TOTAL VALUE
------ -------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Long-term Debt (including current
maturities)
Fixed Rate ($US)......................... $595.1 $4,446.2 $7,531.0 $7,931.7
Average interest rate................. 7.53% 7.54% 7.47% --
Variable Rate ($US)...................... -- $1,010.1 $2,000.5 $2,000.5
Average interest rate................. -- 4.83% 5.50% --
Interest Rate Swaps (notional amounts)
Variable to Fixed ($US).................. $468.2 $ 100.0 $ 727.5 $ (57.0)
Average pay rate...................... 8.45% 7.18% 7.83% --
Average receive rate.................. 5.23% 6.55% 5.34% --
Fixed to Variable ($US).................. -- $ 350.0 $ 350.0 $ 6.1
Average pay rate...................... -- 6.32% 6.32% --
Average receive rate.................. -- 6.89% 6.89% --
</TABLE>
Energy Marketing Market Risk -- As part of its natural gas marketing
activities, EES enters into forward contracts that principally involve physical
delivery of natural gas and derivative financial instruments, including options,
swaps, futures and other contractual arrangements to offset price risks of gas
supply. These activities involve price commitments into the future and,
therefore, give rise to market risk. EES applies mark-to-market accounting to
its business activities. At December 31, 1997, natural gas marketing operations
had net commitments to sell approximately 50.6 billion cubic feet (Bcf) of
natural gas through the year 2003 with offsetting net financial positions to
purchase approximately 61.3 Bcf.
V-8
<PAGE> 254
For purposes of new SEC disclosure requirements, EES has performed a
sensitivity analysis to estimate its exposure to market risk of its commodity
and related financial commitments. The exposure for fixed price natural gas
purchase and sale commitments, and derivative financial instruments, including
options, swaps, futures and other contractual commitments, is based on a
methodology that uses a five-day holding period and a 95% confidence level. EES
uses market-implied volatilities to determine its exposure to volatility risk.
Market risk is estimated as the potential loss in fair value resulting from at
least a 15% change in market factors which may differ from actual results. Using
15%, the most adverse change in fair value at December 31, 1997 as a result of
this analysis, was a reduction of $1.1 million. For additional information
regarding derivative instruments, see Note 9 to Consolidated Financial
Statements.
Nuclear Decommissioning and Disposal of Spent Fuel Trust -- TU Electric has
established an external trust to provide for nuclear decommissioning and
disposal of spent fuel. The trust is invested in marketable fixed income debt
and equity securities. At December 31, 1997, the current market value of the
debt and equity securities was $85.9 million and $74.1 million, respectively. A
hypothetical 10% increase in interest rates and 10% decrease in equity prices
would result in a $10.8 million reduction in the fair value of the trust assets.
However, adjustments to market value result in a corresponding adjustment to
related liability accounts based on current regulatory treatment.
REGULATION AND RATES
Under the current regulatory environment, certain System Companies are
subject to the provisions of Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71).
This statement applies to utilities that have cost-based rates established by a
regulator and charged to and collected from customers. In accordance with this
statement, these companies may defer the recognition of certain costs
(regulatory assets) and certain obligations (regulatory liabilities) that, as a
result of the ratemaking process, have probable corresponding increases or
decreases in future revenues. Future significant changes in regulation or
competition could affect these companies' ability to meet the criteria for
continued application of SFAS 71 and may affect these companies' ability to
recover such regulatory assets from, or refund such regulatory liabilities to,
customers. These regulatory assets and liabilities are being amortized over
various periods (5 to 40 years). The amortization is currently, or is expected
to be, included in rates. In the event all or a portion of these companies'
operations fail to meet the criteria for application of SFAS 71, these companies
would be required to write-off all or a portion of their regulatory assets and
liabilities. Should significant changes in regulation or competition occur, the
affected System Companies would be required to assess the recoverability of
certain assets, including plant and regulatory assets, and, if impaired, to
write down the assets to reflect their fair market value. (See Note 2 to
Consolidated Financial Statements.) The System Companies cannot predict the
timing or extent of changes in the business environment that may require the
discontinuation of SFAS 71 application.
Although TU Electric cannot predict future regulatory or legislative
actions or any changes in economic and securities market conditions, no changes
are expected in trends or commitments, other than those discussed in this Annual
Report, that might significantly alter its basic financial position, results of
operation or cash flows. (See Note 15 to Consolidated Financial Statements.)
DOCKET 9300 -- The PUC's final order (Order) in connection with TU
Electric's January 1990 rate increase request (Docket 9300) was reviewed by the
250th Judicial District Court of Travis County, Texas, (District Court) and
thereafter was appealed to the Court of Appeals for the Third District of Texas
and to the Supreme Court of Texas (Supreme Court). As a result of such review
and appeals, an aggregate of $909 million of disallowances with respect to TU
Electric's reacquisitions of minority owners' interests in Comanche Peak, which
had previously been recorded as a charge to the Company's earnings, has been
remanded to the District Court with instructions that it be remanded to the PUC
for reconsideration on the basis of a prudent investment standard. On remand,
the PUC would also be required to reevaluate the appropriate level of TU
Electric's construction work in progress included in rate base in light of its
financial condition at the time of the initial hearing. In January 1997, the
Supreme Court denied a motion for rehearing on the Comanche Peak minority owners
issue filed by the original complainants. TU Electric cannot predict the outcome
of the reconsideration of the Order on remand by the PUC.
V-9
<PAGE> 255
In its decision, the Supreme Court also affirmed the previous $472 million
prudence disallowance related to Comanche Peak. Since the Company has previously
recorded a charge to earnings for this prudence disallowance, the Supreme
Court's decision did not have an effect on the Company's current financial
position, results of operation or cash flows.
DOCKET 11735 -- In July 1994, TU Electric filed a petition in the 200th
Judicial District Court of Travis County, Texas to seek judicial review of the
final order of the PUC granting a $449 million, or 9.0%, rate increase in
connection with TU Electric's January 1993 rate increase request of $760
million, or 15.3% (Docket 11735). Other parties to the PUC proceedings also
filed appeals with respect to various portions of the order.
DOCKETS 15638 AND 15840 -- In May 1996, TU Electric filed with the PUC its
transmission cost information and tariffs for open-access wholesale transmission
service (Docket 15638) in accordance with PUC rules adopted in February 1996.
These tariffs also provide for generation-related ancillary services necessary
to support wholesale transactions. In August 1997, the PUC approved final
tariffs for TU Electric and implemented rates for other transmission providers
within the Electric Reliability Council of Texas (ERCOT) (Docket 15840). Under
rates implemented by the PUC, TU Electric's payments for transmission service
will exceed its revenues for providing transmission service. The PUC has adopted
a rate-moderation plan that will minimize the impact of the new pricing
mechanism for the first three years the rules are in effect. As such, the
current maximum impact on the Company for 1998 is an $8.52 million deficit,
which, in the opinion of the Company, is not expected to have a material effect
on its financial position, results of operation or cash flows.
DOCKET 17250 -- In late 1996, as part of its regular earnings monitoring
process, the PUC staff advised the PUC, after reviewing the 1995 Electric
Investor-Owned Utilities Earnings Report of TU Electric, that it believed TU
Electric was earning in excess of a reasonable rate of return, and the PUC and
TU Electric subsequently began discussions concerning possible remedies. It was
decided to limit negotiations to a resolution of issues concerning TU Electric's
earnings through 1997, and discussion of a longer-term resolution was deferred.
In July 1997, the PUC issued its final written order approving TU Electric's
proposal to make a one-time $80 million refund to its customers (Rate
Settlement) and to leave rates unchanged during the remainder of 1997. TU
Electric recorded the charge to revenues in July 1997 and included the refunds
in August 1997 billings. The proposal was the result of a joint stipulation in
which TU Electric was joined by the PUC General Counsel, on behalf of the PUC
Staff and the public interest, the Office of Public Utility Counsel, the state
agency charged with representing the interests of residential and small
commercial customers, and the Coalition of Cities served by TU Electric.
DOCKET 18490 -- On December 17, 1997, TU Electric, together with the PUC
General Counsel, the Office of Public Utility Counsel and various other parties
interested in TU Electric's rates and services, filed with the PUC a stipulation
and joint application which, if granted, would among other things: (i) result in
permanent retail base rate credits beginning January 1, 1998, of 4% for
residential customers, 2% for general service secondary customers and 1% for all
other retail customers, (ii) result in additional permanent retail base rate
credits beginning January 1, 1999, of 1.4% for residential customers, (iii)
impose a 11.35% cap on TU Electric's rate of return on equity during 1998 and
1999, with any sums earned above that cap being applied as additional nuclear
production depreciation, (iv) allow TU Electric to record depreciation
applicable to transmission and distribution assets in 1998 and 1999 as
additional depreciation of nuclear production assets, (v) establish an updated
cost of service study that includes interruptible customers as customer classes,
(vi) result in the permanent dismissal of pending appeals of prior PUC orders
including Docket No. 11735, if all other parties that have filed appeals of
those dockets also dismiss their appeals, (vii) result in the stay of any
proceedings in the removal of Docket 9300 prior to January 1, 2000, and (viii)
result in all gains from off-system sales of electricity in excess of the amount
included in base rates being flowed to customers through the fuel factor.
The PUC has until March 31, 1998 to approve or reject the stipulation and
joint application. Otherwise, TU Electric may terminate the base rate reductions
and all other aspects of the proposal upon giving two weeks notice to the PUC.
V-10
<PAGE> 256
Fuel Reconciliation Proceedings -- In July 1997, the PUC ruled on TU
Electric's petition seeking final reconciliation of all eligible fuel and
purchased power expenses incurred during the reconciliation period of July 1,
1992 through June 30, 1995 (approximately $4.7 billion). In the ruling, the PUC
disallowed approximately $81 million of eligible fuel related costs (including
interest of $12 million) incurred during the reconciliation period (Fuel
Disallowance). The majority of the Fuel Disallowance (approximately $67 million)
is related to replacement fuel costs as a result of the November 1993 collapse
of the emissions chimney serving Unit 3 of the Monticello lignite-fueled
generating station. In addition, the PUC ruled that approximately $10 million
from the gain on sale of sulfur dioxide allowances should be deferred and
reconsidered at a future date. TU Electric received a final written order from
the PUC and recorded the charge to revenues in August 1997. TU Electric strongly
disagrees with the Fuel Disallowance and has appealed the PUC's order.
Fuel Cost Recovery Rule -- TU Electric in July 1997, petitioned the PUC for
and received interim approval to refund approximately $67 million, including
interest, in over-collected fuel costs for the period October 1995 through May
1997 (Fuel Refund). Such over-collection was primarily due to TU Electric's
ability to use less expensive nuclear fuel and purchased power to offset a
higher-priced natural gas market during the period. Customer refunds were
included in August 1997 billings. A final order confirming the Fuel Refund was
entered by the PUC in October 1997.
Lone Star Gas and Lone Star Pipeline Rates -- In October 1996, Lone Star
Pipeline filed a request with the RRC to increase the rate it charges Lone Star
Gas to store and transport gas ultimately destined for residential and
commercial customers in the 550 Texas cities and towns served by Lone Star Gas.
Lone Star Gas also requested that the RRC separately set rates for costs to
aggregate gas supply for these cities. Rates previously in effect were set by
the RRC in 1982. In September 1997, the RRC issued an order reducing the charges
by Lone Star Pipeline to Lone Star Gas for storage and transportation services.
In that order, the RRC did authorize separate charges for the Lone Star Pipeline
storage and transportation services, a separate charge by Lone Star Gas for the
cost of aggregating gas supplies, and a continuation of the 100% flow through of
purchased gas expense. The RRC also imposed some new criteria for affiliate gas
purchases and a new reconciliation procedure that will require a review of
purchased gas expenses every three years. The RRC order has become final, but is
being appealed by several parties including Lone Star Pipeline and Lone Star
Gas. The rates authorized by the order became effective on December 1, 1997, and
will result in an annual margin reduction of approximately $8.2 million.
On August 20, 1996, the RRC ordered a general inquiry into the rates and
services of Lone Star Gas, most notably a review of Lone Star Gas' historic gas
cost and gas acquisition practices since the last rate setting. The inquiry
docket has been separated into different phases. Two of the phases, conversion
to the NARUC account numbering system and unbundling, have been dismissed by the
RRC, and one other phase, rate case expense, is pending RRC action on the basis
of a stipulation of all parties. In the phase dealing with historic gas cost and
gas acquisition practices, Lone Star Gas and Lone Star Pipeline have filed a
motion for summary disposition stating that any retroactive rate action would be
inappropriate and unlawful. Settlement discussions with intervenor cities are
ongoing. If the motion for summary disposition is denied, a hearing has been
scheduled to begin in August 1998. A number of management and transportation
related issues have been placed in a separate phase which still has an undefined
scope and is being held in abeyance pending the resolution of the phase dealing
with gas costs. Management believes that gas costs were prudently incurred and
were properly accounted for and recovered through the gas cost recovery
mechanism previously approved by the RRC. At this time, management is unable to
determine the ultimate outcome of the inquiry.
COMPETITION
The National Energy Policy Act of 1992 (Energy Policy Act) addresses a wide
range of energy issues and is intended to increase competition in electric
generation and broaden access to electric transmission systems. In addition, the
Public Utility Regulatory Act of 1995, as amended (PURA), impacts the PUC and
its regulatory practices and encourages increased competition in some aspects of
the electric utility industry in Texas. Although the Company is unable to
predict the ultimate impact of the Energy Policy Act, PURA and
V-11
<PAGE> 257
any related regulations or legislation on the System Companies' operations, it
believes that such actions are consistent with the trend toward increased
competition in the energy industry.
In order to remain competitive, the System Companies are aggressively
managing their operating costs and capital expenditures through streamlined
business processes and are developing and implementing strategies to address an
increasingly competitive environment. These strategies include initiatives to
improve their return on corporate assets and to maximize shareholder value
through new marketing programs, creative rate design and new business
opportunities. Additional initiatives under consideration include the potential
disposition or alternative utilization of existing assets and the restructuring
of strategic business units.
While TU Electric has experienced competitive pressures in the wholesale
market resulting in a small loss of load since the beginning of 1993, wholesale
sales represented a relatively low percentage of TU Electric's consolidated
operating revenues in 1997. TU Electric is unable to predict the extent of
future competitive developments in either the wholesale or retail markets or
what impact, if any, such developments may have on its operations.
Federal legislation such as the Public Utility Regulatory Policy Act of
1978 (PURPA) and, more recently, the Energy Policy Act, as well as initiatives
in various states, encourage wholesale competition among electric utility and
non-utility power producers. Together with increasing customer demand for lower-
priced electricity and other energy services, these measures have accelerated
the industry's movement toward a more competitive pricing and cost structure.
Competition in the electric utility industry was also addressed in the 1995
session of the Texas legislature. PURA was amended to encourage greater
wholesale competition and flexible retail pricing. PURA amendments also require
the PUC to report to the legislature, during each legislative session, on
competition in electric markets. Accordingly, PUC reports were submitted to the
Texas legislature in January 1997, recommending that the legislature continue
the process of expanding competition in the Texas electricity markets, leading
to expanded retail competition, and authorize the PUC to take numerous steps
toward that goal. The PUC further recommended that full competition not occur
prior to the year 2000 in order to provide an environment through which both
retail customers and utilities in Texas move more smoothly to achieve the
perceived benefits of competition. The PUC is seeking guidance from the
legislature and authority to address the issue of stranded cost recovery. The
PUC's estimate for TU Electric's potentially stranded retail costs ranged from a
projected excess of net book value over market value of $7.7 billion to a
projected excess of market value over net book value of $2.1 billion.
Legislation that would have authorized retail competition was not enacted by the
1997 Texas legislature.
While the Company anticipates legislation being enacted during the 1999
session of the Texas legislature to authorize competition in the retail market,
they cannot predict the ultimate outcome of the ongoing efforts that are taking
place to restructure the electric utility industry or whether such outcome will
have a material effect on their financial position, results of operation or cash
flows.
RESULTS OF OPERATION
For the year ended December 31, 1997, net income for the Company decreased
approximately 12% from the prior period. Results for 1997 were reduced by the
recognition of TU Electric's $80.0 million Rate Settlement refund in July 1997,
the August 1997 $81.1 million Fuel Disallowance (including interest) and a
charge of $10.1 million from the sale of sulfur dioxide allowances previously
recognized. After revenue-related and income taxes, these settlements reduced
income by $103.4 million. Excluding these items, 1997 net income increased
slightly over the 1996 period. For the year ended December 31, 1996, net income
increased approximately 14% over the comparable 1995 period, excluding the
after-tax effect of recording a September 1995 impairment of several
non-performing assets. Such impairment, on an after-tax basis, amounted to $802
million. (See Note 14 to Consolidated Financial Statements.)
TU Electric continued to experience core revenue and sales volume growth in
excess of 3% due to increases in both number of customers and usage. Warmer than
normal summer weather contributed to 1996 results, while summer weather was
normal in 1995 and 1997.
V-12
<PAGE> 258
Operating revenues increased approximately 21% and 16% for the years ended
December 31, 1997 and 1996, respectively. In 1997, the increase in operating
revenues was due primarily to the inclusion of ENSERCH revenues ($1,278.0
million) for the period following the Merger and to TU Electric's transmission
service revenues ($113.8 million) from implementing the PUC's Open Access
Transmission Rule effective January 1, 1997. LCC's revenues after acquisition
were $11.9 million. In 1996, the increase was due primarily to a full year of
Eastern Energy's revenues ($474 million).
Base rate electricity revenues (including unbilled sales) decreased
slightly from 1996 as a result of the Rate Settlement refund mentioned above,
while electric energy sales in megawatt hours (including unbilled sales)
increased approximately 2% and 11% for 1997 and 1996, respectively. Fuel revenue
increased in 1997 and 1996 due primarily to increases in fuel costs driven by
increased energy sales and spot market gas prices, partially offset, in 1997, by
the Fuel Disallowance.
Fuel and purchased power expense increased approximately 4% and 30% for
1997 and 1996, respectively. The increases were primarily due to increased
energy sales and increased spot market gas prices and in 1996 included 13.1%
attributable to Eastern Energy for a full year. (See Consolidated Operating
Statistics.) Gas purchased for resale represents the cost of gas ultimately sold
to ENSERCH gas customers, which is recovered in rates.
Total operating expenses, excluding fuel and purchased power and gas
purchased for resale, increased approximately 15% for 1997 and 9% for 1996
(including 8.6% in 1997 attributable to ENSERCH companies since acquisition and
5.7% in 1996 attributable to Eastern Energy). Operation and maintenance expense
increased in 1997 as result of recording third party transmission expenses in
accordance with the Public Utility Commission's Open Access Transmission Rule,
partially offset by decreased employee benefit expenses. The 1996 increase is
due primarily to increases in employee benefit expenses and payroll expenses.
Taxes other than income increased in 1997 due primarily to the effect of ENSERCH
and LCC amounts subsequent to acquisition. Taxes other than income decreased in
1996 as a result of a reduction in TU Electric's ad valorem tax obligation due
primarily to a property tax rate reduction, partially offset by an increase in
state and local gross receipts tax.
The change in other income (deductions) -- net in 1997 was primarily due to
losses from an interest in a telecommunications partnership. Amounts for 1996
were lower than the previous year due primarily to increased non-utility
property expenses and decreased allowance for equity funds used during
construction, partially offset by gains on the disposition of certain
properties.
Interest expense and distributions on preferred securities and preferred
stock of subsidiaries totaled $860.6 million in 1997, $884.3 million in 1996 and
$792.9 million in 1995. The Company's capital restructuring and debt reduction
programs have favorably affected the comparisons. Year-to-year comparisons are
also affected by the debt incurred or assumed in connection with the 1997
acquisitions of ENSERCH and LCC and the December 1995 acquisition of Eastern
Energy. Interest expense in 1996 included an interest payment related to a
settlement with the Internal Revenue Service, and 1997 interest expense included
a charge related to the settlement on over-recovered fuel. Allowance for funds
used during construction (AFUDC) decreased $2.4 million from 1996 to 1997 and
$4.1 million from 1995 to 1996.
The change in income tax expense (benefit) from 1995 to 1996 was due
primarily to the effects of the recording of the September 1995 asset
impairment. (See Note 10 to Consolidated Financial Statements for a
reconciliation of income taxes (benefit) computed at the statutory rate to
provision for income taxes (benefit)).
CHANGES IN ACCOUNTING STANDARDS
SFAS 130, "Reporting Comprehensive Income," will become effective in 1998.
This statement requires companies to report and display comprehensive income and
its components (revenues, expenses, gains and losses). Comprehensive income
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners.
V-13
<PAGE> 259
SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information," will become effective in 1998. This statement establishes
standards for defining and reporting business segments. The Company is currently
determining its reportable segments.
The adoption of SFAS 130 and SFAS 131 will not affect financial position,
results of operations or cash flows.
YEAR 2000 ISSUES
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or produce erroneous data by or at the Year
2000. The Year 2000 issues affect virtually all companies and organizations.
The Company began its Year 2000 initiative in 1996 by addressing
mainframe-based application systems. In early 1997, an infrastructure project to
address information technology (IT) related equipment and systems software was
begun. In late 1997, a corporate-wide project to address Year 2000 issues
related to embedded systems such as process controls for energy production and
delivery and client-developed applications was begun. Most of the ENSERCH
mainframe applications, infrastructure, embedded systems and client-developed
applications that will not be migrated to existing or planned Company systems
have been incorporated into these projects. These projects extend beyond the
Company's organization in an effort to also work with key vendors, service
suppliers and others so that the Company can appropriately prepare for Year
2000.
The remediation and replacement work on the majority of IT application
systems and infrastructure are expected to be completed by the end of 1998. Much
of the work on the corporate-wide Year 2000 project is expected to be completed
by the end of 1998, although the project will extend into 1999. Based on present
assessments of the IT and infrastructure projects, a cost of $11.25 million was
estimated. These costs are being expensed as incurred over the four-year period
(1996 through 1999) covered by the projects. Assessment of the cost of the
corporate-wide Year 2000 project is in the early stages.
Eastern Energy initiated a Year 2000 project in the third quarter of 1997.
The estimated cost of that project is $1.8 million, with completion anticipated
in early 1999. The cost to either modify or replace LCC application systems
affected by Year 2000 is estimated to be $1.5 million, with completion
anticipated in 1999. The effect on LCC's embedded systems is still being
assessed.
V-14
<PAGE> 260
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
OPERATING REVENUES..................................... $7,945,608 $6,550,928 $5,638,688
---------- ---------- ----------
OPERATING EXPENSES
Fuel and purchased power............................... 2,212,689 2,136,309 1,640,990
Gas purchased for resale............................... 1,052,977 - -
Operation and maintenance.............................. 1,548,150 1,256,280 1,109,644
Depreciation and amortization.......................... 666,448 620,505 563,819
Taxes other than income................................ 558,673 534,844 536,608
---------- ---------- ----------
Total operating expenses..................... 6,038,937 4,547,938 3,851,061
---------- ---------- ----------
OPERATING INCOME....................................... 1,906,671 2,002,990 1,787,627
OTHER INCOME (DEDUCTIONS) -- NET....................... (17,588) (1,148) 24,583
---------- ---------- ----------
INCOME BEFORE INTEREST, OTHER CHARGES AND INCOME
TAXES................................................ 1,889,083 2,001,842 1,812,210
---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest............................................... 762,937 797,893 706,182
Allowance for borrowed funds used during
construction......................................... (8,890) (11,248) (15,327)
Impairment of assets................................... - - 1,233,320
Distributions on TU Electric obligated, mandatorily
redeemable, preferred securities of subsidiary trusts
holding solely debentures of TU Electric............. 69,701 33,001 1,801
Preferred stock dividends of subsidiaries.............. 27,983 53,358 84,914
---------- ---------- ----------
Total interest and other charges............. 851,731 873,004 2,010,890
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES...................... 1,037,352 1,128,838 (198,680)
INCOME TAX EXPENSE (BENEFIT)........................... 376,898 375,232 (60,035)
---------- ---------- ----------
NET INCOME (LOSS)...................................... $ 660,454 $ 753,606 $ (138,645)
========== ========== ==========
Average shares of common stock outstanding
(thousands).......................................... 230,958 225,160 225,841
Per share of common stock:
Basic earnings (loss)................................ $ 2.86 $ 3.35 $ (0.61)
Diluted earnings (loss).............................. $ 2.85 $ 3.35 $ (0.61)
Dividends declared................................... $ 2.125 $ 2.025 $ 2.81
</TABLE>
See Notes to Consolidated Financial Statements.
V-15
<PAGE> 261
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ 660,454 $ 753,606 $ (138,645)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation and amortization (including amounts charged
to fuel)................................................ 838,606 774,305 725,646
Deferred income taxes -- net.............................. 167,705 184,612 (204,550)
Investment tax credits -- net............................. (22,851) (33,075) (22,774)
Allowance for equity funds used during construction....... (5,236) (1,575) (6,680)
Impairment of assets...................................... - - 1,233,320
Changes in operating assets and liabilities:
Accounts receivable..................................... (441,964) (2,503) (22,898)
Inventories............................................. (13,891) 6,328 18,701
Accounts payable........................................ 333,763 33,388 10,904
Interest and taxes accrued.............................. 39,902 (33,463) (94,158)
Other working capital................................... 90,322 9,912 (25,932)
Over/(under) -- recovered fuel revenue -- net of
deferred taxes........................................ (20,483) (47,368) 94,717
Gas marketing risk management assets and liabilities.... (13,142) - -
Other -- net............................................ 45,933 79,918 5,902
---------- ----------- -----------
Cash provided by operating activities.............. 1,659,118 1,724,085 1,573,553
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of securities:
First mortgage bonds...................................... 212,715 244,225 535,055
Other long-term debt...................................... 609,964 1,199,679 300,000
TU Electric obligated, mandatorily redeemable, preferred
securities of subsidiary trusts holding solely
debentures of TU Electric............................... 493,273 - 381,476
Retirements of securities:
First mortgage bonds...................................... (939,467) (556,847) (684,385)
Other long-term debt...................................... (634,407) (1,273,934) (202,520)
Preferred stock of subsidiaries........................... (553,093) (50,269) (504,781)
Common stock.............................................. (148,780) (51,636) -
Change in notes payable:
Commercial paper.......................................... 1,102,749 (31,894) (78,841)
Banks..................................................... (543,080) (140,378) 731,945
Common stock dividends paid................................. (478,592) (451,063) (695,656)
Debt premium, discount, financing and reacquisition
expenses.................................................. (40,774) (44,043) (123,668)
---------- ----------- -----------
Cash used in financing activities.................. (919,492) (1,156,160) (341,375)
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures................................... (586,097) (434,139) (434,338)
Allowance for equity funds used during construction
(excluding amount for nuclear fuel)....................... 2,941 892 3,952
Change in construction receivables/payables -- net.......... (1,688) (706) 2,140
Nuclear fuel (excluding allowance for equity funds used
during construction)...................................... (74,510) (58,895) (55,013)
Acquisitions................................................ 4,777 (9,821) (616,865)
Other investments........................................... (58,753) (75,822) (111,175)
---------- ----------- -----------
Cash used in investing activities.................. (713,330) (578,491) (1,211,299)
---------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 2,294 1,558 (3,452)
---------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 28,590 (9,008) 17,427
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE.............. 15,845 24,853 7,426
---------- ----------- -----------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE................. $ 44,435 $ 15,845 $ 24,853
========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
V-16
<PAGE> 262
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Electric:
Production................................................ $16,294,778 $16,277,151
Transmission.............................................. 1,675,681 1,607,925
Distribution.............................................. 5,779,226 5,655,677
Gas distribution and pipeline............................... 1,068,708 -
Telecommunications.......................................... 145,125 14
Other....................................................... 562,890 503,674
----------- -----------
Total............................................. 25,526,408 24,044,441
Less accumulated depreciation............................... 6,715,662 6,127,610
----------- -----------
Net of accumulated depreciation................... 18,810,746 17,916,831
Construction work in progress............................... 330,184 240,612
Nuclear fuel (net of accumulated amortization:
1997 -- $456,490,000; 1996 -- $369,114,000)............... 242,018 252,589
Held for future use......................................... 24,087 24,483
Less reserve for regulatory disallowances................... 836,005 836,005
----------- -----------
Net property, plant and equipment................. 18,571,030 17,598,510
----------- -----------
INVESTMENTS
Goodwill (net of accumulated amortization:
1997 -- $33,444,000; 1996 -- $15,894,000)................. 1,423,420 528,102
Other investments........................................... 851,320 630,121
----------- -----------
Total investments................................. 2,274,740 1,158,223
----------- -----------
CURRENT ASSETS
Cash and cash equivalents................................... 44,435 15,845
Accounts receivable:
Customers................................................. 941,506 290,111
Other..................................................... 50,883 44,032
Allowance for uncollectible accounts...................... (11,322) (6,262)
Inventories -- at average cost:
Materials and supplies.................................... 209,825 200,601
Fuel stock................................................ 81,490 77,227
Gas stored underground.................................... 156,637 44,472
Gas marketing risk management assets........................ 365,650 -
Prepayments................................................. 59,809 56,324
Deferred income taxes....................................... 76,307 50,972
Other current assets........................................ 19,628 14,084
----------- -----------
Total current assets.............................. 1,994,848 787,406
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets............................... 1,853,016 1,753,418
Deferred income taxes....................................... - 10,997
Other deferred debits....................................... 180,495 89,101
----------- -----------
Total deferred debits............................. 2,033,511 1,853,516
----------- -----------
Total............................................. $24,874,129 $21,397,655
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
V-17
<PAGE> 263
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CAPITALIZATION
Common stock without par value -- net....................... $ 5,587,200 $ 4,787,047
Retained earnings........................................... 1,311,875 1,202,390
Cumulative currency translation adjustment.................. (56,013) 43,476
----------- -----------
Total common stock equity......................... 6,843,062 6,032,913
Preferred stock of subsidiaries:
Not subject to mandatory redemption....................... 304,194 464,427
Subject to mandatory redemption........................... 20,600 238,391
TU Electric obligated, mandatorily redeemable, preferred
securities of subsidiary trusts holding solely
debentures of TU Electric.............................. 875,146 381,311
Long-term debt, less amounts due currently................ 8,759,379 8,668,111
----------- -----------
Total capitalization.............................. 16,802,381 15,785,153
----------- -----------
CURRENT LIABILITIES
Notes payable:
Commercial paper.......................................... 570,000 253,151
Banks..................................................... 44,442 69,788
Long-term debt due currently................................ 772,071 356,076
Accounts payable............................................ 879,593 336,391
Gas marketing risk management liabilities................... 357,044 -
Dividends declared.......................................... 139,994 129,879
Customers' deposits......................................... 91,440 80,390
Taxes accrued............................................... 182,532 143,424
Interest accrued............................................ 193,125 156,758
Deferred income taxes....................................... 7,919 10,951
Over-recovered fuel revenue................................. 11,987 42,984
Other current liabilities................................... 271,853 90,485
----------- -----------
Total current liabilities......................... 3,522,000 1,670,277
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes........................... 2,989,254 2,812,623
Unamortized investment tax credits.......................... 570,283 589,713
Pensions and other postretirement benefits.................. 402,292 195,667
Other deferred credits and noncurrent liabilities........... 587,919 344,222
----------- -----------
Total deferred credits and other noncurrent
liabilities.................................... 4,549,748 3,942,225
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 15)
Total............................................. $24,874,129 $21,397,655
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
V-18
<PAGE> 264
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
COMMON STOCK WITHOUT PAR VALUE -- AUTHORIZED SHARES --
500,000,000:
Balance at beginning of year........................... $4,787,047 $4,806,912 $4,798,797
Issued for acquisitions:
ENSERCH Corporation (15,861,272 shares).............. 565,105 - -
Lufkin-Conroe Communications Co. (8,727,730
shares)........................................... 317,142 - -
Issued for Long-Term Incentive Compensation Plan
(61,000 shares)...................................... 2,594 - -
Net change in unamortized costs of Long-Term Incentive
Compensation Plan.................................... (2,197) - -
Common stock repurchased and retired (4,015,000 shares
in 1997 and 1,238,480 shares in 1996)................ (90,186) (27,980) -
Special allocation to Thrift Plan by trustee........... 8,115 8,137 8,115
Other.................................................. (420) (22) -
---------- ---------- ----------
Balance at end of year (1997 -- 245,237,559 shares;
1996 -- 224,602,557 shares; and 1995 -- 225,841,037
shares).............................................. 5,587,200 4,787,047 4,806,912
---------- ---------- ----------
RETAINED EARNINGS:
Balance at beginning of year........................... 1,202,390 924,444 1,691,250
Net income (loss)...................................... 660,454 753,606 (138,645)
Dividends declared on common stock..................... (496,244) (456,059) (634,613)
Common stock repurchased and retired................... (58,594) (23,633) -
LESOP dividend deduction tax benefit and other......... 3,869 4,032 6,452
---------- ---------- ----------
Balance at end of year................................. 1,311,875 1,202,390 924,444
---------- ---------- ----------
CUMULATIVE CURRENCY TRANSLATION ADJUSTMENT:
Balance at beginning of year........................... 43,476 397 -
Change during the year -- net of deferred income
taxes................................................ (99,489) 43,079 397
---------- ---------- ----------
Balance at end of year................................. (56,013) 43,476 397
---------- ---------- ----------
COMMON STOCK EQUITY.................................... $6,843,062 $6,032,913 $5,731,753
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
V-19
<PAGE> 265
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 BUSINESS, MERGERS AND ACQUISITIONS
Texas Utilities Company (TUC, or the Company) is a holding company which
owns all of the outstanding common stock of Texas Energy Industries Inc. (TEI)
and ENSERCH Corporation (ENSERCH). TEI is a holding company; the assets of its
primary subsidiary, Texas Utilities Electric Company (TU Electric), and the
Company's other electric utility businesses represent in excess of 85% of the
total assets and in excess of 75% of the total revenues of the Company. TU
Electric is engaged in the generation, purchase, transmission, distribution and
sale of electric energy wholly within Texas. Two other subsidiaries of TEI are
engaged directly or indirectly in public utility operations: Southwestern
Electric Service Company (SESCO) and Texas Utilities Australia Pty. Ltd. (TU
Australia), which in December 1995 acquired the common stock of Eastern Energy
Limited (Eastern Energy), one of five electricity distribution companies
operating in Victoria, Australia. Neither SESCO nor Eastern Energy generate
electric energy. TEI has other wholly-owned service subsidiaries, which support
the operations of the Company and its operating subsidiaries. For 1997, none of
the Company's other businesses are significant individually or in the aggregate
and, accordingly, do not require separate segment disclosure under existing
accounting standards. The Company is currently determining its reportable
segments under Statements of Financial Accounting Standards (SFAS) No. 131,
which becomes effective in 1998.
On August 5, 1997, the merger transactions (Merger) between the former
Texas Utilities Company, now known as TEI and ENSERCH were completed. At the
effective time of the Merger: (i) the former Texas Utilities Company changed its
name to TEI, (ii) TEI and ENSERCH merged with wholly-owned subsidiaries of TUC
Holding Company, which, as a result, owned all the common stock of TEI and of
ENSERCH, (iii) TUC Holding Company changed its name to Texas Utilities Company
(now the Company), (iv) each share of TEI's common stock was automatically
converted into one share of common stock of TUC, and (v) each share of common
stock of ENSERCH was automatically converted into 0.225 share of common stock of
TUC, with cash issued in lieu of fractional shares. The share conversions were
tax-free transactions.
Businesses and subsidiaries acquired in the Merger were Lone Star Gas
Company (Lone Star Gas), a gas distribution company in Texas, serving over 1.3
million customers and providing service through over 23,800 miles of
distribution mains; Lone Star Pipeline Company (Lone Star Pipeline), which has
approximately 7,600 miles of gathering and transmission pipeline in Texas; and
subsidiaries engaged in natural gas processing, natural gas marketing,
independent power production and international gas distribution systems
development.
In the Merger, approximately 15. 9 million shares of TUC common stock were
issued to former holders of ENSERCH common stock. The value assigned to the TUC
shares issued and costs incurred in connection with the acquisition of ENSERCH
aggregated $579 million. At the date of the Merger, ENSERCH had debt and
preferred stock outstanding of approximately $1.3 billion. Effective with the
Merger, under terms specified in the Merger agreement, outstanding options for
ENSERCH common stock were exchanged for options for 532,913 shares of the
Company's common stock exercisable at prices ranging from $7.03 to $37.71 per
share, and ENSERCH was precluded from awarding further options. The estimated
fair value of these options of $3,214,000 was accounted for as a part of the
cost of the acquisition. At December 31, 1997, 402,966 of these options remained
outstanding and exercisable.
On November 21, 1997, the Company acquired Lufkin-Conroe Communications Co.
(LCC). Approximately 8.7 million shares of TUC common stock were issued to LCC
stock holders in a stock-for-stock exchange. The value assigned to the TUC
shares issued and costs incurred in connection with the acquisition of LCC
aggregated $319 million. At the date of the acquisition, LCC had debt
outstanding of approximately $31 million. LCC is the parent company of
Lufkin-Conroe Telephone Exchange, Inc. (LCTX) and Lufkin-Conroe
Telecommunications Corporation (LCT) and its subsidiaries. LCTX is an
independent local exchange carrier that serves approximately 100,000 access
lines in the Alto, Conroe and Lufkin areas of
V-20
<PAGE> 266
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
southeast Texas. It also provides access services to a number of interexchange
carriers who provide long distance services. LCT and its subsidiaries own fiber
optic cable systems which they lease to interexchange carriers, provide Internet
access, radio communications tower rentals, cellular mobile telephones and radio
paging services and private branch exchange service to local customers. LCT,
through a subsidiary, also provides interexchange long distance service, with
primary focus on business customers.
The acquisitions of ENSERCH, LCC and Eastern Energy were accounted for as
purchase business combinations. The assets and liabilities of the acquired
companies at the acquisition dates were adjusted to their estimated fair values.
The excess of the purchase price paid by the Company over the estimated fair
value of net assets acquired and liabilities assumed was recorded as goodwill
and is being amortized over 40 years. The process of determining the fair value
of assets and liabilities of ENSERCH and LCC as of the date of acquisition is
continuing, and the final result awaits primarily the resolution of income tax
and other contingencies and finalization of some preliminary estimates. The
results of operations of ENSERCH, LCC and Eastern Energy, are reflected in the
consolidated financial statements of the Company from the respective dates of
their acquisition.
The Company continues to seek potential investment opportunities from time
to time when it concludes that such investments are consistent with its business
strategies and are likely to enhance the long-term return to its shareholders.
In January 1998, the Company announced that it had approached the Energy Group
plc (TEG) in connection with its possible interest in acquiring TEG. TEG is a
diversified international energy group. Discussions between the Company and TEG
are continuing and may or may not lead to an offer being made by the Company.
Likewise, the timing, amount and funding of any specific new business investment
opportunities are presently undetermined.
Following is a summary of unaudited pro forma results of operations
assuming the ENSERCH and LCC acquisitions had occurred at the beginning of the
periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues.................................................... $9,315,952 $8,526,600
Operating income............................................ 1,971,790 2,109,610
Net income.................................................. 665,593 751,333
Earnings per share of common stock:
Basic..................................................... $ 2.68 $ 3.01
Diluted................................................... $ 2.67 $ 2.99
</TABLE>
2 SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts
of the Company and all of its majority-owned subsidiaries (System Companies).
Prior to August 5, 1997, the date of the Merger, the Company did not have any
assets or operations. Pursuant to the Merger, the Company became the parent of
each of TEI and ENSERCH. For financial reporting purposes, the Company is
treated as the successor to TEI. Unless otherwise specified, all references to
the Company for periods prior to August 5, 1997, are deemed to be references to
TEI since the merger of the Company and TEI is the combination of entities under
common control. The Company's financial statements have been restated in a
manner similar to pooling of interests accounting. Since the acquisitions of
ENSERCH, LCC and Eastern Energy were purchase business combinations, no
financial and other information for those companies are presented for periods
prior to their dates of acquisition.
All significant intercompany items and transactions have been eliminated in
consolidation. Investments in significant unconsolidated affiliates are
accounted for by the equity method. Certain previously reported amounts have
been reclassified to conform to current classifications.
V-21
<PAGE> 267
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates -- The preparation of the Company's consolidated financial
statements, in conformity with generally accepted accounting principles,
requires management to make estimates and assumptions about future events that
affect the reporting and disclosure of assets and liabilities at the balance
sheet dates and the reported amounts of revenue and expense during the periods
covered by the consolidated financial statements. In the event estimates and/or
assumptions prove to be different from actual amounts, adjustments are made in
subsequent periods to reflect more current information. No material adjustments
were made to previous estimates during the current year.
System of Accounts -- The accounting records of TU Electric and SESCO are
maintained in accordance with the Federal Energy Regulatory Commission's (FERC)
Uniform System of Accounts as adopted by the Public Utility Commission of Texas
(PUC). Lone Star Gas and Lone Star Pipeline, divisions of ENSERCH, are subject
to the accounting requirements prescribed by the National Association of
Regulatory Utility Commissioners.
Property, Plant and Equipment -- Electric and gas utility plant is stated
at original cost less certain regulatory disallowances. The cost of property
additions to electric and gas utility plant includes labor and materials,
applicable overhead and payroll-related costs and an allowance for funds used
during construction (AFUDC). Other property is stated at cost.
Allowance For Funds Used During Construction -- AFUDC is a cost accounting
procedure whereby amounts based upon interest charges on borrowed funds and a
return on equity capital used to finance construction are added to utility
plant. The accrual of AFUDC is in accordance with generally accepted accounting
principles for the industry, but does not represent current cash income.
TU Electric capitalizes AFUDC, compounded semi-annually, on expenditures
for ongoing construction work in progress (CWIP) and nuclear fuel in process not
otherwise allowed in rate base by regulatory authorities. For 1997, 1996 and
1995, TU Electric used rates of 7.9%, 7.4%, and 7.7%, respectively. Other
regulated subsidiaries also capitalize AFUDC.
Depreciation of Property, Plant and Equipment -- Depreciation of the
Company's electric and gas utility plant is generally based upon an amortization
of the original cost of depreciable properties (net of regulatory disallowances)
on a straight-line basis over the estimated service lives of the properties.
Depreciation also includes an amount for TU Electric's Comanche Peak
decommissioning costs which is being accrued over the lives of the units and
deposited to external trust funds. (See Note 15.) Depreciation of all other
plant and equipment generally is determined by the straight-line method over the
useful life of the asset. Consolidated depreciation as a percent of average
depreciable property for the Company and System Companies approximated 2.6% for
1997, 2.7% for 1996 and 2.6% 1995.
Amortization of Nuclear Fuel and Refueling Outage Costs -- The amortization
of nuclear fuel in the reactors (net of regulatory disallowances) is calculated
on the units of production method and is included in nuclear fuel expense. TU
Electric accrues a provision for costs anticipated to be incurred during the
next scheduled Comanche Peak nuclear generating station (Comanche Peak)
refueling outage.
Foreign Currency Translation -- The assets and liabilities of foreign
operations denominated in foreign currencies are translated at rates in effect
at year end. Revenues and expenses are translated at average rates for the
applicable periods. Generally, local currencies are considered to be the
functional currency, and adjustments resulting from such translation are
included in the cumulative currency translation adjustment, a separate component
of common stock equity.
Derivative Instruments -- The Company enters into interest rate swaps to
reduce exposure to interest rate fluctuations. Amounts paid or received under
interest rate swap agreements are accrued as interest rates change and are
recognized over the life of the agreements as adjustments to interest expense.
The Company also enters into derivative contracts in connection with the
wholesale purchases of electric energy by Eastern Energy and defers the impact
of changes in the market value of the contracts, which serve as hedges, until
the related transaction is completed. (See Note 9.)
V-22
<PAGE> 268
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Energy Marketing Activities -- The Company, through its natural gas
marketing subsidiary, Enserch Energy Services, Inc. (EES), is a marketer of
natural gas and natural gas services. As part of these business activities, EES
enters into a variety of transactions, including forward contracts principally
involving physical delivery of natural gas and derivative financial instruments,
including options, swaps, futures and other contractual arrangements. The
derivative transactions are concentrated with established energy companies and
major financial institutions. EES uses the mark-to-market method of valuing and
recognizing earnings from firm contractual commitments to purchase and sell
natural gas in the future and from its portfolio of derivative financial
instruments, including options, swaps, futures and other contractual
commitments. (See Note 9.)
Revenues -- Electric revenues include billings under approved rates
(including a fixed fuel factor) applied to meter readings each month on a cycle
basis and an accrual of base rate revenue for energy provided after cycle
billing but not billed through the end of each month. Revenues also include an
amount for under-or over-recovery of fuel revenue representing the difference
between actual fuel cost and billings under the approved fixed fuel factor and a
provision that generally allows recovery through a Power Cost Recovery Factor,
on a monthly basis, of the capacity portion of purchased power cost and wheeling
cost from qualifying facilities not included in base rates. The fuel portion of
purchased power cost is included in the fixed fuel factor. A utility's fuel
factor can be revised upward or downward every six months, according to a
specified schedule. A utility is required to petition to make either surcharges
or refunds to ratepayers, together with interest based on a twelve month average
of prime commercial rates, for any material cumulative under- or over-recovery
of fuel costs. If the cumulative difference of the under- or over-recovery, plus
interest, is in excess of 4% of the annual estimated fuel costs most recently
approved by the PUC, it will be deemed to be material. A procedure exists for an
expedited change in fuel factors in the event of an emergency. Final
reconciliation of fuel costs must be made either in a reconciliation proceeding,
which may cover no more than three years and no less than one year, or in a
general rate case. (See Note 13.)
The city gate rate for the cost of gas Lone Star Gas ultimately delivers to
residential and commercial customers is established by the Railroad Commission
of Texas (RRC) and provides for full recovery of the actual cost of gas
delivered, including out-of-period costs such as gas-purchase contract
settlement costs. The rates Lone Star Gas charges its residential and commercial
customers are established by the municipal governments of the cities and towns
served, with the RRC having appellate jurisdiction. Lone Star Gas records
revenues on the basis of cycle meter readings throughout the month and accrues
revenues for gas delivered from the meter reading dates to the end of the month.
The rate Lone Star Pipeline charges to Lone Star Gas for transportation and
storage of gas ultimately consumed by residential and commercial customers is
established by the RRC.
Income Taxes -- The Company and its domestic (U.S.) subsidiaries file a
consolidated federal income tax return, and federal income taxes are allocated
to subsidiaries based upon their respective taxable income or loss. Investment
tax credits are normally amortized to income over the estimated service lives of
the properties. Deferred income taxes are currently provided for temporary
differences between the book and tax basis of assets and liabilities (including
the provision for regulatory disallowances). Certain provisions of SFAS 109
provide that regulated enterprises are permitted to recognize such adjustments
as regulatory tax assets or tax liabilities if it is probable that such amounts
will be recovered from, or returned to, customers in future rates. Accordingly,
at December 31, 1997, the consolidated balance sheet includes a net regulatory
tax asset of $1,249,338,000.
Effective January 1, 1997, TU Electric's state franchise tax status changed
from a tax based on net taxable capital to a tax based on net taxable earned
surplus. Certain other subsidiaries of the Company are also taxed on the earned
surplus method. Net taxable earned surplus is based on the federal income tax
return. The portion of the franchise tax calculated under the earned surplus
method is an income tax.
Income Taxes on Undistributed Earnings of Foreign Subsidiaries -- The
Company intends to reinvest the earnings of its foreign subsidiaries into those
businesses. Accordingly, no provision has been made for taxes which would be
payable if such earnings were to be repatriated to the United States.
V-23
<PAGE> 269
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share -- Under the provisions of SFAS 128, which became
effective in December 1997, basic earnings per share applicable to common stock
are based on the weighted average number of common shares outstanding during the
year. Diluted earnings per share since the Merger include the effect of
potential common shares resulting from the assumed conversion of the outstanding
6 3/8% Convertible Subordinated Debentures due 2002 of ENSERCH and the exercise
of all outstanding stock options. For the period from the effective date of the
Merger to December 31, 1997, 999,492 shares were added to the average shares
outstanding for 1997 and $1,545,964 of after-tax interest expense was added to
earnings applicable to common stock for the purpose of calculating diluted
earnings per share. Previously reported earnings per share amounts for prior
years were not affected by the new standard.
Consolidated Cash Flows -- For purposes of reporting cash flows, temporary
cash investments purchased with a remaining maturity of three months or less are
considered to be cash equivalents.
The schedule below details the Company's cash payments and noncash
investing and financing activities:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
----------- -------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH PAYMENTS
Interest (net of amounts capitalized)................. $ 630,844 $757,092 $ 677,415
Income taxes.......................................... 174,908 246,556 208,326
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of ENSERCH and LCC (1997) and Eastern
Energy (1995):
Book value of assets acquired....................... $ 2,033,311 $ - $ 1,329,158
Goodwill............................................ 1,005,277 - 302,497
Common stock issued, net of capitalized expenses.... (892,068) 9,821 -
Liabilities assumed................................. (2,124,878) - (1,006,847)
----------- -------- -----------
Cash used........................................ 21,642 9,821 624,808
Cash acquired....................................... (26,419) - (7,943)
----------- -------- -----------
Net cash used (provided).................... $ (4,777) $ 9,821 $ 616,865
=========== ======== ===========
</TABLE>
Regulatory Assets and Liabilities -- SFAS 71 applies to utilities which
have cost-based rates established by a regulator and charged to and collected
from customers. In accordance with this statement, the Company's regulated
subsidiaries may defer the recognition of certain costs (regulatory assets) and
certain obligations (regulatory liabilities) that, as a result of the rate
making process, have probable corresponding increases or decreases in future
revenues. These regulatory assets and liabilities are being amortized over
various periods of 5 to 40 years and are currently included in rates, or are
expected to be included in future rates.
V-24
<PAGE> 270
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant net regulatory assets of the System Companies are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
ITEM 1997 1996
---- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Securities reacquisition costs.............................. $ 397,488 $ 396,335
Canceled lignite unit costs................................. 9,208 12,322
Rate case costs............................................. 56,637 59,444
Litigation and settlement costs............................. 72,685 72,685
Voluntary retirement/severance program...................... 100,337 128,337
Recoverable deferred income taxes -- net.................... 1,249,338 1,167,922
Other regulatory assets (liabilities)....................... 40,008 (10,942)
---------- ----------
Unamortized regulatory assets............................. 1,925,701 1,826,103
Reserve for regulatory disallowances........................ (72,685) (72,685)
Unamortized investment tax credits.......................... (570,283) (589,713)
---------- ----------
Unamortized regulatory assets -- net........................ $1,282,733 $1,163,705
========== ==========
</TABLE>
Future significant changes in regulation or competition could affect the
regulated subsidiaries' ability to meet the criteria for continued application
of SFAS 71 and may affect their ability to recover these regulatory assets from,
or refund these regulatory liabilities to, customers. If the affected System
Companies were to discontinue the application of SFAS 71, they would be required
to assess the recoverability of certain assets, including plant and regulatory
assets, and, if impaired, to write down the assets to reflect their fair market
value. The Company cannot predict the ultimate outcome of the ongoing efforts
that are taking place to restructure the electric utility industry or whether
the outcome of such efforts will have a material effect on its financial
position, results of operation or cash flows. However, the Company has no
current knowledge of planned or impending actions by regulators, including the
legislature of the State of Texas, that would affect recoverability of its plant
and net regulatory assets.
3 SHORT-TERM FINANCING
The Company had outstanding short-term borrowings of $614,442,000,
consisting of commercial paper of $570,000,000 and bank borrowings of
$44,442,000, at December 31, 1997. The weighted average interest rates on such
borrowings was 6.18% at December 31, 1997. During the years 1997, 1996 and 1995,
the Company's average amounts outstanding for short-term borrowings, including
amounts classified as long-term, were $1,222,176,000, $593,660,000 and
$149,806,000, respectively. Weighted average interest rates for short-term
borrowings during such periods were 5.86%, 5.94% and 6.33%, respectively.
At December 31, 1997, the Company, TU Electric and ENSERCH had joint lines
of credit under credit facility agreements (Credit Agreements) with a group of
commercial banks. The Credit Agreements have two facilities. Facility A provides
for short-term borrowings aggregating up to $570,000,000 outstanding at any one
time at variable interest rates and terminates April 23, 1998. Facility B
provides for short-term borrowings aggregating up to $1,330,000,000 outstanding
at any one time at variable interest rates and terminates April 24, 2002. The
combined borrowings of the Company, TU Electric and ENSERCH under both
facilities are limited to an aggregate of $1,900,000,000 outstanding at any one
time. ENSERCH's borrowings under both facilities are limited to an aggregate of
up to $650,000,000 outstanding at any one time. Borrowings under these
facilities will be used for working capital and other corporate purposes,
including commercial paper backup. The total of short-term borrowings authorized
by the Board of Directors of the Company at December 31, 1997, from banks or
other lenders, was $2,150,000,000.
In addition, certain non-U.S. subsidiaries have revolving credit agreements
aggregating approximately $95,000,000, of which $61,000,000 was outstanding at
December 31, 1997. These revolving credit agreements expire at various dates
through 2000.
V-25
<PAGE> 271
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company intends to refinance up to $990,440,000 of its current
short-term borrowings beyond one year of the balance sheet date of December 31,
1997. As a result, such amount has been reclassified from notes
payable -- commercial paper to long-term debt on the Company's 1997 Balance
Sheet (see Note 8). If necessary, the Company would draw upon Facility B if such
amount were not refinanced in the normal course of business.
4 COMMON STOCK
The Company has an Automatic Dividend Reinvestment and Common Stock
Purchase Plan (DRIP) and an Employees' Thrift Plan of the Texas Utilities
Company System (Thrift Plan). During each of the last three years, requirements
under the DRIP and Thrift Plan have been met through open market purchases of
the Company's common stock.
At December 31, 1997, the Thrift Plan had an obligation of $250,000,000
outstanding in the form of a note, which the Company purchased from the original
third-party lender and recorded as a reduction to common equity. At December 31,
1997, the Thrift Plan trustee held 5,375,158 shares of common stock (LESOP
Shares) of the Company under the leveraged employee stock ownership provision of
the Thrift Plan. LESOP Shares are held by the trustee until allocated to Thrift
Plan participants when required to meet the System Companies' obligations under
terms of the Thrift Plan. The Thrift Plan uses dividends on the LESOP Shares
held and contributions from the System Companies, if required, to repay interest
and principal on the note. Common stock equity increases at such time as LESOP
Shares are allocated to participants' accounts although shares of common stock
outstanding include unallocated LESOP Shares held by the trustee. Allocations to
participants' accounts in each of the years 1997 and 1995 increased common stock
equity by $8,115,000; 1996 increased by $8,137,000.
The Long-Term Incentive Compensation Plan was approved and adopted by the
directors of the Company and approved by the shareholders in 1997. The purpose
of the plan is to assist the Company in attracting, retaining and motivating
executive officers and other key employees essential to the success of the
Company through performance-related incentives linked to long-range performance
goals. The plan is a comprehensive, stock-based incentive compensation plan,
providing for discretionary awards (Awards) of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock,
restricted stock units, performance shares, performance units, bonus stock and
other stock-based awards. All Awards will be made in, or based on the value of,
the Company's common stock. The maximum number of shares of common stock for
which Awards may be granted under the plan is 2,500,000 subject to adjustment in
the event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, or other similar event. During 1997, the Board of
Directors authorized the award of 61,000 shares of restricted common stock,
which were issued in 1997 subject to performance and vesting requirements over a
three to five year period. No stock options were granted.
At December 31, 1997, 14,154,372 shares of the authorized but unissued
common stock of the Company were reserved for issuance and sale pursuant to the
above plans, for conversion of the 6 3/8% Convertible Subordinated Debentures
due 2002 (see Note 8) and for other purposes.
In November 1997, the Company's Board of Directors increased the common
stock repurchase limit to $350 million of which $148,780,000 was used as of
December 31, 1997 to purchase and retire 4,015,000 shares of the Company's
issued and outstanding common stock during 1997. The cost of the repurchased
shares, to the extent it exceeded the estimated amount received upon their
original issuance, has been charged to retained earnings.
The Company has 50,000,000 authorized shares of serial preference stock
having a par value of $25 a share, none of which has been issued.
V-26
<PAGE> 272
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5 DIVIDEND RESTRICTIONS OF SUBSIDIARIES
The articles of incorporation and/or the mortgages, as supplemented, and
certain other debt instruments of TU Electric and SESCO contain provisions
which, under certain conditions, restrict distributions on or acquisitions of
common stock. At December 31, 1997, $29,236,000 of retained earnings of TU
Electric, and $13,970,000 of retained earnings of SESCO, were thus restricted as
a result of such provisions.
6 PREFERRED STOCK OF SUBSIDIARIES
<TABLE>
<CAPTION>
REDEMPTION PRICE PER
SHARE (BEFORE ADDING
SHARES OUTSTANDING AMOUNT ACCUMULATED DIVIDENDS)
DECEMBER 31, DECEMBER 31, ------------------------
--------------------- ------------------- DECEMBER 31, EVENTUAL
DIVIDEND RATE 1997 1996 1997 1996 1997 MINIMUM
------------- --------- --------- -------- -------- ------------ ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
NOT SUBJECT TO MANDATORY
REDEMPTION:
TU ELECTRIC (CUMULATIVE, WITHOUT
PAR VALUE, ENTITLED UPON
LIQUIDATION TO $100 A SHARE;
AUTHORIZED 17,000,000 SHARES)
$4.50 series.................... 22,406 74,367 $ 2,242 $ 7,440 $ 110.00 $ 110.00
4.00 series (Dallas Power)..... 20,755 70,000 2,090 7,049 103.56 103.56
4.56 series (Texas Power)...... 52,879 133,628 5,291 13,371 112.00 112.00
4.00 series (Texas Electric)... 69,221 110,000 6,922 11,000 102.00 102.00
4.56 series (Texas Electric)... 22,237 64,947 2,246 6,560 112.00 112.00
4.24 series.................... 18,194 100,000 1,834 10,081 103.50 103.50
4.64 series.................... 25,195 100,000 2,524 10,016 103.25 103.25
4.84 series.................... 15,964 70,000 1,597 7,000 101.79 101.79
4.00 series (Texas Power)...... 27,391 70,000 2,739 7,000 102.00 102.00
4.76 series.................... 23,181 100,000 2,318 10,000 102.00 102.00
5.08 series.................... 27,716 80,000 2,773 8,004 103.60 103.60
4.80 series.................... 20,420 100,000 2,044 10,009 102.79 102.79
4.44 series.................... 33,672 150,000 3,381 15,061 102.61 102.61
7.20 series.................... - 200,000 - 20,044 - -
6.84 series.................... - 200,000 - 20,023 - -
7.24 series.................... - 247,862 - 24,905 - -
8.20 series (a) (c)............ 146,501 338,872 14,138 32,704 (b) 100.00
7.98 series.................... 261,075 474,000 25,774 46,794 (b) 100.00
7.50 series (a)................ 308,308 392,234 29,918 38,062 (b) 100.00
7.22 series (a)................ 220,448 301,132 21,363 29,182 (b) 100.00
Adjustable rate series A........ - 884,700 - 86,878 - -
Adjustable rate series B........ - 440,137 - 43,244 - -
--------- --------- -------- --------
Total................. 1,315,563 4,701,879 129,194 464,427
--------- --------- -------- --------
ENSERCH (ENTITLED UPON
LIQUIDATION TO STATED VALUE
PER SHARE; AUTHORIZED
2,000,000 SHARES) ADJUSTABLE
RATE PREFERRED STOCK:
Series E (c) (d).............. 100,000 - 100,000 - 1,000.00 1,000.00
Series F (d).................. 75,000 - 75,000 - (b) 1,000.00
--------- --------- -------- --------
Total................. 175,000 - 175,000 -
--------- --------- -------- --------
Total................. 1,490,563 4,701,879 $304,194 $464,427
========= ========= ======== ========
TU ELECTRIC -- SUBJECT TO
MANDATORY REDEMPTION (E)
$9.64 series.................... - 400,000 $ - $ 39,981 - -
6.98 series.................... 107,500 1,000,000 10,672 99,199 (b) 100.00
6.375 series................... 100,000 1,000,000 9,928 99,211 (b) 100.00
--------- --------- -------- --------
Total................. 207,500 2,400,000 $ 20,600 $238,391
========= ========= ======== ========
</TABLE>
V-27
<PAGE> 273
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
(a) The preferred stock series is the underlying preferred stock for depositary
shares that were issued to the public. Each depositary share represents one
quarter of a share of underlying preferred stock.
(b) Preferred stock series is not redeemable at December 31, 1997.
(c) Preferred stock series redeemed in January 1998.
(d) Stated value $1,000 per share. The preferred stock series is the underlying
preferred stock for depositary shares that were issued to the public. Each
depositary share represents one-tenth of a share of underlying preferred
stock for Series E ($100 per share) and one-fortieth of a share for Series
F ($25 per share). Dividend rates are determined quarterly, in advance,
based on certain U.S. Treasury rates. At December 31, 1997, the Series E
bears a dividend rate of 7.0% and the Series F bears a dividend rate of
5.54%.
(e) TU Electric is required to redeem at a price of $100 per share plus
accumulated dividends a specified minimum number of shares annually or
semi-annually on the initial/next dates shown below. These redeemable
shares may be called, purchased or otherwise acquired. Certain issues may
not be redeemed at the option of TU Electric prior to 2003. TU Electric may
annually call for redemption, at its option, an aggregate of up to twice
the number of shares shown below for each series at a price of $100 per
share plus accumulated dividends.
<TABLE>
<CAPTION>
INITIAL/NEXT DATE OF
MINIMUM MANDATORY
SERIES REDEEMABLE SHARES REDEMPTION
------ ----------------- --------------------
<S> <C> <C>
$6.98............................................. 50,000 annually July 1, 2003
6.375............................................ 50,000 annually October 1, 2003
</TABLE>
The carrying value of preferred stock subject to mandatory redemption is
being increased periodically to equal the redemption amounts at the mandatory
redemption dates with a corresponding increase in preferred stock dividends.
During the year ended December 31, 1997, TU Electric redeemed or purchased
5,578,816 shares of its preferred stock (including 3,989,640 shares purchased by
the Company in March 1997 pursuant to a tender offer and subsequently sold to TU
Electric) with annual dividend rates ranging from 4.00% to 9.64% at a total cost
of approximately $553,093,000. In January 1998, TU Electric redeemed all of the
outstanding shares of the $8.20 series preferred stock, and ENSERCH redeemed the
Series E Adjustable Rate Preferred Stock, in each case at 100% of the
liquidation price plus accumulated and unpaid dividends.
7 TU ELECTRIC OBLIGATED, MANDATORILY REDEEMABLE, PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY DEBENTURES OF TU ELECTRIC
Five statutory business trusts, each a TU Electric Trust, have been
established as financing subsidiaries of TU Electric for the purposes, in each
case, of issuing common and preferred trust securities and holding Junior
Subordinated Debentures issued by TU Electric (Debentures). TU Electric Capital
I, II and III preferred trust securities have a liquidation preference of $25
per unit, and TU Electric Capital IV and V preferred trust securities have a
liquidation preference of $1,000 per unit (Capital Securities). The Debentures
held by each TU Electric Trust are its only assets. The interest on Trust assets
matches the dividend rates on the trust securities. Each TU Electric Trust will
use interest payments received on the Debentures it holds to make cash
distributions on the trust securities it has issued.
The preferred securities are subject to mandatory redemption upon payment
of the Debentures at maturity or upon redemption. The Debentures are subject to
redemption, in whole or in part at the option of TU Electric, at 100% of their
principal amount plus accrued interest, after an initial period during which
they may not be redeemed and at any time upon the occurrence of certain events.
The carrying value of the preferred securities is being increased periodically
to equal the redemption amounts at the mandatory redemption dates with a
corresponding increase in preferred securities distributions.
V-28
<PAGE> 274
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997 and 1996, the following preferred securities and
related trust assets of the TU Electric Trusts were outstanding:
<TABLE>
<CAPTION>
PREFERRED SECURITIES TRUST ASSETS
--------------------------------------------- -------------------
UNITS OUTSTANDING AMOUNT AMOUNT
DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------------- ------------------- -------------------
COMPANY 1997 1996 1997 1996 1997 1996
------- ---------- ---------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
TU Electric Capital I (8.25%
Series)........................ 5,871,044 5,871,044 $140,851 $140,671 $154,869 $154,869
TU Electric Capital II (9.00%
Series)........................ 1,991,253 1,991,253 47,374 47,301 51,419 51,419
TU Electric Capital III (8.00%
Series)........................ 8,000,000 8,000,000 193,510 193,339 206,186 206,186
TU Electric Capital IV (floating
rate Capital Securities)(a).... 100,000 - 97,570 - 103,093 -
TU Electric Capital V (8.175%
Capital Securities)............ 400,000 - 395,841 - 412,372 -
---------- ---------- -------- -------- -------- --------
Total.................. 16,362,297 15,862,297 $875,146 $381,311 $927,939 $412,474
========== ========== ======== ======== ======== ========
</TABLE>
- ---------------
(a) Floating rate is determined quarterly based on LIBOR. The related interest
rate swap fixes the rate at 7.183%.
At December 31, 1997, TU Electric, with respect to its Capital IV
securities, had an interest rate swap agreement with a notional principal amount
of $100,000,000 expiring 2002 that fixed the rate on the securities at 7.183%
per annum.
The combination of the obligations of TU Electric pursuant to agreements to
pay the expenses of each of the TU Electric Trusts and TU Electric's guarantees
of distributions with respect to trust securities, to the extent the issuing
trust has funds available therefor, constitutes a full and unconditional
guarantee by TU Electric of the obligations of each trust under the trust
securities it has issued. TU Electric is the owner of all the common trust
securities of each trust, which, in each case, constitutes 3% or more of the
liquidation amount of all the trust securities issued by such trust.
In January 1998, TU Electric redeemed all of the outstanding shares of the
TU Electric Capital II preferred trust securities at 100% of the liquidation
amount of $25 per preferred security, plus accumulated and unpaid dividends.
V-29
<PAGE> 275
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8 LONG-TERM DEBT, LESS AMOUNTS DUE CURRENTLY
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
INTEREST SERIES 1997 1996
RATE DUE ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
First mortgage bonds:
5 1/2% series due 1998.................................... $ - $ 125,000
5 3/4% series due 1998.................................... - 150,000
5 7/8% series due 1998.................................... - 175,000
6 1/2% series due 1998.................................... - 1,065
7 3/8% series due 1999.................................... 100,000 100,000
Floating rate series due 1999............................. - 300,000
9 1/2% series due 1999.................................... 200,000 200,000
7 3/8% series due 2001.................................... 150,000 150,000
7.95% series due 2002..................................... 888 900
8% series due 2002........................................ 147,000 147,000
8 1/8% series due 2002.................................... 150,000 150,000
6 3/4% series due 2003.................................... 200,000 200,000
6 3/4% series due 2003.................................... 100,000 100,000
6 1/4% series due 2004.................................... 125,000 125,000
8 1/4% series due 2004.................................... 100,000 100,000
6 3/4% series due 2005.................................... 100,000 100,000
10.44% series due 2008.................................... 3,000 3,000
9 3/4% series due 2021.................................... 135,855 280,855
8 7/8% series due 2022.................................... 125,000 175,000
9% series due 2022........................................ - 100,000
7 7/8% series due 2023.................................... 300,000 300,000
8 3/4% series due 2023.................................... 135,550 195,550
7 7/8% series due 2024.................................... 225,000 225,000
8 1/2% series due 2024.................................... 113,000 163,000
7 3/8% series due 2025.................................... 208,000 208,000
7 5/8% series due 2025.................................... 250,000 250,000
Pollution control series:
Brazos River Authority
7 7/8% series due 2017................................. - 81,305
9 7/8% series due 2017................................. - 28,765
9 1/4% series due 2018................................. 54,005 54,005
8 1/4% series due 2019................................. 100,000 100,000
8 1/8% series due 2020................................. 50,000 50,000
7 7/8% series due 2021................................. 100,000 100,000
Taxable series due 2021 (5.86%) (a)....................... 40,895 65,940
5 1/2% series due 2022................................. 50,000 50,000
6 5/8% series due 2022................................. 33,000 33,000
6.70% series due 2022.................................. 16,935 16,935
6 3/4% series due 2022................................. 50,000 50,000
Series 1997D due 2022 (3.75%) (c)......................... 28,765 -
Taxable series due 2023 (5.85%) (a)....................... 100,000 100,000
6.05% series due 2025.................................. 90,000 90,000
Series 1996A due 2026 (5.10%) (c)......................... 25,060 25,060
6 1/2% series due 2027................................. 46,660 46,660
6.10% series due 2028.................................. 50,000 50,000
Series 1994A due 2029 (3.75% to 3.85%) (b)................ 39,170 39,170
</TABLE>
V-30
<PAGE> 276
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
INTEREST SERIES 1997 1996
RATE DUE ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Series 1994B due 2029 (3.75% to 3.80%)(b).............. $ 39,170 $ 39,170
Series 1995A due 2030 (5.10%) (c)...................... 50,670 50,670
Series 1995B due 2030 (4.60%) (c)...................... 118,355 118,355
Series 1995C due 2030 (5.10%) (c)...................... 118,355 118,355
Series 1996B due 2030 (4.60%) (c)...................... 61,215 61,215
Series 1996C due 2030 (5.10%) (c)...................... 50,000 50,000
Series 1997A due 2032 (5.10%) (c)...................... 50,000 -
Series 1997B due 2032 (4.95%) (c)...................... 31,305 -
Series 1997C due 2032 (5.10%) (c)...................... 25,045 -
Sabine River Authority of Texas
9% series due 2007..................................... - 51,525
8 1/8% series due 2020................................. 40,000 40,000
8 1/4% series due 2020................................. 11,000 11,000
5.55% series due 2022.................................. 75,000 75,000
6.55% series due 2022.................................. 40,000 40,000
5.85% series due 2022.................................. 33,465 33,465
Series 1997A due 2022 (3.70%) (c)...................... 51,525 -
Series 1996A due 2026 (5.10%) (c)...................... 57,950 57,950
Series 1996B due 2026 (5.10%) (c)...................... 25,000 25,000
Series 1995A due 2030 (5.20%) (c)...................... 16,000 16,000
Series 1995B due 2030 (4.50%) (c)...................... 12,050 12,050
Series 1995C due 2030 (4.60%) (c)...................... 18,475 18,475
Trinity River Authority of Texas
9% series due 2007..................................... - 12,000
Series 1997A due 2022 (3.75%) (c)...................... 12,000 -
Series 1996A due 2026 (5.10%) (c)........................... 25,000 25,000
Series 1997B due 2032 (5.95%) (c)........................... 14,075 -
Secured medium-term notes, series A......................... 30,000 30,000
Secured medium-term notes, series B......................... 114,200 114,200
Secured medium-term notes, series D......................... 201,150 201,150
---------- ----------
Total first mortgage bonds........................ 5,063,788 6,205,790
General obligation bonds.................................... 9,646 10,000
Debt assumed for purchase of utility plant (d).............. 153,537 156,182
TU Electric 7.17% Senior Debentures due 2007................ 300,000 -
Senior notes:
TEI (due through 2010 at 10.2% to 10.58%)................. 235,800 239,350
TUC (due through 2004 at 6.20% to 6.375%)................. 300,000 -
ENSERCH (due through 2005 at 6.25% to 8.875%)............. 575,000 -
TUMCO (due through 2005 at 6.5% to 9.42%)................. 367,856 382,142
LLC (due through 2003 at 7.15% to 10.5%).................. 648 -
Eastern Energy (due through 2016 at 6.75% to 7.25%) (e)... 280,994 343,389
6 3/8% Convertible subordinated debentures due 2002......... 90,750 -
Term credit facilities (f).................................. 1,416,728 1,381,290
Unamortized premium and discount and fair value
adjustments............................................... (35,368) (50,032)
---------- ----------
Total long-term debt, less amounts due
currently....................................... $8,759,379 $8,668,111
========== ==========
</TABLE>
V-31
<PAGE> 277
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
(a) Interest rates in effect at December 31, 1997 are presented. Taxable
pollution control series are in a flexible rate mode. Series 1991D bonds
due 2021 were remarketed on June 1, 1995 for rate periods up to 180 days
and are secured by an irrevocable letter of credit with maturities in
excess of one year. Series 1993 bonds due 2023 will be remarketed for
periods of less than 270 days and are secured by an irrevocable letter of
credit with maturities in excess of one year.
(b) Interest rates in effect at December 31, 1997 are presented. These series
are in a flexible mode with varying interest rates and, while in such mode,
will be remarketed for periods of less than 270 days and are secured by an
irrevocable letter of credit with maturities in excess of one year.
(c) Interest rates in effect at December 31, 1997 are presented . These series
are in a daily mode with varying interest rates and are supported by either
municipal bond insurance policies and standby bond purchase agreements or
are secured by irrevocable letters of credit with maturities in excess of
one year.
(d) In 1990, TU Electric purchased the ownership interest in Comanche Peak of
Tex-La Electric Cooperative of Texas, Inc. (Tex-La) and assumed debt of
Tex-La payable over approximately 32 years. The assumption is secured by a
mortgage on the acquired interest. The Company has guaranteed these
payments.
(e) Eastern Energy has entered into cross-currency and interest rate swap
agreements expiring on concurrent dates with the underlying fixed rate debt
through 2016. Such agreements effectively convert these fixed rate U.S.
dollar denominated Senior Notes to a floating rate Australian Dollar
liability based on the Australian Bank Bill Swap rate plus a margin. At
December 31, 1997, such floating rates ranged from 5.29% to 8.45%.
(f) Includes the Company's $990,440,000 reclassified short-term debt (see Note
3). Also includes Eastern Energy's $297,837,000 Multi Option Credit
Facility due 2001 with a floating interest rate of 5.44% on December 31,
1997 and Eastern Energy's $128,451,000 reclassified short-term debt (all of
which is included under interest rate swap agreements with notional
principal amounts of $627,539,000 expiring at various dates through 2002
with fixed interest rates ranging from 5.29% to 8.45% per annum and forward
contracts with notional principal amounts of $45,521,000 expiring at
various dates through 1998 with an average rate of 4.8%).
Long-term debt of the Company does not include Junior Subordinated
Debentures held by each TU Electric Trust. (See Note 7.)
The ENSERCH convertible subordinated debentures, which have an interest
rate of 6 3/8%, are due in 2002 and effective with the Merger, each $1,000 of
the $90,750,000 total principal amount outstanding became convertible into
25.947 shares of TUC common stock at the option of the debenture holder. The
debentures may be redeemed at 101.27% of the principal amount, plus accrued
interest, through March 31, 1998 and at declining premiums thereafter. The
Company currently intends to redeem these debentures in 1998.
Sinking fund and maturity requirements for the years 1998 through 2002
under long-term debt instruments in effect at December 31, 1997, were as
follows:
<TABLE>
<CAPTION>
SINKING MINIMUM CASH
YEAR FUND MATURITY REQUIREMENT
---- ---------- ---------- ------------
THOUSANDS OF DOLLARS
<S> <C> <C> <C>
1998................................................. $ 20,994 $ 751,077 $ 772,071
1999................................................. 24,680 480,012 504,692
2000................................................. 261,040 1,597,891 1,858,931
2001................................................. 22,415 322,012 344,427
2002................................................. 8,546 586,602 595,148
</TABLE>
V-32
<PAGE> 278
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TU Electric's and SESCO's first mortgage bonds are secured by mortgages and
deeds of trust with major financial institutions. Electric plant of TU Electric
and SESCO is generally subject to the liens of their respective mortgages.
9 DERIVATIVE INSTRUMENTS
The Company enters into derivative instruments, including options, swaps,
futures and other contractual commitments to manage market risks related to
changes in interest rates and commodity price exposures. The Company's
participation in derivative transactions, except for the gas marketing
activities, have been designated for hedging purposes and are not held or issued
for trading purposes. (For a discussion of accounting policies relating to
derivative instruments, see Note 2.)
Interest Rate Risk Management -- At December 31, 1997, Eastern Energy had
interest rate swaps outstanding with an aggregate notional amount of
$977,500,000. These swap agreements establish a mix of fixed and variable
interest rates on the outstanding debt and have remaining terms up to 19 years.
(See Note 8.)
At December 31, 1997, TU Electric had an interest rate swap agreement with
respect to preferred securities of TU Electric Capital IV, with a notional
principal amount of $100,000,000 expiring 2002 that fixed the rate at 7.183% per
annum. (See Note 7.)
At December 31, 1997, there were $50,900,000 of net unrealized deferred
hedging losses on interest rate swaps.
Electricity Price Risk Management -- Eastern Energy and the other
distribution companies in Victoria purchase their power from a competitive power
pool operated by a statutory, independent corporation. Eastern Energy purchases
about 95% of its energy from this pool, the cost of which is based on spot
market prices. Eastern Energy and other distribution companies were required to
enter into wholesale market contracts to cover a substantial majority of its
forecasted franchise load through the end of 2000. Eastern Energy also maintains
a strategy that is aimed at seeking hedging contracts with individual generators
to cover forecast contestable loads. These contracts fix the price of energy
within a certain range for the purpose of hedging or protecting against
fluctuations in the spot market price. During 1997, the average spot price for
electric energy from the pool approximated $14 per megawatt-hour (MWh) as
compared with the average fixed price of Eastern Energy's electric energy under
its contracts of approximately $29 per MWh. At December 31, 1997, Eastern
Energy's contracts related to its forecasted contestable and franchise load
cover a notional volume of approximately 15.6 million MWh's for 1998 through
2000. Under these contracts, payments are made between Eastern Energy and the
generators representing the difference between the wholesale electricity market
price and the contract price. The net payable or receivable is recognized in
earnings as adjustments to purchased power expense in the period the related
transactions are completed.
Natural Gas Marketing Activities -- EES's marketing activities involve
price commitments into the future and, therefore, give rise to market risk,
which represents the potential loss that can be caused by a change in the market
value of a particular commitment. Net open portfolio positions often result from
the origination of new transactions or in response to changing market
conditions. The Company closely monitors its exposure to market risk. The
Company utilizes a number of methods to monitor market risk, including
sensitivity analysis. The exposure for fixed price natural gas purchase and sale
commitments, and derivative financial instruments, including options, swaps,
futures and other contractual commitments, is based on a methodology that uses a
five-day holding period and a 95% confidence level. EES uses market-implied
volatilities to determine its exposure to market risk. Market risk is estimated
as the potential loss in fair value resulting from at least a 15% change in
market factors which may differ from actual results. Using 15%, the most adverse
change in fair value at December 31, 1997 as a result of this analysis was a
reduction of $1.1 million.
V-33
<PAGE> 279
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EES enters into contracts to purchase and sell natural gas for physical
delivery in the future. At December 31, 1997, EES had net commitments to sell
approximately 50.6 billion cubic feet (Bcf) of natural gas through the year 2003
with offsetting net financial positions to purchase approximately 61.3 Bcf.
Concurrent with the Merger, EES conformed its accounting for its gas
marketing activities to mark-to-market accounting. Under mark-to-market
accounting, changes (whether positive or negative) in the value of contractual
commitments to purchase and sell natural gas in the future and from its
portfolio of derivative financial instruments, including options, swaps, futures
and other contractual commitments are recognized as an adjustment to operating
revenues in the period of change. The market prices used to value these
transactions reflect management's best estimate of market prices considering
various factors including closing exchange and over-the-counter quotations, time
value of money and volatility factors underlying the commitments. These market
prices are adjusted to reflect the potential impact of liquidating EES's
position in an orderly manner over a reasonable period of time under present
market conditions.
EES has a number of risks and costs associated with the future contractual
commitments included in its natural gas portfolio, including credit risks
associated with the financial condition of counterparties, product location
(basis) differentials and other risks that management policies dictate. EES
continuously monitors the valuation of identified risk and adjusts the portfolio
valuation based on present market conditions. Reserves are established in
recognition that certain risks exist until delivery of natural gas has occurred,
counterparties have fulfilled their financial commitments and related financial
instruments mature or are closed out.
The following table displays the mark-to-market values of EES's natural gas
marketing risk management assets and liabilities at December 31, 1997 and the
average value for the period from August 5, 1997 through December 31, 1997:
<TABLE>
<CAPTION>
ASSETS LIABILITIES NET
-------- ----------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
FAIR VALUE:
Current..................................................... $365,650 $357,044 $ 8,606
Noncurrent.................................................. 41,522 31,324 10,198
Total....................................................... $407,172 $388,368 18,804
======== ========
Less reserves............................................... 9,251
-------
Net of reserves............................................. $ 9,553
=======
AVERAGE VALUE:
Total....................................................... $291,809 $278,332 $13,477
======== ========
Less reserves............................................... 8,134
-------
Net of reserves............................................. $ 5,343
=======
</TABLE>
EES incurred net trading losses of $286,000 from gas marketing activities
for the period from August 5, 1997 through December 31, 1997.
Credit Risk -- Credit risk relates to the risk of loss that the Company
would incur as a result of nonperformance by counterparties to their respective
derivative instruments. The Company maintains credit policies with regard to its
counterparties that management believes significantly minimize overall credit
risk. The Company does not obtain collateral to support the agreements but
monitors the financial viability of counterparties and believes its credit risk
is minimal on these transactions. The Company believes the risk of
nonperformance by counterparties is minimal.
V-34
<PAGE> 280
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10 INCOME TAXES
The components of the Company's provision for income taxes (benefit) are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
-------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current:
Federal.................................................. $181,632 $198,522 $ 222,358
State.................................................... 39,900 - -
-------- -------- ---------
Total............................................ 221,532 198,522 222,358
-------- -------- ---------
Deferred:
Federal.................................................. 175,573 196,957 (259,445)
State.................................................... (17,102) - -
Foreign.................................................. 19,746 12,828 (174)
-------- -------- ---------
Total............................................ 178,217 209,785 (259,619)
-------- -------- ---------
Investment Tax Credits..................................... (22,851) (33,075) (22,774)
-------- -------- ---------
Total............................................ $376,898 $375,232 $ (60,035)
======== ======== =========
</TABLE>
Reconciliation of income taxes (benefit) computed at the federal statutory
rate to provision for income taxes (benefit).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
---------- ---------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Income (loss) before Income taxes:
Domestic.............................................. $1,001,867 $1,108,386 $(197,373)
Foreign............................................... 35,485 20,452 (1,307)
Total......................................... 1,037,352 1,128,838 (198,680)
Preferred stock dividends of subsidiaries............. 27,983 53,358 84,914
---------- ---------- ---------
Income (loss) before preferred stock dividends of
subsidiaries....................................... $1,065,335 $1,182,196 $(113,766)
========== ========== =========
Income taxes (benefit) at the federal statutory rate
of 35%............................................. $ 372,867 $ 413,769 $ (39,188)
Allowance for funds used during construction.......... (1,821) (542) (2,330)
Depletion allowance................................... (22,691) (25,657) (23,564)
Amortization of investment tax credits................ (22,877) (23,203) (23,036)
Amortization of tax rate differences.................. (6,856) (9,084) (9,648)
Amortization of prior flow-through amounts............ 36,559 35,128 38,974
Foreign operations.................................... 7,326 5,670 283
Prior year adjustments................................ (7,673) (25,250) (4,136)
State income taxes, net of federal tax benefit........ 14,812 - -
Amortization of goodwill.............................. 3,263 - -
Other................................................. 3,989 4,401 2,610
---------- ---------- ---------
Provision for income taxes (benefit).................... $ 376,898 $ 375,232 $ (60,035)
========== ========== =========
Effective tax rate (on income before preferred stock
dividends of subsidiaries)............................ 35.4% 31.7% 52.8%
</TABLE>
The Company had net tax benefits from LESOP dividend deductions of $3.9
million, $4.0 million and $6.5 million in 1997, 1996 and 1995, respectively,
which were credited directly to retained earnings.
V-35
<PAGE> 281
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes provided by the liability method for significant
temporary difference based on tax laws in effect at the December 31, 1997 and
1996 balance sheet dates are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1997 1996
---------------------------------- ----------------------------------
NON NON
TOTAL CURRENT CURRENT TOTAL CURRENT CURRENT
---------- -------- ---------- ---------- -------- ----------
(THOUSAND OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
DEFERRED TAX ASSETS:
Unbilled revenues............. $ 28,469 $ 28,469 $ - $ 28,521 $ 28,521 $ -
Over-recovered fuel revenue... 4,530 4,530 - 15,045 15,045 -
Unamortized investment tax
credits..................... 300,871 - 300,871 312,665 - 312,665
Impairment of assets.......... 141,678 - 141,678 143,210 - 143,210
Regulatory disallowance....... 183,729 - 183,729 222,428 - 222,428
Alternative minimum tax....... 589,989 - 589,989 587,052 - 587,052
Tax rate differences.......... 78,477 - 78,477 78,141 - 78,141
Employee benefits............. 163,632 - 163,632 100,397 - 100,397
Net operating loss
carryforwards............... 155,871 - 155,871 - - -
Deferred benefits of state
income tax.................. 156,237 5,129 151,108 - - -
Unrealized currency
translation adjustments..... 27,685 - 27,685 - - -
Other......................... 35,130 35,130 - 35,316 7,406 27,910
---------- -------- ---------- ---------- -------- ----------
Total deferred
federal income tax
asset............. 1,866,298 73,258 1,793,040 1,522,775 50,972 1,471,803
Deferred state income taxes... 52,996 3,170 49,826 - - -
Deferred foreign income
taxes....................... 77,222 5,573 71,649 69,541 2,994 66,547
---------- -------- ---------- ---------- -------- ----------
Total deferred tax
assets............ 1,996,516 82,001 1,914,515 1,592,316 53,966 1,538,350
---------- -------- ---------- ---------- -------- ----------
DEFERRED TAX LIABILITIES:
Depreciation differences and
capitalized construction
costs....................... 4,257,455 - 4,257,455 4,010,105 - 4,010,105
Redemption of long-term
debt........................ 123,354 - 123,354 125,601 - 125,601
Deferred charges for state
income tax.................. 24,433 - 24,433 - - -
Other......................... 122,304 121 122,183 148,720 - 148,720
---------- -------- ---------- ---------- -------- ----------
Total deferred
federal income tax
liability......... 4,527,546 121 4,527,425 4,284,426 - 4,284,426
Deferred state income taxes... 295,246 - 295,246 - - -
Deferred foreign income
taxes....................... 94,590 13,492 81,098 69,495 13,945 55,550
---------- -------- ---------- ---------- -------- ----------
Total deferred tax
liabilities....... 4,917,382 13,613 4,903,769 4,353,921 13,945 4,339,976
---------- -------- ---------- ---------- -------- ----------
Net Deferred Tax
Liability
(Asset)........... $2,920,866 $(68,388) $2,989,254 $2,761,605 $(40,021) $2,801,626
========== ======== ========== ========== ======== ==========
</TABLE>
At December 31, 1997, the Company had approximately $590 million of
alternative minimum tax credit carryforwards available to offset future tax
payments. At December 31, 1997, ENSERCH had $445 million of net operating loss
(NOL) carryforwards which begin to expire in 2003. Such NOL's were generated by
V-36
<PAGE> 282
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ENSERCH and subsidiaries prior to the Merger and can be used only to offset
future taxable income generated by ENSERCH and subsidiaries pursuant to Section
382 of the Internal Revenue Code. The Company expects to fully utilize such
NOL's prior to their expiration date.
Separately, the ENSERCH consolidated income tax returns have been audited
and settled with the Internal Revenue Service (IRS) through the year 1992. The
IRS is currently auditing the year 1993 and as yet no notice of proposed
adjustments has been issued. The IRS has indicated that it will commence an
audit of ENSERCH's returns for the years 1994 through 1997 in 1998. To the
extent that adjustments to income tax accounts for periods prior to the Merger
are required as a result of an IRS audit, the adjustment will be added to or
deducted from goodwill in accordance with the provisions of SFAS 109.
11 RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
Most employees of System Companies are covered by defined benefit pension
plans which provide benefits based on years of service and average earnings. At
the date of their acquisition by the Company, both ENSERCH and LCC had defined
benefit pensions plans covering most of their employees and providing benefits
similar to those provided to employees of other System Companies. As a part of
the purchase accounting for ENSERCH and LCC, their accrued pension liabilities
were adjusted to recognize all previously unrecognized gains or losses arising
from past experience different from that assumed, the effects of changes in
assumptions, all unrecognized prior service costs and the remainder of any
unrecognized obligation or asset existing at the date of the initial application
of SFAS 87 by the respective company. These adjustments to the accrued pension
liability, to the extent associated with rate-regulated operations, were
recorded as regulatory assets or liabilities and, to the extent associated with
non-regulated operations, as goodwill.
Effective January 1, 1998, the ENSERCH retirement plan was merged into
another retirement plan of the Company. Also, effective during 1998, employees
of certain of the Company's emerging business units will be eligible to
participate in a cash balance plan, rather than the traditional defined benefit
plans. This change, which affects a relatively small percentage of employees,
was made in connection with overall changes in the compensation plans of these
business units designed to bring them closer to the prevailing practices of the
companies in the industries in which they compete.
In connection with the ENSERCH acquisition, certain employees of ENSERCH
and other System Companies were offered and accepted an early retirement option.
Effects of the early retirement option associated with ENSERCH employees were
included in purchase accounting adjustments as regulatory assets or goodwill, as
appropriate. Effects of the early retirement option associated with employees of
other System Companies were recorded as regulatory assets, or liabilities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Components of Net Pension Costs (including amounts charged
to fuel cost, deferred and capitalized):
Service cost -- benefits earned during the period....... $ 36,712 $ 36,779 $ 23,515
Interest cost on projected benefit obligation........... 92,121 75,501 65,675
Actual return on plan assets............................ (299,800) (183,390) (241,887)
Net amortization and deferral........................... 190,203 97,988 160,198
--------- --------- ---------
Net periodic pension cost....................... $ 19,236 $ 26,878 $ 7,501
========= ========= =========
Valuation Assumptions:
Discount rate........................................... 7.25% 7.75% 7.25%
Rate of increase in compensation levels................. 4.3% 4.3% 4.3%
Expected long-term rate of return....................... 9.0% 9.0% 9.0%
</TABLE>
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<PAGE> 283
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Amounts Recognized:
Actuarial present value of accumulated benefits:
Accumulated benefit obligation (including vested benefits
of $1,264,450,000 for 1997 and $823,918,000 for
1996).................................................. $(1,337,120) $ (889,057)
=========== ===========
Projected benefit obligation for service rendered to
date................................................... $(1,546,854) $(1,065,396)
Plan assets at fair value -- primarily equity investments,
government bonds and corporate bonds...................... 1,790,715 1,296,025
----------- -----------
Plan assets in excess of projected benefit obligation....... 243,861 230,629
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions........ (422,503) (350,295)
Prior service cost not yet recognized in net periodic
pension expense........................................... 31,574 41,566
Unrecognized plan assets in excess of projected benefit
obligation at initial application......................... (4,700) (5,708)
----------- -----------
Accrued pension cost...................................... $ (151,768) $ (83,808)
=========== ===========
</TABLE>
The Eastern Energy, ENSERCH and LCC plans use economic assumptions similar
to the other System Companies' plans and are included in the tabular information
above.
In addition to the retirement plans, the System Companies offer certain
health care and life insurance benefits to substantially all employees,
including those of ENSERCH and LCC but excluding those of Eastern Energy, and
their eligible dependents at retirement. Benefits received vary in level
depending on years of service and retirement dates. The purchase accounting
adjustments described above for the retirement plans of ENSERCH and LCC were
also applied to the accrued liabilities for the post employment health care and
life insurance benefits.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Components of Net Periodic Postretirement Benefit Costs
(including amounts charged to fuel cost, deferred and
capitalized):
Service cost -- benefits earned during the period......... $ 12,084 $13,513 $ 9,771
Interest cost on the accumulated postretirement benefit
obligation............................................. 43,057 40,809 38,842
Amortization of the transition obligation................. 16,953 16,978 16,978
Actual return on plan assets.............................. (13,260) (7,079) (6,096)
Net amortization and deferral............................. 7,015 8,303 4,646
-------- ------- -------
Net postretirement benefits cost.................. $ 65,849 $72,524 $64,141
======== ======= =======
Valuation assumption:
Discount rate............................................. 7.25% 7.75% 7.25%
Medical cost trend rate................................... 5.0% 5.0% 5.0%
</TABLE>
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<PAGE> 284
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Amounts Recognized:
Accumulated postretirement benefit obligation (APBO):
Retirees.................................................. $(412,919) $(325,672)
Fully eligible active employees........................... (40,901) (38,320)
Other active employees.................................... (137,033) (187,451)
--------- ---------
Total APBO........................................ (590,853) (551,443)
Plan assets at fair value................................... 111,799 81,480
--------- ---------
APBO in excess of plan assets..................... (479,054) (469,963)
Unrecognized net loss....................................... 67,023 92,589
Unrecognized prior service cost............................. 18,557 819
Unrecognized transition obligation.......................... 162,359 271,649
--------- ---------
Accrued postretirement benefits cost.............. $(231,115) $(104,906)
========= =========
</TABLE>
The expected increase in costs of future benefits covered by the plan is
projected using a health care cost trend rate of 5.0% in 1998 and thereafter. A
one percentage point increase in the assumed health care cost trend rate in each
future year would increase the APBO at December 31, 1997 by approximately $65.9
million for the System Companies, and other postretirement benefits cost for
1997 by approximately $9.8 million.
12 SALES OF ACCOUNTS RECEIVABLE
The Company has facilities with financial institutions whereby it is
entitled to sell and such financial institutions may purchase, on an ongoing
basis, undivided interests in customer accounts receivable representing up to an
aggregate of $450,000,000, including $100,000,000 related to ENSERCH in 1997.
Additional receivables are continually sold to replace those collected. At
December 31, 1997 and 1996, accounts receivable was reduced by $400,000,000 and
$300,000,000, respectively, to reflect the sales of such receivables to
financial institutions under such agreements.
13 REGULATION AND RATES
Docket 9300 -- The PUC's final order (Order) in connection with TU
Electric's January 1990 rate increase request (Docket 9300) was reviewed by the
250th Judicial District Court of Travis County, Texas, (District Court) and
thereafter was appealed to the Court of Appeals for the Third District of Texas
and to the Supreme Court of Texas (Supreme Court). As a result of such review
and appeals, an aggregate of $909 million of disallowances with respect to TU
Electric's reacquisitions of minority owners' interests in Comanche Peak, which
had previously been recorded as a charge to the Company's earnings, has been
remanded to the District Court with instructions that it be remanded to the PUC
for reconsideration on the basis of a prudent investment standard. On remand,
the PUC would also be required to reevaluate the appropriate level of TU
Electric's construction work in progress included in rate base in light of its
financial condition at the time of the initial hearing. In January 1997, the
Supreme Court denied a motion for rehearing on the Comanche Peak minority owners
issue filed by the original complainants. TU Electric cannot predict the outcome
of the reconsideration of the Order on remand by the PUC.
In its decision, the Supreme Court also affirmed the previous $472 million
prudence disallowance related to Comanche Peak. Since the Company has previously
recorded a charge to earnings for this prudence disallowance, the Supreme
Court's decision did not have an effect on the Company's current financial
position, results of operation or cash flows.
Docket 11735 -- In July 1994, TU Electric filed a petition in the 200th
Judicial District Court of Travis County, Texas to seek judicial review of the
final order of the PUC granting a $449 million, or 9.0%, rate
V-39
<PAGE> 285
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increase in connection with TU Electric's January 1993 rate increase request of
$760 million, or 15.3% (Docket 11735). Other parties to the PUC proceedings also
filed appeals with respect to various portions of the order.
Dockets 15638 and 15840 -- In May 1996, TU Electric filed with the PUC its
transmission cost information and tariffs for open-access wholesale transmission
service (Docket 15638) in accordance with PUC rules adopted in February 1996.
These tariffs also provide for generation-related ancillary services necessary
to support wholesale transactions. In August 1997, the PUC approved final
tariffs for TU Electric and implemented rates for other transmission providers
within the Electric Reliability Council of Texas (ERCOT) (Docket 15840). Under
rates implemented by the PUC, TU Electric's payments for transmission service
will exceed its revenues for providing transmission service. The PUC has adopted
a rate-moderation plan that will minimize the impact of the new pricing
mechanism for the first three years the rules are in effect. As such, the
current maximum impact on TU Electric for 1998 is an $8.52 million deficit,
which, in the opinion of TU Electric, is not expected to have a material effect
on its financial position, results of operation or cash flows.
Docket 17250 -- In late 1996, as part of its regular earnings monitoring
process, the PUC staff advised the PUC, after reviewing the 1995 Electric
Investor-Owned Utilities Earnings Report of TU Electric, that it believed TU
Electric was earning in excess of a reasonable rate of return, and the PUC and
TU Electric subsequently began discussions concerning possible remedies. It was
decided to limit negotiations to a resolution of issues concerning TU Electric's
earnings through 1997, and discussion of a longer-term resolution was deferred.
In July 1997, the PUC issued its final written order approving TU Electric's
proposal to make a one-time $80 million refund to its customers and to leave
rates unchanged during the remainder of 1997. TU Electric recorded the charge to
revenues in July 1997 and included the refunds in August 1997 billings. The
proposal was the result of a joint stipulation in which TU Electric was joined
by the PUC General Counsel, on behalf of the PUC Staff and the public interest,
the Office of Public Utility Counsel, the state agency charged with representing
the interests of residential and small commercial customers, and the Coalition
of Cities served by TU Electric.
Docket 18490 -- On December 17, 1997, TU Electric, together with the PUC
General Counsel, the Office of Public Utility Counsel and various other parties
interested in TU Electric's rates and services, filed with the PUC a stipulation
and joint application which, if granted would, among other things: (i) result in
permanent retail base rate credits beginning January 1, 1998, of 4% for
residential customers, 2% for general service secondary customers and 1% for all
other retail customers, (ii) result in additional permanent retail base rate
credits beginning January 1, 1999, of 1.4% for residential customers, (iii)
impose a 11.35% cap on TU Electric's rate of return on equity during 1998 and
1999, with any sums earned above that cap being applied as additional nuclear
production depreciation, (iv) allow TU Electric to record depreciation
applicable to transmission and distribution assets in 1998 and 1999 as
additional depreciation of nuclear production assets, (v) establish an updated
cost of service study that includes interruptible customers as customer classes,
(vi) result in the permanent dismissal of pending appeals of prior PUC orders
including Docket No. 11735, if all other parties that have filed appeals of
those dockets also dismiss their appeals, (vii) result in the stay of any
proceedings in the removal of Docket 9300 prior to January 1, 2000, and, (viii)
result in all gains from off-system sales of electricity in excess of the amount
included in base rates being flowed to customers through the fuel factor.
The PUC has until March 31, 1998 to approve or reject the stipulation and
joint application. Otherwise, TU Electric may terminate the base rate reductions
and all other aspects of the proposal upon giving two weeks notice to the PUC.
Lone Star Gas and Lone Star Pipeline Rates -- In October 1996, Lone Star
Pipeline filed a request with the RRC to increase the rate it charges Lone Star
Gas to store and transport gas ultimately destined for residential and
commercial customers in the 550 Texas cities and towns served by Lone Star Gas.
Lone Star Gas also requested that the RRC separately set rates for costs to
aggregate gas supply for these cities. Rates
V-40
<PAGE> 286
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
previously in effect were set by the RRC in 1982. In September 1997, the RRC
issued an order reducing the charges by Lone Star Pipeline to Lone Star Gas for
storage and transportation services. In that order, the RRC did authorize
separate charges for the Lone Star Pipeline storage and transportation services,
a separate charge by Lone Star Gas for the cost of aggregating gas supplies, and
a continuation of the 100% flow through of purchased gas expense. The RRC also
imposed some new criteria for affiliate gas purchases and a new reconciliation
procedure that will require a review of purchased gas expenses every three
years. The RRC order has become final, but is being appealed by several parties
including Lone Star Pipeline and Lone Star Gas. The rates authorized by the
order became effective on December 1, 1997, and will result in an annual margin
reduction of approximately $8.2 million.
On August 20, 1996, the RRC ordered a general inquiry into the rates and
services of Lone Star Gas, most notably a review of historic gas cost and gas
acquisition practices since the last rate setting. The inquiry docket has been
separated into different phases. Two of the phases, conversion to the NARUC
account numbering system and unbundling, have been dismissed by the RRC, and one
other phase, rate case expense, is pending RRC action on the basis of a
stipulation of all parties. In the phase dealing with historic gas cost and gas
acquisition practices, Lone Star Gas and Lone Star Pipeline have filed a motion
for summary disposition stating that any retroactive rate action would be
inappropriate and unlawful. Settlement discussions with intervenor cities are
ongoing. If the motion for summary disposition is denied, a hearing has been
scheduled to begin in August 1998. A number of management and transportation
related issues have been placed in a separate phase which still has an undefined
scope and is being held in abeyance pending the resolution of the phase dealing
with gas costs. Management believes that gas costs were prudently incurred and
were properly accounted for and recovered through the gas cost recovery
mechanism previously approved by the RRC. At this time, management is unable to
determine the ultimate outcome of the inquiry.
Fuel Cost Recovery Rule -- Pursuant to a PUC rule, the recovery of TU
Electric's eligible fuel costs is provided through fixed fuel factors. The rule
allows a utility's fuel factor to be revised upward or downward every six
months, according to a specified schedule. A utility is required to petition to
make either surcharges or refunds to ratepayers, together with interest based on
a twelve month average of prime commercial rates, for any material, as defined
by the PUC, cumulative under- or over-recovery of fuel costs. If the cumulative
difference of the under- or over-recovery, plus interest, is in excess of 4% of
the annual estimated fuel costs most recently approved by the PUC, it will be
deemed to be material. In accordance with PUC approvals, TU Electric has, since
the inception of the rule in 1986, made thirteen refunds of over-collected fuel
costs and two surcharges of under-collected fuel costs. The most recent refund
was made pursuant to a petition filed by TU Electric in July 1997 to refund
approximately $67 million, including interest, in over-collected fuel costs for
the period October 1995 through May 1997 (Fuel Refund). Such over-collection was
primarily due to TU Electric's ability to use less expensive nuclear fuel and
purchased power to offset a higher-priced natural gas market during the period.
Customer refunds were included in August 1997 billings. A final order confirming
the Fuel Refund was entered by the PUC in October 1997. The two surcharges (one
in the amount of $147.3 million and the other in the amount of $93 million) have
been appealed by certain intervenors to district courts of Travis County, Texas.
In those appeals, those parties are contending that the PUC is without authority
to allow a fuel cost surcharge without a hearing and resultant findings that the
costs are reasonable and necessary and that the prices charged to TU Electric by
supplying affiliates are no higher than the prices charged by those affiliates
to others for the same item or class of items. TU Electric is unable to predict
their outcome.
Fuel Reconciliation Proceeding -- In July 1997, the PUC ruled on TU
Electric's petition seeking final reconciliation of all eligible fuel and
purchased power expenses incurred during the reconciliation period of July 1,
1992 through June 30, 1995 (approximately $4.7 billion). In the ruling, the PUC
disallowed approximately $81 million of eligible fuel related costs (including
interest of $12 million) incurred during the reconciliation period (Fuel
Disallowance). The majority of the Fuel Disallowance (approximately $67 million)
is related to replacement fuel costs as a result of the November 1993 collapse
of the emissions chimney serving Unit 3 of the Monticello lignite-fueled
generating station. In addition, the PUC ruled that
V-41
<PAGE> 287
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $10 million from the gain on sale of sulfur dioxide allowances
should be deferred and reconsidered at a future date. TU Electric received a
final written order from the PUC and recorded the charge to revenues in August
1997. TU Electric strongly disagrees with the Fuel Disallowance and continues to
vigorously defend its position. TU Electric has appealed the PUC's order to the
District Court of Travis County, Texas.
Flexible Rate Initiatives -- TU Electric continues to offer flexible rates
in over 160 cities with original regulatory jurisdiction within its service
territory (including the cities of Dallas and Fort Worth) to existing
non-residential retail and wholesale customers that have viable alternative
sources of supply and would otherwise leave the system. TU Electric also
continues to offer in those cities an economic development rider to attract new
businesses and to encourage existing customers to expand their facilities as
well as an environmental technology rider to encourage qualifying customers to
convert to technologies that conserve energy or improve the environment. TU
Electric will continue to pursue the expanded use of flexible rates when such
rates are necessary to be price-competitive.
Integrated Resource Plan -- In October 1994, TU Electric filed an
application for approval by the PUC of certain aspects of its Integrated
Resource Plan (IRP) for the ten year period 1995 -- 2004. The IRP, developed as
an experimental pilot project in conjunction with regulatory and customer
groups, included the acquisition of electric energy through a competitive
bidding process of third party-supplied demand-side management resources and
renewable resources. In August 1995, the PUC remanded the case to an
Administrative Law Judge for development of a solicitation plan and to more
closely conform the TU Electric 1995 IRP to new state legislation that required
the PUC to adopt a state-wide integrated resource planning rule by September 1,
1996. In January 1996, TU Electric filed an updated IRP with the PUC along with
a proposed plan for the solicitation of resources through a competitive bidding
process. The PUC issued its final order on TU Electric's IRP in October 1996,
and modified the order in December 1996 and February 1997. The modified order
approved a flexible solicitation plan that will allow TU Electric to conduct up
to three optional resource solicitations for a total of 2,074 MW of demand-side
and supply-side resources prior to the filing of its next IRP in June 1999. TU
Electric is currently reviewing the need and timing for conducting the first of
these resource solicitations.
In addition to its solicitation plan in the IRP docket, TU Electric
requested and received approval from the PUC to expand its Power Cost Recovery
tariff to provide current cost recovery of resource acquisition costs for
demand-side management resources acquired in the solicitations and for eight
previously approved demand-side management contracts entered into by TU Electric
to the extent such costs are not currently reflected in TU Electric's base
rates. OPEN-ACCESS TRANSMISSION -- In February 1996, pursuant to the 1995
amendments to PURA, the PUC adopted rules requiring each electric utility in
ERCOT to provide wholesale transmission and related services to other utilities
and non-utility power suppliers at rates, terms and conditions that are
comparable to those applicable to such utility's use of its own transmission
facilities.
Under the rules, the PUC established a transmission pricing mechanism
consisting of an ERCOT system-wide component and a distance-sensitive component.
The ERCOT system-wide component provides that each load-serving entity in ERCOT
will pay a share of the ERCOT-wide transmission cost of service based on the
entity's load. The distance-sensitive component provides that a
distance-sensitive rate will be paid to utilities that own transmission
facilities, based on the impact of transmitting power and energy to loads. The
rates charged for using the transmission system are designed to ensure that all
market participants pay on a comparable basis to use the system. While all users
of the transmission grid pay rates that are comparably designed, the impact on
individual users will differ.
In May 1996, TU Electric filed with the PUC, under Docket 15638, its
transmission cost information and tariffs for open-access wholesale transmission
service. These tariffs also provide for generation-related ancillary services
necessary to support wholesale transactions. Company-specific proceedings to
determine transmission rates for each transmission provider within ERCOT were
concluded in 1996. In August 1997, the
V-42
<PAGE> 288
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PUC approved final tariffs for TU Electric and implemented rates for other
transmission providers within ERCOT.
As a result of the PUC rules, the organization and structure of ERCOT has
been changed to provide for equal governance among all wholesale electricity
market participants. These changes were made in order to facilitate wholesale
competition while ensuring continued reliability within ERCOT.
14 IMPAIRMENT OF ASSETS
In September 1995, the Company recorded the impairment of several
non-performing assets pursuant to SFAS 121 which prescribes a methodology for
assessing and measuring impairments in the carrying value of certain assets. The
September 1995 impairment of the Company's assets, including the partially
completed Twin Oak and Forest Grove lignite-fueled facilities of TU Electric,
and Chaco Energy Company's (Chaco's) coal reserves in New Mexico, as well as
several minor assets, aggregated $1,233 million ($802 million after-tax). The
Company has determined that the Twin Oak and Forest Grove lignite-fueled
facilities are not necessary to satisfy TU Electric's capacity requirements as
currently projected due to changes in load growth patterns and availability of
alternative generation. The impairment of TU Electric's lignite-fueled
facilities has been measured based on management's current expectations that
these assets will either be sold or constructed outside the traditional
regulated utility business. The Company has determined that the Chaco coal
reserves will no longer be developed through traditional means due to ample
availability of alternative fuels at favorable prices. Chaco's impairment was
measured based on a significant decrease in the market value of the coal
reserves as determined by an external study. A variety of options are being
considered with respect to the Chaco coal reserves. (See Note 15.) The
impairment of these assets involved a write-down to their estimated fair values
using a valuation study based on the discounted expected future cash flows from
the respective assets' use. With respect to the other assets impaired, fair
values were determined based on current market values of similar assets.
15 COMMITMENTS AND CONTINGENCIES
Capital Expenditures -- The Company's construction expenditures, excluding
AFUDC, are presently estimated at $886 million, $799 million and $852 million
for 1998, 1999 and 2000, respectively. Expenditures for nuclear fuel are
presently estimated at $104 million for 1998, $81 million for 1999 and $92
million for 2000.
The re-evaluation of growth expectations, the effects of inflation,
additional regulatory requirements and the availability of fuel, labor,
materials and capital may result in changes in estimated construction costs and
dates of completion. Commitments in connection with the construction program are
generally revocable subject to reimbursement to manufacturers for expenditures
incurred or other cancellation penalties.
Clean Air Act -- The federal Clean Air Act, as amended (Clean Air Act)
includes provisions which, among other things, place limits on the sulfur
dioxide emissions produced by generating units. To meet these sulfur dioxide
requirements, the Clean Air Act provides for the annual allocation of sulfur
dioxide emission allowances to utilities. Under the Clean Air Act, utilities are
permitted to transfer allowances within their own systems and to buy or sell
allowances from or to other utilities. The Environmental Protection Agency
grants a maximum number of allowances annually to TU Electric based on the
amount of emissions from units in operation during the period 1985 through 1987.
TU Electric's capital requirements have not been significantly affected by the
requirements of the Clean Air Act. Although TU Electric is unable to fully
determine the cost of compliance with the Clean Air Act, it is not expected to
have a significant impact on the company. Any additional capital expenditures,
as well as any increased operating costs, associated with these new requirements
are expected to be recoverable through rates, as similar costs have been
recovered in the past.
Purchased Power Contracts -- The System Companies have entered into
purchased power contracts to purchase portions of the generating output of
certain qualifying cogenerators and qualifying small power producers through the
year 2005. These contracts provide for capacity payments subject to a facility
meeting
V-43
<PAGE> 289
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certain operating standards and energy payments based on the actual power taken
under the contracts. The cost of these and other purchased power contracts is
recovered currently through base rates, power cost and fuel recovery factors
applied to customer billings. Capacity payments under these contracts for the
years ended December 31, 1997, 1996 and 1995 were $240,174,000, $232,915,000,
and $229,340,000, respectively, for the Company.
Assuming operating standards are achieved, future capacity payments under
the agreements are estimated as follows:
<TABLE>
<CAPTION>
YEARS THOUSANDS OF DOLLARS
----- --------------------
<S> <C>
1998........................................................ $ 248,168
1999........................................................ 220,281
2000........................................................ 168,961
2001........................................................ 139,039
2002........................................................ 106,745
Thereafter.................................................. 140,345
----------
Total capacity payments........................... $1,023,539
==========
</TABLE>
Leases -- The System Companies have entered into operating leases covering
various facilities and properties including combustion turbines, transportation,
mining and data processing equipment, and office space. Lease costs charged to
operation expense for the years ended December 31, 1997, 1996 and 1995 were
$156,710,000, $144,553,000, and $141,775,000, respectively.
Future minimum lease commitments under such operating leases that have
initial or remaining noncancellable lease terms in excess of one year as of
December 31, 1997, were as follows:
<TABLE>
<CAPTION>
YEARS THOUSANDS OF DOLLARS
----- --------------------
<S> <C>
1998........................................................ $ 83,729
1999........................................................ 73,024
2000........................................................ 64,161
2001........................................................ 96,387
2002........................................................ 55,428
Thereafter.................................................. 546,148
--------
Total minimum lease commitments................... $918,877
========
</TABLE>
Financial Guarantees -- TU Electric has entered into contracts with public
agencies to purchase cooling water for use in the generation of electric energy.
In connection with certain contracts, TU Electric has agreed, in effect, to
guarantee the principal, $30,005,000 at December 31, 1997, and interest on bonds
issued to finance the reservoirs from which the water is supplied. The bonds
mature at various dates through 2011 and have interest rates ranging from 5 1/2%
to 7%. TU Electric is required to make periodic payments equal to such principal
and interest, including amounts assumed by a third party and reimbursed to TU
Electric, for the years 1998 through 2001 as follows: $4,435,000 for each of the
years 1998 and 1999, $4,419,000 for 2000 and $4,422,000 for 2001. Payments made
by TU Electric, net of amounts assumed by a third party under such contracts,
for 1997, 1996 and 1995 were $3,750,000, $3,548,000, and $3,628,000,
respectively. In addition, TU Electric is obligated to pay certain variable
costs of operating and maintaining the reservoirs. TU Electric has assigned to a
municipality all contract rights and obligations of TU Electric in connection
with $69,395,000 remaining principal amount of bonds at December 31, 1997,
issued for similar purposes which had previously been guaranteed by TU Electric.
TU Electric is, however, contingently liable in the unlikely event of default by
the municipality. The Company and/or its subsidiaries are the guarantor on
various commitments and obligations of others aggregating some $45,000,000 at
December 31, 1997.
Chaco Coal Properties -- Chaco has a coal lease agreement for the rights to
certain surface minable coal reserves located in New Mexico. The agreement
encompasses a minimum of 228 million tons of coal with
V-44
<PAGE> 290
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provisions for minimum advance royalty payments of approximately $16 million per
year through 2017. The Company has entered into a surety agreement to assure the
performance by Chaco with respect to this agreement. Because of the present
ample availability of western coal at favorable prices from other mines, Chaco
has delayed plans to commence mining operations, and accordingly, is reassessing
its alternatives with respect to its coal properties, including seeking
purchasers thereof. (See Note 14.)
Nuclear Insurance -- With regard to liability coverage, the Price-Anderson
Act (Act) provides financial protection for the public in the event of a
significant nuclear power plant incident. The Act sets the statutory limit of
public liability for a single nuclear incident currently at $8.9 billion and
requires nuclear power plant operators to provide financial protection for this
amount. As required, TU Electric provides this financial protection for a
nuclear incident at Comanche Peak resulting in public bodily injury and property
damage through a combination of private insurance and industry-wide
retrospective payment plans. As the first layer of financial protection, TU
Electric has purchased $200 million of liability insurance from American Nuclear
Insurers (ANI), which provides such insurance on behalf of a major stock
insurance pool, Nuclear Energy Liability Insurance Association. The second layer
of financial protection is provided under an industry-wide retrospective payment
program called Secondary Financial Protection (SFP).
Under the SFP, each operating licensed reactor in the United States is
subject to an assessment of up to $79.275 million, subject to increases for
inflation every five years, in the event of a nuclear incident at any nuclear
plant in the United States. Assessments are limited to $10 million per operating
licensed reactor per year per incident. All assessments under the SFP are
subject to a 3% insurance premium tax which is not included in the amounts
above.
With respect to nuclear decontamination and property damage insurance,
Nuclear Regulatory Commission (NRC) regulations require that nuclear plant
license-holders maintain not less than $1.06 billion of such insurance and
require the proceeds thereof to be used to place a plant in a safe and stable
condition, to decontaminate it pursuant to a plan submitted to and approved by
the NRC before the proceeds can be used for plant repair or restoration or to
provide for premature decommissioning. TU Electric maintains nuclear
decontamination and property damage insurance for Comanche Peak in the amount of
$4.1 billion, above which TU Electric is self-insured. The primary layer of
coverage of $500 million is provided by Nuclear Electric Insurance Limited
(NEIL), a nuclear electric utility industry mutual insurance company. The
remaining coverage includes premature decommissioning coverage and is provided
by ANI and Mutual Atomic Energy Liability Underwriters (MAELU) in the amount of
$1.1 billion and additional insurance from NEIL in the amount of $2.5 billion.
TU Electric is subject to a maximum annual assessment from NEIL of $26 million
in the event NML's and/or NEIL's losses under this type of insurance for major
incidents at nuclear plants participating in these programs exceed the
respective mutual's accumulated funds and reinsurance.
TU Electric maintains Extra Expense Insurance through NEIL to cover the
additional costs of obtaining replacement power from another source if one or
both of the units at Comanche Peak are out of service for more than seventeen
weeks as a result of covered direct physical damage. The coverage provides for
weekly payments of $3.5 million for the first fifty-eight weeks and $2.8 million
for the next 104 weeks for each outage, respectively, after the initial
seventeen week period. The total maximum coverage is $494 million per unit. The
coverage amounts applicable to each unit will be reduced to 80% if both units
are out of service at the same time as a result of the same accident. Under this
coverage, TU Electric is subject to a maximum annual assessment of $9 million
per year.
Gas Purchase Contracts -- Texas Utilities Fuel Company (Fuel Company) buys
gas under long-term intrastate contracts in order to assure reliable supply to
its customers. Many of these contracts require minimum purchases ("take-or-pay")
of gas. Based on Fuel Company's estimated gas demand, which assumes normal
weather conditions, requisite gas purchases are expected to substantially
satisfy purchase obligations for the year 1998 and thereafter.
V-45
<PAGE> 291
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Lone Star Gas buys gas under long-term, intrastate contracts in order to
assure reliable supply to its customers. Many of these contracts require minimum
purchases of gas. Lone Star Gas has made accruals for payments that may be
required for settlement of gas-purchase contract claims asserted or that are
probable of assertion. Lone Star Gas continually evaluates its position relative
to asserted and unasserted claims, above-market prices or future commitments.
Management believes that Lone Star Gas has not incurred losses for which
reserves should be provided at December 31, 1997. Based on estimated gas demand,
which assumes normal weather conditions, requisite gas purchases are expected to
substantially satisfy purchase obligations for the year 1998 and thereafter.
Nuclear Decommissioning and Disposal of Spent Fuel -- TU Electric has
established a reserve, charged to depreciation expense and included in
accumulated depreciation, for the decommissioning of Comanche Peak, whereby
decommissioning costs are being recovered from customers over the life of the
plant and deposited in external trust funds (included in other investments). At
December 31, 1997, such reserve totaled $120,452,000 which includes an accrual
of $18,179,000 for the year ended December 31, 1997. As of December 31, 1997,
the market value of deposits in the external trust for decommissioning of
Comanche Peak was $160,062,000. Any difference between the market value of the
external trust fund and the decommissioning reserve, that represents unrealized
gains or losses of the trust fund, is treated as a regulatory asset or a
regulatory liability. Realized earnings on funds deposited in the external trust
are recognized in the reserve. Based on a site-specific study completed during
1997 using the prompt dismantlement method and then-current dollars,
decommissioning costs for Comanche Peak Unit 1, and Unit 2 and common facilities
were estimated to be $271,000,000 and $404,000,000, respectively.
Decommissioning activities are projected to begin in 2030 and 2033 for
Comanche Peak Unit 1, and Unit 2 and common facilities, respectively. TU
Electric is recovering decommissioning costs based upon a 1992 site-specific
study through rates placed in effect under Docket 11735 (see Note 13). Actual
decommissioning costs are expected to differ from estimates due to changes in
the assumed dates of decommissioning activities, regulatory requirements,
technology and costs of labor, materials and equipment. In addition, the
marketable fixed income debt and equity securities in which assets of the
external trust are invested are subject to interest rate and equity price
sensitivity.
TU Electric has a contract with the United States Department of Energy
(DOE) for the future disposal of spent nuclear fuel. In December 1996, the DOE
notified TU Electric that it did not expect to meet its obligation to begin
acceptance of spent nuclear fuel by 1998. TU Electric is unable to predict what
impact, if any, the DOE delay will have on TU Electric's future operations. The
disposal fee is at a cost to TU Electric of one mill per kilowatt-hour of
Comanche Peak net generation and is included in nuclear fuel expense.
GENERAL
In addition to the above, the Company and System Companies are involved in
various legal and administrative proceedings which, in the opinion of the
Company, should not have a material effect upon its financial position, results
of operation or cash flows.
V-46
<PAGE> 292
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16 FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and related estimated fair values of the Company's
significant financial instruments at December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
On balance sheet assets (liabilities):
Long-term debt (including current
maturities)........................... $(9,531,450) $(9,932,157) $(9,024,187) $(9,406,944)
TU Electric obligated, mandatorily
redeemable, preferred securities of
subsidiary trusts holding solely
debentures of TU Electric............. (875,146) (913,447) (381,311) (395,091)
Preferred stock of subsidiary subject to
mandatory redemption.................. (20,600) (22,019) (238,391) (250,098)
Other investments........................ 241,959 248,980 194,652 191,435
LESOP note receivable.................... 250,000 280,910 250,000 262,175
Off-balance sheet assets (liabilities):
Financial guarantees..................... (144,732) (148,628) (107,000) (111,000)
Interest rate swaps...................... - (56,529) - (32,312)
Currency swap*........................... - 76,420 - (1,557)
</TABLE>
- ---------------
* The foreign currency swap is a hedge of a foreign currency transaction. (See
Note 8.)
The fair values of long-term debt and preferred stock subject to mandatory
redemption are estimated at the lesser of either the call price or the market
value as determined by quoted market prices, where available, or, where not
available the present value of future cash flows discounted at rates consistent
with comparable maturities for credit risk. The fair values of preferred
securities are based on quoted market prices. The carrying amounts reflected in
the Consolidated Balance Sheets for financial assets classified as current
assets and the carrying amounts for financial liabilities classified as current
liabilities approximate fair value due to the short maturity of such
instruments.
Other investments include deposits in an external trust fund for nuclear
decommissioning of Comanche Peak. The trust funds are invested primarily in
fixed income debt and equity securities, which are considered as
available-for-sale. Any unrealized gains or losses are treated as regulatory
assets or regulatory liabilities, respectively.
Common stock -- net has been reduced by the note receivable from the
trustee of the leveraged employee stock ownership provision of the Thrift Plan.
The fair value of such note is estimated at the lesser of the Company's call
price or the present value of future cash flows discounted at rates consistent
with comparable maturities adjusted for credit risk.
The fair value of the financial guarantees is based on the present value of
the instruments' approximate cash flows discounted at the year-end risk free
rate for issues of comparable maturities adjusted for credit risk.
Fair values for the System Companies' off-balance-sheet instruments
(interest rate and currency swaps) are based either on quotes or the cost to
terminate the agreements.
The fair values of other financial instruments for which carrying amounts
and fair values have not been presented are not materially different than their
related carrying amounts.
V-47
<PAGE> 293
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17 SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
In the opinion of the Company, the information below includes all
adjustments (constituting only normal recurring accruals) necessary to a fair
statement of such amounts. Quarterly results are not necessarily indicative of
expectations for a full year's operations because of seasonal and other factors,
including rate changes, variations in maintenance and other operating expense
patterns and the charges for regulatory disallowances. Certain quarterly
information has been reclassified to conform to the current year presentation.
For additional information regarding the charges for regulatory disallowances,
see Note 13.
<TABLE>
<CAPTION>
BASIC EARNINGS
PER SHARE OF
OPERATING REVENUES OPERATING INCOME NET INCOME COMMON STOCK*
----------------------- ----------------------- ------------------- ---------------
QUARTER ENDED 1997 1996 1997 1996 1997 1996 1997 1996
------------- ---------- ---------- ---------- ---------- -------- -------- ------ ------
THOUSANDS OF DOLLARS (EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31............. $1,493,804 $1,463,900 $ 381,807 $ 414,938 $114,799 $126,074 $ 0.51 $ 0.56
June 30.............. 1,588,485 1,691,313 459,929 535,047 160,746 202,957 0.72 0.90
September 30......... 2,264,945 1,930,097 684,063 743,610 289,610 357,983 1.24 1.59
December 31.......... 2,598,374 1,465,618 380,872 309,395 95,299 66,592 0.39 0.30
---------- ---------- ---------- ---------- -------- --------
$7,945,608 $6,550,928 $1,906,671 $2,002,990 $660,454 $753,606
========== ========== ========== ========== ======== ========
</TABLE>
- ---------------
* The sum of the quarters may not equal annual earnings per share due to
rounding. Diluted earnings per share for all quarters are not different from
basic earnings per share.
The difference in operating income for the third quarter 1997 from amounts
previously reported reflects the reclassification of certain costs by ENSERCH to
conform to the Company's presentation.
V-48
<PAGE> 294
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL STATISTICS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Total assets -- end of year.......................... $24,874,129 $21,397,655 $21,535,851 $20,893,408 $21,518,128
Property, plant & equipment -- gross -- end of
year............................................... $26,579,187 $24,931,239 $24,911,787 $24,206,351 $23,836,729
Accumulated depreciation and amortization -- end of
year............................................. 7,172,152 6,496,724 5,857,580 5,228,423 4,710,398
Reserve for regulatory disallowances -- end of
year............................................. 836,005 836,005 1,308,460 1,308,460 1,308,460
Construction expenditures (including allowance for
funds used during construction).................... 586,097 434,139 434,338 444,245 871,450
Capitalization -- end of year
Long-term debt, less amounts due currently......... $ 8,759,379 $ 8,668,111 $ 9,174,575 $ 7,888,413 $ 8,379,826
TU Electric obligated, mandatorily redeemable,
preferred securities of subsidiary trusts holding
solely debentures of TU Electric................. 875,146 381,311 381,476 - -
Preferred stock of subsidiaries:
Not subject to mandatory redemption.............. 304,194 464,427 489,695 870,190 1,083,008
Subject to mandatory redemption.................. 20,600 238,391 263,196 387,482 396,917
Common stock equity................................ 6,843,062 6,032,913 5,731,753 6,490,047 6,570,993
----------- ----------- ----------- ----------- -----------
Total........................................ $16,802,381 $15,785,153 $16,040,695 $15,636,132 $16,430,744
=========== =========== =========== =========== ===========
Capitalization ratios -- end of year
Long-term debt, less amounts due currently......... 52.1% 54.9% 57.2% 50.5% 51.0%
TU Electric obligated, mandatorily redeemable,
preferred securities of subsidiary trusts holding
solely debentures of TU Electric................. 5.2 2.4 2.4 - -
Preferred stock of subsidiaries.................... 2.0 4.5 4.7 8.0 9.0
Common stock equity................................ 40.7 38.2 35.7 41.5 40.0
----------- ----------- ----------- ----------- -----------
Total........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
=========== =========== =========== =========== ===========
Embedded interest cost on long-term debt -- end of
year............................................... 7.9% 8.1% 8.4% 8.7% 8.7%
Embedded distribution cost on TU Electric obligated,
mandatorily redeemable, preferred securities of
subsidiary trusts holding solely debentures of TU
Electric -- end of year............................ 8.3% 8.7% 8.6% -% -%
Embedded dividend cost on preferred stock of
subsidiaries -- end of year........................ 9.2% 7.5% 7.4% 7.5% 7.6%
Net income (loss).................................... $ 660,454 $ 753,606 $ (138,645) $ 542,799 $ 368,660
Dividends declared on common stock................... $ 496,244 $ 456,059 $ 634,613 $ 695,590 $ 682,438
Common stock data
Shares outstanding -- average...................... 230,957,999 225,159,846 225,841,037 225,833,659 221,555,218
Shares outstanding -- end of year.................. 245,237,559 224,602,557 225,841,037 225,841,037 224,345,422
Basic Earnings (loss) per share.................... $ 2.86 $ 3.35 $ (0.61) $ 2.40 $ 1.66
Diluted Earnings (loss) per share.................. $ 2.85 $ 3.35 $ (0.61) $ 2.40 $ 1.66
Dividends declared per share....................... $ 2.125 $ 2.025 $ 2.81 $ 3.08 $ 3.08
Book value per share -- end of year................ $ 27.90 $ 26.86 $ 25.38 $ 28.74 $ 29.29
Return on average common stock equity.............. 10.3% 12.8% (2.3)% 8.3% 5.6%
Ratio of earnings to fixed charges:
Pre-tax............................................ 2.3 2.4 0.8 2.3 1.9
After-tax.......................................... 1.8 2.0 0.9 1.9 1.6
Ratio of earnings to combined fixed charges and
preferred dividends................................ 2.2 2.2 .7 1.9 1.6
Allowance for funds used during construction as
percent of net income.............................. 2.1% 1.7% -% 4.1% 71.4%
</TABLE>
V-49
<PAGE> 295
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain financial statistics for 1997 were affected by the August 1997
acquisition of ENSERCH and the November 1997 acquisition of LCC: 1996 and 1995
were affected by the December 1995 acquisition of Eastern Energy; for the year
1995, were affected by recording of the impairment of certain assets (see Note
14 to Consolidated Financial Statements); and for the year 1993, were affected
by TU Electric recording a regulatory disallowance in a rate order issued by the
Public Utility Commission of Texas in Docket 11735 (see Note 13 to Consolidated
Financial Statements). Shares outstanding assuming dilution for 1997 was
231,957,491. There were no additional diluted shares for any of the other prior
periods presented.
V-50
<PAGE> 296
APPENDIX VI
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
TEG GROUP INFORMATION
Although Texas Utilities has included information concerning the TEG Group
insofar as it is known or reasonably available to Texas Utilities, Texas
Utilities is not currently affiliated with the TEG Group and the TEG Group has
not to date permitted access by Texas Utilities to the TEG Group's books and
records. The TEG Group has provided Texas Utilities with limited balance sheet
information in response to data requests. Therefore, only limited information
concerning the TEG Group which has not been made public is available to Texas
Utilities. Although Texas Utilities has no knowledge that would indicate that
information relating to the TEG Group contained or incorporated by reference in
this Offer Document in reliance upon publicly available information or in
response to data requests are inaccurate or incomplete, Texas Utilities was not
involved in the preparation of such information and statements and, for the
foregoing reasons, is not in a position to verify any such information or
statements. Accordingly, Texas Utilities takes no responsibility for the
accuracy of such information or statements.
PRO FORMA FINANCIAL INFORMATION OF TEXAS UTILITIES
Texas Utilities' financial information for the year ended 31 December 1997
has been combined with the financial information for the TEG Group's Businesses
to be Acquired. The Energy Group publishes its consolidated financial statements
based on United Kingdom generally accepted accounting principles (UK GAAP)
denominated in pounds sterling. The Energy Group has a 31 March fiscal year.
Public financial information of The Energy Group for the period ended 31
December 1997 is not in sufficient detail to allow separation of Peabody's
financial information. Therefore, The Energy Group's semi-annual financial
statements as of 30 September 1997, and for the six months then ended, which are
more complete, have been combined with its statement of income for the six
months ended 31 March 1997, and have been used for the purpose of presenting pro
forma financial information. The Acquisition will be treated as a purchase for
accounting purposes. The purchase accounting adjustments contained herein are
preliminary and represent estimates based on information available to Texas
Utilities. A final determination of the required purchase accounting adjustments
cannot be made at this time; following the Acquisition, a determination of the
fair value of assets acquired and liabilities assumed will be made.
The following unaudited pro forma financial statements assume 100%
acquisition of the TEG Group's Businesses to be Acquired following the Peabody
Sale and further assume that 10% of The Energy Group ordinary shares are
exchanged for Texas Utilities shares. The unaudited condensed pro forma balance
sheet as of 31 December 1997 is presented as if the Acquisition had occurred on
that date. The unaudited pro forma statement of income for the year ended 31
December 1997 assumes that the Acquisition and Peabody Sale occurred at the
beginning of the year.
The unaudited pro forma financial statements should be read in conjunction
with the historical financial statements of Texas Utilities and The Energy Group
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of Texas Utilities and The Energy Group incorporated by reference or
included herein and "Pro Forma Financial Information of the TEG Group's
Businesses to be Acquired" included elsewhere herein. The unaudited condensed
pro forma statements of income are not necessarily indicative of the financial
results that would have occurred had the above-described events been consummated
on the indicated dates, nor are they necessarily indicative of future financial
results.
Amounts denominated in UK pounds sterling are translated to US dollars at
the rate of L1=$1.64, which was the exchange rate at 30 September 1997 and the
average exchange rate for the year then ended.
VI-1
<PAGE> 297
TEXAS UTILITIES
UNAUDITED CONDENSED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED 31 DECEMBER 1997
(IN MILLIONS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TEG GROUP'S
TEXAS TEXAS BUSINESSES TEXAS
UTILITIES UTILITIES TO BE PRO FORMA UTILITIES
HISTORICAL ADJUSTMENTS(A) ADJUSTED ACQUIRED(B) ADJUSTMENTS PRO FORMA
---------- -------------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues........ $ 7,946 $ 1,370 $ 9,316 $ 5,228 $ 14,544
$(233)(h)
Operating Expenses........ 6,039 1,306 7,345 4,708 79 (d) 11,899
-------- ------- -------- ------- ----- --------
Operating Income.......... 1,907 64 1,971 520 154 2,645
Other Income
(Deductions) -- Net..... (18) 6 (12) 129 117
-------- ------- -------- ------- ----- --------
Income before Interest and
Income Taxes............ 1,889 70 1,959 649 154 2,762
Interest and Other
Charges................. 852 61 913 265 429 (f) 1,607
-------- ------- -------- ------- ----- --------
Income before Income
Taxes................... 1,037 9 1,046 384 (275) 1,155
Income Tax Expense........ 377 8 385 144 (152)(i) 377
-------- ------- -------- ------- ----- --------
Income before
Extraordinary Item...... $ 660 $ 1 $ 661 $ 240 $(123) $ 778(g)
======== ======= ======== ======= ===== ========
Average shares of Common
Stock Outstanding
(thousands)............. 230,958 14,280 245,238 18,925(e) 264,163
Per Share of Common Stock
Basic earnings.......... $ 2.86 $ 2.70 $ 2.95
Diluted earnings........ $ 2.85 $ 2.68 $ 2.93
</TABLE>
See notes.
VI-2
<PAGE> 298
TEXAS UTILITIES
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
31 DECEMBER 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
TEG
GROUP'S
TEXAS BUSINESSES TEXAS
UTILITIES TO BE UTILITIES
HISTORICAL ACQUIRED(B) ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Property, Plant and Equipment, net............ $18,571 $ 2,755 $ $21,326
Investments................................... 851 79 930
Goodwill...................................... 1,424 1,715 (1,715)(d) 7,641
6,217 (d)
Current Assets:
Cash and cash equivalents................... 44 3,925 (2,083)(f) 1,922
36 (d)
Accounts receivable......................... 981 1,383 2,364
Inventories................................. 448 249 697
Gas marketing risk management assets........ 366 366
Other....................................... 156 18 174
------- ------- ------- -------
Total............................... 1,995 5,575 (2,047) 5,523
------- ------- ------- -------
Deferred Debits............................... 2,033 169 87 (f) 2,289
------- ------- ------- -------
Total Assets........................ $24,874 $10,293 $ 2,542 $37,709
======= ======= ======= =======
Capitalization:
Common stock equity......................... $ 6,843 $ 4,171 $(4,171)(d) $ 7,598
757 (e)
(2)(c)
Preferred stock of subsidiaries............. 325 325
Mandatorily redeemable preferred securities
of subsidiary trusts..................... 875 875
6,616 (e)
-------
Long-term debt, less amounts due
currently................................ 8,759 2,649 (2,083)(f) 15,941
------- ------- ------- -------
Total............................... 16,802 6,820 1,117 24,739
Current Liabilities:
Notes payable and long-term
debt due currently....................... 1,387 1,178 2,565
Accounts payable............................ 880 880
Gas marketing risk management liabilities... 357 357
87 (f)
Other....................................... 898 1,323 138 (c) 2,446
------- ------- ------- -------
Total............................... 3,522 2,501 225 6,248
Accumulated Deferred Income Taxes............. 2,989 690 3,679
Other Deferred Credits and
Noncurrent Liabilities...................... 1,561 282 1,200 (d) 3,043
------- ------- ------- -------
Total Capitalization and
Liabilities....................... $24,874 $10,293 $ 2,542 $37,709
======= ======= ======= =======
</TABLE>
See notes.
VI-3
<PAGE> 299
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) On August 5, 1997 Texas Utilities completed the acquisition of ENSERCH and
on November 21, 1997 Texas Utilities completed the acquisition of LCC.
These acquisitions were accounted for as purchase business combinations;
accordingly, the assets and liabilities of the acquired companies as of the
acquisition dates were adjusted to fair value and the results of operations
of such companies were included in Texas Utilities' consolidated statement
of income from the date of acquisition. This adjustment assumes that the
acquisitions of ENSERCH and LCC were made at the beginning of the year and
consists of such companies' operations for the period from January 1, 1997
to date of acquisition, including amortization of goodwill and purchase
accounting adjustments.
In 1997, Texas Utilities reacquired 4,015,000 shares of its common stock
for $148.8 million. In the unaudited condensed pro forma statement of
income, these share repurchases have been treated as if they had occurred
at the beginning of the year; accordingly, average shares outstanding have
been reduced and pro forma interest expense on the purchase price from
January 1, 1997 to the repurchase date of $7 million, pre-tax has been
included.
The impact on the pro forma statement of income of the ENSERCH and LCC
acquisitions and share repurchase is as follows (in millions, except
shares):
<TABLE>
<CAPTION>
SHARE
ENSERCH LCC REPURCHASE TOTAL
------- ----- ---------- -------
<S> <C> <C> <C> <C>
Operating Revenues.............................. $1,277 $ 93 $ $ 1,370
Operating Expenses.............................. 1,235 71 1,306
------ ----- ------ -------
Operating Income................................ 42 22 64
Other Income (Deductions) -- Net................ 1 5 6
------ ----- ------ -------
Income before Interest and Income Taxes......... 43 27 70
Interest and Other Charges...................... 51 3 7 61
------ ----- ------ -------
Income before Income Taxes...................... (8) 24 (7) 9
Income Tax Expense.............................. 1 10 (3) 8
------ ----- ------ -------
Net Income...................................... $ (9) $ 14 $ (4) $ 1
====== ===== ====== =======
Average Shares of Common Stock Outstanding
(thousands)..................................... 9,430 7,771 (2,921) 14,280
</TABLE>
(b) The Energy Group historical financial statements have been adjusted to
reflect the Peabody Sale. See "Pro Forma Financial Information of the TEG
Group's Businesses to be Acquired" included elsewhere herein. Certain
amounts have been reclassified to conform to Texas Utilities' financial
statement presentation.
(c) Represents estimated costs associated with the Acquisition. Includes
estimated expenses of $2 million to be incurred by Texas Utilities for
legal, accounting, printing and similar expenses relating to the
registration of Texas Utilities Common Stock, which will be charged
directly to Common Stock equity as stock issuance costs, and $136 million
for Stamp Duty, financial advisory and other payments as a result of the
Acquisition.
VI-4
<PAGE> 300
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(d) Represents the excess of cost over the fair value assigned to net assets
acquired (goodwill), which is to be amortized over 40 years. The excess
amount is summarized below:
<TABLE>
<S> <C>
Texas Utilities purchase price (see Note e)................. $7,373
Estimated costs of Acquisition (see Note c)................. 136
Proceeds from exercise of The Energy Group stock options.... (36)
Estimated purchase accounting adjustments:
Write off The Energy Group goodwill....................... 1,715
Record present value adjustments for commitments,
obligations and contracts.............................. 1,200
------
Total............................................. 10,388
Net assets of the TEG Group's Businesses to be Acquired..... 4,171
------
Goodwill.................................................... $6,217
======
Annual amortization over 40 years........................... $ 155
Less goodwill amortization recorded by the TEG Group's
Businesses to be Acquired................................. 76
------
Incremental goodwill amortization........................... $ 79
======
</TABLE>
(e) Cost of Acquisition and The Energy Group Ordinary Shares to be converted
into New Texas Utilities Shares, in millions of US dollars, except per
share amounts:
<TABLE>
<CAPTION>
PURCHASED FOR
-----------------
SHARES CASH SHARES
------- ------- -------
<S> <C> <C> <C>
The Energy Group Ordinary Shares outstanding at December
31, 1997 (000)........................................ 520,858
The Energy Group Ordinary Shares to be issued in
connection with stock plans (000)..................... 9,507
-------
Pro forma The Energy Group Ordinary Shares (000)...... 530,365 477,329 53,036
Per share price 840p ($13.86) cash, 865p ($14.27)
stock................................................. $ 13.86 $ 14.27
</TABLE>
<TABLE>
<CAPTION>
TOTAL CASH SHARES
------- ------- -------
<S> <C> <C> <C>
Total purchase price, assuming 100% acceptance.......... $ 7,373 $ 6,616 $ 757
Assumed per share value of Texas Utilities Common Stock.................... $ 40
-------
Assumed New Texas Utilities Shares to be issued............................ 18,925
=======
</TABLE>
The actual number of shares to be issued upon exchange of The Energy Group
Ordinary Shares in the Acquisition will be determined by reference to the
exchange ratio and the actual number of shares of The Energy Group Ordinary
Shares submitted for exchange into New Texas Utilities Shares. The per
share value of New Texas Utilities Shares to be issued will be based on the
average of the closing prices of Texas Utilities Common Stock on the 20
dealing days ending on the Calculation Day and the Noon Buying Rate on the
Calculation Day.
(f) The cash cost of the Acquisition will be financed as follows:
<TABLE>
<CAPTION>
ANNUAL
AMOUNT INTEREST
------ --------
<S> <C> <C>
Use of The Energy Group cash................................ $2,083 $ --
TU Acquisitions borrowing at 8.5%........................... 2,348 200
Texas Utilities borrowing at 6.6%........................... 2,185 144
------ ----
Total............................................. $6,616 $344
====== ====
</TABLE>
Financing fees to obtain the Acquisition debt will total $87 million.
Amortization in the first year is $15 million.
VI-5
<PAGE> 301
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
The Energy Group's annual interest requirement on its debt outstanding at
30 September 1997 is L176 million or $288 million; some $23 million greater
than interest expense incurred by The Energy Group's Businesses to be
Acquired.
Interest on the present value of commitments, obligations and contracts is
$47 million for the year, including the impact of non-deductible interest
for tax purposes.
The total pro forma increase to interest and other charges is $429 million.
(g) A final determination of the required purchase accounting adjustments
cannot be made at this time; following the Acquisition, a determination of
the fair value and tax basis of assets acquired and liabilities assumed
will be made. The earnings results will vary from the pro forma earnings
shown.
Estimated costs to be incurred by Texas Utilities and The Energy Group as a
result of the Acquisition and Peabody Sale have been excluded from the
Unaudited Pro Forma Statements of Income. The unaudited pro forma statement
of income does not reflect any operating efficiencies and annual cost
savings Texas Utilities may achieve as a result of the Acquisition.
(h) Represents reversal of certain operating expenses recorded by The TEG
Group's Businesses to be Acquired, for which a liability for the present
value of commitments, obligations and contracts will be made in purchase
accounting, and amortization of fixed lease payments over the revised
economic life of power plants under lease arising from alternative
operating methodologies.
(i) Represents taxes on temporary differences at the effective rate of 31.5 per
cent. for U.K. taxable adjustments and taxes at 35 per cent. for U.S.
taxable adjustments. The U.S. taxes also give effect to the benefit of U.S.
foreign tax credits.
VI-6
<PAGE> 302
PRO FORMA FINANCIAL INFORMATION
OF THE TEG GROUP'S BUSINESSES TO BE ACQUIRED
The Energy Group publishes its financial statements based on United Kingdom
generally accepted accounting principles (UK GAAP) denominated in pounds
sterling. The Energy Group has a 31 March fiscal year end. Public financial
information of The Energy Group for the period ended 31 December 1997 is not in
sufficient detail to allow separation of Peabody's financial information.
Therefore, The Energy Group's semi-annual financial statements as of 30
September 1997 and for the six months then ended, which are more complete, have
been combined with its statement of income for the six months ended 31 March
1997, and have been used for the purpose of presenting pro forma financial
information.
The following unaudited condensed pro forma financial statements give effect to
adjustments to convert The Energy Group's financial statements to the basis of
United States generally accepted accounting principles (US GAAP) and to the
Peabody Sale. The financial information for the resulting businesses to be
acquired in the Acquisition is converted to US dollars for purposes of combining
with Texas Utilities' financial information. Amounts denominated in UK pounds
sterling are translated to US dollars at the rate of L1 = $1.64, which was the
exchange rate at 30 September 1997 and the average exchange rate for the year
then ended. The unaudited condensed pro forma balance sheet as of 30 September
1997 is presented as if the Peabody Sale had occurred on that date. The
unaudited condensed pro forma statement of income for the year ended 30
September 1997 is presented as if the Peabody Sale had occurred at the beginning
of the period.
The unaudited pro forma financial statements are based on the assumptions set
forth in the accompanying notes and should be read in conjunction with the
historical financial statements of The Energy Group and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of The Energy
Group included in Appendix IV hereto. The unaudited pro forma statement of
income is not necessarily indicative of the financial results that would have
occurred had the Peabody Sale been consummated on the indicated dates, nor are
they necessarily indicative of future financial results.
VI-7
<PAGE> 303
THE TEG GROUP'S BUSINESSES TO BE ACQUIRED
UNAUDITED CONDENSED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED 30 SEPTEMBER 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UK GAAP US GAAP
-------------------------------------- ----------------------------------------------------
SIX MONTHS ENDED
----------------------- YEAR ENDED ADJUST TO YEAR ENDED DEDUCT
31 MARCH 30 SEPTEMBER 30 SEPTEMBER US 30 SEPTEMBER PEABODY
1997 1997 1997 GAAP(A) 1997 (B) AND (C) ADJUSTMENTS
-------- ------------ ------------ --------- ------------ ----------- -----------
L L L L L L L
<S> <C> <C> <C> <C> <C> <C> <C>
Turnover................ 2,519 2,007 4,526 4,526 (1,338)
Costs and overheads less
other income.......... 2,222 1,836 4,058 9 4,067 (1,187) (9)(e)
----- ----- ----- --- ----- ------ ---
Operating profit........ 297 171 468 (9) 459 (151) 9
Interest income......... 35 44 79 79
----- ----- ----- --- ----- ------ ---
Income before interest
and income taxes...... 332 215 547 (9) 538 (151) 9
Interest payable and
similar charges....... 72 109 181 14 195 (33)
----- ----- ----- --- ----- ------ ---
Profit on ordinary
activities before
taxation.............. 260 106 366 (23) 343 (118) 9
Taxation charge for
period -- on
results............... (81) (28) (109) 6 (103) 41 (26)(f)
----- ----- ----- --- ----- ------ ---
Profit (loss) before
extraordinary item.... 179 78 257 (17) 240 (77) (17)
Extraordinary item --
windfall profit
taxation.............. (112) (112) (112)
----- ----- ----- --- ----- ------ ---
Net profit (loss)....... 179 (34) 145 (17) 128 (77) (17)
===== ===== ===== === ===== ====== ===
Earnings (loss) per
ordinary share:
Before extraordinary
item.................. 34.5p 15.0p 49.5p 46.1p
Extraordinary item...... (21.5) (21.5) (21.5)
----- ----- -----
Total........... 34.5p (6.5)p 28.0p 24.6p
----- ----- -----
Dividends declared per
ordinary share........ 5.5p 8.0p 13.5p 13.5p
<CAPTION>
US GAAP
------------------------
THE TEG THE TEG
GROUP'S GROUP'S
BUSINESSES BUSINESSES
TO BE TO BE
ACQUIRED ACQUIRED(D)
---------- -----------
L $
<S> <C> <C>
Turnover................ 3,188 5,228
Costs and overheads less
other income.......... 2,871 4,708
----- -----
Operating profit........ 317 520
Interest income......... 79 129
----- -----
Income before interest
and income taxes...... 396 649
Interest payable and
similar charges....... 162 265
----- -----
Profit on ordinary
activities before
taxation.............. 234 384
Taxation charge for
period -- on
results............... (88) (144)
----- -----
Profit (loss) before
extraordinary item.... 146 240
Extraordinary item --
windfall profit
taxation.............. (112) (184)
----- -----
Net profit (loss)....... 34 56
===== =====
Earnings (loss) per
ordinary share:
Before extraordinary
item.................. 28.0p $ .46
Extraordinary item...... (21.5) (.35)
----- -----
Total........... 6.5p $ .11
----- -----
Dividends declared per
ordinary share........ 13.5p $ .22
</TABLE>
See notes.
VI-8
<PAGE> 304
THE TEG GROUP'S BUSINESSES TO BE ACQUIRED
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
30 SEPTEMBER 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
UK US PEABODY SALE(B) TEG GROUP'S TEG GROUP'S
GAAP GAAP ------------------ BUSINESSES BUSINESSES
HISTORICAL US GAAP HISTORICAL PEABODY SALE TO BE TO BE
TEG ADJUSTMENTS(A) TEG BALANCES ENTRIES ACQUIRED ACQUIRED(D)
---------- -------------- ---------- -------- ------- ----------- -----------
L L L L L L $
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Assets............. 3,986 3,986 (2,306) 1,680 2,755
Investments.............. 83 83 (35) 48 79
Goodwill................. 1,046 1,046 1,046 1,715
Current Assets:
Cash................... 895 895 (180) 1,270 1,985 3,256
Short-term deposits.... 408 408 408 669
Debtors................ 1,714 1,714 (871) 843 1,383
Stocks................. 309 309 (157) 152 249
Other.................. 11 11 11 18
----- ----- ----- ------ ----- ----- ------
Total.......... 3,337 3,337 (1,208) 1,270 3,399 5,575
----- ----- ----- ------ ----- ----- ------
Other Assets............. 110 110 (7) 103 169
----- ----- ----- ------ ----- ----- ------
Total Assets... 7,406 1,156 8,562 (3,556) 1,270 6,276 10,293
===== ===== ===== ====== ===== ===== ======
Capitalization:
Equity shareholders'
funds............... 1,726 805 2,531 (1,211) 1,223 2,543 4,171
Long-term loans........ 2,050 2,050 (435) 1,615 2,649
----- ----- ----- ------ ----- ----- ------
Total.......... 3,776 805 4,581 (1,646) 1,223 4,158 6,820
Current Liabilities:
Short-term borrowings
and
overdrafts.......... 718 718 718 1,178
Other creditors........ 1,406 1,406 (646) 47 807 1,323
----- ----- ----- ------ ----- ----- ------
Total.......... 2,124 2,124 (646) 47 1,525 2,501
Accumulated Deferred
Income Taxes........... 431 431 (10) 421 690
Provisions for
Liabilities and
Charges................ 1,506 (80) 1,426 (1,254) 172 282
----- ----- ----- ------ ----- ----- ------
Total
Capitalization
and
Liabilities... 7,406 1,156 8,562 (3,556) 1,270 6,276 10,293
===== ===== ===== ====== ===== ===== ======
</TABLE>
See notes.
VI-9
<PAGE> 305
THE TEG GROUP'S BUSINESSES TO BE ACQUIRED
NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
(a) Reflects estimated adjustments relating to differences in accounting for
goodwill, income taxes and pensions between UK GAAP and US GAAP.
(b) Reflects the removal of the assets and liabilities of Peabody from the
balance sheet, proceeds from the Peabody Sale of L1,270 million, and the
removal of Peabody's operating results from The Energy Group's statement of
income.
(c) Turnover and operating profit were published by The Energy Group. Interest
income, interest payable and similar charges, taxation charge and earnings
per ordinary share for the period were estimated by Texas Utilities from
information in the published financial data.
(d) Converted to US dollars at the exchange rate in effect at 30 September 1997
as to the balance sheet and at the average exchange rate for the year as to
the statement of income.
(e) Eliminate expenses of previous potential merger.
(f) Eliminate group relief provided by previous parent for nil consideration.
VI-10
<PAGE> 306
APPENDIX VII
CERTAIN MARKET, DIVIDEND AND EXCHANGE RATE INFORMATION
1 MARKET PRICE DATA
The principal trading markets for the Texas Utilities Common Stock are the
NYSE, CSE and PSE. The following table sets out for the periods indicated the
reported high and low prices on the NYSE Composite Tape and the Equivalent
prices for Energy Group Securities:
<TABLE>
<CAPTION>
TEXAS UTILITIES
PRICE PER
PRICE PER SHARE OF EQUIVALENT
TEXAS UTILITIES TEXAS UTILITIES PRICE PER EQUIVALENT ENERGY GROUP
COMMON STOCK ENERGY GROUP SHARE* ADS*
------------------ ------------------------------------ ----------------
HIGH LOW HIGH LOW HIGH LOW
------- ------- ---------------- ---------------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
First Quarter........... 34 3/4 30 1/2 L7.39 12.16 L6.49 10.68 48.65 42.70
Second Quarter.......... 36 1/8 31 7/8 L7.69 12.64 L6.78 11.16 50.58 44.63
Third Quarter........... 34 7/8 32 3/4 L7.42 12.21 L6.97 11.46 48.83 45.85
Fourth Quarter.......... 41 34 1/2 L8.72 14.35 L7.34 12.08 57.40 48.30
1996
First Quarter........... 42 3/8 39 1/8 L9.02 14.83 L8.32 13.69 59.33 54.78
Second Quarter.......... 42 3/4 39 L9.10 14.96 L8.30 13.65 59.85 54.60
Third Quarter........... 43 3/8 39 5/8 L9.23 15.18 L8.43 13.87 60.73 55.48
Fourth Quarter.......... 41 7/8 39 1/8 L8.91 14.66 L8.32 13.69 58.63 54.78
1997
First Quarter........... 41 3/4 34 1/2 L8.88 14.61 L7.34 12.08 58.45 48.30
Second Quarter.......... 36 7/8 31 3/4 L7.85 12.91 L6.76 11.11 51.63 44.45
Third Quarter........... 36 1/8 33 11/16 L7.69 12.64 L7.17 11.79 50.58 47.16
Fourth Quarter.......... 41 9/16 35 L8.84 14.55 L7.45 12.25 58.19 49.00
1998
First Quarter through 5
March 1998........... 42 1/4 39 9/16 L8.99 14.79 L8.42 13.85 59.15 55.39
</TABLE>
*Calculated by multiplying the Texas Utilities Common Stock price per share
by an assumed exchange ratio of 0.350 New Texas Utilities Shares for each Energy
Group Share and 1.400 New Texas Utilities Shares for each Energy Group ADS.
Prices for Energy Group Shares have been converted to pounds sterling based on
an assumed exchange rate of $1.6450 per L1.
On 27 February 1998, the last day on which shares of Texas Utilities Common
Stock traded prior to the public announcement of the original Texas Utilities
offer, the closing price per share of Texas Utilities Common Stock on the NYSE
Composite Tape was $40 7/16.
Because the market price of Texas Utilities Common Stock is subject to
fluctuation, the market value of the New Texas Utilities Shares may be more or
less than the current estimate. When making their investment decision, holders
of Energy Group Securities are urged to obtain current market quotations for
Texas Utilities Common Stock.
VII-1
<PAGE> 307
The principal trading market for Energy Group Shares is the London Stock
Exchange and the principal trading market for Energy Group ADSs is the NYSE.
Energy Group Shares have been listed and traded on the London Stock Exchange and
Energy Group ADSs have been listed and traded on the NYSE since 24 February
1997. The following table sets out, for the periods indicated, the reported high
and low Closing Prices for Energy Group Shares and (on the conversion basis
described below) in US dollars, and high and low closing prices for Energy Group
ADSs on the NYSE as reported on the NYSE Composite Tape. Each Energy Group ADS
represents four Energy Group Shares.
<TABLE>
<CAPTION>
PRICE PER
ENERGY GROUP
PRICE PER ENERGY GROUP SHARE* ADS
---------------------------------- -------------
HIGH LOW HIGH LOW
--------------- --------------- ----- ----
<S> <C> <C> <C> <C> <C> <C>
1997:
First Quarter......................... L5.68 1/2 $ 9.35 L4.66 1/2 $ 7.67 $36 7/8 $29 3/4
Second Quarter........................ L6.48 $10.65 L4.86 $ 7.99 $42 3/4 $31 3/8
Third Quarter......................... L6.58 1/2 $10.83 L6.17 $10.14 $43 11/16 $39 1/4
Fourth Quarter........................ L6.79 1/2 $11.17 L6.06 $ 9.96 $45 3/16 $40 1/4
1998:
First Quarter through 5 March......... L8.39 $13.80 L6.76 $11.12 $55 1/4 $43 13/16
</TABLE>
*Prices have been converted to US dollars and rounded down to the nearest
cent, based upon an assumed exchange rate of $1.6450 per L1.
On 27 February 1998, the last dealing day prior to the announcement of the
Texas Utilities Offer, the Closing Price for Energy Group Shares was 778 1/2p,
and the closing price on the NYSE Composite Tape for the Energy Group ADSs was
$51 7/16.
The following table shows the Closing Price for Energy Group Shares and the
closing price on the NYSE Composite Tape for shares of Texas Utilities Common
Stock, in each case for the first dealing day that the London Stock Exchange or,
as the case may be, the NYSE was open for business in each month from August
1997 to March 1998, for 23 January 1998 (the last dealing day before the
commencement of the offer period) and for 5 March 1998 (the latest practicable
date before posting this Offer Document):
<TABLE>
<CAPTION>
PRICE PER SHARE
ENERGY GROUP OF TEXAS UTILITIES
SHARE PRICE COMMON STOCK
Date (IN PENCE) Date (in dollars)
---- ------------ ---------------- ------------------
<S> <C> <C> <C>
1 August 1997 624 1 August 1997 34 13/16
1 September 1997 628 2 September 1997 35 3/16
1 October 1997 652 1/2 1 October 1997 36 5/16
3 November 1997 611 1/2 3 November 1997 36
1 December 1997 634 1/2 1 December 1997 40 3/4
2 January 1998 677 2 January 1998 41 5/8
23 January 1998 685 1/2 23 January 1998 41 1/4
2 February 1998 754 2 February 1998 41 1/4
2 March 1998 778 2 March 1998 40 9/16
5 March 1998 837 5 March 1998 39 9/16
</TABLE>
VII-2
<PAGE> 308
2 DIVIDEND DATA
<TABLE>
<CAPTION>
DIVIDENDS DECLARED
-------------------------------------------------------------------
HISTORICAL
-------------------------------------
TEXAS PRO FORMA ENERGY GROUP
UTILITIES ENERGY GROUP* EQUIVALENT**
--------- ------------------------- ---------------------------
ORDINARY SHARE ADS ORDINARY SHARE ADS
---------------- ------ ----------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended 31 December 1993............ $ 3.08 -- -- L0.655 $1.078 $ 4.312
1994....... $ 3.08 -- -- L0.655 $1.078 $ 4.312
1995....... $ 2.81 -- -- L0.598 $0.984 $ 3.934
1996....... $2.025 -- -- L0.431 $0.709 $ 2.835
1997....... $2.125 L0.275 $1.809 L0.452 $0.744 $ 2.975
</TABLE>
*The first dividend declared by The Energy Group, subsequent to its
demerger from Hanson, in respect of the period 1 January 1997 to 31 March 1997,
being 5.5p (net) per ordinary share. For the purposes of the above table, the
net dividend in respect of that period has been multiplied by 4, to reflect the
fact that this payment was stated to represent one quarter of the dividend which
the directors expected would have been paid for the year ended 31 March 1997 if
the company's ordinary shares had been listed throughout the year with the
capital structure resulting from the demerger, grossed up by a factor of 100/80.
**Calculated by multiplying the dividends paid per share of Texas Utilities
Common Stock by an assumed exchange ratio of 0.350 New Texas Utilities Shares
for each Energy Group Share and 1.400 shares of New Texas Utilities Shares for
each Energy Group ADS. Dividends per equivalent Energy Group Share have been
converted from US dollars to pounds sterling at an assumed exchange rate of
$1.645 per L1.
Texas Utilities declared common stock dividends payable in cash in each
year since its incorporation in 1945. In February 1998, Texas Utilities declared
a regular quarterly dividend of 55 cents per share payable 1 April 1998 to
shareholders of record on 6 March 1998. Holders of Energy Group Securities who
receive Texas Utilities Common Stock in connection with the Texas Utilities
Offer will not be entitled to this dividend or any other dividend subsequently
declared with a record date prior to the date of issuance of the relevant New
Texas Utilities Shares.
3 EXCHANGE RATE DATA
The following table shows, for the periods and dates indicated, certain
information regarding the exchange rate for the pound sterling, based on the
Noon Buying Rate, expressed in dollars per L1.
<TABLE>
<CAPTION>
PERIOD AVERAGE
YEAR ENDED 31 DECEMBER END RATE* HIGH LOW
---------------------- ------ ------- ------ ------
<S> <C> <C> <C> <C>
1993.................................................... 1.4775 1.5016 1.5900 1.4175
1994.................................................... 1.5665 1.5319 1.6368 1.4615
1995.................................................... 1.5535 1.5785 1.6440 1.5302
1996.................................................... 1.7123 1.5606 1.7123 1.4948
1997.................................................... 1.6427 1.6373 1.7035 1.5775
</TABLE>
- ---------------
* The average of the daily Noon Buying Rates during the period.
On 2 March 1998, the date of announcement of the original Texas Utilities
offer, the Noon Buying Rate for the pound sterling was $1.6472 per L1.
VII-3
<PAGE> 309
APPENDIX VIII
ADDITIONAL INFORMATION
1 RESPONSIBILITY
(a) The Directors of TU Acquisitions (namely Erle Nye, Chairman and Chief
Executive of Texas Utilities, H. Jarrell Gibbs, Vice Chairman of Texas
Utilities, Michael J. McNally, Executive Vice President and Chief Financial
Officer of Texas Utilities, and Robert A. Wooldridge, partner of the law
firm Worsham, Forsythe & Wooldridge, L.L.P., counsel to Texas Utilities),
accept responsibility for the information contained in this document, save
that the only responsibility accepted by them in respect of the information
contained in this document relating to the TEG Group, which has been
compiled from published sources, has been to ensure that such information
has been correctly and fairly reproduced and presented. Save as aforesaid,
to the best of the knowledge and belief of the Directors of TU Acquisitions
(who have taken all reasonable care to ensure that such is the case), the
information contained in this document for which they are responsible is in
accordance with the facts and does not omit anything likely to affect the
import of such information.
(b) The statement set out in paragraph (a) above is included solely to comply
with the requirements of Rule 19.2 of the City Code and shall not be deemed
to establish or expand liability under the Securities Act.
2 DIRECTORS
(a) The Directors of TU Acquisitions are:
<TABLE>
<S> <C>
Erle Nye
H. Jarrell Gibbs
Michael J. McNally
Robert A. Wooldridge
</TABLE>
The registered office of TU Acquisitions is Kempson House, Camomile Street,
London EC3A 7AN.
(b) The Directors of The Energy Group are:
<TABLE>
<S> <C>
Derek C. Bonham -- Chairman
John F. Devaney -- Chief Executive -- Eastern
Irl F. Engelhardt -- Chief Executive -- Peabody
Eric E. Anstee -- Finance Director
Baroness Hogg -- Non-executive Director
David P. Nash -- Non-executive Director
John Neerhout, Jr. -- Non-executive Director
</TABLE>
3 PRINCIPAL PURCHASES
In accordance with normal United Kingdom practice, TU Acquisitions or its
nominees or brokers (acting as agents for TU Acquisitions) or a subsidiary of
Texas Utilities (other than TU Acquisitions) may make certain purchases of
Energy Group Securities outside the United States during the period in which the
Texas Utilities Offer remains open for acceptance, and affiliates of Merrill
Lynch will continue to act as market makers and principal traders for Energy
Group Shares on the London Stock Exchange, pursuant to relief granted by the SEC
staff from Rule 10b-13 under the Exchange Act. In accordance with the terms of
this relief, among other things, (i) such purchases may not be effected within
the United States, (ii) information regarding such purchases must be disclosed
in the United States by press release to the extent disclosure is required
pursuant to the City Code, and (iii) TU Acquisitions and any such other persons
must comply with any applicable rules of United Kingdom regulatory
organisations.
VIII-1
<PAGE> 310
4 SHAREHOLDINGS AND DEALINGS
In this paragraph:
"DISCLOSURE PERIOD" means the period commencing 26 January 1997 (the date
12 months prior to the commencement of the offer period in relation to The
Energy Group) and ending on 5 March 1998 (the latest practicable date prior to
the publication of this document);
"RELEVANT ENERGY GROUP SECURITIES" means Energy Group Securities, including
any securities convertible into rights to subscribe for, or options (including
traded options) in respect of, or derivatives referenced to, such Energy Group
Securities;
"RELEVANT TEXAS UTILITIES SECURITIES" means Texas Utilities Common Stock,
including any securities convertible into rights to subscribe for, or options
(including traded options) in respect of, or derivatives referenced to, such
Texas Utilities Common Stock;
"ARRANGEMENT" includes indemnity or option arrangements, and any agreement
or understanding, formal or informal, of whatever nature which may be an
inducement to deal or refrain from dealing; and
"ASSOCIATE" means, in relation to any company, any member of the company's
group and any associated company of any member of the company's group, their
banks and financial and other professional advisers (including stockbrokers),
including persons controlling, controlled by or under the same control as such
banks or financial or other professional advisers, their directors and such
directors' close relatives and related trusts and their pension funds.
(A) SHAREHOLDINGS AND DEALINGS IN RELEVANT TEXAS UTILITIES SECURITIES
4 SHAREHOLDINGS AND DEALINGS
In this paragraph:
"DISCLOSURE PERIOD" means the period commencing 26 January 1997 (the date
12 months prior to the commencement of the Offer period in relation to The
Energy Group) and ending on 5 March 1998 or such earlier date as may be referred
to in relation to any particular disclosures made in this paragraph (being in
each case the latest practicable date prior to the publication of this
document);
"RELEVANT ENERGY GROUP SECURITIES" means Energy Group Securities, including
any securities convertible into rights to subscribe for, or options (including
traded options) in respect of, or derivatives referenced to, such Energy Group
Securities;
"RELEVANT TEXAS UTILITIES SECURITIES" means Texas Utilities Common Stock,
including any securities convertible into rights to subscribe for, or options
(including traded options) in respect of, or derivatives referenced to, such
Texas Utilities Common Stock;
"ARRANGEMENT" includes indemnity or option arrangements, and any agreement
or understanding, formal or informal, of whatever nature which may be an
inducement to deal or refrain from dealing; and
"ASSOCIATE" means, in relation to any company, any member of the company's
group and any associated company of any member of the company's group, their
banks and financial and other professional advisers (including stockbrokers),
including persons controlling, controlled by or under the same control as such
banks or financial or other professional advisers, their directors and such
directors' close relatives and related trusts and their pension funds.
(A) SHAREHOLDINGS AND DEALINGS IN RELEVANT TEXAS UTILITIES SECURITIES
(i) Holdings
(A) The holdings in relevant Texas Utilities securities (including interests in
benefit plans referenced to shares in Texas Utilities Common Stock) in
which the Directors of Texas Utilities and the Directors of
VIII-2
<PAGE> 311
TU Acquisitions were interested as at the close of business on 5 March 1998
(the latest practicable date prior to the publication of this document) are
set out in the table below:
<TABLE>
<CAPTION>
INTERESTS IN BENEFIT PLANS
SHARES IN TEXAS REFERENCED TO SHARES IN
UTILITIES TEXAS UTILITIES
NAME COMMON STOCK COMMON STOCK
---- --------------- --------------------------
<S> <C> <C>
Jerry S. Farrington................................. 20,414 52,275
Bayard H. Friedman.................................. 2,416 4,421
H. Jarrell Gibbs*................................... 9,046 28,713
William H. Griffin.................................. 30,000 4,421
Kernay Laday........................................ 600 4,421
Margaret N. Maxey................................... 5,097 4,421
Michael J. McNally*................................. 9,012 22,172
James A. Middleton.................................. 3,000 4,421
Erle Nye**.......................................... 49,425 54,462
James E. Oesterreicher.............................. 1,600 2,013
Charles R. Perry.................................... 1,000 4,421
Herbert H. Richardson............................... 1,700 1,791
Robert A. Wooldridge*............................... 6,005 --
</TABLE>
- ---------------
* Director of TU Acquisitions
** Director of Texas Utilities and TU Acquisitions
(B) As at the close of business on 5 March 1998 (the latest practicable date
prior to publication of this document) the Texas Utilities Deferred &
Incentive Compensation Plan held 524,465 shares in Texas Utilities Common
Stock;
(C) As at the close of business on 5 March 1998 (the latest practicable date
prior to publication of this document), the Texas Utilities Deferred
Compensation Plan for Outside Directors held 31,592 shares in Texas
Utilities Common Stock;
(D) As at the close of business on 5 March 1988 (the latest practicable date
prior to publication of this document), the Texas Utilities Employees'
Thrift Plan held 6,895,087 shares in Texas Utilities Common Stock;
(E) As at the close of business on 4 March 1998 (the latest practicable date
prior to publication of this document), the Texas Utilities Direct Stock
Purchase and Dividend Reinvestment Plan (the "Dividend Reinvestment Plan")
held 8,291,318 shares in Texas Utilities Common Stock;
(F) As at the close of business on 5 March 1998 (the latest practicable date
prior to the publication of this document), the Texas Utilities EN$AVE Plan
held 329,929 shares in Texas Utilities Common Stock;
(G) As at the close of business on 5 March 1998 (the latest practicable date
prior to the publication of this document), Lehman Brothers was interested
in 144,788 shares in Texas Utilities Common Stock;
(H) As at the close of business on 4 March 1998 (the latest practicable date
prior to publication of this document), Merrill Lynch and its affiliates
held relevant Texas Utilities securities as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES IN TEXAS
NAME UTILITIES COMMON STOCK
---- -------------------------
<S> <C>
Merrill Lynch Asset Management L.P............. 4,929,234
</TABLE>
VIII-3
<PAGE> 312
(I) As at the close of business on 5 March 1998 (the latest practicable date
prior to publication of this document) those members of Worsham, Forsythe &
Wooldridge, L.L.P. who had an intimate knowledge of the Acquisition were
interested in the following shares in Texas Utilities Common Stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES IN TEXAS
NAME UTILITIES COMMON STOCK
---- -------------------------
<S> <C>
Neil Anderson (held by children)............... 300
Timothy A. Mack................................ 629
Robert A. Wooldridge........................... 6,005
</TABLE>
(J) As at the close of business on 5 March 1998 (the latest practicable date
prior to the publication of this document), Robert J. Reger, Jr., a member
of Reid & Priest LLP with intimate knowledge of the Acquisition, held 600
shares in Texas Utilities Common Stock.
(ii) Dealings
(A) During the disclosure period the Directors of Texas Utilities and the
Directors of TU Acquisitions have dealt for value in shares in Texas
Utilities Common Stock and derivatives referenced to Texas Utilities Common
Stock as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
TEXAS UTILITIES PRICE
NAME DATE NATURE OF TRANSACTION COMMON STOCK ($)
---- ---- --------------------- ------------------- -------
<S> <C> <C> <C> <C>
Jerry S. Farrington 07.02.97 Contribution under Employees' 39 40.500
Thrift Plan
03.06.97 Contribution under Employees' 41 38.500
Thrift Plan
01.04.97 Dividend reinvestment under 232 34.125
Employees' Thrift Plan
01.04.97 Dividend reinvestment under 767 34.897
Deferred & Incentive Compensation
Plan
04.04.97 Contribution under Employees' 46 34.375
Thrift Plan
05.06.97 Contribution under Employees' 28 36.875
Thrift Plan
01.07.97 Dividend reinvestment under 233 34.625
Employees' Thrift Plan
01.07.97 Dividend reinvestment under 793 34.228
Deferred & Incentive Compensation
Plan
10.07.97 Distribution under Deferred & 12,304 35.170
Incentive Compensation Plan
10.07.97 Allocation under Deferred & 10,620 35.170
Incentive Compensation Plan
01.10.97 Dividend reinvestment under 748 35.678
Deferred & Incentive Compensation
Plan
01.10.97 Dividend reinvestment under 229 36.307
Employees' Thrift Plan
02.01.98 Dividend reinvestment under 695 41.191
Deferred & Incentive Compensation
Plan
02.01.98 Dividend reinvestment under 213 41.625
Employees' Thrift Plan
09.02.98 Contribution under Employees' 32 40.687
Thrift Plan
</TABLE>
VIII-4
<PAGE> 313
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
TEXAS UTILITIES PRICE
NAME DATE NATURE OF TRANSACTION COMMON STOCK ($)
---- ---- --------------------- ------------------- -------
<S> <C> <C> <C> <C>
Bayard H. Friedman 01.04.97 Dividend reinvestment under 42 34.897
Deferred Compensation Plan for
Outside Directors
01.07.97 Dividend reinvestment under 43 34.288
Deferred Compensation Plan for
Outside Directors
10.07.97 Allocation under Deferred 1,421 35.181
Compensation Plan for Outside
Directors
01.10.97 Dividend reinvestment under 63 35.678
Deferred Compensation Plan for
Outside Directors
02.01.98 Dividend reinvestment under 58 41.191
Deferred Compensation Plan for
Outside Directors
H. Jarrell Gibbs 01/10/97 Dividend reinvestment under 118 36.307
Employees' Thrift Plan
07/10/97 Contribution under Employees' 82 36.435
Thrift Plan
05/11/97 Contribution under Employees 83 35.875
Thrift Plan
08/12/97 Contribution under Employees 62 40.187
Thrift Plan
02/01/98 Dividend reinvestment under the 115 41.625
Employees' Thrift Plan
02/01/98 Acquisition under Employees' 9 41.500
Thrift Plan
02/01/98 Dividend reinvestment under 1 41.191
Employees' Thrift Plan
09/02/98 Contribution under Employees' 72 40.687
Thrift Plan
01/10/97 Dividend reinvestment under 74 35.678
Deferred & Incentive Compensation
Plan
02/01/98 Dividend reinvestment 68 41.191
under Deferred & Incentive
Compensation Plan
William H. Griffin 01.04.97 Dividend reinvestment under 42 34.897
Deferred Compensation Plan for
Outside Directors
01.07.97 Dividend reinvestment under 43 34.288
Deferred Compensation Plan for
Outside Directors
10.07.97 Allocation under Deferred 1,421 35.181
Compensation Plan for Outside
Directors
01.10.97 Dividend reinvestment under 63 35.678
Deferred Compensation Plan for
Outside Directors
</TABLE>
VIII-5
<PAGE> 314
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
TEXAS UTILITIES PRICE
NAME DATE NATURE OF TRANSACTION COMMON STOCK ($)
---- ---- --------------------- ------------------- -------
<S> <C> <C> <C> <C>
02.01.98 Dividend reinvestment under 58 41.191
Compensation Plan for Outside
Directors
Kernay Laday 01.04.97 Dividend reinvestment under 42 34.897
Deferred Compensation Plan for
Outside Directors
01.07.97 Dividend reinvestment under 43 34.288
Deferred Compensation Plan for
Outside Directors
10.07.97 Allocation under Deferred 1,421 35.181
Compensation Plan for Outside
Directors
01.10.97 Dividend reinvestment under 63 35.678
Deferred Compensation Plan for
Outside Directors
02.01.98 Dividend reinvestment under 58 41.191
Deferred
Compensation Plan for Outside
Directors
Margaret N. Maxey 01.04.97 Dividend reinvestment under 42 34.897
Deferred
Compensation Plan for Outside
Directors
01.07.97 Dividend reinvestment under 43 34.288
Deferred Compensation Plan for
Outside Directors
10.07.97 Allocation under Deferred 1,421 35.181
Compensation Plan for Outside
Directors
01.10.97 Dividend reinvestment under 63 35.678
Deferred Compensation Plan for
Outside Directors
02.01.98 Dividend reinvestment under 58 41.191
Deferred Compensation Plan for
Outside Directors
Michael J. McNally 08/09/97 Contribution under Employees' 66 35.250
Thrift Plan
01/10/97 Dividend reinvestment under 165 35.678
Deferred & Incentive Compensation
Plan
01/10/97 Dividend reinvestment under 13 36.307
Employees' Thrift Plan
01/10/97 Dividend reinvestment under 91 35.678
Deferred & Incentive Compensation
Plan
07/10/97 Contribution under Employees' 64 36.435
Thrift Plan
05/11/97 Contribution under Employees' 21 35.875
Thrift Plan
02/01/98 Dividend reinvestment under 13 41.625
Thrift Plan
02/01/98 Acquisition under Employees' 8 41.500
Thrift Plan
</TABLE>
VIII-6
<PAGE> 315
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
TEXAS UTILITIES PRICE
NAME DATE NATURE OF TRANSACTION COMMON STOCK ($)
---- ---- --------------------- ------------------- -------
<S> <C> <C> <C> <C>
02/01/98 Dividend reinvestment under 151 41.191
Deferred & Incentive Compensation
Plan
02/01/98 Dividend reinvestment under 83 41.191
Deferred & Incentive Compensation
Plan
09/02/98 Contribution under Employees' 57 40.687
Thrift Plan
James A. Middleton 01.04.97 Dividend reinvestment under 42 34.897
Deferred Compensation Plan for
Outside Directors
01.07.97 Dividend reinvestment under 43 34.288
Deferred Compensation Plan for
Outside Directors
10.07.97 Allocation under Deferred 1,421 35.181
Compensation Plan for Outside
Directors
01.10.97 Dividend reinvestment under 63 35.678
Deferred Compensation Plan for
Outside Directors
02.01.98 Dividend reinvestment under 58 41.191
Deferred Compensation Plan for
Outside Directors
Erle Nye 06.03.97 Contribution under Employees' 85 38.50
Thrift Plan
31.03.97 Acquisition under qualified plan 4,793 34.250
(intra-plan transfer)
01.04.97 Contribution under Employees' 303 34.151
Thrift Plan
01.10.97 Dividend reinvestment under 299 36.307
Employees' Thrift Plan
01.10.97 Automatic Dividend reinvestment 5 35.679
01.10.97 Automatic Dividend reinvestment 3 35.679
01.10.97 Automatic dividend reinvestment 43 35.679
01.10.97 Automatic dividend reinvestment 329 35.678
01.10.97 Automatic dividend reinvestment 257 35.678
02.01.98 Dividend reinvestment under 279 41.625
Employees' Thrift Plan
02.01.98 Acquisition under Employees' 20 41.500
Thrift Plan
02.01.98 Automatic dividend reinvestment 2 41.191
02.01.98 Automatic dividend reinvestment 3 41.191
02.01.98 Automatic dividend reinvestment 40 41.191
02.01.98 Automatic dividend reinvestment 302 41.191
02.01.98 Automatic dividend reinvestment 237 41.191
09.02.98 Contribution under Employees' 78 40.687
Thrift Plan
James E. Oesterreicher 01.04.97 Dividend reinvestment under 18 34.897
Deferred Compensation Plan for
Outside Directors
</TABLE>
VIII-7
<PAGE> 316
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
TEXAS UTILITIES PRICE
NAME DATE NATURE OF TRANSACTION COMMON STOCK ($)
---- ---- --------------------- ------------------- -------
<S> <C> <C> <C> <C>
01.07.97 Dividend reinvestment under 19 34.228
Deferred Compensation Plan for
Outside Directors
10.07.97 Allocation under Deferred 711 35.181
Compensation Plan for Outside
Directors
01.10.97 Dividend reinvestment under 29 35.678
Deferred Compensation Plan for
Outside Directors
02.01.98 Dividend reinvestment under 27 41.191
Deferred Compensation Plan for
Outside Directors
Charles R. Perry 01.04.97 Dividend reinvestment under 42 34.897
Deferred Compensation Plan for
Outside Directors
01.07.97 Dividend reinvestment under 43 34.288
Deferred Compensation Plan for
Outside Directors
10.07.97 Allocation under Deferred 1,421 35.181
Compensation Plan for Outside
Directors
01.10.97 Dividend reinvestment under 63 35.678
Deferred Compensation Plan for
Outside Directors
02.01.98 Dividend reinvestment under 58 41.191
Deferred Compensation Plan for
Outside Directors
Herbert H. Richardson 01.04.97 Dividend reinvestment under 15 34.897
Deferred Compensation Plan for
Outside Directors
04.04.97 Purchase 200 34.500
01.07.97 Dividend reinvestment under 16 34.228
Deferred Compensation Plan for
Outside Directors
10.07.97 Allocation under Deferred 711 35.181
Compensation Plan for Outside
Directors
09.06.97 Purchase 200 32.750
02.07.97 Purchase 200 34.875
01.10.97 Dividend reinvestment under 26 35.678
Deferred Compensation Plan for
Outside Directors
02.01.98 Dividend reinvestment under 24 41.191
Deferred Compensation Plan for
Outside Directors
Robert A. Wooldridge 21.03.97 Purchase 1,000 34.750
01.04.97 Dividend reinvestment 25.627 34.922
01.07.97 Dividend reinvestment 26.522 34.253
01.10.97 Dividend reinvestment 25.834 35.703
02.01.98 Dividend reinvestment 23.787 41.216
</TABLE>
VIII-8
<PAGE> 317
(B) During the disclosure period the Texas Utilities Deferred & Incentive
Compensation Plan carried out the following dealings for value in shares in
Texas Utilities Common Stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
TEXAS UTILITIES
DATE NATURE OF TRANSACTION COMMON STOCK
---- --------------------------- -------------------
<C> <S> <C>
06.02.97 Participant Forfeiture (5,918)
01.04.97 Dividend reinvestment 6,786
14.04.97 Participant Forfeiture (4,490)
01.07.97 Dividend reinvestment 6,954
01.07.97 New Plan Year Allocation 151,222
01.10.97 Dividend reinvestment 7,547
02.01.98 Dividend reinvestment 6,911
</TABLE>
(C) During the disclosure period the Texas Utilities Deferred Compensation Plan
for Outside Directors carried out the following dealings for value in
shares in Texas Utilities Common Stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
TEXAS UTILITIES
DATE NATURE OF TRANSACTION COMMON STOCK
---- --------------------- -------------------
<C> <S> <C>
01.04.97 Dividend reinvestment 303
01.07.97 Dividend reinvestment 314
01.07.97 New Plan Year Allocation 9,948
01.10.97 Dividend reinvestment 452
02.01.98 Dividend reinvestment 416
</TABLE>
(D) The following dealings for value were carried out by the Texas Utilities
Employees' Thrift Plan during the period 26 January 1997 to 3 March 1998
(the latest practicable date prior to publication of this document):
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- ------
<S> <C> <C> <C>
28.01.97 SELL -3,388 41.125
30.01.97 SELL -9,954 40.250
31.01.97 SELL -7,157 40.625
05.02.97 SELL -6,620 40.375
07.02.97 BUY 16,350 41.125
07.02.97 BUY 27,487 40.500
11.02.97 BUY 15,000 40.775
12.02.97 SELL -235 41.500
12.02.97 BUY 6,428 41.001
14.02.97 SELL -630 40.999
14.02.97 SELL -12,890 40.500
18.02.97 SELL -8,587 40.375
19.02.97 SELL -2,672 40.263
20.02.97 SELL -3,807 40.500
24.02.97 SELL 3,847 40.563
27.02.97 SELL -8,554 40.125
28.02.97 BUY 25,155 40.375
03.03.97 SELL -6,974 40.250
05.03.97 SELL -6,617 39.875
06.03.97 BUY 26,577 38.625
10.03.97 SELL -320 38.500
12.03.97 BUY 20,957 38.244
14.03.97 SELL -654 36.250
</TABLE>
VIII-9
<PAGE> 318
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- ------
<S> <C> <C> <C>
17.03.97 SELL -9,901 36.375
19.03.97 BUY 3,560 36.000
20.03.97 SELL -2,946 34.813
24.03.97 SELL -109 34.624
24.03.97 SELL -8,293 33.813
25.03.97 SELL -16,350 41.125
25.03.97 BUY 2,236 35.625
26.03.97 BUY 6,091 35.300
27.03.97 BUY 2,938 35.375
01.04.97 DIVD 0 0.000
01.04.97 BUY 1,685 34.300
02.04.97 BUY 1,685 34.175
02.04.97 SELL -1,685 34.175
04.04.97 BUY 95,000 33.975
04.04.97 BUY 8,998 34.375
07.04.97 BUY 9,690 34.500
07.04.97 BUY 5,801 34.249
08.04.97 DIVD- 0 0.000
09.04.97 SELL -540 33.375
09.04.97 DIVD 0 0.000
09.04.97 BUY 54,263 34.125
09.04.97 BUY 1,040 33.625
10.04.97 INT+ 0 0.000
11.04.97 SELL -3,633 33.438
14.04.97 BUY 3,594 33.125
16.04.97 BUY 664 32.625
17.04.97 BUY 1,096 32.375
18.04.97 BUY 1,049 33.000
21.04.97 BUY 5,120 32.625
22.04.97 BUY 1,252 32.125
30.04.97 BUY 30,910 33.750
01.05.97 BUY 1,895 33.750
02.05.97 SELL -386 33.750
02.05.97 BUY 16,300 34.000
02.05.97 BUY 61 34.000
05.05.97 SELL -30 34.500
05.05.97 SELL -125 36.250
07.05.97 SELL -26,387 36.500
07.05.97 BUY 40,265 36.427
08.05.97 BUY 3,545 36.375
09.05.97 SELL -26,577 38.625
13.05.97 BUY 1,096 36.000
13.05.97 BUY 2,701 35.875
13.05.97 SELL -813 35.749
14.05.97 SELL -3,098 35.748
19.05.97 SELL -565 34.375
20.05.97 SELL 5,996 33.750
21.05.97 SELL -237 33.500
22.05.97 SELL -4,911 33.500
23.05.97 BUY 2,124 33.875
</TABLE>
VIII-10
<PAGE> 319
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- ------
<S> <C> <C> <C>
29.05.97 SELL -3,507 33.625
29.05.97 SELL -784 33.875
03.06.97 SELL -63 33.750
04.06.97 SELL -4,651 33.000
09.06.97 BUY 26,262 34.375
09.06.97 BUY 39,500 32.750
09.06.97 BUY 36 32.750
10.06.97 SELL -429 32.624
10.06.97 SELL -3,044 32.625
17.06.97 SELL -3,923 33.500
20.06.97 SELL -2,664 34.250
25.06.97 SELL -3,410 33.750
27.06.97 SELL -224 34.249
02.07.97 SELL -8 34.000
02.07.97 BUY 200 35.000
02.07.97 BUY 12 35.000
02.07.97 BUY 35,000 34.875
02.07.97 BUY 34,800 35.000
02.07.97 BUY 95 34.812
02.07.97 BUY 29,100 34.812
02.07.97 BUY 1 34.940
03.07.97 BUY 1,493 35.350
07.07.97 SELL -1 35.010
07.07.97 BUY 100 35.125
07.07.97 BUY 2,500 35.500
07.07.97 BUY 6,000 35.187
07.07.97 BUY 74 35.125
07.07.97 BUY 21,900 35.437
07.07.97 BUY 100 35.125
07.07.97 BUY 6,800 35.375
07.07.97 BUY 14,000 35.250
07.07.97 BUY 11,000 35.312
09.07.97 SELL -725 35.062
11.07.97 SELL -6,437 34.875
15.07.97 SELL -2,729 34.750
16.07.97 SELL -746 35.125
17.07.97 SELL -3,734 34.001
22.07.98 SELL -2,481 33.937
24.07.97 SELL -3,038 34.187
25.07.97 SELL -165 33.937
25.07.97 SELL -3,395 33.875
04.08.97 SELL -5,938 34.250
05.08.97 BUY 29,306 35.437
05.08.97 BUY 1,900 34.562
</TABLE>
VIII-11
<PAGE> 320
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- ------
<S> <C> <C> <C>
05.08.97 BUY 29 34.562
05.08.97 BUY 1 34.560
05.08.97 BUY 25,000 34.562
07.08.97 SELL -218 35.062
08.08.97 SELL -7,763 33.875
11.08.97 SELL -660 34.749
12.08.97 SELL -4,185 35.062
15.08.97 SELL -3,052 34.625
19.08.97 SELL -497 35.250
19.08.97 SELL -11,300 34.875
25.08.97 SELL -5,831 35.248
27.08.97 SELL -8,848 34.875
29.08.97 SELL -190 35.000
02.09.97 SELL -3,961 35.312
03.09.97 SELL -3,876 34.999
08.09.97 SELL -2,885 34.937
08.09.97 BUY 28,501 34.875
10.09.97 BUY 36,000 35.312
10.09.97 BUY 300 35.312
10.09.97 BUY 56 35.312
10.09.97 SELL -143 35.312
11.09.97 SELL -3,419 35.187
11.09.97 SELL -13,765 34.873
12.09.97 SELL -2,351 35.437
15.09.97 SELL -4 35.500
15.09.97 SELL -18,487 35.687
18.09.97 SELL -1,676 35.625
19.09.97 SELL -5,442 35.562
22.09.97 SELL -5,173 35.875
26.09.97 SELL -9,408 35.187
29.09.97 SELL -14,086 35.062
</TABLE>
Dreyfus/Mellon is the trustee for the Texas Utilities Thrift Plan. On 1
October 1997 the reporting system was changed, thereafter records have been kept
in the following format:
<TABLE>
<CAPTION>
TRANSACTED SHARES
DATE ENDING SHARES
---- -----------------
<S> <C>
01.10.97 7,192,786
01.10.97 -3,203
01.10.97 7,192,583
01.10.97 3,000
06.10.97 7,192,583
01.10.97 28,500
06.10.97 7,221,083
01.10.97 25,200
06.10.97 7,246,283
01.10.97 2,500
06.10.97 7,248,783
01.10.97 37,800
06.10.97 7,286,583
</TABLE>
VIII-12
<PAGE> 321
<TABLE>
<CAPTION>
TRANSACTED SHARES
DATE ENDING SHARES
---- -----------------
<S> <C>
02.10.97 100
07.10.97 7,286,683
02.10.97 30
07.10.97 7,286,713
07.10.97 467
10.10.97 7,287,180
06.10.97 -7,885
09.10.97 7,279,295
08.10.97 50
18.10.97 7,279,345
08.10.97 15
13.10.97 7,279,360
08.10.97 12,300
13.10.97 7,291,660
08.10.97 1,900
13.10.97 7,295,560
08.10.97 2,200
13.10.97 7,295,760
08.10.97 40,000
13.10.97 7,335,760
10.10.97 -13,179
15.10.97 7,322,581
13.10.97 -41,821
16.10.97 7,280,760
15.10.97 -4,095
20.10.97 7,276,665
16.10.97 -16,218
21.10.97 7,257,239
17.10.97 -3,208
21.10.97 7,257,239
08.10.97 -422
09.10.97 7,256,817
08.10.97 -66
09.10.97 7,254,306
17.10.97 -36
17.10.97 7,240,458
21.10.97 -3,382
22.10.97 7,237,076
22.10.97 -818
22.10.97 7,236,258
22.10.97 -6,101
23.10.92 7,230,157
08.10.97 -422
08.10.97 7,232,668
08.10.97 -2,445
08.10.97 7,230,223
08.10.97 -66
08.10.97 7,230,157
24.10.97 7,230,157
24.10.97 -5,452
24.10.97 7,224,705
</TABLE>
VIII-13
<PAGE> 322
<TABLE>
<CAPTION>
TRANSACTED SHARES
DATE ENDING SHARES
---- -----------------
<S> <C>
24.10.97 -3,992
27.10.97 7,220,713
23.10.97 471
28.10.97 7,221,184
29.10.97 -5,805
30.10.97 7,208,239
29.10.97 7,140
29.10.97 7,208,239
30.10.97 -5,679
31.10.97 7,202,560
03.11.97 -6,555
04.11.97 7,196,005
05.11.97 -5,954
06.11.97 7,190,051
05.11.97 28,059
06.11.97 7,218,110
05.11.97 -28,058
06.11.97 7,190,051
06.11.97 1,000
12.11.97 7,219,110
06.11.97 2,000
12.11.97 7,221,110
06.11.97 1,000
12.11.97 7,222,110
06.11.97 63
12.11.97 7,222,173
06.11.97 3,600
12.11.97 7,234,273
06.11.97 13,700
12.11.97 7,247,973
06.11.97 8,500
12.11.97 7,225,773
06.11.97 28,059
06.11.97 7,247,972
11.11.97 -3,572
12.11.97 7,244,401
13.11.97 -5,420
14.11.97 7,238,981
17.11.97 -42,341
17.11.97 7,196,640
17.11.97 -59,947
18.11.97 7,136,693
18.11.97 7,136,693
18.11.97 23,242
19.11.97 7,113,451
19.11.97 -26,284
19.11.97 7,087,167
19.11.97 -56,463
20.11.97 7,030,704
14.10.97 -11,726
14.10.97 7,042,714
</TABLE>
VIII-14
<PAGE> 323
<TABLE>
<CAPTION>
TRANSACTED SHARES
DATE ENDING SHARES
---- -----------------
<S> <C>
20.11.97 12,101
24.11.97 7,042,714
25.11.97 -15,475
25.11.97 7,027,239
16.10.97 -2,084
16.10.97 7,027,241
25.11.97 -21,313
26.11.97 7,005,926
25.11.97 21,313
26.11.97 7,027,238
25.11.97 -21,313
26.11.97 7,005,926
26.11.97 -3,085
28.11.97 7,002,841
28.11.97 -5,346
28.11.97 6,997,495
28.11.97 -30,814
01.12.97 6,966,681
02.12.97 -323
02.12.97 6,966,358
02.12.97 -5,477
03.12.97 6,960,881
03.12.97 -1,344
03.12.97 6,959,537
03.12.97 -5,868
04.12.97 6,953,669
04.12.97 -3,883
05.12.97 6,949,786
08.12.97 -13,812
09.12.97 6,935,974
09.12.97 25,514
09.12.97 6,961,488
09.12.97 7,350
12.12.97 6,968,840
11.12.97 -1,718
11.12.97 6,967,122
11.12.97 -11,621
12.12.97 6,955,501
15.12.97 -6,027
15.12.97 6,969,474
15.12.97 -20,938
16.12.97 6,928,536
16.12.97 -14,160
17.12.97 6,914,376
17.12.97 2,378
22.12.97 6,916,754
18.12.97 -5,561
19.12.97 6,911,193
23.12.97 -57
23.12.97 6,911,136
22.12.97 -12,624
</TABLE>
VIII-15
<PAGE> 324
<TABLE>
<CAPTION>
TRANSACTED SHARES
DATE ENDING SHARES
---- -----------------
<S> <C>
23.12.97 6,898,512
23.12.97 -7,482
29.12.97 6,891,030
26.12.97 -112
26.12.97 6,890,918
24.12.97 -7,092
26.12.97 6,883,826
26.12.97 -4,236
29.12.97 6,879,590
02.01.98 6,879,590
02.01.98 -6,995
02.01.98 6,872,594
02.01.98 30,000
05.01.98 6,902,595
05.01.98 58,257
08.01.98 6,960,852
05.01.98 -4,879
08.01.98 6,955,973
07.01.98 -986
07.01.98 6,954,987
08.01.98 4,870
08.01.98 6,959,856
08.01.98 33,319
13.01.98 6,993,175
12.01.98 -10,327
13.01.98 6,982,848
14.01.98 -5,084
15.01.98 6,977,764
15.01.98 -4,752
16.01.98 6,973,012
16.01.98 -2,829,183
16.01.98 6,970,183
20.01.98 -3,142
21.01.98 6,967,041
22.01.98 -14,190
23.01.98 6,952,851
26.01.98 -3,671
27.01.98 6,949,180
27.01.98 -401
27.01.98 6,948,779
27.01.98 -5,098
28.01.98 6,943,681
30.01.98 -5,558
02.02.98 6,938,123
02.02.98 -12,414
03.02.98 6,925,709
03.04.98 -7,695
04.02.98 6,918,014
04.02.98 -3,325
05.02.98 6,914,689
05.02.98 -2,568
</TABLE>
VIII-16
<PAGE> 325
<TABLE>
<CAPTION>
TRANSACTED SHARES
DATE ENDING SHARES
---- -----------------
<S> <C>
06.02.98 6,912,121
10.02.98 26,762
10.02.98 6,938,883
10.02.98 20,911
13.02.98 6,959,794
12.02.98 -6,611
12.02.98 6,953,183
12.02.98 -12,974
13.02.98 6,940,209
13.02.98 -941
13.02.98 6,939,268
13.02.98 -3,382
17.02.98 6,935,886
17.02.98 -6,276
18.02.98 6,929,610
18.02.98 -9,500
19.02.98 6,920,110
20.02.98 -9,803
23.02.98 6,910,310
24.02.98 -3,278
25.02.98 6,907,030
12.02.98 6,953,182
12.02.98 -12,974
13.02.98 6,940,208
13.02.98 -941
13.02.98 6,939,267
13.02.98 -3,382
17.02.98 6,935,885
17.02.98 -6,276
18.02.98 6,929,609
18.02.98 9,500
19.02.98 6,920,109
20.02.98 -9,803
23.02.98 6,910,306
24.02.98 -3,278
25.02.98 6,907,028
26.02.98 -5,956
</TABLE>
(E) The following dealings for value were carried out by the Dividend
Reinvestment Plan during the period 26 January 1997 to the close of
business on 4 March 1998 (the latest practicable date prior to publication
of this document):
<TABLE>
<CAPTION>
HELD BY HELD BY
TEXAS NATIONAL NATURE OF
DATE UTILITIES NATURE OF TRANSACTION FINANCIAL TRANSACTION
---- --------- --------------------- --------- -----------
<S> <C> <C> <C> <C>
BEGINNING 8,236,592 43,335
BALANCE
26.1.97- +3937
31.1.97 -32,650 -18,891
----------- --------
8,207,879 24,444
</TABLE>
VIII-17
<PAGE> 326
<TABLE>
<CAPTION>
HELD BY HELD BY
TEXAS NATIONAL NATURE OF
DATE UTILITIES NATURE OF TRANSACTION FINANCIAL TRANSACTION
---- --------- --------------------- --------- -----------
<S> <C> <C> <C> <C>
02.97 +6,210 +30,000
-82,784 -36,534
----------- --------
8,131,305 17,910
03.97 +3,545 +63,809
-139,786 -14,410
----------- --------
7,995,064 67,309
04.97 +222,147 +80,000
-187,920 -62,213
----------- --------
8,029,291 85,096
05.97 +8,903
-56,617 -51,662
----------- --------
7,981,577 33,434
06.97 +64,246
-175,602 -14,114
----------- --------
7,805,975 83,566
07.97 +165,100
-59,890 -58,930
----------- --------
7,911,185 24,636
08.97 +102,847 Transfer from ENSERCH Dividend
+21,176 Reinvestment Plan on 26.08.97 +68,151
-134,605 -25,683
----------- --------
7,900,603 67,104
09.97 +6,265,985 +79,858
-98,043,985 -13,834
----------- --------
7,808,825 133,128
10.97 -28,954 -75,345
233,593 --------
-----------
8,013,464 57,783
11.97 -45,460 -24,061
+15,761 +11,363
----------- --------
7,983,765 45,085
01.12.97 +324 Certificates to Dividend Reinvestment -31,465 shares sold
----------- Plan --------
7,984,089 13,620
02.12.97 +1,759 Certificates to Dividend Reinvestment
Plan
4,288 shares purchased 13,620
-----------
7,990,136
03.12.97 +237 Certificates to Dividend Reinvestment
----------- Plan
7,990,373 13,620
04.12.97 -7,054 Certificates issued
-395 Certificates issued --------
+1,287 Certificates to Dividend Reinvestment 13,620
----------- Plan
7,984,211
</TABLE>
VIII-18
<PAGE> 327
<TABLE>
<CAPTION>
HELD BY HELD BY
TEXAS NATIONAL NATURE OF
DATE UTILITIES NATURE OF TRANSACTION FINANCIAL TRANSACTION
---- --------- --------------------- --------- -----------
<S> <C> <C> <C> <C>
05.12.97 +964 Certificates to Dividend Reinvestment -113 shares sold
Plan..................................
+113 Certificates to Dividend Reinvestment -7,476
----------- Plan.................................. --------
7,985,288 6,031
08.12.97 +1,282 --------
-----------
7,986.570 6,031
09.12.98 +4,118 Certificates to Dividend Reinvestment
Plan
+100,000 Transfer of Certificates to Bank +100,000 Transfer from
----------- -------- Texas
7,890,688 106,031
10.12.97 -9,257 Certificates issued
-3,837 Certificates issued
+242 Certificates to Dividend Reinvestment --------
----------- Plan
7,877,836 106,031
11.12.97 +143,148 Certificates to Dividend Reinvestment
----------- Plan
+67 Certificates to Dividend Reinvestment
Plan
+2,050 shares purchased --------
-----------
8,023,101 106,031
12.12.97 +6,825 shares purchased -9,284 shares sold
----------- --------
8,029,926 96,747
15.12.97 +3,189 Certificates to Dividend Reinvestment --------
----------- Plan
8,033,115 96,747
16.12.97 +646 Certificates to Dividend Reinvestment --------
----------- Plan
8,033,761 96,747
17.12.97 -9,196 Certificates issued
-.974 Certificates issued
+72,062 Certificates to Dividend Reinvestment
Plan
+873 Certificates to Dividend Reinvestment --------
----------- Plan
8,096,526 96,747
18.12.97 +500 --------
-----------
8,097,026 96,747
19.12.97 +78,156
+528 -8,300 shares sold
----------- --------
8,175,710 88,447
22.12.97 +1,373 Certificates to Dividend Reinvestment --------
----------- Plan
8,177,083 88,447
23.12.97 +1,067
+4,340 --------
-----------
8,182,490 88,447
26.12.97 -8,064 Certificates issued
-349 Certificates issued
+100 Certificates to Dividend Reinvestment --------
----------- Plan
8,174,177 88,447
</TABLE>
VIII-19
<PAGE> 328
<TABLE>
<CAPTION>
HELD BY HELD BY
TEXAS NATIONAL NATURE OF
DATE UTILITIES NATURE OF TRANSACTION FINANCIAL TRANSACTION
---- --------- --------------------- --------- -----------
<S> <C> <C> <C> <C>
29.12.97 +442 Certificates to Dividend Reinvestment -7,660 shares sold
----------- Plan --------
8,174,619 80,787
30.12.97 -150 Certificates issued
+3,372 Certificates to Dividend Reinvestment
Plan
----------- --------
8,177,841 80,787
31.12.97 +514 Certificates to Dividend Reinvestment
Plan
-4,550 Certificates issued
----------- --------
8,173,805 80,787
02.01.98 +378 Certificates to Dividend Reinvestment
Plan
----------- --------
8,174,183 80,787
05.01.98 +110 Certificates to Dividend Reinvestment -3,608 shares sold
Plan
----------- --------
8,174,293 80,787
07.01.98 -3 Certificates issued
-3,379 Certificates issued
+4,187 Certificates to Dividend Reinvestment
Plan
----------- --------
8,175,098 77,179
08.01.98 +261 Certificates to Dividend Reinvestment
Plan
----------- --------
8,175,359 77,179
09.01.98 +248 Certificates to Dividend Reinvestment -7,707 shares sold
Plan
----------- --------
8,175,607 69,472
12.01.98 -80 Certificates issued
+125 Certificates to Dividend Reinvestment
Plan
----------- --------
8,175,652 69,472
13.01.98 +3,232 Certificates to Dividend Reinvestment
Plan
----------- --------
8,178,884 69,472
14.01.98 +583 Certificates to Dividend Reinvestment
Plan
+116,118 shares purchased
----------- --------
8,345,585 69,472
15.01.98 +6,338 Certificates to Dividend Reinvestment
Plan
-13,638 Certificates issued
-1,699 Certificates issued
----------- --------
8,336,586 69,472
16.01.98 +1,008 Certificates to Dividend Reinvestment -14,015 shares sold
Plan
----------- --------
8,337,594 55,457
19.01.98 +2,319 Certificates to Dividend Reinvestment
Plan
----------- --------
8,339,913 55,457
20.01.98 +1,159 Certificates to Dividend Reinvestment
Plan
----------- --------
8,341,072 55,457
21.01.98 +276 Certificates to Dividend Reinvestment
Plan
----------- --------
8,341,348 55,457
</TABLE>
VIII-20
<PAGE> 329
<TABLE>
<CAPTION>
HELD BY HELD BY
TEXAS NATIONAL NATURE OF
DATE UTILITIES NATURE OF TRANSACTION FINANCIAL TRANSACTION
---- --------- --------------------- --------- -----------
<S> <C> <C> <C> <C>
22.01.98 -14,304 Certificates issued
-22,485 Certificates issued
+1,392 Certificates to Dividend Reinvestment
Plan
----------- --------
8,325,951 55,457
23.01.98 +358 Certificates to Dividend Reinvestment
Plan
+13,302 Certificates to Dividend Reinvestment -16,835 shares sold
Plan
----------- --------
8,339,611 38,622
26.01.98 +564 Certificates to Dividend Reinvestment
Plan
----------- --------
8,340,173 38,622
27.1.98 +3,035 Certificates to Dividend Reinvestment
Plan
----------- --------
843,208 38,622
28.1.98 +270 Certificates to Dividend Reinvestment
Plan
----------- --------
8,343,478 38,622
29.1.98 +1,503 Certificates to Dividend Reinvestment
Plan
-2,885 Certificates Issued
-16,188 Certificates Issued
----------- --------
8,325,908 38,622
30.01.98 +530 Certificates to Dividend Reinvestment
Plan
+5016 Shares purchased 20.01.98 -15,223 shares sold
----------- --------
8,331,454 23,399
02.02.98 +722 Certificates to Dividend Reinvestment
Plan
-----------
8,332,226 23,399
03.02.98 +1,074 Certificates to Dividend Reinvestment
Plan
----------- --------
8,333,300 23,399
04.02.98 +2,355 Certificates to Dividend Reinvestment
Plan
----------- --------
8,335,655 23,399
05.02.98 +1,469 Certificates to Dividend Reinvestment
Plan
-10,700 Certificates Issued
-1,666 Certificates Issued
+5,133 Shares purchased 26.01.98
----------- --------
8,329,891 23,399
06.02.98 +579 Certificates to Dividend Reinvestment -15,198 shares sold
Plan
----------- --------
8,330,470 8,201
09.02.98 +290 Certificates to Dividend Reinvestment
Plan
----------- --------
8,330,760 8,201
10.02.98 +257 Certificates to Dividend Reinvestment
Plan
----------- --------
8,331,017 8,201
11.02.98 +1377 Certificates to Reinvestment Plan
----------- --------
8,332,394 8,201
-12,373 Certificates Issued
-2,241 Certificates Issued
----------- --------
8,317,780 8,201
</TABLE>
VIII-21
<PAGE> 330
<TABLE>
<CAPTION>
HELD BY HELD BY
TEXAS NATIONAL NATURE OF
DATE UTILITIES NATURE OF TRANSACTION FINANCIAL TRANSACTION
---- --------- --------------------- --------- -----------
<S> <C> <C> <C> <C>
12.02.98 +937 Certificates to Dividend Reinvestment
Plan
+3218 Shares purchased 02.02.98
----------- --------
8,321,935 8,201
13.02.98 +566 Certificates to Dividend Reinvestment -6,705 shares sold
Plan
----------- --------
8,322,501 1,496
16.02.98 +421 Certificates to Dividend Reinvestment
Plan
+1496 Certificates to Dividend Reinvestment --------
----------- Plan
8,324,418 1496
18.02.98 +380 Certificates to Dividend Reinvestment --------
----------- Plan
83,224,798 1496
19.02.98 -11606 Certificates to Dividend Reinvestment
Plan
-366 Certificates Issued
+126 Certificates to Dividend Reinvestment --------
----------- Plan
8,312,952 1,496
20.02.98 +4780 Certificates to Dividend Reinvestment -8,779 shares sold
Plan
+3823 Shares purchased 09.02.98 --------
-----------
8,321,555 -7,283
23.02.98 -30000 share Certificates Transferred to Bank +30000 Transfer from
Texas Utilities
+2434 Certificates to Dividend Reinvestment --------
----------- Plan
8,293,989 22,717
24.02.98 +3532 Certificates to Dividend Reinvestment --------
Plan
8,297,521 22,717
25.02.98 -30000 share Certificates transferred to Bank +30,000 Transfer from
Texas Utilities
+353 Certificates to Dividend Reinvestment
Plan
8,267,874 52,717
=========== ========
</TABLE>
(F) The following dealings for value were carried out by the Texas Utilities
EN$AVE Plan during the disclosure:
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -----
<S> <C> <C> <C>
28.10.97 Purchase 177.042 36.07
03.11.97 Purchase 1401.632 36.01
15.09.97 Purchase 11.038 35.68
05.09.97 Purchase 98.713 35.26
11.09.97 Purchase 35.903 35.19
24.11.97 Purchase 159.11 39.07
11.09.97 Purchase 46.154 35.20
28.10.97 Purchase 44.895 36.07
22.09.97 Purchase 114.411 36.07
23.10.97 Purchase 495.26 37.01
25.11.97 Purchase 400.919 40.07
19.09.67 Purchase 146.014 35.82
21.11.97 Purchase 223.661 38.70
</TABLE>
VIII-22
<PAGE> 331
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -----
<S> <C> <C> <C>
05.09.97 Purchase 212.454 35.26
10.09.97 Purchase 5.863 35.44
06.11.97 Purchase 190.883 35.82
10.09.97 Purchase 369.006 35.45
10.09.97 Purchase 144.982 35.45
05.02.97 Purchase 162.225 40.44
18.09.97 Purchase 308.46 35.90
11.09.97 Purchase 678.162 35.20
11.11.97 Purchase 75.311 36.20
22.10.97 Purchase 60.258 37.57
27.08.97 Purchase 2892.754 35.26
30.10.97 Purchase 53.809 35.68
31.10.97 Purchase 21.088 36.13
03.11.97 Purchase 168.388 36.01
07.11.97 Purchase 83.301 35.57
17.10.97 Purchase 234.603 36.63
10.11.97 Purchase 22.835 35.82
08.09.97 Purchase 827.972 35.38
10.09.97 Purchase 1.263 35.43
24.11.97 Purchase 621.268 39.07
25.11.97 Purchase 36.203 40.07
03.09.97 Purchase 19.433 35.19
03.11.97 Purchase 185.462 36.01
08.10.97 Purchase 0.493 36.31
07.11.97 Purchase 10.121 35.57
19.11.97 Purchase 1.038 37.71
17.10.97 Purchase 34.338 36.18
17.10.97 Purchase 0.234 36.20
10.09.97 Purchase 920.541 35.45
09.10.97 Purchase 0.081 35.68
17.11.97 Purchase 2508.411 37.82
20.10.97 Purchase 102.406 37.44
11.09.97 Purchase 2908.462 35.20
28.10.97 Purchase 2637.661 36.07
10.10.97 Purchase 2745.106 36.20
25.11.97 Purchase 0.096 39.90
23.10.97 Purchase 1.542 37.01
17.09.97 Purchase 19.826 35.76
05.11.97 Purchase 3.132 36.14
21.11.97 Purchase 2155.698 38.70
23.09.97 Purchase 1.693 35.59
21.11.97 Purchase 39.581 38.70
10.10.97 Purchase 41.345 36.19
28.10.97 Purchase 44.424 36.07
17.11.97 Purchase 43.496 37.82
23.10.97 Purchase 44.913 37.01
11.09.97 Purchase 48.069 35.20
02.09.97 Purchase 44.32 35.45
27.08.97 Purchase 2.127 35.26
05.09.97 Purchase 2.417 35.25
</TABLE>
VIII-23
<PAGE> 332
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -----
<S> <C> <C> <C>
25.11.97 Purchase 0.567 39.68
23.09.97 Purchase 101.025 35.60
24.09.97 Purchase 349.318 35.70
13.10.97 Purchase 24.424 36.38
03.10.97 Purchase 123.27 36.51
16.09.97 Purchase 1113.133 36.07
22.09.97 Purchase 110.895 36.07
29.10.97 Purchase 97.754 35.80
23.10.97 Purchase 2695.989 37.01
13.11.97 Purchase 335.238 36.53
11.09.97 Purchase 15.889 35.20
10.11.97 Purchase 1.167 35.68
03.10.97 Purchase 1.516 36.24
29.10.97 Purchase 2.037 35.80
10.10.97 Purchase 3.966 36.19
23.10.97 Purchase 2.936 37.01
13.10.97 Purchase 0.82 36.37
05.09.97 Purchase 0.007 34.29
15.10.97 Purchase 9.953 36.18
08.09.97 Purchase 0.007 35.71
14.11.97 Purchase 48.854 36.95
16.01.97 Purchase 25.227 42.13
24.12.97 Purchase 0.027 40.74
14.10.97 Purchase 219.346 36.57
14.01.98 Purchase 32.613 42.45
17.02.98 Purchase 19.922 41.13
23.02.98 Purchase 0.338 40.47
02.12.97 Purchase 2.903 40.19
28.11.97 Purchase 283.706 40.07
18.12.97 Purchase 9.342 40.43
11.02.98 Purchase 16.287 40.88
20.02.98 Purchase 40.006 40.63
23.02.98 Purchase 79.589 40.45
26.02.98 Purchase 391.223 40.32
26.02.98 Purchase 125.427 40.32
20.01.98 Purchase 106.398 41.57
11.02.98 Purchase 19.034 40.88
08.01.98 Purchase 565.978 41.82
14.01.98 Purchase 170.885 42.45
23.10.97 Purchase 10.535 37.01
28.11.97 Purchase 0.912 39.16
28.11.97 Purchase 1014.801 40.07
19.02.98 Purchase 6.252 40.57
10.02.98 Purchase 491.971 41.13
24.12.97 Purchase 13.627 40.81
11.02.98 Purchase 279.5 40.88
02.01.98 Purchase 604.368 41.63
06.02.98 Purchase 151.02 40.88
05.02.98 Purchase 277.152 40.45
20.01.98 Purchase 261.999 41.57
</TABLE>
VIII-24
<PAGE> 333
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -----
<S> <C> <C> <C>
28.11.97 Purchase 274.337 40.07
18.02.98 Purchase 160.236 40.95
20.01.98 Purchase 47.499 41.57
10.02.98 Purchase 325.921 41.13
05.12.97 Purchase 64.982 40.01
12.02.98 Purchase 79.282 41.13
27.01.98 Purchase 90.116 41.87
04.12.97 Purchase 198.869 39.76
26.02.98 Purchase 162.406 40.32
03.12.97 Purchase 112.24 40.26
03.12.97 Purchase 279.902 40.26
21.01.98 Purchase 6.582 41.70
17.02.98 Purchase 120.653 41.13
23.12.97 Purchase 21.813 41.38
27.01.98 Purchase 1.777 41.86
22.01.98 Purchase 41.908 41.76
04.12.97 Purchase 0.003 33.33
19.12.97 Purchase 0.017 40.59
24.02.98 Purchase 2319.241 40.26
23.02.98 Purchase 2274.386 40.45
16.01.98 Purchase 1996.825 42.13
15.01.98 Purchase 3.695 41.49
19.12.97 Purchase 2053.573 40.45
23.02.98 Purchase 5.17 40.44
04.02.98 Purchase 0.154 40.71
03.12.97 Purchase 3.06 40.26
28.01.98 Purchase 0.332 41.78
23.02.98 Purchase 34.583 40.44
24.02.98 Purchase 36.053 40.26
19.12.97 Purchase 36.488 40.45
16.01.98 Purchase 33.406 42.13
07.01.97 Purchase 35.998 40.20
07.11.97 Purchase 693.054 35.57
07.01.98 Purchase 2113.199 40.20
12.01.98 Purchase 5.636 41.62
05.02.98 Purchase 3.884 40.24
30.12.97 Purchase 1.522 40.99
30.12.97 Purchase 2.032 40.99
24.12.97 Purchase 5.464 40.80
13.02.98 Purchase 2.583 40.87
05.01.98 Purchase 0.73 40.93
04.12.97 Purchase 0.449 39.64
18.12.97 Purchase 0.161 40.50
17.02.98 Purchase 0.755 40.93
27.01.98 Purchase 0.016 43.13
28.01.98 Purchase 1.248 41.80
02.01.98 Purchase 0.117 41.37
22.01.98 Purchase 4.373 41.55
24.02.98 Purchase 0.88 40.24
16.01.98 Purchase 24.759 43.30
</TABLE>
VIII-25
<PAGE> 334
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -----
<S> <C> <C> <C>
16.01.98 Purchase 14.856 43.30
07.01.98 Purchase 1.773 40.19
27.01.98 Purchase 0.846 41.84
27.01.98 Purchase 0.038 41.84
24.02.98 Purchase 4.414 40.05
21.10.97 Sale 1306.053 37.55
23.09.97 Sale 330 35.60
29.10.97 Sale 2.384 33.36
21.10.97 Sale 129 37.55
10.09.97 Sale 521 35.24
09.10.97 Sale 204.173 35.24
14.11.97 Sale 34 36.68
14.11.97 Sale 130.082 36.68
27.10.97 Sale 4.474 34.93
03.10.97 Sale 974 36.24
29.10.97 Sale 278 35.80
07.11.97 Sale 4.066 35.31
10.11.97 Sale 1.167 35.68
07.11.97 Sale 575 35.30
23.09.97 Sale 196.461 35.60
09.09.97 Sale 134 35.24
05.11.97 Sale 14 35.93
05.11.97 Sale 7 35.93
09.09.97 Sale 2.283 35.24
29.10.97 Sale 2.037 35.80
23.02.98 Sale 249.211 40.18
03.10.97 Sale 1.516 36.24
27.10.97 Sale 889 34.93
18.11.97 Sale 173.686 37.05
17.11.97 Sale 2.276 37.00
09.10.97 Sale 23.239 35.55
12.09.97 Sale 70.449 35.24
22.10.97 Sale 0.684 37.37
31.10.97 Sale 29.024 35.80
03.11.97 Sale 2.792 35.80
07.11.97 Sale 201.025 35.30
09.09.97 Sale 244.899 35.24
23.09.97 Sale 0.461 35.60
12.11.97 Sale 421.049 36.37
18.09.97 Sale 60.46 35.46
04.09.97 Sale 132.929 35.18
10.09.97 Sale 1.652 35.24
23.09.97 Sale 307.729 35.60
14.10.97 Sale 174.062 36.37
10.09.97 Sale 105.177 35.24
08.09.97 Sale 14.753 35.18
15.10.97 Sale 34.338 36.18
17.10.97 Sale 0.323 36.63
15.10.97 Sale 0.234 36.20
17.10.97 Sale 50.839 36.63
</TABLE>
VIII-26
<PAGE> 335
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -----
<S> <C> <C> <C>
10.11.97 Sale 205.468 35.68
03.10.97 Sale 0.994 36.49
26.11.97 Sale 1.677 39.82
04.09.97 Sale 105.579 35.12
12.09.97 Sale 1 35.24
23.09.97 Sale 3.001 35.60
23.09.97 Sale 74 35.60
26.09.97 Sale 35.01 35.18
26.09.97 Sale 1.753 35.19
17.09.97 Sale 42 35.76
20.11.97 Sale 7.437 38.12
03.10.97 Sale 36 36.24
26.11.97 Sale 29.447 39.80
27.10.97 Sale 39 34.93
09.10.97 Sale 44 35.55
10.09.97 Sale 2.093 35.24
22.10.97 Sale 15 37.37
27.10.97 Sale 2.863 34.43
27.10.97 Sale 0.174 34.94
30.10.97 Sale 106 35.68
30.10.97 Sale 1.262 35.68
10.09.97 Sale 21 35.24
09.10.97 Sale 0.136 35.59
17.09.97 Sale 1 35.76
17.09.97 Sale 17 35.76
18.11.97 Sale 762 37.05
20.11.97 Sale 3553 38.12
03.09.97 Sale 1101.586 34.99
25.11.97 Sale 4.567 39.68
25.11.97 Sale 820 39.68
09.10.97 Sale 76.142 35.55
18.11.97 Sale 149.409 37.05
15.09.97 Sale 1335 35.68
27.10.97 Sale 23.602 34.43
04.09.97 Sale 198.787 35.12
29.10.97 Sale 56.37 35.80
09.10.97 Sale 596 35.55
08.09.97 Sale 10.165 35.38
16.09.97 Sale 7.089 36.07
25.09.97 Sale 13.541 35.30
05.11.97 Sale 13.696 35.93
30.10.97 Sale 37.027 35.68
03.10.97 Sale 11.087 36.51
13.11.97 Sale 34.827 36.53
04.09.97 Sale 132.626 35.18
22.10.97 Sale 62.243 37.37
15.09.97 Sale 6.296 35.68
28.11.97 Sale 3181 39.87
08.01.97 Sale 0.13 41.85
12.09.97 Sale 197 35.24
</TABLE>
VIII-27
<PAGE> 336
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -----
<S> <C> <C> <C>
18.12.97 Sale 1580.342 40.43
28.01.98 Sale 803.248 41.80
02.01.98 Sale 83.117 41.37
15.01.98 Sale 1398.695 41.49
22.01.98 Sale 2272.373 41.55
05.01.98 Sale 0.73 40.93
20.02.98 Sale 9.554 40.63
28.11.97 Sale 58.912 39.87
29.01.98 Sale 1097.012 41.62
04.12.97 Sale 25.449 39.62
04.12.97 Sale 346 39.62
24.02.98 Sale 2167.414 40.05
13.02.98 Sale 553.583 40.87
12.01.98 Sale 1325.636 41.62
30.12.97 Sale 849.032 40.99
05.02.98 Sale 599.884 40.24
30.12.97 Sale 458.522 40.99
17.11.97 Sale 3.033 36.06
04.02.98 Sale 7.09 40.62
24.12.97 Sale 1739.464 40.80
16.01.98 Sale 141.276 41.93
05.01.98 Sale 96.114 40.93
02.02.98 Sale 3.677 41.12
05.02.98 Sale 15.5 40.24
09.02.98 Sale 3.252 40.43
10.02.98 Sale 5.297 40.87
17.11.97 Sale 1063.997 37.97
17.02.98 Sale 183.355 40.93
20.02.98 Sale 7.605 40.43
08.01.98 Sale 48.462 41.82
05.12.97 Sale 640.664 39.80
08.12.97 Sale 36.732 40.12
02.12.97 Sale 4.163 39.99
25.02.98 Sale 93.919 40.94
26.02.98 Sale 100.686 40.12
20.02.98 Sale 12.143 40.43
16.01.98 Sale 0.001 40.00
28.01.98 Sale 2.836 41.81
23.12.97 Sale 13.322 41.19
19.12.97 Sale 22.922 40.24
13.02.98 Sale 71.501 40.87
24.02.98 Sale 0.02 40.00
11.12.97 Sale 179.784 39.37
07.10.97 Sale 510.493 36.30
30.12.97 Sale 33.904 40.99
17.02.98 Sale 5.755 40.93
15.01.98 Sale 0.444 41.49
27.01.98 Sale 41.758 41.87
27.01.98 Sale 2.713 41.87
15.01.98 Sale 59 41.49
</TABLE>
VIII-28
<PAGE> 337
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -----
<S> <C> <C> <C>
22.01.98 Sale 225 41.55
23.01.98 Sale 8.711 41.24
27.01.98 Sale 25.355 41.87
07.01.98 Sale 1.307 39.99
30.12.97 Sale 0.115 40.87
11.09.97 Sale 127.72 35.05
14.10.97 Sale 98.9 36.30
26.11.97 Sale 93.698 39.80
23.10.97 Sale 18.863 36.80
08.09.97 Sale 58.77 35.18
04.11.97 Sale 161.047 35.81
29.09.97 Sale 122.16 35.74
26.09.97 Sale 1.631 35.17
20.11.97 Sale 0.249 38.11
02.09.97 Sale 1.083 35.23
11.02.98 Sale 11.539 40.88
14.01.98 Sale 26.917 42.45
27.01.98 Sale 73.825 41.87
05.02.98 Sale 0.345 40.46
27.01.98 Sale 10.21 41.87
09.01.98 Sale 30.573 41.18
24.12.97 Sale 3.056 40.80
14.01.98 Sale 27.057 42.45
15.12.97 Sale 52.006 40.05
15.12.97 Sale 23.199 40.05
29.01.98 Sale 13 41.62
05.01.98 Sale 0.357 40.92
29.12.97 Sale 29.14 40.55
04.12.97 Sale 63.159 39.55
18.12.97 Sale 0.282 40.39
18.12.97 Sale 2.195 40.43
24.12.97 Sale 78 40.80
04.12.97 Sale 57 39.62
18.12.97 Sale 92 40.43
18.12.97 Sale 17.109 40.43
04.12.97 Sale 98 39.62
24.12.97 Sale 2.027 40.80
29.12.97 Sale 1.497 40.56
15.12.97 Sale 0.45 40.07
</TABLE>
VIII-29
<PAGE> 338
(G) The dealings for value in relevant Texas Utilities securities which are
required to be disclosed by Lehman Brothers and its affiliates for the
disclosure period are set out below. All dealings are shown from 2 February
1998, such day being the date on which Lehman Brothers Merchant Banking
Group were publicly identified as a possible acquiror of the Peabody Coal
Business and Lehman Brothers was deemed to be acting in concert with Texas
Utilities thereby losing its exempt market maker status;
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
TEXAS UTILITIES PRICE
DATE NATURE OF TRANSACTION COMMON STOCK ($)
- -------- --------------------- ------------------- -------
<S> <C> <C> <C>
02/02/98 Buy 4,500 41.25
02/02/98 Buy 4,600 41.125
02/05/98 Buy 100 40.4375
02/13/98 Buy 1,100 41.0214
02/17/98 Sell 11,800 40.6875
02/23/98 Buy 1000 40.5625
02/27/98 Sell 3,200 40.25
02/03/98 Sell 1,600 40.125
</TABLE>
(H) Dealings for value in relevant Texas Utilities securities by Merrill Lynch
and its affiliates deemed to be acting in concert with Texas Utilities
during the disclosure period were as follows:
Party: Merrill Lynch, Pierce, Fenner & Smith Inc.
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -------
<S> <C> <C> <C>
3/2/98 Purchase 400 40.375
3/2/98 Sale 4 40.1875
3/2/98 Sale 2,000 40.4688
3/2/98 Sale 469 40.1875
2/27/98 Purchase 500 40.1875
2/27/98 Sale 2,700 40.2106
2/26/98 Purchase 936 40.25
2/26/98 Purchase 2,400 40.2813
2/26/98 Sale 10 40.9375
2/25/98 Purchase 700 40.9375
2/24/98 Purchase 468 40.25
2/24/98 Purchase 3,100 40.0625
2/24/98 Purchase 1,200 40.3125
2/24/98 Sale 18 40.5
2/24/98 Sale 2,800 40.1674
2/24/98 Sale 400 40.0625
2/23/98 Purchase 3,000 40.4375
2/23/98 Sale 4 40.5
2/23/98 Sale 900 40.1736
2/20/98 Purchase 468 40.625
2/20/98 Purchase 3,113 40.338
2/20/98 Sale 32 40.6875
2/20/98 Sale 1,013 40.5625
2/20/98 Sale 500 40.5625
2/20/98 Sale 1,600 40.5625
2/20/98 Sale 800 40.5
2/20/98 Sale 700 40.625
2/19/98 Purchase 9 40.9375
2/19/98 Purchase 2,300 40.5625
</TABLE>
VIII-30
<PAGE> 339
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -------
<S> <C> <C> <C>
2/19/98 Sale 500 40.75
2/18/98 Purchase 2,340 40.925
2/18/98 Sale 1 41
2/17/98 Purchase 700 41.0625
2/17/98 Sale 6 41.25
2/17/98 Sale 1,600 40.9961
2/13/98 Sale 3 40.875
2/13/98 Sale 500 41.0625
2/12/98 Purchase 468 40.9375
2/12/98 Purchase 468 41.0625
2/12/98 Purchase 468 41.0625
2/11/98 Purchase 468 40.8125
2/11/98 Sale 400 40.7344
2/10/98 Purchase 6,200 40.9375
2/10/98 Sale 700 40.875
2/9/98 Sale 2 40.8125
2/9/98 Sale 2,300 40.5761
2/6/98 Purchase 1,112 40.8662
2/6/98 Sale 1,700 40.7243
2/5/98 Purchase 1,317 40.4375
2/5/98 Sale 4,200 40.3571
2/5/98 Sale 2,000 40.625
2/4/98 Purchase 2,100 40.625
2/4/98 Sale 2,700 40.5787
2/3/98 Purchase 2,100 40.875
2/2/98 Purchase 1,100 41.1534
2/2/98 Sale 5 41.1875
1/30/98 Purchase 600 41.1875
1/30/98 Sale 4,900 41.4783
1/29/98 Purchase 4 41.6875
1/29/98 Purchase 6,400 41.625
1/29/98 Sale 3,500 41.6857
1/28/98 Purchase 700 41.75
1/28/98 Sale 2,300 41.9123
1/28/98 Sale 1,100 41.75
1/27/98 Purchase 1,000 41.7188
1/27/98 Sale 1 41.625
1/27/98 Sale 500 41.6875
1/26/98 Purchase 600 41.5
1/26/98 Sale 7 41.625
1/26/98 Sale 2,400 41.3281
1/23/98 Purchase 1,800 41.2917
1/23/98 Sale 2,553 41.7401
1/23/98 Sale 1,800 41.2917
1/22/98 Purchase 600 41.375
1/22/98 Purchase 8,000 41.5009
1/22/98 Sale 1,200 41.3438
1/21/98 Sale 600 41.25
1/21/98 Sale 500 41.25
1/20/98 Sale 4 41.9375
</TABLE>
VIII-31
<PAGE> 340
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -------
<S> <C> <C> <C>
1/15/98 Sale 1 42
1/15/98 Sale 2,800 41.9375
1/14/98 Purchase 2,100 42.4167
1/14/98 Sale 700 41.9375
1/13/98 Purchase 1,300 41.875
1/13/98 Sale 6 42
1/13/99 Sale 1,400 41.75
1/12/98 Purchase 1,300 41.9375
1/12/98 Purchase 2,100 41.7708
1/12/98 Purchase 2,200 41.517
1/12/98 Sale 700 41.625
1/9/98 Purchase 1,200 41.5938
1/9/98 Sale 1 41.75
1/8/98 Purchase 1,200 41.5625
1/8/98 Sale 600 40.8125
1/7/98 Purchase 5,400 40.2986
1/6/98 Purchase 3,600 40.9063
1/6/98 Sale 25 40.875
1/6/98 Sale 600 40.875
1/5/98 Purchase 6,614 41.75
1/5/98 Purchase 16 41.75
1/5/98 Purchase 1,800 41.6042
1/5/98 Sale 3,100 41.2258
12/31/97 Sale 800 41.1875
12/30/97 Sale 11 41.0625
12/29/97 Sale 1 40.9375
12/23/97 Purchase 700 41.5625
12/22/97 Purchase 2,000 41.0819
12/22/97 Sale 12 40.5
12/22/97 Sale 600 41.0625
12/22/97 Sale 1,700 40.7978
12/19/97 Purchase 600 40.25
12/19/97 Purchase 600 40.375
12/19/97 Purchase 1,500 40.25
12/19/97 Purchase 1,700 40.25
12/18/97 Purchase 1 40.625
12/18/97 Purchase 1,800 40.5208
12/18/97 Sale 1,200 40.375
12/17/97 Purchase 600 40.125
12/17/97 Sale 24 40.125
12/17/97 Sale 600 40.5625
12/17/97 Sale 1,200 40.5313
12/16/97 Purchase 600 40.25
12/16/97 Sale 600 40
12/15/97 Sale 5 39.75
12/12/97 Sale 3,200 39.4963
12/11/97 Sale 700 39.5
12/9/97 Sale 1 40.0625
12/8/97 Sale 2 40
12/8/97 Sale 700 40.0625
</TABLE>
VIII-32
<PAGE> 341
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -------
<S> <C> <C> <C>
12/5/97 Purchase 3,100 39.975
12/5/97 Sale 1 39.25
12/4/97 Purchase 6,400 40
12/4/97 Sale 1,400 39.5313
12/3/97 Purchase 2,900 40.2241
12/3/97 Sale 1,200 39.9688
12/2/97 Purchase 1,400 40.3214
12/2/97 Sale 30 40.625
12/2/97 Sale 600 40.625
12/1/97 Purchase 1,000 40.3875
12/1/97 Sale 1 40.25
11/25/97 Purchase 2,300 39.1304
11/24/97 Purchase 600 39.0625
11/21/97 Purchase 700 38.25
11/21/97 Sale 400 39.625
11/20/97 Purchase 16 37.4375
11/20/97 Purchase 700 37.4375
11/20/97 Purchase 3,200 37.9031
11/19/97 Sale 1 37.0625
11/18/97 Purchase 1 37.25
11/18/97 Sale 1 37.25
11/13/97 Purchase 3 36.25
11/13/97 Purchase 300 36.625
11/13/97 Sale 1 36.25
11/12/97 Purchase 600 36.5625
11/12/97 Purchase 300 36.75
11/10/97 Purchase 1,200 35.875
11/10/97 Sale 1 35.9375
11/7/97 Purchase 436 35.4375
11/7/97 Purchase 900 35.75
11/6/97 Sale 3,300 35.625
11/5/97 Purchase 400 36.3125
11/5/97 Purchase 3,300 35.875
11/5/97 Sale 1 35.875
11/5/97 Sale 1,483 36.0625
11/4/97 Purchase 1,000 35.8438
11/4/97 Sale 1,400 35.8125
11/3/97 Sale 3 36.25
10/31/97 Purchase 15,000 35.75
10/31/97 Sale 2 35.8125
10/31/97 Sale 9,300 36
10/31/97 Sale 3,500 36
10/31/97 Sale 2,200 36
10/28/97 Purchase 15 34.5
10/28/97 Sale 600 35.25
10/28/97 Sale 3,400 35.8125
10/27/97 Sale 3 36.75
10/24/97 Purchase 25 37.0625
10/24/97 Sale 12 37.0625
10/24/97 Sale 1,300 36.774
</TABLE>
VIII-33
<PAGE> 342
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -------
<S> <C> <C> <C>
10/22/97 Purchase 600 37.4375
10/22/97 Sale 3,800 37.4638
10/21/97 Sale 600 37.3125
10/20/97 Purchase 1 36.75
10/20/97 Sale 3 36.75
10/20/97 Sale 700 36.6875
10/17/97 Purchase 6,583 36.6875
10/17/97 Sale 2 36.75
10/16/97 Sale 39 36.375
10/16/97 Sale 3,300 36.5682
10/15/97 Purchase 6 36.5
10/14/97 Sale 700 36.375
10/10/97 Sale 1,400 35.7902
10/9/97 Sale 700 35.5625
10/8/97 Sale 1 36.375
10/8/97 Sale 700 36.0625
10/7/97 Sale 700 36.5625
10/6/97 Sale 1 36.5625
10/3/97 Sale 1 36.75
10/3/97 Sale 4,900 36.5446
10/2/97 Purchase 7,290 36.3125
10/2/97 Purchase 18 36.3125
9/30/97 Purchase 6,900 35.8956
9/30/97 Sale 1 35.875
9/30/97 Sale 1,306 35.721
9/30/97 Sale 700 36.125
9/29/97 Sale 2 35.5
9/25/97 Sale 1 35.5
9/25/97 Sale 4,400 35,4148
9/24/97 Sale 3,800 35.5461
9/23/97 Sale 2,800 35.7344
9/23/97 Sale 800 35.8438
9/22/97 Purchase 6,506 35.9375
9/22/97 Purchase 400 35.9375
9/22/97 Sale 2 35.625
9/19/97 Sale 3,200 35.625
9/18/97 Purchase 1 35.5625
9/18/97 Sale 2,400 35.8333
9/16/97 Purchase 10,800 35.965
9/16/97 Purchase 9,900 36.125
9/15/97 Sale 2 35.4375
9/15/97 Sale 3,800 35.7418
9/12/97 Sale 17 35.25
9/12/97 Sale 3,000 35.1625
9/10/97 Sale 1,220 33.25
9/9/97 Purchase 3,300 35.25
9/9/97 Purchase 6,220 35.25
9/9/97 Sale 800 35.25
9/8/97 Sale 1 35.3125
9/8/97 Sale 310 35.3125
</TABLE>
VIII-34
<PAGE> 343
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -------
<S> <C> <C> <C>
9/5/97 Sale 37 35.3125
9/5/97 Sale 1,800 35.1563
9/3/97 Sale 2,600 34.9135
9/2/97 Sale 2 34.875
9/2/97 Sale 2 34.875
8/29/97 Sale 2,100 34.9375
8/28/97 Purchase 3 35.0625
8/28/97 Sale 1,500 35.1
8/26/97 Sale 1,685 34,9672
8/26/97 Sale 500 34.75
8/25/97 Sale 3 35.0625
8/25/97 Sale 2,800 35.0469
8/22/97 Purchase 3 34.5625
8/22/97 Sale 7 34.5625
8/22/97 Sale 700 34.1875
8/21/97 Purchase 14 35.1875
8/21/97 Sale 9 35.1875
8/21/97 Sale 2,100 35.25
8/21/97 Sale 1,700 35.1801
8/19/97 Purchase 5,500 35.1875
8/19/97 Purchase 19,500 35.125
8/19/97 Purchase 25,000 35
8/19/97 Sale 2,100 35.0417
8/19/97 Sale 700 35
8/18/97 Purchase 1 34.6875
8/18/97 Purchase 1,100 30
8/18/97 Sale 3 34.6875
8/18/97 Sale 50,000 35.0625
8/18/97 Sale 2,800 34.7813
8/18/97 Sale 1,100 34.8125
8/14/97 Sale 2,100 35
8/13/97 Sale 5,720 34.7638
8/12/97 Purchase 3,300 34.75
8/12/97 Sale 1,000 35
8/12/97 Sale 700 35.0625
8/11/97 Purchase 3 34
8/11/97 Sale 4 34
8/8/97 Purchase 2 34.375
8/7/97 Purchase 4,000 34.6875
8/7/97 Sale 1 34.9375
8/7/97 Sale 4,000 34.6875
8/5/97 Purchase 11 4.625
8/5/97 Purchase 18 4.625
8/5/97 Purchase 11 4.625
8/5/97 Sale 1,100 30
8/4/97 Sale 9 34.625
8/4/97 Sale 19 34.625
8/1/97 Purchase 3 35.3125
8/1/97 Purchase 600 35.0625
8/1/97 Sale 600 35.0625
</TABLE>
VIII-35
<PAGE> 344
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -------
<S> <C> <C> <C>
7/31/97 Purchase 1,900 35.102
7/31/97 Sale 700 35
7/30/97 Purchase 700 34.6875
7/30/97 Sale 40 4.625
7/3/97 Sale 24 35.5
7/29/97 Sale 700 34.4375
7/28/97 Purchase 3,120 33.9375
7/28/97 Purchase 3,100 33.9375
7/28/97 Sale 38 33.9375
7/23/97 Sale 4 34.3125
7/23/97 Sale 700 33.875
7/21/97 Sale 2 34.0625
7/21/97 Sale 600 33.875
7/18/97 Purchase 1 34.375
7/18/97 Sale 2 34.375
7/17/97 Sale 1 35
7/16/97 Sale 1 34.9375
7/15/97 Sale 1,100 34.975
7/14/97 Sale 2 35.125
7/14/97 Sale 1,100 34.938
7/11/97 Sale 1,200 34.875
7/10/97 Sale 1,800 34.906
7/9/97 Sale 1,800 35.5
7/8/97 Sale 1 34.875
7/8/97 Sale 900 35.063
7/7/97 Sale 1,800 33.156
7/2/97 Purchase 6,689 34.75
7/2/97 Purchase 21 34.75
6/30/97 Purchase 2,300 34.438
6/30/97 Sale 1 34.125
6/30/97 Sale 5,200 34.438
6/27/97 Sale 500 34.125
6/26/97 Purchase 600 34.25
6/26/97 Sale 5,300 34.25
6/26/97 Sale 2,000 34.141
6/25/97 Purchase 5,300 33.875
6/25/97 Sale 1 34
6/24/97 Purchase 2,200 33.8125
6/24/97 Sale 128 33.75
6/23/97 Purchase 52 1.5625
6/23/97 Purchase 800 34
6/23/97 Sale 4 34.125
6/20/97 Purchase 2,900 34.625
6/20/97 Purchase 600 34.375
6/20/97 Sale 21 34.625
6/20/97 Sale 1,700 34.625
6/19/97 Purchase 2 34.25
6/19/97 Sale 1 34.25
6/18/97 Purchase 1 33.875
6/18/97 Sale 1 33.875
</TABLE>
VIII-36
<PAGE> 345
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -------
<S> <C> <C> <C>
6/18/97 Sale 4,900 33.875
6/17/97 Purchase 600 33.625
6/17/97 Sale 500 33.375
6/16/97 Sale 3 33.875
6/16/97 Sale 100 33.625
6/13/97 Purchase 700 33.875
6/12/97 Purchase 20 1.9375
6/12/97 Purchase 1,000 33.75
6/12/97 Purchase 600 33.75
6/11/97 Purchase 10 2.625
6/11/97 Purchase 10 2.625
6/11/97 Sale 1 32.75
6/10/97 Purchase 600 32.875
6/10/97 Sale 500 32.5
6/9/97 Purchase 100 32.625
6/9/97 Sale 1 32.75
6/5/97 Purchase 304,720 33.25
6/5/97 Purchase 76,190 33.125
6/5/97 Sale 1 32.875
6/5/97 Sale 1,000 32.75
6/4/97 Sale 36 33.125
6/4/97 Sale 380,900 33.75
6/4/97 Sale 500 33
6/2/97 Sale 3 34.25
6/2/97 Sale 540 34
5/30/97 Sale 3,100 33.847
5/29/97 Sale 1,080 33.625
5/27/97 Sale 50 33.75
5/23/97 Sale 1 33.875
5/22/97 Purchase 1,200 33.75
5/21/97 Sale 1,620 33.333
5/20/97 Purchase 2,000 34.375
5/20/97 Purchase 1,500 33.875
5/20/97 Sale 15 33.625
5/20/97 Sale 1,080 33.813
5/19/97 Purchase 1 35.625
5/19/97 Purchase 1,758 34.375
5/19/97 Sale 2 35.625
5/15/97 Sale 900 35.875
5/14/97 Purchase 3,300 36
5/12/97 Sale 4 36.25
5/9/97 Sale 1 36.125
5/8/97 Sale 16 36
5/7/97 Sale 1 36.625
5/7/97 Sale 3,300 36.75
5/6/97 Purchase 60,000 36.5
5/6/97 Purchase 10,000 36.5
5/6/97 Sale 1 37
5/6/97 Sale 60,000 36.25
5/6/97 Sale 10,000 36.625
</TABLE>
VIII-37
<PAGE> 346
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -------
<S> <C> <C> <C>
5/5/97 Sale 2 34.625
5/2/97 Purchase 6,700 34.125
5/2/97 Purchase 10,000 34.625
5/2/97 Purchase 7,200 34.5
5/2/97 Sale 1 34
5/1/97 Purchase 1,900 33.625
5/1/97 Purchase 300 33.625
5/1/97 Purchase 200 33.625
5/1/97 Purchase 200 33.625
5/1/97 Purchase 700 33.625
5/1/97 Sale 1 33.75
4/30/97 Sale 20,000 33.625
4/29/97 Sale 3,700 33.125
4/28/97 Sale 2 31.875
4/25/97 Sale 2 31.75
4/24/97 Sale 300 31.75
4/22/97 Sale 1 32.25
4/21/97 Sale 4 32.625
4/18/97 Purchase 2 32.375
4/18/97 Purchase 1,100 32.375
4/18/97 Sale 5,900 32.375
4/18/97 Sale 600 32.375
4/17/97 Purchase 2,600 32.688
4/17197 Purchase 5,900 32.375
4/16/97 Sale 1 32.75
4/15/97 Purchase 4 33.5
4/14/97 Sale 3 33.375
4/11/97 Purchase 55,000 33.625
4/11/97 Sale 85 33.625
4/11/97 Sale 55,000 33.625
4/11/97 Sale 1,200 33.5
4/10/97 Sale 2 33.625
4/9/97 Sale 2 33.5
4/8/97 Sale 20 33.875
4/7/97 Sale 1 34.25
4/4/97 Sale 2 34
4/3/97 Purchase 27 33.625
4/3/97 Sale 1 33.625
4/2/97 Purchase 7,297 34
4/2/97 Purchase 21 34
4/2/97 Purchase 30,000 33.625
4/2/97 Sale 10,000 33.75
4/2/97 Sale 20,000 33.625
4/1/97 Sale 48 34.125
4/1/97 Sale 1,000 34.25
3/31/97 Sale 1 34
3/26/97 Purchase 400 35.25
3/26/97 Purchase 1,500 35.125
3/26/97 Sale 1 35.5
3/26/97 Sale 1,300 35.5
</TABLE>
VIII-38
<PAGE> 347
<TABLE>
<CAPTION>
NUMBER OF SHARES IN
NATURE OF TEXAS UTILITIES PRICE
DATE TRANSACTION COMMON STOCK ($)
---- ----------- ------------------- -------
<S> <C> <C> <C>
3/25/97 Purchase 100 35
3/25/97 Sale 1 35
3/24/97 Purchase 100 34.875
3/24/97 Purchase 100 34.875
3/24/97 Purchase 100 35
3/24/97 Purchase 400 34.75
3/24/97 Purchase 3,300 34.75
3/24/97 Sale 3 34.5
3/21/97 Purchase 400 35
3/21/97 Purchase 100 35
3/21/97 Sale 5,800 35
3/20/97 Sale 1 35.5
3/19/97 Purchase 13 36
3/18/97 Purchase 1 36.875
3/18/97 Sale 2 36.875
3/17/97 Purchase 5,000 45
3/17/97 Purchase 300 36.375
3/17/97 Sale 21 36.375
3/14/97 Purchase 2,600 36.269
3/14/97 Purchase 400 36.375
3/14/97 Sale 1 36.75
3/14/97 Sale 92 1.25
3/14/97 Sale 50 8.75
3/14/97 Sale 4,000 36.25
3/14/97 Sale 5,000 36.25
3/13/97 Purchase 100 37
3/13/97 Sale 1 37
3/12/97 Purchase 800 36.75
3/12/97 Sale 3 37.75
3/11/97 Purchase 1,300 38.5
3/11/97 Sale 3 38.625
3/10/97 Sale 2 38.75
3/7/97 Sale 10,000 39.25
3/7/97 Sale 40,000 39.375
3/6/97 Purchase 377,600 40.25
3/6/97 Purchase 94,400 40.125
3/6/97 Purchase 71,300 39.125
3/6/97 Purchase 77,700 39
3/6/97 Sale 1 40
3/6/97 Sale 66,900 39.125
3/6/97 Sale 4,400 39.25
3/6/97 Sale 10,500 39
3/6/97 Sale 17,200 38.75
3/5/97 Sale 472,000 40.75
3/4/97 Sale 925,000 40.5
3/4/97 Sale 100 40.375
</TABLE>
VIII-39
<PAGE> 348
(I) During the disclosure period, those members of Worsham, Forythe &
Wooldridge, L.L.P. who had an intimate knowledge of the Acquisition have
carried out the following dealings for value in shares of Texas Utilities
Common Stock:
<TABLE>
<CAPTION>
NO. OF SHARES IN
TEXAS UTILITIES PRICE
NAME DATE NATURE OF TRANSACTION COMMON STOCK ($)
---- ---- --------------------- ---------------- -------
<S> <C> <C> <C> <C>
Timothy A. Mack............... 01.04.97 Dividend reinvestment 8.924 34.922
01.07.97 Dividend reinvestment 9.236 34.253
01.10.98 Dividend reinvestment 8.996 35.703
01.02.98 Dividend reinvestment 8.284 41.216
Robert A. Wooldridge.......... 21.03.97 Purchase 1,000 34.750
01/04/97 Dividend reinvestment 25.627 34.922
01/07/97 Dividend reinvestment 26,522 34.253
01/10/97 Dividend reinvestment 25.834 35.703
02.01.98 Dividend reinvestment 23.787 41.216
</TABLE>
(B) SHAREHOLDINGS AND DEALINGS IN RELEVANT ENERGY GROUP SECURITIES
(i) Holdings
(A) As at the close of business on 6 March 1988 (the latest practicable date
prior to the publication of this document), TU Acquisitions was interested
in 77,500,000 Energy Group Shares;
(B) As at the close of business on 6 March 1988 (the latest practicable date
prior to the publication of this document), Erle Nye, Chairman and Chief
Executive of Texas Utilities, held 25 Energy Group ADRs;
(C) As at the close of business on 5 March 1998 (the latest practicable date
prior to the publication of this document), Lehman Brothers was interested
in 489,777 Energy Group Shares. The figure provided in the rule 2.5
announcement was incorrectly referred to as being constituents of various
baskets of securities. These Energy Group Securities are held as part of
Lehman Brothers' normal trading activity to hedge various customer-driven
index related derivative contracts. No dealings for value are required to
be disclosed by Lehman Brothers and its affiliates for the disclosure
period;
(D) As at the close of business on 4 March 1998 (being the latest practicable
date prior to publication of this document), Merrill Lynch and its
affiliates held relevant Energy Group securities as follows:
<TABLE>
<CAPTION>
NUMBER OF ENERGY NUMBER OF ENERGY
NAME GROUP SHARES GROUP ADSS
---- ---------------- ----------------
<S> <C> <C>
Merrill Lynch International Nominees 7,957,724 --
Merrill Lynch Asset Management L.P. -- 427,286
Hotchkis & Wiley L.P. 929,397 --
</TABLE>
(E) As at the close of business on 3 March 1988 (the latest practicable date
prior to the publication of this document), the Retirement Plan of the
Texas Utilities Company System held 24,375 Energy Group ADRs;
(ii) Dealings
(A) During the disclosure period TU Acquisitions carried out the following
dealings for value in Energy Group Shares:
<TABLE>
<CAPTION>
NUMBER OF
NATURE OF ENERGY GROUP PRICE
DATE TRANSACTION SHARES (P)
---- ----------- ------------ -----
<S> <C> <C> <C>
03.03.98 Purchase 74,162,362 840
04.03.98 Purchase 3,337,638 840
</TABLE>
(B) During the disclosure period, the only dealing for value by Erle Nye,
Chairman and Chief Executive of Texas Utilities, in relevant Energy Group
securities was the acquisition of 25 Energy Group ADRs pursuant to the
Demerger;
VIII-40
<PAGE> 349
(C) During the disclosure period, the only dealing for value by the Retirement
Plan for Employees of the Texas Utilities Company System in relevant Energy
Group securities was the acquisition of 24,375 Energy Group ADRs pursuant
to the Demerger;
(D) Dealings for value in relevant Energy Group securities by Merrill Lynch and
its affiliates deemed to be acting in concert with Texas Utilities during
the disclosure period were as follows:
Party: Merrill Lynch, Pierce, Fenner & Smith Inc.
<TABLE>
<CAPTION>
NUMBER OF ENERGY PRICE
DATE NATURE OF TRANSACTION GROUP SHARES ($)
---- --------------------- ---------------- ------
<S> <C> <C> <C>
2/19/98 Sale 856 12.72
2/18/98 Sale 511 12.65
2/11/98 Purchase 4,707 12.625
2/11/98 Sale 50 12.26
2/9/98 Sale 4,707 12.588
2/9/98 Purchase 856 12.625
2/6/98 Purchase 300 12.50
2/6/98 Purchase 211 12.625
2/6/98 Sale 10,130 11.32
2/6/98 Purchase 4,707 12.625
2/5/98 Sale 856 12.72
2/4/98 Purchase 856 12.625
2/4/98 Sale 511 12.65
2/3/98 Purchase 300 12.50
2/3/98 Purchase 211 12.625
1/12/98 Purchase 1,420 11.00
1/12/98 Sale 392 10.85
1/28/98 Purchase 10,130 11.25
1/28/98 Sale 2,841 11.12
1/28/98 Sale 50 12.26
1/27/98 Purchase 50 11.125
1/26/98 Sale 392 10.85
1/23/98 Purchase 10,130 11.25
1/23/98 Sale 10,130 11.32
1/22/98 Purchase 50 11.125
1/22/98 Sale 1,420 11.09
1/21/98 Sale 405 11.03
1/20/98 Purchase 2,841 11.00
1/15/98 Sale 126 11.13
1/14/98 Purchase 392 10.75
1/14/98 Purchase 2,841 11.00
1/14/98 Sale 266 11.250
1/14/98 Sale 2,841 11.120
1/13/98 Sale 520 11.260
1/9/98 Purchase 188 11.000
1/9/98 Purchase 392 10.750
1/8/98 Sale 1,420 11.090
1/8/98 Purchase 217 11.000
1/7/98 Purchase 1,420 11.000
1/7/98 Sale 405 11.030
12/31/97 Sale 126 11.130
12/30/97 Purchase 100 11.125
12/30/97 Sale 266 11.250
</TABLE>
VIII-41
<PAGE> 350
<TABLE>
<CAPTION>
NUMBER OF ENERGY PRICE
DATE NATURE OF TRANSACTION GROUP SHARES ($)
---- --------------------- ---------------- ------
<S> <C> <C> <C>
12/29/97 Purchase 266 11.250
12/29/97 Sale 520 11.260
12/24/97 Purchase 26 11.125
12/24/97 Purchase 520 11.125
12/12/97 Sale 400 10.630
12/11/97 Purchase 400 10.500
12/8/97 Sale 1,950 10.575
12/5/97 Sale 300 10.650
12/4/97 Purchase 1,950 10.500
12/3/97 Purchase 300 10.500
12/2/97 Sale 380 10.620
12/1/97 Purchase 380 10.500
11/21/97 Sale 2,000 10.640
10/28/97 Sale 219 10.100
10/27/97 Purchase 219 10.250
10/15/97 Sale 1,000 10.440
10/3/97 Sale 9,951 10.426
10/2/97 Purchase 9,951 10.250
9/30/97 Sale 101 10.610
9/29/97 Purchase 1 10.375
9/29/97 Purchase 100 10.375
9/25/97 Purchase 901 10.460
9/24/97 Sale 901 10.330
9/18/97 Sale 901 10.260
9/17/97 Purchase 901 10.188
9/10/97 Purchase 25 10.130
9/9/97 Purchase 100 9.750
9/9/97 Sale 125 10.250
9/5/97 Sale 125 10.020
9/3/97 Purchase 125 9.875
8/26/97 Purchase 125 10.070
8/21/97 Sale 125 10.875
8/15/97 Sale 150 9.990
8/5/97 Purchase 150 9.875
7/30/97 Sale 638 10.630
7/25/97 Purchase 638 10.625
7/21/97 Sale 50 10.870
7/10/97 Purchase 50 10.625
7/10/97 Sale 500 10.770
7/8/97 Purchase 500 10.625
7/4/97 Sale 66 10.780
6/26/97 Sale 200 10.660
6/25/97 Purchase 200 10.500
6/18/97 Sale 269 10.430
6/17/97 Purchase 269 10.375
6/10/97 Sale 366 9.220
6/9/97 Purchase 366 9.000
5/29/97 Sale 30 8.990
5/28/97 Purchase 30 9.000
5/21/97 Sale 666 9.030
5/20/97 Purchase 666 8.750
</TABLE>
VIII-42
<PAGE> 351
<TABLE>
<CAPTION>
NUMBER OF ENERGY PRICE
DATE NATURE OF TRANSACTION GROUP SHARES ($)
---- --------------------- ---------------- ------
<S> <C> <C> <C>
5/20/97 Sale 7,000 8.720
5/19/97 Purchase 7,000 8.625
5/16/97 Sale 492 8.760
5/15/97 Purchase 492 8.625
5/15/97 Sale 1,681 8.690
5/14/97 Purchase 100 8.625
5/14/97 Purchase 1,581 8.500
5/13/97 Sale 1,443 8.460
5/12/97 Purchase 1,443 8.375
5/12/97 Sale 3,333 8.469
5/9/97 Purchase 3,333 8.375
5/8/97 Sale 20 8.300
5/2/97 Sale 2,700 7.845
5/1/97 Purchase 2,700 7.750
4/30/97 Purchase 31 7.950
4/25/97 Sale 172 7.990
4/24/97 Sale 5 8.000
4/23/97 Sale 31 8.050
4/22/97 Sale 350 8.080
4/21/97 Purchase 350 8.000
4/16/97 Sale 125 8.160
4/14/97 Purchase 125 8.000
4/11/97 Sale 70 8.000
4/8/97 Sale 405 8.070
4/7/97 Purchase 475 8.050
4/4/97 Sale 250 8.180
4/3/97 Purchase 250 8.000
4/3/97 Purchase 125 8.220
4/2/97 Purchase 336 8.340
4/2/97 Sale 125 8.250
4/1/97 Sale 226 8.090
3/31/97 Purchase 101 8.250
3/31/97 Purchase 125 8.250
3/26/97 Sale 456 7.810
3/24/97 Purchase 120 7.375
3/24/97 Sale 168 7.540
3/21/97 Purchase 122 7.375
3/5/97 Purchase 2 8.250
3/5/97 Sale 270 8.370
3/4/97 Purchase 270 8.500
3/4/97 Sale 502 8.560
3/3/97 Purchase 502 8.375
</TABLE>
VIII-43
<PAGE> 352
Party: Merrill Lynch, Pierce, Fenner & Smith Inc.
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
02/20/98 Purchase 30 50.5
02/20/98 Purchase 625 50 3/4
02/20/98 Sale 30 50 1/2
02/20/98 Sale 600 50 3/4
02/20/98 Sale 25 50 3/4
02/20/98 Sale 43 50 5/8
02/20/98 Sale 1 50 1/2
2/20/98 Purchase 43 50.375
2/20/98 Sale 300 50.3125
2/19/98 Sale 125 50.625
2/19/98 Sale 75 50.6875
2/18/98 Sale 300 50.625
2/18/98 Sale 1,034 50.625
2/18/98 Sale 75 50.625
2/18/98 Sale 12,191 50.5
2/18/98 Sale 11,500 50.625
2/18/98 Sale 21,500 50.625
2/18/98 Sale 1 50.75
2/17/98 Purchase 1,600 50.625
2/17/98 Sale 30 50.5
2/17/98 Sale 600 50.75
2/17/98 Sale 25 50.75
2/17/98 Sale 1 50.5
2/13/98 Purchase 13 49.75
2/13/98 Sale 13 49 3/4
02/12/98 Purchase 75 50.3125
02/12/98 Purchase 12 50.25
02/12/98 Purchase 54 50.3125
02/12/98 Sale 75 50 5/16
02/12/98 Sale 54 50 5/16
02/12/98 Sale 12 50 1/4
02/12/98 Sale 1 50 1/4
2/11/98 Purchase 200 51
2/11/98 Sale 200 51
2/11/98 Sale 75 50.625
2/10/98 Sale 13 49.75
2/10/98 Purchase 4,000 51 1/16
2/10/98 Sale 4,000 51 1/16
2/10/98 Purchase 50 50 3/4
2/9/98 Sale 50 50 3/4
2/9/98 Sale 75 50.3125
2/19/98 Sale 54 50.3125
2/9/98 Sale 12 50.25
2/9/98 Sale 1 50.25
2/6/98 Sale 200 51
2/6/98 Sale 50,000 51.1875
2/5/98 Sale 4,000 51.0625
2/5/98 Sale 25,000 51.20115
2/4/98 Sale 50 50.75
</TABLE>
VIII-44
<PAGE> 353
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
2/3/98 Purchase 25,000 50.6875
2/3/98 Sale 43 50.625
02/02/98 Sale 2 48 3/4
1/30/98 Purchase 12 48 1/2
1/30/98 Sale 1 48 1/2
1/29/98 Purchase 87 48.0625
1/29/98 Purchase 25,000 49
1/29/98 Sale 87 48 1/16
1/29/98 Sale 1 48 3/8
1/29/98 Sale 25,000 49.25
1/28/98 Purchase 3 45 1/8
1/28/98 Purchase 25,000 49
1/28/98 Sale 2 48.75
1/27/98 Purchase 78 44.875
1/27/98 Purchase 12 48.5
1/27/98 Sale 78 44 7/8
1/27/98 Sale 25,000 48.625
1/27/98 Sale 10,000 48.625
1/27/98 Sale 1 48.5
1/26/98 Purchase 125 44 9/16
1/26/98 Purchase 50,000 48.5
1/26/98 Sale 125 44 9/16
1/26/98 Sale 87 48.0625
1/26/98 Sale 25,000 48.625
1/26/98 Sale 25,000 48.7
1/26/98 Sale 4,500 48.7
1/26/98 Sale 1 48,375
1/23/98 Purchase 25 44 1/2
1/23/98 Purchase 100 44 1/2
1/23/98 Purchase 155 44 5/8
1/23/98 Purchase 3 45.125
1/23/98 Sale 100 44 1/2
1/23/98 Sale 25 44 1/2
1/22/98 Purchase 37 44.6875
1/22/98 Purchase 25 44 11/16
1/22/98 Sale 37 44 11/16
1/22/98 Sale 25 44 11/16
1/22/98 Sale 8,400 44 5/8
1/22/98 Sale 78 44.875
1/21/98 Purchase 62 44.5625
1/21/98 Purchase 20 44.5625
1/21/98 Purchase 125 44 9/16
1/21/98 Purchase 4,275 44,563
1/21/98 Purchase 12,400 44 5/8
1/21/98 Purchase 8,400 44.625
1/21/98 Sale 62 44 9/16
1/21/98 Sale 20 44 9/16
1/21/98 Sale 4,275 44 9/16
1/21/98 Sale 125 44 9/16
1/21/98 Sale 12,400 44 5/8
1/21/98 Sale 125 44.5625
</TABLE>
VIII-45
<PAGE> 354
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
1/20/98 Purchase 155 44.625
1/20/98 Sale 100 44.5
1/20/98 Sale 25 44.5
1/16/98 Purchase 125 44.3125
1/16/98 Sale 125 44 5/16
1/16/98 Sale 37 44.6875
1/16/98 Sale 25 44.6875
1/16/98 Sale 8,400 44.625
1/15/98 Purchase 8,400 44.625
1/15/98 Sale 62 44.5625
1/15/98 Sale 20 44.5625
1/15/98 Sale 4,275 44.5625
1/15/98 Sale 125 44.5625
1/15/98 Sale 12,400 44.625
1/13/98 Sale 125 44.3125
1/12/98 Sale 62 43.9375
1/9/98 Purchase 50 44
1/9/98 Sale 100 44
1/9/98 Sale 50 43.75
1/7/98 Sale 18 44.5625
1/6/98 Purchase 5,100 44.625
1/6/98 Sale 1 44.4375
1/5/98 Sale 62 44.75
1/2/98 Sale 1,162 44.5
1/2/98 Sale 62 44.5
12/29/97 Sale 12 45.1875
12/29/97 Sale 100 45.25
12/22/97 Sale 112 44.5625
12/22/97 Sale 1 44.5
12/19/97 Purchase 10,000 44.75
12/19/97 Purchase 25,000 44.5
12/19/97 Purchase 40,000 44.375
12/19/97 Sale 4,000 44.5
12/19/97 Sale 62 44.5
12/19/97 Sale 40,000 44.5
12/19/97 Sale 25,000 44.6
12/18/97 Purchase 5,000 43
12/18/97 Purchase 5,000 43
12/18/97 Sale 10,000 42.35
12/18/97 Sale 5,000 43.125
12/17/97 Purchase 10,000 42.1875
12/17/97 Purchase 10,000 42.25
12/17/97 Sale 50 42.1875
12/17/97 Sale 100 42.3125
12/17/97 Sale 100 42.3125
12/17/97 Sale 100 42.25
12/17/97 Sale 10,000 42.25
12/12/97 Purchase 100 42.6875
12/12/97 Sale 100 42.8125
12/12/97 Sale 100 42.8125
12/12/97 Sale 100 42.8125
</TABLE>
VIII-46
<PAGE> 355
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
12/12/97 Sale 100 42.6875
12/11/97 Purchase 18 42.125
12/11/97 Sale 15 42.1875
12/11/97 Sale 100 42.3125
12/11/97 Sale 100 42.25
12/11/97 Sale 300 42.25
12/5/97 Sale 100 42.4375
12/5/97 Purchase 1 42.4375
12/3/97 Purchase 1,000 42.625
12/3/97 Purchase 2,500 42.75
12/3/97 Sale 124 42.4375
12/3/97 Sale 62 42.4375
12/2/97 Sale 1 42.4375
12/2/97 Sale 5,000 42.48
12/2/97 Sale 5,000 42.625
12/1/97 Purchase 10,000 42.375
12/1/97 Purchase 2 42.625
12/1/97 Purchase 10,000 42.375
11/28/97 Sale 1 42.5
11/24/97 Purchase 50,000 42.875
11/24/97 Purchase 14 42.875
11/24/97 Sale 14 42.75
11/24/97 Sale 1 42.75
11/20/97 Purchase 1,100 42.75
11/20/97 Purchase 1,000 42.6875
11/20/97 Purchase 75,000 42.5
11/20/97 Purchase 50,000 42.625
11/20/97 Sale 30,000 42.6875
11/19/97 Purchase 1,000 42.125
11/19/97 Sale 1,000 42.125
11/18/97 Purchase 500 42.125
11/18/97 Purchase 1,600 42.1875
11/11/97 Sale 125 42.125
11/17/97 Purchase 75,000 42.3
11/17/97 Sale 1 42
11/14/97 Purchase 125,000 42.02
11/13/97 Purchase 100,000 42
11/13/97 Sale 25 41.625
11/12/97 Purchase 25,000 42
11/11/97 Sale 100 42
11/11/97 Sale 25 42
11/10/97 Sale 125 41.8125
11/10/97 Sale 100 41.75
11/10/97 Sale 25 41.75
11/10/97 Sale 1 41.75
11/3/97 Sale 407 40.8125
10/29/97 Sale 2,350 40.9
10/28/97 Sale 3,750 40.85
10/27/97 Purchase 5,000 41
10/27/97 Purchase 1,000 41.125
10/27/97 Purchase 100 41.125
</TABLE>
VIII-47
<PAGE> 356
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
10/27/97 Purchase 1,000 41.125
10/27/97 Purchase 100 41.125
10/27/97 Purchase 5,000 41
10/24/97 Sale 14 41.25
10/23/97 Purchase 3,600 40.9375
10/22/97 Sale 25 41.4375
10/22/97 Sale 300 41.375
10/22/97 Sale 75 41.375
10/20/97 Sale 1 41.3125
10/13/97 Sale 7,598 42
10/13/97 Sale 2,100 42
10/13/97 Sale 1,700 42
10/8/97 Sale 25 41.9375
10/8/97 Sale 125 41.9375
10/6/97 Purchase 300 41.9375
10/6/97 Sale 500 41.875
10/3/97 Purchase 300 41.9375
10/3/97 Purchase 500 41.875
10/3/97 Sale 125 42.0625
10/3/97 Sale 125 41.875
10/2/97 Sale 7 41.9375
10/1/97 Sale 62 41.75
10/1/97 Sale 14 41.75
9/30/97 Purchase 10,000 42.25
9/29/97 Sale 1 42
9/26/97 Sale 70 41.5
9/26/97 Sale 4,000 41.5
9/26/97 Sale 10,000 41.5
9/26/97 Sale 500 41.4375
9/26/97 Sale 68 41.4375
9/26/97 Sale 500 41.4375
9/25/97 Sale 14 41.5625
9/25/97 Sale 62 41.5
9/24/97 Purchase 100 41.375
9/24/97 Purchase 100 41.375
9/24/97 Sale 7,000 41.1875
9/24/97 Sale 2,500 41.4
9/24/97 Sale 4,500 41.25
9/23/97 Purchase 13,900 41.1875
9/23/97 Sale 500 41.125
9/19/97 Sale 7,500 41.25
9/18/97 Sale 28 41.125
9/17/97 Purchase 1,500 41.125
9/17/97 Purchase 1,500 41.1875
9/17/97 Sale 25 40.875
9/15/97 Sale 1 41
9/12/97 Purchase 7,500 40.75
9/12/97 Purchase 7,500 40.75
9/12/97 Sale 33 40.75
9/12/97 Sale 7,500 40.75
9/10/97 Purchase 4,100 40
</TABLE>
VIII-48
<PAGE> 357
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
9/10/97 Purchase 1,300 39.9375
9/10/97 Purchase 900 39.9375
9/10/97 Purchase 300 39.9375
9/10/97 Purchase 300 40
9/10/97 Purchase 200 39.9375
9/10/97 Purchase 200 39.9375
9/10/97 Purchase 200 40
9/10/97 Purchase 200 40
9/10/97 Purchase 100 39.9375
9/10/97 Purchase 100 40
9/10/97 Purchase 100 40
9/10/97 Purchase 200 40
9/10/97 Purchase 300 40
9/10/97 Purchase 200 40
9/10/97 Purchase 100 40
9/10/97 Purchase 100 40
9/10/97 Purchase 4,100 40
9/10/97 Purchase 300 39.9375
9/10/97 Purchase 100 39.9375
9/10/97 Purchase 200 39.9375
9/10/97 Purchase 200 39.9375
9/10/97 Purchase 1,300 39.9375
9/10/97 Purchase 900 39.9375
9/10/97 Sale 8,000 39.98
9/9/97 Sale 300 40
9/9/97 Sale 87 39.875
9/8/97 Purchase 96 39.8125
9/8/97 Sale 96 39.625
9/8/97 Sale 1 39.625
9/5/97 Purchase 1,500 39.875
9/5/97 Purchase 500 39.8125
9/3/97 Purchase 50 39.875
9/3/97 Sale 50 39.875
9/2/97 Sale 1 40.3125
8/29/97 Purchase 31 40.4375
8/27/97 Purchase 3,800 39.5
8/27/97 Purchase 2,800 39.625
8/27/97 Purchase 2,800 39.625
8/27/97 Purchase 2,300 39.5
8/27/97 Purchase 2,200 39.5
8/27/97 Purchase 2,050 39.625
8/27/97 Purchase 2,000 39.5625
8/27/97 Purchase 1,500 39.5
8/27/97 Purchase 1,000 39.5
8/27/97 Purchase 1,000 39.5
8/27/97 Purchase 800 39.5
8/27/97 Purchase 800 39.5
8/27/97 Purchase 500 39.5
8/27/97 Purchase 500 39.5
8/27/97 Purchase 300 39.5
8/27/97 Purchase 300 39.5
</TABLE>
VIII-49
<PAGE> 358
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
8/27/97 Purchase 300 39.5
8/27/97 Purchase 200 39.5
8/27/97 Purchase 200 39.5
8/27/97 Purchase 200 39.625
8/27/97 Purchase 100 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 100 39.625
8/27/97 Purchase 1,500 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 200 39.5
8/27/97 Purchase 1,000 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 300 39.5
8/27/97 Purchase 800 39.5
8/27/97 Purchase 200 39.5
8/27/97 Purchase 800 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 3,800 39.5
8/27/97 Purchase 1,000 39.5
8/27/97 Purchase 500 39.5
8/27/97 Purchase 2,200 39.5
8/27/97 Purchase 2,300 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 500 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 300 39.5
8/27/97 Purchase 300 39.5
8/27/97 Purchase 100 39.5
8/27/97 Purchase 2,000 39.5625
8/27/97 Purchase 2,800 39.625
8/27/97 Purchase 2,800 39.625
8/27/97 Purchase 2,050 39.625
8/27/97 Purchase 200 39.625
8/27/97 Purchase 100 39.625
8/27/97 Sale 26,350 39.5625
8/26/97 Sale 62 39.25
8/26/97 Sale 200 39.375
8/26/97 Sale 22,000 39.7
8/26/97 Sale 25,000 39.625
8/26/97 Sale 200 39.375
8/22/97 Purchase 6,500 39.625
8/22/97 Purchase 200 39.625
8/22/97 Purchase 6,500 39.625
8/22/97 Purchase 200 39.625
8/22/97 Sale 6,500 39.625
</TABLE>
VIII-50
<PAGE> 359
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
8/22/97 Sale 200 39.625
8/22/97 Sale 6,500 39.625
8/22/97 Sale 200 39.625
8/21/97 Purchase 200 39.8125
8/20/97 Purchase 1 39.8125
8/19/97 Purchase 29 40
8/18/97 Sale 187 40
8/18/97 Sale 45 40.125
8/18/97 Sale 2 40.25
8/12/97 Sale 133 39.5
8/12/97 Sale 31 39.5
8/11/97 Sale 3,100 39.6875
8/11/97 Sale 9,400 39.625
8/7/97 Sale 62 39.5
8/5/97 Sale 100 40.3125
8/5/97 Sale 200 40.3125
8/5/97 Sale 200 40.375
8/4/97 Sale 1 40.5
8/1/97 Purchase 50,000 40.375
8/1/97 Purchase 100,000 40.375
7/30/97 Sale 25 42.375
7/30/97 Sale 39 42.625
7/28/97 Sale 2 42.875
7/25/97 Sale 200 43
7/25/97 Sale 46 43
7/25/97 Sale 12,000 43.125
7/25/97 Sale 47,100 43
7/25/97 Sale 15,900 43.0625
7/24/97 Sale 37 43.125
7/24/97 Sale 8,000 43.375
7/24/97 Sale 2,000 43.5
7/24/97 Sale 3,000 43.4375
7/24/97 Sale 7,400 43.375
7/23/97 Sale 600 43.5625
7/23/97 Sale 4,000 43.5
7/22/97 Purchase 12 43.5
7/21/97 Purchase 166 43.3125
7/21/97 Sale 12 43.1875
7/21/97 Sale 1 43.1875
7/21/97 Sale 6,875 43.4
7/21/97 Sale 3,125 43.45
7/18/97 Purchase 1,700 43.1875
7/18/97 Purchase 1,000 43.25
7/18/97 Purchase 8,500 43.1875
7/18/97 Purchase 10,000 43.1875
7/18/97 Sale 37 43.25
7/18/97 Sale 1,000 43.1875
7/18/97 Sale 30,000 43.25
7/18/97 Sale 10,000 43.1875
7/18/97 Sale 10,000 43.1875
7/18/97 Sale 13,250 43.43
</TABLE>
VIII-51
<PAGE> 360
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
7/17/97 Purchase 250 43.3125
7/17/97 Purchase 250 43.3125
7/17/97 Purchase 187 43.3125
7/17/97 Purchase 26,500 43.25
7/17/97 Sale 2,500 43.25
7/17/97 Sale 26,500 43.25
7/17/97 Sale 23,500 43.3125
7/17/97 Sale 250 43.25
7/17/97 Sale 187 43.25
7/17/97 Sale 166 43.25
7/17/97 Sale 13,250 43.25
7/16/97 Purchase 500 43.25
7/16/97 Purchase 300 43.25
7/16/97 Purchase 200 43.25
7/16/97 Purchase 200 43.25
7/16/97 Purchase 200 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 3,200 43.5
7/16/97 Purchase 9 43.1875
7/16/97 Purchase 200 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 500 43.25
7/16/97 Purchase 200 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 200 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase l00 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 100 43.25
7/16/97 Purchase 300 43.25
</TABLE>
VIII-52
<PAGE> 361
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
7/16/97 Sale 250 43.3125
7/16/97 Sale 2,800 43.25
7/15/97 Purchase 2,000 42.375
7/15/97 Sale 2,000 42.375
7/14/97 Purchase 9,400 43.25
7/14/97 Purchase 600 43.25
7/14/97 Purchase 51 43.6875
7/14/97 Purchase 600 43.25
7/14/97 Purchase 9,400 43.25
7/14/97 Sale 41 43.125
7/14/97 Sale 1 43.6875
7/14/97 Sale 10,000 43.25
7/11/97 Purchase 12,500 44
7/11/97 Purchase 22,500 44
7/11/97 Sale 12,500 44
7/11/97 Sale 12,500 44
7/11/97 Sale 8,600 44
7/11/97 Sale 1,400 44
7/11/97 Sale 8,600 44
7/11/97 Sale 1,400 44
7/11/97 Sale 12,500 44
7/11/97 Sale 12,500 44
7/10/97 Sale 500 43.4375
7/10/97 Sale 250 43.4375
7/9/97 Purchase 13 43.1875
7/9/97 Purchase 13 43.1875
7/8/97 Purchase 6,000 43.25
7/8/97 Purchase 2,200 43.25
7/8/97 Purchase 600 43.25
7/8/97 Purchase 500 43.25
7/8/97 Purchase 300 43.25
7/8/97 Purchase 100 43.25
7/8/97 Purchase 100 43.25
7/8/97 Purchase 100 43.25
7/8/97 Purchase 100 43.25
7/8/97 Purchase 1,600 43.375
7/8/97 Purchase 62 43.3125
7/8/97 Purchase 2,200 43.25
7/8/97 Purchase 6,000 43.25
7/8/97 Purchase 100 43.25
7/8/97 Purchase 100 43.25
7/8/97 Purchase 100 43.25
7/8/97 Purchase 100 43.25
7/8/97 Purchase 600 43.25
7/8/97 Purchase 500 43.25
7/8/97 Purchase 300 43.25
7/8/97 Sale 37 43.125
7/8/97 Sale 10,000 43.25
7/7/97 Purchase 1,700 43.25
7/7/97 Sale 150 43.125
7/3/97 Sale 71 43.125
</TABLE>
VIII-53
<PAGE> 362
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
7/3/97 Sale 300 42.75
7/3/97 Sale 96 42.75
7/3/97 Sale 5,000 43
7/3/97 Sale 62 43
7/2/97 Purchase 5,000 42.5625
7/2/97 Purchase 5,000 42.5625
7/2/97 Sale 5,000 42.5
7/2/97 Sale 5,300 42.3125
7/2/97 Sale 12 42.3125
7/2/97 Sale 4,900 42.5625
7/2/97 Sale 100 42.5625
7/2/97 Sale 5,000 42.5
6/30/97 Purchase 8,000 42.5
6/30/97 Purchase 500 42.625
6/30/97 Purchase 8,000 42.5
6/30/97 Purchase 500 42.625
6/30/97 Sale 12,500 42.78
6/27/97 Purchase 30,000 42.3125
6/27/97 Purchase 24,000 42.25
6/27/97 Purchase 3,500 42.25
6/27/97 Purchase 20,000 42.3125
6/27/97 Purchase 5,000 42.3125
6/27/97 Sale 39 42.375
6/27/97 Sale 150 42.4375
6/27/97 Sale 10,000 42.5
6/27/97 Sale 25,000 42.3125
6/26/97 Purchase 20,000 42.5
6/26/97 Purchase 25,000 42.4375
6/26/97 Sale 5,775 42.375
6/25/97 Purchase 10,000 42.5
6/25/97 Purchase 6,900 42.25
6/25/97 Purchase 600 42.25
6/25/97 Purchase 10,000 42.5
6/25/97 Purchase 600 42.25
6/25/97 Purchase 6,900 42.25
6/25/97 Sale 125 42.5625
6/25/97 Sale 2,500 42.25
6/25/97 Sale 162 42.25
6/25/97 Sale 37 42.5625
6/24/97 Purchase 4,000 42.8125
6/24/97 Purchase 800 42.8125
6/24/97 Purchase 4,000 42.8125
6/24/97 Purchase 800 42.8125
6/24/97 Sale 70 42.75
6/24/97 Sale 425 42.75
6/24/97 Sale 3 42.8125
6/23/97 Purchase 21,500 42.25
6/23/97 Purchase 6,000 42.5
6/23/97 Purchase 3,500 42.125
6/23/97 Purchase 3,500 42.5
6/23/97 Purchase 3,400 42.5
</TABLE>
VIII-54
<PAGE> 363
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
6/23/97 Purchase 2,300 42.375
6/23/97 Purchase 1,100 42.25
6/23/97 Purchase 1,100 42.375
6/23/97 Purchase 600 42.25
6/23/97 Purchase 600 42.25
6/23/97 Purchase 500 42.375
6/23/97 Purchase 500 42.5
6/23/97 Purchase 500 42.5
6/23/97 Purchase 300 42.375
6/23/97 Purchase 300 42.375
6/23/97 Purchase 300 42.375
6/23/97 Purchase 300 42.375
6/23/97 Purchase 200 42.375
6/23/97 Purchase 200 42.375
6/23/97 Purchase 200 42.375
6/23/97 Purchase 100 42.25
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.5
6/23/97 Purchase 35,500 42.5
6/23/97 Purchase 100 42.5
6/23/97 Purchase 25,000 42.07
6/23/97 Purchase 3,500 42.125
6/23/97 Purchase 21,500 42.25
6/23/97 Purchase 600 42.25
6/23/97 Purchase 1,100 42.25
6/23/97 Purchase 600 42.25
6/23/97 Purchase 100 42.25
6/23/97 Purchase 2,300 42.375
6/23/97 Purchase 300 42.375
6/23/97 Purchase 200 42.375
6/23/97 Purchase 100 42.375
</TABLE>
VIII-55
<PAGE> 364
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 300 42.375
6/23/97 Purchase 6,000 42.5
6/23/97 Purchase 100 42.5
6/23/97 Purchase 500 42.5
6/23/97 Purchase 3,400 42.5
6/23/97 Purchase 500 42.5
6/23/97 Purchase 3,500 42.5
6/23/97 Purchase 300 42.375
6/23/97 Purchase 300 42.375
6/23/97 Purchase 1,100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 200 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 200 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 500 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Purchase 100 42.375
6/23/97 Sale 100 42.5
6/23/97 Sale 1 42
6/23/97 Sale 25,000 42.52
6/23/97 Sale 25,000 42.59
6/23/97 Sale 25,000 42.69
6/23/97 Sale 9,000 42.5
6/20/97 Sale 2,750 42.25
6/20/97 Sale 11,250 42.25
6/20/97 Sale 2,750 42.25
6/19/97 Purchase 2,800 42
6/19/97 Purchase 300 42
6/19/97 Purchase 300 42
6/19/97 Purchase 300 42
6/19/97 Purchase 100 42
6/19/97 Purchase 100 42
6/19/97 Purchase 100 42
6/19/97 Purchase 40,000 42
6/19/97 Purchase 300 42
</TABLE>
VIII-56
<PAGE> 365
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
6/19/97 Purchase 300 42
6/19/97 Purchase 100 42
6/19/97 Purchase 100 42
6/19/97 Purchase 300 42
6/19/97 Purchase 100 42
6/19/97 Purchase 2,800 42
6/19/97 Sale 33 41.875
6/19/97 Sale 7 41.875
6/19/97 Sale 37 41.875
6/19/97 Sale 60,000 42
6/18/97 Purchase 50,000 41.875
6/18/97 Purchase 25,000 41.75
6/18/97 Purchase 300 41.875
6/18/97 Purchase 100 41.875
6/18/97 Purchase 31,250 41.9
6/18/97 Purchase 10,000 41.75
6/18/97 Purchase 25,000 41.75
6/18/97 Sale 1,000 41.875
6/18/97 Sale 800 41.75
6/18/97 Sale 85 41.75
6/18/97 Sale 50,000 41.75
6/17/97 Purchase 150,000 41.75
6/17/97 Purchase 170,000 42
6/17/97 Purchase 10,000 42
6/17/97 Purchase 8,000 42
6/17/97 Purchase 5,000 42
6/17/97 Purchase 5,000 42
6/17/97 Purchase 4,000 42
6/17/97 Purchase 3,800 42
6/17/97 Purchase 2,400 41.75
6/17/97 Purchase 2,300 42
6/17/97 Purchase 1,700 41.75
6/17/97 Purchase 1,000 42
6/17/97 Purchase 800 42
6/17/97 Purchase 300 41.75
6/17/97 Purchase 300 42
6/17/97 Purchase 200 41.75
6/17/97 Purchase 200 42
6/17/97 Purchase 200 42
6/17/97 Purchase 100 41.75
6/17/97 Purchase 100 41.75
6/17/97 Purchase 100 41.75
6/17/97 Purchase 100 41.75
6/17/97 Purchase 100 42
6/17/97 Purchase 100 42
6/17/97 Purchase 1,000 42
6/17/97 Purchase 2,400 41.75
6/17/97 Purchase 200 41.75
6/17/97 Purchase 100 41.75
6/17/97 Purchase 100 41.75
6/17/97 Purchase 100 41.75
</TABLE>
VIII-57
<PAGE> 366
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
6/17/97 Purchase 300 41.75
6/17/97 Purchase 100 41.75
6/17/97 Purchase 1,700 41.75
6/17/91 Purchase 25,000 42
6/17/97 Purchase 9,300 41.9375
6/17/97 Purchase 200 42
6/17/97 Purchase 3,800 42
6/17/97 Purchase 1,000 42
6/17/97 Purchase 100 42
6/17/97 Purchase 300 42
6/17/97 Purchase 200 42
6/17/97 Purchase 100 42
6/17/97 Purchase 2,300 42
6/17/97 Purchase 4,000 42
6/17/97 Purchase 8,000 42
6/17/97 Purchase 800 42
6/17/97 Purchase 5,000 42
6/17/97 Purchase 10,000 42
6/17/97 Purchase 5,000 42
6/17/97 Sale 50 41.875
6/17/97 Sale 31 42
6/17/97 Sale 150,000 41.75
6/17/97 Sale 150,000 42
6/17/97 Sale 5,000 41.89
6/17/97 Sale 70,000 42
6/17/97 Sale 7,500 42
6/16/97 Purchase 5,000 41.625
6/16/97 Purchase 4,000 41.875
6/16/97 Purchase 3,800 41.875
6/16/97 Purchase 2,600 41.875
6/16/97 Purchase 2,400 41.875
6/16/97 Purchase 1,100 41.875
6/16/97 Purchase 1,000 41.875
6/16/97 Purchase 1,000 41.875
6/16/97 Purchase 800 41.875
6/16/97 Purchase 800 41.875
6/16/97 Purchase 600 41.875
6/16/97 Purchase 500 41.875
6/16/97 Purchase 400 41.875
6/16/97 Purchase 400 41.875
6/16/97 Purchase 300 41.875
6/16/97 Purchase 300 41.875
6/16/97 Purchase 300 41.875
6/16/97 Purchase 300 41.875
6/16/97 Purchase 300 41.875
6/16/97 Purchase 300 41.875
6/16/97 Purchase 200 41.875
6/16/97 Purchase 200 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 100 41.875
</TABLE>
VIII-58
<PAGE> 367
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
6/16/97 Purchase 100 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 1 41.625
6/16/97 Purchase 17 42
6/16/97 Purchase 38 41.625
6/16/97 Purchase 5,000 41.625
6/16/97 Purchase 2,000 41.875
6/16/97 Purchase 300 41.875
6/16/97 Purchase 300 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 300 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 400 41.875
6/16/97 Purchase 200 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 800 41.875
6/16/97 Purchase 500 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 4,000 41.875
6/16/97 Purchase 1,100 41.975
6/16/97 Purchase 3,800 41.875
6/16/97 Purchase 2,400 41.875
6/16/97 Purchase 2,600 41.875
6/16/97 Purchase 800 41.875
6/16/97 Purchase 400 41.875
6/16/97 Purchase 300 41.875
6/16/97 Purchase 300 41.875
6/16/97 Purchase 1,000 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 300 41.875
6/16/97 Purchase 100 41.875
6/16/97 Purchase 1,000 41.875
6/16/97 Purchase 200 41.875
6/16/97 Purchase 600 41.875
6/16/97 Sale 92 41.875
6/16/97 Sale 1 41.625
6/16/97 Sale 7,500 42.13
6/16/97 Sale 5,000 41.93
6/16/97 Sale 24,800 41.9375
6/13/97 Purchase 5,000 42
6/13/97 Purchase 4,300 42
6/13/97 Purchase 3,800 42.125
6/13/97 Purchase 3,000 42
6/13/97 Purchase 2,900 42
</TABLE>
VIII-59
<PAGE> 368
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
6/13/97 Purchase 2,000 42
6/13/97 Purchase 1,800 42
6/13/97 Purchase 1,300 42
6/13/97 Purchase 1,000 42
6/13/97 Purchase 800 42
6/13/97 Purchase 700 42.125
6/13/97 Purchase 600 42.125
6/13/97 Purchase 500 42
6/13/97 Purchase 500 42.125
6/13/97 Purchase 500 42.125
6/13/97 Purchase 500 42.125
6/13/97 Purchase 400 42
6/13/97 Purchase 400 42
6/13/97 Purchase 400 42
6/13/97 Purchase 400 42
6/13/97 Purchase 400 42
6/13/97 Purchase 300 42
6/13/97 Purchase 300 42
6/13/97 Purchase 300 42.125
6/13/97 Purchase 200 42
6/13/97 Purchase 200 42
6/13/97 Purchase 200 42
6/13/97 Purchase 200 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42.125
6/13/97 Purchase 10,000 42.375
6/13/97 Purchase 12,500 42.25
6/13/97 Purchase 5,000 42
6/13/97 Purchase 1,000 42
6/13/97 Purchase 3,800 42.125
6/13/97 Purchase 500 42.125
6/13/97 Purchase 100 42.125
6/13/97 Purchase 300 42.125
6/13/97 Purchase 700 42.125
6/13/97 Purchase 600 42.125
6/13/97 Purchase 500 42.125
6/13/97 Purchase 300 42.125
6/13/97 Purchase 200 42
6/13/97 Purchase 2,000 42
6/13/97 Purchase 300 42
6/13/97 Purchase 200 42
6/13/97 Purchase 200 42
</TABLE>
VIII-60
<PAGE> 369
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 100 42
6/13/97 Purchase 400 42
6/13/97 Purchase 800 42
6/13/97 Purchase 500 42
6/13/97 Purchase 400 42
6/13/97 Purchase 100 42
6/13/97 Purchase 300 42
6/13/97 Purchase 100 42
6/13/97 Purchase 4,300 42
6/13/97 Purchase 100 42
6/13/97 Purchase 3,000 42
6/13/97 Purchase 100 42
6/13/97 Purchase 2,900 42
6/13/97 Purchase 1,800 42
6/13/97 Purchase 1,300 42
6/13/97 Purchase 400 42
6/13/97 Purchase 200 42
6/13/97 Purchase 100 42
6/13/97 Purchase 400 42
6/13/97 Purchase 400 42
6/13/97 Sale 313 42
6/13/97 Sale 1,500 42.375
6/13/97 Sale 12,500 42.25
6/13/97 Sale 10,600 42.67
6/13/97 Sale 1,500 42.375
6/13/97 Sale 20,000 42.35
6/13/97 Sale 17,300 42.04
6/12/97 Purchase 15,000 42.25
6/12/97 Purchase 15,000 42.25
6/12/97 Purchase 25,000 42
6/12/97 Sale 58 42.25
6/12/97 Sale 25 42.375
6/12/97 Sale 509 42
6/12/97 Sale 92,700 41.875
6/12/97 Sale 5,000 42.5
6/12/97 Sale 8,800 42.375
6/12/97 Sale 85 42.375
6/12/97 Sale 13,000 42
6/12/97 Sale 10,000 42.25
6/12/97 Sale 20,000 42
6/11/97 Purchase 5,000 41.875
6/11/97 Purchase 4,000 41.125
6/11/97 Purchase 2,900 41
6/11/97 Purchase 2,500 41
6/11/97 Purchase 1,100 41
6/11/97 Purchase 1,000 40.75
6/11/97 Purchase 500 41
</TABLE>
VIII-61
<PAGE> 370
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
6/11/97 Purchase 500 41.125
6/11/97 Purchase 500 41.125
6/11/97 Purchase 400 41
6/11/97 Purchase 200 41
6/11/97 Purchase 200 41
6/11/97 Purchase 100 41
6/11/97 Purchase 100 41
6/11/97 Purchase 100 41
6/11/97 Purchase 100 41
6/11/97 Purchase 150 42
6/11/97 Purchase 25,000 42.125
6/11/97 Purchase 6,000 42
6/11/97 Purchase 15,000 42
6/11/97 Purchase 5,000 41.875
6/11/97 Purchase 500 41.125
6/11/97 Purchase 500 41.125
6/11/97 Purchase 4,000 41.125
6/11/97 Purchase 1,000 40.75
6/11/97 Purchase 1,100 41
6/11/97 Purchase 2,900 41
6/11/97 Purchase 100 41
6/11/97 Purchase 100 41
6/11/97 Purchase 200 41
6/11/97 Purchase 100 41
6/11/97 Purchase 200 41
6/11/97 Purchase 500 41
6/11/97 Purchase 2,500 41
6/11/97 Purchase 100 41
6/11/97 Purchase 400 41
6/11/97 Sale 217 41.25
6/11/97 Sale 125 41.75
6/11/97 Sale 55 41.75
6/11/97 Sale 47 41.75
6/11/97 Sale 42 41
6/11/97 Sale 37 41.125
6/11/97 Sale 33 41.75
6/11/97 Sale 10,000 41.875
6/11/97 Sale 10,000 42
6/11/97 Sale 5,000 42.125
6/11/97 Sale 600 41.625
6/11/97 Sale 5,000 42.75
6/11/97 Sale 5,000 42
6/11/97 Sale 150 41.875
6/11/97 Sale 5,000 42.83
6/11/97 Sale 25,000 42.23
6/11/97 Sale 5,000 42.125
6/11/97 Sale 10,000 42
6/11/97 Sale 1,000 42
6/11/97 Sale 10,000 41.875
6/11/97 Sale 600 41.625
6/10/97 Purchase 5,000 41.875
</TABLE>
VIII-62
<PAGE> 371
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
6/10/97 Purchase 2,000 37.625
6/10/97 Purchase 200 37.875
6/10/97 Purchase 100 37.875
6/10/97 Purchase 100 37.875
6/10/97 Purchase 100 37.875
6/10/97 Purchase 2,500 36.8
6/10/97 Purchase 2,500 37.625
6/10/97 Purchase 100 37.875
6/10/97 Purchase 200 37.875
6/10/97 Purchase 100 37.875
6/10/97 Purchase 100 37.875
6/10/97 Purchase 5,000 41.875
6/10/97 Sale 73 41.75
6/10/97 Sale 36 41.75
6/10/97 Sale 33 37.5
6/10/97 Sale 5,049 37.875
6/10/97 Sale 5,000 41.875
6/10/97 Sale 2,500 38.125
6/10/97 Sale 500 41.75
6/10/97 Sale 7,200 37.5
6/10/97 Sale 50 37.5
6/10/97 Sale 17,900 41.75
6/10/97 Sale 98 41.75
6/10/97 Sale 5,000 42
6/10/97 Sale 2,900 42
6/10/97 Sale 2,100 42
6/10/97 Sale 6,500 41.875
6/10/97 Sale 2,500 38.125
6/10/97 Sale 500 41.75
6/10/97 Sale 5,000 41.875
6/9/97 Purchase 2,500 36.5
6/9/97 Purchase 2,500 37
6/9/97 Purchase 2,500 36.5
6/9/97 Purchase 2,500 37
6/9/97 Sale 125 36.875
6/9/97 Sale 62 36.875
6/9/97 Sale 33 36.375
6/9/97 Sale 2,500 36.875
6/9/97 Sale 2,500 36.875
6/9/97 Sale 2,500 36.875
6/9/97 Sale 1 36.375
6/9/97 Sale 2,500 36.875
6/9/97 sale 2,500 36.875
6/9/97 Sale 2,500 36.875
6/6/97 Sale 312 36.375
6/6/97 Sale 100 36.5
6/6/97 Sale 25 36.5
6/6/97 Sale 5,000 36.25
6/5/97 Purchase 15,000 36.16
6/5/97 Sale 57 36.125
6/5/97 Sale 47 36
</TABLE>
VIII-63
<PAGE> 372
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
6/5/97 Sale 31 36.125
6/5/97 Sale 30 36.125
6/5/97 Sale 200 36.125
6/5/97 Sale 50 36.125
6/5/97 Sale 10,000 36.25
6/4/97 Sale 31 35.75
6/4/97 Sale 33 35.75
6/3/97 Sale 71 35.5
6/3/97 Sale 55 35.375
6/3/97 Sale 41 35.375
6/2/97 Purchase 125 35.75
6/2/97 Sale 55 35.25
6/2/97 Sale 31 35.25
6/2/97 Sale 17 35.25
6/2/97 Sale 13 35.25
6/2/97 Sale 2,500 35.875
6/2/97 Sale 1 35.875
6/2/97 Sale 2,500 35.875
5/30/97 Sale 62 35.75
5/30/97 Sale 33 35.75
5/30/97 Sale 28 35.75
5/30/97 Sale 27 35.75
5/29/97 Sale 730 36.25
5/29/97 Sale 100 36.25
5/29/97 Sale 7,500 36.15
5/29/97 Sale 10,000 36.25
5/29/97 Sale 6,250 36.28
5/29/97 Sale 6,250 36.45
5/28/97 Purchase 100 36.375
5/28/97 Purchase 1,600 36.25
5/28/97 Purchase 800 36.25
5/28/97 Purchase 100 36.25
5/28/97 Purchase 25 36.875
5/28/97 Purchase 50 36.75
5/28/97 Purchase 60,000 36.375
5/28/97 Purchase 1,600 36.25
5/28/97 Purchase 800 36.25
5/28/97 Purchase 100 36.25
5/28/97 Sale 105 36.5
5/28/97 Sale 31 36.5
5/28/97 Sale 25 36.5
5/28/97 Sale 15,350 36.625
5/28/97 Sale 50 36.75
5/28/97 Sale 30,000 36.375
5/27/97 Purchase 100 36.875
5/27/97 Purchase 300 36.875
5/27/97 Sale 42 36.75
5/27/97 Sale 30 36.75
5/27/97 Sale 25 36.75
5/27/97 Sale 17 36.75
5/27/97 Sale 25 36.75
</TABLE>
VIII-64
<PAGE> 373
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
5/27/97 Sale 2 36.875
5/23/97 Sale 60 36.75
5/23/97 Sale 51 36.75
5/23/97 Sale 38 36.75
5/23/97 Sale 100 36.875
5/23/97 Sale 25 36.875
5/22/97 Sale 62 36.375
5/22/97 Sale 62 36.375
5/22/97 Sale 1,887 36.375
5/22/97 Sale 800 36.5
5/22/97 Sale 62 36.375
5/22/97 Sale 800 36.5
5/21/97 Purchase 15,000 36.125
5/21/97 Purchase 15,000 36.125
5/21/97 Purchase 12,900 36.125
5/21/97 Sale 83 35.875
5/21/97 Sale 82 36.125
5/21/97 Sale 46 36.125
5/21/97 Sale 41 35.875
5/21/97 Sale 36 35.875
5/21/97 Sale 30 36
5/21/97 Sale 15,000 36.125
5/21/97 Sale 12,900 36.125
5/20/97 Purchase 2,800 35.625
5/20/97 Purchase 1,500 35.625
5/20/97 Purchase 800 35.625
5/20/97 Purchase 300 35.625
5/20/97 Purchase 200 35.625
5/20/97 Purchase 200 35.625
5/20/97 Purchase 200 35.625
5/20/97 Purchase 100 35.625
5/20/97 Purchase 100 35.625
5/20/97 Purchase 100 35.625
5/20/97 Purchase 100 35.625
5/20/97 Purchase 100 35.625
5/20/97 Purchase 1,500 35.625
5/20/97 Purchase 100 35.625
5/20/97 Purchase 2,800 35.625
5/20/97 Purchase 100 35.625
5/20/97 Purchase 300 35.625
5/20/97 Purchase 100 35.625
5/20/97 Purchase 100 35.625
5/20/97 Purchase 200 35.625
5/20/97 Purchase 200 35.625
5/20/97 Purchase 100 35.625
5/20/97 Purchase 200 35.625
5/20/97 Purchase 5,800 35.6875
5/20/97 Purchase 800 35.625
5/20/97 Sale 27 35.375
5/20/97 Sale 17 35
5/20/97 Sale 5,000 35.625
</TABLE>
VIII-65
<PAGE> 374
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
5/20/97 Sale 5,000 35.75
5/20/97 Sale 137 35
5/20/97 Sale 8 35
5/20/97 Sale 5,000 35.625
5/20/97 Sale 5,000 35.75
5/19/97 Sale 106 34.875
5/19/97 Sale 62 34.875
5/19/97 Sale 23 34.875
5/19/97 Sale 1,437 34.875
5/19/97 Sale 3 35
5/16/97 Sale 937 34.875
5/16/97 Sale 100 35
5/16/97 Sale 33 34.875
5/16/97 Sale 1,500 34.875
5/16/97 Sale 79 34.875
5/16/97 Sale 1,500 34.875
5/15/97 Purchase 700 34.875
5/15/97 Purchase 200 34.875
5/15/97 Purchase 100 34.875
5/15/97 Sale 152 34.875
5/15/97 Sale 62 34.875
5/15/97 Sale 61 34.875
5/15/97 Sale 60 34.875
5/15/97 Sale 38 34.75
5/15/97 Sale 32 34.75
5/14/97 Sale 42 35
5/14/97 Sale 38 34.625
5/14/97 Sale 27 35
5/14/97 Sale 625 34.875
5/13/97 Purchase 100 34.5
5/13/97 Sale 100 34.375
5/13/97 Sale 35 34.25
5/12/97 Purchase 21 33.875
5/12/97 Purchase 5 34
5/12/97 Purchase 100 33.625
5/12/97 Sale 38 33.875
5/12/97 Sale 5,000 33.625
5/12/97 Sale 50 33.75
5/12/97 Sale 100 33.875
5/12/97 Sale 100 33.625
5/12/97 Sale 1 33.75
5/9/97 Purchase 16 34
5/9/97 Purchase 12 34
5/9/97 Sale 500 33.875
5/9/97 Sale 5 33.75
5/9/97 Sale 21 33.875
5/8/97 Sale 12 32.875
5/8/97 Sale 9 32.75
5/7/97 Purchase 100 32.625
5/7/97 Purchase 100 32.625
5/7/97 Purchase 100 32.625
</TABLE>
VIII-66
<PAGE> 375
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
5/7/97 Purchase 100 32.625
5/7/97 Purchase 100 32.625
5/7/97 Purchase 100 32.625
5/7/97 Sale 27 32.75
5/7/97 Sale 500 32.875
5/7/97 Sale 300 32.5
5/7/97 Sale 187 32.5
5/7/97 Sale 300 32.5
5/7/97 Sale 50 32.5
5/7/97 Sale 5 32.375
5/7/97 Sale 300 32.5
5/6/97 Purchase 10,000 32.125
5/6/97 Purchase 100 31.875
5/6/97 Purchase 8,900 31.875
5/6/97 Purchase 100 31.875
5/6/97 Purchase 10,000 32.125
5/6/97 Sale 19 32.125
5/6/97 Sale 1,700 32.125
5/6/97 Sale 12 32.125
5/6/97 Sale 16 32.125
5/6/97 Sale 10,000 31.75
5/6/97 Sale 9,000 31.95
5/6/97 Sale 1,700 32.125
5/6/97 Sale 10,000 32.125
5/5/97 Purchase 10,000 31.625
5/5/97 Purchase 500 31.5
5/5/97 Purchase 400 31.5
5/5/97 Purchase 200 31.5
5/5/97 Purchase 200 31.5
5/5/97 Purchase 100 31.5
5/5/97 Purchase 100 31.5
5/5/97 Purchase 100 31.5
5/5/97 Purchase 100 31.5
5/5/97 Purchase 10,000 31.625
5/5/97 Purchase 100 31.5
5/5/97 Purchase 200 31.5
5/5/97 Purchase 100 31.5
5/5/97 Purchase 500 31.5
5/5/97 Purchase 100 31.5
5/5/97 Purchase 100 31.5
5/5/97 Purchase 400 31.5
5/5/97 Purchase 200 31.5
5/5/97 Sale 190 31.5
5/5/97 Sale 113 31.5
5/5/97 Sale 110 31.5
5/5/97 Sale 48 31.5
5/5/97 Sale 45 31.5
5/5/97 Sale 20 31.5
5/2/97 Sale 27 31.5
5/2/97 Sale 300 31.5
4/30/97 Sale 108 31.5
</TABLE>
VIII-67
<PAGE> 376
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
4/30/97 Sale 33 31.125
4/30/97 Sale 32 31.375
4/30/97 Sale 30 31.375
4/30/97 Sale 22 31.375
4/30/97 Sale 87 31.375
4/30/97 Sale 87 31.375
4/29/97 Purchase 10,000 31.625
4/29/97 Purchase 8,500 31.5
4/29/97 Purchase 7,200 31.5
4/29/97 Purchase 5,000 31.5
4/29/97 Purchase 1,700 31.5
4/29/97 Purchase 300 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 71 31.5
4/29/97 Purchase 10,000 31.625
4/29/97 Purchase 100 31.5
4/29197 Purchase 100 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 1,700 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 5,000 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 300 31.5
4/29/97 Purchase 100 31.5
4/29/97 Purchase 7,200 31.5
4/29/97 Purchase 8,500 31.5
4/29/97 Sale 48 31.5
4/29/97 Sale 28 31.375
4/29/97 Sale 26 31.375
4/29/97 Sale 21 31.5
4/29/97 Sale 37 31.375
4/29/97 Sale 10,000 31.625
4/29/97 Sale 7,200 31.5
4/29/97 Sale 7,800 31.5
4/29/97 Sale 8,500 31.5
4/28/97 Sale 41 31.25
4/25/97 Purchase 1,400 31.75
4/25/97 Purchase 1,200 31.75
4/25/97 Purchase 1,000 31.75
4/25/97 Purchase 1,000 31.75
4/25/97 Purchase 900 31.75
4/25/97 Purchase 600 31.75
</TABLE>
VIII-68
<PAGE> 377
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
4/25/97 Purchase 500 31.75
4/25/97 Purchase 500 31.75
4/25/97 Purchase 300 31.75
4/25/97 Purchase 300 31.75
4/25/97 Purchase 200 31.75
4/25/97 Purchase 200 31.73
4/25/97 Purchase 100 31.75
4/25/97 Purchase 100 31.75
4/25/97 Purchase 100 31.75
4/25/97 Purchase 100 31.75
4/25/97 Purchase 100 31.75
4/25/97 Purchase 100 31.75
4/25/97 Purchase 1,400 31.75
4/25/97 Purchase 200 31.75
4/25/97 Purchase 1,000 31.75
4/25/97 Purchase 100 31.75
4/25/97 Purchase 300 31.75
4/25/97 Purchase 300 31.75
4/25/97 Purchase 100 31.75
4/25/97 Purchase 900 31.75
4/25/97 Purchase 500 31.75
4/25/97 Purchase 600 31.75
4/25/97 Purchase 1,200 31.75
4/25/97 Purchase 100 31.75
4/25/97 Purchase 100 31.75
4/25/97 Purchase 100 31.75
4/25/97 Purchase 100 31.75
4/25/97 Purchase 500 31.75
4/25/97 Purchase 200 31.75
4/25/97 Purchase 1,000 31.75
4/25/97 Sale 37 31.75
4/25/97 Sale 35 31.75
4/25/97 Sale 20 31.75
4/25/97 Sale 150 31.75
4/25/97 Sale 1 31,875
4/25/97 Sale 8,700 31.75
4/24/97 Purchase 1,600 31.75
4/24/97 Purchase 1,000 31.75
4/24/97 Purchase 700 31.75
4/24/97 Purchase 400 31.75
4/24/97 Purchase 400 31.75
4/24/97 Purchase 400 31.75
4/24/97 Purchase 400 31.75
4/24/97 Purchase 300 31.75
4/24/97 Purchase 300 31.75
4/24/97 Purchase 200 31.75
4/24/97 Purchase 200 31.75
4/24/97 Purchase 200 31.75
4/24/97 Purchase 200 31.75
4/24/97 Purchase 200 31.75
4/24/97 Purchase 200 31.75
</TABLE>
VIII-69
<PAGE> 378
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
4/24/97 Purchase 100 31.75
4/24/97 Purchase 100 31.75
4/24/97 Purchase 100 31.75
4/24/97 Purchase 100 31.75
4/24/97 Purchase 100 31.75
4/24/97 Purchase 1,600 31.75
4/24/97 Purchase 100 31.75
4/24/97 Purchase 200 31.75
4/24/97 Purchase 300 31.75
4/24/97 Purchase 200 31.75
4/24/97 Purchase 400 31.75
4/24/97 Purchase 200 31.75
4/24/97 Purchase 200 31.75
4/24/97 Purchase 100 31.75
4/24/97 Purchase 1,000 31.75
4/24/97 Purchase 400 31.75
4/24/97 Purchase 300 31.75
4/24/97 Purchase 100 31.75
4/24/97 Purchase 400 31.75
4/24/97 Purchase 200 31.75
4/24/97 Purchase 100 31.75
4/24/97 Purchase 400 31.75
4/24/97 Purchase 700 31.75
4/24/97 Purchase 100 31.75
4/24/97 Purchase 200 31.75
4/24/97 Sale 1,154 31.75
4/24/97 Sale 82 31.875
4/24/97 Sale 33 31.75
4/24/97 Sale 32 31.75
4/24/97 Sale 26 31.75
4/24/97 Sale 50 31.75
4/24/97 Sale 75 31.875
4/24/97 Sale 7,200 31.75
4/23/97 Purchase 2,700 31.875
4/23/97 Purchase 1,600 31.875
4/23/97 Purchase 1,000 31.875
4/23/97 Purchase 600 31.875
4/23/97 Purchase 400 31.875
4/23/97 Purchase 400 31.875
4/23/97 Purchase 300 31.875
4/23/97 Purchase 300 31.875
4/23/97 Purchase 300 31.875
4/23/97 Purchase 200 31.875
4/23/97 Purchase 200 31.875
4/23/97 Purchase 200 31.875
4/23/97 Purchase 200 31.875
4/23/97 Purchase 200 31.875
4/23/97 Purchase 200 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
</TABLE>
VIII-70
<PAGE> 379
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 2,700 31.875
4/23/97 Purchase 200 31.875
4/23/97 Purchase 200 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 300 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 200 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 200 31.875
4/23/97 Purchase 200 31.875
4/23/97 Purchase 1,000 31.875
4/23/97 Purchase 300 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 400 31.875
4/23/97 Purchase 300 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 200 31.875
4/23/97 Purchase 600 31.875
4/23/97 Purchase 100 31.875
4/23/97 Purchase 1,600 31.875
4/23/97 Purchase 400 31.975
4/23/97 Sale 71 31.75
4/23/97 Sale 38 31.75
4/23/97 Sale 5,200 31.875
4/23/97 Sale 86 31.875
4/23/97 Sale 100 31.815
4/23/97 Sale 75 32
4/23/97 Sale 71 31.75
4/23/97 Sale, 6,000 31.95
4/23/97 Sale 6,400 32.05
4/23/97 Sale 10,000 31.875
4/22/97 Purchase 10,000 32.125
4/22/97 Purchase 9,800 32
4/22/97 Purchase 1,500 32
4/22/97 Purchase 1,400 32
4/22/97 Purchase 1,000 32
</TABLE>
VIII-71
<PAGE> 380
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
4/22/97 Purchase 700 32
4/22/97 Purchase 200 32
4/22/97 Purchase 100 32
4/22/97 Purchase 100 32
4/22/97 Purchase 20,000 32.125
4/22/97 Purchase 20,200 32.125
4/22/97 Purchase 10,000 32.125
4/22/97 Purchase 200 32
4/22/97 Purchase 9,800 32
4/22/97 Purchase 1,000 32
4/22/97 Purchase 100 32
4/22/97 Purchase 100 32
4/22/97 Purchase 1,500 32
4/22/97 Purchase 1,400 32
4/22/97 Purchase 700 32
4/22/97 Sale 92 32.125
4/22/97 Sale 75 32.125
4/22/97 Sale 62 32.25
4/22/97 Sale 58 32
4/22/97 Sale 38 32
4/22/97 Sale 16 32
4/22/97 Sale 3,400 32.375
4/22/97 Sale 12,400 32.05
4/21/97 Purchase 2,000 32.125
4/21/97 Purchase 1,000 32.125
4/21/97 Purchase 300 32.125
4/21/97 Purchase 100 32.125
4/21/97 Purchase 2 32.5
4/21/97 Purchase 300 32.125
4/21/97 Purchase 100 32.125
4/21/97 Purchase 1,000 32.125
4/21/97 Purchase 2,000 32.125
4/21/97 Sale 500 32.25
4/21/97 Sale 62 32.125
4/21/97 Sale 42 32.5
4/21/97 Sale 37 32.25
4/21/97 Sale 28 32.5
4/21/97 Sale 1 32.5
4/18/97 Sale 45 32.625
4/18/97 Sale 3 32.375
4/17/97 Purchase 25 32.5
4/17/97 Sale 25 32.25
4/17/97 Sale 21 32.25
4/17/97 Sale 1,412 32.375
4/17/97 Sale 50 32.375
4/17/97 Sale 25 32.375
4/17/97 Sale 8,700 32.02
4/16/97 Purchase 3,600 32.125
4/16/97 Purchase 3,200 32
4/16/97 Purchase 1,200 32.125
4/16/97 Purchase 200 32
</TABLE>
VIII-72
<PAGE> 381
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
4/16/97 Purchase 200 32.125
4/16/97 Purchase 100 32
4/16/97 Purchase 100 32
4/16/97 Purchase 100 32
4/16/97 Purchase 3,200 32
4/16/97 Purchase 100 32
4/16/97 Purchase 200 32
4/16/97 Purchase 100 32
4/16/97 Purchase 100 32
4/16/97 Purchase 200 32.125
4/16/97 Purchase 1,200 32.125
4/16/97 Purchase 3,600 32.125
4/16/97 Sale 107 32.125
4/16/97 Sale 72 32.25
4/16/97 Sale 39 32.25
4/16/97 Sale 21 32.25
4/16/97 Sale 612 32.125
4/16/97 Sale 1 32.25
4/15/97 Sale 56 32.625
4/15/97 Sale 51 32.625
4/15/97 Sale 36 32.625
4/15/97 Sale 30 32.625
4/15/97 Sale 29 32.625
4/15/97 Sale 124 32.625
4/14/97 Purchase 1,200 32.25
4/14/97 Purchase 20,000 32
4/14/97 Purchase 800 32
4/14/97 Purchase 6,200 32.25
4/14/97 Sale 42 32
4/14/97 Sale 30 32.25
4/14/97 Sale 28 32
4/14/97 Sale 25 32
4/14/97 Sale 100 32.125
4/14/97 Sale 25 32.125
4/14/97 Sale 100 32.125
4/14/97 Sale 100 32.125
4/14/97 Sale 5,300 32.125
4/14/97 Sale 1,200 32.25
4/14/97 Sale 10,000 32.375
4/14/97 Sale 10,000 32
4/14/97 Sale 7,000 32.25
4/10/97 Sale 26 32
4/10/97 Sale 22 31.75
4/10/97 Sale 200 31.75
4/10/97 Sale 200 31.75
4/9/97 Sale 45 31.75
4/9/97 Sale 20 31.75
4/8/97 Sale 52 32
4/7/97 Sale 62 32.25
4/7/97 Sale 55 32.375
4/7/97 Sale 48 32.375
</TABLE>
VIII-73
<PAGE> 382
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
4/7/97 Sale 41 32.25
4/7/97 Sale 40 32.25
4/7/97 Sale 31 32.375
4/7/97 Sale 1 32.5
4/7/97 Sale 6,875 32.68
4/7/97 Sale 3,125 32.75
4/4/97 Purchase 4,700 32.5
4/4/97 Purchase 2,800 32.5
4/4/97 Purchase 2,200 32.5
4/4/97 Purchase 300 32.5
4/4/97 Purchase 28,950 32.75
4/4/97 Purchase 25,000 32.75
4/4/97 Purchase 75,000 32.625
4/4/97 Purchase 25,000 32.5
4/4/97 Purchase 2,200 32.5
4/4/97 Purchase 2,800 32.5
4/4/97 Purchase 300 32.5
4/4/97 Purchase 4,700 32.5
4/4/97 Sale 76 32.75
4/4/97 Sale 51 32.625
4/4/97 Sale 46 32.5
4/4/97 Sale 23 32.875
4/4/97 Sale 28,950 32.75
4/4/97 Sale 143,750 32.75
4/4/97 Sale 10,000 32.5
4/3/97 Sale 63 32.375
4/3/97 Sale 47 32.125
4/3/97 Sale 26 32.125
4/2/97 Purchase 1 32.75
4/2/97 Purchase 1 32.75
4/2/97 Sale 175 32.625
4/2/97 Sale 62 32.5
4/2/97 Sale 47 32.5
4/2/97 Sale 38 32.5
4/2/97 Sale 401 32.5
4/2/97 Sale 38 32.5
4/1/97 Sale 130 32.5
4/1/97 Sale 41 32.5
4/1/97 Sale 11 32.5
3/31/97 Purchase 2,500 32
3/31/97 Purchase 1,500 32.25
3/31/97 Purchase 1,000 32.125
3/31/97 Purchase 74 32.125
3/31/97 Purchase 1,000 32.125
3/31/97 Purchase 1,500 32.25
3/31/97 Purchase 2,500 32
3/31/97 Sale 21 32
3/31/97 Sale 7,500 32.125
3/31/97 Sale 5,000 32.125
3/31/97 Sale 5,000 32.25
3/31/97 Sale 1,800 31.875
</TABLE>
VIII-74
<PAGE> 383
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
3/31/97 Sale 500 32.125
3/31/97 Sale 2 31.875
3/31/97 Sale 5,000 32.25
3/27/97 Purchase 12 32.875
3/27/97 Sale 496 32.625
3/27/97 Sale 51 32.75
3/27/97 Sale 37 32.625
3/27/97 Sale 28 32.875
3/27/97 Sale 16 32.75
3/27/97 Sale 62,974 32.875
3/27/97 Sale 76,937 33
3/27/97 Sale 74 32.875
3/27/97 Sale 12 32.875
3/27/97 Sale 1 32.75
3/26/97 Purchase 15,000 31.75
3/26/97 Sale 3,125 31.875
3/26/97 Sale 42 31.75
3/26/97 Sale 37 32
3/26/97 Sale 33 31.75
3/26/97 Sale 5,000 31.75
3/26/97 Sale 10,000 31.9
3/25/97 Sale 17 30.375
3/25/97 Sale 15 30.125
3/25/97 Sale 2,600 30.375
3/25/97 Sale 650 30.5
3/25/97 Sale 62 30.25
3/25/97 Sale 500 30.375
3/24/97 Purchase 3,000 30
3/24/97 Purchase 2,925 30
3/24/97 Sale 36 30
3/24/97 Sale 31 30
3/24/97 Sale 27 29.875
3/24/97 Sale 47 29.875
3/24/97 Sale 9,900 30.1
3/21/97 Purchase 3,800 29.75
3/21/97 Purchase 2,500 29.75
3/21/97 Purchase 900 29.75
3/21/97 Purchase 700 29.75
3/21/97 Purchase 600 29.75
3/21/97 Purchase 500 29.75
3/21/97 Purchase 200 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 10,000 29.875
3/21/97 Purchase 500 29.75
</TABLE>
VIII-75
<PAGE> 384
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 600 29.75
3/21/97 Purchase 200 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 100 29.75
3/21/97 Purchase 700 29.75
3/21/97 Purchase 2,500 29.75
3/21/97 Purchase 3,800 29.75
3/21/97 Purchase 900 29.75
3/21/97 Sale 70 29.625
3/21/97 Sale 38 29.625
3/21/97 Sale 18 29.625
3/21/97 Sale 2,500 29.75
3/21/97 Sale 712 29.75
3/21/97 Sale 3,600 29.875
3/21/97 Sale 2,800 29.875
3/21/97 Sale 2,100 29.875
3/21/97 Sale 1,000 29.875
3/21/97 Sale 200 29.875
3/21/97 Sale 200 29.875
3/21/97 Sale 100 29.75
3/21/97 Sale 100 29.875
3/21/97 Sale 2,800 29.875
3/21/97 Sale 3,600 29.875
3/21/97 Sale 200 29.875
3/21/97 Sale 2,100 29.875
3/21/97 Sale 200 29.875
3/21/97 Sale 1,000 29.875
3/21/97 Sale 100 29.875
3/21/97 Sale 100 29.75
3/20/97 Purchase 10,000 29.85
3/20/97 Purchase 15,000 30.125
3/20/97 Purchase 10,000 30
3/20/97 Purchase 10,000 29.75
3/20/97 Purchase 5,000 29.75
3/20/97 Purchase 5,000 30
3/20/97 Sale 63 29.875
3/20/97 Sale 21 29.875
3/20/97 Sale 15,000 29.75
3/20/97 Sale 15,000 30.125
3/20/97 Sale 10,000 30
3/20/97 Sale 10,000 30
3/20/97 Sale 5,000 30
3/20/97 Sale 500 29.75
3/20/97 Sale 12 29.75
3/20/97 Sale 15,000 30.125
</TABLE>
VIII-76
<PAGE> 385
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
3/20/97 Sale 10,000 30
3/20/97 Sale 10,000 30
3/20/97 Sale 15,000 29.75
3/20/97 Sale 5,000 30
3/19/97 Purchase 12 30.875
3/19/97 Purchase 10,000 30.875
3/19/97 Sale 36 30.375
3/19/97 Sale 10,000 30.875
3/19/97 Sale 16 30.375
3/19/97 Sale 10,000 30.875
3/18/97 Purchase 40,000 31.125
3/18/97 Sale 166 31.25
3/18/97 Sale 40 31.25
3/18/97 Sale 30 31.25
3/18/97 Sale 28 31.25
3/18/97 Sale 21 31.25
3/18/97 Sale 10,000 31.125
3/18/97 Sale 10,000 31.125
3/18/97 Sale 10,000 31.125
3/18/97 Sale 9,200 31.125
3/18/97 Sale 800 31.125
3/18/97 Sale 12 31.375
3/18/97 Sale 12,450 31.875
3/18/97 Sale 10,000 31.125
3/18/97 Sale 10,000 31.125
3/18/97 Sale 10,000 31.125
3/18/97 Sale 800 31.125
3/18/97 Sale 9,200 31.125
3/17/97 Purchase 3,700 31.375
3/17/97 Purchase 2,700 31.375
3/17/97 Purchase 2,000 31.375
3/17/97 Purchase 500 31.375
3/17/97 Purchase 300 31.375
3/17/97 Purchase 200 31.375
3/17/97 Purchase 200 31.375
3/17/97 Purchase 200 31.375
3/17/97 Purchase 100 31.375
3/17/97 Purchase 100 31.375
3/17/97 Purchase 500 31.375
3/17/97 Purchase 300 31.375
3/17/97 Purchase 200 31.375
3/17/97 Purchase 200 31.375
3/17/97 Purchase 3,700 31.375
3/17/97 Purchase 100 31.375
3/17/97 Purchase 2,000 31.375
3/17/97 Purchase 100 31.375
3/17/97 Purchase 200 31.375
3/17/97 Purchase 2,700 31.375
3/17/97 Sale 35 31.375
3/17/97 Sale 12 31.25
3/17/97 Sale 3,750 31.375
</TABLE>
VIII-77
<PAGE> 386
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
3/17/97 Sale 27,450 32.5
3/17/97 Sale 10,000 32.375
3/17/97 Sale 10,000 31.875
3/17/97 Sale 5,000 31.375
3/14/97 Purchase 2,800 32.625
3/14/97 Purchase 1,000 32.625
3/14/97 Purchase 2,500 32.625
3/14/97 Purchase 24,700 32.625
3/14/97 Purchase 1,900 32.625
3/14/97 Purchase 50,000 32.5
3/14/97 Purchase 3,000 32.5
3/14/97 Sale 6,243 32.625
3/14/97 Sale 33 32.5
3/14/97 Sale 50 32.625
3/14/97 Sale 4,100 32.375
3/13/97 Purchase 2,500 32.25
3/13/97 Purchase 1,500 32.25
3/13/97 Purchase 100 32.25
3/13/97 Purchase 2,500 32.25
3/13/97 Purchase 100 32.25
3/13197 Purchase 1,500 32.25
3/13/97 Sale 250 32.375
3/13/97 Sale 36 32.375
3/13/97 Sale 30,000 33.02
3/13/97 Sale 2,525 32.7076
3/12/97 Sale 33 33.25
3/12/97 Sale 4,300 33.125
3/12/97 Sale 6,300 33
3/12/97 Sale 37 33
3/12/97 Sale 437 33.25
3/12/97 Sale 10,000 33.65
3/11/97 Purchase 10,000 33.5
3/11/97 Purchase 10,000 33.625
3/11/97 Purchase 600 34
3/11/97 Purchase 600 34
3/11/97 Purchase 10,000 33.625
3/11/97 Purchase 10,000 33.5
3/11/97 Sale 479 33.75
3/11/97 Sale 229 33.625
3/11/97 Sale 12 33.75
3/11/97 Sale 10,000 33.5625
3/10/97 Purchase 100 33.5
3/10/97 Purchase 100 33.5
3/10/97 Purchase 1 33.875
3/10/97 Purchase 100 33.75
3/10/97 Purchase 100 33.5
3/10/97 Purchase 100 33.5
3/10/97 Purchase 15,000 33.67
3/10/97 Purchase 9,700 33.5
3/10/97 Sale 48 33.5
3/10/97 Sale 47 33.75
</TABLE>
VIII-78
<PAGE> 387
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
3/10/97 Sale 40 33.5
3/10/97 Sale 741 33.5
3/10/97 Sale 1 33.625
3/10/97 Sale 100 33.625
3/10/97 Sale 15,000 33.67
3/10/97 Sale 9,000 33.6
3/7/97 Purchase 437 34
3/7/97 Purchase 87,200 33.68
3/7/97 Purchase 25,000 33.65
3/7/97 Sale 45 33.75
3/7/97 Sale 375 33.625
3/7/97 Sale 87,200 33.875
3/7/97 Sale 25,000 33.75
3/7/9 Sale 1,500 33.875
3/6/97 Sale 40 33.875
3/6/97 Sale 25 33.875
3/6/97 Sale 187 34.125
3/6/97 Sale 12 33.875
3/5/97 Purchase 500 33.5
3/5/97 Purchase 30,000 33.25
3/5/97 Sale 36 33.375
3/5/97 Sale 30 33.375
3/5/97 Sale 37 33.5
3/5/97 Sale 12 33.3
3/5/97 Sale 2,799 33.5
3/5/97 Sale 35,200 33.25
3/5/97 Sale 30,000 33.32
3/4/97 Purchase 162 34.5
3/4/97 Sale 99 34.375
3/4/97 Sale 41 34.125
3/4/97 Sale 36 34.125
3/4/97 Sale 162 34.375
3/4/97 Sale 5,000 34.4
3/4/97 Sale 5,000 34.18
3/3/97 Purchase 10,000 34
3/3/97 Sale 75 34
3/3/97 Sale 62 34
3/3/97 Sale 43 34
3/3/97 Sale 30 33.875
3/3/97 Sale 18 33.875
3/3/97 Sale 13 33.875
3/3/97 Sale 3 33.75
3/3/97 Purchase 5,000 33.375
2/28/97 Purchase 3,100 33.375
2/28/97 Purchase 2,000 33.375
2/28/97 Purchase 1,500 33.375
2/28/97 Purchase 1,500 33.375
2/28/97 Purchase 100 175
2/28/97 Purchase 5,000 33.375
2/28/97 Purchase 1,500 33.375
2/28/97 Purchase 2,000 33.375
</TABLE>
VIII-79
<PAGE> 388
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
2/28/97 Purchase 1,500 33.375
2/28/97 Purchase 3,100 33.375
2/28/97 Purchase 100 33.375
2/28/97 Sale 223 33.75
2/28/97 Sale 205 33.75
2/28/97 Sale 65 34
2/28/97 Sale 56 33.625
2/28/97 Sale 45 34.125
2/28/97 Sale 36 33.625
2/28/97 Sale 32 33.625
2/28/97 Sale 30 34
2/28/97 Sale 25 33.75
2/28/97 Sale 23 33.625
2/28/97 Sale 5,000 33.75
2/28/97 Sale 5,000 33.75
2/28/97 Sale 3,100 33.75
2/28/97 Sale 312 33.375
2/28/97 Sale 100 33.75
2/28/97 Sale 205 33.75
2/28/97 Sale 5,000 33.75
2/28/97 Sale 5,000 33.75
2/28/97 Sale 3,100 33.75
2/28/97 Sale 100 33.75
2/27/97 Purchase 5,397 34.875
2/27/97 Purchase 3,384 34.875
2/27/97 Purchase 1,895 34.875
2/27/97 Sale 63 34.75
2/27/97 Sale 36 34.75
2/27/97 Sale 22 34.75
2/27/97 Sale 7 34.75
2/27/97 Sale 3 34.75
2/26/97 Purchase 50,000 35.75
2/26/97 Purchase 25,000 35.5
2/26/97 Purchase 18,750 35.42
2/26/97 Purchase 16,250 35.5
2/26/97 Sale 237 35.375
2/26/97 Sale 33 35.375
2/26/97 Sale 28 35.375
2/26/97 Sale 27 35.375
2/26/97 Sale 32,000 35.5
2/26/97 Sale 3,000 35.375
2/26/97 Sale 50,000 35.875
2/26/97 Sale 25,000 35.75
2/26/97 Sale 35,000 35.5
2/25/97 Purchase 5,000 35.25
2/25/97 Purchase 20,000 36
2/25/97 Purchase 15,000 36
2/25/97 Purchase 10,000 36.125
2/25/97 Sale 23 35
2/25/97 Sale 10,000 36.125
2/25/97 Sale 35,000 36
</TABLE>
VIII-80
<PAGE> 389
<TABLE>
<CAPTION>
NUMBER OF ENERGY GROUP PRICE
DATE NATURE OF TRANSACTION ADSS ($)
---- --------------------- ---------------------- -------
<S> <C> <C> <C>
2/25/97 Sale 5,000 35.25
2/25/97 Sale 5,000 35.125
2/25/97 Sale 10,000 36.125
2/24/97 Purchase 10,000 36.65
2/24/97 Purchase 10,000 36.875
2/24/97 Sale 20,000 36.875
</TABLE>
(c) Save as disclosed in this document:
(1) neither TU Acquisitions, nor any Director or associate of TU
Acquisitions or any member of his immediate family or his related
trusts, nor any person acting, or deemed to be acting, in concert with
TU Acquisitions, nor any person who prior to the publication of this
document irrevocably committed himself to accept the Texas Utilities
Offer, owns or controls or (in the case of a Director of TU
Acquisitions) is interested in any relevant Energy Group securities or
any relevant Texas Utilities securities, nor has any such person dealt
for value in such securities during the disclosure period; and
(2) neither TU Acquisitions nor any person acting in concert with TU
Acquisitions has any arrangement with any person in relation to relevant
Energy Group securities or any relevant Texas Utilities securities.
5 OTHER INFORMATION
(a) Save as disclosed in this document there is no agreement, arrangement or
understanding (including any compensation arrangement) between TU
Acquisitions or any person acting in concert with it for the purposes of
the Texas Utilities Offer and any of the directors, recent directors,
shareholders or recent shareholders of The Energy Group having any
connection with or dependence upon, or which is conditional on, the outcome
of the Texas Utilities Offer.
(b) No proposal exists in connection with the Texas Utilities Offer for any
payment or other benefit to be made or given by TU Acquisitions or any
person acting in concert with it for the purpose of the Texas Utilities
Offer to any director of The Energy Group as compensation for loss of
office or as consideration for or in connection with his retirement from
office.
(c) The total emoluments receivable by Directors of TU Acquisitions will not be
varied as a result of the Acquisition or any other associated transactions.
(d) There is no agreement, arrangement or understanding whereby the beneficial
ownership of any of the Energy Group Securities to be acquired pursuant to
the Texas Utilities Offer will be transferred to any other person.
(e) Lehman Brothers and Merrill Lynch have given and not withdrawn their
respective written consents to the issue of this document with the
references to their names, including, in the case of Merrill Lynch, the
reference to their valuation of the Loan Notes, in the form and context in
which they appear. Lehman Brothers and Merrill Lynch are regulated in the
United Kingdom by The Securities and Futures Authority Limited.
(f) Save as disclosed in this document, there has been no material change in
the financial or trading position of Texas Utilities since 31 December
1997.
(g) Lehman Brothers and Merrill Lynch are satisfied that the financial
resources necessary to implement the Texas Utilities Offer in full are
available to TU Acquisitions.
6 MATERIAL CONTRACTS
(a) The following contracts, not being contracts entered into in the ordinary
course of business, have been entered into by Texas Utilities and its
subsidiaries, including TU Acquisitions, since 26 January 1996
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(being two years prior to the commencement of the offer period in relation to
The Energy Group) and are or may be material:
(i) the financing arrangements described in paragraph 8 below;
(ii) an Amended and Restated Agreement and Plan of Merger, dated as of 13
April 1996, by and among Texas Utilities Company, TUC Holding Company and
ENSERCH pursuant to which Texas Utilities issued approximately $550
million of its common stock to ENSERCH stockholders in a stock for stock
transaction;
(iii) an Agreement and Plan of Merger, dated as of 23 August 1997 between Texas
Utilities and LCC pursuant to which Texas Utilities issued approximately
8.7 million shares of Texas Utilities Common Stock to LCC stockholders in
a stock for stock transaction and approximately $31 million of LCC's
long-term debt remains outstanding; and
(iv) on 1 March 1998, Texas Utilities entered into an agreement with Lehman
Merchant relating to the Peabody Sale. This agreement provides for the
parties to make certain payments to each other to reflect the change in
the net assets of the Peabody Coal Business as shown in the
post-completion balance sheet and contains other payment obligations of
Texas Utilities in certain circumstances (including commitment fees in
relation to the finance required by Lehman Merchant and P & L Coal
Holdings Corporation, a Delaware corporation (the "Acquisition Entity")
for the Peabody Sale, which are payable in certain circumstances). Lehman
Merchant agrees to procure that the Acquisition Entity complies with its
obligations under the Peabody Sale Agreement (summarised below). Lehman
Merchant also agrees to provide financing of the Acquisition Entity and
to cause it to have equity which financing and equity will be sufficient
to pay the purchase price of the Peabody Coal Business. This agreement
provides for the separation of the Peabody Coal Business from the
retained business of The Energy Group (although The Energy Group will
continue after completion to guarantee and will give credit support (to
the extent required) in respect of certain existing debt of Citizens
Power, in an amount not to exceed US$300,000,000) and apportions certain
pre-existing liabilities. It provides that the Acquisition Entity will
indemnify Texas Utilities from the date of completion with regard to
claims, demands, suits and liabilities of any kind relating to (i) the
Peabody Coal Business and the past, present and future activities of
those companies conducting the Peabody Coal Business; and (ii) any
environmental and certain other legacy claims or liabilities relating to
activities or operations prior to such date of Peabody Investments, Inc.
or Peabody Global Investments, Inc. or any of their respective
subsidiaries or predecessors. In addition, Texas Utilities agrees to
cause The Energy Group to indemnify Lehman Merchant and the Acquisition
Entity against all claims, demand, suits and liabilities of any kind
relating to The Energy Group and its retained subsidiaries or affiliates.
As a person deemed to be acting in concert with Texas Utilities pursuant
to the provisions of the City Code, Lehman Merchant has given certain
undertakings to Texas Utilities. Lehman Merchant has agreed that neither
it nor any subsidiary will directly or indirectly (whether itself or
through persons acting in concert, as defined for the purposes of the
City Code) be involved in: (a) acquiring or seeking to acquire an
interest (as defined in Part VI of the Companies Act) in the share
capital (as defined) of The Energy Group; (b) announcing or making a
general offer for the share capital of The Energy Group; (c) announcing
or taking any step or action which under the City Code or otherwise would
require the announcement of any proposals for any takeover, merger,
consolidation, share exchange or similar transaction involving the
securities of The Energy Group; or (d) taking any step or action which
might give rise to a breach of Rule 4 of the City Code (which prohibits
certain dealings during an offer period) or any obligation on any person
under the City Code or otherwise: (i) to make any offer to acquire all or
part of the share capital of The Energy Group; or (ii) to increase,
revise, or vary the Texas Utilities Offer. These undertakings will
continue in full force and effect for so long as Lehman Merchant and
Texas Utilities are regarded by the Panel as acting in concert as regards
The Energy Group.
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Texas Utilities has agreed that it will not, without Lehman Merchant's
consent, change the terms and conditions of the Texas Utilities Offer in
a manner that could reasonably be expected to materially and adversely
affect Lehman Merchant, the Peabody Coal Business, the purchase of the
relevant shares by the Acquisition Entity or the financing thereof
(with, subject as set out below, it being agreed that this shall not
restrict the waiver of any Conditions to the Texas Utilities Offer
and/or an increase to the Texas Utilities Offer and/or a revision or
amendment of the Texas Utilities Offer so as to include a share
alternative). If Lehman Merchant can demonstrate that a matter or
circumstance which could rise to a right to invoke a Condition is (a) a
matter or circumstance which Lehman Merchant discovers after 1 March
1998; (b) a matter or circumstance which could reasonably be expected to
materially and adversely affect the Peabody Coal Business or the
purchase of the relevant shares by the Acquisition Entity or the
financing thereof; and (c) a matter or circumstance which is of material
significance in the context of the Texas Utilities Offer, Texas
Utilities agrees to procure that TU Acquisitions will not waive any
relevant Condition(s) of the Texas Utilities Offer without the prior
consent of Lehman Merchant. Notwithstanding the foregoing, neither Texas
Utilities nor TU Acquisitions are required to invoke any Condition of
the Texas Utilities Offer so as to cause the Texas Utilities Offer to
lapse if the Panel does not agree that any such Condition may be invoked
and/or that the Texas Utilities Offer may lapse as a result of failure
to waive any such Condition provided that Texas Utilities agrees to give
Lehman Merchant all reasonable opportunity and reasonable assistance in
making representations to the Panel that in such circumstances the
Conditions may be invoked so as to cause the Texas Utilities Offer to
lapse. In the absence of Panel agreement, no member of the Texas
Utilities Group shall have any obligation or liability to Lehman
Merchant on this issue. Texas Utilities has also agreed not to extend
the Texas Utilities Offer without Lehman Merchant's written consent to
an expiration date beyond four months from the announcement thereof,
unless the Texas Utilities Offer has become or is declared to be
unconditional.
(v)In a separate agreement with The Energy Group, Texas Utilities has
agreed that, in the event that the conditions set out below are
fulfilled, it will pay the sum of US$50 million in cash to The Energy
Group. The conditions referred to are: (a) the conditions to the Peabody
Sale Agreement referred to in sub-paragraphs (b), (c) and (d) of
paragraph 10 of the letter from Lehman Brothers and Merrill Lynch having
been satisfied or waived but the condition set out in sub-paragraph (e)
of that paragraph not remaining satisfied; (b) the Texas Utilities Offer
lapsing or being withdrawn, having not become or been declared
unconditional in all respects in circumstances in which Condition (b)
set out in Part A of Appendix I to this document is not fulfilled,
Conditions (c) to (m) have been fulfilled, remain satisfied and/or have
been waived and Condition (a) would, but for the second proviso
contained in that Condition, be capable of being declared satisfied; (c)
the Renewed PacifiCorp Offer (and any revision thereof) lapsing or being
withdrawn, having not become or been declared unconditional in all
respects; and (d) on or prior to 2 March 1999 neither Texas Utilities
nor PacifiCorp nor any associate of Texas Utilities or PacifiCorp (as
the case may be) having acquired control (as defined in Section 416 of
the Income and Corporation Taxes Act 1988) of The Energy Group pursuant
to a general offer at a cash price (or, if such offer is not a cash
offer, at a value of the consideration offered, on the date of
announcement of such offer) equal to or in excess of 765p per Energy
Group Share.
(b) In addition, on 2 March 1998 the Peabody Sale Agreement was entered into
between The Energy Group and the "Acquisition Entity". It is conditional on
fulfillment of the conditions set out in paragraph 10 of the letter from
Lehman Brothers and Merrill Lynch. The total consideration payable in
respect of the sale of the Peabody Coal Business is approximately $2.3
billion, payable in cash on completion of the Peabody Sale Agreement, plus
the assumption of debt. Completion is expected to take place on the same
day that the Texas Utilities Offer becomes or is declared unconditional in
all respects. Each of the parties to the Peabody Sale Agreement gives
certain warranties concerning, principally, due execution of the Peabody
Sale Agreement and The Energy Group in addition warrants title to the
various shares to be transferred to the Acquisition Entity. The Energy
Group gives certain undertakings to the Acquisition Entity concerning the
conduct of the Peabody Coal Business prior to completion of the Peabody
Sale; it is
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agreed that the relevant companies will be directed to conduct their
business in the ordinary and usual course as currently carried on by such
companies and their subsidiaries and that no action will be taken with
regard to such companies or their respective subsidiaries which would, if
such companies and their subsidiaries taken as a whole were an offeree
company subject to the City Code, amount to an action requiring the
approval of shareholders in general meeting under Rule 21 of the City Code
(namely, issuing any authorised but unissued shares, issuing or granting
options in respect of any unissued shares, creating or issuing securities
with rights of conversion into shares, agreeing to sell or acquire assets
of a material amount and entering into contracts other than in the ordinary
course of business). By a letter dated 2 March 1998, Texas Utilities agreed
to indemnify and hold harmless The Energy Group and certain connected
persons, including directors of The Energy Group, from and against, inter
alia, claims relating to or arising in connection with the Peabody Sale
Agreement, subject to certain exceptions.
7 BACKGROUND TO AND REASONS FOR THE TEXAS UTILITIES OFFER
BACKGROUND TO THE TEXAS UTILITIES OFFER
In December 1997, Texas Utilities was contacted by representatives of Lehman
Brothers to generally discuss the possibility of an acquisition involving The
Energy Group. In those discussions, Lehman Brothers indicated that they had
identified a potential purchaser of the Peabody Coal Business (which includes
Citizens Power).
In January 1998, Texas Utilities engaged Lehman Brothers and Merrill Lynch as
its financial advisors with respect to evaluating any potential transaction
involving The Energy Group. Lehman Brothers advised at that time that Lehman
Merchant was the potential purchaser of the Peabody Coal Business.
On 19 January 1998, Erle A. Nye, Chairman and Chief Executive of Texas
Utilities, contacted Derek Bonham, Chairman of The Energy Group to indicate
Texas Utilities' interest in exploring a possible acquisition of The Energy
Group. Mr Nye indicated that a team comprised of Texas Utilities'
representatives as well as legal and financial advisors would be arriving in
London to begin conducting due diligence activities.
On 23 January 1998, H. Jarrell Gibbs, Vice-Chairman of Texas Utilities met with
Mr Bonham to discuss further Texas Utilities' interest in exploring a potential
acquisition of The Energy Group. Mr Gibbs and Mr Bonham discussed the background
of the Texas Utilities Group and the strategic advantages of a possible
acquisition as well as the possibility of the sale of the Peabody Coal Business
to a third party. Mr Gibbs requested access to information and representatives
of The Energy Group to begin its due diligence review.
On 23 January 1998, a confidentiality agreement was executed between the
parties, establishing the terms under which further discussions would proceed.
Thereafter, Texas Utilities engaged in a due diligence review of The Energy
Group and conducted negotiations with Lehman Merchant regarding their purchase
of the Peabody Coal Business.
On 23 January 1998, Texas Utilities held a meeting of the Business Development
Committee of its Board of Directors to present its preliminary views on a
possible acquisition of The Energy Group.
On 27 January 1998, Mr Gibbs, Robert S. Shapard, Vice President and Treasurer of
Texas Utilities, and representatives of Texas Utilities' advisors met with Eric
E. Anstee, Financial Director of The Energy Group, and several of his
colleagues. At this meeting, Mr Anstee presented financial and operational
information on The Energy Group.
On 30 January 1998, Mr Gibbs, Mr Shapard and Robert A. Wooldridge, counsel to
Texas Utilities, met with John F. Devaney, Chief Executive of Eastern, to
introduce Texas Utilities to Mr Devaney and to further discuss The Energy Group
but did not have substantive discussions relating to a potential transaction.
On 5 February 1998, Mr Gibbs again met with Mr Bonham to present Texas
Utilities' views as to possible structure of a transaction and indicated that
Texas Utilities remained interested in The Energy Group following the Renewed
PacifiCorp Offer.
On 12 February 1998, Mr Gibbs met with Mr Anstee to further discuss their
respective companies but did not have substantive discussions relating to a
potential transaction.
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On 13 February 1998, Mr Gibbs again met with Mr Devaney to further discuss
Eastern.
On 19 and 20 February 1998, the Board of Directors of Texas Utilities met.
Senior executives of Texas Utilities and the company's financial and legal
advisers discussed in detail all aspects of a proposed transaction and reported
on the due diligence examination of The Energy Group. Thereupon, the Board of
Directors unanimously approved a resolution granting company management the
authority to make an offer.
On 23 February 1998, Mr Nye met with Mr Bonham to discuss a possible acquisition
of The Energy Group. Mr Nye informed Mr Bonham on the actions taken by the Texas
Utilities Board of Directors and other activities to date in relation to the
possible acquisition. They also discussed the strategic advantages of a possible
acquisition and discussed a range of values for The Energy Group.
On 25 February 1998, Mr Nye met with Mr Devaney and on 26 February, Mr Nye and
Mr Gibbs met with Mr Anstee and in both meetings the parties discussed their
respective companies and various management and corporate matters.
On 1 March 1998, Texas Utilities completed negotiations with Lehman Merchant
regarding the acquisition of the Peabody Coal Business from The Energy Group.
On 1 March 1998, Mr Nye again met with Mr Bonham to present an offer at a price
of 810 pence per Energy Group Share.
On 2 March 1998, the Boards of Texas Utilities and the Energy Group announced
the terms of a recommended offer at a price of 810 pence per Energy Group Share.
On 3 March 1998 Texas Utilities announced an increased offer at a price of 840
pence per Energy Group Share in response to the Increased PacifiCorp Offer.
REASONS FOR THE TEXAS UTILITIES OFFER
Texas Utilities has formulated a strategy to position itself to thrive in a more
competitive environment and to identify new business investments that both
capitalise on its core competencies and are complementary to its existing
portfolio of businesses in order to grow earnings, broaden its markets beyond
the traditional service areas and expand customer services.
The acquisition of The Energy Group is further confirmation of Texas Utilities'
commitment to this strategy. The Energy Group comprises a unique blend of
electricity generation, supply and distribution assets, combined with strengths
in natural gas and energy trading. Texas Utilities believes that the highly
complementary nature of these activities to those of Texas Utilities, combined
with The Energy Group's experience of operating within a deregulating market,
will enable the enlarged group to capitalise upon the sharing of the expertise
and best practices that reside within the two groups in each of these areas.
Texas Utilities expects the transaction to be earnings and cash flow enhancing
in the first complete year following completion of the Acquisition and
thereafter (prior to considering any synergy or other benefits that the
transaction may give rise to). This statement should not be interpreted to mean
that the future earnings per share of Texas Utilities, as enlarged by the
acquisition of The Energy Group, will necessarily be greater than the historical
published earnings per share of Texas Utilities.
8 FINANCING ARRANGEMENTS
TU Acquisitions estimates that the total amount of financing necessary to
purchase, pursuant to the Texas Utilities Offer and the compulsory acquisition
procedures referred to in paragraph 9 below or otherwise, all Energy Group
Securities that are outstanding, and to pay all associated fees costs and
expenses, is approximately L4,594 million. Financing arrangements have been
entered into, directly or indirectly, by the indirect holding company of TU
Acquisitions, TU Finance (No. 1) Limited ("TUF"), and by Texas Utilities itself
which provide committed finance which is considered to be sufficient for such
purposes and TUF and Texas Utilities have agreed to pass on to TU Acquisitions,
by means of a combination of subscribing for shares and perpetual loan notes in
TU Acquisitions, and by making intercompany loans to TU Acquisitions, the
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proceeds of borrowings to be made by TUF and Texas Utilities under those
arrangements. The principal terms of those arrangements are as follows:
TUF ARRANGEMENTS
TUF has entered into a facilities agreement for L3,625 million credit facilities
dated 2 March 1998, as amended by an Amendment Agreement dated 3 March 1998 (the
"TUF Credit Agreement"), arranged by Chase Manhattan plc, Lehman Brothers
International and Merrill Lynch Capital Corporation (the "TUF Arrangers"), under
which The Chase Manhattan Bank, Lehman Commercial Paper Inc. and Merrill Lynch
Capital Corporation are the Underwriters (committing on a several one-third
basis to provide the entire facilities) and Chase Manhattan International
Limited is Facility Agent and Security Agent (together the "Agent"). Pursuant to
the TUF Credit Agreement, TUF is entitled to borrow up to L2,925 million by way
of acquisition and interim advances for the purpose of financing the acquisition
of Energy Group Securities and associated purposes and TUF and/or any permitted
borrower (which includes the members of the TEG Group) are entitled to borrow up
to L700 million by way of revolving advances for the purpose of refinancing
borrowings of the TEG Group and for general corporate purposes (subject to L250
million of that amount being made available under the REC Facility Agreement as
referred to below).
Pursuant to the provisions of the TUF Credit Agreement, on the date the Texas
Utilities Offer becomes or is declared unconditional, a standalone L250 million
revolving credit facility will be granted to Eastern (the "REC Facility
Agreement"). The REC Facility Agreement will not be cross-defaulted to the TUF
Credit Agreement and there will be no cross-guarantee given by Eastern or any of
its subsidiaries in respect of the obligations of any of the borrowers under the
TUF Credit Agreement. Advances under the REC Facility Agreement will bear
interest at the aggregate of the applicable margin, the mandatory liquid asset
cost and the relevant London interbank offered rate as determined in accordance
with normal provisions for large syndicated facilities ("LIBOR"). The applicable
margin thereunder is 0.50 per cent.
All the advances under the TUF Credit Agreement bear interest at the aggregate
of the applicable margin, the mandatory liquid asset costs and LIBOR. The
applicable margin is initially 1.25 per cent. per annum until the interim
advances have been repaid and the leverage ratio is between 65 per cent. and 60
per cent. when the rate reduces to 1 per cent. and if the leverage ratio reduces
to below 60 per cent. the rate will further reduce to 0.75 per cent.
Of the total L2,925 million available to finance the acquisition of Energy Group
Securities, the first L1,775 million is to be drawn by way of acquisition
advances and thereafter the remainder by way of interim advances. The interim
advances are repayable within ten months of the date of the TUF Credit
Agreement. An additional mandatory prepayment will be repaid out of or by
reference to the proceeds of the Peabody Sale, which are to be upstreamed,
directly or indirectly, to TU Acquisitions and to TUF. The methods available to
TUF and TU Acquisitions in order to upstream such proceeds include any one or
more of intercompany loans out of the TEG Group in accordance with sections 155
to 158 of the Companies Act or the purchase of own shares of The Energy Group,
and TUF and TU Acquisitions have agreed to take the steps necessary to lawfully
upstream such proceeds as soon as practicable after the Texas Utilities Offer
becomes or is declared unconditional.
The acquisition and interim facilities contain an alternative for financing
payments due under the Loan Notes, either by means of the facilities continuing
for five years to be available for that purpose or by means of a drawing being
made ten months after the date of the TUF Credit Agreement and retained in a
blocked account for application in meeting such payments.
Of the remaining acquisition advances, L600 million is repayable on the second
anniversary of the date of the TUF Credit Agreement (such repayment subject to
reduction for previously applied repayments other than repayments of the interim
advances) and the balance is repayable on the fifth anniversary.
The availability of the advances is subject to a number of conditions precedent,
and the majority of these have already been acknowledged by the Agent as
fulfilled. The conditions precedent which had not been fulfilled at the date of
this Offer Document were confined to matters which inevitably would not be
fulfilled until a later
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stage and which include conditions: that the funds to be contributed by Texas
Utilities to TU Acquisitions and TUF have been duly paid; a confirmation that
the terms and conditions of the Texas Utilities Offer have not been waived,
amended, varied or declared to be satisfied other than in accordance with the
terms of the TUF Credit Agreement; that the Office of Fair Trading has indicated
that it is not the intention of the Secretary of State for Trade and Industry to
refer the Acquisition to the Monopolies and Mergers Commission; confirmation
that the Peabody Sale Agreement has become unconditional save for conditions
relating to the Texas Utilities Offer becoming unconditional (and that the
consideration has been received in escrow by the TEG Group); and confirmation
that the Texas Utilities Offer has become or has been declared unconditional in
all respects.
There is a covenant that TU Acquisitions will comply with Rule 10 of the City
Code, which requires, in summary, that it shall not declare the Texas Utilities
Offer unconditional unless TU Acquisitions has acquired or agreed to acquire
Energy Group Shares carrying in aggregate more than 50 per cent. of the voting
rights exercisable at general meetings of The Energy Group. Apart from that
covenant, which does no more than incorporate into the TUF Credit Agreement a
provision which is applicable to all offers governed by the City Code, there are
no covenants or conditions precedent or other provisions which limit the
flexibility of TU Acquisitions to declare the Texas Utilities Offer
unconditional at any level of acceptances which it may in its discretion decide.
Advances under the TUF Credit Agreement for the purpose of acquiring Energy
Group Securities during the Certain Funds Period (which, if the Texas Utilities
Offer has not previously lapsed or been withdrawn, covers the period through to
the fifteenth day after the last closing date of the Texas Utilities Offer
(extended if necessary to include any further period during which the compulsory
acquisition procedures referred to in paragraph 9 below are being implemented)
but subject to a final cut-off seven months after the date of the Texas
Utilities Offer) enjoy "certain funds" protection. This means that the only
condition to the lending banks' obligations to make such advances during such
period, once the conditions precedent referred to in the preceding paragraph
have been satisfied or waived, is that no Major Default has occurred; for these
purposes a Major Default is an insolvency of TU Acquisitions or TUF or TU
Finance (No. 2) Limited, which is the intermediate holding company of TU
Acquisitions (which is also a subsidiary of TUF) (which are referred to together
in this section as the "Relevant Offeror Companies"), an amendment of the
Peabody Sale Agreement without the lending banks' consent, a breach of the
covenants given in respect of the conduct of the Texas Utilities Offer, a breach
of representation concerning the validity of the TUF Credit Agreement, a default
which is within the Relevant Offeror Companies' power to remedy within seven
days but which is not remedied within seven days after notice and, in respect of
advances to purchase under the compulsory acquisition procedures referred to in
paragraph 9 below only, insolvency of certain key TEG Group companies.
The TUF Credit Agreement also includes the following provisions:
Representations and warranties as to matters that are normal in such context,
but the only matters represented which would have any effect during the Certain
Funds Period relate to the Relevant Offeror Companies and in particular to
corporate standing and powers, legality and validity of obligations and the
companies being clean companies. The representations given in respect of the TEG
Group do not apply until 120 days after the date the Texas Utilities Offer
becomes or is declared wholly unconditional (the "Unconditional Date").
Financial undertakings to maintain a ratio of earnings before interest, tax,
depreciation and amortisation to net interest costs of not less than 2:1 and a
leverage ratio (expressing borrowings of the group as a percentage of total
capitalisation) of not more than 70 per cent. until 30 September 2000 and 65 per
cent. thereafter. Such undertakings are not relevant to the certain funds
protection.
The covenants given in respect of the Texas Utilities Offer are: to comply with
the City Code and applicable law; to keep the Facility Agent informed of
progress; not declare the Offer unconditional at a level of acceptances below
that required by Rule 10 of the City Code; not without the consent of the TUF
Arrangers acting on the instructions of a 66 2/3 per cent. (by value) majority
of the lending banks to waive, amend, or agree or decide not to enforce
Conditions (b) and (c); not without the consent of the TUF Arrangers acting on
the instructions of a 66 2/3 per cent. (by value) majority of the lending banks
(such consent not to be unreasonably withheld or delayed) to waive, amend (save
for an extension of the offer period), or agree or
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decide not to invoke any other material Conditions, provided that there shall be
no breach of this provision if directions of the Panel are being followed; to
lapse the Texas Utilities Offer if grounds to do so exist and the Panel agrees
to such lapse if in the reasonable opinion of the above majority of lending
banks the same would have a material and adverse effect on the ability of the
borrowers to comply with their material obligations under the TUF Credit
Agreement; to lapse the Texas Utilities Offer if grounds to do so exist and the
Panel agrees to such lapse if undertakings and assurances as are referred to in
Condition (e) are required or modifications to the Licences (being licenses
granted under section 6 of the Electricity Act 1989 to carry on distribution,
supply and generation of electricity and under section 7 of the Gas Act of 1986)
as are referred to in Condition (d) are required or any terms are proposed for
any other authorisation or determination which in the reasonable opinion of the
above majority of lending banks would have a material and adverse affect on the
ability of the borrowers to comply with their material obligations under the TUF
Credit Agreement; the important proviso is that the lending banks cannot require
the Texas Utilities Offer to be lapsed if the proposed modifications to the said
Licences or the terms of the proposed undertakings or assurances are no more
onerous than those set out and required by the DGES from PacifiCorp in
accordance with the terms of the Monopolies and Mergers Commission Report into
the Original PacifiCorp Offer for The Energy Group published on 19 December
1997.
The TUF Credit Agreement also contains a covenant to procure that companies in
the TEG Group shall give guarantees in respect of the indebtedness of the
borrowers thereunder save where: the same would be unlawful or contrary to
regulation and it is not legally possible for the same to be rendered lawful;
the same would reasonably be expected to breach a condition of the Licences and
as a result would entitle the Secretary of State for Trade and Industry to
revoke or withdraw such Licences or amend the Licences in a manner which would
reasonably be expected to have a material adverse effect; the same would cause
the TEG Group's public debt to become repayable or subject to put rights to
similar effect and (either) there is not sufficient headroom in available
facilities to enable it to refinance or, even if there is sufficient headroom,
the financial consequences of refinancing would be so materially adverse
(whether in terms of coupon or otherwise) that it would be unreasonable to
require such refinancing.
There are standard negative undertakings, including: a negative pledge to which
there are a number of exceptions including any security on TEG Group assets at
the Unconditional Date; a covenant against borrowing to which there are a number
of exceptions including existing TEG Group borrowings or any refinancing
thereof, new borrowings which do not breach the leverage ratio covenant and only
by The Energy Group itself and after it had given a guarantee, and limited
recourse borrowing of project finance subsidiaries; a disposals covenant to
which there are a number of exceptions including the Peabody Sale, disposals in
the ordinary course of trading, disposals of up to 10 per cent. of gross assets
in any financial year and any other disposal the proceeds of which are used to
repay the facilities; covenants relating to the Licences and to compliance with
the terms thereof; restrictions on the payment of dividends by TUF except to the
extent dividends could be paid without breaching the leverage ratio and only
after TU Acquisitions owns at least 90 per cent. of the Energy Group Securities;
restrictions on changing business of the TEG Group outside the electricity, gas,
water, telecommunications industries (save that up to 10 per cent. of the assets
or revenues of the TEG Group may comprise other businesses); ring-fence
covenants restricting the activities that the Relevant Offeror Companies are
permitted to do; restrictions on acquisitions outside core business except
through limited recourse project finance subsidiaries.
No covenant (except the financial undertakings) shall apply to the TEG Group
until the date 120 days after the Unconditional Date but the Relevant Offeror
Companies agree to use their commercially reasonable endeavours to run the TEG
Group as if such covenants did apply.
The events of default include: non-payment (subject to a limited three banking
day grace period), breach of undertaking or misrepresentation (both subject to a
limited ability to remedy defaults within 21 days); cross-default of other
borrowed money over a threshold of L20 million; legal process; insolvency events
(including winding-up, administration, receivership and dissolution); change of
control of TU Acquisitions or TUF; cessation of the distribution business or
changes to the regulatory regime that would be reasonably likely to have a
material adverse effect; loss of the Licence or the modification of it that
would be reasonably likely to have a material adverse effect; repeal or
amendment of the Electricity Act 1989 or non-compliance with an
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order made under that Act which, in either case would be reasonably likely to
have a material adverse effect; Eastern or any of its subsidiaries ceases to be
a party to a pooling and settlement agreement dated 30th March 1990 made between
Eastern and the National Grid Company plc; Eastern or any of its subsidiaries
ceases to be a party to a gas framework agreement dated 1st March 1991 made
between British Gas Transco and Eastern Natural Gas (Retail) Limited and this
would be reasonably likely to have a material adverse effect; illegality or
unlawfulness; change of control of Texas Utilities; waiver or amendment of the
Peabody Sale Agreement without consent.
An event of default will not entitle the lending banks to accelerate the
facilities made available under the TUF Credit Agreement or to cancel their
commitments during the Certain Funds Period; the lending banks would only have
that entitlement if a Major Default occurred, as described above. Additionally,
several of the above events are not applied to the TEG Group until 120 days
after the Unconditional Date.
The TUF Credit Agreement also contains provisions relating to repayment,
prepayment, cancellation and reductions; fees and expenses; payments and taxes;
accounts and calculations, indemnities; unlawfulness, increased costs, and
alternative interest rates; assignment, substitution and lending offices,
clauses relating to the Agent and notices.
TEXAS UTILITIES ARRANGEMENTS
Texas Utilities together with certain of its subsidiaries (each a "Borrower")
have entered into a 364 Day Competitive Advance and Revolving Credit Facility
Agreement for US$3,600 million credit facilities (the "TU Facility A Agreement")
and a 5 year Competitive Advance and Revolving Credit Facility Agreement (the
"TU Facility B Agreement") for US$1,400 million credit facilities, each dated as
of 2 March 1998, as amended on 3 March 1998, and arranged by Chase Securities
Inc., Lehman Brothers Inc. and Merrill Lynch & Co., under which The Chase
Manhattan Bank, Lehman Brothers Commercial Paper and Merrill Lynch Capital
Corporation are the Underwriters (committing on a several one-third basis to
provide the entire facilities), Chase Bank of Texas, National Association is the
Administrative Agent and The Chase Manhattan Bank is the Competitive Advance
Facility Agent. Texas Utilities has also entered into an interim 364 Day
Competitive Advance and Revolving Credit Facility Agreement (Interim Facility)
dated as of 6 March 1998 with the same Initial Underwriters and Joint Lead
Arrangers as in the TU Facility A Agreement for the purpose of financing the
purchase of Energy Group Shares in the UK market through draws or backstop of
commercial paper issuances. Any draws under such Interim Facility will be repaid
through drawings on the TU Facility A Agreement at or about the time the Texas
Utilities Offer becomes or is declared unconditional in all respects.
Pursuant to the TU Facility A Agreement, by way of revolving standby loans (each
a "Standby Loan") and competitive loans pursuant to a bidding procedure (each a
"Competitive Loan"), Texas Utilities is entitled to borrow up to $2,800 million
for the sole purpose of financing or refinancing equity or subordinated loan
advances from Texas Utilities to TUF for the purpose of on loaning to TU
Acquisition to finance the acquisition of Energy Group Securities and each of
the Borrowers are entitled to borrow up to an aggregate $800 million for the
purpose of refinancing certain of their existing borrowings and for working
capital and other corporate purposes, including commercial paper back-up.
Borrowings under the TU Facility B Agreement may be applied for refinancing,
working capital and corporate purposes, including borrowings for the purpose of
paying certain expenses incurred in connection with the Texas Utilities Offer.
Each Standby Loan at the option of the Borrower will bear interest at either the
aggregate of the applicable margin and LIBOR (in which case a "Eurodollar
Standby Loan") or at the aggregate of the Alternate Base Rate (being a rate
equal to the greatest of (a) the Federal Funds Effective Rate plus 0.5 per
cent., (b) the Base CD Rate plus 1 per cent. and (c) the Prime Rate publicly
announced by the Chase Manhattan Bank) and the applicable margin (in each case
an "ABR Loan").
Each Competitive Loan, at the option of the Borrower, will bear interest at
either the aggregate of the competitive bid margin and LIBOR (in which case a
"Eurodollar Competitive Loan" and, together with the
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Eurodollar Standby Loans, the "Eurodollar Loans") or at the fixed rate specified
by the chosen lender in its competitive bid (in which case a "Fixed Rate Loan").
The applicable margin for the first six months of the facility is 0% for ABR
Loans, and 1.05% for Eurodollar Loans. After six months the margin varies
according to the debt ratings assigned by S&P and Moody's to Texas Utilities
subject to a maximum for Eurodollar Loans of 1.25% and for ABR Loans of 0.25%.
Each loan is repayable on the earlier of the last day of the interest period
applicable to it and the maturity date. The maturity date will be the 364th
calendar day after execution of the TU Facility A Agreement unless, provided no
default has occurred and is continuing, the Borrowers elect to extend for
another 364 days.
The interest period in respect of Eurodollar Loans shall be 1, 2, 3 or 6 months
except that, until general syndication is completed, it shall be 1 month or such
other period as the arrangers and Texas Utilities shall agree as being necessary
to effect the transfer of participations following syndication. In respect of
ABR Loans the interest period will commence on the date of the borrowing and end
on the earliest of (i) the last day of the next succeeding quarter, (ii) the
maturity date and (iii) the date of repayment or prepayment in accordance with
the provisions of the TU Facility A Agreement. For a Fixed Rate Loan, the
interest period shall commence on the date of the borrowing and end on the date
specified in the competitive bid, being not less than 7 days nor more than 360
days.
The availability of the advances is subject to a number of conditions precedent,
and the majority of these have already been acknowledged by the Competitive
Advance Facility Agent as fulfilled. The outstanding conditions precedent
include satisfaction of the conditions precedent to the advance of funds for the
acquisition of Energy Group Securities under the TUF Credit Facility as
described above and declaration of the Texas Utilities Offer as unconditional.
Advances under the facility for the purpose of acquiring Energy Group Securities
during the period of 364 days after its execution (provided the Texas Utilities
Offer is not previously lapsed or withdrawn, and is posted within 28 days of
satisfaction of the conditions precedent) enjoy "certain funds" protection. This
means that the only condition to the Banks' obligations to make such advances
during such period, once the conditions precedent referred to in the preceding
paragraph have been satisfied or waived is that no Major Default has occurred.
Major Defaults are the same as those described with respect to the TUF
arrangements above, applied to the Borrowers.
The TU Facility A Agreement also includes the following provisions:
Representations and warranties as to matters that are normal in such context but
the only matters represented which would have any effect during the period of
certain funds protection relate only to the Borrowers and in particular to
corporate standing and powers and legality and validity of obligations.
Financial undertakings by Texas Utilities to maintain a ratio of earnings before
interest, tax, depreciation and amortisation to net interest costs of not less
than 1.5 to 1 and a leverage ratio (expressing consolidated shareholder's equity
of the group as a percentage of the group's total capitalisation) of not less
than 26 per cent. until 30 June 1999, 30 per cent. from 30 June 1999 until 30
June 2000 and 35 per cent. thereafter. Such undertakings are not relevant to the
certain funds protection.
Covenants given by Texas Utilities in respect of the Texas Utilities Offer which
mirror those given by TUF in the TUF Credit Agreement as are detailed above.
There are standard negative undertakings, including limitations on liens,
restrictions on certain mergers, consolidations and changing the nature of the
business of Texas Utilities or its subsidiaries.
No covenant shall apply to the TEG Group until the date 120 days after the
Unconditional Date but Texas Utilities agrees to use all reasonable endeavours
to cause The Energy Group and all members of the TEG Group to comply with such
covenants on and after the Unconditional Date.
The events of default include: non-payment, breach of representations or
warranties; cross-default of other borrowed money subject to a de minimis amount
of US$40 million; legal judgments rendered against Texas Utilities or a
subsidiary in an aggregate amount in excess of US$50 million; insolvency events
(including
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winding-up, administration, receivership and dissolution); change of control of
Texas Utilities; Texas Utilities not holding all of the stock of TU Electric and
at least 51% of ENSERCH.
An event of default will not entitle the lending banks to accelerate the
facilities made available under the TU Facility A Agreement or to cancel their
commitments during the period of certain funds protection; the lending banks
would only have that entitlement if a Major Default occurred. Additionally, the
cross-default is not applied to the TEG Group until 120 days after the
Unconditional Date.
The TU Facility A Agreement also contains provisions relating to repayment,
prepayment, cancellation and reductions; fees and expenses; payments and taxes;
accounts and calculations, indemnities; unlawfulness, set-off, increased costs,
and alternative interest rates; assignment, clauses relating to the
Administrative Agent and the Competitive Advance Facility Agent and notices.
9 COMPULSORY ACQUISITION
If, within four months after the date of this document, as a result of the Texas
Utilities Offer or otherwise, TU Acquisitions acquires or contracts to acquire
Energy Group Shares (including Energy Group Shares represented by Energy Group
ADSs) representing at least 90 per cent. in value of Energy Group Shares
(including Energy Group Shares represented by Energy Group ADSs) to which the
Texas Utilities Offer relates, then (a) TU Acquisitions will be entitled and
intends to effect the compulsory acquisition procedures provided for in sections
428 to 430F of the Companies Act to compel the purchase of any outstanding
Energy Group Shares on the same terms as provided in the Texas Utilities Offer
in accordance with the relevant procedures and time limits described in such
Act, and (b) a holder of Energy Group Shares (including Energy Group Shares
represented by Energy Group ADSs) may require TU Acquisitions to purchase his
Energy Group Shares (including Energy Group Shares represented by Energy Group
ADSs) on the same terms as provided in the Texas Utilities Offer in accordance
with the relevant procedures and time limits described in section 430A of the
Companies Act.
If for any reason the above-mentioned compulsory acquisition procedures are not
invoked, TU Acquisitions will evaluate other alternatives to obtain the
remaining Energy Group Shares (including Energy Group Shares represented by
Energy Group ADSs) not purchased pursuant to the Texas Utilities Offer or
otherwise. Such alternatives could include acquiring additional Energy Group
Securities in the open market, in privately negotiated transactions, through
another offer to purchase, by means of a scheme of arrangement under the
Companies Act or otherwise. Any such additional acquisitions could be for a
consideration greater or less than, or equal to, the consideration for Energy
Group Securities under the Texas Utilities Offer. However, under the City Code,
except with the consent of the Panel, TU Acquisitions may not acquire any Energy
Group Securities on better terms than those of the Texas Utilities Offer within
six months of the termination of the Texas Utilities Offer if TU Acquisitions,
together with any persons acting in concert with it (as defined by the City
Code), holds following the Texas Utilities Offer, shares carrying more than 50
per cent. of the voting rights normally exercisable at general meetings of The
Energy Group.
Holders of Energy Group Securities do not have appraisal rights as a result of
the Texas Utilities Offer. However, in the event that the compulsory acquisition
procedures referred to above are available to TU Acquisitions, holders of Energy
Group Securities whose Energy Group Securities have not been purchased pursuant
to the Texas Utilities Offer will have certain rights to object under section
430C of the Companies Act.
10 CERTAIN CONSEQUENCES OF THE TEXAS UTILITIES OFFER
(A) MARKET EFFECT
The purchase of Energy Group Securities pursuant to the Texas Utilities Offer
will reduce the number of holders of Energy Group Securities and the number of
the Energy Group Securities that might otherwise trade publicly and, depending
upon the number of Energy Group Securities so purchased, could adversely affect
the liquidity and market value of the remaining Energy Group Securities held by
the public. In addition, Energy Group Shares will cease to be listed on the
London Stock Exchange and Energy Group ADSs will
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cease to be listed on the NYSE if TU Acquisitions completes the compulsory
acquisition procedures referred to in paragraph 9 above. Whether or not TU
Acquisitions is in a position to effect the compulsory acquisition of any
outstanding Energy Group Shares in accordance with the Companies Act as referred
to above, and irrespective of the size of any outstanding minority in The Energy
Group, TU Acquisitions intends to seek to procure, after the Texas Utilities
Offer becomes or is declared unconditional, an application by The Energy Group
to the London Stock Exchange for Energy Group Shares to be delisted and an
application by The Energy Group to the NYSE for Energy Group ADSs to be
delisted.
(B) PUBLIC AVAILABILITY OF INFORMATION
In the event that Energy Group Shares continue to be listed on the London
Stock Exchange following the purchase of Energy Group Securities pursuant to the
Texas Utilities Offer, holders of Energy Group Shares who have not tendered
their Energy Group Shares pursuant to the Texas Utilities Offer will continue to
receive the same financial and other information from The Energy Group that The
Energy Group presently is required by the rules of the London Stock Exchange to
send to such holders. If Energy Group Shares are no longer listed on the London
Stock Exchange following the Texas Utilities Offer, The Energy Group would no
longer be required by those rules to make publicly available such financial and
other information.
Energy Group ADSs are currently registered under the Exchange Act.
Registration of such Energy Group ADSs may be terminated upon application of The
Energy Group to the SEC if Energy Group ADSs are neither listed on a national
securities exchange nor held by 300 or more beneficial owners in the US.
Termination of registration of Energy Group ADSs under the Exchange Act would
substantially reduce the information required to be furnished by The Energy
Group to holders of Energy Group ADSs and to the SEC and would make certain
provisions of the Exchange Act, such as the requirements of Rule 13e-3
thereunder with respect to "going private" transactions, no longer applicable to
The Energy Group. Furthermore, "affiliates" of The Energy Group and persons
holding "restricted securities" of The Energy Group may be deprived of the
ability to dispose of such securities pursuant to Rule 144 promulgated under the
Securities Act. If, as a result of the purchase of Energy Group ADSs pursuant to
the Texas Utilities Offer and prior to completing the compulsory acquisition
procedures referred to in paragraph 9 above, The Energy Group is not required to
maintain registration of Energy Group ADSs under the Exchange Act, TU
Acquisitions intends to cause The Energy Group to apply for termination of such
registration. If registration of Energy Group ADSs is not terminated prior to
completion of the aforementioned compulsory acquisition procedures, then Energy
Group ADSs will cease trading on the NYSE and the registration of Energy Group
ADSs under the Exchange Act would be terminated following completion of the
aforementioned compulsory acquisition procedures.
(C) MARGIN SECURITIES
Energy Group ADSs are currently "margin securities" under the regulations
of the Board of Governors of the US Federal Reserve System, which status has the
effect, among other things, of allowing US brokers to extend credit on the
collateral of Energy Group ADSs for the purposes of buying, carrying and trading
in securities ("Purpose Loans"). Depending on factors such as the number of
holders of record of Energy Group ADSs and the number and market value of
publicly held Energy Group ADSs following the purchase of Energy Group
Securities pursuant to the Texas Utilities Offer, it is possible that Energy
Group ADSs would no longer be eligible for listing on the NYSE. As a result,
Energy Group ADSs might no longer constitute margin securities and, therefore,
could no longer be used as collateral for Purpose Loans made by US brokers.
11 LEGAL AND REGULATORY MATTERS
(A) GENERAL
Except as set out herein and other than the requirement to comply with the
Panel's requirements in relation to the City Code and with US securities laws,
TU Acquisitions is not aware of (i) any licence or regulatory permit that
appears to be material to the business of the TEG Group taken as a whole, which
might be adversely affected by TU Acquisitions's acquisition of Energy Group
Securities as contemplated herein, or (ii) any approval or other action by any
domestic or foreign governmental, administrative or regulatory agency
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or authority that appears to be material to the TEG Group taken as a whole, and
required for the acquisition or ownership of Energy Group Securities by TU
Acquisitions as contemplated herein. Should any such approval or other action be
required, TU Acquisitions currently contemplates that such approval or other
action would be sought. There can be no assurance that any such approval or
other action, if needed, would be obtained without substantial conditions being
attached thereto or that failure to obtain any such approval or other action
might not result in consequences adverse to The Energy Group's business.
(B) UNITED KINGDOM COMPETITION LAWS
The Texas Utilities Offer gives rise to a merger situation qualifying for
investigation under section 75 of the Fair Trading Act 1973. It is therefore
conditional on an announcement being made in terms reasonably satisfactory to TU
Acquisitions that it is not the intention of the Secretary of State to refer the
Acquisition, or any matters arising from it, to the Monopolies and Mergers
Commission. In that connection TU Acquisitions has submitted a Merger Notice to
the Director General of Fair Trading and is in discussions with the DGES.
(C) UNITED KINGDOM ELECTRICITY REGULATION
Eastern and its subsidiary companies hold licences issued under the
Electricity Act 1989. The Texas Utilities Offer is conditional on the DGES
indicating in terms reasonably satisfactory to TU Acquisitions that it is not
his intention to seek modifications to those licences and that he will not seek
undertakings or assurances from any member of the Texas Utilities Group or the
TEG Group except, in either case, on terms reasonably satisfactory to TU
Acquisitions. The Texas Utilities Offer is also conditional on the DGES
indicating in terms reasonably satisfactory to TU Acquisitions that, in
connection with the Acquisition, he will seek or agree to such modifications (if
any) and such other consents and/or directions (if any) as are in the reasonable
opinion of TU Acquisitions necessary or appropriate with respect to those
licences. However, TU Acquisitions will not invoke those Conditions in respect
of the DGES seeking, or indicating that it is his intention to seek,
modifications to any of the TEG Group's licences under the Electricity Act 1989
or undertakings or assurances from any member of the Texas Utilities Group or
the TEG Group provided that such modifications, undertakings or assurances
substantially reflect the assurances proposed by the DGES to PacifiCorp in
connection with the referral of the Original PacifiCorp Offer to the Monopolies
and Mergers Commission (as described in the Monopolies and Mergers Commission
Report relating to the Original PacifiCorp Offer published on 19 December 1997)
or are substantially in keeping with the proposals outlined by the DGES in his
consultation paper dated 24 February 1998 regarding modifications to public
electricity supply licences following takeovers.
(D) US ANTITRUST LAWS
The Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") frequently scrutinise the
legality under the US antitrust laws of transactions such as the proposed
acquisition of the Peabody Coal Business by Lehman Merchant pursuant to the
Peabody Sale. At any time before or after the purchase of the Peabody Coal
Business, the FTC or the Antitrust Division could take such action under the US
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the purchase of the Peabody Coal Business pursuant
to the Peabody Sale, or seeking divestiture of the Peabody Coal Business.
Private parties may also bring legal action under the US antitrust laws in
certain circumstances. There can be no assurance that a challenge to the Peabody
Sale on US antitrust grounds will not be made or, if such a challenge is made,
of the result.
(E) US POWER MARKETING REGULATION
Certain subsidiaries (the "Power Subsidiaries") of Citizens Power, an
indirect wholly-owned subsidiary of The Energy Group, are engaged in market-rate
based electric power marketing in the US or otherwise hold public utility assets
that are subject to the jurisdiction of the FERC. In a number of similar recent
situations, including the acquisition of Citizens Power by The Energy Group, the
FERC has asserted that a transfer of control of a licensed power marketer
requires FERC approval under section 203 of the US Federal Power Act.
Accordingly, the FERC could assert that any transfer of control of the Power
Subsidiaries resulting from
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completion of the Peabody Sale requires FERC approval. Pursuant to the
provisions of the Peabody Sale Agreement (summarised in paragraph 6 of this
Appendix VIII ("Material Contracts")), Lehman Merchant will acquire Citizens
Power (including the Power Subsidiaries) with such sale conditional upon,
amongst other things, the completion of the Texas Utilities Offer and FERC
approval. Application for approval of the sale of the Power Subsidiaries to
Lehman Merchant has been made to the FERC, and the Texas Utilities Offer is
conditional upon the Peabody Sale Agreement becoming unconditional.
(F) AUSTRALIAN FOREIGN INVESTMENT REVIEW
The acquisition by Lehman Merchant pursuant to the Peabody Sale Agreement
of ownership of Peabody Australia's coal operations is subject to the Foreign
Acquisitions and Takeovers Act 1975 of Australia. Under that Act, the Treasurer
of Australia has broad powers to prohibit or place conditions on the acquisition
of interests in Australian business operations by foreign investors if such
acquisitions are found to be contrary to the national interest. If a
notification of a proposed acquisition is made to the Australian Foreign
Investment Review Board, the Treasurer may approve the acquisition but is
precluded from taking any action with respect to the acquisition after the
expiration of a 40-day review period, although this period may be extended for
up to 90 days. The Foreign Investment Review Board was notified of the proposed
acquisition on 5 March 1998 and, absent unforeseen circumstances, would expect
to receive the Treasurer's approval within 40 days of that date.
(G) US STATE TAKEOVER LAWS
A number of states of the US have adopted takeover laws and regulations
which purport, in varying degrees, to be applicable to attempts to acquire
securities of corporations which have substantial assets, shareholders,
principal executive offices or principal places of business in such states. TU
Acquisitions believes that no such US state takeover statutes apply to the Texas
Utilities Offer and TU Acquisitions has not attempted to comply with any such US
state takeover statutes in connection with the Texas Utilities Offer. TU
Acquisitions reserves the right to challenge the validity or applicability of
any US state law allegedly applicable to the Texas Utilities Offer and nothing
in this document nor any action taken in connection herewith is intended as a
waiver of that right. In the event that any US state takeover statute is
asserted to be applicable to the Texas Utilities Offer and an appropriate court
does not determine that such law or regulation is not applicable to the Texas
Utilities Offer, TU Acquisitions might be required to file certain information
with, or to receive approvals from, the relevant US state authorities and might
be unable to purchase Energy Group Securities pursuant to the Texas Utilities
Offer or be delayed in continuing or consummating the Texas Utilities Offer. In
such case TU Acquisitions may not be obliged to purchase such Energy Group
Securities.
(H) LAWS OF OTHER JURISDICTIONS
The Energy Group and certain of its subsidiaries conduct business in
certain countries in addition to the United Kingdom and the US where regulatory
filings or approvals may be required in connection with the Texas Utilities
Offer. Certain of such filings or approvals, if required, may not be made or
obtained prior to the expiry of the Texas Utilities Offer. There is no assurance
that any such approvals would be obtained or that adverse consequences to Texas
Utilities's or The Energy Group's business might not result from a failure to
obtain such approvals or from conditions that might be imposed in connection
therewith.
12 UNITED KINGDOM TAXATION
THE FOLLOWING PARAGRAPHS, WHICH ARE INTENDED AS A GENERAL GUIDE ONLY, ARE
BASED ON CURRENT UNITED KINGDOM LEGISLATION AND INLAND REVENUE PRACTICE. THEY
SUMMARISE CERTAIN LIMITED ASPECTS OF THE UNITED KINGDOM TAXATION TREATMENT OF
ACCEPTANCE OF THE TEXAS UTILITIES OFFER AND, WHERE APPLICABLE, ELECTION FOR THE
SHARE ALTERNATIVE AND/OR THE LOAN NOTE ALTERNATIVE, AND THEY RELATE ONLY TO THE
POSITION OF HOLDERS OF ENERGY GROUP SHARES WHO ARE THE BENEFICIAL OWNERS OF
THEIR ENERGY GROUP SHARES, WHO HOLD THEIR ENERGY GROUP SHARES AS AN INVESTMENT
(OTHERWISE THAN UNDER A PERSONAL EQUITY PLAN), AND (EXCEPT INSOFAR AS EXPRESS
REFERENCE IS MADE TO THE TREATMENT OF NON-UNITED KINGDOM RESIDENTS) WHO ARE
RESIDENT OR ORDINARILY RESIDENT IN THE UNITED KINGDOM FOR TAX PURPOSES.
SHAREHOLDERS WHO ARE IN ANY DOUBT AS TO THEIR TAXATION POSITION OR
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WHO ARE SUBJECT TO TAXATION IN ANY JURISDICTION OTHER THAN THE UNITED KINGDOM,
SHOULD CONSULT AN APPROPRIATE PROFESSIONAL ADVISER.
(A) TAXATION OF CHARGEABLE GAINS
Liability to United Kingdom taxation on chargeable gains ("CGT") will
depend on the particular circumstances of holders of Energy Group Shares and on
the form of consideration received.
(I) CASH
To the extent that a holder of Energy Group Shares receives cash under the
Texas Utilities Offer, this will constitute a disposal, or part disposal, of his
Energy Group Shares for CGT purposes. Such a disposal or part disposal may,
depending on that shareholder's individual circumstances, give rise to a
liability to CGT.
(II) LOAN NOTES
A holder of Energy Group Shares who, either alone or together with persons
connected with him, holds not more than 5 per cent. of the shares in, or of any
class of debentures of, The Energy Group, will not be treated as making a
disposal of his Energy Group Shares for CGT purposes to the extent that he
receives Loan Notes by way of consideration. In the case of a shareholder who is
an individual, the Loan Notes should not constitute "qualifying corporate bonds"
for CGT purposes. Accordingly, any gain or loss which would otherwise have
arisen on a disposal of his Energy Group Shares will be "rolled over" into the
Loan Notes, and the Loan Notes will be treated as the same asset as his Energy
Group Shares, acquired at the same time and price as his Energy Group Shares.
Indexation relief will continue to accrue during the period of ownership of the
Loan Notes. In the case of a shareholder within the charge to United Kingdom
corporation tax, the Loan Notes will constitute "qualifying corporate bonds" for
CGT purposes. Accordingly, any gain or loss which would otherwise have arisen on
a disposal of its Energy Group Shares for their market value at the date the
Texas Utilities Offer becomes unconditional, or, if later, the date on which the
relevant shareholder accepts the Texas Utilities Offer, will be calculated, and
will be "held over" until such shareholder subsequently disposes of the Loan
Notes. Indexation relief will not accrue on Loan Notes held by such a
shareholder.
A holder of Energy Group Shares who, either alone or together with persons
connected with him, holds more than 5 per cent. of the shares in, or of any
class of debentures of, The Energy Group is advised that an application to the
Inland Revenue has been made for clearance under section 138 of the Taxation of
Chargeable Gains Act 1992. The Inland Revenue has not yet granted such
clearance. Subject to the granting of this clearance, any such holder of Energy
Group Shares will be treated in the manner described in the previous paragraph.
A subsequent disposal of Loan Notes (including their redemption or
repayment) may give rise to a liability to CGT.
(III) TEXAS UTILITIES COMMON STOCK
To the extent that a holder of Energy Group Shares receives Texas Utilities
Common Stock under the Texas Utilities Offer, this will constitute a disposal,
or part disposal, of his Energy Group Shares for CGT purposes for a
consideration equal to the market value of the Texas Utilities Common Stock
received at the date the Texas Utilities Offer becomes unconditional, or, if
later, the date on which the relevant shareholder accepts the Texas Utilities
Offer. Such a disposal or part disposal may, depending on that shareholder's
individual circumstances, give rise to a liability to CGT.
(IV) NON-UNITED KINGDOM RESIDENT HOLDERS OF ENERGY GROUP SHARES AND/OR
ENERGY GROUP ADSS
Holders of Energy Group Shares and/or Energy Group ADSs who are not
resident or ordinarily resident for tax purposes in the United Kingdom may be
liable to CGT on capital gains realised on the disposal of their Energy Group
Shares or Energy Group ADSs if such shares or ADSs are used, held or acquired
for the purposes of a trade, profession or vocation carried on in the United
Kingdom through a branch or agency or for
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the purposes of such branch or agency. Such holders may also be subject to
foreign taxation on any gain under local law.
(B) TAXATION OF LOAN NOTES
(I) WITHHOLDING TAX
Payment of interest on the Loan Notes will be made subject to the deduction
of United Kingdom income tax at the lower rate (currently, 20 per cent.) unless
TU Acquisitions has been directed by the Inland Revenue, in respect of a
particular holding of Loan Notes, to make the payment free from deduction or
subject to a reduced rate of deduction (by virtue of relief under the terms of
an applicable double taxation agreement). Such a direction will only be made
following an application in the appropriate manner to the relevant tax
authorities by the holder of the relevant Loan Notes.
(II) INDIVIDUALS
The gross amount of interest on the Loan Notes will form part of the
recipient's income for the purposes of United Kingdom income tax, credit being
allowed for the tax deducted. Individuals who are taxable only at the lower rate
or the basic rate (currently, 23 per cent.) will have no further tax to pay in
respect of the interest. Individuals whose income tax liability is less than the
aggregate of the tax deducted from other income paid to them and the tax
deducted in respect of interest on the Loan Notes will be entitled to an
appropriate repayment of tax. Individuals who are subject to tax at the higher
rate (currently, 40 per cent.) will have to account for additional tax to the
extent that tax at such rate on the gross amount of the interest exceeds the
credit for the tax deducted.
Under the "accrued income scheme", a transfer of Loan Notes may also give
rise to a charge to United Kingdom income tax in respect of an amount
representing interest on the Loan Notes which has accrued since the preceding
interest payment date. Any amount charged to United Kingdom income tax in this
way will be deducted from the proceeds of disposal for CGT purposes.
(III) CORPORATES
Holders of Loan Notes within the charge to United Kingdom corporation tax
in respect of the Loan Notes will generally bring into account for the purposes
of corporation tax on income, interest and profits, gains and losses arising
from fluctuations in the value of, and disposals of, the Loan Notes in each
accounting period, broadly in accordance with the accounting treatment of such
holders authorised for this purpose. Credit against corporation tax will be
given for any income tax deducted from the payment of interest.
(C) TAXATION OF DIVIDEND INCOME
A holder of Texas Utilities Common Stock (including any New Texas Utilities
Shares issued pursuant to the Share Alternative) will generally be liable to
income tax or corporation tax in the United Kingdom on the aggregate of any
dividend received from Texas Utilities and any tax deducted at source in the US
(see below under "United States federal income taxation") and any tax deducted
in the United Kingdom (see below) in relation to that dividend. In computing
that liability to taxation, credit will be given for any tax deducted in the US
and any tax deducted in the United Kingdom.
Individuals will not be entitled to a repayment by the Inland Revenue of
the US tax deducted in respect of dividends on the Texas Utilities Common Stock.
Individuals whose income tax liability is less than the aggregate of the tax
deducted from other income paid to them, and the tax deducted in the US and any
tax deducted in the United Kingdom in respect of dividends on the Texas
Utilities Common Stock, may be entitled to a repayment of part or all of the
United Kingdom tax. Where United Kingdom income tax is deducted from such
dividends, individuals who are subject to income tax at the lower rate or the
basic rate will have no further United Kingdom tax to pay in respect of the
dividend. Where United Kingdom income tax is not deducted from such dividends,
individuals who are subject to income tax at the lower rate or the basic rate
will have to account for additional tax to the extent that tax at the lower rate
on the aggregate of the dividend
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received and the tax deducted in the US exceeds the tax deducted in the US.
Individuals who are subject to income tax at the higher rate (currently, 40 per
cent.) will have to account for additional tax to the extent that tax at such
rate on the aggregate of the dividend received and the tax deducted in the US
and, where applicable, the United Kingdom in relation to the dividend exceeds
the tax deducted in the US and the United Kingdom.
Corporate holders of Texas Utilities Common Stock will generally have to
account for additional tax to the extent that corporation tax at the rate at
which such holder pays tax (currently, 31 per cent. in the case of most
corporate holders) on the aggregate of the dividend received and the tax
deducted in the US and, where applicable, the United Kingdom in relation to the
dividend exceeds the tax deducted in the US and the United Kingdom. Although no
repayment from the Inland Revenue of any tax deducted in the US will be
available to a holder of Texas Utilities Common Stock, in the case of a
corporate holder of Texas Utilities Common Stock which controls 10 per cent. or
more of the voting stock of Texas Utilities, credit will also be available
against corporation tax on the dividend for US tax paid by Texas Utilities in
respect of the profits out of which the dividend is paid.
No liability to income tax will arise for individual holders of Texas
Utilities Common Stock who, although United Kingdom resident, are not domiciled
in the United Kingdom, or for Commonwealth citizens or citizens of the Republic
of Ireland who are not ordinarily resident in the United Kingdom, except to the
extent that amounts are remitted to the United Kingdom (or are treated for tax
purposes as remitted to the United Kingdom).
An agent in the United Kingdom who, on behalf of a holder of Texas
Utilities Common Stock, collects a dividend paid by Texas Utilities, may be
required to deduct and account to the United Kingdom Inland Revenue for United
Kingdom income tax (currently, at the rate of 20 per cent.). However, credit
will be given for tax deducted in the US, thereby reducing the aggregate
deduction to 20 per cent. of the gross dividend.
(D) GENERAL
Special tax provisions may apply to holders of Energy Group Shares who have
acquired or acquire their Energy Group Shares by exercising options under the
Energy Group Share Schemes, including provisions imposing a charge to income
tax.
(E) STAMP DUTY AND STAMP DUTY RESERVE TAX ("SDRT")
These comments are intended as a guide to the general position and do not
relate to persons such as intermediaries and persons connected with depositary
arrangements or clearance services, to whom special rules apply.
(I) ACCEPTANCE OF THE TEXAS UTILITIES OFFER
No stamp duty or SDRT will be payable by holders of Energy Group Shares as
a result of accepting the Texas Utilities Offer.
(II) LOAN NOTES
Under current Inland Revenue practice, no stamp duty or SDRT will be
payable on the issue of, or a transfer or sale of (or an agreement to transfer
or sell) Loan Notes.
(III) TEXAS UTILITIES COMMON STOCK
No stamp duty or SDRT will be payable on the issue of Texas Utilities
Common Stock. No SDRT will be payable on a transfer or sale of (or an agreement
to transfer or sell) Texas Utilities Common Stock. Stamp duty may, in certain
circumstances, be payable on a transfer or sale of Texas Utilities Common Stock,
including where the transfer is executed in the United Kingdom; this will be
payable by the transferee or the purchaser.
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13 UNITED STATES FEDERAL INCOME TAXATION
The following paragraphs address certain United States federal income tax
consequences applicable to holders of Energy Group Securities who accept the
Texas Utilities Offer and, except as otherwise noted, are United States Holders
(as defined below). This summary is based on the Internal Revenue Code, and
administrative pronouncements, judicial decisions and existing and proposed
Treasury Regulations thereunder, changes to any of which (which may be
retroactive) may affect the tax consequences described herein. This summary
assumes that the Energy Group Securities have been held as capital assets. It
does not address the tax treatment of individuals who have received Energy Group
Securities in connection with employment, such as by the exercise of options
granted to employees. This summary also assumes that The Energy Group is not and
has never been either a passive foreign investment company or a controlled
foreign corporation for US federal income tax purposes. This summary does not
discuss all tax consequences that may be relevant to a holder of Energy Group
Securities in the light of such holder's particular circumstances or to holders
subject to special rules, such as certain financial institutions, regulated
investment companies, insurance companies, dealers in securities, exempt
organisations, persons holding Energy Group Securities as part of a hedge,
straddle or conversion transaction and holders that are residents of countries
other than the United States or whose functional currency is not the United
States dollar.
(A) UNITED STATES HOLDERS
As used herein, a "United States Holder" means a beneficial owner of Energy
Group Securities that is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, an estate the
income of which is subject to United States federal income taxation regardless
of its source, or a trust the administration of which is subject to the primary
supervision of a court within the United States and for which one or more US
Persons have the authority to control all substantial decisions. An individual
may, subject to certain exceptions, be deemed to be a resident of the United
States (as opposed to a non-resident alien) by virtue of being present in the
United States on at least 31 days in the calendar year and for an aggregate of
at least 183 days during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). A "Non-United States Holder"
is a holder that is not a United States Holder.
(I) ACCEPTANCE OF TEXAS UTILITIES OFFER
In general, a United States Holder of Energy Group Securities that sells
such securities pursuant to the Texas Utilities Offer will, for United States
federal income tax purposes, recognise gain or loss equal to the difference
between such holder's adjusted tax basis in the Energy Group Securities
transferred and the amount realized in exchange therefor. The amount realized
will equal the sum of (i) the dollar value of the pounds sterling received, and
(ii) the fair market value of any Texas Utilities Common Stock received. Such
gain or loss generally will be capital gain or loss. Under the US Taxpayer
Relief Act of 1997, an individual taxpayer who has held a capital asset for more
than 18 months generally will be taxed on gain from the sale of that asset at a
maximum rate of 20 per cent. A 28 per cent. maximum rate generally applies to
the sale of a capital asset held more than one year but not more than 18 months.
In addition, an accrual basis United States Holder of Energy Group
Securities that sells such securities pursuant to the Texas Utilities Offer and
does not elect to be treated as a cash basis taxpayer pursuant to the foreign
currency exchange regulations may have a foreign currency exchange gain or loss
for United States federal income tax purposes because of differences between the
US dollars/pounds sterling exchange rates prevailing on the date of sale and on
the date of payment. Any such currency gain or loss would be treated as ordinary
income or loss and would be in addition to gain or loss realised by the holder
on the disposition of Energy Group Securities pursuant to the Texas Utilities
Offer. Regardless of his method of accounting, a United States Holder will
recognise ordinary income or loss upon the subsequent sale or exchange of any
pounds sterling received as a result of the acceptance of the Texas Utilities
Offer. Such income or loss will equal the difference between the amount realised
from the sale or exchange and such holder's tax basis in the
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pounds sterling received, which generally will equal the US dollar value of the
pounds sterling on the date of payment.
(II) DISTRIBUTIONS
Distributions, if any, made with respect to Texas Utilities Common Stock
will be treated as ordinary dividend income to the extent of Texas Utilities's
current or accumulated earnings and profits, then as a return of capital to the
extent of tax basis, and then as gain from the sale of stock. In the case of
corporate holders, such distributions, to the extent that they are treated as
ordinary dividend income, will generally qualify for the dividends received
deduction (subject to generally applicable exceptions).
(III) DISPOSAL OF TEXAS UTILITIES COMMON STOCK
Upon the sale or exchange of Texas Utilities Common Stock, United States
Holders will recognise capital gain or loss equal to the difference between the
amount realized from the sale or exchange and such holder's tax basis in the
shares. A United States Holder's tax basis in the Texas Utilities Common Stock
generally will equal its fair market value at the time gain or loss is
recognized upon acceptance of the Texas Utilities Offer.
(IV) INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting will apply with respect to the cash
proceeds of the Texas Utilities Offer to certain non-corporate United States
Holders of Energy Group Securities.
A United States Holder of Energy Group Securities may be subject to a 31
per cent. US back-up withholding tax with respect to the cash payment if (i) the
holder fails to furnish a taxpayer identification number ("TIN") to the payor or
establish an exemption from back-up withholding, (ii) the US Internal Revenue
Service ("IRS") notifies the payor that the TIN furnished by the holder is
incorrect, (iii) there has been a notified payee underreporting with respect to
interest or dividends described in section 3406(c) of the Internal Revenue Code,
or (iv) there is a failure of the holder to certify under the penalty of perjury
that the holder is not subject to withholding as described in section 3406 of
the Internal Revenue Code.
To prevent back-up withholding on any cash payment delivered pursuant to
the Texas Utilities Offer, each United States Holder of Energy Group ADSs that
accepts the Texas Utilities Offer by means of the Letter of Transmittal and each
United States Holder of Energy Group Shares that accepts the Texas Utilities
Offer by sending the Form of Acceptance to the US Depositary must provide the US
Depositary with that holder's correct taxpayer identification number and certify
that the holder is not subject to US back-up federal income tax withholding by
completing the Substitute Form W-9 included in the Letter of Transmittal or Form
of Acceptance.
(B) NON-UNITED STATES HOLDERS
(I) DISTRIBUTIONS
Distributions, if any, made with respect to Texas Utilities Common Stock
and paid to a Non-United States Holder generally will be subject to withholding
of United States federal income tax at the rate of 30 per cent. of the amount of
the dividend, or such lower rate as may be specified by an applicable double
taxation treaty. Under the provisions of the US/United Kingdom double taxation
treaty, the rate of U.S. federal withholding tax on a dividend paid by Texas
Utilities to a person resident in the United Kingdom for tax purposes who is
beneficially entitled to the dividend and who does not control 10 per cent. or
more of the voting stock of Texas Utilities is, subject to certain exceptions,
reduced to 15 per cent. of the amount of the dividend. However, dividends that
are effectively connected with the conduct of a trade or business by the
Non-United States Holder within the United States, or, if a double taxation
treaty applies (such as the US/United Kingdom double taxation treaty), are
attributable to a United States permanent establishment of the Non-United States
Holder, are not subject to the 30 per cent. withholding tax but instead are
subject to United States federal income tax on a net income basis at applicable
graduated individual or corporate rates.
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Any such effectively connected dividends received by a corporate Non-United
States Holder may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30 per cent. rate or such lower rate as may be
specified by an applicable double taxation treaty.
In the case of dividends paid prior to 1 January 1999, the payor is
responsible for determining whether a reduced rate of withholding is
appropriate. Where Texas Utilities is satisfied that the Non-United States
Holder beneficially entitled to a dividend is resident in the United Kingdom for
purposes of the US/United Kingdom double taxation treaty, Texas Utilities will
withhold US tax at the treaty rate of 15 per cent. of the amount of the
dividend. In the case of dividends paid after 31 December 1998, a Non-United
States Holder who wishes to claim the benefit of an applicable treaty rate must
satisfy certain certification and other requirements. A Non-United States Holder
must comply with certain certification and disclosure requirements in order to
be exempt from withholding under the effectively connected income exemption
discussed above.
If it is subsequently determined that some or all of a distribution on the
Texas Utilities Common Stock should be treated as a return of capital, a
Non-United States Holder may obtain a refund of some or all of the tax withheld
by filing an appropriate claim for refund with the IRS. A Non-United States
Holder eligible for a reduced rate of withholding pursuant to an income tax
treaty may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the IRS.
(II) DISPOSAL OF TEXAS UTILITIES COMMON STOCK
A Non-United States Holder will generally not be subject to United States
federal income tax with respect to gain recognized on a sale, exchange,
redemption or other disposition of the Texas Utilities Common Stock unless (i)
the gain is effectively connected with a trade or business of the Non-United
States Holder in the United States, or, if a double tax treaty applies (such as
the US/United Kingdom treaty), is attributable to a United States permanent
establishment of the Non-United States Holder, (ii) in the case of a Non-United
States Holder who is an individual and holds the Texas Utilities Common Stock as
a capital asset, such holder is present in the United States for 183 days or
more in the taxable year of the sale or other disposition and certain other
conditions are met, (iii) the Non-United States Holder is subject to tax
pursuant to certain provisions of the Internal Revenue Code applicable to United
States expatriates, or (iv) the Non-United States Holder holds more than 5 per
cent. of the Texas Utilities Common Stock during a certain prescribed period.
(III) INFORMATION REPORTING AND BACKUP WITHHOLDING
No information reporting or backup withholding will be required with
respect to any cash payment made pursuant to the Texas Utilities Offer if the
Non-United States Holder completes and sends to the US Depositary a Form W-8,
Certificate of Foreign Status, a copy of which is available, upon request, from
the US Depositary or the IRS.
Information reporting and backup withholding generally will not apply under
current law to dividends paid to a Non-United States Holder of Texas Utilities
Common Stock at an address outside the United States that are subject to the 30
per cent. withholding discussed above (or that are not so subject because (i) a
tax treaty applies that reduces or eliminates such 30 per cent. withholding, or
(ii) such withholding is not required under the effectively connected income
exception discussed above), provided that the payor does not have definite
knowledge that the payee is a United States person. However, in the case of
dividends paid after 31 December 1998, a Non-United States Holder generally
would be subject to information reporting (but not backup withholding) unless
certain certification procedures are complied with, either directly or through
an intermediary.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS INTENDED TO
BE ONLY A SUMMARY OF THE PRINCIPAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS OF THE TEXAS UTILITIES OFFER. EACH HOLDER OF ENERGY GROUP
SECURITIES SHOULD CONSULT HIS OR HER OWN TAX ADVISER CONCERNING THE UNITED
STATES FEDERAL AND APPLICABLE STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
OF THE TEXAS UTILITIES OFFER.
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14 EXPERTS
The consolidated financial statements included in Texas Utilities' Current
Report on Form 8-K dated 26 February 1998, incorporated herein by reference,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
such Form 8-K, and have been incorporated herein in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information included in TEI's and Texas Utilities' Quarterly Reports on Form
10-Q that are incorporated herein by reference, Deloitte & Touche LLP has
applied limited procedures in accordance with professional standards for reviews
of such information. As stated in their reports included in TEI's and Texas
Utilities' Quarterly Reports on Form 10-Q, Deloitte & Touche LLP did not audit
and they did not express an opinion on such interim financial information.
Accordingly, the degree of reliance on any of its reports on such information
should be restricted in light of the limited nature of the review procedures
applied. Deloitte & Touche LLP is not subject to the liability provisions of
Section 11 of the Securities Act, for their reports on such unaudited interim
financial information because such reports are not "reports" or a "part" of the
Registration Statement prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Securities Act.
The consolidated financial statements included in the ENSERCH 10-K,
incorporated herein by reference, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report included in such ENSERCH 10-K,
and have been incorporated by reference herein in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information included in ENSERCH's Quarterly Reports on Form 10-Q that are
incorporated herein by reference, Deloitte & Touche LLP has applied limited
procedures in accordance with professional standards for reviews of such
information. As stated in their reports included in ENSERCH's Quarterly Reports
on Form 10-Q, Deloitte & Touche LLP did not audit and they do not express an
opinion on such interim financial information. Accordingly, the degree of
reliance on any of its reports on such information should be restricted in light
of the limited nature of the review procedures applied. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act for
their reports on such unaudited interim financial information because such
reports are not "reports" or a "part" of the Registration Statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the
Securities Act.
15 LEGAL MATTERS
The statements made as to matters of law and legal conclusions in the TEI
10-K under part I, Item 1 -- Business-Regulation and Rates, and Environmental
Matters, incorporated herein by reference, have been reviewed by Worsham,
Forsythe & Wooldridge, L.L.P., Dallas, Texas, counsel for Texas Utilities. All
of such statements are set forth, or have been incorporated by reference, herein
in reliance upon the opinion of that firm given upon their authority as experts.
At 31 December 1997, members of the firm of Worsham, Forsythe & Wooldridge,
L.L.P., owned approximately 42,000 shares of the Common Stock of Texas
Utilities. The statements made as to matters of law and legal conclusions in
this Offer Document under paragraph 13 of Appendix VIII ("United States federal
income taxation") have been reviewed by Reid & Priest LLP, New York, New York,
and are set forth herein in reliance upon the opinion of that firm given upon
their authority as experts. The statements made as to matters of law and legal
conclusions in this Offer Document under paragraph 12 of Appendix VIII ("United
Kingdom taxation") have been reviewed by Norton Rose, London, England, and are
set forth herein in reliance upon the opinion of that firm given upon their
authority as experts.
The validity of the Texas Utilities Common Stock is being passed upon for
Texas Utilities by Worsham, Forsythe & Wooldridge, L.L.P. and by Reid & Priest
LLP. However, all matters pertaining to incorporation of Texas Utilities and all
other matters of Texas law relating to Texas Utilities will be passed upon only
by Worsham, Forsythe & Wooldridge, L.L.P.
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16 FEES AND EXPENSES
Lehman Brothers and Merrill Lynch are acting as Texas Utilities' financial
advisers in connection with the Texas Utilities Offer.
Pursuant to a letter agreement between Lehman Brothers and Texas Utilities
dated 19 February 1998, Texas Utilities have agreed to make payment to Lehman
Brothers of $10,800,000 upon the Texas Utilities Offer becoming or being
declared wholly unconditional. Pursuant to a letter agreement between Merrill
Lynch and Texas Utilities dated 20 February 1998, Texas Utilities have agreed to
make payment to Merrill Lynch of $8,200,000 upon the Texas Utilities Offer
becoming or being declared wholly unconditional.
Each letter agreement further provides that Texas Utilities will reimburse
Lehman Brothers and Merrill Lynch for their respective out-of-pocket expenses,
and indemnify Lehman Brothers and Merrill Lynch, respectively, against certain
expenses and liabilities in connection with the Texas Utilities Offer.
Pursuant to a letter agreement (the "US Dealer Manager Agreement"), TU
Acquisitions and Texas Utilities have retained Lehman Brothers Inc. and Merrill
Lynch & Co., US affiliates of Lehman Brothers and Merrill Lynch, as US Dealer
Managers for the Texas Utilities Offer in the United States to perform those
services in connection with the Texas Utilities Offer as are customarily
performed in the United States by investment banking concerns acting as dealer
manager in connection with offers of a like nature. Lehman Brothers Inc. and
Merrill Lynch & Co. will not receive additional compensation for acting in this
capacity.
TU Acquisitions has retained The Royal Bank of Scotland plc as the United
Kingdom Receiving Agent, The Bank of New York as the US Depositary, and D.F.
King & Co., Inc. as the Information Agent. TU Acquisitions will pay the United
Kingdom Receiving Agent, the US Depositary and the Information Agent reasonable
and customary compensation for their services in connection with the Texas
Utilities Offer, together with reimbursement of out of pocket expenses. TU
Acquisitions will indemnify the US Depositary and the Information Agent against
certain liabilities and expenses in connection therewith, including liabilities
under the US federal securities laws. Brokers, dealers, commercial banks and
trust companies will be reimbursed by Texas Utilities for customary mailing and
handling expenses incurred by them in forwarding material to their customers.
Texas Utilities and TU Acquisitions will not pay any fees or commissions to
any broker or dealer or any other person for soliciting acceptances of the Texas
Utilities Offer (other than to Lehman Brothers, Merrill Lynch and the
Information Agent, as described above.)
17 SOURCES OF INFORMATION AND BASES OF CALCULATION
(a) The value of the fully diluted share capital of The Energy Group is
based upon 520,857,817 Energy Group Shares in issue on 27 February
1998 and 9,048,288 Energy Group Shares which could fall to be issued
on exercise in full of options and vesting of all outstanding awards
granted under the Energy Group Share Schemes.
(b) The pro forma financial information in respect of The Energy Group for
the year ended 31 March 1996 is taken from the unaudited pro forma
consolidated profit and loss account set out in The Energy Group's
report and accounts for the six months ended 31 March 1997. The
financial information in respect of The Energy Group for the nine
months ended 31 December 1997 is taken from the unaudited financial
results for the nine months ended 31 December 1997, as announced by
The Energy Group on 3 February 1998.
(c) The financial information on the Peabody Coal Business for the nine
months ended 31 December 1997 is unaudited and is derived from the
unaudited financial results of The Energy Group for the nine months
ended 31 December 1997 using estimates by Texas Utilities on the basis
of the historical financial results of The Energy Group.
(d) The financial information on Texas Utilities for the year ended and as
of 31 December 1997 is taken from Texas Utilities' Current Report on
Form 8-K dated 26 February 1998.
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(e) References in this Offer Document to "tons" are to short tons equal to
2,000 pounds.
18 DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the documents listed below may be inspected at the offices of
Norton Rose, Kempson House, Camomile Street, London EC3A 7AN (also being the
registered office of TU Acquisitions) during usual business hours on any weekday
(Saturdays, Sundays and public holidays excepted) whilst the Texas Utilities
Offer remains open for acceptance:
(a) the Memorandum and Articles of Association of TU Acquisitions;
(b) the audited financial statements of Texas Utilities, together with the
notes thereto, set out in Appendix V of this Offer Document.
(c) the consents referred to in paragraph 5(e) above;
(d) the material contracts referred to in paragraph 6 above;
(e) documentation relating to the financing arrangements detailed in
paragraph 8 above;
(f) the Loan Note Instrument in substantially final form; and
(g) the documents incorporated by reference referred to on pages 3 and 4.
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APPENDIX IX
CERTAIN PROVISIONS OF THE COMPANIES ACT 1985
428. TAKEOVER OFFERS
(1) In this Part of this Act "takeover offer" means an offer to acquire all
the shares, or all the shares of any class or classes, in a company (other than
shares which at the date of the offer are already held by the offeror), being an
offer on terms which are the same in relation to all the shares to which the
offer relates or, where those shares include shares of different classes, in
relation to all the shares of each class.
(2) In subsection (1) "shares" means shares which have been allotted on the
date of the offer but a takeover offer may include among the shares to which it
relates all or any shares that are subsequently allotted before a date specified
in or determined in accordance with the terms of the offer.
(3) The terms offered in relation to any shares shall for the purposes of
this section be treated as being the same in relation to all the shares or, as
the case may be, all the shares of a class to which the offer relates
notwithstanding any variation permitted by subsection (4).
(4) A variation is permitted by this subsection where --
(a) the law of a country or territory outside the United Kingdom
precludes an offer of consideration in the form or any of the forms
specified in the terms in question or precludes it except after compliance
by the offeror with conditions with which he is unable to comply or which
he regards as unduly onerous; and
(b) the variation is such that the persons to whom an offer of
consideration in that form is precluded are able to receive consideration
otherwise than in that form but of substantially equivalent value.
(5) The reference in subsection (1) to shares already held by the offeror
includes a reference to shares which he has contracted to acquire but that shall
not be construed as including shares which are the subject of a contract binding
the holder to accept the offer when it is made, being a contract entered into by
the holder either for no consideration and under seal or for no consideration
other than a promise by the offeror to make the offer.
(6) In the application of subsection (5) to Scotland the words "and under
seal" shall be omitted.
(7) Where the terms of an offer make provision for their revision and for
acceptances on the previous terms to be treated as acceptances on the revised
terms, the revision shall not be regarded for the purposes of this Part of this
Act as the making of a fresh offer and references in this Part of this Act to
the date of the offer shall accordingly be construed as references to the date
on which the original offer was made.
(8) In this Part of this Act "the offeror" means, subject to section 430D,
the person making a takeover offer and "the company" means the company whose
shares are the subject of the offer.
429. RIGHT OF OFFEROR TO BUY OUT MINORITY SHAREHOLDERS
(1) If, in a case in which a takeover offer does not relate to shares of
different classes, the offeror has by virtue of acceptances of the offer
acquired or contracted to acquire not less than nine-tenths in value of the
shares to which the offer relates he may give notice to the holder of any shares
to which the offer relates which the offeror has not acquired or contracted to
acquire that he desires to acquire those shares.
(2) If, in a case in which a takeover offer relates to shares of different
classes, the offeror has by virtue of acceptances of the offer acquired or
contracted to acquire not less than nine-tenths in value of the shares of any
class to which the offer relates, he may give notice to the holder of any shares
of that class which the offeror has not acquired or contracted to acquire that
he desires to acquire those shares.
(3) No notice shall be given under subsection (1) or (2) unless the offeror
has acquired or contracted to acquire the shares necessary to satisfy the
minimum specified in that subsection before the end of the period of
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four months beginning with the date of the offer; and no such notice shall be
given after the end of the period of two months beginning with the date on which
he has acquired or contracted to acquire shares which satisfy that minimum.
(4) Any notice under this section shall be given in the prescribed manner;
and when the offeror gives the first notice in relation to an offer he shall
send a copy of it to the company together with a statutory declaration by him in
the prescribed form stating that the conditions for the giving of the notice are
satisfied.
(5) Where the offeror is a company (whether or not a company within the
meaning of this Act) the statutory declaration shall be signed by a director.
(6) Any person who fails to send a copy of a notice or a statutory
declaration as required by subsection (4) or makes such a declaration for the
purposes of that subsection knowing it to be false or without having reasonable
grounds for believing it to be true shall be liable to imprisonment or a fine,
or both, and for continued failure to send the copy or declaration, to a daily
default fine.
(7) If any person is charged with an offence for failing to send a copy of
a notice as required by subsection (4) it is a defence for him to prove that he
took reasonable steps for securing compliance with that subsection.
(8) When during the period within which a takeover offer can be accepted
the offeror acquires or contracts to acquire any of the shares to which the
offer relates but otherwise than by virtue of acceptances of the offer, then,
if --
(a) the value of the consideration for which they are acquired or
contracted to be acquired ("the acquisition consideration") does not at
that time exceed the value of the consideration specified in the terms of
the offer; or
(b) those terms are subsequently revised so that when the revision is
announced the value of the acquisition consideration, at the time mentioned
in paragraph (a) above, no longer exceeds the value of the consideration
specified in those terms,
the offeror shall be treated for the purposes of this section as having acquired
or contracted to acquire those shares by virtue of acceptances of the offer; but
in any other case those shares shall be treated as excluded from those to which
the offer relates.
430. EFFECT OF NOTICE UNDER S.429
(1) The following provisions shall, subject to section 430C, have effect
where a notice is given in respect of any shares under section 429.
(2) The offeror shall be entitled and bound to acquire those shares on the
terms of the offer.
(3) Where the terms of an offer are such as to give the holder of any
shares a choice of consideration the notice shall give particulars of the choice
and state --
(a) that the holder of the shares may within six weeks from the date
of the notice indicate his choice by a written communication sent to the
offeror at an address specified in the notice; and
(b) which consideration specified in the offer is to be taken as
applying in default of his indicating a choice as aforesaid;
and the terms of the offer mentioned in subsection (2) shall be determined
accordingly.
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(4) Subsection (3) applies whether or not any time-limit or other
conditions applicable to the choice under the terms of the offer can still be
complied with; and if the consideration chosen by the holder of the shares --
(a) is not cash and the offeror is no longer able to provide it; or
(b) was to have been provided by a third party who is no longer bound
or able to provide it,
the consideration shall be taken to consist of an amount of cash payable by the
offeror which at the date of the notice is equivalent to the chosen
consideration.
(5) At the end of six weeks from the date of the notice the offerer shall
forthwith --
(a) send a copy of the notice to the company; and
(b) pay or transfer to the company the consideration for the shares to
which the notice relates.
(6) If the shares to which the notice relates are registered the copy of
the notice sent to the company under subsection (5)(a) shall be accompanied by
an instrument of transfer executed on behalf of the shareholder by a person
appointed by the offeror; and on receipt of that instrument the company shall
register the offeror as the holder of those shares.
(7) If the shares to which the notice relates are transferable by the
delivery of warrants or other instruments the copy of the notice sent to the
company under subsection (5)(a) shall be accompanied by a statement to that
effect; and the company shall on receipt of the statement issue the offeror with
warrants or other instruments in respect of the shares and those already in
issue in respect of the shares shall become void.
(8) Where the consideration referred to in paragraph (b) of subsection (5)
consists of shares or securities to be allotted by the offeror the reference in
that paragraph to the transfer of the consideration shall be construed as a
reference to the allotment of the shares or securities to the company.
(9) Any sum received by a company under paragraph (b) of subsection (5) and
any other consideration received under that paragraph shall be held by the
company on trust for the person entitled to the shares in respect of which the
sum or other consideration was received.
(10) Any sum received by a company under paragraph (b) of subsection (5),
and any dividend or other sum accruing from any other consideration received by
a company under that paragraph, shall be paid into a separate bank account,
being an account the balance on which bears interest at an appropriate rate and
can be withdrawn by such notice (if any) as is appropriate.
(11) Where after reasonable enquiry made at such intervals as are
reasonable the person entitled to any consideration held on trust by virtue of
subsection (9) cannot be found and twelve years have elapsed since the
consideration was received or the company is wound up the consideration
(together with any interest, dividend or other benefit that has accrued from it)
shall be paid into court.
(12) In relation to a company registered in Scotland, subsections (13) and
(14) shall apply in place of subsection (11).
(13) Where after reasonable enquiry made at such intervals as are
reasonable the person entitled to any consideration held on trust by virtue of
subsection (9) cannot be found and twelve years have elapsed since the
consideration was received or the company is wound up --
(a) the trust shall terminate;
(b) the company or, as the case may be, the liquidator shall sell any
consideration other than cash and any benefit other than cash that has
accrued from the consideration; and
(c) a sum representing --
(i) the consideration so far as it is cash;
(ii) the proceeds of any sale under paragraph (b) above; and
(iii) any interest, dividend or other benefit that has accrued from
the consideration,
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shall be deposited in the name of the Accountant of Court in a bank account such
as is referred to in subsection (10) and the receipt for the deposit shall be
transmitted to the Accountant of Court.
(14) Section 58 of the Bankruptcy (Scotland) Act 1985 (so far as consistent
with this Act) shall apply with any necessary modifications to sums deposited
under subsection (13) as that section applies to sums deposited under section
57(l)(a) of that Act.
(15) The expenses of any such enquiry as is mentioned in subsection (11) or
(13) may be defrayed out of the money or other property held on trust for the
person or persons to whom the enquiry relates.
430A. RIGHT OF MINORITY SHAREHOLDER TO BE BOUGHT OUT BY OFFEROR
(1) If a takeover offer relates to all the shares in a company and at any
time before the end of the period within which the offer can be accepted --
(a) the offeror has by virtue of acceptances of the offer acquired or
contracted to acquire some (but not all) of the shares to which the offer
relates; and
(b) those shares, with or without any other shares in the company
which he has acquired or contracted to acquire, amount to not less than
nine-tenths in value of all the shares in the company,
the holder of any shares to which the offer relates who has not accepted the
offer may by a written communication addressed to the offeror require him to
acquire those shares.
(2) If a takeover offer relates to shares of any class or classes and at
any time before the end of the period within which the offer can be accepted --
(a) the offeror has by virtue of acceptances of the offer acquired or
contracted to acquire some (but not all) of the shares of any class to
which the offer relates; and
(b) those shares, with or without any other shares of that class which
he has acquired or contracted to acquire, amount to not less than
nine-tenths in value of all the shares of that class,
the holder of any shares of that class who has not accepted the offer may by a
written communication addressed to the offeror require him to acquire those
shares.
(3) Within one month of the time specified in subsection (1) or, as the
case may be, subsection (2) the offeror shall give any shareholder who has not
accepted the offer notice in the prescribed manner of the rights that are
exercisable by him under that subsection; and if the notice is given before the
end of the period mentioned in that subsection it shall state that the offer is
still open for acceptance.
(4) A notice under subsection (3) may specify a period for the exercise of
the rights conferred by this section and in that event the rights shall not be
exercisable after the end of that period; but no such period shall end less than
three months after the end of the period within which the offer can be accepted.
(5) Subsection (3) does not apply if the offeror has given the shareholder
a notice in respect of the shares in question under section 429.
(6) If the offeror fails to comply with subsection (3) he and, if the
offeror is a company, every officer of the company who is in default or to whose
neglect the failure is attributable, shall be liable to a fine and for continued
contravention, to a daily default fine.
(7) If an offeror other than a company is charged with an offence for
failing to comply with subsection (3) it is a defence for him to prove that he
took all reasonable steps for securing compliance with that subsection.
430B. EFFECT OF REQUIREMENT UNDER S.430A
(1) The following provisions shall, subject to section 430C, have effect
where a shareholder exercises his rights in respect of any shares under section
430A.
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(2) The offeror shall be entitled and bound to acquire those shares on the
terms of the offer or on such other terms as may be agreed.
(3) Where the terms of an offer are such as to give the holder of shares a
choice of consideration the holder of the shares may indicate his choice when
requiring the offeror to acquire them and the notice given to the holder under
section 430A(3) --
(a) shall give particulars of the choice and of the rights conferred
by this subsection; and
(b) may state which consideration specified in the offer is to be
taken as applying in default of his indicating a choice;
and the terms of the offer mentioned in subsection (2) shall be determined
accordingly.
(4) Subsection (3) applies whether or not any time-limit or other
conditions applicable to the choice under the terms of the offer can still be
complied with; and if the consideration chosen by the holder of the shares --
(a) is not cash and the offeror is no longer able to provide it; or
(b) was to have been provided by a third party who is no longer bound
or able to provide it,
the consideration shall be taken to consist of an amount of cash payable by the
offeror which at the date when the holder of the shares requires the offeror to
acquire then is equivalent to the chosen consideration.
430C. APPLICATIONS TO THE COURT
(1) Where a notice is given under section 429 to the holder of any shares
the court may, on an application made by him within six weeks from the date on
which the notice was given --
(a) order that the offeror shall not be entitled and bound to acquire
the shares; or
(b) specify terms of acquisition different from those of the offer.
(2) If an application to the court under subsection (1) is pending at the
end of the period mentioned in subsection (5) of section 430 that subsection
shall not have effect until the application has been disposed of.
(3) Where the holder of any shares exercises his rights under section 430A
the court may, on an application made by him or the offeror, order that the
terms on which the offeror is entitled and bound to acquire the shares shall be
such as the court thinks fit.
(4) No order for costs or expenses shall be made against a shareholder
making an application under subsection (1) or (3) unless the court considers --
(a) that the application was unnecessary, improper or vexatious; or
(b) that there has been unreasonable delay in making the application
or unreasonable conduct on his part in conducting the proceedings on the
application.
(5) Where a takeover offer has not been accepted to the extent necessary
for entitling the offeror to give notices under subsection (1) or (2) of section
429 the court may, on the application of the offeror, make an order authorising
him to give notices under that subsection if satisfied --
(a) that the offeror has after reasonable enquiry been unable to trace
one or more of the persons holding shares to which the offer relates;
(b) that the shares which the offeror has acquired or contracted to
acquire by virtue of acceptances of the offer, together with the shares
held by the person or persons mentioned in paragraph (a), amount to not
less than the minimum specified in that subsection; and
(c) that the consideration offered is fair and reasonable;
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but the court shall not make an order under this subsection unless it considers
that it is just and equitable to do so having regard, in particular, to the
number of shareholders who have been traced but who have not accepted the offer.
430D. JOINT OFFERS
(1) A takeover offer may be made by two or more persons jointly and in that
event this Part of this Act has effect with the following modifications.
(2) The conditions for the exercise of the rights conferred by sections 429
and 430A shall be satisfied by the joint offerors acquiring or contracting to
acquire the necessary shares jointly (as respects acquisitions by virtue of
acceptances of the offer) and either jointly or separately (in other cases);
and, subject to the following provisions, the rights and obligations of the
offeror under those sections and sections 430 and 430B shall be respectively
joint rights and joint and several obligations of the joint offerors.
(3) It shall be a sufficient compliance with any provision of those
sections requiring or authorising a notice or other document to be given or sent
by or to the joint offerors that it is given or sent by or to any of them; but
the statutory declaration required by section 429(4) shall be made by all of
them and, in the case of a joint offeror being a company, signed by a director
of that company.
(4) In sections 428, 430(8) and 430E references to the offeror shall be
construed as references to the joint offerors or any of them.
(5) In section 430(6) and (7) references to the offeror shall be construed
as references to the joint offerors or such of them as they may determine.
(6) In sections 430(4)(a) and 430B(4)(a) references to the offeror being no
longer able to provide the relevant consideration shall be construed as
references to none of the joint offerors being able to do so.
(7) In section 430C references to the offeror shall be construed as
references to the joint offerors except that any application under subsection
(3) or (5) may be made by any of them and the reference in subsection (5)(a) to
the offeror having been unable to trace one or more of the persons holding
shares shall be construed as a reference to none of the offerors having been
able to do so.
430E. ASSOCIATES
(1) The requirement in section 428(1) that a takeover offer must extend to
all the shares, or all the shares of any class or classes, in a company shall be
regarded as satisfied notwithstanding that the offer does not extend to shares
which associates of the offeror hold or have contracted to acquire; but, subject
to subsection (2), shares which any such associate holds or has contracted to
acquire, whether at the time when the offer is made or subsequently, shall be
disregarded for the purposes of any reference in this Part of this Act to the
shares to which a takeover offer relates.
(2) Where during the period within which a takeover offer can be accepted
any associate of the offeror acquires or contracts to acquire any of the shares
to which the offer relates, then, if the condition specified in subsection
(8)(a) or (b) of section 429 is satisfied as respects those shares they shall be
treated for the purposes of that section as shares to which the offer relates.
(3) In section 430A(1)(b) and (2)(b) the reference to shares which the
offeror has acquired or contracted to acquire shall include a reference to
shares which any associate of his has acquired or contracted to acquire.
(4) In this section "associate", in relation to an offeror means --
(a) a nominee of the offeror;
(b) a holding company, subsidiary or fellow subsidiary of the offeror
or a nominee of such a holding company, subsidiary or fellow subsidiary;
(c) a body corporate in which the offeror is substantially interested;
or
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(d) any person who is, or is a nominee of, a party to an agreement
with the offeror for the acquisition of, or of an interest in, the shares
which are the subject of the takeover offer, being an agreement which
includes provisions imposing obligations or restrictions such as are
mentioned in section 204(2)(a).
(5) For the purposes of subsection (4)(b) a company is a fellow subsidiary
of another body corporate if both are subsidiaries of the same body corporate
but neither is a subsidiary of the other.
(6) For the purposes of subsection (4)(c) an offeror has a substantial
interest in a body corporate if --
(a) that body or its directors are accustomed to act in accordance
with his directions or instructions; or
(b) he is entitled to exercise or control the exercise of one-third or
more of the voting power at general meetings of that body.
(7) Subsections (5) and (6) of section 204 shall apply to subsection (4)(d)
above as they apply to that section and subsections (3) and (4) of section 203
shall apply for the purposes of subsection (6) above as they apply for the
purposes of subsection (2)(b) of that section.
(8) Where the offeror is an individual his associates shall also include
his spouse and any minor child or step-child of his.
430F. CONVERTIBLE SECURITIES
(1) For the purposes of this Part of this Act securities of a company shall
be treated as shares in the company if they are convertible into or entitle the
holder to subscribe for such shares; and references to the holder of shares or a
shareholder shall be construed accordingly.
(2) Subsection (1) shall not be construed as requiring any securities to be
treated --
(a) as shares of the same class as those into which they are
convertible or for which the holder is entitled to subscribe; or
(b) as shares of the same class as other securities by reason only
that the shares into which they are convertible or for which the holder is
entitled to subscribe are of the same class.
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APPENDIX X
DEFINITIONS
The following definitions apply throughout this document, unless the context
otherwise requires:
"ACCEPTANCE CONDITION" The Condition as to acceptance set out in paragraph
(a) of Part A of Appendix I
"ACCEPTANCE FORM" The Form of Acceptance and, with respect to holders
of Energy Group ADSs only, the Letter of
Transmittal (or Agent's Message) and Notice of
Guaranteed Delivery accompanying this document
"ACQUISITION" The proposed acquisition of The Energy Group
pursuant to the Texas Utilities Offer
"BOARD" OR "DIRECTORS" The Directors of Texas Utilities, TU Acquisitions
or The Energy Group, as the case may be, and
"Director" means any one of them
"BOOK-ENTRY CONFIRMATION" The confirmation of a book-entry transfer of The
Energy Group ADSs into the US Depositary's account
at a Book Entry Transfer Facility
"BOOK-ENTRY TRANSFER
FACILITY" The Depository Trust Company
"BUSINESS DAY" Has the meaning given to it in Rule 14d-1 under the
Exchange Act
"CANADA" Canada, its provinces, territories and all areas
subject to its jurisdiction and any other political
sub-division thereof
"CERTIFICATED" OR "IN
CERTIFICATED
FORM" A share or other security which is not in
uncertificated form
"CITIZENS POWER" Citizens Power LLC, previously named Citizens
Lehman Power L.L.C.
"CITY CODE" OR "CODE" The City Code on Takeovers and Mergers of the
United Kingdom
"CLOSING PRICE" The closing middle market quotation of an Energy
Group Share as derived from the Daily Official List
"COMPANIES ACT" The Companies Act 1985 (as amended) of Great
Britain
"CONDITIONS" The conditions of the Texas Utilities Offer
described in Part A of Appendix 1 and "Condition"
means any one of them
"CREST" The relevant system (as defined in the Regulations)
in respect of which CRESTCo is the Operator (as
defined in the Regulations)
"CRESTCO" CRESTCo Limited
"CREST MEMBER" A person who has been admitted by CRESTCo as a
system-member (as defined in the Regulations)
"CREST PARTICIPANT" A person who is, in relation to CREST, a
system-participant (as defined in the Regulations)
"CREST SPONSOR" A CREST participant admitted to CREST as a
sponsored member
"CREST SPONSORED MEMBER" A CREST member admitted to CREST as a sponsored
member
"CSE" The Chicago Stock Exchange
"DAILY OFFICIAL LIST" The London Stock Exchange Daily Official List
"DEALER MANAGERS" Lehman Brothers Inc. and Merrill Lynch & Co., in
their capacities as dealer managers for the Texas
Utilities Offer in the US
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"DEMERGER" The demerger by Hanson of The Energy Group
"DEMERGER AGREEMENT" The agreement dated 27 January 1997 between Hanson
and The Energy Group relating to the Demerger
"DEMERGER DATE" 24 February 1997
"DEMERGER TRANSACTIONS" The transactions described in the Demerger
Agreement, pursuant to which The Energy Group
became the holding company of the TEG Group, as
then constituted, and the Peabody Holding
Transaction
"DEPOSIT AGREEMENT" The deposit agreement between The Energy Group,
Citibank, N.A. and the holders, from time to time,
of Energy Group ADSs
"DGES" The Director General of Electricity Supply of the
United Kingdom
"DTC" The Depositary Trust Company
"EASTERN" Eastern Group plc and/or its subsidiaries or any of
them from time to time as the context may require
"EASTERN ENERGY" Eastern Energy Limited, a wholly-owned subsidiary
of Texas Utilities
"ELECTRICITY POOL" The electricity trading market in England and Wales
"ELIGIBLE INSTITUTION" A financial institution (including most banks,
savings and loan associations and brokerage houses)
which is a participant in the Securities Transfer
Agents Medallion Program, or the Stock Exchange
Medallion Program
"ENERGY GROUP ADRS" American Depositary Receipts evidencing Energy
Group ADSs
"ENERGY GROUP ADSS" American Depositary Shares issued in respect of
Energy Group Shares, each representing four Energy
Group Shares, as evidenced by Energy Group ADRs
"ENERGY GROUP LISTING
PARTICULARS" OR "LISTING
PARTICULARS" The listing particulars relating to The Energy
Group dated 27 January 1997, published in
accordance with the Listing Rules
"ENERGY GROUP SECURITIES" Energy Group Shares and Energy Group ADSs
"ENERGY GROUP SHARES" shares of 10p each in the share capital of The
Energy Group in issue or allotted or issued prior
to the date on which the Texas Utilities Offer
closes (or such earlier date, not being earlier
than the Initial Closing Date (as it may be
extended) as TU Acquisitions may, subject to the
City Code, determine)
"ENERGY GROUP SHARE
SCHEMES" The Energy Group Executive Share Option Scheme, the
Energy Group Sharesave Scheme, the Energy Group
Long-term Incentive Plan and the Energy Group
Special Additional Bonus Scheme
"ENERGY GROUP SHAREHOLDERS" Holders of Energy Group Shares
"ENLARGED GROUP" The Texas Utilities Group as enlarged by the
acquisition of The Energy Group
"ENSERCH" ENSERCH Corporation, a wholly-owned subsidiary of
Texas Utilities
"EXCHANGE ACT" The US Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated
thereunder
"FERC" The US Federal Energy Regulatory Commission
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"FIRST HYDRO" The pumped storage business of National Grid Group
"FORM OF ACCEPTANCE" The form of acceptance, election and authority
relating to the Texas Utilities Offer accompanying
this document for use by holders of Energy Group
Shares (but not by holders of Energy Group ADSs)
"FTA ALL SHARE INDEX" FTSE Actuaries All-Share Index as published
"GUARANTEED DELIVERY
PROCEDURES" The guaranteed delivery procedures for Energy Group
ADSs set out in paragraph 9 of Part B of Appendix I
"HANSON" Hanson PLC
"HANSON GROUP" Hanson and its subsidiary undertakings from time to
time
"INCREASED PACIFICORP
OFFER" The increased offer made by PacifiCorp Acquisitions
to acquire Energy Group Securities as announced on
3 March 1998
"INFORMATION AGENT" D.F. King & Co., Inc.
"INITIAL CLOSING DATE" 10.00 pm (London time), 5.00 pm (New York City
time) on 7 April 1998, unless and until TU
Acquisitions, in its discretion, shall have
extended the Texas Utilities Offer, in which case
the term "Initial Closing Date" shall mean the
latest time and date at which the Texas Utilities
Offer, as so extended by TU Acquisitions, will
expire, or, if earlier, the time at which the Texas
Utilities Offer becomes or is declared wholly
unconditional
"INITIAL OFFER PERIOD" The period from the date of this document to and
including the Initial Closing Date
"INTERNAL REVENUE CODE" Internal Revenue Code of 1986 of the United States,
as amended
"IRS" The US Internal Revenue Service
"LCC" Lufkin-Conroe Communications Co., a wholly-owned
subsidiary of Texas Utilities
"LEHMAN BROTHERS" Lehman Brothers International (Europe)
"LEHMAN MERCHANT" Lehman Brothers Merchant Banking Partners II L.P.
and, where the context so requires, P&L Coal
Holdings Corporation, its affiliate
"LETTER OF TRANSMITTAL" The letter of transmittal relating to the Texas
Utilities Offer accompanying this document for use
by holders of Energy Group ADSs
"LISTING RULES" The rules and regulations made by the London Stock
Exchange under the Financial Services Act 1986
"LOAN NOTE ALTERNATIVE" The alternative under which holders of Energy Group
Shares who validly accept the Texas Utilities Offer
will be entitled to elect to receive Loan Notes
instead of all or part of the cash consideration
otherwise payable to them
"LOAN NOTES" The unsecured floating rate loan notes 1998/2004 of
L1 each of TU Acquisitions to be issued pursuant to
the Loan Note Alternative
"LONDON STOCK EXCHANGE" London Stock Exchange Limited
"LONE STAR GAS" Lone Star Gas Company, a division of ENSERCH
"LONE STAR PIPELINE" Lone Star Pipeline Company, a division of ENSERCH
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"MEMBER ACCOUNT ID" The identification code or number attached to any
member account in CREST
"MERRILL LYNCH" Merrill Lynch International
"NATIONAL GRID GROUP" The National Grid Group plc
"NATIONAL POWER" National Power plc
"NEW TEXAS UTILITIES
SHARES" The shares of Texas Utilities Common Stock to be
issued pursuant to the Share Alternative
"NOON BUYING RATE" The exchange rate for pounds sterling, based on the
noon buying rate in the City of New York for cable
transfers in pounds sterling as certified for
customs purposes by the Federal Reserve Bank of New
York, expressed in US dollars per pound sterling
"NYSE" The New York Stock Exchange
"OFFER" The Office of Electricity Regulation of the United
Kingdom
"ORIGINAL PACIFICORP OFFER" The offer made by PacifiCorp Acquisitions to
acquire the Energy Group Securities as announced on
13 June 1997
"PANEL" The Panel on Takeovers and Mergers of the United
Kingdom
"PARTICIPANT ID" The identification code or membership number used
in CREST to identify a particular CREST member or
other CREST participant
"PEABODY" Peabody Holding, Lee Ranch Coal Company and Peabody
Australia
"PEABODY AUSTRALIA" Peabody Holding Pty Limited and its subsidiaries
which constitute the Australian operations of
Peabody
"PEABODY COAL BUSINESS' The undertakings conducting the TEG Group's coal
business in the United States and Australia
including Peabody Holding Company, Inc. and its
subsidiaries, Lee Ranch Coal Company and Peabody
Holding Pty Limited and its subsidiaries, and
certain holding and related companies of such
companies, including Citizens Power
"PEABODY HOLDING
TRANSACTION" The transaction whereby Peabody US Holding Inc., a
subsidiary of Hanson, transferred to GFAC
International Holdings Inc. the entire issued share
capital of Peabody Holding for a cash sum of
$1,637.5 million
"PEABODY HOLDING" Peabody Holding Company, Inc. and its subsidiaries
"PEABODY SALE" The sale of the Peabody Coal Business under the
Peabody Sale Agreement
"PEABODY SALE AGREEMENT" The agreement dated 2 March 1998 between The Energy
Group and P & L Coal Holdings Corporation for the
sale of the Peabody Coal Business
"PSE" The Pacific Exchange
"REGISTRATION STATEMENT" The Registration Statement (SEC File No. 333-47135)
filed with the SEC with respect to the Texas
Utilities Common Stock offered pursuant to the
Texas Utilities Offer
"REGULATIONS" The Uncertificated Securities Regulations 1995 (SI
1995 No. 95/3272)
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"RENEWED PACIFICORP OFFER" The renewed offer made by Goldman Sachs
International on behalf of PacifiCorp Acquisitions
to acquire all the issued and to be issued Energy
Group Securities as announced on 3 February 1998
"ROLLALONG" Rollalong Limited and, where the context permits,
its subsidiary, Rollalong Hire Limited
"SEC" The US Securities and Exchange Commission
"SECURITIES ACT" The US Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder
"SESCO" Southwestern Electric Service Company, a
wholly-owned subsidiary of Texas Utilities
"SHARE ALTERNATIVE" The alternative under which holders of Energy Group
Securities who validly accept the Texas Utilities
Offer may elect to receive New Texas Utilities
Shares instead of all (but not part) of the cash
consideration otherwise payable to them, subject to
the limitations described herein
"SUBSEQUENT OFFER PERIOD" The period following the Initial Closing Date
during which the Texas Utilities Offer remains open
for acceptance
"TEG GROUP" The Energy Group and its subsidiaries and
subsidiary undertakings and, where the context
permits, each of them
"TEI" Texas Energy Industries, Inc., a wholly-owned
subsidiary of Texas Utilities
"TEXAS UTILITIES" Texas Utilities Company
"TEXAS UTILITIES COMMON
STOCK" The common stock, without par value, of Texas
Utilities
"TEXAS UTILITIES GROUP" Texas Utilities and its subsidiaries and subsidiary
undertakings and, where the context permits, each
of them
"TEXAS UTILITIES OFFER" The cash offer made by Lehman Brothers and Merrill
Lynch on behalf of TU Acquisitions to acquire the
Energy Group Shares (including those represented by
Energy Group ADSs) and Energy Group ADSs not
already held by TU Acquisitions as set out in this
document including, where the context permits
and/or requires, any subsequent revision,
variation, extension, or renewal of such offer
"TFE INSTRUCTION" A Transfer from Escrow instruction (as defined by
the CREST Manual issued by CRESTCo)
"THE ENERGY GROUP" The Energy Group PLC
"TTE INSTRUCTION" A Transfer to Escrow instruction (as defined by the
CREST Manual issued by CRESTCo)
"TU ACQUISITIONS" TU Acquisitions PLC
"TU AUSTRALIA" Texas Utilities Australia, Pty. Ltd., a
wholly-owned subsidiary of Texas Utilities
"TU ELECTRIC" Texas Utilities Electric Company, a wholly-owned
subsidiary of Texas Utilities
"TTE INSTRUCTION" A Transfer to Escrow instruction (as defined by the
CREST Manual issued by CREST)
"UNITED KINGDOM GAAP" United Kingdom generally accepted accounting
principles
X-5
<PAGE> 424
"UNITED KINGDOM RECEIVING
AGENT" The Royal Bank of Scotland plc, in its capacity as
United Kingdom receiving agent to the Texas
Utilities Offer
"UNITED KINGDOM" OR "UK" The United Kingdom of Great Britain and Northern
Ireland
"UNCERTIFICATED" OR "IN
UNCERTIFICATED FORM" Recorded on the relevant register of the share or
security concerned as being held in uncertificated
form in CREST, and title to which, by virtue of the
Regulations, may be transferred by means of CREST
"UNITED STATES" OR "US" The United States of America, its territories and
possessions, any state of the United States of
America, the District of Columbia, and all other
areas subject to its jurisdiction
"US DEPOSITARY" The Bank of New York, in its capacity as US
Depositary
"US GAAP" US generally accepted accounting principles
"US HSR ACT" The US Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations
promulgated thereunder
"US PERSONS" A US person as defined in Regulation S under the
United States Securities Act of 1933, as amended
"$" OR "US DOLLAR" The lawful currency of the United States
"L" OR "POUNDS STERLING" The lawful currency of the United Kingdom
X-6
<PAGE> 425
ACCEPTANCES IN RESPECT OF ENERGY GROUP SHARES
Duly completed Forms of Acceptance, accompanied by certificates in respect of
Energy Group Shares and/or other documents of title, should be delivered to the
United Kingdom Receiving Agent or the US Depositary at one of the addresses set
out below.
The United Kingdom Receiving agent for the Texas Utilities Offer is:
THE ROYAL BANK OF SCOTLAND PLC
REGISTRAR'S DEPARTMENT
NEW ISSUES SECTION
FOR INFORMATION CALL:
0117 937 0672
<TABLE>
<S> <C>
BY MAIL: BY HAND:
P.O. BOX 859 5-10 GREAT TOWER STREET,
CONSORT HOUSE LONDON EC3R 5ER
EAST STREET, BEDMINSTER
BRISTOL BS99 1XZ
</TABLE>
ACCEPTANCES IN RESPECT OF ENERGY GROUP ADSS
Manually signed facsimile copies of the Letter of Transmittal will be accepted.
The Letter of Transmittal, Energy Group ADRs and any other required documents
should be sent or delivered by each holder of Energy Group ADSs or his broker,
dealer, commercial bank, trust company or other nominee to the US Depositary at
one of its addresses set out below.
The US Depositary for the Texas Utilities Offer is:
THE BANK OF NEW YORK
FOR INFORMATION CALL:
(888) 460-7637
FACSIMILE TRANSMISSION:
(FOR ELIGIBLE INSTITUTIONS ONLY)
(212) 815-6213
<TABLE>
<S> <C>
BY MAIL: BY HAND OR OVERNIGHT COURIER:
TENDER & EXCHANGE DEPARTMENT TENDER & EXCHANGE DEPARTMENT
P.O. BOX 11248 101 BARCLAY STREET
CHURCH STREET STATION RECEIVE AND DELIVER WINDOW
NEW YORK, NEW YORK 10286-1248 NEW YORK, NEW YORK 10286
</TABLE>
ADDITIONAL INFORMATION
Any questions or requests for assistance or additional copies of the Texas
Utilities Offer to Purchase, the Letter of Transmittal and the Notice of
Guaranteed Delivery or the Form of Acceptance may be directed to the Dealer
Managers or the Information Agent at their respective addresses and telephone
numbers listed below, or to the US Depositary or the United Kingdom Receiving
Agent at their respective addresses and telephone numbers mentioned above. You
may also contact your local broker, dealer, commercial bank or trust company or
other nominee for assistance concerning the Texas Utilities Offer.
The Information Agent for the Texas Utilities Offer is:
D.F. KING & CO., INC.
<TABLE>
<S> <C>
UNITED STATES: EUROPE
77 Water Street Royex House, Aldermanbury Square
New York, NY 10005 London, England EC2V 7HR
(800) 848-3416 (44) 171-600-5005 (Collect)
</TABLE>
OUTSIDE THE UNITED STATES AND EUROPE
(212) 269-5550 (Collect)
The Texas Utilities Offer is being made on behalf of TU Acquisitions by:
Lehman Brothers and Merrill Lynch
The Dealer Managers for the Texas Utilities Offer are:
<TABLE>
<S> <C>
Lehman Brothers Inc. Merrill Lynch & Co.
3 World Financial Center World Financial Center
200 Vesey Street South Tower
New York, NY 10285 New York, NY 10281-1307
Call Collect at: (212) 449-1000
(212) 526-8335
</TABLE>
<PAGE> 1
EXHIBIT (2)(b)
THIS AGREEMENT is dated 2 March 1998 and is made BETWEEN:
(1) THE ENERGY GROUP PLC, a public limited company incorporated in England and
Wales, whose registered office is at 117 Piccadilly, London WIV 9FJ
("TEG"); and
(2) P&L COAL HOLDINGS CORPORATION, a Delaware Corporation (the "PURCHASER").
NOW IT IS HEREBY AGREED as follows:
1 INTERPRETATION
1.1 In this Agreement, the following expressions have the following meanings.
"AUSTRALIA SALE SHARES" means the DCI Shares and the PAL Shares;
"BUSINESS DAY" has the meaning given to it in Rule 14d-1 under the US
Securities Exchange Act of 1934 as amended;
"COMPANIES" means CP, DCI, GFMC, PAL and PHC;
"COMPLETION" means completion of the sale and purchase of the Sale Shares
pursuant to the provisions of clause 5.2 hereof;
"THE CONDITIONS" means the conditions set out in clause 2;
"CP" means Citizens Power LLC, a Delaware limited liability company;
"CP SHARES" means 100 percent of the membership interest of CP;
"DCI" Means Darex Capital Inc., a company incorporated in the Republic of
Panama;
"DCI SHARES" means the 1,000 shares of $0.01 each in the capital of DCI,
being the entire issued share capital of DCI;
"EFFECTIVE DATE" means the date on which the Conditions are satisfied or
waived;
"ESCROW LETTER" means the letter of even date herewith between the
Purchaser, TEG and Lazard Brothers & Co. Limited relating to the deeds and
documents delivered at Pre- Completion;
"GFMC" means Gold Fields Mining Corporation, a Delaware corporation.
<PAGE> 2
"GFMC SHARES" means 100 shares of $5.00 par value each in the common stock
of GFMC, being the entire issued share capital of GFMC;
"MINORITY INTERESTS" means the 1% interests of Peabody Investments, Inc. in
CL Hartford, L.L.C., a Delaware limited liability company, and Citizens
Power Sales, a Delaware general partnership;
"OFFER" means the Texas Utilities Offer (as defined in the Press
Announcement);
"PAL" means Peabody Australia Limited, a private limited company
incorporated in England and Wales;
"PAL SHARES" means the 1,000,000 "A" ordinary shares of US$0.01 each in the
capital of PAL, being the entire issued share capital of PAL;
"PHC" means Peabody Holding Company, Inc., a New York corporation;
"PHC SHARES" means 203,840 shares of $1.00 par value each in the common
stock of PHC, being the entire issued share capital of PHCI;
"PRE-COMPLETION" means pre-completion of the sale and purchase of the Sale
Shares in accordance with clause 5.1 hereof and on and subject to the terms
of the Escrow Letter;
"PRE-COMPLETION DATE" means the date falling ten business days (or such
lesser period as the parties may agree) after receipt by TEG and the
Purchaser of notice in writing from Texas Utilities Company (confirmed in
writing by Texas Utilities Company by 3:00pm London time one business day
prior to the Pre-Completion Date) that it believes there is a significant
possibility that the Offer will become or be declared unconditional in all
respects within or on the expiry of that period, such notice not to be
given earlier than the first closing date of the Offer, provided that if at
any time during such period it becomes apparent that the Offer is not
likely to become or be declared unconditional in all respects by such time,
the Pre-Completion Date will be such later business day as shall be
specified in writing by Texas Utilities Company and which satisfies the
above criteria (subject to the same one business day prior written
confirmation by Texas Utilities Company).
"PRESS ANNOUNCEMENT" means the press announcement to be released on 2 March
1998, in the form attached hereto and initialled by or on behalf of the
parties hereto;
"SALE" means the sale of the Sale Shares pursuant to this Agreement;
"THE SALE SHARES" means the Australia Sale Shares and the US Sale Shares;
-2-
<PAGE> 3
"US SALE SHARES" means the CP Shares, the GFMC Shares, the Minority
Interests and the PHC Shares.
1.2 The headings to the clauses are for convenience only and have no legal
effect.
2 THE CONDITIONS
2.1 Completion of this Agreement shall in all respects be conditional on the
fulfilment of the following conditions:
(a) the Offer becoming or being declared unconditional in all respects
(and the Offer not at that time being publicly opposed by the board of
directors of TEG);
(b) the waiting period applicable to the Sale under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, of the United States
(the "HSR Act") having expired or been terminated;
(c) the consent of the Treasurer of the Commonwealth of Australia, acting
in such capacity or through the body known as the Foreign Investment
Review Board (the "Australian Treasurer"), having been given to the
Sale (or to any aspect thereof as shall be subject to approval
pursuant to the Foreign Acquisitions and Takeovers Act of Australia
("FATA")) either unconditionally or subject to such conditions as do
not have and could not reasonably be expected to have a material
adverse effect on the value of the Companies and their subsidiaries
(taken as a whole);
(d) the United States Federal Energy Regulatory Commission ("FERC") having
issued an order approving the Sale or any aspect thereof as shall be
subject to regulation by FERC on terms that do not have and could not
reasonably be expected to have a material adverse effect on the value
of the Companies and their subsidiaries (taken as a whole);
(e) no order having been issued (and remaining in effect) by any court or
other governmental authority, and no statute, rule, regulation,
executive order, decree or other order of any kind existing or having
been enacted, entered or enforced by any governmental authority, which
(in any such case to an extent which is material in the context of the
Sale) prohibits, restrains or restricts Completion of the sale of the
Sale Shares pursuant to this Agreement;
(f) the Pre-Completion Date having passed.
2.2 The Purchaser shall use its best endeavours (to the extent it is able and
without involving unreasonable expenditure of money) to procure the
fulfilment of the Conditions set out in sub-clauses (b)-(f) inclusive of
clause 2.1 as soon as possible and TEG shall give all
-3-
<PAGE> 4
reasonable assistance in respect of applications to regulatory authorities.
The Purchaser agrees that its best endeavours as set out above shall
include taking all such steps as may be required to secure regulatory
approvals contemplated by the Conditions set out in subclauses (b) to (d)
of clause 2.1.
2.3 The Purchaser may (subject to the prior written consent of TEG (in the case
of subclauses (c), (e) and (f) of clause 2.1)) waive any of the conditions
set out in sub-clauses (c)-(f) inclusive of clause 2.1. The Conditions in
sub-clause (a) and (b) of clause 2.1 may not be waived.
2.4 If any of the Conditions becomes incapable of being satisfied (and, if the
Condition is capable of being waived, the relevant party or parties refuse
to waive the Condition), all obligations of the parties under this
Agreement shall terminate and neither party shall have any claim against
the other under them except for any prior breach of clause 2.2.
3 SALE OF THE SALE SHARES
3.1 Subject to the Conditions being satisfied, TEG shall procure the sale by
Energy Holdings (No. 2) Limited, as legal and beneficial owner, of all the
Australia Sales Shares to the Purchaser and shall procure the sale by
Peabody Investments, Inc, as legal and beneficial owner of all the US Sale
Shares to the Purchaser, in each case free from all liens, charges and
encumbrances and with full title guarantee and will all rights attached
thereto at the Effective Date but (in the absence of fraud) without the
benefit of any other undertakings, warranties, representations or other
assurances whatsoever except insofar as they are contained in this
Agreement and the Purchaser shall purchase the Sale Shares at completion.
3.2 The Purchaser shall not be obliged to complete the purchase of any of the
Sale Shares unless the purchase of all the Sale Shares is completed
simultaneously.
4 CONSIDERATION
4.1 The consideration for the sale of the Sale Shares payable by the Purchaser
on Completion shall be the sum of US$2,287,400,000 in cash in United States
currency (the "PURCHASE CONSIDERATION").
-4-
<PAGE> 5
5 PRE-COMPLETION AND COMPLETION
5.1 On the Pre-Completion Date all (but not some only) of the following shall
take place, on and subject to the terms and conditions of the Escrow
Letter:
(a) TEG shall procure the delivery to the escrow agent referred to in the
Escrow Letter of undated transfers or undated assignments (as the case
may be) in respect of such of the Sale Shares as are registered (to
the extent required), duly executed by or on behalf of Energy Holdings
(No. 2) Limited or Peabody Investments, Inc. (as the case may be) and
completed in favour of the Purchaser or as it may direct, together
with the certificates in respect of such Sale Shares (to the extent
required, duly endorsed in blank or in the name of the Purchaser),
share warrants to bearer in respect of such of the Sale Shares as are
not in registered form, and such other documents, transfer stamps or
written consents as may be required to give a good title to such Sale
Shares and to enable the Purchaser or its nominees to become the
registered holders thereof;
(b) TEG shall cause the transfers referred to above to be resolved to be
registered to the extent required (subject only to their being duly
stamped and to completion taking place); and
(c) TEG shall procure the delivery to the escrow agent referred to in the
Escrow Letter of undated assignments of certain indemnities in the
form separately agreed between the parties and initialled by or on
behalf of the parties for the purposes of identification;
(d) the Purchaser shall pay the Purchase Consideration by electronic funds
transfer (for value on the day of transfer) to the escrow account
referred to in the Escrow Letter.
5.2 Completion of the sale and purchase of the Sale Shares shall take place
immediately following the satisfaction of the Conditions, when the parties
shall procure (to the extent necessary) that the funds held by the escrow
agent referred to in the Escrow Letter are paid to the person(s) entitled
thereto in accordance with the terms of the Escrow Letter, on which event
completion shall have taken place, such that the documents delivered in
escrow pursuant to clause 5.1 above shall be unconditionally delivered and
released to the parties entitled thereto and shall become effective and
shall be dated accordingly.
5.3 If Completion does not occur the business day after the Pre-Completion
Date, then on such day the monies in the escrow account referred to in the
Escrow Letter will be released to the Purchaser and the documents delivered
in escrow pursuant to clause 5.1 above shall be released to TEG, and
thereafter the Parties shall stand ready to effect Pre-Completion and
Completion in accordance with the provisions of this Agreement (subject
-5-
<PAGE> 6
to satisfaction of the Conditions) upon one business day's notice (prior to
3:00pm London time) by Texas Utilities Company.
6 WARRANTIES
6.1 Each of the parties hereby warrants to the other that:
(a) it has the requisite corporate power and authority under its
memorandum and articles of association (or the equivalent) to enter
into, execute, deliver and perform its obligations under this
Agreement;
(b) the execution and delivery of this Agreement and the performance of
its obligations under this Agreement have been duly authorised by all
necessary corporate action;
(c) this Agreement constitutes and documents executed by it which are to
be delivered from escrow at Completion will, when executed, constitute
legal, valid and binding obligations of it in accordance with their
respective terms;
(d) the execution and delivery of, and the performance by it of its
obligations under, and compliance with the provisions of, this
Agreement, will not result in:
(i) any breach or violation by it of any provision of its memorandum
and articles of association (or the equivalent);
(ii) any breach of, or constitute a default under (which in any case
is material in the context of the sale of the Sale Shares), any
instrument or agreement to which it is a party or by which it is
bound; or
(iii)(subject to the satisfaction of the Conditions) any breach of
any law or regulation in any jurisdiction having the force of law
or of any order, judgment or decree of any court or governmental
agency by which it is bound in each case as at the date hereof.
6.2 TEG hereby warrants to the Purchaser that:
(a) the Sale Shares comprise the whole of the issued and allotted share
capital of the Companies and Energy Holdings (No. 2) Limited or
Peabody Investments, Inc. (as the case may be) is or will prior to
Completion be the sole beneficial owner of the Sale Shares free from
any lien, charge, equity or encumbrance;
(b) save pursuant to this Agreement, no person has the right (whether
exercisable now or in the future and whether contingent or not) to
call for the allotment,
-6-
<PAGE> 7
issue, sale, transfer or conversion of any share capital of any of the
Companies or any of their subsidiaries under any option or other
agreement (including conversion rights and rights of pre-emption);
(c) the Schedule contains particulars of the shareholdings of each of the
subsidiaries of each of the Companies and all the shares shown as
issued are in issue fully paid and are beneficially owned and
registered as set out therein free from any lien, charge, equity or
encumbrance.
7 COVENANTS
7.1 TEG undertakes to the Purchaser that (unless the Purchaser shall otherwise
agree in writing in advance, such approval not be withheld or delayed in
the case of any act, matter or thing which would not be material in the
context of the Sale) prior to the Sale or the termination of this Agreement
(whichever shall be the earlier);
(a) it will direct the Companies (and each of their respective
subsidiaries) to conduct their business in the ordinary and usual
course as currently carried on by such Companies and their
subsidiaries; and
(b) it will not take any action in relation to the Companies or any of
their respective subsidiaries which would, if the Company and their
subsidiaries taken as a whole were an offeree company subject to the
City Code on Takeovers and Mergers, amount to an action requiring the
approval of shareholders in general meeting under Rule 21 of the City
Code on Takeovers and Mergers.
8 COUNTERPARTS
8.1 This Agreement may be executed in one or more counterparts each signed by
one or more of the parties and such counterparts shall together constitute
one agreement.
9 FURTHER ASSURANCES
9.1 Each party hereto agrees that it shall execute such further documents and
do all such other legal acts as may be necessary to give good title to the
Sale Shares and to enable the Purchaser or its nominees to become the
registered holders thereof or transfer the Sale shares or to give the
Purchaser the benefit of the indemnities referred to in the assignments
referred to in clause 5.1(c). It is the responsibility of the Purchaser to
notify the Australian Treasurer of the proposed Sale under FATA but TEG
will give all such assistance as it reasonably can to enable the Purchaser
to give notification and to deal with any issues that may be raised by the
Australian Treasurer in relation to such notification.
-7-
<PAGE> 8
10 MISCELLANEOUS
10.1 This Agreement sets out the entire agreement and understanding between the
Parties in connection with the sale and purchase of the Sale Shares.
10.2 The Purchaser hereby acknowledges that it has not entered into this
Agreement in reliance on any warranties, representations, covenants,
undertakings or indemnities on the part of TEG or any of its subsidiary
undertakings (or any of its or their respective directors, officers,
employees or advisers) except insofar as they are contained in this
Agreement.
10.3 No purported alteration to this Agreement shall be effective unless it is
in writing, refers to this Agreement and is duly executed by each party
hereto.
10.4 A breach by TEG of any of the provisions of this Agreement shall give rise
only to an action against TEG and no other person by the Purchaser for
damages and shall not entitle the Purchaser to rescind or repudiate this
Agreement.
10.5 TEG hereby acknowledges that it has not entered into this Agreement in
reliance on any warranties, representations, covenants, undertakings or
indemnities on the part of the Purchaser, any of the Companies or any of
their subsidiary undertakings (or any of its or their respective officers,
employees or advisers) except insofar as they are contained in this
Agreement.
11 NOTICES
11.1 Any notice or other document to be given under this Agreement shall be in
writing and shall be deemed duly given:
(a) if to be given to the Purchaser, if left at or sent by (i) airmail or
express or other fast postal service or (ii) facsimile transmission or
other means of telecommunication in permanent written form to the
following address or number:
(A) name P&L Coal Holdings Corporation
address c/o Lehman Brothers Merchant Banking Group
3 World Financial Center
200 Vesey Street
New York, New York 10285
FAO Henry E. (Jack) Lentz
Fax no. 001 212 526 3836
-8-
<PAGE> 9
or to such other address and/or number as the Purchaser may by
notice to TEG hereto expressly substitute therefor;
(b) if to TEG, if left at or sent by (i) airmail or express or other fast
postal service or (ii) facsimile transmission or other means of
telecommunication in permanent written form to the following address
or number:
name The Energy Group PLC
address 117 Piccadilly
London WIV 9FJ
FAO Martin Murray
Fax no. 0171 647 3215
or to such other address as TEG may by notice to the Purchaser
expressly substitute therefor.
(c) when in the ordinary course of the means of transmission it would
first be received by the addressee in normal business hours.
12 CHOICE OF LAW AND JURISDICTION
12.1 This Agreement shall be governed by and construed in accordance with
English law.
12.2 If either party to this Agreement has any claim or cause of action arising
out of or in connection with this Agreement, such claim or action shall be
referred to the English courts, to the jurisdiction of which courts each
party hereby irrevocably and expressly submits.
12.3 The Purchaser hereby irrevocably authorises and appoints Simmons & Simmons
of 21 Wilson Street, London EC2M 2TX (for the attention of Peter Kennerley
or Edward Troup) (or such other person, being a firm of solicitors resident
in England as the Purchaser may by notice in writing to TEG from time to
time substitute) to accept service of all legal proceedings arising out of
or connected with this Agreement. Service of such process on the person for
the time being authorised to accept it under this clause on behalf of the
Purchaser shall be deemed to be service of that process on the Purchaser.
-9-
<PAGE> 10
IN WITNESS WHEREOF this Agreement has been entered into the day and year first
above written.
SIGNED by D.C. Bonham )
)
)
for and on behalf of )
THE ENERGY GROUP PLC ) /s/ D.C. Bonham
-------------------
SIGNED by )
)
)
for and on behalf of )
P&L COAL HOLDINGS CORPORATION ) /s/ Henry E. Lentz
-------------------
-------------------
-10-
<PAGE> 11
Schedule
[Information on subsidiaries of the Companies - clause 6(g)]
<PAGE> 12
SCHEDULE 6.2(c)
Peabody Coal Business (United States)
<TABLE>
<CAPTION>
==========================================================================================================================
COMPANY AUTHORIZED STOCK ISSUED STOCK OWNERSHIP
==========================================================================================================================
<S> <C> <C>
Peabody Holding Company, 500,000 shares of common 203840 shares held by PII
Inc. ("PHCI") stock, par value $1.00 per
share
- --------------------------------------------------------------------------------------------------------------------------
Gold Fields Mining 100 shares of common stock, 100 shares held by PII
Corporation ("GFMC") par value $5.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Interior Holdings Corporation 1,000 shares of common stock, 10 shares held by PHCI
("IHC") par value $100.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Powder River Coal Company 1,000 share of common stock, 768 shares held by PHCI
("PRCC") par value of $100.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Caballo Coal Company 1,000 shares of common stock, 10 shares held PRCC
("CCC") par value $100.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Midco Supply and Equipment 500 shares of common stock, 100 shares held by PHCI
Corporation ("MSEC") no par value
- --------------------------------------------------------------------------------------------------------------------------
Thoroughbred, LLC PHCI-72%
("Thoroughbred") Peabody Development Company 28%
- --------------------------------------------------------------------------------------------------------------------------
Black Beauty Coal Company Thoroughbred-43 1/3%
("BBCC") Unaffiliated Third Parties-56 2/3%
- --------------------------------------------------------------------------------------------------------------------------
Falcon Coal Company Thoroughbred-33 1/3%
("FCC") Unaffiliated Third Parties-66 2/3%
- --------------------------------------------------------------------------------------------------------------------------
Eagle Coal Company ("ECC") Thoroughbred-33 1/3%
Unaffiliated Third Parties-66 2/3%
- --------------------------------------------------------------------------------------------------------------------------
Peabody Terminals, Inc. 1,000 shares of common stock, 1,000 shares held by PHCI
("PTI") par value $1.00 per share
- --------------------------------------------------------------------------------------------------------------------------
James River Coal Terminal 1,000 shares of common stock, 10 shares held by PTI
Company ("JRCTC") no par value
- --------------------------------------------------------------------------------------------------------------------------
Dominion Terminal Associates PTI-10%
("DTA") JRCTC-2.5%
Ashland Terminal, Inc.-12.5%
Cavalier Coal Terminal Company-5%
Pittston Coal Terminal Corporation-32.5%
Westmoreland Terminal Company-20%
- --------------------------------------------------------------------------------------------------------------------------
Peabody Development 2,500,00 shares, par value 1,513,200 shares held by PHCI
Company ("PDC") $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Genoa Dock Corporation 1,000 shares of common stock, 2.4 shares held by PDC
("GDC") par value $100.00 per share 7.6 shares held by Dairyland Power Cooperative
- --------------------------------------------------------------------------------------------------------------------------
Hayden Gulch Terminal, Inc. 1,000 shares of common stock, 10 shares held by PHCI
("HGTI") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
==========================================================================================================================
COMPANY AUTHORIZED STOCK ISSUED STOCK OWNERSHIP
==========================================================================================================================
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Sentry Mining Company 100 shares of common stock, 10 shares held by PHCI
("SMC") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Peabody Minerals Pty. Limited 100,000 shares of common 1 share held by R.D. Humphris (nominee for
("PMPL") stock, par value $1.00 per PHCI)
share 1 share held by K.B. Forbes (nominee for PHCI)
- --------------------------------------------------------------------------------------------------------------------------
Peabody COALSALES 1,000 shares of common stock, 510 shares held by PHCI
Company (PCCO") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Peabody COALTRADE,Inc. 1,000 shares of common stock, 100 shares held by PCCO
("PCI") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Peabody Energy Solutions, 1,000 shares of common stock, 100 shares held by PCCO
Inc. ("PESI") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Coal Properties Corporation 100 shares common stock, par 100 shares of common stock held by PHCI
("CPC") value $ 1.00 per share
- --------------------------------------------------------------------------------------------------------------------------
59,852 shares preferred stock, 59,852 preferred shares held by Mid-Continental par
value $10.00 per share Barge Lines Inc., which has merged into PHCI
- --------------------------------------------------------------------------------------------------------------------------
Rio Escondido Coal 1,000 shares of common stock, 100 shares held by PHCI
Corporation ("RECC") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Peabody Venezuela Coal 1,000 shares of common stock, 10 shares held by PHCI
Corporation ("PVCC") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Carbones Peabody de 65 shares of common stock, 64 shares held by PVCC
Venezuela, C.A. ("CPV") par value 1,000.00 bolivars 1 share held by Dr. Luis Miguel Vicentini
(Nominee)
- --------------------------------------------------------------------------------------------------------------------------
Cottonwood Land Company 10 shares of common stock, 10 shares held by PHCI
("CLC") par value $100.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Snowberry Land Company 10 shares of common stock, 10 shares held by PHCI
("SLC") par value $100.00
- --------------------------------------------------------------------------------------------------------------------------
Juniper Coal Company 1,000 shares of common stock, 100 shares held by PHCI
("JCC") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Eastern Associated Coal Corp. 5,000 shares of common stock, 3,000 shares held by CPC
("EACC") par value $1.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Eastern Royalty Corporation 100 shares of common stock, 100 shares held by CPC
("ERC") par value $1.00 per share
- --------------------------------------------------------------------------------------------------------------------------
North Page Coal Corporation 20,000 shares of common 20,000 share held by CPC
("NPCC") stock, par value $1.00 per
share
- --------------------------------------------------------------------------------------------------------------------------
Martinka Coal Company 1,000 shares of common stock, 10 shares held by CPC
("MMCC") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Cook Mountain Coal Company 1,000 shares of common stock, 10 shares held by CPC
("CMCC") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
==========================================================================================================================
COMPANY AUTHORIZED STOCK ISSUED STOCK OWNERSHIP
==========================================================================================================================
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Pine Ridge Coal Company 1,000 shares of common stock, 10 shares held be CPC
("PRCCO") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Mountain View Coal Company 100 shares of common stock, 100 shares held by CPC
("MVCC") par value $1.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Affinity Mining Company 5,000 shares of common stock, 3,000 shares held by EACC
("AMC") par value $1.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Blackrock First Capital 2,000 shares of common stock, 10 shares held by EACC
Corporation ("BFCC") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
EACC Camps, Inc. Non-profit, all capital stock held by EACC
("EACCCI")
- --------------------------------------------------------------------------------------------------------------------------
Charles Coal Company 100 shares of common stock, 100 shares held by EACC
("CCCO") par value $1.00
- --------------------------------------------------------------------------------------------------------------------------
Colony Bay Coal Company EACC-99%
("CBCC") CCCO-1%
- --------------------------------------------------------------------------------------------------------------------------
Sterling Smokeless Coal 4,000 shares of common stock, 3,925 shares held by EACC
Company ("SSCC") par value $100.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Peabody Coal Company 200,000 shares of common 154,000 shares held by IHC
("PCC") stock, par value $10.00 per
share
- --------------------------------------------------------------------------------------------------------------------------
Squaw Creek Coal Company PCC-40%
("SCCC") Aluminum Company of America ("ALCOA")-
60%
- --------------------------------------------------------------------------------------------------------------------------
Tecumseh Coal Corporation 1,000 shares of common stock, 500 shares held by PCC
("TCC") no par value 500 shares held by Indianapolis Power and Light
- --------------------------------------------------------------------------------------------------------------------------
Yankeetown Dock Corporation 1,000 shares of common stock, 400 shares held by PCC
("YDC") no par value 600 shares held by Amax Coal Company
----------------------------------------------------------------------------------------
30,000 shares of preferred
stock
- --------------------------------------------------------------------------------------------------------------------------
Big Sky Coal Company 1,000 shares of common stock, 10 shares held by PCC
("BSCC") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Seneca Coal Company 1,000 shares of common stock, 10 shares held by PCC
("SCC") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Peabody Western Coal 1,000 shares of common stock, 10 shares held by PCC
Company ("PWCC") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Kayenta Mobile Home Park, 1,000 shares of common stock, 10 shares held by Peabody Western Coal
Inc. ("KMHPI") par value $10.00 per share Company
- --------------------------------------------------------------------------------------------------------------------------
Bluegrass Coal Company 100 shares of common stock, 10 shares held by IHC
("BCC") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
==========================================================================================================================
COMPANY AUTHORIZED STOCK ISSUED STOCK OWNERSHIP
==========================================================================================================================
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Midwest Coal Resources, Inc. 1,000 shares of common stock, 10 shares held by IHC
("MCRI") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Independent Material Handling 100 shares of common stock, 100 shares held by IHC
Company ("IMHC") par value $10.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Patriot Coal Company, L.P. SMC-51%
("PCCLP") BCC-49%
- --------------------------------------------------------------------------------------------------------------------------
Grand Eagle Mining, Inc. 1,000 shares of common stock, 100 shares held by PCCLP
("GEMI") par value $1.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Ohio County Coal Company 1,000 shares of common stock, 50 shares held by PCCLP
("OCCC") par value $100.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Arid Operations, Inc. ("AOI") 100 shares of common stock, 100 shares held by GFMC
par value $100.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Darius Gold Mine, Inc. 51,000 shares of common 5,100 shares held by GFMC
("DGMI") stock, par value $1.00 per
share
- --------------------------------------------------------------------------------------------------------------------------
Gold Fields Chile, S.A. 20 shares of common stock, no 20 shares held by GFMC
("GFC") par value
- --------------------------------------------------------------------------------------------------------------------------
Gold Fields Operating 100 shares of common stock, 100 shares held by GFMC
Company-Ortiz ("GFOC") par value $1.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Peabody America, Inc. 1,000 shares of common stock, 100 shares held by GFMC
("PAI") par value $1.00 per share
- --------------------------------------------------------------------------------------------------------------------------
Peabody Natural Resources GFMC-97%
Company ("PNRC") PAI-3%
- --------------------------------------------------------------------------------------------------------------------------
LCRS Limited Partnership PNRC-27.56% (general partnership interest)
("LCRS LP") Western Fuels Association, Inc.-22.44% (limited
partnership interest)
Tuscon Electric Power Company Limited-50%
(limited partnership interest)
==========================================================================================================================
</TABLE>
Citizens Power Business
<TABLE>
<CAPTION>
==========================================================================================================================
COMPANY TYPE EQUITY OWNERSHIP
==========================================================================================================================
<S> <C> <C>
Citizens Power LLC ("CP") Delaware limited liability company PII - 100%
- --------------------------------------------------------------------------------------------------------------------------
Citizens Power Sales ("CP Delaware general partnership CP - 99%
Sales") PII - 1%
- --------------------------------------------------------------------------------------------------------------------------
CL Funding, L.L.C. ("CL Delaware limited liability company CP - 99%
Funding") CP Sales - 1%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
==========================================================================================================================
COMPANY TYPE EQUITY OWNERSHIP
==========================================================================================================================
<S> <C> <C>
CL Hartford, L.L.C. ("CL Delaware limited liability company CP - 99%
Hartford") PII - 1%
- --------------------------------------------------------------------------------------------------------------------------
Hartford Power Sales, L.L.C. Delaware limited liability company CP Sales - 50% (Class A)
("HPS") CL Hartford - 50% (Class B)
- --------------------------------------------------------------------------------------------------------------------------
CL Power Sales One, L.L.C. Delaware limited liability company CP - 99%
("CL One") CL Funding - 1%
- --------------------------------------------------------------------------------------------------------------------------
CL Power Sales Two, L.L.C. Delaware limited liability company CP - 49%
("CL Two") CP Sales - 51%
- --------------------------------------------------------------------------------------------------------------------------
CL Power Sales Three, L.L.C. Delaware limited liability company CP - 99%
("CL Three") CL Funding - 1%
- --------------------------------------------------------------------------------------------------------------------------
CL Power Sales Four, L.L.C. Delaware limited liability company CP - 99%
("CL Four") CL Funding - 1%
- --------------------------------------------------------------------------------------------------------------------------
CL Power Sales Five, L.L.C. Delaware limited liability company CP - 99%
("CL Five") CL Funding - 1%
- --------------------------------------------------------------------------------------------------------------------------
CL Power Sales Six, L.L.C. Delaware limited liability company CP Sales - 99%
("CL Six") CP - 1%
- --------------------------------------------------------------------------------------------------------------------------
CL Power Sales Seven, L.L.C. Delaware limited liability company CP Sales - 99%
("CL Seven") CP - 1%
- --------------------------------------------------------------------------------------------------------------------------
CL Power Sales Eight, L.L.C. Delaware limited liability company CP Sales - 99%
("CL Eight") CP - 1%
- --------------------------------------------------------------------------------------------------------------------------
CL Power Sales Nine, L.L.C. Delaware limited liability company CP Sales - 99%
("CL Nine") CP - 1%
- --------------------------------------------------------------------------------------------------------------------------
CL Power Sales Ten, L.L.C. Delaware limited liability company CP Sales - 99%
("CL Ten") CP - 1%
==========================================================================================================================
</TABLE>
Peabody Coal Business (Australia)
<TABLE>
<CAPTION>
==========================================================================================================================
COMPANY AUTHORIZED STOCK ISSUED STOCK OWNERSHIP
==========================================================================================================================
<S> <C> <C>
Bengalla Agricultural Co. Pty. 100,000,000 shares, par value 3,500 shares held by Peabody
Limited (Australian Capital A$0.10 Bengalla Investments Pty Limited
Territory, Australia)
- --------------------------------------------------------------------------------------------------------------------------
6,500 shares held by unaffiliated
Third Parties
- --------------------------------------------------------------------------------------------------------------------------
Bengalla Coal Sales Co. Pty. Limited 100,000,000 shares, par value 3,500 shares held by Peabody
(Australian Capital Territory, A$0.10 Bengalla Investments Pty Limited
Australia)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
==========================================================================================================================
COMPANY AUTHORIZED STOCK ISSUED STOCK OWNERSHIP
==========================================================================================================================
<S> <C> <C>
6,500 shares held by unaffiliated
Third Parties
- --------------------------------------------------------------------------------------------------------------------------
Bengalla Mining Co. Pty. Limited 100,000,000 shares, par value 3,500 shares held by Peabody
(Australian Capital Territory, A$0.10 Bengalla Investments Pty Limited
Australia)
- --------------------------------------------------------------------------------------------------------------------------
6,500 shares held by unaffiliated
Third Parties
- --------------------------------------------------------------------------------------------------------------------------
Darex Capital Inc (Panama 1,000,000 common shares, par value 1000 shares held by Energy Holdings
corporation - office in England) US$0.01 (No. 1) Limited, but will be
transferred to Energy Holdings (No.
2) Limited prior to sale
- --------------------------------------------------------------------------------------------------------------------------
Dolphin Properties Pty. Limited 100,000 shares, par value A$1.00 100,000 shares held by Peabody
(Victoria, Australia) Investments (Australia) Pty. Limited
(Pursuant to Deed of Trust, shares
held in trust for Peabody Sub
Holdings Pty Limited)
- --------------------------------------------------------------------------------------------------------------------------
Energy Group Australia Pty. Limited 10,000,000 shares, par value A$1.00 12 shares held by Peabody Sub
(The) (Victoria, Australia) Holdings Pty. Limited
- --------------------------------------------------------------------------------------------------------------------------
Peabody Australasia Pty. Limited 10,000 shares, par value A$1.00 2 shares held by Peabody Resources
(Victoria, Australia) Limited
- --------------------------------------------------------------------------------------------------------------------------
Peabody Australia Limited (England) 1,000,000 "A" Ordinary shares, par 1,000,000 shares held by Energy
value $0.01 Holdings (No. 1) Limited, but will
be transferred to Energy Holdings
(No. 2) Limited prior to sale.
- --------------------------------------------------------------------------------------------------------------------------
Peabody Bengalla Investments Pty. 10,000,000 shares, par value A$1.00 12 shares held by Peabody Resources
Limited (Australian Capital Limited
Territory, Australia)
- --------------------------------------------------------------------------------------------------------------------------
Peabody Bengalla Pty. Limited (New 100,000 shares, par value A$1.00 1 share held by R.I. Knights
South Wales, Australia) 1 share held by R.D. Humphris
(Declaration of trust to Peabody
Resources Limited)
- --------------------------------------------------------------------------------------------------------------------------
Peabody Coal Limited (Australian 5,000,000 shares, par value A$1.00 10 shares held by Peabody Resources
Capital Territory, Australia) Limited
- --------------------------------------------------------------------------------------------------------------------------
Peabody Finance Limited (Australian 100,000,000 shares, par value 5 shares held by Peabody Sub
Capital Territory, Australia) A$1.00 Holdings Pty. Limited
- --------------------------------------------------------------------------------------------------------------------------
Peabody Investments (Australia) Pty. 500,000 shares, par value A$1.00 201,999 shares held by Peabody
Limited (Victoria, Australia) Australia Limited
- --------------------------------------------------------------------------------------------------------------------------
1 share held by Tillotson
Commercial Vehicles Limited
- --------------------------------------------------------------------------------------------------------------------------
Peabody Mining Investments Pty. 5,500 Ordinary "A" Class ("Class 55 Class A shares held by Peabody
Limited (Victoria, Australia) A") shares, par value A$1.00 Resources Limited
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
==========================================================================================================================
COMPANY AUTHORIZED STOCK ISSUED STOCK OWNERSHIP
==========================================================================================================================
<S> <C> <C>
4,500 Ordinary "B" Class ("Class B") 45 Class B shares held by Peabody shares,
par value A$1.00 Resources Limited
- --------------------------------------------------------------------------------------------------------------------------
Peabody Mining Services Pty. 10,000,000 shares, par value A$1.00 12 shares held by Peabody Resources
Limited (formerly Peabody Mining Limited
Pty. Limited ) (Victoria, Australia)
- --------------------------------------------------------------------------------------------------------------------------
Peabody Mount Arthur North Pty. 10,000,000 shares, par value A$1.00 12 shares held by Peabody Resources
Limited (Australian Capital Limited
Territory, Australia)
- --------------------------------------------------------------------------------------------------------------------------
Peabody Resources Corporation 10,000 shares, par value A$1.00 2 shares held by Peabody Resources
(Malaysia) Sdn Bhd (Malaysia) Limited
- --------------------------------------------------------------------------------------------------------------------------
Peabody Resources Holdings Pty. 10,000,000 "A" Ordinary Shares, par 202 Class A shares held by Darex
Limited (Australian Capital value A$1.00 Capital, Inc.
Territory, Australia)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 "B" Ordinary Shares, par 406 of Class B shares held by
value A$0.50 Peabody Investments (Australia) Pty.
Limited
- --------------------------------------------------------------------------------------------------------------------------
Peabody Resources Limited 9,501,627 "A" Ordinary shares, par 9,501,627 Class A shares held by
(Victoria, Australia) value A$0.50 Dolphin Properties Pty. Limited
- --------------------------------------------------------------------------------------------------------------------------
80,966,746 "B" Ordinary shares, par 38,031,520 Class B shares held by
value A$0.25 Peabody Investments (Australia) Pty.
Limited
- --------------------------------------------------------------------------------------------------------------------------
Peabody Resources Staff Retirement 1,000,000 shares, par value A$1.00 2 shares held by Peabody Resources
Fund Pty. Limited (New South Limited
Wales, Australia)
- --------------------------------------------------------------------------------------------------------------------------
Peabody Sub Holdings Pty. Limited 100,000,000 shares, par value 12 shares held by Peabody Resources
(Australian Capital Territory, A$1.00 Holdings Pty. Limited
Australia)
- --------------------------------------------------------------------------------------------------------------------------
Ravensworth Coal Trust (New South 100% of equity held by Peabody
Wales, Australia) Mining Investments Pty. Limited
- --------------------------------------------------------------------------------------------------------------------------
Ravensworth Pastoral Company Pty. 1,000,000 shares, par value A$1.00 486,900 shares held by Peabody
Limited (New South Wales, Resources Limited
Australia)
- --------------------------------------------------------------------------------------------------------------------------
Rylandes Insurance Company Pty. 2,000,000 shares, par value 2,000,000 shares held by Peabody
Limited (Singapore) Singapore $1.00 Resources Limited
- --------------------------------------------------------------------------------------------------------------------------
Survga Limited (Victoria, Australia) 1,000,000 shares, par value A$1.00 5 shares held by Peabody Resources
Limited
- --------------------------------------------------------------------------------------------------------------------------
Warkworth Coal Sales Limited (New 400 shares 115 shares held by Peabody Mining
South Wales, Australia) Investments Pty Limited
- --------------------------------------------------------------------------------------------------------------------------
60 shares held by Peabody
Australasia Pty. Limited
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
==========================================================================================================================
COMPANY AUTHORIZED STOCK ISSUED STOCK OWNERSHIP
==========================================================================================================================
<S> <C> <C>
225 shares held by unaffiliated Third
Parties
- --------------------------------------------------------------------------------------------------------------------------
Warkworth Mining Limited (New 400 shares 115 shares held by Peabody
South Wales, Australia) Resources Limited
- --------------------------------------------------------------------------------------------------------------------------
60 shares held by Peabody
Australasia Pty. Limited
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
==========================================================================================================================
COMPANY AUTHORIZED STOCK ISSUED STOCK OWNERSHIP
==========================================================================================================================
<S> <C> <C>
225 of shares held by unaffiliated
Third Parties
- --------------------------------------------------------------------------------------------------------------------------
Warkworth Pastoral Co. Pty. Limited 400 shares 115 shares held by Peabody
(New South Wales, Australia) Resources Limited
- --------------------------------------------------------------------------------------------------------------------------
60 shares held by Peabody
Australasia Pty. Limited
- --------------------------------------------------------------------------------------------------------------------------
225 shares held by unaffiliated Third
Parties
==========================================================================================================================
</TABLE>
