SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
(AMENDMENT NO. 1)
File No. 0-23451
[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)
Dominion Court, 43 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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<PAGE>
Background
Independent Energy Holdings plc (the "Company") is engaged in the
business of marketing and generating electricity in the United Kingdom. Pursuant
to the Electricity Act 1989 (as amended), the electric power industry in the
United Kingdom was deregulated over several stages with complete deregulation as
to generation and marketing to be effective beginning in September 1998 and
completed by June 1999. 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 February 28, 1998, the Company had 3 generating stations
with total capacity of 18 Megawatts ("MW") capable of providing over 150
Gigawatt hours ("GWh") annually, with 4 stations with 26 MW total capacity
scheduled to be on line by June 1998 capable of providing over 216 Gwh annually
(a Megawatt is equal to 1,000 kilowatts and a Gigawatt hour is 1,000,000 kWhs).
The plants are expected to operate at 95% utilization. Of the energy sold to
customers in the year ended June 30, 1997, 3% (7.1 GWh) was supplied by the
Company generating plants. Substantially all 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.
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 Alternative 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 and on April 1, 1994 peak demand over
100 KW. According to statistics provided by the Office of Electricity
Regulation, there are about 60,000 100 KW or greater peak demand customers in
the UK. Beginning in September 1998 in phases with complete deregulation being
in place by June 1999, all remaining 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 businesses. Since the Act provides that until
September, 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 full deregulation of the remaining regulated market beginning in
September 1998 and completed by June 1999, the Company will also focus its
marketing on the upper end of the less-than-100 KW per half hour demand market.
As of February 28, 1998 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
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million small business customers who become available with the final stage of
deregulation beginning in September 1998. The 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 non-privatized generator/supplier
of electricity in the UK, other
significant generator/suppliers having been created from companies created from
the former nationalized electricity
industry, such as 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 February 28, 1998 the annualized value of power sales contracts in
place is (pound)102 million for 2,200 GWh (gigawatt hours).
Electricity Generation
Since July 1996 the Company's Elswick 1 MW plant has been in operation.
At February 28, 1998 the Company has completed the installation of two
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 by June 1998 at Silverdale in the West Midland
resulting in 26 MWs total capacity.
The electricity generation plants are comprised predominately 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 the Silverdale plant
will operate on gas purchased from a local mine or public gas supply and not
company gas reserves. 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 historical power generation costs (through December 31,
1997) are lower than, and are expected to continue to be lower, than the
historical cost of Pool electricity, which was 2.632p, 2.592p, and 2.55p per
kilowatt hour in the years ended March 31, 1995, 1996, and 1997 respectively.
However, there can be no assurance as to future price levels for Pool
electricity, nor that the Company's power generation costs will continue to be
less that Pool price levels. Although 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 there can be no
assurance that the Company will successfully be able to do so. At this time the
Company has no firm commitments to develop additional generation plants.
The Company owns 12 onshore petroleum licenses 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. See "Item 2 -
Properties" for a discussion of these licenses and the Company's financial and
other commitments related thereto.
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The Company commissions estimates of the proven gas reserves carried
out annually by independent petroleum consultants. The most recent report was
prepared in July 1997. The estimations of proven gas reserves are shown below
along with the production for the year ending June 30, 1997 which is the first
year of production.
<TABLE>
<CAPTION>
Proven Gas Proven Developed Total Proven Production
Reserves (bcf) Gas Reserves (bcf) Gas Reserves (bcf) of gas (bcf)
<S> <C> <C> <C> <C> <C> <C>
June 30, 1997 2.9 3.1 6.0 .09
June 30, 1996 1.6 .2 1.8 --
December 31, 1995 1.8 -- 1.8 --
December 31, 1994 1.8 -- 1.8 --
</TABLE>
Proven bcf (billion cubic feet) is the amount believed to be recoverable with a
high degree of certainty.
Employees
As of February 28, 1998, 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 beginning in September
1998 and completed by June 1999.
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
non-privatized generator/supplier in the United Kingdom. Substantially 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.
Risk Factors
In addition to the other information in this Registration Statement, the
following factors should be considered carefully in evaluating the Company and
its business.
Limited History of Business Operations; Management of Growth. The
Company has limited operating history, having commenced sales of electric power
in April 1996. The Company will be required to build management infrastructures
as it devotes significant managerial resources to build its business. As a
result of the increase in operating expenses caused by this expansion, operating
results may be adversely affected if sales do not
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materialize, whether due to increased competition or otherwise. There can be no
assurance that the Company will achieve significant sales or achieve
profitability. As a result, the Company believes that period to period
comparisons of its results of operation are not necessarily meaningful and
should not be relied upon as an indication of future performance.
Additional Financing Requirements of the Company. The Company's
operations have been financed to date through sales of its securities and bank
financing. The Company requires significant capital for the expansion of its
operations. The Company believes that existing lines of credit and cash
generated from operations should be sufficient to fund its operations until at
least until the end of calendar 1998. However, no assurance can be given that
additional funds will not be required prior to the expiration of such period or
that any funds which may be required will be available, if at all, on acceptable
terms. If additional funds are required, the inability of the Company to raise
such funds will have an adverse effect upon its operations. To the extent that
additional funds are obtained by the sale of equity securities, the stockholders
may sustain significant dilution. If adequate capital is not available the
Company will have to reduce or eliminate its planned expansion activities, which
could otherwise ultimately provide significant revenue to the Company. Even if
such additional financing is available on satisfactory terms, it, nonetheless,
could entail significant additional dilution of the equity ownership of the
Company to existing shareholders and the book value of their outstanding shares.
Competition. The electric power generation and supply industry in the
United Kingdom is highly
competitive. Nearly all of the Company's competitors have more experience, have
greater financial and management
resources and have more name recognition than the Company. There can be no
assurance that the Company can
compete successfully. See "Item 1 - Business -- Competition."
Dependence on Key Personnel. The continued success of the Company is
highly dependent on the personal
efforts and abilities of management. The Company has entered into employment
agreements with all of these persons
and has key man life insurance in place for Messrs. Keenan and Sulley. The loss
of any of these executive's services
could have a material adverse effect on the Company. See "Item 10 - Directors
and Officers of Registrant."
Risk of Price Fluctuations. The Company sells electric power pursuant to
long term contracts at fixed prices, and thus is subject to risk in the event of
fluctuations in the Pool price of electricity. The Company attempts to mitigate
this risk by generating a small percentage of its electricity and by entering
into hedging contracts. However, because the Company's sales have been growing
rapidly, less than all of the Company's sales contracts of any one time are
protected by such hedging contracts. If the price of Pool electricity should
rise significantly the Company's profitability could be materially adversely
affected. See "Item 1 - Business - Hedging."
Government Regulation. The Company's activities are subject to extensive
laws and regulations regarding generating and making of electricity primarily by
the UK Office of Electricity Regulation. These laws and regulations and their
interpretation and enforcement are subject to change. There can be no assurance
that additional or more stringent requirements will not be imposed on the
Company's operations in the future. Failure to comply with such laws and
regulations could result in fines against the Company, or loss of regulating
permits. Any such event could have a material adverse effect on the Company. See
"Business -- Deregulation of the UK Electricity Market."
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 Company and certain of the plans and
objectives of the Management with respect thereto. Section 21E provides a
limited safe harbor from liability for forward-looking statements of Company's
whose securities are registered under the Exchange Act. Such forward-looking
statements in this Form 20-F include, but are not limited to, statements under
"Item 9 -
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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. Although Section 21E does not
comply to the Company's statements made herein since they were made prior to the
effectiveness of this Registration Statement under the Exchange Act, readers are
cautioned not to place undue reliance on such forward-looking statements, which
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.
Petroleum License Terms
All of the licenses are located in the UK Landward Areas. All licenses
are Petroleum Exploration and Development Licenses (PEDL) as defined in The
Petroleum (Production) (Landward Areas) Regulations 1995. The licenses have an
initial term of eleven years; however, after the first six years there is a
mandatory relinquishment of fifty percent of the original license area. The
Company determines the acreage to be released. The license, for purposes of
development and production activities, continues for a further period of 20
years after the initial eleven year term. Thereafter, a further period may be
agreed to ensure maximum recovery of petroleum.
The licenses convey from the UK Government to the licensee, the
exclusive right to explore for, to appraise, to develop, and to produce
petroleum. Petroleum belongs to licensee when produced. The following table
reflects the name of the license, the Petroleum province where located, the
gross acreage, the Company's development obligations and the expiration date.
The total gross acreage is 473,582, with net acreage of 454,670 because (with
the exception of Caythorpe) the Company's interest in each license is 96%, with
Altwood holding 4% (see Item 13 -
Interest of Management - Certain Transactions.)
In the table "firm" means the licensee would be released from work obligation
only under exceptional conditions, and "conditional" means that the work
obligation release would be allowed after the licensee demonstrates to
the
satisfaction of the licensing authority that a relevant earlier element of the
work has proven the "conditional" work obligation to be redundant.
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<TABLE>
<CAPTION>
License
Gross work obligations Estimated License
Petroleum Area to be fulfilled Cost Expiry
Name Province Acres f-firm c-conditional (pound)000's Date
<S> <C> <C> <C> <C> <C>
Cowden Weald Basin 57,692 1 well before end 2000 (f) 350 2021
Eaglesden Weald Basin 51,892 1 well before end 2000 (c) 350 2021
Bolney Weald Basin 26,416 1 well before end 2000 (f) 100 2021
Fylde East Irish Sea 97,127 25 kms seismic survey (f) 150 2024
- Lancs Plain Basin 1 well before end 1998 (c) 250
Trumfleet East Midlands 45,066 20 kms seismic survey (f) 120 2024
Basin assess mine gas potential (f) 26
1 well before October 1999 (c) 400
Nooks Farm West Midlands 26,316 1 well before October 1999 (f) 500 2024
Basin 1 well before October 1999 (c) 500
Ironville East Midlands 24,710 1 well before October 1999 (f) 470 2024
Basin 1 well before October 1999 (c) 500
10 kms seismic survey (f) 60
assess mine gas potential (f) 20
Godley Bridge Weald Basin 42,501 1 well before October 1999 (f) 600 2024
Bolney Weald Basin 19,051 1 well before October 1999 (f) 100 2024
Lingfield Weald Basin 7,908 None -- 2014
Caythorpe NE England 771 None -- 2017
- S. North
Sea Gas Basin
Formby East Irish Sea 74,132 reprocess old seismic data by 2027
- Lancs Plain Basin April 1998 (f) 30
new seismic survey by April 2000 (c) 120
1 well by April 2001 (c) 250
TOTAL 473,582 Firm 2,526
=======
Conditional 2,370
TOTAL (pound)4,896
</TABLE>
See Item 1 - "Business - Electricity Generation" for a description of
gas licenses and generation plants.
Item 3. Legal Proceedings.
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Not Applicable.
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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 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>
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 May 31, 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.
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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.
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
October 1, 1997-
December 31, 1997 144.5 114.5
As of February 26, 1998, there were approximately 595 holders of
Company Ordinary Shares of which 60.3% of the total outstanding shares, were
held of record by persons with United States and Canadian addresses.
On February 27, 1998 at the close of business, the AIM closing bid
price for the Shares was 235p per Share.
The average daily trading volume for the Shares during the year ended
December 31, 1997 and 1996 were 18,872 and 14,959 Shares respectively.
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
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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 U.S. 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
13
<PAGE>
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.
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
14
<PAGE>
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 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
15
<PAGE>
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 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.
16
<PAGE>
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. The Company commenced
sale of electricity in the month of April 1996, and therefore continuing
revenues for the six month period ended June 1996 only include three months of
sales. Prior to June 1996 the Company's operations were focused on preparation
for electricity generation and marketing and on development of gas reserves. For
a discussion of these and other factors which materially affect the
comparability of the selected financial data, see "Item 9 - Management's
Discussion and Analysis & Financial Condition and Results of Operations". 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 this Registration Statement.
<TABLE>
<CAPTION>
Six Months Ended Year ended Six months
December 31, June 30, June 30, Years Ended December 31,
1997 1996 1997 1996 1995 1994 1993
(unaudited)
Statement of Operations Data
U.K. GAAP
<S> <C> <C> <C> <C> <C>
Revenue - Continuing (pound)22,784,166(pound)2,757,467(pound)11,127,164(pound)173,701(pound) 4,701(pound)--(pound) --
- Discontinued -- -- -- -- -- 118,589 452,641
Cost of sales 22,315,909 2,700,935 10,872,238 171,448 -- 127,327 309,884
Operating expenses 961,258 721,540 1,505,193 497,880 93,773 95,041 88,807
Operating loss - Continuing (493,001) (665,008) (1,250,267) (495,627) (89,072) -- (7,631)
- Discontinued -- -- -- -- -- (103,779) 61,581
Exceptional items -- -- -- (460,983) -- 168,191 --
Interest income (expense) net 29,047 67,806 68,674 65,417 24,029 3,275 (1,554)
Income tax expense (credit) -- -- -- -- (5,576) 9,000 --
Net (loss) profit (463,954) (597,202) (1,181,593) (891,193) (59,467) 58,687 52,396
Earnings per ordinary share (2.8)p (4.5)p (9.0)p (9.9)p (176.8)p 187.4p 165.6p
Weighted average shares outstanding(1) 16,307,237 13,124,800 13,129,914 8,981,076 33,641 31,314 31,314
U.S. GAAP(2)
Revenue - continuing 22,784,166 2,757,467 11,127,164 173,701 4,701 -- --
Net (Loss) profit from
continuing operations (517,893) (730,841) (1,369,688) (1,001,908) (59,467) -- (7,631)
Net (loss) profit (517,893) (730,841) (1,369,688) (1,001,908) (59,467) 58,687 52,396
Earnings per ordinary share (3.2)p (5.6)p (10.4)p (11.1)p (176.8)p 187.4p 165.6p
Earnings per share -
continuing operations (3.2)p (5.6)p (10.4)p (11.1)p (176.8)p -- (24.4)p
Weighted average number
of shares outstanding 16,307,237 13,124,800 13,129,914 8,981,076 33,641 31,314 31,314
Balance Sheet Data
U.K. GAAP
Net current assets 460,069 2,847,024 5,564,593 1,618,535 (527,155) 40,044
Total assets 29,132,466 16,851,935 7,995,040 3,053,064 1,123,878 919,804
Long-term creditors 10,188,035 5,937,925 830,212 -- -- 333,852
Shareholders' funds 8,942,263 6,957,569 6,787,015 2,983,728 467,953 409,266
U.S. GAAP(2)
Total assets 29,132,466 17,226,966 8,333,378 3,143,144 1,123,878 919,804
Long-term creditors 10,936,990 6,611,766 1,279,265 90,080 -- 333,852
Shareholders' funds 8,589,514 6,658,759 6,676,300 2,983,728 467,953 409,266
</TABLE>
17
<PAGE>
(1) There are no differences in the calculation of Earnings per ordinary share
between UK GAAP and US GAAP in the periods presented because the effect of
outstanding options is antidilutive.
(2) See Notes 30 and 31 to the Consolidated Financial Statements for the
details on differences between UK GAAP and US GAAP.
18
<PAGE>
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.
<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 February 20, 1998.................... 1.64 1.64 1.70 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.
Unaudited Six Months Ended December 31, 1997 compared to Six Months Ended
December 31, 1996.
The Company turnover for the six months ended December 31, 1997 was
(pound)22,784,166 compared to (pound)2,757,467 for the six months ended December
31, 1996. This is an increase of 826%. The gross profit for 1997 was 2.1% which
was the same as 1996.
Operating expenses for the six months ended December 31, 1997 were
(pound)961,258, or 4.2% of turnover, compared to (pound)721,540, or 26.2%, for
1996. The decrease of operating expenses as a percent of turnover in 1997 is due
to the significant increase in turnover of 826% with operating expenses
increasing only 33% due to most operating expenses being fixed. The six months
ended December 31, 1997 resulted in a net loss of (pound)463,954 compared to a
net loss of (pound)597,202 in 1996. The reduction in the 1997 net loss reflects
the increased growth of the Company.
Year Ended June 30, 1997 compared to unaudited twelve Month Period Ended June
30, 1996
19
<PAGE>
The Company's turnover for the year ended June 30, 1997 ("Fiscal 1997")
was (pound)11,127,164 compared to (pound)178,402 for the year ended June 30,
1996 ("Fiscal 1996). The Company commenced sales in April 1996. The upward sales
trend is evidenced by the fact that the Company has contracts for the delivery
of (pound)102 million of power for the year ended June 30, 1998 (assuming
contracts expiring prior to June 30, 1998 are renewed as expected) compared to
Fiscal 1997 turnover of (pound)11,127,164. 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)544,766 in Fiscal 1996 or 305.4% 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.
The Company does business in a rapidly deregulating industry and it is
expending significant amounts of capital in its expansion program. The Company
believes it is well positioned to take advantage of deregulation by virtue of
its marketing orientation and lower costs of production and overhead. Because of
its recent growth in revenues and installation of new generating facilities, and
the above factors, the future results of operation are not comparable to
historical financial results. Although management believes that its increased
sales and generating capacity will enable it to attain profitability, there can
be no assurance it will do so due to these factors and others discussed under
"Item 1 Business - Risk Factors".
Six Months Ended June 30, 1996
The Company began marketing electricity in January 1996 and generated
the first turnover in April 1996 resulting in turnover in the six month period
of (pound)173,701. There was no turnover from the sale of electricity in the
prior period. The gross profit was 1.3%. The operating expenses during the
period were (pound)497,880 including the cost of establishing the Company's
marketing program and name recognition. All of this cost was expensed during the
period. The period resulted in a net operating loss of (pound)495,627 due to the
relatively low turnover during the start up period and expenses related to
starting the business.
The exceptional loss of (pound)460,983 is from a project to refurbish a
drilling rig for Company use in developing the gas licenses and in this period
the decision was made to abandon this project and the drilling rig carrying cost
was adjusted to the estimated market value.
Year Ended December 31, 1995 compared to Year Ended December 31, 1994
The Company's activity in 1995 was limited to the development of its
gas licenses and beginning of formation of the electricity business. The Company
turnover in 1995 was only (pound)4,701 due to having discontinued its oil field
service business in 1994. The 1994 turnover of (pound)118,589 was from the oil
field service business.
Operating expenses in 1995 were (pound)93,773 compared to 1994 of
(pound)95,041. The operating loss in 1995 of (pound)89,072 is due to having
discontinued the oil field service business.
Year Ended December 31, 1994 compared to Year Ended December 31, 1993.
The Company sold its oil field service assets on April 24, 1994. The
sale resulted in a gain of (pound)168,191 which is shown as an exceptional item.
The sale resulted in the 1994 turnover decreasing to (pound)118,589 compared to
(pound)452,641 in 1993. The reduced turnover resulted in a gross loss in 1994 of
(pound)8,738 compared to a gross profit in 1993 of (pound)142,757. Operating
expenses in 1994 were (pound)95,041 compared to (pound)88,807 in 1993.
20
<PAGE>
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 totaling (pound)7,994,927.
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 construction of
three generation plants during 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 Barclays Group. The initial facility is for
(pound)12.5 million consisting of a (pound)5 million revolving construction
facility, a trade debtor financing equal to 80% of eligible accounts not to
exceed (pound)4 million, a (pound)3 million letter of credit for security of
Pool purchases, and a (pound)500,000 overdraft facility. At February 28, 1998
there is (pound)4,680,000 utilized under the construction facility;
(pound)268,000 utilized under the overdraft facility and there is no amount used
under the trade debtor facility. Also the Barclays Group has committed to
provide financial needs of the Company as the business grows which includes
increasing the trade debtor financing facility and letter of credit for Pool
security as needed based on increase revenue.
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)891,193) respectively. Under
U.S. GAAP, the Company would have reported net loss of ((pound)1,369,688) and
((pound)1,001,908) 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.
21
<PAGE>
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. Except as noted, each Executive Director devotes substantially all his
time to the Company. 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.
<TABLE>
<CAPTION>
Name Age Office
<S> <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>
Burt H. Keenan has been Chairman and Chief Executive Officer since
inception of the Company in April 1991. He has resided in the U.K since early
1996 to devote full time to the Company; Mr. Keenan devoted 25% of his time to
the Company prior to 1996. 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 has devoted 50% of his time
to the Company from early 1996; he had devoted 20% of his time prior to 1996. 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
22
<PAGE>
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 devotes full time to the Company. 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.
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. In fiscal 1997 the Company accrued (pound)18,900 for pension,
retirement or similar benefits for its officers and directors. See Note 5 to the
Consolidated Financial Statements.
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 as of February 28, 1998. All options expire on
January 1, 2001, except as noted.
Name Number of SharesExercise Price
Burt H. Keenan 45,400 31.25 p.
23
<PAGE>
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 May 50,000 100 p.
TOTAL 1,973,400
*These options expire April 28, 2003.
24
<PAGE>
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 May 250 50,000
Total 14,778 2,955,600
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>
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.
25
<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,
26
<PAGE>
(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
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.
27
<PAGE>
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 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 patient 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 appropriate.
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.
28
<PAGE>
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.
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 101 Barclay Street, New York, New York 10286. 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
29
<PAGE>
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 30% 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
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.
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.
30
<PAGE>
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.
Such dollars available will be distributed by checks drawn on a bank in
the U.S. for whole dollars and round fractional amounts to the nearest whole
cent (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
31
<PAGE>
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 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
32
<PAGE>
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.
33
<PAGE>
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
34
<PAGE>
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 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.
35
<PAGE>
Governing Law
The Deposit Agreement is governed by and shall be construed in
accordance with the laws of the State of New York.
36
<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.
37
<PAGE>
PART IV
Item 17/18
Financial Statements
The following financial statements are included herein:
Consolidated Statement of Operations.
Consolidated Balance Sheets.
Consolidated Cash Flow Statements.
Notes to the Consolidated Financial Statements
38
<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: March __, 1998 INDEPENDENT ENERGY HOLDINGS, PLC
By: /s/
President and Chief Executive Officer
The undersigned depository signs this registration statement with
regard to the description of the ADRs and the Depository Shares.
Dated: March __, 1998 BANK OF NEW YORK, as Depository
By:
Exhibit Index
Registration Statement on
Independent Energy Holdings plc
Form 20-F
1. Memorandum and Articles of Association of the Company (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 Eukan 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)
39
<PAGE>
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)
12. Master Finance Lease Agreement dated June 17, 1997 between debis
Financial Services Limited and
Independent Energy UK Limited (P) (Filed with amendment no. 1)
13. Lease Master Agreement dated October 30, 1997 between ING Lease (UK)
Limited and Independent Energy
UK Limited (P) (Filed with amendment no. 1)
40
<PAGE>
Independent Energy Holdings plc
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Statement of Directors' Responsibilities.................................................................................... F-2
Report of Independent Public Accountants.................................................................................... F-3
Consolidated Statements of Operations....................................................................................... F-4
Consolidated Balance Sheets................................................................................................. F-5
Consolidated Cash Flow Statements........................................................................................... F-6
Notes to the Consolidated Financial Statements.............................................................................. F-7
</TABLE>
F-1
<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 Subsidiaries as at the end of the fiscal period and of the profit or
loss and cash flows 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 Subsidiaries and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
F-2
<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 sheets of Independent Energy Holdings
plc and subsidiaries, as defined in Note 2 to these financial statements, as of
30 June 1997 and 1996, and December 31, 1995, and the related consolidated
statements of operations and cash flows for the years ended 31 December 1995 and
1994, the six months ended 30 June 1996 and the year ended 30 June 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Independent Energy Holdings plc and
subsidiaries as of June 30, 1997 and 1996, and December 31, 1995, and the
results of their operations and their cash flows for the years ended 31 December
1995 and 1994, the six months ended 30 June 1996 and the year ended 30 June 1997
in accordance with generally accepted accounting principles in the United
Kingdom.
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' funds and cash flows for the two years ended 31 December 1995 and
1994, the six months ended 30 June 1996 and the year ended 30 June 1997, to the
extent summarized in Notes 30 and 31 to the consolidated financial statements.
Pannell Kerr Forster
Chartered Accountants and Registered Auditors
5 March 1998
Nottingham, England
F-3
<PAGE>
<TABLE>
<CAPTION>
Independent Energy Holdings plc
and Subsidiary Undertakings
Consolidated Statements of Operations
Six Months
Year ended Ended Year Ended Six Months Ended
June 30, June 30, December 31, December 31,
All amounts stated in pounds sterling
<S> <C> <C> <C> <C> <C> <C> <C>
except per share data Note 1997 1996 1995 1994 1997 1996
(Unaudited) (Unaudited)
Turnover - Continuing 4 11,127,164 173,701 4,701 -- 22,784,166 2,757,467
- Discontinued 4 -- -- -- 118,589 -- --
Cost of sales (10,872,238) (171,448) -- (127,327) (22,315,909) (2,700,935)
Gross profit 254,926 2,253 4,701 (8,738) 468,257 56,532
Depreciation and amortization 11/12 (141,850) (5,681) (2,858) (39,674) (89,000) (80,499)
Administrative expenses (1,363,343) (492,199) (90,915) (55,367) (872,258) (641,041)
Operating loss - Continuing 4 (1,250,267) (495,627) (89,072) -- (493,001) (665,008)
- Discontinued 4 -- -- -- (103,779) -- --
Exceptional items 9 -- (460,983) -- 168,191 -- --
Interest income 7 189,071 65,417 24,029 4,081 72,301 123,493
Interest expense 7 (120,397) -- -- (806) (43,254) (55,687)
(Loss)/profit on ordinary activities
before taxation 8 (1,181,593) (891,193) (65,043) 67,687 (463,954) (597,202)
Tax on loss on ordinary activities -- -- 5,576 (9,000) -- --
Retained (loss)/profit for the period (1,181,593) (891,193) (59,467) 58,687 (463,954) (597,202)
Basic earnings (losses) per share 10 (9.0)p (9.9)p (176.8)p 187.4p (2.8)p (4.5)p
Movements on reserves are set out in note 19.
</TABLE>
There are no material difference between results calculated on an historical
cost basis and those reported above.
The results for the period reflect all recognized gains and losses.
The accompanying notes are an integral part of
these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Independent Energy Holdings plc
and Subsidiary Undertakings
Consolidated Balance Sheets
June 30, December 31,
Note 1997 1996 1995 1997
All amounts stated in pounds sterling (Unaudited)
Fixed Assets
<S> <C> <C> <C> <C> <C>
Intangible assets 11 1,544,689 897,184 657,757 2,151,420
Tangible assets 12 8,503,781 1,155,450 707,436 16,518,809
Current Assets
Debtors:
Amounts due within one year 14 4,880,460 301,048 54,688 8,406,272
Investment 13 -- 4,300,154 -- --
Cash at bank and in hand 1,923,005 1,341,204 1,633,183 2,055,965
6,803,465 5,942,406 1,687,871 10,462,237
Creditors
Amounts falling due within one year 15 (3,956,441) (377,813) (69,336) (10,002,168)
Net current assets 2,847,024 5,564,593 1,618,535 460,069
- ------------------
Total Assets less Current Liabilities 12,895,494 7,617,227 2,983,728 19,130,298
Creditors
Amounts falling due after more than one year 16 (5,937,925) (830,212) -- (10,188,035)
Net Assets 6,957,569 6,787,015 2,983,728 8,942,263
Capital and Reserves
Called up share capital 18 149,914 131,248 40,623 176,230
Capital reserve 19 -- -- 543,946 --
Share premium account 19 8,044,482 6,711,001 2,524,143 10,466,814
Profit and Loss account 19 (1,236,827) (55,234) (124,984) (1,700,781)
Shareholders' Funds 20 6,957,569 6,787,015 2,983,728 8,942,263
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Independent Energy Holdings plc
and Subsidiary Undertakings
Consolidated Cash Flow Statements
Six Months
Year ended Ended Year Ended Six Months Ended
June 30, June 30, December 31, December 31,
All amounts stated in pounds sterling
1997 1996 1995 1994 1997 1996
Reconciliation of operating (losses) to net cash (Unaudited) (Unaudited)
(outflow) from operating activities
<S> <C> <C> <C> <C> <C> <C>
Operating (loss) (1,250,267) (495,627) (89,072) (103,779) (493,001) (665,008)
Depreciation, amortization
and result on asset sales 146,991 3,875 2,858 39,674 89,000 80,499
Changes in debtors (3,931,165) (246,360) (14,219) 139,467 (3,525,812) (2,381,720)
Changes in creditors 2,695,153 229,938 8,437 (112,454) 3,500,685 956,591
Exchange movements (39,535) 23,693 -- -- 13,891 (195,951)
Net cash outflow from operating
activities (2,378,823) (484,481) (91,996) (37,092) (415,237) (2,205,589)
Returns on investments and servicing of finance
Interest received 189,071 41,724 24,029 4,081 67,763 125,951
Interest paid (80,862) -- -- (806) (43,254) (53,820)
108,209 41,724 24,029 3,275 24,509 72,131
Taxation
Tax paid -- -- (3,424) -- -- --
Capital expenditure
Purchase of tangible fixed assets (3,759,500) -- (56,343) (425,744) (4,986,627) (438,769)
Purchase of intangible fixed assets -- (212,199) (316,600) (95,302) (329,040) (225,129)
Sale of tangible assets -- 6,000 -- 354,196 -- --
(3,759,500) (206,199) (372,943) (166,850) (5,315,667) (663,898)
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 -- 2,500,000 --
Less issue costs -- (305,520) -- -- (51,352) --
Issue of loan notes 1,400,000 -- -- -- -- --
New loans due within one year -- -- 50,494 286,026 1,000,000 --
New loans due in over one year -- -- -- -- 2,430,000 --
Loan repayments -- -- -- (33,852) -- --
Capital element of finance lease
repayments (440,386) (37,349) -- -- (39,293) (37,535)
2,311,761 4,657,131 1,989,216 252,174 5,839,355 (37,535)
(Decrease)/increase in cash in the period 581,801 (291,979) 1,544,882 51,507 132,960 (2,834,891)
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-6
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
1. Nature of Business and Organization
Independent Energy Holdings Plc and subsidiary undertakings ("the Company")
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. Basis of Presentation
The consolidated financial statements include Independent Energy Holdings plc
and its wholly-owned subsidiary, Independent Energy UK Limited and the
predecessor companies (International Petroleum Service Company, Eukan Energy
Limited and Elswick Petroleum Limited).
Independent Energy UK Limited ("IEUK") was incorporated in March 1995, and on 17
April 1995 it acquired by share exchange 100% interests in International
Petroleum Service Company ("IPSCo") a company incorporated in the State of
Delaware, Eukan Energy Limited ("Eukan") a company incorporated in the United
Kingdom and being a 95% owned subsidiary of IPSCo, and Elswick Petroleum Limited
("Elswick") also incorporated in the United Kingdom. IPSCo, Eukan and Elswick
are subsequently referred to as "the subsidiaries." This acquisition was
effected by the issue of shares in IEUK on the following basis:
(i) 1 share in IEUK for each share in IPSCo (ii) 28 shares in IEUK for
the 5% minority stake in Eukan (iii) 1 share in IEUK for every 35
shares in Elswick
Following the share exchanges, the reorganization was accounted for under UK
GAAP merger accounting principles, which is substantially the same as the
pooling of interests method of accounting under US GAAP. This method was adopted
due to the common ownership and management control of IEUK and the subsidiaries
since their inception. The accounts of the entities that were acquired are
consolidated in the accompanying financial statements using historical data, for
the accounting periods ending 31 December 1994 and 1995. All significant
intercompany accounts and transactions have been eliminated.
On 1 January 1996, all trade and assets of the subsidiaries were transferred to
IEUK, and the now dormant companies were sold at net asset value.
In March 1996, Independent Energy Holdings plc ("IEH") was incorporated to float
on the Alternative Investment Market in the UK in order to raise funds for
expansion. On 31 May 1996 it acquired by share exchange, a 100% interest in
IEUK. Both the asset transfer and the acquisition of IEUK were accounted for
under UK GAAP acquisition accounting principles, which are substantially the
same as the purchase method of accounting under US GAAP. The accounts of IEH and
IEUK are consolidated in the accompanying financial statements using both
historical and fair value data, for the accounting periods ending 30 June 1996
and 1997, following a change in accounting reference date from 31 December to 30
June. The results for 1996 therefore show a six month period only.
Under US GAAP, where an entity qualifies for the pooling of interests accounting
method, consolidated financial statements must be prepared on that basis,
reflecting all transactions at historical cost. This differs from UK GAAP where
an entity can choose either accounting method. We have therefore reconciled the
consolidated financial statements prepared under UK GAAP with the consolidated
financial statements prepared under US GAAP for each of the accounting periods
ending on 30 June 1996 and 1997 in Notes 30 and 31.
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 Company and generally accepted accounting principles in the United States
("US GAAP") are described in Notes 30 and 31.
F-7
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
3. Accounting Policies - continued
a) Basis of Accounting
These financial statements are prepared under the historical cost convention.
b) Development
Expenditure on development of production facilities is capitalized 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 which are used as the fuel
source for generation plants producing electricity and are included as
intangible assets.
c) Depreciation and Amortization
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 percent on cost less estimated residual value
Office equipment 33 percent on cost
Assets in the course of construction are the generation plants including the
generators, well development and related piping and cable connections which are
depreciated over their estimated useful lives from the date of completion.
Intangible fixed assets are amortized on straight line basis over the expected
productive life of the related proven resources when placed in operation. The
proven resources are determined annually by third party petroleum consultants.
The amortization expense under the straight line basis approximates the units of
production basis.
The Company periodically assesses whether any events or changes in circumstances
have occurred that would indicate that the carrying amount of long-lived assets
may not be recoverable.
d) Leasing
Assets acquired under finance leases are capitalized 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 for electricity consumed by customers during the year based on month
end meter readings.
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 turnover and operating expenses 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 turnover and operating expenses occurring during
the period, settled in foreign currency, are translated at the average
rate.
F-8
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
3. Accounting Policies - continued
(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
crystalize. The amount of such tax is based on expected effective tax rates, and
future changes in tax laws and rules are not anticipated for this purpose.
(h) Interim Financial Data
In the opinion of the management of the Company, the accompanying unaudited
financial statements are prepared in accordance with accounting principles
generally accepted in the United Kingdom ("UK GAAP") which differ in certain
respects from US generally accepted accounting principles ("US GAAP"). A summary
of the significant differences is set forth in Notes 30 and 31 to the
Consolidated Financial Statements. The unaudited financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of December 31, 1997,
and the results of operations and cash flows for the six months ended December
31, 1997 and 1996. The results of operations and cash flows for the six months
ended December 31, 1997, are not necessarily indicative of the results of
operations or cash flows which may be reported for the remainder of fiscal 1998
or any subsequent period.
4. Segmental Information
The Company has operated in two distinct business segments during the period
covered by these Consolidated Financial Statements. The Company was 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.
No one customer represents a significant element of turnover.
5. Directors
Directors' Remuneration
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, June 30, Year Ended June 30, 1997
Pension
1996 1997 Salary Fees Benefits Contributions
Executive Directors
<S> <C> <C> <C> <C> <C> <C>
B.H. Keenan -- -- -- -- -- --
J.W. Jarrell -- -- -- -- -- --
J.L. Sulley 33,343 82,000 66,000 -- 6,100 9,900
W.E. Evans 2,120 5,700 -- -- 5,700 --
Dr. R.E. Jones 7,864 74,800 60,000 -- 5,800 9,000
Non-Executive Directors
R.W. Deakin 13,900 10,600 -- 10,600 -- --
D.O. May 7,776 11,249 -- 11,249 -- --
65,003 184,349 126,000 21,849 17,600 18,900
36,000 21,676 7,327 --
</TABLE>
The directors received no remuneration in the years ended December 31, 1995 and
1994.
F-9
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
5. Directors - continued
Directors Interests in Contracts
During the periods the Company received consultancy services from directors.
These transactions were in the normal course of trading and amounted to:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
June 30, June 30, Year Ended December 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>
Directors' Interests
The beneficial interests of the Directors in the ordinary shares of 1p of IEH
are as follows:
<TABLE>
<CAPTION>
Date of June 30, June 30,
Appointment 1997 1996
<S> <C> <C> <C>
B.H. Keenan April 16, 1996 2,382,100 2,380,000
J.W. Jarrell April 16, 1996 180,300 180,200
J.L. Sulley April 16, 1996 60,000 60,000
W.E. Evans April 16, 1996 5,600 5,600
Dr. R.E. Jones April 16, 1996 60,000 60,000
R.W. Deakin April 16, 1996 68,200 68,200
D.O. May April 16, 1996 50,000 50,,000
</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 has interests is held by
Southern Geophysical Pension Fund of which he is a beneficiary.
The beneficial interests of the directors in the (pound)1 ordinary shares of
IEUK are as follows:
<TABLE>
<CAPTION>
Date of December 31,
Appointment 1995
<S> <C> <C>
B.H. Kennan April 4, 1995 3,196
J.W. Jarrell April 4, 1995 901
J.L. Sulley December 7, 1995 250
W.E. Evans April 6, 1995 28
R.W. Deakin April 2, 1995 341
D.O. May
December 7, 1995 250
</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.
F-10
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
5. Directors - continued
Directors Interests in Share Options
The Directors interests in share options as of June 30, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
Exercise Price Number of Shares Exercisable Dates
<S> <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 Apr. 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 Price Number of Shares Exercisable Dates
<S> <C> <C> <C> <C>
B.H. Keenan (pound) 62.50 227 Jan. 1, 1997 to Jan. 1, 2001
(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 Jun. 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.
6. Employees
(a) Employment costs (including executive directors) consist of:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
June 30, June 30, Year Ended 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>
F-11
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
6. Employees - continued
(b) The average number employed during the periods were:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
June 30, June 30, Year Ended December 31,
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Administration and management 2 1 6 8
Marketing and development 13 8 -- --
15 9 6 8
</TABLE>
7. Interest Receivable and Payable and Similar Income and Expense
<TABLE>
<CAPTION>
Six Months
Year ended Ended Year Ended Six Months Ended
June 30, June 30, December 31, December 31,
1997 1996 1995 1994 1997 1996
(Unaudited) (Unaudited)
(a) Interest Receivable and Similar Income:
<S> <C> <C> <C> <C> <C> <C>
Interest receivable 186,431 41,724 24,029 4,081 67,763 123,493
Gain on currency conversion -- 23,693 -- -- 4,538 --
Other 2,640 -- -- -- -- --
189,071 65,417 24,029 4,081 72,301 123,493
</TABLE>
<TABLE>
<CAPTION>
Six Months
Year ended Ended Year Ended Six Months Ended
June 30, June 30, December 31, December 31,
1997 1996 1995 1994 1997 1996
(Unaudited) (Unaudited)
(b) Interest Payable and Similar Expense:
<S> <C> <C> <C>
Interest payable on loans 70,417 -- -- -- 31,081 36,212
Interest - other 10,445 -- -- 806 12,173 --
Loss on currency conversion 39,535 -- -- -- -- 19,475
120,397 -- -- 806 43,254 55,687
</TABLE>
8. Profit (loss) on ordinary activities before taxation is stated after
charging:
<TABLE>
<CAPTION>
Six Months
Year ended Ended Year Ended Six Months Ended
June 30, June 30, December 31, December 31,
1997 1996 1995 1994 1997 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Amortization 37,692 -- -- -- 18,000 18,846
Depreciation of owned assets 104,158 5,681 2,858 39,674 71,000 61,653
Auditors' remuneration - audit fee 10,500 9,000 4,500 1,900 13,000 5,250
Auditors' remuneration - other 3,565 -- -- 275 8,000 --
Operating lease rentals 109,039 28,630 -- -- 58,875 43,275
</TABLE>
F-12
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
9. Exceptional items
<TABLE>
<CAPTION>
Six Months
Year ended Ended Year Ended Six Months Ended
June 30, June 30, December 31, December 31,
1997 1996 1995 1994 1997 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Profit on sale of fixed assets -- -- -- 164,858 -- --
Discounts on early repayment of loan -- -- -- 3,333 -- --
Impairment Loss -- (460,983) -- -- -- --
-- (460,983) -- 168,191 -- --
</TABLE>
The impairment loss arose out of a project to refurbish a drilling rig for the
Company's use in developing the gas licenses. The Company made the decision to
abandon this product due to the relatively high refurbishing cost. The drilling
rig carrying cost was adjusted to the estimated salvage value. The drilling rig
is presently owned by the Company and the Company plans to sell the rig.
10. Earnings per Share
Basic earnings (losses) per share is based on the profit (loss) after taxation
for the periods using weighted average number of ordinary shares in issue, for
1997 - 13,129,914; 1996 - 8,981,076; 1995 - 33,641; and 1994 - 31,314. The
effect of outstanding stock options and warrants is not shown as it is
antidilutive.
Six months ended December 31, 1997 and 1996 (unaudited) basic losses per share
is based on the weighted average number of ordinary shares in issue for the six
months ended December 31, 1997 and 1996 of 16,307,237 and 13,124,800 shares,
respectively.
No dividend is proposed.
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 gas produced is used to fuel the generation plants producing
electricity and not sold as natural gas. The cost is amortized over the
estimated productive life of the producing property. The movement in the account
during the periods were:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995 1997
(Unaudited)
Cost
<S> <C> <C> <C> <C>
Beginning of period 897,184 657,757 341,157 1,582,381
Additions 685,197 239,427 316,600 624,731
End of period 1,582,381 897,184 657,757 2,207,112
Accumulated amortization
Beginning of period -- -- -- 37,692
Charge for the period 37,692 -- -- 18,000
End of period 37,692 -- -- 55,692
Net book value end of period 1,544,689 897,184 657,757 2,151,420
</TABLE>
No interest was capitalized in intangible cost.
F-13
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
12. Fixed Assets - Tangible
<TABLE>
<CAPTION>
Assets in the
Office course of Plant and
Equipment Construction Equipment Total
Cost
<S> <C> <C> <C> <C>
At January 1, 1995 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
Additions 55,372 863,500 -- 918,872
Transfers -- 15,748 (15,748) --
Impairment 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
Additions 79,646 8,006,382 -- 8,086,028
Transfers -- (5,631,938) 5,631,938 --
At December 31, 1997 (Unaudited) 195,069 9,901,648 6,603,997 16,700,714
Accumulated Depreciation
At January 1, 1995 457 -- 2,997 3,454
Charge for the year 609 -- 2,249 2,858
At December 31, 1995 1,066 -- 5,246 6,312
Charge for the period 5,681 -- -- 5,681
Disposals -- -- (3,145) (3,145)
Impairment 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
Charge for the Period 18,000 -- 53,000 71,000
At December 31, 1997 (Unaudited) 54,632 -- 127,273 181,905
Net book value
At January 1, 1995 3,806 637,394 12,751 653,951
At December 31, 1995 3,197 693,737 10,502 707,436
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
At December 31, 1997 (Unaudited) 140,437 9,901,648 6,476,724 16,518,809
</TABLE>
Interest was capitalized during the year ending December 31, 1995 ((pound)5,494)
and year ending June 30, 1997 ((pound)33,672). No interest
was capitalized in the six month period ending June 30, 1996.
"Assets in the course of construction" includes leased assets totalling
(pound)4,383,327 which were acquired in the year ending June 30, 1997.
Plant and equipment includes leased assets totalling (pound)946,100 at June 30,
1997.
F-14
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
12. Fixed Assets - Tangible - continued
Capital Commitments
The Company has capital commitments of:
<TABLE>
<CAPTION>
June 30, December 31
1997 1996 1995 1997
(Unaudited)
<S> <C> <C> <C> <C>
Contracted but not provided -- 47,920 450,000 525,000
</TABLE>
Financing commitments have been obtained in order to fund these projects (Note
26).
13. Fixed Assets - Investments
<TABLE>
<CAPTION>
June 30, December 31
1997 1996 1995 1997
(Unaudited)
<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 maximizing returns
in the six months ended June 30, 1996.
14. Debtors
<TABLE>
<CAPTION>
June 30, December 31
1997 1996 1995 1997
(Unaudited)
<S> <C> <C> <C> <C>
Trade Debtors (Note 15) 2,930,964 80,396 5,524 5,388,818
Security Deposits (Note 15) 1,110,744 -- -- 750,000
Sundry debtors 178,012 -- -- 1,077,400
Other taxation and social security 183,242 178,634 35,524 516,034
Prepayments and accrued income 477,498 42,018 13,640 674,020
4,880,460 301,048 54,688 8,406,272
</TABLE>
15. Creditors: Amounts falling due within one year
<TABLE>
<CAPTION>
June 30, December 31
1997 1996 1995 1997
(Unaudited)
<S> <C> <C> <C> <C>
Trade creditors 1,096,051 110,682 55,958 2,578,327
Trade debtor financing 648,247 -- -- --
Other taxation and social security 20,584 29,760 144 200,967
Corporation tax -- -- -- --
Financing due within one year (Note 16) 313,767 78,539 -- 2,129,217
Accruals and deferred income 1,877,792 158,832 13,234 5,093,657
3,956,441 377,813 69,336 10,002,168
</TABLE>
F-15
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
15. Creditors: Amounts falling due within one year - continued
The Company has trade debtor financing available through a bank facility
providing for borrowing 80 percent 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).
Included in accruals at December 31, 1997 (unaudited) are energy purchase
commitments of (pound)3,924,712 which are secured by a letter of credit of
(pound)3,000,000.
16. Creditors: Amounts falling due after more than one year
<TABLE>
<CAPTION>
Due between
Due within two & five Due after
Total one year years five years
<S> <C> <C> <C> <C>
December 31, 1995 -- -- -- --
June 30, 1996
Finance lease - Elswick 908,751 78,539 830,212 --
June 30, 1997
Finance lease - Elswick 775,198 79,422 695,776 --
Finance lease - five generators 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
December 31, 1997 (unaudited)
Construction loan 3,430,000 1,000,000 2,430,000 --
Finance lease - Elswick 745,258 83,660 661,598 --
Finance lease - five generators 4,076,494 479,739 2,428,915 1,167,840
Finance lease - three generators 2,665,500 565,818 1,568,457 531,225
Unsecured loan notes 1,400,000 -- 1,400,000 --
12,317,252 2,129,217 8,488,970 1,699,065
</TABLE>
The finance lease for Elswick was executed on June 20, 1996 for US $1,466,455.
The lease is payable in quarterly payments of US $57,891. The lease is secured
by the generation assets located at the Elswick site. The initial term is five
years and can be extended an additional five years under similar terms. The
Company has the option to purchase the equipment after the first five years for
50% of the original cost of the equipment or after 10 years for US $1.00.
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 indefinitely for an annual rent of (pound)10,958.
The unsecured Loan Notes were issued by IEH in June 1997. The Loan Notes are
repayable in full at December 31, 2002. Interest at 10 percent is payable
quarterly commencing June 30, 1997.
Unaudited as of December 31, 1997
F-16
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
16. Creditors: Amounts falling due after more than one year - continued
The Company entered into a Credit Agreement on September 5, 1997, with Barclays
Bank PLC. The Credit Agreement provides a revolving construction facility of up
to (pound)5,000,000 for five years with repayment in quarterly payments of
(pound)250,000 commencing March 31, 1998. The Credit Agreement is secured by a
debenture on all Company assets other than assets subject to other security
agreements. The interest rate is based on the London Inter-bank rate and is
currently 10.2%. At December 31, 1997 there was a balance outstanding under the
construction facility of (pound)3,430,000.
The Company entered into a finance lease on October 30, 1997, for financing of
(pound)2,665,500 covering three 2,000 KW natural gas generator systems. The
lease is payable in quarterly payments commencing January 31, 1998 in varying
amounts. The primary term of six years can be extended by the Company
indefinitely for an annual rent of (pound)6,664.
17. Provisions for Liabilities and Charges
Deferred taxation
No provisions have been made for deferred taxation in the periods up to June 30,
1997.
<TABLE>
<CAPTION>
June 30, December 31
1997 1996 1995 1997
(Unaudited)
<S> <C> <C> <C>
Capital Allowances 464,721 65,490 -- 750,145
Other timing differences (5,003) -- -- --
Losses offset (459,718) (65,490) -- (750,145)
-- -- -- --
</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.
There is no time limitation on using the accumulated losses for UK tax purposes.
18. Share Capital
a) Year ended June 30, 1997
<TABLE>
<CAPTION>
<S> <C>
Authorized:
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
</TABLE>
In June 1997 1,866,648 ordinary shares of 1p each were issued to private
investors.
In September 1997 2,631,579 ordinary shares were issued (Note 26).
F-17
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
18. Share Capital - continued
b) Six months ended June 30, 1996
<TABLE>
<CAPTION>
Authorized:
<C> <C>
20,000,000 ordinary shares of 1p each 200,000
IEH 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 authorized to
increase the share capital to (pound)200,000.
Issued and fully paid
13,124,800 ordinary shares of 1p each 131,248
Two shares of (pound)1 each (now 200 shares of 1p each) were issued on formation
of IEH 8,124,600 shares of 1p each were issued to acquire IEUK, 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
Authorized
1,000,000 ordinary shares of(pound)1 each 1,000,000
IEUK was incorporated on March 15, 1995, with share capital of 1,000(pound)1
ordinary shares. On 6 April 1995 the authorized share
capital was increased to(pound)1,000,000.
Issued and fully paid
40,623 ordinary shares of(pound)1 each 40,623
</TABLE>
IEUK 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.
In conjunction with the merger, certain loan and trade creditors of Eukan agreed
to convert their debt into equity in IEUK 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-18
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
19. Reserves and Other Shareholders' Funds
As detailed in Note 2 the reporting entity changes from IEU Ltd to IEH plc in
the six months ended June 30, 1996. 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
Premium Reserve Loss Account
<S> <C> <C> <C>
January 1, 1995 68,493 -- (65,517)
Share premium arising on conversion of debt to equity 626,831 -- --
Share premium arising on shares issued in period 1,897,312 -- --
Total called up share capital and share premium accounts of merger companies (68,493) 844,722 --
Issue of IEUK shares in exchange for shares in Elswick, Eukan and IPSCo -- (21,625) --
Elimination of Eukan investment acquired from IPSCo -- (279,151) --
Retained loss for the year -- -- (59,467)
At December 31, 1995 2,524,143 543,946 (124,984)
Share premium arising on share exchange for the acquisition of IEUK 2,066,523 -- --
Share premium arising on private US placement 2,946,858 -- --
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 placement 1,333,481 -- --
Retained loss for the year -- -- (1,181,593)
At June 30, 1997 8,044,482 -- (1,236,827)
Share premium arising on private placement 2,422,332 -- --
Retained loss for the period -- -- (463,954)
At December 31, 1997 (unaudited) 10,466,814 -- (1,700,781)
</TABLE>
* This amount represents the loss from the date of acquisition of June 1, 1996,
due to application of acqusition accounting.
20. Reconciliation of movements in shareholders' funds
<TABLE>
<CAPTION>
June 30, December 31
1997 1996 1995 1997
(Unaudited)
New share capital subscribed for by
<S> <C> <C> <C> <C>
private placement (net of issue costs) 1,352,147 2,964,584 1,906,621 2,448,648
Conversion of debt to equity -- -- 636,520 --
IPSCO share warrants -- -- 32,101 --
New share capital subscribed for by listing on
the Alternative Investment Market -- 1,729,896 -- --
Other (losses)/gains 1,352,147 4,694,480 2,575,242 2,448,648
Profit/(loss) on ordinary activities after tax (1,181,593) (891,193) (59,467) (463,954)
Shareholders' funds at beginning of period 6,787,015 2,983,728 467,953 6,957,569
Shareholders' funds at end of period 6,957,569 6,787,015 2,983,728 8,942,263
</TABLE>
F-19
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
21. Share Option Plan and Share Warrants
The Company 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.
IEUK 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. IEH 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 IEUK.
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 to the Company's nominated broker and financial advisor granted on May
31, 1996.
<TABLE>
<CAPTION>
Weighted
Average Number of
Exercise Price Shares
<S> <C> <C> <C>
At January 1, 1995 -- --
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)
Granted May 31, 1996 82p 2,778,400
At June 30, 1996 and June 30, 1997 82p 2,778,400
</TABLE>
The following table summarizes information regarding share options at June 30,
1997:
<TABLE>
<CAPTION>
Number Weighted Number
Outstanding Average Exercisable
at June 30, Remaining At June 30,
1997 Contract Life 1997
<S> <C> <C> <C>
Exercise Price
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
</TABLE>
<TABLE>
<CAPTION>
The option price range at each period end was as follows:
<S> <C>
December 31, 1994 --
December 31, 1995 (pound) to(pound)200
June 30, 1996 1p to 100p
June 30, 1997 1p to 100p
December 31, 1997 (unaudited) 1p to 100p
</TABLE>
No share options have been exercised or expired during the above periods.
Details of the director's options which are included in the above figures are
shown in Note 5 to the financial statements.
F-20
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
21. Share Option Plan and Share Warrants - Continued
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.
During 1995 stock warrants for 2,500 shares issued in 1992 to the founders and
original directors of IPSCo were exercised at a price of US $20.00 per share
((pound)12.84) or total of (pound)32,101.
22. Employee Bonus Plan
The Company has a Bonus Pool, which is administered by the Remuneration
Committee, and based on an amount equal to:
(i) 10 percent of pre-tax net profit for the years ended June 30, 1996,
1997 and 1998;
(ii) 10 percent of pre-tax net profit in excess of a return on the Company's
equity of 25 percent, in subsequent years. No bonuses have been earned or paid
during any of the periods presented.
23. Company Undertakings
Principal Operating Subsidiary at June 30, 1997 is:
<TABLE>
<CAPTION>
Country of
Name Incorporation Percentage Shareholdings
<S> <C> <C>
Independent Energy UK Limited England Ordinary shares 100%
</TABLE>
In addition, other subsidiary companies (presently dormant) are as follows:
<TABLE>
<CAPTION>
Country of
Name Incorporation Percentage Shareholdings
<S> <C> <C>
I E (Caythorpe) Limited England Ordinary shares 100%
Independent Energy Generation Limited England Ordinary shares 100%
Independent Energy Services Limited England Ordinary shares 100%
Independent Energy Limited England Ordinary shares 100%
Independent Energy Resources Limited England Ordinary shares 100%
</TABLE>
24. Obligations under operating leases
The Company has operating lease rental commitments for agreements that expire
between two and five years, for which:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 December 31, 1997
(Unaudited)
<S> <C> <C> <C>
Amount due within 1 year -Land & Buildings 54,542 31,331 114,542
- Other 50,642 -- 55,562
</TABLE>
There were no operating lease rental commitments for the year ended December 31,
1995.
F-21
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
25. Financial Instruments
The Company enters into Contracts for Differences (CFDs) in order to hedge the
price risk inherent in Pool trading. CFDs are agreements between the Company, as
a purchaser of electricity through the Pool, and generators and traders. As at
June 30, 1997 the CFD in place covers the period from November 1, 1996, to
October 31, 1997. The CFD has a notional value at June 30, 1997 of
(pound)1,236,000 for the remaining volume covered by the contract. The CFD is
settled monthly.
26. Subsequent Events
On September 5, 1997 the Company concluded financial facilities with its
principal bankers, the Barclays Group. The Barclays 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 the Company 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 authorized 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-22
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
27. Analysis of changes in net debt
<TABLE>
<CAPTION>
At Beginning At End
of Period Cash Flows Other Changes of Period
Year Ended December 31, 1995
<S> <C> <C> <C>
Cash at bank and in hand 88,301 1,544,882 -- 1,633,183
Loan due within one year (586,026) (50,494) 636,520 --
Net debt (497,725) 1,494,388 636,520 1,633,183
Six Months Ended June 30, 1996
Cash at bank and in hand 1,633,183 (291,979) -- 1,341,204
Leases due within one year -- 37,349 (115,888) (78,539)
Leases due after more than one year -- (946,100) 115,888 (830,212)
Current asset investment -- 4,300,154 -- 4,300,154
Net debt 1,633,183 3,099,424 -- 4,732,607
Year Ended June 30, 1997
Cash at bank and in hand 1,341,204 581,801 -- 1,923,005
Leases due within one year (78,539) (883) (234,345) (313,767)
Leases due after more than one year (830,212) 441,269 (4,148,982) (4,537,925)
Loans due after more than one year -- (1,400,000) -- (1,400,000)
Current asset investment 4,300,154 (4,300,154) -- --
Net debt 4,732,607 (4,677,967) (4,383,327) (4,328,687)
Six Months Ended December 31, 1997 (Unaudited)
Cash at bank and in hand 1,923,005 132,960 -- 2,055,965
Leases due within one year (313,767) -- (815,450) (1,129,217)
Leases due after more than one year (4,537,925) 39,293 (1,859,403) (6,358,035)
Loans due within one year -- (1,000,000) -- (1,000,000)
Loans due after more than one year (1,400,000) (2,430,000) -- (3,830,000)
Net debt (4,328,687) (3,257,747) (2,674,853) (10,261,287)
</TABLE>
F-23
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
28. Reconciliation of net cash flows to movement in net debt
<TABLE>
<CAPTION>
Year Ended December 31, 1995
<S> <C> <C>
Increase in cash in the period 1,544,882
Cash inflow from increase in debt and lease financing (50,494)
Debt capitalized 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
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
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)
Six Months Ended December 31, 1997 (Unaudited)
Increase in cash in the period 132,960
Cash inflow from increase in loan financing (3,430,000)
Cash inflow from net increase in lease financing (2,635,560)
Movement in net debt (5,932,600)
Net debt at June 30, 1997 (4,328,687)
Net debt at December 31, 1997 (10,261,287)
</TABLE>
F-24
<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, 1995
There were no major non-cash transactions in this year, other than reported
elsewhere herein.
Six Months Ended June 30, 1996
During the period the Company entered into finance lease arrangements in respect
of assets with a total capital value at the inception of the lease of
(pound)946,100.
Year Ended June 30, 1997
During the year the Company entered into finance lease arrangements in respect
of assets with a total capital value at the inception of the lease of
(pound)4,383,327.
Six Months Ended December 31, 1997 (Unaudited)
During the period the Company entered into finance lease arrangements in respect
of assets with a total capital value at the inception of the lease of
(pound)2,665,500.
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 Company 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 realizability, useful lives of assets and
income taxes. Actual results could differ from those estimates.
F-25
<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
The principal differences between UK GAAP and US GAAP are disclosed below:
(a) Statement of Operation Differences
<TABLE>
<CAPTION>
Six Months
Year ended Ended Year Ended Six Months Ended
June 30, June 30, December 31, December 31,
Note 1997 1996 1995 1994 1997 1996
(Unaudited) (Unaudited)
(Loss)/Profit on ordinary activities
<S> <C> <C> <C> <C> <C> <C> <C>
after taxation under UK GAAP (1,181,593) (891,193) (59,467) 58,687 (463,954) (597,202)
US GAAP Adjustments:
Stock based compensation -
Employee Share Option Scheme (i) (188,095) (110,715) -- -- (53,939) (133,639)
Total US GAAP Adjustments (188,095) (110,715) -- -- (53,939) (133,639)
Deferred income taxes (ii) -- -- -- -- -- --
Net effect of US GAAP adjustments (188,095) (110,715) -- -- (53,939) (133,639)
Net (loss)/profit under US GAAP (1,369,688) (1,001,908) (59,467) 58,687 (517,893) (730,841)
Primary (loss) earnings per ordinary share
under US GAAP (iii) (10.4)p (11.1)p (176.8)p 187.4p (3.2)p (5.6)p
</TABLE>
(b) Equity Reconciliation
<TABLE>
<CAPTION>
June 30, December 31,
Note 1997 1996 1995 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Equity under UK GAAP 6,957,569 6,787,015 2,983,728 8,942,263
Stock based deferred compensations (i) (298,810) (110,715) -- (352,749)
Deferred income taxes (ii) -- -- -- --
Acquisition Accounting (iv) -- -- -- --
Net effect of US GAAP adjustments (298,810) (110,715) -- (352,749)
Equity under US GAAP (v) 6,658,759 6,676,300 2,983,728 8,589,514
</TABLE>
F-26
<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
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 recognized 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 IEUK as there was no market value as IEUK was not
listed on a recognized 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:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 December 31, 1997
(Unaudited)
<S> <C> <C> <C>
Net loss applicable to ordinary shares - as reported (1,369,688) (1,001,908) (517,893)
Net loss applicable to ordinary shares - pro forma (1,460,869) (1,207,270) (557,150)
Primary net loss per ordinary share - as reported (10.4)p (11.1)p (3.3)p
Primary net loss per ordinary share - pro forma (11.1)p (13.4)p (3.5)p
</TABLE>
The fair value of each option grant is calculated using the following weighted
average assumptions
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
<S> <C>
Expected life (years) 3.42
Interest rate 6.00%
Volatility 10.58%
Dividend yield 0.00%
</TABLE>
(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 recognized 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 recognized 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 realized.
The Company has significant losses amounting to approximately (pound)5,100,000
at 30 June 1997, available to relieve future tax on profits. There is no time
limitation on using these losses for UK tax purposes.
F-27
<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
(ii) Deferred Taxation - continued
In recording these net tax deferred assets, FAS 109 requires the Company to
determine whether it is "more likely than not" that the Company will realize
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 realizing such
benefits. Even though management believes the Company 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 believes that it
would be prudent to make a valuation allowance to offset the net deferred tax
assets.
(iii) Net (Loss)/Income per share
The differences between UK GAAP and US GAAP for calculating fully diluted
earnings (loss) per share is not shown since the effect is antidilutive.
(iv) Acquisition Accounting
The acquisition by IEH of IEUK on May 31, 1996 was accounted for under UK GAAP
using acquisition accounting principles, which are substantially the same as the
purchase method of accounting under US GAAP. The transaction under US GAAP
should be accounted for in a manner similar to the pooling of interest method.
The difference between the two accounting methods has the effect on the Balance
Sheets prepared under US GAAP of a reclassification within shareholders equity
of reinstating losses of (pound)499,960 to the profit and loss account and
increase the capital stock accounts. There is no effect on total shareholders
equity or on the statements of operations or cash flow.
(v) US GAAP Equity Roll Forward
Shareholders equity roll forward in accordance with US GAAP:
<TABLE>
<CAPTION>
June 30, December 31,
Note 1997 1996 1995 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period 6,676,300 2,983,728 467,953 6,658,759
Other (losses)/gains 20 1,352,147 4,694,480 2,575,242 2,448,648
Net (loss)/income (1,369,688) (1,001,908) (59,467) (517,893)
Balance at end of period 6,658,759 6,676,300 2,983,728 8,589,514
</TABLE>
31. Additional US GAAP Disclosure Requirements
(a) Cash Flow Information
The consolidated cash flow statements are prepared in conformity with UK GAAP
areas set out on page F-6. The principal differences between these statements
and cash flow statements prepare 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.
F-28
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
31. Additional US GAAP Disclosure Requirements - continued
A summary of the Company'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>
Six Months
Year ended Ended Year Ended Six Months Ended
June 30, June 30, December 31, December 31,
1997 1996 1995 1994 1997 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash (used in) operating activities (2,270,614) (442,757) (71,391) (33,817) (644,075) (2,133,458)
Cash (used in)/provided by financing activities 2,311,761 4,657,131 1,989,216 252,174 5,839,355 (37,535)
Cash (used in)/provided by investing activities 540,654 (4,506,353) (372,943) (166,850) (5,062,320) (663,898)
Net increase/(decrease) in cash and deposits
with banks 581,801 (291,979) 1,544,882 51,507 132,960 (2,834,891)
Balance at beginning of period 1,341,204 1,633,183 88,301 36,794 1,923,005 5,641,358
Balance at end of period 1,923,005 1,341,204 1,633,183 88,301 2,055,965 2,806,467
</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-29
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
31. Additional US GAAP Disclosure Requirements - continued
(ii) The amount of taxes and interest paid, net of capitalized interest,
during the periods is:
<TABLE>
<CAPTION>
Six Months
Year ended Ended Year Ended Six Months Ended
June 30, June 30, December 31, December 31,
1997 1996 1995 1994 1997 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest, net of capitalization 80,862 -- -- 806 43,254 53,820
Income taxes -- -- 3,424 -- -- --
</TABLE>
(b) Deferred Taxation
<TABLE>
<CAPTION>
June 30, December 31
1997 1996 1995 1997
(Unaudited)
<S> <C> <C> <C> <C>
Deferred tax liability
Non current
Fixed asset 464,721 65,490 -- 750,145
Current
Other 5,003 -- -- --
Total deferred tax liabilities 469,724 65,490 -- 750,145
Deferred tax assets
Non current
Fixed asset -- -- 1,045 --
Current
Losses 1,590,849 516,834 231,680 2,180,408
Total deferred tax assets 1,590,849 516,834 232,725 2,180,408
Valuation allowance (1,121,125) (451,344) (232,725) (1,430,263)
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:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1995 3,053,064
June 30, 1996 7,995,040
June 30, 1997 16,851,935
December 31, 1997 (Unaudited) 29,132,466
</TABLE>
F-30
<PAGE>
Independent Energy Holdings plc
o 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:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1995 3,143,144
June 30, 1996 8,333,378
June 30, 1997 17,226,966
December 31, 1997 (Unaudited) 29,528,672
</TABLE>
Long term liabilities prepared in accordance with US GAAP were as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1995 90,080
June 30, 1996 1,279,265
June 30, 1997 6,611,766
December 31, 1997 (Unaudited) 10,936,990
</TABLE>
d) Commitments Under Operating Leases
The Company's commitments under operating leases as at June 30, 1997 are as
follows:
<TABLE>
<CAPTION>
Operating leases which expire:
<S> <C> <C>
1998 103,801
1999 77,049
2000 61,992
2001 58,892
2002 50,580
352,314
</TABLE>
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.
The CFD's for hedging of pool purchases notional value at June 30, 1997 is
(pound)1,236,000 based on volume remaining under the cfd contract.
F-31
<PAGE>
Independent Energy Holdings plc
Notes to the Consolidated Financial Statements
31. Additional US GAAP Disclosure Requirements - continued
f) Reconciliation of tax charge to statutory rate on losses
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995 1997
(Unaudited)
<S> <C> <C> <C> <C>
(Loss) per the financial statements (1,181,593) (891,193) (65,043) (463,954)
Expected tax (credit) charge at the
statutory rate (366,294) (293,131) (21,464) (143,826)
Increase in deferred tax liability (394,228) (65,490) (2,327) (285,424)
Actual tax charge on continuing activities -- -- -- --
Difference to reconcile (760,522) (358,621) (23,791) (429,250)
Deferred tax asset not recognized (958,203) (285,450) (128,269) (615,084)
Intangible asset tax allowances 212,411 79,011 104,478 185,834
Inadmissible expenditure (14,730) (58) -- --
Capital loss not included as a deferred
tax asset -- (152,124) -- --
(760,522) (358,621) (23,791) (429,250)
</TABLE>
A reconciliation has not been provided for the year 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-32
<PAGE>
