SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
Independent Energy Holdings, plc
(Exact name of Registrant as specified in its charter)
England & Wales
(Jurisdiction of incorporation or organization)
43 Dominion Court, Station Road, Solihull, West Midlands, U.K. B91 3RT
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each Name of each exchange
class on which registered
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
American Depository Shares
(Title of Class)
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
(Title of Class)
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:
Yes _____ No X
Indicate by check mark which financial statement item the registrant has elected
to follow:
Item 17 X Item 18 ____
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Background
The Company is engaged in the business of generating and marketing
electricity in the United Kingdom. Pursuant to the Electricity Act 1989, the
electric power industry in the United Kingdom was deregulated over several
stages with complete deregulation as to generation and marketing to be effective
April 1, 1998. The Company holds 12 on-shore petroleum licenses in the UK,
covering 454,670 net acres, with proven gas reserves of 6.0 billion cubic feet
("BCF"). As of September 30, 1997, the Company had 1 generating station with
total capacity of 1 MW, with 4 stations with 26 MW total capacity scheduled to
be on line by February 1998. The majority of the Company's electricity supply is
purchased from the Electricity Pool of England and Wales (the "Pool") of which
the Company is a member. The Company primarily markets electricity to business
customers in the United Kingdom.
Independent Energy Holdings plc (the "Company") was incorporated in
England and Wales on March 12, 1996 as a public company with limited liability
under the Companies Act 1985, as amended, under the name Coincity plc. Effective
April 17, 1996, the Company changed its name to Independent Energy Holdings,
plc. The Company was formed to operate as a holding company for the operations
of its wholly-owned subsidiary, Independent Energy UK Limited ("Independent
Energy"). On April 16, 1996, and effective as of May 31, 1996, the Company and
Independent Energy entered into a share exchange agreement in connection with
the listing of the Company's Ordinary Shares on the Alternate Investment Market
of the London Stock Exchange ("AIM"). Upon listing on AIM, the Company acquired
Independent Energy by issuing 8,124,600 Ordinary Shares in exchange for the
40,623 outstanding shares of Independent Energy. On May 16, 1996 the Company
completed a private placement of 1,772,524 Ordinary Shares and a placement of
3,227,476 Ordinary Shares, all at a price of 100p per share. Trading on AIM
commenced on May 31, 1996.
Independent Energy was incorporated in England on March 15, 1995 to
consolidate three related companies: International Petroleum Services Company
("IPSCO"), Eukan Energy Limited ("EUKAN"), and Elswick Petroleum Limited
("Elswick").
IPSCO was formed in April 1991 to provide both onshore production
services to the oil and gas operators in the United Kingdom and acquire onshore
oil and gas licenses. On April 24, 1994, IPSCO sold its oil and gas production
service assets to its principal competitor.
Eukan was formed in May 1992 and became a 95% owned subsidiary of IPSCO
to secure ownership of onshore petroleum licenses in the UK with the objective
of developing gas reserves and, in turn, generating electricity for sale.
Between 1992 and 1995 Eukan acquired interests in ten licenses.
Elswick was formed in September 1992 to acquire from Eukan a 40%
interest in a license close to the Village of Elswick and to develop the license
by funding the stimulation and testing of the Elswick I gas well.
In order to rationalize the license interests for future funding,
Independent Energy was formed in March 1995 to acquire the whole of the share
capitals of IPSCO and Elswick by way of a share exchange which was effected on
April 7, 1995. In conjunction with the merger, Independent Energy acquired the
outstanding minority shareholdings in Eukan and capitalized Eukan's debt by the
issuance of ordinary shares. Subsequent to the merger, all the assets and
liabilities of IPSCO, Eukan, and Elswick were transferred to Independent Energy
which became the operating and sole subsidiary of the Company.
The principal executive office of the Company is located at 43 Dominion
Court, Station Road, Solihull, West Midlands, United Kingdom B91 3RT, telephone
011 44 121 705 1111.
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Deregulation of the UK Electricity Market
The Electricity Act of 1989 deregulated the generation and marketing of
electricity. Generation of electricity was completely deregulated upon
effectiveness of the Act on April 1, 1990; marketing was phased in commencing
with customers of over 1 MW in peak demand per half hour period; and on April 1,
1994 peak demand over 100 KW per half hour period. According to statistics
provided by the Pool, there are about 60,000 100 KW or greater peak demand
customers in the UK. Effective April 1, 1998, all 2.2 million business and 24
million residential customers in the UK may purchase electricity from any
supplier with no price regulation other than a "backstop" price for the
residential customer. The Company is licensed by the Office of Electricity
Regulation.
Electric transportation, via underground lines and overhead cables, is
provided to all market participants by the National Grid Company and the 12
Regional Electricity Companies ("REC's") at regulated rates and access terms.
Electricity is available for purchase by all members of the Electricity
Pool of England and Wales. The Pool operator (currently the National Grid
Company) each day compiles a forecast of demand (plus reserves) for each half
hour of the following day based on a number of factors including weather
forecasts and previous demand patterns. Every power generator with production of
100 MW or greater is required to sell its generation to the Pool, and
correspondingly bids to the Pool to sell its generated volume of electricity,
which is priced for each half hour for the following day.
The Pool compiles and ranks in ascending order the half hourly
electricity volumes and prices bid by the generators. Based on this ranking the
Pool purchases from the generators in ascending order the total half hour volume
of electricity needed to fulfill the Pool's forecasted demand for that period.
The price bid which corresponds to the cumulative volume which fulfills the
total estimated demanded by the Pool is the price which the Pool pays to all
generators ("the Pool price"). Through this marginal cost pricing system the
generators are scheduled on or off according to their respective bids.
The Pool is obligated to purchase all electricity generated by
producers of less than 100 MW's, "small generators", at the "Pool price",
affording the Company a source of sale for all its generated electricity.
Alternatively, "small generators" can bypass the Pool and sell direct to
customers. All suppliers purchase electricity from the Pool at the same
half-hour price.
The Company is both a power generator and supplier. The Company has
been generating electricity at its Elswick plant since July 1996, and this plant
currently generates 1 MW. The majority of the electricity the Company sells is
purchased from the Pool.
Electricity Supply and Marketing
The Company has over 700 customers including government agencies,
educational institutions and British businesses. Since the Act provides that
until April 1, 1998 the Company can only market to customers with over 100 KW of
peak demand, the Company has focused its efforts on establishing company
identity. The Company commenced marketing electricity to customers in the
greater than 100KW demand market in January 1996.
The Company has historically targeted its marketing efforts toward the
smaller end of the 100KW market, and especially small, single premise businesses
at which energy costs do not comprise a material part of their business costs.
Following deregulation of the market on April 1, 1998, the Company will also
focus its marketing on the upper end of the less-than-100 KW per half hour
demand market.
As of October 31, 1997 the Company had four sales account managers on
staff and five independent
commissioned sales agents. Currently the Company is increasing its marketing
efforts to attack the additional 2.2
million small business customers who become available with the final stage of
deregulation in April 1998. The
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Company obtains lists of companies on a commercial basis which it analytically
reviews and sorts for use as direct mail leads. Additionally the Company is
contracting with a minimum of 50 commission only agents as a front line sales
force which will supplement targeted direct mail and telesales campaigns.
The Company is currently the largest independent supplier of
electricity in the UK, other significant
suppliers having been created from companies created from the former
nationalized electricity industry: National
Power, PowerGen, Nuclear Electric, Scottish Power, Scottish Hydro Electric and
the 12 RECs. See "Competition."
In the year ended June 30, 1997 the Company's power sales were
(pound)11.1 compared to (pound).2 million in the six month period ended June 30,
1996. As of September 30, 1997 the power supply contracts for the year ended
June 30, 1998 are (pound)46 million for 1,100 GWH (gigawatt hours).
Electricity Generation
Since July 1996 the Company's Elswick 1 MW plant has been in operation.
By February 1998 the Company will have completed the installation of three
additional plants, one 8 MW plant at Trumfleet in Yorkshire, and one 9 MW plant
at Caythorpe in Yorkshire. The Company anticipates that it will install an
additional plant of 8 MWs at a fourth location resulting in 26 MWs total
capacity.
The electricity generation plants are comprised of 3,000 to 4,000
horsepower gas fired internal combustion engines turning generators. Electricity
connections are made with the local grid network providing a source of
distribution to the Company's customers. Fuel for three of the generation sites
is provided from the Companies' gas production, and a fourth site, currently
under negotiation, will utilize purchased gas produced in the process of coal
extraction. The plants are reasonably portable and can be relocated at the time
of economic depletion of gas reserves at the generation site, or in some cases
plants in the proximity to the regional gas network can be operated utilizing
purchased gas.
The Company's power generation costs are lower than, and are expected
to continue to be lower, than the historical cost of Pool electricity. In
addition, the management believes that an internal source of electricity
generation will enable the Company to forecast its costs with more certainty and
lessen the risks of market fluctuation. At this time the Company has no firm
commitments to develop additional generation plants.
The Company owns 12 onshore petroleum license covering 454,670 net
acres. Two are located in the Lancashire Plain in Northwest England, two in
Yorkshire in Northeast England, two in the Midlands in Central England, and six
in the Weald Basin of Southern England. The Company has, over the years,
developed the exploration potential on a number of these licenses. It is the
Company's intent to form strategic alliances with others in order that the
exploration potential can be evaluated through drilling at no significant cost
to the Company. To date no such alliances have been formed.
Employees
As of October 31, 1997, the Company had 32 employees or consultants,
including 6 administrative, 16 sales, and 10 persons related to power generation
and gas resources. The Company anticipates increasing marketing staff
significantly in preparation for complete deregulation in April 1998.
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Hedging
The price of Pool electricity is dependent upon the generator's
competitive bids accepted by the Pool. Weather and generating plant availability
have the potential to disrupt power supplies. The Company typically sells to
customers under one-year fixed price contracts. In order to protect itself from
fluctuations in Pool prices and fix its sales margins at favorable prices, the
Company has purchased hedging instruments for varying portions of its projected
sales. Hedging instruments for the Pool are available from a large number of
generators, traders and others.
Competition
The Company is currently to the knowledge of management the largest
independent retail power supplier in the United Kingdom. All of the Company's
competitors are better established with longer operating histories and generally
better access to capital. The Company competes on the basis of service and
price, and is typically awarded contracts based on competitive bids. Such
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and devote substantially more resources to
markets than the Company. There can be no assurance that the Company will be
able to compete successfully against current or future competitors or that
competitive pressures faced by the Company will not materially adversely affect
the Company's business, operating results or financial condition. Further, as a
strategic response to changes in the competitive environment, the Company may
make certain pricing, service or marketing decisions or enter into acquisitions
or new ventures that could have a material adverse effect on the Company's
business, operating results or financial condition.
Cautionary Statement for the Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
This Form 20-F contains certain forward -looking statements as defined
in Section 21E of the Securities Exchange Act of 1934 with respect to the
financial condition and results of operation of the Group and certain of the
plans and objectives of the Board with respect thereto. Such statements in this
Form 20-F include, but are not limited to, statements under "Item 9 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations." By their nature, forward looking statements in this Form 20-F could
cause actual results and developments to differ materially from those expressed
in or implied by such forward-looking statements. Readers are cautioned not to
place undue reliance on such forward-looking statements, speak only as of the
date hereof.
Item 2. Description of Property
In November 1997 the Company moved its headquarters in Solihull to 6,000
square feet of office space leased for (pound)11,410 per month. The lease
expires in November 2002. The Company also leases 1,750 square feet of office
space in Maidenhead for its resource offices, for (pound)2,500 per month. The
lease expires in April 1999. Both of the leases may be extended at the Company's
option.
See Item 1 - "Business - Electricity Generation" for a description of
gas licenses and generation plants.
Item 3. Legal Proceedings.
Not Applicable.
Item 4. Control of Registrant
The following table sets forth information relating to the beneficial
ownership of Company common stock by those persons beneficially holding more
than 10% of the Company common stock, and by all of the Company's
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directors and executive officers as a group as of September 30, 1997. The
address of each person is care of the Company unless noted.
<TABLE>
<CAPTION>
Percentage
Name of Number of of Outstanding
Stockholder Shares Owned(1) Common Stock
<S> <C> <C> <C>
Burt H. Keenan(2) 3,027,500 16.6%
Jerry W. Jarrell(3) 303,100 1.7%
John Sulley(4) 420,000 2.3%
William E. Evans(5) 450,800 2.5%
Robert Jones(6) 360,000 2.0%
Roy Deakin(7) 118,200 .7%
David May(8) 100,000 .6%
All officers and directors as
a group (7 persons)(9) 4,779,600 24.4%
</TABLE>
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote, or to direct the voting of, a security, or the sole or
shared investment power with respect to a security (i.e., the power to
dispose of, or to direct the disposition of, a security) and includes
the ownership of a security through corporate, partnership, or trust
entities. In addition, for purposes of this table, a person is deemed,
as of any date, to have "beneficial ownership" of any security that
such person has the right to acquire within 60 days after such date.
(2) Includes 645,400 shares issuable upon exercise of options held by Mr.
Keenan.
(3) Includes 122,800 shares issuable upon exercise of options held by Mr.
Jarrell.
(4) Includes 360,000 shares issuable upon exercise of options held by Mr
Sulley.
(5) Includes 445,200 shares issuable upon exercise of options held by Mr.
Evans.
(6) Includes 300,000 shares issuable upon exercise of options held by Mr.
Jones.
(7) Includes 50,000 shares issuable upon exercise of options held by Mr.
Deakin.
(8) Includes 50,000 shares issuable upon exercise of options held by Mr.
May.
(9) Includes 1,973,400 shares issuable upon exercise of options held by the
named executive officers and
directors.
Item 5. Nature of Trading Market
The Company's Ordinary Shares have been listed on the Alternative
Investment Market of the London Stock Exchange since June 7, 1996. There
currently exists no U.S. trading market for the Ordinary Shares. AIM is a market
designed primarily for emerging or smaller companies and facilitates capital
raising by such companies. Although regulated and monitored by the London Stock
Exchange, the listing and other requirements for AIM companies differ from, and
are generally less demanding than, those of the Official List of the London
Stock Exchange.
More than 230 companies are traded on AIM. Trading volume on AIM is
substantially less than that on the principal national securities exchanges in
the U.S. or on the Official List of the London Stock Exchange. The liquidity of
securities traded on AIM is much less than that of companies listed on more
established exchanges. The Company is registering its American Depository Shares
("ADSs") in the United States in this Registration Statement. The Bank of New
York has agreed to act as Depository for the American Depository Receipts
("ADRs"), with each ADR representing 2 Ordinary Shares.
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Sales Price
(pence per share)
High Low
April 1, 1996-
June 30, 1996 115.0 106.0
July 1, 1996-
September 30, 1996 108.0 83.5
October 1, 1996-
December 31, 1996 89.5 57.5
January 1, 1997-
March 31, 1997 69.5 57.5
April 1, 1997-
June 30, 1997 92.5 72.5
July 1, 1997-
September 30, 1997 124.5 87.5
As of October 17, 1997, there were approximately 442 holders of Company
Ordinary Shares of which 9,634,691, or 54% of the total outstanding shares, were
held of record by persons with United States addresses.
On November ___, 1997 at the close of business, the AIM closing price
for the Shares was _____p per Share.
The average daily trading volume for the Shares during the year ended
December 31, 1996 was 14.959 Shares and during the period from January 1, 1997
through October 31, 1997 was 14.920 Shares.
The Company currently does not intend to pay cash dividends for the
foreseeable future but intends to retain such funds for the use in its business.
Holders on the applicable record dates of Shares and ADSs will be
entitled to receive payment in full, subject to applicable withholding taxes, of
any dividends declared in respect of subsequent years.
Item 6. Exchange Controls and Other Limitations Affecting Security Holders
There are currently no U.K. foreign exchange control restrictions on
the payment of dividends on the Ordinary Shares to non-resident holders. There
are currently no limitations on the rights of nonresident or foreign owners to
hold or vote the Ordinary Shares, imposed by U.K laws, the Articles of
Association or Memorandum of Association of the Company.
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Item 7. Taxation
US Federal Income Tax and Uk Tax
Consequences to persons who are owners of ADSs and Shares
The following generally summarizes the principal U.S federal and U.K.
tax consequences of the purchase, ownership and disposition of ADSs evidenced by
ADRs and, except as provided explicitly below, Shares, to citizens or residents
of the US. for U.S. federal income tax purposes (who are not also resident or,
in the case of the individuals ordinarily resident, in the U.K. for U.K tax
purposes), corporations or partnerships created or organized under the laws of
the United States or any state thereof, estates the income which is subject to
U.S. federal income taxation regardless of its source or a trust if a court
within the United States is able to exercise primary supervision over the
administration and control of the trust and on or more of the United States
fiduciaries have the authority to control all substantial decisions of the trust
(collectively "U.S. Holders").
The statements regarding the U.S. and U.K tax laws set out below (i)
are based on the laws in force and as interpreted by the relevant taxation
authorities as of the date of this Registration Statement and are subject to any
changes in the U.S. or the U.K. law, or on the interpretation thereof by the
relevant taxation authorities or in the double taxation conventions between the
United States and the United Kingdom (the "convention"), occurring after such
date, (ii) are based in part, on representations of the Depository, and (iii)
assume that each obligation in the Deposit Agreement and any related Agreement
will be performed in accordance with its terms.
The summary is of a general nature only and does not discuss all
aspects of U.S. and U.K. taxation that may be relevant to a particular investor.
This summary deals only with ADRs held as capital assets and does not address
special classes of purchasers, such as dealers in securities, U.S Holders whose
functional currency is not the U.S. dollar and certain U.S. Holders (including,
but not limited to, insurance companies, tax exempt organizations, financial
institutions and persons subject to the alternative minimum tax) who may be
subject to special rules not discussed below. In particular, the following
summary does address the tax treatment of U.S. Holders who own, directly or by
attribution, 10% or more of the Company's outstanding voting share capital.
PROSPECTIVE PURCHASERS OF ADSs ARE ADVISED TO CONSULT WITH THEIR OWN TAX
ADVISORS WITH RESPECT TO THE U.S. FEDERAL, STATE AND LOCAl TAX CONSEQUENCES AS
WELL AS WITH RESPECT TO THE U.K. TAX CONSEQUENCES AND TAX CONSEQUENCES IN
OTHER JURISDICTIONS, OF THE OWNERSHIP OF ADSs AND THE SHARES REPRESENTED
THEREBY APPLICABLE IN THEIR PARTICULAR TAX SITUATIONS.
For purposes of the conventions and the United States Internal Revenue
Code of 1986 (the "Code"), U.S. Holders will be treated as the owners of the
Shares represented by ADSs evidenced by ADRs.
Taxation of Dividends
Under existing law, the Company will be required when paying a dividend
in respect to the shares to account to the U.K Inland Revenue for a payment
known as advance corporation tax ("ACT"). Under current U.K. law, the rate of
ACT is equal to one-quarter of the amount of the dividend. Dividends carry a tax
credit equal to one-quarter of the cash dividend, amounting to 20% of the sum of
the cash dividend paid and the associated tax credit. The tax credit will be
available to offset a U.K. resident individual's liability to U.K. income tax in
respect of the dividend, and may if the U.K. resident is a non-tax payer, be
reclaimed from the U.K. Inland Revenue in cash. A basic rate taxpayer will have
no further liability to tax on the dividend, but a higher rate tax payer will be
subject to an additional tax liability on the difference between the higher rate
tax liability and the value of the tax credit. U.K. resident trustees of
discretionary trusts liable to account for income tax at 34% on the trust's
income may also be required to account for additional tax. A U.K. resident
corporate shareholder will not normally be liable to U.K. corporation tax on any
dividend received from the Company and will be entitled to offset the related
ACT on the dividend against ACT due on its own qualifying distributions. From
April 6, 1999 the treatment for tax credits will change. Dividends will carry a
tax credit of one-ninth of a cash dividend. Although the credit will be
available to offset a UK resident individual's liability to UK income tax in
respect of the dividend the tax credit will not be refundable.
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An eligible U.S. Holder (as defined below) is entitled under the
Convention relating to income taxes (the "Income tax Convention") and current
U.K. law to claim from the U.K. Inland Revenue a refund (a "Treaty Payment") for
an amount equal to the amount of the tax credit to which an individual resident
in the U.K. for U.K. tax purposes would have been entitled had he received the
dividend (the Tax Credit Amount"), subject to a U.K. withholding tax of 15% of
the sum of the dividend paid and the related Tax Credit Amount. For example,
assuming continuance of the Tax Credit Amount at the rate of 20/80ths of the
amount of the dividend, a dividend payment of 80p to such an eligible U.S Holder
would generally entitle the Eligible U.S Holder to a Treaty Payment of 5p (a Tax
Credit Amount of 20p, reduced by 15% of the sum of the dividend and the Tax
Credit Amount, or 15p) from the U.K. Inland Revenue giving a total realization
of 85p (before applicable U.S. taxes). After April 5, 1999 because of the
reduction of tax credits in the UK, as outlined above, there will be no refund
of tax to shareholders with a less than 10% share interest in the Company.
For purposes of this Registration Statement, the term "eligible U.S.
Holder" means a U.S. Holder that is a beneficial owner of an ADS and of the cash
dividend paid thereon and that satisfies the following conditions: the U.S.
Holder (i) is an individual or a corporation resident in the U.S. for purposes
of the Income tax Convention (and, in the case of corporation, is not also
resident U.K. for UK tax purposes, (ii) is not a corporation which, alone or
together with one more associated corporations, controls, directly or
indirectly, 10% or more of the voting shares of the Company, (iii) holds the
ADSs in a manner which is not effectively connected with a permanent
establishment in the U.K. through which such U.S. Holder carries on business or
with a fixed base in the U.K from which such U.S. Holder performs independent
personal services. (iv) under certain circumstances, is not an investment or
holding company 25% or more of the capital of which is owned, directly or
indirectly, by persons that are not individuals resident in, and are not
nationals of the U.S., (v) under certain circumstances, is not exempt from
federal income tax on dividend income in the U.S and (vi) under certain
circumstances, does not own 10% or more of the Shares.
A U.S. Holder that is a U.S partnership, trust or estate, may be
entitled under the Income Tax Convention to receive a Treaty Payment in respect
of a dividend paid by a the Company , but only to the extent that the income tax
derived by such partnership , trust or estate is subject to U.S. Tax as the
income of a U.S. resident either in its hands or in the hands of its partners or
beneficiaries, as he case may be.
For U.S. federal income tax purposes, the gross amount of a dividend
plus the Tax Credit Amount (i) will be included in gross income by an Eligible
U.S. Holder (at the dollar value of the dividend payment, on the date of the
receipt by the depository, regardless of whether the dividend is converted into
dollars) and (ii) will be treated as foreign source dividend income to the
extent paid out of current accumulated earnings and profits as determined for
federal income tax purposes. Subject to certain limitations, the 15% U.K.
withholding tax will be treated as a foreign income tax eligible for direct
credit against such Eligible U.S. Holder's federal income taxes. For purposes of
the Foreign tax credit limitations, dividends distributed by the Company will
generally distribute "passive income" or, in the case of certain Holders,
"financial services income." The consequences of these limitations will depend
on the nature and sources of each U.S. Holder's income and the deduction
appropriately allocated or apportioned thereto. No dividends received deduction
will be allowed with respect to dividends paid by the Company. If dividends paid
by the Company were to exceed its current and accumulated earnings and profits
as determined for federal income tax purposes, such excess would be treated as a
non-taxable return of capital to the extent of the U.S Holders adjusted basis in
the ADSs, and any excess would be treated as capital gain.
The Company may make arrangements with the U.K. Inland Revenue (the "H
Arrangements") which will permit the applicable Treaty Payments to be paid to
certain Eligible U.S. Holders at the same time as, and together with, cash
dividends paid by the Company in respect of ADSs. The H Arrangements, which
operate in respect of dividends paid on shares of U.K. companies that are
represented by ADSs evidenced by ADRs, are implemented at the discretion of the
U.K. Inland Revenue and may be amended or revoked. The H Arrangements generally
apply to Eligible U.S. Holders other than (i) estates or trusts any of the
beneficiaries of which are not resident in the U.S., (ii) investment or holding
companies 25% or more of the capital of which is owned, directly or indirectly,
by persons who are not individuals resident in, or nationals of, the U.S., (iii)
persons (other than certain pension funds) exempt from U.S. federal income tax
with respect to cash dividends paid on the Shares, (iv) persons owning 10% of
more of the Shares, and (v) certain business and investment trusts. To claim the
benefit of the H Arrangements, (i) the registered holder must complete the
declaration on the reverse of the dividend check confirming the eligible U.S.
Holder's entitlement to the Treaty Payment and present the check for payment
within three months from the date
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of issue of the check of (ii) in the case of ADRs held through The Depository
Trust Company ("DTC"), the broker-dealer or bank-member of DTC which holds the
ADRs on behalf of the Eligible U.S. Holder must complete a declaration as to the
conditions entitling the Eligible U.S. Holder to the Treaty Payment.
If the H Arrangements are not made with the U.K. Inland Revenue at the
time an Eligible U.S. Holder receives a distribution from the Company, or if the
H Arrangements are made at such time but an Eligible U.S. Holder does not
qualify for the benefits of such arrangements, such Eligible U.S. Holder must,
in order to obtain a Treaty Payment, file a claim for the Treaty Payment in the
manner described in U.S. Internal Revenue Service Revenue Procedure 80-18,
1980-1 C.B. 623 and Revenue Procedure 81-58, 1981-2 C.B. 678. Claims for such
payments must be made within six years of the U.K. year of assessment (generally
April 5 in each year) in which the related dividend was paid. The first claim
for a tax credit under these procedures is made by sending the appropriate U.K.
form in duplicate to the Internal Revenue Service Center with which the Eligible
Holder's last U.S. income tax return was filed. Forms may be obtained from the
Internal Revenue Service, Assistant Commissioner (International), 950 L'Enfrant
Plaza South, S.W., Washington, D.C. 20219; Attention: Taxpayer's Service
Division. Because a claim is not considered made until the U.K. tax authorities
receive the appropriate form from the Internal Revenue Service, forms should be
sent to the Internal Revenue Service well before the end of the applicable
limitation period. Any claim by a claimant after the first claim should be filed
directly with the Financial Intermediaries and Claims Office, Fitz Roy House,
P.O. Box 40, Nottingham, England, NG2 IBD.
Taxation of Capital Gains
A. U.S. Holder who is not resident or ordinarily resident in the U.K. for
U.K. tax purposes will not be liable for U.K. tax on capital gains realized or
accrued on the disposal of ADSs unless, at the time of disposal, the ADSs
are held in connection with a trade, profession or vocation carried on by such
U.S. Holder in the United Kingdom through a branch or agency which constitutes
a permanent establishment or fixed base, and the ADSs are or have been used,
held or acquired for the purposes of such trade, profession or vocation of such
branch or agency.
Upon the sale or other disposition of an ADS, a U.S. Holder will
generally recognize gain or loss for U.S. federal income tax purposes in an
amount equal to the difference between the amount realized on such sale or
disposition and the U.S. Holder's adjusted tax basis in the ADS. Such gain or
loss will be capital gain or loss if the U.S. Holder holds its ADS as a capital
asset.
A U.S. Holder that is liable for both U.K. and U.S. tax on a gain on
the disposal of the ADSs will generally be entitled, subject to certain
limitations and pursuant to the Income Tax Convention, to credit the amount
of U.K. capital gains or corporation tax, as the case may be, paid in respect
of such gain against such U.S. Holder's U.S. federal income tax liability in
respect of such gain. U. S. Holders should seek professional tax advice to
determine their entitlement to credit U.K. tax against their U.S. federal
income tax liability.
Estate and Gift Taxes
An ADR held by an individual U.S. Holder whose domicile is determined
to be in the U.S. for purposes of the Estate Tax Treaty and who is not a
national of the U.K. will not be subject to U.K. inheritance tax on such
individual's death or on a lifetime transfer of the ADR except in certain cases
where the ADR (i) is part of the business property of a U.K. permanent
establishment of an enterprise of the U.S. or (ii) pertains to a U.K. fixed base
used for the performance of independent personal services. The Estate Tax Treaty
generally provides a credit against U.S. federal estate or gift tax liability
for the amount of any tax paid in the U.K. in a case where the ADR is subject
to both U.K. inheritance tax and to U.S. federal estate or gift tax. An
individual U.S. Holder will be subject to U.S. estate and gift taxes with
respect to the ADRs in the same manner and to the same extent as with respect to
other types of personal property.
U.K. Stamp Duty ("SD") and Stamp Duty Reserve Tax ("SDRT")
SDRT at the then-applicable rate arises upon the deposit with the
Depositary of the Shares in exchange for ADSs evidenced by ADRs. The current
rate of SDRT on the deposit of Shares is 1.5%. In certain cases, U.K. SD could
also arise on the deposit and the current rate is (pound)1.50 per (pound)100 (or
part thereof). The amount of SDRT payable will be reduced by any SD paid in
connection with the same transaction. SDRT will be payable by the Depositary
10
<PAGE>
in the first instance. In accordance with the terms of the Deposit Agreement,
holders of ADRs must pay an amount in respect of such tax to the Depositary.
Provided that the instrument of transfer is not executed in the United
Kingdom and remains at all subsequent times outside the United Kingdom, no U.K.
SD will be payable on the acquisition or transfer of ADSs. Nor will an agreement
to transfer ADSs give rise to a liability to SDRT.
A transfer of Shares by the Depositary or its nominee to the relative
ADR holder when the ADR holder is not transferring beneficial ownership will
give rise to U.K. SD at the rate of (pound)0.50 per transfer.
Transfer of Shares, as opposed to ADSs will normally give rise to a
charge to U.K. SD at the rate of (pound)0.50 per (pound)100 (or part thereof) of
the price payable for the Shares at the time of the transfer or agreement to
transfer. SD and SDRT are usually the liability of the purchaser. Where such
Shares are later transferred to the Depositary, further SDRT will normally be
payable upon the deposit at the rate of 1.5% of the value of the Shares at the
time of transfer. In certain cases, U.K. SD could also arise in the transfer at
the rate of (pound)1.50 per (pound)100 (or part thereof), subject to the amount
of any SDRT being reduced by such SD on the same transaction.
Item 8. Selected Financial Data
The following table presents selected financial data of the Company for
the last five fiscal years. The Company changed its fiscal year from December 31
to June 30 effective for the period ended June 30, 1996. The information for the
fiscal years ended June 30, 1997 and 1996 and December 31, 1995 and 1994 have
been audited by Pannel Kerr Forster, Chartered Accountants. The Company's
financial statements are prepared in accordance with accounting principles
generally accepted in the United Kingdom ("UK GAAP") which differ in certain
significant respects from US generally accepted accounting principles ("US
GAAP"). A Summary of the significant differences and reconciliation of profit or
the financial year and shareholders' funds is set forth in Notes 30 and 31 of
Notes to the Financial Statements. All information is in British pounds
sterling. No dividends have been paid or declared to date. This information
should be read in conjunction with, and is qualified in its entirety by
reference to the financial statements of the company and the notes thereto
included elsewhere in the Registration Statement.
11
<PAGE>
<TABLE>
<CAPTION>
Year ended Six months
June 30, June 30, Years Ended December 31,
1997 1996 1995 1994 1993
Statement of Operations Data
U.K. GAAP
Revenue
<S> <C> <C> <C>
- Continuing (pound)11,127,164(pound)173,701(pound)4,701 (pound) -- (pound) --
- Discontinued -- -- -- 118,589 452,641
Cost of sales 10,872,238 171,448 -- 127,327 309,884
Operating expenses 1,505,193 497,880 93,773 95,041 88,807
Operating loss - Continuing (1,250,267) (495,627) (89,072) -- (7,631)
- Discontinued -- -- -- (103,779) 61,581
Exceptional items -- (458,066) -- 168,191 --
Interest income (expense) net 68,674 65,417 24,029 3,275 (1,554)
Income tax expense (credit) -- -- (5,576) 9,000 --
Net (loss) profit (1,181,593) (888,276) (59,467) 58,687 52,396
Earnings per ordinary share (9.0)p (9.9)p (176.8)p 187.4p 165.6p
Weighted average number of
shares outstanding 13,129,914 8,981,076 33,641 31,314 31,314
U.S. GAAP(1)
Net (loss) profit (1,369,688) (998,991) (59,467) 58,687 52,396
Earnings per ordinary share (10.4)p (11.1)p (176.8)p 187.4p 165.6p
Balance Sheet Data
U.K. GAAP
Net current assets 2,847,024 5,564,593 1,618,535 (527,155) 40,044
Total assets 16,851,935 7,995,040 3,053,064 1,123,878 919,804
Long-term creditors 5,937,925 830,212 -- -- 333,852
Shareholders' funds 6,957,569 6,787,015 2,983,728 467,953 409,266
U.S. GAAP(1)
Total assets 17,226,966 8,333,378 3,143,144 1,123,878 919,804
Long-term creditors 6,611,766 1,279,265 90,080 -- 333,852
Shareholders' funds 6,658,759 6,676,300 2,983,728 467,953 409,266
</TABLE>
(1) See Notes 30 and 31 to the Consolidated Financial Statements for the
details on differences between U.K. GAAP and U.S. GAAP.
Exchange Rates
The Company's financial statements are prepared in, and the Shares are
denominated in, pounds. In the event the Company pays dividends in the future
years, fluctuations in the exchange rate between the pound and the dollar will
affect dollar amounts received by holders of ADSs on conversion by the
Depositary of any cash dividends paid in pounds on the Shares represented by the
ADSs. See "Exchange Rate Information" below and " Item 14 Description of
Securities to be Registered." In addition, see " Item 7 - Taxation" for certain
information about the taxation of any dividend payments.
There are currently no U.K. foreign exchange control restrictions on
the payment of dividends on the Shares.
The table below sets forth, for the periods and dates indicated, the
exchange rate for the dollar against the pound based on the Noon Buying Rate.
Such rates are not used by the Company in the preparation of its consolidated
financial statements included in this Registration Statement.
12
<PAGE>
<TABLE>
<CAPTION>
Dollar/Pound Exchange Rates
(dollar per pound)
At End Average
of Period Rate(1) High Low
<S> <C> <C> <C> <C> <C> <C>
Year Ending Dec. 31, 1992............................ $ 1.51 $ 1.76 $2.00 $1.51
Year Ending Dec. 31, 1993............................ 1.48 1.50 1.59 1.42
Year Ending Dec. 31, 1994............................ 1.57 1.54 1.64 1.46
Year Ending Dec. 31, 1995............................ 1.55 1.58 1.64 1.53
Six Months Ending June 30, 1996...................... 1.55 1.53 1.56 1.49
Year Ended June 30, 1997............................. 1.67 1.62 1.71 1.54
July 1, 1997 to October 31, 1997..................... 1.68 1.64 1.68 1.58
</TABLE>
(1) The average of the Noon Buying Rates on the last business day of each
full month during the relevant period.
Item 9. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
The following discussion is based on the Company's financial statements
which are prepared in accordance with UK GAAP. These differ in certain
significant respects from US GAAP. The significant differences from US GAAP
applicable to the Company are summarized below.
Year Ended June 30, 1997 compared to Six Month Period Ended June 30, 1996
The Company's turnover for the year ended June 30, 1997 ("Fiscal 1997")
was (pound)11,127,164 compared to (pound)173,701 for the six month period ended
June 30, 1996 ("Fiscal 1996). The Company commenced sales in January 1996.
Contracts for the year ended June 30, 1998 ("Fiscal 1998") are (pound)46
million. The gross profit was 2.3% of turnover in Fiscal 1997, compared to 1.3%
of turnover in Fiscal 1996. The difference was primarily caused by Company
generation in Fiscal 1997 of 7.1 GWh (3% of turnover) compared to none in Fiscal
1996 and the unit price of electricity purchased through the Pool was lower in
Fiscal 1997 than Fiscal 1996.
Operating expenses in Fiscal 1997 were (pound)1,505,193, or 13.5% of
turnover, compared to (pound)497,880 in Fiscal 1996 or 286.6% of turnover. The
reduction in operating expenses as a per cent of turnover reflects the increased
turnover with much of the operating expenses remaining fixed. Interest income
increased in Fiscal 1997 as a result of greater cash on deposit resulting from
equity placements and interest expense of (pound)120,397 in Fiscal 1997 resulted
from financing of the generation plant in operation which was not in operation
in Fiscal 1996.
Liquidity and Capital Resources
The Company has satisfied its cash needs during the developmental stage
from the issuance of share capital and borrowings. During the three years ending
June 30, 1997, the Company has raised (pound)7,985,000 net of expenses through
three placements of share capital. The Company issued unsecured Loan Notes in
June 1997 of (pound)1,400,000 which are repayable in full on December 31, 2002.
The construction of the Company's generation plants have been financed through
long-term finance leases of (pound)4,383,327 and a long-term loan of
US$1,466,455.
The working capital needs to fund the growth in turnover has been
funded through trade debtor financing with a bank facility providing for
borrowing 80% of trade debtor balances under which a balance of (pound)648,247
was outstanding at June 30, 1997.
The Company has contracted capital commitments for the Fiscal 1998 of
(pound)5,317,000. The funding for these commitments and the funding for
increased turnover in Fiscal 1998 have been provided through financing
facilities concluded on September 5, 1997 with its principal bankers, the
Barclay Group. The initial facility is for (pound)12.5 million consisting of a
(pound)5 million revolving construction facility, a (pound)4 million trade
debtor financing, a (pound)3 million letter of credit for security of pool
purchases, and a (pound)500,000 overdraft facility. Also the Barclay Group has
committed to provide financial needs of the Company as the business grows.
13
<PAGE>
Also in September 1997 the Company raised (pound)2,500,000 before
expenses from the issuance of 2,631,579 Ordinary Shares at 95 pence.
The Company's management feels the combination of cash provided from
the issuance of shares, long term financing and the banking facilities currently
in place are adequate to fund its needs for increasing its sales and completing
the generation plants planned for Fiscal 1998.
Reconciliation of U.K. GAAP to U.S. GAAP
The Company's consolidated financial statements are prepared in
accordance with U.K. GAAP. There are significant differences between U.K. GAAP
and U.S. GAAP.
The principal difference between U.K. GAAP and U.S. GAAP relevant to
the Company occurs with respect to accounting for variable employee share
options under the Company's Option Scheme. The Option Scheme provides for grants
of options to acquire Shares to substantially all employees of the Company.
Under U.K. GAAP, the Company does not recognize compensation cost related to the
Option Scheme as described below.
Under Accounting Principles Board ("APB") No. 25, compensation for
services that the Company received as consideration for Shares issued through
the Option Scheme are recognized as the difference between the quoted market
price of the number of Shares issuable pursuant to options at the measurement
date less the aggregate exercise price for Shares issuable pursuant to such
options. Compensation cost related to the Option Scheme as determined under U.S.
GAAP would have been (pound)188,095 and (pound)110,715 for the periods ended
June 30, 1997 and 1996 respectively. There was no compensation cost related to
the Option Scheme in 1995, 1994 or 1993.
The Company's net loss for the periods ended June 30, 1997 and 1996
under U.K. GAAP were ((pound)1,181,593) and ((pound)888,276) respectively. Under
U.S. GAAP, the Company would have reported net loss of ((pound)1,369,688) and
((pound)998,991) for the periods ended June 30, 1997 and 1996 respectively.
There was no change in the net income or losses reported for 1995, 1994 and
1993.
Notes 30 and 31 to the Company's consolidated financial statements
provide a description of these and other differences between U.K. GAAP and U.S.
GAAP.
Item 9A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 10. Directors and Officers of Registrant.
The members of the Board of Directors of the Company serve until the
next annual meeting of stockholders, or until their successors have been
elected. The officers serve at the pleasure of the Board of Directors.
Information as to the directors and executive officers of the Company is as
follows. There exists no arrangement or understanding between any named officer
or director and any other person pursuant to which he was selected as a director
or officer.
Name Age Office
<TABLE>
<CAPTION>
<S> <C> <C>
Burt H. Keenan 58 Chairman and Chief Executive Officer
Jerry W. Jarrell 56 Executive Director - Finance
John Sulley 47 Executive Director - Commercial
William E. Evans 62 Executive Director - Resources
Robert Jones 52 Executive Director - Operations
Roy Deakin 66 Non-Executive Director
David May 62 Non-Executive Director
</TABLE>
14
<PAGE>
Burt H. Keenan has been Chairman and Chief Executive Officer since
inception of the Company in April 1991. He has, since 1987, been an associate of
Chaffe & Associates, Inc., an investment banking firm located in New Orleans,
Louisiana, USA where he has specialized in capital formation for emerging and
middle market companies. From 1969 to 1986, Mr. Keenan was the founder, chairman
and chief executive officer of Offshore Logistics, Inc. a NASDAQ quoted marine
and aviation oil and gas service company operating a fleet of marine service
vessels and helicopters worldwide, with assets of over US$200 million and sales
exceeding US$180 million. Mr. Keenan received Bachelors and Masters degrees in
business administration from Tulane University. He is a director of Telescan, a
NASDAQ quoted interactive online information business; of Halter Marine, Inc.,
an American Stock Exchange listed company engaged in U.S. ship building; and
four inactive public companies seeking acquisitions.
Jerry W. Jarrell has been Executive Director - Finance since inception of
the Company in April 1991. He is an expert in the area of operational finance
and financial management reporting. He is a private consultant and currently
consults to several public and private companies. He was chief financial officer
for the Woodson Companies, an oilfield construction company from 1977 to 1990.
From 1971 to 1977, he was secretary, treasurer and controller of Offshore
Logistics, Inc., a major marine and aviation oil and gas company. Prior to
joining Offshore Logistics, he was a certified public accountant with Arthur
Andersen & Company between 1966 and 1971. Mr. Jarrell is also a director with
Mr. Keenan of four inactive public companies seeking acquisitions. He earned a
BS degree in accounting from Louisiana Tech University.
John Sulley is experienced in all aspects of the electricity generating,
distribution, trading, and marketing industry. Prior to joining the Company in
December 1995 he was general commercial manager for the Supply Division of
Scottish Power plc, where he was responsible for financial operations, strategic
and business planning for the supply division and for the electricity trading
operations. Prior to joining Scottish Power in 1994, Mr. Sulley was responsible
for starting and running direct sales operations in National Power plc. He has
over 25 years of experience in the power field, covering engineering,
operations, finance, and commercial aspects. Mr. Sulley holds an MBA from
Glasgow University, a Masters degree in engineering from UMIST and a BSc. in
engineering from Aston University.
William E. (Ernie) Evans has been Executive Director - Resources since
April 1992. He is a consultant geologist-geophysicist with broad managerial
experience in exploration, having specialized in the UK onshore oil industry
over the past 25 years. He holds a BSc. in geology from Bristol University and a
DIC in oil technology from Imperial College, London, where he held a lectureship
in petroleum geology for three academic years. Mr. Evans started his career in
the petroleum industry in 1958, working for Ultramar in Venezuela and in Western
Canada. He became chief geologist of the consulting firm Seabrooke & Associates
(later Simon Horizon) and a founder of Energy Resource Consultants. In 1976 he
formed Eaglestone Petroleum Limited, which was merged into Blackland Group. Mr.
Evans was co-director of Midnight Oil Ltd. which led a bidding group in the 10th
UK offshore licensing round. He was an International Chamber of Commerce
tribunal member in the NAM-Deilmann dispute over the Groningen Field. As a
consultant, he has represented interests in the Dutch offshore petroleum
industry.
Robert Jones joined the Company in April 1996 and is responsible for the
commercial development of the Company's licenses. Mr. Jones is a petroleum
engineer with 26 years of experience in drilling, field development and
production operations, with particular emphasis on operations in the UK. Prior
to joining the Company, Mr. Jones was development manager for Perenco Group
(formerly Kelt) where he was responsible for drilling and completion operations
and field development. Mr. Jones was responsible for the Ryedale gas field and
generation development in Yorkshire from the conceptual stage and for the past
two years has been responsible for its operations. Before joining Perenco, Mr.
Jones was operations manager for Taylor Woodrow Energy Limited with specific
responsibility for drilling and production operations onshore UK. Previously
he gained extensive experience with major oil companies Shell and Unocal. Mr.
Jones holds both a Ph.D. and a BSc. in mining engineering from Nottingham
University.
Roy Deakin has been a director since October 1992. He is Chairman of
Southern Geophysical Consultants, a UK company which has provided a geophysical
service function to the petroleum exploration industry over the past 25 years.
Mr. Deakin was formerly a non-executive chairman of Blackland Oil plc.
15
<PAGE>
David May has been a director since December 1995. He is a specialist in
venture capital companies and currently holds seven other directorships covering
a wide range of business interests. He is currently chairman of the Berthon
group of companies which was a leader in marina development in the UK. He is a
university graduate, a qualified marine engineer, and a naval architect.
Item 11. Executive Compensation of Directors and Officers
In the year ended June 30, 1997 the Company paid (pound)294,678 to all directors
and executive officers as a group, for services in all capacities. The Company
has a bonus or profit sharing plan but no compensation was paid in fiscal 1997
under this plan. See Note 5 to the Consolidated Financial Statements. In fiscal
1997 the Company accrued no amounts for pension, retirement or similar benefits
for its officers and directors.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries
The following table sets forth the number of options to purchase Ordinary Shares
held by each officer and director. All options expire on January 1, 2001, except
as noted.
Name Number of SharesExercise Price
Burt H. Keenan 45,400 31.25 p.
Burt H. Keenan 600,000 * 100 p.
Jerry W. Jarrell 22,800 31.25 p.
Jerry W. Jarrell 100,000 100 p.
John Sulley 60,000 50 p.
John Sulley 300,000 100 p.
William E. Evans 150,000 100 p.
William E. Evans 295,200 1 p.
Robert Jones 300,000 100 p.
Roy Deakin 50,000 100 p.
David May50,000 100 p.
TOTAL 1,973,400
*These options expire April 28, 2003.
Item 13. Interest of Management in Certain Transactions
Effective May 31, 1996 the Company acquired all of the 40,623
outstanding ordinary shares of Independent Energy in exchange for 8,124,600
Company Ordinary Shares at the rate of 200 Company Ordinary Shares for each 1
Independent Energy Ordinary Share. In this share exchange, directors and
officers received 2,955,600 ordinary shares of the Company or 36.4% of the total
ordinary shares issued in the exchange, as follows:
Independent
Energy Shares Company Shares
Burt H. Keenan 12,659 2,531,800
Jerry W. Jarrell 900 180,000
John Sulley 300 60,000
William Evans 28 5,600
Robert Jones 300 60,000
Roy Deakin 341 68,200
David May250 50,000
Total 14,778 2,955,600
16
<PAGE>
The above officers and directors received their Ordinary Shares in
Independent Energy in June 1995 either as part of Independent Energy's private
placement of 9,309 shares at (pound)200 per share, or as part of the acquisition
on April 3, 1995 of IPSCO, Elswick and Eukan. The following table summarizes the
share acquisitions of Independent Energy by officers and directors, compared to
non-affiliates.
<TABLE>
<CAPTION>
Shares PurchasedExchanged Exchanged Exchanged
in Independent for for for Exchanged for
Energy Private IPSCO Eukan Eukan Elswick
Placement Shares Shares(1) Debentures Shares TOTAL
<S> <C> <C> <C> <C> <C> <C>
Burt H. Keenan 44 2,840 9,464(2) 311 12,659
Jerry W. Jarrell 50 850 900
John Sulley
William Evans 28 28
Robert Jones
Roy Deakin 30 311 341
David May
Non-affiliates as a
group 9,185 13,610 - 225(3) 3,675 26,695
Totals 9,309 17,300 28 9,689 4,297 40,623
</TABLE>
(1) Represents shares issued to acquire the 5% of Eukan not owned by IPSCO
(2) Total debt of (pound)591,520 at (pound)62.50 per share
(3) Non-affiliates total debt of(pound)45,000 at(pound)200 per share, the
equivalent share price at a price sold in the Company's placements at the time.
Mr. William Evans, through Altwood, a corporation controlled by him,
owns 4% of the Company's gas licenses (except for Caythorpe). He acquired his
4% interest as compensation for his work for the Company.
17
<PAGE>
PART II
Item 14. Description of Securities
The following contains certain information concerning the Company's
capital structure and related summary information concerning the material
provisions of the Company's Memorandum and Articles of Association (Charter) and
applicable English law. A copy of the Memorandum and Articles of Association of
the Company has been filed as an exhibit to this Registration Statement and is
available for inspection as part of that Registration Statement.
General
The Company's authorized share capital is (pound)280,000 divided into
28,000,000 Ordinary Shares, nominal value 1p each, of which 17,623,027 Ordinary
Shares were issued and outstanding as of November 12, 1997.
The share capital of the Company may be increased, consolidated and
divided into shares of larger amounts than the Ordinary Shares, sub-divided into
shares of smaller amount than the Ordinary Shares, and unissued Ordinary Shares
may be canceled by an ordinary resolution of shareholders in a general meeting
of the Company. The share capital of the Company may be reduced by special
resolution of shareholders in a general meeting of the Company and confirmation
by the English courts. The Company may, with the prior approval of an ordinary
resolution of shareholders at a general meeting, purchase its own shares.
Description of Ordinary Shares
All of the issued and outstanding Ordinary Shares are duly authorized,
validly issued and fully paid.
Dividend Rights
Holders of Ordinary Shares are entitled to receive such dividends as
may be recommended by the Board of Directors of the Company and declared by the
Company in a general meeting (but no larger dividend may be declared than is
recommended by the Board of Directors of the Company, and the Company, in a
general meeting may declare a smaller dividend) and such interim dividends as
the Board of Directors of the Company may decide.
The Company or the Board of Directors may fix a date as the record date
by reference to which a dividend on the Ordinary Shares will be declared or
paid, whether or not it is before the date on which the declaration is made. Any
dividend on the Ordinary Shares unclaimed for a period of 12 years from its date
of payment shall be forfeited and shall revert to the Company. No dividend on an
Ordinary Share will bear interest.
Rights in Liquidation
Subject to the rights attached to any shares issued on special terms
and conditions, upon any liquidation or winding up of the Company, after all
debts and liabilities of the Company and the expenses of the liquidation have
been discharged, any surplus assets will be divided among the holders of
Ordinary Shares in proportion to their holdings after deducting any amounts
remaining unpaid in respect of such shares.
Notification of Interest in Shares
Section 198 of the Companies Act of 1985 obliges any person (subject to
exception) who acquires an interest of 3% or more in the Ordinary Shares to
notify the Company of his interest within two business days following the day on
which the obligation to notify arises. After the 3% level is exceeded, similar
notification must be made in respect of whole percentage figure increases or
decreases, rounded down to the next whole number. For the purposes of the
notification obligation, the interest of a person in the shares means any kind
of interest in shares (subject to certain exceptions) including any shares (i)
in which his spouse or his child or stepchild, is interested, (ii) in which a
corporate body is interested where either (a) that corporate body or its
directors are accustomed to act in accordance with that person's directions or
instructions, or (b) that person controls one third or more of the voting power
of that corporation body, (or (iii) in which another party is interested where
the person and that other party are parties to a "concert party" agreement under
Section 204 of the Companies Act 1985 and any interest in
18
<PAGE>
Shares is in fact acquired by any one of the parties pursuant to the agreement.
A "concert party" agreement is an agreement which provides for one or more
parties to it to acquire interests in shares of a particular company and imposes
obligations or restrictions on any one or more of the parties as to the use,
retention or disposal of such interests.
In addition, Section 212 of the Companies Act 1985 enables the Company,
by notice in writing, to require a person whom the Company knows or has
reasonable cause to believe to be, or to have been at any time during the three
years immediately preceding the date on which the notice is issued, interest in
shares to confirm that fact or (as the case may be) to indicate whether or not
that is the case, and where he holds or has during the relevant time held an
interest in the Shares, to give such further information as may be required
relating to his interest and any other interest in the shares of which he is
aware.
In addition to the restrictions on the rights attaching to shares
imposed by the Companies Act 1985 for non-compliance with Section 212 of that
act, the Company's Memorandum and Articles of Association apply additional
restrictions. The restrictions imposed or applied can potentially include
disenfranchisement, loss of entitlement to dividends and other payments and
restrictions on alienability.
Voting Rights and Shareholders Meetings
Under English law, there are two types of general meeting of
shareholders, annual general meetings and extraordinary general meetings. An
annual general meeting must be held at least once in each calendar year and not
later than 15 months from the previous annual general meeting. At the annual
general meeting matters such as the election of directors, appointment of
auditors and the fixing of their remuneration, approval of the annual accounts
and the directors' report and declaration of dividends are dealt with. Any other
general meeting is known as an extraordinary general meeting.
The Directors may convene an extraordinary general meeting and must
convene one if demanded by holders of not less than 10% of the paid-up shares.
An annual general meeting and an extraordinary general meeting called to pass a
special resolution must be called by at least 21 clear days' notice specifying
the place, day and time of the meeting and the general nature of the business to
be transacted. No business may be transacted at any general meeting unless a
quorum of two persons entitled to vote on the business to be transacted is
present in person or by proxy.
At a general meeting, a simple majority of the votes cast is sufficient
to pass an ordinary resolution. A special resolution requires a majority of not
less than 75% of the votes of those shareholders as (being entitled to do so)
vote in person or by proxy on the resolution in question. A small number of
matters relating to variation of the rights attaching to different classes of
shares and proceedings in a winding-up require the authority of an extraordinary
resolution, which requires the same majority as a special resolution.
Subject to the restrictions referred to in the following paragraph, at
a meeting of shareholders every holder of shares who (being an individual) is
present in person or (being a corporation) is present by a representative or
proxy not being himself a member shall have one vote on a show of hands, and on
a poll (which can be demanded by the Chairman of the meeting, not less than
three shareholders present in person or by proxy having the right to vote at the
meeting, a holder or holders of Shares or his or their proxy representing not
less than 10% of the total voting rights of all shareholders having the right to
attend and vote at the meeting by a holder or holders of shares or his or their
proxy conferring a right to attend and vote at the meeting on which an aggregate
sum has been paid up equal to not less than one tenth of the total sum paid up
on all shares conferring that right), every holder of Shares present in person
or by proxy shall have one vote for every share held.
A holder of shares shall not be entitled (save as a proxy for another
member) to be present or vote at any general meeting:
(a) in respect of any Shares held by him in relation to which he or any
other person appearing to be interested in those Shares has been served
with a notice under Section 212 of the Companies Act 1985, requiring
him to provide information in accordance with that section and
containing a statement that upon failure to supply such information
before the expiry of a period specified in the notice (which may not be
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less than 28 days) the registered holder of the Shares is not entitled
to vote in respect of those Shares, and the person on whom such notice
was served fails to supply the information within the specified period;
or
(b) unless all amounts presently payable by him in respect of such
Shares have been paid.
All or any of the rights or privileges attached to the shares may,
subject to certain provisions of the Companies Act 1985, be varied either with
the consent in writing of the holders of 75% in nominal value of the issued
shares or with the sanction of an extraordinary resolution passed at a separate
meeting of the holders of shares, but not otherwise.
Transfer of Shares
The instrument of transfer of a share may be in any usual form or in
any other form of which the Directors approve and shall be executed by or on
behalf of the transferor and, unless the share is fully paid, by or on behalf of
the transferee. The Directors may, in their absolute discretion without giving
any reason therefor, refuse to register the transfer of a share which is not
fully paid provided that any such refusal will not prevent dealings in the
shares on AIM from taking place on an open and proper basis. The Directors may
decline to register a transfer to person known to be a minor, bankrupt or person
who is mentally disordered at a pateint for the purpose of any statute relating
to mental health. Subject thereto, the Articles of Association contain no
restrictions on the registration of transfers of fully paid shares provided that
all stamp duty payable thereon has been paid and the transfers are accompanied
by any certificate for the shares and such other evidence (if any) as the
Directors may require to prove the title of the intending transferor or his
right to transfer the shares and is the case of a transfer to joint holders, and
to no more than four such joint holders. The register of members may be closed
at such times and for such periods as the Directors may determine not exceeding
thirty days in each year.
Issue of Additional Shares
Subject to the provisions of the Companies Act 1985, the authorized but
unissued shares are at the disposal of the Directors who may issue, grant
options over or otherwise dispose of them to such persons and on such terms as
they deem fit.
By virtue of Section 80 of the Companies Act 1985, the Directors may
not, subject to limited exceptions in respect of employee share schemes,
exercise any power to issue shares (or grant any right to subscribe for or
convert other securities into shares) unless they have been authorized to do so
by an ordinary resolution. Any such authority must state the maximum amount of
shares which may be issued under it and the date on which it will expire, which
must not be more than five years from the date the resolution is passed. On
October 21, 1997 an ordinary resolution was passed authorizing the Directors
pursuant to Section 80 of the Companies Act 1985 to exercise all the powers of
the Company to issue shares up to a nominal amount of (pound)136,086, being the
whole of the authorized but unissued share capital, for its period of five
years.
If Shares are to be issued for cash, Section 89 of the Companies Act
1985, requires, subject to limited exceptions in respect of employee share
schemes, such shares first be offered to existing holders of shares in
proportion to their holdings. However, Section 95 of the Companies Act 1985
provides that in certain circumstances the directors of a company may by special
resolution be given power to issue shares as if Section 89 did not apply. On
October 21, 1997 a special resolution was passed disapplying the provisions of
Section 89 in respect of the issue of shares in connection with a rights issue
and otherwise in respect of the issue of shares up to an aggregate nominal
amount of (pound)65,000, such authority to expire at the conclusion of the next
annual general meeting of the Company or if earlier, fifteen months from the
passing of that resolution.
Registrar and Transfer Agent
The registrar and transfer agent for the Ordinary Shares is Lloyds Bank
Registrars, The Causeway, Worthing, West Sussex BN99 6DA England, United
Kingdom.
There are no restrictions under the Company's Memorandum and Articles
of Association or under English Law that limit the rights of persons not
resident in the United Kingdom, as such, to hold or to vote shares.
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Description of American Depository Receipts
The following is a summary of the material provisions of the Deposit Agreement
(including any exhibits thereto, the "Deposit Agreement") among the Company, the
Depositary and the registered Holders from time to time of the ADRs issued
thereunder. A copy of the Deposit agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is part and which is available
for inspection as part of that Registration Statement. In addition, copies of
the Deposit agreement are available for inspection at the principal office of
the Depositary in New York (the "Principal New York Office"), which is presently
located at _______, New York, New York _____. Terms used herein and not
otherwise defined shall have the respective meanings set forth in the Deposit
Agreement.
ADRs evidencing ADSs are issuable by the Depositary pursuant to the
terms of the Deposit Agreement. Each ADS represents, as of the date hereof, the
right to receive one Share deposited under the Deposit Agreement (together with
any additional Shares deposited thereunder and all other securities, property
and cash received and held thereunder at any time in respect of or in lieu of
such deposited Shares, the "Deposited Securities") with the Custodian, currently
the London office of The Bank of New York (together with any successor or
successors thereto, the "Custodian"). An ADR may evidence any number of ADSs.
Only persons in whose names ADRs are registered on the books of the Depositary
will be treated by the Depositary and the Company as Holders.
Deposit, Transfer and Withdrawal
In connection with the deposit of Shares under the Deposit Agreement,
the Depositary or the Custodian may require the following in form satisfactory
to it: (i) a written order directing the Depositary to execute and deliver to,
or upon the written order of, the person or persons designated in such order an
ADR or ADRs evidencing the number of ADSs representing such deposited Shares
(a"Delivery Order"); (ii) proper endorsements or duly executed instruments of
transfer in respect of such deposited Shares; (iii) instruments assigning to the
Custodian or its nominee any distribution on or in respect of such deposited
Shares or indemnity therefor; and, (iv) proxies entitling the Custodian to vote
such deposited Shares until the shares are registered in the name of the
Custodian or its nominee. As soon as practicable after the Custodian receives
Deposited Securities pursuant to any such deposit or pursuant to the form of
ADR, the Custodian shall present such Deposited Securities for registration of
transfer into the name of the Depositary or its nominee or the Custodian or its
nominee, to the extent such registration is practicable, at the cost and expense
of the person making such deposit (or for whose benefit such deposit is made)
and shall obtain evidence satisfactory to it of such registration. Deposited
Securities shall be held by the Custodian for the account and to the order of
the Depositary at such place or places and in such manner as the Depositary
shall determine. Deposited Securities may be delivered by the Custodian to any
person only under the circumstances expressly contemplated in the Deposit
Agreement.
After any such deposit of Shares, the Custodian shall notify the
Depositary of such deposit and of the information contained in any related
Delivery Order by letter, first class airmail postage prepaid, or, at the
request, risk and expense of the person making the deposit, by cable, telex or
facsimile transmission. After receiving such notice from the Custodian, the
Depositary, subject to the terms and conditions of the Deposit Agreement, shall
execute and deliver at the Transfer Office which is presently located at the
Principal New York Office, to or upon the order of any person named in such
notice, an ADR or ADRs registered as requested and evidencing the aggregate ADSs
to which such person is entitled.
Subject to the terms and conditions of the Deposit Agreement, the
Depositary may so issue ADRs for delivery at the Transfer Office only against
deposit with the Custodian of: (i) Shares in form satisfactory to the Custodian;
(ii) rights to receive Shares from the Company or any registrar, transfer agent,
clearing agent or other entity recording Share ownership or transactions: or,
(iii) other rights to receive Shares (until such Shares are actually deposited
pursuant to (i) or (ii) above, "Pre-released ADRs") only if (a) Pre-released
ADRs are fully collateralized (marked to market daily) with cash or U.S.
government securities held by the Depositary for the benefit of Holders (but
such collateral shall not constitute "Deposited Securities"), (b) each recipient
of Pre-released ADRs agrees in writing with the Depositary that such recipient
(1) owns such Shares, (2) assigns all beneficial right, title and interest
therein to the Depositary, (3) holds such Shares for the account of the
Depositary and (4) will deliver such Shares to the Custodian as soon as
practicable and promptly upon demand therefor and (c) all Pre-released ADRs
evidence not more than 20% of all such ADSs. The Depositary may retain for its
own account any earnings on collateral for Pre-released ADRs and its charges for
issuance thereof. At the request, risk and expense of the person depositing
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Shares, the Depositary may accept deposits together with other specified
instruments for forwarding to the Custodian and may deliver ADRs at a place
other than its office. Every person depositing Shares under the Deposit
Agreement represents and warrants that such Shares are validly issued and
outstanding, fully paid, nonassessable and free of pre-emptive rights, that the
person making such deposit is duly authorized so to do and that such Shares (i)
are not "restricted securities" as such term is defined in Rule 144 under the
Securities Act unless at the time of deposit they may be freely transferred in
accordance with Rule 144(k) and may otherwise be offered and sold freely in the
United States or (ii) have been registered under the Securities Act. Such
representations and warranties shall survive the deposit of Shares and issuance
of ADRs.
Subject to the terms and conditions of the Deposit Agreement, upon
surrender of an ADR in form satisfactory to the Depositary at the Transfer
Office, the Holder thereof is entitled to delivery at the Custodian's office of
the Deposited Securities at the time represented by the ADSs evidenced by such
ADR. At the request, risk and expense of the Holder thereof, the Depositary may
deliver such Deposited Securities at such other place as may have been requested
by the Holder. Notwithstanding any other provision of the Deposit Agreement or
the ADR, the withdrawal of Deposited Securities may be restricted only for the
reasons set forth in General Instruction ___ of Form 20-F (as such instructions
may be amended from time to time) under the Securities Act.
Distributions on Deposited Securities
Subject to the terms and conditions of the Deposit Agreement, to the
extent practicable, the Depositary will distribute by mail to each Holder
entitled thereto on the record date set by the Depositary therefor at such
Holder's address shown on the ADR Register, in proportion to the number of
Deposited Securities (on which the following distributions on Deposited
Securities are received by the Custodian) represented by ADSs evidenced by such
Holder's ADRs.
Cash Any dollars available to the Depositary resulting from a cash
dividend or other cash distribution or the net proceeds of sales of any other
distribution or portion thereof authorized in the Deposit Agreement ("Cash"), on
an averaged or other practicable basis, subject to (i) appropriate adjustments
for taxes withheld, (ii) such distribution being impermissible or impracticable
with respect to certain Holders, and (iii) deduction of the Depositary's
expenses in (1) converting any foreign currency to dollars by sale or in such
other manner as the Depositary may determine to the extent that it determines
that such conversion may be made on a reasonable basis, (2) transferring foreign
currency or dollars to the U.S. by such means as the Depositary may determine to
the extent that it determines that such transfer may be made on a reasonable
basis, (3) obtaining any approval or license of any governmental authority
required for such conversion or transfer, which is obtainable at a reasonable
cost and within a reasonable time and (4) making any sale by public or private
means in any commercially reasonable manner.
Shares (i) Additional ADRs evidencing whole ADSs representing any
Shares available to the Depositary resulting from a dividend or free
distribution on Deposited Securities consisting of Shares (a "Share
Distribution") and (ii) dollars available to it resulting from the net proceeds
of sales of Shares received in a Share Distribution, which Shares would give
rise to fractional ADSs if additional ADRs were issued therefor, as in the case
of Cash;
Rights (i) Warrants or other instruments in the discretion of the
Depositary representing rights to acquire additional ADRs in respect of any
rights to subscribe for additional Shares or rights or any nature available to
the Depositary as a result of a distribution on Deposited Securities ("Rights"),
to the extent that the Company timely furnishes to the Depositary evidence
satisfactory to the Depositary that the Depositary may lawfully distribute same
(the Company has no obligation to so furnish such evidence), or (ii) to the
extent the Company does not so furnish such evidence and sales of Rights are
practicable, any dollars available to the Depositary from the net proceeds of
sales of Rights as in the case of Cash, or (iii) to the extent the Company does
not so furnish such evidence and such sales cannot practicably be accomplished
by reason of the nontransferability of the Rights, limited markets therefor,
their short duration or otherwise, nothing (and any Rights may lapse); and
Other Distributions (i) Securities or property available to the
Depositary resulting from any distribution on Deposited Securities other than
Cash, Share Distributions and Rights ("Other Distributions"), by any means that
the Depositary may deem equitable and practicable, or (ii) to the extent the
Depositary deems distribution of such securities or property not to be equitable
and practicable, any dollars available to the Depositary from the net proceeds
of sales of Other Distributions as in the case of Cash.
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<PAGE>
Such dollars available will be distributed by checks drawn on a bank in
the U.S. for whole dollars and cents (any fractional cents being withheld
without liability for interest and added to future Cash distributions).
To the extent that the Depositary determines in its discretion that any
distribution is not practicable with respect to any Holder, the Depositary may
make such distribution as it so determines is practicable, including the
distribution of foreign currency, securities or property (or appropriate
documents evidencing the right to receive foreign currency, securities or
property) or the retention thereof as Deposited Securities with respect to such
Holder's ADRs (without liability for interest thereon or the investment
thereof).
There can be no assurance that the Depositary will be able to effect
any currency conversion or to sell or otherwise dispose of any distributed or
offered property, subscription or other rights, Shares or other securities in a
timely manner or at a specified rate or price, as the case may be.
Disclosure of Interests
To the extent that the provisions of or governing any Disposed
Securities may require disclosure of or impose limits on beneficial or other
ownership of Deposited Securities, other Shares and other securities and may
provide for blocking transfer, voting or other rights to enforce such disclosure
or limits, Holders and all persons holding ADRs agree to comply with all such
disclosure requirements and ownership limitations and to cooperate with the
Depositary in the Depositary's compliance with any Company instructions in
respect thereof, and, in the Deposit Agreement, the Depositary has agreed to use
reasonable efforts to comply with such Company instructions.
Notwithstanding any provision of the Deposit Agreement, by being a
Holder of an ADR, each such Holder agrees to provide such information as the
Company may request in a disclosure notice (a "Disclosure Notice") given
pursuant to the United Kingdom Companies Act 1985 (as amended from time to time
and including any statutory modification or reenactment thereof, the "Companies
Act") or the Articles of Association of the Company. In the Deposit Agreement
each Holder acknowledges that it understands that failure to comply with a
Disclosure Notice may result in the imposition of sanctions against the holder
of the Shares in respect of which the non-complying person is or was, or appears
to be or has been, interested as provided in the Companies Act and the Articles
of association which currently include, the withdrawal of the voting rights of
such Shares and the imposition of restrictions on the rights to receive
dividends on and to transfer such Shares. In addition, in the Deposit Agreement
each Holder agrees to comply with the provisions of the Companies Act with
regard to the notification to the Company of interests in Shares, which
currently provide, inter alia, that any Holder who is or becomes directly or
indirectly interested (within the meaning of the Companies Act) in 3% or more of
the outstanding Shares, or is aware that another person for whom is holds such
ADRs is so interested, must within two business days after becoming so
interested or so aware (and thereafter in certain circumstances upon any change
to the particulars previously notified) notify the Company as required by the
Companies Act.
Record Dates
The Depositary may, after consultation with the Company, if
practicable, fix a record date (which shall be as near as practicable to any
corresponding record date set by the Company) for the determination of the
Holders who shall be entitled to receive any distribution on or in respect of
Deposited Securities, to give instructions for the exercise of any voting
rights, to receive any notice or to act in respect of other matters and only
such Holders shall be so entitled.
Voting of Deposited Securities
As soon as practicable after receipt from the Company of notice of any
meeting or solicitation of consents or proxies of holders of Shares or other
Deposited Securities, the Depositary shall mail to Holders a notice stating (i)
such information as is contained in such notice and any solicitation materials,
(ii) that each Holder on the record date set by the Depositary therefor will be
entitled to instruct the Depositary as to the exercise of the voting rights, if
any, pertaining to the Deposited Securities represented by the ADSs evidenced by
such Holder's ADRs and (iii) the manner in which such instruction may be given,
including instructions to give a discretionary proxy to a person designated by
the Company. Upon receipt of instructions of a Holder on such record date in the
manner and on or before the date established by the Depositary for such purpose,
the Depositary shall endeavor insofar as practicable
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<PAGE>
and permitted under the provisions of or governing Deposited Securities to vote
or cause to be voted (or to grant a discretionary proxy to a person designated
by the Company to vote in accordance with (iii) above) the Deposited Securities
represented by the ADSs evidenced by such Holder's ADRs in accordance with such
instructions. The Depository will not itself exercise any voting discretion in
respect of any Deposited Securities.
Inspection of Transfer Books
The Deposit Agreement provides that the Depositary will keep books at
its Transfer Office for the registration, registration of transfer, combination
and split-up of ADRs, which at all reasonable times will be open for inspection
by the Holders and the Company for the purpose of communication with Holders in
the interest of the business of the Company or a matter related to the Deposit
Agreement.
Reports and Other Communications
The Depositary shall make available for inspection by Holders at the
Transfer Office any reports and communications received from the Company which
are both (i) received by the Depositary as the holder of the Deposited
Securities and (ii) made generally available to the holders of such Deposited
Securities by the Company. The Depositary shall also send to the Holders copies
of such reports when furnished by the Company. Any such reports and
communications furnished to the Depositary by the Company shall be furnished in
English.
On or before the first date on which the Company makes any
communication available to holders of Deposited Securities or any securities
regulatory authority or stock exchange, by publication or otherwise, the Company
shall transmit to the Depositary and the Custodian a copy of the notice thereof
(in English) in the form given or to be given to holders of Shares or other
Deposited Securities. The depositary will, at the Company's expense, arrange for
the prompt mailing of copies thereof to al Holders. In connection with any
registration statement under the Securities Act relating to the ADRs or with any
undertaking contained therein, the Company and the Depositary shall each furnish
to the other and to the Commission or any successor governmental agency such
information as shall be required to make such filings or comply with such
undertakings. The Company has delivered to the Depositary, the Custodian and any
Transfer Office, a copy of all provisions of or governing the Shares and any
other Deposited Securities issued by the Company or any affiliate of the Company
and, promptly upon any change thereto, the Company shall deliver to the
Depositary, the Custodian and any Transfer Office, a copy of such provisions as
so changed. The Depositary and its agents may rely upon the Company's delivery
thereof for all purposes of the Deposit Agreement.
Changes Affecting Deposited Securities
Subject to the terms and conditions of the Deposit Agreement, the
Depositary may, in its discretion, amend the form of ADR or distribute
additional or amended ADRs (with or without calling the ADRs for exchange) or
cash, securities or property on the record date set by the Depositary therefor
to reflect any change in par value, split-up, consolidation, cancellation or
other reclassification of Deposited Securities, any Share Distribution or Other
Distribution not distributed to Holders or any cash, securities or property
available to the Depositary in respect of Deposited Securities from (and, in the
Deposit Agreement, the Depositary is authorized to surrender any Deposited
Securities to any person and to sell by public or private sale any property
received in connection with) any recapitalization, reorganization, merger,
consolidation, liquidation, receivership, bankruptcy or sale of all or
substantially all the assets of the Company, and to the extent the Depositary
does not so amend the ADR or make a distribution to Holders to reflect any of
the foregoing, or the net proceeds thereof, whatever cash, securities or
property results from any of the foregoing shall constitute Deposited Securities
and each ADS shall automatically represent its pro rata interest in the
Deposited Securities as then constituted.
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Amendment and Termination of Deposit Agreement
The ADRs and the Deposit agreement may be amended by the Company and
the Depositary, provided that any amendment that imposes or increases any fees
or charges (other than stock transfer or other taxes and other governmental
charges, transfer or registration fees, cable, telex or facsimile transmission
costs, delivery costs or other such expenses), or that shall otherwise prejudice
any substantial existing right of Holders, shall become effective 30 days after
notice of such amendment shall have been given to the Holders. Every Holder of
an ADR at the time any amendment to the Deposit Agreement so becomes effective
shall be deemed, by continuing to hold such ADR, to consent and agree to such
amendment and to be bound by the Deposit Agreement as amended thereby. In no
event shall any amendment impair the right of the Holder of any ADR to surrender
such ADR and receive the Deposited securities represented thereby, except in
order to comply with mandatory provisions of applicable law.
The Depositary may, and shall at the written direction of the Company,
terminate the Deposit Agreement and the ADRs by mailing notice of such
termination to the Holders at least 30 days prior to the date fixed in such
notice for such termination. After the date so fixed for termination, the
Depositary and its agents will perform no further acts under the Deposit
Agreement and the ADRs, except to advise Holders of such termination, receive
and hold (or sell) distributions on Deposited Securities and deliver Deposited
Securities being withdrawn. as soon as practicable after the expiration of six
months from the date so fixed for termination, the depositary shall sell the
Deposited Securities and shall thereafter (as long as it may lawfully do so)
hold in a segregated account the net proceeds of such sales, together with any
other cash then held by it under the Deposit Agreement, without liability for
interest, in trust for the pro rata benefit of the Holders not theretofore
surrendered. Deposit Agreement, without liability for interest, in trust for the
pro rata benefit of the Holders not theretofore surrendered. After making such
sale, the Depositary shall be discharged from all obligations in respect of the
Deposit Agreement and the ADRs, except to account for such net proceeds and
other cash. After the date so fixed for termination, the Company shall be
discharged from all obligations under the Deposit Agreement except for its
obligations to the depositary and its agents.
Charges of Depositary
The Depositary may charge each person to whom ADRs are issued against
deposits of Shares including deposits in respect of Share Distributions, Rights
and Other Distributions and each person surrendering ADRs for withdrawal of
Deposited Securities, $5.00 for each 100 ADSs (or portion thereof) evidenced by
the ADRs delivered or surrendered. The Company will pay all other charges and
expenses of the Depositary and any agent of the Depositary (except the
Custodian) pursuant to agreements from time to time between the Company and the
Depositary, except (i) stock transfer or other taxes and other governmental
charges (which are payable by Holders or persons depositing Shares), (ii) cable,
telex and facsimile transmission and delivery charges incurred at the request of
persons depositing, or Holders delivering Shares, ADRs or Deposited Securities
(which are payable by such persons or Holders), (iii) transfer or registration
fees for the registration of transfer of Deposited Securities on any applicable
register in connection with the deposit or withdrawal of Deposited Securities
(which are payable by persons depositing Shares or Holders withdrawing Deposited
securities; there are no such fees in respect of the Shares as of the date of
the Deposit Agreement) and (iv) expenses of the Depositary in connection with
the conversion of foreign currency into dollars (which are paid out of such
foreign currency).
Liability of Holders for Taxes
If any tax or other governmental charge shall become payable by or on
behalf of the Custodian or the Depositary with respect to the ADRs, any
Deposited Securities represented by the ADSs evidenced thereby or any
distribution thereon, such tax or other governmental charge shall be paid by the
Holder thereof to the Depositary. The Depositary may refuse to effect any
registration, registration of transfer, split-up or combination thereof or,
subject to the terms and conditions of the Deposit Agreement, any withdrawal of
such Deposited Securities until such payment is made. The Depositary may also
deduct from any distributions on or in respect of Deposited Securities, or may
sell by public or private sale for the account of the Holder thereof any party
or all of such Deposited Securities (after attempting by reasonable means to
notify the Holder thereof prior to such sale), and may apply such deduction or
the proceeds of any such sale in payment of such tax or other governmental
charge, the Holder thereof remaining liable for any deficiency, and shall reduce
the number of ADSs evidenced thereby to reflect any such sales of Deposited
Securities. In connection with any distribution to Holders, the Company will
remit to the appropriate
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<PAGE>
governmental authority or agency all amounts (if any) required to be withheld
and owing to such authority or agency by the Company; and the Depositary and the
Custodian will remit to the appropriate governmental authority or agency all
amounts (if any) required to be withheld and owing to such authority or agency
by the Depositary or the Custodian. If the Depositary determines that any
distribution in property other than cash (including Shares or rights) on
Deposited Securities is subject to any tax that the Depositary or the Custodian
is obligated to withhold, the depositary may dispose of all or a portion of such
property in such amounts and in such manner as the depositary deems necessary
and practicable to pay such taxes, by public or private sale, and the Depositary
shall distribute the net proceeds of any such sale or the balance of any such
property after deduction of such taxes to the Holders entitled thereto.
General Limitations
The ADRs provide that the Depositary, the Company, their agents and
each of them shall: (i) incur no liability (a) if any present or future law,
regulation or any country or of any governmental or regulatory authority or
stock exchange, the provisions of or governing any Deposited Security, act of
God, war or other circumstance beyond its control shall prevent, delay or
subject to any civil or criminal penalty any act which the Deposit Agreement or
the ADRs provides shall be done or performed by it, or (b) by reason of any
exercise or failure to exercise any discretion given it in the Deposit Agreement
or the ADRs; (ii) assume no liability except to perform its obligations to the
extent they are specifically set forth in the ADRs and the Deposit Agreement
without gross negligence or bad faith; (iii) be under no obligation to appear
in, prosecute or defend any action, suit or other proceeding in respect of any
Deposited Securities or the ADRs; or (iv) not be liable for any action or
inaction by it in reliance upon the advice of or information from legal counsel,
accountants, any person presenting Shares for deposit, any Holder, or any other
person believed by it to be competent to give such advice or information. The
Depositary, its agents and the Company may rely and shall be protected in acting
upon any written notice, request, direction or other document believed by them
to be genuine and to have been signed or presented by the proper party or
parties. The Depositary and its agents will not be responsible for any failure
to carry out any instructions to vote any of the Deposited Securities, for the
manner in which any such vote is cast or for the effect of any such vote. The
Depositary and its agents may own and deal in any class of securities of the
Company and its affiliates and in ADRs. The Company has agreed to indemnify the
Depositary and its agents under certain circumstances and the Depositary has
agreed to indemnify the Company against losses incurred by the Company to the
extent such losses are due to the negligence or bad faith of the Depositary.
Notwithstanding the foregoing, no disclaimer of liability under the Securities
Act is intended by any provision of the ADRs.
Prior to the issue, registration, registration or transfer, split-up or
combination of any ADR, the delivery of any distribution in respect thereof, or,
subject to the terms and conditions of the Deposit Agreement, the withdrawal of
any Deposited Securities, the Company, the Depositary or the Custodian may
require: (i) payment with respect thereto of (a) any stock transfer or other tax
or other governmental charge, (b) any stock transfer or registration fees in
effect for the registration of transfers of Shares or other Deposited Securities
upon any applicable register, and (c) any applicable charges as provided in the
Deposit Agreement; (ii) the production of proof satisfactory to it of (a) the
identity and genuineness of any signature and (b) such other information,
including without limitation, information as to citizenship, residence, exchange
control approval, beneficial ownership of any securities, compliance with
applicable law, regulations, provisions of or governing Deposited Securities and
terms of the Deposit Agreement and the ADRs, as it may deem necessary or proper;
and (iii) compliance with such regulations as the Depositary may establish
consistent with the Deposit Agreement. The issuance of ADRs, the acceptance of
deposits of Shares, the registration, registration of transfer, split-up or
combination of ADRs or, subject to the terms of the Deposit Agreement, the
withdrawal of Deposited Securities may be suspended, generally or in particular
instances, when the ADR register for Deposited Securities is closed or when any
such action is deemed advisable by the Depositary or the Company.
Governing Law
The Deposit Agreement is governed by and shall be construed in
accordance with the laws of the State of New York.
26
<PAGE>
Bank of New York
The Depositary is The Bank of New York, a New York banking corporation,
which has its principal office located in New York, New York. The Bank of New
York is a commercial bank offering a wide range of banking and trust services to
its customers in the New York metropolitan area, throughout the United States
and around the world.
27
<PAGE>
PART IV
Item 17/18
Financial Statements
The following financial statements are included herein:
Consolidated Statement of Operations for the year ended June 30, 1997,
for the six months ended June 30, 1996 and the years ended December 31,
1995 and 1994.
Consolidated Balance Sheets as of June 30, 1997 and 1996 and December
31, 1995 and 1994.
Consolidated Cash Flow Statements for the year ended June 30, 1997, for
the six months ended June 30, 1996 and the years ended December 31,
1995 and 1994
Notes to the Consolidated Financial Statements
28
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: November 28, 1997 INDEPENDENT ENERGY HOLDINGS, PLC
By: /s/ Burt H. Keenan
Chairman and Chief Executive Officer
The undersigned depository signs this registration statement with
regard to the description of the ADRs and the Depository Shares.
Dated: November __, 1997 BANK OF NEW YORK, as Depository
By: (NOT SIGNED)
Exhibit Index
1. Memorandum and Articles of Association (P)
2. Accession Agreement to the Pooling and Settlement Agreement (P)
3. Carried Interest Agreement between Independent Energy UK Limited and
Altwood Petroleum Limited dated May 21, 1996 (P)
4. Hive-up Agreement dated May 14, 1996 between Eukon Energy Limited and
Independent Energy UK Limited (P)
5. Hive-up Agreement dated May 14, 1996 between Elswick Petroleum Limited
and Independent Energy UK Limited (P)
6. Second Tier License to Supply Electricity for Independent Energy UK
Limited dated March 7, 1996 (P)
7. Loan Note Instrument dated June 30, 1997 by the Company with respect to
(pound)3,000,000 10% unsecured Notes due 2002 (P)
8. Warrant Instrument dated June 30, 1997 by the Company with respect to
300,000 Warrants to purchase ordinary shares.(P)
9. Credit Agreement dated September 5, 1997 between the Company,
Independent Energy UK Limited Barclays Bank PLC and several lenders (P)
10. Master Equipment Lease Agreement dated April 19, 1996 between Machinery
Acceptance Corporation and Independent Energy UK Limited (P)
11. Form of Depository Agreement with Bank of New York with respect to
American Depository Receipts (P)
29
Independent Energy Holdings plc
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Statement of Directors' Responsibilities.................................................................. F-2
Report of Independent Public Accountants.................................................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1994 and
1995, six months ended June 30, 1996
and year ended June 30, 1997.............................................................................. F-5
Consolidated Balance Sheets as of December 31, 1994
and 1995 and as of June 30, 1996 and 1997................................................................. F-6
Consolidated Cash Flow Statements for the years ended December 31, 1994 and
1995, six months ended June 30, 1996
and year ended June 30, 1997.............................................................................. F-7
Notes to the Consolidated Financial Statements ........................................................... F-8
</TABLE>
F-1
<PAGE>
Independent Energy Holdings plc and Subsidiaries
Report of Independent Public Accountants
To the Board of Directors and the Shareholders of
Independent Energy Holdings plc:
We have audited the consolidated balance sheet of Independent Energy Holdings
plc and its subsidiary undertakings as of June 30, 1997 and the related
consolidated statements of operations and cash flows for the year ended June 30,
1997.
As detailed in note 2 to the consolidated financial statements, the consolidated
statement of operations, and cash flows for the six months ended June 30, 1996
have been prepared on a pro forma basis. We have audited all the financial
statements of the companies whose statements of operations and cash flows are
reflected in the pro forma financial statements. We have reviewed the basis of
preparation of the pro forma consolidated statements of operations and cash
flows for the six months ended June 30, 1996. We have audited the consolidated
balance sheet of Independent Energy Holdings plc as of June 30, 1996.
We have audited the consolidated balance sheets of Independent Energy UK Limited
and its subsidiary undertakings as of December 31, 1994 and 1995 and the related
consolidated statements of operations and cash flows for each of the two years
ended December 31, 1995.
As described on page F-2, financial statements are the responsibility of the
Company's Directors. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United Kingdom, which are substantially the same as auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit also 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 our audits provide a
reasonable basis for our opinion.
F-2
<PAGE>
In our opinion, the financial statements present fairly, in all material
respects, the consolidated balance sheet of Independent Energy Holdings plc and
subsidiaries as of June 30, 1997 and 1996, and the consolidated balance sheet of
Independent Energy UK Limited and its subsidiaries as of December 31, 1995 and
1994, in accordance with generally accepted accounting principles in the United
Kingdom. In our opinion, the financial statements present fairly, in all
material respects, the consolidated statements of operations and cash flows for
the group and its predecessors for the year ended June 30, 1997, and the two
years ended December 31, 1995 and 1994, in accordance with generally accepted
accounting principles in the United Kingdom.
In our opinion the statements of operations and cash flow of the companies which
comprise the pro forma financial statements for the six months ended June 30,
1996 are presented fairly in accordance with generally accepted accounting
principles in the United Kingdom. In our opinion the pro forma statement of
operations and cash flows for the six months ended June 30, 1996 are presented
fairly in accordance with the assumptions detailed in note 2.
Accounting principles generally accepted in the United Kingdom vary in certain
respects from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of net results,
shareholders' equity and cash flows for the financial year ended June 30, 1997,
six months ended June 30, 1996 and two years ended December 31, 1995 and 1994,
to the extent summarised in notes 30 and 31 to the consolidated financial
statements.
Pannell Kerr Forster
Chartered Accountants and Registered Auditors
November 26, 1997
Nottingham, England
F-3
<PAGE>
Independent Energy Holdings plc
Statement of Directors' Responsibilities
The following statement, which should be read in conjunction with the report of
Independent Public Accountants set out on page F-3, is made with a view to
distinguishing for shareholders the respective responsibilities of the Directors
and of the auditors in relation to the consolidated financial statements.
The Directors are required by UK company law to prepare financial statements for
each fiscal period that give a true and fair view of the state of affairs of the
Company and the Group as at the end of the fiscal period and of the profit or
loss of the Group for that period.
The Directors confirm that suitable accounting policies have been used and
applied consistently, and that reasonable and prudent judgements and estimates
have been made in the preparation of the financial statements. The Directors
also confirm that applicable accounting standards have been followed and that
the financial statements have been prepared on a going concern basis.
The Directors are responsible for keeping proper accounting records, for
safeguarding the assets of the Company and of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
F-4
<PAGE>
<TABLE>
<CAPTION>
Independent Energy Holdings plc
and Subsidiary Undertakings
Consolidated Statements of Operations
--------------------------------------------------------------- ----------------
IEH plc consolidated IEU Ltd consolidated
Pro forma
Year ended Six months
All amounts stated in pounds sterling June 30, ended June 30, Year ended December 31,
except per share data Note 1997 1996 1995 1994
------ --------------------- ----------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Turnover - Continuing 4 11,127,164 173,701 4,701 -
- Discontinued 4 - - - 118,589
Cost of sales (10,872,238) (171,448) - (127,327)
--------------------- ----------------------- --------------------- ---------------------
Gross profit 254,926 2,253 4,701 (8,738)
Administrative expenses (1,505,193) (497,880) (93,773) (95,041)
--------------------- ----------------------- --------------------- ---------------------
Operating loss- Continuing 4 (1,250,267) (495,627) (89,072) -
- Discontinued 4 - - - (103,779)
Exceptional items 9 - (458,066) - 168,191
Interest income 7 189,071 65,417 24,029 4,081
Interest expense 7 (120,397) - - (806)
--------------------- ----------------------- --------------------- --------------------
(Loss)/profit on ordinary activities
before taxation 8 (1,181,593) (888,276) (65,043) 67,687
Tax on loss on ordinary activities - - 5,576 (9,000)
--------------------- ----------------------- --------------------- ---------------------
Retained (loss)/profit for the period (1,181,593) (888,276) (59,467) 58,687
===================== ======================= ===================== =====================
Adjusted earnings per share:10
Diluted (7.4)p (7.6)p (149.9)p 187.4p
Undiluted (9.0)p (9.9)p (176.8)p 187.4p
</TABLE>
Movements on reserves are set out in note 19.
There are no material difference between results calculated on an historical
cost basis and those reported above.
The results for the period reflect all recognised gains and losses.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Independent Energy Holdings plc
Consolidated Balance Sheet
------------------------------------------ ----------------------------
IEH plc consolidated IEU Ltd consolidated
June 30, June 30, December 31,
All amounts stated in pounds sterling Note 1997 1996 1995 1994
------------ -------------------- ------------------- -------------------- ----------------
Fixed Assets
<S> <C> <C> <C> <C> <C>
Intangible assets 11 1,544,689 897,184 657,757 341,157
Tangible assets 12 8,503,781 1,155,450 707,436 653,951
Current Assets
Debtors:
amounts due within one year 14 4,880,460 301,048 54,688 40,469
Investment 13 - 4,300,154 - -
Cash at bank and in hand 1,923,005 1,341,204 1,633,183 88,301
-------------------- ------------------- -------------------- ------------------
6,803,465 5,942,406 1,687,871 128,770
Creditors
Amounts falling due within one year 15 (3,956,441) (377,813) (69,336) (655,925)
-------------------- ------------------- -------------------- ------------------
Net current assets 2,847,024 5,564,593 1,618,535 (527,155)
-------------------- ------------------- -------------------- ------------------
Total Assets less Current Liabilities 12,895,494 7,617,227 2,983,728 467,953
Creditors
Amounts falling due after more 16 (5,937,925) (830,212) - -
than one year
-------------------- ------------------- -------------------- ------------------
Net Assets 6,957,569 6,787,015 2,983,728 467,953
==================== =================== ==================== ==================
Capital and Reserves
Called up share capital 18 149,914 131,248 40,623 464,977
Capital reserve 19 - - 543,946 -
Share premium account 19 8,044,482 6,711,001 2,524,143 68,493
Profit and Loss account 19 (1,236,827) (55,234) (124,984) (65,517)
-------------------- ------------------- -------------------- ------------------
-------------------- ------------------- -------------------- ------------------
Shareholders' Funds 20 6,957,569 6,787,015 2,983,728 467,953
==================== =================== ==================== ==================
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Independent Energy Holdings plc
Consolidated Cash Flow Statements
------------------------------------------- -----------------------------------------
IEH plc consolidated IEU Ltd consolidated
Pro forma
Year ended Six months
June 30, ended June Year ended December 31,
30,
All amounts stated in pounds sterling 1997 1996 1995 1994
-------------------- -------------------- ------------------- -------------------
Reconciliation of operating (losses) to net cash
(outflow) from operating activities
<S> <C> <C> <C> <C>
Operating (loss) (1,250,267) (495,627) (89,072) (103,779)
Depreciation, amortisation
and result on asset sales 146,991 3,875 2,858 39,674
Changes in debtors (3,931,165) (246,360) (14,219) 139,467
Changes in creditors 2,695,153 229,938 8,437 (112,454)
Exchange movements (39,535) 23,693 - -
-------------------- -------------------- ------------------- -------------------
Net cash outflow from operating
activities (2,378,823) (484,481) (91,996) (37,092)
Returns on investments and servicing of finance
Interest received 189,071 41,724 24,029 4,081
Interest paid (80,862) - - (806)
-------------------- -------------------- ------------------- -------------------
108,209 41,724 24,029 3,275
Taxation
Tax paid - - (3,424) -
Capital expenditure
Purchase of tangible fixed assets (3,759,500) - (56,343) (425,744)
Purchase of intangible fixed assets - (212,199) (316,600) (95,302)
Sale of tangible fixed assets - 6,000 - 354,196
-------------------- -------------------- ------------------- -------------------
(3,759,500) (206,199) (372,943) (166,850)
Management of liquid resources
Purchase of commercial paper - (4,300,154) - -
Sale of commercial paper 4,300,154 - - -
-------------------- -------------------- ------------------- -------------------
4,300,154 (4,300,154) - -
Financing
Proceeds from exercised share warrants - - 32,101 -
Issue of ordinary share capital 1,352,147 5,000,000 1,906,621 -
Less issue costs - (305,520) - -
Issue of loan notes 1,400,000 - - -
Debt due within one year
New loans - - 50,494 286,026
Loan repayments - - - (33,852)
Capital element of finance lease repayments(440,386) (37,349) - -
-------------------- -------------------- ------------------- -------------------
2,311,761 4,657,131 1,989,216 252,174
(Decrease)/increase in cash in the period
581,801 (291,979) 1,544,882 51,507
==================== ==================== =================== ===================
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-7
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
1 Nature of Business and Organisation
Independent Energy Holdings Plc and subsidiary undertakings ("the Group")
generates and markets electricity, currently only operating in the United
Kingdom. All amounts throughout this document are stated in pounds sterling
unless otherwise specified.
2 Changes in Capital Structure and Implications Upon the Consolidated
Financial Statements
As a result of the changes in capital structure the basis of preparation and
consolidation of the Independent Energy business reported in the Consolidated
Financial Statements is not consistent between each of the reporting periods. In
order to illustrate the complete trading history of the business, the principle
applied in reporting the profit and loss accounts and cash flows of the business
is to depict the trade for each period irrespective of capital structure.
Year ended June 30, 1997
Independent Energy Holdings plc ("IEH plc") is the reporting entity. IEH plc and
its subsidiary undertakings are consolidated using the acquisition method.
Six months ended June 30, 1996
IEH plc is the reporting entity. On January 1, 1996 Elswick Petroleum Limited
("Elswick") and Eukan Energy Limited ("Eukan") agreed to transfer their assets
and liabilities to Independent Energy UK Limited ("IEU Ltd") for a total
consideration of (pound)2. On that date, Elswick and Eukan were sold to Mr B H
Keenan, Chairman at net asset value.
In addition IEU Ltd acquired all the assets and assumed all liabilities of
International Petroleum Services Company ("IPSCo") for nil consideration; IPSCo
was subsequently removed from the Company Register of the State of Delaware.
The fair values of assets acquired were as follows:-
<TABLE>
<CAPTION>
Fair value
Book value Revaluation to the Group
Fixed Assets
<S> <C> <C>
Intangible 657,757 - 657,757
Tangible 657,956 (460,983) 196,973
Current Assets
Debtors 7,139 - 7,139
Total Assets 1,322,852 (460,983) 861,869
Liabilities
Creditors (558,176) - (558,176)
---------------------- --------------------- -----------
---------------------- --------------------- ------------
Net Assets 764,676 (460,983) 303,693
====================== =====================
Consideration (2)
------------
Negative Goodwill 303,691
===========
</TABLE>
F-8
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
2 Changes in Capital Structure and Implications Upon the Consolidated
Financial Statements (continued)
IEH plc was incorporated on March 12, 1996 as Coincity plc and changed its name
on April 17, 1996. On May 31, 1996 IEU Ltd was acquired at net asset value. The
consideration was 200 ordinary shares in IEH plc for each share of IEU Ltd (IEU
Ltd has an issued share capital of 40,623 (pound)1 ordinary shares) amounting to
the issue of 8,124,600 Ordinary Shares of 1p each.
The net asset value of IEU Ltd at May 31, 1996 comprised:
Intangible assets 837,666
Tangible assets 591,977
Debtors 294,635
Cash at bank and in hand 845,178
Creditors (421,687)
-------------------
2,147,769
===================
The results for the six months depict the consolidated balance sheet of IEH plc
and the consolidated profit and loss account that comprises IEU Ltd for the six
month period and IEH plc for the month of June. Whilst the application of the
principles of acquisition accounting results in IEU Ltd only being consolidated
from the date of acquisition (May 31, 1996), this would result in five months
trade being excluded from the results reported. The pro forma results detailed
in the financial statements depict the position if the acquisition had occurred
on January 1, 1996.
Year ended December 31, 1995
IEU Ltd is the reporting entity. IEU Ltd acquired through a merger, effective on
April 17, 1995 IPSCo, Elswick and Eukan, such that each company became a 100%
owned subsidiary. The aggregate net asset values of the companies acquired were
as follows:-
IPSCo 352,850
Elswick 251,226
Eukan 143,028
------------------
747,104
==================
IEU Ltd and its subsidiary undertakings were consolidated using merger
accounting and hence the results of each company for the whole year have been
included in the profit and loss account.
Year ended December 31, 1994
IEU Ltd is the reporting entity. As a result of the merger undertaken by IEU Ltd
in April 1995 the comparative results for this year have also been consolidated
using merger accounting, as though the merger had occurred in 1994.
F-9
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
3 Accounting Policies
The financial statements are prepared in accordance with generally accepted
accounting principles in the United Kingdom ("UK GAAP"). A summary of the more
important accounting policies, which have been applied consistently, is set out
below.
The most significant differences between the accounting principles followed by
the Group and generally accepted accounting principles in the United States ("US
GAAP") are described in Notes 30 and 31.
a) Basis of Accounting
These financial statements are prepared under the historical cost convention.
b) Development
Expenditure on development of production facilities is capitalised to be matched
with future revenue.
The cost incurred relates to the development of natural gas fields in order to
facilitate commercial production of proven reserves and are included as
intangible fixed assets.
c) Depreciation and Amortisation
Tangible fixed assets are written off over their estimated useful lives on a
straight line basis at the following annual rates:
Plant and machinery 10 per cent on cost less estimated residual value
Office equipment 33 per cent on cost
Assets in the course of construction are depreciated over their estimated useful
lives from the date of completion.
Intangible fixed assets are amortised on a straight line basis over the expected
productive life of the related facilities when placed in operation.
d) Leasing
Assets acquired under finance leases are capitalised and depreciated over their
estimated useful lives. The interest element of the finance lease rental
payments are charged to the profit and loss account over the life of the lease.
Rentals payable under operating leases are charged to the profit and loss
account as incurred.
e) Turnover
Turnover represents invoiced sales less allowances, trade discounts, and Value
Added Tax.
F-10
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
3 Accounting Policies (continued)
f) Foreign Currency Translation
The translation of foreign currency transactions is dealt with as follows:
(i) non-monetary assets and liabilities at the balance sheet date are translated
at the rate ruling on the date on which the transaction occurred; (ii) monetary
assets and liabilities at the balance sheet date are translated at the rate
ruling at that date; (iii) transactions regarding trading occurring during the
period, settled in sterling, are translated at the rate ruling on the date on
which the transaction occurred; and (iv) transactions regarding trading
occurring during the period, settled in foreign currency, are translated at the
average rate.
g) Deferred Taxation
Tax deferred or accelerated is accounted for in respect of all material timing
differences to the extent that it is probable that a liability or asset will
crystallise.
4 Segmental Information
The Group have operated in two distinct business segments during the period
covered by these Consolidated Financial Statements. The Group were engaged in
oil and gas servicing until March 1994 when the majority of the operational
assets were sold.
The activities of this segment have been disclosed as a discontinued activity,
with the balance sheet as at December 31, 1994 only representing the continuing
operation of generating and marketing electricity.
No one customer represents a significant element of turnover.
5 Directors
<TABLE>
<CAPTION>
Directors' Remuneration
--------------------------------------------- ------------------------------------------------------------------
IEH plc consolidated IEH plc consolidated
Year ended June 30, 1997
Pro forma
Year Six months
ended Pension
June 30, ended June Salary Fees Benefits contributions
1997 30, 1996
-------------------- ------------------------ ------------------ -------------- ------------------- ------------
Executive
Directors
<S> <C> <C> <C> <C> <C> <C>
B H Keenan - - - - - -
J W Jarrell - - - -
- -
J L Sulley 82,000 33,343 66,000 - 6,100 9,900
W E Evans 5,700 2,120 - - 5,700 -
Dr R E Jones 74,800 7,864 60,000 - 5,800 9,000
Non-
Executive
Directors
R W Deakin 10,600 13,900 10,600 - -
-
D O May 11,249 7,776 11,249 - -
-
-------------------- ------------------------ ------------------ -------------- ------------------- --------------
184,349 65,003 126,000 21,849 17,600 18,900
==================== ======================== ================== ============== =================== ==============
30 June 1996 36,000 21,676 7,327 -
================== ============== =================== ===========
</TABLE>
The directors received no remuneration in the years ended December 31, 1995 and
1994.
F-11
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
5 Directors (continued)
Directors Interests in Contracts
During the periods the Group received consultancy services from directors. These
transactions were in the normal course of trading and amounted to:
<TABLE>
<CAPTION>
----------------------------------------------- -----------------------------------------------
IEH plc consolidated IEU Ltd consolidated
Pro forma
Year Six
ended months
June 30, ended Year ended December
June 30, 31,
1997 1996 1995 1994
--------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C>
B H Keenan 40,213 19,933 - -
W E Evans 44,983 22,601 24,000 14,521
J W Jarrell 25,133 13,269 1,282 -
J L Sulley - - 3,000 -
--------------------- ---------------------- ---------------------- ---------------------
110,329 55,803 28,282 14,521
===================== ====================== ====================== =====================
</TABLE>
<TABLE>
<CAPTION>
Directors' Interests
The beneficial interests of the Directors in the ordinary shares of 1p of IEH
Plc are as follows:
Date of June 30, June 30,
Appointment 1997 1996
----------- ---- ----
<S> <C> <C> <C>
B H Keenan April 16, 2,382,100 2,380,000
1996
J W Jarrell April 16, 180,300 180,200
1996
J L Sulley April 16, 60,000 60,000
1996
W E Evans April 16, 5,600 5,600
1996
Dr R E Jones April 16, 60,000 60,000
1996
R W Deakin April 16, 68,200 68,200
1996
D O May April 16, 50,000 50,000
1996
</TABLE>
B H Keenan is a beneficial owner of Leeward Investments Limited, a company which
holds 1,742,800 ordinary shares of his total shareholding of 2,382,100 shown
above.
The holding of ordinary shares in which R W Deakin is interested is held by
Southern Geophysical Pension Fund of which he is a beneficiary.
F-12
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
5 Directors (continued)
The beneficial interests of the directors in the (pound)1 ordinary shares of IEU
Ltd are as follows:
<TABLE>
<CAPTION>
Date of December
Appointment 31, 1995
<S> <C> <C>
B H Keenan April 4, 1995 3,196
J W Jarrell April 4, 1995 901
J L Sulley December 7, 250
1995
W E Evans April 6, 1995 28
R W Deakin April 2, 1995 341
D O May December 7, 250
1995
</TABLE>
Due to the changes in capital structure of the business in 1995 (refer to Note
2) there are no relevant comparable directors interests relating to 1994.
Directors Interests in Share Options
The Directors interests in share options as of June 30, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
Exercise Number of Exercisable dates
Price shares
<S> <C> <C> <C> <C> <C>
B H Keenan 31.25p 45,400 Jan 1, 1997 to Jan 1,
2001
100p 600,000 Oct 21, 1997 to April 28,
2003
J W Jarrell 31.25p 22,800 Jan 1, 1997 to Jan 1,
2001
100p 100,000 Jan 1, 1999 to Jan 1,
2001
J L Sulley 50p 60,000 Jan 1, 1997 to Jan 1,
2001
100p 300,000 Jan 1, 1999 to Jan 1,
2001
W E Evans 1p 295,200 May 28, 1996 to Jan 1,
2001
100p 150,000 Jan 1, 1999 to Jan 1, 2001
R E Jones 100p 300,000 Jan 1, 1999 to Jan 1, 2001
D O May 100p 50,000 Jan 1, 1997 to Jan 1,
2001
R W Deakin 100p 50,000 Jan 1, 1997 to Jan 1,
2001
</TABLE>
The Directors interests in share options as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Exercise Number of Exercisable dates
Price shares
<S> <C> <C> <C>
B H Keenan (pound)62.50 227 Jan 1, 1997 to Jan 1, 2000
(pound)200.00 500 Jan 1, 1999 to Jan 1, 2001
J W Jarrell (pound)62.50 114 Jan 1, 1997 to Jan 1, 2001
(pound)200.00 250 Jan 1, 1999 to Jan 1, 2001
J L Sulley (pound)100.00 300 Jan 1, 1997 to Jan 1, 2001
(pound)200.00 1,500 Jan 1, 1999 to Jan 1, 2001
W E Evans (pound)1.00 1,476 June 1, 1995 to Jan 1,
2001
(pound)200.00 750 Jan 1, 1999 to Jan 1,
2001
</TABLE>
No granted options have been exercised nor have any expired.
F-13
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
6 Employees
<TABLE>
<CAPTION>
(a) Employment costs (including executive directors) consist of:
----------------------------------------------- ---------------------------------------------
IEH plc consolidated IEU Ltd consolidated
Pro forma
Year Six
ended months
June 30, ended Year ended
June 30, December 31,
1997 1996 1995 1994
--------------------- ---------------------- --------------------- --------------------
<S> <C> <C>
Salaries and wages 503,386 130,013 - -
Social security costs 49,948 13,058 - -
Other pension costs 66,216 17,363 - -
--------------------- ---------------------- --------------------- --------------------
619,550 160,434 - -
===================== ====================== ===================== ====================
</TABLE>
<TABLE>
<CAPTION>
(b) The average number employed during the periods were:
----------------------------------------------- ----------------------------------------------
IEH plc consolidated IEU Ltd consolidated
Pro forma
Year Six
ended months
June 30, ended Year ended
June 30, December 31,
1997 1996 1995 1994
--------------------- ---------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Administration and 2 1 6 8
management
Marketing and development 13 8 - -
--------------------- ---------------------- --------------------- ---------------------
15 9 6 8
===================== ====================== ===================== =====================
</TABLE>
7 Interest Receivable and Payable and Similar Income and Expense
<TABLE>
<CAPTION>
---------------------------------------------- ---------------------------------------------
IEH plc consolidated IEU Ltd consolidated
Pro forma
Year Six
ended months
June 30, ended Year ended
June 30, December 31,
1997 1996 1995 1994
-------------------- ---------------------- --------------------- --------------------
(a) Interest Receivable and
Similar Income:
<S> <C> <C> <C> <C>
Interest receivable 186,431 41,724 24,029 4,081
Gain on currency - 23,693 - -
conversion
Other 2,640 - - -
-------------------- ---------------------- --------------------- --------------------
189,071 65,417 24,029 4,081
==================== ====================== ===================== ====================
(b) Interest Payable and
Similar Expense:
Interest payable on 70,417 - - -
loans
Interest - other 10,445 - - 806
Loss on currency 39,535 - - -
conversion
-------------------- ---------------------- --------------------- --------------------
120,397 - - 806
==================== ====================== ===================== ====================
</TABLE>
F-14
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
<TABLE>
<CAPTION>
8 Profit (loss) on ordinary activities before taxation is stated after charging:
----------------------------------------------- ---------------------------
IEH plc consolidated IEU Ltd consolidated
Pro forma
Year Six
ended months
June 30, ended Year ended
June 30, December 31,
1997 1996 1995 1994
--------------------- ---------------------- ---------------------------
<S> <C>
Amortisation 37,692 - - -
Depreciation of owned 104,158 5,681 2,858 39,674
assets
Auditors' remuneration - 10,500 9,000 4,500 1,900
audit fee
Auditors' remuneration - 3,565 - - 275
other
Operating lease rentals 109,039 28,630 - -
===================== ====================== ===================== ===
</TABLE>
9 Exceptional items
<TABLE>
<CAPTION>
---------------------------------------------- -----------------------
IEH plc consolidated IEU Ltd
consolidated
Pro forma
Year Six
ended months
June 30, ended Year ended
June 30, December 31,
1997 1996 1995 1994
-------------------- -------------- ------------------- ----------
<S> <C> <C> <C> <C>
Profit on sale of fixed assets - - - 164,858
Profit on sale of subsidiaries - 2,917 - -
Discounts on early repayment - - 3,333
of loan
Permanent diminution in the
value of assets in the course
of construction - (460,983) - -
-------------------- ---------------------- -------------------
- (458,066) - 168,191
==================== ====================== ===================
</TABLE>
10 Earnings per Share
Year Ended June 30, 1997
The calculation of diluted (losses) per share is based on the loss after
taxation for the year and upon 15,908,698 weighted average number of ordinary
shares in issue, which assumes that the options and warrants amounting to
2,918,400 ordinary shares had been exercised at the date issued.
The calculation of undiluted (losses) per share is based on the loss after
taxation for the year and upon 13,129,914 weighted average number of ordinary
shares in issue, excluding shares subject to options and warrants.
No dividend is proposed
F-15
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
10 Earnings per Share (continued)
Six Months Ended June 30, 1996
The calculation of diluted (losses) per share is based on the loss after
taxation for the period and upon 11,759,442 weighted average number of shares in
issue, which assumes that the options relating to 2,778,400 ordinary shares had
been exercised at the beginning of the period.
The calculation of diluted (losses) per share is based on the loss after
taxation for the period and upon 8,981,076 weighted average ordinary shares in
issue, excluding shares subject to options.
The calculation of the earnings per share for the six months ended June 30, 1996
assumes the 8,124,600 ordinary shares issued in order to acquire IEU Ltd were
effective from January 1, 1996. This is consistent with the consolidated pro
forma profit and loss accounts consolidating IEU Ltd for the six months period.
Year Ended December 31, 1995
The calculation of diluted (losses) per share is based on the loss after
taxation for the year and upon 39,683 weighted average number of ordinary shares
in issue, which assumes that the options and warrants amounting to 6,042
ordinary shares had been exercised at the date issued.
The calculation of undiluted (losses) per share is based on the loss after
taxation for the year and upon 33,641 weighted average number of ordinary shares
in issue, excluding shares subject to options and warrants.
Year Ended December 31, 1994
The calculation of undiluted earnings per share is based on the loss after
taxation for the year and upon 31,314 weighted average number of ordinary shares
in issue. These are no shares subject to options or warrants.
11 Fixed Assets - Intangible
Intangible fixed assets are the expenditures related to the acquisition and
development of natural gas fields including the applicable interest and overhead
costs. The cost is amortised over the estimated productive life of the producing
property. The movement in the account during the periods were:
<TABLE>
<CAPTION>
---------------------------------------------- ---------------------------------------------
IEH plc consolidated IEU Ltd consolidated
June 30, June 30, December 31,
Cost 1997 1996 1995 1994
---------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Beginning of period 897,184 657,757 341,157 245,855
Additions 685,197 239,427 316,600 95,302
--------------------- --------------------- --------------------- ---------------------
End of period 1,582,381 897,184 657,757 341,157
===================== ===================== ===================== =====================
Accumulated amortisation
Beginning of period - - - -
Charge for the 37,692 - - -
period
--------------------- --------------------- --------------------- ---------------------
End of period 37,692 - - -
===================== ===================== ===================== =====================
Net book value end of period 1,544,689 897,184 657,757 341,157
===================== ===================== ===================== =====================
</TABLE>
Included in intangible fixed asset cost is interest capitalised of (pound)7,429
in 1994. No interest was capitalised in intangible cost in the other periods.
F-16
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
11 Fixed Assets - Intangible (continued)
On February 5, 1996 an estimation of the gas reserves was carried out by Dolan
and Associates, Petroleum Consultants:
Proven BCF
EXL 269 - Elswick 0.2
EXL 288 - Trumfleet 0.4
EXL 289 - Nooks Farm 0.4
EXL 290 - Ironville 0.2
EXL 291 - Godley Bridge 0.4
EXL 292 and 194 - Bonley 0.2
PL 055 - Lingfield -
----------------------
1.8
----------------------
In July 1997 estimations of gas reserves were carried out by various third party
petroleum consultants with the following results:
Proven BCF
PL234 - Caythorpe 2.7
EXL 269 - Elswick 0.4
EXL 288 - Trumfleet 1.7
EXL 289 - Nooks Farm 0.4
EXL 290 - Ironville 0.2
EXL 291 - Godley Bridge 0.4
EXL 292 and 194 - Bonley 0.2
PL 055 - Lingfield -
---------------------
6.0
---------------------
Proven BCF (billion cubic feet) is the amount indicated to be recoverable with a
high degree of certainty. The chance that the actual quantity will be equal to
or greater than the amount estimated as proven is 80 per cent.
F-17
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
12 Fixed Assets - Tangible
<TABLE>
<CAPTION>
Assets in
Office the course Plant and
Equipment of Equipment Total
Construction
Cost
IEU Ltd
<S> <C> <C> <C> <C>
At January 1, 1994 - 254,851 290,794 545,645
Additions 4,263 382,543 38,938 425,744
Disposals - - (313,984) (313,984)
-------------------- ----------------------- ------------------------ ----------------------
At December 31, 1994
4,263 637,394 15,748 657,405
Additions - 56,343 - 56,343
-------------------- ----------------------- ------------------------ ------
At December 31, 1995
4,263 693,737 15,748 713,748
IEH plc
Additions 55,372 863,500 - 918,872
Transfers - 15,748 (15,748) -
Market value adjustment
- (463,084) - (463,084)
Disposals - (7,339) - (7,339)
---------------- ----------------------- ------------------------ ----------------------
At June 30, 1996 59,635 1,102,562 - 1,162,197
Additions 55,788 7,396,701 - 7,452,489
Transfers - (972,059) 972,059 -
-------------------- ----------------------- ------------------------ ----------------------
At June 30, 1997 115,423 7,527,204 972,059 8,614,686
================= ======================= ======================== ======================
Accumulated Depreciation
IEU Ltd
At January 1, 1994 - - 88,426 88,426
Charge for the year 457 - 39,217 39,674
Disposals - - (124,646) (124,646)
------ ----------------------- ------------------------ ----------------------
At December 31, 1994 457 - 2,997 3,454
Charge for the year 609 - 2,249 2,858
------- ----------------------- ------------------------ ----------------------
At December 31, 1995 1,066 - 5,246 6,312
IEH plc
Charge for the period
5,681 - - 5,681
Disposals - - (3,145) (3,145)
Market value adjustment - - (2,101) (2,101)
-------------------- ----------------------- ------------------------ ----------------------
At June 30,1996 6,747 - - 6,747
Charge for the year
29,885 - 74,273 104,158
-------------------- ----------------------- ------------------------ ----------------------
At June 30, 1997 36,632 - 74,273 110,905
========== ======================= ======================== ======================
Net book value
IEU Ltd
At January 1, 1994 - 254,851 202,368 457,219
======== ======================= ======================== ======================
At December 31, 1994
3,806 637,394 12,751 653,951
==================== ======================= ======================== ======================
At December 31, 1995 3,197 693,737 10,502 707,436
====== ======================= ======================== ======================
IEH plc
====== ======================= ======================== ======================
At June 30, 1996 52,888 1,102,562 - 1,155,450
==================== ======================= ======================== =======
At June 30, 1997 78,791 7,527,204 897,786 8,503,781
==================== ======================= ======================== =======
</TABLE>
F-18
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
12 Fixed Assets - Tangible (continued)
Interest was capitalised during the year ending December 31, 1994
((pound)30,667); year ending December 31, 1995 ((pound)5,494); and year ending
June 30, 1997 ((pound)33,672). No interest was capitalised in the six month
period ending June 30, 1996.
Included in the cost of "Assets in the course of construction" are leased assets
totalling (pound)4,383,327 which were acquired in the year ending June 30, 1997.
No depreciation was charged on leased assets.
Capital Commitments
<TABLE>
<CAPTION>
The Group has capital commitments of:
------------------------------------------- ---------------------------
IEH plc consolidated IEU Ltd consolidated
June 30,June 30, December 31,
1997 1996 1995 1994
--------------------- ------------------ -------------------- ------
<S> <C>
Authorised but not contracted 5,317,000 - - -
Contracted but not provided - 47,920 450,000 -
===================== ================== ==================== ===
</TABLE>
Financing commitments have been obtained in order to fund these projects (Note
26).
13 Fixed Assets - Investments
<TABLE>
<CAPTION>
-------------------------------------------- ---------------------------
IEH plc consolidated IEU Ltd consolidated
June 30 June 30, December 31,
1997 1996 1995 1994
-------------------- -------------------- ---------- ---------------
<S> <C> <C> <C> <C>
Commercial paper - 4,300,154 - -
==================== ==================== ========= ================
</TABLE>
Investments were made in commercial paper issued by "blue chip" companies in
order to safeguard assets whilst maintaining flexibility yet maximising returns
in the six months ended June 30, 1996.
14 Debtors
<TABLE>
<CAPTION>
IEH plc consolidated IEU Ltd consolidated
June 30, June 30, December 31,
1997 1996 1995 1994
---------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Trade Debtors (Note 15) 2,930,964 80,396 5,524 20,550
Security Deposits (Note 15) 1,110,744 - - -
Sundry debtors 178,012 - - 2,398
Other taxation and social securit 183,242 178,634 35,524 14,227
Prepayments and accrued income 477,498 42,018 13,640 3,294
---------------------- -------------------- -------------------- --------------------
4,880,460 301,048 54,688 40,469
====================== ==================== ==================== ====================
</TABLE>
F-19
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
15 Creditors: Amounts falling due within one year
<TABLE>
<CAPTION>
-------------------------------------------- -----------------------------------------
IEH plc consolidated IEU Ltd
consolidated
June 30,June 30, December 31,
1997 1996 1995 1994
---------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Trade creditors 1,096,051 110,682 55,958 58,988
Trade debtor financing 648,247 - - -
Other taxation and social security 20,584 29,760 144 140
Corporation tax - - - 9,000
Financing due within one year (Note 313,767 78,539 - 586,026
16)
Accruals and deferred income 1,877,792 158,832 13,234 1,771
---------------------- ------------------- ------------------- ------------------
3,956,441 377,813 69,336 655,925
====================== =================== =================== ==================
</TABLE>
IEH plc has trade debtor financing available through a bank facility providing
for borrowing 80 per cent of trade debtor balances. At June 30, 1997 the amount
outstanding under this facility was (pound)648,247. There were no balances
outstanding under this facility in the other periods.
Included in accruals at June 30, 1997 are energy purchase commitments of
(pound)1,070,534 which are secured by the Security Deposits (Note 14).
16 Creditors: Amounts falling due after more than one year
<TABLE>
<CAPTION>
Due
Due between Due after
Total within two & five years
one five
year years
IEU Ltd
December 31, 1994
<S> <C> <C>
Construction financing 586,026 586,026 - -
=============== =================== ====================== ======================
IEU Ltd
December 31, 1995 - - - -
====================== =================== ====================== ======================
IEH plc
June 30, 1996
Five year loan 908,751 78,539 830,212 -
====================== =================== ====================== ======================
IEH plc
June 30, 1997
Five year loan 775,198 79,422 695,776 -
Seven year finance lease 4,076,494 234,345 2,327,533 1,514,616
Unsecured Loan Notes 1,400,000 - - 1,400,000
------------------- ------------------- ---------------------- ----------------------
6,251,692 313,767 3,023,309 2,914,616
================== =================== ====================== ======================
</TABLE>
F-20
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
16 Creditors: Amounts falling due after more than one year (continued)
The five year loan was executed on June 20, 1996 for US$1,466,455. The loan is
repayable over 5 years at an interest rate of 8 per cent. Quarterly payments are
US$57,891 (including interest) with a balance of 50 per cent due March 20, 2001.
There is an option to refinance at an interest rate of US Prime plus 1 per cent
over a further 5 years. This loan is secured by the generation assets located at
the Elswick site, near Preston, Lancashire.
The finance lease was executed on June 17, 1997 for financing of
(pound)4,383,327 covering five 2,000 KW natural gas generator systems. The lease
is payable in 6 monthly payments of (pound)31,423 commencing 23 July 1997 and
then 78 monthly payments of (pound)69,734. The primary term of 7 years can be
extended for an annual rental of (pound)10,958.
The unsecured Loan Notes were issued by IEH Plc in June 1997. The Loan Notes are
repayable in full at December 31, 2002. Interest at 10 per cent is payable
quarterly commencing June 30, 1997.
17 Provisions for Liabilities and Changes
Deferred taxation
No provisions have been made for deferred taxation in the periods up to 30, June
1997.
<TABLE>
<CAPTION>
--------------------------------------------- --------------------------------------------
IEH plc consolidated IEU Ltd consolidated
June 30,June 30, December 31,
1997 1996 1995 1994
---------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Capital allowances 464,721 65,490 - 1,282
Other timing differences (5,003) - - -
Losses offset (459,718) (65,490) - (1,282)
---------------------- -------------------- -------------------- --------------------
- - - -
====================== ==================== ==================== ====================
</TABLE>
At June 30, 1997 the company had accumulated losses of approximately
(pound)5,100,000 to be relieved in the future, of which approximately
(pound)1,500,000 have been used to offset the above deferred tax liability.
18 Share Capital
a) Year ended June 30, 1997
Authorised:
20,000,000 ordinary shares of 1p each 200,000
=====================
Issued and fully paid - ordinary shares of 1p
each
As at June 30, 1996 131,248
Issued in the year 18,666
---------------------
As at June 30, 1997 149,914
=====================
In June 1997 1,866,648 ordinary shares of 1p each were issued to private
investors.
b) Six months ended June 30, 1996
Authorised:
20,000,000 ordinary shares of 1p each 200,000
=====================
F-21
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
18 Share Capital (continued)
IEH plc was incorporated on March 12, 1996 with share capital of 100,000
(pound)1 ordinary shares. On May 21, 1996 the ordinary shares were sub-divided
into shares of 1p each and a further 10,000,000 ordinary shares were authorised
to increase the share capital to (pound)200,000.
Issued and fully paid
13,124,800 ordinary shares of 1p each 131,248
======================
2 shares of (pound)1 each (now 200 shares of 1p each) were issued on formation
of IEH plc, 8,124,600 shares of 1p each were issued to acquire IEU Ltd,
1,772,524 ordinary shares of 1p each were issued to US private investors, and
3,227,476 ordinary shares of 1p each were issued to investors on The Alternative
Investment Market.
c) Year ended December 31, 1995
Authorised
1,000,000 ordinary shares of(pound)1 each 1,000,000
======================
IEU Ltd was incorporated on March 15, 1995, with share capital of 1,000 (pound)1
ordinary shares. On 6 April 1995 the authorised share capital was increased to
(pound)1,000,000.
Issued and fully paid
40,623 ordinary shares of(pound)1 each 40,623
======================
IEU Ltd acquired through a merger, effective April 17, 1995, "IPSCo", Eukan (a
subsidiary of "IPSCo) and Elswick. This merger, including the acquisition of a
minority interest, resulted in the issue of 21,625 ordinary shares of (pound)1
each for a total consideration of (pound)21,625, allocated as follows;
Issue of 17,300 ordinary shares of(pound)1 each to acquire the entire
ordinary share capital of IPSCo.
Issue of 4,297 ordinary shares of (pound)1 each to acquire the entire
ordinary share capital of Elswick.
Issue of 28 ordinary shares of (pound)1 each to acquire the 5% minority
interest in Eukan Energy Limited, the remaining 95% being owned by IPSCo.
The issue of 21,625 ordinary shares of (pound)1 each were accounted for using
merger accounting rules whereby the cost of investment represents the nominal
value of shares issued, plus the other purchase consideration at fair value.
In conjunction with the merger, certain loan and trade creditors of Eukan agreed
to convert their debt into equity in IEU Ltd which resulted in the issue of
9,689 ordinary shares of (pound)1 each for a total consideration of
(pound)636,520.
In September 1995, a share offer resulted in the issue of 9,309 ordinary shares
of (pound)1 each for a total consideration of (pound)1,906,621.
F-22
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
18 Share Capital (continued)
d) Year ended December 31, 1995
The share capital represented the combined share capital of Elswick, Eukan and
IPSCo.
19 Reserves
As detailed in Note 2 the reporting entity changes from IEU Ltd to IEH plc in
the six months ended June 30, 1997. The closing reserves at December 31, 1995
will represent the pre-acquisition reserves on the acquisition of IEU Ltd by IEH
plc and hence has been eliminated by acquisition accounting.
<TABLE>
<CAPTION>
Share Capital Profit and
IEU Ltd premium reserve
loss
account
<S> <C> <C> <C>
At January 1, 1994 68,493 - (124,204)
Retained profit for the year - - 58,687
---------------------- --------------------- -----------------------
At December 31, 1994 68,493 - (65,517)
Share premium arising on conversion of 626,831 - -
debt to equity
Share premium arising on shares issued in 1,897,312 - -
period
Total called up share capital and share
premium accounts
of merger companies (68,493) 844,722 -
Issue of IEU Ltd shares in exchange for
shares in Elswick,
Eukan and IPSCo - (21,625) -
Elimination of Eukan investment acquired (279,151) -
from IPSCo
Retained loss for the year - - (59,467)
---------------------- --------------------- -----------------------
At December 31, 1995 2,524,143 543,946 (124,984)
====================== ===================== =======================
IEH plc
Share premium arising on share exchange
for the acquisition of IEU Ltd 2,066,523 - -
Share premium arising on private US 2,946,858 - -
placement
Share premium arising on the Alternative
Investment Market listing 1,697,620 - -
Retained loss for the period - - (55,234) *
------------------ --------------------- -----------------------
At June 30, 1996 6,711,001 - (55,234)
Share premium arising on private 1,333,481 - -
placement
Retained loss for the year - - (1,181,593)
-------------------- --------------------- -----------------------
At June 30, 1997 8,044,482 - (1,236,827)
==================== ===================== =======================
</TABLE>
* The loss reported in the profit and loss account amounted to (pound)888,276 of
which (pound)833,042 is prior to the IEH plc acquisition of IEU Ltd. Total
losses excluded from the consolidated balance sheet resulting from the
acquisition accounting treatment amounts to (pound)958,026.
F-23
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
20 Reconciliation of movements in shareholders' funds
<TABLE>
<CAPTION>
----------------------------------------------- ------------------------------------------
IEH plc consolidated IEU Ltd
consolidated
June 30,June 30, December 31,
1997 1996 1995 1994
---------------------- ---------------------- --------------------- ------------------
(Loss) on ordinary activities accounted
<S> <C> <C> <C> <C>
for through acquisition accounting - 833,042 - -
New share capital subscribed (net of - - 1,928,246 -
issue costs)
Conversion of debt to equity - - 636,520 -
Elimination of Eukan investment acquired
from IPSCo - - 279,151 -
IPSCo share warrants - - 32,101 -
Issue of IEU Ltd shares in exchange for
shares in Elswick, Eukan and IPSCo - - (300,776) -
Issue of IEH plc shares in exchange for - 2,147,770 - -
IEU Ltd 0
New share capital subscribed for by private
US placement - 2,964,584 - -
New share capital subscribed for by
listing on the Alternative Investment Market - 1,729,895 - -
New share capital subscribed for by private
placement 1,352,147 - - -
---------------------- ---------------------- --------------------- ------------------
Other (losses)/gains 1,352,147 7,675,291 2,575,242 -
Profit/(loss) on ordinary activities after (1,181,593) (888,276) (59,467) 58,687
tax
Shareholders' funds at beginning of 6,787,015 - * 467,953 409,266
period ---------------------- ---------------------- --------------------- ------------------
Shareholders' funds at end of period 6,957,569 6,787,015 2,983,728 467,953
====================== ====================== ===================== ==================
</TABLE>
* There are no opening shareholders funds as IEH plc
was incorporated in this period.
F-24
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
21 Share Option Plan and Share Warrants
IEH plc has a share option plan which provides for grants of options to acquire
the Company's shares to its key employees. Under the share option plan the total
number of ordinary share options that may be granted is 2,778,400 ordinary
shares of 1p each.
IEU Ltd established a share option plan in April 1995. The options granted under
this plan were surrendered on May 31, 1996 when the company became a wholly
owned subsidiary of IEH plc. IEH plc granted fresh options in their unapproved
option scheme on the basis of 200 ordinary shares of 1p each for every (pound)1
ordinary share in IEU Ltd.
A summary of the share options granted and the changes during the periods is
presented below. The share options granted include 250,000 share options in
aggregate in IEH plc to the company's nominated broker and financial advisor
granted on May 31, 1996.
Weighted
Average Number of
Exercise shares
Price
IEU Ltd
At December 31, 1994 - -
Granted - April 1995 (pound)117.61 6,042
------------------------
At December 31, 1995 (pound)117.61 6,042
Granted - May 1996 (pound)200.00 7,850
------------------------
(pound)164.17 13,892
Surrendered May 31, 1996 - (13,892)
------------------------
-
========================
IEH plc
Granted May 31, 1996 82p 2,778,400
------------------------
At June 30, 1996 and June 30, 1997 82p 2,778,400
========================
The following table summarises information regarding share options at June 30,
1997:
Number Weighted Number
Outstanding average exercisable
at June remaining at June
Exercise Price 30, 1997 contract life 30, 1997
- -------------- ---- -------- ----
1p 295,200 3.5 295,200
31.25p 253,200 3.5 253,200
50p 60,000 3.5 60,000
100p 2,170,000 4.42 950,000
------------------ -------------------
2,778,400 4.22 1,558,400
======================= ====================
F-25
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
21 Share Option Plan and Share Warrants (continued)
The option price range at each period end was as follows:-
December 31, 1994 -
December 31, 1995 (pound)1 to(pound)200
June 30, 1996 1p to 100p
June 30, 1997 1p to 100p
No share options have been exercised or expired during the above periods.
Details of the directors' options which are included in the above figures are
shown in note 5 to the financial statements.
Stock Warrants
On June 30, 1997 stock warrants for 140,000 ordinary shares were granted in
association with the issue of Loan Notes of (pound)1,400,000; the warrants are
exercisable at a price of 75p at anytime until expiry on March 31, 2002.
22 Employee Bonus Plan
IEH plc operate a Bonus Pool, which is administered by the Remuneration
Committee, has been initially set as an amount equal to:
(i) 10 per cent of pre-tax net profit for the years ended June 30, 1996, 1997
and 1998; (ii) 10 per cent of pre-tax net profit in excess of a return on the
Company's equity of 25 per cent, in subsequent years. No bonuses have been paid
in the periods ended June 30, 1997.
23 Group Undertakings
Principal Operating Subsidiary at June 30, 1997 is:
Country
Name of Percentage
Incorporation Shareholdings
--------------------- ------------------------------
Independent Energy UK Limited England Ordinary shares 100%
In addition, other subsidiary companies (presently dormant) are as follows:
Country
Name of Percentage
Incorporation Shareholdings
----------------------------
1 E(Caythorpe) Limited England Ordinary shares 100%
Independent Energy Generation England Ordinary shares 100%
Limited
Independent Energy Services England Ordinary shares 100%
Limited
Independent Energy Limited England Ordinary shares 100%
Independent Energy Resources England Ordinary shares 100%
Limited
F-26
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
24 Obligations under operating leases
The Group has operating lease rental commitments for agreements that expire
between two and five years, for which:
IEH plc
IEH plc Pro
consolidated Forma
consolidated
June 30, June 30,
1997 1996
---------------------- -----------------------
Amount due within 1 year
- Land & buildings 54,542 31,331
- Other 50,642 -
There were no operating lease rental commitments for the year ended December 31,
1994 and 1995
25 Financial instruments
IEH plc enters into Contracts for Differences (CFDs) in order to hedge the price
risk inherent in Pool trading. CFDs are agreements between IEH plc, as a
purchaser of electricity through the Pool, and generators and traders. As at
June 30, 1997 the future volumes so contracted reflect market prices.
26 Subsequent events
On September 5, 1997 IEH plc concluded financial facilities with its principal
bankers, the Barclays Group. The Group is providing a combination of facilities
to match the financial needs of the Company with a commitment to grow as the
business grows. The initial facility is for (pound)12,500,000.
In accordance with the authority of IEH plc to allot shares for cash, the
Company has issued 2,631,579 ordinary shares at 95p per share to raise
(pound)2,500,000 before expenses. These shares were admitted to the Alternative
Investment Market of the London Stock Exchange and dealings commenced on
September 11, 1997.
Because insufficient uncommitted share capital was available to complete this
fund raising, Mr Burt Keenan, Chairman and Chief Executive, has cancelled his
option to subscribe for 600,000 ordinary shares at 100p per share. At the Annual
General Meeting, held on October 21, 1997, resolutions were passed by
shareholders to increase the authorised share capital of the Company.
Subsequently, share options were issued to Mr Burt Keenan for 600,000 ordinary
shares at 100p per share exercisable between October 21, 1997 to April 28, 2003.
F-27
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
27 Analysis of changes in net debt
<TABLE>
<CAPTION>
At At end
beginning Cash Other of period
flows charges
of
period
IEU Ltd
Year ended December 31, 1994
<S> <C> <C> <C> <C>
Cash at bank and in hand 36,794 51,507 - 88,301
Debt due within one year - (286,026) (300,000) (586,026)
Debt due after more than one (333,852) 33,852 300,000 -
year
--------------------- --------------------- ----------------------- --------------------
(297,058) (200,667) - (497,725)
===================== ===================== ======================= ===================
IEU Ltd
Year ended December 31, 1995
Cash at bank and in hand 88,301 1,544,882 - 1,633,183
Debt due within one year (586,026) (50,494) 636,520 -
--------------------- --------------------- ----------------------- ----------------
(497,725) 1,494,388 636,520 1,633,183
===================== ===================== ======================= ==================
IEH plc pro forma
Six months ended June 30, 1996
Cash at bank and in hand 1,633,183 (291,979) - 1,341,204
Debt due within one year - 37,349 (115,888) (78,539)
Debt due after more than one - (946,100) 115,888 (830,212)
year
Current asset investment - 4,300,154 - 4,300,154
--------------------- --------------------- ----------------------- -----------------
1,633,183 3,099,424 - 4,732,607
===================== ===================== ======================= ================
IEH plc
Year ended June 30, 1997
Cash at bank and in hand 1,341,204 581,801 - 1,923,005
Debt due within one year (78,539) (883) - (79,422)
Debt due after more than one (830,212) (1,226,029) (39,535) (2,095,776)
year
Finance leases - 306,833 (4,383,327) (4,076,494)
Current asset investment 4,300,154 (4,300,154) - -
--------------------- --------------------- ----------------------- ---------------
4,732,607 (4,638,432) (4,422,862) (4,328,687)
===================== ===================== ======================= ===============
</TABLE>
F-28
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
28 Reconciliation of net cash flows to movement in net debt
IEU Ltd
Year ended December 31, 1994
Increase in cash in the period 51,507
Cash inflow from increase in debt and lease financing (252,174)
---------------------
Movement in net debt (200,667)
Net debt at December 31, 1993 (297,058)
----------------------
Net debt at December 31, 1994 (497,725)
======================
IEU Ltd
Year ended December 31, 1995
Increase in cash in the period 1,544,882
Cash inflow from increase in debt and lease financing (50,494)
Debt capitalised as shares 636,520
---------------------
Movement in net debt 2,130,908
Net debt at December 31, 1994 (497,725)
----------------------
Net debt at December 31, 1995 1,633,183
======================
IEH plc pro forma
Six months ended June 30, 1996
Decrease in cash in the period (291,979)
Cash inflow from increase in debt and lease financing (908,751)
Cash outflow from increase in liquid resources 4,300,154
------------------
Movement in net debt 3,099,424
Net debt at December 31, 1995 1,633,183
-----------
Net debt at June 30, 1996 4,732,607
=============
IEH plc
Year ended June 30, 1997
Increase in cash in the period 581,801
Cash inflow from increase in debt and lease financing (920,079)
Cash inflow from decrease in liquid resources (4,300,154)
New finance leases (4,422,862)
-----------
Movement in net debt (9,061,294)
Net debt at June 30, 1996 4,732,607
-------------
Net debt at June 30, 1997 (4,328,687)
=============
F-29
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
29 Major non-cash transactions
Detailed below are the major non-cash transactions.
Year ended December 31, 1994
There were no major non-cash transactions in this year, other than reported
elsewhere within this document.
Year ended December 31, 1995
There were no major non-cash transactions in this year, other than reported
elsewhere within this document.
Six months ended June 30, 1996
During the period the Group entered into finance lease arrangements in respect
of assets with a total capital value at the inception of the leases of
(pound)863,500.
Year ended June 30, 1997
During the year the Group entered into finance lease arrangements in respect of
assets with a total capital value at the inception of the leases of
(pound)4,383,327.
F-30
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
30 Summary of Differences Between UK and US Generally Accepted Accounting
Principles (GAAP)
Financial statements
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United Kingdom. Such principles differ in
certain respects from US GAAP. A summary of the most significant differences
applicable to the Group is set out below.
Accounting estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure in conformity with generally accepted accounting principles of
contingent assets and liabilities at the date of the financial statements and
their reported amounts of revenues and expenses during the reported period.
Accounting estimates have been employed in these financial statements to
determine reported amounts, including realisability, useful lives of assets and
income taxes. Actual results could differ from those estimates.
The principal differences between UK GAAP and US GAAP are disclosed below:
a) Statement of Operation Differences
<TABLE>
<CAPTION>
IEH plc consolidated IEU Ltd consolidated
Year ended Pro forma
Six months
June 30, ended June 30,Year ended December 31,
Note 1997 1996 1995 1994
(Loss) /Income on ordinary activities
after taxation (1,181,593) (888,276) (59,467) 58,687
US GAAP Adjustments:
Stock based compensation -
<S> <C> <C> <C>
Employee Share Option Scheme (i) (188,095) (110,715) - -
Total US GAAP adjustments (188,095) (110,715) - -
Deferred income taxes (ii) - - - -
Net effect of US GAAP adjustments (188,095) (110,715) - -
Net (loss)/ income under US GAAP (1,369,688) (998,991) (59,467) 58,687
Net (loss)/ income per ordinary share
under US GAAP (Diluted) (8.6)p (8.5)p (149.9)p 187.4p
Net (loss)/ income per ordinary share
under US GAAP (Undiluted) (10.4)p (11.1)p (176.8)p 187.4p
</TABLE>
F-31
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
30 Summary of Differences Between UK and US Generally Accepted Accounting
Principles
(GAAP) (Continued)
b) Equity Reconciliation
<TABLE>
<CAPTION>
------------------------------------------- --------------------------------------------
IEH plc consolidated IEU Ltd consolidated
June 30, June 30, December 31,
Note 1997 1996 1995 1994
---------------- -------------------- -------------------- -------------------- --------------
<S> <C> <C> <C> <C> <C>
Equity under UK GAAP 6,957,569 6,787,015 2,983,728 467,953
Stock based deferred (i) (298,810) (110,715) - -
compensations
Deferred income taxes (ii) - - - -
--------------- -------------------- -------------------- -----------------
Net effect of US GAAP (298,810) (110,715) - -
adjustments
--------------- -------------------- -------------------- -----------------
Equity under US GAAP 6,658,759 6,676,300 2,983,728 467,953
==================== ==================== ==================== ==============
</TABLE>
(i) Employee Share Option Scheme
Under UK GAAP no recognition is provided for the compensation cost under
Employee Share Option Schemes. Under US GAAP, compensation for services that are
received as consideration for shares issued through the Employee Share Option
Scheme are recognised as the difference between the quoted market price of the
stock at the measurement date less the amount the employee is required to pay
(option exercise price). Compensation costs, as determined above, are charged to
expense over the vesting period.
The vesting period has been assumed to be the period from the date of grant of
the share option to the date the option first becomes exercisable.
The quoted market price of the stock for the periods ended June 1997 and June
1996 has been taken from the UK's Alternative Investment Market as at May 31,
1996 being the date that dealings in the shares commenced.
The compensation expense for the year ended December 31, 1995 was calculated
using a net asset valuation of IEU Ltd as there was no market value as IEU Ltd
was not listed on a recognised stock exchange and losses were being made.
The company applies APB Opinion No.25 and related interpretations in accounting
for its stock option plans. Had compensation expenses been determined as
provided in SFAS 123 for stock
options using the Black-Sholes option pricing model, the pro forma effect would
have been:
--------------------------------------------
IEH plc consolidated
June 30,
1997 1996
---------------------- -----------------------
Net loss applicable to ordinary shares - (1,369,688) (998,991)
as reported
Net loss applicable to ordinary shares - (1,497,671) (1,395,669)
pro forma
Diluted net loss per ordinary share - as (8.6) (8.5)
reported
Undiluted net loss per ordinary share - (10.4) (11.1)
as reported
Diluted net loss per ordinary share - (9.4) (11.9)
pro forma
Undiluted net loss per ordinary share - (11.4) (15.5)
pro forma
F-32
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
30 Summary of Differences Between UK and US Generally Accepted Accounting
Principles (GAAP) (Continued)
(i) Employee Share Option Scheme (Continued)
The fair value of each option grant is calculated using the following weighted
average assumptions
--------------------------
Six months
ended
June 30,
1996
---------------------
Expected life (years) 3.42
Interest rate 6.00%
Volatility 10.58%
Dividend yield 0.00%
No options have been issued in the year ended June 30, 1997.
ii) Deferred Taxation
Under UK GAAP provision is made for deferred tax under the liability method
where in the opinion of the directors it is probable that a tax liability will
become payable within the foreseeable future. This means the full potential
liability is not necessarily provided. Additionally, deferred tax assets should
be recognised only when they are expected to be recoverable within the
foreseeable future without replacement by equivalent debit balances.
Under US GAAP deferred tax is provided in full on the liability basis. Under the
full liability method, deferred tax assets or liabilities are recognised for
differences between the financial and tax basis of assets and liabilities and
for tax loss carry forwards at the statutory rate at each reporting date. A
valuation allowance reduces deferred tax assets when it is more likely than not
that some portion or all of the deferred tax assets will not be realised.
The Group has significant losses amounting to approximately (pound)5,100,000 at
30 June 1997, available to relieve future tax on profits.
In recording these net tax deferred assets, FAS 109 requires the Group to
determine whether it is "more likely than not" that the Group will realise such
benefits and that all negative and positive evidence be considered (with more
weight given to evidence that is "objective and verifiable") in making the
determination. FAS 109 indicates that "forming a conclusion that a valuation
allowance is not needed is difficult when there is negative evidence such as
cumulative losses in recent years".
FAS 109 requires recognition of future tax benefits as deferred tax assets,
subject to a valuation allowance based on the likelihood of realising such
benefits. Even though management believes the Group will be profitable in the
future, due to the risks associated with the timing of generation facilitates
becoming operational and the history of loss making, management believe that it
would be prudent to make a valuation allowance to offset the net deferred tax
assets
F-33
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
30 Summary of Differences Between UK and US Generally Accepted Accounting
Principles (GAAP) (Continued)
(iii) Negative goodwill
A capital reserve arose on the transfer of assets from Elswick, Eukan and IPSCo
to IEU Ltd. Upon the subsequent acquisition of IEU Ltd by IEH plc, this reserve
became part of the pre-acquisition reserves and was accounted for using
acquisition accounting.
Under the US GAAP, negative goodwill is required to be amortised to the profit
and loss account over its life. This will not be required due to the subsequent
acquisition of IEU Ltd by IEH plc.
(iv) Net (Loss)/Income per share
IEH plc
Net (loss) per share in 1997 has been computed based upon US GAAP net (loss) and
weighted average ordinary shares of 13,129,914 (1996 - 8,981,076). Fully diluted
loss per share in 1997 has been computed based upon US GAAP net loss and
weighted average diluted shares of 15,908,698 (1996 - 11,759,442).
IEU Ltd
Net (loss)/income per share in 1995 has been computed based upon US GAAP net
(loss)/income and weighted average ordinary shares of 33,641 (1994 - 31,314).
Fully diluted loss per share in 1995 has been computed based upon US GAAP net
loss and weighted average diluted shares of 39,683 (1994 - not applicable).
(v) US GAAP Equity Roll Forward
Shareholders equity roll forward in accordance with US GAAP:
<TABLE>
<CAPTION>
-------------------------------- ------------------------------------------
IEH plc consolidated IEU Ltd
consolidated
June 30, June 30, December 31,
No 1997 1996 1995 1994
te
------------ ---------------------- ----------------------- --------------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period 6,676,300 2,983,728 467,953 409,266
Other (losses) /gains 20 1,352,147 7,675,291 2,575,242 -
Net (loss) / income (1,369,688) (998,991) (59,467) 58,687
IEU Ltd Shareholders equity at
December 31,
1995 accounted for through - (2,983,728) - -
acquisition in IEH Plc ---------------------- ----------------------- --------------------- ----------------
Balance at end of period 6,658,759 6,676,300 2,983,728 467,953
====================== ======================= ===================== ================
</TABLE>
F-34
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
31 Additional US GAAP Disclosure Requirements
(a) Cash Flow Information
The consolidated cash flow statements prepared in conformity with UK GAAP are
set out on page 3. The principal differences between these statements and cash
flow statements prepared under US GAAP are as follows:-
(i) Under UK GAAP, net cash flow from operating activities is determined before
considering cash flows from returns on investments and servicing of finance and
taxes paid. Under US GAAP, net cash flow from operating activities is determined
after these items.
A summary of the Group's operating, investing and financial activities
classified in accordance
with US GAAP is presented below. For purposes of this summary, cash and cash
equivalents consist of cash and deposits with banks.
<TABLE>
<CAPTION>
--------------------------------------------------- ----------------------------------------------
IEH plc consolidated IEU Ltd consolidated
Pro forma
Year Six months
ended
June 30, ended Jun Year ended December
30, 31,
1997 1996 1995 1994
----------------------- ------------------------ ----------------------- -------------------
<S> <C> <C> <C> <C>
Cash (used in) operating (2,270,614) (442,757) (71,391) (33,817)
activities
Cash (used in)/provided by
financing activities 2,311,761 4,657,131 1,989,216 252,174
Cash (used in)/ provided by
investing activities 540,654 (4,506,353) (372,943) (166,850)
----------------------- ------------------------ ----------------------- ----------------------
Net increase/(decrease) in cash
and deposits with banks 581,801 (291,979) 1,544,882 51,507
Balance at beginning of period 1,341,204 1,633,183 88,301 36,794
----------------------- ------------------------ ----------------------- ----------------------
Balance at end of period 1,923,005 1,341,204 1,633,183 88,301
======================= ======================== ======================= ======================
</TABLE>
The effect of exchange rate change on cash balances held in foreign currencies
during the period ended June 30, 1997 and 1996 and December 31, 1995 and 1994
amounted to (pound)39,027,(pound)(10,142), (pound)(2,143) and nil respectively.
F-35
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
31 Additional US GAAP Disclosure Requirements (Continued)
<TABLE>
<CAPTION>
b) Deferred Taxation
----------------------------------------------- -------------------------------------------
IEH plc consolidated IEU Ltd consolidated
June 30, June 30, December 31,
1997 1996 1995 1994
----------------------- --------------------- -------------------- --------------------
Deferred tax liability
Non current
<S> <C> <C> <C> <C>
Fixed asset 559,839 65,490 - 1,282
Current
Other 5,003 - - -
----------------------- --------------------- -------------------- --------------------
Total deferred tax liabilities 564,842 65,490 - 1,282
----------------------- --------------------- -------------------- --------------------
Deferred tax assets
Non current
Fixed asset - - 1,045 -
Current
Losses 1,590,849 516,834 231,680 117,460
----------------------- --------------------- -------------------- --------------------
Total deferred tax assets 1,590,849 516,834 232,725 117,460
----------------------- --------------------- -------------------- --------------------
Valuation allowance (1,026,007) (451,344) (232,725) (116,178)
----------------------- --------------------- -------------------- --------------------
Net deferred tax asset - - - -
Provided under UK GAAP - - - -
----------------------- --------------------- -------------------- --------------------
US GAAP adjustment asset - - - -
======================= ===================== ==================== ====================
</TABLE>
c) Other disclosures
Total liabilities, stockholders' equity and total assets were as follows:
December 31, 1994 1,123,878
December 31, 1995 3,053,064
June 30, 1996 7,995,040
June 30, 1997 16,851,935
F-36
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
31 Additional US GAAP Disclosure Requirements (Continued)
c) Other disclosures (continued)
Total assets prepared in accordance with US GAAP were as follows:
December 31, 1994 1,123,878
December 31, 1995 3,143,144
June 30, 1996 8,333,378
June 30, 1997 17,226,966
Long term liabilities prepared in accordance with US GAAP were as follows:
December 31, 1994 -
December 31, 1995 90,080
June 30, 1996 1,279,265
June 30, 1997 6,611,766
d) Commitments Under Operating Leases
The Group's commitments under operating leases as at June 30, 1997 are as
follows:
Operating leases which expire:-
1998 103,801
1999 77,049
2000 61,992
2001 58,892
2002 50,580
-------------------
352,314
===================
Included in the above are subleases of (pound)5,250 for the years ending June
30, 1998 to June 30, 2001 inclusive and (pound)3,938 for the year ended June 30,
2002.
e) Financial Instruments
Disclosure of estimated fair value of financial instruments is based on the
requirements of Statements of Financial Accounting Standards No 105, 107 and
119.
Cash, trade debtors , trade creditors and short term borrowings
The carrying amounts of these items approximate fair value.
F-37
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
31 Additional US GAAP Disclosure Requirements (Continued)
<TABLE>
<CAPTION>
f) Reconciliation of tax charge to statutory rate on losses (continued)
------------------------------------------------- -------------------------
IEU Ltd
IEH plc consolidated consolidated
June 30, June 30, December
31,
1997 1996 1995
----------------------- ---------------------- -------------------------
<S> <C> <C> <C>
(Loss) per the financial statements (1,181,593) (888,276) (65,043)
======================= ====================== =========================
Expected tax (credit) charge at the (366,294) (293,131) (21,464)
statutory rate
Increase in deferred tax liability 394,228 65,490 2,327
Actual tax charge on continuing - -
activities
-------------------- ---------------------- -------------------------
Difference to reconcile (760,522) (358,621) (23,791)
=================== ====================== =========================
Deferred tax asset not recognised (958,203) (285,450) (128,269)
Intangible asset tax allowances 212,411 79,011 104,478
Inadmissible expenditure (14,730) (58) -
Capital loss not included as a - (152,124) -
deferred tax asset
-------------------- ---------------------- -------------------------
(760,522) (358,621) (23,791)
======================= ====================== =========================
</TABLE>
A reconciliation has not been provided for the years ended December 31, 1994 as
all operations have subsequently been discontinued.
The company has accumulated losses to be carried forward and relieved in the
future at the following period ends of:-
June 30, 1997 5,100,000
June 30, 1996 750,000
December 31, 1995 149,000
F-38
<PAGE>
